Company Quick10K Filing
Libbey
Price2.98 EPS-2
Shares22 P/E-1
MCap67 P/FCF5
Net Debt390 EBIT-26
TEV457 TEV/EBIT-18
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-06-19
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-10-30
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-02
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-03-03
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-03
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-03-13
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-12
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-10
10-K 2012-12-31 Filed 2013-03-18
10-Q 2012-09-30 Filed 2012-11-08
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-07
10-K 2011-12-31 Filed 2012-03-14
10-Q 2011-09-30 Filed 2011-11-09
10-Q 2011-06-30 Filed 2011-08-05
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-14
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-07-30
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-15
8-K 2020-07-30 Regulation FD, Exhibits
8-K 2020-07-22 Officers, Regulation FD
8-K 2020-07-06 Enter Agreement
8-K 2020-07-01 Regulation FD, Other Events, Exhibits
8-K 2020-06-19
8-K 2020-06-19
8-K 2020-06-03
8-K 2020-06-01
8-K 2020-05-31
8-K 2020-05-19
8-K 2020-05-15
8-K 2020-05-13
8-K 2020-05-12
8-K 2020-05-07
8-K 2020-04-30
8-K 2020-04-09
8-K 2020-03-19
8-K 2020-03-19
8-K 2020-02-25
8-K 2019-12-15
8-K 2019-11-11
8-K 2019-10-28
8-K 2019-08-26
8-K 2019-08-01
8-K 2019-05-15
8-K 2019-04-30
8-K 2019-03-12
8-K 2019-02-18
8-K 2019-01-07
8-K 2018-11-06
8-K 2018-07-31
8-K 2018-05-16
8-K 2018-05-01
8-K 2018-02-27
8-K 2018-01-09

LBY 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-4.1 ex_175646.htm
EX-4.2 ex_190158.htm
EX-4.3 ex_190159.htm
EX-4.4 ex_190160.htm
EX-4.5 ex_190161.htm
EX-10.2 ex_190564.htm
EX-31.1 ex_175647.htm
EX-31.2 ex_175648.htm
EX-32.1 ex_175649.htm

Libbey Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
0.90.70.50.30.1-0.12012201420172020
Assets, Equity
0.30.20.10.1-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q 1 lby20200331_10q.htm FORM 10-Q lby20190816_10q.htm
 

 

Table of Contents



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2020

 

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(1)

NYSE American(1)

 

 (1) On June 1, 2020, the staff of NYSE Regulation, Inc. (“NYSE Regulation”) notified Libbey Inc. (the “Company”) that it would apply to the Securities and Exchange Commission (the “SEC”) to delist the Company’s common stock upon completion of all applicable procedures. Such application was filed on Form 25 by NYSE Regulation on June 10, 2020, and the delisting will be effective 10 days thereafter. The deregistration of the common stock under section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) will be effective 90 days, or such shorter period as the SEC may determine, after filing of the Form 25. Upon deregistration of the common stock under Section 12(b) of the Exchange Act, the common stock will remain registered under Section 12(g) of the Exchange Act. Trading of the Company’s common stock now occurs on the OTC Pink marketplace under the symbol “LBYYQ.”

 

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 ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 

 

Common Stock, $.01 par value 22,667,869 shares at June 12, 2020

 



 

 

EXPLANATORY NOTE

 

Libbey Inc. is filing this quarterly report on Form 10-Q after the May 15, 2020 (the “Original Due Date”) deadline applicable to it for the filing of a Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”) in reliance on the 45-day extension provided by an order issued by the SEC under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), dated March 4, 2020 (Release No. 34-88318), as modified and superseded by a new SEC order issued on March 25, 2020 (Release No. 34-88465) (collectively, the “Order”).

 

On May 1, 2020, Libbey Inc. filed a Current Report on Form 8-K to indicate its intention to rely on the Order for such extension. Consistent with its statements made in the Form 8-K, Libbey Inc. was unable to file the Quarterly Report by the Original Due Date, and therefore relied on the Order. The Quarterly Report is hereby filed before the extended due date permitted under the Order, i.e., 45 days after the Original Due Date, or June 29, 2020.

 

 

 

TABLE OF CONTENTS

 

 

Page

PART I — FINANCIAL INFORMATION 3

Item 1. Financial Statements

3

Condensed Consolidated Statements of Operations

3

Condensed Consolidated Statements of Comprehensive Income (Loss)

4

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Shareholders' Equity (Deficit)

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. Qualitative and Quantitative Disclosures about Market Risk

35

Item 4. Controls and Procedures

35

PART II — OTHER INFORMATION

35

Item 1. Legal Proceedings

35

Item 1A. Risk Factors

35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 5. Other Information

40

Item 6. Exhibits

41

EXHIBIT INDEX

41

SIGNATURES

42

   

 EX-4.1

 
 EX-4.2  
 EX-4.3  
 EX-4.4  
 EX-4.5  
 EX-10.2  

 EX-31.1

 

 EX-31.2

 

 EX-32.1

 

 EX-101 INSTANCE DOCUMENT

 

 EX-101 SCHEMA DOCUMENT

 

 EX-101 CALCULATION LINKBASE DOCUMENT

 

 EX-101 LABELS LINKBASE DOCUMENT

 

 EX-101 PRESENTATION LINKBASE DOCUMENT

 

 EX-101 DEFINITION LINKBASE DOCUMENT

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Libbey Inc.

Condensed Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

(unaudited)

 

   

Three months ended March 31,

 
   

2020

   

2019

 
Net sales   $ 150,521     $ 174,966  
Freight billed to customers     643       683  
Total revenues     151,164       175,649  
Cost of sales     128,241       141,691  
Gross profit     22,923       33,958  
Selling, general and administrative expenses     26,514       32,580  
Asset impairments     38,535        
Income (loss) from operations     (42,126 )     1,378  
Other income (expense)     (10,652 )     (1,584 )
Loss before interest and income taxes     (52,778 )     (206 )
Interest expense     5,591       5,632  
Loss before income taxes     (58,369 )     (5,838 )
Provision (benefit) for income taxes     20,379       (1,296 )
Net loss   $ (78,748 )   $ (4,542 )
                 

Net loss per share:

               
Basic   $ (3.45 )   $ (0.20 )
Diluted   $ (3.45 )   $ (0.20 )

Dividends declared per share

  $     $  

 

See accompanying notes

 

 

 

Libbey Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

 

   

Three months ended March 31,

 
   

2020

   

2019

 
                 

Net loss

  $ (78,748 )   $ (4,542 )
                 

Other comprehensive income (loss):

               

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

    4,850       777  

Derivative instruments adjustments, net of tax

    10,997       (3,054 )

Foreign currency translation adjustments, net of tax

    (1,637 )     (26 )

Other comprehensive income (loss), net of tax

    14,210       (2,303 )
                 

Comprehensive income (loss)

  $ (64,538 )   $ (6,845 )

 

See accompanying notes

 

 

 

Libbey Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands, except share amounts)

 

   

March 31, 2020

   

December 31, 2019

 
   

(unaudited)

         

ASSETS

               

Cash and cash equivalents

  $ 66,062     $ 48,918  

Accounts receivable — net

    61,919       81,307  

Inventories — net

    189,490       174,797  

Prepaid and other current assets

    18,008       17,683  

Total current assets

    335,479       322,705  
Pension Asset     6,312       5,712  

Purchased intangible assets — net

    11,702       11,875  

Goodwill

          38,431  

Deferred income taxes

          24,747  

Other assets

    14,487       14,608  

Operating lease right-of-use assets

    69,761       54,686  

Property, plant and equipment — net

    229,645       233,923  

Total assets

  $ 667,386     $ 706,687  
                 

LIABILITIES AND SHAREHOLDERS' DEFICIT

               

Accounts payable

  $ 74,723     $ 79,262  

Salaries and wages

    18,444       30,188  

Accrued liabilities

    38,545       50,657  

Accrued income taxes

    338       382  

Pension liability (current portion)

    2,072       2,543  

Non-pension post-retirement benefits (current portion)

    3,808       3,817  

Operating lease liabilities (current portion)

    11,585       12,769  

Long-term debt due within one year

    18,124       16,124  

Total current liabilities

    167,639       195,742  

Long-term debt

    425,544       375,716  

Pension liability

    38,308       46,619  

Non-pension post-retirement benefits

    45,270       45,507  

Noncurrent operating lease liabilities

    64,520       48,323  

Deferred income taxes

    2,104       2,104  

Other long-term liabilities

    13,930       18,463  

Total liabilities

    757,315       732,474  

Contingencies (Note 16)

               
                 

Shareholders’ deficit:

               

Common stock, par value $.01 per share, 50,000,000 shares authorized, 22,604,579 shares issued in 2020 (22,360,125 shares issued in 2019)

    226       224  

Capital in excess of par value

    338,789       338,395  

Retained deficit

    (319,208 )     (240,460 )

Accumulated other comprehensive loss

    (109,736 )     (123,946 )

Total shareholders' deficit

    (89,929 )     (25,787 )

Total liabilities and shareholders' deficit

  $ 667,386     $ 706,687  

 

See accompanying notes

 

 

 

Libbey Inc.

Condensed Consolidated Statements of Shareholders' Equity (Deficit)

(dollars in thousands, except share amounts)

(unaudited)

 

Three months ended March 31, 2020

 

Common Stock Shares

   

Common Stock Amount

   

Capital in Excess of Par Value

   

Retained Deficit

   

Accumulated Other Comprehensive Loss

   

Total

 

Balance December 31, 2019

    22,360,125     $ 224     $ 338,395     $ (240,460 )   $ (123,946 )   $ (25,787 )

Net loss

                            (78,748 )             (78,748 )

Other comprehensive income (loss)

                                    14,210       14,210  

Stock compensation expense

                    569                       569  

Stock withheld for employee taxes

                    (173 )                     (173 )

Stock issued

    244,454       2       (2 )                      

Balance March 31, 2020

    22,604,579     $ 226     $ 338,789     $ (319,208 )   $ (109,736 )   $ (89,929 )

 

 

Three months ended March 31, 2019

 

Common Stock Shares

   

Common Stock Amount

   

Capital in Excess of Par Value

   

Retained Deficit

   

Accumulated Other Comprehensive Loss

   

Total

 

Balance December 31, 2018

    22,157,220     $ 222     $ 335,517     $ (171,441 )   $ (114,405 )   $ 49,893  

Net loss

                            (4,542 )             (4,542 )

Other comprehensive income (loss)

                                    (2,303 )     (2,303 )

Stock compensation expense

                    937                       937  

Stock withheld for employee taxes

                    (317 )                     (317 )

Stock issued

    116,348       1       (8 )                     (7 )

Balance March 31, 2019

    22,273,568     $ 223     $ 336,129     $ (175,983 )   $ (116,708 )   $ 43,661  

 

See accompanying notes

 

 

 

Libbey Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

   

Three months ended March 31,

 
   

2020

   

2019

 

Operating activities:

               

Net loss

  $ (78,748 )   $ (4,542 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    8,845       9,931  
Asset impairments     38,535        
Loss on derivatives de-designated as hedging instruments     12,923        

Change in accounts receivable

    15,815       1,784  

Change in inventories

    (16,740 )     (18,075 )

Change in accounts payable

    359       2,644  

Accrued interest and amortization of discounts and finance fees

    432       285  

Pension & non-pension post-retirement benefits, net

    367       (977 )

Accrued liabilities & prepaid expenses

    (24,308 )     (12,054 )

Income taxes

    19,382       (3,516 )
Cloud computing costs, net     (147 )     (246 )

Share-based compensation expense

    534       942  

Other operating activities

    (3,145 )     (81 )

Net cash used in operating activities

    (25,896 )     (23,905 )
                 

Investing activities:

               

Cash paid for property, plant and equipment

    (6,408 )     (10,361 )

Net cash used in investing activities

    (6,408 )     (10,361 )
                 

Financing activities:

               

Borrowings on Prepetition ABL Credit Facility

    53,000       42,300  

Repayments on Prepetition ABL Credit Facility

    (2,000 )     (16,800 )

Other borrowings

    2,000        

Repayments on Prepetition Term Loan B

    (1,100 )     (1,100 )

Taxes paid on distribution of equity awards

    (173 )     (317 )
Debt refinancing costs     (1,350 )      

Net cash provided by financing activities

    50,377       24,083  
                 

Effect of exchange rate fluctuations on cash

    (929 )     82  

Increase (decrease) in cash

    17,144       (10,101 )
                 

Cash & cash equivalents at beginning of period

    48,918       25,066  

Cash & cash equivalents at end of period

  $ 66,062     $ 14,965  
                 

Supplemental disclosure of cash flow information:

               

Cash paid during the period for interest, net of capitalized interest

  $ 5,073     $ 5,147  

Cash paid during the period for income taxes, net of refunds

  $ 922     $ 1,151  

 

See accompanying notes

 

 

Libbey Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

1.    Description of the Business and Basis of Presentation

 

Libbey is a leading global manufacturer and marketer of glass tableware products. We produce glass tableware in five countries and sell to customers in over 100 countries. We design and market, under our Libbey®, Libbey Signature®, Master's Reserve®, Crisa®, Royal Leerdam®, World® Tableware, Syracuse® China and Crisal Glass® brand names (among others), an extensive line of high-quality glass tableware, ceramic dinnerware and metal flatware for sale primarily in the foodservice, retail and business-to-business channels of distribution. Our salesforce presents our tabletop products to the global marketplace in a coordinated fashion. We own and operate two glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in Mexico (Libbey Mexico), the Netherlands (Libbey Holland), Portugal (Libbey Portugal) and China (Libbey China). In addition, we import tabletop 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 tabletop 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 the Exchange Act, 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 SEC and can also be found at www.sec.gov.

 

Basis of Presentation

 

The accompanying unaudited Condensed Consolidated Financial Statements of Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

The balance sheet at December 31, 2019, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The financial information included herein should be read in conjunction with our Consolidated Financial Statements in Item 8 of our Form 10-K for the year ended December 31, 2019.

 

Ability to Continue as a Going Concern

 

The Company’s financial statements have been prepared under the assumption that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. On June 1, 2020 (the “Petition Date”), the Company filed a petition for reorganization in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) (see further description in note 2, Subsequent Event). The Condensed Consolidated Financial Statements do not reflect any adjustments that might result from the outcome of our Chapter 11 proceedings. The risks and uncertainties surrounding the Chapter 11 Cases (as defined below), the events of default under our credit agreements, and the results of operations due to the spread of the COVID-19 (as defined below) pandemic impacting the Company’s business raise substantial doubt as to the Company’s ability to continue as a going concern. Our ability to continue as a going concern is dependent upon, among other things, our ability to become profitable, maintain profitability and successfully implement our Chapter 11 plan of reorganization. As the progress of these plans and transactions is subject to approval of the Bankruptcy Court and, therefore, not within our control, successful reorganization and emergence from bankruptcy cannot be considered probable and such plans do not alleviate substantial doubt about our ability to continue as a going concern.

 

 

 

2.    Subsequent Event - Chapter 11 Bankruptcy Filing

 

Chapter 11 Proceedings

 

On June 1, 2020, the Company and certain of its direct and indirect subsidiaries (collectively with the Company, the “Debtors”) filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”) with the Bankruptcy Court. The Debtors’ Chapter 11 Cases are being jointly administered under the caption In re Libbey Glass Inc., et al., Case No. 20-11439 (LSS). Documents filed on the docket of, and other information related to, the Chapter 11 Cases are available free of charge online at https://cases.primeclerk.com/libbey.

 

The Debtors' filing of the Chapter 11 Cases constituted an event of default that accelerated the Debtor's obligations under the following debt instruments:

 

Amended and Restated Credit Agreement, dated as of February 8, 2010 (as amended, amended and restated or otherwise modified), among Libbey Glass, Libbey Europe B.V., a Netherlands corporation, the Company, the other subsidiaries of the Company party thereto, JPMorgan Chase Bank, N.A., as administrative agent with respect to the U.S. loans, J.P. Morgan Europe Limited, as administrative agent with respect to the Netherlands loans, the other titled agents party thereto and the lenders party thereto from time to time (the “Prepetition ABL Lenders”) (the “Prepetition ABL Credit Agreement”);

 

Credit Agreement, dated as of April 9, 2014 (as amended, amended and restated or otherwise modified), among Libbey Glass, the Company, the other subsidiaries of the Company party thereto, Cortland Capital Market Services LLC, as administrative agent (as successor to Citibank, N.A., in its capacities as administrative agent and collateral agent), and the lenders party thereto from time to time (the “Prepetition Term Loan B Credit Agreement”).

 

Due to the Chapter 11 Cases, the lenders’ ability to exercise certain remedies against the Debtors under their respective credit agreements was automatically stayed as of the Petition Date. Contemporaneous with the filing of the Chapter 11 Cases on the Petition Date, the Prepetition ABL Lenders agreed to forbear from exercising their rights and remedies under the Prepetition ABL Credit Agreement against the subsidiaries of the Company organized in the Netherlands party thereto.

 

Operation and Implications of the Chapter 11 Cases

 

The Debtors are authorized to continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As debtors-in-possession under the Bankruptcy Code, the Debtors may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Further, the Debtors filed a variety of “first day” motions with the Bankruptcy Court requesting permission to continue the Debtor’s business activities in the ordinary course. The Bankruptcy Court entered an order approving the Debtors’ “first day” motions on June 2, 2020, on an interim basis.

 

The Company’s financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is contingent upon our ability to comply with the financial and other covenants contained in the debtor-in-possession financing (the “DIP Financing”) described in note 5, the development of, and the Bankruptcy Court's approval of, a Chapter 11 plan of reorganization and our ability to successfully implement a restructuring transaction and Chapter 11 plan of reorganization and obtain new financing, among other factors. Such conditions raise substantial doubt as to the Company’s ability to continue as a going concern.

 

The Company cannot predict the ultimate outcome of the Chapter 11 Cases. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Financing and applicable orders of the Bankruptcy Court), for amounts other than those reflected in the Company’s financial statements. Further, any restructuring plan may impact the amounts and classifications of assets and liabilities reported in our Condensed Consolidated Financial Statements.

 

Financing during the Chapter 11 Cases

 

For details on financing during the Chapter 11 Cases, see note 5, Borrowings, for discussion of the DIP Financing, which provides up to $160 million, exclusive of a portion of prepetition term loans to be rolled up in accordance with the terms of the DIP Term Loan (as defined below), in senior secured, super-priority financing, subject to the terms, conditions, and priorities set forth in the applicable definitive documentation and orders of the Bankruptcy Court.

 

Significant Bankruptcy Court Actions

 

On June 2, 2020 at the first-day hearings of the Chapter 11 Cases, the Bankruptcy Court issued certain interim and final orders related to the Debtors’ business. These orders authorized the Debtors to, among other things, enter into the DIP Financing (described in note 5), pay certain prepetition employee and retiree expenses and benefits, use their existing cash management system, maintain and administer certain customer programs, pay certain critical and foreign vendors and pay certain prepetition taxes and related fees. In addition, during the first-day hearings, the Bankruptcy Court set July 2, 2020 as the date for the second-day hearings in the Chapter 11 Cases. We expect that at the second-day hearings the Bankruptcy Court will consider issuing final orders related to the matters approved in the interim orders as well as certain other related matters. These orders are significant because they allow us to operate our businesses in the normal course.

 

NYSE American Listing Status

 

The Company’s common stock (the “Common Stock”) was previously traded on the NYSE American LLC (the “NYSE American”) exchange under the symbol “LBY.” On June 1, 2020, the staff of NYSE Regulation, Inc. (“NYSE Regulation”) suspended trading of the Common Stock on the NYSE American and notified the Company that NYSE Regulation would file a delisting application with the SEC to delist the Common Stock from the NYSE American. NYSE Regulation filed such delisting application on Form 25 on June 10, 2020, and the delisting will be effective 10 days thereafter. Our Common Stock began trading on the OTC Pink marketplace under the symbol “LBYYQ” on June 2, 2020. The Company can provide no assurance that the Common Stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of the Common Stock on this market, whether the trading volume of the Common Stock will be sufficient to provide for an efficient trading market or whether quotes for the Common Stock will continue on this market in the future. The transition to over-the-counter markets will not affect the Company’s business operations or its SEC reporting requirements and does not conflict with or cause an event of default under any of the Company’s material debt or other agreements. Trading prices for the Company’s securities may bear little or no relationship to the actual recovery, if any, by the holders of the Company’s equity securities as a result of the Chapter 11 Cases. The Company expects that its equity holders will experience a complete loss on their investment, depending on the outcome of the Chapter 11 Cases.

 

 

 

3.    Significant Accounting Policies

 

Cloud Computing Arrangements  

 

At March 31, 2020 and December 31, 2019, the net book value of our implementation costs for hosted cloud computing arrangements included $0.3 million in prepaid and other current assets for both periods, as well as $7.1 million and $6.5 million, respectively, in other assets on the Condensed Consolidated Balance Sheets. Amortization expense for the three-month periods ended March 31, 2020 and 2019 was immaterial.

 

Stock-Based Compensation Expense

 

Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:

 

   

Three months ended March 31,

 

(dollars in thousands)

 

2020

   

2019

 

Stock-based compensation expense

  $ 534     $ 942  

 

New Accounting Standards

 

Each change to U.S. GAAP is established by the Financial Accounting Standards Board (“FASB”) in the form of an Accounting Standards Update (“ASU”) to the FASB’s Accounting Standards Codification (“ASC”). We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and either were determined to be not applicable or are expected to have minimal impact on the Company’s Condensed Consolidated Financial Statements.

 

New Accounting Standards - Not Yet Adopted

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard introduces a new approach to estimating credit losses on certain types of financial instruments, including trade receivables, and modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application permitted. In October of 2019, the FASB approved a delayed effective date for Smaller Reporting Company filers; thus, our effective date is now for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Although we are still evaluating the impact of this standard, we believe it will not have a material impact on our Condensed Consolidated Financial Statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions in Topic 740 and simplifying other areas. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. If early adoption is elected, all amendments must be adopted in the same period. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.

 

 

4.    Balance Sheet Details

 

The following table provides detail of selected balance sheet items:

 

(dollars in thousands)

 

March 31, 2020

   

December 31, 2019

 

Accounts receivable:

               
Trade receivables   $ 60,892     $ 79,829  
Other receivables     1,027       1,478  
Total accounts receivable, less allowances of $7,961 and $10,803   $ 61,919     $ 81,307  
                 

Inventories:

               
Finished goods   $ 172,097     $ 157,348  
Work in process     1,465       1,183  
Raw materials     4,081       4,008  
Repair parts     9,996       10,254  
Operating supplies     1,851       2,004  
Total inventories, less loss provisions of $7,693 and $7,750   $ 189,490     $ 174,797  
                 

Accrued liabilities:

               
Accrued incentives   $ 12,052     $ 24,337  
Other accrued liabilities     26,493       26,320  
Total accrued liabilities   $ 38,545     $ 50,657  

 

 

 

5.    Borrowings

 

Prepetition Debt

 

Prepetition borrowings consist of the following:

 

         

March 31,

   

December 31,

 

(dollars in thousands)

 

Interest Rate

 

Maturity Date (1)

 

2020

   

2019

 

Prepetition ABL Credit Facility

 

floating (2)

 

December 7, 2022

  $ 68,052     $ 17,386  

Prepetition Term Loan B

 

floating (3)

 

April 9, 2021

    374,700       375,800  
Mexico working capital line of credit   LIBOR + 3.2% (4)   December 14, 2020     2,000        
Total borrowings     444,752       393,186  
Less — unamortized discount and finance fees     1,084       1,346  
Total borrowings — net     443,668       391,840  
Less — long term debt due within one year     18,124       16,124  
Total long-term portion of borrowings — net   $ 425,544     $ 375,716  

________________________

(1) 

The filing of our Bankruptcy Petitions constituted an event of default with respect to our Prepetition Term Loan B and Prepetition ABL Credit Facility. The Mexico working capital line of credit was fully repaid and terminated on June 2, 2020. 

(2) 

The interest rate for the Prepetition ABL Credit Facility is comprised of several different borrowings at various rates. The weighted average rate of all Prepetition ABL Credit Facility borrowings was 2.37 percent at March 31, 2020.

(3) 

We have entered into interest rate swaps that effectively fix a series of our future interest payments on a portion of the Prepetition Term Loan B debt. See interest rate swaps in note 9 for additional details. The Prepetition Term Loan B floating interest rate was 4.01 percent at March 31, 2020.

(4) The interest rate at March 31, 2020 was 4.27 percent.

    

The Prepetition ABL Credit Facility also provides for the issuance of up to $15.0 million of letters of credit that, when outstanding, are applied against the $100.0 million limit. At March 31, 2020, $15.0 million in letters of credit and other reserves were outstanding. Remaining unused availability under the Prepetition ABL Credit Facility was $5.4 million at March 31, 2020, compared to $68.2 million at December 31, 2019.

 

Subsequent Event - Debtor-in-Possession Financing

 

Debtor-in-Possession Credit Facilities

 

The Company has obtained new debtor-in-possession financing consisting of a senior secured asset based revolving credit facility (the “DIP ABL Credit Facility”), and a senior secured super-priority multi-draw term loan facility (the “DIP Term Loan”), and together, collectively, the (“DIP Facilities”).

 

The DIP Facilities are subject to final approval by the Bankruptcy Court and are subject to customary conditions precedent.

 

The DIP ABL Credit Facility

 

On June 3, 2020, Libbey Glass Inc. and Libbey Europe B.V., as borrowers (the “ABL Borrowers”), entered into the Debtor-In-Possession Credit Agreement (the “DIP ABL Credit Agreement”) with the guarantors party thereto, the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent. The lenders under the DIP ABL Credit Agreement are the same as the existing lenders under the Prepetition ABL Credit Agreement.

 

The DIP ABL Credit Facility provides for a secured debtor-in-possession revolving credit facility in an aggregate principal amount of up to $100.0 million, subject to a borrowing base comprised of certain inventory and accounts receivables, largely consistent with the borrowing base under the Prepetition ABL Credit Facility.

 

As a result of the filing of the Chapter 11 Cases, all derivative contracts were terminated. Those Terminated Swap Obligations (as defined in the DIP ABL Credit Agreement) remain outstanding; however such amounts do not reduce the borrowing capacity of the DIP ABL Credit Facility.

 

Loans under the DIP ABL Credit Facility bear interest, at the option of the ABL Borrowers, of either (1) the Adjusted LIBO Rate (as defined in the DIP ABL Credit Agreement), subject to a 1.00 percent floor, plus 3.50 percent per annum or (2) the CB Floating Rate (as defined in the DIP ABL Credit Agreement) plus 2.50 percent per annum. Terminated Swap Obligations (as defined in the DIP ABL Credit Agreement) bear interest, at the option of the ABL Borrowers of either (i) the Adjusted LIBO Rate, subject to a 1.00 percent floor, plus 4.50 percent per annum or (2) the CB Floating Rate plus 3.50 percent per annum. The DIP ABL Credit Facility matures on the earliest of (a) the date that is one hundred eighty (180) days after the Petition Date, (b) the consummation of a sale of all or substantially all of the Debtors’ assets, (c) if the Final Financing Order (as defined in the DIP ABL Credit Agreement) has not been entered, the date that is thirty-five (35) days after the Petition Date (or such later date to which the deadline for the entry of the Final Financing Order may be extended), (d) the effective date of a reorganization plan, (e) the maturity date (as defined in the DIP Term Loan Agreement) or (f) any earlier date on which the borrowings are permanently reduced to zero or otherwise terminated pursuant to the terms of the DIP ABL Credit Agreement.

 

 

Certain advances under the DIP ABL Credit Facility include the repayment (or deemed repayment) of certain Prepetition ABL Credit Facility obligations with a corresponding dollar-for-dollar increase in the DIP ABL Credit Facility and the assumption or deemed re-issuance of Letters of Credit, Banking Services Obligations and Swap Obligations (as each term is defined in the Prepetition ABL Credit Agreement). Letters of Credit and other reserves are applied against the $100.0 million borrowing limit. The DIP ABL Credit Agreement requires that all other proceeds or advances under the DIP ABL Credit Facility be used only for ordinary course general corporate and working capital purposes, costs of administration of the Chapter 11 Cases, certain professional fees and fees and expenses relating to the DIP Facilities, in each case, in accordance with a cash flow budget that will be updated periodically, subject to certain permitted variances.

 

The DIP ABL Credit Facility has:

 

 

a senior lien on Prepetition ABL Priority Collateral (as defined in the Interim Order),

 

 

a priority lien on 100 percent of the equity of the foreign subsidiaries,

 

 

a priority lien on certain foreign collateral, and

 

 

a junior lien on Prepetition Term Loan Priority Collateral (as defined in the Interim Order).

 

DIP Term Loan

 

On June 3, 2020, the Company, Libbey Glass Inc., as borrower, the other Debtors, the other guarantors party thereto, Cortland Capital Market Services LLC, as administrative agent and collateral agent, and the lenders party thereto from time to time entered into the Superpriority Secured Debtor-In-Possession Credit Agreement (the “DIP Term Loan Credit Agreement” and, together with the DIP ABL Credit Agreement, the “DIP Credit Agreements”). The lenders under the DIP Term Loan Credit Agreement are certain lenders under the Prepetition Term Loan B Credit Agreement.

 

The DIP Term Loan is a multi-draw senior secured debtor-in-possession facility comprised of $60.0 million in new money term loans and a “roll-up” of outstanding prepetition term loan obligations of an aggregate amount of $60.0 million. A draw in the principal amount of $30.0 million was made available upon entry of the interim order by the Bankruptcy Court (the “Interim Order”) on June 3, 2020, with the remaining amount to become available upon entry of a final order by the Bankruptcy Court (the “Final Order”).

 

The DIP Term Loan bears interest at a percentage per annum equal to: (i) for Eurocurrency Rate Loans, the Eurocurrency Rate (as defined in the DIP Term Loan Credit Agreement), subject to a 1.00 percent floor, plus 11.00 percent and (ii) for Base Rate Loans, the Base Rate (as defined in the DIP Term Loan Credit Agreement), subject to a 2.00 percent floor, plus 10.00 percent. The Roll-Up Loans (as defined in the DIP Term Loan Credit Agreement) bear interest at a percentage per annum equal to: (i) for Eurocurrency Rate Loans, (A) the Eurocurrency Rate, subject to a 1.00 percent floor, plus 1.00 percent payable in cash plus (B) 2.00 percent paid-in-kind (PIK) and (ii) for Base Rate Loans, (A) the Base Rate, subject to a 2.00 percent floor, plus 0.00 percent payable in cash plus (B) 2.00 percent PIK.

 

The DIP Term Loan matures on the earliest of (i) thirty-five (35) days following the Petition Date, or such later date as agreed to by the Required Lenders (as defined in the DIP Term Loan Credit Agreement) if the Final Order shall not have been entered by such date, (ii) the effective date of any Chapter 11 reorganization plan of any Debtor, (iii) the date on which all or substantially all of the assets of the Debtors are sold in a sale under a Chapter 11 plan or pursuant to Section 363 of the Bankruptcy Code, (iv) one hundred eighty (180) days following the Petition Date, and (v) the date that all loans shall become due and payable in full in accordance with the terms of the DIP Term Loan Credit Agreement.    

 

The DIP Term Loan has:

 

 

a senior lien on the Prepetition Term Loan B Priority Collateral (as defined in the Interim Order),

 

 

a junior lien on 100 percent of the equity in the foreign subsidiaries,

 

 

a junior lien on certain foreign collateral, and

 

 

a junior lien on the Prepetition ABL Priority Collateral (as defined in the Interim Order).

 

The DIP Facilities

 

The DIP Facilities contain customary representations, warranties and covenants that are typical and customary for debtor-in-possession facilities of this type, including, but not limited to specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments, voluntary payments of other indebtedness, investments, loans and advances, transactions with affiliates, and compliance with case milestones. The DIP Credit Agreements also contain customary events of default, including as a result of certain events occurring in the Chapter 11 Cases. 

 

On June 3, 2020, the Bankruptcy Court approved an Interim Order authorizing the Debtors to pay certain fees related to the DIP Facilities in accordance with the applicable commitment and fee letters.

 

These DIP Facilities, coupled with our normal operating cash flows, are providing liquidity to support operations and our continued service of customers and end users globally during the court-supervised process.

 

The foregoing summaries of the DIP Facilities do not purport to be complete descriptions and are qualified in their entirety by reference to the complete text of both the DIP Term Loan Credit Agreement and the DIP ABL Credit Agreement, which were filed with a Current Report on Form 8-K on June 9, 2020, as Exhibit 4.1 and Exhibit 4.2, respectively, and incorporated herein by reference.

 

 

 

6.    Income Taxes

 

For interim tax reporting, we estimate our annual effective tax rate and apply it to our year-to-date ordinary income. Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded from the annualized effective tax rate. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur.

 

Our effective tax rate was (34.9) percent for the three months ended March 31, 2020, compared to 22.2 percent for the three months ended March 31, 2019. Our effective tax rate for the three months ended March 31, 2020, was negative because the Company recorded positive tax expense despite incurring an overall pretax loss. This occurred because the Company recorded valuation allowances against the deferred tax assets in all of the jurisdictions in which it operates. These valuation allowances resulted from Management's conclusion that the Company is not more likely than not to realize future tax benefits from deferred tax assets due to Management's opinion that there is substantial doubt that the Company will be able to continue as a going concern within one year of the date of the financial statements.

 

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. We believe that our tax reserves related to uncertain tax positions are adequate at this time.

 

 

7.    Pension and Non-pension Post-retirement Benefits

 

The components of our net pension expense, including the SERP (supplemental employee retirement plan), are as follows:

 

Three months ended March 31,

 

U.S. Plans

   

Non-U.S. Plans

   

Total

 

(dollars in thousands)

 

2020

   

2019

   

2020

   

2019

   

2020

   

2019

 

Service cost

  $ 858     $ 783     $ 372     $ 259     $ 1,230     $ 1,042  

Interest cost

    2,952       3,382       841       769       3,793       4,151  

Expected return on plan assets

    (5,164 )     (5,193 )                 (5,164 )     (5,193 )

Amortization of unrecognized:

                                               

Prior service cost (credit)

                (49 )     (50 )     (49 )     (50 )

Actuarial loss

    1,857       1,087       228       103       2,085       1,190  

Pension expense

  $ 503     $ 59     $ 1,392     $ 1,081     $ 1,895     $ 1,140  

 

We have contributed $1.0 million of cash to our pension plans for the three months ended March 31, 2020. Pension contributions for the remainder of 2020 are estimated to be $1.6 million.

 

The provision for our non-pension, post-retirement, benefit expense consists of the following:

 

Three months ended March 31,

 

U.S. Plans

   

Non-U.S. Plans

   

Total

 

(dollars in thousands)

 

2020

   

2019

   

2020

   

2019

   

2020

   

2019

 

Service cost

  $ 110     $ 110     $     $     $ 110     $ 110  

Interest cost

    396       469       7       9       403       478  

Amortization of unrecognized:

                                               

Prior service (credit)

    (71 )     (70 )                 (71 )     (70 )

Actuarial (gain)

    (62 )     (82 )     (19 )     (18 )     (81 )     (100 )

Non-pension post-retirement benefit expense

  $ 373     $ 427     $ (12 )   $ (9 )   $ 361     $ 418  

 

Our 2020 estimate of non-pension cash payments is $3.9 million, of which we have paid $0.8 million for the three months ended March 31, 2020.

 

 

 

8.    Net Loss per Share of Common Stock

 

The following table sets forth the computation of basic and diluted loss per share:

 

   

Three months ended March 31,

 

(dollars in thousands, except earnings per share)

 

2020

   

2019

 

Numerator for earnings per share:

               

Net loss that is available to common shareholders

  $ (78,748 )   $ (4,542 )
                 

Denominator for basic earnings per share:

               

Weighted average shares outstanding

    22,820,119       22,262,565  
                 

Denominator for diluted earnings per share:

               

Effect of stock options and restricted stock units

           

Adjusted weighted average shares and assumed conversions

    22,820,119       22,262,565  
                 

Basic loss per share

  $ (3.45 )   $ (0.20 )
                 

Diluted loss per share

  $ (3.45 )   $ (0.20 )
                 

Anti-dilutive shares excluded from computation of diluted loss per share

    1,771,269       1,483,470  

 

When applicable, diluted shares outstanding is calculated using the weighted-average number of common shares outstanding plus the dilutive effects of equity-based compensation outstanding during the period using the treasury stock method.

 

 

9.    Derivatives

 

We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt and commodity price risks associated with forecasted future natural gas requirements. Prior to March 31, 2020, these derivatives qualified for hedge accounting since the hedges were highly effective, and we designated and documented contemporaneously the hedging relationships involving these derivative instruments. Due to the Company's credit risk profile and changes in the probability of the forecasted transactions being hedged, we concluded we no longer met the criteria for the application of hedge accounting as of March 31, 2020. As a result, amounts related to the hedging relationship previously recorded in AOCI were reclassified to earnings. In addition, the filing of the Chapter 11 Cases resulted in the termination of all our derivative contracts.

 

The counterparties for the derivative agreements are rated BBB+ or better as of March 31, 2020, by Standard & Poor’s.

 

Fair Values

 

The following table provides the fair values of our derivative financial instruments for the periods presented:

 

       

Fair Value of Derivative Assets

 

(dollars in thousands)

 

Balance Sheet Location

 

March 31, 2020

   

December 31, 2019

 
Derivatives not designated as hedging instruments:                    
Natural gas contracts   Other assets   $ 47        
Total undesignated derivative assets       $ 47     $  

 

       

Fair Value of Derivative Liabilities

 
Derivatives designated as hedging instruments:                    

Interest rate swaps

 

Accrued liabilities

  $     $ 2,931  

Interest rate swaps

 

Other long-term liabilities

          11,632  

Natural gas contracts

 

Accrued liabilities

          836  

Natural gas contracts

 

Other long-term liabilities

          3  

Total designated derivative liabilities

      $     $ 15,402  
                     
Derivatives not designated as hedging instruments:                    
Interest rate contract   Accrued liabilities     4,446        
Interest rate contract   Other long-term liabilities     8,056        
Natural gas contracts   Accrued liabilities     468        
Total undesignated derivative liabilities         12,970        
Total derivative liabilities       $ 12,970     $ 15,402  

 

The following table presents cash settlements (paid) received related to the below derivatives:

 

   

Three months ended March 31,

 

(dollars in thousands)

 

2020

   

2019

 

Natural gas contracts

  $ (617 )   $ 128  

Interest rate swaps

    (529 )     344  

Total

  $ (1,146 )   $ 472  

 

 

The following table provides a summary of the impacts of derivative gain (loss) on the Condensed Consolidated Statements of Operations and other comprehensive income (OCI):

 

       

Three months ended March 31,

 

(dollars in thousands)

 

Location

 

2020

   

2019

 

Derivative gain (loss) recognized into OCI:

                   

Natural gas contracts

 

OCI

  $ (199 )   $ (37 )

Interest rate swaps

  OCI     1,273       (3,478 )

Total

      $ 1,074     $ (3,515 )
                     

Derivative gain (loss) reclassified from accumulated OCI to current earnings:

                   

Natural gas contracts

  Cost of Sales   $ (617 )   $ 128  

Interest rate swaps

  Interest expense     (788 )     355  

Total

      $ (1,405 )   $ 483  
                     
Derivatives de-designated as hedging instruments:                    
Derivative gain (loss) recognized in current earnings:                    
Interest rate swaps   Other income (expense)   $ (12,502 )   $  
Natural gas contracts   Other income (expense)     (421 )      
Total       $ (12,923 )   $  

 

Natural Gas Contracts

 

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, 18 months in the future, or more, depending on market conditions. The fair values of these instruments are determined from market quotes.

 

The following table presents the notional amount of our natural gas derivatives on the Condensed Consolidated Balance Sheets:

 

       

Notional Amounts

 

Derivative Types

 

Unit of Measure

 

March 31, 2020

   

December 31, 2019

 

Natural gas contracts

 

Millions of British Thermal Units (MMBTUs)

    3,060,000       2,460,000  

 

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. At March 31, 2020, we evaluated our natural gas hedging relationships and, based on the Company's credit risk, concluded that it was no longer probable that we had an effective hedging relationship. As a result, amounts previously deferred in AOCI were reclassified to earnings, resulting in $0.4 million of expense recognized in other income (expense). See note 15, Other Income (Expense).

 

Interest Rate Swaps

 

The table below lists the interest rate swaps we executed as part of our risk management strategy to mitigate the risks associated with the fluctuating interest rates under our Prepetition Term Loan B. Prior to March 31, 2020, the interest rate swaps effectively converted a portion of our Prepetition Term Loan B debt from a variable interest rate to a fixed interest rate, thus reducing the impact of interest rate changes on future income.

 

Swap execution date

 

Effective date

 

Expiration date

 

Notional amount

 

Fixed swap rate

April 1, 2015

 

January 11, 2016

 

January 9, 2020

 

$220.0 million

    4.85 %

September 24, 2018

 

January 9, 2020

 

January 9, 2025

 

$200.0 million

    6.19 % (1)

________________________

(1) 

Includes a LIBOR portion that is fixed at 3.19 percent plus the credit spread.

 

Our interest rate swaps are valued using the market standard methodology of netting discounted expected future variable cash receipts, the discounted future fixed cash payments, and credit risk of both the counterparties and the Company. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves.

 

At March 31, 2020, our remaining interest rate swaps no longer qualified to be designated as a cash flow hedge under FASB ASC 815, “Derivatives and Hedging.” 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 are recorded to earnings immediately. Due to the Company's credit risk profile and changes in the probability of the forecasted transactions no longer occurring, we concluded we no longer met the criteria for the application of hedge accounting as of March 31, 2020. As a result, amounts previously deferred in AOCI were reclassified to earnings, resulting in $12.5 million of expense recognized in other income (expense). See note 15, Other Income (Expense).

 

 

 

10.    Accumulated Other Comprehensive Income (Loss)

 

Accumulated other comprehensive income (loss) (AOCI), net of tax, is as follows:

 

Three months ended March 31, 2020 (dollars in thousands)   Foreign Currency Translation      

Derivative Instruments

      Pension and Other Post-retirement Benefits       Accumulated Other Comprehensive Loss  
Balance on December 31, 2019   $ (25,147 )     $ (11,432 )     $ (87,367 )     $ (123,946 )
                                       
Amounts recognized into AOCI     (1,637 )       1,074                 (563 )

Currency impact

                    2,253         2,253  

Amounts reclassified from AOCI

            1,405   (1)     1,884   (2)     3,289  
Amounts reclassified from AOCI for derivatives de-designated             12,923   (3)             12,923  
Tax effect             (4,405 )       713         (3,692 )
Other comprehensive income (loss), net of tax     (1,637 )       10,997         4,850         14,210  
Balance on March 31, 2020   $ (26,784 )     $ (435 )     $ (82,517 )     $ (109,736 )

 

Three months ended March 31, 2019 (dollars in thousands)   Foreign Currency Translation       Derivative Instruments       Pension and Other Post-retirement Benefits       Accumulated Other Comprehensive Loss  

Balance on December 31, 2018

  $ (23,240 )     $ (2,866 )     $ (88,299 )     $ (114,405 )
                                       

Amounts recognized into AOCI

    244         (3,515 )               (3,271 )

Currency impact

                    34         34  

Amounts reclassified from AOCI

            (483 )

(1)

    970  

(2)

    487  

Tax effect

    (270 )       944         (227 )       447  

Other comprehensive income (loss), net of tax

    (26 )       (3,054 )       777         (2,303 )

Balance on March 31, 2019

  $ (23,266 )     $ (5,920 )     $ (87,522 )     $ (116,708 )

_________________________

(1) 

We reclassified natural gas contracts through cost of sales and the interest rate swaps through interest expense on the Condensed Consolidated Statements of Operations. See note 9 for additional information.

(2) 

We reclassified the net pension and non-pension post-retirement benefits amortization and settlement charges through other income (expense) on the Condensed Consolidated Statements of Operations. See note 7 for additional information.

(3) Libbey de-designated the interest rate swaps and natural gas swaps as of March 31, 2020, as the transactions were no longer probable of occurring. Amounts were reclassified to other income (expense). See note 9 for additional information.

 

 

11.    Segments

 

Our segments are U.S. and Canada; Latin America; Europe, the Middle East and Africa (EMEA); and Other. Segment results are based primarily 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 and Canada, excluding glass products for Original Equipment Manufacturers (OEM), 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.

 

 

Our measure of profit for our reportable segments is Segment Earnings before Interest and Taxes (Segment EBIT) 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. We use Segment EBIT, along with net sales and selected cash flow information, to evaluate performance and to allocate resources. Segment EBIT for reportable segments includes an allocation of some corporate expenses based on the costs of services performed.

 

Certain activities not related to any particular reportable segment are reported within retained corporate costs. These costs include certain headquarter, administrative and facility costs, and other costs that are global in nature and are not allocable to the reporting segments.

 

The accounting policies of the reportable segments are the same as those for the Company. We do not have any customers who represent 10 percent or more of total sales. Inter-segment sales are consummated at arm’s length and are reflected at end-market reporting below.

 

   

Three months ended March 31,

 

(dollars in thousands)

 

2020

   

2019

 

Net Sales:

               

U.S. & Canada

  $ 95,876     $ 109,906  

Latin America

    26,643       30,401  

EMEA

    25,280       28,042  

Other

    2,722       6,617  

Consolidated

  $ 150,521     $ 174,966  
                 

Segment EBIT:

               

U.S. & Canada

  $ 6,898     $ 9,797  

Latin America

    4,521       649  

EMEA

    (1,610 )     (50 )

Other

    (1,372 )     (1,152 )

Total Segment EBIT

  $ 8,437     $ 9,244  
                 

Reconciliation of Segment EBIT to Net Loss:

               

Segment EBIT

  $ 8,437     $ 9,244  

Retained corporate costs

    (7,198 )     (9,450 )

Asset impairments (note 17)

    (38,535 )      

Fees associated with strategic initiative

    (406 )      
Debt refinancing & prepetition reorganization charges (note 15)     (3,356 )      

Workforce reduction

    (517 )      
Loss on derivatives de-designated as hedging instruments     (12,923 )      
Employee benefit liability adjustment (1) (note 15)     1,720        

Interest expense

    (5,591 )     (5,632 )

(Provision) benefit for income taxes

    (20,379 )     1,296  

Net loss

  $ (78,748 )   $ (4,542 )
                 

Depreciation & Amortization:

               

U.S. & Canada

  $ 2,963     $ 3,133  

Latin America

    3,368       3,780  

EMEA

    1,314       1,699  

Other

    823       882  

Corporate

    377       437  

Consolidated

  $ 8,845     $ 9,931  
                 

Capital Expenditures:

               

U.S. & Canada

  $ 4,287     $ 3,384  

Latin America

    904       4,191  

EMEA

    1,190       2,346  

Other

    24       259  

Corporate

    3       181  

Consolidated

  $ 6,408     $ 10,361  

______________________

(1) Relates to a post-employment benefit liability adjustment within the U.S. & Canada segment that was not related to current period operations and, therefore, excluded from Segment EBIT.

 

 

 

12.    Revenue

 

Our primary source of revenue is the sale of glass tableware products manufactured within a Libbey facility as well as globally sourced tabletop products, including glassware, ceramicware, metalware and others. Adjustments related to revenue recognized in prior periods was not material for the three months ended March 31, 2020 and 2019. There were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019.

 

Disaggregation of Revenue:

 

The following table presents our net sales disaggregated by business channel:

   

Three months ended March 31,

 

(dollars in thousands)

 

2020

   

2019

 

Foodservice

  $ 55,326     $ 70,817  

Retail

    50,651       55,573  

Business-to-business

    44,544       48,576  

Consolidated

  $ 150,521     $ 174,966  

 

Each operating segment has revenues across all our business channels. Each channel has a different marketing strategy, customer base and product composition. For all periods presented, over 75 percent of each segment's revenue is derived from the following business channels: U.S. and Canada from foodservice and retail; Latin America from retail and business-to-business; and EMEA from business-to-business and retail.

 

 

13.    Fair Value

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:

 

 

Level 1 — Quoted prices in active markets for identical assets or liabilities;

 

Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 

Level 3 — Unobservable inputs based on our own assumptions.

 

The fair value of our derivative financial instruments by level is as follows:

 

   

Fair Value at

 

Fair Value at

Asset / (Liability)

 

March 31, 2020

 

December 31, 2019

(dollars in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

Commodity futures natural gas contracts

  $     $     $ (421 )   $ (421 )   $     $ (839 )   $     $ (839 )
Interest rate swaps                 (12,502 )     (12,502 )           (14,563 )           (14,563 )
Net derivative asset (liability)   $     $     $ (12,923 )   $ (12,923 )   $     $ (15,402 )   $     $ (15,402 )

 

The fair values of our commodity futures natural gas contracts are determined using observable market inputs and credit risk of both the counterparties and the Company. The fair value of our interest rate swaps is based on the market standard methodology of netting discounted expected future variable cash receipts, the discounted future fixed cash payments, and credit risk of both the counterparties and the Company. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company's derivatives utilize Level 3 inputs, such as trading levels of our currently traded outstanding debt, credit ratings and collateral values, to evaluate the likelihood of default by the Company and the counterparties. As of March 31, 2020, we determined that the effect of credit valuation adjustments on the valuation of our derivative positions was significant to the overall valuation. We recorded a credit value adjustment of $9.7 million to the overall valuation of the Company’s interest rate swaps and natural gas contracts. As a result, we concluded our derivative valuations would be classified in Level 3 of the fair value hierarchy at March 31, 2020.

 

On January 1, 2020, we had no derivatives positions for which the Company utilized significant Level 3 inputs to determine fair value. During the three months ended March 31, 2020, we concluded our derivative positions previously categorized as Level 2 now meet the criteria for a Level 3 classification transfer. The Company recognizes transfers into and out of the levels indicated above at the end of a reporting period. There were no other Level 3 activities to reconcile during the period. At March 31, 2020, the ending balance in the Level 3 fair value hierarchy was a $12.9 million net derivative liability.

 

The commodity futures natural gas contracts and interest rate swaps are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the above table.

   

Financial instruments carried at cost on the Condensed Consolidated Balance Sheets, as well as the related fair values, are as follows:

 

   

Fair Value

 

March 31, 2020

   

December 31, 2019

 

(dollars in thousands)

 

Hierarchy Level

 

Carrying Amount

   

Fair Value

   

Carrying Amount

   

Fair Value

 

Prepetition Term Loan B

 

Level 2

  $ 374,700     $ 168,615     $ 375,800     $ 304,398  

 

The fair value of our Prepetition Term Loan B has been calculated based on quoted market prices for the same or similar issues, and the fair value of our Prepetition ABL Credit Facility and Mexico working capital line of credit approximate carrying value due to variable rates. The fair value of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to their short-term nature.

 

 

 

14.     Leases

 

Globally, we lease certain warehouses, office space, showrooms, manufacturing and office equipment, automobiles and outlet stores. Many of the real estate leases contain one or more options to renew, with renewal options that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our discretion and is not reasonably certain at lease commencement. During the first quarter of 2020, we signed an amendment to a lease that, among other things, extended the term of a real estate lease ten years.

 

The following table reconciles the undiscounted cash flows to the operating lease liabilities recorded on the balance sheet:

 

(dollars in thousands)

 

March 31, 2020

      December 31, 2019  

2020 (remainder of year as of March 31, 2020)

  $ 11,027     $ 14,970  

2021

    13,401       11,255  

2022

    12,380       9,987  

2023

    11,731       9,283  

2024

    10,332       8,005  

2025 and thereafter

    29,797       15,768  

Total minimum lease payments

    88,668       69,268  

Less: interest

    (12,563 )     (8,176 )

Present value of future minimum lease payments

    76,105       61,092  

Less: lease liabilities (current portion)

    (11,585 )     (12,769 )

Noncurrent lease liabilities

  $ 64,520     $ 48,323  

 

 

 

15.     Other Income (Expense)

 

Items included in other income (expense) in the Condensed Consolidated Statements of Operations are as follows:   

 

   

Three months ended March 31,

 

(dollars in thousands)

 

2020

   

2019

 

Gain (loss) on currency transactions

  $ 4,779     $ (1,163 )

Pension and non-pension benefits, excluding service cost

    (916 )     (406 )
Loss on derivatives de-designated as hedging instruments (note 9)     (12,923 )      
Debt refinancing fees     (2,088 )      
Prepetition reorganization charges     (1,268 )      
Employee benefit liability adjustment     1,720        

Other non-operating income (expense)

    44       (15 )

Other income (expense)

  $ (10,652 )   $ (1,584 )

 

 

16.    Contingencies

 

Legal Proceedings 

 

From time to time we are identified as a “potentially responsible party” (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and/or similar state laws that impose liability without regard to fault for costs and damages relating to the investigation and cleanup of contamination resulting from releases or threatened releases of hazardous substances. We are also subject to similar laws in some of the countries where our facilities are located. Our environmental, health and safety department monitors compliance with applicable laws on a global basis.

 

Although we cannot predict the ultimate outcome of these proceedings, we believe that these environmental proceedings will not have a material adverse impact on our financial condition, results of operations or liquidity. There were no significant changes to our environmental legal proceedings since December 31, 2019. Please refer to Part II, Item 8. “Financial Statements and Supplementary Data,” note 17, Contingencies, included in our 2019 Annual Report on Form 10-K for a more complete discussion.

 

On June 1, 2020, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of such bankruptcy filings, substantially all proceedings pending against the Debtors have been stayed by operation of Section 362(a) of the Bankruptcy Code (see further description in note 2, Subsequent Event).

 

Income Taxes

 

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.

 

 

17.     Purchased Intangible Assets and Goodwill

            

Purchased Intangibles

 

Changes in purchased intangibles balances are as follows:

(dollars in thousands)

  Three months ended March 31, 2020  

Beginning balance December 31, 2019

  $ 11,875  

Amortization

    (38 )

Impairment (see below)

    (104 )

Foreign currency impact

    (31 )

Ending balance March 31, 2020

  $ 11,702  

 

Purchased intangible assets are composed of the following:

(dollars in thousands)

 

March 31, 2020

   

December 31, 2019

 

Indefinite life intangible assets

  $ 10,983     $ 11,104  
Definite life intangible assets, net of accumulated amortization of $20,486 and $20,507     719       771  

Total

  $ 11,702     $ 11,875  

 

Indefinite life intangible assets are composed of trade names and trademarks that have an indefinite life and are therefore individually tested for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise, in accordance with FASB ASC 350. As of March 31, 2020, we tested Libbey Holland's indefinite life intangible asset (Royal Leerdam® trade name) for impairment using a relief from royalty method to determine the fair market value that was then compared to the carrying value of the asset. The sales forecast for Royal Leerdam® branded product was lowered due to declining demand as a result of COVID-19 and macroeconomic uncertainty in the near-term. 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 $0.1 million during the first quarter of 2020 in our EMEA reporting segment. The inputs used for this analysis are considered Level 3 inputs in the fair value hierarchy (see note 13). With the Royal Leerdam® trade name fair value equaling its carrying value at March 31, 2020, there is potential of future impairment for the remaining intangible asset balance of $0.8 million if the demand does not recover in future periods as expected.

 

The remaining definite life intangible asset at March 31, 2020 consists of customer relationships that is amortized over a period of 20 years with a remaining life of 4.8 years. The future annual amortization expense remains unchanged from what was disclosed in the Form 10-K for the year ended December 31, 2019.

 

 

Goodwill

 

Changes in goodwill balances are as follows:

(dollars in thousands)

 

U.S. & Canada

   

Latin America

   

Total

 

Beginning balance December 31, 2019:

                       

Goodwill

  $ 43,872     $ 125,681     $ 169,553  

Accumulated impairment losses

    (5,441 )     (125,681 )     (131,122 )

Net beginning balance

    38,431             38,431  

Impairment (see below)

    (38,431 )           (38,431 )

Ending balance March 31, 2020:

                       

Goodwill

    43,872       125,681       169,553  

Accumulated impairment losses

    (43,872 )     (125,681 )     (169,553 )

Net ending balance

  $     $     $  

 

Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. The inputs used for this analysis are considered Level 2 and Level 3 inputs in the fair value hierarchy. See note 13 for further discussion of the fair value hierarchy.

 

As part of our on-going assessment of goodwill at March 31, 2020, we determined that a triggering event occurred due to a significant reduction in demand during the quarter and the high level of macroeconomic uncertainty in the near-term. Additionally, the Company's low share price and lower trading value of the Prepetition Term Loan B caused valuation limitations; thus, an interim impairment test was performed as of March 31, 2020. As the impairment testing indicated that the carrying value of the U.S. & Canada reporting unit exceeded its fair value, we recorded a non-cash impairment charge of $38.4 million during the first quarter of 2020. After recording the impairment charge, there is no longer any goodwill on the balance sheet.

 

When performing our test for impairment, we measured 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 (Level 3 inputs). 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 (Level 2 inputs). The blended approach assigns a 70 percent weighting to the income approach and 30 percent to the market approach (Level 3 input). 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 a result of the factors noted above, we also evaluated the fair value of the long-lived assets for each of our asset groups noting there were no indications of impairment as of March 31, 2020.

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes thereto appearing elsewhere in this report and in our Annual Report filed with the Securities and Exchange Commission. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ from those anticipated in these forward-looking statements as a result of many factors. Our risk factors are set forth in Part I, Item 1A. “Risk Factors” in our 2019 Annual Report on Form 10-K for the year ended December 31, 2019 and supplemented in Part II, Item 1A. “Risk Factors” of this report.

 

Voluntary Reorganization under Chapter 11

 

On the Petition Date, the Debtors filed Bankruptcy Petitions with the Bankruptcy Court for reorganization under Chapter 11 of the Bankruptcy Code.

 

We are currently operating our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and pursuant to orders of the Bankruptcy Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief requested by the Debtors enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders of the Bankruptcy Court, authorizing us to pay employee wages and benefits, to pay taxes and certain governmental fees and charges, to continue to operate our cash management system in the ordinary course, and to pay the prepetition claims of certain of our vendors. For goods and services provided following the Petition Date, we intend to pay vendors in full under normal terms.

 

Subject to certain exceptions, under the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically enjoined or stayed the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Accordingly, although the filing of the Bankruptcy Petitions triggered defaults under the Debtors’ funded debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code.

 

For the duration of the Debtors’ Chapter 11 Cases, the Debtors’ operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process, as described in Part II, Item 1A. “Risk Factors.” As a result of these risks and uncertainties, the amount and composition of the Company’s assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 Cases, and the description of the Company’s operations, assets, and liquidity and capital resources included in this quarterly report may not accurately reflect its operations, assets, and liquidity and capital resources following the Chapter 11 process.

 

The Debtors’ Chapter 11 Cases are being jointly administered under the caption In re Libbey Glass Inc., et al., Case No. 20-11439 (LSS). Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at https://cases.primeclerk.com/libbey.

 

 

Exclusivity; Plan of Reorganization

 

Under the Bankruptcy Code, we currently have the exclusive right to file a plan of reorganization under Chapter 11 through and including 120 days after the Petition Date, and to solicit acceptances of such plan through and including 180 days after the Petition Date. These deadlines may be extended with the approval of the Bankruptcy Court.

 

We plan to emerge from our Chapter 11 Cases after we obtain approval from the Bankruptcy Court for a Chapter 11 plan of reorganization. Among other things, a Chapter 11 plan of reorganization will determine the rights and satisfy the claims of our creditors and security holders. The terms and conditions of a Chapter 11 plan of reorganization will be determined through negotiations with our creditors and, possibly, decisions by the Bankruptcy Court.

 

Under the absolute priority scheme established by the Bankruptcy Code, unless our creditors agree otherwise, all of our prepetition liabilities and postpetition liabilities must be satisfied in full before the holders of our existing common stock can receive any distribution or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or shareholders, if any, will not be determined until confirmation and implementation of a plan or plans of reorganization. We can give no assurance that any recovery or distribution of any amount will be made to any of our creditors or shareholders.   The Company expects that the existing common stock of the Company will be extinguished upon the Company’s emergence from Chapter 11 and that existing equity holders will not receive consideration in respect of their equity interests.  Moreover, under the Bankruptcy Code, a plan of reorganization can be confirmed by the Bankruptcy Court, even if the holders of our common stock vote against the plan of reorganization and even if the plan of reorganization provides that the holders of our common stock receive no distribution on account of their equity interests.

 

For more information on the Chapter 11 Cases and related matters, refer to note 2, Subsequent Event - Chapter 11 Bankruptcy Filing, and note 5, Borrowings, in the Condensed Consolidated Financial Statements.

 

 

Results of Consolidated Operations

 

Overview

 

The first half of 2020 has been challenging for a majority of businesses throughout the world, including Libbey. The coronavirus 2019 (COVID-19) pandemic began in late 2019 and has since resulted in a global health crisis that has negatively impacted businesses, economies and financial markets worldwide. Global economies are facing record-high unemployment levels, collapsing business and consumer confidence, and historic recession levels driven by quarantines and lockdowns instituted throughout the world. The United States has entered into a recession as a result of COVID-19, with consumer spending expected to remain low as social distancing and high unemployment continue. China's outlook continues to decline as a result of economic uncertainties, trade disputes with the United States and lower consumer confidence as consumers are concerned with a second wave of COVID-19 infections. Europe's and Mexico's economies have also declined as COVID-19 has negatively hit their tourist sectors, as well as severely impacted supply chains and reduced both domestic and external demand. Management expects these trends, and the challenging environment experienced to date, to continue through the second half of 2020 and likely beyond.

 

As a result of the volatile conditions we experienced in the first quarter of 2020, our net sales were $150.5 million, 14.0 percent lower than the prior-year quarter, or 13.2 percent lower on a constant currency basis. The reduction in net sales was driven by lower volume, and unfavorable impacts from channel mix and currency, partially offset by favorable price and mix of product sold. We recorded a net loss of $78.7 million for the three months ended March 31, 2020, compared to a net loss of $4.5 million in the prior-year quarter. The $74.2 million increase in net loss for the current quarter was primarily driven by a $38.4 million non-cash goodwill impairment charge in our U.S. and Canada segment, an additional $21.7 million of income tax expense primarily due to recording valuation allowances against net deferred tax assets in all jurisdictions, and $12.9 million of loss on derivatives de-designated as hedging instruments. In addition, we experienced reduced profitability throughout the Company as a result of COVID-19 related closures of our manufacturing and distribution operations and demand reductions; the negative impacts on our sales margins and manufacturing activity were partially offset by lower selling, general and administrative spend as a result of controlled spending.

 

As a result of the effect of COVID-19 on our expected future operating cash flows, we drew $40.0 million on our Prepetition ABL Credit Facility, furloughed certain employees, implemented temporary salary reductions for non-furloughed employees, and adjusted our capital spending to align with the needs of the business, including the delaying of some work on our enterprise resource planning implementation, to address liquidity concerns. In addition, we have temporarily reduced or suspended our manufacturing and distribution operations at several of our facilities in North America & elsewhere to comply with government orders and to protect the safety of our employees. Given the dynamic nature of the COVID-19 pandemic and related market conditions, the Company cannot reasonably estimate the period of time that these events will persist or the full extent of the impact they will have on the business. The Company continues to take actions, subject to approval of the Bankruptcy Court, designed to mitigate the adverse effects of this rapidly changing market environment.

 

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The Company's payment of employer payroll taxes after enactment, otherwise due in 2020, will be delayed, with 50 percent due by December 31, 2021, and the remaining 50 percent by December 31, 2022. The Company continues to evaluate the potential applicability and related impact of the CARES Act. The CARES Act did not have a material impact on the Company’s condensed consolidated financial statements as of March 31, 2020.

 

See note 11, Segments, for details on how we report and define our segments. 

 

 

Results of Operations

 

The following table presents key results of our operations for the three months ended March 31, 2020 and 2019:

   

Three months ended March 31,

 

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

 

2020

   

2019

 

Net sales

  $ 150,521     $ 174,966  

Gross profit

  $ 22,923     $ 33,958  

Gross profit margin

    15.2 %