LIBBEY INC, 10-Q filed on 5/7/2012
Quarterly Report
Document and Entity Information (USD $)
3 Months Ended
Mar. 31, 2012
Apr. 30, 2012
Jun. 30, 2011
Document and Entity Information
 
 
 
Entity Registrant Name
LIBBEY INC 
 
 
Entity Central Index Key
0000902274 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Mar. 31, 2012 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
Q1 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
20,519,801 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 311,077,898 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Net sales
$ 187,829 
$ 181,015 
Freight billed to customers
708 
411 
Total revenues
188,537 
181,426 
Cost of sales
145,481 
145,280 
Gross profit
43,056 
36,146 
Selling, general and administrative expenses
28,126 
25,402 
Special charges
51 
Income from operations
14,930 
10,693 
Loss on redemption of debt
(2,803)
Other (expense) income
(591)
3,006 
Earnings before interest and income taxes
14,339 
10,896 
Interest expense
10,408 
11,583 
Income (loss) before income taxes
3,931 
(687)
Provision for income taxes
3,290 
314 
Net income (loss)
641 
(1,001)
Net income (loss) per share:
 
 
Basic
$ 0.03 
$ (0.05)
Diluted
$ 0.03 
$ (0.05)
Dividends per share
$ 0 
$ 0 
Comprehensive income
$ 5,753 
$ 8,321 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
ASSETS
 
 
Cash and cash equivalents
$ 32,818 
$ 58,291 
Accounts receivable - net
86,862 
88,045 
Inventories - net
159,127 
145,859 
Prepaid and other current assets
9,416 
9,701 
Total current assets
288,223 
301,896 
Pension asset
18,699 
17,485 
Purchased intangible assets - net
21,064 
21,200 
Goodwill
166,572 
166,572 
Derivative asset
3,619 
3,606 
Other assets
14,217 
14,674 
Total other assets
224,171 
223,537 
Property, plant and equipment - net
263,191 
264,718 
Total assets
775,585 
790,151 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Notes payable
339 
Accounts payable
54,285 
58,759 
Salaries and wages
27,747 
34,834 
Accrued liabilities
46,706 
53,927 
Pension liability (current portion)
2,229 
5,990 
Non-pension postretirement benefits (current portion)
4,721 
4,721 
Derivative liability
4,151 
3,390 
Deferred income taxes
3,397 
3,340 
Long-term debt due within one year
3,946 
3,853 
Total current liabilities
147,182 
169,153 
Long-term debt
393,377 
393,168 
Pension liability
123,337 
122,145 
Non-pension postretirement benefits
69,322 
68,496 
Other long-term liabilities
9,612 
9,409 
Total liabilities
742,830 
762,371 
Shareholders' equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 20,519,801 shares issued at March 31, 2012 and 20,342,342 at December 31, 2011
205 
203 
Capital in excess of par value
310,205 
310,985 
Retained deficit
(154,395)
(155,036)
Accumulated other comprehensive loss
(123,260)
(128,372)
Total shareholders' equity
32,755 
27,780 
Total liabilities and shareholders' equity
$ 775,585 
$ 790,151 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2012
Dec. 31, 2011
Shareholders' equity:
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
20,519,801 
20,342,342 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Operating activities:
 
 
Net income (loss)
$ 641 
$ (1,001)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
Depreciation and amortization
10,536 
10,881 
Gain on asset sales and disposals
(1)
(3,360)
Change in accounts receivable
1,604 
(586)
Change in inventories
(12,166)
(14,741)
Change in accounts payable
(5,218)
(667)
Accrued interest and amortization of discounts, warrants and finance fees
(7,375)
(8,653)
Call premium on senior notes
1,203 
Write-off of finance fees & discounts on senior notes
1,600 
Pension & non-pension postretirement benefits
(560)
3,451 
Restructuring charges
(145)
Accrued liabilities & prepaid expenses
(9,336)
(8,267)
Income taxes
1,977 
(4,303)
Share-based compensation expense
727 
827 
Other operating activities
73 
681 
Net cash used in operating activities
(19,098)
(23,080)
Investing activities:
 
 
Additions to property, plant and equipment
(6,446)
(8,506)
Proceeds from asset sales and other
180 
4,602 
Net cash used in investing activities
(6,266)
(3,904)
Financing activities:
 
 
Net borrowings on ABL credit facility
4,350 
Other repayments
(394)
(48)
Senior note payments
(40,000)
Call premium on senior notes
(1,203)
Stock options exercised
28 
475 
Debt issuance costs
(116)
Net cash used in financing activities
(366)
(36,542)
Effect of exchange rate fluctuations on cash
257 
380 
Decrease in cash
(25,473)
(63,146)
Cash at beginning of period
58,291 
76,258 
Cash at end of period
32,818 
13,112 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for interest
17,731 
20,171 
Cash paid during the period for income taxes
$ 885 
$ 4,480 
Description of the Business
Description of the Business
Description of the Business

Libbey is the leading producer of glass tableware products in the Western Hemisphere, in addition to supplying key markets throughout the world. We produce glass tableware in five countries and sell to customers in over 100 countries. We have the largest manufacturing, distribution and service network among glass tableware manufacturers in the Western Hemisphere and are one of the largest glass tableware manufacturers in the world. We design and market an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware to a broad group of customers in the foodservice, retail and business-to-business markets. We own and operate two glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in the Netherlands (Libbey Holland), Portugal (Libbey Portugal), China (Libbey China) and Mexico (Libbey Mexico). Until April 28, 2011, we also owned and operated a plastics plant in Wisconsin. On April 28, 2011, we sold substantially all of the assets of the Traex® plastics product line, including the Traex® name, to the Vollrath Company. In addition, we import products from overseas in order to complement our line of manufactured items. The combination of manufacturing and procurement allows us to compete in the global tableware market by offering an extensive product line at competitive prices.

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 Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, 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 Amex exchange under the ticker symbol LBY.
Significant Accounting Policies
Significant Accounting Policies
Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2011 for a description of significant accounting policies not listed below.

Basis of Presentation

The Condensed Consolidated Financial Statements include Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December 31st. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.

Condensed Consolidated Statements of Comprehensive Income

Net sales in our Condensed Consolidated Statements of Comprehensive Income include revenue earned when products are shipped and title and risk of loss have passed to the customer. Revenue is recorded net of returns, discounts and incentives offered to customers. Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs.

Foreign Currency Translation

Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Income and expense accounts are translated at average exchange rates during the year. The effect of exchange rate changes on transactions denominated in currencies other than the functional currency is recorded in other (expense) income.

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. Financial Accounting Standards Board Accounting Standards Codification™ (FASB ASC) Topic 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. In the United States, China, the Netherlands and Portugal, we have recorded valuation allowances against our deferred income tax assets. See note 6 for further discussion.

Stock-Based Compensation Expense

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” and FASB ASC Topic 505-50, “Equity — Equity-Based Payments to Non-Employees”. Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards. Stock-based compensation expense charged to the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011 was $0.7 million and $0.8 million, respectively.

New Accounting Standards

In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04). ASU 2011-04 explains how to measure fair value and improves the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. ASU 2011-04 does not require additional fair value measurements, and it is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The provisions of this update are effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting pronouncement did not have a material impact on our Condensed Consolidated Financial Statements.

In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (ASU 2011-05). This ASU requires companies to present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate but consecutive statements. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011. In December 2011, ASU 2011-05 was modified by the issuance of Accounting Standards Update 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (ASU 2011-12) which defers certain paragraphs of ASU 2011-05 that would require reclassifications of items from other comprehensive income to net income by component of net income and by component of other comprehensive income. Required interim disclosures have been made in our Condensed Consolidated Financial Statements at March 31, 2012.

In September 2011, the FASB issued Accounting Standards Update 2011-08, “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (ASU 2011-08). ASU 2011-08 allows for an option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount. If the qualitative factors results in the fair value exceeding the carrying value of a reporting unit, then performing the two-step impairment test is unnecessary. This update is effective for periods beginning after December 15, 2011. The provisions of this update did not have any impact on our Condensed Consolidated Financial Statements.

Reclassifications

Certain amounts in the prior year’s financial statements have been reclassified to conform to the presentation used in the current period financial statements. We revised the classification of the call premium on the senior notes and included the cash flow effect within the financing activities.
Balance Sheet Details
Balance Sheet Details
Balance Sheet Details

The following table provides detail of selected balance sheet items:
(dollars in thousands)
March 31, 2012
 
December 31, 2011
Accounts receivable:
 
 
 
Trade receivables
$
85,166

 
$
86,523

Other receivables
1,696

 
1,522

Total accounts receivable, less allowances of $6,000 and $5,307
$
86,862

 
$
88,045

 
 
 
 
Inventories:
 
 
 
Finished goods
$
142,003

 
$
129,091

Work in process
1,237

 
1,132

Raw materials
4,697

 
4,369

Repair parts
9,830

 
9,778

Operating supplies
1,360

 
1,489

Total inventories, less allowances of $4,420 and $4,808
$
159,127

 
$
145,859

 
 
 
 
Prepaid and other current assets:
 
 
 
Value added tax
$
3,369

 
$
1,834

Prepaid expenses
4,480

 
4,653

Refundable, deferred and prepaid income taxes
1,567

 
3,107

Derivative asset

 
107

Total prepaid and other current assets
$
9,416

 
$
9,701

 
 
 
 
Other assets:
 
 
 
Deposits
$
758

 
$
733

Finance fees — net of amortization
8,716

 
9,427

Deferred taxes
779

 
567

Other assets
3,964

 
3,947

Total other assets
$
14,217

 
$
14,674

 
 
 
 
Accrued liabilities:
 
 
 
Accrued incentives
$
17,461

 
$
16,621

Workers compensation
8,451

 
8,484

Medical liabilities
3,429

 
3,607

Interest
4,579

 
13,008

Commissions payable
1,364

 
1,137

Contingency liability
2,719

 
2,719

Other accrued liabilities
8,703

 
8,351

Total accrued liabilities
$
46,706

 
$
53,927

 
 
 
 
Other long-term liabilities:
 
 
 
Deferred liability
$
5,120

 
$
4,070

Derivative liability
236

 
298

Other long-term liabilities
4,256

 
5,041

Total other long-term liabilities
$
9,612

 
$
9,409


Borrowings
Borrowings
Borrowings

On March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of its outstanding 10.0 percent Senior Secured Notes due 2015, on a pro rata basis in accordance with the terms of the New Notes Indenture. Pursuant to the terms of the New Notes Indenture, the redemption price for the Senior Secured Notes was 103.0 percent of the principal amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $360.0 million. In conjunction with this redemption, we recorded $2.8 million of expense, representing $1.2 million for an early call premium and $1.6 million for the write off of a pro rata amount of financing fees and discounts.

Borrowings consist of the following:
(dollars in thousands)
Interest Rate
 
Maturity Date
March 31,
2012
 
December 31,
2011
Borrowings under ABL Facility
floating
 
April 29, 2016
$

 
$

Senior Secured Notes
10.00%
(1)
February 15, 2015
360,000

 
360,000

Promissory Note
6.00%
 
April, 2012 to September, 2016
1,060

 
1,111

Notes Payable
floating
 
April 2012

 
339

RMB Loan Contract
floating
 
July, 2013 to January, 2014
28,512

 
28,332

BES Euro Line
floating
 
December, 2012 to December, 2013
8,070

 
7,835

Total borrowings
 
 
 
397,642

 
397,617

Less — unamortized discount
 
 
 
3,956

 
4,300

Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)
3,637

 
4,043

Total borrowings — net
 
 
 
397,323

 
397,360

Less — long term debt due within one year
 
 
3,946

 
4,192

Total long-term portion of borrowings — net
 
 
$
393,377

 
$
393,168

_____________________________
(1)
See Interest Rate Agreements under “Senior Secured Notes” below and in note 9.

Amended and Restated ABL Credit Agreement

Pursuant to the refinancing, Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 as amended (ABL Facility), with a group of five financial institutions. The ABL Facility provides for borrowings of up to $100.0 million (reduced from $110.0 million per the amendment on April 29, 2011), subject to certain borrowing base limitations, reserves and outstanding letters of credit.

All borrowings under the ABL Facility are secured by:
a first-priority security interest in substantially all of the existing and future real and personal property of Libbey Glass and its domestic subsidiaries (Credit Agreement Priority Collateral);
a first-priority security interest in:
100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries;
100 percent of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries; and
65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries
a first priority security interest in substantially all proceeds and products of the property and assets described above; and
a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (New Notes Priority Collateral).

Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:
a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and
a first-priority security interest in:
100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and
100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.

Swingline borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe being limited to the US equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swing line borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swing line rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.75 percent and 1.75 percent, respectively, at March 31, 2012. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.375 percent at March 31, 2012. No compensating balances are required by the Agreement. The Agreement does not require compliance with a fixed charge coverage ratio covenant, unless aggregate unused availability falls below $10.0 million. If our aggregate unused ABL availability were to fall below $10.0 million, the fixed charge coverage ratio requirement would be 1:10 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by $10.0 million. There were no Libbey Glass or Libbey Europe borrowings under the facility at March 31, 2012, or at December 31, 2011. Interest is payable on the last day of the interest period, which can range from one month to six months depending on the maturity of each individual borrowing on the facility.

The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable and inventory. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable and (b) the lesser of (i) 85 percent of the net orderly liquidation value (NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million.

The available total borrowing base is offset by ERISA and rent reserves totaling $2.7 million and mark-to-market reserves for natural gas contracts of $4.2 million as of March 31, 2012. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $100.0 million limit. At March 31, 2012, we had $10.4 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $64.3 million at March 31, 2012, compared to $63.8 million under the ABL Facility at December 31, 2011.

Senior Secured Notes

On February 8, 2010, Libbey Glass closed its offering of the $400.0 million Senior Secured Notes. The net proceeds of the offering of Senior Secured Notes were approximately $379.8 million, after the 1.918 percent original issue discount of $7.7 million, $10.0 million of commissions payable to the initial purchasers and $2.5 million of fees related to the offering. These fees will be amortized to interest expense over the life of the notes.

The Senior Secured Notes were issued pursuant to an Indenture, dated February 8, 2010 (New Notes Indenture), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and The Bank of New York Mellon Trust Company, N.A., as trustee (New Notes Trustee), and collateral agent. Under the terms of the New Notes Indenture, the Senior Secured Notes bear interest at a rate of 10.0 percent per year and will mature on February 15, 2015. The New Notes Indenture contains covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:

incur or guarantee additional indebtedness;
pay dividends, make certain investments or other restricted payments;
create liens;
enter into affiliate transactions;
merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and
transfer or sell assets.

The New Notes Indenture provides for customary events of default. In the case of an event of default arising from bankruptcy or insolvency as defined in the New Notes Indenture, all outstanding Senior Secured Notes will become due and payable immediately without further action or notice. If any other event of default under the Indenture occurs or is continuing, the New Notes Trustee or holders of at least 25 percent in aggregate principal amount of the then outstanding Senior Secured Notes may declare all the Senior Secured Notes to be due and payable immediately.

The Senior Secured Notes and the related guarantees under the New Notes Indenture are secured by (i) first priority liens on the New Notes Priority Collateral and (ii) second priority liens on the Credit Agreement Priority Collateral.

In connection with the sale of the Senior Secured Notes, Libbey Glass and the Guarantors entered into a registration rights agreement, dated February 8, 2010 (Registration Rights Agreement), under which they agreed to make an offer to exchange the Senior Secured Notes and the related guarantees for registered, publicly tradable notes and guarantees that have substantially identical terms to the Senior Secured Notes and the related guarantees, and in certain limited circumstances, to file a shelf registration statement that would allow certain holders of Senior Secured Notes to resell their respective Senior Secured Notes to the public. On January 25, 2011, we exchanged $400.0 million aggregate principal amount of 10.0 percent Senior Secured Notes due 2015 for an equal principal amount of a new issue of 10.0 percent Senior Secured Notes due 2015, which have been registered under the Securities Act of 1933, as amended.

Prior to August 15, 2012, we may redeem in the aggregate up to 35 percent of the original principal amount of Senior Secured Notes with the net cash proceeds of one or more equity offerings at a redemption price of 110 percent of the principal amount, provided that at least 65 percent of the original principal amount of the Senior Secured Notes must remain outstanding after each redemption and that each redemption occurs within 90 days of the closing of the equity offering. In addition, prior to August 15, 2012, but not more than once in any twelve-month period, we may redeem up to 10 percent of the Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid interest. The Senior Secured Notes are redeemable at our option, in whole or in part, at any time on or after August 15, 2012 at set redemption prices together with accrued and unpaid interest.

On March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of the Senior Secured Notes in accordance with the terms of the New Notes Indenture. Pursuant to the terms of the New Notes Indenture, the redemption price for the Senior Secured Notes was 103.0 percent of the principal amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $360.0 million. In conjunction with this redemption, we recorded $2.8 million of expense, representing $1.2 million for an early call premium and $1.6 million for the write off of a pro rata amount of financing fees and discounts.

On April 30, 2012, we announced that Libbey Glass commenced a cash tender offer to purchase up to $320.0 million of its outstanding $360.0 million aggregate principal amount of Senior Secured Notes.    In conjunction with the tender offer, Libbey Glass is also soliciting consents for certain proposed amendments to the New Notes Indenture.  The tender offer and consent solicitation are conditioned upon receiving the requisite consents required under the New Notes Indenture, the successful consummation of a new debt financing on terms and conditions satisfactory to us, amendments to the ABL Facility and other customary conditions. 

Libbey Glass also plans to call for redemption prior to the end of the second quarter of 2012, an aggregate principal amount of $40.0 million of the Senior Secured Notes.

We had an Interest Rate Agreement (Rate Agreement) in place with respect to $80.0 million of debt as a means to manage our fixed to variable interest rate ratio. The Rate Agreement effectively converted this portion of our long-term borrowings from fixed rate debt to variable rate debt. Prior to August 15, 2012, but not more than once in any twelve-month period, the counterparty may have called up to 10 percent of the Rate Agreement at a call price of 103 percent. The Rate Agreement originally covered $100.0 million of our fixed rate debt, but the counterparty called $10.0 million in August 2010 and another $10.0 million in August 2011. The Rate Agreement was callable at the counterparty’s option, in whole or in part, at any time on or after August 15, 2012 at set call premiums. The variable interest rate for our borrowings related to the Rate Agreement at March 31, 2012, excluding applicable fees, was 7.79 percent. This Rate Agreement had an expiration date of February 15, 2015. Total remaining Senior Secured Notes not covered by the Rate Agreement have a fixed interest rate of 10.0 percent per year through February 15, 2015. If the counterparty to this Rate Agreement failed to perform, this Rate Agreement would have no longer afforded us a variable rate. The interest rate swap counterparty was rated AA-, as of March 31, 2012, by Standard and Poor’s. On April 18, 2012, we terminated the Rate Agreement. See note 16 for a further discussion of this subsequent event.

The fair market value and related carrying value adjustment are as follows:
(dollars in thousands)
March 31, 2012
 
December 31, 2011
Fair market value of Rate Agreement - asset
$
3,619

 
$
3,606

Adjustment to increase the carrying value of the related long-term debt
$
3,637

 
$
4,043


The net impact recorded in other (expense) income on the Condensed Consolidated Statements of Comprehensive Income is as follows:
 
 
Three months ended March 31,
(dollars in thousands)
 
2012
 
2011
Income on hedging activities in other (expense) income
 
$
419

 
$
636


The fair value of the Rate Agreement is based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. See note 9 for further discussion.

Promissory Note

In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. At March 31, 2012, we had $1.1 million outstanding on the promissory note. Principal and interest with respect to the promissory note are paid monthly.

Notes Payable

We have an overdraft line of credit for a maximum of €1.0 million. At March 31, 2012, there were no borrowings under the facility, which has an interest rate of 5.80 percent. Interest with respect to the note is paid monthly.

RMB Loan Contract

On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the equivalent of approximately $39.6 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of March 31, 2012, the annual interest rate was 6.28 percent. As of March 31, 2012, the outstanding balance was RMB 180.0 million (approximately $28.5 million). Interest is payable quarterly. We pre-paid the July 20, 2012 principal payment of 30.0 million RMB (approximately $4.8 million) in September 2011 and the December 20, 2012 principal payment of 40.0 million RMB (approximately $6.3 million) in November 2011. Three payments of principal in the amount of RMB 60.0 million (approximately $9.5 million) each must be made on July 20, 2013, December 20, 2013, and January 20, 2014, respectively. The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of CCB and a mortgage lien on the Libbey China facility. On April 18, 2012, we pre-paid the July 20, 2013 principal payment of RMB 60.0 million. See note 16 for a further discussion of this subsequent event.

BES Euro Line

In January 2007, Crisal entered into a seven year, €11.0 million line of credit (approximately $14.7 million) with Banco Espírito Santo, S.A. (BES). The $8.1 million outstanding at March 31, 2012, was the U.S. dollar equivalent of the €6.1 million outstanding under the line at an interest rate of 3.77 percent. Payment of principal in the amount of €2.8 million (approximately $3.7 million) is due in December 2012 and payment of €3.3 million (approximately $4.4 million) is due in December 2013. Interest with respect to the line is paid every six months.

Fair Value of Borrowings

The fair value of our debt has been calculated based on quoted market prices (Level 1 in the fair value hierarchy) for the same or similar issues. Our $360.0 million Senior Secured Notes due February 15, 2015 had an estimated fair value of $384.3 million and $385.2 million at March 31, 2012 and December 31, 2011, respectively. The fair value of the remainder of our debt approximates carrying value at March 31, 2012 and December 31, 2011 due to variable rates.

Capital Resources and Liquidity

Historically, cash flows generated from operations, cash on hand and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. At March 31, 2012 we had no borrowings under our ABL Facility, although we had $10.4 million of letters of credit issued under that facility. As a result, we had $64.3 million of unused availability remaining under the ABL Facility at March 31, 2012. In addition, we had $32.8 million of cash on hand at March 31, 2012.

Based on our operating plans and current forecast expectations, we anticipate that our level of cash on hand, cash flows from operations and our borrowing capacity under our ABL Facility will provide sufficient cash availability to meet our ongoing liquidity needs.

Restructuring Charges
Restructuring Charges
Restructuring Charges

Facility Closures

In December 2008, we announced that our Syracuse China manufacturing facility would be shut down in early to mid-2009 in order to reduce costs. The facility was closed on April 9, 2009. See Form 10-K for the year ended December 31, 2011 for further discussion.

The activities related to our closure of the Syracuse China manufacturing facility were complete as of March 31, 2011. We incurred charges of approximately $0.1 million in the three months ended March 31, 2011 related to other costs net of building site clean-up adjustments in connection with the sale of the property in Syracuse, New York in March 2011. This amount was included in special charges on the Condensed Consolidated Statement of Comprehensive Income as detailed in the table below.

 
 
Three months ended March 31, 2011
(dollars in thousands)
 
Glass Operations
 
Other Operations
 
Total
Employee termination cost & other
 
$

 
$
167

 
$
167

Building site clean-up & fixed asset write-down
 

 
(116
)
 
(116
)
Included in special charges
 

 
51

 
51

Total pretax charge
 
$

 
$
51

 
$
51

 
 
 
 

Income Taxes
Income Taxes
Income Taxes

Our effective tax rate differs from the United States statutory tax rate primarily due to valuation allowances, changes in the mix of earnings in countries with differing statutory tax rates, changes in accruals related to uncertain tax positions and tax planning structures. At March 31, 2012 and December 31, 2011, we had $2.2 million and $1.3 million, respectively, of gross unrecognized tax benefits, exclusive of interest and penalties.

FASB ASC 740-20, "Income Taxes - Intraperiod Tax Allocation," requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. There was no tax benefit recorded for the three months ended March 31, 2012. A tax benefit of $0.9 million was recorded in our income tax provision for the three months ended March 31, 2011. Depending upon the level of our future earnings and losses and their impact on other comprehensive income, it is possible that a tax benefit may be recorded, changed, or even reversed in future periods.

Further, our current and future provision for income taxes for 2012 is significantly impacted by valuation allowances. In the United States, China, the Netherlands and Portugal we have recorded valuation allowances against our deferred income tax assets. We did not release any valuation allowance for the three months ended March 31, 2012, or the three months ended March 31, 2011. In assessing the need for recording a valuation allowance, we weigh all available positive and negative evidence. Examples of the evidence we consider are cumulative losses in recent years, losses expected in early future years, a history of potential tax benefits expiring unused, and whether there was an unusual, infrequent or extraordinary item to be considered. Based on our analysis of all available evidence, we intend to maintain these allowances until it is more likely than not that the deferred income tax assets will be realized; however, based upon management's assessment, a release of the valuation allowance in China could possibly occur during the next nine months. The required accounting for the potential release would have significant deferred tax consequences and would impact earnings in the quarter in which the allowance is released.

Income tax payments consisted of the following:
 
Three months ended March 31,
(dollars in thousands)
2012
 
2011
Total income tax payments, net of refunds
$
1,493

 
$
6,607

Less: credits or offsets
608

 
2,127

Cash paid, net
$
885

 
$
4,480


Pension and Non-pension Postretirement Benefits
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Postretirement Benefits

We have pension plans covering the majority of our employees. Benefits generally are based on compensation for salaried employees and job grade and length of service for hourly employees. Our policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006 and most hourly U.S.-based employees (excluding employees hired at Shreveport after 2008 and at Toledo after September 30, 2010). The non-U.S. pension plans cover the employees of our wholly owned subsidiaries in the Netherlands and Mexico. The plan in Mexico is not funded.

The components of our net pension expense, including the SERP, are as follows:
Three months ended March 31,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Service cost
$
1,555

 
$
1,432

 
$
442

 
$
428

 
$
1,997

 
$
1,860

Interest cost
4,019

 
4,088

 
1,256

 
1,260

 
5,275

 
5,348

Expected return on plan assets
(4,485
)
 
(4,313
)
 
(607
)
 
(565
)
 
(5,092
)
 
(4,878
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
521

 
541

 
66

 
82

 
587

 
623

Loss
1,801

 
1,218

 
135

 
126

 
1,936

 
1,344

  Settlement charge
420

 

 

 

 
420

 

Pension expense
$
3,831

 
$
2,966

 
$
1,292

 
$
1,331

 
$
5,123

 
$
4,297


In the first quarter of 2012, we incurred pension settlement charges of $0.4 million. The pension settlement charges were triggered by an excess lump sum distribution, which required us to record unrecognized gains and losses in our pension plan accounts.

We provide certain retiree health care and life insurance benefits covering our U.S and Canadian salaried and non-union hourly employees hired before January 1, 2004 and a majority of our union hourly employees (excluding employees hired at Shreveport after 2008 and at Toledo after September 30, 2010). Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. The U.S. non-pension postretirement plans cover the hourly and salaried U.S.-based employees of Libbey (excluding those mentioned above). The non-U.S. non-pension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. The postretirement benefit plans are not funded.

The provision for our non-pension postretirement benefit expense consists of the following:
Three months ended March 31,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Service cost
$
368

 
$
373

 
$

 
$

 
$
368

 
$
373

Interest cost
857

 
925

 
26

 
29

 
883

 
954

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service gain
105

 
105

 

 

 
105

 
105

Loss / (gain)
229

 
290

 

 
(4
)
 
229

 
286

Non-pension postretirement benefit expense
$
1,559

 
$
1,693

 
$
26

 
$
25

 
$
1,585

 
$
1,718


In 2012, we expect to utilize approximately $36.2 million in cash to fund our pension plans and pay for non-pension postretirement benefits. Of that amount, $9.3 million of cash was utilized in the three months ended March 31, 2012.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care Education and Affordability Reconciliation Act (the Acts) were signed into law. The Acts contain provisions that could impact our accounting for retiree medical benefits in future periods. Based on the analysis to date, the impact of provisions in the Acts that are reasonably determinable is not expected to have a material impact on our postretirement benefit plans. We will continue to assess the provisions of the Acts and may consider plan amendments and design changes in future periods to better align these plans with the provisions of the Acts.

Net Income (Loss) per Share of Common Stock
Net Income (Loss) per Share of Common Stock
Net Income (Loss) per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings (loss) per share:
 
Three months ended March 31,
(dollars in thousands, except earnings per share)
2012
 
2011
Numerators for earnings per share —
 
 
 
—Net income (loss) that is available to common shareholders
$
641

 
$
(1,001
)
Denominator for basic earnings per share —
 
Weighted average shares outstanding
20,769,415

 
19,955,188

Effect of stock options and restricted stock units
414,942

 

Total effect of dilutive securities (1)
414,942

 

Denominator for diluted earnings per share —
 
 
 
—Adjusted weighted average shares and assumed conversions
21,184,357

 
19,955,188

Basic earnings (loss) per share
$
0.03

 
$
(0.05
)
Diluted earnings (loss) per share
$
0.03

 
$
(0.05
)
______________________________
(1) The effect of employee stock options, warrants and restricted stock units, 796,949 shares for the three months ended March 31, 2011, were anti-dilutive and thus not included in the earnings per share calculation. This amount would have been dilutive if not for the net loss.

When applicable, diluted shares outstanding include the dilutive impact of warrants and restricted stock units. Diluted shares also include the impact of in-the-money employee stock options, which are calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the tax-effected proceeds that hypothetically would be received from the exercise of all in-the-money options are assumed to be used to repurchase shares.

Derivatives
Derivatives
Derivatives

We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with transactions denominated in a currency other than the U.S. dollar. Most of these derivatives, except for the foreign currency contracts, qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. All of these contracts were accounted for under FASB ASC 815 “Derivatives and Hedging.”

Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented:
 
 
Asset Derivatives:
(dollars in thousands)
 
March 31, 2012
 
December 31, 2011
Derivatives designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Interest rate contract
 
Derivative asset
 
$
3,619

 
Derivative asset
 
$
3,606

Total designated
 
 
 
3,619

 
 
 
3,606

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Currency contracts
 
Prepaid and other current assets
 

 
Prepaid and other current assets
 
107

Total undesignated
 
 
 

 
 
 
107

Total
 
 
 
$
3,619

 
 
 
$
3,713

 
 
 
 
 
 
 
 
 
 
 
Liability Derivatives:
(dollars in thousands)
 
March 31, 2012
 
December 31, 2011
Derivatives designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Natural gas contracts
 
Derivative liability
 
$
4,096

 
Derivative liability
 
$
3,390

Natural gas contracts
 
Other long-term liabilities
 
236

 
Other long-term liabilities
 
298

Total designated
 
 
 
4,332

 
 
 
3,688

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Currency contracts
 
Derivative liability
 
55

 
Derivative liability
 

Total undesignated
 
 
 
55

 
 
 

Total
 
 
 
$
4,387

 
 
 
$
3,688


Interest Rate Swaps as Fair Value Hedges

In 2010, we entered into an interest rate swap agreement with a notional amount of $100.0 million that was to mature in 2015. The swap was executed in order to convert a portion of the Senior Secured Note fixed rate debt into floating rate debt and maintain a capital structure containing appropriate amounts of fixed and floating rate debt. In August 2010, $10.0 million of the swap was called for a premium of $0.3 million. In August 2011, an additional $10.0 million of the swap was called for a premium of $0.3 million. As of March 31, 2012, the notional amount of the interest rate swap agreement was $80.0 million. On April 18, 2012, we terminated the remaining $80.0 million of the swap. See note 16 for a further discussion of this subsequent event.

Our fixed-to-floating interest rate swap is designated and qualifies as a fair value hedge. The change in the fair value of the derivative instrument related to the future cash flows (gain or loss on the derivative), as well as the offsetting change in the fair value of the hedged long-term debt attributable to the hedged risk, are recognized in current earnings. We include the gain or loss on the hedged long-term debt in other (expense) income, along with the offsetting loss or gain on the related interest rate swap, on the Condensed Consolidated Statements of Comprehensive Income.

The following table provides a summary of the gain (loss) recognized in other (expense) income:
 
 
Three months ended March 31,
(dollars in thousands)
 
2012
 
2011
Interest rate swap
 
$
13

 
$
(644
)
Related long-term debt
 
406

 
1,280

Net impact on other (expense) income
 
$
419

 
$
636


Commodity Future Contracts Designated as Cash Flow Hedges

We use commodity futures contracts related to forecasted future North American natural gas requirements. The objective of these futures contracts and other derivatives 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, up to eighteen months in the future. The fair values of these instruments are determined from market quotes. As of March 31, 2012, we had commodity contracts for 2,730,000 million British Thermal Units (BTUs) of natural gas. At December 31, 2011, we had commodity contracts for 3,070,000 million BTUs of natural gas.

All of our natural gas derivatives qualify and are designated as cash flow hedges at March 31, 2012. Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings. As the natural gas contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from accumulated other comprehensive loss to current expense in cost of sales in our Condensed Consolidated Statement of Comprehensive Income. We paid additional cash of $1.5 million and $0.8 million in the three months ended March 31, 2012 and 2011, respectively, due to the difference between the fixed unit rate of our natural gas contracts and the variable unit rate of our natural gas cost from suppliers. Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in $4.1 million of expense in our Condensed Consolidated Statements of Comprehensive Income.

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss):
 
 
Three months ended March 31,
(dollars in thousands)
 
2012
 
2011
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
Natural gas contracts
 
$
(2,104
)
 
$
(149
)
Total
 
$
(2,104
)
 
$
(149
)

The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statements of Comprehensive Income:
 
 
 
Three months ended March 31,
(dollars in thousands)
 
 
2012
 
2011
Derivative:
Location:
 
 
 
 
Natural gas contracts
Cost of sales
 
$
(1,460
)
 
$
(829
)
Total impact on net income (loss)
 
$
(1,460
)
 
$
(829
)

Currency Contracts

Our foreign currency exposure arises from transactions denominated in a currency other than the U.S. dollar primarily associated with our Canadian dollar denominated accounts receivable. We enter into a series of foreign currency contracts to sell Canadian dollars. As of March 31, 2012 and December 31, 2011, we had contracts for C$8.2 million and C$3.9 million, respectively. The fair values of these instruments are determined from market quotes. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change.

Gains and losses for derivatives that were not designated as hedging instruments are recorded in current earnings as follows:
 
 
 
Three months ended March 31,
(dollars in thousands)
 
 
2012
 
2011
Derivative:
Location:
 
 

 
 

Currency contracts
Other (expense) income
 
$
(162
)
 
$
(454
)
Total
 
 
$
(162
)
 
$
(454
)

We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate swap, natural gas hedges and currency contracts as the counterparties are established financial institutions. The counterparty for the Interest Rate Agreement is rated AA- and the counterparties for the other derivative agreements are rated BBB+ or better as of March 31, 2012, by Standard and Poor’s.
Comprehensive Income
Comprehensive Income
Comprehensive Income

Components of comprehensive income (net of tax) are as follows:
 
 
Three months ended March 31,
(dollars in thousands)
 
2012
 
2011
Net income (loss)
 
$
641

 
$
(1,001
)
Minimum pension and non-pension postretirement liability and intangible pension asset, net of tax
 
2,207

 
2,112

Effect of derivatives, net of tax
 
(532
)
 
614

Effect of exchange rate fluctuations
 
3,437

 
6,596

Total comprehensive income
 
$
5,753

 
$
8,321


Accumulated other comprehensive loss (net of tax) is as follows:
(dollars in thousands)
 
Effect of
Exchange
Rate Fluctuation
 
Cash Flow Derivatives
 
Minimum
Pension and
Non-Pension
Postretirement Liability and
Intangible Pension Asset
 
Total
Accumulated
Comprehensive Loss
Balance on December 31, 2011
 
$
(4,005
)
 
$
(2,370
)
 
$
(121,997
)
 
$
(128,372
)
2012 change
 
3,437

 
(522
)
 
2,972

 
5,887

Translation effect
 

 
(10
)
 
(688
)
 
(698
)
Tax effect
 

 

 
(77
)
 
(77
)
Balance on March 31, 2012
 
$
(568
)
 
$
(2,902
)
 
$
(119,790
)
 
$
(123,260
)

Condensed Consolidated Guarantor Financial Statements
Condensed Consolidated Guarantor Financial Statements
Condensed Consolidated Guarantor Financial Statements

Libbey Glass is a direct, 100 percent owned subsidiary of Libbey Inc. and is the issuer of the Senior Secured Notes. The obligations of Libbey Glass under the Senior Secured Notes are fully and unconditionally and jointly and severally guaranteed by Libbey Inc. and by certain indirect, 100 percent owned domestic subsidiaries of Libbey Inc., as described below. All are related parties that are included in the Condensed Consolidated Financial Statements for the three months ended March 31, 2012 and March 31, 2011.

At March 31, 2012, December 31, 2011 and March 31, 2011, Libbey Inc.’s indirect, 100 percent owned domestic subsidiaries were Syracuse China Company, World Tableware Inc., LGA4 Corp., LGA3 Corp., The Drummond Glass Company, LGC Corp., Dane Holding Co. (known as Traex Company prior to April 28, 2011), Libbey.com LLC, LGFS Inc., and LGAC LLC (collectively, Subsidiary Guarantors). The following tables contain Condensed Consolidating Financial Statements of (a) the parent, Libbey Inc., (b) the issuer, Libbey Glass, (c) the Subsidiary Guarantors, (d) the indirect subsidiaries of Libbey Inc. that are not Subsidiary Guarantors (collectively, Non-Guarantor Subsidiaries), (e) the consolidating elimination entries, and (f) the consolidated totals.


Libbey Inc.
Condensed Consolidating Statements of Comprehensive Income
(unaudited)
 
Three months ended March 31, 2012
(dollars in thousands)
Libbey
Inc.
(Parent)
 
Libbey
Glass
(Issuer)
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
93,480

 
$
17,445

 
$
93,159

 
$
(16,255
)
 
$
187,829

Freight billed to customers

 
166

 
183

 
359

 

 
708

Total revenues

 
93,646

 
17,628

 
93,518

 
(16,255
)
 
188,537

Cost of sales

 
74,311

 
13,013

 
74,412

 
(16,255
)
 
145,481

Gross profit

 
19,335

 
4,615

 
19,106

 

 
43,056

Selling, general and administrative expenses

 
17,942

 
1,516

 
8,668

 

 
28,126

Special charges

 

 

 

 

 

Income (loss) from operations

 
1,393

 
3,099

 
10,438

 

 
14,930

Other income (expense)

 
297

 
12

 
(900
)
 

 
(591
)
Earnings (loss) before interest and income taxes

 
1,690

 
3,111

 
9,538

 

 
14,339

Interest expense

 
8,193

 

 
2,215

 

 
10,408

Income (loss) before income taxes

 
(6,503
)
 
3,111

 
7,323

 

 
3,931

Provision (benefit) for income taxes

 
225

 

 
3,065

 

 
3,290

Net income (loss)

 
(6,728
)
 
3,111

 
4,258

 

 
641

Equity in net income (loss) of subsidiaries
641

 
7,369

 

 

 
(8,010
)
 

Net income (loss)
$
641

 
$
641

 
$
3,111

 
$
4,258

 
$
(8,010
)
 
$
641

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
5,753

 
$
5,753

 
$
3,235

 
$
7,044

 
$
(16,032
)
 
$
5,753


 
Three months ended March 31, 2011
(dollars in thousands)
Libbey
Inc.
(Parent)
 
Libbey
Glass
(Issuer)
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
90,569

 
$
19,756

 
$
83,344

 
$
(12,654
)
 
$
181,015

Freight billed to customers

 
151

 
194

 
66

 

 
411

Total revenues

 
90,720

 
19,950

 
83,410

 
(12,654
)
 
181,426

Cost of sales

 
74,863

 
14,870

 
68,201

 
(12,654
)
 
145,280

Gross profit

 
15,857

 
5,080

 
15,209

 

 
36,146

Selling, general and administrative expenses

 
13,940

 
2,282

 
9,180

 

 
25,402

Special charges

 

 
51

 

 

 
51

Income (loss) from operations

 
1,917

 
2,747

 
6,029

 

 
10,693

Other income (expense)

 
(2,555
)
 
34

 
2,724

 

 
203

Earnings (loss) before interest and income taxes

 
(638
)
 
2,781

 
8,753

 

 
10,896

Interest expense

 
8,793

 

 
2,790

 

 
11,583

Income (loss) before income taxes

 
(9,431
)
 
2,781

 
5,963

 

 
(687
)
Provision (benefit) for income taxes

 
(622
)
 
72

 
864

 

 
314

Net income (loss)

 
(8,809
)
 
2,709

 
5,099

 

 
(1,001
)
Equity in net income (loss) of subsidiaries
(1,001
)
 
7,808

 

 

 
(6,807
)
 

Net income (loss)
$
(1,001
)
 
$
(1,001
)
 
$
2,709

 
$
5,099

 
$
(6,807
)
 
$
(1,001
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
8,321

 
$
8,321

 
$
470

 
$
14,155

 
$
(22,946
)
 
$
8,321


Libbey Inc.
Condensed Consolidating Balance Sheet

 
 
 
 March 31, 2012 (unaudited)
(dollars in thousands)
Libbey
Inc.
(Parent)
 
Libbey
Glass
(Issuer)
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash and equivalents
$

 
$
9,892

 
$
157

 
$
22,769

 
$

 
$
32,818

Accounts receivable — net

 
36,439

 
5,442

 
44,981

 

 
86,862

Inventories — net

 
54,038

 
15,483

 
89,606

 

 
159,127

Other current assets

 
17,389

 
192

 
9,989

 
(18,154
)
 
9,416

Total current assets

 
117,758

 
21,274

 
167,345

 
(18,154
)
 
288,223

Other non-current assets

 
17,063

 
8

 
26,943

 
(7,479
)
 
36,535

Investments in and advances to subsidiaries
32,755

 
338,636

 
212,912

 
(10,030
)
 
(574,273
)
 

Goodwill and purchased intangible assets — net

 
26,833

 
12,347

 
148,456

 

 
187,636

Total other assets
32,755

 
382,532

 
225,267

 
165,369

 
(581,752
)
 
224,171

Property, plant and equipment — net

 
75,616

 
396

 
187,179

 

 
263,191

Total assets
$
32,755

 
$
575,906

 
$
246,937

 
$
519,893

 
$
(599,906
)
 
$
775,585

 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
11,146

 
$
1,739

 
$
41,400

 
$

 
$
54,285

Accrued and other current liabilities

 
44,228

 
21,078

 
38,876

 
(15,231
)
 
88,951

Notes payable and long-term debt due within one year

 
211

 

 
3,735

 

 
3,946

Total current liabilities

 
55,585

 
22,817

 
84,011

 
(15,231
)
 
147,182

Long-term debt

 
360,529

 

 
32,848

 

 
393,377

Other long-term liabilities

 
154,598

 
12,058

 
46,017

 
(10,402
)
 
202,271

Total liabilities

 
570,712

 
34,875

 
162,876

 
(25,633
)
 
742,830

Total shareholders’ equity (deficit)
32,755

 
5,194

 
212,062

 
357,017

 
(574,273
)
 
32,755

Total liabilities and shareholders’ equity (deficit)
$
32,755

 
$
575,906

 
$
246,937

 
$
519,893

 
$
(599,906
)
 
$
775,585




Libbey Inc.
Condensed Consolidating Balance Sheet

 
December 31, 2011
(dollars in thousands)
Libbey
Inc.
(Parent)
 
Libbey
Glass
(Issuer)
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash and equivalents
$

 
$
39,249

 
$
155

 
$
18,887

 
$

 
$
58,291

Accounts receivable — net

 
39,707

 
3,223

 
45,115

 

 
88,045

Inventories — net

 
48,077

 
17,009

 
80,773

 

 
145,859

Other current assets

 
16,913

 
747

 
7,432

 
(15,391
)
 
9,701

Total current assets

 
143,946

 
21,134

 
152,207

 
(15,391
)
 
301,896

Other non-current assets

 
25,138

 
8

 
18,380

 
(7,761
)
 
35,765

Investments in and advances to subsidiaries
27,780

 
336,596

 
210,876

 
(10,116
)
 
(565,136
)
 

Goodwill and purchased intangible assets — net

 
26,833

 
12,347

 
148,592

 

 
187,772

Total other assets
27,780

 
388,567

 
223,231

 
156,856

 
(572,897
)
 
223,537

Property, plant and equipment — net

 
75,951

 
416

 
188,351

 

 
264,718

Total assets
$
27,780

 
$
608,464

 
$
244,781

 
$
497,414

 
$
(588,288
)
 
$
790,151

 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
14,290

 
$
1,840

 
$
42,629

 
$

 
$
58,759

Accrued and other current liabilities

 
67,665

 
20,860

 
33,068

 
(15,391
)
 
106,202

Notes payable and long-term debt due within one year

 
227

 

 
3,965

 

 
4,192

Total current liabilities

 
82,182

 
22,700

 
79,662

 
(15,391
)
 
169,153

Long-term debt

 
360,626

 

 
32,542

 

 
393,168

Other long-term liabilities

 
156,232

 
17,156

 
34,423

 
(7,761
)
 
200,050

Total liabilities

 
599,040

 
39,856

 
146,627

 
(23,152
)
 
762,371

Total shareholders’ equity (deficit)
27,780

 
9,424

 
204,925

 
350,787

 
(565,136
)
 
27,780

Total liabilities and shareholders’ equity (deficit)
$
27,780

 
$
608,464

 
$
244,781

 
$
497,414

 
$
(588,288
)
 
$
790,151




Libbey Inc.
Condensed Consolidating Statements of Cash Flows
(unaudited)


 
Three months ended March 31, 2012
(dollars in thousands)
Libbey
Inc.
(Parent)
 
Libbey
Glass
(Issuer)
 
Subsidiary
Guarantors
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net income (loss)
$
641

 
$
641

 
$
3,111

 
$
4,258

 
$
(8,010
)
 
$
641

Depreciation and amortization

 
3,538

 
19

 
6,979

 

 
10,536

Other operating activities
(641
)
 
(30,332
)
 
(3,128
)
 
(4,184
)
 
8,010

 
(30,275
)
Net cash provided by (used in) operating activities

 
(26,153
)
 
2

 
7,053

 

 
(19,098
)
Additions to property, plant & equipment

 
(3,181
)
 

 
(3,265
)
 

 
(6,446
)
Other investing activities

 

 

 
180

 

 
180

Net cash (used in) investing activities

 
(3,181
)
 

 
(3,085
)
 

 
(6,266
)
Net borrowings (repayments)

 
(51
)
 

 
(343
)
 

 
(394
)
Other financing activities

 
28

 

 

 

 
28

Net cash provided by (used in) financing activities

 
(23
)