LIBBEY : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

August 10, 2020 at 02:12 pm EDT

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 on Form 10-K filed with the SEC. 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 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 their business plans 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.



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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 , Bankruptcy Filing, and note 5 , Borrowings, in the Condensed Consolidated Financial Statements.

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. 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, the events of default under our credit agreements, and the
results of operations due to the spread of the COVID-19 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.



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Results of Consolidated Operations





Overview



The COVID-19 pandemic continues to negatively impact businesses, economies and
financial markets worldwide. A resurgence of COVID-19 cases has emerged as
economies have begun to re-open from the recent lockdowns that were instituted
to combat the pandemic, which will likely result in a much slower recovery for
the remainder of 2020 than previously expected. The United States' economic
outlook continues to remain highly uncertain as unemployment claims continue to
remain high, and many states have reinforced restrictions and continue
stay-at-home activity. In addition, restaurant traffic has declined considerably
and continues to remain significantly below the prior year, which has
adversely impacted our revenues. Europe's and Mexico's economies also remain
highly uncertain as COVID-19 has negatively impacted tourist sectors, as well as
severely impacted supply chains and reduced both domestic and external demand.
China's economy has shown signs of recovery, however there still remains a level
of uncertainty as trade disputes continue with the United States and consumer
confidence remains low due to concerns of a second wave of COVID-19
infections. Management expects these trends, and the challenging environment
experienced to date, to continue for the remainder of 2020 and likely beyond.



As a result of the volatile conditions we continued to experience through the
second quarter of 2020, our net sales were $77.5 million, 62.4 percent lower
than the prior-year quarter, or 61.0 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 $83.8 million for the three months ended
June 30, 2020, compared to a net loss of $43.8 million in the prior-year
quarter. The $40.0 million increase in net loss for the current quarter was
primarily driven by $39.5 million of reorganization related charges due to our
Chapter 11 Cases. In addition, we continued to experience 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.



Due to the expected impact of COVID-19 on our operating cash flows, we drew
$40.0 million on our Prepetition ABL Credit Facility in March, 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 temporarily reduced or suspended our manufacturing and distribution
operations at several of our facilities in North America and 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, including the tentative plan announced on July 8, 2020, to close
the manufacturing facility in Shreveport, Louisiana. Whether and the extent to
which the tentative plan is finalized and implemented will depend on the outcome
of negotiations with the unions representing the impacted employees. Separate
from the tentative plan to close our manufacturing facility in Shreveport,
Louisiana, on July 24, 2020, we announced additional actions to further control
costs and align our resources to current and expected demand for our products.
Effective August 1, 2020, we reduced the size of our U.S. salaried workforce.
The reductions affect primarily the U.S. Headquarters and the Commercial
organization, which is collectively being reduced by more than 15 percent. We
do not expect to incur material charges in connection with the reduction in
force. We will continue to evaluate the operating environment and will make
additional adjustments as business conditions warrant.



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. In
addition, as of June 30, 2020, the Company recognized $3.3 million in government
grants as contra-expense for COVID-19 support in our Holland and Portugal
facilities.



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



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Results of Operations

The following table presents key results of our operations for the three months and six months ended June 30, 2020 and 2019:





                                              Three months ended June 30,            Six months ended June 30,
(dollars in thousands, except
percentages and per-share amounts)             2020                 2019               2020               2019
Net sales                                  $      77,532        $     206,158      $     228,053        $ 381,124
Gross profit                               $     (20,052 )      $      46,725      $       2,871        $  80,683
Gross profit margin                                (25.9 )%              22.7 %              1.3 %           21.2 %
Loss from operations (IFO)                 $     (38,787 )      $     (30,969 )    $     (80,913 )      $ (29,591 )
IFO margin                                         (50.0 )%             (15.0 )%           (35.5 )%          (7.8 )%
Net loss                                   $     (83,794 )      $     (43,767 )    $    (162,542 )      $ (48,309 )
Net loss margin                                   (108.1 )%             (21.2 )%           (71.3 )%         (12.7 )%
Diluted net loss per share                 $       (3.64 )      $       (1.95 )    $       (7.10 )      $   (2.16 )
Adjusted earnings before interest,
taxes, depreciation and amortization
(Adjusted EBITDA) (1) (non-GAAP)           $     (31,371 )      $      25,283      $     (21,287 )      $  35,008
Adjusted EBITDA margin (1) (non-GAAP)              (40.5 )%              12.3 %             (9.3 )%           9.2 %


_________________________

(1) We believe that Adjusted EBITDA and the associated margin, non-GAAP

financial measures, are useful metrics for evaluating our financial

performance, as they are measures that we use internally to assess our

performance. For a reconciliation from net loss to Adjusted EBITDA, certain

limitations and reasons we believe these non-GAAP measures are useful, see

the "Reconciliation of Net Loss to Adjusted EBITDA" and "Non-GAAP

Measures" sections below in the Discussion of Second Quarter 2020 Compared


     to Second Quarter 2019.

Discussion of Second Quarter 2020 Compared to Second Quarter 2019

Net Sales

The following table summarizes net sales by operating segment:





Three months ended June 30,                                     Increase/(Decrease)                                Constant Currency Sales
(dollars in thousands)           2020           2019         $ Change


 % Change       Currency Effects         Growth (Decline) (1)
U.S. & Canada                 $   42,688     $  128,897     $  (86,209 )        (66.9 )%   $                -                   (66.9 )%
Latin America                     19,841         38,208        (18,367 )        (48.1 )%               (2,622 )                 (41.2 )%
EMEA                              12,096         32,678        (20,582 )        (63.0 )%                 (205 )                 (62.4 )%
Other                              2,907          6,375         (3,468 )        (54.4 )%                  (87 )                 (53.0 )%
Consolidated                  $   77,532     $  206,158     $ (128,626 )        (62.4 )%   $           (2,914 )                 (61.0 )%


_________________________

(1) We believe constant currency sales growth (decline), a non-GAAP measure, is

a useful metric for evaluating our financial performance. See the "Non-GAAP

Measures" section below for the reasons we believe this non-GAAP metric is


     useful and how it is derived.




Net Sales - U.S. & Canada



Net sales in U.S. & Canada in the second quarter of 2020 were $42.7 million,
compared to $128.9 million in the second quarter of 2019, a decrease of
66.9 percent. The decrease in net sales was driven by lower volume and
unfavorable channel mix, partially offset by favorable price and mix of product
sold versus the prior-year quarter. The COVID-19 pandemic continued to
negatively impact our net sales across all three channels as restaurants and
retail stores continued to remain closed for much of the second quarter of 2020.
A third-party research firm, Blackbox, reported approximately 40 percent
declines in foodservice traffic (includes both dine-in and carryout) for the
second quarter of 2020. Part of the 40 percent decline in foodservice traffic
includes a large increase in full-service off-premise sales for the same quarter
(approximately 119 percent growth in June and 181 percent in May compared to
prior-year periods). As a result of the traffic decline, our foodservice channel
net sales decreased $64.9 million versus the prior-year quarter. Our
business-to-business and retail channel net sales also declined $14.8 million
and $6.5 million, respectively.



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Net Sales - Latin America



Net sales in Latin America in the second quarter of 2020 were $19.8 million,
compared to $38.2 million in the second quarter of 2019, a decrease of
48.1 percent (a decrease of 41.2 percent excluding currency fluctuation). The
decrease in net sales is primarily attributable to lower volumes as a result of
COVID-19 and an unfavorable currency impact of $2.6 million, partially offset by
favorable price and mix of product sold. Net sales decreased across all three
channels in the second quarter of 2020 compared to the prior-year quarter,
as retail channel net sales decreased $10.5 million, business-to-business
channel net sales decreased $4.8 million and foodservice channel net sales
decreased $3.2 million.



Net Sales - EMEA



Net sales in EMEA in the second quarter of 2020 were $12.1 million, compared to
$32.7 million in the second quarter of 2019, a decrease of 63.0 percent (a
decrease of 62.4 percent excluding currency fluctuation). Net sales in the
retail channel decreased $7.2 million, business-to-business channel net sales
decreased $7.0 million and net sales in foodservice decreased $6.4 million, all
attributable to lower volumes as a result of COVID-19.



Gross Profit



Gross profit decreased to ($20.1) million in the second quarter of 2020,
compared to $46.7 million in the prior-year quarter. The drivers of the $66.8
million reduction were an unfavorable net sales impact of $50.0 million,
unfavorable manufacturing activity of $23.4 million (primarily related to
additional downtime taken due to plant closures, partially offset by reduced
production labor costs and lower repairs and maintenance) and an unfavorable
currency impact of $1.3 million. Partially offsetting the unfavorable items
is $7.9 million of less warehousing and distribution costs as warehouses and
distribution centers were operating at a reduced capacity during the second
quarter of 2020 due to COVID-19. The net sales impact equals net sales less the
associated inventory at standard cost rates. Manufacturing activity includes the
impact of fluctuating production activities from all facilities globally
(including labor and benefit costs, downtime, efficiency, utilization and
utilities), depreciation and repairs and maintenance. Warehousing and other
distribution costs include freight, warehousing expenses and associated labor
and benefit costs.



Loss From Operations



Loss from operations for the quarter ended June 30, 2020, decreased $7.8 million
to ($38.8) million, compared to ($31.0) million in the prior-year quarter. The
unfavorable change in loss from operations was primarily driven by the $66.8
million reduction in gross profit (discussed above), partially offset by the
$46.9 million non-repeating, non-cash impairment charge from 2019, as well as,
reduced selling, general and administrative expenses of $12.1 million. The
favorable change in selling, general and administrative expenses was primarily
driven by reduced spend in the following areas: salaries of $3.6 million,
marketing expenses of $3.1 million and incentive and equity-based compensation
of $2.0 million.

Net Loss and Diluted Net Loss Per Share





We recorded a net loss of ($83.8) million, or ($3.64) per diluted share, in the
second quarter of 2020, compared to a net loss of ($43.8) million, or
($1.95) per diluted share, in the prior-year quarter. The unfavorable change in
net loss and diluted net loss per share is primarily due to the factors
discussed in Loss From Operations above and $39.5 million of reorganization
charges from our Chapter 11 filing, partially offset by less income tax expense
of $5.9 million and lower interest expense of $2.0 million. The Company's
effective tax rate was (0.5) percent for the second quarter of 2020, compared to
(16.8) percent in the prior-year quarter. The key driver of the change in the
effective tax rate was the establishment of valuation allowances against all net
deferred tax asset balances in all jurisdictions during the first quarter of
2020. Management determined that there is substantial doubt that Libbey will
continue as a going concern within one year of the financial statement date
which led to a judgement that the Company is not more likely than not to realize
tax benefits from these deferred tax assets. Also, as a consequence of the
valuation allowances, we did not record a tax benefit related to losses
generated during the second quarter of 2020, resulting in a near-zero effective
tax rate for the second quarter.



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Segment Earnings Before Interest and Income Taxes (Segment EBIT)

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





Three months ended June 30,                                               Segment EBIT Margin
(dollars in thousands)          2020          2019       $ Change           2020          2019
U.S. & Canada                 $ (20,586 )   $ 17,267     $ (37,853 )        (48.2 )%      13.4 %
Latin America                 $  (7,309 )   $  3,187     $ (10,496 )        (36.8 )%       8.3 %
EMEA                          $  (4,762 )   $  2,763     $  (7,525 )        (39.4 )%       8.5 %


_________________________

(1) Segment EBIT represents earnings before interest and taxes and excludes

amounts related to certain items we consider not representative of ongoing

operations as well as certain retained corporate costs and other allocations

that are not considered by management when evaluating performance. Segment

EBIT also includes an allocation of manufacturing costs for inventory

produced at a Libbey facility that is located in a region other than the end

market in which the inventory is sold. This allocation can fluctuate from

year to year based on the relative demands for products produced in regions

other than the end markets in which they are sold. See note 11 to the

Condensed Consolidated Financial Statements for a reconciliation of Segment


     EBIT to net loss.

For the three months ended June 30, 2020, Segment EBIT excludes the following:

U.S. & Canada - $0.1 million of Chapter 11 reorganization charges and 1.0

million of grant income recognition; Latin America - $0.2 million of Chapter 11

reorganization charges and $0.1 million of loss on derivatives de-designated as

hedging instruments. For the three month period ended June 30, 2019, Segment

EBIT excludes $46.9 million of non-cash impairment charges ($46.0 million for

goodwill in our Latin America segment and $0.9 million for a trade name in our


  EMEA segment).




Segment EBIT - U.S. & Canada



Segment EBIT was ($20.6) million in the second quarter of 2020, compared to
$17.3 million in the second quarter of 2019. Segment EBIT as a percentage of net
sales decreased to (48.2) percent for 2020, compared to 13.4 percent in 2019.
The $37.9 million decrease in Segment EBIT was driven primarily by an
unfavorable sales impact of $37.9 million, and unfavorable manufacturing
activity of $12.6 million (primarily related to additional downtime of $22.2
million due to plant closures, partially offset by $7.5 million of reduced
production labor costs). Offsetting some of the unfavorability are less selling,
general and administration expense of $7.4 million (including $2.8 million of
less marketing expenses and $1.7 million of reduced salaries) and $5.0 million
of lower warehousing and other distribution costs.



Segment EBIT - Latin America



Segment EBIT decreased to ($7.3) million in the second quarter of 2020, from
$3.2 million in the second quarter of 2019. Segment EBIT as a percentage of net
sales decreased to (36.8) percent for 2020, compared to 8.3 percent in 2019. The
primary drivers of the $10.5 million reduction were unfavorable manufacturing
activity of $5.8 million (including additional downtime of $11.1 million,
partially offset by $1.3 million of lower repairs and maintenance), and an
unfavorable sales impact of $5.4 million.



Segment EBIT - EMEA



Segment EBIT decreased to ($4.8) million in the second quarter of 2020, compared
to $2.8 million in the second quarter of 2019. Segment EBIT as a percentage of
net sales decreased to (39.4) percent for 2020, from 8.5 percent in 2019. The
majority of the $7.5 million decrease in Segment EBIT was driven by unfavorable
manufacturing activity of $8.0 million (primarily composed of $8.3 million of
additional downtime due to lack of business) and an unfavorable sales impact of
$5.3 million. Partially offsetting the unfavorable items are $3.3 million of
government support for COVID-19 aid recognized as a contra-expense, reduced
warehousing and other distribution costs of $1.3 million and $1.1 million of
less selling, general and administrative expense.



Adjusted EBITDA (non-GAAP)



Adjusted EBITDA decreased by $56.7 million to ($31.4) million in the second
quarter of 2020, compared to $25.4 million in the second quarter of 2019. The
key contributors to the decrease in Adjusted EBITDA were an unfavorable sales
impact of $50.0 million and unfavorable manufacturing activity of $24.6 million
(primarily related to additional downtime taken, partially offset by reduced
production labor costs and lower repairs and maintenance). Partially offsetting
the unfavorable items are reduced selling, general and administrative spend of
$11.4 million (including reduced salaries of $3.6 million, $3.1 million less of
marketing expenses and $2.0 million of less incentive and equity-based
compensation) and lower warehousing and other distribution costs of $8.0
million. Adjusted EBITDA excludes special items that Libbey believes are not
reflective of our core operating performance as noted below in the
"Reconciliation of Net Loss to Adjusted EBITDA."



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Reconciliation of Net Loss to Adjusted EBITDA





                                              Three months ended June 30,            Six months ended June 30,
(dollars in thousands)                         2020                 2019               2020               2019
Net loss (U.S. GAAP)                       $     (83,794 )      $     (43,767 )    $    (162,542 )      $ (48,309 )
Add:
Interest expense                                   3,837                5,879              9,428           11,511
Provision for income taxes                           443                6,299             20,822            5,003
Depreciation and amortization                      8,689                9,991             17,534           19,922
Add: Special items before interest and
taxes:
Fees associated with strategic
initiative                                             -                    -                406                -
Asset impairments (see   note 17  )                    -               46,881             38,535           46,881
Workforce reduction                                    -                    -                517                -
Debt refinancing & prepetition
reorganization charges                                 -                    -              3,356                -
Loss on derivatives de-designated as
hedging instruments                                  927                    -             13,850                -
Employee benefit liability adjustment                  -                    -             (1,720 )              -
Reorganization items, net                         39,527                    -             39,527                -
Grant recognition                                 (1,000 )                  -             (1,000 )              -
Adjusted EBITDA (non-GAAP)                 $     (31,371 )      $      25,283      $     (21,287 )      $  35,008

Net sales                                  $      77,532        $     206,158      $     228,053        $ 381,124
Net loss margin (U.S. GAAP)                       (108.1 )%             (21.2 )%           (71.3 )%         (12.7 )%
Adjusted EBITDA margin (non-GAAP)                  (40.5 )%              12.3 %             (9.3 )%           9.2 %




Non-GAAP Measures



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



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



We present Adjusted EBITDA because we believe it is used by analysts, investors
and other interested parties in comparing our performance across reporting
periods on a consistent basis by excluding items that we do not believe are
indicative of our core business operating results. Adjusted EBITDA also allows
for a measure of comparability to other companies with different capital and
legal structures, which accordingly may be subject to different interest rates
and effective tax rates, and to companies that may incur different depreciation
and amortization expenses or impairment charges. In addition, we use Adjusted
EBITDA internally to measure profitability.

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

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our

working capital needs;

• Adjusted EBITDA does not reflect the significant interest expense, or the cash

requirements necessary to service interest or principal payments, on our

debts;

• Although depreciation and amortization are non-cash charges, the assets being

depreciated and amortized will often have to be replaced in the future, and

Adjusted EBITDA does not reflect any cash requirements for such replacements

of capital expenditures or contractual commitments;

• Adjusted EBITDA does not reflect the impact of certain cash charges resulting

from matters we consider not to be indicative of our ongoing operations; and

• Other companies in our industry may calculate Adjusted EBITDA differently than


    we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP.





Constant Currency



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



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Discussion of First Six Months 2020 Compared to First Six Months 2019

Net Sales

The following table summarizes net sales by operating segment:





                                                                                                      Constant Currency
Six months ended June 30,                                   Increase/(Decrease)                             Sales
                                                                                       Currency        Growth (Decline)

(dollars in thousands) 2020 2019 $ Change % Change Effects

              (1)
U.S. & Canada               $ 138,564     $ 238,803     $ (100,239 )       (42.0 )%   $        (6 )         (42.0 )%
Latin America                  46,484        68,609        (22,125 )       (32.2 )%        (3,703 )         (26.9 )%
EMEA                           37,376        60,720        (23,344 )       (38.4 )%          (861 )         (37.0 )%
Other                           5,629        12,992         (7,363 )       (56.7 )%          (175 )         (55.3 )%
Consolidated                $ 228,053     $ 381,124     $ (153,071 )       (40.2 )%   $    (4,745 )         (38.9 )%

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(1) We believe constant currency sales growth (decline), a non-GAAP measure, is

a useful metric for evaluating our financial performance. See the "Non-GAAP

Measures" section above for the reasons we believe this non-GAAP metric is


     useful and how it is derived.




Net Sales - U.S. & Canada



Net sales in U.S. & Canada in the first six months of 2020 were $138.6 million,
compared to $238.8 million in the first six months of 2019, a decrease of 42.0
percent. The decrease in net sales was driven by lower volume and unfavorable
channel mix, partially offset by favorable price and mix of product sold versus
the prior-year period. Net sales in all three channels decreased in the
first six months of 2020 compared to the prior-year period, as impacts from the
COVID-19 pandemic resulted in the closure of many retail stores and restaurants
by the middle of March, resulting in many customers delaying or cancelling
purchases. We continue to see declines in foodservice traffic, as reported by
third-party research firm Blackbox. Net sales in our foodservice channel have
decreased $74.8 million primarily due to lower volume compared to the prior-year
period. Our business-to-business and retail channel net sales also declined
$18.5 million and $7.0 million, respectively.



Net Sales - Latin America



Net sales in Latin America in the first six months of 2020 were $46.5 million,
compared to $68.6 million in the first six months of 2019, a decrease of 32.2
percent (a decrease of 26.9 percent excluding currency fluctuation). The
decrease in net sales is primarily attributable to lower volumes due to the
impacts of COVID-19 and an unfavorable currency impact, partially offset by
favorable price and mix of product sold. Net sales decreased across all three
channels in the first six months of 2020 compared to the prior-year period,
as retail channel net sales decreased $12.8 million,
business-to-business channel net sales decreased $5.3 million and foodservice
channel net sales decreased $4.1 million.



Net Sales - EMEA



Net sales in EMEA in the first six months of 2020 were $37.4 million, compared
to $60.7 million in the first six months of 2019, a decrease of 38.4 percent (a
decrease of 37.0 percent excluding currency fluctuation). The net sales decrease
is primarily attributable to lower volumes and an unfavorable currency impact of
$0.9 million, partially offset by favorable price and mix of product sold. Net
sales in the retail channel decreased $9.1 million, net sales in the foodservice
channel decreased $7.9 million, and net sales in the business-to-business
channel decreased $6.4 million, all attributable to lower volumes as a result of
COVID-19.



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  Table of Contents



Gross Profit



Gross profit decreased to $2.9 million in the first six months of 2020, compared
to $80.7 million in the prior-year period. The primary drivers of the $77.8
million reduction were an unfavorable net sales impact of $56.2 million,
unfavorable manufacturing activity of $26.7 million (primarily related to
additional downtime taken for furnace rebuilds and plant closures, partially
offset by reduced production labor costs, lower repairs and maintenance and
lower depreciation) and an unfavorable currency impact of $3.5 million. These
unfavorable items were partially offset by less spend on our warehousing and
other distribution costs of $9.0 million as our warehouses and distribution
centers were operating at a reduced capacity during the first six months of 2020
due to COVID-19.



Loss From Operations



Loss from operations for the six months ended June 30, 2020, decreased $51.3
million to ($80.9) million, compared to ($29.6) million in the
prior-year period. The unfavorable change in loss from operations was primarily
driven by the $77.8 million reduction in gross profit (discussed above), as well
as the $38.4 million non-cash goodwill impairment charge in the U.S. and Canada
segment, partially offset by the non-repeating, non-cash impairment charges from
the prior-year period of $46.9 million and $18.1 million of reduced selling,
general and administrative expenses. The favorable change in selling, general
and administrative expenses was driven by reduced spend in the following areas:
marketing expense of $5.1 million, salaries of $4.4 million, incentive and
equity-based compensation of $3.7 million, travel and entertainment expenses of
$1.4 million, and research and development expenses of $1.2 million.

Net Loss and Diluted Net Loss Per Share





We recorded a net loss of ($162.5) million, or ($7.10) per diluted share, in the
first six months of 2020, compared to a net loss of ($48.3) million,
or ($2.16) per diluted share, in the prior-year period. The unfavorable change
in net loss and diluted net loss per share is due to the factors discussed in
Loss From Operations above, as well as, $39.5 million reorganization charges
related to the Chapter 11 filing, additional income tax expenses of
$15.8 million, $13.9 million of loss on derivatives de-designated as hedging
instruments and $3.4 million of debt refinancing and prepetition reorganization
charges. Partially offsetting these were a favorable change of $5.6 million in
other income (expense) attributable to foreign currency impacts, less interest
expense of $2.1 million, and a $1.7 million employee benefit liability
adjustment. The Company's effective tax rate was (14.7) percent for the first
six months of 2020, compared to (11.6) percent in the prior-year period. The key
driver of the current year effective tax rate was the establishment of valuation
allowances against all net deferred tax asset balances in all jurisdictions
during the first quarter of 2020. Management determined that there is
substantial doubt that Libbey will continue as a going concern within one year
of the financial statement date which led to a judgment that the Company is not
more likely than not to realize tax benefits from these deferred tax assets.

Segment Earnings Before Interest and Income Taxes (Segment EBIT)

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





Six months ended June 30, 2020                                               Segment EBIT Margin
(dollars in thousands)             2020          2019       $ Change         2020            2019
U.S. & Canada                    $ (13,688 )   $ 27,064     $ (40,752 )         (9.9 )%      11.3 %
Latin America                    $  (2,788 )   $  3,836     $  (6,624 )         (6.0 )%       5.6 %
EMEA                             $  (6,372 )   $  2,713     $  (9,085 )        (17.0 )%       4.5 %


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