10-K 1 lby20191231_10k.htm FORM 10-K lby20191231_10k.htm
 

 

Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

or

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)

 

Delaware

34-1559357

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

300 Madison Avenue, Toledo, Ohio 43604

(Address of principal executive offices) (Zip Code)

419-325-2100

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $.01 par value

LBY

NYSE American

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 ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐  No ☑

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

 

Accelerated Filer

 

Non-Accelerated Filer

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The aggregate market value (based on the consolidated tape closing price on June 30, 2019) of the voting stock beneficially held by non-affiliates of the registrant was approximately $40,800,424. 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 20, 2020 was 22,361,002.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Items 10, 11, 12, 13 and 14 of Form 10-K is incorporated by reference into Part III hereof from the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held May 13, 2020 (“Proxy Statement”).

Certain information required by Part II of this Form 10-K is incorporated by reference from registrant’s 2019 Annual Report to Shareholders where indicated.


 

 

 
 

TABLE OF CONTENTS

 

 

PART I

Page

Item 1.

BUSINESS

3

Item 1A.

RISK FACTORS

8

Item 1B.

UNRESOLVED STAFF COMMENTS

20

Item 2.

PROPERTIES

21

Item 3.

LEGAL PROCEEDINGS

21

Item 4.

MINE SAFETY DISCLOSURES

21

 

 

 

 

PART II

 

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

22

Item 6.

SELECTED FINANCIAL DATA

23

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

26

Item 7A.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

37

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

38

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

75

Item 9A.

CONTROLS AND PROCEDURES

75

Item 9B.

OTHER INFORMATION

76

 

 

 

 

PART III

 

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

77

Item 11.

EXECUTIVE COMPENSATION

77

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

77

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

77

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

77

 

 

 

 

PART IV

 

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

78

Item 16.

FORM 10-K SUMMARY

81

 

 

 

SIGNATURES

82

 

 

 

 

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 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 a global leader in the design, production and sale of tableware and other products. We manufacture glass tableware and other glass products at our two plants in the United States as well as our plants located in Mexico (Libbey Mexico), the Netherlands (Libbey Holland), Portugal (Libbey Portugal) and China (Libbey China). We believe that our glass tableware manufacturing, distribution and service network is the largest in the Western Hemisphere and is among the largest in the world. We also source glass tableware, ceramic dinnerware, metal flatware, buffetware and other products globally. We sell our products in more than 100 countries across the globe. Our extensive line of tabletop and other products are sold globally under the Libbey®, Libbey Signature®, Master’s Reserve®, World® Tableware, Syracuse® China, Crisa®, Royal Leerdam®, Crisal Glass® and other brand names primarily in the foodservice, retail and business-to-business channels. See note 19 to the Consolidated Financial Statements for segment and geographic information.

 

Libbey has a rich heritage that spans over 200 years. We were originally founded as the New England Glass Company in 1818. Operations were moved to Toledo, Ohio, in 1888, and the Company was incorporated in Delaware in 1987.

 

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.

 

Our shares are traded on the NYSE American exchange under the ticker symbol LBY.

 

Strategic Initiatives

 

Our strategy is focused on the following three key areas:

 

 

Profitable Growth including innovative new products and leveraging our world class digital and e-commerce capabilities;

 

Operational Excellence through best-in-class service, asset optimization and continuous improvement; and

 

Organizational Excellence that develops our talent and culture to the level required to create sustainable value.

 

In order to improve our capabilities to drive growth through innovation, we have developed a strong marketing organization to drive enhanced market insight and have established improved new product development capabilities.

 

In the U.S. and Canada we believe we have competitive advantages, including leading market share and best-in-class service in the foodservice, retail and business-to-business channels. We expect to extend these advantages by enhancing customer focus and introducing differentiated new products as we seek to increase our share in existing product categories, such as ceramicware and metalware, and to expand our presence in the healthcare and hospitality segments of the foodservice channel. We are also an established supplier in the regions of Latin America; Europe, the Middle East and Africa (EMEA); and Asia Pacific. We expect these areas to benefit from our enhanced customer focus, new products and adjacencies tailored to increase share.

 

We made significant investments in 2017 to establish new capabilities to support e-commerce in our retail channel in the U.S. In 2018, we established our internal e-commerce team so that we can scale the business at a reduced cost, and in 2019 we extended our digital platform to support customers in our foodservice channel with the launch of our foodservice website in December 2019. In addition, we have made good progress on our business transformation to simplify and improve capabilities across many areas of the business, led by the start of a new enterprise resource planning system.

 

In 2019, our consolidated manufacturing footprint and new electrical substation in Portugal provided both operational benefits and reduced energy costs. In addition, we have implemented an enhanced inspection and repair process to further extend asset lives, resulting in more time between furnace rebuilds and a reduction in depreciation expense. In the United States, we upgraded our laser edge technology at our Shreveport manufacturing facility, resulting in more efficient operations. As a glass manufacturer, we have a capital-intensive business, with investments in our furnaces being long-term in nature. Over time, we will continue to seek opportunities to optimize our global manufacturing footprint in order to serve profitable sectors of our markets. We intend to continue to invest in technologies that can extend the useful lives of some assets to deliver improved overall returns.

 

We continue on our mission to become more market driven as we seek to become one of the most innovative tabletop companies. In 2020, we intend to continue to create momentum executing on our growth and operational and organizational excellence strategies.

 

 

Products

 

Our products include glassware products that we produce at our six manufacturing facilities, as well as glass tableware, ceramicware, metalware, handmade glass tableware and other tabletop products that we source globally. Glass tableware products include products such as tumblers, stemware, mugs, bowls, shot glasses, canisters, candleholders and other items. Other glass products include candle jars, vases, storageware, serveware, bakeware and components such as blender jars and mixing bowls sold to original equipment manufacturers (OEMs). We also offer a wide range of ceramic dinnerware products. These include plates, bowls, platters, cups, saucers and other tabletop accessories. In addition, we offer an extensive selection of metal flatware, including knives, forks, spoons and serving utensils.

 

In recent years, we have invested in proprietary ClearFire® technology at our Shreveport, Louisiana, facility to manufacture premium glass tableware suitable for fine dining, household and consumer use. We sell these products in the foodservice channel under the Master’s Reserve® brand and in retail under the Libbey Signature® brand.

 

We have developed a complete premium tabletop offering called the Artistry Collection™ that is targeted to serve fine dining establishments and event venues in the foodservice channel. It combines our Master’s Reserve® brand glassware with our Master’s Gauge® flatware and other leading brands of fine tabletop products sourced through the following exclusive distribution agreements:

 

 

Spiegelau® and Nachtmann® glassware and serveware products in the U.S. foodservice channel. Spiegelau® is known for its fine stemware and other drinkware assortments. Nachtmann® offers a variety of upscale serveware, decorative products, stemware and drinkware for finer dining establishments.

 

 

Schönwald dinnerware products in the U.S. and Canada. Schönwald is one of the world’s leading providers of high-end porcelain and bone china for foodservice.

 

  Assheuer + Pott GmbH & Co. KG (APS®) serveware and buffetware products in the U.S. and Canada foodservice channel. APS is one of Europe’s largest suppliers of premium buffet and tabletop products tailored specifically for the hospitality and catering industries.

 

Customers

 

We believe that our regional market segment organization allows us to better understand and serve our customers’ needs.

 

In the U.S. and Canada, customers for our tableware products include over 320 traditional and web-based foodservice distributors in the United States and Canada who sell primarily to restaurants, bars, hotels and other foodservice venues. In retail, we sell to mass merchants, department stores, pure play e-commerce retailers or marketers, retail distributors, national retail chains and specialty housewares stores. Additionally, in the business-to-business channel, we sell to a variety of customers, including companies using glass in candle, floral and other OEM applications.

 

In Latin America, we sell to retail customers including mass merchants, wholesale distributors and in outlet stores; to a wide variety of business-to-business customers who use glass products in promotions, catalogues, candles, food packing and various OEM uses; and to foodservice distributors.

 

In EMEA, we sell glass tableware to retailers, distributors and decorators that service the retail, foodservice and business-to-business channels, including large breweries and distilleries that decorate products with company logos for promotional and resale purposes.

 

We also sell glass tableware products in the Asia Pacific region primarily to distributors.

 

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 impact on us.

 

 

Competition

 

The markets for our products are highly competitive in all our geographic segments. Our competitors include other glass tableware manufacturers, including large multinational companies such as Arc International (a French company) and Paşabahçe (a unit of Şişecam Holdings, a Turkish company), Anchor Hocking (a U.S. company), AnHui DeLi Glassware Co., Ltd. (a Chinese company), Vicrila Industrias del Vidrio S.L.U. - VICRILA (a Spanish company) and various other manufacturers throughout the world; ceramic dinnerware and metalware manufacturers throughout the world, including Oneida Hospitality Group, Steelite and others; and a variety of sourcing or marketing companies. In addition, other products such as plastic and melamine compete with our glass and ceramic tabletop products. We believe our principal competitive advantages are our installed base, customer service, price, product quality, new product development, brand name, responsiveness, delivery time and breadth of product offerings.

 

Throughout 2019 we continued to experience softer global demand and broad scale industry overcapacity among glass tableware manufacturers. In the U.S., the relative strength of the dollar versus other world currencies has improved the ease with which foreign manufacturers can sell products into the U.S. at competitive prices.

 

Sales, Marketing and Distribution

 

In 2019, approximately 78 percent of our sales were to customers located in North America (U.S., Canada and Mexico), and approximately 22 percent of our sales were to customers in other countries. We sell our products in over 100 countries around the world. We employ our own sales force to call on customers and distributors. In addition, we occasionally retain the services of manufacturer’s representative organizations to assist in selling our products. We have marketing staff located at our corporate headquarters in Toledo, Ohio, and in our Columbus, Ohio office, as well as in Mexico, Portugal, the Netherlands and China.

 

We operate distribution centers at or near each of our manufacturing facilities (see “Properties” below). In addition, we operate a distribution center in Laredo, Texas, and one in West Chicago, Illinois, and we have contracts with third-party logistics providers to service a portion of our direct-to-consumer e-commerce business. Our warehouse and distribution centers are strategically located to enable us to supply significant quantities of our product to customers on a timely and cost-effective basis.

 

The majority of our sales are in the foodservice, retail and business-to-business channels, 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 channel, placing us among the leading glass tableware suppliers around the globe. A majority of our sales of tabletop products to foodservice establishments are made through a network of foodservice distributors. Our strong foodservice distributor network and in-house sales force provide broad coverage of a wide variety of foodservice establishments, including restaurants, bars, hotels and other travel and tourism venues. We have seen a change over the past few years, with more customers in the U.S. and Canada turning to web-based distribution, particularly when ordering replacement products after the original installation. We are leveraging our digital and e-commerce experience and capabilities developed in the retail channel to help our foodservice distribution customers adapt to this changing environment and meet this demand. In 2019, we developed our new foodservice website to provide end users and distributors quicker visibility of our products. In addition, we have added more sales people in 2019 to focus on our target markets including the healthcare industry (with a particular focus on the senior living segment of that industry) and hospitality.

 

Retail

 

Our primary customers in the retail channel include mass merchants, specialty housewares stores, pure play e-commerce retailers and value-oriented retailers in the U.S. and around the globe. Management estimates that we maintain a leading share of the U.S. retail market for glass beverageware. We believe that our established relationships with major retailers, particularly in the U.S. & Canada, Latin America and EMEA regions, position us to successfully introduce differentiated new retail products to pursue increased share and profitability. We also operate outlet stores in the U.S., Mexico and Portugal and make sales via internet retailers.

 

Business-to-Business

 

We supply glass tableware to the business-to-business channel of distribution. Our customers for products sold in the business-to-business channel in the U.S. & Canada and Latin America include drink companies and custom decorators of glassware for promotional purposes and resale, as well as products for candle and floral applications. In addition, Latin America sells blender jars and various OEM products in this channel. The craft industries and gourmet food-packing companies are also among our business-to-business glassware customers. In Europe, our customers in the business-to-business 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.

 

 

Seasonality

 

Our sales and operating income tend to be stronger in the last three quarters of each year and weaker in the first quarter of each year, primarily due to the impact of consumer buying patterns and production activity. This seasonal pattern causes accounts receivable to be higher in the second half of the year and lower during the first half of the year.

 

We typically build inventory during the first half of the year to allow for optimal customer service and timely delivery in the second half of the year, a higher demand period when orders may exceed short-term production capabilities. We also build inventory to service customers during periods of planned downtime for furnace rebuilds or maintenance, as well as to maintain an appropriate level of safety stock of items that we source primarily from the Asia Pacific region and that, as a result, require longer lead times. Accounts payable do not generally fluctuate significantly on a seasonal basis.

 

Although little information with respect to our competitors is publicly available, we believe that our experience with working capital is generally consistent with the experience of the industry as a whole.

 

Manufacturing and Sourcing

 

In North America, we currently own and operate three glass tableware manufacturing plants, two of which are located in the United States (one in Toledo, Ohio, and one in Shreveport, Louisiana) and one of which is located in Monterrey, Mexico. In Europe, we own and operate two glass tableware manufacturing plants, one in Leerdam, the Netherlands, and the other in Marinha Grande, Portugal. In Asia, we own and operate a glass tableware production facility in Langfang, China.

 

The manufacturing of our tableware products involves the use of automated processes and technologies, as well as manual production. We design much of our glass tableware production machinery, and we continuously refine it to incorporate technological advances. We believe that our production machinery and equipment will continue to be adequate for our needs for the foreseeable future, but we continue to invest to further improve our products, gain production efficiencies and reduce our cost profile.

 

Our glass tableware products generally are produced using one of two manufacturing methods, commonly referred to as “blown” or “ pressed”. In the case of certain stemware, we may use a combination of these methods. Most of our tumblers, stemware and other glass tableware products are “blown”, meaning that they are produced by forming molten glass in molds with the use of compressed air. Our other glass tableware products and the stems of certain stemware are “pressed”, meaning that they are produced by pressing molten glass into the desired product shape.

 

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.

 

Ceramic dinnerware and metal flatware are sourced primarily from the Asia Pacific region.

 

Materials

 

Our primary materials are sand, lime, soda ash, corrugated packaging and colorants. 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 had, and are not expected in the future to have, a material adverse effect on our operations. Natural gas and electricity are the primary sources of energy in our production processes, and periodic variability in the price for these utilities has had and could continue to have an impact on our profitability. Historically, we have used natural gas hedging for a portion of our expected purchases to partially mitigate this impact in North America and Europe. We also experience fluctuations in the freight cost to deliver materials due primarily to the cost of diesel fuel and trucking capacity, and such changes may affect our earnings and cash flow.

 

 

Research and Development

 

Our research and development efforts focus on developing new, differentiated and innovative products to meet customers’ and consumers’ needs. Our product development efforts begin with consumer insights, and we have been investing to strengthen these capabilities. Our focus is to improve the quality of our products and develop innovative new consumer solutions and product offerings that enhance the profitability of our business through research and development, including adjacent technology, safety and risk mitigation techniques. We will continue to invest in strategic research and development projects that we expect will further enhance our ability to compete in our core business.

 

In addition, our core competencies include our glass engineering excellence and world-class manufacturing development techniques. We employ a team of engineers, in addition to external consultants and university collaboration studies in sciences, to conduct research and development.

 

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®, Libbey Signature®, Master’s Reserve®, Master’s Gauge®, Syracuse® China, World® Tableware, Crisa®, Royal Leerdam® and Crisal Glass® 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.

 

Environmental Matters

 

Our operations, in common with those of the industry generally, are subject to numerous existing laws and governmental regulations designed to protect the environment, particularly regarding plant waste, emissions and solid waste disposal and remediation of contaminated sites. We believe that we are in material compliance with applicable environmental laws, and we are not aware of any regulatory initiatives that we expect will have a material effect on our products or operations. See “ Risk Factors - We are subject to various environmental legal requirements and may be subject to new legal requirements in the future; these requirements could have a material adverse effect on our operations.” See also note 17, “ Contingencies,” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further information regarding environmental matters with respect to which we may have liability.

 

Although we continue to modify our manufacturing processes and technologies in an effort to reduce our emissions and increase energy efficiency, capital expenditures for property, plant and equipment specifically for environmental control purposes were not material during 2019 or 2018 and are not expected to be material in 2020.

 

Employees

 

We employed 5,872 persons at December 31, 2019. Approximately 70 percent of our employees are employed outside the U.S. The majority of our employees are paid hourly and covered by collective bargaining agreements. The total number of employees under a collective bargaining agreement expiring within one year is approximately 56 percent of Libbey’s total workforce. Our collective bargaining agreement with our unionized employees in the Netherlands is scheduled to expire on June 30, 2020; our collective bargaining agreement with our unionized employees in Shreveport, Louisiana, is scheduled to expire on December 15, 2020; and our collective bargaining agreements with our unionized employees in Toledo, Ohio, are scheduled to expire on September 30, 2022. Under our collective bargaining agreements covering our unionized employees in Mexico, we negotiate wages annually and negotiate benefits every other year. In Portugal and China, we have no written collective bargaining agreement with our unionized employees, but there are consultations with the unions on various matters, including annual negotiations regarding wages. We believe that our relations with our employees are good.

 

 

 

 

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.

 

Financial Risks

 

Our ability to obtain adequate financing or raise capital in the future may be limited.

 

Our ABL Facility matures on December 7, 2022 (or January 9, 2021, if our Senior Secured Term Loan B is not refinanced by that date) and our Senior Secured Term Loan B matures on April 9, 2021. If we cannot refinance the foregoing indebtedness upon their respective maturities or, more generally, obtain funding when needed, in each case on acceptable terms, we may be unable to continue to fund our capital requirements, which may have an adverse effect on our business, financial condition and results of operations. 

 

Our level of debt may limit our operating and financial flexibility.

 

As of December 31, 2019, we had $393.2 million aggregate principal amount of debt outstanding. Although our ABL Facility credit agreement and Term Loan B Senior Secured Credit Agreement generally do not contain financial covenants, the credit agreements contain other covenants that limit our operational and financial flexibility, such as by:

 

 

limiting the additional indebtedness that we may incur;

 

 

limiting certain business activities, investments and payments, and

 

 

limiting our ability to dispose of certain assets.

 

These covenants may limit our ability to engage in activities that may be in our long-term best interests.

 

In addition, our levels of indebtedness could:

 

 

limit 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;

 

 

limit our ability to make capital investments in order to expand our business;

 

 

limit 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;

 

 

limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, debt service requirements, acquisitions or other purposes;

 

 

make it more difficult for us to satisfy our financial obligations;

 

 

limit our ability to pay dividends;

 

 

 

limit our ability to attract and retain talent; and

 

limit our ability to obtain additional financing in sufficient amounts and/or on acceptable terms in the near future or when our debt obligations reach maturity. Our ABL Facility matures on December 7, 2022 (or January 9, 2021, if our Senior Secured Term Loan B is not refinanced by that date) and our Senior Secured Term Loan B matures on April 9, 2021.

 

If cash generated from operations is insufficient to satisfy our liquidity requirements, 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 be unable to make share repurchases and we might be forced 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, our failure to comply with the covenants contained in our loan agreements could result in an event of default that, if not cured or waived, could result in the acceleration of all of our indebtedness.

 

Downgrades of our credit ratings could adversely impact us.

 

Our credit ratings are important to our cost of capital. The major debt rating agencies routinely evaluate our debt based on a number of factors, including our financial strength and business risk as well as transparency with rating agencies and timeliness of financial reporting. In November 2019, Standard & Poor’s downgraded our corporate credit rating from B to B- and lowered the issue-level rating on our Term Loan B from B to B-, with a revised recovery rating from 2 to 3, in each case with a stable outlook. In addition, Moody’s Investor Service lowered our corporate family rating and Term Loan B from B2 to B3, with a stable outlook. These and potential further downgrades to our debt ratings could result in increased interest and other expenses on future borrowings and limit our ability to refinance our existing debt on acceptable terms or at all. Downgrades in our debt rating could also restrict our access to capital markets.

 

 

Our variable rate indebtedness subjects us to interest rate risk that could cause our debt service obligations to increase significantly.

 

Borrowings under our Senior Secured Term Loan B are at variable rates of interest and expose us to interest rate risk. Although we have entered into forward interest-rate swaps to fix the interest rate on a portion of our Senior Secured Term Loan B, if interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed were to remain the same. As a result, our net income and cash flows would decrease.

 

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 cash paid for capital expenditures were $31.2 million and $45.1 million for the years ended December 31, 2019 and 2018, respectively.

 

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.

 

If we are unable to control or pass on to our customers increases in key input costs, including the cost of raw materials, sourced products, utilities, packaging and freight, the profitability of our business may be materially and adversely affected.

 

Sand, soda ash, lime and corrugated packaging materials are the principal materials we use to make our products. We also rely heavily on natural gas, electricity, water and other utilities. In addition, we obtain glass tableware, ceramic dinnerware and metal flatware from third parties. Increases in the costs of these commodities or products may result from inflationary pressures as well as temporary shortages due to disruptions in supply caused by weather, transportation, production delays or other factors. If we experience shortages in commodities or sourced products, we may be forced to procure them from alternative suppliers, and we may not be able to do so on terms as favorable as our current terms or at all.

 

In addition, the cost of U.S. dollar-denominated purchases (including for raw materials) for our operations in the euro zone, Mexico and China may increase due to appreciation of the U.S. dollar against the euro, the Mexican peso or the Chinese renminbi, respectively.

 

If we are unsuccessful in managing our costs or in passing cost increases through to our customers through increased prices, our financial condition and results of operations may be materially and adversely affected.

 

The profitability of our business may be materially and adversely impacted if we are unable to fully absorb the high levels of fixed costs associated with our business.

 

The high levels of fixed costs of 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. In addition, significant portions of our selling, general and administrative expenses are fixed costs that neither increase nor decrease proportionately with sales. Our profitability is dependent, in part, on our ability to spread fixed costs over an increasing number of products sold and shipped, and if we reduce our rate of production our costs per unit increase, negatively impacting our gross margins. Decreased demand or the need to reduce inventories can lead to capacity adjustments that reduce our ability to absorb fixed costs and, as a result, may materially impact our profitability.

 

 

Fluctuation of the currencies in which we conduct operations could adversely affect our financial condition, results of operations and cash flows.

 

Our reporting currency is the U.S. dollar. A significant portion of our net sales, costs, assets and liabilities are denominated in currencies other than the U.S. dollar, primarily the euro, the Mexican peso, the Chinese renminbi and the Canadian dollar. In our Consolidated Financial Statements, we translate local currency financial results into U.S. dollars based on the exchange rates prevailing during the reporting period. During times of a strengthening U.S. dollar, the reported revenues and earnings of our international operations will be reduced because the local currencies will translate into fewer U.S. dollars. This could have a material adverse effect on our financial condition, results of operations and cash flow.

 

In addition, changes in the value, relative to the U.S. dollar, of the various currencies in which we conduct operations, including the euro, the Mexican peso and the Chinese renminbi, may result in significant changes in the indebtedness of our non-U.S. subsidiaries.

 

If we have an asset impairment in a business segment, our net earnings and net worth could be materially and adversely affected by a write-down of goodwill, intangible assets, fixed assets or right-of-use assets.

 

We have recorded a significant amount of goodwill, which represents the excess of cost over the fair value of the net assets of the business acquired; other identifiable intangible assets, including trademarks and trade names; and fixed assets and right-of-use assets. Impairment of goodwill, identifiable intangible assets, fixed assets or right-of-use assets may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products sold by our business, and a variety of other factors. Under U.S. GAAP, we are required to charge the amount of any impairment immediately to operating income.

 

We conduct an impairment analysis at least annually related to goodwill and other indefinite lived intangible assets. This analysis requires management to make significant judgments and estimates, primarily regarding expected financial performance, expected growth rates, and discount rates, identifying similar companies with comparable business factors and assessing comparable multiples. We determine expected financial performance and growth rates based on internally developed forecasts considering our future financial plans. We estimate the discount rate used based on an analysis of comparable company weighted average costs of capital that consider market assumptions obtained from independent sources. We identify similar companies with comparable business factors such as size, growth, profitability, risk and return on investment. We identify comparable multiples that we feel are most relevant to Libbey. The estimates that management uses in this analysis could be materially impacted by factors such as specific industry conditions, changes in cash flow from operations and changes in growth trends. In addition, the assumptions management uses are management’s best estimates based on projected results and market conditions as of the date of testing. Significant changes in these key assumptions could result in indicators of impairment when completing the annual impairment analysis. We assess our fixed assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. We remain subject to future financial statement risk in the event that goodwill, other identifiable intangible assets, fixed assets or right-of-use assets become impaired. For further discussion of key assumptions in our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates.”

 

In the second quarter of 2019, we recorded a $46.0 million non-cash goodwill impairment charge in the Mexico reporting unit of our Latin America reporting segment. Also during the second quarter of 2019, we recorded a non-cash impairment charge of $0.9 million related to Libbey Holland’s indefinite life intangible asset (Royal Leerdam® trade name) in our EMEA reporting segment. For further information regarding these goodwill and indefinite life intangible asset impairments see note 4, Purchased Intangible Assets and Goodwill, to our Consolidated Financial Statements.

 

 

In the fourth quarter of 2019, we recorded a non-cash impairment charge of $18.3 million within the Holland asset group (within our EMEA reporting segment) resulting in a write down of the value of the property, plant and equipment and operating lease right-of-use assets. For further information regarding these long-lived asset impairments see note 5, Property, Plant and Equipment, and note 15, Leases, to our Consolidated Financial Statements.

 

The results of our October 1, 2019 annual impairment test indicated the estimated fair value of our reporting unit (within the U.S. & Canada reporting segment) that has goodwill exceeded the carrying value by approximately 50 percent. As of December 31, 2019, we had goodwill and other identifiable intangible assets of $50.3 million, net fixed assets of $233.9 million and right-of-use assets of $54.7 million. There can be no assurance that we will not record further impairment charges that may adversely impact our net earnings and net worth.

 

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations, including under our ABL Facility credit agreement and our Term Loan B Senior Secured Credit Agreement and our interest rate swaps.

 

We have a substantial amount of variable-rate debt and interest rate swaps indexed to LIBOR, and we may be adversely affected upon the transition away from LIBOR after 2021. On July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. As a result, LIBOR may be discontinued by 2021. As a response to the phase out of LIBOR, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (“ARRC”), which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to U.S. dollar-LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. At this time, it is impossible to predict whether the SOFR or another reference rate will become an accepted alternative to LIBOR, or the effect that any such changes, phase out, alternative reference rates or other reforms, if they occur, would have on the amount of interest paid on, or the market value of, our current or future debt obligations, including our ABL Facility credit agreement and our Term Loan B Senior Secured Credit Agreement and our interest rate swaps. Uncertainty as to the nature of such potential changes, phase out, alternative reference rates or other reforms may materially adversely affect the trading market for LIBOR-based securities, including our Term Loan B Senior Secured Credit Agreement. Reform of, or the replacement or phasing out of, LIBOR and proposed regulation of LIBOR and other “benchmarks” may materially adversely affect the market value of, the applicable interest rate on and the amount of interest paid on our current or future debt obligations, including our ABL Facility credit agreement and our Term Loan B Senior Secured Credit Agreement and our interest rate swaps.  

 

We face inventory risk.

 

We identify slow-moving and obsolete inventories and estimate appropriate loss provisions accordingly. No assurance can be given that we will not incur additional inventory charges. Such charges could materially adversely affect our financial condition and operating results.

 

The changes in the fair value of derivatives used as hedges would be reflected in our earnings if we have not elected hedge accounting, if our hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur.

 

We have derivative financial instruments to hedge our interest rate risk. In addition, in order to mitigate the variation in our operating results due to commodity price fluctuations, we have derivative financial instruments that hedge certain commodity price risks associated with forecasted future natural gas requirements. We may have derivative financial instruments that hedge foreign exchange rate risks associated with transactions denominated in some currencies other than the U.S. dollar. The results of our hedging practices could be positive, neutral or negative in any period, depending on price changes of the hedged exposures. We account for derivatives in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 815, “Derivatives and Hedging.” 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. While we intend to continue to meet the conditions for hedge accounting, 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 results of operations and could significantly impact our earnings.

 

If counterparties to our hedge and interest rate swap agreements fail to perform, the applicable agreements would not protect us from fluctuations in pricing of the applicable commodity or interest rates, as the case may be.

 

If the counterparties to our derivative financial instruments that hedge commodity price risks or interest rates were to fail to perform, we would no longer be protected from fluctuations in the pricing of the applicable commodities or in interest rates, and the impact of these fluctuations would impact our results of operations and financial condition.

 

Charges related to our employee pension and post-retirement welfare plans may adversely affect our results of operations and financial condition.

 

As part of our pension expense, we periodically incur pension settlement charges. We may incur further expenses related to our employee pension and post-retirement welfare plans that could have a material adverse effect on our results of operations and financial condition.

 

If our investments in e-commerce, new technology and other capital expenditures do not yield expected returns, our results of operations could be adversely affected.

 

We continue to invest in our glass tableware production equipment and make other capital expenditures to further improve our production efficiency, reduce our cost profile and expand and enhance our e-commerce capabilities. To the extent that these investments do not generate targeted levels of returns in terms of profitability, efficiency or improved cost profile, our financial condition and results of operations could be adversely affected.

 

 

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.

 

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, in the future the Mexican government could institute restrictive exchange rate policies or governmental controls over the convertibility of pesos into U.S. dollars or other currencies. Restrictive exchange rate or conversion policies could limit our ability to transfer or convert the peso earnings of our Mexican subsidiary into other currencies, upon which we rely in part to satisfy our debt obligations through intercompany loans.

 

In addition, the government of China imposes controls on the convertibility of renminbi 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 Libbey China 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 renminbi 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 may limit our ability to remit proceeds received in connection with any strategic transactions we may undertake in connection with our review of strategic alternatives involving our China business and could adversely affect our results of operations and financial condition.

 

Our ability to recognize the benefit of deferred tax assets is dependent upon future taxable income and the timing of temporary difference reversals.

 

Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income and the timing of reversals of temporary differences. To the extent that these factors differ significantly from estimates, our ability to realize the deferred tax assets could be impacted.

 

We may incur additional tax expense as a result of changes to tax laws, regulations and evolving interpretations thereof.

 

We are subject to the tax laws, regulations, and legal decisions in various tax jurisdictions. Our worldwide tax provision is based in part on many material judgments and interpretations of these bodies of law. Tax authorities in the various jurisdictions may not agree with our judgments and interpretations and may assess additional tax which could result in material changes to our tax liabilities and/or significant legal and consulting fees in defense thereof. Additionally, tax laws, regulations and legal precedents may change over time resulting in material changes to our tax provisions and deferred tax positions. Changes to tax laws, regulations, and legal precedents could contain statutory changes or interpretations that are inconsistent with the Company’s application of the law in the absence of such changes and could result in material adjustments to tax liabilities.

 

Risks associated with market conditions

 

Slowdowns or changes in trends in the retail, travel, restaurant, bar and entertainment industries, and in the retail and foodservice channels of distribution generally, may negatively impact demand for our products.

 

Our business is dependent on business and personal discretionary spending in the retail, travel, restaurant and bar or entertainment industries. Business and personal discretionary spending may decline during general economic downturns or during periods of uncertainty about economic conditions. In addition, austerity and other regulatory measures adopted by some governments may cause consumers in some markets that we serve to reduce or postpone spending. Consumers also may reduce or postpone spending in response to tighter credit, negative financial news, higher fuel and energy costs, higher taxes and healthcare costs and/or declines in income or asset values. Additionally, expenditures in the travel, restaurant and bar or entertainment industries may decline after incidents of terrorism, during periods of geopolitical conflict in which travelers become concerned about safety issues, during periods of severe weather or during periods when travel or entertainment might involve health-related risks such as severe outbreaks, epidemics or pandemics of contagious disease.

 

 

Changes in trends, including those impacting the restaurant and bar industry, also may negatively impact demand for our products. For example, shifts from dining at full-service restaurants to dining at quick-serve restaurants and grocerants (combined grocery stores and restaurants), or from dining at chain restaurants to dining at locally-owned restaurants, as well as a trend toward home delivery of meals and meal kits, may result in reduced demand for our products in the foodservice channel of distribution.

 

Additionally, changes in the buying preferences of consumers and customers may adversely impact the demand for and profitability of our products. For example, consumer buying preferences continue to shift from buying at brick-and-mortar stores to buying online. Similarly, in the foodservice channel of distribution, end users of our products such as bars and restaurants increasingly are demonstrating a preference to bypass traditional foodservice distributors in favor of buying online, particularly as they seek to replenish products originally purchased through traditional foodservice distributors. We launched our e-commerce capability in mid-2017 in response to the shifting buying preferences of consumers in the retail channel of distribution, and we initiated our e-commerce capability to the foodservice channel of distribution in late 2019. However, these changes in buying preferences may outpace our still-developing e-commerce capability. In addition, if and to the extent that our brick-and-mortar retail customers and traditional foodservice distribution partners perceive our e-commerce capabilities as a threat rather than as an opportunity to expand their own businesses, demand for our products from brick-and-mortar retail customers and traditional foodservice distribution parties may be adversely affected.

 

An inability to meet the demand for new products may adversely impact our ability to compete effectively and to grow our business.

 

Our strategy depends in part on the timing and market acceptance of new product offerings and our ability to continually renew our pipeline of new products and bring those products to market. This ability may be adversely affected by difficulties or delays in product development, such as the inability to identify viable new products, obtain adequate intellectual property protection, or gain market acceptance of new products, as well as by difficulties or longer-than-expected lead times in sourcing products. There are no guarantees that new products will prove to be commercially successful or profitable.

 

An inability to develop new or expand existing customer relationships may adversely impact our ability to grow our business.

 

Our ability to grow our business depends in part on our ability to develop new customer relationships and to expand relationships with existing customers. In the foodservice channel of distribution, our ability to develop new customer relationships and expand relationships with existing customers may be adversely impacted by the increasing trend toward consolidation among foodservice distributors. Failure to develop and expand such relationships could have a material adverse effect on our business, results of operations and financial condition.

 

Changing industry and market conditions may dictate strategic decisions to restructure some business units and discontinue others. These decisions may require us to record material restructuring charges.

 

On February 18, 2019, the Board of Directors of Libbey approved a plan to pursue strategic alternatives with respect to our business in the People’s Republic of China (PRC), including the sale or closure of our manufacturing and distribution facility located in Langfang, PRC. Due to the continued level of uncertainty surrounding the ultimate course of action, we are unable at this time to estimate an amount or range of amounts of any charges that we may incur in connection with the planned strategic review.

 

In the past, we have recorded other restructuring charges related to involuntary employee terminations, various facility abandonments, and various other restructuring activities. We continually evaluate ways to reduce our operating expenses through new restructuring opportunities, including more effective utilization of our assets, workforce, and operating facilities. In addition, changing industry and market conditions may dictate strategic decisions to restructure some business units and discontinue others. As a result, there is a risk, which is increased during economic downturns and with expanded global operations, that we may incur material restructuring charges in the future.

 

 

 

We face intense competition and competitive pressures that could adversely affect demand for our products and 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, delivery time and breadth of product offerings. Advantages or disadvantages in any of these competitive factors may be sufficient to cause the customer to consider changing providers of the kinds of products that we sell.

 

Competitors include other glass tableware manufacturers, including large multinational companies such as Arc International (a French company), Paşabahçe (a unit of Şişecam Holdings, a Turkish company), Anchor Hocking (a U.S. company), AnHui DeLi Glassware Co., Ltd. (a Chinese company), Vicrila Industrias del Vidrio S.L.U. - VICRILA (a Spanish company), and various other manufacturers in Europe, Asia Pacific and the Americas; a variety of ceramic dinnerware and metalware manufacturers throughout the world, including Oneida Hospitality Group, Steelite and others; and a variety of sourcing or marketing companies. In addition, other products such as plastic and melamine compete with our glass tableware and ceramic dinnerware products.

 

Demand for our products may be adversely impacted by increased competitive pressures caused by the provision of subsidies by foreign countries to our competitors based in those countries; national and international boycotts and embargoes of other countries or U.S. imports and/or exports; the raising of tariff rates on, or increase of non-tariff trade barriers that apply to imports of our products to foreign countries; the lowering of tariff rates on imports into the U.S. of our foreign competitors’ products; and other changes to international agreements that improve access to the U.S. market for our competitors.

 

In addition, the cost-competitiveness of our products may be adversely affected by inflationary pressures that cause us to increase the prices of our products in order to maintain their profitability. In that connection, some of our competitors may 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 also may be higher than those of some foreign producers of glass tableware.

 

The cost-competitiveness of our products, as compared to foreign competition, also may be reduced as a result of major fluctuations in the value of the euro, the Mexican peso, the Chinese renminbi, which we refer to as the “RMB,” or the Canadian dollar relative to the U.S. dollar and other major currencies. For example, if the U.S. dollar appreciates against the euro, the Mexican peso or the Chinese renminbi, the purchasing power of those currencies effectively would be reduced compared to 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, and making products manufactured by our foreign competitors in those locations more cost-competitive with our U.S.-manufactured products.

 

Our Mexican pension and U.S. and non-U.S. post-retirement welfare plans are unfunded; in the future, levels of funding of our U.S. pension plans could decline and our pension expense could materially increase.

 

We have not funded, and under Mexican law we are not obligated to fund, our Mexican pension plan. As of December 31, 2019, the unfunded amount of the projected benefit obligation for the Mexican pension plan was $41.3 million. In addition, although we have closed participation in our U.S. pension and post-retirement welfare plans, many of our employees participate in, and many of our former employees are entitled to benefits under, our U.S. and non-U.S. defined benefit pension plans and post-retirement welfare plans.

 

In connection with our employee pension and post-retirement 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 post-retirement welfare expense, including pension settlement charges, for all U.S. and non-U.S. plans was $6.4 million and $7.0 million for the fiscal years ended December 31, 2019 and 2018, respectively. We expect our total pension and post-retirement welfare expense for all U.S. and non-U.S. plans to be $9.4 million in 2020. Volatility in the capital markets affects the performance of our pension plan asset performance and related pension expense. For discussion regarding sensitivity to changes in key assumptions related to our pension and other post-retirement plans, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates.”

 

Declines in interest rates or the market value of securities held by our U.S. pension plan, or certain other changes, could materially reduce the funded status of those plans and affect our pension expense and the level and timing of minimum required contributions to the plans under applicable law.

 

Natural gas and electricity, the principal fuels we use to manufacture our products, are subject to fluctuating prices that could adversely affect our results of operations and financial condition.

 

Natural gas and electricity are the primary sources of energy in most of our production processes. We do not have long-term contracts for natural gas. In addition, the price of electricity under long-term contracts for electricity may be variable. Accordingly, the cost of our natural gas and electricity is subject to market variables and fluctuating prices. Consequently, our operating results are strongly linked to the cost of natural gas and electricity. We utilize natural gas swap contracts with respect to our North American manufacturing facilities, and we aim to hedge 40 to 70 percent of our anticipated natural gas needs there. With respect to our international facilities, we utilize fixed-price contracts to fix a portion of our natural gas needs. In some countries in which we operate, including China, our ability to put in place fixed-priced contracts or natural gas swap contracts to fix the price of natural gas is limited. We spent $49.3 million and $53.5 million on natural gas and electricity for the years ended December 31, 2019 and 2018, respectively. We have no way of predicting to what extent natural gas or electricity prices will rise in the future. To the extent that we are not able to offset increases in natural gas or electricity prices, such as by passing along the cost to our customers, these increases could adversely impact our margins and operating performance.

 

 

The market price of our common stock is subject to volatility.

 

The market price of our common stock has historically been volatile and in the future could be subject to wide fluctuations in response to numerous factors, many of which are beyond our control. These factors include market conditions within the industries in which we operate, as well as general economic and market conditions, such as recessions; seasonality of our business operations; the general state of the securities markets and the market for stocks of companies in our industry; trading volumes; sales by holders of large amounts of our common stock; short selling; actual or anticipated variations in our operational results and cash flow; actual or anticipated variations in our earnings relative to our competition; changes in financial estimates by securities analysts; governmental legislation or regulation; downgrades in our credit ratings; our high level of indebtedness and availability of and cost of credit; and currency and exchange rate fluctuations. Volatility of our stock price may increase the risk that our stockholders will suffer a loss on their investment or be unable to sell or otherwise liquidate their holdings of our common stock.

 

Operational Risks

 

If we are unable 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 the Netherlands is scheduled to expire on June 30, 2020; the agreement with our unionized employees in Shreveport, Louisiana, is scheduled to expire on December 15, 2020; and the agreements with our unionized employees in Toledo, Ohio, are scheduled to expire on September 30, 2022. Under our collective bargaining agreements covering our unionized employees in Mexico, we negotiate wages annually and negotiate benefits every other year. In Portugal and China we have no written collective bargaining agreement with our unionized employees, but there are consultations with the unions on various matters, including annual negotiations regarding wages.

 

We may not be able to successfully negotiate new collective bargaining agreements without a labor disruption. If any of our unionized employees were to engage in a strike or work stoppage in connection with the negotiation of their existing collective bargaining agreements (as happened at our Toledo, Ohio manufacturing plant in 2016), 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. If we experience a work stoppage and we elect to engage replacement workers, we could experience increased costs. 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 also could 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 our productivity 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 optimization objectives.

 

If we are unable to increase output or achieve operating efficiencies, the profitability of our business may be materially and adversely affected.

 

We may not be successful in increasing output at our manufacturing facilities or gaining operating efficiencies that may be necessary in order to ensure that our products and their prices remain competitive.

 

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, accidents, natural disasters or other force majeure events. We may in the future experience facility shutdowns or periods of reduced production as a result of such failures or events. Unexpected interruptions in our production capabilities would adversely affect our productivity and results of operations for the affected period. We also may face shutdowns if we are unable to obtain enough energy in the peak demand periods.

 

A loss of the services of key personnel could have a material adverse effect on our business.

 

Our continued success depends to a large degree upon our ability to attract and retain key management executives, as well as upon a number of members of technology, operations and sales and marketing staffs. The loss of some of our key executives or key members of our operating staff, or an inability to attract or retain other key individuals, could materially adversely affect us.

 

The design and implementation of our new enterprise resource planning system could face significant difficulties.

 

In 2018, we began the design and implementation of a new enterprise resource planning (ERP) system, requiring significant investment and human resources to deploy. It is possible that the system will be more expensive and take longer to fully implement than originally planned, including increased investment, higher fees and expenses of third parties, delayed implementation scheduling, and more on-going maintenance expense once implemented. If for any reason the implementation is not successful, we could be required to expense rather than capitalize related amounts. In addition, potential flaws in the implementation of the ERP system may pose risks to our ability to operate successfully and efficiently. These risks include, but are not limited to, inefficient use of employees, distractions to our core business, adverse customer reactions, loss of key information, delays in decision making, and unforeseen additional costs due to the inability to integrate vital information processes. 

 

 

 

We rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions. If our information systems fail to perform these functions adequately, or if we experience an interruption in their operation, our business and results of operations could suffer.

 

All of our major operations, including manufacturing, distribution, sales and accounting, are dependent upon our complex information systems, including without limitation our enterprise resource planning (ERP) system. Our information systems are vulnerable to damage or interruption from:

 

 

earthquake, fire, flood, hurricane and other natural disasters;

 

 

power loss, computer systems failure, internet and telecommunications or data network failure; and

 

 

hackers, computer viruses or software bugs.

 

In 2018 we began the phased implementation of a new ERP system. Any damage to, significant disruption in the operation of, or failure of our information systems, including our new ERP system, to perform as expected could disrupt our business; result in decreased sales, increased overhead costs, excess inventory and product shortages; and otherwise adversely affect our operations, financial performance and condition. We take significant steps to mitigate the potential impact of each of these risks, but there can be no assurance that these procedures will be completely successful.

 

In addition, although we take steps to secure our management information systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security measures we have implemented may not be effective and our systems may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches and cyber attacks. Our reputation, brand, and financial condition could be adversely affected if, as a result of a significant cyber event or otherwise, our operations are disrupted or shutdown; our confidential, proprietary information is stolen or disclosed; data is manipulated or destroyed; we incur costs or are required to pay fines in connection with stolen customer, employee, or other confidential information; we must dedicate significant resources to system repairs or increase cyber security protection; or we otherwise incur significant litigation or other costs.

 

A severe outbreak, epidemic or pandemic of a contagious disease in a location where we have a facility, or from where we source raw materials or finished goods, could adversely impact our operations and financial condition.

 

Our facilities and our suppliers’ facilities may be impacted by the outbreak of certain public health issues, including epidemics, pandemics and other contagious diseases. If a severe outbreak were to occur where we or our suppliers have facilities, it could adversely impact our operations and financial condition. In December 2019 a novel strain of coronavirus surfaced in China. The extent to which the coronavirus will impact our results, particularly with respect to our manufacturing facility in China and exports of products that we source from China, will depend on future developments, which are highly uncertain and cannot be predicted.

 

Our exploration and pursuit of strategic alternatives for our business in China may not be successful.

 

In February 2019, we announced the pursuit of strategic alternatives for our business in China, including a potential sale or closure of our manufacturing and distribution facility in Langfang, China. There can be no assurance that the strategic exploration process will result in a transaction or other outcome. 

 

We may not be able to effectively integrate future businesses we acquire or joint ventures into which we enter.

 

Any future acquisitions that we might make or joint ventures into which we might enter are subject to various risks and uncertainties, including:

 

 

the inability to integrate effectively the operations, products, technologies and personnel of the acquired companies (some of which may be spread out in different geographic regions) and to achieve expected synergies;

 

 

the potential disruption of existing business and diversion of management’s attention from day-to-day operations;

 

 

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.;

 

 

the incurrence of contingent obligations that were not anticipated at the time of the acquisitions;

 

 

the failure to obtain necessary transition services such as management services, information technology services and others;

 

 

the need or obligation to divest portions of the acquired companies; and

 

 

the potential impairment of relationships with customers.

 

In addition, we cannot provide assurance that the integration and consolidation of newly acquired businesses or joint ventures will achieve any anticipated cost savings and operating synergies. The inability to integrate and consolidate operations and improve operating efficiencies at newly acquired businesses or joint ventures could have a material adverse effect on our business, financial condition and results of operations.

 

 

International risks

 

We are subject to risks associated with operating in foreign countries.

 

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:

 

 

difficulties in staffing and managing multinational operations;

 

 

changes in government policies and regulations;

 

 

limitations on our ability to enforce legal rights and remedies;

 

 

political, social and economic instability and uncertainties arising from the global geopolitical environment, including the United Kingdom referendum in favor of exiting the European Union and the evolving U.S. political, regulatory and economic landscape following the 2016 elections and upcoming 2020 elections;

 

 

drug-related violence, particularly in Mexico;

 

 

war, civil disturbance or acts of terrorism;

 

 

taking of property by nationalization or expropriation without fair compensation;

 

 

imposition or changing of tariffs or other trade barriers;

 

 

imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries;

 

 

ineffective intellectual property protection;

 

 

disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations including the U.S. Foreign Corrupt Practices Act (“FCPA”);

 

 

potentially adverse tax consequences;

 

 

impositions or increase of investment and other restrictions or requirements by foreign governments; and

 

 

limitations on our ability to achieve the international growth contemplated by our strategy.

 

 

High levels of inflation in countries in which we operate or sell our products could adversely affect our operating results and cash flows.

 

Increases in inflation caused by or associated with currency devaluations or other economic conditions may result in reduced discretionary spending by consumers and therefore reduced demand for our products, as well as higher input costs for our businesses, as a result of which our results of operations and financial condition may be negatively impacted.

 

 

Legal and Regulatory Risks

 

Increasing legal and regulatory complexity will continue to affect our operations and results in potentially material ways.

 

Our legal and regulatory environment worldwide exposes us to complex compliance, litigation and similar risks that affect our operations and results in ways that potentially may be material. In many of our markets, including the U.S. and Europe, we are subject to increasing regulation, which has increased our cost of doing business. In developing markets, including in China, we face the risks associated with new and untested laws and judicial systems. Among the more important regulatory and litigation risks we face and must manage are the following:

 

 

The cost, compliance and other risks associated with the often conflicting and highly prescriptive regulations we face, especially in the U.S., where inconsistent standards imposed by local, state and federal authorities can increase our exposure to litigation or governmental investigations or proceedings;

 

 

The impact of new, potential or changing regulation that can affect our business plans, such as those relating to the content and safety of our products, as well as the risks and costs of our labeling and other disclosure practices;

 

 

The risks and costs to us and our supply chain of increased focus by U.S. and overseas governmental authorities and non-governmental organizations on environmental matters, such as climate change, the reduction of greenhouse gases and water consumption, including as a result of initiatives that effectively impose a tax on carbon emissions;

 

 

The impact of litigation trends, particularly in our major markets; the relative level of our defense costs, which vary from period to period depending on the number, nature and procedural status of pending proceedings; and the cost and other effects of settlements or judgments, which may require us to make disclosures or take other actions that may affect perceptions of our brand and products;

 

 

The increasing costs and other effects of compliance with U.S. and overseas regulations affecting our workforce and labor practices, including regulations relating to health and safety, wage and hour practices, immigration, healthcare, retirement and other employee benefits and unlawful workplace discrimination;

 

 

The cost and disruption of responding to governmental audits, investigations or proceedings (including audits of abandoned and unclaimed property, tax audits and audits of pension plans and our compliance with wage and hour laws), whether or not they have merit, and the cost to resolve or contest the results of any such governmental audits, investigations or proceedings;

 

 

The legal and compliance risks associated with information technology, such as the costs of compliance with privacy, consumer protection and other laws (including without limitation the General Data Protection Regulation adopted by the European Union), the potential costs associated with alleged security breaches (including the loss of consumer confidence that may result and the risk of criminal penalties or civil liability to consumers or employees whose data is alleged to have been collected or used inappropriately) and potential challenges to the associated intellectual property rights or to our use of that intellectual property;

 

 

The impact of changes in financial reporting requirements, accounting standards, pronouncements, principles or practices, including with respect to our critical accounting policies and estimates;

 

 

The impact of changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), and the impact of settlements of pending or any future adjustments proposed by any taxing authorities in connection with our tax audits, all of which will depend on their timing, nature and scope. For example, the Company and its subsidiaries are subject to examination by various countries’ tax authorities, which may lead to proposed or assessed adjustments to our taxes. For further information regarding tax contingencies, see note 7, Income Taxes, to the Consolidated Financial Statements included in Part II, Item 8, of this Annual Report;

 

 

The impact of changes in international trade agreements and tariffs, including the uncertainty surrounding the potential impact of Brexit and the various “trade-wars” between the U.S. and other countries; and

 

 

The impact of new accounting standards or pronouncements, which could adversely affect our operating results or cause unanticipated fluctuations in our results in future periods. The accounting rules and regulations with which we must comply are complex and continually changing. In addition, many companies’ accounting policies are being subjected to heightened scrutiny by regulators and the public. While we believe that our financial statements have been prepared in accordance of U.S. generally accepted accounting principles, we cannot predict the impact of future changes to accounting principles or to our accounting policies on our financial statements going forward.

 

 

We are subject to various environmental 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. For example, Chinese restrictions on air emissions have continued to evolve in the face of the extreme air pollution in China. Compliance with these requirements, or the failure to comply with these requirements, may have a material adverse effect on operations.

 

We have incurred, and expect to incur, costs to comply with environmental legal requirements, including requirements limiting greenhouse gas emissions, 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. Also, certain environmental laws impose strict liability and, under certain circumstances, joint and several liability on current and prior owners and operators of these sites, as well as persons who sent waste to them, for costs to investigate and remediate contaminated sites. 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 us 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 products and operations are subject to various health and safety requirements and may be subject to new health and safety requirements in the future; these requirements could have a material adverse effect on our operations.

 

Our products and operations are subject to certain legal requirements relating to health and safety, including occupational health and safety. These legal requirements frequently change and vary among jurisdictions. Compliance with these requirements, or the failure to comply with these requirements, may have a material adverse effect on our operations. If any of our products becomes subject to new regulations, or if any of our products becomes specifically regulated by additional governmental or other regulatory entities, the cost of compliance could be material. For example, the U.S. Consumer Product Safety Commission, or CPSC, regulates many consumer products, including glass tableware products that are externally decorated with certain ceramic enamels. New regulations or policies by the CPSC could require us to change our manufacturing processes, which could materially raise our manufacturing costs. In addition, such new regulations could reduce sales of our glass tableware products. Furthermore, a significant order or judgment against us by any governmental or regulatory entity relating to health or safety matters, or the imposition of a significant fine relating to such matters, may have a material adverse effect on our operations.

 

We are subject to complex corporate governance, public disclosure and accounting requirements to which most of our competitors are not subject.

 

We are subject to changing rules and regulations of federal and state government, as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board (“PCAOB”), the Securities and Exchange Commission (“SEC”) and the NYSE American exchange, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by the U.S. Congress. For example, the Sarbanes-Oxley Act of 2002 and the rules and regulations subsequently implemented by the SEC and the PCAOB, imposed and may impose further compliance burdens and costs on us. Also, in July 2010, the Dodd-Frank Wall Street Reform and Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act includes significant corporate governance and executive compensation-related provisions that require the SEC to adopt additional rules and regulations in these areas. Our efforts to comply with new requirements of law and regulation are likely to result in an increase in expenses and a diversion of management’s time from other business activities. Also, those laws, rules and regulations may make it more difficult and expensive for us to attract and retain key employees and directors and to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage.

 

Our competitors generally are not subject to these rules and regulations, because they do not have securities that are publicly traded on a U.S. securities exchange. As a result, our competitors generally are not subject to the risks identified above. In addition, the public disclosures that we are required to provide pursuant to these rules and regulations may furnish our competitors with greater competitive information regarding our operations and financial results than we are able to obtain regarding their operations and financial results, thereby placing us at a competitive disadvantage.

 

 

 

Estimates and assumptions that we make in accounting for our results from operations are dependent on future results, involve significant judgments, may be imprecise and may differ materially from actual results.

 

Several estimates and assumptions are made that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These estimates and assumptions must be made due to certain information used in preparation of our financial statements which is dependent on future events, cannot be calculated with a high degree of precision from data available or is not capable of being readily calculated based on generally accepted methodologies. We believe that accounting for property, plant and equipment, operating lease right-of-use assets, goodwill, intangible assets, pension and other post-employment benefit plans, contingencies and litigation, and income taxes involves significant judgments and estimates used in the preparation of our Consolidated Financial Statements. Actual results for all estimates could differ materially from the estimates and assumptions that we use, which could have a material adverse effect on our financial condition and results of operations.

 

Our financial results and operations may be adversely affected by violations of anti-bribery laws.

 

The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures always will protect us from the reckless or criminal acts committed by our employees or agents. If we were found to be liable for FCPA violations (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could be liable for criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

 

Our failure to protect our intellectual property or prevail in any intellectual property litigation could materially and adversely affect our competitive position, reduce net sales 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 net sales or otherwise harm our business.

 

Our financial results may be adversely impacted by product liability claims, recalls or other litigation that is determined adversely to us.

 

We are involved in various routine legal proceedings arising in the ordinary course of our business. We do not consider any pending legal proceeding as material. However, our financial results could be adversely affected by monetary judgments and the cost to defend legal proceedings in the future, including product liability claims related to the products we manufacture. Although we maintain product liability insurance coverage, potential product liability claims are subject to a self-insured retention or could be excluded under the terms of the policy.

 

Item 1B. Unresolved Staff Comments

 

None.

 

 

 

Item 2. Properties

 

At December 31, 2019 we had operations in the following locations:

 

Segment

 

Location

 

Manufacturing

 

Warehousing/Distribution

 

           

U.S. & Canada

 

Toledo, Ohio

 

x

 

x

 

 

Shreveport, Louisiana

 

x

 

x

 

 

Laredo, Texas

     

x

 

 

West Chicago, Illinois

     

x

 

           

Latin America

 

Monterrey, Mexico

 

x

 

x

 

           

EMEA

 

Leerdam, Netherlands

 

x

 

x

 

 

Marinha Grande, Portugal

x

 

x

 

           

Other

 

Langfang, China

 

x

 

x

 

These facilities have an aggregate floor space of 7.1 million square feet. We own approximately 65 percent and lease approximately 35 percent of this floor space. In addition to the operational facilities listed above, our headquarters (Toledo, Ohio), office space for members of our marketing, digital and e-commerce team (Columbus, Ohio), some warehouses (various locations), sales offices (various locations), showrooms (in Chicago, New York City and Toledo, Ohio) 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 principal facilities are currently being utilized for their intended purpose. In the opinion of management, all of these 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. We are a named potentially responsible party with respect to a landfill in West Covina, California, and with respect to the Lower Ley Creek and Upper Ley Creek sub-sites of the Onondaga (New York) Lake Superfund Site. For a detailed discussion of these environmental contingencies, see note 17, Contingencies, to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated herein by reference.

 

In addition, the Company and its subsidiaries are subject to examination by various countries’ tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. For a detailed discussion on tax contingencies, see note 7, Income Taxes, to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated herein by reference.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

PART II

 

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

Common Stock and Dividends

 

Libbey Inc. common stock is listed for trading on the NYSE American exchange under the symbol LBY.

 

On February 20, 2020, there were 744 registered common shareholders of record. From February 2015 through March 2018, dividends were paid. The declaration of future dividends is within the discretion of the Board of Directors of Libbey and depends upon, among other things, business conditions, earnings and the financial condition of Libbey.

 

Issuer Purchases of Equity Securities

 

Following is a summary of the 2019 fourth quarter activity in our share repurchase program:

 

Period

 

Total Number of

Shares Purchased

   

Average Price

Paid per Share

   

Total Number of Shares

Purchased as part of

Publicly Announced 

Plans or Programs

   

Maximum Number of

Shares that May Yet Be

Purchased Under the

Plans or Programs (1)

 

October 1 to October 31, 2019

        $             941,250  

November 1 to November 30, 2019

        $             941,250  

December 1 to December 31, 2019

        $             941,250  

Total

        $             941,250  

________________________

(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. In January 2015, our Board of Directors increased the current stock repurchase authorization by an additional 500,000 shares, for a total of 3,000,000 shares authorized. There is no expiration date for this authorization. No shares have been repurchased since April 2016.

 

 

 

Item 6. Selected Financial Data        

 

Selected financial information is as follows:

 

Year ended December 31,

                                       

(dollars in thousands, except percentages,

per-share amounts and employees)

 

2019

   

2018

   

2017

   

2016

   

2015 (a)

 

Operating Results:

                                       

Net sales

  $ 782,437     $ 797,858     $ 781,828     $ 793,420     $ 822,345  

Gross profit

  $ 154,209     $ 154,891     $ 154,041     $ 169,683     $ 199,766  

Gross profit margin

    19.7 %     19.4 %     19.7 %     21.4 %     24.3 %

Selling, general and administrative expenses

  $ 122,370     $ 127,851     $ 126,205     $ 121,732     $ 128,205  

Asset Impairments

  $ 65,152     $     $ 79,700     $     $  

Income (loss) from operations (IFO)

  $ (33,313 )   $ 27,040     $ (51,864 )   $ 47,951     $ 71,561  

IFO margin

    (4.3 )%     3.4 %     (6.6 )%     6.0 %     8.7 %

Other income (expense)

  $ (4,443 )   $ (2,764 )   $ (5,306 )   $ 721     $ (24,960 )

Earnings (loss) before interest and income taxes (EBIT)

  $ (37,756 )   $ 24,276     $ (57,170 )   $ 48,672     $ 46,601  

EBIT margin

    (4.8 )%     3.0 %     (7.3 )%     6.1 %     5.7 %

Interest expense

  $ 22,510     $ 21,979     $ 20,400     $ 20,888     $ 18,484  

Income (loss) before income taxes

  $ (60,266 )   $ 2,297     $ (77,570 )   $ 27,784     $ 28,117  

Provision (benefit) for income taxes (a)

  $ 8,753     $ 10,253     $ 15,798     $ 17,711     $ (38,216 )

Effective tax rate

    (14.5 )%     446.4 %     (20.4 )%     63.7 %     (135.9 )%

Net income (loss) (a)

  $ (69,019 )   $ (7,956 )   $ (93,368 )   $ 10,073     $ 66,333  

Net income (loss) margin

    (8.8 )%     (1.0 )%     (11.9 )%     1.3 %     8.1 %
                                         

Per-Share Amounts:

                                       

Diluted net income (loss) (a)

  $ (3.08 )   $ (0.36 )   $ (4.24 )   $ 0.46     $ 2.99  

Dividends declared

  $     $ 0.1175     $ 0.47     $ 0.46     $ 0.44  
                                         

Other Information:

                                       

Adjusted EBITDA (b) (non-GAAP)

  $ 70,308     $ 70,950     $ 70,562     $ 111,641     $ 116,349  

Adjusted EBITDA margin (b) (non-GAAP)

    9.0 %     8.9 %     9.0 %     14.1 %     14.1 %
                                         

Employees

    5,872       6,083       6,188       6,254       6,543  
                                         

Balance Sheet Data:

                                       

Total assets (c)

  $ 706,687     $ 714,175     $ 717,239     $ 818,169     $ 852,444  

Total liabilities (c)

  $ 732,474     $ 664,282     $ 650,345     $ 673,050     $ 704,062  

Trade Working Capital (d) (non-GAAP)

  $ 176,842     $ 201,244     $ 199,537     $ 183,540     $ 200,846  

% of net sales

    22.6 %     25.2 %     25.5 %     23.1 %     24.4 %
Total borrowings - net   $ 391,840     $ 397,700     $ 384,390     $ 407,840     $ 431,019  
                                         

Cash Flow Data:

                                       

Net cash provided by operating activities

  $ 63,432     $ 36,870     $ 45,308     $ 83,904     $ 69,692  

Net cash used in investing activities

  $ (31,159 )   $ (45,087 )   $ (47,628 )   $ (34,604 )   $ (48,129 )

Free Cash Flow (e) (non-GAAP)

  $ 32,273     $ (8,217 )   $ (2,320 )   $ 49,300     $ 21,563  

Net cash provided by (used in) financing activities

  $ (8,005 )   $ 9,465     $ (35,214 )   $ (35,976 )   $ (29,997 )

______________________________

(a) 

Includes a tax benefit of $(43,805) in the fourth quarter of 2015 related to the reversal of substantially all of the remaining valuation allowance recorded against U.S. deferred tax assets.

(b) 

We believe that Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) and the associated margin, non-GAAP financial measures, are useful metrics for evaluating our financial performance. For a reconciliation from net income (loss) to Adjusted EBITDA, reasons why we use this measure and certain limitations, see below.

(c) 

On January 1, 2019, we adopted the new lease accounting standard applying the modified retrospective approach which resulted in us recognizing operating lease right-of-use assets and lease liabilities on the balance sheet. 2015 to 2018 continue to be reported in accordance with our previous accounting. 

(d) 

Defined as net accounts receivable plus net inventories less accounts payable.

(e) 

We believe that Free Cash Flow (the sum of net cash provided by operating activities and net cash used in investing activities), is a useful metric for evaluating our liquidity. For reasons why we use this metric and certain limitations, see “Free Cash Flow” within “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

 

Year ended December 31,

                                       

(dollars in thousands)

 

2019

   

2018

   

2017

   

2016

   

2015

 

Net income (loss) (U.S. GAAP)

  $ (69,019 )   $ (7,956 )   $ (93,368 )   $ 10,073     $ 66,333  

Add:

                                       

Interest expense

    22,510       21,979       20,400       20,888       18,484  

Provision (benefit) for income taxes

    8,753       10,253       15,798       17,711       (38,216 )

Depreciation and amortization

    39,046       44,333       45,544       48,486       42,712  

Add: Special items before interest and taxes:

                                       

Impairment of goodwill (note 4) (1)

    45,981             79,700              
Impairment of long-lived assets (notes 45 & 15) (2)     19,171                          

Product portfolio optimization (3)

                      5,693        

Reorganization/restructuring charges (4)

    3,341             2,488             4,316  

Executive terminations/retirements

                      4,460       870  

Pension settlements

                      168       21,693  

Work stoppage (5)

                      4,162        
Fees associated with strategic initiative (6)           2,341                    
Debt refinancing fees     525                          

Environmental obligation

                            157  

Adjusted EBITDA (non-GAAP)

  $ 70,308     $ 70,950     $ 70,562     $ 111,641     $ 116,349  
                                         

Net sales

  $ 782,437     $ 797,858     $ 781,828     $ 793,420     $ 822,345  

Net income (loss) margin (U.S. GAAP)

    (8.8 )%     (1.0 )%     (11.9 )%     1.3 %     8.1 %

Adjusted EBITDA margin (non-GAAP)

    9.0 %     8.9 %     9.0 %     14.1 %     14.1 %

____________________________________

(1)

2019 and 2017 include a non-cash goodwill impairment charge recorded in our Latin America segment.

(2)

Includes non-cash impairment charges for property, plant and equipment, operating lease right-of-use assets and a trade name in our EMEA segment.

(3)

Product portfolio optimization relates to inventory reductions to simplify and improve our operations.

(4)

These charges were a part of our cost savings initiatives to drive improved performance.

(5)

Work stoppage relates to the lower production volume impact, shipping costs and other direct incremental expenses associated with the two-week Toledo, Ohio, work stoppage in the fourth quarter of 2016.

(6)

Legal and professional fees associated with a strategic initiative that we terminated during the third quarter of 2018.

 

 

Non-GAAP Measures

 

We sometimes refer to amounts, associated margins and other data derived from consolidated financial information but not required by GAAP to be presented in financial statements. Certain of these data are considered “non-GAAP financial measures” under Securities and Exchange Commission (SEC) Regulation G. Our non-GAAP measures are used by analysts, investors and other interested parties to compare our performance with the performance of other companies that report similar non-GAAP measures. Libbey believes these non-GAAP measures provide meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of core business operating results. We believe the non-GAAP measures, when viewed in conjunction with U.S. GAAP results and the accompanying reconciliations, enhance the comparability of results against prior periods and allow for greater transparency of financial results and business outlook. In addition, we use non-GAAP data internally to assess performance and facilitate management’s internal comparison of our financial performance to that of prior periods, as well as trend analysis for budgeting and planning purposes. The presentation of our non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. Furthermore, our non-GAAP measures may not be comparable to similarly titled measures reported by other companies and may have limitations as an analytical tool.

 

We define Adjusted EBITDA as net income (loss) plus interest expense, provision for income taxes, depreciation and amortization, and special items that Libbey believes are not reflective of our core operating performance. The most directly comparable U.S. GAAP financial measure is net income (loss).

 

We present Adjusted EBITDA because we believe it is used by analysts, investors and other interested parties in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core business operating results. Adjusted 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. In addition, we use Adjusted EBITDA internally to measure profitability.

 

Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:

 

 

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

 

Adjusted EBITDA does not reflect the 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 of capital expenditures or contractual commitments;

 

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 U.S. GAAP.

 

Constant Currency

 

We translate revenue and expense accounts in our non-U.S. operations at current average exchange rates during the year. References to “constant currency,” “excluding currency impact” and “adjusted for currency” are considered non-GAAP measures. Constant currency references regarding net sales reflect a simple mathematical translation of local currency results using the comparable prior period’s currency conversion rate. Constant currency references regarding Segment EBIT and Adjusted EBITDA comprise a simple mathematical translation of local currency results using the comparable prior period’s currency conversion rate plus the transactional impact of changes in exchange rates from revenues, expenses and assets and liabilities that are denominated in a currency other than the functional currency. We believe this non-GAAP constant currency information provides valuable supplemental information regarding our core operating results, better identifies operating trends that may otherwise be masked or distorted by exchange rate changes and provides a higher degree of transparency of information used by management in its evaluation of our ongoing operations. These non-GAAP measures should be viewed in addition to, and not as an alternative to, the reported results prepared in accordance with GAAP. Our currency market risks include currency fluctuations relative to the U.S. dollar, Canadian dollar, Mexican peso, euro and Chinese renminbi.

 

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

This document and supporting schedules contain statements that are not historical facts and constitute projections, forecasts or forward-looking statements. For a description of the forward-looking statements and risk factors that may affect our performance, see the “Risk Factors” section above.

 

Additionally, for an understanding of the significant factors that influenced our performance during the past two years, the following should be read in conjunction with the audited Consolidated Financial Statements and Notes.

 

General Overview

 

Headquartered in Toledo, Ohio, we believe that we have the largest manufacturing, distribution and service network among glass tableware manufacturers in the Western Hemisphere and that we are one of the largest glass tableware manufacturers in the world. Our tabletop product portfolio consists of an extensive line of high quality, machine-made glass tableware, including casual glass beverageware, in addition to ceramic dinnerware and metal flatware. We sell our products to foodservice, retail, and business-to-business customers in over 100 countries, with our sales to customers in North America accounting for approximately 78 percent of our total sales. We believe we are the largest manufacturer and marketer of casual glass beverageware in North America for the foodservice and retail channels. Additionally, we are a manufacturer and marketer of casual glass beverageware in the EMEA and Asia Pacific regions.

 

Our reporting segments are U.S. & Canada, Latin America, EMEA and Other. Segment results are based on the geographical destination of the sale. Our three reportable segments are defined below. Our operating segment that does not meet the criteria to be a reportable segment is disclosed as Other.

 

U.S. & Canada—includes sales of manufactured glassware products and sourced tableware having an end-market destination in the U.S & Canada, excluding glass products for OEMs, which remain in the Latin America segment.

 

Latin America—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Latin America, as well as glass products for OEMs regardless of end-market destination.

 

EMEA—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Europe, the Middle East and Africa.

 

Other—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Asia Pacific.

 

Executive Overview

 

Throughout 2019, our business was impacted by global competition in all of our distribution channels, fluctuating business and consumer confidence in the U.S. and Europe as a result of increased economic and political uncertainty from various factors including ongoing trade tensions between the U.S. and China and the potential for a no-deal Brexit in Europe, as well as slowing economies in Europe, China and parts of Latin America.  Other factors impacting our business during the year were continued declines in U.S. & Canada foodservice traffic, as reported by third-party research firms Knapp-Track and Blackbox; continued migration of consumer purchasing from brick-and-mortar stores to online commerce, particularly in the U.S. & Canada and Europe; shifting consumer preferences in Europe from mid-tier retailers (where sales of Royal Leerdam® products have been concentrated) to discounters; and increased competitive pressures in Latin America, as Chinese manufacturers divert sales of their products from the U.S. market to Latin America in order to avoid the increased tariffs imposed by the U.S. on Chinese imports into the U.S. Management expects these trends, and the challenging environment to continue into 2020, including in the business-to-business channel, which is dependent on customer demands.

 

Growth is expected for the U.S. in 2020, as consumer confidence and household spending is expected to be high. The recently signed trade deal with China and the U.S., Mexico and Canada Agreement (USMCA) should reduce some uncertainty; however, any change in tariffs or policy could pose a risk to the expected growth.

 

The overall Latin America economy struggled to grow in 2019 due to ongoing political and economic uncertainty, trade tensions and a weakening global economy. However, economic forecasters are showing the outlook for 2020 to rebound with an expected gradual pickup in global growth, continued monetary support, less economic uncertainty and a gradual recovery in stressed economies. Mexico’s economy is also projected to grow in 2020 as conditions normalize, including the ratification of the USMCA trade agreement.

The European economy is expected to gradually improve for 2020. The recent reduction in trade tensions between the U.S. and Europe have helped ease some of the uncertainties for business. However, debt levels within the region continue to be high, uncertainty surrounding the transition of the United Kingdom’s decision to exit the European Union (“Brexit”) continues to persist and if trade tensions with the U.S. should resurface again, a recession could be triggered.

Despite a phase-one trade deal with the U.S. that is projected by economic forecasters to increase consumer spending, China’s projected outlook for 2020 is expected to decline yet again. Their competitive environment continues to be challenging, and a recent viral outbreak (known as the Coronavirus or COVID-19) has impacted businesses within the country and has caused some disruptions to supply chains and activity.

 

 

With the intense global competition and various headwinds experienced in 2019, we had net sales of $782.4 million, 1.9 percent lower than the prior year, or 0.9 percent lower on a constant currency basis. The reduction in net sales compared to prior year was driven by unfavorable impacts in volume, channel mix and currency, partially offset by favorable price and mix of product sold, primarily in the U.S. & Canada segment. We recorded a net loss of $69.0 million for 2019, compared to a net loss of $8.0 million in 2018. Our 2019 net loss resulted primarily from $65.2 million of non-cash asset impairment charges, including $46.0 million in our Latin America segment for goodwill and $19.2 million in our EMEA segment (see note 4 to our Consolidated Financial Statements for details). Our top-line performance during the year was challenged by macroeconomic uncertainty in Europe and Latin America, as well as continued declines in U.S. foodservice traffic; however, solid operational execution across our footprint and disciplined spending throughout the company enabled us to deliver a 30 basis point improvement in our gross margin as well as a $26.6 million increase in operating cash flows year over year. 

 

We made great progress with our initiatives throughout 2019, focusing the year on improving our cash generation, operating efficiencies and execution, as well as aligning our teams around critical plans to drive growth and stability.

 

During 2019, we accomplished the following:

 

  Made considerable progress on our organizational realignment plan that focuses on transformational actions and structural changes to create a simplified organization best positioned to deliver against its key financial and operational priorities
  Made headway on our business transformation to simplify and improve capabilities across many areas of the business, led by the on-going implementation of a new enterprise resource planning system
  Introduced Assheuer + Pott GmbH & Co. KG (APS®) premium serveware and buffetware products to the hospitality and catering sector of the U.S. & Canada foodservice channel
  Expanded our digital platform to support customers in our foodservice channel with the launch of our foodservice website
  Implemented an enhanced inspection and repair process to further extend asset lives, resulting in more time between furnace rebuilds and a reduction in depreciation expense
  Upgraded our laser edge technology at our Shreveport manufacturing facility, resulting in more efficient operations
  Invested in Libbey Portugal enabling us to switch to a lower cost source of power

 

While we are focused on taking advantage of opportunities we see in our markets to drive long-term growth, we intend to continue to improve our operational and organizational excellence. Therefore, in 2020, we intend to continue our momentum in executing revenue growth, leveraging our new global functional structure to drive significant operational improvement and keeping a disciplined focus on cash generation.

 

Our current capital allocation strategy prioritizes debt reduction and continued investments in strategic initiatives that are expected to increase long-term shareholder returns.

 

Results of Operations

 

The following table presents key results of our operations for the years 2019 and 2018:

 

Year ended December 31,

               

(dollars in thousands, except percentages and per-share amounts)

 

2019

   

2018

 

Net sales

  $ 782,437     $ 797,858  

Gross profit

  $ 154,209     $ 154,891  

Gross profit margin

    19.7 %     19.4 %

Income (loss) from operations (IFO)

  $ (33,313 )   $ 27,040  

IFO margin

    (4.3 )%     3.4 %

Net loss

  $ (69,019 )   $ (7,956 )

Net loss margin

    (8.8 )%     (1.0 )%

Diluted net loss per share

  $ (3.08 )   $ (0.36 )

Adjusted EBITDA(1) (non-GAAP)

  $ 70,308     $ 70,950  

Adjusted EBITDA margin (1) (non-GAAP)

    9.0 %     8.9 %

_____________________

(1) 

We believe that Adjusted EBITDA and the associated margin, 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 loss to Adjusted EBITDA, certain limitations and reasons we believe these non-GAAP measures are useful, see the “Reconciliation of Net Income (Loss) to Adjusted EBITDA” and “Non-GAAP Measures” sections included in Part II, Item 6 of this Annual Report, which is incorporated herein by reference.

 

 

Discussion of 2019 vs. 2018 Results of Operations

 

Net Sales

 

The following table summarizes net sales by operating segment:

 

Year ended December 31, 

                 

Increase/(Decrease)

   

Currency

   

Constant Currency Sales

 

(dollars in thousands)

 

2019

   

2018

   

$ Change

   

% Change

   

Effects

   

Growth (Decline) (1)

 

U.S. & Canada

  $ 491,230     $ 483,741     $ 7,489       1.5 %   $ (80 )     1.6 %

Latin America

    141,584       148,091       (6,507 )     (4.4 )%     (210 )     (4.3 )%

EMEA

    123,945       138,399       (14,454 )     (10.4 )%     (6,517 )     (5.7 )%

Other

    25,678       27,627       (1,949 )     (7.1 )%     (1,054 )     (3.2 )%

Consolidated

  $ 782,437     $ 797,858     $ (15,421 )     (1.9 )%   $ (7,861 )     (0.9 )%

_____________________

(1) 

We believe constant currency sales growth (decline), a non-GAAP measure, is a useful metric for evaluating our financial performance. See the “Non-GAAP Measures” section included in Part II, Item 6 of this Annual Report, which is incorporated herein by reference, for the reasons we believe this non-GAAP metric is useful and how it is derived.

 

Net Sales U.S. & Canada

 

Net sales in U.S. & Canada were $491.2 million, compared to $483.7 million in 2018, an increase of 1.5 percent, driven by favorable price and mix of product sold and higher volumes, partially offset by unfavorable channel mix. Net sales in our business-to-business and retail channels increased $7.1 million and $3.4 million, respectively, in the current year primarily due to increased volume. While net sales in our foodservice channel decreased $3.0 million compared to the prior year, primarily due to lower volume, partially offset by favorable price and mix of product sold, net sales in the second half of 2019 were higher than the prior-year period. Part of the decline in foodservice volume was caused by first-quarter 2019 events relating to the U.S. government shutdown and unusually severe weather across much of the U.S., as well as declines in foodservice traffic as reported by third party research firms Knapp-Track and Blackbox.

 

Net Sales Latin America

 

Net sales in Latin America were $141.6 million, compared to $148.1 million in 2018, a decrease of 4.4 percent (a decrease of 4.3 percent excluding currency fluctuation). Overall, Latin America was challenged in 2019 by the macroeconomic uncertainty in the region. The decrease in net sales is primarily attributable to unfavorable product mix in the business-to-business channel, as well as lower volume across all three channels and unfavorable currency of $0.2 million. The unfavorable items were partially offset by favorable pricing. In comparison to 2018, net sales in all three distribution channels decreased, including business-to-business by $3.0 million, foodservice by $2.1 million and retail by $1.5 million.

 

Net Sales EMEA

 

Net sales in EMEA were $123.9 million, compared to $138.4 million in 2018, a decrease of 10.4 percent (a decrease of 5.7 percent excluding currency fluctuation). EMEA was also challenged during the year by the economic conditions and political uncertainty in the region. Lower volumes in the business-to-business and retail channels and an unfavorable currency impact of $6.5 million led to the decrease in net sales, compared to the prior year. Partially offsetting the reductions were favorable price and mix of product sold.

 

Gross Profit

 

Gross profit was $154.2 million in 2019, compared to $154.9 million in the prior year. Gross profit as a percentage of net sales improved to 19.7 percent, compared to 19.4 percent in the prior year. Contributing to the $0.7 million decrease in gross profit were lower manufacturing activity of $10.0 million (including $11.6 million of production downtime) and a $1.3 million organizational realignment charge. Partially offsetting these unfavorable items were a favorable sales impact of $5.8 million, lower depreciation and amortization expense of $2.8 million, lower utility expense of $1.3 million and reduced benefit-related expenses of $0.3 million. Manufacturing activity includes the impact of fluctuating production activities from all facilities globally (including downtime, efficiency and utilization) and repairs and maintenance. The net sales impact equals net sales less the associated inventory at standard cost rates.

 

Income (Loss) From Operations

 

We recorded a loss from operations in 2019 of $(33.3) million, a $60.4 million decrease compared to income from operations of $27.0 million in 2018. Loss from operations as a percentage of net sales was (4.3) percent in 2019, compared to income from operations as a percentage of net sales of 3.4 percent in 2018. The unfavorable change in income (loss) from operations was driven by $65.2 million of non-cash asset impairment charges, including $46.0 million in our Latin America segment for goodwill and $19.2 million in our EMEA segment ($13.0 million for property, plant and equipment, $5.3 million for operating lease right-of-use assets and $0.9 million for a trade name), as well as the $0.7 million decrease in gross profit discussed above. Partially offsetting the unfavorable items were reduced selling, general and administrative expenses of $5.5 million. The favorable change in selling, general and administrative expenses was driven by $2.8 million reduction in spend on discretionary expenses, $2.3 million of non-repeating fees associated with a strategic initiative that was terminated in the third quarter of 2018, less legal and professional fees of $1.7 million, a favorable currency impact of $0.9 million and less depreciation and amortization expense of $0.7 million. Partially offsetting the favorable items were $2.1 million of organizational realignment charges, primarily consisting of cash severance and other employee related costs, and increased healthcare expense of $1.0 million. In addition, reduced spend relating to our e-commerce initiative of $1.9 million was primarily offset by increased spend of $1.6 million on ERP implementation and related costs in 2019.

 

 

Net Loss and Diluted Net Loss Per Share

 

We recorded a net loss of $(69.0) million, or $(3.08) per diluted share, in 2019, compared to a net loss of $(8.0) million, or $(0.36) per diluted share, in 2018. Net loss as a percentage of net sales was (8.8) percent in 2019, compared to (1.0) percent in 2018. The unfavorable change in net loss and diluted net loss per share is due to the factors discussed in Income (Loss) From Operations above, as well as an unfavorable change of $1.7 million in other income (expense) driven by foreign currency impacts, debt refinancing fees and higher interest expense of $0.5 million, partially offset by lower income tax expense of $1.5 million. The Company’s effective tax rate was (14.5) percent for 2019, compared to 446.4 percent in 2018. The change in the effective tax rate was driven by several items, including differing levels of pretax income, the nondeductible asset impairments and nondeductible interest expense. The significantly smaller, absolute value of pretax income in 2018 compared with 2019 magnified the percentage impact on the effective tax rate of items such as non-deductible expenses and valuation allowances. Cash taxes paid for 2019 and 2018 were approximately $11.9 million and $8.5 million, respectively, with the increase primarily due to the 2010 tax audit in Mexico. See note 7, Income Taxes, to the Consolidated Financial Statements for further details.

 

Segment Earnings Before Interest and Income Taxes (Segment EBIT)

 

The following table summarizes Segment EBIT(1) by reporting segments:

 

Year ended December 31, 

                         

Segment EBIT Margin

 

(dollars in thousands)

 

2019

   

2018

   

$ Change

   

2019

   

2018

 

U.S. & Canada

  $ 54,072     $ 36,805     $ 17,267       11.0 %     7.6 %

Latin America

  $ 6,208     $ 12,599     $ (6,391 )     4.4 %     8.5 %

EMEA

  $ 5,529     $ 7,219     $ (1,690 )     4.5 %     5.2 %

__________________

(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 and other allocations that are not considered by management when evaluating performance. Segment EBIT also includes an allocation of manufacturing costs for inventory produced at a Libbey facility that is located in a region other than the end market in which the inventory is sold. This allocation can fluctuate from year to year based on the relative demands for products produced in regions other than the end markets in which they are sold. See note 19 to the Consolidated Financial Statements for a reconciliation of Segment EBIT to net loss.

   
  For 2019, Segment EBIT excludes the following: U.S. & Canada - $1.6 million of organizational realignment charges; Latin America - $46.0 million of non-cash goodwill impairment charges; and EMEA - $20.2 million (non-cash asset impairment charges of $19.2 million and organizational realignment charges of $1.0 million).

 

Segment EBIT U.S. & Canada

 

Segment EBIT was $54.1 million in 2019, compared to $36.8 million in 2018. Segment EBIT as a percentage of net sales increased to 11.0 percent for 2019, compared to 7.6 percent in 2018. The $17.3 million increase in Segment EBIT was driven by a favorable sales impact of $7.9 million, lower shipping and storage expense of $2.9 million, favorable manufacturing activity of $2.6 million, a $2.5 million decrease in selling, general and administrative spend (including a $2.9 million decrease in e-commerce spend) and a $1.4 million decrease in utilities. 

 

Segment EBIT Latin America

 

Segment EBIT decreased to $6.2 million in 2019, compared to $12.6 million in 2018. Segment EBIT as a percentage of net sales decreased to 4.4 percent for 2019, compared to 8.5 percent in 2018. The primary drivers of the $6.4 million decrease were unfavorable manufacturing activity of $6.1 million (including $4.2 million of discretionary downtime), $3.3 million of increased shipping and storage expenses and $1.0 million of increased selling, general and administrative expenses (including $0.5 million of legal and professional fees and $0.4 million of labor expense).  Partially offsetting the unfavorable items were less depreciation and amortization expense of $2.7 million and a favorable currency impact of $1.3 million.

 

Segment EBIT EMEA

 

Segment EBIT decreased to $5.5 million in 2019, compared to $7.2 million in 2018. Segment EBIT as a percentage of net sales decreased to 4.5 percent for 2019, compared to 5.2 percent in 2018. The primary drivers of the $1.7 million decrease in Segment EBIT were unfavorable manufacturing activity of $1.8 million (resulting from discretionary downtime) and an unfavorable sales impact of $1.0 million, partially offset by less utility expense of $0.9 million.

 

Adjusted EBITDA

 

Adjusted EBITDA decreased by $0.6 million in 2019, to $70.3 million, compared to $71.0 million in 2018. As a percentage of net sales, Adjusted EBITDA was 9.0 percent for 2019, compared to 8.9 percent in 2018. The key contributors to the decrease in Adjusted EBITDA were a $10.0 million unfavorable impact of manufacturing activity (resulting from discretionary downtime) and higher benefit-related expenses of $1.8 million. Partially offsetting the unfavorable items were a favorable sales impact of $5.8 million, $4.3 million of reduced selling, general and administrative expenses (including $3.2 million of legal and professional fees and $1.7 million of marketing expense) and $1.3 million of lower utility expenses. Adjusted EBITDA excludes special items that Libbey believes are not reflective of our core operating performance as noted in the “Reconciliation of Net Income (Loss) to Adjusted EBITDA” included in Part II, Item 6 of this Annual Report, which is incorporated herein by reference.

 

 

 

Capital Resources and Liquidity

 

Under the ABL Facility at December 31, 2019, we had $17.4 million of outstanding borrowings and $10.0 million in letters of credit and other reserves, resulting in $68.2 million of unused availability. On June 17, 2019, Libbey Mexico entered into a $3.0 million working capital line of credit to cover working capital needs; there were no borrowings under this line of credit at December 31, 2019. In addition, we had $48.9 million of cash on hand at December 31, 2019, compared to $25.1 million of cash on hand at December 31, 2018. Of our total cash on hand at December 31, 2019 and 2018, $37.3 million and $21.7 million, respectively, were held in foreign subsidiaries. We plan to indefinitely reinvest the excess of the amount for financial reporting over the tax basis of investments in our European and Mexican operations to support ongoing operations, capital expenditures and debt service. All other earnings can be distributed as allowable under local laws. Our Chinese subsidiaries’ cash balance was $20.2 million as of December 31, 2019. Local law currently limits distribution of this cash as a dividend; however, additional amounts may become distributable based on future income. For further information regarding potential dividends from our non-U.S. subsidiaries, see note 7, Income Taxes, in the Consolidated Financial Statements.

 

Our sales and operating income tend to be stronger in the last three quarters of each year and weaker in the first quarter of each year, primarily due to the impact of consumer buying patterns and production activity. This seasonal pattern causes cash provided by operating activities to be higher in the second half of the year and lower during the first half of the year. Based on our operating plans and current forecast expectations, we anticipate that our level of cash on hand, cash flows from operations and borrowing capacity under our ABL Facility will provide sufficient cash availability to meet our ongoing liquidity needs.

 

The Term Loan B matures on April 9, 2021; however, if it is not refinanced prior to January 9, 2021, the ABL Facility’s springing maturity becomes effective and would be due at that time. The Company intends to refinance the Term Loan B prior to the ABL Facility springing maturity date, but there can be no assurance that the Company will be able to enter into an extended or replacement piece of debt prior to January 9, 2021. If we are unable to refinance the Term Loan B and we are unable to repay any outstanding balance on the ABL Facility, it may result in an event of default on our Term Loan B because of inability to meet all of our obligations under our credit agreements. Such a default, if not cured, would result in a cross default which would allow the lenders to accelerate the maturity of the Term Loan B, making it due and payable at that time.

 

Balance Sheet and Cash Flows

 

Cash and Equivalents

 

See the cash flow section below for a discussion of our cash balance.

 

 

Trade Working Capital

 

The following table presents our Trade Working Capital components:

 

December 31,

               

(dollars in thousands, except percentages and DSO, DIO, DPO and DWC)

 

2019

   

2018

 

Accounts receivable — net

  $ 81,307     $ 83,977  

DSO (1)

    37.9       38.4  

Inventories — net

  $ 174,797     $ 192,103  

DIO (2)

    81.5       87.9  

Accounts payable

  $ 79,262     $ 74,836  

DPO (3)

    37.0       34.2  

Trade Working Capital (4) (non-GAAP)

  $ 176,842     $ 201,244  

DWC (5)

    82.5       92.1  

Percentage of net sales

    22.6 %     25.2 %

___________________________________________________

(1) 

Days sales outstanding (DSO) measures the number of days it takes to turn receivables into cash.

(2) 

Days inventory outstanding (DIO) measures the number of days it takes to turn inventory into net sales.

(3) 

Days payable outstanding (DPO) measures the number of days it takes to pay the balances of our accounts payable.

(4) 

Trade Working Capital is defined as net accounts receivable plus net inventories less accounts payable. See below for further discussion as to the reasons we believe this non-GAAP financial measure is useful.

(5) 

Days trade working capital (DWC) measures the number of days it takes to turn our Trade Working Capital into cash.

 

DSO, DIO, DPO and DWC are calculated using the last twelve months’ net sales as the denominator and are based on a 365-day year.

 

We believe that Trade 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. Trade Working Capital is a measure used by management in internal evaluations of cash availability and operational performance.

 

Trade Working Capital is used in conjunction with and in addition to results presented in accordance with U.S. GAAP. Trade Working Capital is neither intended to represent nor be an alternative to any measure of liquidity and operational performance recorded under U.S. GAAP. Trade Working Capital may not be comparable to similarly titled measures reported by other companies.

 

Trade working capital (as defined above) was $176.8 million at December 31, 2019, a decrease of $24.4 million from December 31, 2018. The decrease in our Trade Working Capital is primarily due to reduction in inventories (primarily resulting from downtime), decreased accounts receivable related to timing of collections, increased accounts payable and a favorable currency impact of $0.7 million (primarily the euro). As a result, Trade Working Capital as a percentage of the last twelve-month net sales was 22.6 percent at December 31, 2019, a favorable change from the 25.2 percent at December 31, 2018.

 

 

 

Borrowings

 

The following table presents our total borrowings:

 

December 31,

                       

(dollars in thousands)

 

Interest Rate

 

Maturity Date

 

2019

   

2018

 

Borrowings under ABL Facility

 

floating (2)

 

December 7, 2022 (1)

  $ 17,386     $ 19,868  

Term Loan B

 

floating (3)

 

April 9, 2021

    375,800       380,200  

Total borrowings

    393,186       400,068  

Less — unamortized discount and finance fees

    1,346       2,368  

Total borrowings — net (4)

  $ 391,840     $ 397,700  

____________________________________

(1) 

Maturity date will be January 9, 2021 if Term Loan B is not refinanced by this date.

(2) 

The interest rate on the ABL Facility borrowings was 1.75 percent at December 31, 2019.

(3) 

See “Derivatives” below and note 12 to the Consolidated Financial Statements. 

(4) 

Total borrowings -- net includes long-term debt due within one year and long-term debt as stated in our Consolidated Balance Sheets.

 

We had total borrowings of $393.2 million at December 31, 2019, compared to total borrowings of $400.1 million at December 31, 2018. Contributing to the $6.9 million decrease in borrowings were $2.5 million in payments on ABL borrowings and $1.1 million of quarterly amortization payments (for a total of $4.4 million) under our Term Loan B.

 

Of our total borrowings, $173.2 million, or approximately 44.0 percent, were subject to variable interest rates at December 31, 2019, as a result of converting $220.0 million of our Term Loan B debt to a fixed rate using an interest rate swap. The swap was effective January 2016 through January 2020 and maintained a 4.85 percent fixed interest rate. We have executed additional swaps that convert $200.0 million of our debt from variable to fixed from January 2020 to January 2025. For further discussion on our interest rate swaps, see note 12 to the Consolidated Financial Statements. 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.

 

Included in interest expense are the amortization of discounts and other financing fees. These items amounted to $1.3 million and $1.2 million for the years ended December 31, 2019 and 2018, respectively.

 

 

Cash Flow

 

Year ended December 31,

               

(dollars in thousands)

 

2019

   

2018

 

Net cash provided by operating activities

  $ 63,432     $ 36,870  

Net cash used in investing activities

  $ (31,159 )   $ (45,087 )

Net cash provided by (used in) financing activities

  $ (8,005 )   $ 9,465  

 

Our net cash provided by operating activities was $63.4 million in 2019, compared to $36.9 million in 2018, a favorable cash flow impact of $26.6 million. Contributing to the increase in cash flow from operations was a favorable impact of $34.1 million related to Trade Working Capital (accounts receivable, inventories, and accounts payable), partially offset by increased payments related to our ERP initiative, additional income tax payments of $3.4 million (primarily related to Mexico) and higher incentive compensation payments.

 

Our net cash used in investing activities was $31.2 million and $45.1 million in 2019 and 2018, respectively, representing capital expenditures in each year.

 

Net cash provided by (used in) financing activities was ($8.0) million in 2019, compared to $9.5 million in 2018. The primary drivers of this $17.5 million change include the ($22.3) million net ABL Facility impact (2019 had net repayments of $2.4 million while 2018 had net borrowings of $19.9 million) and $0.8 million in debt refinancing fees, partially offset by 2018 payments that did not repeat in 2019 (dividends of $2.6 million and other debt repayments of $3.1 million).

 

At December 31, 2019, our cash balance was $48.9 million, an increase of $23.8 million from $25.1 million at December 31, 2018.

 

 

Free Cash Flow

 

The following table presents key drivers to our Free Cash Flow for 2019 and 2018:

 

Year ended December 31,

               

(dollars in thousands)

 

2019

   

2018

 

Net cash provided by operating activities

  $ 63,432     $ 36,870  

Net cash used in investing activities

  $ (31,159 )   $ (45,087 )

Free Cash Flow (1) (non-GAAP)

  $ 32,273     $ (8,217 )

____________________________________

(1) 

We define Free Cash Flow as the sum of net cash provided by operating activities and net cash used in investing activities. The most directly comparable U.S. GAAP financial measure is net cash provided by (used in) 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 debt service, acquisitions and other strategic investment opportunities. It is a measure we use to internally evaluate the overall liquidity of the business. Free Cash Flow does not represent residual cash flows available for discretionary expenditures due to our mandatory debt service requirements. 

 

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 (used in) operating activities recorded under U.S. GAAP. Free Cash Flow may not be comparable to similarly titled measures reported by other companies.

 

Our Free Cash Flow was $32.3 million during 2019, compared to $(8.2) million in 2018, a favorable change of $40.5 million. The primary contributors to this change are the same 1:1 relationship as the $26.6 million favorable cash flow impact from operating activities and the favorable change of $13.9 million in investing activities, as discussed above.

 

 

Derivatives

 

We use natural gas swap contracts related to forecasted future North American natural gas requirements. The objective of these commodity contracts is to limit the fluctuations in prices paid due to 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, and 18 months in the future, or more, depending on market conditions. The fair values of these instruments are determined from market quotes. At December 31, 2019, we had commodity contracts for 2,460,000 MMBTUs of natural gas with a fair market value of a $0.8 million liability. We have hedged a portion of our forecasted transactions through March 2021. At December 31, 2018, we had commodity futures contracts for 3,150,000 MMBTUs of natural gas with a fair market value of a $0.3 million asset. The counterparties for these derivatives are well established financial institutions rated BBB+ or better as of December 31, 2019, by Standard & Poor’s.

 

We have interest rate swap agreements in place to fix certain interest payments of our current and future floating rate Term Loan B debt. The first interest rate swap maintained a fixed interest rate of 4.85 percent, including the credit spread, on $220.0 million of our current Term Loan B debt and matured on January 9, 2020. Two additional interest rate swaps, with a combined notional amount of $200.0 million, became effective in January 2020, when the first swap matured. These two swaps in essence extended the first swap, have a term of January 2020 to January 2025, and carry a fixed interest rate of 6.19%, including credit spread. In the event our Term Loan B is refinanced, the fixed interest rate will be 3.19 percent plus the new refinanced credit spread. At December 31, 2019, the Term Loan B debt held a floating interest rate of 4.71 percent. If the counterparties to the interest rate swap agreements were to fail to perform, the interest rate swaps would no longer provide the desired results. However, we do not anticipate nonperformance by the counterparties. The counterparties held a Standard & Poor’s rating of BBB+ or better as of December 31, 2019.

 

The fair market value of our interest rate swaps 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. The fair market value of the interest rate swap agreements was a $14.6 million liability at December 31, 2019, and a $4.3 million liability at December 31, 2018.

 

 

 

CRITICAL ACCOUNTING ESTIMATES

 

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements describes the significant accounting policies and methods used in their preparation. The areas described below are affected by critical accounting estimates and are impacted significantly by judgments and assumptions in the preparation of the Consolidated Financial Statements. Actual results could differ materially from the amounts reported based on these critical accounting estimates.

 

Revenue Recognition

 

Revenue is recognized at a point in time when control of the product has transferred to the customer. The transfer of control primarily takes place when risk of loss transfers in accordance with applicable shipping terms. Revenue is recognized based on the consideration specified in a contract with the customer, and is measured as the amount of consideration to which we expect to be entitled in exchange for transferring goods or providing services. When applicable, the transaction price includes estimates of variable consideration. We estimate provisions for rebates, customer incentives, allowances, returns and discounts based on the terms of the contracts, historical experience and anticipated customer purchases during the rebate period as sales occur. We continually evaluate the adequacy of these methods used, adjusting our estimates when the amount of consideration to which we expect to be entitled changes.

 

Slow-Moving and Obsolete Inventory    

 

We identify slow-moving or obsolete inventories and estimate appropriate loss provisions accordingly. We recognize inventory loss provisions based upon excess and obsolete inventories driven primarily by future demand forecasts. At December 31, 2019, our inventories were $174.8 million, with loss provisions of $7.8 million, compared to inventories of $192.1 million and loss provisions of $9.5 million at December 31, 2018.

 

Asset Impairment

 

Fixed Assets    

 

We assess our property, plant and equipment for possible impairment in accordance with FASB ASC Topic 360, “Property Plant and Equipment” (“FASB ASC 360”), whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable or a revision of remaining useful lives is necessary. Such indicators may include economic and competitive conditions, changes in our business plans or management’s intentions regarding future utilization of the assets or changes in our commodity prices. An asset impairment would be indicated if the sum of the expected future net pretax cash flows from the use of an asset (undiscounted and without interest charges) is less than the carrying amount of the asset. An impairment loss would be measured based on the difference between the fair value of the asset and its carrying value. The determination of fair value is based on an expected present value technique in which multiple cash flow scenarios that reflect a range of possible outcomes and a risk-free rate of interest are used to estimate fair value or on a market appraisal. Projections used in the fair value determination are based on internal estimates for sales and production levels, capital expenditures necessary to maintain the projected production levels, and remaining useful life of the assets. These projections are prepared at the lowest level at which we have access to cash flow information and complete financial data for our operations, which is generally at the plant level.

 

Determination as to whether and how much an asset is impaired involves significant management judgment involving highly uncertain matters, including estimating the future success of product lines, future sales volumes, future selling prices and costs, alternative uses for the assets, and estimated proceeds from disposal of the assets. However, the impairment reviews and calculations are based on estimates and assumptions that take into account our business plans and long-term investment decisions.

 

During the fourth quarter of 2019, management concluded an impairment assessment for the Libbey Holland asset group (within our EMEA segment) was necessary as the likelihood of asset recovery diminished during the fourth quarter. Therefore, a recoverability test was performed as of December 31, 2019, which failed. As a result, the asset group was written down to fair value. Certain property, plant and equipment and right-of-use assets were written down, resulting in a non-cash impairment charge of $18.3 million presented in the asset impairments line item on the Consolidated Statements of Operations.

 

On February 18, 2019, the Board of Directors of Libbey approved a plan to pursue strategic alternatives with respect to our business in the PRC, including the sale or closure of our manufacturing and distribution facility located in Langfang, PRC. The Board’s decision supports our ongoing efforts to optimize our manufacturing and supply network to deliver customer value and achieve our strategic objectives, including deployment of our capital to better drive shareholder value.

 

As this decision by the Board of Directors may result in changes in our business plans or management’s intentions regarding future utilization of the related assets, a calculation was performed in accordance with FASB ASC 360 to determine if there was an indicator of impairment. The calculation considered all strategic alternatives that were being considered by management as of December 31, 2019, and the likelihood of each alternative. The resulting calculation did not indicate an impairment as of December 31, 2019, as the combined probability weighted average of the undiscounted cash flows associated with each alternative exceeded the carrying value of the assets. We continue to monitor the alternatives being considered by management as changes in strategy or alternatives available may result in future impairment charges.

 

In accordance with FASB ASC 360, we also perform an impairment analysis for our definite useful lived intangible assets when factors indicating impairment are present. There were no indicators of impairment noted in 2019 or 2018 that would require an impairment analysis to be performed for our definite useful lived intangible assets.

 

 

Goodwill and Indefinite Life Intangible Assets

 

Goodwill at December 31, 2019 was $38.4 million, representing approximately 5.4 percent of total assets. Goodwill represents the excess of cost over fair value of assets acquired for each reporting unit. Our reporting units represent an operating segment or components of an operating segment (which is one level below the operating segment level). Also, components are aggregated into one reporting unit if they share similar economic characteristics, the determination of which requires management judgment. Goodwill impairment tests are completed for each reporting unit as of October 1 of each year, or more frequently in certain circumstances where impairment indicators arise.

 

When performing our test for impairment, we measure each reporting unit’s fair value using a combination of “income” and “market” approaches on a shipping point basis. The income approach calculates the fair value of the reporting unit based on a discounted cash flow analysis, incorporating the weighted average cost of capital of a hypothetical third-party buyer. Significant estimates in the income approach include the following: discount rate; expected financial outlook and profitability of the reporting unit’s business; and foreign currency impacts. Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors. The market approach uses the “Guideline Company” method, which calculates the fair value of the reporting unit based on a comparison of the reporting unit to comparable publicly traded companies. Significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, assessing comparable multiples, as well as consideration of control premiums. The blended approach assigns a 70 percent weighting to the income approach and 30 percent to the market approach. The higher weighting is given to the income approach due to some limitations of publicly available peer information used in the market approach. The blended fair value of both approaches is then compared to the carrying value, and to the extent that fair value exceeds the carrying value, no impairment exists. However, to the extent the carrying value exceeds the fair value, an impairment is recorded.

 

As part of our on-going assessment of goodwill at June 30, 2019, it was noted that the significant reduction to the Company’s share price throughout the quarter resulted in the market capitalization being less than the carrying value. As a result, we determined a triggering event had occurred and performed interim impairment tests of goodwill and other intangible assets as of June 30, 2019. Additionally, during the second quarter, management updated its long-range plan which indicated lower sales and profitability within the Mexico reporting unit (within the Latin America reporting segment) as compared to the projections used in the most recent goodwill impairment testing performed as of October 1, 2018. As a result, the impairment testing indicated that the carrying value of the Mexico reporting unit exceeded its fair value, and we recorded a non-cash impairment charge of $46.0 million during the second quarter of 2019. After recording the impairment charge, there is no longer any goodwill on the balance sheet related to the Mexico acquisition.

 

With respect to our reporting unit (within the U.S. & Canada reporting segment) that has goodwill, the results of our October 1, 2019 annual impairment test indicated the estimated fair value exceeded the carrying value by approximately 50 percent, thus, no impairment exists.

 

Individual indefinite life intangible assets are also evaluated for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise. Total indefinite life intangible assets at December 31, 2019 were $11.1 million, representing 1.6 percent of total assets. When performing our test for impairment, we use a discounted cash flow method (based on a relief from royalty calculation) 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. Indefinite life intangible assets are tested for impairment as of October 1 of each year, or more frequently in certain circumstances where impairment indicators arise.

 

In conjunction with the goodwill impairment testing as of June 30, 2019, we also tested Libbey Holland’s indefinite life intangible asset (Royal Leerdam® trade name) for impairment. We used a relief from royalty method to determine the fair market value that was compared to the carrying value of the indefinite life intangible asset. The sales forecast for Royal Leerdam® branded product was lowered due to declining performance of mid-tier retailers as consumers in EMEA move to discount and on-line retailers. As a result, the estimated fair value was determined to be lower than the carrying value, and we recorded a non-cash impairment charge of $0.9 million during the second quarter of 2019 in our EMEA reporting segment.

 

With the Royal Leerdam® trade name fair value equaling its carrying value at June 30, 2019, there is a potential of future impairment for the remaining intangible asset balance of $0.9 million if there is further degradation in the perceived value of the brand.

 

The results of the October 1, 2019 review did not indicate an impairment of indefinite life intangible assets.

 

 

Self-Insurance Reserves

 

We use self-insurance mechanisms to provide for potential liabilities related to workers’ compensation and employee healthcare benefits that are not covered by third-party insurance. Workers’ compensation accruals are recorded at the estimated ultimate payout amounts based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses based on actuarial models.

 

Although we believe that the estimated liabilities for self-insurance are adequate, the estimates described above may not be indicative of current and future losses. In addition, the actuarial calculations used to estimate self-insurance liabilities are based on numerous assumptions, some of which are subjective. We will continue to adjust our estimated liabilities for self-insurance, as deemed necessary, in the event that future loss experience differs from historical loss patterns.

 

 

Pension Assumptions    

 

We have pension plans covering many of our employees. For a description of these plans, see note 8 to the Consolidated Financial Statements.

 

The assumptions used to determine net periodic pension expense for each year and the benefit obligations at December 31st were as follows:

 

   

U.S. Plans

   

Non-U.S. Plans

 
   

2019

   

2018

   

2019

   

2018

 

Net periodic pension expense:

                               

Discount rate

    4.31% to 4.33%       3.64% to 3.69%       10.60%       9.40%  

Expected long-term rate of return on plan assets

   

6.50%

      7.00%       Not applicable       Not applicable  

Rate of compensation increase

    Not applicable       Not applicable       4.30%       4.30%  

Cash balance interest crediting rate

    5.50%       5.50%       Not applicable       Not applicable  

Benefit obligations:

                               

Discount rate

    3.45% to 3.50%       4.31% to 4.33%       8.80%       10.60%  

Rate of compensation increase

    Not applicable       Not applicable       4.30%       4.30%  

Cash balance interest crediting rate

    5.50%       5.50%       Not applicable       Not applicable  

 

Two critical assumptions, discount rate and expected long-term rate of return on plan assets, are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions on our annual measurement date of December 31st. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.

 

The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at our December 31 measurement date. The discount rate at December 31st 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. Our determination of the reasonableness of our expected long-term rate of return on plan assets at December 31st is highly quantitative by nature and used to measure the earnings effects for the subsequent year. We evaluate the current asset allocations and expected returns under four sets of conditions: a maximum time available for each asset class; a common history where all asset class returns are computed with the same overall start date of January 1990; a 10-year historical return; and forecasted returns using the Black-Litterman method. Based upon the current asset allocation mix and the Black-Litterman method, the forecasted return is 5.40 percent. The actual return on plan assets from July 1, 1993 (inception) through December 31, 2019 was 8.46 percent and 8.32 percent for the U.S. hourly and salary pension plans, respectively.

 

Since over 75 percent of the plan assets are actively managed, we adjust the baseline forecasted return for the anticipated return differential from active over passive investment management and for any other items not already captured. We believe that the combination of long-term historical returns, along with the forecasted returns and manager alpha, supports the 6.5 percent rate of return assumption for 2020 based on the current asset allocation.

 

Sensitivity to changes in key assumptions based on year-end data is as follows:

 

 

A change of 1.0 percent in the discount rate would change our annual pretax pension expense by approximately $3.5 million.

 

A change of 1.0 percent in the expected long-term rate of return on plan assets would change annual pretax pension expense by approximately $3.2 million.

 

The cash balance interest crediting rate, which applies only to the U.S. Salaried Plan, enables us to calculate the benefit obligation through projecting future interest credits on cash balance accounts between the measurement date and a participant’s assumed retirement date. The rate adjusts annually and is the 30-year Treasury rate in effect as of October in the preceding plan year, subject to a minimum of 5 percent. A lower cash balance interest crediting rate assumption decreases the benefit obligation and decreases pension expense.

 

 

Non-pension Post-retirement Assumptions        

 

We use various actuarial assumptions, including the discount rate and the expected trend in healthcare 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 significant assumptions used at December 31st were as follows:

 

   

U.S. Plans

   

Non-U.S. Plans

 
   

2019

   

2018

   

2019

   

2018

 

Net periodic benefit expense

                               

Discount rate

    4.27 %     3.60 %     3.52 %     3.26 %

Non-pension post-retirement benefit obligation

                               

Discount rate

    3.41 %     4.27 %     2.92 %     3.52 %

Weighted average assumed healthcare cost trend rates

                               

Healthcare cost trend rate assumed for next year

    6.00 %     6.25 %     6.00 %     6.25 %

Ultimate healthcare trend rate

    4.50 %     5.00 %     5.00 %     5.00 %

Year the ultimate healthcare trend rate is reached

 

2026

   

2024

   

2024

   

2024

 

 

Sensitivity to change in key assumptions is as follows:

 

 

A change of 1.0 percent in the discount rate would not have a material impact on the non-pension post-retirement expense.

 

A change of 1.0 percent in the healthcare trend rate would not have a material impact upon the non-pension post-retirement expense.

 

 

Income Taxes

 

We are subject to income taxes in the U.S. and various foreign jurisdictions. Management judgment is required in evaluating our tax positions and determining our provision for income taxes. Throughout the course of business, there are numerous transactions and calculations for which the ultimate tax determination is uncertain. When management believes certain tax positions may be challenged despite our belief that the tax return positions are supportable, we establish reserves for tax uncertainties based on estimates of whether additional taxes will be due. We adjust these reserves taking into consideration changing facts and circumstances, such as an outcome of a tax audit. The income tax provision includes the impact of reserve provisions and changes to reserves that are considered appropriate. Accruals for tax contingencies are provided for in accordance with the requirements of FASB ASC Topic 740 “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. FASB ASC 740 “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 we conduct our operations or otherwise incur taxable income or losses.

 

Our European operations in the Netherlands incurred an operating loss in 2019, continue to be in cumulative loss positions in recent years, and have a history of tax loss carry-forwards expiring unused. In addition, European economic conditions continue to be unfavorable. Accordingly, management believes it is not more likely than not that the net deferred tax assets related to these operations will be realized and a valuation allowance continues to be recorded as of December 31, 2019. Management’s outlook regarding the future profitability of our China operations make it unlikely that any of its deferred tax assets will ever be utilized. As a result, a valuation allowance was recorded against the net deferred tax assets of our primary China subsidiary. Management concluded that it is not more likely than not that the disallowed interest expense for 2019 and 2018 can be fully utilized in future years. Accordingly, a partial valuation allowance has been recorded against the deferred tax asset related to the limitation on the U.S. deduction for interest expense. In addition, partial valuation allowances have been recorded against state operating loss carryforwards.

 

The Company and its subsidiaries are subject to examination by various countries’ tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. See note 7 to our Consolidated Financial Statements for a detailed discussion on tax contingencies.

 

Legal and Other Contingencies    

 

We are involved from time to time in various legal proceedings and claims, including commercial or contractual disputes, product liability claims and environmental and other matters, that arise in the normal course of business. We routinely assess the likelihood of any adverse judgments or outcomes related to these matters, as well as ranges of probable losses, by consulting with internal personnel principally involved with such matters and with our outside legal counsel handling such matters. We have accrued for estimated losses in accordance with U.S. GAAP for those matters where we believe that the likelihood that a loss has occurred is probable and the amount of the loss is reasonably estimable. The determination of the amount of such reserves is based on knowledge and experience with regard to past and current matters and consultation with internal personnel principally involved with such matters and with our outside legal counsel handling such matters. The amount of such reserves may change in the future due to new developments or changes in circumstances. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution. Although we cannot predict the ultimate outcome of any of our proceedings, we believe that they will not have a material adverse impact on our financial condition, results of operations or liquidity.

 

See note 17 of the Consolidated Financial Statements for a discussion of environmental and other litigation matters.

 

New Accounting Standards

 

See note 2 of the Consolidated Financial Statements for a summary of the new accounting standards.

 

Item 7A. Qualitative and Quantitative Disclosures about Market Risk

 

Not applicable.

 

 

 

Item 8. Financial Statements and Supplementary Data

 
   

 

Page

Reports of Independent Registered Public Accounting Firm

39

Consolidated Balance Sheets at December 31, 2019 and 2018

41

For the years ended December 31, 2019 and 2018:

 

Consolidated Statements of Operations

42

Consolidated Statements of Comprehensive Income (Loss)

43

Consolidated Statements of Shareholders’ Equity (Deficit)

44

Consolidated Statements of Cash Flows

45

Notes to Consolidated Financial Statements:

46

Note 1. Description of the Business

46

Note 2. Significant Accounting Policies

46

Note 3. Balance Sheet Details

49

Note 4. Purchased Intangible Assets and Goodwill

50

Note 5. Property, Plant and Equipment

52

Note 6. Borrowings

52

Note 7. Income Taxes

55

Note 8. Pension

58

Note 9. Non-pension Post-retirement Benefits

62

Note 10. Net Loss per Share of Common Stock

64

Note 11. Employee Stock Benefit Plans

64

Note 12. Derivatives

66

Note 13. Accumulated Other Comprehensive Income (Loss)

68

Note 14. Fair Value

68

Note 15. Leases

69

Note 16. Other Income (Expense)

69

Note 17. Contingencies

70

Note 18. Revenue

71

Note 19. Segments and Geographic Information

72

Note 20. Subsequent Event

74

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of Libbey Inc.

Toledo, Ohio

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Libbey Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

Change in Accounting Principle

 

As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted FASB Accounting Standards Update 2016-02, Leases (Topic 842), using the modified retrospective approach.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ DELOITTE & TOUCHE LLP

 

Detroit, Michigan

February 27, 2020

 

We have served as the Company’s auditor since 2015.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of Libbey Inc.

Toledo, Ohio

 

Opinion on Internal Control over Financial Reporting

 

We have audited the internal control over financial reporting of Libbey Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 27, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting principle.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. 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.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

/s/ DELOITTE & TOUCHE LLP

 

Detroit, Michigan

February 27, 2020

 

 

 

Libbey Inc.

Consolidated Balance Sheets

 

December 31,

               

(dollars in thousands, except share amounts)

 

2019

   

2018

 
                 

ASSETS

               

Cash and cash equivalents

  $ 48,918     $ 25,066  

Accounts receivable — net

    81,307       83,977  

Inventories — net

    174,797       192,103  

Prepaid and other current assets

    17,683       16,522  

Total current assets

    322,705       317,668  

Pension asset

    5,712        

Purchased intangible assets — net

    11,875       13,385  

Goodwill

    38,431       84,412  

Deferred income taxes

    24,747       26,090  

Other assets

    14,608       7,660  
Operating lease right-of-use assets     54,686        

Property, plant and equipment — net

    233,923       264,960  

Total assets

  $ 706,687     $ 714,175  
                 

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

               

Accounts payable

  $ 79,262     $ 74,836  

Salaries and wages

    30,188       27,924  

Accrued liabilities

    50,657       43,728  

Accrued income taxes

    382       3,639  

Pension liability (current portion)

    2,543       3,282  

Non-pension post-retirement benefits (current portion)

    3,817       3,951  
Operating lease liabilities (current portion)     12,769        

Long-term debt due within one year

    16,124       4,400  

Total current liabilities

    195,742       161,760  

Long-term debt

    375,716       393,300  

Pension liability

    46,619       45,206  

Non-pension post-retirement benefits

    45,507       43,015  
Noncurrent operating lease liabilities     48,323        

Deferred income taxes

    2,104       2,755  

Other long-term liabilities

    18,463       18,246  

Total liabilities

    732,474       664,282  

Contingencies (note 17)

               
                 

Shareholders’ equity (deficit):

               

Common stock, par value $.01 per share, 50,000,000 shares authorized, 22,360,125 shares issued in 2019 (22,157,220 shares issued in 2018)

    224       222  

Capital in excess of par value

    338,395       335,517  

Retained deficit

    (240,460 )     (171,441 )

Accumulated other comprehensive loss

    (123,946 )     (114,405 )

Total shareholders’ equity (deficit)

    (25,787 )     49,893  

Total liabilities and shareholders’ equity (deficit)

  $ 706,687     $ 714,175  

 

See accompanying notes

 

 

 

Libbey Inc.

Consolidated Statements of Operations

 

Year ended December 31,

               

(dollars in thousands, except per share amounts)

 

2019

   

2018

 
                 

Net sales

  $ 782,437     $ 797,858  

Freight billed to customers

    3,165       3,235  

Total revenues

    785,602       801,093  

Cost of sales

    631,393       646,202  

Gross profit

    154,209       154,891  

Selling, general and administrative expenses

    122,370       127,851  

Asset impairments (note 4)

    65,152        

Income (loss) from operations

    (33,313 )     27,040  

Other income (expense)

    (4,443 )     (2,764 )

Earnings (loss) before interest and income taxes

    (37,756 )     24,276  

Interest expense

    22,510       21,979  

Income (loss) before income taxes

    (60,266 )     2,297  

Provision for income taxes

    8,753       10,253  

Net loss

  $ (69,019 )   $ (7,956 )
                 

Net loss per share:

               

Basic

  $ (3.08 )   $ (0.36 )

Diluted

  $ (3.08 )   $ (0.36 )
                 

Weighted average shares:

               

Basic

    22,419       22,180  

Diluted

    22,419       22,180  
                 

Dividends declared per share

  $     $ 0.1175  

 

See accompanying notes

 

 

 

Libbey Inc.

Consolidated Statements of Comprehensive Income (Loss)

 

Year ended December 31,

               

(dollars in thousands)

 

2019

   

2018

 
                 

Net loss

  $ (69,019 )   $ (7,956 )
                 

Other comprehensive income (loss):

               

Pension and other post-retirement benefit adjustments, net of tax

    932       1,041  
Change in fair value of derivative instruments, net of tax     (8,566 )     (2,942 )

Foreign currency translation adjustments, net of tax

    (1,907 )     (7,057 )
Other comprehensive income (loss), net of tax     (9,541 )     (8,958 )
                 
Comprehensive income (loss)   $ (78,560 )   $ (16,914 )

 

See accompanying notes

 

 

 

Libbey Inc.

Consolidated Statements of Shareholders’ Equity (Deficit)

 

(dollars in thousands,

except share amounts)

  Common Stock Shares     Common Stock Amount     Capital in Excess of Par Value     Retained Deficit     Accumulated Other Comprehensive Loss    

Total

 
                                                 
Balance December 31, 2017     22,018,010     $ 220     $ 333,011     $ (161,165 )   $ (105,172 )   $ 66,894  
                                                 

Cumulative-effect adjustment for the adoption of ASU 2017-12

                            275       (275 )                          —  

Net loss

                            (7,956 )             (7,956 )

Other comprehensive loss

                                    (8,958 )     (8,958 )

Stock compensation expense

                    2,746                       2,746  

Stock issued

    139,210       2       96                       98  

Stock withheld for employee taxes

                    (336 )                     (336 )

Dividends

                            (2,595 )             (2,595 )
Balance December 31, 2018     22,157,220       222       335,517       (171,441 )     (114,405 )     49,893  
                                                 

Net loss

                            (69,019 )             (69,019 )

Other comprehensive loss

                                    (9,541 )     (9,541 )

Stock compensation expense

                    3,307                       3,307  

Stock issued

    202,905       2       (9 )                     (7 )

Stock withheld for employee taxes

                    (420 )                     (420 )
Balance December 31, 2019     22,360,125     $ 224     $ 338,395     $ (240,460 )   $ (123,946 )   $ (25,787 )

 

See accompanying notes

 

 

 

Libbey Inc.

Consolidated Statements of Cash Flows

 

Year ended December 31,

               

(dollars in thousands)

 

2019

   

2018

 
                 

Operating activities:

               

Net loss

  $ (69,019 )   $ (7,956 )

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation and amortization

    39,046       44,333  

Asset impairments (note 4)

    65,152        

Change in accounts receivable

    2,336       5,203  

Change in inventories

    16,545       (6,424 )

Change in accounts payable

    9,202       (4,759 )

Accrued interest and amortization of discounts and finance fees

    1,173       1,158  

Pension & non-pension post-retirement benefits, net

    (376 )     (283 )

Accrued liabilities & prepaid expenses

    4,350       267  

Income taxes

    (5,062 )     3,591  
Cloud computing costs     (4,188 )      

Share-based compensation expense

    3,231       2,827  

Other operating activities

    1,042       (1,087 )

Net cash provided by operating activities

    63,432       36,870  
                 

Investing activities:

               

Cash paid for property, plant and equipment

    (31,159 )     (45,087 )

Net cash used in investing activities

    (31,159 )     (45,087 )
                 

Financing activities:

               

Borrowings on ABL credit facility

    93,171       129,769  

Repayments on ABL credit facility

    (95,601 )     (109,901 )

Other repayments

          (3,077 )

Repayments on Term Loan B

    (4,400 )     (4,400 )

Stock options exercised

          5  

Taxes paid on distribution of equity awards

    (420 )     (336 )

Dividends

          (2,595 )

Debt refinancing costs

    (755 )      

Net cash provided by (used in) financing activities

    (8,005 )     9,465  
                 

Effect of exchange rate fluctuations on cash

    (416 )     (878 )