LIBBEY INC, 10-Q filed on 5/1/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 24, 2019
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  
Entity Emerging Growth Company false  
Entity Small Business true  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   22,277,660
v3.19.1
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Total revenues $ 175,649 $ 182,670
Cost of sales 141,691 149,000
Gross profit 33,958 33,670
Selling, general and administrative expenses 32,580 31,523
Income from operations 1,378 2,147
Other income (expense) (1,584) (2,107)
Earnings (loss) before interest and income taxes (206) 40
Interest expense 5,632 5,084
Loss before income taxes (5,838) (5,044)
Benefit from income taxes (1,296) (2,083)
Net loss $ (4,542) $ (2,961)
Net loss per share:    
Basic $ (0.20) $ (0.13)
Diluted (0.20) (0.13)
Dividends declared per share $ 0 $ 0.1175
Net sales    
Total revenues $ 174,966 $ 181,913
Freight billed to customers    
Total revenues $ 683 $ 757
v3.19.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Net loss $ (4,542) $ (2,961)
Other comprehensive income (loss):    
Pension and other post-retirement benefit adjustments, net of tax 777 755
Change in fair value of derivative instruments, net of tax (3,054) 1,470
Foreign currency translation adjustments, net of tax (26) 4,333
Other comprehensive income (loss), net of tax (2,303) 6,558
Comprehensive income (loss) $ (6,845) $ 3,597
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Assets:    
Cash and cash equivalents $ 14,965 $ 25,066
Accounts receivable - net 81,917 83,977
Inventories - net 209,868 192,103
Prepaid and other current assets 19,484 16,522
Total current assets 326,234 317,668
Purchased intangible assets - net 13,070 13,385
Goodwill 84,412 84,412
Deferred income taxes 27,729 26,090
Other assets 10,293 7,660
Operating lease right-of-use assets 65,621 0
Property, plant and equipment - net 258,968 264,960
Total assets 786,327 714,175
Liabilities and Shareholders' Equity:    
Accounts payable 75,366 74,836
Salaries and wages 21,937 27,924
Accrued liabilities 39,137 43,728
Accrued income taxes 3,068 3,639
Pension liability (current portion) 3,333 3,282
Non-pension post-retirement benefits (current portion) 3,955 3,951
Operating lease liabilities (current portion) 12,499 0
Long-term debt due within one year 4,400 4,400
Total current liabilities 163,695 161,760
Long-term debt 417,625 393,300
Pension liability 44,238 45,206
Non-pension post-retirement benefits 42,001 43,015
Noncurrent operating lease liabilities 53,672 0
Deferred income taxes 2,713 2,755
Other long-term liabilities 18,722 18,246
Total liabilities 742,666 664,282
Contingencies (Note 15)
Shareholders' equity:    
Common stock, par value $.01 per share, 50,000,000 shares authorized, 22,273,568 shares issued in 2019 (22,157,220 shares issued in 2018) 223 222
Capital in excess of par value 336,129 335,517
Retained deficit (175,983) (171,441)
Accumulated other comprehensive loss (116,708) (114,405)
Total shareholders' equity 43,661 49,893
Total liabilities and shareholders' equity $ 786,327 $ 714,175
v3.19.1
Condensed Consolidated Balance Sheets Parenthetical - $ / shares
Mar. 31, 2019
Dec. 31, 2018
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 22,273,568 22,157,220
v3.19.1
Condensed Consolidated Statement of Shareholders' Equity - USD ($)
$ in Thousands
Total
Common Stock
Capital in Excess of Par Value
Retained Deficit
Accumulated Other Comprehensive Loss
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cumulative-effect adjustment for the adoption of ASU 2017-12 $ 0     $ 275 $ (275)
Balance, shares at Dec. 31, 2017   22,018,010      
Balance, value at Dec. 31, 2017 66,894 $ 220 $ 333,011 (161,165) (105,172)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (2,961)     (2,961)  
Other comprehensive income (loss) 6,558       6,558
Stock compensation expense 270   270    
Dividends (2,595)     (2,595)  
Stock withheld for employee taxes (203)   (203)    
Stock issued, shares   63,582      
Stock issued, value 92 $ 1 91    
Balance, shares at Mar. 31, 2018   22,081,592      
Balance, value at Mar. 31, 2018 68,055 $ 221 333,169 (166,446) (98,889)
Balance, shares at Dec. 31, 2018   22,157,220      
Balance, value at Dec. 31, 2018 49,893 $ 222 335,517 (171,441) (114,405)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (4,542)     (4,542)  
Other comprehensive income (loss) (2,303)       (2,303)
Stock compensation expense 937   937    
Stock withheld for employee taxes (317)   (317)    
Stock issued, shares   116,348      
Stock issued, value (7) $ 1 (8)    
Balance, shares at Mar. 31, 2019   22,273,568      
Balance, value at Mar. 31, 2019 $ 43,661 $ 223 $ 336,129 $ (175,983) $ (116,708)
v3.19.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Operating activities:    
Net loss $ (4,542) $ (2,961)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 9,931 11,879
Change in accounts receivable 1,784 4,962
Change in inventories (18,075) (14,311)
Change in accounts payable 2,644 (4,458)
Accrued interest and amortization of discounts and finance fees 285 357
Pension & non-pension post-retirement benefits, net (977) 1,975
Accrued liabilities & prepaid expenses (12,054) (7,464)
Income taxes (3,516) (2,769)
Share-based compensation expense 942 290
Other operating activities (327) (644)
Net cash used in operating activities (23,905) (13,144)
Investing activities:    
Additions to property, plant and equipment (10,361) (11,271)
Net cash used in investing activities (10,361) (11,271)
Financing activities:    
Borrowings on ABL credit facility 42,300 42,177
Repayments on ABL credit facility (16,800) (12,000)
Other repayments 0 (1,383)
Repayments on Term Loan B (1,100) (1,100)
Taxes paid on distribution of equity awards (317) (203)
Dividends 0 (2,595)
Net cash provided by financing activities 24,083 24,896
Effect of exchange rate fluctuations on cash 82 569
Increase (decrease) in cash (10,101) 1,050
Cash & cash equivalents at beginning of period 25,066 24,696
Cash & cash equivalents at end of period 14,965 25,746
Supplemental disclosure of cash flow information:    
Cash paid during the period for interest 5,147 4,588
Cash paid during the period for income taxes $ 1,151 $ 1,120
v3.19.1
Description of the Business
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
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®, Master's 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 channels of distribution. 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.
v3.19.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
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 period ended March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

The balance sheet at December 31, 2018, 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, 2018.

Software We account for software in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350. Software represents the costs of internally developed and/or purchased software for internal use. Capitalized costs include software packages, installation and internal labor costs of employees devoted to the software development project. Costs incurred to modify existing software, providing significant enhancements and creating additional functionality are also capitalized. Once a project is complete, we estimate the useful life of the internal-use software, generally amortizing these costs over a 5 to 10 year period. Software is classified on the balance sheet in property, plant and equipment, and the related cash flows are shown as cash outflows from investing activities.

Cloud Computing Arrangements We account for implementation costs for software that we gain access to in hosted cloud computing arrangements in accordance with FASB ASC 350. Capitalized costs of hosted cloud computing arrangements include configuration, installation, other upfront costs and internal labor costs of employees devoted to the cloud computing software implementation project. Once a project is complete, amortization is computed using the straight-line method over the term of the associated hosting arrangement, generally 3 to 10 years. In connection with our adoption of Accounting Standards Update (ASU) 2018-15 on January 1, 2019, these implementation costs are now classified on the balance sheet in prepaid and other current assets and other assets, and the related cash flows are presented as cash outflows from operations. Prior to January 1, 2019, implementation costs were included in property, plant and equipment, and the related cash flows were shown as cash outflows from investing activities. See New Accounting Standards - Adopted below. Our cloud computing arrangements primarily relate to our new global enterprise resource planning (ERP) system. At March 31, 2019, the net book value of these implementation costs included $0.3 million in prepaid and other current assets and $2.8 million in other assets on the Condensed Consolidated Balance Sheet. Amortization expense for the first quarter and accumulated amortization were both immaterial.

Leases We determine if an arrangement is a lease at inception. As of January 1, 2019, operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our balance sheet; related payments are included in operating activities on the statement of cash flows. We currently do not have any finance leases; but, if we do in the future, we will include them in property, plant and equipment, long-term debt due within one year and long-term debt within our balance sheet.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

When our leases do not provide an implicit rate, we use our incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our secured borrowing rates as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

The operating lease ROU asset also includes any lease prepayments made before commencement or in advance of the payment due date. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less (short-term leases) are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease costs represent the incremental change in lease payments associated with an indexed rate (i.e. Consumers Price Index), and these costs are not included in the lease liability on the balance sheet because they are unknown at commencement date.

We have lease agreements with lease and non-lease components. Non-lease components for real estate leases relate primarily to common area maintenance, insurance, taxes and utilities associated with the properties. For real estate leases and a limited class of equipment leases, we account for the lease and non-lease components separately. Non-lease components are not recorded on the balance sheet as a ROU asset and lease liability and are not included in lease costs. For all other equipment leases, we account for the lease and non-lease components as a single lease component.

See New Accounting Standards - Adopted below for the adoption impact of this lease accounting standard.

Stock-Based Compensation Expense

Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
 
 
Three months ended March 31,
(dollars in thousands)
 
2019
 
2018
Stock-based compensation expense
 
$
942

 
$
290



New Accounting Standards - Adopted

Each change to U.S. GAAP is established by the FASB in the form of an ASU to the FASB’s ASC. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and either were determined to be not applicable or are expected to have minimal impact on the Company’s 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 ROU assets and corresponding liabilities for both finance and operating leases with lease terms greater than 12 months. On January 1, 2019, we adopted this standard using the optional transition method of applying the modified retrospective approach at our adoption date. Under this method, previously reported comparative periods prior to 2019 have not been restated. We have elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our prior conclusions on existing contracts for lease identification, lease classification and initial direct costs. In addition, for most of our classes of equipment leases, we elected the practical expedient to not separate lease and non-lease components. We also made an accounting policy election to keep leases with a term of 12 months or less off of the balance sheet for all classes of underlying assets. At adoption, we had operating leases which resulted in us recognizing operating ROU assets and lease liabilities on the balance sheet of approximately $69 million. The adoption of this ASU did not have a material impact on our condensed consolidated results of operations or cash flows, and there was no cumulative effect adjustment to retained earnings. The new standard also required additional disclosures which are included in note 13.

On January 1, 2019, we early adopted ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for internal-use software. The new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. Prior to January 1, 2019, implementation costs for cloud computing arrangements were capitalized into property, plant and equipment and amortized on a straight-line basis. Upon adoption of this new standard, we reclassed $2.8 million from construction in progress within property, plant, and equipment to other assets. When implementation projects are completed and amortization of capitalized costs begins, a portion is recorded in prepaids and other current assets. Results and disclosures for reporting periods beginning on or after January 1, 2019, are presented under the new guidance within ASU 2018-15, while prior period amounts and disclosures are not adjusted and continue to be reported in accordance with our previous accounting.

New Accounting Standards - Not Yet Adopted

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. Although we are still evaluating the impact of this standard, we believe it will not have a material impact on our Condensed Consolidated Financial Statements.
v3.19.1
Balance Sheet Details
3 Months Ended
Mar. 31, 2019
Balance Sheet Details [Abstract]  
Balance Sheet Details
Balance Sheet Details

The following table provides detail of selected balance sheet items:
(dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Accounts receivable:
 
 
 
 
Trade receivables
 
$
80,095

 
$
82,521

Other receivables
 
1,822

 
1,456

Total accounts receivable, less allowances of $7,846 and $8,538
 
$
81,917

 
$
83,977

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
192,625

 
$
175,074

Work in process
 
1,555

 
1,363

Raw materials
 
3,886

 
4,026

Repair parts
 
10,206

 
10,116

Operating supplies
 
1,596

 
1,524

Total inventories, less loss provisions of $8,398 and $9,453
 
$
209,868

 
$
192,103

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
15,924

 
$
19,359

Other accrued liabilities
 
23,213

 
24,369

Total accrued liabilities
 
$
39,137

 
$
43,728

v3.19.1
Borrowings
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Borrowings
Borrowings

Borrowings consist of the following:
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
March 31,
2019
 
December 31,
2018
Borrowings under ABL Facility
 
floating
(2) 
December 7, 2022 (1)
 
$
45,045

 
$
19,868

Term Loan B
 
floating
(3) 
April 9, 2021
 
379,100

 
380,200

Total borrowings
 
 
 
 
 
424,145

 
400,068

Less — unamortized discount and finance fees
 
 
2,120

 
2,368

Total borrowings — net
 
 
 
 
 
422,025

 
397,700

Less — long term debt due within one year
 
 
 
4,400

 
4,400

Total long-term portion of borrowings — net
 
 
$
417,625

 
$
393,300


________________________
(1) 
Maturity date will be January 9, 2021, if Term Loan B is not refinanced by this date.
(2) 
The interest rate for the ABL Facility is comprised of several different borrowings at various rates. The weighted average rate of all ABL Facility borrowings was 3.11 percent at March 31, 2019.
(3) 
We have entered into interest rate swaps that effectively fix a series of our future interest payments on a portion of the Term Loan B debt. See interest rate swaps in note 8 for additional details. The Term Loan B floating interest rate was 5.49 percent at March 31, 2019.
    
The ABL Facility also provides for the issuance of up to $15.0 million of letters of credit that, when outstanding, are applied against the $100.0 million limit. At March 31, 2019, $8.6 million in letters of credit and other reserves were outstanding. Remaining unused availability under the ABL Facility was $46.4 million at March 31, 2019, compared to $71.6 million at December 31, 2018.
v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
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 22.2 percent for the three months ended March 31, 2019, compared to 41.3 percent for the three months ended March 31, 2018. Our effective tax rate for the three months ended March 31, 2019, which was above the United States statutory rate of 21 percent, was decreased 46.4 percent by the timing and mix of pretax income earned outside the United States, increased 3.4 percent by the impact of foreign exchange, increased 22.5 percent for nondeductible interest and increased 21.7 percent by other items including foreign withholding tax and nondeductible expenses.

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, the Mexican tax authority (SAT) assessed one of our Mexican subsidiaries 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 three months ended March 31, 2019.
v3.19.1
Pension and Non-pension Post-retirement Benefits
3 Months Ended
Mar. 31, 2019
Retirement Benefits [Abstract]  
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Post-retirement Benefits

The components of our net pension expense, including the SERP (supplemental employee retirement plan), are as follows:
Three months ended March 31,
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Service cost
 
$
783

 
$
979

 
$
259

 
$
292

 
$
1,042

 
$
1,271

Interest cost
 
3,382

 
3,165

 
769

 
763

 
4,151

 
3,928

Expected return on plan assets
 
(5,193
)
 
(5,660
)
 

 

 
(5,193
)
 
(5,660
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service (credit)
 

 

 
(50
)
 
(51
)
 
(50
)
 
(51
)
Actuarial loss
 
1,087

 
1,637

 
103

 
159

 
1,190

 
1,796

Pension expense
 
$
59

 
$
121

 
$
1,081

 
$
1,163

 
$
1,140

 
$
1,284



We have contributed $1.3 million of cash to our pension plans for the three months ended March 31, 2019. Pension contributions for the remainder of 2019 are estimated to be $2.1 million.

The provision for our non-pension, post-retirement, benefit expense consists of the following:
Three months ended March 31,
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Service cost
 
$
110

 
$
151

 
$

 
$

 
$
110

 
$
151

Interest cost
 
469

 
456

 
9

 
10

 
478

 
466

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service (credit)
 
(70
)
 
(71
)
 

 

 
(70
)
 
(71
)
Actuarial (gain)
 
(82
)
 
(52
)
 
(18
)
 
(16
)
 
(100
)
 
(68
)
Non-pension post-retirement benefit expense
 
$
427

 
$
484

 
$
(9
)
 
$
(6
)
 
$
418

 
$
478



Our 2019 estimate of non-pension cash payments is $4.0 million, of which we have paid $1.8 million for the three months ended March 31, 2019.
v3.19.1
Net Income (Loss) per Share of Common Stock
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Net Income (Loss) per Share of Common Stock
Net Loss per Share of Common Stock

The following table sets forth the computation of basic and diluted loss per share:
 
 
Three months ended March 31,
(dollars in thousands, except earnings per share)
 
2019
 
2018
Numerator for earnings per share:
 
 
 
 
Net loss that is available to common shareholders
 
$
(4,542
)
 
$
(2,961
)
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
Weighted average shares outstanding
 
22,262,565

 
22,086,640

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

 

Adjusted weighted average shares and assumed conversions
 
22,262,565

 
22,086,640

 
 
 
 
 
Basic loss per share
 
$
(0.20
)
 
$
(0.13
)
 
 
 
 
 
Diluted loss per share
 
$
(0.20
)
 
$
(0.13
)
 
 
 
 
 
Anti-dilutive shares excluded from computation of diluted loss per share
 
1,483,470

 
1,167,398



When applicable, diluted shares outstanding is calculated using the weighted-average number of common shares outstanding plus the dilutive effects of equity-based compensation outstanding during the period using the treasury stock method.

v3.19.1
Derivatives
3 Months Ended
Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
Derivatives
We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt and commodity price risks associated with forecasted future natural gas requirements. These derivatives 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. Our contracts with counterparties generally contain right of offset provisions. These provisions effectively reduce our exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is our policy to offset on the Condensed Consolidated Balance Sheets the amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement.

We do not believe we are exposed to more than a nominal amount of credit risk in our natural gas hedges and interest rate swaps as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of March 31, 2019, by Standard and Poor’s.
Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented:
(dollars in thousands)
 
 
 
Fair Value of Derivative Assets
 
Balance Sheet Location
 
March 31, 2019
 
December 31, 2018
Cash flow hedges:
 
 
 
 
 
 
Interest rate swaps
 
Prepaid and other current assets
 
$
672

 
$
1,425

Natural gas contracts
 
Prepaid and other current assets
 
142

 
226

Natural gas contracts
 
Other assets
 
49

 
39

Total derivative assets
 
$
863

 
$
1,690

 
 
 
 
 
 
 
 
 
 
 
Fair Value of Derivative Liabilities
Cash flow hedges:
 
 
 
 
 
 
Interest rate swaps
 
Other long-term liabilities
 
$
8,793

 
$
5,713

Natural gas contracts
 
Accrued liabilities
 
84

 

Natural gas contracts
 
Other long-term liabilities
 
6

 

Total derivative liabilities
 
$
8,883

 
$
5,713


The following table presents cash settlements (paid) received related to the below derivatives:
 
 
Three months ended March 31,
(dollars in thousands)
 
2019
 
2018
Natural gas contracts
 
$
128

 
$
(198
)
Interest rate swaps
 
344

 
(178
)
Total
 
$
472

 
$
(376
)


The following table provides a summary of the impacts of derivative gain (loss) on the Condensed Consolidated Statements of Operations and other comprehensive income (OCI):
 
 
 
 
Three months ended March 31,
(dollars in thousands)
 
Location
 
2019
 
2018
Cash flow hedges:
 
 
 
 
 
 
Derivative gain (loss) recognized into OCI:
 
 
 
 
Natural gas contracts
 
OCI
 
$
(37
)
 
$
211

Interest rate swaps
 
OCI
 
(3,478
)
 
1,253

Total
 
$
(3,515
)
 
$
1,464

 
 
 
 
 
 
 
Derivative gain (loss) reclassified from accumulated OCI to current earnings:
 
 
 
 
Natural gas contracts
 
Cost of Sales
 
$
128

 
$
(198
)
Interest rate swaps
 
Interest expense
 
355

 
(143
)
Total
 
$
483

 
$
(341
)


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, 18 months in the future, or more, depending on market conditions. The fair values of these instruments are determined from market quotes.

The following table presents the notional amount of our natural gas derivatives on the Condensed Consolidated Balance Sheets:
 
 
 
 
Notional Amounts
Derivative Types
 
Unit of Measure
 
March 31, 2019
 
December 31, 2018
Natural gas contracts
 
Millions of British Thermal Units (MMBTUs)
 
3,130,000

 
3,150,000



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 fair value of these hedges are recorded in other comprehensive income (loss). 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.

Based on our current valuation, we estimate that accumulated gains for natural gas contracts currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in $0.1 million of gain to our Condensed Consolidated Statements of Operations.

Interest Rate Swaps

The table below lists the interest rate swaps we executed as part of our risk management strategy to mitigate the risks associated with the fluctuating interest rates under our Term Loan B. The interest rate swaps effectively convert a portion of our Term Loan B debt from a variable interest rate to a fixed interest rate, thus reducing the impact of interest rate changes on future income.
Swap execution date
 
Effective date
 
Expiration date
 
Notional amount
 
Fixed swap rate
 
April 1, 2015
 
January 11, 2016
 
January 9, 2020
 
$220.0 million
 
4.85
%
 
September 24, 2018
 
January 9, 2020
 
January 9, 2025
 
$200.0 million
 
6.19
%
(1) 
________________________
(1) 
Upon refinancing our Term Loan B, the fixed interest rate will be 3.19 percent plus the new refinanced credit spread.

Our interest rate swaps are 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 swaps qualify and are designated as cash flow hedges at March 31, 2019, and are 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 fair value of these hedges are recorded in other comprehensive income (loss). Based on our current valuation, we estimate that accumulated gains currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in a reduction to interest expense of $0.7 million in our Condensed Consolidated Statements of Operations.
v3.19.1
Accumulated Other Comprehensive Income (Loss)
3 Months Ended
Mar. 31, 2019
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]  
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (AOCI), net of tax, is as follows:
Three months ended March 31, 2019
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2018
 
$
(23,240
)
 
$
(2,866
)
 
$
(88,299
)
 
$
(114,405
)
 
 
 
 
 
 
 
 
 
Amounts recognized into AOCI
 
244

 
(3,515
)
 

 
(3,271
)
Currency impact
 

 

 
34

 
34

Amounts reclassified from AOCI
 

 
(483
)
(1) 
970

(2) 
487

Tax effect
 
(270
)
 
944

 
(227
)
 
447

Other comprehensive income (loss), net of tax
 
(26
)

(3,054
)

777


(2,303
)
Balance on March 31, 2019
 
$
(23,266
)
 
$
(5,920
)
 
$
(87,522
)
 
$
(116,708
)

Three months ended March 31, 2018
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2017
 
$
(16,183
)
 
$
351

 
$
(89,340
)
 
$
(105,172
)
 
 
 
 
 
 
 
 
 
Cumulative-effect adjustment for the adoption of ASU 2017-12
 

 
(275
)
 

 
(275
)
 
 
 
 
 
 
 
 
 
Amounts recognized into AOCI
 
4,333

 
1,464

 

 
5,797

Currency impact
 

 

 
(484
)
 
(484
)
Amounts reclassified from AOCI
 

 
341

(1) 
1,606

(2) 
1,947

Tax effect
 

 
(335
)
 
(367
)
 
(702
)
Other comprehensive income (loss), net of tax
 
4,333


1,470


755


6,558

Balance on March 31, 2018
 
$
(11,850
)
 
$
1,546

 
$
(88,585
)
 
$
(98,889
)
___________________________
(1) 
We reclassified natural gas contracts through cost of sales and the interest rate swaps through interest expense on the Condensed Consolidated Statements of Operations. See note 8 for additional information.
(2) 
We reclassified the net pension and non-pension post-retirement benefits amortization and settlement charges through other income (expense) on the Condensed Consolidated Statements of Operations. See note 6 for additional information.
v3.19.1
Segments
3 Months Ended
Mar. 31, 2019
Segment Reporting [Abstract]  
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. 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. 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 March 31,
(dollars in thousands)
 
2019
 
2018
Net Sales:
 
 
 
 
U.S. & Canada
 
$
109,906

 
$
107,941

Latin America
 
30,401

 
34,333

EMEA
 
28,042

 
32,248

Other
 
6,617

 
7,391

Consolidated
 
$
174,966

 
$
181,913

 
 
 
 
 
Segment EBIT:
 
 
 
 
U.S. & Canada
 
$
9,797

 
$
4,724

Latin America
 
649

 
2,150

EMEA
 
(50
)
 
1,005

Other
 
(1,152
)
 
(1,129
)
Total Segment EBIT
 
$
9,244

 
$
6,750

 
 
 
 
 
Reconciliation of Segment EBIT to Net Loss:
 
 
 
 
Segment EBIT
 
$
9,244

 
$
6,750

Retained corporate costs
 
(9,450
)
 
(6,710
)
Interest expense
 
(5,632
)
 
(5,084
)
Benefit from income taxes
 
1,296

 
2,083

Net loss
 
$
(4,542
)
 
$
(2,961
)
 
 
 
 
 
Depreciation & Amortization:
 
 
 
 
U.S. & Canada
 
$
3,133

 
$
3,387

Latin America
 
3,780

 
4,710

EMEA
 
1,699

 
2,009

Other
 
882

 
1,314

Corporate
 
437

 
459

Consolidated
 
$
9,931

 
$
11,879

 
 
 
 
 
Capital Expenditures:
 
 
 
 
U.S. & Canada
 
$
3,384

 
$
7,137

Latin America
 
4,191

 
2,389

EMEA
 
2,346

 
1,294

Other
 
259

 
120

Corporate
 
181

 
331

Consolidated
 
$
10,361

 
$
11,271


 
 
 
 

v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue

Our primary source of revenue is the sale of glass tableware products manufactured within a Libbey facility as well as globally sourced tabletop products, including glassware, ceramicware, metalware and others. For the three months ended March 31, 2019 and 2018, bad debt expense was immaterial. Additionally, adjustments related to revenue recognized in prior periods was not material for the three months ended March 31, 2019 and 2018. There were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.

Disaggregation of Revenue:

The following table presents our net sales disaggregated by business channel:
 
 
Three months ended March 31,
(dollars in thousands)
 
2019
 
2018
Foodservice
 
$
70,817

 
$
76,173

Retail
 
55,573

 
55,761

Business-to-business
 
48,576

 
49,979

Consolidated
 
$
174,966

 
$
181,913



Each operating segment has revenues across all our business channels. Each channel has a different marketing strategy, customer base and product composition. For both periods presented, over 75 percent of each segment's revenue is derived from the following business channels: U.S. and Canada from foodservice and retail; Latin America from retail and business-to-business; and EMEA from business-to-business and retail.
v3.19.1
Fair Value
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
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; and
Level 3 — Unobservable inputs based on our own assumptions.

The fair value of our derivative financial instruments by level is as follows:
 
 
Fair Value at
 
Fair Value at
Asset / (Liability)
(dollars in thousands)
 
March 31, 2019
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Commodity futures natural gas contracts
 
$

 
$
101

 
$

 
$
101

 
$

 
$
265

 
$

 
$
265

Interest rate swaps
 

 
(8,121
)
 

 
(8,121
)
 

 
(4,288
)
 

 
(4,288
)
Net derivative asset (liability)
 
$

 
$
(8,020
)
 
$

 
$
(8,020
)
 
$

 
$
(4,023
)
 
$

 
$
(4,023
)


The fair values of our commodity futures natural gas contracts are determined using observable market inputs. The fair value of our interest rate swaps are 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 swaps 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:
 
 
 
 
March 31, 2019
 
December 31, 2018
(dollars in thousands)
 
Fair Value
Hierarchy Level
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Term Loan B
 
Level 2
 
$
379,100

 
$
354,459

 
$
380,200

 
$
362,141



The fair value of our Term Loan B has been calculated based on quoted market prices for the same or similar issues, and the fair value of our ABL Facility approximates carrying value due to variable rates. The fair value of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to their short-term nature.
v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases
Leases

Globally, we lease certain warehouses, office space, showrooms, manufacturing and office equipment, automobiles and outlet stores. Many of the real estate leases contain one or more options to renew, with renewal options that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our discretion and is not reasonably certain at lease commencement. Most of our equipment leases have a lease term of two to eight years with limited renewal options. However, one class of equipment has a lease term of 15 years with annual renewal options thereafter. Generally, the longer term lease agreements contain escalating lease payments or are adjusted periodically for inflation.

At March 31, 2019, the weighted-average remaining lease term was 6.8 years, and the weighted-average discount rate was 4.05 percent. Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

The following table presents the lease costs and supplemental cash flow information related to our operating leases:
(dollars in thousands)
 
Three months ended March 31, 2019
Operating lease costs
 
$
3,961

Short-term lease costs (1)
 
880

Total lease costs
 
$
4,841

(1) Includes variable lease costs which are immaterial.
 
 
 
 
 
Cash paid for operating leases included in the measurement of lease liabilities
 
$
3,945

ROU assets obtained in exchange for lease liabilities
 
$
69,562



The following table reconciles the undiscounted cash flows to the operating lease liabilities recorded on the balance sheet:
(dollars in thousands)
 
March 31, 2019
2019 (remainder of year)
 
$
11,162

2020
 
13,753

2021
 
10,304

2022
 
9,120

2023
 
8,507

2024 and thereafter
 
22,866

Total minimum lease payments
 
75,712

Less: interest
 
(9,541
)
Present value of future minimum lease payments
 
66,171

Less: lease liabilities (current portion)
 
(12,499
)
Noncurrent lease liabilities
 
$
53,672



As of March 31, 2019, we have an additional operating lease commitment that has not yet commenced of approximately $1.3 million. This lease will commence during the second quarter of 2019 with a lease term of 10 years.

As presented in our 2018 Form 10-K, the future minimum rental commitments under ASC 840 for non-cancelable operating leases as of December 31, 2018, was as follows (dollars in thousands):
2019
 
2020
 
2021
 
2022
 
2023
 
2024 and
thereafter
 
$15,407
 
$13,787
 
$10,339
 
$9,143
 
$8,551
 
$20,755
 
v3.19.1
Other Income (Expense)
3 Months Ended
Mar. 31, 2019
Other Income and Expenses [Abstract]  
Other Income (Expense)
Other Income (Expense)

Items included in other income (expense) in the Condensed Consolidated Statements of Operations are as follows:
 
 
Three months ended March 31,
(dollars in thousands)
 
2019
 
2018
Gain (loss) on currency transactions
 
$
(1,163
)
 
$
(1,650
)
Pension and non-pension benefits, excluding service cost
 
(406
)
 
(340
)
Other non-operating income (expense)
 
(15
)
 
(117
)
Other income (expense)
 
$
(1,584
)
 
$
(2,107
)


v3.19.1
Contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Contingencies
Contingencies

Legal Proceedings

From time to time we are identified as a "potentially responsible party" (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and/or similar state laws that impose liability without regard to fault for costs and damages relating to the investigation and cleanup of contamination resulting from releases or threatened releases of hazardous substances. We are also subject to similar laws in some of the countries where our facilities are located. Our environmental, health and safety department monitors compliance with applicable laws on a global basis.

Although we cannot predict the ultimate outcome of these proceedings, we believe that these environmental proceedings will not have a material adverse impact on our financial condition, results of operations or liquidity. There were no significant changes to our environmental legal proceedings since December 31, 2018. Please refer to Part II, Item 8. "Financial Statements and Supplementary Data," note 17, Contingencies, included in our 2018 Annual Report on Form 10-K for a more complete discussion.

Income Taxes

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. Please refer to note 5, Income Taxes, for a detailed discussion on tax contingencies.
v3.19.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Basis of Presentation
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 period ended March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

The balance sheet at December 31, 2018, 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, 2018.
Software
Software We account for software in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350. Software represents the costs of internally developed and/or purchased software for internal use. Capitalized costs include software packages, installation and internal labor costs of employees devoted to the software development project. Costs incurred to modify existing software, providing significant enhancements and creating additional functionality are also capitalized. Once a project is complete, we estimate the useful life of the internal-use software, generally amortizing these costs over a 5 to 10 year period. Software is classified on the balance sheet in property, plant and equipment, and the related cash flows are shown as cash outflows from investing activities.
Cloud Computing Arrangements
Cloud Computing Arrangements We account for implementation costs for software that we gain access to in hosted cloud computing arrangements in accordance with FASB ASC 350. Capitalized costs of hosted cloud computing arrangements include configuration, installation, other upfront costs and internal labor costs of employees devoted to the cloud computing software implementation project. Once a project is complete, amortization is computed using the straight-line method over the term of the associated hosting arrangement, generally 3 to 10 years. In connection with our adoption of Accounting Standards Update (ASU) 2018-15 on January 1, 2019, these implementation costs are now classified on the balance sheet in prepaid and other current assets and other assets, and the related cash flows are presented as cash outflows from operations. Prior to January 1, 2019, implementation costs were included in property, plant and equipment, and the related cash flows were shown as cash outflows from investing activities.
Leases
Leases We determine if an arrangement is a lease at inception. As of January 1, 2019, operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our balance sheet; related payments are included in operating activities on the statement of cash flows. We currently do not have any finance leases; but, if we do in the future, we will include them in property, plant and equipment, long-term debt due within one year and long-term debt within our balance sheet.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

When our leases do not provide an implicit rate, we use our incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our secured borrowing rates as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

The operating lease ROU asset also includes any lease prepayments made before commencement or in advance of the payment due date. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less (short-term leases) are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease costs represent the incremental change in lease payments associated with an indexed rate (i.e. Consumers Price Index), and these costs are not included in the lease liability on the balance sheet because they are unknown at commencement date.

We have lease agreements with lease and non-lease components. Non-lease components for real estate leases relate primarily to common area maintenance, insurance, taxes and utilities associated with the properties. For real estate leases and a limited class of equipment leases, we account for the lease and non-lease components separately. Non-lease components are not recorded on the balance sheet as a ROU asset and lease liability and are not included in lease costs. For all other equipment leases, we account for the lease and non-lease components as a single lease component.
New Accounting Standards
New Accounting Standards - Adopted

Each change to U.S. GAAP is established by the FASB in the form of an ASU to the FASB’s ASC. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and either were determined to be not applicable or are expected to have minimal impact on the Company’s 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 ROU assets and corresponding liabilities for both finance and operating leases with lease terms greater than 12 months. On January 1, 2019, we adopted this standard using the optional transition method of applying the modified retrospective approach at our adoption date. Under this method, previously reported comparative periods prior to 2019 have not been restated. We have elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our prior conclusions on existing contracts for lease identification, lease classification and initial direct costs. In addition, for most of our classes of equipment leases, we elected the practical expedient to not separate lease and non-lease components. We also made an accounting policy election to keep leases with a term of 12 months or less off of the balance sheet for all classes of underlying assets. At adoption, we had operating leases which resulted in us recognizing operating ROU assets and lease liabilities on the balance sheet of approximately $69 million. The adoption of this ASU did not have a material impact on our condensed consolidated results of operations or cash flows, and there was no cumulative effect adjustment to retained earnings. The new standard also required additional disclosures which are included in note 13.

On January 1, 2019, we early adopted ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for internal-use software. The new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. Prior to January 1, 2019, implementation costs for cloud computing arrangements were capitalized into property, plant and equipment and amortized on a straight-line basis. Upon adoption of this new standard, we reclassed $2.8 million from construction in progress within property, plant, and equipment to other assets. When implementation projects are completed and amortization of capitalized costs begins, a portion is recorded in prepaids and other current assets. Results and disclosures for reporting periods beginning on or after January 1, 2019, are presented under the new guidance within ASU 2018-15, while prior period amounts and disclosures are not adjusted and continue to be reported in accordance with our previous accounting.

New Accounting Standards - Not Yet Adopted

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. Although we are still evaluating the impact of this standard, we believe it will not have a material impact on our Condensed Consolidated Financial Statements.

Income Tax, Policy
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.
Earnings Per Share, Policy
When applicable, diluted shares outstanding is calculated using the weighted-average number of common shares outstanding plus the dilutive effects of equity-based compensation outstanding during the period using the treasury stock method.
Derivatives, Policy
Derivatives
We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt and commodity price risks associated with forecasted future natural gas requirements. These derivatives 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. Our contracts with counterparties generally contain right of offset provisions. These provisions effectively reduce our exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is our policy to offset on the Condensed Consolidated Balance Sheets the amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement.

Segment Reporting, Policy
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. 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. 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.
Fair Value of Financial Instruments, Policy
The fair values of our commodity futures natural gas contracts are determined using observable market inputs. The fair value of our interest rate swaps are 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 swaps are hedges of either recorded assets or liabilities or anticipated transactions.
v3.19.1
Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs
Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
 
 
Three months ended March 31,
(dollars in thousands)
 
2019
 
2018
Stock-based compensation expense
 
$
942

 
$
290

v3.19.1
Balance Sheet Details (Tables)
3 Months Ended
Mar. 31, 2019
Balance Sheet Details [Abstract]  
Schedule of Other Assets and Other Liabilities [Table Text Block]
The following table provides detail of selected balance sheet items:
(dollars in thousands)
 
March 31, 2019
 
December 31, 2018
Accounts receivable:
 
 
 
 
Trade receivables
 
$
80,095

 
$
82,521

Other receivables
 
1,822

 
1,456

Total accounts receivable, less allowances of $7,846 and $8,538
 
$
81,917

 
$
83,977

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
192,625

 
$
175,074

Work in process
 
1,555

 
1,363

Raw materials
 
3,886

 
4,026

Repair parts
 
10,206

 
10,116

Operating supplies
 
1,596

 
1,524

Total inventories, less loss provisions of $8,398 and $9,453
 
$
209,868

 
$
192,103

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
15,924

 
$
19,359

Other accrued liabilities
 
23,213

 
24,369

Total accrued liabilities
 
$
39,137

 
$
43,728

v3.19.1
Borrowings (Tables)
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Schedule of Debt [Table Text Block]
Borrowings consist of the following:
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
March 31,
2019
 
December 31,
2018
Borrowings under ABL Facility
 
floating
(2) 
December 7, 2022 (1)
 
$
45,045

 
$
19,868

Term Loan B
 
floating
(3) 
April 9, 2021
 
379,100

 
380,200

Total borrowings