LIBBEY INC, 10-Q filed on 11/2/2017
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2017
Oct. 26, 2017
Entity Information [Line Items]
 
 
Entity Registrant Name
LIBBEY INC 
 
Entity Central Index Key
0000902274 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
22,016,108 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Net sales
$ 187,339 
$ 196,873 
$ 557,847 
$ 587,582 
Freight billed to customers
1,058 
703 
2,481 
1,983 
Total revenues
188,397 
197,576 
560,328 
589,565 
Cost of sales
151,202 
155,694 
452,041 
457,298 
Gross profit
37,195 
41,882 
108,287 
132,267 
Selling, general and administrative expenses
29,082 
28,540 
95,733 
93,348 
Goodwill impairment
79,700 
79,700 
Income (loss) from operations
(71,587)
13,342 
(67,146)
38,919 
Other income (expense)
621 
248 
(2,283)
1,035 
Earnings (loss) before interest and income taxes
(70,966)
13,590 
(69,429)
39,954 
Interest expense
5,118 
5,231 
15,123 
15,629 
Income (loss) before income taxes
(76,084)
8,359 
(84,552)
24,325 
Provision for income taxes
2,731 
5,450 
1,665 
12,003 
Net income (loss)
$ (78,815)
$ 2,909 
$ (86,217)
$ 12,322 
Net income (loss) per share:
 
 
 
 
Basic
$ (3.57)
$ 0.13 
$ (3.92)
$ 0.56 
Diluted
$ (3.57)
$ 0.13 
$ (3.92)
$ 0.56 
Dividends declared per share
$ 0.1175 
$ 0.115 
$ 0.3525 
$ 0.345 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Net income (loss)
$ (78,815)
$ 2,909 
$ (86,217)
$ 12,322 
Other comprehensive income (loss):
 
 
 
 
Pension and other post-retirement benefit adjustments, net of tax
1,422 
1,063 
4,872 
5,090 
Change in fair value of derivative instruments, net of tax
597 
501 
199 
(1,200)
Foreign currency translation adjustments, net of tax
2,650 
485 
9,647 
811 
Other comprehensive income, net of tax
4,669 
2,049 
14,718 
4,701 
Comprehensive income (loss)
$ (74,146)
$ 4,958 
$ (71,499)
$ 17,023 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Assets:
 
 
Cash and cash equivalents
$ 21,574 
$ 61,011 
Accounts receivable - net
89,084 
85,113 
Inventories - net
200,181 
170,009 
Prepaid and other current assets
15,941 
16,777 
Total current assets
326,780 
332,910 
Purchased intangible assets - net
14,786 
15,225 
Goodwill
84,412 
164,112 
Deferred income taxes
38,119 
40,016 
Other assets
10,852 
9,514 
Property, plant and equipment - net
263,349 
256,392 
Total assets
738,298 
818,169 
Liabilities and Shareholders' Equity:
 
 
Accounts payable
73,645 
71,582 
Salaries and wages
26,667 
27,018 
Accrued liabilities
49,511 
41,807 
Accrued income taxes
1,399 
1,384 
Pension liability (current portion)
2,263 
2,461 
Non-pension postretirement benefits (current portion)
4,903 
4,892 
Derivative liability
954 
1,928 
Long-term debt due within one year
7,443 
5,009 
Total current liabilities
166,785 
156,081 
Long-term debt
391,439 
402,831 
Pension liability
44,553 
43,934 
Non-pension postretirement benefits
50,208 
55,373 
Deferred income taxes
2,079 
1,859 
Other long-term liabilities
12,420 
12,972 
Total liabilities
667,484 
673,050 
Contingencies (Note 13)
   
   
Shareholders' equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 22,016,108 shares issued in 2017 (21,864,541 shares issued in 2016)
220 
219 
Capital in excess of par value
332,494 
329,722 
Retained deficit
(151,421)
(59,625)
Accumulated other comprehensive loss
(110,479)
(125,197)
Total shareholders' equity
70,814 
145,119 
Total liabilities and shareholders' equity
$ 738,298 
$ 818,169 
Condensed Consolidated Balance Sheets Parenthetical (USD $)
Sep. 30, 2017
Dec. 31, 2016
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
22,016,108 
21,864,541 
Condensed Consolidated Statement of Shareholders' Equity Statement (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Capital in Excess of Par Value
Retained Deficit
Accumulated Other Comprehensive Loss
Balance, value at Dec. 31, 2016
$ 145,119 
$ 219 
$ 329,722 
$ (59,625)
$ (125,197)
Balance, shares at Dec. 31, 2016
 
21,864,541 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Cumlative-effect adjustment for the adoption of ASU 2016-09
2,310 
 
127 
2,183 
 
Net loss
(86,217)
 
 
(86,217)
 
Other comprehensive income
14,718 
 
 
 
14,718 
Stock compensation expense
2,857 
 
2,857 
 
 
Dividends
(7,762)
 
 
(7,762)
 
Stock withheld for employee taxes
(623)
 
(623)
 
 
Stock issued, value
412 
411 
 
 
Stock issued, shares
 
151,567 
 
 
 
Balance, value at Sep. 30, 2017
$ 70,814 
$ 220 
$ 332,494 
$ (151,421)
$ (110,479)
Balance, shares at Sep. 30, 2017
 
22,016,108 
 
 
 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Operating activities:
 
 
Net income (loss)
$ (86,217)
$ 12,322 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization
33,616 
36,669 
Loss on asset sales and disposals
224 
165 
Change in accounts receivable
(2,000)
(3,714)
Change in inventories
(25,944)
(12,949)
Change in accounts payable
3,283 
(6,669)
Accrued interest and amortization of discounts and finance fees
929 
(1,510)
Goodwill impairment
79,700 
Pension & non-pension post-retirement benefits, net
3,007 
(1,653)
Accrued liabilities & prepaid expenses
8,716 
15,174 
Income taxes
(1,942)
2,344 
Share-based compensation expense
2,930 
4,334 
Other operating activities
(94)
308 
Net cash provided by operating activities
16,208 
44,821 
Investing activities:
 
 
Additions to property, plant and equipment
(39,140)
(23,523)
Net cash used in investing activities
(39,140)
(23,523)
Financing activities:
 
 
Borrowings on ABL credit facility
21,004 
6,000 
Repayments on ABL credit facility
(12,277)
(6,000)
Other repayments
(632)
(350)
Other borrowings
339 
Repayments on Term Loan B
(18,300)
(18,300)
Stock options exercised
466 
1,153 
Taxes paid on distribution of equity awards
(623)
(862)
Dividends
(7,762)
(7,551)
Treasury shares purchased
(2,000)
Other financing activities
888 
Net cash used in financing activities
(17,236)
(27,571)
Effect of exchange rate fluctuations on cash
731 
(101)
Decrease in cash
(39,437)
(6,374)
Cash & cash equivalents at beginning of period
61,011 
49,044 
Cash & cash equivalents at end of period
21,574 
42,670 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for interest
13,949 
16,927 
Cash paid during the period for income taxes
$ 2,609 
$ 5,576 
Description of the Business
Description of the Business
Description of the Business

Libbey is a leading global manufacturer and marketer of glass tableware products. We produce glass tableware in five countries and sell to customers in over 100 countries. We design and market, under our Libbey®, Libbey Signature®, Masters Reserve®, Crisa®, Royal Leerdam®, World® Tableware, Syracuse® China and Crisal Glass® brand names (among others), an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware items for sale primarily in the foodservice, retail and business-to-business markets. Our sales force presents our tabletop products to the global marketplace in a coordinated fashion. We own and operate two glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in Mexico (Libbey Mexico), the Netherlands (Libbey Holland), Portugal (Libbey Portugal) and China (Libbey China). In addition, we import tabletop products from overseas in order to complement our line of manufactured items. The combination of manufacturing and procurement allows us to compete in the global tabletop market by offering an extensive product line at competitive prices.

Our website can be found at www.libbey.com. We make available, free of charge, at this website all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, as well as amendments to those reports. These reports are made available on our website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission and can also be found at www.sec.gov.

Our shares are traded on the NYSE American exchange under the ticker symbol LBY.
Significant Accounting Policies
Significant Accounting Policies
Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and nine month periods ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

The balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The financial information included herein should be read in conjunction with our Consolidated Financial Statements in Item 8 of our Form 10-K for the year ended December 31, 2016.

Stock-Based Compensation Expense

Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2017
 
2016
 
2017
 
2016
Stock-based compensation expense
 
$
782

 
$
1,011

 
$
2,930

 
$
4,334



Reclassifications

Certain amounts in prior years' financial statements have been reclassified to conform to the presentation used in the three month and nine month periods ended September 30, 2017, including the following:
On the Condensed Consolidated Statements of Cash Flows, certain activity was reclassified between operating and financing activities pursuant to adoption of Accounting Standards Update No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," effective January 1, 2017.
In note 10 Segments, net sales and related costs for certain countries were reclassified between segments to align with changes in business unit responsibilities effective January 1, 2017.
In note 10 Segments, the derivative amount included in the Reconciliation of Segment EBIT to Net Income in the prior year financial statements has been included in Segment EBIT to conform to the current year presentation.

New Accounting Standards - Adopted

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." Areas for simplification in this update involve several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. We adopted the new guidance on January 1, 2017, requiring us to recognize all excess tax benefits and tax deficiencies related to stock compensation as income tax expense or benefit in the income statement. Excess tax benefits will be recognized regardless of whether the benefit reduces taxes payable in the current period, subject to normal valuation allowance considerations. Previous guidance resulted in credits to equity for such tax benefits and delayed recognition until the tax benefits reduced income taxes payable. This provision in the standard was applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the year of adoption. As of January 1, 2017, we recorded a $2.3 million reduction to our retained deficit and an increase in deferred income tax assets. In addition, on the modified retrospective basis, we have elected to discontinue estimating forfeitures expected to occur when determining the amount of compensation expense to be recognized in each period, resulting in an immaterial impact to our retained deficit and capital in excess of par. We do not anticipate this change will have a material impact on our future results of operations. The presentation requirements for cash flows under the new standard were adopted on a retrospective basis, resulting in a reclassification on the Condensed Consolidated Statements of Cash Flows that increased cash provided by operating activities and increased cash used in financing activities for the nine months ended September 30, 2016.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the goodwill impairment testing by eliminating Step 2 from the goodwill impairment testing that is required should an impairment be discovered during its annual or interim assessment. ASU 2017-04 is effective for annual or interim impairment tests beginning after December 15, 2019, with early adoption permitted. We adopted this standard early in conjunction with our assessment performed at September 30, 2017; this is considered a change in accounting principle. This standard decreases the cost and complexity in applying current GAAP without significantly changing the usefulness of the information provided to users of our Condensed Consolidated Financial Statements.

New Accounting Standards - Not Yet Adopted

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

In May 2014, the FASB issued ASU 2014-09, "Revenue From Contracts With Customers", as amended by ASU's 2015-14, 2016-08, 2016-10, 2016-11, 2016-12, 2016-20 and 2017-05, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. This update is effective for interim and annual reporting periods beginning after December 15, 2017. We plan to adopt this standard in the first quarter of 2018 using the modified retrospective method, whereby the cumulative effect of applying the standard is recognized at the date of initial application. We have substantially completed our evaluation of significant contracts and the review of our current accounting policies and practices to identify potential differences that would result from applying the requirements of ASU 2014-09 to our revenue contracts. In addition, we have identified, and are in the process of implementing, appropriate changes to business processes, systems and controls to support recognition and disclosure under the new standard. Based on the foregoing, we do not expect the adoption of ASU 2014-09 to have a material impact on the amount and timing of revenue recognized in our Condensed Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires a lessee to recognize on the balance sheet, assets and liabilities for leases with lease terms of more than 12 months. Leases will be classified as either finance or operating leases, with classification affecting the pattern of expense recognition in the income statement. The new guidance also clarifies the definition of a lease and disclosure requirements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early application permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach does not require any transition accounting for leases that expired before the earliest comparative period presented. We are currently evaluating the impact of this guidance on our financial statements and related disclosures, including the increase in the assets and liabilities on our balance sheet. To facilitate this, we are utilizing a comprehensive approach to review our lease portfolio, as well as assessing system requirements and control implications. See note 16, Operating Leases, in our 2016 Annual Report on Form 10-K for the year ended December 31, 2016 for our minimum lease commitments under non-cancellable operating leases.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This standard introduces a new approach to estimating credit losses on certain types of financial instruments, including trade receivables, and modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application permitted. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." ASU 2016-16 clarifies that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost." ASU 2017-07 requires that only the service cost component of pension and post-retirement benefit costs be reported within income from operations. The other components of net benefit cost are required to be presented in the income statement outside of income from operations, if presented. In addition, this ASU allows only the service cost component to be eligible for capitalization when applicable. ASU 2017-07 is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. Presentation on the Condensed Consolidated Statements of Operations will be retrospective and any impact to capitalized costs will be prospectively adopted. We plan to adopt this standard in the first quarter of 2018 and expect the impact to be reclassifications of applicable costs and credits from income from operations to other income (expense).

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 amends the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, and eases certain hedge effectiveness assessment requirements. ASU 2017-12 is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption.
Balance Sheet Details
Balance Sheet Details
Balance Sheet Details

The following table provides detail of selected balance sheet items:
(dollars in thousands)
September 30, 2017
 
December 31, 2016
Accounts receivable:
 
 
 
Trade receivables
$
87,315

 
$
82,851

Other receivables
1,769

 
2,262

Total accounts receivable, less allowances of $7,176 and $7,832
$
89,084

 
$
85,113

 
 
 
 
Inventories:
 
 
 
Finished goods
$
183,212

 
$
152,261

Work in process
1,456

 
1,625

Raw materials
3,549

 
4,432

Repair parts
10,645

 
10,558

Operating supplies
1,319

 
1,133

Total inventories, less loss provisions of $10,727 and $9,484
$
200,181

 
$
170,009

 
 
 
 
Accrued liabilities:
 
 
 
Accrued incentives
$
24,674

 
$
19,771

Other accrued liabilities
24,837

 
22,036

Total accrued liabilities
$
49,511

 
$
41,807

Borrowings
Borrowings
Borrowings

Borrowings consist of the following:
(dollars in thousands)
Interest Rate
 
Maturity Date
September 30,
2017
 
December 31,
2016
Borrowings under ABL Facility
floating
 
April 9, 2019
$
8,727

 
$

Term Loan B
floating
(1) 
April 9, 2021
390,700

 
409,000

AICEP Loan
0.00%
 
July 30, 2018
3,043

 
3,320

Total borrowings
 
 
 
402,470

 
412,320

Less — unamortized discount and finance fees
 
3,588

 
4,480

Total borrowings — net
 
 
 
398,882

 
407,840

Less — long term debt due within one year
 
 
7,443

 
5,009

Total long-term portion of borrowings — net
 
$
391,439

 
$
402,831


________________________
(1)
We have entered into an interest rate swap that effectively fixes a series of our future interest payments on a portion of the Term Loan B debt. See interest rate swap in note 8 for additional details. The Term Loan B floating interest rate was 4.24 percent at September 30, 2017.

At September 30, 2017, the available borrowing base under the ABL Facility was offset by a $0.5 million rent reserve and a $0.1 million natural gas derivative liability. The ABL Facility also provides for the issuance of up to $30.0 million of letters of credit which, when outstanding, are applied against the $100.0 million limit. At September 30, 2017, $7.2 million in letters of credit were outstanding. Remaining unused availability under the ABL Facility was $83.5 million at September 30, 2017, compared to $88.4 million at December 31, 2016.
Income Taxes
Income Taxes
Income Taxes

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

Our effective tax rate was (2.0) percent for the nine months ended September 30, 2017, compared to 49.3 percent for the nine months ended September 30, 2016. Our effective tax rate for the nine months ended September 30, 2017, which was below the United States statutory rate, was affected by the nondeductible goodwill impairment charge of (40.2) percent, the timing and mix of pretax income earned in jurisdictions with rates lower than the United States statutory rate of 13.7 percent, the impact of foreign exchange of (5.3) percent, and other items including foreign withholding tax and nondeductible expenses of (5.2) percent. Our effective tax rate for the nine months ended September 30, 2016, which was above the United States statutory rate, was affected by the timing and mix of pretax income earned in jurisdictions with rates lower than the United States statutory rate of 5.9 percent, the impact of foreign exchange of (15.4) percent, and other items including foreign withholding tax and nondeductible expenses of 23.8 percent.

The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. In August 2016, one of our Mexican subsidiaries received a tax assessment from the Mexican tax authority (SAT) related to the audit of its 2010 tax year. The amount assessed was approximately 3 billion Mexican pesos, which was equivalent to approximately $157 million U.S. dollars as of the date of the assessment. The Company has filed an administrative appeal with SAT requesting that the assessment be fully nullified. We are awaiting the outcome of the appeal. Management, in consultation with external legal counsel, believes that if contested in the Mexican court system, it is more likely than not that the Company would prevail on all significant components of the assessment. Management intends to continue to vigorously contest all significant components of the assessment in the Mexican courts if they are not nullified at the administrative appeal level. We believe that our tax reserves related to uncertain tax positions are adequate at this time. There were no significant developments affecting this matter for the nine months ended September 30, 2017.

See note 2 for details regarding the tax effects of adopting ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," effective January 1, 2017.
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Post-retirement Benefits

We have pension plans covering the majority of our employees. Benefits generally are based on compensation and service for salaried employees and job grade and length of service for hourly employees. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers certain salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006, and most hourly U.S.-based employees (excluding employees hired at Shreveport after December 15, 2008 and at Toledo after September 30, 2010). Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiary in Mexico and are unfunded.

The components of our net pension expense, including the SERP, are as follows:
Three months ended September 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
$
979

 
$
929

 
$
286

 
$
313

 
$
1,265

 
$
1,242

Interest cost
3,445

 
3,740

 
725

 
663

 
4,170

 
4,403

Expected return on plan assets
(5,619
)
 
(5,757
)
 

 

 
(5,619
)
 
(5,757
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
59

 
65

 
(54
)
 
(53
)
 
5

 
12

Actuarial loss
1,308

 
1,068

 
156

 
412

 
1,464

 
1,480

Pension expense
$
172

 
$
45

 
$
1,113

 
$
1,335

 
$
1,285

 
$
1,380

 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
$
2,937

 
$
2,788

 
$
814

 
$
948

 
$
3,751

 
$
3,736

Interest cost
10,337

 
11,222

 
2,063

 
2,005

 
12,400

 
13,227

Expected return on plan assets
(16,859
)
 
(17,272
)
 

 

 
(16,859
)
 
(17,272
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
177

 
197

 
(153
)
 
(160
)
 
24

 
37

Actuarial loss
3,925

 
3,204

 
446

 
817

 
4,371

 
4,021

Settlement charge

 
42

 

 
170

 

 
212

Pension expense
$
517

 
$
181

 
$
3,170

 
$
3,780

 
$
3,687

 
$
3,961

 
 
 
 
 
 
 
 
 
 
 
 


We have contributed $0.6 million and $2.6 million of cash into our pension plans for the three months and nine months ended September 30, 2017, respectively. Pension contributions for the remainder of 2017 are estimated to be $0.5 million.

We provide certain retiree health care and life insurance benefits covering our U.S. and Canadian salaried employees hired before January 1, 2004, and a majority of our union hourly employees (excluding employees hired at Shreveport after December 15, 2008 and at Toledo after September 30, 2010). Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. The U.S. non-pension, post-retirement plans cover the hourly and salaried U.S.-based employees of Libbey (excluding those mentioned above). The non-U.S., non-pension, post-retirement plans cover the retirees and active employees of Libbey who are located in Canada. The post-retirement benefit plans are unfunded.

The provision for our non-pension post-retirement benefit expense consists of the following:
Three months ended September 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
$
157

 
$
200

 
$

 
$

 
$
157

 
$
200

Interest cost
526

 
652

 
10

 
11

 
536

 
663

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
(50
)
 
35

 

 

 
(50
)
 
35

Actuarial loss / (gain)
(65
)
 
21

 
(13
)
 
(10
)
 
(78
)
 
11

Non-pension post-retirement benefit expense
$
568

 
$
908

 
$
(3
)
 
$
1

 
$
565

 
$
909

 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
$
473

 
$
598

 
$
1

 
$
1

 
$
474

 
$
599

Interest cost
1,578

 
1,956

 
32

 
35

 
1,610

 
1,991

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
(151
)
 
105

 

 

 
(151
)
 
105

Actuarial loss / (gain)
(194
)
 
61

 
(39
)
 
(32
)
 
(233
)
 
29

Non-pension post-retirement benefit expense
$
1,706

 
$
2,720

 
$
(6
)
 
$
4

 
$
1,700

 
$
2,724

 
 
 
 
 
 
 
 
 
 
 
 


Our 2017 estimate of non-pension cash payments is $4.0 million, and we have paid $1.0 million and $2.6 million for the three months and nine months ended September 30, 2017, respectively.
Net Income (Loss) per Share of Common Stock
Net Income (Loss) per Share of Common Stock
Net Income (Loss) per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings (loss) per share:
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands, except earnings per share)
2017
 
2016
 
2017
 
2016
Numerator for earnings per share:
 
 
 
 
 
 
 
Net income (loss) that is available to common shareholders
$
(78,815
)
 
$
2,909

 
$
(86,217
)
 
$
12,322

 
 
 
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
 
 
 
Weighted average shares outstanding
22,075,318

 
21,894,017

 
22,015,008

 
21,869,922

 
 
 
 
 
 
 
 
Denominator for diluted earnings per share:
 
 
 
 
 
 
 
Effect of stock options and restricted stock units

 
177,176

 

 
156,304

Adjusted weighted average shares and assumed conversions
22,075,318

 
22,071,193

 
22,015,008

 
22,026,226

 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
(3.57
)
 
$
0.13

 
$
(3.92
)
 
$
0.56

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
$
(3.57
)
 
$
0.13

 
$
(3.92
)
 
$
0.56

 
 
 
 
 
 
 
 
Shares excluded from diluted earnings (loss) per share due to:
 
 
 
 
 
 
 
Net loss position (excluded from denominator)
63,488

 

 
92,051

 

Inclusion would have been anti-dilutive (excluded from calculation)
893,198

 
605,032

 
780,062

 
619,058



When applicable, diluted shares outstanding include the dilutive impact of restricted stock units. Diluted shares also include the impact of eligible employee stock options, which are calculated based on the average share price for each fiscal period using the treasury stock method. As part of the adoption of ASU 2016-09 as of January 1, 2017, anticipated tax windfalls and shortfalls are no longer included in the calculation of assumed proceeds when applying the treasury stock method.

Derivatives
Derivatives
Derivatives
We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with transactions denominated in a currency other than the U.S. dollar. These derivatives, except for the foreign currency contracts and the natural gas contracts used in our Mexican manufacturing facilities, qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings.
Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented:
 
 
Asset Derivatives:
(dollars in thousands)
 
September 30, 2017
 
December 31, 2016
Derivatives designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Natural gas contracts
 
Prepaid and other current assets
 
$

 
Prepaid and other current assets
 
$
702

Natural gas contracts
 
Other assets
 
8

 
Other assets
 
45

Total designated
 
 
 
8

 
 
 
747

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Natural gas contracts
 
Prepaid and other current assets
 

 
Prepaid and other current assets
 
732

Natural gas contracts
 
Other assets
 

 
Other assets
 
29

Total undesignated
 
 
 

 
 
 
761

Total
 
 
 
$
8

 
 
 
$
1,508

 
 
 
 
 
 
 
 
 
 
 
Liability Derivatives:
(dollars in thousands)
 
September 30, 2017
 
December 31, 2016
Derivatives designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Natural gas contracts
 
Derivative liability - current
 
$
45

 
Derivative liability - current
 
$

Interest rate contract
 
Derivative liability - current
 
852

 
Derivative liability - current
 
1,928

Interest rate contract
 
Other long-term liabilities
 
96

 
Other long-term liabilities
 
107

Total designated
 
 
 
993

 
 
 
2,035

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Natural gas contracts
 
Derivative liability - current
 
57

 
Derivative liability - current
 

Natural gas contracts
 
Other long-term liabilities
 
5

 
Other long-term liabilities
 

Total undesignated
 
 
 
62

 
 
 

Total
 
 
 
$
1,055

 
 
 
$
2,035



Natural Gas Contracts

We use natural gas swap contracts related to forecasted future North American natural gas requirements. The objective of these commodity contracts is to limit the fluctuations in prices paid due to price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from 40 percent to 70 percent of our anticipated requirements, up to 18 months in the future. The fair values of these instruments are determined from market quotes. As of September 30, 2017, we had commodity contracts for 2,590,000 MMBTUs of natural gas. At December 31, 2016, we also had commodity contracts for 2,590,000 MMBTUs of natural gas.

All of our derivatives for natural gas in the U.S. qualify and are designated as cash flow hedges at September 30, 2017. Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in other income (expense). As the natural gas contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from accumulated other comprehensive loss to current expense in cost of sales in our Condensed Consolidated Statement of Operations.

Since October 1, 2014, our derivatives for natural gas in Mexico have not been designated as cash flow hedges. All mark-to-market changes on these derivatives are reflected in other income (expense).

We (received) paid additional cash related to natural gas derivative settlements of $0.1 million and $0.1 million in the three months ended September 30, 2017 and 2016, respectively, and $(0.2) million and $2.3 million for the nine months ended September 30, 2017 and 2016, respectively, due to the difference between the fixed unit rate of our natural gas contracts and the variable unit rate of our natural gas cost from suppliers. Based on our current valuation, we estimate that accumulated losses for natural gas currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next 12 months will result in an immaterial impact to our Condensed Consolidated Statements of Operations.

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss) from our natural gas contracts:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2017
 
2016
 
2017
 
2016
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
 
 
 
 
Natural gas contracts
 
$
6

 
$
(35
)
 
$
(703
)
 
$
59

Total
 
$
6

 
$
(35
)
 
$
(703
)
 
$
59



The following table provides a summary of the effective portion of derivative reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statements of Operations from our natural gas contracts:
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
 
2017
 
2016
 
2017
 
2016
Derivative:
Location:
 
 
 
 
 
 
 
 
Natural gas contracts
Cost of sales
 
$
(76
)
 
$
(41
)
 
$
81

 
$
(1,096
)
Total impact on net income (loss)
 
 
$
(76
)
 
$
(41
)
 
$
81

 
$
(1,096
)


The following table provides a summary of the gain (loss) recognized in other income (expense) in the Condensed Consolidated Statements of Operations from our natural gas contracts in Mexico:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2017
 
2016
 
2017
 
2016
Contracts where hedge accounting was not elected
 
$
(4
)
 
$
11

 
$
(823
)
 
$
1,150

Total
 
$
(4
)
 
$
11

 
$
(823
)
 
$
1,150



Interest Rate Swap

On April 1, 2015, we executed an interest rate swap on our Term Loan B as part of our risk management strategy to mitigate the risks involved with fluctuating interest rates. The interest rate swap effectively converts $220.0 million of our Term Loan B debt from a variable interest rate to a 4.85 percent fixed interest rate, thus reducing the impact of interest rate changes on future income. The fixed rate swap became effective in January 2016 and expires in January 2020. This interest rate swap is valued using the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves.

Our interest rate swap qualifies and is designated as a cash flow hedge at September 30, 2017, and is accounted for under FASB ASC 815, "Derivatives and Hedging". Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses are recorded to earnings immediately. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). The ineffective portion, if any, of the change in the fair value of a derivative designated as a cash flow hedge is recognized in other income (expense). Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next 12 months will result in $0.9 million of additional interest expense in our Condensed Consolidated Statements of Operations.

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss) from our interest rate swap:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2017
 
2016
 
2017
 
2016
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
 
 
 
 
Interest rate swap
 
$
87

 
$
6

 
$
(328
)
 
$
(4,816
)
Total
 
$
87

 
$
6

 
$
(328
)
 
$
(4,816
)


The following table provides a summary of the effective portion of derivative reclassified from accumulated other comprehensive income (loss) to the Condensed Consolidated Statements of Operations from our interest rate swap:
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
 
2017
 
2016
 
2017
 
2016
Derivative:
Location:
 
 
 
 
 
 
 
 
Interest rate swap
Interest (expense)
 
$
(358
)
 
$
(767
)
 
$
(1,415
)
 
$
(1,778
)
Total impact on net income (loss)
 
 
$
(358
)
 
$
(767
)
 
$
(1,415
)
 
$
(1,778
)


Currency Contracts

Our foreign currency exposure arises from transactions denominated in a currency other than the U.S. dollar and is primarily associated with our Canadian dollar denominated accounts receivable. From time to time, we enter into a series of foreign currency contracts to sell Canadian dollars. At September 30, 2017 and December 31, 2016, we had no foreign currency contracts outstanding. The fair values of these instruments are determined from market quotes. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change.

Gains (losses) on currency derivatives that were not designated as hedging instruments are recorded in other income (expense) as follows:
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
 
2017
 
2016
 
2017
 
2016
Derivative:
Location:
 
 

 
 

 
 

 
 

Currency contracts
Other income (expense)
 
$

 
$
106

 
$

 
$
(281
)
Total
 
 
$

 
$
106

 
$

 
$
(281
)


We do not believe we are exposed to more than a nominal amount of credit risk in our natural gas hedges, interest rate swap and currency contracts as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of September 30, 2017, by Standard and Poor’s.
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, net of tax, is as follows:
Three months ended September 30, 2017
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance June 30, 2017
 
$
(20,831
)
 
$
(913
)
 
$
(93,404
)
 
$
(115,148
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
3,477

 
93

 

 
3,570

Currency impact
 

 

 
110

 
110

 
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
    Amortization of actuarial loss (1)
 

 

 
1,386

 
1,386

    Amortization of prior service cost (credit) (1)
 

 

 
(45
)
 
(45
)
    Cost of sales
 

 
76

 

 
76

    Interest expense
 

 
358

 

 
358

Current-period other comprehensive income (loss)
 
3,477

 
527

 
1,451

 
5,455

Tax effect
 
(827
)
 
70

 
(29
)
 
(786
)
Balance on September 30, 2017
 
$
(18,181
)
 
$
(316
)
 
$
(91,982
)
 
$
(110,479
)
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2017
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2016
 
$
(27,828
)
 
$
(515
)
 
$
(96,854
)
 
$
(125,197
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
10,474

 
(1,031
)
 
4,801

 
14,244

Currency impact
 

 

 
(628
)
 
(628
)
 
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
    Amortization of actuarial loss (1)
 

 

 
4,138

 
4,138

    Amortization of prior service cost (credit) (1)
 

 

 
(127
)
 
(127
)
    Cost of sales
 

 
(81
)
 

 
(81
)
    Interest expense
 

 
1,415

 

 
1,415

Current-period other comprehensive income (loss)
 
10,474

 
303

 
8,184

 
18,961

Tax effect
 
(827
)
 
(104
)
 
(3,312
)
 
(4,243
)
Balance on September 30, 2017
 
$
(18,181
)
 
$
(316
)
 
$
(91,982
)
 
$
(110,479
)

Three months ended September 30, 2016
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on June 30, 2016
 
$
(22,587
)
 
$
(3,561
)
 
$
(91,432
)
 
$
(117,580
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
407

 
(29
)
 

 
378

Currency impact
 

 

 
(31
)
 
(31
)
 
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
    Amortization of actuarial loss (1)
 

 

 
1,491

 
1,491

    Amortization of prior service cost (credit) (1)
 

 

 
47

 
47

    Cost of sales
 

 
41

 

 
41

    Interest Expense
 

 
767

 

 
767

Current-period other comprehensive income (loss)
 
407

 
779

 
1,507

 
2,693

Tax effect
 
78

 
(278
)
 
(444
)
 
(644
)
Balance on September 30, 2016
 
$
(22,102
)
 
$
(3,060
)
 
$
(90,369
)
 
$
(115,531
)
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2016
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2015
 
$
(22,913
)
 
$
(1,860
)
 
$
(95,459
)
 
$
(120,232
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
459

 
(4,757
)
 
2,755

 
(1,543
)
Currency impact
 

 

 
481

 
481

 
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
    Amortization of actuarial loss (1)
 

 

 
4,050

 
4,050

    Amortization of prior service cost (credit) (1)
 

 

 
142

 
142

    Cost of sales
 

 
1,096

 

 
1,096

    Interest Expense
 

 
1,778

 

 
1,778

Current-period other comprehensive income (loss)
 
459

 
(1,883
)
 
7,428

 
6,004

Tax effect
 
352

 
683

 
(2,338
)
 
(1,303
)
Balance on September 30, 2016
 
$
(22,102
)
 
$
(3,060
)
 
$
(90,369
)
 
$
(115,531
)
___________________________
(1) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost within the cost of sales and selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.
Segments
Segments
Segments

Our reporting segments align with our regionally focused organizational structure, which we believe enables us to better serve customers across the globe. Under this structure, we report financial results for U.S. and Canada; Latin America; Europe, the Middle East and Africa (EMEA); and Other. Segment results are based primarily on the geographical destination of the sale. In the first quarter of 2017, net sales and related costs for certain countries were reclassified between segments to align with changes in business unit responsibilities. Accordingly, 2016 segment results have been reclassified to conform with the revised structure. The revised 2016 segment results do not affect any previously reported consolidated financial results. Our three reportable segments are defined below. Our operating segment that does not meet the criteria to be a reportable segment is disclosed as Other.

U.S. & Canada—includes sales of manufactured and sourced tableware having an end-market destination in the U.S and Canada, excluding glass products for Original Equipment Manufacturers (OEM), which remain in the Latin America segment.

Latin America—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Latin America, as well as glass products for OEMs regardless of end–market destination.

EMEA—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Europe, the Middle East and Africa.

Other—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Asia Pacific.

Our measure of profit for our reportable segments is Segment Earnings before Interest and Taxes (Segment EBIT) and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs and other allocations that are not considered by management when evaluating performance. Segment EBIT also includes an allocation of manufacturing costs for inventory produced at a Libbey facility that is located in a region other than the end market in which the inventory is sold. This allocation can fluctuate from year to year based on the relative demands for products produced in regions other than the end markets in which they are sold. As the gain (loss) on mark-to-market natural gas contracts is considered representative of our ongoing operations, it is included in Segment EBIT in 2017; the prior year derivative amount originally excluded from Segment EBIT in 2016 has been reclassified and included in Segment EBIT to conform to the current year presentation. We use Segment EBIT, along with net sales and selected cash flow information, to evaluate performance and to allocate resources. Segment EBIT for reportable segments includes an allocation of some corporate expenses based on the costs of services performed.

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

The accounting policies of the reportable segments are the same as those described in note 2. We do not have any customers who represent 10 percent or more of total sales. Inter-segment sales are consummated at arm’s length and are reflected at end-market reporting below.
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
2017
 
2016
 
2017
 
2016
Net Sales:
 
 
 
 
 
 
 
U.S. & Canada
$
112,252

 
$
117,268

 
$
343,452

 
$
354,381

Latin America
35,339

 
40,149

 
102,564

 
114,971

EMEA
33,743

 
32,489

 
90,128

 
93,058

Other
6,005

 
6,967

 
21,703

 
25,172

Consolidated
$
187,339

 
$
196,873

 
$
557,847

 
$
587,582

 
 
 
 
 
 
 
 
Segment EBIT:
 
 
 
 
 
 
 
U.S. & Canada
$
10,761

 
$
18,635

 
$
33,307

 
$
55,932

Latin America
3,721

 
1,954

 
2,549

 
15,226

EMEA
1,482

 
175

 
(1,412
)
 
33

Other
(1,529
)
 
(347
)
 
(3,598
)
 
979

Total Segment EBIT
$
14,435

 
$
20,417

 
$
30,846

 
$
72,170

 
 
 
 
 
 
 
 
Reconciliation of Segment EBIT to Net Income (Loss):
 
 
 
 
 
 
 
Segment EBIT
$
14,435

 
$
20,417

 
$
30,846

 
$
72,170

Retained corporate costs
(5,701
)
 
(6,925
)
 
(18,087
)
 
(20,699
)
Goodwill impairment (note 14)
(79,700
)
 

 
(79,700
)
 

Pension settlement

 

 

 
(212
)
Reorganization charges

 

 
(2,488
)
 

Product portfolio optimization

 

 

 
(6,784
)
Executive terminations

 
98

 

 
(4,521
)
Interest expense
(5,118
)
 
(5,231
)
 
(15,123
)
 
(15,629
)
Provision for income taxes
(2,731
)
 
(5,450
)
 
(1,665
)
 
(12,003
)
Net income (loss)
$
(78,815
)
 
$
2,909

 
$
(86,217
)
 
$
12,322

 
 
 
 
 
 
 
 
Depreciation & Amortization:
 
 
 
 
 
 
 
U.S. & Canada
$
2,850

 
$
2,883

 
$
9,016

 
$
9,718

Latin America
4,850

 
4,667

 
13,757

 
13,725

EMEA
1,816

 
1,885

 
5,508

 
7,660

Other
1,138

 
1,325

 
3,821

 
4,162

Corporate
579

 
474

 
1,514

 
1,404

Consolidated
$
11,233

 
$
11,234

 
$
33,616

 
$
36,669

 
 
 
 
 
 
 
 
Capital Expenditures:
 
 
 
 
 
 
 
U.S. & Canada
$
2,751

 
$
3,037

 
$
7,145

 
$
9,030

Latin America
3,937

 
2,041

 
15,401

 
5,717

EMEA
5,050

 
1,549

 
15,446

 
4,656

Other
348

 
939

 
816

 
2,529

Corporate
6

 
446

 
332

 
1,591

Consolidated
$
12,092

 
$
8,012

 
$
39,140

 
$
23,523




Fair Value
Fair Value
Fair Value

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

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3 — Unobservable inputs based on our own assumptions.

 
Fair Value at
 
Fair Value at
Asset / (Liability)
(dollars in thousands)
September 30, 2017
 
December 31, 2016
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Commodity futures natural gas contracts
$

 
$
(99
)
 
$

 
$
(99
)
 
$

 
$
1,508

 
$

 
$
1,508

Interest rate swap

 
(948
)
 

 
(948
)
 

 
(2,035
)
 

 
(2,035
)
Net derivative asset (liability)
$

 
$
(1,047
)
 
$

 
$
(1,047
)
 
$

 
$
(527
)
 
$

 
$
(527
)


The fair values of our commodity futures natural gas contracts are determined using observable market inputs. The fair value of our interest rate swap is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy. We also evaluate Company and counterparty risk in determining fair values. The commodity futures natural gas contracts and interest rate swap are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the above table.
 
 
 
 
 

Financial instruments carried at cost on the Condensed Consolidated Balance Sheets, as well as the related fair values, are as follows:
 
 
 
 
September 30, 2017
 
December 31, 2016
(dollars in thousands)
 
Fair Value
Hierarchy Level
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Term Loan B
 
Level 2
 
$
390,700

 
$
359,444