10-Q 1 l87966ae10-q.txt LIBBEY INC. 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark one) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 2001 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Libbey Inc. ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-12084 34-1559357 --------------- ----------- ------------------ (State or other (Commission (IRS Employer jurisdiction of File No.) Identification No.) incorporation or organization) 300 Madison Avenue, Toledo, Ohio 43604 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 419-325-2100 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ -- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common Stock, $.01 par value - 15,283,631 shares at April 30, 2001 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The Condensed Consolidated Financial Statements presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Since the following condensed unaudited financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000. The interim results of operations are not necessarily indicative of results for the entire year. 1 3 LIBBEY INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per-share amounts) (unaudited)
Three months ended March 31, Revenues: 2001 2000 -------- -------- Net sales $ 92,515 $ 96,761 Prepaid freight billed to customers 446 457 Royalties and net technical assistance income 473 633 -------- -------- Total revenues 93,434 97,851 Costs and expenses: Cost of sales 70,289 69,604 Selling, general and administrative expenses 14,204 15,369 -------- -------- 84,493 84,973 -------- -------- Income from operations 8,941 12,878 Other income: Pretax equity earnings 1,300 1,875 Other - net (336) (293) -------- -------- 964 1,582 -------- -------- Earnings before interest and income taxes 9,905 14,460 Interest expense - net (2,527) (3,035) -------- -------- Income before income taxes 7,378 11,425 Provision for income taxes 3,171 5,023 -------- -------- Net income $ 4,207 $ 6,402 ======== ======== Net income per share Basic $ 0.28 $ 0.42 =========== ======== Diluted $ 0.27 $ 0.41 =========== ======== Dividends per share $ 0.075 $ 0.075 =========== ========
See accompanying notes. 2 4 LIBBEY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
March 31, December 31, 2001 2000 ---- ---- (unaudited) (Note) ASSETS Current assets: Cash $ 2,231 $ 1,282 Accounts receivable: Trade, less allowances of $6,358 and $6,788 46,784 47,747 Other 4,052 3,992 -------- ------------- 50,836 51,739 Inventories: Finished goods 102,265 94,822 Work in process 6,595 6,060 Raw materials 2,807 3,021 Operating supplies 616 603 ------------- ------------- 112,283 104,506 Prepaid expenses and deferred taxes 9,693 7,923 -------- -------- Total current assets 175,043 165,450 Other assets: Repair parts inventories 5,713 8,027 Intangibles, net of accumulated amortization of $3,027 and $2,951 9,178 9,254 Pension assets 23,360 21,638 Deferred software, net of accumulated amortization of $9,163 and $8,651 3,356 4,286 Other assets 171 415 Equity investments 80,316 84,727 Goodwill, net of accumulated amortization of $16,555 and $16,174 44,424 44,805 -------- -------- 166,518 173,152 Property, plant and equipment, at cost 236,784 224,532 Less accumulated depreciation 120,687 116,427 ------------- ------------- Net property, plant and equipment 116,097 108,105 ------------- ------------- Total assets $457,658 $446,707 ============= =============
Note: The condensed consolidated balance sheet at December 31, 2000, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 3 5 LIBBEY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
March 31, December 31, 2001 2000 ---- ---- (unaudited) (Note) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 3,350 $ 10,000 Accounts payable 24,188 29,861 Salaries and wages 7,243 15,574 Accrued liabilities 29,439 23,884 Income taxes 440 954 Long-term debt due within one year 23,596 -- -------- -------- Total current liabilities 88,256 80,273 Long-term debt 151,404 151,404 Deferred taxes 20,499 19,413 Other long-term liabilities 12,223 12,670 Nonpension retirement benefits 49,321 49,676 Shareholders' equity: Common stock, par value $.01 per share, 50,000,000 shares authorized, 17,935,031 shares issued and outstanding, less 2,651,400 treasury shares (17,858,102 shares issued and outstanding, less 2,647,400 treasury shares in 2000) 153 152 Capital in excess of par value 286,459 284,930 Treasury stock (74,226) (74,113) Deficit (74,658) (77,698) Accumulated other comprehensive loss (1,773) -- --------- -------- Total shareholders' equity 135,955 133,271 -------- -------- Total liabilities and shareholders' equity $457,658 $446,707 ======== ========
Note: The condensed consolidated balance sheet at December 31, 2000, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 4 6 LIBBEY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited)
Three months ended March 31, 2001 2000 ---- ---- Operating activities Net income $ 4,207 $ 6,402 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 4,600 3,836 Amortization 969 1,056 Other non-cash charges (293) 956 Equity earnings (444) (571) Net change in components of working capital and other assets (16,830) (22,280) -------- -------- Net cash used in operating activities (7,791) (10,601) Investing activities Additions to property, plant and equipment (12,825) (1,943) Other (63) (63) Dividends received from equity investment 4,918 -- ------ ------ Net cash used in investing activities (7,970) (2,006) Financing activities Net bank credit facility activity 23,596 20,000 Other net payments (6,650) (5,504) Stock options exercised 1,021 318 Treasury shares purchased (113) (2,076) Dividends (1,144) (1,142) -------- -------- Net cash provided by financing activities 16,710 11,596 ------- ------- Effect of exchange rate fluctuations on cash -- (6) ------- ------- Increase (decrease) in cash 949 (1,017) Cash at beginning of year 1,282 3,918 ------- ------- Cash at end of period $ 2,231 $ 2,901 ======= =======
See accompanying notes. 5 7 LIBBEY INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Dollars in thousands, except per share data (unaudited) 1. LONG-TERM DEBT The Company and its Canadian subsidiary have an unsecured agreement ("Bank Credit Agreement" or "Agreement") with a group of banks which provides for a Revolving Credit and Swing Line Facility ("Facility") permitting borrowings up to an aggregate total of $380 million, maturing May 1, 2002. Swing Line borrowings are limited to $25 million with interest calculated at the prime rate minus the Commitment Fee Percentage. Revolving Credit borrowings bear interest at the Company's option at either the prime rate minus the Commitment Fee Percentage, or a Eurodollar rate plus the Applicable Eurodollar Margin. The Commitment Fee Percentage and Applicable Eurodollar Margin will vary depending on the Company's performance against certain financial ratios. The Commitment Fee Percentage and the Applicable Eurodollar Margin were 0.125% and 0.225%, respectively, at March 31, 2001. The Company may also elect to borrow under a Negotiated Rate Loan alternative of the Revolving Credit and Swing Line Facility at floating rates of interest, up to a maximum of $190 million. The Revolving Credit and Swing Line Facility also provides for the issuance of $35 million of letters of credit, with such usage applied against the $380 million limit. At March 31, 2001, the Company had $5.4 million in letters of credit outstanding under the Facility. The Company has entered into interest rate protection agreements ("Rate Agreements") with respect to $75 million of debt under its Bank Credit Agreement as a means to manage its exposure to fluctuating interest rates. The Rate Agreements effectively convert this portion of the Company's Bank Credit Agreement borrowings from variable rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future income. The average interest rate for the Company's borrowings related to the Rate Agreements at March 31, 2001, was 6.67% for an average remaining period of 2.8 years. The remaining debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 5.25% at March 31, 2001. The interest rate differential to be received or paid under the Rate Agreements is being recognized over the life of the Rate Agreements as an adjustment to interest expense. If the counterparts to these Rate Agreements fail to perform, the Company would no longer be protected from interest rate fluctuations by these Rate Agreements. However, the Company does not anticipate nonperformance by the counterparts. 6 8 The Company must pay a commitment fee ("Commitment Fee Percentage") on the total credit provided under the Bank Credit Agreement. No compensating balances are required by the Agreement. The Agreement requires the maintenance of certain financial ratios, restricts the incurrence of indebtedness and other contingent financial obligations, and restricts certain types of business activities and investments. 2. SIGNIFICANT SUBSIDIARY Summarized combined financial information for equity investments, which includes the 49% ownership in Vitrocrisa, which manufactures, markets, and sells glass tableware (e.g. beverageware, plates, bowls, serveware, and accessories) and industrial glassware (e.g. coffee pots, blender jars, meter covers, glass covers for cooking ware, and lighting fixtures sold to original equipment manufacturers) and the 49% ownership in Crisa Industrial, L.L.C., which distributes industrial glassware in the U.S. and Canada for Vitrocrisa, for 2001 and 2000 is as follows:
March 31, December 31, 2001 2000 ---- ---- Current assets $ 81,771 $ 84,266 Non-current assets 138,259 140,644 --------------------------------------------------------------------------------------------------------------------- Total assets 220,030 224,910 Current liabilities 61,059 65,496 Other liabilities and deferred items 142,401 134,884 ---------------------------------------------------------------------------------------------------------------------- Total liabilities and deferred items 203,460 200,380 ---------------------------------------------------------------------------------------------------------------------- Net assets $ 16,570 $ 24,530 ======================================================================================================================
7 9
Three months ended March 31, ----------------------------------------------- 2001 2000 ---- ---- Net sales $ 44,272 $ 45,627 Cost of sales 32,954 32,653 ---------------------- ------------------------ Gross profit 11,318 12,974 Operating expenses 5,178 5,258 ---------------------- ------------------------ Income from operations 6,140 7,716 Other income 433 371 ---------------------- ------------------------ Earnings before finance costs and taxes 6,573 8,087 Interest expense 2,216 2,690 Translation loss (488) (705) ---------------------- ------------------------ Earnings before income taxes and profit sharing 3,869 4,692 ---------------------------------------------------------------------------------------------------------------------- Income taxes and profit sharing 1,747 2,661 ---------------------------------------------------------------------------------------------------------------------- Net income $2,122 $2,031 ======================================================================================================================
In the first quarter 2001, the Company reported pre-tax equity earnings in condensed consolidated statements of income with related Mexican taxes included in the provision for income taxes. In previous quarters, the Company reported equity earnings as a single line item, which included Mexican taxes. As such, the Company has reclassified its first quarter 2000 equity earnings to correspond to the 2001 presentation. The equity earnings are as follows:
Three months ended March 31, ----------------------------------------------- 2001 2000 ---- ---- Pre-tax equity earnings $ 1,300 $ 1,875 Mexican taxes (856) (1,304) ---------------------- ------------------------ Net equity earnings $ 444 $ 571
3. CASH FLOW INFORMATION Interest paid in cash aggregated $3,006 and $2,894 for the first three months of 2001 and 2000, respectively. Interest expense capitalized was $306 and $0 for the first three months of 2001 and 2000, respectively. Income taxes paid in cash aggregated $2,036 and $6,929 for the first three months of 2001 and 2000, respectively. 4. NET 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. Diluted net income per share of common stock is computed using the weighted average number of shares of common stock outstanding and includes common share equivalents. 8 10 The following table sets forth the computation of basic and diluted earnings per share:
Quarter ended March 31, 2001 2000 -------------------------------------------------------------- ---- ---- Numerator for basic and diluted earnings per share--net income which is available to common shareholders $ 4,207 $ 6,402 Denominator for basic earnings per share--weighted-average shares outstanding 15,245,863 15,241,738 Effect of dilutive securities-- employee stock options 290,780 282,628 ----------- ----------- Denominator for diluted earnings per share--adjusted weighted- average shares and assumed conversions 15,536,643 15,524,366 Basic earnings per share $ 0.28 $ 0.42 Diluted earnings per share $ 0.27 $ 0.41
5. COMPREHENSIVE INCOME The Company's components of comprehensive income are net income, foreign currency translation adjustments (2000), and change in fair value of derivative adjustments (2001). During the first quarter of 2001 and 2000, total comprehensive income amounted to $2,434 and $6,368 respectively. Total comprehensive income is as follows:
Three months ended March 31, ----------------------------------------------- 2001 2000 ---- ---- Net income $ 4,207 $ 6,402 Change in fair value of derivative instruments (1,100) -- Cumulative effect of change in method of accounting (673) -- Foreign currency translation adjust- ments -- (34) ---------------------- ------------------------ $ 2,434 $ 6,368 ====================== ======================== 9
11 6. CHANGE IN METHOD OF ACCOUNTING Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"(Statement 133), as amended. Statement 133 requires that all derivative instruments be recognized on the balance sheet and be measured at fair value and that changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In accordance with the transition provisions of Statement 133, the Company recorded a cumulative transition adjustment to decrease other comprehensive income by $0.7 million (net of tax) to recognize the fair value of its derivative instruments at January 1, 2001. The Company uses derivative instruments, primarily interest rate swaps (Rate Agreements as defined above), commodity futures contracts, and foreign currency forward contracts, to manage certain of its interest rate, commodity price, and foreign exchange rate risks, respectively. The Company uses the Rate Agreements to manage its exposure to fluctuating interest rates. These Rate Agreements effectively convert a portion of the Company's borrowings from variable rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future income. The Company also uses commodity futures contracts with the objective of reducing commodity price risks related to forecasted future natural gas requirements. The objective of these commodity futures is to limit the fluctuations in price paid for natural gas from one period to the next. With respect to foreign exchange rate risk, the Company's objective is to limit potential losses in earnings or cash flows from adverse foreign currency exchange rate movements. The Company's foreign currency exposures arise from occasional transactions denominated in a currency other than the functional currency (U.S. dollar) primarily associated with anticipated purchases of new equipment. As of March 31, 2001, the Company has Rate Agreements for $75 million of its variable rate debt, commodity futures contracts for 0.7 million Btu's of natural gas, and foreign currency forward contracts for 3.7 million Deutsche marks. The Company recognizes all derivatives on the balance sheet at fair value. 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 are recorded in accumulated other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. Amounts reclassified into earnings related to interest rate swap agreements are included in interest expense, natural gas futures contracts in natural gas expense, and foreign currency forward contracts for the purchase of new equipment in capital expenditures. 10 12 All of the Company's derivatives qualify and are designated as cash flow hedges at March 31, 2001. The derivatives were designated as cash flow hedges at the time of adoption of Statement 133 or at the time they were executed, if later than January 1, 2001. Hedge accounting is only applied 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. During the quarter ended March 31, 2001, an unrealized net loss of $(1.7) million (net of tax) related to interest rate swap agreements was included in OCI, including a $(0.8) million cumulative transition adjustment as of January 1, 2001. The Company expects $(0.4) million of the $(1.7) million loss will be recognized within the next twelve months. The balance of $(1.3) million will be recognized by September 2005 when the swaps mature. Amounts recognized in OCI at March 31, 2001, for commodity futures contracts and foreign currency forward contracts were not material. The January 1, 2001, transition adjustment for the commodity futures contracts and foreign currency forward contracts were not material. The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings. No ineffectiveness was recognized during the first quarter of 2001. 11 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000 Three months ended March 31, ---------------------------- (dollars in thousands) 2001 2000 ------- ------ Net sales $92,515 $96,761 Gross profit 22,672 27,614 As a percent of sales 24.5% 28.5% Income from operations $8,941 $12,878 As a percent of sales 9.7% 13.3% Earnings before interest and income taxes $9,905 $14,460 As a percent of sales 10.7% 14.9% Net income $4,207 $6,402 As a percent of sales 4.5% 6.6% For the quarter ended March 31, 2001, sales were $92.5 million compared to $96.8 million in the year-ago quarter. Growth in glassware and flatware sales to foodservice customers was more than offset by lower sales to industrial and retail customers. The company was also notified in March of the cancellation of a long-standing multi-million dollar promotional order. While not impacting first quarter sales, this order from a key premium promotional customer had been scheduled to be produced at various times during the first three quarters of 2001 and shipped during the fourth quarter. Export sales were down 13.5%, decreasing to $10.1 million from $11.7 million in the year-ago period primarily due to lower sales to Canadian customers. Gross profit (defined as net sales plus freight billed to customers less cost of sales) was $22.7 million in the first quarter of 2001 compared to $27.6 million in the first quarter of 2000; and as a percent of sales was 24.5% in the first quarter of 2001 compared to 28.5% in the year-ago quarter. Higher energy costs and the effect of lower sales were the major factors impacting gross profit during the first quarter 2001. Income from operations was $8.9 million compared to $12.9 million in the first quarter last year. Lower selling, general and administraive expenses only partially offset the impact of higher energy costs and lower sales. Earnings before interest and income taxes (EBIT) were $9.9 million compared with $14.5 million in the first quarter last year. Equity earnings were $1.3 million on a pretax basis compared to $1.9 million pretax in the first quarter of 2000. 12 14 Net income was $4.2 million, or 27 cents per share on a diluted basis, compared with $6.4 million or 41 cents per share on a diluted basis in the year-ago period due to items discussed above as well as a reduction in the Company's effective tax rate to 43.0 percent from 42.0 percent in the year-ago quarter. The reduction in the Company's effective tax rate is primarily attributable to reduction in tax on undistributed earnings. CAPITAL RESOURCES AND LIQUIDITY The Company had total debt of $178.3 million at March 31, 2001, compared to $161.4 million at December 31, 2000. Inventories increased $7.8 million during the quarter as compared to an increase of $9.7 million during the first quarter of 2000. As previously announced, the Company is taking steps to curtail production and reduce inventories. While impacting the Company's profitability in the short term, these steps will improve working capital management and cash flow and allow the Company to operate at higher levels of capacity as sales trends improve. In addition, the Company had capital expenditures of $12.8 million during the first quarter of 2001 related to furnace rebuild activity and investments in higher productivity machinery and equipment compared to $1.9 million during the first quarter of 2000. The seasonal increase in inventories and higher capital expenditures through March 31, 2001, were only slightly offset by lower accounts receivable and higher accounts payable. During the first quarter, the Company purchased 4,000 shares pursuant to its share repurchase plan for $0.1 million. Since mid 1998, the Company has repurchased 2,651,400 shares for $74.2 million. Board authorization remains for the purchase of an additional 973,600 shares. In addition, Libbey received dividends from its investment in Crisa Industrial, part of the Company's investment in Vitrocrisa and related companies and from its investment in Vitrocrisa, of $4.9 million in the first quarter 2001 compared to a dividend of $2.9 million in the second quarter 2000 from its investment in Crisa Industrial. The Company had additional debt capacity at March 31, 2001, under the Bank Credit Agreement of $199.6 million. Of Libbey's outstanding indebtedness, $103.3 million is subject to fluctuating interest rates at March 31, 2001. A change of one percent in such rates would result in a change in interest expense of approximately $1.0 million on an annual basis as of March 31, 2001. The Company is not aware of any trends, demands, commitments, or uncertainties which will result or which are reasonably likely to result in a material change in Libbey's liquidity. The Company believes that its cash from operations and available borrowings under the Bank Credit Agreement will be sufficient to fund its operating requirements, capital expenditures and all other obligations (including debt service and dividends) throughout the remaining term of the Bank Credit Agreement. 13 15 In addition, the Company anticipates refinancing the Bank Credit Agreement at or prior to the maturity date of May 1, 2002, to meet the Company's longer term funding requirements. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks due to changes in currency values, although the majority of the Company's 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 that could reduce the cost competitiveness of the Company's products compared to foreign competition; the effect of high inflation in Mexico and exchange rate changes to the value of the Mexican peso and the earnings and cash flow impact of those changes on the earnings and cash flow of the Company's joint venture in Mexico, Vitrocrisa, expressed under U.S. GAAP. The Company is exposed to market risk associated with changes in interest rates in the U.S. However, the Company has entered into Interest Rate Protection Agreements ("Rate Agreements") with respect to $75.0 million of debt as a means to manage its exposure to fluctuating interest rates. The Rate Agreements effectively convert this portion of the Company's borrowings from variable rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future income. The average interest rate for the Company's borrowings related to the Rate Agreements at March 31, 2001, was 6.67% for an average remaining period of 2.8 years. Total remaining debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 5.27% at March 31, 2001. The Company had $103.3 million of debt subject to fluctuating interest rates at March 31, 2001. A change of one percent in such rates would result in a change in interest expense of approximately $1.0 million on an annual basis. The interest rate differential to be received or paid under the Rate Agreements is being recognized over the life of the Rate Agreements as an adjustment to interest expense. If the counterparts to these Rate Agreements fail to perform, the Company would no longer be protected from interest rate fluctuations by these Rate Agreements. However, the Company does not anticipate nonperformance by the counterparts. At December 31, 2000, the carrying value of the long-term debt approximates its fair value based on the Company's current incremental borrowing rates. The fair market value for the Company's Interest Rate Protection Agreements at December 31, 2000, was $(1.2) million. The fair value of long-term debt is estimated based on borrowing rates currently available to the Company for loans with similar terms and maturities. The fair value of the Company's Rate Agreements is based 14 16 on quotes from brokers for comparable contracts. The Company does not expect to cancel these agreements and expects them to expire as originally contracted. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), as amended. In accordance with the provisions of Statement 133, the Company recognizes all derivatives on the balance sheet at fair value. The Company's Rate Agreements are recorded at fair value. The Company has also entered into commodity futures contracts to hedge the price of anticipated required purchases of natural gas and foreign currency forward contracts to hedge the purchase of equipment denominated in Deutsche marks. These instruments are also recorded at fair value. The Company has designated these derivative instruments as cash flow hedges. As such, the changes in fair value of these derivative instruments are recorded in accumulated other comprehensive income and reclassified into earning as the underlying hedged transaction or items affects earnings. At March 31, 2001, approximately $(1.8) million of unrealized net losses were recorded in accumulated other comprehensive income (loss) of which approximately $(0.5) million is expected to be reclassified into earnings in the next twelve months. OTHER INFORMATION This document and supporting schedules contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements only reflect the Company's best assessment at this time, and are indicated by words or phrases such as goal, expects, believes, will, estimates, anticipates, or similar phrases. Investors are cautioned that forward-looking statements involve risks and uncertainty, that actual results may differ materially from such statements, and that investors should not place undue reliance on such statements. Important factors potentially affecting performance include major slowdowns in the retail, travel, or entertainment industries in the United States, Canada, or Mexico; significant increases in interest rates that increase the Company's borrowing costs and per unit increases in the costs for natural gas, corrugated packaging, and other purchased materials; devaluations and other major currency fluctuations relative to the U.S. dollar that could reduce the cost competitiveness of the Company's products compared to foreign competition; the effect of high inflation in Mexico and exchange rate changes to the value of the Mexican peso and the earnings expressed 15 17 under U.S. GAAP and cash flow of the Company's joint venture in Mexico, Vitrocrisa; the inability to achieve savings and profit improvements at targeted levels in the Company's glassware sales from its capacity realignment efforts and re-engineering programs, or within the intended time periods; protracted work stoppages related to collective bargaining agreements; increased competition from foreign suppliers endeavoring to sell glass tableware in the United States; whether the Company completes any significant acquisition and whether such acquisitions can operate profitably. PART II - OTHER INFORMATION (a.) No exhibits (b.) No form 8-K's were filed during the quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LIBBEY INC. Date May 15, 2001 By /s/ KENNETH G. WILKES ------------ --------------------------------------- Kenneth G. Wilkes, Vice President, Chief Financial Officer (Principal Accounting Officer) 16