Summary of LIBBEY INC - Yahoo! Finance

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes thereto appearing elsewhere in this report and in our Annual Report filed with the Securities and Exchange Commission. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ from those anticipated in these forward-looking statements as a result of many factors. These factors are discussed in "Risk Factors" under Item 1A of "Part II
- Other Information". Overview
Market conditions continue to be challenging. While comparisons to the sales performance of the third quarter and first nine months of 2008 show dramatic differences, we continue to see the results of our cash flow enhancements outlined on February 11, 2009. We have reduced capital spending, reduced production levels in response to the reduced demand in our markets, reduced our overall costs and reduced our investment in inventories during the first nine months of the year, a period which normally would see a buildup of inventories in anticipation of normally higher sales in the fourth quarter. The decreased production levels have caused pressure on our margins for most of the year as certain fixed costs could not be reduced to the same extent as sales, but we have placed a higher priority on liquidity in the near term. Our third quarter results reflect significant improvements in liquidity, and we have also been able to increase utilization of our production capacity, resulting in increased margins. Our retail business has continued its strong performance; however, at this time we still expect that the eventual recovery of our other markets will occur slowly. We will continue to monitor our customer markets, and as the economy improves we are prepared to adjust production levels further, which should lead to continued improvements in profitability as the margin pressures described above should continue to reverse. On October 28, 2009, we announced a debt exchange with respect to the PIK Notes. Please see note 14 for a further discussion of this subsequent event.
Results of Operations - Third Quarter 2009 Compared with Third Quarter 2008

 (Dollars in thousands, except percentages and per-share                Three months ended September 30,                             Variance
                         amounts)                                      2009 (2)                     2008                 In dollars            In percent

Net sales                                                          $      186,878             $      211,536             $ (24,658 )               (11.7 )%
Gross profit                                                       $       42,960             $       37,934             $   5,026                  13.2 %
Gross profit margin                                                          23.0 %                     17.9 %
Income from operations (IFO)                                       $       17,849             $       14,557             $   3,292                  22.6 %
IFO margin                                                                    9.6 %                      6.9 %

Earnings before interest and income taxes (EBIT)(1)                $       20,552             $       13,557             $   6,995                  51.6 %
EBIT margin                                                                  11.0 %                      6.4 %
Earnings before interest, taxes, depreciation and
amortization (EBITDA)(1)                                           $       31,181             $       24,456             $   6,725                  27.5 %
EBITDA margin                                                                16.7 %                     11.6 %
Net income (loss)                                                  $        3,533             $       (5,958 )           $   9,491                 159.3 %
Net income (loss) margin                                                      1.9 %                     (2.8 )%
Diluted net income (loss) per share                                $         0.23             $        (0.40 )           $    0.63                 157.5 %

(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. See Table 1 for a reconciliation of net income
(loss) to EBIT and EBITDA and a further discussion as to the reasons we believe these non-GAAP financial measures are useful.

(2) Includes pre-tax restructuring charges of $0.5 million related to the closing of our Syracuse China manufacturing facility and our Mira Loma distribution center. (See note 5 to the Condensed Consolidated Financial Statements).

Net Sales
For the quarter ended September 30, 2009, net sales decreased 11.7 percent to $186.9 million from third quarter sales of $211.5 million in the year-ago quarter. North American Glass net shipments decreased 10.7 percent to $128.3 million from $143.6 million in the year-ago quarter. The decrease in sales was primarily attributable to a 13.7 percent decrease in sales to Crisa customers, resulting principally from the currency impact of the Mexican peso. Crisa shipments decreased 0.6 percent excluding the currency impact. In

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addition, an 18.4 percent decline in shipments to U.S. and Canada foodservice glassware customers was offset by a 9.4 percent increase in shipments to U.S. and Canada retail glassware customers. North American Other net sales decreased 27.8 percent due to a decline in shipments of World Tableware, Syracuse China and Traex products. International net sales decreased 4.1 percent compared to the year-ago quarter, as a 20.0 percent increase in shipments to Libbey China customers was offset by unfavorable currency impact of the weaker euro when compared to the U.S. dollar. Excluding the currency impact, International sales decreased 0.4 percent, as shipments to Royal Leerdam customers increased 1.1 percent and shipments to Crisal glassware customers declined 2.4 percent when compared to the prior-year period.
Gross Profit
For the quarter ended September 30, 2009, gross profit increased by $5.0 million, or 13.2 percent, to $43.0 million, compared to $37.9 million in the year-ago quarter. Gross profit as a percentage of net sales increased to 23.0 percent, compared to 17.9 percent in the year-ago quarter. Reductions in manufacturing costs offset by lower production activity primarily in our International segment resulted in a $11.7 million improvement in gross profit, as reductions in natural gas, labor and packaging expenses more than offset the impact of decreased production. Decreases in distribution costs contributed another $4.3 million of improvement. These improvements were offset by a $10.8 million impact from unfavorable mix and the lower level of net sales. Income From Operations
Income from operations for the quarter ended September 30, 2009 increased $3.3 million, or 22.6 percent, to $17.8 million, compared to $14.6 million in the year-ago quarter. Income from operations as a percentage of net sales increased to 9.6 percent in the third quarter 2009, compared to 6.9 percent in the year-ago quarter. The improvement in income from operations is a result of higher gross profit and gross profit margin (discussed above), offset by a $0.3 million special charge related primarily to the shutdowns of the Syracuse China manufacturing facility and Mira Loma distribution center (see Note 5 for more discussion about these charges) and an increase of $1.4 million in selling, general and administrative expenses. The $1.4 million increase in selling, general and administrative expenses is mainly due to an increase in expense related to our annual incentive plan.
Earnings Before Interest and Income Taxes (EBIT) Earnings before Interest and Income Taxes (EBIT) for the quarter ended September 30, 2009 increased by $7.0 million, from $13.6 million in 2008, to $20.6 million in 2009. EBIT as a percentage of net sales increased to 11.0 percent in the third quarter 2009, compared to 6.4 percent in the year-ago quarter. Key contributors to the increase in EBIT compared to the year-ago quarter are the same as those discussed above under Income From Operations. In addition, other income increased by $3.7 million primarily related to a favorable swing in foreign currency translation gains versus the prior year quarter.
Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) EBITDA increased by 27.5 percent to $31.2 million in the third quarter of 2009 from $24.5 million in the year-ago quarter. As a percentage of net sales, EBITDA was 16.7 percent for the third quarter 2009, compared to 11.6 percent in the year-ago quarter. The key contributors to the increase in EBITDA were those factors discussed above under Earnings before Interest and Income Taxes (EBIT). These improvements were slightly offset as EBITDA does not include the benefit of a $0.3 million decrease in depreciation and amortization expenses which is primarily due to the shutdown of our Syracuse China operations. Net Income (Loss) and Diluted Net Income (Loss) Per Share We recorded net income of $3.5 million, or $0.23 per diluted share, in the third quarter 2009, compared to a net loss of $(6.0) million, or $(0.40) per diluted share, in the year-ago quarter. Net income (loss) as a percentage of net sales was 1.9 percent in the third quarter 2009, compared to (2.8) percent in the year-ago quarter. The improvement in Net Income (Loss) and Diluted Net Income
(Loss) Per Share is generally due to the factors discussed in EBIT above. Furthermore, the effective tax rate provided a 13.9 percent benefit for the quarter compared to a 50.8 percent expense in the year-ago quarter, due primarily to a $1.4 million tax benefit related to the required intra-period tax allocation between income from operations and other comprehensive income in the U.S. in the current quarter. The Company's effective tax rate also changed from the year-ago quarter as a result of changes in valuation allowances in the United States, the Netherlands, and Portugal. Further, changes in the mix of earnings in countries with differing statutory tax rates, changes in accruals related to uncertain tax positions, tax planning structures and changes in tax laws have also impacted the effective tax rate, and could cause more volatility in the future.

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Results of Operations - First Nine Months 2009 Compared with First Nine Months

2008

 (Dollars in thousands, except percentages and per-share                Nine months ended September 30,                            Variance
                         amounts)                                     2009 (2)                    2008                 In dollars            In percent

Net sales                                                          $     540,557             $     623,640             $ (83,083 )               (13.3 )%
Gross profit                                                       $      87,959             $     110,439             $ (22,480 )               (20.4 )%
Gross profit margin                                                         16.3 %                    17.7 %
Income from operations (IFO)                                       $      17,286             $      42,752             $ (25,466 )               (59.6 )%
IFO margin                                                                   3.2 %                     6.9 %

Earnings before interest and income taxes (EBIT)(1)                $      22,710             $      43,091             $ (20,381 )               (47.3 )%
EBIT margin                                                                  4.2 %                     6.9 %
Earnings before interest, taxes, depreciation and
amortization (EBITDA)(1)                                           $      55,585             $      76,524             $ (20,939 )               (27.4 )%
EBITDA margin                                                               10.3 %                    12.3 %
Net loss                                                           $     (21,696 )           $     (11,554 )           $ (10,142 )               (87.8 )%
Net loss margin                                                             (4.0 )%                   (1.9 )%
Diluted net loss per share                                         $       (1.45 )           $       (0.79 )           $   (0.66 )               (83.5 )%

(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. See Table 1 for a reconciliation of net loss to EBIT and EBITDA and a further discussion as to the reasons we believe these non-GAAP financial measures are useful.

(2) Includes pre-tax restructuring charges of $3.2 million related to the closing of our Syracuse China manufacturing facility and our Mira Loma distribution center. (See note 5 to the Condensed Consolidated Financial Statements).

Net Sales
For the nine months ended September 30, 2009, net sales decreased 13.3 percent to $540.6 million from sales of $623.6 million in the year-ago period. North American Glass net sales decreased 12.0 percent to $374.8 million from sales of $426.1 million in the year-ago period, due primarily to a decrease of 23.4 percent in shipments to Crisa customers and a decline of 9.9 percent in shipments to U.S. and Canadian foodservice glassware customers. The devaluation of the Mexican peso caused a sales decline of approximately 13.0 percent at Crisa, representing more than half of the overall 23.4 percent reduction in Crisa sales. Due to continued strength in the third quarter, our U.S. retail sales were 3.2 percent ahead of last year's sales level through the first nine months of the year, representing a new record for the nine month period. North American Other net sales decreased 22.2 percent to $66.2 million from sales of $85.0 million in the year-ago period due to a decline in shipments of World Tableware, Syracuse China and Traex products. International net sales decreased 13.7 percent to $103.7 million from sales of $120.2 million in the year-ago period, including 7.5 percent due to unfavorable currency impact resulting primarily from the declining strength of the euro when compared to the U.S. dollar. Libbey China sales increased 10.5 percent compared to the year-ago period. Excluding the currency impact, International sales decreased approximately 6.2 percent, as shipments to Royal Leerdam and Crisal glassware customers declined when compared to the prior year period. Gross Profit
For the nine months ended September 30, 2009, gross profit decreased by $22.5 million, or 20.4 percent, to $88.0 million, compared to $110.4 million in the year-ago period. Gross profit as a percentage of net sales decreased to 16.3 percent, compared to 17.7 percent in the year-ago period. An unfavorable mix and lower level of net sales, particularly in the U.S., resulted in $20.0 million of the decline in gross profit, and lower production activity offset by reduced manufacturing costs contributed another $2.3 million to the decrease, as a significant portion of these expenses are fixed and could not be reduced to the same extent as net sales. Also, an unfavorable currency impact resulted in $11.9 million of the decline in gross profit. In addition, the current year included special charges of $1.9 million related to the Syracuse China manufacturing facility and Mira Loma distribution center shutdowns. These unfavorable items were offset by a reduction of $12.2 million in our distribution costs.

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Income From Operations
Income from operations for the nine months ended September 30, 2009 decreased $25.5 million, to $17.3 million, compared to $42.8 million in the year-ago period. Income from operations as a percentage of net sales decreased to 3.2 percent in the first nine months of 2009, compared to 6.9 percent in the year-ago period. The decline in income from operations is a result of lower gross profit (discussed above), combined with a $2.0 million increase in selling, general and administrative expenses and a $1.0 million special charge primarily related to the Syracuse China shutdown. The $2.0 million increase in selling, general and administrative expenses was caused by a $7.6 million increase in expense for our annual incentive plan, a $3.0 million pension settlement charge arising from lump sum payments to retirees during the first nine months of 2009 and the one-time 2008 accrual reversal of $1.3 million related to favorable rulings in connection with an outstanding dispute regarding a warehouse lease in Mexico. These increases in selling general and administrative expenses were offset by favorable currency impact of $1.7 million and decreases of $5.9 million and $4.6 million in labor and benefit costs and selling, marketing and other expenses, respectively. Earnings Before Interest and Income Taxes (EBIT) Earnings before Interest and Income Taxes (EBIT) decreased by $20.4 million, from $43.1 million in 2008 to $22.7 million in 2009. EBIT as a percentage of net sales decreased to 4.2 percent in the first nine months of 2009, compared to 6.9 percent in the year-ago period. Key contributors to the decrease in EBIT compared to the year-ago period are the same as those discussed above under Income From Operations, offset by a $5.1 million increase in other income primarily related to a favorable swing in foreign currency translation gains versus the prior year quarter.
Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) EBITDA decreased by 27.4 percent to $55.6 million in the first nine months of 2009 from income of $76.5 million in the year-ago period. As a percentage of net sales, EBITDA was 10.3 percent for the first nine months of 2009, compared to 12.3 percent in the year-ago period. The key contributors to the decrease in EBITDA were those factors discussed above under Earnings before Interest and Income Taxes (EBIT). In addition, EBITDA does not include the comparative benefit of a $0.6 million decrease in depreciation and amortization expenses. Net Loss and Diluted Net Loss Per Share
We recorded a net loss of $(21.7) million, or $(1.45) per diluted share, in the first nine months of 2009, compared to a net loss of $(11.6) million, or $(0.79) per diluted share, in the year-ago period. Net loss as a percentage of net sales was (4.0) percent in the first nine months of 2009, compared to (1.9) percent in the year-ago period. The improvement in Net Income (Loss) and Diluted Net Income
(Loss) Per Share is generally due to the factors discussed in EBIT above. In addition, the effective tax rate was 26.3 percent for the period compared to negative 25.7 percent in the year-ago period, due primarily to a $5.3 million tax benefit related to the required intra-period tax allocation between income from operations and other comprehensive income in the U.S. in the first nine months of 2009 and a $1.5 million benefit related to adjustments in tax reserves due to the completion of a U.S. federal income tax examination. The Company's effective tax rate changed from the year-ago quarter also as a result of changes in valuation allowances in the United States, the Netherlands, and Portugal. Further, changes in the mix of earnings in countries with differing statutory tax rates, changes in accruals related to uncertain tax positions, tax planning structures and changes in tax laws have also impacted the effective tax rate. Segment Results of Operations

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                            Three months ended                                          Nine months ended
                               September 30,                   Variance                   September 30,                   Variance
(Dollars in thousands)      2009          2008        In dollars     In percent         2009          2008        In dollars     In percent

Net Sales:
North American Glass     $ 128,316     $ 143,630      $ (15,314 )        (10.7 )%   $ 374,803      $ 426,120      $ (51,317 )       (12.0 )%
North American Other        20,462        28,339         (7,877 )        (27.8 )%      66,180         85,042        (18,862 )       (22.2 )%
International               40,279        42,014         (1,735 )         (4.1 )%     103,663        120,166        (16,503 )       (13.7 )%
Eliminations                (2,179 )      (2,447 )                                     (4,089 )       (7,688 )

Consolidated             $ 186,878     $ 211,536      $ (24,658 )        (11.7 )%   $ 540,557      $ 623,640      $ (83,083 )       (13.3 )%

EBIT:
North American Glass     $  16,594     $   9,695      $   6,899           71.2 %    $  19,727      $  31,704      $ (11,977 )       (37.8 )%
North American Other         2,953         2,130            823           38.6 %        5,263          9,590         (4,327 )       (45.1 )%
International                1,005         1,732           (727 )        (42.0 )%      (2,280 )        1,797         (4,077 )      (226.9 )%

Consolidated             $  20,552     $  13,557      $   6,995           51.6 %    $  22,710      $  43,091      $ (20,381 )       (47.3 )%

EBIT Margin:
North American Glass          12.9 %         6.7 %                                        5.3 %          7.4 %
North American Other          14.4 %         7.5 %                                        8.0 %         11.3 %
International                  2.5 %         4.1 %                                       (2.2 )%         1.5 %
Consolidated                  11.0 %         6.4 %                                        4.2 %          6.9 %

Special charges:
North American Glass     $     107     $       -      $     107          100.0 %    $      81      $       -      $      81         100.0 %
North American Other           382             -            382          100.0 %        3,089              -          3,089         100.0 %
International                    -             -              -          NM                 -              -              -            NM

Consolidated             $     489     $       -      $     489          100.0 %    $   3,170      $       -      $   3,170         100.0 %

Segment Results of Operations - Third Quarter 2009 Compared to Third Quarter 2008
North American Glass
For the quarter ended September 30, 2009, net sales decreased 10.7 percent to $128.3 million from $143.6 million in the year-ago quarter. Of the decrease in net sales, approximately 5.4 percent was attributable to decreased shipments to Crisa's customers and 7.0 percent was attributable to decreased shipments to U.S. and Canadian foodservice glassware customers offset by a 2.2 percent increase in sales to U.S. and Canadian retail glassware customers. Of the 5.4 percent attributable to decreased shipments of Crisa product, 5.2 percent is related to an unfavorable currency impact.
EBIT increased to $16.6 million for the third quarter 2009, compared to $9.7 million for the year-ago quarter. EBIT as a percentage of net sales increased to 12.9 percent in the third quarter 2009, compared to 6.7 percent in the year-ago quarter. The key factors in the increase in EBIT compared to the year-ago quarter were $9.0 million due to lower manufacturing costs offset by decreased production activity, a $3.3 million decrease in distribution costs and an improvement of $3.6 million primarily due to favorable foreign currency translation gains. The factors contributing to the increase in EBIT were partially offset by $7.5 million due to an unfavorable sales mix, a $1.6 million increase in SG&A costs and an unfavorable currency impact from the devaluation of the Mexican peso of $0.2 million. The $1.6 million increase in SG&A costs was caused by a $5.7 million increase in expense for our annual incentive plan offset by a decrease of $4.2 million in labor and benefit expenses. North American Other
For the quarter ended September 30, 2009, net sales declined 27.8 percent to $20.5 million from $28.3 million in the year-ago quarter. Components of the total decrease in net sales were declines of approximately 16.1 percent in shipments of Syracuse China products related to the closure of the Syracuse China facility earlier this year and the decision to reduce the Syracuse China product offering, approximately 5.4 percent in shipments of Traex products and approximately 6.2 percent in shipments of World Tableware products.

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EBIT increased by $0.8 million for the third quarter of 2009, compared to the year-ago quarter. EBIT as a percentage of net sales increased to 14.4 percent in the third quarter of 2009, compared to 7.5 percent in the year-ago quarter due to lower production and purchasing levels in the segment. The key contributors to the increased EBIT were decreases of $2.9 million in manufacturing and purchased product costs, $0.2 million in distribution costs and $1.0 million in SG&A expenses. These reductions in costs were primarily the result of the April 2009 closure of our Syracuse China facility, as EBIT for the Syracuse China operations contributed a $1.0 million improvement compared to the prior year period. This was offset by decreased sales volume and mix, which caused an unfavorable $3.5 million impact.
International
For the quarter ended September 30, 2009, net sales decreased 4.1 percent to $40.3 million from $42.0 million in the year-ago quarter. The decrease was primarily the result of a weaker euro, which caused a 4.4 percent decline. This currency impact was offset by an increase in shipments to customers of Libbey China, as shipments to Royal Leerdam and Crisal customers were essentially flat as a component of the total International segment variance.
EBIT declined by $0.7 million for the third quarter of 2009, to $1.0 million from $1.7 million in the year-ago quarter. EBIT as a percentage of net sales decreased to 2.5 percent in the third quarter 2009, compared to 4.1 percent in the year-ago quarter. Decreased production activity offset by lower manufacturing costs were responsible for $0.8 million of the EBIT decline. In addition, EBIT was negatively affected by an unfavorable currency impact from the euro of $0.2 million and additional depreciation and amortization of $0.7 million. These factors were offset by a $0.9 million decrease in distribution costs.
Segment Results of Operations - First Nine Months 2009 Compared to First Nine Months 2008
North American Glass
For the nine months ended September 30, 2009, net sales decreased 12.0 percent to $374.8 million from $426.1 million in the year-ago period. Of the total decrease in net sales, approximately 9.1 percent was attributable to decreased shipments to Crisa's customers and 4.9 percent was attributable to decreased shipments to U.S. and Canadian foodservice glassware customers. The primary offset to these declines was a 0.7 percent increase from the U.S. and Canadian retail channel, which delivered sales above the performance of the first nine months of 2008. Of the 9.1 percent attributable to decreased shipments of Crisa product, 5.1 percent is related to an unfavorable currency impact. EBIT decreased to $19.7 million for the first nine months of 2009, compared to $31.7 million for the year-ago period. EBIT as a percentage of net sales decreased to 5.3 percent in the first nine months of 2009, compared to 7.4 percent in the year-ago period. The key factors in the decline in EBIT compared to the year-ago period were $13.2 million due to an unfavorable sales . . .