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Libbey, Inc. (NYSEMKT:LBY)

Q3 2008 Earnings Call Transcript

October 30, 2008 11:00 am ET

Executives

Ken Boerger – VP & Treasurer

John Meier – Chairman & CEO

Greg Geswein – VP & CFO

Analysts

Arnie Ursaner – CJS Securities

Carla Casella – JP Morgan

Doug Lane – Jefferies & Company

Bob Wetenhall – Royal Bank of Canada

Greg Weiss [ph] – WPC

Brian Schinderle – Wolf Point Capital

Jim Barrett – CL King & Associates

Amy Greene – Avondale Partners

Operator

Good morning, ladies and gentlemen, welcome to the Libbey, Inc. third quarter 2008 conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator instructions) This conference is being recorded today on Thursday, the 30th of October, 2008.

I would now like to turn the conference over to Mr. Ken Boerger. Please go ahead, sir.

Ken Boerger

Good morning and welcome to Libbey's third quarter conference call. I'm Ken Boerger, Libbey's Vice President and Treasurer. With me on today's call are John Meier, Chairman and Chief Executive Officer, Greg Geswein, Vice President and Chief Financial Officer, and Scott Sellick, Vice President and Chief Accounting Officer.

I will start by reading the cautionary statement and then I will turn the call over to John Meier for his opening comments.

Material presented today includes forward-looking statements about Libbey, Inc. These statements only reflect Libbey's best assessment at this time, and are subject to risks and uncertainties, including market conditions, competitive pressures, significant cost increases, and currency fluctuations. Investors should not place undue reliance on such statements. For further information and important factors potentially affecting performance, please refer to today's press release and/or the Company's Form 10-K for the year-ended December 31st 2007.

And with that, I will turn the call over to John Meier.

John Meier

Thanks, Ken. Thank you for joining Libbey's quarterly conference call. As our pre-release conference call of October 17th discussed, various details on the broader business and today's release gives ample and full disclosure on our customer basis and their Q3 performance. I will focus my remarks on broader themes and directionally what we are seeing in our markets going forward. It is my belief the market has digested our Q3 performance and our commentary of October 17th.

Further, and as noted on October 17th, it is in this session that Greg Geswein, our CFO, will give deeper insight into all of our numbers.

Accordingly, my focus and comments are forward-looking. The reality is that our markets are still tepid. News of the day impacts the traffic-driven business in which Libbey participates. And that is a fundamental characterization of both our food service and retail businesses worldwide.

Consumer behavior in challenging economic times reflects in less restaurant traffic and more discriminating shopping behavior. Clearly, the very severe external events impacting financial markets of late September and early October chilled our customer bases. The good news is that our order flow in the USA and in Mexico in the last two weeks in key sectors has picked up.

To that end, in Mexico, increases retail business we expect October to be a record month, any month, any year. This is in local currency, of course. And given the 25% devaluation since September, it will not play through as strongly in our dollar reporting when it comes time to assess Q4. But frankly, that's not the point at the moment. The good news is the performance of the sector and this news is welcome. While one swallow does not make a spring, directionally it is encouraging.

Our USA businesses have also shown a pick up in the last half of the month, food service, retail and our industrial business. Europe, we expect will meet our expectations for the quarter and we expect China to do the same. But again, expectations as defined in our October 17th guidance and affirm today are reduced from how we viewed Q4 in August of this year, but unlike – not unlike the vast majority of all businesses I would suggest.

Let's talk about actions taken. In the face of these turbulent markets and a recession, we announced in our press release today actions taken that will impact 2009 in terms of hard, cold cash. We have identified over 10 categories of spending that have been significantly modified or outright cut for 2009.

Our press release shares a range of $20 million to $23 million of savings for the year 2009. This is a bold step, but I believe a necessary step. Painful in some respects as embodied in that list beyond capital expenditure cuts are also worldwide salary freezes and worldwide hiring freezes, among others. Our salary population has been notified of this 90 minutes ago.

Our view of 2009 is that it will be a challenging marketplace and we must plan accordingly. These announced actions are proactive, appropriate, and in my view necessary.

Going forward, last week Libbey exhibited in the New York Tabletop Show which is our second largest USA retail show. Our meetings with key retailers were good, our schedule was full and programs are being solidified for 2009. Their mood is cautious as they enter this fall selling season, but at the same time we noted that our middle market/cost driven retailers to have a more positive outlook as traffic is migrating to those sectors. We are well-positioned with those retailers also.

Our performance on the retail shelf will be a function of shopper sentiment and their migrating to lower price point categories. As stated on October 17th, food service in Q4 will be slower than last year and this is embedded in our guidance.

That being said, as noted in our earlier press release of this week, we have again picked up two leadership awards to go with the significant awards won throughout the year from other key leading food service customers. Our position as the leader in this business is as strong as ever. The challenge is the marketplace, and by that I mean traffic. And as per my earlier comments, the last two weeks have shown some directional improvement for Libbey. Taking it further in both our food service and retail businesses in our core USA marketplace, I believe we are gaining market share in 2008.

In conclusion, these are the most challenging times I have seen in my 38-year career. Libbey will do what it must as we go forward. The North American market has been the brunt of the issue for Libbey. Our solid market shares will serve us in this period. All actions taken position us to come out of this stronger and more resilient than ever. And that is exactly what will happen.

I'll now turn it over to Greg Geswein for further commentary.

Greg Geswein

Thanks, John, and good morning everyone. While the third quarter revenue of $211.5 million was the largest third quarter in the Company's history and the fourth largest of any quarter ever, we cannot overcome the weakness we saw in the last part of September.

EBITDA was $24.5 million versus the prior year quarter of $28 million and our previous guidance of $27 million to $29 million. The lower EBITDA was driven by the higher sales and lower SG&A costs which were more than offset by unfavorable swing in non-cash, foreign currency translation losses versus the prior year quarter of approximately $2.7 million and increased natural gas and distribution costs.

We report a net loss of $6 million or $0.40 per diluted share for the third quarter ended September 30th 2008 compared to net income of $400,000 or $0.03 diluted income per share in the prior year quarter as a result of an unusually high tax rate, higher energy costs and slightly higher interest expense.

The 4.5% increase in sales in the quarter was achieved by a 17.4% increase in international sales as sales to Crisal and Royal Leerdam glassware customers increased 15.5% and 4.1% respectively. And Libbey China had sales growth of over 150%. Excluding the currency impact, international sales increased approximately 10.4%. In addition, North American Glass sales increased 1.9%, benefiting from more than a 6% increase in shipments to U.S. and Canadian retail glassware customers.

Shipments of Crisa glassware were up 2.7% and sales to U.S. foodservice glassware customers were down 1.7%. North American Other sales decreased 3.6% as a 10.9% decrease in shipments of World Tableware products more than offset single digit sales growth of Syracuse China and Traex products.

Income from operations decreased approximately 1% to $14.6 million from the $14.7 million in the prior year, and was 6.9% of sales compared to 7.3% in the prior year. The decrease was attributed to an unfavorable mix as a result of lower food service sales and significant higher commodity costs, including increases in natural gas and electricity costs, partially offset by higher sales and slightly lower SG&A expenses. As a percent of sales, SG&A decreased 11.1% from 11.6% in the prior year period.

Earnings before interest and taxes were $13.6 million compared to $16.2 million in the year ago quarter. EBIT was $9.7 million from North American Glass compared with $11.3 million in the third quarter of 2007 as a result of the unfavorable swing in non-cash foreign currency translation losses versus the prior year quarter of approximately $2.7 million, the lower production activity in Mexico due to a scheduled furnace rebuild, lower production activity in U.S. operations to control inventories and higher natural gas expenses.

North American Other reported EBIT of $2.1 million for the third quarter of 2008 compared with $3.2 million in the third quarter of 2007. The decrease was primarily a result of the lower sales of World Tableware.

The International segment reported EBIT of $1.7 million, which is flat versus year ago quarter as a result of higher international sales, offset by higher natural gas and other costs in Europe.

As noted we reported EBITDA of $24.5 million in the third quarter compared to EBITDA of $28 million in the year ago quarter and the previous guidance of $27 million to $29 million. And as a percent of sales, EBITDA was 11.6% versus the 13.8% in the year-ago period.

Looking at the nine month results for the nine months ended September 30th 2008, sales increased 5.9% to $623.6 million from the $589 million in the year-ago period. North American Glass sales increased 3.3%, benefiting from more than a 9% increase in shipments to U.S. and Canadian retail glassware customers. Shipments of Crisa glass were up 8.1% and sales to food service glassware customers were down 4.9%.

North American Other sales decreased 2.6%, primarily as a result of lower sales of Syracuse China products. And International sales increased 22.9% as a result of significant increased shipments to customers of Libbey China and favorable currency impact on European sales. Excluding the currency impact, International sales increased approximately 9.4%.

We reported income from operations of $42.8 million during the first nine months of 2008 compared to income from operations of $45.6 million in the year ago period. Factors contributing to the decrease in income from operations were lower food service sales, lower production activity in Mexico as a result of the furnace rebuild and higher natural gas and electricity costs. Partially offsetting these increased costs were higher total sales.

EBIT was $43.1 million compared to $49.6 million in the first nine months of 2007. North American Glass EBIT was $31.7 million compared to the $38.8 million in the first nine months of 2007, as a result of higher sales which were more than offset by the unfavorable swing in non-cash foreign exchange translation losses versus the prior year quarter of approximately $1.8 million, unfavorable mix of sales, decreased operating activity in Crisa's operations, and higher natural gas and electricity costs.

And North American Other reported EBIT for the first nine months of 2008 of $9.6 million compared to $11.3 million in the year ago period, primarily as a result of lower sales of Syracuse China and a $1.1 million gain in the sale of land at Syracuse which was included in the 2007 numbers.

The International segment reported EBIT of $1.8 million compared to EBIT loss of $500,000 in the first nine months of 2007. The improvement in EBIT was primarily related to Libbey China's increased sales and higher international sales partially offset by higher natural gas costs in Europe. And we reported EBITDA of $76.5 million in the first nine months of 2008, compared to EBITDA of $81.3 million in the year ago nine month period.

Cash flow from operations during the third quarter of 2008 increased to $13.3 million as compared to $11.4 million in the year ago period. And this is the highest third quarter cash flow from operations in the history of the Company. The major contributor to this performance was improved working capital management during the quarter.

As of September 30th, 2008 working capital, which is defined as inventory and accounts receivables, less accounts payable decreased by $3.4 million from $252.2 million to $248.8 million. Key drivers of lowering working capital were higher inventories as a result of some seasonal working capital needs, which were more than offset by lower receivables and higher accounts payable. Working capital as a percentage of net sales was 29.3% in the third quarter of 2008. This compares to working capital as a percentage of 2007 net sales of 31.4%.

Free cash flow was $1 million in the third quarter of 2008 as compared to $2.7 million in the third quarter of 2007. The decrease in the third quarter last year was a result of higher capital expenditures in the International segment.

Free cash flow for the first nine months of 2008 was the use of $39.6 million as compared to the use of $13.7 million in the first nine months of 2007. The primary contributors were a $19.6 million payment to Vitro made in the current year related to the purchase of Crisa in 2006 and increased working capital at Libbey China where production did not begin until late in the first quarter of 2007.

We had available capacity of $79.7 million under our ABL credit facility as of September 30th 2008 and this compares to availability of $71.1 million at June 30th 2008. This availability is actually up almost $5 million from the prerelease on October 16th as we completed all the financials.

CapEx was $12.4 million in the third quarter of 2008 compared to $9.4 million in the year ago period. For the first nine months of 2008, CapEx was $30 million versus the $32 million in the prior year period. Depreciation and amortization was $10.9 million in the third quarter of 2008 versus $11.8 million in the prior year. Decrease is principally the result of some short-lived assets in Crisa that were part of the acquisition.

Total gross debt was $531 million at September 30th, 2008 compared to the $499 million in the prior year period and $542 million at June 30th, 2008. The increase in the prior year was the result of additional PIK notes issued of $19.7 million and the $19.6 million payment to Vitro related to the Crisa acquisition.

The total debt to EBITDA was 4.7 times at the end of the third quarter versus the six plus times when we completed the refinancing in 2006.

Of our total debt outstanding, approximately 36% is floating, therefore subject to fluctuations in interest rates. Included is the 64% that is fixed, $200 million has been fixed with interest rate swaps which converted this amount from variable debt to fixed rate debt when we originally issued these notes.

And while current market conditions preclude any refinancing in the current capital structure at this time, we are taking steps, as John mentioned, to improve free cash flow in 2009 and we have identified actions to improve free cash flow by $20 million to $23 million. In addition, we continue to be focused on alternatives related to the PIK notes since they are the most onerous tranche in the current structure.

And just to reiterate the guidance for the fourth quarter, we expect sales in the range of $210 million to $220 million. EBITDA is expected to be between $20.5 million and $23.5 million. We also expect to generate approximately $12 million to $15 million in free cash flow during the fourth quarter. In addition, EBITDA guidance for the full year is $97 million to $100 million and we also expect sales for the full year to be in the range of $833 million to $843 million which would represent an increase of approximately 2% to 3.5% over 2007.

So despite slower economic conditions, our business fundamentals remain strong and we are working to ensure that Libbey will be able to navigate through this difficult time and emerge as a stronger and more efficient Company. And with that we will open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question is from the line of Arnie Ursaner with CJS Securities. Please go ahead.

Arnie Ursaner – CJS Securities

Hi. Good morning, John. The first question I have is you mentioned a pretty good pick-up in the back half of the month. Was there a specific incentive that you provided customers to motivate them to take product? Or was this just a natural pick up in activity? And what's your best read as to why it may have occurred?

John Meier

There was no incentive whatsoever, Arnie. I think particularly – I really believe as we talked about on the 17th the last two weeks of September we literally had customers just freeze up a little bit. And maybe that's an over-characterization. So I think as October, we got through the first 7 to 10 days of the month and things began to stabilize in external markets in the financial sectors somewhat, compared to that roller coaster of the 30 days mid-September to let's say October 10th. It was a pent up demand. And again, I'm not suggesting it is voluminous and it has covered all the issues of the last 6 weeks, but directionally it was a clear pick-up. And we are very pleased with what has occurred in Mexico in that mass-merchant sector which they define as retail.

Arnie Ursaner – CJS Securities

Would it be fair to say that if you were providing guidance today it would be different than the one you provided?

John Meier

You know with all that we've been through, all of us in every company and every management team, I think we're going to err on the side of being cautious. Every week's a new week. So we will continue to be cautious. I would probably personally say no simply because of the up and down, up and down of the last six to eight weeks. But directionally, we liked what we saw.

Arnie Ursaner – CJS Securities

Yes. I didn't realize it was so volatile in the world. My other question is a pretty straight forward one. You mentioned in your preliminary views towards 2009 you identified $20 million to $23 million of cash flow enhancement. Two part question. And one is, without divulging too much information, could you perhaps highlight the one or two most sizeable buckets within the $20 million to $23 million? And the second question would be how much of that is likely to flow through to EBITDA?

Ken Boerger

Well the biggest piece of it Arnie, is obviously capital expenditures, taking that down next year. And then, as John mentioned, salary freezes, wage freezes. A whole host of other items. So I would say somewhere in the neighborhood of probably over half of that would flow through to EBITDA.

Arnie Ursaner – CJS Securities

Great. Thank you very much.

Operator

Great. Thank you. Our next question is from the line of Carla Casella with JP Morgan. Please go ahead.

Carla Casella – JP Morgan

Hi. I'm wondering if you could comment on your pension plan. And just given the volatility in the markets, do you anticipate making greater payments into it next year?

Ken Boerger

Well, that's – we're still reviewing that. Our measurement date really is at the end of the year. So we really won't know what those numbers are until probably sometime toward the end of January.

Carla Casella – JP Morgan

Okay. And then can you just talk about the trends throughout the quarter? Did you see trends actually deteriorate throughout the quarter? Or past? I guess what we're hearing from a lot of companies is that September and then October got progressively worse?

John Meier

No. That's exactly right for Libbey. Our July and August we were quite pleased. The first seven to eight days of September we were pleased. And then when everything started to unravel and frankly Wall Street did what Wall Street did and the world markets also, it was clearly the last two weeks, perhaps 16 to 18 days of September that regrettably impacted the entire quarter on a very significant basis. And the first 8 to 10 days of October had that same effect. But as I mentioned in my comments, we've seen some pick up in our core food service business. We've seen some pick up in our retail business and our industrial business, which is Libbey's third business. It's an OEM business where we make, let's say, private mold glass subjects for people in other industries, the candle industry, the floral industry. And it's simply a better direction than that period that I described a minute ago.

Carla Casella – JP Morgan

Okay. Great. And then have you actually seen any fallout from smaller competitors just given all of the issues? Or do you – it sounds like you do expect that and you could be taking some share?

John Meier

Well I think the reason we take share here domestically in times like this, particularly in the retail arena – when retailers, good retailers at any strata of the retail arena are evaluating their plans two months out, three months out, eight months out, if they're going to be importing and sourcing from abroad, the lion's share of those programs are letter of credit. And those programs are ordered eight and twelve weeks in advance from a vendor in China, a vendor in Eastern Europe, or wherever. And come hell or high water, that stuff is going to show up in Long Beach, California or the Port of New York. Whereas with a core domestic supplier, such as we are viewed here in the USA or like Crisa is viewed in Mexico, the flexibility that a retailer has with a core domestic guy is something that goes along the following. Well you know those trucks that we have scheduled, the 40 trucks that we have scheduled for Monday? Sit on them. They don't have that flexibility with import programs. And in these challenging times we believe that is why we are continuing to be favored with increased business. Just last night we received a notification of a major commitment from a major retailer for 2009 that we never enjoyed this piece of business before.

Carla Casella – JP Morgan

That's great. And then we're starting to see oil prices come down. How quickly until you think we see that on the commodity cost side?

Greg Geswein

In terms of natural gas?

Carla Casella – JP Morgan

Right.

Greg Geswein

Well, we have hedged probably somewhere close to 60% of our requirements in 2009.

Carla Casella – JP Morgan

Right.

Greg Geswein

For North America. And so we obviously started hedging at when things were $10, $11. And so don't expect to see natural gas prices for us next year at $7.

Ken Boerger

But we do still expect some improvement in natural gas prices for 2009 versus 2008.

Carla Casella – JP Morgan

Okay. That's helpful. Great. Thanks.

Operator

Alright. Thank you. Our next question is from the line of Doug Lane of Jefferies & Company. Please go ahead.

Doug Lane – Jefferies & Company

Yes. Good morning, everybody. Just like to pursue the natural gas question a little bit further. In '07 it looks like the natural gas expense or cost was about $7 million more than it was in 2006. What kind of magnitude from where you sit today. I know you're not 100% hedged and the spot market will do what it will do. But where do you sit today? What kind of hit do you think you take in natural gas in '08 versus '07? And then what kind of relative benefit do you see in '09 versus '08?

Ken Boerger

Well, in terms of '08 versus '07 our expectation is around $10 million hit.

Greg Geswein

Yes. In Q3, it was over $4 million. As you might remember Q1 and Q2 it was about $1.3 million each. So Q4 our expectations is that would be over a $3 million hit.

Doug Lane – Jefferies & Company

Okay. And how much of that do you think you can get back next year?

Greg Geswein

Well, as Ken mentioned, it will be down. It all depends on – we're about 60% hedged in North America. It really depends on where that spot market goes. But it will certainly be down. It won't be down $10 million.

Doug Lane – Jefferies & Company

Fair enough. I assume that based on your initiatives you're talking about that we should go ahead and model in working capital as a source of funds for this year and next year?

Greg Geswein

Yes.

Doug Lane – Jefferies & Company

Okay. And then lastly, on the cash flow with CapEx, are we – are you articulating a CapEx number for '08, specifically?

Greg Geswein

We said it would probably be the low to mid 40's.

Doug Lane – Jefferies & Company

Okay. And so in '09 order of magnitude, mid to high 30's?

Greg Geswein

Probably lower than that.

Doug Lane – Jefferies & Company

Lower than that? Okay. Alright. Thank you.

Greg Geswein

You're welcome.

Operator

Alright. Thank you. Bob Wetenhall with Royal Bank of Canada. Please go ahead with your question.

Bob Wetenhall – Royal Bank of Canada

Hi, Good morning.

Greg Geswein

Hey, Bob.

Bob Wetenhall – Royal Bank of Canada

On the – on your guidance, I'm just trying to understand something. It looks like your fourth quarter you have sales going down. Is the working capital as a source in response to carrying lower inventory as a function of weaker sales performance?

Ken Boerger

I think the fourth quarter through history has always been a positive cash flow; working capital goes down. And it's no different this year.

Bob Wetenhall – Royal Bank of Canada

I'm talking more about over the course of the next year.

Ken Boerger

In terms of 2009?

Bob Wetenhall – Royal Bank of Canada

Right. It seems like your working capital performance is just better overall. But if you're going into – is that – is your working capital investment level just accelerating or decelerating? It looks like you're going to take cash out if your sales continue to year-over-year decline, correct?

Ken Boerger

Correct.

Bob Wetenhall – Royal Bank of Canada

Your kind of 10.2% EBITDA margin for the fourth quarter at the mid point of your guidance versus 11.5% for the third quarter. Where is the 130 basis point differential going to be mostly from?

Greg Geswein

Yes. It's primarily from lower activity. In the fourth quarter we typically take downtime in association with the December holidays. And this year, as we said on October 17th, we will be taking even additional downtime during the fourth quarter.

Bob Wetenhall – Royal Bank of Canada

Understood. Any expectations for modeling purposes for any negative FX impacts or surprises?

Ken Boerger

We could certainly have some given where the peso is at this point. We haven't outlined what that might be.

Bob Wetenhall – Royal Bank of Canada

Okay. In an order of magnitude, would it be a few million bucks or anything more significant than that?

Ken Boerger

It wouldn't be anymore significant than that.

Bob Wetenhall – Royal Bank of Canada

Okay. And the final question, how much was outstanding on the ABL at the end of the third quarter?

Ken Boerger

It was around $30 million.

Bob Wetenhall – Royal Bank of Canada

Okay. Terrific. Thanks very much.

Operator

Alright. Thank you. Greg Weiss [ph] with WPC. Please go ahead.

Greg Weiss – WPC

Hi, guys. How are you?

Ken Boerger

Good.

Greg Weiss – WPC

I know you covered some of this already I apologize if I'm repeating anything that you've already said. But how much have you hedged out now in natural gas for 2009? And how much was hedged out as of the end of the second quarter?

Ken Boerger

Well what we said was North America we've hedged about 60% into '09 right now. And how much was hedged – ?

Greg Weiss – WPC

How much did you do during the quarter is really what I'm asking?

Ken Boerger

We had probably layered on – I don't know. I don't have that figure right in front of me, Greg. But probably another almost 20%.

Greg Weiss – WPC

And I assume this is the case. But the $20 million to $23 million, that is exclusive of any potential natural gas benefit?

Ken Boerger

That's correct.

Greg Weiss – WPC

The rest you already answered. Thank you.

Ken Boerger

Yes. The $20 million to $23 million are specific actions that we're taking that we've identified.

Greg Weiss – WPC

Right. Okay. Thank you.

Ken Boerger

Welcome.

Operator

Alright. Thank you. Our next question is from Brian Schinderle with Wolf Point Capital. Please go ahead.

Brian Schinderle – Wolf Point Capital

Hey, guys. Couple questions for you to clean up. On the cost guidance, the $23 million, I thought I heard you mentioned that part of that might have been CapEx reduction as well. So are these – is the $23 million true cost side reductions or is some of that CapEx related?

Greg Geswein

Yes. The $20 million to $23 million, Brian, is free cash flow improvement.

Brian Schinderle – Wolf Point Capital

But costs only or cost plus CapEx plus working capital? Anything that would relate to free cash flow?

Greg Geswein

No. It's really CapEx and cost actions.

Brian Schinderle – Wolf Point Capital

And do you have a magnitude for what's related to CapEx versus cost?

Greg Geswein

Yes. We said about half of that would be CapEx.

Brian Schinderle – Wolf Point Capital

Okay. So about a $10 million-ish reduction in CapEx and the rest of it is cost reductions, headcount, et cetera. Do you expect some cash charges to come from that as it relates to severance and other items?

John Meier

It's not severance. It's salary freeze and hiring freeze. And implied in the hiring freeze, when people retire or go perhaps join in another company, we're simply not replacing them. But there's no severance.

Brian Schinderle – Wolf Point Capital

Okay. So we shouldn't expect charges to flow through related to this?

Ken Boerger

That's right.

Brian Schinderle – Wolf Point Capital

And then I'm not clear if it was in an investor presentation or on the call you held a couple weeks ago, but you were discussing some price actions that you had made in the market. Could you sort of update us on where you stand with those? And what has been pushed through sort of what magnitude and where you stand in that process?

John Meier

Yes. We announced price increases to be effective mid-August in the United States and all of our markets. And they were largely 8% or higher in some international markets. They are in place. The reality is, as we said – and as you may recall on October 17th, the volumes, however, the units that we are now forecasting to ship are less than what our view of the world was in early August. But all of the price increases have been implemented in our businesses throughout the world.

Brian Schinderle – Wolf Point Capital

And you intend to hold the line based on what you've already put through? Or are you getting some pressure based on lower commodity prices, lower natural gas? And just a weak overall environment where people now are asking for some price give backs?

John Meier

No. We get pressure but the reality is, as we said at the time that we announced them to our customers, our view on energy is not a snapshot on a given day. We regrettably – we have a lot of hedges in there that are at $10 and $11 and $12 because as you would know on June 15th natural gas was $13 and change and climbing. And so a hedge, looking into 2009 with an 11 in front of it was pretty favorable, comparatively speaking and then everything rolled over. But the reality is we do have hedges in there with a double-digit in front of the cents. And we explain that to our clients and I'm not saying they like it but they understand it.

Greg Geswein

And as we said earlier in the call, we expect our natural gas costs to still be up, even at today's prices, $10 million this year over last year.

Brian Schinderle – Wolf Point Capital

Right. Last – I think my last question. On the bad debt expense side, given what's going on in retail, anything interesting going on there? Or what's your view overall?

Greg Geswein

Overall, we believe we are reserved for any issues that we may have. And we do not currently have any large (inaudible) issues. And our bad debt reserve is adjusted every quarter. And we are adequately reserved at this time.

Brian Schinderle – Wolf Point Capital

Thanks, guys.

Operator

Thank you. Our next question is from Jim Barrett with CL King & Associates. Please go ahead.

Jim Barrett – CL King & Associates

Good morning, everyone.

Greg Geswein

Hi, Jim.

Jim Barrett – CL King & Associates

Greg, can you tell us aside from natural gas, can you tell us what is your outlook for items such as packaging costs, inbound freight on a going forward basis?

Greg Geswein

Packaging, interesting enough, that was – now part of that mix. But in the quarter it was up almost $4 million on a year-over-year basis. So hopefully we'll see that go down in 2009 somewhat. In terms of freight, we've been having freight surcharges through the year as well. That's a pretty sizeable number so hopefully that will go down in 2009 as well.

Jim Barrett – CL King & Associates

Okay. How far in advance can you buy your packaging? How does that work?

Greg Geswein

Well, I mean, we certainly don't try to buy it too far in advance. Trying to control inventories and so forth. And certainly on the retail side, as different products change and so forth, you want to make sure you're not caught with a bunch of packaging you don't need. So we don't buy it a year out, that's for sure.

John Meier

We don't buy it very far out at all.

Jim Barrett – CL King & Associates

I see. And on a plant level, are all your plants cash flow positive after CapEx currently or looking out into '09?

Greg Geswein

We don't' break that out, Jim.

Jim Barrett – CL King & Associates

Okay. My last question was actually for you, John. The Company has always had terrific pricing power in food service. Is seeking further pricing even if commodities don't go up, part of your strategy to improve profitability?

John Meier

We just want to get through this quarter. And the market right now is very tepid. We just want to get through this quarter. And even if – even with all our competitors who religiously listen to this call, I would not comment on that.

Jim Barrett – CL King & Associates

Okay. And then last and maybe least, how many employees typically retire or leave every year? What kind of reduction can we see on that front?

John Meier

Well on a salaried side, 60, plus or minus 5.

Jim Barrett – CL King & Associates

Okay. That helps. Thank you very much.

Operator

Alright. Thank you. Amy Greene with Avondale Partners. Please go ahead.

Amy Greene – Avondale Partners

Guys, I just can't come up with anything else.

Ken Boerger

Okay, Amy.

Operator

Alright. Thank you. Arnie Ursaner, please go ahead with your follow-up question.

Arnie Ursaner – CJS Securities

Hi. Two follow up questions if I can. Linens 'n Things is liquidating very obviously and openly in the market. Can you give us any feel for revenue levels? First of all, how is it impacting your business currently with other retailers? And any rough sense of revenue contribution that it might have been, maybe in a broad sense rather than a specific number?

John Meier

Let me say this. In a broad sense, our sales last year in total when they were a full fledged customer, they were well under 1% of our total sales. We did $814 million last year.

Arnie Ursaner – CJS Securities

Great. That's very helpful.

John Meier

Okay.

Arnie Ursaner – CJS Securities

And the second question regarding imports into the US. One of the issues that's affecting a lot of shipping is letter of credit availability. We've seen almost complete halt of trading. Are you seeing any of your retail customers that might have been counting on product being shipped in approaching you to see if you can offset that weakness or provide them product? Or is it impacting your business in any way with your customers?

John Meier

As I said, Arnie, we had that show last week and I know that our people did have some discussions with some retailers about – they were not specific as to why they had some immediate needs, but they had some immediate needs. And we didn't delve into what was behind it. But I wouldn't doubt that some of what you just talked about was an underlying factor. We used to say it's the sole one.

Arnie Ursaner – CJS Securities

Very good. Thank you.

Operator

Alright. Thank you. (Operator instructions) We do have a follow-up from the line of Bob Wetenhall. Please go ahead.

Bob Wetenhall – Royal Bank of Canada

Just a kind of big picture question. Given the pressure you're seeing in traffic and continued weakness in consumer spending trends, do you think there is going to be additional failures of your competitors?

John Meier

I don't know that we have enough in-depth feel for – most of our competitors, or two of the three biggest ones that we compete with are privately held. So it's hard to get visibility on their real status. Could a smaller competitor in western Europe perhaps again have an issue? That could occur. But among the major competitors we don't have enough visibility.

Bob Wetenhall – Royal Bank of Canada

Fair enough. Thank you.

Operator

Alright. Thank you. And management, there are no further questions at this time. Please continue with any closing comments.

John Meier

We have no further comments other than to say thank you for your continued support. And we will work feverishly as we said to continue to do whatever we need to do, as we always have. And our people, I'm happy to report, are very resilient. And they will roll up their sleeves and we will get this job done. Thank you very much.

Operator

Alright. Thank you. Ladies and gentlemen, this does conclude the Libbey, Inc. Third Quarter 2008 Conference Call. If you would like to listen to a replay of today's conference you can do so by dialing 1-800-405-2236 or 303-590-3000 and put the access code 11121295. Those numbers again, 800-405-2236 or 303-590-3000 and put the access code 11121295. ACT would like to thank you very much for your participation today. You may now disconnect. Have a very pleasant rest of your day.

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