Libbey Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.29.13 | About: Libbey Inc. (LBY)

Libbey (NYSEMKT:LBY)

Q3 2013 Earnings Call

October 29, 2013 11:00 am ET

Executives

Kenneth A. Boerger - Vice President and Treasurer

Stephanie A. Streeter - Chief Executive Officer, Director and Member of Proxy Committee

Sherry L. Buck - Chief Financial Officer and Vice President

Analysts

Arnold Ursaner - CJS Securities, Inc.

Grant Jordan - Wells Fargo Securities, LLC, Research Division

Kevin Ziets

Jason Nacca - Sidoti & Company, LLC

Hale Holden

Operator

Great day, ladies and gentlemen, and welcome to the Third Quarter 2013 Libbey Earnings Conference Call. My name is Katina and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Ken Boerger, Vice President and Treasurer. Please proceed.

Kenneth A. Boerger

Thank you, and good morning, everyone. Welcome to Libbey's Third Quarter 2013 Earnings Conference Call. Our press release and supplemental financials were distributed this morning, and are available on our website in the Investor Relations section. We are hosting a live webcast of today's call, which can be accessed on the same section of the website. The replay of today's call will be available on our website for 14 days. Before we get underway, I'd like to say that this conference call will contain forward-looking statements under the Securities Act of 1933 and other federal securities laws. These statements are based on current expectations, estimates and projections about the market in the industry in which the company operates in addition to management's beliefs and assumptions. Forward-looking statements are not guarantees of performance and actual operating results may be affected by a wide variety of factors. For a list of these factors, please refer to the forward-looking statements noted included within our SEC filings.

I would now like to introduce the members of the management team here with me today: Stephanie Streeter, Chief Executive Officer; Sherry Buck, Vice President and Chief Financial Officer; and Ronni Smith, Vice President and Corporate Controller. I will now turn the call over to Stephanie.

Stephanie A. Streeter

Thanks, Ken, and good morning, everyone. Thank you for joining us for our review of our third quarter 2013 operating and financial results. Today, I will provide my thoughts on our business in the current operating environment, update you on each of our reporting segments and our perspective for the balance of the year, as well as share progress we've made on our strategic plan, Libbey 2015. Sherry will then walk through our detailed financial results, after which we will take your questions.

Before I get started, there's 2 things I'd like to discuss. First, I'd like to say a few words about Dick Reynolds, who announced he will retire by the end of this year. Dick has worked his whole career at Libbey. In the more than 43 years that he has worked here, he has held just about every job in the company from Production Planner to CFO and COO, and made a positive impact everywhere he has been, but Dick is the sort of guy who's contributions go well beyond more productive manufacturing or improved financials. We'll miss him much, as we'll miss him as much for the way he makes everyone feel, as how he helps everyone with what they do. And while he will remain a member of the board until our 2014 Annual Meeting of Shareholders, we will miss his everyday business contributions. To Dick and his wife Gloria, we say, may the road always rise up to greet you and we wish you well on this next chapter of your life.

Second, as we announced earlier today, we have finalized and ratified our collective bargaining agreements with our 4 unions in Toledo, and we are encouraged by the increasingly positive working environment we see in that facility. I'd like to thank our union associates for working with us in an open and professional manner to reach a positive outcome for all of us.

Now let me shift gears and talk about the third quarter and the operating environment. The current macroeconomic environment has proved challenging during the quarter, as many of our largest retail customers, restaurants and hotels, are reporting decreased traffic compared to prior year. Overall, our results were impacted by 3 things: one, weaker consumer demand than we anticipated; two, under absorption of fixed costs primarily related to the previously communicated capacity realignment of our North American facilities; and third, the under absorption of fixed cost related to a scheduled furnace rebuild in China.

Now let me review the segments, and I'll provide a little more color on each of them. Third quarter sales for our Americas segment were down 3.3% compared to the same period in 2012. Within the Americas segment, third quarter U.S. and Canada sales decreased 6.5% relative to third quarter 2012 as our results in this market were impacted by our decision to exit the sale of certain low-margin items, the loss of share on very competitive items, very price competitive items, and by softness in consumer spending and reduced traffic, primarily affecting our retail channel results, and to a lesser degree, the Foodservice channel. Partially offsetting these declines were strong revenue growth in the U.S. business-to-business channel, where we experienced an 11.6% improvement over the prior year. We've had strong growth in Mexico and Latin America all year and third quarter was no exception. Revenue in Mexico and Latin America had a 4% increase in the third quarter, driven by year-over-year gains in both the Retail and Foodservice channels of business. Despite a challenging economic environment, our EMEA segment increased sales for the third quarter -- third consecutive quarter, with revenue increasing 3% over the same period in 2012. Another area of strength in the quarter was a 3% increase in our dinnerware and flatware products, which we sell under the Syracuse and World Tableware brands. This is particularly notable given that, in the prior year, we rolled out a significant replacement program for a large restaurant chain. This highlights our long-standing capability since 1997 of providing the complete tabletop offering including dinnerware, flatware and glass beverageware products, and we continue to invest in additional new products to meet our customers' evolving needs and interests. While dinnerware and flatware revenue showed some strength, overall third quarter sales recorded in Other were down $1 million or 3.6%. That was driven by a 17.4% decrease in sales in the Asia-Pacific region. Although there are a number of challenges in China, it remains a growth economy. As you know, China's economy is still largely based on infrastructure and exports and growth in the consumer segment of the economy has slowed. Continuing issues affecting Libbey include the tightening credit environment resulting essentially in inventory destocking by our distributors, the government tightening on consumption and entertainment known collectively as the 8 regulations, and government imposed added costs, such as the recently announced 21% increase in natural gas that's retroactive to July 10. Even with these issues, we continue to believe the Asia-Pacific region is a growth opportunity for Libbey. Income growth in the region, specifically domestic China, continues to create new demand for a broad array of tabletop products in the Foodservice and Retail channels. Libbey's manufacturing strength in China and our broad product portfolio remain advantages relative to local competition. Given that, we believe we are positioned to deliver profitable growth in China.

Our constant focus is to get stronger. We continue to improve our cost position in order to optimize our manufacturing, warehouse and distribution network, which we should really be able to leverage in an improved sales environment. By the end of January, our realignment of manufacturing from Shreveport to Toledo and Monterey should be complete, which will result in $7 million to $9 million of cost savings in 2014. Plus, we are ramping up on a corporate-wide drive to further increase productivity. We expect the new initiatives combined with the significant progress we've made in our 2011 through 2013 restructuring to position Libbey to deliver industry-leading cash flow and returns on invested capital even especially if we have an improved sales environment.

Improving cash generation is a defined objective within our Libbey 2015 strategic plan. We are pleased to report that the net cash flow from operations of $34.8 million in the third quarter sets an all-time record for any third quarter. Free cash flow was also a record at $24.5 million. Setting records in this area even when our EBITDA isn't where we expected it would be is a great sign of our progress and future potential in this area. At this time, we're not even one month into the fourth quarter. Any visibility to the impact of consumer demand and traffic is therefore limited. Our decision to exit from low-margin retail business, as well as the pressure we've seen much of this year on retailers, restaurants and consumer durable companies around the globe will likely continue to affect us. In this environment, we know we have to be more innovative and aggressive in our sales and marketing efforts. We are therefore stepping up our new products efforts and the sales and marketing programs in our advantage businesses. We recently made changes in our U.S. and China organizations to better position our teams to penetrate certain markets we've concluded are under-penetrated, and represent attractive market opportunities. In the fourth quarter, we expect to experience continued weakness in retail demand in the U.S. and Canada and in China, partially offset by revenue growth in Mexico and Latin America, and modest revenue growth in the U.S. Foodservice and business-to-business channels. The company anticipates that for the full year 2013, it will generate adjusted EBITDA margins that are very similar to the full year 2012 adjusted EBITDA margins on 2013 annual sales that are slightly less than 2012 annual sales.

I'll now turn the discussion to Sherry Buck, our Chief Financial Officer, who will further detail our third quarter results. Sherry?

Sherry L. Buck

Thank you, Stephanie, and good morning, everyone. I will review our third quarter financial results and our reporting segments using the categories Americas, Europe, Middle East and Africa or EMEA and Other, which includes both our Asia-Pacific region and our sourced tableware business. We recorded sales for the third quarter 2013 of $204.4 million compared to $209.2 million for the third quarter of 2012, a modest decrease of 2.3%. Sales in our Americas segment were $141.4 million compared to $146.2 million in the third quarter of 2012. As Stephanie mentioned, while our Americas segment sales were down 3.3% in total, our Mexican and Latin America end market showed strong performance in the third quarter, increasing 4% versus the third quarter of 2012. Our U.S. and Canada segment posted an overall decrease of 6.5% as compared to the same quarter last year, largely due to weaker retail performance, and to a lesser extent, lower sales in our Foodservice channel. Partially offsetting the declines in Retail and Foodservice was an 11.6% in our U.S. and Canada business-to-business channel. Sales in our EMEA segment increased to $35.5 million, a 3% increase. Sales in EMEA are up 8.8% for the first 9 months of 2013 compared to the prior year period. Sales in Other, which includes Asia-Pacific, as well as our sourced ceramic, dinnerware, metal tableware, hollowware and serveware, were $27.5 million compared to $28.5 million in the prior year quarter due largely to the impact of the slowdown in the Chinese economy. More specifically, the third quarter compared to prior year third quarter was impacted by a 17.4% decrease in sales in the Asia-Pacific end market. The performance in Asia-Pacific region was mostly offset by a 3% increase in sales of Syracuse China and world tableware products.

After adjusting for special items, third quarter of selling, general and administrative expenses decreased $0.4 million as compared to the third quarter of 2012. Adjusted EBITDA of $28.7 million was $9.3 million less than the $38 million reported in the prior year quarter. The primary factors contributing to the decline in adjusted EBITDA were the under absorption of fixed costs and weaker consumer demand than anticipated. The quarter was impacted by approximately $5 million of under absorption of fixed cost, of which about $4 million related to the previously announced strategic initiatives and additional maintenance activities as part of the capacity realignment of the company's North American facilities, and upwards of $1 million at our China facility related to a planned furnace rebuild. Weaker consumer demand in the U.S. and China further impacted our adjusted EBITDA in the quarter by approximately $4 million. Treated as a special item in the third quarter is $2.4 million for unexpected cost and underutilization of capacity, resulting from a furnace malfunction in our Toledo, Ohio manufacturing facility. Additionally, as a result of the furnace malfunction, we expect to treat as a special item approximately $4 million to $6 million in the fourth quarter of 2013 related to the furnace repairs, underutilization of capacity and transportation costs. We will pursue recovery of these costs under applicable insurance policies.

Now as we move down the income statement, we realized a decrease and interest expense in the quarter of $1 million to $7.7 million, primarily driven by lower debt as a result of the continuing benefit of retiring $45 million of our outstanding senior notes in the second quarter and an additional $7.6 million net reduction and debt outstanding in the third quarter. Our focus on debt reduction and strengthening the balance sheet has resulted in a net debt to adjusted EBITDA of 3.1x, just shy of our overall goal of 2.5x to 3x net debt to adjusted EBITDA. Our effective tax rate was an expense of 15% for the quarter ended September 30, 2013, compared to 3.5% for the quarter ended September 30, 2012. The effective tax rate was influenced by foreign jurisdictions with differing statutory rates, foreign withholding tax and other activity in jurisdiction with recorded valuation allowances. We had available capacity of $82.9 million under our ABL credit facility as of September 30, 2013, with no loans currently outstanding. The company also had cash-on-hand of $29.5 million at September 30, 2013. We invested $10.4 million in CapEx during the third quarter compared with $5.4 million in the year-ago period. We still expect CapEx for the full year 2013 to be in the range of $46 million to $50 million. Depreciation and amortization amounted to $11.8 million in the third quarter of 2013 versus $10.1 million in Q3 of 2012. And finally, working capital as of September 30, 2013, was $204.2 million, which was $13.9 million lower than working capital on September 30, 2012, due to lower receivables and higher accounts payable, partially offset by higher inventories. Improved working capital contributed to our third quarter record net operating cash flow of $34.8 million.

We would now like to open the call for any questions, and Stephanie will have some brief summary comments at the end of the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Arnie Ursaner, representing CJS Securities.

Arnold Ursaner - CJS Securities, Inc.

I know you didn't want to disclose it in your pre-announcement call, but can you quantify the year-over-year decline in U.S. Foodservice and expand on the competitive environment that you're seeing, and you had indicated you were very confident you were not losing any share? Maybe give us some additional color regarding that.

Stephanie A. Streeter

Okay, let's see. The total Libbey Foodservice, I'm not, for competitive reasons, going to talk about different -- the segments, the different segments, but total Libbey Foodservice was down about 2%. Retail was down about 7% and B2B was up roughly 4% for the total company. The competitive environment is pretty fierce. If you look at the different segments and geographies in the Americas, we've got retailers who are not experiencing the kind of traffic through their stores that they have in the past. We have the same issue with food service. As a matter of fact, you've got KNAPP-TRACK, which tracks performance in Foodservice, and their comparable traffic has been going down all year, just as an example. And in terms of what we see for the rest of the year, I don't see any improvement, really, in the situation -- in the competitive situation in Europe or the Americas, as what we're hearing from our customers is that it's going to be continued choppy or slow through the rest of the fourth quarter.

Arnold Ursaner - CJS Securities, Inc.

Okay. And shifting gears to China. You mentioned Asia Pacific was down 17.4%. I know you were surprised to some degree by -- you took the scheduled outage for maintenance at one of your facilities, but I believe you indicated you were pretty surprised that the change in the dynamic post the return of that facility that customers you were expecting to come back didn't. So I guess I have a couple of questions. With hindsight, do you have a better understanding as to why that may have occurred? And also, you have done an extensive independent review, and I think the growth in China was one of the key engines of growth for the company to accelerate revenue trends on a go forward basis. Does the situation in Q3 affect your view of how China may impact your future growth?

Stephanie A. Streeter

Okay, I think I'll boil that down to just a couple of areas to address. The first would be was the environment a surprise? We've been talking about the environment in China slowing down on the consumer side for virtually the entire year due to several things that we saw happening. The first was the tightening of credit. We've actually talked about that since the second half of last year, and that continues to be the case. And it's tightened to the extent where not only is credit tightened at banks and formal areas where customers could get loans, but it's also in the gray market in China, which is even more important. So that's the first thing.

The second then, I guess, took us by surprise was an announcement as the government changed hands earlier this year regarding the 8 regulations. And those are the regulations that the government introduced to curb entertainment and consumption of food and that sort of thing, which has dramatically affected the Foodservice as well as the Retail business in China. So those 2 things, we've been talking about for at least a couple of quarters. And I'd say the third thing that surprised us was we thought with the increase in distributors that we've been able to sign up for this year that we would see those distributors start to order products in the third quarter, and that didn't happen to the extent that we expected, and therefore, we saw a steeper decline than we had anticipated. That affected our scheduled earnest downtime because what you generally expect is that you build up the inventory, and while the furnace is down, customers purchase that inventory and you get at least some absorption of those costs, and we didn't get that to the extent that we expected, and therefore, had that effect. In terms of the independent review we did when we launched our strategic plan, we still believe that China represents growth for us in a long-term basis as I described. We believe we've got product breadth and depth. That will serve us well. We think our costs are in line with our competitors' costs. We're stepping up our efforts in terms of sales and marketing, and would expect that with any kind of growth in the consumer part of the economy, we should see that part of our business grow likewise.

Arnold Ursaner - CJS Securities, Inc.

If I can just say a real quick word to Dick Reynolds. Dick I remember working with you on the IPO. Best of luck in your retirement.

Stephanie A. Streeter

Dick's not here in the room with us, but I'll pass that along, Arnie. Thanks very much.

Operator

Your next question comes from the line of Grant Jordan, representing Wells Fargo.

Grant Jordan - Wells Fargo Securities, LLC, Research Division

The first question, you talked a little bit about the trends in Retail versus Foodservice, and I know you don't give it out by geography. But on the Retail side, how much would that decline was due to business, the low margin business that you walked away from?

Stephanie A. Streeter

Let me tell -- give you it this way, over 2/3 of it was business that we walked away from or the share decline that we talked about last quarter that continues at very, very competitively priced products in certain retailers.

Grant Jordan - Wells Fargo Securities, LLC, Research Division

Okay. So if we kind of assume stable case, you'll have declines related to that for the next 2 to 3 quarters on the Retail side?

Stephanie A. Streeter

The declines from the products that we walked away from will continue for the next 2 or 3 quarters, yes, and hopefully, we'll go back and get some of that business that we lost earlier in the year.

Grant Jordan - Wells Fargo Securities, LLC, Research Division

Okay. You talked some about the different charges for capacity and some of the moving parts there. When would you expect capacity to be back to full?

Stephanie A. Streeter

Well, I don't mean to give you an oblique answer, but we always have furnace repairs going on. So when you say full capacity, I think we'll be back to the mid-80s in terms of utilization, probably in the second quarter of next year, second or third quarter of next year. That's when we generally get up to that level of utilization. We've indicated that the G furnace, which is the one that has a malfunction in Toledo, that, that furnace will be down through the end of this year.

Unknown Executive

And we've also mentioned that the capacity realignment that we're doing in North America will be completed in January. So everything related to that will be back to normal by late January.

Grant Jordan - Wells Fargo Securities, LLC, Research Division

Okay, that's helpful. Okay, my last question, as it relates to your balance sheet, you talked about how you continue to generate free cash flow. Is it your intention to use the 103 option on the bonds again in the second quarter of next year?

Stephanie A. Streeter

Yes. Currently, that would be our plan to continue to take advantage of that in our debt agreement and continue to reduce our debt in that manner.

Operator

Your next question comes from the line of Kevin Ziets representing Lazard.

Kevin Ziets

I'm curious, the -- you mentioned, I guess, destocking at some of the -- some of your wholesalers in Asia. Is there a destocking going on in the U.S. retail channel as well?

Stephanie A. Streeter

Not to our knowledge. I know there are retailers who watch their inventories very closely, and there are a number of retailers who stock up very heavy for the holiday season last year. There are fewer holidays -- there are fewer shopping days between Thanksgiving and Christmas this year, but we don't see it affecting our business as much as it would apparel and those sorts of things.

Kevin Ziets

Okay, thanks. I guess, as I look at the 4Q guidance, it seems to me as though EBITDA is going to up possibly 10% or so. I'm curious, is there anything in the timing of the furnace maintenance year-over-year? Or is it the cost savings you're getting through because it seems like the environment's going to stay challenging for you and some of the, sort of, internal impacts are going still to impact you on the fourth quarter. So I was wondering if you could help me square that.

Stephanie A. Streeter

Well, we believe that we'll be able to bridge the capacity utilization issue with that furnace with inventory. And the fourth quarter is, generally speaking, a pretty decent quarter for us. So we think with some of the recent changes that we've made and some of the areas that we've penetrated, we believe we should see a little bit of an uptick in the Foodservice business. We think Mexico and Latin America will continue to be strong. We continue to see B2B sales so that's -- we're kind of sticking with the forecast that we gave you.

Sherry L. Buck

Just a comment on the capacity utilization with the furnace to malfunction in Toledo, we would continue to treat that as a special charge. So any under absorption from that. So when you take that out of the equation, we actually will have higher capacity utilization this Q4 versus last year.

Kevin Ziets

Okay, that's helpful. And then the $7 million to $9 million savings, how does that hit '14 or when do you expect those to hit your numbers? Or do you think that some of that will be offset by you going after some business that you lost?

Sherry L. Buck

Yes, so the $7 million to $9 million has been annualized, and we'd expect it fairly ratably over the 4 quarters in 2014.

Kevin Ziets

Okay. And just following up on Grant's question about the 103 call, are you reset right now? In other words -- had an inclination in the capacity to take out 10% of the bonds 103, could you do that now? Or when does it reset?

Kenneth A. Boerger

No, this is Ken Boerger. We have the opportunity to do that once every 12 months, and since we exercised that option on May 7 of this year, we can't do it again until May 7 of 2014.

Kevin Ziets

And then on the insurance recovery, is there any way to know when you might receive those proceeds? And is there -- are there any sizable deductibles that we need to be aware of?

Kenneth A. Boerger

Because we're treating the furnace malfunction as a special items, any of the proceeds that we get from insurance settlements will also be treated as a special item. So you won't see that flow through the P&L, and it's really just too early to tell what will happen there. It's going to be along fairly drawn-out, complex situation, and I wouldn't expect us to know very much for quite some time.

Kevin Ziets

Okay. My last question is on the new CBA. Are there any substantial changes favorable or unfavorable?

Kenneth A. Boerger

Nothing substantial that we would report. We were able to get some increased flexibility that we're grateful for and the increases in wages were right around inflation. So nothing that would be unexpected.

Operator

Your next question comes from the line of Jason Nacca, representing Sidoti.

Jason Nacca - Sidoti & Company, LLC

My first question is about Mexico and Latin America. We expect it to continue to perform strongly the second half, but would you say it's more of a function of an improving economic environment or more closely related to an execution of strategy in that region?

Stephanie A. Streeter

Well, the economic environment in Mexico is not really improving. So I'd say it's the execution of our strategic plan in that country as well as our penetration in other countries within Latin America.

Jason Nacca - Sidoti & Company, LLC

Okay. And moving to speak about Nachtmann, despite the massively weaker demand in overall Foodservice, how was -- speak about Nachtmann performing. Is it performing in line with your expectations or...

Stephanie A. Streeter

It's definitely performing in line with our expectations. It's not just selling by itself, but it's also opening doors to new opportunities at higher end, fine dining restaurants, hotels, boutiques, et cetera. So we're very happy with the performance. I've said before, however, that it's not a super duper needle mover, but it is definitely performing to our expectations.

Jason Nacca - Sidoti & Company, LLC

Okay. And lastly, could you quantitatively aggregate the combined savings from both the 9% reduction global workforce and also the manufacturing realignment that will ultimately be in your numbers going forward?

Sherry L. Buck

Yes. So the 2 pieces that you're talking about was the workforce reduction that we did in 2012, and that was about $10 million. And we would have been recognizing that, and in fact, probably close to anniversarying it in this third quarter. And then the other item that you're talking about is our North American footprint realignment, which we're estimating $7 million to $9 million in 2014 that would occur ratably over the quarters next year. So those are the 2 big chunks.

Operator

[Operator Instructions] Your next question comes from the line of Hale Holden, representing Barclays.

Hale Holden

I just had 2 quick ones. On the furnace malfunction fashion, is that a one-off specific issue to that furnace or is it potentially a design issue that could be operable to other furnace that you own or operate?

Stephanie A. Streeter

This is the first time that we've seen anything like this happen in the 43 years that Dick Reynolds has been here. So I would say it's definitely a one-off situation.

Hale Holden

That's great. And then second, just to take a step back, what kind of changes or improvements to the macro environment do you need to see to start benefiting from some of the cost reduction leverage that you've done for the -- through the Libbey 2015 plan? I mean, so what do you see in the environment to really jump start here?

Stephanie A. Streeter

We need to see more traffic at Retail and in Foodservice, whether it's hotels or restaurants, casinos, et cetera. That would be the big change for us. Traffic is more important to us than same-store sales, whether it's Retail or Foodservice because that's what drives breakage and reordering of glassware, dinnerware, and the more people who go through restaurants, casinos, hotels, et cetera, flatware tends to disappear or get thrown in the thrash, et cetera. So that's what we need. I don't know...

Operator

Your next question comes as a follow-up from the line of Arnie Ursaner, representing CJS Securities.

Arnold Ursaner - CJS Securities, Inc.

A couple of quick follow-ups. The benefit for the realignment of Shreveport, at one point I thought you had talked about some benefit in Q4. It sounds like you're clearly moving it all into next year, is that correct?

Stephanie A. Streeter

We had talked about a very small amount potentially in Q4, and yes, we've moved it all into the 2014.

Arnold Ursaner - CJS Securities, Inc.

Okay. And pensions are being reset at a lot of companies, I -- again, there's been enough moving parts with your pension plan and otherwise. Is there any way we should be thinking about changes in pension for 2014 based on what you're looking at now?

Kenneth A. Boerger

No, Arnie. Based on what we see at this point in time, it should be very similar to what we saw in 2013. It'll be late January til we have definitive answers and see how the markets finish up for the year and where the discount rate is. But at this point in time, we wouldn't expect 2014 to be significantly different than 2013.

Arnold Ursaner - CJS Securities, Inc.

And, Ken, you had put in the plan hopefully that once you are fully funded in North America, people could, you could, eliminate certain people from the plan. Are you seeing any of that as an opportunity?

Kenneth A. Boerger

Yes, we have taken the opportunity to buy out some term-vested employees who had small balances to reduce the population in the plan and we have done some of that.

Arnold Ursaner - CJS Securities, Inc.

Okay. My final question, obviously, we're all going to be focused on your ability to pay down your debt in May of next year and I guess a couple of questions related to that. Normally, when you are -- when you have a labor negotiation coming up, you build up quite a bit of inventory in anticipation in case you have any kind of meaningful strike. How should we think about your working capital going into Q4, given the likely buildup in anticipation of the strike and did the furnace activity use up some of inventory you had put aside?

Stephanie A. Streeter

Yes, Arnie, for the third quarter, our overall working capital, we were pretty pleased with our results. The inventory is a few million higher than this time last year, and I'd say, there's several factors. As you know, you've been following it, kind of the seasonality build up for support of all the production moves we're making, and we've had some weaker sales. So with our plans for the fourth quarter and the furnace malfunction will be tapping into that inventory, and I'd say our expectation would be to end the year with slightly less inventory than we ended last year in 2012. But in total, our working capital, we'd expect to be flat or maybe a modest increase in the use of cash with some of the levers in working capital.

Operator

With no further questions at this time, I would now like to turn the call back to Ms. Stephanie Streeter for closing remarks.

Stephanie A. Streeter

Thanks, Katina. Thanks, everybody, for joining us on our call today. Let me conclude by emphasizing that we believe the long-term secular drivers of our business model remains strong and the weaker revenue that we're experiencing is relating to the timing and pace of a broader economic recovery in specific markets. We remain on track with our longer-term goals, including increasing profitability and cash generation. Our debt and operating restructuring initiatives over the past 2 years have strengthened our balance sheet and our cost position considerably, and we're now focused on productivity and growth improvement initiatives across our global operations. These steps, combined with our strong market positions, the breadth of our product portfolio, our revised focus on marketing and sales programs and superior customer service, positions us to realize value driving benefits as demand in certain markets strengthens. On November 7, we're conducting our 2013 Analyst Day in New York. I know that many of you have already confirmed for that event, and we look forward to seeing you and talking with you there. Thanks very much for your support of Libbey, and I hope everybody has a great day.

Operator

Thank you. Now ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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