LIBBEY INC. 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2007
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 1-12084
LIBBEY INC.
(Exact name of registrant as specified in its charter)
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Delaware
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34-1559357 |
(State or Other Jurisdiction of
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(IRS Employer |
Incorporation or Organization)
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Identification No.) |
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300 Madison Avenue, Toledo, Ohio
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43604 |
(Address of Principal Executive Offices)
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(Zip Code) |
(419) 325-2100
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange on |
Title of Each Class
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Which Registered |
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Common Stock, $.01 par value
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New York Stock Exchange |
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 o No þ
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 o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark 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 registrants 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 o
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Accelerated Filer þ
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Non-Accelerated Filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act. Yes o No þ
The aggregate market value (based on the consolidated tape closing price on June 29, 2007) of
the voting stock beneficially held by non-affiliates of the registrant was approximately
$308,374,534. 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 29, 2008 was 14,596,691.
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 registrants Proxy Statement for the Annual Meeting of
Shareholders to be held May 16, 2008 (Proxy Statement).
Certain information required by Part II of this Form 10-K is incorporated by reference from
registrants 2007 Annual Report to Shareholders where indicated.
This Annual Report on Form 10-K, including Managements 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
ITEM 1. BUSINESS
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 customers in 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, business-to-business and industrial
markets. Through our subsidiary B.V. Koninklijke Nederlandsche Glasfabriek Leerdam (Royal Leerdam),
we manufacture and market high-quality glass stemware under the Royal Leerdam® brand
name. Through our subsidiary Crisal-Cristalaria Automática S.A. (Crisal), we manufacture glass
tableware in Portugal and market it worldwide. We also manufacture and market ceramic dinnerware
under the Syracuse® China brand name through our subsidiary Syracuse China. Through our
World Tableware subsidiary, we import and sell metal flatware, hollowware and serveware and ceramic
dinnerware. 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 Crisa subsidiary that
goes to market under the Crisa® brand name. We have a new state-of-the-art glass
tableware manufacturing facility in China that has been operational since the first quarter of
2007. See note 21 to the Consolidated Financial Statements for segment information.
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 and construction of our new glass tableware manufacturing facility in
China in 2006, we focused on internal growth and positioning Libbey to improve its capital
structure during 2007.
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 400 distinct new shapes worldwide in 2007, 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 provide 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 except to continue to grow rapidly.
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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. Our subsidiary Royal Leerdam sells high-quality
stemware. Crisal sells glass tableware, mainly tumblers, stemware and glassware accessories.
Crisas 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 industrial glassware sold principally to original equipment manufacturers.
Through our Syracuse China and World Tableware subsidiaries, we sell 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.
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 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 industrial
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 approximately 60 distributors and
decorators that service the 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 80 percent of our sales are to customers located in North America, and 20
percent of our sales are to customers located outside of North America. For segment information for
the last three fiscal years, see note 21 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.
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; for our World Tableware and Traex products in West Chicago, Illinois; and for our
glass tableware products in Mira Loma, California. 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.
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The majority of our sales are in the foodservice, retail, business-to-business and industrial
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. 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
expanded retail representation, we are better 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.
Industrial
We are a major supplier of glassware for industrial markets in the U.S. and Mexico.
Industrial uses primarily include 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
industrial consumers of glassware. We have expanded our sales to industrial users by offering
ceramic and metalware items.
Seasonality
Primarily due to the impact of consumer buying patterns and production activity, our 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, 2007, our backlog was approximately $41.4 million, compared to
approximately $41.1 million at December 31, 2006. 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. Additionally, we own and operate a ceramic dinnerware plant in Syracuse, New
York, and a plastics plant in Dane, Wisconsin. 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 new glass tableware production facility in Langfang, China, from which we
began shipping product in March 2007.
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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 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 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
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.
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 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. During the last three years, our expenditures on research and development activities
related to new and/or improved products and processes were $1.5 million in 2007, $2.3 million in
2006, and $2.4 million in 2005. 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.
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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 and foodservice customers worldwide; |
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Anchor Hocking and Indiana Glass Company (both of which are owned by Monomoy Capital
Partners, L.P.), which manufacture and distribute glass beverageware, industrial products,
and bakeware primarily to retail, foodservice and industrial markets. |
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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. |
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. |
Competitors in metalware include:
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Oneida Ltd.; |
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Walco, Inc.; and |
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Various sourcing companies. |
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 Libbeys
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 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 Companys 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 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.
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
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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 Californias 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 2007. 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.
We employed approximately 7,442 persons at December 31, 2007. 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, 2008. The agreement with our unionized employees at
our Syracuse China facility expires on May 15, 2009. The agreement covering approximately 30
hourly employees at our Mira Loma, California distribution center expires on November 15, 2009, and
agreements with our unionized employees in Toledo, Ohio expire on September 30, 2010. Crisas
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 Leerdams collective bargaining agreement with its unionized employees
expires on July 1, 2008.
ITEM 1A. RISK FACTORS
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.
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
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September 11, 2001. In addition, demand for glassware in some of the industrial markets that
we supply has declined in recent years. This decline is due, in part, to a decrease in retail sales
of candle items by candle item manufacturers for whom we supply glassware. Demand for glassware
with external enamel decorations that we supply to the foodservice, retail and premium channels and
for undecorated glassware that buyers decorate and redistribute to retail and industrial customers
also has decreased as a result of marketplace confusion related to Californias Proposition 65.
Proposition 65 requires that clear and reasonable warnings be given in connection with the sale or
distribution of products that expose consumers to certain chemicals, such as the lead contained in
some enamels used to decorate glassware, that the State of California has determined either are
carcinogenic or pose a risk of reproductive toxicity. We have received claims from retailers for
indemnification in litigation relating to Proposition 65, and, in order to avoid litigation
expenses, we have agreed to pay an immaterial amount to settle one such claim. Further declines in
these sectors may lead to continued adverse effect on our results of operations. The long-term
effects of events or trends such as these could include, among other things, a protracted decrease
in demand for our products. These effects, depending on their scope and duration, which we cannot
predict at this time, could significantly impact our results of operations and financial condition.
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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Anchor Hocking and Indiana Glass Company (both of which are owned by Monomoy Capital
Partners, L.P.), which manufacture and distribute glass beverageware, industrial products
and bakeware to retail, foodservice and industrial 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. |
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 and ceramic 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
10
in the candle category. Competitive pressures from these competitors and producers could
adversely affect our results of operations and financial condition.
International economic and political factors could affect demand for imports and exports, and our
financial condition and results of operations could be adversely impacted as a result.
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 countrys 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 range
of tariff rates applicable to glass tableware products that are imported into the U.S. and are of
the type we manufacture in North America is approximately 21.0 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 Organizations Doha round of
negotiations, 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 businesses we acquire.
On June 16, 2006, we completed the acquisition of Vitros 51 percent equity interest in Crisa,
bringing our ownership in Crisa to 100 percent. The acquisition of Crisa and 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 managements 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 of Vitro to provide necessary transition services to Crisa, including the
services of a general manager, 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. |
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.
11
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, 2007, we had forward contracts in place to hedge approximately 50 percent
of our estimated 2008 natural gas needs with respect to our North American manufacturing facilities
and approximately 28 percent of our estimated 2008 natural gas needs with respect to our
international manufacturing facilities. For the years ended December 31, 2007 and 2006, including
Crisa on a pro forma basis for 2006, we spent approximately $60.6 million and $53.3 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, clay, 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 $14.4 million and $14.8 million for the years ended
December 31, 2007 and 2006, respectively. Changes in the equity and debt securities markets affect
our pension plan asset performance and related pension expense. Sensitivity to these key market
risk factors is as follows:
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A change of 1 percent in the discount rate would change our total pension expense by
approximately $1.3 million. |
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A change of 1 percent in the expected long-term rate of return on plan assets would
change total pension expense by approximately $2.6 million based on year-end data. |
Because the market rate for high-quality fixed income investments is higher than in 2006, our
assumed discount rate has been increased from a range of 5.82 percent to 5.91 percent in 2006 to a
range of 6.16 percent to 6.32 percent in 2007 for our U.S. pension and postretirement welfare
plans. A higher discount rate decreases the present value of benefit obligations and decreases
pension expense. We had significant nonpension postretirement obligations in the U.S. and Canada,
totaling $49.2 million and $41.7 million, at December 31, 2007 and December 31, 2006, respectively.
None of those non-pension postretirement obligations is funded. A change of 1 percent in the
discount rate changes our nonpension postretirement expense by $0.3 million.
As part of our pension expense, we incurred pension settlement charges of $2.0 million in 2006
and pension curtailment charges of $4.9 million during 2005. These charges were triggered by excess
lump sum distributions taken by employees. For further discussion, see notes 10 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 plans, which could have a material adverse effect on our
results of operations and financial condition.
12
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 $43.1 million for the year ended December 31, 2007, and $73.6
million for the year ended December 31, 2006. Our capital expenditures associated with Crisas
operations include approximately $1.5 million and $11.4 million in 2007 and 2006, respectively,
relating to capacity rationalization as we consolidate Crisas two manufacturing facilities into a
single facility. In addition, we incurred capital expenditures of approximately $9.3 million and
$36.9 million, as of December 31, 2007 and December 31, 2006, respectively, related to construction
of our facility in China.
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. For example, in 2005, we liquidated
approximately $13.0 million of inventory at reduced margins and slowed production in certain areas
of our operations in order to reduce our inventory levels. 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, as we did in 2005, 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 face shutdowns as the result of not obtaining 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.
An inability to meet targeted production and profit margin goals in connection with the operation
of our new production facility in China could result in significant additional costs or lost
sales.
We incurred startup losses in connection with the operation of our new facility in China. We
intend to use this production facility to supply China and the rest of the Asia-Pacific market and
to improve our competitive position in that region. We began production of glass tableware at this
facility in early 2007.
If we are unable to meet targeted production and profit margin goals in connection with the
operation of our Chinese facility, our profits could be reduced, which would adversely affect our
results of operations and financial condition.
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, 2008. The agreement with our unionized employees at our Syracuse China facility expires on May
15, 2009. The agreement with the approximately 30 hourly employees at our Mira Loma,
13
California distribution center expires on November 15, 2009 and agreements with our unionized
employees in Toledo, Ohio expire on September 30, 2010. Crisas 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 Leerdams
collective bargaining agreement with its unionized employees expires on July 1, 2008.
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; |
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hyperinflation in certain foreign countries; and |
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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.
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 approximately 3.8 percent for 2007, 4.0 percent for 2006 and 3.3 percent for 2005, Mexico has historically experienced high levels of inflation and high domestic interest rates. If Mexico
experiences high levels of inflation, Crisas operating results and cash flows could be adversely
14
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 were to
appreciate against the euro, the Mexican peso or the RMB, the purchasing power of those currencies
effectively would be reduced against the U.S. dollar, 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
would increase 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 Crisas
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.
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.
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 transactions denominated in a currency other than the U.S.
dollar. 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
15
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.
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
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.
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, 2007, we had $496.6 million of
debt outstanding, net of discounts and warrants, of which approximately $7.4 million consisted of
debt secured by a first-priority lien on our assets and $427.3 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, 2007, we had borrowed $7.4 million, with another $8.4
million of availability being used for outstanding letters of credit. As a result of borrowing base
limitations, an additional $89.7 million was immediately available for borrowing. We have a loan
(RMB Loan Contract) in the amount of RMB 250 million (approximately $34.3 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, 2007, 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 $6.9 million) from CCBC
to finance the working capital needs of our China facility (RMB Working Capital Loan). As of
December 31, 2007, we had borrowed the entire amount available under that line of credit. In
January 2007, we entered into an 11 million euro loan (approximately $16.0 million) with Banco
Espirito Santo, S.A. (BES Euro Line). As of December 31, 2007, we had borrowed 10.8 million
euros available under that line of credit. Our ABL Facility, the indenture
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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 under certain circumstances. See Managements 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 pay dividends. |
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
17
ITEM 2. PROPERTIES
The following information sets forth the location and size of our principal facilities at
December 31, 2007:
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Square Feet |
Location |
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Owned |
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Leased |
Toledo, Ohio: |
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Manufacturing |
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974,000 |
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Warehousing/Distribution |
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988,000 |
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305,000 |
|
Shreveport, Louisiana: |
|
|
|
|
|
|
|
|
Manufacturing |
|
|
494,000 |
|
|
|
|
|
Warehousing/Distribution |
|
|
165,000 |
|
|
|
646,000 |
|
Syracuse, New York: |
|
|
|
|
|
|
|
|
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 |
|
|
|
585,000 |
|
Leerdam, Netherlands: |
|
|
|
|
|
|
|
|
Manufacturing |
|
|
162,000 |
|
|
|
|
|
Warehousing/Distribution |
|
|
111,000 |
|
|
|
326,000 |
|
Mira Loma, California: |
|
|
|
|
|
|
|
|
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 |
|
|
430,000 |
|
|
|
|
|
Warehousing/Distribution |
|
|
215,000 |
|
|
|
|
|
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. We believe that
all of our facilities are well maintained and adequate for our planned operational requirements.
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
18
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers have a wealth of business knowledge, experience and commitment to
Libbey. In 2007, each of Mr. Meier, Chairman of the Board and Chief Executive Officer, and Mr.
Reynolds, Executive Vice President and Chief Operating Officer, celebrated 37 years of service with
Libbey. In addition, the average years of service of all of our executive officers is 17 years.
|
|
|
Name and Title |
|
Professional Background |
|
John F. Meier
Chairman and Chief
Executive Officer
|
|
Mr. Meier, 60, 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., Libbeys 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, 61, has served as
Libbeys Executive Vice President and
Chief Operating Officer since 1995.
Mr. Reynolds was Libbeys 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, 53, 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. |
|
|
|
Jonathon S. Freeman
Vice President, Global Supply
Chain
|
|
Mr. Freeman, 46, 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. |
|
|
|
Kenneth G. Wilkes
Vice President,
General Manager
International Operations
|
|
Mr. Wilkes, 50, 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, 45, 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
Libbeys 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. |
19
|
|
|
Name and Title |
|
Professional Background |
|
Kenneth A. Boerger
Vice President
and Treasurer
|
|
Mr. Boerger, 49, 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 Companys financial matters since
1980, when he joined Owens-Illinois,
Inc., Libbeys former parent company. |
|
|
|
Daniel P. Ibele
Vice President,
General Sales Manager, North America
|
|
Mr. Ibele, 47, 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, 50, 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, 48, 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,
a large, Detroit-based law firm, 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 from 1995 through November
1997 and an associate in Dykema from
1985 to 1995. |
20
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS 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 Companys common stock as reported by the New York Stock Exchange and
dividends declared for our common stock were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
Cash |
|
|
Price Range |
|
Dividend |
|
Price Range |
|
Dividend |
|
|
High |
|
Low |
|
Declared |
|
High |
|
Low |
|
Declared |
First Quarter |
|
$ |
14.28 |
|
|
$ |
11.17 |
|
|
$ |
0.025 |
|
|
$ |
12.19 |
|
|
$ |
6.85 |
|
|
$ |
0.025 |
|
Second Quarter |
|
$ |
24.65 |
|
|
$ |
13.98 |
|
|
$ |
0.025 |
|
|
$ |
15.58 |
|
|
$ |
5.91 |
|
|
$ |
0.025 |
|
Third Quarter |
|
$ |
24.06 |
|
|
$ |
13.76 |
|
|
$ |
0.025 |
|
|
$ |
11.75 |
|
|
$ |
5.90 |
|
|
$ |
0.025 |
|
Fourth Quarter |
|
$ |
19.32 |
|
|
$ |
14.28 |
|
|
$ |
0.025 |
|
|
$ |
12.53 |
|
|
$ |
10.33 |
|
|
$ |
0.025 |
|
The closing market price of our common stock on March 3, 2008 was $15.46 per share.
On
March 3, 2008, there were 832 registered common shareholders of record. We have paid a
regular quarterly cash dividend since our Initial Public Offering in 1993. The declaration of
future dividends is within the discretion of the Board of Directors of Libbey and will depend 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 & Poors 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 & Poors Housewares & Specialties Index, a
capitalization-weighted index that measures the performance of the housewares sector of the
Standard & Poors 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 the same peer group that we use
for executive compensation benchmarking purposes. 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.
The graph assumes a $100 investment in our common stock on January 1, 2003, 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, 2003. The value of these investments on December
31 of each year from 2003 through 2007 is shown in the table below the graph.
TOTAL SHAREHOLDER RETURN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANNUAL RETURN PERCENTAGE |
|
|
|
Years Ending |
|
Company Name / Index |
|
Dec03 |
|
|
Dec04 |
|
|
Dec05 |
|
|
Dec06 |
|
|
Dec07 |
|
Libbey
Inc. |
|
|
11.27 |
|
|
|
-20.64 |
|
|
|
-52.89 |
|
|
|
21.97 |
|
|
|
29.12 |
|
S&P
SmallCap 600 Index |
|
|
38.79 |
|
|
|
22.65 |
|
|
|
7.68 |
|
|
|
15.12 |
|
|
|
-0.30 |
|
Russell
2000 Index |
|
|
47.25 |
|
|
|
18.33 |
|
|
|
4.55 |
|
|
|
18.37 |
|
|
|
-1.57 |
|
S&P
600 Housewares & Specialties |
|
|
11.39 |
|
|
|
-2.68 |
|
|
|
-37.48 |
|
|
|
10.07 |
|
|
|
8.57 |
|
Peer
Group |
|
|
44.93 |
|
|
|
22.07 |
|
|
|
-5.85 |
|
|
|
14.43 |
|
|
|
17.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDEXED RETURNS |
|
|
|
Base |
|
|
Years Ending |
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Name / Index |
|
Dec02 |
|
|
Dec03 |
|
|
Dec04 |
|
|
Dec05 |
|
|
Dec06 |
|
|
Dec07 |
|
Libbey Inc. |
|
|
100 |
|
|
|
111.27 |
|
|
|
88.30 |
|
|
|
41.60 |
|
|
|
50.73 |
|
|
|
65.51 |
|
S&P SmallCap 600 Index |
|
|
100 |
|
|
|
138.79 |
|
|
|
170.22 |
|
|
|
183.30 |
|
|
|
211.01 |
|
|
|
210.38 |
|
Russell 2000 Index |
|
|
100 |
|
|
|
147.25 |
|
|
|
174.24 |
|
|
|
182.18 |
|
|
|
215.64 |
|
|
|
212.26 |
|
S&P 600 Housewares &
Specialties |
|
|
100 |
|
|
|
111.39 |
|
|
|
108.40 |
|
|
|
67.77 |
|
|
|
74.60 |
|
|
|
80.99 |
|
Peer Group |
|
|
100 |
|
|
|
144.93 |
|
|
|
176.91 |
|
|
|
166.56 |
|
|
|
190.59 |
|
|
|
223.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
1,520,296 |
|
|
$ |
24.67 |
|
|
|
1,458,271 |
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,520,296 |
|
|
$ |
24.67 |
|
|
|
1,458,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This total includes 988,824 securities that are available for grant
under the Libbey Inc. 2006 Omnibus Incentive Plan and 469,447
securities that are available under the Libbey Inc. 2002 Employee
Stock Purchase Plan (ESPP). See note 15 to the Consolidated Financial
Statements for further disclosure with respect to these plans. |
Issuer Purchases of Equity Securities
Following is a summary of the 2007 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, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
November 1 to November 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
December 1 to December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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. |
21
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data is incorporated by reference to our 2007
Annual Report to Shareholders.
ITEM 7. MANAGEMENTS 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.
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
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 North American glass tableware manufacturers. 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,
business-to-business and industrial 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 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.
We are committed to executing a transformation and 2007 was a year of significant
accomplishments:
|
|
|
The start-up of our new glassware plant in Langfang, China. |
|
|
|
|
The successful execution of Project Tiger involving the closing of a factory and the
rationalization of production in Mexico. |
|
|
|
|
The continuation of our LEAN Transformation. |
|
|
|
Very strong retail and international sales growth. |
|
|
|
|
Delivery of four strong quarters of financial performance. |
22
RESULTS OF OPERATIONS
The following table presents key results of our operations for the years 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
except percentages and |
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
Variance |
per-share amounts |
|
|
|
|
|
|
|
|
|
In |
|
In |
|
|
|
|
|
|
|
|
|
In |
|
In |
Year end December 31, |
|
2007 |
|
2006(2) |
|
dollars |
|
percent |
|
2006(2) |
|
2005(3) |
|
dollars |
|
percent |
Net sales |
|
$ |
814,160 |
|
|
$ |
689,480 |
|
|
$ |
124,680 |
|
|
|
18.1 |
% |
|
$ |
689,480 |
|
|
$ |
568,133 |
|
|
$ |
121,347 |
|
|
|
21.4 |
% |
Gross profit |
|
$ |
157,669 |
|
|
$ |
123,164 |
|
|
$ |
34,505 |
|
|
|
28.0 |
% |
|
$ |
123,164 |
|
|
$ |
86,542 |
|
|
$ |
36,622 |
|
|
|
42.3 |
% |
Gross profit margin |
|
|
19.4 |
% |
|
|
17.9 |
% |
|
|
|
|
|
|
|
|
|
|
17.9 |
% |
|
|
15.2 |
% |
|
|
|
|
|
|
|
|
Income (loss) from
operations (IFO) |
|
$ |
66,101 |
|
|
$ |
19,264 |
|
|
$ |
46,837 |
|
|
|
243.1 |
% |
|
$ |
19,264 |
|
|
$ |
(8,917 |
) |
|
$ |
28,181 |
|
|
|
316.0 |
% |
IFO margin |
|
|
8.1 |
% |
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
2.8 |
% |
|
|
(1.6 |
)% |
|
|
|
|
|
|
|
|
Earnings (loss) before
interest and income taxes
after minority interest (EBIT)(1) |
$ |
74,879 |
|
|
$ |
17,948 |
|
|
$ |
56,931 |
|
|
|
317.2 |
% |
|
$ |
17,948 |
|
|
$ |
(10,484 |
) |
|
$ |
28,432 |
|
|
|
271.2 |
% |
EBIT margin |
|
|
9.2 |
% |
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
2.6 |
% |
|
|
(1.8 |
)% |
|
|
|
|
|
|
|
|
Earnings before interest,
taxes, depreciation, and
amortization after
minority interest
(EBITDA)(1) |
|
$ |
116,451 |
|
|
$ |
53,504 |
|
|
$ |
62,947 |
|
|
|
117.6 |
% |
|
$ |
53,504 |
|
|
$ |
21,733 |
|
|
$ |
31,771 |
|
|
|
146.2 |
% |
EBITDA margin |
|
|
14.3 |
% |
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
7.8 |
% |
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,307 |
) |
|
$ |
(20,899 |
) |
|
$ |
18,592 |
|
|
|
89.0 |
% |
|
$ |
(20,899 |
) |
|
$ |
(19,355 |
) |
|
$ |
(1,544 |
) |
|
|
(8.0 |
)% |
Net (loss) income margin |
|
|
(0.3 |
%) |
|
|
(3.0 |
%) |
|
|
|
|
|
|
|
|
|
|
(3.0 |
%) |
|
|
(3.4 |
)% |
|
|
|
|
|
|
|
|
Diluted net loss per share |
|
$ |
(0.16 |
) |
|
$ |
(1.47 |
) |
|
$ |
1.31 |
|
|
|
89.1 |
% |
|
$ |
(1.47 |
) |
|
$ |
(1.39 |
) |
|
$ |
(0.08 |
) |
|
|
(5.8 |
)% |
|
|
|
(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 $23.4 million related to Crisas
capacity rationalization Project Tiger and write-off of finance
fees (see note 10). |
|
(3) |
|
Includes pre-tax special charges of $27.2 million related to North
American salaried workforce reduction, closing of City of Industry,
California manufacturing facility, asset impairments and an inventory
write-down at Syracuse China and pension settlement charges (see note
10). |
Discussion of 2007 vs. 2006 Results of Operations
Net Sales
In 2007, sales increased 18.1 percent, including a favorable currency impact of 1.4 percent,
to $814.2 million from $689.5 in 2006. The increase in net sales was primarily attributable to the
full year consolidation of Crisa, the Companys 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, which includes the commencement of shipments from
Libbeys 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.
23
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
Crisas 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 operation 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.
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.
Discussion of 2006 vs. 2005 Results of Operations
Net Sales
In 2006, sales increased 21.4 percent to $689.5 million from $568.1 million in 2005. The
increase in sales was primarily attributable to the consolidation of the sales of Crisa, increases
of more than 6.0 percent in shipments to foodservice glassware customers and increases of over
9.0 percent to retail glassware customers. Shipments of Traex products and World Tableware products
increased over 8.0 percent. Royal Leerdam and Crisal also experienced increased shipments in 2006
of approximately 15.0
24
percent. However, shipments to industrial customers were down 7.0 percent, and shipments of
Syracuse China products were down 2.4 percent during 2006.
Gross Profit
Gross profit increased in 2006 by $36.6 million, or 42.3 percent, compared to 2005. Gross
profit as a percentage of net sales increased to 17.9 percent in 2006, compared to 15.2 percent in
2005. Gross profit, excluding special charges, was $125.3 million for 2006, compared to
$88.5 million for 2005, representing an increase of $36.8 million or 41.6 percent. As a percentage
of net sales, gross profit, excluding special charges, for 2006 was 18.2 percent, compared to
15.6 percent for 2005. Contributing to the increase in gross profit, excluding special charges,
were the consolidation of Crisa, higher overall sales and higher production activity in both the
United States and Europe, offset by increased expenses for pension and retiree medical benefits and
natural gas, higher distribution expenses related to the increased sales, and the warehouse
management software implementation issues at our Toledo facility. For a reconciliation of gross
profit to gross profit, excluding special charges, see Reconciliation of Non-GAAP Financial
Measures below.
Income (loss) from operations
Income from operations was $19.3 million in 2006, compared to a loss from operations of
$8.9 million in 2005. Income from operations as a percentage of net sales increased to 2.8 percent
in 2006, compared to (1.6) percent in 2005. Income from operations, excluding special charges, was
$37.8 million for 2006, compared to $18.3 million for 2005, representing an increase of
$19.4 million, or 106.1 percent. As a percentage of net sales, income from operations, excluding
special charges, for 2006 was 5.5 percent, compared to 3.2 percent for 2005. Selling, general and
administrative expenses, excluding special charges, increased by $17.4 million from 2005 to 2006,
and represented 12.7 percent of net sales for 2006, compared to 12.4 percent of net sales for 2005.
The increase in selling, general and administrative expenses primarily related to the consolidation
of Crisa, the new accounting rules with respect to equity compensation expense, accrued profit
sharing based on the improved financial results, and start-up costs for our new facility in China.
For a reconciliation of income from operations, to income from operations, excluding special
charges, see Reconciliation of Non-GAAP Financial Measures below.
Earnings (loss) before interest and income taxes (EBIT)
Earnings before interest and income taxes increased by $28.4 million, from $(10.5) million in
2005 to $17.9 million in 2006. EBIT as a percentage of net sales increased to 2.6 percent in 2006,
compared to (1.8) percent in 2005. EBIT, excluding special charges, was $36.4 million for 2006,
compared to $16.8 million for 2005, representing an increase of $19.6 million or 116.7 percent. As
a percentage of net sales, EBIT, excluding special charges, for 2006 was 5.3 percent, compared to
3.0 percent for 2005. EBIT, excluding special charges, increased due to the increase in income from
operations, excluding special charges, and an increase in pretax equity earnings from Crisa of
$6.1 million as a result of higher sales, higher translation gain, and lower natural gas and
electricity expenses. Partially offsetting these improvements was an increase in other expense of
$5.8 million, primarily attributable to an increase in our natural gas contracts (note 16) and
translation losses. For a reconciliation of EBIT to net loss and a reconciliation
of EBIT, excluding special charges, see Reconciliation of Non-GAAP Financial Measures below.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
EBITDA increased by $31.8 million, or 146.2 percent, from $21.7 million in 2005 to
$53.5 million in 2006. As a percentage of net sales, EBITDA was 7.8 percent in 2006, compared to
3.8 percent in 2005. EBITDA, excluding special charges, was $72.0 million for 2006, compared to
$49.0 million for 2005, representing an increase of $23.0 million or 47.0 percent. As a percentage
of net sales, EBITDA, excluding special charges, for 2006 was 10.4 percent, compared to 8.6 percent
for 2005. The increase in EBITDA, excluding special charges, is attributable to the factors
described above with respect to EBIT, excluding special charges, and to an increase in depreciation
and amortization in 2006 resulting from higher capital expenditures and the consolidation of Crisa.
For a reconciliation of EBITDA to net loss and a reconciliation of EBITDA, excluding
special charges, see Reconciliation on Non-GAAP Financial Measures below.
Net loss and diluted loss per share
We reported a net loss of $20.9 million, or loss of $1.47 per diluted share, in 2006, compared
to a net loss of $19.4 million, or loss of $1.39 per diluted share, in 2005. Net loss as a
percentage of net sales was (3.0) percent, compared to (3.4) percent in 2005. Net loss, excluding
special charges, increased by $4.9 million from $1.1 million in 2005 to $(3.8) million in 2006. Net
loss increased in 2006 as the result of increased interest expense of $31.3 million, partially
offset by the increase in EBIT described above. The increase in
25
interest expense is the result of the refinancing consummated on June 16, 2006. Contributing
to the increase in interest expense was a write-off of $4.9 million of financing fees associated
with debt retired during 2006, as well as higher debt and higher average interest rates. See
further discussion under Borrowings below. The effective tax rate increased to 27.1 percent
during 2006 from 24.8 percent in 2005. This change in the rate was primarily attributable to the
Crisa acquisition and related financing.
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 |
|
Dollars in Thousands, Except Percentages |
|
|
|
|
|
|
|
|
|
In |
|
|
In |
|
|
|
|
|
|
|
|
|
|
In |
|
|
In |
|
Year End December 31, |
|
2007 |
|
|
2006 |
|
|
Dollars |
|
|
Percent |
|
|
2006 |
|
|
2005 |
|
|
Dollars |
|
|
Percent |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
568,495 |
|
|
$ |
476,696 |
|
|
$ |
91,799 |
|
|
|
19.3 |
% |
|
$ |
476,696 |
|
|
$ |
365,037 |
|
|
$ |
111,659 |
|
|
|
30.6 |
% |
North American Other |
|
|
121,217 |
|
|
|
114,581 |
|
|
|
6,636 |
|
|
|
5.8 |
% |
|
|
114,581 |
|
|
|
109,945 |
|
|
|
4,636 |
|
|
|
4.2 |
% |
International |
|
|
136,727 |
|
|
|
106,798 |
|
|
|
29,929 |
|
|
|
28.0 |
% |
|
|
106,798 |
|
|
|
95,399 |
|
|
|
11,399 |
|
|
|
11.9 |
% |
Eliminations |
|
|
(12,279 |
) |
|
|
(8,595 |
) |
|
|
|
|
|
|
|
|
|
|
(8,595 |
) |
|
|
(2,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales |
|
$ |
814,160 |
|
|
$ |
689,480 |
|
|
$ |
124,680 |
|
|
|
18.1 |
% |
|
$ |
689,480 |
|
|
$ |
568,133 |
|
|
$ |
121,347 |
|
|
|
21.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before
interest and taxes (EBIT): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
54,492 |
|
|
$ |
5,471 |
|
|
$ |
49,021 |
|
|
|
896.0 |
% |
|
$ |
5,471 |
|
|
$ |
7,062 |
|
|
$ |
(1,591 |
) |
|
|
(22.5 |
)% |
North American Other |
|
|
15,670 |
|
|
|
9,382 |
|
|
|
6,288 |
|
|
|
67.0 |
% |
|
|
9,382 |
|
|
|
(14,411 |
) |
|
|
23,793 |
|
|
|
165.1 |
% |
International |
|
|
4,717 |
|
|
|
3,161 |
|
|
|
1,556 |
|
|
|
49.2 |
% |
|
|
3,161 |
|
|
|
(3,101 |
) |
|
|
6,262 |
|
|
|
201.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBIT |
|
$ |
74,879 |
|
|
$ |
18,014 |
|
|
$ |
56,865 |
|
|
|
315.7 |
% |
|
$ |
18,014 |
|
|
$ |
(10,450 |
) |
|
$ |
28,464 |
|
|
|
272.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
|
9.6 |
% |
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
1.1 |
% |
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
North American Other |
|
|
12.9 |
% |
|
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
8.2 |
% |
|
|
(13.1 |
)% |
|
|
|
|
|
|
|
|
International |
|
|
3.4 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
3.0 |
% |
|
|
(3.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBIT Margin |
|
|
9.2 |
% |
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
2.6 |
% |
|
|
(1.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Charges (excluding
write-off of financing
fees): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
|
|
|
$ |
18,534 |
|
|
$ |
(18,534 |
) |
|
|
100.0 |
% |
|
$ |
18,534 |
|
|
$ |
10,136 |
|
|
$ |
8,398 |
|
|
|
82.9 |
% |
North American Other |
|
|
|
|
|
|
(42 |
) |
|
|
42 |
|
|
|
100.0 |
% |
|
|
(42 |
) |
|
|
17,100 |
|
|
|
(17,142 |
) |
|
|
(100.2 |
)% |
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated special charges |
|
$ |
|
|
|
$ |
18,492 |
|
|
$ |
(18,492 |
) |
|
|
100.0 |
% |
|
$ |
18,492 |
|
|
$ |
27,236 |
|
|
$ |
(8,744 |
) |
|
|
32.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
26
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 Crisas
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 Crisas 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 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 a
1.8 percent 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.
Discussion of 2006 vs. 2005 Segment Results of Operations
North American Glass
Net sales increased 30.6 percent from $365.0 million in 2005 to $476.7 million in 2006.
Excluding Crisas net sales from June 16, 2006 through December 31, 2006, net sales increased
6.0 percent compared to 2005. This increase in net sales, excluding Crisa, was attributable to an
increase of more than 6.0 percent in shipments to foodservice glassware customers and an increase
of 9.0 percent to retail glassware customers. Shipments to industrial customers declined
7.0 percent during 2006.
EBIT decreased by $1.6 million to $5.5 million in 2006, compared to $7.1 million in 2005. EBIT
as a percentage of net sales decreased to 1.1 percent in 2006, compared to 1.9 percent in 2005.
EBIT, excluding special charges, was $24.0 million for 2006,
compared to $17.2 million in 2005. As
a percentage of net sales, EBIT, excluding special charges, increased to 5.0 percent in 2006,
compared to 4.7 percent in 2005. Higher net sales and production activity of approximately $12.5
million, together with the consolidation of Crisa of $3.0 million, contributed to the improvement
in EBIT, excluding special charges, compared to 2005. Partially offsetting these improvements were
higher distribution costs related to the increased net sales of $2.5 million and the warehouse
management software implementation issues at our Toledo facility, and a $3.5 million increase in
charges related to natural gas contracts. For a reconciliation of North American Glass EBIT,
excluding special charges, see Reconciliation of Non-GAAP Financial Measures below.
27
North American Other
Net sales increased 4.2 percent from $109.9 million in 2005 to $114.6 million in 2006. This
increase in net sales was attributable to increases of more than 8.0 percent in shipments of Traex
products and World Tableware products, partially offset by a decline of 2.4 percent in shipments of
Syracuse China products.
EBIT increased by $23.8 million to $9.4 million, compared to $(14.4) million in 2005. EBIT as
a percentage of net sales increased to 8.2 percent in 2006, compared to (13.1) percent in 2005.
EBIT, excluding special charges, was $9.3 million for 2006, compared to $2.7 million in 2005. As a
percentage of net sales, EBIT, excluding special charges, increased to 8.2 percent in 2006,
compared to 2.4 percent in 2005. Higher net sales, improved margins and significantly higher production
activity of $5.7 million contributed to the increase in EBIT, excluding special charges. For a
reconciliation of North American Other EBIT, excluding special charges, see Reconciliation of
Non-GAAP Financial Measures below.
International
For 2006, net sales increased 11.9 percent to $106.8 million from $95.4 million in 2005. This
increase in net sales was attributable to increased shipments of Royal Leerdam product of
approximately 12.3 percent and shipments of Crisal product of 13.9 percent. The foreign exchange
impact of translating euros to U.S. dollars was 0.8 percent.
EBIT increased by $6.3 million to $3.2 million in 2006, compared to $(3.1) million in 2005.
EBIT as a percentage of net sales increased to 3.0 percent in 2006, compared to (3.3) percent in
2005. Contributing to the improvement in EBIT in 2006 compared to 2005 were increased net sales and production activity at Royal Leerdam and Crisal of $3.3 million and an increase in pretax equity earnings from Crisa of $6.1 million (Crisa results of
operations post June 15, 2006 are included in the North American Glass reporting segment), all of
which more than offset costs associated with the start up of the new facility in China of
approximately $3.3 million.
CAPITAL RESOURCES AND LIQUIDITY
Balance Sheet and Cash flows
Cash and Equivalents
At December 31, 2007, our cash balance decreased to $36.5 million from $41.8 million at
December 31, 2006. The $5.3 million decrease was primarily due to funding of our ongoing working
capital needs and a reduction of borrowings under our ABL Facility.
Working Capital
The following table presents working capital components for 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands, except percentages, DSO, DIO, DPO, and DWC |
|
|
|
|
|
|
|
|
|
Variance |
|
December 31, |
|
2007 |
|
|
2006 |
|
|
In Dollars |
|
|
In Percent |
|
Accounts receivable net |
|
$ |
93,333 |
|
|
$ |
96,783 |
|
|
$ |
(3,450 |
) |
|
|
(3.6 |
%) |
DSO(1)(6) |
|
|
41.8 |
|
|
|
46.3 |
|
|
|
|
|
|
|
|
|
Inventories net |
|
|
182,942 |
|
|
|
159,123 |
|
|
|
23,819 |
|
|
|
15.0 |
% |
DIO(2)(6) |
|
|
82.0 |
|
|
|
76.1 |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
75,387 |
|
|
|
67,493 |
|
|
|
7,894 |
|
|
|
11.7 |
% |
DPO(3)(6) |
|
|
33.8 |
|
|
|
32.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital(4) |
|
$ |
200,888 |
|
|
$ |
188,413 |
|
|
$ |
12,475 |
|
|
|
6.6 |
% |
DWC(5)(6) |
|
|
90.0 |
|
|
|
90.1 |
|
|
|
|
|
|
|
|
|
Percentage of net sales(6) |
|
|
24.7 |
% |
|
|
24.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
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. |
28
|
|
|
(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 inventories and accounts receivable 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. |
|
(6) |
|
The 2006 calculations include Crisa proforma net sales for 2006. |
Working capital, defined as inventories and accounts receivable less accounts payable,
increased by $12.5 million in 2007, compared to 2006. As a percentage of net sales, working capital
remained constant at 24.7 percent in 2007, compared to 2006. The increase in working capital is
primarily the result of the working capital investment at our new production facility in China and
higher inventories in the United States and Portugal.
Borrowings
The following table presents our total borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
December 31, |
|
December 31, |
Dollars in thousands |
|
Rate |
|
Maturity Date |
|
2007 |
|
2006 |
Borrowings under ABL facility |
|
floating |
|
December 16, 2010 |
|
$ |
7,366 |
|
|
$ |
46,210 |
|
Senior notes |
|
floating (1) |
|
June 1, 2011 |
|
|
306,000 |
|
|
|
306,000 |
|
PIK notes (2) |
|
|
16.00 |
% |
|
December 1, 2011 |
|
|
127,697 |
|
|
|
109,480 |
|
Promissory note |
|
|
6.00 |
% |
|
January 2008 to September 2016 |
|
|
1,830 |
|
|
|
1,985 |
|
Notes payable |
|
floating |
|
January 2008 |
|
|
622 |
|
|
|
226 |
|
RMB loan contract |
|
floating |
|
July 2012 to January 2014 |
|
|
34,275 |
|
|
|
32,050 |
|
RMB working capital loan |
|
floating |
|
March 2010 |
|
|
6,855 |
|
|
|
|
|
Obligations under capital leases |
|
floating |
|
January 2008 to May 2009 |
|
|
1,018 |
|
|
|
1,548 |
|
BES Euro line |
|
floating |
|
January 2010 to January 2014 |
|
|
15,962 |
|
|
|
|
|
Other debt |
|
floating |
|
September 2009 |
|
|
1,432 |
|
|
|
1,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
|
|
|
|
|
|
|
$ |
503,057 |
|
|
$ |
499,453 |
|
Less unamortized discounts and warrants |
|
|
|
|
|
|
|
|
|
|
6,423 |
|
|
|
8,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings net (3)(4) |
|
|
|
|
|
|
|
|
|
$ |
496,634 |
|
|
$ |
491,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Derivatives below and Note 9. |
|
(2) |
|
Additional PIK notes were issued on June 1, 2007,
December 1, 2007 and 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 $496.6 million at December 31,
2007, compared to total net borrowings
of $491.2 million at December 31, 2006. The $5.4 million increase in borrowings was the result of
additional PIK notes issued on June 1 and December 1 and new credit facilities at Crisal and Libbey
Glassware (China) to fund working capital requirements, offset by a reduction in borrowings under
our ABL facility.
Of our total indebtedness, $173.5 million is subject to fluctuating interest rates at December
31, 2007. A change of one percentage point in such rates would result in a change in interest
expense of approximately $1.7 million on an annual basis.
29
Included in interest expense is the amortization of discounts and warrants on the Senior Notes
and PIK Notes and financing fees of $5.1 million and $1.6 million for December 31, 2007, and
December 31, 2006, respectively.
Cash Flow
The following table presents key drivers to free cash flow for 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands, except |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentages |
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
Variance |
|
Year
ended December 31, |
|
2007 |
|
|
2006 |
|
|
In dollars |
|
|
In percent |
|
|
2006 |
|
|
2005 |
|
|
In dollars |
|
|
In percent |
|
Net cash provided by
operating activities |
|
$ |
51,457 |
|
|
$ |
54,858 |
|
|
$ |
(3,401 |
) |
|
|
(6.2 |
)% |
|
$ |
54,858 |
|
|
$ |
38,113 |
|
|
$ |
16,745 |
|
|
|
43.9 |
% |
Capital expenditures |
|
|
(43,121 |
) |
|
|
(73,598 |
) |
|
|
(30,477 |
) |
|
|
(41.4 |
)% |
|
|
(73,598 |
) |
|
|
(44,270 |
) |
|
|
29,328 |
|
|
|
66.2 |
% |
Acquisitions and related costs |
|
|
|
|
|
|
(78,434 |
) |
|
|
(78,434 |
) |
|
|
(100.0 |
)% |
|
|
(78,434 |
) |
|
|
(28,948 |
) |
|
|
49,486 |
|
|
|
170.9 |
% |
Proceeds from asset sales and
other |
|
|
8,213 |
|
|
|
|
|
|
|
8,213 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
212 |
|
|
|
(212 |
) |
|
|
(100.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow(1) |
|
$ |
16,549 |
|
|
$ |
(97,174 |
) |
|
$ |
113,723 |
|
|
|
117.0 |
% |
|
$ |
(97,174 |
) |
|
$ |
(34,893 |
) |
|
$ |
(62,281 |
) |
|
|
(178.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We believe that free cash flow (net cash 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 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 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 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.
Discussion of 2006 vs. 2005 Cash Flow
Net cash provided by operating activities increased $16.7 million to $54.9 million in 2006,
compared to $38.1 million in 2005. The increase is primarily related to an increase in earnings,
excluding special charges, and a reduction in working capital. Other factors impacting cash flow
were an increase in non-cash pension and nonpension postretirement expense and a decrease in
non-cash workers compensation expense.
30
Net cash used in investing activities was $152.0 million in 2006, compared to $73.0 million in
2005, or an increase of $79.0 million. The primary contributors to this change were the purchase
of Crisa in 2006 for $78.4 million and a $29.3 million increase in capital expenditures (driven by
the expenditures related to the construction of our new facility in China). In 2005, we incurred
acquisition and related costs for our purchase of Crisal of $28.9 million.
Net cash provided by financing activities was $135.3 million in 2006, compared to $31.9
million in 2005, or an increase of $103.4 million. 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. The 2005 net cash provided by
financing activities resulted from additional debt incurred in connection with the purchase of
Crisal.
Free cash flow was $(97.2) million in 2006, compared to $(34.9) million in 2005, a decrease of
$62.3 million. This decline is mainly attributable to the increase in net cash provided by
operating activities, which was more than offset by an increase in capital expenditures (including
$36.9 million for the construction of our new facility in China) and the Crisa acquisition of
$78.4 million.
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, 2007, 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 1.9 years at December 31, 2007. Total
remaining debt not covered by the Rate Agreements has fluctuating interest rates with a weighted
average rate of 11.91 percent per year at December 31, 2007. The fair market value for the Rate
Agreements at December 31, 2007 and 2006, respectively, was $(5.3) million and $1.2 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 and potential
losses in earnings or cash flows 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, 2007, we had commodity
futures contracts for 2,820,000 million British Thermal Units (BTUs) of natural gas with a fair
market value of $(1.8) million. We have hedged a portion of our forecasted transactions through
February 2009. At December 31, 2006, we had commodity futures contracts for 3,450,000 million BTUs
of natural gas with a fair market value of $(5.3) million.
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, 2007, authorization remains for the purchase of an
additional 1,000,000 shares. During 2007 and 2006, 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 15 to the Consolidated Financial Statements for further discussion.
31
Contractual Obligations
The following table presents our existing contractual obligations at December 31, 2007 and
related future cash requirements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
Dollars in thousands |
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
1 Year |
|
|
1 - 3 Years |
|
|
3 - 5 Years |
|
|
5 Years |
|
Borrowings |
|
$ |
496,634 |
|
|
$ |
1,535 |
|
|
$ |
17,985 |
|
|
$ |
442,992 |
|
|
$ |
34,122 |
|
Interest payments(2) |
|
|
213,603 |
|
|
|
41,398 |
|
|
|
120,559 |
|
|
|
49,892 |
|
|
|
1,754 |
|
Long term operating leases |
|
|
117,356 |
|
|
|
18,810 |
|
|
|
31,009 |
|
|
|
26,419 |
|
|
|
41,118 |
|
Payable to Vitro |
|
|
19,575 |
|
|
|
19,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and nonpension(1) |
|
|
297,956 |
|
|
|
24,660 |
|
|
|
51,997 |
|
|
|
56,917 |
|
|
|
164,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations |
|
$ |
1,145,124 |
|
|
$ |
105,978 |
|
|
$ |
221,550 |
|
|
$ |
576,220 |
|
|
$ |
241,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2017. |
|
(2) |
|
The obligations for interest payments are based on December 31, 2007 debt levels and interest 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, 2007, 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 11 to the Consolidated
Financial Statements for additional information.
Off-Balance Sheet Arrangements
We were a joint venture partner in Vitrocrisa Holding, S. de R.L. de C.V. and related
companies (Crisa), the largest glass tableware manufacturer in Latin America, through June 15,
2006. On June 16, 2006, we purchased the remaining 51 percent equity interest in Crisa (see note 4
to the Consolidated Financial Statements). Through June 15, 2006, we recorded our 49 percent
interest in Crisa using the equity method of accounting. From this joint venture, we recorded
equity earnings (loss), dividends and certain technical assistance income. We also had a reciprocal
distribution agreement with our joint venture partner that gave us exclusive distribution rights
with respect to Crisas glass tableware products in the U.S. and Canada, and gave Crisa the
exclusive distribution rights with respect to our glass tableware products in Latin America. In
addition, we guaranteed a portion of Crisas bank debt. While we owned 49 percent of Crisa, 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 Crisa 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 received the majority of expected residual returns. Therefore, Crisa was not
consolidated in our Consolidated Financial Statements through June 15, 2006. Since we acquired the
remaining 51 percent of Crisa on June 16, 2006, we have consolidated Crisas financial statements.
See notes 4 and 6 to the Consolidated Financial Statements for disclosure regarding financial
information relating to Crisa.
Capital Resources and Liquidity
Based on our current level of operations, we believe our cash flow from operations, our
cash and cash equivalents and available capacity under our ABL Facility will be adequate to meet
our liquidity needs for at least the next twelve months. Our ability to fund our working capital
needs, debt payments and other obligations, capital expenditures program and other funding
requirements, and to comply with debt agreements, depends on our future operating performance
and cash flow (see Part II, Item 1A. Risk Factors).
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)
32
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands |
|
|
|
|
|
|
|
|
|
Year
ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net loss |
|
$ |
(2,307 |
) |
|
$ |
(20,899 |
) |
|
$ |
(19,355 |
) |
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
65,888 |
|
|
|
46,594 |
|
|
|
15,255 |
|
Provision (benefit) for income taxes |
|
|
11,298 |
|
|
|
(7,747 |
) |
|
|
(6,384 |
) |
|
|
|
|
|
|
|
|
|
|
Earning (loss) before interest and income taxes (EBIT) |
|
|
74,879 |
|
|
|
17,948 |
|
|
|
(10,484 |
) |
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (adjusted for minority interest) |
|
|
41,572 |
|
|
|
35,556 |
|
|
|
32,217 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, depreciation and
amortization, after minority interest adjustment (EBITDA) |
|
$ |
116,451 |
|
|
$ |
53,504 |
|
|
$ |
21,733 |
|
|
|
|
|
|
|
|
|
|
|
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. Libbeys senior
management uses this measure internally to measure profitability. EBIT also allows for a measure
of comparability to other companies with different capital and legal structures, which accordingly
may be subject to different interest rates and effective tax rates.
The non-GAAP measure of EBIT does have certain limitations. It does not include interest
expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred
to expand operations. Because this is a material and recurring item, any measure that excludes it
has a material limitation. EBIT may not be comparable to similarly titled measures reported by
other companies.
We define EBITDA as net 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.
We believe that EBITDA is an important supplemental measure for investors in evaluating
operating performance in that it provides insight into company profitability and cash flow.
Libbeys senior management uses this measure internally to measure profitability and to set
performance targets for managers. It also has been used regularly as one of the means of publicly
providing guidance on possible future results. EBITDA also allows for a measure of comparability
of 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
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands |
|
|
|
|
|
|
|
|
|
Year
ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net cash provided by operating activities |
|
$ |
51,457 |
|
|
$ |
54,858 |
|
|
$ |
38,113 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
43,121 |
|
|
|
73,598 |
|
|
|
44,270 |
|
Acquisition and related costs |
|
|
|
|
|
|
78,434 |
|
|
|
28,948 |
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from asset sales and other |
|
|
8,213 |
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
Free cash flow |
|
$ |
16,549 |
|
|
$ |
(97,174 |
) |
|
$ |
(34,893 |
) |
|
|
|
|
|
|
|
|
|
|
33
We define free cash flow as net cash 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 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
|
|
|
|
|
|
|
|
|
Dollars in Thousands |
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
Accounts receivable net |
|
$ |
93,333 |
|
|
$ |
96,783 |
|
Plus: |
|
|
|
|
|
|
|
|
Inventories net |
|
|
182,942 |
|
|
|
159,123 |
|
Less: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
75,387 |
|
|
|
67,493 |
|
|
|
|
|
|
|
|
Working capital |
|
$ |
200,888 |
|
|
$ |
188,413 |
|
|
|
|
|
|
|
|
We define working capital as accounts receivable (net) plus inventories (net) less accounts
payable.
We believe that working capital is important supplemental information for investors in
evaluating liquidity in that it provides insight into the availability of net current resources to
fund our ongoing operations. Working capital is a measure used by management in internal
evaluations of cash availability and operational performance.
Working capital is used in conjunction with and in addition to results presented in accordance
with U.S. GAAP. Working capital is neither intended to represent nor be an alternative to any
measure of liquidity and operational performance recorded under U.S. GAAP. Working capital may not
be comparable to similarly titled measures reported by other companies.
34
Reconciliation of Non-GAAP Financial Measures for Special Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands |
|
|
|
|
|
|
|
|
|
Year
ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Gross profit |
|
$ |
157,669 |
|
|
$ |
123,164 |
|
|
$ |
86,542 |
|
Special charges reported in cost of sales |
|
|
|
|
|
|
2,158 |
|
|
|
1,965 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit, excluding special charges |
|
$ |
157,669 |
|
|
$ |
125,322 |
|
|
$ |
88,507 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
$ |
66,101 |
|
|
$ |
19,264 |
|
|
$ |
(8,917 |
) |
Special charges (excluding write-off of finance fees) |
|
|
|
|
|
|
18,492 |
|
|
|
27,236 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations, excluding special charges |
|
$ |
66,101 |
|
|
$ |
37,756 |
|
|
$ |
18,319 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and income tax before minority interest (EBIT) |
|
$ |
74,879 |
|
|
$ |
18,014 |
|
|
$ |
(10,450 |
) |
|
|
|
|
|
|
|
|
|
|
Minority Interest |
|
|
|
|
|
|
(66 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and income tax after minority interest (EBIT) |
|
|
74,879 |
|
|
|
17,948 |
|
|
|
(10,484 |
) |
Special charges (excluding write-off of finance fees) |
|
|
|
|
|
|
18,492 |
|
|
|
27,236 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and income tax after minority interest
(EBIT), excluding special charges |
|
$ |
74,879 |
|
|
$ |
36,440 |
|
|
$ |
16,752 |
|
|
|
|
|
|
|
|
|
|
|
Reported net loss |
|
$ |
(2,307 |
) |
|
$ |
(20,899 |
) |
|
$ |
(19,355 |
) |
Special charges net of tax |
|
|
|
|
|
|
17,055 |
|
|
|
20,454 |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income, excluding special charges |
|
$ |
(2,307 |
) |
|
$ |
(3,844 |
) |
|
$ |
1,099 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
8,991 |
|
|
$ |
(28,646 |
) |
|
$ |
(25,739 |
) |
Add: interest expense |
|
|
65,888 |
|
|
|
46,594 |
|
|
|
15,255 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes after minority interest (EBIT) |
|
|
74,879 |
|
|
|
17,948 |
|
|
|
(10,484 |
) |
Add: depreciation and amortization |
|
|
41,572 |
|
|
|
35,556 |
|
|
|
32,217 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, depreciation and amortization after minority
interest (EBITDA) |
|
|
116,451 |
|
|
|
53,504 |
|
|
|
21,733 |
|
|
|
|
|
|
|
|
|
|
|
Add: Special charges (excluding write-off of finance fees) pre-tax |
|
|
|
|
|
|
18,492 |
|
|
|
27,236 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA, excluding special charges |
|
$ |
116,451 |
|
|
$ |
71,996 |
|
|
$ |
48,969 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP Financial Measures for Special Charges Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands |
|
|
|
|
|
|
|
|
|
Year
ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Earnings before interest and income tax (EBIT): |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
54,492 |
|
|
$ |
5,471 |
|
|
$ |
7,062 |
|
North American Other |
|
|
15,670 |
|
|
|
9,382 |
|
|
|
(14,411 |
) |
International |
|
|
4,717 |
|
|
|
3,161 |
|
|
|
(3,101 |
) |
|
|
|
|
|
|
|
|
|
|
Total earnings (loss) before interest and income tax (EBIT) |
|
$ |
74,879 |
|
|
$ |
18,014 |
|
|
$ |
(10,450 |
) |
|
|
|
|
|
|
|
|
|
|
Special charges (excluding write-off of finance fees): |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
|
|
|
$ |
18,534 |
|
|
$ |
10,136 |
|
North American Other |
|
|
|
|
|
|
(42 |
) |
|
|
17,100 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special charges (excluding write-off of finance fees) |
|
$ |
|
|
|
$ |
18,492 |
|
|
$ |
27,236 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and income tax (EBIT), excluding special charges: |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
54,492 |
|
|
$ |
24,005 |
|
|
$ |
17,198 |
|
North American Other |
|
|
15,670 |
|
|
|
9,340 |
|
|
|
2,689 |
|
International |
|
|
4,717 |
|
|
|
3,161 |
|
|
|
(3,101 |
) |
|
|
|
|
|
|
|
|
|
|
Total earnings before interest and income tax (EBIT), excluding special charges |
|
$ |
74,879 |
|
|
$ |
36,506 |
|
|
$ |
16,786 |
|
|
|
|
|
|
|
|
|
|
|
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
35
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 has 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 allowances for doubtful accounts, was $93.3 million in
2007, compared to $96.8 million in 2006. The allowance for doubtful accounts was $11.7 million in
2007, compared to $11.5 million in 2006. 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. Historically, these loss provisions have not been
significant, as a significant percentage of our inventories is valued using the last-in, first-out
(LIFO) method. At December 31, 2007, our inventories were $182.9 million, with loss provisions of
$6.4 million, compared to inventories of $159.1 million and loss provisions of $6.1 million at
December 31, 2006.
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 2005, we wrote down certain
assets to fair value at our Syracuse China facility based upon appraisals performed by an
independent third party. This write-down is further disclosed in note 10 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 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. Our
review indicated an impairment of goodwill of $5.4 million at our Syracuse China facility during
2005. This impairment is further disclosed in note 10 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 1 for each year presented. An impairment loss for intangible assets of
$3.7 million was recorded in 2005 for our Syracuse China facility. This impairment is further
disclosed in note 10 to the Consolidated Financial Statements.
36
If the Companys projected future cash flows were lower, or if the assumed weighted average
cost of capital were higher, the testing performed as of October 1, 2007, may have indicated an
impairment of one or more of the Companys other reporting units and, as a result, the related
goodwill would also 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.
Group health accruals include estimates of incurred-but-not-reported estimates received from
our third party administrator of the plan.
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 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
Discount rate |
|
6.16% to 6.32 |
% |
|
5.82% to 5.91 |
% |
|
|
5.6 |
% |
|
5.5% to 8.5 |
% |
|
4.5% to 8.75 |
% |
|
|
4.25 |
% |
Expected long-term
rate of return on plan
assets |
|
|
8.5 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
6.5 |
% |
|
|
6.5 |
% |
|
|
6.5 |
% |
Rate of compensation
increase |
|
3.0% to 6.0 |
% |
|
|
3.0 to 6.0 |
% |
|
|
3.0 to 6.0 |
% |
|
2.0% to 4.3% |
|
|
2.0 to 3.5 |
% |
|
|
2.0 to 2.5 |
% |
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 is as follows:
|
|
|
A change of 1 percent in the discount rate would change our total pension expense by
approximately $1.3 million. |
|
|
|
|
A change of 1 percent in the expected long-term rate of return on plan assets would
change total pension expense by approximately $2.6 million based on year-end data. |
37
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
Discount rate |
|
|
6.16 |
% |
|
|
5.77 |
% |
|
|
5.60 |
% |
|
|
5.14 |
% |
|
|
4.87 |
% |
|
|
5.00 |
% |
Initial health care trend |
|
|
8.00 |
% |
|
|
8.50 |
% |
|
|
9.00 |
% |
|
|
8.00 |
% |
|
|
8.50 |
% |
|
|
8.00 |
% |
Ultimate health care trend |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Years to reach ultimate trend rate |
|
|
7 |
|
|
|
7 |
|
|
|
4 |
|
|
|
7 |
|
|
|
7 |
|
|
|
3 |
|
Sensitivity to changes in key assumptions is as follows:
|
|
|
A change of 1 percent in the discount rate would change the nonpension postretirement
expense by $0.3 million. |
|
|
|
|
A change of 1 percent in the health care trend rate would not have a material impact
upon the nonpension postretirement expense. |
Income Taxes
We are subject to income taxes in both the U.S. and foreign jurisdictions. Significant
judgment is required in evaluating our tax positions and determining our provision for income
taxes. During the ordinary course of business, there are many transactions and calculations as to
which the ultimate tax determination is uncertain. We establish reserves for tax-related
uncertainties based on estimates of whether, and the extent to which, additional taxes and interest
will be due. These reserves are established when, despite our belief that our tax return positions
are fully supportable, we believe that certain positions are likely to be challenged and may not be
sustained on review by tax authorities. We adjust these reserves in light of changing facts and
circumstances, such as the closing of a tax audit and the expiration of a statute of limitation.
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. During 2007, we recorded a full valuation
allowance against our U.S. deferred income tax assets. In addition, we have valuation allowances
against certain deferred income tax assets in the Netherlands and 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, changes in the fair value of the hedged item. If the
fair value changes fail this test, we discontinue applying hedge accounting to that relationship
prospectively.
38
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 2007 was $3.4 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. Prior to the adoption of
SFAS 123-R, the value of each employee share-based compensation unit was estimated on the date of
grant using this same model for the purpose of the pro forma financial information provided in
accordance with SFAS 123. 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 15 for additional
information.
New Accounting Standards
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 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 do not presently expect that
the adoption of this statement will have a material effect on our
consolidated results of operations and financial condition.
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. However, for some companies, the application of this statement will change current
practice. We will be required to adopt SFAS 157 as of
January 1, 2008. We do not presently expect that
the adoption of SFAS 157 will have a material impact on our
consolidated results of operations and financial condition.
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 million of debt as a means to manage our exposure to fluctuating interest rates. The Rate
Agreements effectively convert a portion of our long-term borrowings from variable rate debt to
fixed-rate
39
debt, thus reducing the impact of interest rate changes on future income. We had
$173.5 million of debt subject to fluctuating interest rates at December 31, 2007. A change of one
percentage point in such rates would result in a change in interest expense of approximately
$1.7 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 counterparties were rated
AA- or better as of December 2007, by Standard and Poors.
Natural Gas
We are also exposed to market risks associated with changes in the price of natural gas. We
use commodity futures contracts related to forecasted future natural gas requirements of our
manufacturing operations. The objective of these futures contracts is to limit the fluctuations in
prices paid and potential losses in earnings or cash flows from adverse price movements in the
underlying natural gas commodity. We consider 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. If the counter parties
to these futures contracts were to fail to perform, we would no longer be protected from natural
gas fluctuations by the futures contracts. However, we do not anticipate nonperformance by these
counter parties. All counterparties were rated AA- or better as of December 2007, 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 performance and related pension expense. Sensitivity to
these key market risk factors is as follows:
|
|
|
A change of 1 percent in the discount rate would change our total expense by
approximately $1.6 million. |
|
|
|
|
A change of 1 percent in the expected long-term rate of return on plan assets would
change total pension expense by approximately $2.6 million. |
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2007, 2006 and 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Quarterly Financial Data (unaudited) |
41
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, 2007
and 2006, and the related consolidated statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended December 31, 2007. Our audits also included
the financial statement schedule included at Item 15. These financial statements and schedule are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits. As of December 31, 2005 and for the
year ended December 31, 2005, we did not audit the combined financial statements of Vitrocrisa
Holding, S. de R.L. de C.V and subsidiaries and Crisa Libbey, S.A. de C.V (collectively the
Vitrocrisa Companies) (corporations in which Libbey owned a 49% interest). As of December 31,
2005 and the year ended December 31, 2005, the Vitrocrisa Companies financial statements were
audited by other auditors whose reports were furnished to us; and, insofar as our opinion on the
consolidated financial statements relates to amounts included for these companies, it was based
solely on the report of other auditors. In the consolidated financial statements, Libbey Inc.s
equity in the net loss of Vitrocrisa Companies is stated at $(5,056,680) for the year ended
December 31, 2005.
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, 2007 and 2006, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2007, 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,
2007, 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 17,
2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Toledo, Ohio
March 17, 2008
42
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, 2007
based on criteria established in Internal ControlIntegrated 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 companys
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 companys 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
companys 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 companys 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, 2007, 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, 2007 and
2006, and the related consolidated results of operations, shareholders equity, and cash flows for
each of the three years in the period ended December 31, 2007 and our report dated March 17, 2008
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Toledo, Ohio
March 17, 2008
43
Report of Independent Registered Public Accounting Firm
To the stockholders of
Vitrocrisa Holding, S. De R.L. de C.V. and Subsidiaries and Crisa Libbey, S.A. de C.V.
Monterrey, N.L.
We have audited the combined balance sheets of Vitrocrisa Holding, S. de R.L. de C.V. and
subsidiaries and Crisa Libbey, S.A. de C.V. (the Companies) as of December 31, 2005 and 2004, and
the related combined statements of operations, changes in stockholders equity and cash flows for
the years then ended (all expressed in thousands of U.S. dollars and not presented separately
herein). These financial statements are the responsibility of the Companies management. Our
responsibility is to express an opinion on these financial statements 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 consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Companies internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
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, such combined financial statements (not presented separately herein) present
fairly, in all material respects, the combined financial position of the Companies as of
December 31, 2005 and 2004, and the combined results of their operations and their combined cash
flows for the years then ended in conformity with accounting principles generally accepted in the
United States of America.
Subsequent to the issuance of the Companies 2004 combined financial statements, the
Companies management determined that they had not appropriately recorded their deferred profit
sharing or their severance indemnity obligation. As a result, the Companies combined financial
statements have been restated from the amounts previously reported to properly reflect such amounts
as disclosed in Note 12 to the combined financial statements (not presented separately herein).
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu
/s/ C.P.C. Ernesto Cruz Velazquez de Leon
Monterrey, N.L. Mexico
February 28, 2006
44
Libbey Inc.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands, Except Per-Share Amounts |
|
|
|
|
|
|
|
|
|
December 31, |
|
Footnote Reference |
|
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash & equivalents |
|
|
|
|
|
$ |
36,539 |
|
|
$ |
41,766 |
|
Accounts receivable net |
|
(note 3) |
|
|
93,333 |
|
|
|
96,783 |
|
Inventories net |
|
(note 3) |
|
|
182,942 |
|
|
|
159,123 |
|
Deferred income taxes |
|
(note 11) |
|
|
|
|
|
|
4,120 |
|
Prepaid and other current assets |
|
(note 3) |
|
|
20,072 |
|
|
|
19,052 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
332,886 |
|
|
|
320,844 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Repair parts |
|
|
|
|
|
|
11,137 |
|
|
|
9,279 |
|
Pension asset |
|
(note 12) |
|
|
3,253 |
|
|
|
|
|
Software net |
|
(note 5) |
|
|
4,888 |
|
|
|
4,704 |
|
Deferred income taxes |
|
(note 11) |
|
|
855 |
|
|
|
6,974 |
|
Purchased intangible assets net |
|
(note 4 & 7) |
|
|
30,731 |
|
|
|
31,492 |
|
Goodwill net |
|
(note 4 & 7) |
|
|
177,360 |
|
|
|
174,880 |
|
Other assets |
|
(note 3) |
|
|
13,113 |
|
|
|
17,717 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
|
|
|
|
241,337 |
|
|
|
245,046 |
|
Property, plant, and equipment net |
|
(note 8) |
|
|
324,889 |
|
|
|
312,241 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
$ |
899,112 |
|
|
$ |
878,131 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
(note 9) |
|
$ |
622 |
|
|
$ |
226 |
|
Accounts payable |
|
|
|
|
|
|
75,387 |
|
|
|
67,493 |
|
Salaries and wages |
|
|
|
|
|
|
26,865 |
|
|
|
28,679 |
|
Accrued liabilities |
|
(note 3 & 10) |
|
|
41,453 |
|
|
|
47,622 |
|
Payable to Vitro |
|
|
|
|
|
|
19,575 |
|
|
|
|
|
Pension liability (current portion) |
|
(note 12) |
|
|
1,883 |
|
|
|
1,389 |
|
Nonpension postretirement benefits (current portion) |
|
(note 13) |
|
|
3,528 |
|
|
|
3,252 |
|
Derivative liability |
|
(note 16) |
|
|
6,737 |
|
|
|
4,132 |
|
Deferred income taxes |
|
(note 11) |
|
|
4,462 |
|
|
|
|
|
Long-term debt due within one year |
|
(note 9) |
|
|
913 |
|
|
|
794 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
181,425 |
|
|
|
153,587 |
|
Long-term debt |
|
(note 9) |
|
|
495,099 |
|
|
|
490,212 |
|
Pension liability |
|
(note 12) |
|
|
71,709 |
|
|
|
77,174 |
|
Nonpension postretirement benefits |
|
(note 13) |
|
|
45,667 |
|
|
|
38,495 |
|
Payable to Vitro |
|
|
|
|
|
|
|
|
|
|
19,673 |
|
Other long-term liabilities |
|
(note 3) |
|
|
12,097 |
|
|
|
11,140 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
805,997 |
|
|
|
790,281 |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share, 50,000,000 shares
authorized, 18,697,630 shares issued (18,689,710 shares
issued in 2006) |
|
|
|
|
|
|
187 |
|
|
|
187 |
|
Capital in excess of par value (includes warrants of $1,034
and 485,309 shares in 2007 and 2006) |
|
|
|
|
|
|
306,874 |
|
|
|
303,381 |
|
Treasury stock, at cost, 4,133,074 shares (4,358,175 in 2006) |
|
|
|
|
|
|
(110,780 |
) |
|
|
(129,427 |
) |
Retained deficit |
|
|
|
|
|
|
(60,689 |
) |
|
|
(40,282 |
) |
Accumulated other comprehensive loss |
|
(note 17) |
|
|
(42,477 |
) |
|
|
(46,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
|
|
93,115 |
|
|
|
87,850 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
|
|
|
|
$ |
899,112 |
|
|
$ |
878,131 |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
45
Libbey Inc.
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands, Except Per-Share Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, |
|
Footnote Reference |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net sales |
|
(note 2) |
|
$ |
814,160 |
|
|
$ |
689,480 |
|
|
$ |
568,133 |
|
Freight billed to customers |
|
|
|
|
|
|
2,207 |
|
|
|
2,921 |
|
|
|
1,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
|
|
|
|
|
816,367 |
|
|
|
692,401 |
|
|
|
570,065 |
|
Cost of sales |
|
(note 2) |
|
|
658,698 |
|
|
|
569,237 |
|
|
|
483,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
157,669 |
|
|
|
123,164 |
|
|
|
86,542 |
|
Selling, general and administrative expenses |
|
|
|
|
|
|
91,568 |
|
|
|
87,566 |
|
|
|
71,535 |
|
Impairment of goodwill and other intangible assets |
|
(note 10) |
|
|
|
|
|
|
|
|
|
|
9,179 |
|
Special charges |
|
(note 10) |
|
|
|
|
|
|
16,334 |
|
|
|
14,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
|
|
66,101 |
|
|
|
19,264 |
|
|
|
(8,917 |
) |
Equity earnings (loss) pretax |
|
(note 6) |
|
|
|
|
|
|
1,986 |
|
|
|
(4,100 |
) |
Other income (expense) |
|
(note 20) |
|
|
8,778 |
|
|
|
(3,236 |
) |
|
|
2,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest, income taxes and
minority interest |
|
|
|
|
|
|
74,879 |
|
|
|
18,014 |
|
|
|
(10,450 |
) |
Interest expense |
|
(note 9) |
|
|
65,888 |
|
|
|
46,594 |
|
|
|
15,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest |
|
|
|
|
|
|
8,991 |
|
|
|
(28,580 |
) |
|
|
(25,705 |
) |
Provision (benefit) for income taxes |
|
(note 11) |
|
|
11,298 |
|
|
|
(7,747 |
) |
|
|
(6,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest |
|
|
|
|
|
|
(2,307 |
) |
|
|
(20,833 |
) |
|
|
(19,321 |
) |
Minority interest |
|
(note 2) |
|
|
|
|
|
|
(66 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
$ |
(2,307 |
) |
|
$ |
(20,899 |
) |
|
$ |
(19,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
(note 14) |
|
$ |
(0.16 |
) |
|
$ |
(1.47 |
) |
|
$ |
(1.39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
(note 14) |
|
$ |
(0.16 |
) |
|
$ |
(1.47 |
) |
|
$ |
(1.39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
(note 14) |
|
|
14,472 |
|
|
|
14,182 |
|
|
|
13,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
(note 14) |
|
|
14,472 |
|
|
|
14,182 |
|
|
|
13,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
46
Libbey Inc.
Consolidated Statements of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common |
|
|
Capital in |
|
|
Treasury |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Excess of |
|
|
Stock |
|
|
Earnings |
|
|
Income (Loss) |
|
|
|
|
Dollars in thousands, except per-share amounts |
|
Amount (1) |
|
|
Par Value |
|
|
Amount (1) |
|
|
(Deficit) |
|
|
(note 17) |
|
|
Total |
|
Balance December 31, 2004 |
|
$ |
187 |
|
|
$ |
300,922 |
|
|
$ |
(135,865 |
) |
|
$ |
6,925 |
|
|
$ |
(28,606 |
) |
|
$ |
143,563 |
|
Comprehensive (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,355 |
) |
|
|
|
|
|
|
(19,355 |
) |
Effect of derivatives net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,040 |
|
|
|
5,040 |
|
Net minimum pension liability (including equity
investments) net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,176 |
) |
|
|
(7,176 |
) |
Effect of exchange rate fluctuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(379 |
) |
|
|
(379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss (note 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,870 |
) |
Stock options exercised |
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 |
|
Income tax benefit on stock options |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Stock issued from treasury |
|
|
|
|
|
|
|
|
|
|
3,345 |
|
|
|
|
|
|
|
|
|
|
|
3,345 |
|
Dividends $0.40 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,536 |
) |
|
|
|
|
|
|
(5,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Share amounts are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Treasury |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
|
|
|
|
Shares |
|
|
Shares |
|
|
Total |
|
Balance December 31, 2004 |
|
|
18,685,210 |
|
|
|
4,879,310 |
|
|
|
13,805,900 |
|
Stock options exercised |
|
|
4,500 |
|
|
|
|
|
|
|
4,500 |
|
Stock issued from treasury |
|
|
|
|
|
|
(197,589 |
) |
|
|
197,589 |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
47
Libbey Inc.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, |
|
Footnote reference |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
$ |
(2,307 |
) |
|
$ |
(20,899 |
) |
|
$ |
(19,355 |
) |
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
(note 5,7,8) |
|
|
41,572 |
|
|
|
35,720 |
|
|
|
32,481 |
|
Gain on sale of assets |
|
|
|
|
|
|
(4,923 |
) |
|
|
|
|
|
|
|
|
Equity (earnings) loss net of tax |
|
(note 6) |
|
|
|
|
|
|
(1,493 |
) |
|
|
4,556 |
|
Change in accounts receivable |
|
|
|
|
|
|
3,951 |
|
|
|
9,745 |
|
|
|
(9,539 |
) |
Change in inventories |
|
|
|
|
|
|
(21,091 |
) |
|
|
7,131 |
|
|
|
8,322 |
|
Change in accounts payable |
|
|
|
|
|
|
5,152 |
|
|
|
(425 |
) |
|
|
(6,915 |
) |
PIK interest |
|
(note 9) |
|
|
18,217 |
|
|
|
|
|
|
|
|
|
Deferred income tax valuation allowance |
|
(note 11) |
|
|
15,283 |
|
|
|
|
|
|
|
|
|
Special charges |
|
(note 10) |
|
|
(920 |
) |
|
|
20,023 |
|
|
|
16,542 |
|
Pension and postretirement |
|
|
|
|
|
|
(3,061 |
) |
|
|
9,885 |
|
|
|
4,901 |
|
Other operating activities |
|
|
|
|
|
|
(416 |
) |
|
|
(4,829 |
) |
|
|
7,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
51,457 |
|
|
|
54,858 |
|
|
|
38,113 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
|
|
|
|
(43,121 |
) |
|
|
(73,598 |
) |
|
|
(44,270 |
) |
Acquisition and related costs, net of cash acquired |
|
(note 4) |
|
|
|
|
|
|
(78,434 |
) |
|
|
(28,948 |
) |
Proceeds from asset sales and other |
|
|
|
|
|
|
8,213 |
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(34,908 |
) |
|
|
(152,032 |
) |
|
|
(73,006 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net ABL credit facility |
|
|
|
|
|
|
(41,122 |
) |
|
|
43,968 |
|
|
|
|
|
Net revolving credit facility |
|
|
|
|
|
|
|
|
|
|
(149,078 |
) |
|
|
37,735 |
|
Other net borrowings (repayments) |
|
|
|
|
|
|
20,272 |
|
|
|
(81,030 |
) |
|
|
1,917 |
|
Other borrowings |
|
|
|
|
|
|
|
|
|
|
31,393 |
|
|
|
|
|
Note payments |
|
|
|
|
|
|
|
|
|
|
(100,000 |
) |
|
|
|
|
Note proceeds |
|
|
|
|
|
|
|
|
|
|
407,260 |
|
|
|
|
|
Debt financing fees |
|
|
|
|
|
|
(219 |
) |
|
|
(15,798 |
) |
|
|
(2,301 |
) |
Stock options exercised |
|
(note 15) |
|
|
108 |
|
|
|
|
|
|
|
99 |
|
Dividends paid |
|
|
|
|
|
|
(1,446 |
) |
|
|
(1,417 |
) |
|
|
(5,536 |
) |
Other financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
|
|
|
|
(22,407 |
) |
|
|
135,298 |
|
|
|
31,891 |
|
Effect of exchange rate fluctuations on cash |
|
|
|
|
|
|
631 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash |
|
|
|
|
|
|
(5,227 |
) |
|
|
38,524 |
|
|
|
(3,002 |
) |
Cash & equivalents at beginning of year |
|
|
|
|
|
|
41,766 |
|
|
|
3,242 |
|
|
|
6,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & equivalents at end of year |
|
|
|
|
|
$ |
36,539 |
|
|
$ |
41,766 |
|
|
$ |
3,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest |
|
|
|
|
|
$ |
43,340 |
|
|
$ |
28,268 |
|
|
$ |
13,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (net of refunds received) during the year for income taxes |
|
|
|
|
|
$ |
(6,128 |
) |
|
$ |
12,839 |
|
|
$ |
5,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
48
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 North American glass tableware manufacturers.
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, business-to-business and industrial 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 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 Crisas 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 managements 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 has passed to the
customer. Revenue is recorded net of returns, discounts and incentives offered to customers. Cost
of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery
costs, royalty expense and other costs.
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.
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.
Inventory Valuation Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) method was used for 40.7 percent and 40.4 percent of our inventories in 2007 and
2006, 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 $17.4 million and $15.9 million for 2007 and 2006,
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
49
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 2007 and 2006, our review did not indicate any impairment of goodwill or indefinite life
intangibles. For further disclosure on goodwill and intangibles, see note 7.
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. See note 10 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. Group health accruals are based on estimates of
incurred-but-not-reported estimates received from our third party administrator of the plan.
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. For further discussion see note 12.
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 collectible
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 is 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 and Mexico.
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
50
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.
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 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 earnings.
Derivatives are more fully discussed in note 16.
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. Translation adjustments are recorded in other income (expense), where the U.S. dollar is
the functional currency.
Stock-Based Compensation Expense In December 2004, the FASB issued SFAS No. 123 (revised
2004), Share-Based Payment (SFAS No. 123-R), which amends and replaces SFAS No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123), supersedes APB No. 25 and requires share-based
compensation transactions to be accounted for using a fair-value-based method and the resulting
cost recognized in our financial statements. On January 1, 2006, we adopted SFAS No. 123-R.
Share-based compensation cost is measured based on the fair value of the 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 $3.4 million and $1.3 million, respectively for 2007 and 2006. See note 15.
Research and Development Research and development costs are charged to the Consolidated
Statements of Operations when incurred. Expenses for 2007, 2006 and 2005, respectively, were $1.5
million, $2.3 million and $2.4 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 2007, 2006 and 2005, we
did not purchase any treasury stock. During 2007, 2006, and 2005, we issued 225,101, 323,546 and
197,589 shares from treasury stock at an average cost of $28.68, $31.15, 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, 2007.
New Accounting Standards 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
51
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 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 do not presently expect that the adoption of this
statement will have a material effect on our consolidated results of operations and financial
condition.
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. However, for some companies, the application of this statement will change current
practice. We are required to adopt SFAS 157 as of January 1, 2008. We do not presently expect that
the adoption of SFAS 157 will have a material impact on our consolidated results of operations and
financial condition.
3. Balance Sheet Details
The following tables provide detail of selected balance sheet items:
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
Accounts receivable: |
|
|
|
|
|
|
|
|
Trade receivables |
|
$ |
91,435 |
|
|
$ |
94,490 |
|
Other receivables |
|
|
1,898 |
|
|
|
2,293 |
|
|
|
|
|
|
|
|
Total accounts receivable, less allowances of $11,711 and $11,507 |
|
$ |
93,333 |
|
|
$ |
96,783 |
|
|
|
|
|
|
|
|
Inventories: |
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
170,386 |
|
|
$ |
147,423 |
|
Work in process |
|
|
4,052 |
|
|
|
3,881 |
|
Raw materials |
|
|
5,668 |
|
|
|
4,922 |
|
Operating supplies |
|
|
2,836 |
|
|
|
2,897 |
|
|
|
|
|
|
|
|
Total inventories, less allowances of $6,435 and $6,139 |
|
$ |
182,942 |
|
|
$ |
159,123 |
|
|
|
|
|
|
|
|
Prepaid and other current assets: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
$ |
13,551 |
|
|
$ |
10,535 |
|
Refundable and prepaid income taxes |
|
|
6,521 |
|
|
|
8,517 |
|
|
|
|
|
|
|
|
Total prepaid and other current assets |
|
$ |
20,072 |
|
|
$ |
19,052 |
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
596 |
|
|
$ |
1,069 |
|
Finance fees net of amortization |
|
|
11,194 |
|
|
|
14,275 |
|
Other |
|
|
1,323 |
|
|
|
2,373 |
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
13,113 |
|
|
$ |
17,717 |
|
|
|
|
|
|
|
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Accrued incentives |
|
$ |
14,236 |
|
|
$ |
15,341 |
|
Workers compensation |
|
|
9,485 |
|
|
|
10,008 |
|
Medical liabilities |
|
|
2,450 |
|
|
|
2,539 |
|
Interest |
|
|
5,218 |
|
|
|
5,519 |
|
Commissions payable |
|
|
1,381 |
|
|
|
1,539 |
|
Special charges |
|
|
38 |
|
|
|
1,487 |
|
Accrued liabilities |
|
|
8,645 |
|
|
|
11,189 |
|
|
|
|
|
|
|
|
Total accrued liabilities |
|
$ |
41,453 |
|
|
$ |
47,622 |
|
|
|
|
|
|
|
|
Other long-term liabilities: |
|
|
|
|
|
|
|
|
Deferred liability |
|
$ |
1,254 |
|
|
$ |
754 |
|
Other |
|
|
10,843 |
|
|
|
10,386 |
|
|
|
|
|
|
|
|
Total other long-term liabilities |
|
$ |
12,097 |
|
|
$ |
11,140 |
|
|
|
|
|
|
|
|
52
4. Acquisitions
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
Crisas 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 Crisas 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 one of 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.
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 |
|
|
|
|
|
53
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 and $0.6 million for 2007 and 2006,
respectively. Trademarks and trade names are valued at approximately $8.9 million and are not
subject to amortization.
Crisas results of operations are included in our Consolidated Financial Statements starting
June 16, 2006. Prior to June 16, 2006, 49 percent of Crisas 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, along with comparative results for 2005, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
Net sales |
|
$ |
763,553 |
|
|
$ |
728,747 |
|
Earnings before interest and taxes |
|
$ |
29,791 |
|
|
$ |
4,774 |
|
Net loss |
|
$ |
(15,258 |
) |
|
$ |
(14,212 |
) |
Net loss per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.08 |
) |
|
$ |
(1.02 |
) |
Diluted |
|
$ |
(1.08 |
) |
|
$ |
(1.02 |
) |
Depreciation and amortization |
|
$ |
41,806 |
|
|
$ |
44,558 |
|
In June 2006, we announced plans to consolidate Crisas 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 10. 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.
Crisal
On January 10, 2005, we purchased from Vista Alegre Atlantis SGPS, SA (VAA) 95 percent of the
shares of Crisal located in Marinha Grande, Portugal. The cash transaction was valued
at 22.1 million, including acquisition costs. Our agreement with VAA contemplated that we would
acquire the remaining 5 percent of Crisal for either 1 Euro or 2 million, depending on Crisals
operating performance over a period of up to three years after the closing of the acquisition. In
addition, the agreement contemplated that, if Crisal met other specified EBITDA and net sales
targets, we would pay the seller an earn-out payment in the amount of 5.5 million no earlier
than three years after the closing date of January 10, 2005. The agreement contemplated that if any
contingent payments were made according to the agreement, the payments would be reflected as
additional purchase price.
On October 13, 2006, we settled certain acquisition price disputes with VAA by entering into
an agreement pursuant to which VAA transferred to Libbey Europe B.V., for 1 euro, the remaining
5 percent of Crisal that we did not acquire in January 2005. VAA also agreed to waive any earn-out
payment that otherwise might be payable in connection with the acquisition. To account for this
settlement, we adjusted goodwill by $.02 million.
Crisal manufactures and markets glass tableware, mainly tumblers, stemware and glassware
accessories, and the majority of its sales are in Portugal and Spain. This acquisition of another
European glassware manufacturer is complementary to our 2002 acquisition of Royal Leerdam, a maker
of fine European glass stemware. Royal Leerdams primary markets are located in countries in
northern Europe. These acquisitions are consistent with our growth strategy to be a supplier of
high-quality, machine-made glass tableware products to key markets worldwide. Crisal is included in
the International reporting segment.
54
Following is a summary of the adjusted fair values of the assets acquired and liabilities
assumed as of the date of acquisition:
|
|
|
|
|
Current assets |
|
$ |
13,216 |
|
Property, plant and equipment |
|
|
32,364 |
|
Intangible assets |
|
|
4,455 |
|
Goodwill |
|
|
3,332 |
|
|
|
|
|
Total assets acquired |
|
|
53,367 |
|
Less liabilities assumed: Current liabilities |
|
|
18,992 |
|
Long-term liabilities |
|
|
5,427 |
|
|
|
|
|
Total liabilities assumed |
|
|
24,419 |
|
|
|
|
|
Cash purchase price |
|
$ |
28,948 |
|
|
|
|
|
Intangible assets acquired of $4.5 million consist of trade names and customer lists and are
being amortized over an average life of 9.6 years. Crisals results of operations are included in
our Consolidated Financial Statements starting January 11, 2005. Pro forma results for both the
prior-year period and the period from January 1 through January 10, 2005, are not included, as they
are considered immaterial.
5. Software
Software consists of internally developed and purchased software 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. Software is reported net of
accumulated amortization.
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
Software |
|
$ |
21,381 |
|
|
$ |
20,127 |
|
Accumulated amortization |
|
|
16,493 |
|
|
|
15,423 |
|
|
|
|
|
|
|
|
Software net |
|
$ |
4,888 |
|
|
$ |
4,704 |
|
|
|
|
|
|
|
|
Amortization expense was $1.1 million, $0.9 million and $0.8 million for years 2007, 2006 and
2005, respectively.
6. 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.
|
|
Condensed statements of operations for Crisa (including adjustments for U.S. GAAP equity method
accounting) are as follows: |
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2006(1) |
|
|
2005 |
|
Total revenues |
|
$ |
87,520 |
|
|
$ |
191,801 |
|
Cost of sales |
|
|
71,204 |
|
|
|
165,815 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
16,316 |
|
|
|
25,986 |
|
Selling, general and administrative expenses |
|
|
10,993 |
|
|
|
23,154 |
|
|
|
|
|
|
|
|
Income from operations |
|
|
5,323 |
|
|
|
2,832 |
|
Remeasurement gain (loss) |
|
|
2,934 |
|
|
|
(1,284 |
) |
Other expense |
|
|
(103 |
) |
|
|
(1,533 |
) |
|
|
|
|
|
|
|
Earnings before interest and taxes |
|
|
8,154 |
|
|
|
15 |
|
Interest expense |
|
|
4,099 |
|
|
|
8,382 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
4,055 |
|
|
|
(8,367 |
) |
Income taxes |
|
|
1,006 |
|
|
|
931 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3,049 |
|
|
$ |
(9,298 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the period ended June 15, 2006. |
The above 2005 results have been adjusted to reflect the impact of the deferred profit sharing
and severance indemnity obligation items referred to in Crisas Report of Independent Registered
Public Accounting Firm.
55
For periods prior to June 16, 2006, we recorded 49 percent of Crisas income before income
taxes in the line equity earnings (loss)-pretax in our Consolidated Statements of Operations. We
recorded 49 percent of Crisas income taxes in the line provision (benefit) for income taxes in
our Consolidated Statements of Operations. These items are shown below:
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2006 |
|
|
2005 |
|
Equity earnings (loss) pretax |
|
$ |
1,986 |
|
|
$ |
(4,100 |
) |
Provision for income taxes |
|
|
493 |
|
|
|
456 |
|
|
|
|
|
|
|
|
Net equity earnings (loss) |
|
$ |
1,493 |
|
|
$ |
(4,556 |
) |
|
|
|
|
|
|
|
On our Consolidated Statements of Cash Flows, we recorded the net equity earnings (loss)
amount as a component of operating activities.
We tested for impairment of our investment in accordance with APB 18, The Equity Method of
Accounting for Investments in Common Stock. For all periods presented, no impairment exists.
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 companys
interest in the variable interest entity (VIE) is such that the company will absorb a majority of
the VIEs expected losses and/or receive a majority of the VIEs 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 (loss), dividends, certain
contractual technical assistance arrangements, and a distribution agreement giving us exclusive
distribution rights to sell Crisas 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 Crisas 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.
7. Purchased Intangible Assets and Goodwill
Purchased Intangibles
Changes in purchased intangibles balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Beginning balance |
|
$ |
31,492 |
|
|
$ |
10,778 |
|
Acquired (note 4) |
|
|
|
|
|
|
21,675 |
|
Amortization |
|
|
(1,650 |
) |
|
|
(1,842 |
) |
Foreign currency impact |
|
|
889 |
|
|
|
881 |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
30,731 |
|
|
$ |
31,492 |
|
|
|
|
|
|
|
|
Purchased intangible assets are composed of the following:
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
Indefinite life intangible assets |
|
$ |
16,143 |
|
|
$ |
15,753 |
|
Definite life intangible assets, net of accumulated amortization of $10,447 and $8,797 |
|
|
14,588 |
|
|
|
15,739 |
|
|
|
|
|
|
|
|
Total |
|
$ |
30,731 |
|
|
$ |
31,492 |
|
|
|
|
|
|
|
|
Amortization expense for definite life intangible assets was $1.7 million, $1.8 million and
$1.3 million for years 2007, 2006 and 2005, 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 review for 2007 and 2006,
did not indicate an impairment on our indefinite life intangible assets.
56
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 three to twenty years. The weighted average remaining life on
the definite life intangible assets is 10.8 years at December 31, 2007.
Future estimated amortization expense of definite life intangible assets is as follows:
|
|
|
|
|
|
|
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
$1,339
|
|
$1,339
|
|
$1,339
|
|
$1,201
|
|
$1,084 |
Goodwill
Changes in goodwill balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
North |
|
|
North |
|
|
|
|
|
|
|
|
|
|
North |
|
|
North |
|
|
|
|
|
|
|
|
|
American |
|
|
American |
|
|
|
|
|
|
|
|
|
|
American |
|
|
American |
|
|
|
|
|
|
|
|
|
Glass |
|
|
Other |
|
|
International |
|
|
Total |
|
|
Glass |
|
|
Other |
|
|
International |
|
|
Total |
|
Beginning balance |
|
$ |
151,120 |
|
|
$ |
14,317 |
|
|
$ |
9,443 |
|
|
$ |
174,880 |
|
|
$ |
26,293 |
|
|
$ |
14,317 |
|
|
$ |
10,215 |
|
|
$ |
50,825 |
|
49% investment in Crisa |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,347 |
|
|
|
|
|
|
|
|
|
|
|
69,347 |
|
51% investment in Crisa |
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
635 |
|
|
|
55,480 |
|
|
|
|
|
|
|
|
|
|
|
55,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired (note 4) |
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
635 |
|
|
|
124,827 |
|
|
|
|
|
|
|
|
|
|
|
124,827 |
|
Other |
|
|
1,484 |
|
|
|
|
|
|
|
(731 |
) |
|
|
753 |
|
|
|
|
|
|
|
|
|
|
|
(1,948 |
) |
|
|
(1,948 |
) |
Foreign currency impact |
|
|
|
|
|
|
|
|
|
|
1,092 |
|
|
|
1,092 |
|
|
|
|
|
|
|
|
|
|
|
1,176 |
|
|
|
1,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
153,239 |
|
|
$ |
14,317 |
|
|
$ |
9,804 |
|
|
$ |
177,360 |
|
|
$ |
151,120 |
|
|
$ |
14,317 |
|
|
$ |
9,443 |
|
|
$ |
174,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $69.3 million in 2006 represents the goodwill attributable to the original 49 percent
ownership in Crisa, which was included in investments on the Consolidated Balance Sheet prior to
the acquisition of the remaining 51 percent on June 16,
2006. The $56.1 (total for both 2007 and 2006) million relates to the
goodwill acquired with the purchase of the remaining 51 percent of Crisa. Other relates to
adjustments to the fair value of assets acquired and liabilities assumed related to the Royal
Leerdam acquisition and income tax adjustments affecting the fair value of assets acquired and
liabilities assumed related to the Crisa 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 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. Our review for 2007
and 2006, did not indicate an impairment on our goodwill.
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
Land |
|
$ |
23,859 |
|
|
$ |
22,570 |
|
Buildings |
|
|
81,010 |
|
|
|
64,825 |
|
Machinery and equipment |
|
|
410,183 |
|
|
|
343,132 |
|
Furniture and fixtures |
|
|
13,735 |
|
|
|
13,943 |
|
Construction in progress |
|
|
14,783 |
|
|
|
57,850 |
|
|
|
|
|
|
|
|
Gross property, plant and equipment |
|
|
543,570 |
|
|
|
502,320 |
|
Less accumulated depreciation |
|
|
218,681 |
|
|
|
190,079 |
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
$ |
324,889 |
|
|
$ |
312,241 |
|
|
|
|
|
|
|
|
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.
Depreciation expense was $38.8 million, $32.9 million and $30.4 million for the years 2007, 2006,
and 2005, respectively.
57
Under SFAS No. 144, long-lived assets are tested for recoverability if certain events or
changes in circumstances indicate that the carrying value may not be recoverable.
9. Borrowings
On June 16, 2006, Libbey Glass Inc. issued, $306.0 million aggregate principal amount of
floating rate senior secured notes (Senior Notes) and $102.0 million aggregate principal amount of
senior subordinated secured pay-in-kind notes (PIK Notes), both due 2011. Concurrently, Libbey
Glass Inc. entered into a new $150 million Asset Based Loan facility (ABL Facility) expiring in
2010. Fair value of all debt approximates carrying value.
Borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
December 31, |
|
December 31, |
|
|
Rate |
|
Maturity Date |
|
2007 |
|
2006 |
Borrowings under ABL facility |
|
Floating |
|
December 16, 2010 |
|
$ |
7,366 |
|
|
$ |
46,210 |
|
Senior notes |
|
Floating (1) |
|
June 1, 2011 |
|
|
306,000 |
|
|
|
306,000 |
|
PIK notes (2) |
|
16.00% |
|
December 1, 2011 |
|
|
127,697 |
|
|
|
109,480 |
|
Promissory note |
|
6.00% |
|
January 2008 to September 2016 |
|
|
1,830 |
|
|
|
1,985 |
|
Notes payable |
|
Floating |
|
January 2008 |
|
|
622 |
|
|
|
226 |
|
RMB loan contract |
|
Floating |
|
July 2012 to January 2014 |
|
|
34,275 |
|
|
|
32,050 |
|
RMB working capital loan |
|
Floating |
|
March 2010 |
|
|
6,855 |
|
|
|
|
|
Obligations under capital leases |
|
Floating |
|
January 2008 to May 2009 |
|
|
1,018 |
|
|
|
1,548 |
|
BES Euro line |
|
Floating |
|
January 2010 to January 2014 |
|
|
15,962 |
|
|
|
|
|
Other debt |
|
Floating |
|
September 2009 |
|
|
1,432 |
|
|
|
1,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
|
|
|
|
503,057 |
|
|
|
499,453 |
|
Less unamortized discounts and warrants |
|
|
|
|
|
|
6,423 |
|
|
|
8,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings net |
|
|
|
|
|
|
496,634 |
|
|
|
491,232 |
|
Less current portion of borrowings |
|
|
|
|
|
|
1,535 |
|
|
|
1,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion of borrowings net |
|
|
|
|
|
$ |
495,099 |
|
|
$ |
490,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Interest Rate Protection Agreements below. |
|
(2) |
|
Additional PIK notes were issued on June 1, 2007,
December 1, 2007 and 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 borrowings for the next six years are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 & After |
$1,535
|
|
$1,956
|
|
$16,029
|
|
$429,883
|
|
$13,109
|
|
$34,122 |
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 Europes 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. Swing line U.S. dollar
borrowings bear interest calculated at the prime rate plus the Applicable Rate for ABR (Alternate
Base Rate) Loans, 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 ABR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The
Applicable Rates for ABR Loans and Eurocurrency Loans were 0 percent and 1.75 percent,
respectively, at December 31, 2007. There were no Libbey Glass borrowings under the facility at
December 31, 2007 and December 31, 2006, while Libbey Europe had outstanding borrowings of $7.4
million and $46.2 million at December 31, 2007 and December 31, 2006, respectively. The interest
rate was 6.63 percent and 5.50 percent at December 31,
2007 and December 31, 2006, respectively.
Interest is payable the last day of the interest period, that can range from one month to six
months.
58
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 Glasss 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 Glasss present and future
direct and indirect domestic subsidiaries, (c) 100 percent of the non-voting stock of substantially
all of Libbey Glasss first-tier present and future foreign subsidiaries and (d) 65 percent of the
voting stock of substantially all of Libbey Glasss 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, 2007. No compensating balances are required by the Agreement. The
Agreement does not require compliance with restrictive financial covenants, unless aggregate unused
availability falls below $25.0 million.
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 $8.0
million and mark-to-market reserves for natural gas and interest rate swaps of $5.5 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, 2007, we had $8.4 million in letters of
credit outstanding under the ABL Facility. Remaining unused availability on the ABL Facility was
$89.7 million at December 31, 2007 and $44.7 million at
December 31, 2006.
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
interest rate was 11.91 percent at December 31, 2007.
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 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, 2007, 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 1.9 years at December 31, 2007. Total
remaining Senior Notes not covered by the Rate Agreements have fluctuating interest rates with a
weighted average rate of 11.91 percent per year at December 31, 2007. 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 counterparties credit ratings were rated AA- or better as of December 2007, by
Standard and Poors.
The fair market value for the Rate Agreements at December 31, 2007, was ($5.3) million. 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 Glasss existing and future
domestic subsidiaries that guarantee any of Libbey Glasss debt or debt of any subsidiary guarantor
(see Note 22). 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
59
assets of Libbey Glass and its domestic subsidiary guarantors that secure all of the indebtedness
under Libbey Glasss 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 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. At December 31, 2007, additional PIK Notes for interest that have been issued, bring the
total principal amount of PIK Notes to $127.7 million.
The obligations of Libbey Glass under the PIK Notes are guaranteed by Libbey Inc. and all of
Libbey Glasss existing and future domestic subsidiaries that guarantee any of Libbey Glasss debt
or debt of any subsidiary guarantor (see Note 22). 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, 2007, and December 31, 2006, we had $1.8
million and $2.0 million, respectively, outstanding on the promissory note. Interest with respect
to the promissory note is paid monthly.
Notes Payable
We have an overdraft line of credit for a maximum of 1.8 million. The $0.6 million
outstanding at December 31, 2007, was the U.S. dollar equivalent under the euro-based overdraft
line and the interest rate was 5.36 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 $34.3 million, for the construction of our production facility in China and the
purchase of related equipment, materials and services. The loan has a term of eight years and bears
interest at a variable rate as announced by the Peoples Bank of China. As of the date of the
initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of
December 31, 2007, the annual interest rate was 6.56 percent. As of December 31, 2007, the
outstanding balance was RMB 250.0 million (approximately $34.3 million). Interest is payable
quarterly. Payments of principal in the amount of RMB 30.0 million (approximately $4.2 million) and
RMB 40.0 million (approximately $5.5 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 $8.2
million) each must be made on July 20, 2013, December 20, 2013, and January 20, 2014, respectively.
The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit
of CCB.
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 6.30 percent, and is
secured by a Libbey Inc. guarantee. At December 31, 2007, the U.S. dollar equivalent on the line
was $6.9 million. Interest is payable quarterly.
60
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 Sheet 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, 2007,
are as follows:
Payments Due by Period
|
|
|
|
|
2008 |
|
2009-2010 |
|
2011-2012 |
$703
|
|
$315
|
|
$ |
BES Euro Line
In January 2007, Crisal entered into a seven year, 11.0 million line of credit
(approximately $16.2 million) with Banco Espírito Santo, S.A. (BES). The $16.0 million outstanding
at December 31, 2007, was the U.S. dollar equivalent under the line at an interest rate of 5.60
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 $2.4 million) is due in January 2011,
payment of 2.2 million (approximately $3.2 million) is due in January 2012, payment of 2.8
million (approximately $4.1 million) is due in January 2013 and payment of 3.3 million
(approximately $4.9 million) is due in January 2014. Interest with respect to the line is paid
every six months.
Other Debt
The other debt of $1.4 million consists primarily of government-subsidized loans for equipment
purchases at Crisal.
10. Special Charges
Capacity Realignment
In August 2004, we announced that we were realigning our production capacity in order to
improve our cost structure. In mid-February 2005, we ceased operations at our manufacturing
facility in City of Industry, California, and began realignment of production among our other
domestic glass manufacturing facilities.
During 2005, we recorded a pretax charge of $1.1 million related to the closure of the City of
Industry facility and realignment of our production capacity. The $1.1 million was recorded in the
line item special charges. These charges were for employee termination costs, the write-down of
fixed assets, and to recognize the land sale gain. Employee termination costs primarily include
severance, medical benefits and outplacement services for the 140-hourly and salary employees that
were terminated. The write-down of fixed assets of $1.8 million was to write-down certain machinery
and equipment to reflect changes in estimated fair value. In December 2004, we sold approximately
27 acres of property in City of Industry, California, for net proceeds of $16.6 million (recorded
as deposit liability). Pursuant to the purchase agreement, the buyer leased the property back to us
in order to enable us to cease operations, to relocate certain equipment to our other glassware
manufacturing facilities, to demolish the buildings on the property and perform related site work,
as required by the contract. All demolition and required remediation was completed by December 31,
2005, and as such we recorded a net gain on the sale of $4.5 million in 2005. 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.
61
The following table summarizes the capacity realignment charge incurred in 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Twelve |
|
|
Twelve |
|
|
|
Months |
|
|
Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Fixed asset write-down |
|
$ |
|
|
|
$ |
1,827 |
|
Net gain on land sale |
|
|
(359 |
) |
|
|
(4,508 |
) |
Employee termination cost & other |
|
|
61 |
|
|
|
3,754 |
|
|
|
|
|
|
|
|
Included in capacity realignment charge |
|
|
(298 |
) |
|
|
1,073 |
|
|
|
|
|
|
|
|
Total pretax capacity realignment charge |
|
$ |
(298 |
) |
|
$ |
1,073 |
|
|
|
|
|
|
|
|
There were no special charges incurred in 2007 related to the capacity realignment.
The following reflects the balance sheet activity related to the capacity realignment for the
years ended December 31, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve |
|
|
|
Balances at |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
January 1, |
|
|
(Credit) to |
|
|
Cash |
|
|
Non-cash |
|
|
December 31, |
|
|
|
2007 |
|
|
Earnings |
|
|
Payments |
|
|
Utilization |
|
|
2007 |
|
Land sale gain |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Employee termination costs & other |
|
|
105 |
|
|
|
|
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
105 |
|
|
$ |
|
|
|
$ |
(105 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Reserve |
|
|
|
Balances at |
|
|
Charge |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
January 1, |
|
|
(Credit) to |
|
|
Cash |
|
|
Non-cash |
|
|
December 31, |
|
|
|
2006 |
|
|
Earnings |
|
|
Payments |
|
|
Utilization |
|
|
2006 |
|
Land sale gain |
|
$ |
1,055 |
|
|
$ |
(359 |
) |
|
$ |
(696 |
) |
|
$ |
|
|
|
$ |
|
|
Employee termination costs & other |
|
|
70 |
|
|
|
61 |
|
|
|
(26 |
) |
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,125 |
|
|
$ |
(298 |
) |
|
$ |
(722 |
) |
|
$ |
|
|
|
$ |
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2006 activity reflects changes in accounting estimates of the reserves on the employee
termination costs and the site clean up costs.
The ending balance of $0.1 million for 2006 was included in accrued liabilities on the
Consolidated Balance Sheets.
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:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Pension & retiree welfare |
|
$ |
|
|
|
$ |
867 |
|
|
|
|
|
|
|
|
Included in cost of sales |
|
|
|
|
|
|
867 |
|
Pension & retiree welfare |
|
|
|
|
|
|
1,347 |
|
|
|
|
|
|
|
|
Included in selling, general and administrative expenses |
|
|
|
|
|
|
1,347 |
|
Employee termination costs |
|
|
(70 |
) |
|
|
2,494 |
|
|
|
|
|
|
|
|
Included in special charges |
|
|
(70 |
) |
|
|
2,494 |
|
|
|
|
|
|
|
|
Total pretax salaried workforce reduction charge |
|
$ |
(70 |
) |
|
$ |
4,708 |
|
|
|
|
|
|
|
|
62
There were no special charges incurred in 2007 related to the salaried workforce reduction
program.
The 2006 activity represents a change in accounting estimate of our employee termination
reserve as of December 31, 2006.
The pension and retiree welfare expenses are further explained in notes 12 and 13. Employee
termination costs primarily include severance, medical benefits and outplacement services for the
70 salary employees that were terminated.
The following reflects the balance sheet activity related to the salaried workforce reduction
program for the year ended December 31, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
January 1, |
|
|
Total Credit |
|
|
Cash |
|
|
Non-cash |
|
|
December 31, |
|
|
|
2006 |
|
|
to Earnings |
|
|
Payments |
|
|
Utilization |
|
|
2006 |
|
Employee termination costs |
|
$ |
877 |
|
|
$ |
(70 |
) |
|
$ |
(588 |
) |
|
$ |
|
|
|
$ |
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
877 |
|
|
$ |
(70 |
) |
|
$ |
(588 |
) |
|
$ |
|
|
|
$ |
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2006 activity reflects a change in accounting estimate of the reserves on the employee
termination costs.
The employee termination costs for 2007 and 2006 are included in accrued liabilities on the
Consolidated Balance Sheets. These charges were recorded in the North American Glass and North
American Other reporting segments.
Syracuse China Asset Impairment and Other Charges
In 2005 we recognized impairment and other charges of $16.5 million associated with Syracuse
China. As discussed further below, these charges related to a write down of inventories to fair
value, impairment of goodwill and other intangibles and an impairment of long-lived assets.
An analysis was done to determine the appropriate carrying value of inventory located at
Syracuse China. A lower of cost or market adjustment was recorded during the fourth quarter of 2005
in the amount of $1.1 million to properly state our ending inventory values. This charge was
included in cost of sales on the Consolidated Statements of Operations.
Goodwill and intangible assets were tested for impairment in accordance with SFAS No. 142.
Our review indicated an impairment of goodwill and intangibles of $9.2 million existed at our
Syracuse China facility during 2005. This impairment was recorded in the North American Other
reporting segment.
During 2005, we recorded $6.3 million of reductions 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 may
not be recoverable. We noted indicators during the fourth quarter of 2005 that the carrying value
of our long-lived assets may not be recoverable and performed an impairment review based upon an
analysis of the undiscounted future cash flows associated with those fixed assets. We then recorded
impairment charges, for property, plant and equipment, based on the amounts by which the carrying
amounts of these assets exceeded their fair value. Fair value was determined by independent outside
appraisals. These charges are included in special charges on the Consolidated Statements of
Operations and are included within the North American Other reporting segment.
Pension Settlement Accounting
As part of our capacity realignment and salaried workforce reduction efforts mentioned above,
we incurred pension settlement charges. The pension settlement charges were triggered by excess
lump sum distributions taken by employees during 2005 relating to the reduction in employment
levels for our capacity realignment and our salaried workforce reduction program discussed above
which
63
required us to record unrecognized gains and losses in our pension plan accounts. The total
pension settlement accounting charges were $4.9 million, which is included in the line item
special charges on the Consolidated Statements of Operations. See note 12 for further discussion.
These charges are included in the North American Glass and North American Other reporting segments.
Crisa Restructuring
In June 2006, we announced plans to consolidate Crisas 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:
|
|
|
|
|
|
|
Twelve Months |
|
|
|
Ended December 31, |
|
|
|
2006 |
|
Fixed asset write-down |
|
$ |
16,702 |
|
Inventory write-down |
|
|
2,158 |
|
|
|
|
|
Included in special charges |
|
|
18,860 |
|
|
|
|
|
Total Crisa restructuring charge |
|
$ |
18,860 |
|
|
|
|
|
The following reflects the balance sheet activity related to the Crisa restructuring for the
years ended December 31, 2007 and December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Total (Credit) |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
January 1, |
|
|
Charge |
|
|
Cash |
|
|
Non-cash |
|
|
December 31, |
|
|
|
2007 |
|
|
to Earnings |
|
|
Payments |
|
|
Utilization |
|
|
2007 |
|
Fixed asset write-down |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Inventory write-down |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination costs & other |
|
|
1,163 |
|
|
|
|
|
|
|
(634 |
) |
|
|
(529 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,163 |
|
|
$ |
|
|
|
$ |
(634 |
) |
|
$ |
(529 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Total (Credit) |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
January 1, |
|
|
Charge |
|
|
Cash |
|
|
Non-cash |
|
|
December 31, |
|
|
|
2006 |
|
|
to Earnings |
|
|
Payments |
|
|
Utilization |
|
|
2006 |
|
Fixed asset write-down |
|
$ |
|
|
|
$ |
16,702 |
|
|
$ |
|
|
|
$ |
(16,702 |
) |
|
$ |
|
|
Inventory write-down |
|
|
|
|
|
|
2,158 |
|
|
|
|
|
|
|
(2,158 |
) |
|
|
|
|
Employee termination costs & other |
|
|
|
|
|
|
|
|
|
|
(2,065 |
) |
|
|
3,228 |
|
|
|
1,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
18,860 |
|
|
$ |
(2,065 |
) |
|
$ |
(15,632 |
) |
|
$ |
1,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The employee termination costs and other in other non-cash utilization of $0.5 million in 2007
reflects changes in accounting estimate. 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.
The employee termination costs and other of $1.2 million are included in accrued liabilities
on the December 31, 2006 Consolidated Balance Sheet and are recorded within the North American
Glass reporting segment.
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.
64
Summary of Total Special Charges
The following table summarizes the special charges mentioned above and their classifications
in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Cost of sales |
|
$ |
2,158 |
|
|
$ |
1,965 |
|
Selling, general and administrative expenses |
|
|
|
|
|
|
1,347 |
|
Impairment of goodwill and other intangible assets |
|
|
|
|
|
|
9,179 |
|
Special charges |
|
|
16,334 |
|
|
|
14,745 |
|
Interest expense |
|
|
4,906 |
|
|
|
|
|
|
|
|
|
|
|
|
Total special charges |
|
$ |
23,398 |
|
|
$ |
27,236 |
|
|
|
|
|
|
|
|
There were no special charges in the Consolidated Statement of Operations for 2007.
The following table summarizes the special charges mentioned above and their classifications
in the Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months |
|
|
Twelve Months |
|
|
Twelve Months |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Total special charges expense |
|
$ |
|
|
|
$ |
23,398 |
|
|
$ |
27,236 |
|
Capacity realignment cash payments |
|
|
(105 |
) |
|
|
(722 |
) |
|
|
(9,311 |
) |
Salaried workforce reduction cash payments |
|
|
(181 |
) |
|
|
(588 |
) |
|
|
(1,383 |
) |
Crisa restructuring cash payments |
|
|
(634 |
) |
|
|
(2,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special charges expense in excess of (less than) cash payments |
|
$ |
(920 |
) |
|
$ |
20,023 |
|
|
$ |
16,542 |
|
|
|
|
|
|
|
|
|
|
|
11. Income Taxes
The provisions (benefits) for income taxes were calculated based on the following components
of earnings (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
United States |
|
$ |
(11,871 |
) |
|
$ |
(13,295 |
) |
|
$ |
(18,537 |
) |
Non-U.S. |
|
|
20,862 |
|
|
|
(15,285 |
) |
|
|
(7,168 |
) |
|
|
|
|
|
|
|
|
|
|
Total earnings (loss) before tax |
|
$ |
8,991 |
|
|
$ |
(28,580 |
) |
|
$ |
(25,705 |
) |
|
|
|
|
|
|
|
|
|
|
The
current and deferred provisions (benefits) for income taxes were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
(6,768 |
) |
|
$ |
(7,502 |
) |
|
$ |
5,614 |
|
Non-U.S. |
|
|
3,207 |
|
|
|
3,059 |
|
|
|
2,743 |
|
U.S. state and local |
|
|
132 |
|
|
|
(85 |
) |
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
Total current income tax (benefit) provision |
|
|
(3,429 |
) |
|
|
(4,528 |
) |
|
|
8,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
|
16,752 |
|
|
|
1,409 |
|
|
|
(14,374 |
) |
Non-U.S. |
|
|
(2,183 |
) |
|
|
(4,199 |
) |
|
|
(3,010 |
) |
U.S. state and local |
|
|
158 |
|
|
|
(429 |
) |
|
|
2,183 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision (benefit) |
|
|
14,727 |
|
|
|
(3,219 |
) |
|
|
(15,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
|
9,984 |
|
|
|
(6,093 |
) |
|
|
(8,760 |
) |
Non-U.S. |
|
|
1,024 |
|
|
|
(1,140 |
) |
|
|
(267 |
) |
U.S. state and local |
|
|
290 |
|
|
|
(514 |
) |
|
|
2,643 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit) |
|
$ |
11,298 |
|
|
$ |
(7,747 |
) |
|
$ |
(6,384 |
) |
|
|
|
|
|
|
|
|
|
|
65
The significant components of our deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Pension |
|
$ |
18,099 |
|
|
$ |
24,238 |
|
Nonpension postretirement benefits |
|
|
18,181 |
|
|
|
15,385 |
|
Other accrued liabilities |
|
|
21,542 |
|
|
|
17,227 |
|
Receivables |
|
|
1,843 |
|
|
|
2,241 |
|
Net operating loss carry forwards |
|
|
8,923 |
|
|
|
9,749 |
|
Tax credits |
|
|
8,016 |
|
|
|
4,441 |
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
|
76,604 |
|
|
|
73,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
29,032 |
|
|
|
30,926 |
|
Inventories |
|
|
9,360 |
|
|
|
11,085 |
|
Intangibles and other assets |
|
|
12,964 |
|
|
|
13,601 |
|
|
|
|
|
|
|
|
Total deferred income tax liabilities |
|
|
51,356 |
|
|
|
55,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset before valuation allowance |
|
|
25,248 |
|
|
|
17,669 |
|
Valuation allowance |
|
|
(28,855 |
) |
|
|
(6,575 |
) |
|
|
|
|
|
|
|
Net deferred income tax (liability) asset |
|
$ |
(3,607 |
) |
|
$ |
11,094 |
|
|
|
|
|
|
|
|
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, |
|
2007 |
|
|
2006 |
|
Current deferred income tax asset |
|
$ |
|
|
|
$ |
4,120 |
|
Noncurrent deferred income tax asset |
|
|
855 |
|
|
|
6,974 |
|
|
|
|
|
|
|
|
|
|
Current deferred income tax liability |
|
|
(4,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax (liability) asset |
|
$ |
(3,607 |
) |
|
$ |
11,094 |
|
|
|
|
|
|
|
|
The 2007 deferred income tax 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 federal net operating loss will be carried back
to offset taxable income reported in previous years; therefore, no deferred income tax asset has
been established on the loss. Our
foreign net operating loss carry forwards of $33.5 million will expire before 2017. The
state net operating loss carry forward of $23.1 million will
expire by 2027. The 2006 deferred
asset for net operating loss carry forwards of $9.8 million relates to pre-tax losses incurred in
the Netherlands of $16.7 million, in Mexico of $8.3 million, in Portugal of $11.0 million, and in
U.S. state jurisdictions of $19.1 million.
The Company has a tax holiday in China, which will expire in 2013. In 2007, the Company
recognized no benefit from the tax holiday.
The 2007 deferred tax credits of $8.0 million consist of $1.7 million U.S. federal tax
credits, $1.7 million of U.S. state tax credits and $4.6 million foreign credits. The U.S. federal
tax credits are foreign tax credits associated with undistributed earnings of our Canadian
operations, which are not permanently reinvested and general business
credits. The $1.7 million U.S. state tax credits are primarily
related to investment tax credits and will expire between 2008 and
2019. The foreign credits
of $4.6 million consist of $4.4 million in foreign tax credits
that can be carried over indefinitely and $0.2 million in
technology credits that expire in 2017. The
2006 deferred tax credits
66
of $4.4 million consist of $2.0 million U.S. federal tax credits and
$2.4 million of U.S. state tax credits. The U.S. federal tax credits are foreign tax credits
associated with undistributed earnings of our Canadian operations, which are not permanently
reinvested.
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.
During the
fourth quarter of 2007, we concluded that it was no longer more
likely than not that we
would realize our U.S. deferred income tax assets because of 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. As a result, we increased our U.S. valuation allowance from $2.5 million to $21.0
million to record a full valuation allowance against these assets. The increase in valuation
allowance of $18.5 million was recorded through a $15.3 million charge to provision for income
taxes and a $3.2 million charge to other comprehensive income. These changes in circumstances
would have increased the beginning of year valuation allowance by approximately $14.9 million. In
addition, the Company evaluated the potential realization of deferred
income tax assets for foreign
locations on a jurisdiction-by-jurisdiction basis. In jurisdictions where management believes it is
more likely than not that the foreign deferred income tax asset may not be realized in the future, the
Company has recorded a valuation allowance against the foreign net
deferred income tax asset. Utilization
of net operating losses in these jurisdictions resulted in a $0.6 million reduction in foreign
valuation allowances in 2007; however, significant negative evidence continues to exist to require
a valuation allowance against the net assets.
Reconciliation from the statutory U.S. federal income tax rate of 35% to the consolidated
effective income tax rate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2007 |
|
2006 |
|
2005 |
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 |
|
|
(73.2 |
) |
|
|
3.9 |
|
|
|
(8.7 |
) |
U.S. state and local income taxes, net of related U.S. federal income taxes |
|
|
6.2 |
|
|
|
1.7 |
|
|
|
(6.7 |
) |
U.S. federal credits |
|
|
(5.9 |
) |
|
|
0.5 |
|
|
|
0.4 |
|
Foreign permanent adjustments |
|
|
32.1 |
|
|
|
1.7 |
|
|
|
|
|
Foreign federal credits |
|
|
(21.6 |
) |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
162.9 |
|
|
|
(10.8 |
) |
|
|
|
|
Other |
|
|
(9.8 |
) |
|
|
(4.9 |
) |
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated effective income tax rate |
|
|
125.7 |
% |
|
|
27.1 |
% |
|
|
24.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
67
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, |
|
2007 |
|
|
2006 |
|
U.S. federal |
|
$ |
5,804 |
|
|
$ |
5,705 |
|
Non-U.S. |
|
|
(167 |
) |
|
|
1,983 |
|
U.S. state and local |
|
|
884 |
|
|
|
829 |
|
|
|
|
|
|
|
|
Total prepaid income taxes |
|
$ |
6,521 |
|
|
$ |
8,517 |
|
|
|
|
|
|
|
|
U.S. income taxes and non-U.S. withholding taxes were not provided for on a cumulative total of
approximately $35.0 million 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.
Effective January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxesan interpretation of FASB Statement No. 109, (FIN 48). As a result of the
implementation of FIN 48, we recorded a $6.7 million decrease in the net income tax asset for
unrecognized income tax benefits, offset by an increase in net deferred income tax asset of $6.7
million, with no cumulative effect on retained earnings. This net
amount differs from the gross unrecognized tax benefits of $7.2
million presented in the table below because of the indirect effect
of the state unrecognized tax benefit. At December 31, 2007, we had $2.7 million
of total gross unrecognized tax benefits, of which approximately $1.3 million 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:
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
7,162 |
|
|
|
|
|
|
Additions based on tax positions related to the current year |
|
|
143 |
|
Additions for tax positions of prior years |
|
|
1,090 |
|
Reductions for tax positions of prior years |
|
|
(2,754 |
) |
Reductions due to lapse of statute of limitations |
|
|
(2,201 |
) |
Reductions due to settlements with tax authorities |
|
|
(711 |
) |
|
|
|
|
Balance at December 31, 2007 |
|
$ |
2,729 |
|
|
|
|
|
We recognize interest and penalties accrued related to unrecognized tax benefits in the provision
for income taxes. At December 31, 2007 and January 1, 2007, we had $3.0 million accrued for
interest and penalties, net of tax benefit.
We file income tax returns in the U.S. federal jurisdiction, and various states and foreign
jurisdictions. As of December 31, 2007, the tax years that remained subject to examination by
major tax jurisdictions were as follows:
|
|
|
Jurisdiction |
|
Open Years |
Canada
|
|
2004-2007 |
China
|
|
2006-2007 |
Mexico
|
|
2002-2007 |
Netherlands
|
|
2006-2007 |
Portugal
|
|
2004-2007 |
United States
|
|
2004-2007 |
68
We are currently under examination by the U.S. Internal Revenue Service for our 2006 tax year 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.
12. Pension
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 the 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.
As disclosed in note 1, we adopted SFAS No. 158, effective December 31, 2006. The following
table summarizes the impact of the adoption of SFAS No. 158 on the Consolidated Balance Sheet at
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of SFAS No. |
|
|
|
|
Prior to SFAS |
|
158 Adoption |
|
After SFAS No. 158 |
|
|
No. 158 Adoption |
|
Increase/(Decrease) |
|
Adoption |
Intangible pension asset |
|
$ |
15,070 |
|
|
$ |
(15,070 |
) |
|
$ |
|
|
Pension liability |
|
$ |
(12,561 |
) |
|
$ |
(66,002 |
) |
|
$ |
(78,563 |
) |
Additional minimum liability |
|
$ |
(47,761 |
) |
|
$ |
47,761 |
|
|
$ |
|
|
Accumulated other comprehensive income-pre-tax |
|
$ |
32,691 |
|
|
$ |
33,311 |
|
|
$ |
66,002 |
|
69
Effect on Operations
The components of our net pension expense (credit), including the SERP, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
|
Total |
|
Year ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Service cost
(benefits earned
during the period) |
|
$ |
5,923 |
|
|
$ |
5,998 |
|
|
$ |
6,265 |
|
|
$ |
1,849 |
|
|
$ |
1,479 |
|
|
$ |
943 |
|
|
$ |
7,772 |
|
|
$ |
7,477 |
|
|
$ |
7,208 |
|
Interest cost on
projected benefit
obligation |
|
|
14,606 |
|
|
|
13,824 |
|
|
|
14,132 |
|
|
|
4,013 |
|
|
|
2,727 |
|
|
|
1,620 |
|
|
|
18,619 |
|
|
|
16,551 |
|
|
|
15,752 |
|
Expected return on
plan assets |
|
|
(16,039 |
) |
|
|
(15,732 |
) |
|
|
(17,049 |
) |
|
|
(2,750 |
) |
|
|
(2,287 |
) |
|
|
(2,180 |
) |
|
|
(18,789 |
) |
|
|
(18,019 |
) |
|
|
(19,229 |
) |
Amortization of
unrecognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
2,086 |
|
|
|
2,083 |
|
|
|
1,914 |
|
|
|
(187 |
) |
|
|
(177 |
) |
|
|
(395 |
) |
|
|
1,899 |
|
|
|
1,906 |
|
|
|
1,519 |
|
Loss |
|
|
2,140 |
|
|
|
2,552 |
|
|
|
2,548 |
|
|
|
347 |
|
|
|
151 |
|
|
|
|
|
|
|
2,487 |
|
|
|
2,703 |
|
|
|
2,548 |
|
Transition obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143 |
|
|
|
185 |
|
|
|
|
|
|
|
143 |
|
|
|
185 |
|
|
|
|
|
Curtailment charge |
|
|
|
|
|
|
|
|
|
|
1,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,635 |
|
Settlement charge |
|
|
|
|
|
|
2,045 |
|
|
|
4,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,045 |
|
|
|
4,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense
(credit) |
|
$ |
8,716 |
|
|
$ |
10,770 |
|
|
$ |
14,366 |
|
|
$ |
3,415 |
|
|
$ |
2,078 |
|
|
$ |
(12 |
) |
|
$ |
12,131 |
|
|
$ |
12,848 |
|
|
$ |
14,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We incurred pension settlement charges of $2.0 million and $4.9 million during December 31,
2006 and December 31, 2005. 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.
In the second quarter of 2005, we incurred a pension curtailment charge of $1.6 million as a
result of a planned reduction of approximately 70 employees in our North American salaried
workforce. Due to the reduction of the salaried workforce, the U.S. pension plans were revalued as
of June 30, 2005. At this time, the discount rate was reduced from 5.75 percent to 5.00 percent.
This revaluation resulted in additional net periodic benefit cost of $0.3 million in 2005. This
amount is included in the above table. The normal measurement date of the U.S. and non-U.S. plans
is December 31st. The salaried workforce reduction plan is explained in further detail in note 10.
Actuarial Assumptions
Following are the assumptions used to determine the financial statement impact for our pension
plan benefits for 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
Discount rate |
|
6.16% to 6.32 |
% |
|
5.82% to 5.91 |
% |
|
|
5.60 |
% |
|
5.50% to 8.50 |
% |
|
4.50% to 8.75 |
% |
|
|
4.25 |
% |
Expected long-term rate of
return on plan assets |
|
|
8.50 |
% |
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
6.50 |
% |
|
|
6.50 |
% |
|
|
6.50 |
% |
Rate of compensation increase |
|
3.0% to 6.0 |
% |
|
|
3.0 to 6.0 |
% |
|
|
3.0 to 6.0 |
% |
|
2.0% to 4.3 |
% |
|
|
2.0 to 3.5 |
% |
|
|
2.0 to 2.5 |
% |
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
70
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 is as follows:
|
|
|
A change of 1 percent in the discount rate would change our total pension expense by
approximately $1.3 million. |
|
|
|
|
A change of 1 percent in the expected long-term rate of return on plan assets would
change total pension expense by approximately $2.6 million based on year-end data. |
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, |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year |
|
$ |
253,301 |
|
|
$ |
253,719 |
|
|
$ |
65,743 |
|
|
$ |
34,453 |
|
|
$ |
319,044 |
|
|
$ |
288,172 |
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,499 |
|
|
|
|
|
|
|
16,499 |
|
Service cost |
|
|
5,923 |
|
|
|
5,998 |
|
|
|
1,849 |
|
|
|
1,479 |
|
|
|
7,772 |
|
|
|
7,477 |
|
Interest cost |
|
|
14,606 |
|
|
|
13,824 |
|
|
|
4,013 |
|
|
|
2,727 |
|
|
|
18,619 |
|
|
|
16,551 |
|
Plan amendments |
|
|
2,537 |
|
|
|
|
|
|
|
|
|
|
|
2,463 |
|
|
|
2,537 |
|
|
|
2,463 |
|
Exchange rate fluctuations |
|
|
|
|
|
|
|
|
|
|
4,593 |
|
|
|
4,547 |
|
|
|
4,593 |
|
|
|
4,547 |
|
Actuarial (gains) loss |
|
|
(7,057 |
) |
|
|
(5,404 |
) |
|
|
(2,427 |
) |
|
|
7,084 |
|
|
|
(9,484 |
) |
|
|
1,680 |
|
Plan participants contributions |
|
|
|
|
|
|
|
|
|
|
1,099 |
|
|
|
|
|
|
|
1,099 |
|
|
|
|
|
Settlement |
|
|
|
|
|
|
2,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,914 |
|
Benefits paid |
|
|
(15,496 |
) |
|
|
(17,750 |
) |
|
|
(2,098 |
) |
|
|
(3,509 |
) |
|
|
(17,594 |
) |
|
|
(21,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year |
|
$ |
253,814 |
|
|
$ |
253,301 |
|
|
$ |
72,772 |
|
|
$ |
65,743 |
|
|
$ |
326,586 |
|
|
$ |
319,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year |
|
$ |
199,023 |
|
|
$ |
193,186 |
|
|
$ |
41,458 |
|
|
$ |
34,385 |
|
|
$ |
240,481 |
|
|
$ |
227,571 |
|
Actual return on plan assets |
|
|
12,376 |
|
|
|
23,180 |
|
|
|
1,046 |
|
|
|
1,162 |
|
|
|
13,422 |
|
|
|
24,342 |
|
Exchange rate fluctuations |
|
|
|
|
|
|
|
|
|
|
5,108 |
|
|
|
4,280 |
|
|
|
5,108 |
|
|
|
4,280 |
|
Employer contributions |
|
|
11,040 |
|
|
|
407 |
|
|
|
2,691 |
|
|
|
1,462 |
|
|
|
13,731 |
|
|
|
1,869 |
|
Plan participants contributions |
|
|
|
|
|
|
|
|
|
|
1,099 |
|
|
|
896 |
|
|
|
1,099 |
|
|
|
896 |
|
Benefits paid |
|
|
(15,496 |
) |
|
|
(17,750 |
) |
|
|
(2,098 |
) |
|
|
(727 |
) |
|
|
(17,594 |
) |
|
|
(18,477 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year |
|
$ |
206,943 |
|
|
$ |
199,023 |
|
|
$ |
49,304 |
|
|
$ |
41,458 |
|
|
$ |
256,247 |
|
|
$ |
240,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded ratio |
|
|
81.5 |
% |
|
|
78.6 |
% |
|
|
67.8 |
% |
|
|
63.1 |
% |
|
|
78.4 |
% |
|
|
75.3 |
% |
Funded status and net accrued pension benefit
cost |
|
$ |
(46,871 |
) |
|
$ |
(54,278 |
) |
|
$ |
(23,468 |
) |
|
$ |
(24,285 |
) |
|
$ |
(70,339 |
) |
|
$ |
(78,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the Crisa acquisition (note 4), we assumed the existing unfunded pension
plan liability for all active employees as of June 16, 2006 in the amount of $16.5 million.
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 2006 net
accrued pension benefit cost of $78.6 million is represented by a current liability in the amount
of $1.4 million and a long-term liability in the amount of $77.2 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.
71
The pre-tax amounts recognized in accumulated other comprehensive loss as of December 31, 2007
and 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
|
Total |
|
December 31, |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net loss |
|
$ |
31,933 |
|
|
$ |
37,469 |
|
|
$ |
9,765 |
|
|
$ |
12,483 |
|
|
$ |
41,698 |
|
|
$ |
49,952 |
|
Prior service cost |
|
|
15,275 |
|
|
|
14,824 |
|
|
|
1,809 |
|
|
|
1,226 |
|
|
|
17,084 |
|
|
|
16,050 |
|
Transition obligation |
|
|
|
|
|
|
|
|
|
|
861 |
|
|
|
|
|
|
|
861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost |
|
$ |
47,208 |
|
|
$ |
52,293 |
|
|
$ |
12,435 |
|
|
$ |
13,709 |
|
|
$ |
59,643 |
|
|
$ |
66,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax amounts in accumulated other comprehensive loss as of December 31, 2007, that are
expected to be recognized as components of net periodic benefit cost during 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
|
Total |
|
Net loss |
|
$ |
1,415 |
|
|
$ |
314 |
|
|
$ |
1,729 |
|
Prior service cost (credit) |
|
|
2,338 |
|
|
|
(212 |
) |
|
|
2,126 |
|
Transition obligation |
|
|
|
|
|
|
142 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
Total cost |
|
$ |
3,753 |
|
|
$ |
244 |
|
|
$ |
3,997 |
|
|
|
|
|
|
|
|
|
|
|
We contributed $11.0 million of contributions to the U.S. pension plans in 2007, compared to
$0.4 in 2006. We contributed $2.7 million in 2007 to the non-U.S. pension plan compared to
$1.5 million in 2006. 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 $21.5 million into the U.S. pension plans and $3.4 million into the
non-U.S. pension plans in 2008.
Pension benefit payment amounts are anticipated to be paid from the plans as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
U.S. Plans |
|
Non-U.S. Plans |
|
Total |
2008 |
|
$ |
18,488 |
|
|
$ |
2,644 |
|
|
$ |
21,132 |
|
2009 |
|
$ |
18,901 |
|
|
$ |
2,761 |
|
|
$ |
21,662 |
|
2010 |
|
$ |
19,423 |
|
|
$ |
3,254 |
|
|
$ |
22,677 |
|
2011 |
|
$ |
19,972 |
|
|
$ |
3,652 |
|
|
$ |
23,624 |
|
2012 |
|
$ |
20,638 |
|
|
$ |
4,384 |
|
|
$ |
25,022 |
|
2013-2017 |
|
$ |
115,529 |
|
|
$ |
27,194 |
|
|
$ |
142,723 |
|
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,
2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
|
Total |
|
Projected benefit obligation |
|
$ |
253,301 |
|
|
$ |
21,840 |
|
|
$ |
275,141 |
|
Accumulated benefit obligation |
|
$ |
248,466 |
|
|
$ |
10,412 |
|
|
$ |
258,878 |
|
Fair value of plan assets |
|
$ |
199,023 |
|
|
$ |
|
|
|
$ |
199,023 |
|
72
Plan Asset Allocation
The asset allocation for our U.S. pension plans at the end of 2007 and 2006 and the target
allocation for 2008, by asset category, are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Target Allocation |
|
Percentage of Plan Assets at Year End |
Asset Category |
|
2008 |
|
2007 |
|
2006 |
Equity securities |
|
|
60 |
% |
|
|
59 |
% |
|
|
61 |
% |
Debt securities |
|
|
25 |
% |
|
|
26 |
% |
|
|
33 |
% |
Real estate |
|
|
5 |
% |
|
|
4 |
% |
|
|
4 |
% |
Other |
|
|
10 |
% |
|
|
11 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The asset allocation for our non-U.S. pension plans (Royal Leerdam) at the
end of 2007 and 2006 and the target allocation for 2008, by asset category, are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans |
|
Target Allocation |
|
Percentage of Plan Assets at Year End |
Asset Category |
|
2008 |
|
2007 |
|
2006 |
Equity securities |
|
|
30 |
% |
|
|
29 |
% |
|
|
31 |
% |
Debt securities |
|
|
55 |
% |
|
|
53 |
% |
|
|
53 |
% |
Real estate |
|
|
10 |
% |
|
|
13 |
% |
|
|
11 |
% |
Other |
|
|
5 |
% |
|
|
5 |
% |
|
|
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.
13. 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 Companys
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.
As disclosed in note 1, we adopted SFAS No. 158, effective December 31, 2006. The following
table summarizes the impact of the adoption of SFAS No. 158 on the Consolidated Balance Sheet at
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of SFAS No. 158 |
|
|
|
|
Prior to SFAS No. 158 |
|
Adoption |
|
After SFAS No. 158 |
|
|
Adoption |
|
Increase/(Decrease) |
|
Adoption |
Nonpension liability |
|
$ |
(42,997 |
) |
|
$ |
1,250 |
|
|
$ |
(41,747 |
) |
Accumulated other comprehensive loss |
|
$ |
|
|
|
$ |
(1,250 |
) |
|
$ |
(1,250 |
) |
73
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, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Service cost (benefits
earned during the period) |
|
$ |
795 |
|
|
$ |
743 |
|
|
$ |
792 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
796 |
|
|
$ |
745 |
|
|
$ |
792 |
|
Interest cost on projected
benefit obligation |
|
|
2,245 |
|
|
|
2,050 |
|
|
|
1,929 |
|
|
|
94 |
|
|
|
95 |
|
|
|
148 |
|
|
|
2,339 |
|
|
|
2,145 |
|
|
|
2,077 |
|
Amortization of unrecognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
|
(884 |
) |
|
|
(884 |
) |
|
|
(884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(884 |
) |
|
|
(884 |
) |
|
|
(884 |
) |
(Gain) loss |
|
|
79 |
|
|
|
45 |
|
|
|
(124 |
) |
|
|
(51 |
) |
|
|
(64 |
) |
|
|
(7 |
) |
|
|
28 |
|
|
|
(19 |
) |
|
|
(131 |
) |
Curtailment charge |
|
|
|
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonpension postretirement
benefit expense |
|
$ |
2,235 |
|
|
$ |
1,954 |
|
|
$ |
1,967 |
|
|
$ |
44 |
|
|
$ |
33 |
|
|
$ |
141 |
|
|
$ |
2,279 |
|
|
$ |
1,987 |
|
|
$ |
2,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The postretirement benefit curtailment charges in 2005 were the result of the salaried
workforce reduction program and capacity realignment program as discussed in notes 10 and 12.
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 |
|
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
Discount rate |
|
|
6.16 |
% |
|
|
5.77 |
% |
|
|
5.60 |
% |
|
|
5.14 |
% |
|
|
4.87 |
% |
|
|
5.00 |
% |
Initial health care trend |
|
|
8.00 |
% |
|
|
8.50 |
% |
|
|
9.00 |
% |
|
|
8.00 |
% |
|
|
8.50 |
% |
|
|
8.00 |
% |
Ultimate health care trend |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Years to reach ultimate trend rate |
|
|
7 |
|
|
|
7 |
|
|
|
4 |
|
|
|
7 |
|
|
|
7 |
|
|
|
3 |
|
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 percent change in the health care trend rate would not have a material impact upon
the nonpension postretirement expense. |
|
|
|
|
A 1 percent change in the discount rate would change the nonpension postretirement
expense by $0.3 million. |
74
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, |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Change in accumulated nonpension
postretirement benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year |
|
$ |
39,802 |
|
|
$ |
35,504 |
|
|
$ |
1,945 |
|
|
$ |
2,827 |
|
|
$ |
41,747 |
|
|
$ |
38,331 |
|
Service cost |
|
|
795 |
|
|
|
743 |
|
|
|
1 |
|
|
|
2 |
|
|
|
796 |
|
|
|
745 |
|
Interest cost |
|
|
2,245 |
|
|
|
2,050 |
|
|
|
94 |
|
|
|
95 |
|
|
|
2,339 |
|
|
|
2,145 |
|
Plan participants contributions |
|
|
1,235 |
|
|
|
924 |
|
|
|
212 |
|
|
|
|
|
|
|
1,447 |
|
|
|
924 |
|
Plan amendments |
|
|
4,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,209 |
|
|
|
|
|
Actuarial (gain) loss |
|
|
4,240 |
|
|
|
5,396 |
|
|
|
13 |
|
|
|
(645 |
) |
|
|
4,253 |
|
|
|
4,751 |
|
Exchange rate fluctuations |
|
|
|
|
|
|
|
|
|
|
419 |
|
|
|
(25 |
) |
|
|
419 |
|
|
|
(25 |
) |
Benefits paid |
|
|
(5,648 |
) |
|
|
(4,815 |
) |
|
|
(367 |
) |
|
|
(309 |
) |
|
|
(6,015 |
) |
|
|
(5,124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year |
|
$ |
46,878 |
|
|
$ |
39,802 |
|
|
$ |
2,317 |
|
|
$ |
1,945 |
|
|
$ |
49,195 |
|
|
$ |
41,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status and accrued benefit cost |
|
$ |
(46,878 |
) |
|
$ |
(39,802 |
) |
|
$ |
(2,317 |
) |
|
$ |
(1,945 |
) |
|
$ |
(49,195 |
) |
|
$ |
(41,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2006 net accrued postretirement benefit cost of $41.7 million
is represented by a current liability in the amount of $3.3 million and a long-term liability in
the amount of $38.4 million on the Consolidated Balance Sheet.
The pre-tax amounts recognized in accumulated other comprehensive loss as of December 31,
2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
|
Total |
|
December 31, |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net loss (gain) |
|
$ |
6,962 |
|
|
$ |
2,801 |
|
|
$ |
(1,015 |
) |
|
$ |
(918 |
) |
|
$ |
5,947 |
|
|
$ |
1,883 |
|
Prior service cost (credit) |
|
|
1,960 |
|
|
|
(3,133 |
) |
|
|
|
|
|
|
|
|
|
|
1,960 |
|
|
|
(3,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost (credit) |
|
$ |
8,922 |
|
|
$ |
(332 |
) |
|
$ |
(1,015 |
) |
|
$ |
(918 |
) |
|
$ |
7,907 |
|
|
$ |
(1,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax amounts in accumulated other comprehensive loss of December 31, 2007, that are
expected to be recognized as a credit to net periodic benefit cost during 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
|
Total |
|
Net loss (gain) |
|
$ |
193 |
|
|
$ |
(60 |
) |
|
$ |
133 |
|
Prior service credit |
|
|
(543 |
) |
|
|
|
|
|
|
(543 |
) |
|
|
|
|
|
|
|
|
|
|
Total credit |
|
$ |
(350 |
) |
|
$ |
(60 |
) |
|
$ |
(410 |
) |
|
|
|
|
|
|
|
|
|
|
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. Plan |
|
Non-U.S. Plans |
|
Total |
2008 |
|
$ |
3,360 |
|
|
$ |
168 |
|
|
$ |
3,528 |
|
2009 |
|
$ |
3,558 |
|
|
$ |
173 |
|
|
$ |
3,731 |
|
2010 |
|
$ |
3,755 |
|
|
$ |
172 |
|
|
$ |
3,927 |
|
2011 |
|
$ |
3,917 |
|
|
$ |
171 |
|
|
$ |
4,088 |
|
2012 |
|
$ |
4,015 |
|
|
$ |
167 |
|
|
$ |
4,182 |
|
2013-2017 |
|
$ |
20,861 |
|
|
$ |
798 |
|
|
$ |
21,659 |
|
We also provide retiree health care benefits to certain union hourly employees through
participation in a multi-employer retiree health care benefit plan. This is an insured,
premium-based arrangement. Related to these plans, approximately $0.5 million, $0.7 million and
$0.6 million were charged to expense for the years ended December 31, 2007, 2006 and 2005,
respectively.
75
14. 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, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Numerator for earnings per share net (loss) income that is available to
common shareholders |
|
$ |
(2,307 |
) |
|
$ |
(20,899 |
) |
|
$ |
(19,355 |
) |
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share weighted-average shares outstanding |
|
|
14,472,011 |
|
|
|
14,182,314 |
|
|
|
13,906,057 |
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted weighted-average shares
and assumed conversions |
|
|
14,472,011 |
|
|
|
14,182,314 |
|
|
|
13,906,057 |
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share |
|
$ |
(0.16 |
) |
|
$ |
(1.47 |
) |
|
$ |
(1.39 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share |
|
$ |
(0.16 |
) |
|
$ |
(1.47 |
) |
|
$ |
(1.39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The effect of employee stock options, warrants, restricted stock
units, performance shares and the employee stock purchase plan (ESPP),
283,009, 11,584 and 5,091shares for the year ended December 31, 2007,
December 31, 2006, and December 31, 2005, 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.
15. 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.
Prior to January 1, 2006, the Company accounted for stock-based awards under the intrinsic
value method of Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to
Employees (APB No. 25). This method under APB No. 25 resulted in no expense being recorded for
stock option grants for which the exercise price was equal to the fair value of the underlying
stock on the date of grant, which had been the situation for all years prior to 2006. On January 1,
2006, 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 Companys 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 Companys 1999 Equity Participation Plan and Amended and Restated
1999 Equity Participation Plan. As a result, options to purchase 258,731 shares of the Companys
common stock became exercisable on December 6, 2005. Of that amount, options that were granted
through 2004 to the Companys 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 Companys 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 $0.04
million in 2008 on a pre-tax basis.
Employee Stock Purchase Plan (ESPP)
We have an ESPP under which 750,000 shares of common stock have been reserved for issuance.
Eligible employees may purchase a limited number of shares of common stock at a discount of up to
15 percent of the market value at certain plan-defined dates. The ESPP terminates on May 31, 2012.
In 2007 and 2006, the shares issued under the ESPP were 105,453 and 95,279, respectively. At
December 31, 2007, 469,447 shares were available for issuance under the ESPP. At December 31, 2006,
474,782 shares were available for issuance under the ESPP. Repurchased common stock is being used
to fund the ESPP.
76
A participant may elect to have payroll deductions made during the offering period in an
amount not less than 2 percent and not more than 20 percent of the participants compensation
during the option period. The option period starts on the offering date (June 1st) and ends on the
exercise date (May 31st). In no event may the option price per share be less than the par value per
share ($.01) of common stock. All options and rights to participate in the ESPP are nontransferable
and subject to forfeiture in accordance with the ESPP guidelines. In the event of certain corporate
transactions, each option outstanding under the ESPP will be assumed or the successor corporation
or a parent or subsidiary of such successor corporation will substitute an equivalent option.
Compensation expense for 2007 and 2006 related to the ESPP is $0.5 million and $0.4 million,
respectively.
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
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, 2007, 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 $3.4 million and $1.3 million is included in
selling, general and administrative expenses in the Consolidated
Statements of Operations for 2007 and 2006, respectively.
Prior Year Pro forma Information
With the adoption of SFAS No. 123-R on January 1, 2006, compensation expense for stock options
is recorded based on the estimated fair value of the stock options using an option-pricing model.
Compensation expense continues to be recorded for restricted stock unit grants over their vesting
periods based on fair value, which is equal to the market price of our common stock on the date of
grant.
The following table illustrates the effect on net income and earnings per share if we had
applied the fair value recognition provision of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), to stock-based employee compensation:
|
|
|
|
|
Year ended December 31, |
|
2005 |
|
Reported net loss: |
|
$ |
(19,355 |
) |
Less: Stock-based employee compensation expense determined under fair value-based method for all awards,
net of related tax effects |
|
|
|
|
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects |
|
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(19,355 |
) |
|
|
|
|
Basic loss per share: |
|
|
|
|
Reported basic loss per share |
|
$ |
(1.39 |
) |
|
|
|
|
Pro forma basic loss per share |
|
$ |
(1.39 |
) |
|
|
|
|
Diluted loss per share: |
|
|
|
|
Reported diluted loss per share |
|
$ |
(1.39 |
) |
|
|
|
|
Pro forma diluted loss per share |
|
$ |
(1.39 |
) |
|
|
|
|
Disclosures for the years ended December 31, 2007 and December 31, 2006 are not presented
because the amounts are recognized in the Consolidated Financial Statements.
General Stock Option Information
Stock option compensation expense of $0.8 million and $0.3 million is included in the Consolidated Statements of Operations for 2007 and 2006,
respectively.
77
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 284,132 stock
option grants made during 2007. Under the Black-Scholes option-pricing model, the weighted-average
grant-date fair value of options granted during 2007 is $7.22. There were 10,000 and 145,260 stock
option grants made during 2006 and 2005, respectively. Under the Black-Scholes option-pricing
model, the weighted-average grant-date fair value of option granted during 2006 and 2005 was $3.32
and $3.82, respectively. The fair value of each option is estimated on the date of grant with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Stock option grants: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest |
|
|
4.64 |
% |
|
|
4.57 |
% |
|
|
4.29 |
% |
Expected term |
|
6.1 years |
|
6.5 years |
|
6.1 years |
Expected volatility |
|
|
47.4 |
% |
|
|
37.9 |
% |
|
|
34.6 |
% |
Dividend yield |
|
|
0.71 |
% |
|
|
3.19 |
% |
|
|
2.3 |
% |
Employee Stock Purchase Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest |
|
|
4.91 |
% |
|
|
4.99 |
% |
|
|
3.23 |
% |
Expected term |
|
12 months |
|
12 months |
|
12 months |
Expected volatility |
|
|
60.04 |
% |
|
|
58.3 |
% |
|
|
36.00 |
% |
Dividend yield |
|
|
0.43 |
% |
|
|
2.20 |
% |
|
|
2.10 |
% |
|
|
|
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. The range of expected volatilities used is 47.02 percent to
48.12 percent, and the average expected volatility is 47.4 percent. 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. |
Information with respect to our stock option activity for 2007, 2006, and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
exercise price per |
|
|
Contractual life |
|
|
Intrinsic |
|
Options |
|
Shares |
|
|
share |
|
|
(in years) |
|
|
Value |
|
Outstanding balance at January 1, 2005 |
|
|
1,517,636 |
|
|
$ |
28.87 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
145,760 |
|
|
|
11.83 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4,500 |
) |
|
|
22.06 |
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(103,340 |
) |
|
|
24.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2005 |
|
|
1,555,556 |
|
|
|
28.04 |
|
|
|
5.76 |
|
|
$ |
|
|
Granted |
|
|
10,000 |
|
|
|
10.20 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(153,930 |
) |
|
|
28.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2006 |
|
|
1,411,626 |
|
|
|
27.43 |
|
|
|
4.85 |
|
|
$ |
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 |
|
|
|
5.17 |
|
|
$ |
1,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007 |
|
|
1,183,286 |
|
|
$ |
27.70 |
|
|
|
|
|
|
$ |
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
78
tax benefit) to be classified as financing cash flows. There were 7,920 stock options
exercised during 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 $15.84 as of December 31, 2007, which would
have been received by the option holders had all option holders exercised their options as of that
date. 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, 2005, 1,410,296
outstanding options were exercisable, and the weighted average exercise price was $30.00.
As of December 31, 2007, $1.2 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 2007 is $0.1million. Shares
issued for exercised options are issued from treasury stock.
The following table summarizes our nonvested stock option activity for 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average fair |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
Performance Share Information
Performance share compensation expense of $0.6 million and $0.3 million for 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 executives long-term incentive target (which in turn is a
percentage of the executives 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.
A summary of the activity for performance shares under the Libbey Inc. 2006 Omnibus Incentive
Plan as of December 31, 2007 and changes during the year then ended is presented below:
|
|
|
|
|
Performance Shares |
|
Shares |
Outstanding balance at January 1, 2006 |
|
|
|
|
Granted |
|
|
71,139 |
|
Issued |
|
|
|
|
Cancelled |
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2006 |
|
|
71,139 |
|
Granted |
|
|
71,644 |
|
Issued |
|
|
(29,185 |
) |
Cancelled |
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2007 |
|
|
113,598 |
|
|
|
|
|
|
79
Of this amount, 14,626 performance shares were earned as of December 31, 2007, and as a
result, 14,626 shares of Libbey Inc. common stock were issued in February 2008 to the executives in
settlement of these performance shares.
The weighted-average grant-date fair value of the performance shares granted during 2007 and
2006 was $12.97 and $9.88, respectively. As of December 31, 2007, there was $0.8 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 $1.5 million and $0.3 million for 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.
A summary of the activity for restricted stock units under the Libbey Inc. 2006 Omnibus
Incentive Plan as of December 31, 2007 and changes during the year then ended is presented below:
|
|
|
|
|
Restricted Stock Units |
|
Shares |
Outstanding balance at January 1, 2007 |
|
|
|
|
Granted |
|
|
190,304 |
|
Awarded |
|
|
(20,146 |
) |
Cancelled |
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2007 |
|
|
170,158 |
|
|
|
|
|
|
The weighted-average grant-date fair value of the restricted stock units granted during 2007
was $13.91. As of December 31, 2007, there was $1.2 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 performance share awards are issued from treasury stock.
Employee 401(k) Plan Retirement Fund and Non-Qualified Executive Savings Plan
We sponsor the Libbey Inc. 401(k) Plan (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.
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 2007, we matched 100 percent on the first 1 percent and
matched 50 percent on the next two to five percent to a maximum of 3.5 percent of compensation.
During 2006, we matched an amount equal to 50 percent of employee contributions up to the first 6
percent of eligible earnings that are contributed by employees. Therefore, the maximum matching
contribution that we may allocate to each participants account did not exceed $7,875 for the 2007
calendar year due to the $225,000 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 Plan;
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
2007 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. Libbeys matching contribution
during 2007 equaled 100 percent of the first one percent and 50 percent of the next two to five
percent of eligible earnings that were contributed by the employees.
Our matching contributions to both Plans totaled $2.6 million, $2.2 million, and $2.2 million
in 2007, 2006, and 2005, respectively.
80
16. Derivatives
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 occasional transactions denominated in
a currency other than the U.S. dollar. Most of these derivatives, except for 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.
We 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, 2007, we had Rate Agreements for
$200.0 million of variable rate debt with a fair market value of $(5.3) million. At December 31,
2006, we had Rate Agreements for $200.0 million of variable rate debt with a fair market value of
$1.2 million.
We also 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 and potential losses in earnings or cash flows 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,
2007, we had commodity futures contracts for 2,820,000 million British Thermal Units (BTUs) of
natural gas with a fair market value of $(1.8) million. We have hedged a portion of forecasted
transactions through February 2009. At December 31, 2006, we had commodity futures contracts for
3,450,000 million BTUs of natural gas with a fair market value of $(5.3) million.
Our foreign currency exposure arises from occasional transactions denominated in a currency
other than the U.S. dollar, primarily associated with anticipated purchases of new equipment or net
investment in a foreign operation. The fair values of these instruments are determined from market
quotes. 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. During April 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 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.
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 AA- or better as of December 31, 2007, by Standard and
Poors.
Most of our derivatives qualify and are designated as cash flow hedges (except the foreign
currency contract) at December 31, 2007. 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 Statement of Operations. We
recognized a loss of $0.4 million and $2.6 million for December 31, 2007 and 2006, 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.
81
17. Comprehensive Income (Loss)
Total comprehensive income (loss) (net of tax) includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net loss |
|
$ |
(2,307 |
) |
|
$ |
(20,899 |
) |
|
$ |
(19,355 |
) |
Effect of derivatives |
|
|
(3,224 |
) |
|
|
(6,829 |
) |
|
|
5,040 |
|
Minimum pension liability and
intangible pension asset
(including equity investments for
2006 and 2005) |
|
|
(2,956 |
) |
|
|
10,650 |
|
|
|
(7,176 |
) |
Effect of exchange rate fluctuation |
|
|
9,712 |
|
|
|
3,070 |
|
|
|
(379 |
) |
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
1,225 |
|
|
$ |
(14,008 |
) |
|
$ |
(21,870 |
) |
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss (net of tax) includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Minimum pension
liability and intangible
pension asset (including
equity investments for
2006 and 2005) |
|
$ |
(44,800 |
) |
|
$ |
(20,065 |
) |
|
$ |
(30,715 |
) |
Adoption of SFAS 158 |
|
|
|
|
|
|
(21,779 |
) |
|
|
|
|
Derivatives |
|
|
(6,310 |
) |
|
|
(3,086 |
) |
|
|
3,743 |
|
Exchange rate fluctuation |
|
|
8,633 |
|
|
|
(1,079 |
) |
|
|
(4,149 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(42,477 |
) |
|
$ |
(46,009 |
) |
|
$ |
(31,121 |
) |
|
|
|
|
|
|
|
|
|
|
The change in other comprehensive (loss) income related to cash flow hedges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Change in fair value of derivative instruments |
|
$ |
(3,224 |
) |
|
$ |
(8,092 |
) |
|
$ |
8,085 |
|
Less: Income tax benefit (expense) |
|
|
|
|
|
|
1,263 |
|
|
|
(3,045 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income related to derivatives |
|
$ |
(3,224 |
) |
|
$ |
(6,829 |
) |
|
$ |
5,040 |
|
|
|
|
|
|
|
|
|
|
|
The following table identifies the detail of cash flow hedges in accumulated other
comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Balance at beginning of year |
|
$ |
(3,086 |
) |
|
$ |
3,743 |
|
|
$ |
(1,297 |
) |
Current year impact of changes in value (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
Rate agreements |
|
|
(6,423 |
) |
|
|
1,015 |
|
|
|
817 |
|
Natural gas |
|
|
3,199 |
|
|
|
(7,844 |
) |
|
|
4,223 |
|
Subtotal |
|
|
(3,224 |
) |
|
|
(6,829 |
) |
|
|
5,040 |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
(6,310 |
) |
|
$ |
(3,086 |
) |
|
$ |
3,743 |
|
|
|
|
|
|
|
|
|
|
|
We adopted the provisions of 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, in
December 2006. As a result of the adoption of this statement, accumulated other comprehensive
income (loss) decreased by $21.8 million. The decrease was incorrectly recorded as a component of
comprehensive loss in the 2006 Consolidated Statement of Shareholders Equity. Total comprehensive
loss was incorrectly reported as $35.8 million and should have been reported as $14.0 million for
the year ended December 31, 2006. The decrease due to the adoption of this statement should have
been as a direct adjustment to accumulated other comprehensive income (loss). This error has been
corrected on the Consolidated Statement of Shareholders Equity contained herein and on the above
table.
18. Operating Leases
Rental expense for all non-cancelable operating leases, primarily for warehouses, was $22.7
million, $10.1 million and $6.9 million for the years ended December 31, 2007, 2006 and 2005,
respectively.
Future minimum rentals under operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 and |
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
thereafter |
$18,810 |
|
$ |
16,813 |
|
|
$ |
14,196 |
|
|
$ |
13,560 |
|
|
$ |
12,859 |
|
|
$ |
41,118 |
|
82
19. Barter Transactions
We entered into a barter transaction during the first quarter of 2005, exchanging inventory
with a net book value of $1.1 million for barter credits to be utilized on future purchased goods
and services. During the second quarter of 2005, we wrote off the credits from $1.1 million to $0.4
million, reflecting our revised estimate of fair value. During the third quarter of 2006, we wrote
off the remaining $0.4 million, reflecting our revised estimate of fair value.
20. Miscellaneous Revenue
During 2007, we sold excess land at our Syracuse, N.Y. facility and our facility in the
Netherlands. We recognized a gain on the sales of $5.5 million in other income (expense) on our
Consolidated Statements of Operations.
21. Segments
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. |
The accounting policies of the segments are the same as those described in note 1 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 arms length
and are reflected in eliminations in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
568,495 |
|
|
$ |
476,696 |
|
|
$ |
365,037 |
|
North American Other |
|
|
121,217 |
|
|
|
114,581 |
|
|
|
109,945 |
|
International |
|
|
136,727 |
|
|
|
106,798 |
|
|
|
95,399 |
|
Eliminations |
|
|
(12,279 |
) |
|
|
(8,595 |
) |
|
|
(2,248 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
814,160 |
|
|
$ |
689,480 |
|
|
$ |
568,133 |
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
54,492 |
|
|
$ |
5,471 |
|
|
$ |
7,062 |
|
North American Other |
|
|
15,670 |
|
|
|
9,382 |
|
|
|
(14,411 |
) |
International |
|
|
4,717 |
|
|
|
3,161 |
|
|
|
(3,101 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
74,879 |
|
|
$ |
18,014 |
|
|
$ |
(10,450 |
) |
|
|
|
|
|
|
|
|
|
|
Special Charges (excluding write-off of financing fees) |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
|
|
|
$ |
18,534 |
|
|
$ |
10,136 |
|
North American Other |
|
|
|
|
|
|
(42 |
) |
|
|
17,100 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
|
|
|
$ |
18,492 |
|
|
$ |
27,236 |
|
|
|
|
|
|
|
|
|
|
|
Equity Earnings (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
North American Other |
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
1,986 |
|
|
|
(4,100 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
|
|
|
$ |
1,986 |
|
|
$ |
(4,100 |
) |
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
25,558 |
|
|
$ |
22,102 |
|
|
$ |
17,306 |
|
North American Other |
|
|
3,328 |
|
|
|
3,450 |
|
|
|
4,519 |
|
International |
|
|
12,686 |
|
|
|
10,168 |
|
|
|
10,656 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
41,572 |
|
|
$ |
35,720 |
|
|
$ |
32,481 |
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
25,711 |
|
|
$ |
30,286 |
|
|
$ |
30,204 |
|
North American Other |
|
|
1,474 |
|
|
|
1,173 |
|
|
|
2,328 |
|
International |
|
|
15,936 |
|
|
|
42,139 |
|
|
|
11,738 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
43,121 |
|
|
$ |
73,598 |
|
|
$ |
44,270 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass |
|
$ |
927,072 |
|
|
$ |
849,751 |
|
|
$ |
409,101 |
|
North American Other |
|
|
368,475 |
|
|
|
369,091 |
|
|
|
151,376 |
|
International |
|
|
443,132 |
|
|
|
421,315 |
|
|
|
198,336 |
|
Eliminations |
|
|
(839,567 |
) |
|
|
(762,026 |
) |
|
|
(163,029 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
899,112 |
|
|
$ |
878,131 |
|
|
$ |
595,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of EBIT to Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBIT |
|
$ |
74,879 |
|
|
$ |
18,014 |
|
|
$ |
(10,450 |
) |
Interest Expense |
|
|
(65,888 |
) |
|
|
(46,594 |
) |
|
|
(15,255 |
) |
Income Taxes |
|
|
(11,298 |
) |
|
|
7,747 |
|
|
|
6,384 |
|
Minority Interest |
|
|
|
|
|
|
(66 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(2,307 |
) |
|
$ |
(20,899 |
) |
|
$ |
(19,355 |
) |
|
|
|
|
|
|
|
|
|
|
Our operations by geographic areas for 2007, 2006 and 2005 are presented below. Intercompany
sales to affiliates represent products that are transferred between geographic areas on a basis
intended to reflect as nearly as possible the market value of the products. The long-lived assets
include net fixed assets, goodwill and equity investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
Mexico |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
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 |
|
$ |
155,774 |
|
|
$ |
202,924 |
|
|
$ |
143,551 |
|
|
$ |
|
|
|
$ |
502,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
162,452 |
|
|
$ |
194,876 |
|
|
$ |
129,793 |
|
|
|
|
|
|
$ |
487,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers |
|
$ |
409,646 |
|
|
$ |
4,334 |
|
|
$ |
154,153 |
|
|
|
|
|
|
$ |
568,133 |
|
Intercompany |
|
|
1,413 |
|
|
|
|
|
|
|
|
|
|
$ |
(1,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
411,059 |
|
|
$ |
4,334 |
|
|
$ |
154,153 |
|
|
$ |
(1,413 |
) |
|
$ |
568,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
$ |
172,805 |
|
|
$ |
|
|
|
$ |
154,805 |
|
|
$ |
|
|
|
$ |
327,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22. 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, 2007.
At 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.
84
Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey |
|
|
Libbey |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Glass |
|
|
Subsidiary |
|
|
Guarantor |
|
|
|
|
|
|
|
Year
ended December 31, 2007 |
|
(Parent) |
|
|
(Issuer) |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
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 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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey |
|
|
Libbey |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Glass |
|
|
Subsidiary |
|
|
Guarantor |
|
|
|
|
|
|
|
Year
ended December 31, 2006 |
|
(Parent) |
|
|
(Issuer) |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,334 |
|
|
|
|
|
|
|
16,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
|
|
14,175 |
|
|
|
11,634 |
|
|
|
(6,545 |
) |
|
|
|
|
|
|
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 |
|
|
|
|
|
|
13,372 |
|
|
|
12,272 |
|
|
|
(7,630 |
) |
|
|
|
|
|
|
18,014 |
|
Interest expense |
|
|
|
|
|
|
36,577 |
|
|
|
2 |
|
|
|
10,015 |
|
|
|
|
|
|
|
46,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and
minority interest |
|
|
|
|
|
|
(23,205 |
) |
|
|
12,270 |
|
|
|
(17,645 |
) |
|
|
|
|
|
|
(28,580 |
) |
Provision (benefit) for income taxes |
|
|
|
|
|
|
(12,821 |
) |
|
|
5,298 |
|
|
|
(224 |
) |
|
|
|
|
|
|
(7,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before minority interest |
|
|
|
|
|
|
(10,384 |
) |
|
|
6,972 |
|
|
|
(17,421 |
) |
|
|
|
|
|
|
(20,833 |
) |
Minority interest and equity in net income
(loss) of subsidiaries |
|
|
(20,899 |
) |
|
|
(10,515 |
) |
|
|
|
|
|
|
(66 |
) |
|
|
31,414 |
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(20,899 |
) |
|
$ |
(20,899 |
) |
|
$ |
6,972 |
|
|
$ |
(17,487 |
) |
|
$ |
31,414 |
|
|
$ |
(20,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following represents the total special charges included in the above Statement of Operations (see note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey |
|
|
Libbey |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Glass |
|
|
Subsidiary |
|
|
Guarantor |
|
|
|
|
|
|
|
Year
ended December 31, 2005 |
|
(Parent) |
|
|
(Issuer) |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
|
|
|
$ |
365,037 |
|
|
$ |
109,945 |
|
|
$ |
95,399 |
|
|
$ |
(2,248 |
) |
|
$ |
568,133 |
|
Freight billed to customers |
|
|
|
|
|
|
588 |
|
|
|
1,302 |
|
|
|
42 |
|
|
|
|
|
|
|
1,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
365,625 |
|
|
|
111,247 |
|
|
|
95,441 |
|
|
|
(2,248 |
) |
|
|
570,065 |
|
Cost of sales |
|
|
|
|
|
|
302,721 |
|
|
|
99,671 |
|
|
|
83,379 |
|
|
|
(2,248 |
) |
|
|
483,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
62,904 |
|
|
|
11,576 |
|
|
|
12,062 |
|
|
|
|
|
|
|
86,542 |
|
Selling, general, and administrative expenses |
|
|
|
|
|
|
50,894 |
|
|
|
9,876 |
|
|
|
10,765 |
|
|
|
|
|
|
|
71,535 |
|
Special charges |
|
|
|
|
|
|
8,210 |
|
|
|
15,714 |
|
|
|
|
|
|
|
|
|
|
|
23,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
|
|
3,800 |
|
|
|
(14,014 |
) |
|
|
1,297 |
|
|
|
|
|
|
|
(8,917 |
) |
Equity earnings (loss) pretax |
|
|
|
|
|
|
|
|
|
|
259 |
|
|
|
(4,359 |
) |
|
|
|
|
|
|
(4,100 |
) |
Other income (expense) |
|
|
|
|
|
|
2,343 |
|
|
|
(37 |
) |
|
|
261 |
|
|
|
|
|
|
|
2,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and income
taxes and minority interest |
|
|
|
|
|
|
6,143 |
|
|
|
(13,792 |
) |
|
|
(2,801 |
) |
|
|
|
|
|
|
(10,450 |
) |
Interest expense |
|
|
|
|
|
|
11,018 |
|
|
|
1 |
|
|
|
4,236 |
|
|
|
|
|
|
|
15,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and
minority interest |
|
|
|
|
|
|
(4,875 |
) |
|
|
(13,793 |
) |
|
|
(7,037 |
) |
|
|
|
|
|
|
(25,705 |
) |
Provision (benefit) for income taxes |
|
|
|
|
|
|
(1,609 |
) |
|
|
(4,551 |
) |
|
|
(224 |
) |
|
|
|
|
|
|
(6,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before minority interest |
|
|
|
|
|
|
(3,266 |
) |
|
|
(9,242 |
) |
|
|
(6,813 |
) |
|
|
|
|
|
|
(19,321 |
) |
Minority interest and equity in net (loss)
income of subsidiaries |
|
|
(19,355 |
) |
|
|
(16,089 |
) |
|
|
|
|
|
|
(34 |
) |
|
|
35,444 |
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(19,355 |
) |
|
$ |
(19,355 |
) |
|
$ |
(9,242 |
) |
|
$ |
(6,847 |
) |
|
$ |
35,444 |
|
|
$ |
(19,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following represents the total special charges included in the above Statement of Operations (see note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
$ |
|
|
|
$ |
661 |
|
|
$ |
1,304 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,965 |
|
Special charges |
|
|
|
|
|
|
1,265 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
1,347 |
|
Interest expense |
|
|
|
|
|
|
8,210 |
|
|
|
15,714 |
|
|
|
|
|
|
|
|
|
|
|
23,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax special charges |
|
$ |
|
|
|
$ |
10,136 |
|
|
$ |
17,100 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
27,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges net of tax |
|
$ |
|
|
|
$ |
6,791 |
|
|
$ |
11,457 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
Libbey Inc.
Condensed Consolidating Balance Sheet
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey |
|
|
Libbey |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Glass |
|
|
Subsidiary |
|
|
Guarantor |
|
|
|
|
|
|
|
December 31, 2007 |
|
(Parent) |
|
|
(Issuer) |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Cash |
|
$ |
|
|
|
$ |
20,834 |
|
|
$ |
532 |
|
|
$ |
15,173 |
|
|
$ |
|
|
|
$ |
36,539 |
|
Accounts receivable net |
|
|
|
|
|
|
39,249 |
|
|
|
9,588 |
|
|
|
44,496 |
|
|
|
|
|
|
|
93,333 |
|
Inventories net |
|
|
|
|
|
|
66,965 |
|
|
|
37,636 |
|
|
|
78,341 |
|
|
|
|
|
|
|
182,942 |
|
Other current assets |
|
|
|
|
|
|
8,884 |
|
|
|
467 |
|
|
|
10,721 |
|
|
|
|
|
|
|
20,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
135,932 |
|
|
|
48,223 |
|
|
|
148,731 |
|
|
|
|
|
|
|
332,886 |
|
Other non-current assets |
|
|
|
|
|
|
22,727 |
|
|
|
857 |
|
|
|
9,662 |
|
|
|
|
|
|
|
33,246 |
|
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 |
|
|
|
396,465 |
|
|
|
294,522 |
|
|
|
305,582 |
|
|
|
(848,347 |
) |
|
|
241,337 |
|
Property, plant and equipment net |
|
|
|
|
|
|
95,861 |
|
|
|
19,382 |
|
|
|
209,646 |
|
|
|
|
|
|
|
324,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
93,115 |
|
|
$ |
628,258 |
|
|
$ |
362,127 |
|
|
$ |
663,959 |
|
|
$ |
(848,347 |
) |
|
$ |
899,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
22,235 |
|
|
$ |
6,931 |
|
|
$ |
46,221 |
|
|
|
|
|
|
$ |
75,387 |
|
Accrued liabilities and other current liabilities |
|
|
|
|
|
|
48,969 |
|
|
|
7,929 |
|
|
|
47,605 |
|
|
|
|
|
|
|
104,503 |
|
Notes payable and long-term debt due within one
year |
|
|
|
|
|
|
209 |
|
|
|
|
|
|
|
1,326 |
|
|
|
|
|
|
|
1,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
71,413 |
|
|
|
14,860 |
|
|
|
95,152 |
|
|
|
|
|
|
|
181,425 |
|
Long-term debt |
|
|
|
|
|
|
428,896 |
|
|
|
|
|
|
|
66,203 |
|
|
|
|
|
|
|
495,099 |
|
Other long-term liabilities |
|
|
|
|
|
|
91,369 |
|
|
|
5,496 |
|
|
|
32,608 |
|
|
|
|
|
|
|
129,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
591,678 |
|
|
|
20,356 |
|
|
|
193,963 |
|
|
|
|
|
|
|
805,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
93,115 |
|
|
|
36,580 |
|
|
|
341,771 |
|
|
|
469,996 |
|
|
|
(848,347 |
) |
|
|
93,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
93,115 |
|
|
$ |
628,258 |
|
|
$ |
362,127 |
|
|
$ |
663,959 |
|
|
$ |
(848,347 |
) |
|
$ |
899,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
Libbey Inc.
Condensed Consolidating Balance Sheet
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey |
|
|
Libbey |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Glass |
|
|
Subsidiary |
|
|
Guarantor |
|
|
|
|
|
|
|
December 31, 2006 |
|
(Parent) |
|
|
(Issuer) |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Cash |
|
$ |
|
|
|
$ |
22,849 |
|
|
$ |
509 |
|
|
$ |
18,408 |
|
|
$ |
|
|
|
$ |
41,766 |
|
Accounts receivable net |
|
|
|
|
|
|
47,772 |
|
|
|
10,063 |
|
|
|
38,948 |
|
|
|
|
|
|
|
96,783 |
|
Inventories net |
|
|
|
|
|
|
55,620 |
|
|
|
32,521 |
|
|
|
70,982 |
|
|
|
|
|
|
|
159,123 |
|
Other current assets |
|
|
|
|
|
|
14,221 |
|
|
|
347 |
|
|
|
8,604 |
|
|
|
|
|
|
|
23,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
140,462 |
|
|
|
43,440 |
|
|
|
136,942 |
|
|
|
|
|
|
|
320,844 |
|
Other non-current assets |
|
|
|
|
|
|
30,247 |
|
|
|
1,296 |
|
|
|
7,131 |
|
|
|
|
|
|
|
38,674 |
|
Investments in and advances to subsidiaries |
|
|
87,850 |
|
|
|
326,705 |
|
|
|
284,384 |
|
|
|
153,011 |
|
|
|
(851,950 |
) |
|
|
|
|
Goodwill and purchased intangible assets net |
|
|
|
|
|
|
26,834 |
|
|
|
16,140 |
|
|
|
163,398 |
|
|
|
|
|
|
|
206,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
87,850 |
|
|
|
383,786 |
|
|
|
301,820 |
|
|
|
323,540 |
|
|
|
(851,950 |
) |
|
|
245,046 |
|
Property, plant and equipment net |
|
|
|
|
|
|
100,804 |
|
|
|
21,039 |
|
|
|
190,398 |
|
|
|
|
|
|
|
312,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
87,850 |
|
|
$ |
625,052 |
|
|
$ |
366,299 |
|
|
$ |
650,880 |
|
|
$ |
(851,950 |
) |
|
$ |
878,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
21,513 |
|
|
$ |
4,577 |
|
|
$ |
41,403 |
|
|
|
|
|
|
$ |
67,493 |
|
Accrued liabilities and other current liabilities |
|
|
|
|
|
|
53,263 |
|
|
|
8,561 |
|
|
|
23,250 |
|
|
|
|
|
|
|
85,074 |
|
Notes payable and long-term debt due within one year |
|
|
|
|
|
|
155 |
|
|
|
|
|
|
|
865 |
|
|
|
|
|
|
|
1,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
74,931 |
|
|
|
13,138 |
|
|
|
65,518 |
|
|
|
|
|
|
|
153,587 |
|
Long-term debt |
|
|
|
|
|
|
409,089 |
|
|
|
|
|
|
|
81,123 |
|
|
|
|
|
|
|
490,212 |
|
Other long-term liabilities |
|
|
|
|
|
|
86,354 |
|
|
|
7,924 |
|
|
|
52,204 |
|
|
|
|
|
|
|
146,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
570,374 |
|
|
|
21,062 |
|
|
|
198,845 |
|
|
|
|
|
|
|
790,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
87,850 |
|
|
|
54,678 |
|
|
|
345,237 |
|
|
|
452,035 |
|
|
|
(851,950 |
) |
|
|
87,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
87,850 |
|
|
$ |
625,052 |
|
|
$ |
366,299 |
|
|
$ |
650,880 |
|
|
$ |
(851,950 |
) |
|
$ |
878,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
Libbey Inc.
Condensed Consolidating Statement of Cash Flows
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey |
|
|
Libbey |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Glass |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
Year
ended December 31, 2007 |
|
(Parent) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
Libbey Inc.
Condensed Consolidating Statement of Cash Flows
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey |
|
|
Libbey |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Glass |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
Year
ended December 31, 2006 |
|
(Parent) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net Income (loss) |
|
$ |
(20,767 |
) |
|
$ |
(20,767 |
) |
|
$ |
6,972 |
|
|
$ |
(17,355 |
) |
|
$ |
31,018 |
|
|
$ |
(20,899 |
) |
Depreciation and amortization |
|
|
|
|
|
|
16,841 |
|
|
|
3,364 |
|
|
|
15,515 |
|
|
|
|
|
|
|
35,720 |
|
Other operating activities |
|
|
20,767 |
|
|
|
26,165 |
|
|
|
(7,657 |
) |
|
|
31,780 |
|
|
|
(31,018 |
) |
|
|
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 provided by (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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
Libbey Inc.
Condensed Consolidating Statement of Cash Flows
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey |
|
|
Libbey |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Inc. |
|
|
Glass |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
Year
ended December 31, 2005 |
|
(Parent) |
|
|
(Issuer) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net Income (loss) |
|
$ |
(19,355 |
) |
|
$ |
(19,355 |
) |
|
$ |
(9,242 |
) |
|
$ |
(6,847 |
) |
|
$ |
35,444 |
|
|
$ |
(19,355 |
) |
Depreciation and amortization |
|
|
|
|
|
|
17,306 |
|
|
|
4,519 |
|
|
|
10,656 |
|
|
|
|
|
|
|
32,481 |
|
Other operating activities |
|
|
19,355 |
|
|
|
41,522 |
|
|
|
6,893 |
|
|
|
(7,339 |
) |
|
|
(35,444 |
) |
|
|
24,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
|
|
|
|
39,473 |
|
|
|
2,170 |
|
|
|
(3,530 |
) |
|
|
|
|
|
|
38,113 |
|
Additions to property, plant & equipment |
|
|
|
|
|
|
(30,204 |
) |
|
|
(2,328 |
) |
|
|
(11,738 |
) |
|
|
|
|
|
|
(44,270 |
) |
Other investing activities |
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
(28,948 |
) |
|
|
|
|
|
|
(28,736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
(29,992 |
) |
|
|
(2,328 |
) |
|
|
(40,686 |
) |
|
|
|
|
|
|
(73,006 |
) |
Net borrowings |
|
|
|
|
|
|
(4,637 |
) |
|
|
|
|
|
|
44,289 |
|
|
|
|
|
|
|
39,652 |
|
Other financing activities |
|
|
|
|
|
|
(7,761 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,761 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
(12,398 |
) |
|
|
|
|
|
|
44,289 |
|
|
|
|
|
|
|
31,891 |
|
Exchange effect on cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash |
|
|
|
|
|
|
(2,917 |
) |
|
|
(158 |
) |
|
|
73 |
|
|
|
|
|
|
|
(3,002 |
) |
Cash at beginning of period |
|
|
|
|
|
|
5,734 |
|
|
|
458 |
|
|
|
52 |
|
|
|
|
|
|
|
6,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
|
|
|
$ |
2,817 |
|
|
$ |
300 |
|
|
$ |
125 |
|
|
$ |
|
|
|
$ |
3,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
Selected Quarterly Financial Data (unaudited)
The following tables present selected quarterly financial data for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
$ |
179,496 |
|
|
$ |
134,866 |
|
|
$ |
207,123 |
|
|
$ |
157,998 |
|
|
$ |
202,431 |
|
|
$ |
183,256 |
|
|
$ |
225,110 |
|
|
$ |
213,360 |
|
Gross profit |
|
$ |
32,415 |
|
|
$ |
22,146 |
|
|
$ |
44,189 |
|
|
$ |
28,172 |
|
|
$ |
38,250 |
|
|
$ |
31,568 |
|
|
$ |
42,815 |
|
|
$ |
41,278 |
|
Gross profit margin |
|
|
18.1 |
% |
|
|
16.4 |
% |
|
|
21.3 |
% |
|
|
17.8 |
% |
|
|
18.9 |
% |
|
|
17.2 |
% |
|
|
19.0 |
% |
|
|
19.3 |
% |
Selling, general & administrative
expenses |
|
$ |
22,034 |
|
|
$ |
19,086 |
|
|
$ |
23,667 |
|
|
$ |
19,696 |
|
|
$ |
23,571 |
|
|
$ |
20,729 |
|
|
$ |
22,296 |
|
|
$ |
28,055 |
|
Income (loss) from operations (IFO) |
|
$ |
10,381 |
|
|
$ |
3,060 |
|
|
$ |
20,522 |
|
|
$ |
(4,111 |
) |
|
$ |
14,679 |
|
|
$ |
10,839 |
|
|
$ |
20,519 |
|
|
$ |
9,476 |
|
IFO margin |
|
|
5.8 |
% |
|
|
2.3 |
% |
|
|
9.9 |
% |
|
|
(2.6 |
)% |
|
|
7.3 |
% |
|
|
5.9 |
% |
|
|
9.1 |
% |
|
|
4.4 |
% |
Equity earnings |
|
$ |
0 |
|
|
$ |
1,065 |
|
|
$ |
0 |
|
|
$ |
921 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Earnings (loss) before interest
and income taxes (EBIT) |
|
$ |
12,226 |
|
|
$ |
4,521 |
|
|
$ |
21,161 |
|
|
$ |
(4,097 |
) |
|
$ |
16,240 |
|
|
$ |
9,106 |
|
|
$ |
25,252 |
|
|
$ |
8,484 |
|
EBIT margin |
|
|
6.8 |
% |
|
|
3.4 |
% |
|
|
10.2 |
% |
|
|
-2.6 |
% |
|
|
8.0 |
% |
|
|
5.0 |
% |
|
|
11.2 |
% |
|
|
4.0 |
% |
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) |
|
$ |
21,442 |
|
|
$ |
12,856 |
|
|
$ |
31,871 |
|
|
$ |
4,109 |
|
|
$ |
28,025 |
|
|
$ |
19,777 |
|
|
$ |
35,113 |
|
|
$ |
16,992 |
|
EBITDA margin |
|
|
11.9 |
% |
|
|
9.5 |
% |
|
|
15.4 |
% |
|
|
2.6 |
% |
|
|
13.8 |
% |
|
|
10.8 |
% |
|
|
15.6 |
% |
|
|
8.0 |
% |
Net income (loss) |
|
$ |
(1,754 |
) |
|
$ |
515 |
|
|
$ |
3,956 |
|
|
$ |
(9,569 |
) |
|
$ |
445 |
|
|
$ |
(3,307 |
) |
|
$ |
(4,954 |
) |
|
$ |
(8,538 |
) |
Net income margin |
|
|
(1.0 |
)% |
|
|
0.4 |
% |
|
|
1.9 |
% |
|
|
(6.1 |
)% |
|
|
0.2 |
% |
|
|
(1.8 |
)% |
|
|
(2.2 |
)% |
|
|
(4.0 |
)% |
Diluted earnings (loss) per share |
|
$ |
(0.12 |
) |
|
$ |
0.04 |
|
|
$ |
0.27 |
|
|
$ |
(0.68 |
) |
|
$ |
0.03 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.60 |
) |
Accounts receivable net |
|
$ |
95,493 |
|
|
$ |
69,652 |
|
|
$ |
108,441 |
|
|
$ |
101,113 |
|
|
$ |
108,993 |
|
|
$ |
102,393 |
|
|
$ |
93,333 |
|
|
$ |
96,783 |
|
DSO |
|
|
45.4 |
|
|
|
44.4 |
|
|
|
50.5 |
|
|
|
52.1 |
|
|
|
49.6 |
|
|
|
52.0 |
|
|
|
41.8 |
|
|
|
46.3 |
|
Inventories net |
|
$ |
168,971 |
|
|
$ |
121,388 |
|
|
$ |
175,169 |
|
|
$ |
161,827 |
|
|
$ |
185,776 |
|
|
$ |
167,859 |
|
|
$ |
182,942 |
|
|
$ |
159,123 |
|
DIO |
|
|
80.4 |
|
|
|
77.3 |
|
|
|
81.6 |
|
|
|
74.6 |
|
|
|
84.5 |
|
|
|
81.7 |
|
|
|
82.0 |
|
|
|
77.4 |
|
Accounts payable |
|
$ |
65,817 |
|
|
$ |
40,070 |
|
|
$ |
65,359 |
|
|
$ |
59,447 |
|
|
$ |
71,824 |
|
|
$ |
73,559 |
|
|
$ |
75,387 |
|
|
$ |
67,493 |
|
DPO |
|
|
31.3 |
|
|
|
25.5 |
|
|
|
30.5 |
|
|
|
22.6 |
|
|
|
32.7 |
|
|
|
35.8 |
|
|
|
33.8 |
|
|
|
32.8 |
|
Working capital |
|
$ |
198,647 |
|
|
$ |
150,970 |
|
|
$ |
218,251 |
|
|
$ |
203,493 |
|
|
$ |
222,945 |
|
|
$ |
196,693 |
|
|
$ |
200,888 |
|
|
$ |
188,413 |
|
DWC |
|
|
94.4 |
|
|
|
96.1 |
|
|
|
101.7 |
|
|
|
104.8 |
|
|
|
101.4 |
|
|
|
99.9 |
|
|
|
90.0 |
|
|
|
90.1 |
|
Percent of net sales |
|
|
25.9 |
% |
|
|
26.3 |
% |
|
|
27.9 |
% |
|
|
28.7 |
% |
|
|
27.8 |
% |
|
|
27.4 |
% |
|
|
24.7 |
% |
|
|
24.7 |
% |
Net cash provided by (used in)
operating activities |
|
$ |
(37 |
) |
|
$ |
4,798 |
|
|
$ |
4,362 |
|
|
$ |
15,577 |
|
|
$ |
11,352 |
|
|
$ |
11,149 |
|
|
$ |
35,780 |
|
|
$ |
23,334 |
|
Free cash flow |
|
$ |
(7,761 |
) |
|
$ |
(16,641 |
) |
|
$ |
(8,587 |
) |
|
$ |
(74,811 |
) |
|
$ |
2,664 |
|
|
$ |
(9,576 |
) |
|
$ |
30,233 |
|
|
$ |
3,854 |
|
Total borrowings |
|
$ |
488,359 |
|
|
$ |
284,335 |
|
|
$ |
493,317 |
|
|
$ |
465,145 |
|
|
$ |
491,742 |
|
|
$ |
485,282 |
|
|
$ |
496,634 |
|
|
$ |
491,232 |
|
93
The following table represents special charges (see note 10) included in the above quarterly
data for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Special charges included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,543 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(385 |
) |
Special charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,747 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax special charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,362 |
|
Special charges net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,281 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity realignment charges net of tax |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.95 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys common stock as reported by the New York Stock Exchange and
dividends declared for our common stock were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
Cash |
|
|
Price Range |
|
dividend |
|
Price Range |
|
dividend |
|
|
High |
|
Low |
|
declared |
|
High |
|
Low |
|
declared |
First Quarter |
|
$ |
14.28 |
|
|
$ |
11.17 |
|
|
$ |
0.025 |
|
|
$ |
12.19 |
|
|
$ |
6.85 |
|
|
$ |
0.025 |
|
Second Quarter |
|
$ |
24.65 |
|
|
$ |
13.98 |
|
|
$ |
0.025 |
|
|
$ |
15.58 |
|
|
$ |
5.91 |
|
|
$ |
0.025 |
|
Third Quarter |
|
$ |
24.06 |
|
|
$ |
13.76 |
|
|
$ |
0.025 |
|
|
$ |
11.75 |
|
|
$ |
5.90 |
|
|
$ |
0.025 |
|
Fourth Quarter |
|
$ |
19.32 |
|
|
$ |
14.28 |
|
|
$ |
0.025 |
|
|
$ |
12.53 |
|
|
$ |
10.33 |
|
|
$ |
0.025 |
|
94
|
|
|
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 Companys Securities Exchange Act of 1934 (the
Exchange Act) reports are recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms and that such information is
accumulated and communicated to the Companys 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 Companys management, including the Companys Chief
Executive Officer and the Companys Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures as of the end of the quarter covered
by this report. Based on the foregoing, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys 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 Companys 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.
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 Companys internal control over financial
reporting. Management has concluded that the Companys internal control over financial reporting
was effective as of the end of the most recent fiscal year. The Companys independent registered
public accounting firm, Ernst & Young
95
LLP, that audited the Companys Consolidated Financial Statements, has issued an attestation
report on the Companys internal control over financial reporting.
Changes in Internal Control
There has been no change in the Companys internal controls over financial reporting during
the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal controls over financial reporting.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
96
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 Libbeys 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 Libbeys Board of Directors?, What
is the role of the Boards Committees? and How does the Board select nominees for the Board?
in the Proxy Statement.
Libbeys Code of Business Ethics and Conduct applicable to its Directors, Officers (including
Libbeys 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 Libbeys website at
www.libbey.com. Libbeys 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 Libbeys 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, Comparison of
Cumulative Total Returns, Total Shareholder Return and Indexed Returns 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 Libbeys directors and
officers own? in the Proxy Statement. 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 Libbeys
auditors? and -What fees has Libbey paid to its auditors for fiscal year 2007 and 2006? in the
Proxy Statement.
97
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
a) Index of Financial Statements and Financial Statement Schedule Covered by Report of
Independent Auditors.
|
|
|
Reports of Independent Registered Public Accounting Firms |
|
|
|
|
|
Consolidated Balance Sheets at December 31, 2007 and 2006 |
|
|
|
|
|
For the years ended December 31, 2007, 2006 and 2005: |
|
|
|
|
|
Consolidated Statements of Operations |
|
|
Consolidated Statements of Shareholders Equity |
|
|
Consolidated Statements of Cash Flows |
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
|
|
|
Selected Quarterly Financial Data (Unaudited) |
|
|
|
|
|
Financial Statement Schedule of Libbey Inc. for the years ended December 31, 2007, 2006 and 2005
for Schedule II Valuation and Qualifying Accounts (Consolidated)
|
|
|
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.
98
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 17, 2008 |
|
|
|
|
|
|
99
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 |
|
|
|
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 |
|
|
/s/ Gregory T. Geswein |
|
Date: March 17, 2008 |
|
|
|
|
|
|
|
|
|
Vice President and Chief Financial Officer |
|
|
|
|
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: March 17, 2008 |
|
|
|
|
|
|
100
INDEX TO FINANCIAL STATEMENT SCHEDULE
101
LIBBEY INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (Consolidated)
Years ended December 31, 2007, 2006 and 2005
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for |
|
|
|
|
|
|
|
|
|
|
slow moving |
|
|
Valuation allowance |
|
|
|
Allowance for |
|
|
and obsolete |
|
|
for deferred tax |
|
|
|
doubtful accounts |
|
|
inventory |
|
|
asset |
|
|
Balance at December 31, 2004 |
|
$ |
7,661 |
|
|
$ |
2,839 |
|
|
$ |
955 |
|
Charged to expense or other accounts |
|
|
5,886 |
|
|
|
8,377 |
|
|
|
2,078 |
|
Deductions |
|
|
(151 |
) |
|
|
(3,266 |
) |
|
|
|
|
|
Balance at December 31, 2005 |
|
|
13,396 |
|
|
|
7,950 |
|
|
|
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 |
|
|
S-1
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). |
|
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|
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). |
|
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|
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). |
103
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S-K ITEM |
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601 No. |
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Document |
4.7
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|
|
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). |
|
|
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|
|
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). |
|
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|
|
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). |
|
|
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|
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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). |
|
|
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|
|
10.1
|
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|
|
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). |
|
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|
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). |
|
|
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|
|
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). |
104
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|
S-K ITEM |
|
|
601 No. |
|
Document |
10.9
|
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|
|
Susquehanna Pfaltzgraff Co. Guarantee dated as of October 10, 1995 in favor of LG
Acquisition Corp. and Libbey Canada Inc. guaranteeing certain obligations of The
Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse China Company of Canada, Ltd.
under the Asset Purchase Agreement for the Acquisition of Syracuse China (Exhibit 2.0) in
the event certain contingencies occur (filed as Exhibit 10.18 to Libbey Inc.s Current
Report on Form 8-K dated October 10, 1995 and incorporated herein by reference). |
|
|
|
|
|
10.10
|
|
|
|
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). |
|
|
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|
|
10.11
|
|
|
|
The Amended and Restated Libbey Inc. Senior Management Incentive Plan (filed as
Exhibit 10.22 to Registrants 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
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Rob A.
Bules (filed as Exhibit 10.38 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
|
|
|
|
|
10.14
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Terry E.
Hartman (filed as Exhibit 10.40 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
|
|
|
|
|
10.15
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and William
M. Herb (filed as Exhibit 10.41 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
|
|
|
|
|
10.16
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Daniel
P. Ibele (filed as Exhibit 10.42 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
|
|
|
|
|
10.17
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Pete D.
Kasper (filed as Exhibit 10.43 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
|
|
|
|
|
10.18
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and John F.
Meier (filed as Exhibit 10.44 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
|
|
|
|
|
10.19
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Timothy
T. Paige (filed as Exhibit 10.45 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
|
|
|
|
|
10.20
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Richard
I. Reynolds (filed as Exhibit 10.48 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
|
|
|
|
|
10.21
|
|
|
|
Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Kenneth
G. Wilkes (filed as Exhibit 10.51 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference). |
105
|
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|
|
|
S-K ITEM |
|
|
601 No. |
|
Document |
10.22
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and J. F. Meier (filed as Exhibit 10.49 to Libbey Inc.s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by
reference). |
|
|
|
|
|
10.23
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Richard I. Reynolds (filed as Exhibit 10.51 to Libbey Inc.s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference). |
|
|
|
|
|
10.24
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Kenneth G. Wilkes (filed as Exhibit 10.52 to Libbey Inc.s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference). |
|
|
|
|
|
10.25
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Timothy T. Paige (filed as Exhibit 10.53 to Libbey Inc.s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference). |
|
|
|
|
|
10.26
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Daniel P. Ibele (filed as Exhibit 10.55 to Libbey Inc.s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference). |
|
|
|
|
|
10.27
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and William Herb (filed as Exhibit 10.59 to Libbey Inc.s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference). |
|
|
|
|
|
10.28
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Pete Kasper (filed as Exhibit 10.63 to Libbey Inc.s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by
reference). |
|
|
|
|
|
10.29
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Rob Bules (filed as Exhibit 10.65 to Libbey Inc.s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by
reference). |
|
|
|
|
|
10.30
|
|
|
|
Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Terry Hartman (filed as Exhibit 10.66 to Libbey Inc.s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference). |
|
|
|
|
|
10.31
|
|
|
|
Change of Control Agreement dated as of August 1, 1999 between Libbey Inc. and
Kenneth A. Boerger (filed as Exhibit 10.68 to Libbey Inc.s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999 and incorporated herein by reference). |
|
|
|
|
|
10.32
|
|
|
|
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). |
|
|
|
|
|
10.33
|
|
|
|
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). |
|
|
|
|
|
10.34
|
|
|
|
Change in Control Agreement dated as of May 1, 2003, between Libbey Inc. and Scott M.
Sellick (filed as Exhibit 10.66 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter-ended June 30, 2003, and incorporated herein by reference). |
|
|
|
|
|
10.35
|
|
|
|
Change of Control Agreement dated as of December 15, 2003, between Susan A. Kovach
(filed as Exhibit 10.69 to Libbey Inc.s Annual Report on Form 10-K for the year-ended
December 31,2003, and incorporated herein by reference). |
106
|
|
|
|
|
S-K ITEM |
|
|
601 No. |
|
Document |
10.36
|
|
|
|
Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Kenneth A.
Boerger (filed as Exhibit 10.1 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter-ended March 31, 2004, and incorporated herein by reference). |
|
|
|
|
|
10.37
|
|
|
|
Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Daniel P.
Ibele (filed as Exhibit 10.2 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter-ended March 31, 2004, and incorporated herein by reference). |
|
|
|
|
|
10.38
|
|
|
|
Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Susan Allene
Kovach (filed as Exhibit 10.3 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter-ended March 31, 2004, and incorporated herein by reference). |
|
|
|
|
|
10.39
|
|
|
|
Employment Agreement dated as of March 22, 2004 between Libbey Inc. and John F. Meier
(filed as Exhibit 10.4 to Libbey Inc.s Quarterly Report on Form 10-Q for the quarter-ended
March 31, 2004, and incorporated herein by reference). |
|
|
|
|
|
10.40
|
|
|
|
Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Timothy T.
Paige (filed as Exhibit 10.5 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter-ended March 31, 2004, and incorporated herein by reference). |
|
|
|
|
|
10.41
|
|
|
|
Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Richard I.
Reynolds (filed as Exhibit 10.6 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter-ended March 31, 2005, and incorporated herein by reference). |
|
|
|
|
|
10.42
|
|
|
|
Employment Agreement dated as of March 22, 2005 between Libbey Inc. and Scott M.
Sellick (filed as Exhibit 10.7 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter-ended March 31, 2004 and incorporated herein by reference). |
|
|
|
|
|
10.43
|
|
|
|
Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Kenneth G.
Wilkes (filed as Exhibit 10.8 to Libbey Inc.s Quarterly Report on Form 10-Q for the
quarter-ended March 31, 2004 and incorporated herein by reference). |
|
|
|
|
|
10.44
|
|
|
|
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). |
|
|
|
|
|
10.45
|
|
|
|
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). |
|
|
|
|
|
10.46
|
|
|
|
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). |
|
|
|
|
|
10.47
|
|
|
|
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). |
|
|
|
|
|
10.48
|
|
|
|
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). |
107
|
|
|
|
|
S-K ITEM |
|
|
601 No. |
|
Document |
10.49
|
|
|
|
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). |
|
|
|
|
|
10.50
|
|
|
|
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). |
|
|
|
|
|
10.51
|
|
|
|
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). |
|
|
|
|
|
10.52
|
|
|
|
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). |
|
|
|
|
|
10.53
|
|
|
|
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). |
|
|
|
|
|
10.54
|
|
|
|
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). |
|
|
|
|
|
10.55
|
|
|
|
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). |
|
|
|
|
|
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 Registrants 2007 Annual Report to
Shareholders (filed herein). |
|
|
|
|
|
21
|
|
|
|
Subsidiaries of the Registrant (filed herein). |
|
|
|
|
|
23.1
|
|
|
|
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). |
108