Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LBY > SEC Filings for LBY > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for LIBBEY INC

Form 10-Q for LIBBEY INC


8-Nov-2012

Quarterly Report


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. Our risk factors are set forth in Exhibit 99.1, Operational Factors Affecting Libbey Inc.'s Business and Other Information, "Risk Factors", in our Current Report on Form 8-K filed May 9, 2012.

Overview

North America's economy is expected to remain fragile during the last quarter of 2012, with political and global economic uncertainties continuing to lead to relatively weak demand. The European economy continued to soften during the third quarter of 2012, and we expect it to remain weak for the remainder of 2012. In addition, political uncertainty exists in China as a result of the anticipated leadership change there, and, although the economy in China continues to grow, the rate of growth has slowed considerably. Despite these conditions, our China, Mexico and U.S. and Canadian sales regions within our Glass Operations segment showed improvement in net sales for the first nine months of 2012, excluding the impact of currency, with increased unit shipments and a favorable mix shift. Net sales within our European sales region increased during the three months ended September 30, 2012, excluding the impact of currency, compared to the year-ago period.

Gross profit grew 14.1 percent, compared to the third quarter of 2011, increasing to an all-time third quarter record of $51.2 million from $44.9 million in the year-ago quarter. Income from operations grew 32.4 percent, compared to the third quarter of 2011, increasing to an all-time third quarter record of $24.3 million from $18.4 million in the year-ago quarter. These records resulted from increased shipments, a better mix of products sold, lower distribution costs, lower utility costs and lower freight costs, partially offset by costs related to implementing our new strategic plan. We are committed to further improving our cost structure, leveraging our advantaged businesses and nurturing our strong customer relationships. We believe these efforts, combined with our overall productivity improvements, will enable strengthened financial and operational performance.

Strengthening our balance sheet remains a high priority. On May 18, 2012, we completed the refinancing of substantially all of the existing indebtedness of our wholly-owned subsidiaries Libbey Glass and Libbey Europe. We used the proceeds of the offering of the $450.0 million New Senior Secured Notes to fund the repurchase and redemption of $320.0 million of the Old Senior Secured Notes, pay related fees and expenses, and contribute $79.7 million to our U.S. pension plans to fully fund our target obligations under ERISA. On June 29, 2012, we used the remaining proceeds of the New Senior Secured Notes, together with cash on hand, to redeem the remaining $40.0 million of Old Senior Secured Notes and to pay related fees. In April and September of 2012, Libbey China pre-paid the respective July and December 2013 scheduled principal payments each of RMB 60.0 million (approximately $9.5 million) each.

We have two reportable segments defined as follows:

Glass Operations-includes worldwide sales of manufactured and sourced glass tableware and other glass operations from domestic and international subsidiaries.

Other Operations-includes worldwide sales of sourced ceramic dinnerware, metal tableware, hollowware and serveware and plastic items. Plastic items were included in this segment until we sold substantially all of the assets of our Traex subsidiary on April 28, 2011.


Table of Contents

Results of Operations

The following table presents key results of our operations for the three and
nine months ended September 30, 2012 and 2011:
                                           Three months ended September 30,           Nine months ended September 30,
(dollars in thousands, except
percentages and per-share amounts)             2012                 2011                 2012                 2011
Net sales                               $       209,150       $       207,246     $       606,226       $       602,274
Gross profit  (2)                       $        51,209       $        44,884     $       150,612       $       130,866
Gross profit margin                                24.5 %                21.7 %              24.8 %                21.7 %
Income from operations (IFO) (3)        $        24,322       $        18,377     $        68,221       $        53,782
IFO margin                                         11.6 %                 8.9 %              11.3 %                 8.9 %
Earnings (loss) before interest and
income taxes(EBIT)(1)(2)(3)(4)          $        24,127       $        20,614     $        36,787       $        59,286
EBIT margin                                        11.5 %                 9.9 %               6.1 %                 9.8 %
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(1)(2)(3)(4)                    $        34,200       $        30,971     $        67,684       $        91,551
EBITDA margin                                      16.4 %                14.9 %              11.2 %                15.2 %
Adjusted EBITDA(1)                      $        37,986       $        35,784     $       102,545       $        91,794
Adjusted EBITDA margin                             18.2 %                17.3 %              16.9 %                15.2 %
Net income (loss) (2)(3)(4)             $        14,861       $         7,127     $         5,359       $        21,532
Net income (loss) margin                            7.1 %                 3.4 %               0.9 %                 3.6 %
Diluted net income (loss) per share     $          0.70       $          0.34     $          0.25       $          1.04


__________________________________


(1) We believe that EBIT, EBITDA and Adjusted EBITDA, all 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 a reconciliation from net income (loss) to EBIT, EBITDA, and Adjusted EBITDA, see the "Adjusted EBITDA" section below in the Discussion of Third Quarter 2012 Compared with Third Quarter 2011 and the reasons we believe these non-GAAP financial measures are useful.

(2) The three and nine month periods ended September 30, 2012 include $2.3 million of severance resulting from the implementation of our new strategic plan. The three and nine month periods ended September 30, 2011 include $1.8 million accrued for an on-going unclaimed property audit and $0.2 million of restructuring charges related to the closure of the decorating operations at our Shreveport manufacturing facility. (See notes 5 and 15 to the Condensed Consolidated Financial Statements.)

(3) In addition to item (2) above, the three and nine month periods ended September 30, 2012 include $1.4 million of severance resulting from the implementation of our new strategic plan. The three and nine month periods ended September 30, 2011 include $0.9 million accrued for an on-going unclaimed property audit. The third quarter of 2011 includes $2.1 million of CEO transition expenses and a $0.2 million restructuring credit related to the closure of the decorating operations at our Shreveport manufacturing facility. The nine months ended September 30, 2011 include $2.5 million of CEO transition expenses, an equipment credit of $0.8 million, and a restructuring credit of $0.3 million related to the closure of our Syracuse, New York, manufacturing facility and the decorating operations at our Shreveport manufacturing facility. (See notes 5, 15 and 16 to the Condensed Consolidated Financial Statements.)

(4) In addition to item (3) above, the nine months ended September 30, 2012 includes $31.1 million for the write-off of unamortized finance fees and discounts and call premium payments on the ABL Facility and $360.0 million of Old Senior Secured Notes redeemed in May and June 2012, partially offset by the write-off of the debt carrying value adjustment related to the termination of the $80.0 million interest rate swap. The three months ended September 30, 2011 includes $0.1 million of expenses related to the sale of substantially all of the assets of Traex. The nine months ended September 30, 2011 includes a $3.2 million gain on the sale of substantially all of the assets of Traex, income of $3.4 million related to the gain on the sale of land at our Libbey Holland facility, a loss of $2.8 million related to the redemption of $40.0 million of Old Senior Secured Notes and an equipment credit of $0.2 million. (See notes 4, 14 and 16 to the Condensed Consolidated Financial Statements.)

Discussion of Third Quarter 2012 Compared to Third Quarter 2011 Net Sales
For the quarter ended September 30, 2012, net sales increased 0.9 percent to $209.2 million, compared to $207.2 million in the year-ago quarter. When adjusted for currency impact, net sales were up 3.9 percent. The increase in net sales was attributable to increased sales of $2.8 million in our Other Operations segment, partially offset by a $1.0 million decline in our Glass


Table of Contents

Operations segment net sales.

                            Three months ended September 30,
(dollars in thousands)          2012                 2011
Glass Operations         $       189,860       $       190,813
Other Operations                  19,427                16,597
Eliminations                        (137 )                (164 )
Consolidated             $       209,150       $       207,246

Net Sales - Glass Operations

Net sales in the Glass Operations segment were $189.9 million, compared to $190.8 million in the third quarter of 2011, a decrease of 0.5 percent (an increase of 2.7 percent excluding currency fluctuation). Primary contributors to the decreased net sales were a 9.7 percent decrease in net sales within our European sales region (1.7 percent increase excluding currency fluctuation) and a 15.5 percent decrease in our International sales region, partially offset by a 0.8 percent increase in net sales within our U.S. and Canadian sales region, a 13.0 percent increase in net sales within our China sales region (11.4 percent excluding the impact of currency), and a 9.0 percent increase within our Mexico sales region (14.8 percent increase excluding the peso devaluation), compared to the prior year quarter. The increase in our European sales region, when excluding currency, is due to a more favorable mix of products sold. The decrease in our International sales region is a result of decreased shipments within all market channels. Net sales to U.S. and Canadian retail customers increased 1.2 percent, net sales to U.S. and Canadian foodservice glassware customers increased 1.3 percent, and net sales to U.S. and Canadian business to business customers decreased 1.2 percent. The increase in our China sales region is the result of our change in our go-to market strategy in the domestic Chinese market. The increase in our Mexico sales region is primarily driven by increased shipments in the business to business channel.

Net Sales - Other Operations

Net sales in the Other Operations segment increased by 17.1 percent, from $16.6 million in the third quarter of 2011 to $19.4 million in the third quarter of 2012. This increase is the result of solid sales increases to both Syracuse China and World Tableware customers, including a large replacement of dinnerware with a major restaurant chain.

Gross Profit

Gross profit increased to $51.2 million in the third quarter of 2012, compared to $44.9 million in the prior year quarter. Gross profit as a percentage of net sales increased to 24.5 percent in the third quarter of 2012, compared to 21.7 percent in the prior year period. The primary drivers of the $6.3 million gross profit increase were a $5.3 million impact from changes in sales volume and mix and decreased utilities, direct materials (primarily lower packaging costs) and freight expenses of $3.7 million in the third quarter of 2012 compared to the third quarter of 2011. Partially offsetting these improvements was $2.8 million attributable to decreased production activity net of volume-related production costs.

Income (Loss) From Operations

Income from operations for the quarter ended September 30, 2012 increased $5.9 million, to $24.3 million, compared to $18.4 million in the prior year quarter. Income from operations as a percentage of net sales was 11.6 percent for the quarter ended September 30, 2012, compared to 8.9 percent in the prior year quarter. The increase in income from operations is the result of an increase in gross profit (discussed above).

Earnings (Loss) Before Interest and Income Taxes (EBIT)

EBIT for the quarter ended September 30, 2012 increased by $3.5 million, to $24.1 million from $20.6 million in the third quarter of 2011. EBIT as a percentage of net sales increased to 11.5 percent in the third quarter of 2012, compared to 9.9 percent in the prior year quarter. The increase in EBIT is a result of an increase in income from operations (discussed above), partially offset by a $2.4 million reduction in other income (expense) primarily resulting from a $2.1 million change in currency translation.


Table of Contents

Segment EBIT

The following table summarizes Segment EBIT(1) by operating segments:
                                Three months ended September 30,
(dollars in thousands)                  2012                     2011
Glass Operations         $          33,970                     $ 29,801
Other Operations                     4,356                        2,978


____________________________________


(1) Segment EBIT represents earnings before interest and taxes and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs. See note 12 to the Condensed Consolidated Financial Statements for reconciliation of Segment EBIT to net income (loss).

Segment EBIT - Glass Operations

Segment EBIT increased to $34.0 million in the third quarter of 2012, compared to $29.8 million in the third quarter of 2011. Segment EBIT as a percentage of net sales for Glass Operations increased to 17.9 percent in the third quarter of 2012, compared to 15.6 percent in the prior-year period. The primary drivers of the $4.2 million increase in Segment EBIT were a $4.4 million favorable impact from changes in sales volume and mix, a $3.4 million decrease in costs primarily related to labor and benefits, utilities, freight and direct materials (primarily packaging), partially offset by a $3.0 million reduction attributable to decreased production activity net of volume-related production costs.

Segment EBIT - Other Operations

Segment EBIT increased by $1.4 million, or 46.3 percent, to $4.4 million for the third quarter of 2012, compared to $3.0 million in the prior-year period. Segment EBIT as a percentage of net sales for Other Operations increased to 22.4 percent for the quarter ended September 30, 2012, compared to 17.9 percent in the prior-year quarter. Increased shipments to World Tableware and Syracuse China customers and reductions in labor and benefit costs led to the growth in Segment EBIT.

Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)

EBITDA increased by $3.2 million in the third quarter 2012, to $34.2 million, compared to $31.0 million in the year-ago quarter. As a percentage of net sales, EBITDA increased to 16.4 percent in the third quarter of 2012, from 14.9 percent in the year-ago quarter. The key contributors to the increase in EBITDA were those factors discussed above under Earnings (Loss) Before Interest and Income Taxes (EBIT).

Adjusted EBITDA

Adjusted EBITDA increased by $2.2 million in the third quarter of 2012, to $38.0 million, compared to $35.8 million in the third quarter of 2011. As a percentage of net sales, Adjusted EBITDA was 18.2 percent for the third quarter of 2012, compared to 17.3 percent in the year-ago quarter. The key contributors to the increase in Adjusted EBITDA were those factors discussed above under Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) and the elimination of the special items noted below in the reconciliation of net income (loss) to EBIT, EBITDA and Adjusted EBITDA.


Table of Contents

                                                         Three months ended September 30,
(dollars in thousands)                                        2012                 2011
Net income (loss)                                       $        14,861        $    7,127
Add: Interest expense                                             8,720            10,559
Add: Provision (benefit) provision for income taxes                 546             2,928
Earnings (loss) before interest and income taxes
(EBIT)                                                           24,127            20,614
Add: Depreciation and amortization                               10,073            10,357
Earnings before interest, taxes, deprecation and
amortization (EBITDA)                                            34,200            30,971
Add: Special items before interest and taxes:
Severance and other                                               3,786                 -
Abandoned property (see note 18)                                      -             2,719
CEO transition expenses                                               -             2,091
Gain on sale of Traex assets                                          -                81
Restructuring charges                                                 -               (78 )
Adjusted EBITDA                                         $        37,986        $   35,784

We sometimes refer to data derived from condensed consolidated financial information but not required by GAAP to be presented in financial statements. Certain of these data are considered "non-GAAP financial measures" under Securities and Exchange Commission (SEC) Regulation G. We believe that certain 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.
We define EBIT as net income (loss) before interest expense and income taxes. The most directly comparable U.S. GAAP financial measure is net income (loss). We believe that EBIT is an important supplemental measure for investors in evaluating operating performance in that it provides insight into company profitability. Libbey's senior management uses this measure internally to measure profitability. EBIT also allows for a measure of comparability to other companies with different capital and legal structures, which accordingly may be subject to different interest rates and effective tax rates.
The non-GAAP measure of EBIT does have certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations. Because this is a material and recurring item, any measure that excludes it has a material limitation. EBIT may not be comparable to similarly titled measures reported by other companies. We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization. The most directly comparable U.S. GAAP financial measure is net income (loss).
We believe that EBITDA is an important supplemental measure for investors in evaluating operating performance in that it provides insight into company profitability and cash flow. Libbey's senior management uses this measure internally to measure profitability and to set performance targets for managers. It also has been used regularly as one of the means of publicly providing guidance on possible future results. EBITDA also allows for a measure of comparability to other companies with different capital and legal structures, which accordingly may be subject to different interest rates and effective tax rates, and to companies that may incur different depreciation and amortization expenses or impairment charges.
The non-GAAP measure of EBITDA does have certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations and fund our U.S. pension plans. EBITDA also excludes depreciation and amortization expenses. Because these are material and recurring items, any measure that excludes them has a material limitation. EBITDA may not be comparable to similarly titled measures reported by other companies.
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA internally to measure profitability and to set performance targets for managers.
Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:


Table of Contents

• Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

• Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

• Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Net Income (Loss) and Diluted Net Income (Loss) Per Share

We recorded net income of $14.9 million, or $0.70 per diluted share, in the third quarter of 2012, compared to net income of $7.1 million, or $0.34 per diluted share, in the year-ago quarter. Net income as a percentage of net sales was 7.1 percent in the third quarter of 2012, compared to 3.4 percent in the year-ago quarter. The increase in net income and diluted net income per share is generally due to the factors discussed in Earnings (Loss) Before Interest and Income Taxes (EBIT) above, a $1.8 million reduction in interest expense, and a $2.4 million decrease in the provision for income taxes. The reduction in interest expense is primarily the result of lower interest rates. The effective tax rate was 3.5 percent for the third quarter of 2012, compared to 29.1 percent in year-ago quarter. The effective tax rate was influenced by jurisdictions with recorded valuation allowances, changes in the mix of earnings in countries with differing statutory tax rates and changes in accruals related to uncertain tax positions.

Discussion of First Nine Months 2012 Compared to First Nine Months 2011

Net Sales

For the nine months ended September 30, 2012, net sales increased 0.7 percent to
$606.2 million, compared to $602.3 million in the year-ago period. The increase
in net sales was attributable to increased sales in our Glass Operations
segment, offset by decreased sales in Other Operations, as the first nine months
of 2011 included $4.8 million of net sales of Traex® products (prior to the sale
of substantially all of the Traex assets in late April, 2011), which were no
longer offered.
                             Nine months ended September 30,
(dollars in thousands)          2012                 2011
Glass Operations         $       551,679       $       547,353
Other Operations                  55,123                55,448
Eliminations                        (576 )                (527 )
Consolidated             $       606,226       $       602,274

Net Sales - Glass Operations

Net sales in the Glass Operations segment were $551.7 million in the first nine months of 2012 compared to $547.4 million in the first nine months of 2011, an increase of 0.8 percent (3.9 percent excluding the impact of currency). Primary contributors to the increased net sales were a 34.6 percent increase in net sales within our China sales region (31.0 percent excluding the impact of currency), a 3.7 percent increase within our U.S. and Canadian sales region, flat net sales within our Mexico sales region (7.5 percent increase excluding the peso effect), partially offset by a 10.0 percent decrease in the European sales region (1.1 percent decrease excluding the euro effect), and a 4.1 percent decrease within our International sales region, compared to the first nine months of 2011. The increase in our China sales region is the result of the change in our go-to market strategy in the domestic Chinese market. Net sales to U.S. and Canadian foodservice glassware customers increased 5.4 percent due to increased shipments, net sales to U.S. and Canadian business to business customers increased 2.9 percent due to increased shipments, and net sales to U.S. and Canadian retail customers increased 2.5 percent due to a more favorable mix of products sold. The decrease in our European sales region is a result of decreased shipments attributable to the uncertain European economic conditions. Excluding the effects of currency, the Mexican sales region increase in sales was driven by increased shipments.


Table of Contents

Net Sales - Other Operations

Net sales in the Other Operations segment declined by 0.6 percent from $55.4 million in the first nine months of 2011, when Traex® products contributed $4.8 million in net sales, to $55.1 million in the first nine months of 2012. Offsetting most of the decline, which is attributable to the sale of substantially all of the assets of Traex in April 2011, were increases in net sales to World Tableware customers of 8.2 percent and to Syracuse China customers of 10.5 percent in the first nine months of 2012 as compared to the first nine months of 2011.

Gross Profit

Gross profit increased to $150.6 million in the first nine months of 2012, compared to $130.9 million in the prior year period. Gross profit as a . . .

  Add LBY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LBY - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.