Third-Quarter ResultsFor the quarter ended September 30, 2003, sales increased 24.6 percent to $129.1 million from $103.6 million in the year-ago quarter.The increase in sales was primarily attributable to the sales of Royal Leerdam and Traex, both acquired in December 2002. Excluding these acquisitions, sales increased 4.3 percent, as sales to foodservice, retail and industrial customers were higher than the year-ago period. Glassware sales to foodservice and retail customers were up in the low-to-mid-single digits on a percentage basis. Sales to industrial customers increased over 20 percent as compared to the year- ago third quarter.
The company recorded income from operations of $13.7 million during the quarter. This compares with income from operations of $14.4 million in the year-ago period. Factors contributing to the decline were higher natural gas costs of approximately $1.4 million and additional costs (mostly non-cash) for pension and postretirement medical benefits of almost $1.9 million. Partially offsetting these higher costs were the contributions made by Traex and Royal Leerdam of $1.7 million to income from operations during the quarter.
Earnings before interest and income taxes (EBIT) were $15.0 million compared with $14.1 million in the year-ago quarter, an increase of 6.2 percent. Equity earnings from Vitrocrisa, the company's joint venture in Mexico, were $1.2 million on a pretax basis, as compared with $1.0 million pretax in the third quarter of 2002 as the result of higher sales and a favorable translation gain. In the year-ago-period, the company also recorded other expense of $1.2 million, which was primarily related to a write-down in the value of other receivables.
For the quarter, Libbey recorded net income of $12.0 million, or 88 cents per diluted share, compared with net income of $10.8 million, or 69 cents per diluted share, in the year-ago period. Interest expense increased $1.5 million as a result of an increase of debt to $244.9 million from $144.0 million in the year-ago period. Debt increased after funding $62.0 million for the acquisitions of Traex and Royal Leerdam in late 2002 and the repurchase of 2,106,200 shares for $55.7 million since the year-ago period. For the third quarter of 2003, the company recorded an income tax benefit of $614,000 as a result of the adjustment of the year-to-date effective tax rate to 15 percent. The adjustment to the effective tax rate is necessary due to a planned tax restructuring whereby the undistributed earnings of the Company's joint venture in Mexico will be permanently reinvested outside of the United States, thus eliminating the need to record deferred U.S. income taxes on those undistributed earnings. During the third quarter of 2002, a reduction of the company's effective tax rate to 10.4 percent was primarily attributable to lower Mexican tax, the elimination of non-deductible goodwill amortization, and an adjustment to estimated U.S. income tax accruals. As detailed on the attached Table 1, net income per diluted share excluding tax adjustments was $0.58 for the third quarter of 2003, as compared with $0.51 for the third quarter of 2002.
For the nine months ended September 30, 2003, sales increased 16.7 percent to $369.3 million from $316.4 million in the year-ago period. The increase in sales was attributable to the Royal Leerdam and Traex acquisitions and strong third quarter sales to glassware customers. Excluding these acquisitions, sales declined 1.5 percent.
Income from operations was $32.0 million compared with $41.4 million in the year-ago period. In addition to the lower pre-acquisition sales, other factors that contributed to the decline included higher natural gas costs of over $5 million and additional costs (mostly non-cash) for pension and postretirement medical costs of $4.1 million.
Earnings before interest and income taxes (EBIT) were $35.6 million, an increase of $4.0 million or 12.7 percent, compared with $31.6 million in the prior nine-month period. The prior period included $13.6 million of expenses related to an abandoned acquisition. Equity earnings from Vitrocrisa were $3.0 million on a pretax basis as compared with $5.2 million pretax in the year-ago period as the result of higher natural gas costs and lower activity levels this period. Interest expense increased $3.7 million primarily as the result of higher debt, and the effective tax rate declined to 15.0 percent from 22.9 percent as the result of the tax restructuring discussed above. Net income was $21.9 million, or $1.59 per diluted share, compared with $19.6 million, or $1.26 per diluted share in the year-ago period. Last year's net income included expenses associated with an abandoned acquisition. These expenses totaled $13.6 million, less a tax effect of $4.9 million, or an after tax impact of $8.7 million, or $0.56 per diluted share.
Trade working capital, defined as inventories and accounts receivable less accounts payable, increased compared with the prior year period and as compared with year-end 2002. Total inventories increased $19.6 million from year-end to $129.2 million, primarily as a result of seasonal demands. Inventories are expected to decrease by more than $10 million before the end of the year.
Outlook for Fourth Quarter of 2003
John F. Meier, chairman and chief executive officer, commenting on the company's outlook for the remainder of 2003 said, "We are pleased with the strong finish we saw in the third quarter. Generally, we expect sales growth to continue in the fourth quarter of the year as economic conditions improve slightly. New products should drive this sales performance and with this will come the benefits of higher capacity utilization, driving earnings and cash flow." He added, "We now expect full year sales to total between $510 and $515 million and with the continuing impact of higher natural gas costs we now see diluted earnings per share to be in the range of $0.51 to $0.56 for the fourth quarter and $2.10 to $2.15 for the year ending December 31, 2003. This compares to $1.82 in 2002, which included the previously mentioned tax restructuring and $13.6 million in expenses related to an abandoned acquisition."
Libbey will hold a conference call for investors on Tuesday, October 28, 2003, at 11 a.m. Eastern Standard Time. The conference call will be simulcast live on the Internet on both www.libbey.com and www.firstcallevents.com/service/ajwz390360102gf12.html . To listen to the call, please go to the website at least 10 minutes early to register, download and install any necessary software. A replay will be available for 7 days after the conclusion of the call.
The above information includes "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements only reflect the company's best assessment at this time and are indicated by words or phrases such as "goal," "expects," "believes," "will," "estimates," "anticipates," or similar phrases.
Investors are cautioned that forward-looking statements involve risks and uncertainty, that actual results may differ materially from such statements, and that investors should not place undue reliance on such statements.
Important factors potentially affecting performance include: increased competition from foreign suppliers endeavoring to sell glass tableware in the United States and Mexico, including the impact of lower duties for imported products; major slowdowns in the retail, travel or entertainment industries in the United States, Canada, Mexico and Western Europe, caused by terrorist attacks or otherwise; significant increases in per-unit costs for natural gas, electricity, corrugated packaging, and other purchased materials; higher interest rates that increase the company's borrowing costs; protracted work stoppages related to collective bargaining agreements; increases in expenses associated with higher medical costs, reduced pension income associated with lower returns on pension investments and increased pension obligations; devaluations and other major currency fluctuations relative to the U.S. dollar that could reduce the cost-competitiveness of the company's products compared to foreign competition; the effect of high inflation in Mexico and exchange rate changes to the value of the Mexican peso and the earnings and cash flow of the company's joint venture in Mexico, Vitrocrisa, expressed under U.S. GAAP; the inability to achieve savings and profit improvements at targeted levels in the company's operations or within the intended time periods; whether the company completes any significant acquisition, and whether such acquisitions can operate profitably.