LIBBEY INC, 10-K filed on 3/3/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2016
Feb. 24, 2017
Jun. 30, 2016
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-K 
 
 
Document Period End Date
Dec. 31, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
21,864,541 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 342,869,963 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
ASSETS
 
 
Cash and cash equivalents
$ 61,011 
$ 49,044 
Accounts receivable — net
85,113 
94,379 
Inventories — net
170,009 
178,027 
Prepaid and other current assets
16,777 
19,326 
Total current assets
332,910 
340,776 
Pension asset
977 
Purchased intangible assets — net
15,225 
16,364 
Goodwill
164,112 
164,112 
Deferred income taxes
40,016 
48,662 
Other assets
9,514 
9,019 
Total other assets
228,867 
239,134 
Property, plant and equipment — net
256,392 
272,534 
Total assets
818,169 
852,444 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Accounts payable
71,582 
71,560 
Salaries and wages
27,018 
27,266 
Accrued liabilities
41,807 
45,179 
Accrued income taxes
1,384 
4,009 
Pension liability (current portion)
2,461 
2,297 
Non-pension postretirement benefits (current portion)
4,892 
4,903 
Derivative liability
1,928 
4,265 
Long-term debt due within one year
5,009 
4,747 
Total current liabilities
156,081 
164,226 
Long-term debt
402,831 
426,272 
Pension liability
43,934 
44,274 
Non-pension postretirement benefits
55,373 
55,282 
Deferred income taxes
1,859 
2,822 
Other long-term liabilities
12,972 
11,186 
Total liabilities
673,050 
704,062 
Contingencies (Note 18)
   
   
Shareholders’ equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 21,864,541 shares issued in 2016 (21,843,851 shares issued in 2015)
219 
218 
Capital in excess of par value
329,722 
330,756 
Treasury stock
(4,448)
Retained deficit
(59,625)
(57,912)
Accumulated other comprehensive loss
(125,197)
(120,232)
Total shareholders’ equity
145,119 
148,382 
Total liabilities and shareholders’ equity
$ 818,169 
$ 852,444 
Consolidated Balance Sheets Parentheticals (USD $)
Dec. 31, 2016
Dec. 31, 2015
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
21,864,541 
21,843,851 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Net sales
$ 793,420 
$ 822,345 
$ 852,492 
Freight billed to customers
2,790 
2,885 
3,400 
Total revenues
796,210 
825,230 
855,892 
Cost of sales
629,916 
648,902 
652,747 
Gross profit
166,294 
176,328 
203,145 
Selling, general and administrative expenses
120,984 
132,607 
121,909 
Income from operations
45,310 
43,721 
81,236 
Loss on redemption of debt
(47,191)
Other income
3,362 
2,880 
2,351 
Earnings before interest and income taxes
48,672 
46,601 
36,396 
Interest expense
20,888 
18,484 
22,866 
Income before income taxes
27,784 
28,117 
13,530 
Provision (benefit) for income taxes
17,711 
(38,216)
8,567 
Net income
$ 10,073 
$ 66,333 
$ 4,963 
Net income per share:
 
 
 
Basic
$ 0.46 
$ 3.04 
$ 0.23 
Diluted
$ 0.46 
$ 2.99 
$ 0.22 
Weighted average shares:
 
 
 
Basic
21,880,000 
21,816,935 
21,716,000 
Diluted
22,049,000 
22,159,000 
22,184,000 
Dividends declared per share
$ 0.46 
$ 0.44 
$ 0 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Net income
$ 10,073 
$ 66,333 
$ 4,963 
Other comprehensive income (loss):
 
 
 
Pension and other postretirement benefit adjustments, net of tax
(1,395)
33,201 
(49,725)
Change in fair value of derivative instruments, net of tax
1,345 
(1,235)
(1,846)
Foreign currency translation adjustments, net of tax
(4,915)
(13,751)
(13,716)
Other comprehensive income (loss), net of tax
(4,965)
18,215 
(65,287)
Comprehensive income (loss)
$ 5,108 
$ 84,548 
$ (60,324)
Consolidated Statements of Shareholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Treasury Stock
Capital in Excess of Par Value
Retained Deficit
Accumulated Other Comprehensive Loss
Balance, value at Dec. 31, 2013
$ 130,809 
$ 213 
$ 0 
$ 323,367 
$ (119,611)
$ (73,160)
Balance, shares at Dec. 31, 2013
 
21,316,480 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income
4,963 
 
 
 
4,963 
 
Other comprehensive income (loss)
(65,287)
 
 
 
 
(65,287)
Stock compensation expense
3,932 
 
 
3,932 
 
 
Stock issued, value
(4,414)
(5)
 
(4,409)
 
 
Stock issued, shares
 
527,371 
 
 
 
 
Stock withheld for employee taxes
(317)
 
 
(317)
 
 
Purchase of treasury shares, value
(1,060)
 
(1,060)
 
 
 
Purchase of treasury shares, shares
 
 
34,985 
 
 
 
Balance value at Dec. 31, 2014
77,454 
218 
(1,060)
331,391 
(114,648)
(138,447)
Balance, shares at Dec. 31, 2014
 
21,843,851 
34,985 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income
66,333 
 
 
 
66,333 
 
Other comprehensive income (loss)
18,215 
 
 
 
 
18,215 
Income tax effect from share-based compensation arrangements
2,797 
 
 
2,797 
 
 
Stock compensation expense
5,873 
 
 
5,873 
 
 
Stock issued, value
(3,378)
 
(11,887)
(8,509)
 
 
Stock issued, shares
 
 
336,741 
 
 
 
Stock withheld for employee taxes
(796)
 
 
(796)
 
 
Dividends
(9,597)
 
 
 
(9,597)
 
Purchase of treasury shares, value
(15,275)
 
(15,275)
 
 
 
Purchase of treasury shares, shares
 
 
412,473 
 
 
 
Balance value at Dec. 31, 2015
148,382 
218 
(4,448)
330,756 
(57,912)
(120,232)
Balance, shares at Dec. 31, 2015
 
21,843,851 
110,717 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income
10,073 
 
 
 
10,073 
 
Other comprehensive income (loss)
(4,965)
 
 
 
 
(4,965)
Income tax effect from share-based compensation arrangements
(534)
 
 
(534)
 
 
Stock compensation expense
3,724 
 
 
3,724 
 
 
Stock issued, value
(1,404)
(1)
(6,448)
(3,329)
(1,716)
 
Stock issued, shares
 
20,690 
222,009 
 
 
 
Stock withheld for employee taxes
(895)
 
 
(895)
 
 
Dividends
(10,070)
 
 
 
(10,070)
 
Purchase of treasury shares, value
(2,000)
 
(2,000)
 
 
 
Purchase of treasury shares, shares
 
 
111,292 
 
 
 
Balance value at Dec. 31, 2016
$ 145,119 
$ 219 
$ 0 
$ 329,722 
$ (59,625)
$ (125,197)
Balance, shares at Dec. 31, 2016
 
21,864,541 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Operating activities:
 
 
 
Net income
$ 10,073 
$ 66,333 
$ 4,963 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
48,486 
42,712 
40,388 
Loss on asset sales and disposals
287 
567 
674 
Change in accounts receivable
8,660 
(6,312)
(1,808)
Change in inventories
5,979 
(12,006)
(10,828)
Change in accounts payable
(481)
(3,466)
5,088 
Accrued interest and amortization of discounts and finance fees
(1,086)
1,291 
2,039 
Call premium on senior notes
37,348 
Write-off of finance fees on senior notes
9,086 
Pension & non-pension postretirement benefits, net
(2,513)
18,865 
(879)
Restructuring
(289)
Accrued liabilities & prepaid expenses
4,032 
4,140 
(7,222)
Income taxes
6,296 
(45,003)
885 
Share-based compensation expense
4,766 
5,917 
5,283 
Excess tax benefit from share-based compensation, operating
(366)
(2,797)
Other operating activities
(1,490)
(4,142)
(2,857)
Net cash provided by operating activities
82,643 
66,099 
81,871 
Investing activities:
 
 
 
Additions to property, plant and equipment
(34,604)
(48,136)
(54,393)
Proceeds from furnace malfunction insurance recovery
2,350 
Proceeds from asset sales and other
24 
Net cash used in investing activities
(34,604)
(48,129)
(52,019)
Financing activities:
 
 
 
Borrowings on ABL credit facility
6,000 
62,900 
83,000 
Repayments on ABL credit facility
(6,000)
(62,900)
(83,000)
Other repayments
(350)
(3,267)
(5,863)
Other borrowings
339 
5,214 
Payments on 6.875% senior notes
(405,000)
Proceeds from Term Loan B
438,900 
Repayments on Term Loan B
(24,400)
(4,400)
(2,200)
Call premium on senior notes
(37,348)
Stock options exercised
1,400 
3,338 
4,571 
Excess tax benefit from share-based compensation, financing
366 
2,797 
Debt issuance costs and other
(6,959)
Dividends
(10,070)
(9,597)
Treasury shares purchased
(2,000)
(15,275)
(1,060)
Net cash used in financing activities
(34,715)
(26,404)
(9,745)
Effect of exchange rate fluctuations on cash
(1,357)
(2,566)
(2,271)
Increase (decrease) in cash
11,967 
(11,000)
17,836 
Cash & cash equivalents at beginning of year
49,044 
60,044 
42,208 
Cash & cash equivalents at end of year
61,011 
49,044 
60,044 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the year for interest, net of capitalized interest
21,553 
16,545 
20,302 
Cash paid during the year for income taxes
$ 7,559 
$ 5,516 
$ 7,228 
Consolidated Statements of Cash Flows Parentheticals (Libbey Glass, Senior Notes)
May 9, 2014
May 18, 2012
Libbey Glass |
Senior Notes
 
 
Interest rate
6.875% 
6.875% 
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.
Significant Accounting Policies
Significant Accounting Policies
Significant Accounting Policies
Basis of Presentation The Consolidated Financial Statements include Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December 31st. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with United States generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.

Revenue Recognition Revenue is recognized when products are shipped and title and risk of loss have passed to the customer. Revenue is recorded net of returns, discounts and incentives offered to customers. We estimate returns, discounts and incentives at the time of sale based on the terms of the agreements, historical experience and forecasted sales. We continually evaluate the adequacy of these methods used to estimate returns, discounts and incentives. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate governmental agencies.

Cost of Sales Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs.

Cash and Cash Equivalents We consider all highly liquid investments purchased with an original or remaining maturity of less than three months at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.

Accounts Receivable and Allowance for Doubtful Accounts We record trade receivables when revenue is recorded in accordance with our revenue recognition policy and relieve accounts receivable when payments are received from customers. The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment as to the probability of collecting accounts and our evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance. Generally, we do not require collateral on our accounts receivable.

Inventory Valuation Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method is used for our U.S. glass inventories, which represented 29.1 percent and 32.0 percent of our total inventories in 2016 and 2015, respectively. The remaining inventories are valued using either the first-in, first-out (FIFO) or average cost method. For those inventories valued on the LIFO method, the excess of FIFO cost over LIFO, was $12.9 million and $12.3 million in 2016 and 2015, respectively. Cost includes the cost of materials, direct labor, in-bound freight and the applicable share of manufacturing overhead.

Purchased Intangible Assets and Goodwill Financial Accounting Standards Board Accounting Standards Codification™ ("FASB ASC") Topic 350 - "Intangibles-Goodwill and other" ("FASB ASC 350") requires goodwill and purchased indefinite life intangible assets to be reviewed for impairment annually, or more frequently if impairment indicators arise. Intangible assets with lives restricted by contractual, legal or other means will continue to be amortized over their useful lives. As of October 1st of each year, we update our separate impairment evaluations for both goodwill and indefinite life intangible assets. For further disclosure on goodwill and intangibles, see note 4.

Software We account for software in accordance with FASB ASC 350. Software represents the costs of internally developed and purchased software packages for internal use. Capitalized costs include software packages, installation and/or internal labor costs. These costs generally are amortized over a five-year period.

Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 to 14 years for equipment and furnishings and 10 to 40 years for buildings and improvements. Maintenance and repairs are expensed as incurred.
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss for long-lived assets that we expect to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. See note 5 for further disclosure.
Self-Insurance Reserves Self-insurance reserves reflect the estimated liability for group health and workers' compensation claims not covered by third-party insurance. We accrue estimated losses based on actuarial models and assumptions as well as our historical loss experience. Workers' compensation accruals are recorded at the estimated ultimate payout amounts based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses based on actuarial models.
Pension and Nonpension Postretirement Benefits We account for pension and nonpension postretirement benefits in accordance with FASB ASC Topic 715 - "Compensation-Retirement Benefits" ("FASB ASC 715"). FASB ASC 715 requires recognition of the over-funded or under-funded status of pension and other postretirement benefit plans on the balance sheet. Under FASB ASC 715, gains and losses, prior service costs and credits and any remaining prior transaction amounts that have not yet been recognized through net periodic benefit cost are recognized in accumulated other comprehensive loss, net of tax effect where appropriate.

The U.S. pension plans cover most hourly U.S.-based employees (excluding new hires at Shreveport after December 15, 2008 and at Toledo after September 30, 2010) and those salaried U.S.-based employees hired before January 1, 2006. 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 subsidiaries in Mexico and the Netherlands (until December 2015). In December 2015, we unwound direct ownership of our defined benefit pension plan in the Netherlands. For further discussion see note 9.

We also provide certain postretirement health care and life insurance benefits covering substantially all 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 reaching a certain age and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. Under a cross-indemnity agreement, Owens-Illinois, Inc. assumed liability for the nonpension postretirement benefit of our retirees who had retired as of June 24, 1993. Therefore, the benefits related to these retirees are not included in our liability. For further discussion see note 10.
Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax attribute carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. FASB ASC Topic 740, “Income Taxes,” requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are determined separately for each tax paying component in which we conduct our operations or otherwise incur taxable income or losses. For further discussion see note 8.
Derivatives We account for derivatives in accordance with FASB ASC Topic 815 "Derivatives and Hedging" ("FASB ASC 815"). We hold derivative financial instruments to hedge certain of our interest rate risks associated with long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with occasional transactions denominated in a currency other than the U.S. dollar. These derivatives (except for the foreign currency contracts and natural gas hedges in Mexico) 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 earnings. Cash flows from hedges of debt, short-term forward exchange contracts, currency swaps, interest rate swaps, and natural gas contracts are classified as operating activities. See additional discussion at note 13.
Environmental In accordance with U.S. GAAP accounting standards, we recognize environmental clean-up liabilities on an undiscounted basis when loss is probable and can be reasonably estimated. The cost of the clean-up is estimated by financial and legal specialists based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required, and the likelihood that, where applicable, other potentially responsible parties will not be able to fulfill their commitments at the sites where the Company may be jointly and severally liable.
Foreign Currency Translation Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Income and expense accounts are translated at average exchange rates during the year. The effect of exchange rate changes on transactions denominated in currencies other than the functional currency is recorded in other income. For further detail see note 17.
Stock-Based Compensation Expense We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” ("FASB ASC 718") and FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees”("FASB ASC 505-50"). Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards.
Treasury Stock Treasury Stock purchases are recorded at cost. During 2016, 2015 and 2014, we purchased 111,292, 412,473 and 34,985 shares of treasury stock at an average price of $17.97, $37.03 and $30.30, respectively. At December 31, 2016, we had 941,250 shares of common stock available for repurchase, as authorized by our Board of Directors.
Research and Development Research and development costs are charged to selling, general and administrative expense in the Consolidated Statements of Operations when incurred. Expenses for 2016, 2015 and 2014, respectively, were $4.3 million, $6.1 million and $6.2 million.
Advertising Costs We expense all advertising costs as incurred. The expenses for 2016, 2015 and 2014, respectively, were $5.7 million, $10.7 million and $4.1 million.
Computation of Income Per Share of Common Stock Basic net income per share of common stock is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share of common stock is computed using the weighted average number of shares of common stock outstanding and dilutive potential common share equivalents during the period.
Reclassifications Certain amounts in prior years' financial statements have been reclassified to conform to the presentation used in the year ended December 31, 2016, including the reclassification of pension assets in the fair value hierarchy table in accordance with adopting ASU 2015-07 at December 31, 2016. See below and note 9.
New Accounting Standards

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue From Contracts With Customers", as amended by ASU's 2015-14, 2016-08, 2016-10, 2016-11, 2016-12 and 2016-20, (ASU 2014-09), 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 additional 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. 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 Consolidated Financial Statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements-Going Concern" (ASU 2014-15), which establishes management’s responsibility, in connection with preparing financial statements for each annual and interim reporting period, to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 also provides guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. This update is effective for the annual reporting period ending after December 15, 2016, and for interim and annual periods thereafter. Early application was permitted. We adopted ASU 2014-15 as of December 31, 2016, and it had no impact on our balance sheet, results of operations, cash flows or disclosures at December 31, 2016.

In May 2015, the FASB issued Accounting Standards Update 2015-07, "Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent)" (ASU 2015-07), which removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value (NAV) practical expedient provided by FASB ASC Topic 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate NAV per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the NAV practical expedient. ASU 2015-07 is effective for entities for fiscal years beginning after December 15, 2015 and interim periods within, with retrospective application to all periods presented. Early application was permitted. We adopted ASU 2015-07 as of January 1, 2016. The guidance impacted the presentation of our pension assets that use NAV as a practical expedient (see note 9, Pension).

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" (ASU 2016-02), which requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet. 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 standard and anticipate the new guidance will significantly impact our Consolidated Financial Statements as we have a significant number of leases. See note 16, Operating Leases, for our minimum lease commitments under non-cancellable operating leases.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (ASU 2016-09). 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, with early application permitted. When we adopt this in the first quarter of 2017, there will be an adjustment to retained earnings as of January 1, 2017, an immaterial impact to the Consolidated Statements of Operations, and a reclass between operating and financing activities on the previously reported Consolidated Statements of Cash Flows that will increase cash provided by operating activities and decrease cash used in financing activities.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13. "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13). 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 period within those fiscal years, with early application permitted. We are currently assessing the impact that this standard will have on our Consolidated Financial Statements.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" (ASU 2016-15). ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. We are currently assessing the impact that this standard will have on our Consolidated Financial Statements.

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory" (ASU 2016-16). 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 Consolidated Financial Statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" (ASU 2017-04). ASU 2017-04 simplifies the goodwill impairment testing by eliminating Step 2 from the goodwill impairment testing 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 plan to adopt this standard for our annual, and any interim, goodwill impairment testing to be performed after January 1, 2017.
Balance Sheet Details
Balance Sheet Details
Balance Sheet Details
The following table provides detail of selected balance sheet items:
December 31,
(dollars in thousands)
 
2016
 
2015
Accounts receivable:
 
 
 
 
Trade receivables
 
$
82,851

 
$
91,324

Other receivables
 
2,262

 
3,055

Total accounts receivable, less allowances of $7,832 and $7,066
 
$
85,113

 
$
94,379

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
152,261

 
$
159,998

Work in process
 
1,625

 
1,183

Raw materials
 
4,432

 
4,944

Repair parts
 
10,558

 
10,763

Operating supplies
 
1,133

 
1,139

Total inventories, less loss provisions of $9,484 and $5,313
 
$
170,009

 
$
178,027

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
19,771

 
$
21,450

Other accrued liabilities
 
22,036

 
23,729

Total accrued liabilities
 
$
41,807

 
$
45,179

 
 
 
 
 


The increase in inventory loss provisions at December 31, 2016 is due to our second quarter 2016 initiative to optimize our product portfolio to reduce inventory and simplify and improve our operations.
Purchased Intangible Assets and Goodwill
Purchased Intangible Assets and Goodwill
Purchased Intangible Assets and Goodwill

Purchased Intangibles

Changes in purchased intangibles balances are as follows:
(dollars in thousands)
 
2016
 
2015
Beginning balance
 
$
16,364

 
$
17,771

Amortization
 
(1,039
)
 
(1,039
)
Foreign currency impact
 
(100
)
 
(368
)
Ending balance
 
$
15,225

 
$
16,364



Purchased intangible assets are composed of the following:
December 31,
(dollars in thousands)
 
2016
 
2015
Indefinite life intangible assets
 
$
11,888

 
$
11,949

Definite life intangible assets, net of accumulated amortization of $17,706 and $16,758
 
3,337

 
4,415

Total
 
$
15,225

 
$
16,364



Amortization expense for definite life intangible assets was $1.0 million, $1.0 million and $1.1 million for years 2016, 2015 and 2014, respectively.

Indefinite life intangible assets are composed of trade names and trademarks that have an indefinite life and are therefore individually tested for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise, in accordance with FASB ASC 350. Our measurement date for impairment testing is October 1st of each year. When performing our test for impairment of individual indefinite life intangible assets, we use a relief from royalty method to determine the fair market value that is compared to the carrying value of the indefinite life intangible asset. The inputs used for this analysis are considered Level 3 inputs in the fair value hierarchy. See note 15 for further discussion of the fair value hierarchy. Our October 1st review for 2016 and 2015 did not indicate impairment of our indefinite life intangible assets.

The remaining definite life intangible assets at December 31, 2016 consist of customer relationships that are amortized over a period ranging from 13 to 20 years. The weighted average remaining life on the definite life intangible assets is 3.3 years at December 31, 2016.

Future estimated amortization expense of definite life intangible assets is as follows (dollars in thousands):
2017
2018
2019
2020
2021
 
$1,031
$1,031
$551
$145
$145
 


Goodwill

Changes in goodwill balances are as follows:
 
 
2016
 
2015
(dollars in thousands)
 
U.S. & Canada
 
Latin America
 
EMEA
 
Total
 
U.S. & Canada
 
Latin America
 
EMEA
 
Total
Beginning balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
$
43,872

 
$
125,681

 
$
9,434

 
$
178,987

 
$
43,872

 
$
125,681

 
$
9,434

 
$
178,987

Accumulated impairment losses
 
(5,441
)
 

 
(9,434
)
 
(14,875
)
 
(5,441
)
 

 
(9,434
)
 
(14,875
)
Net beginning balance
 
38,431

 
125,681

 

 
164,112

 
38,431

 
125,681

 

 
164,112

Other
 

 

 

 

 

 

 

 

Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
43,872

 
125,681

 
9,434

 
178,987

 
43,872

 
125,681

 
9,434

 
178,987

Accumulated impairment losses
 
(5,441
)
 

 
(9,434
)
 
(14,875
)
 
(5,441
)
 

 
(9,434
)
 
(14,875
)
Net ending balance
 
$
38,431

 
$
125,681

 
$

 
$
164,112

 
$
38,431

 
$
125,681

 
$

 
$
164,112



Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. The inputs used for this analysis are considered Level 2 and Level 3 inputs in the fair value hierarchy. See note 15 for further discussion of the fair value hierarchy.

When performing our test for impairment, we measure each reporting unit's fair value using a blended analysis of the present value of future discounted cash flows and the market valuation approach. The discounted cash flow model calculates the fair value of the reporting unit based on a discounted cash flow analysis, incorporating the weighted average cost of capital of a hypothetical third party buyer. Significant estimates in the discounted cash flows model include the following: discount rate, expected financial outlook and profitability of the reporting unit's business, and foreign currency impacts (all Level 3 inputs). The market valuation approach calculates the fair value of the reporting unit based on a comparison of the reporting unit to comparable publicly traded companies. Significant estimates in the market valuation approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable multiples in estimating the fair value of the reporting unit (Level 2 inputs).

The fair value is then compared to the carrying value. To the extent that fair value exceeds the carrying value, no impairment exists. However, to the extent the carrying value exceeds the fair value, we compare the implied fair value of goodwill to its book value to determine if an impairment should be recorded. Our annual review was performed as of October 1st for each year presented, and our review for 2016 and 2015 did not indicate an impairment of goodwill. Subsequently, events occurred, including a further decline in the value of the peso and a shift in the geopolitical environment, which were indicators of potential impairment at December 31, 2016. Therefore, we conducted an additional review as of December 31, 2016 which did not indicate an impairment to goodwill.
Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment

Property, plant and equipment consists of the following:
December 31,
(dollars in thousands)
 
2016
 
2015
Land
 
$
19,524

 
$
19,871

Buildings
 
102,666

 
102,236

Machinery and equipment
 
473,004

 
470,862

Furniture and fixtures
 
14,208

 
14,313

Software
 
22,733

 
23,630

Construction in progress
 
16,113

 
9,137

Gross property, plant and equipment
 
648,248

 
640,049

Less accumulated depreciation
 
391,856

 
367,515

Net property, plant and equipment
 
$
256,392

 
$
272,534



Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 to 14 years for equipment and furnishings and 10 to 40 years for buildings and improvements. Software consists of internally developed and purchased software packages for internal use. Capitalized costs include software packages, installation, and/or certain internal labor costs. These costs are generally amortized over a five-year period. Depreciation expense was $47.3 million, $41.4 million and $39.1 million for the years 2016, 2015 and 2014, respectively.
Borrowings
Borrowings
Borrowings

Borrowings consist of the following:
December 31,
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
2016
 
2015
Borrowings under ABL Facility
 
floating
 
April 9, 2019
 
$

 
$

Term Loan B
 
floating
(1) 
April 9, 2021
 
409,000

 
433,400

AICEP Loan
 
0.00%
 
January, 2017 to July 30, 2018
 
3,320

 
3,451

Total borrowings
 
412,320

 
436,851

Less — unamortized discount and finance fees
 
4,480

 
5,832

Total borrowings — net
 
407,840

 
431,019

Less — long term debt due within one year
 
5,009

 
4,747

Total long-term portion of borrowings — net
 
$
402,831

 
$
426,272

___________________________
(1) - See interest rate swap under "Term Loan B" below and note 13.
Annual maturities for all of our total borrowings for the next five years and beyond are as follows:
2017
2018
2019
2020
2021
Thereafter
 
$5,009
$7,111
$4,400
$4,400
$391,400
$—
 


Amended and Restated ABL Credit Agreement

Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 and amended as of April 29, 2011, May 18, 2012 and April 9, 2014 (as amended, the ABL Facility), with a group of four financial institutions. The ABL Facility provides for borrowings of up to $100.0 million, subject to certain borrowing base limitations, reserves and outstanding letters of credit.

All borrowings under the ABL Facility are secured by:
a first-priority security interest in substantially all of the existing and future personal property of Libbey Glass and its domestic subsidiaries (ABL Priority Collateral);
a first-priority security interest in:
100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries;
100 percent of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries; and
65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries
a first-priority security interest in substantially all proceeds and products of the property and assets described above; and
a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (Term Priority Collateral).

Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:
a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and
a first-priority security interest in:
100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and
100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first-tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.
Swingline borrowings are limited to $15.0 million, with swingline borrowings for Libbey Europe being limited to the U.S. equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swingline borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swingline rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.50 percent and 1.50 percent, respectively, at December 31, 2016. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.25 percent at December 31, 2016. No compensating balances are required by the ABL Facility. The ABL Facility does not require compliance with a fixed charge coverage ratio covenant, unless aggregate unused availability falls below $10.0 million. If our aggregate unused ABL availability were to fall below $10.0 million, the fixed charge coverage ratio requirement would be 1:00 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by $25.0 million. There were no Libbey Glass or Libbey Europe borrowings under the facility at December 31, 2016 or at December 31, 2015. Interest is payable on the last day of the interest period, which can range from one month to six months depending on the maturity of each individual borrowing on the ABL facility.

The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable and inventory. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable and (b) the lesser of (i) 85 percent of the net orderly liquidation value (NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million.

At December 31, 2016, the available total borrowing base is offset only by a $0.5 million rent reserve. 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 December 31, 2016, $7.0 million in letters of credit were outstanding. Remaining unused availability under the ABL Facility was $88.4 million at December 31, 2016, compared to $91.0 million under the ABL Facility at December 31, 2015.
Term Loan B
On April 9, 2014, Libbey Glass consummated its $440.0 million Senior Secured Term Loan B of Libbey Glass due 2021 (Term Loan B). The net proceeds of the Term Loan B were $438.9 million, after the 0.25 percent original issue discount of $1.1 million. The Term Loan B had related fees of approximately $6.7 million that will be amortized to interest expense over the life of the loan.

The Term Loan B is evidenced by a Senior Secured Credit Agreement, dated April 9, 2014 (Credit Agreement), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and the lenders. Under the terms of the Credit Agreement, aggregate principal of $1.1 million is due on the last business day of each quarter. The Term Loan B bears interest at the rate of LIBOR plus 3.0 percent, subject to a LIBOR "floor" of 0.75 percent. The interest rate was 3.75 percent per year at December 31, 2016 and 2015, and will mature on April 9, 2021. Although the Credit Agreement does not contain financial covenants, the Credit Agreement contains other covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:

incur, assume or guarantee additional indebtedness;
pay dividends, make certain investments or other restricted payments;
create liens;
enter into affiliate transactions;
merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and
transfer or sell assets.

We may voluntarily prepay, in whole or in part, the Term Loan B without premium or penalty but with accrued interest. Beginning with the year-ended December 31, 2015, the Credit Agreement requires us to make an annual mandatory prepayment offer to lenders of 0.0 to 50.0 percent of our excess cash flow, depending on our excess cash flow and leverage ratios as defined in the Credit Agreement. The calculation is made at the end of each year and the mandatory prepayment offer to lenders is made no later than ten business days after the filing of our annual compliance certificate to the lenders. The amount of any required mandatory prepayment offer is reduced by the amounts of any optional prepayments we made during the applicable year or prior to the prepayment offer in the year the offer is required to be made.

The Credit Agreement provides for customary events of default. In the case of an event of default as defined in the Credit Agreement, all of the outstanding Term Loan B will become due and payable immediately without further action or notice. The Term Loan B and the related guarantees under the Credit Agreement are secured by (i) first priority liens on the Term Priority Collateral and (ii) second priority liens on the ABL Collateral.

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 is effective January 2016 through January 2020. The interest rate swap is designated as a cash flow hedge and is accounted for under FASB ASC 815 "Derivatives and Hedging". See note 13 for further discussion on the interest rate swap.
Senior Secured Notes
The 6.875 percent Senior Secured Notes were issued at par and had related fees of approximately $13.2 million. These fees were amortized to interest expense over the life of the notes until the notes were refinanced in 2014. The Senior Secured Notes were issued pursuant to an Indenture, dated May 18, 2012 (Notes Indenture), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and The Bank of New York Mellon Trust Company, N.A., as trustee (Notes Trustee) and collateral agent.

In the second quarter of 2014, we completed the refinancing of all Libbey Glass's then outstanding $405.0 million in aggregate principal amount Senior Secured Notes ($360.0 million on April 9, 2014 and $45.0 million on May 9, 2014). These transactions included charges of $37.3 million for an early call premium and $9.1 million for the write off of the remaining financing fees from the Senior Secured Notes. These charges were considered in the computation of the loss on redemption of debt in the year-ended December 31, 2014.

We had an interest rate agreement in place through May 9, 2014 with respect to $45.0 million of our Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The interest rate agreement effectively converted this portion of our long-term borrowings from fixed rate debt to variable rate debt. The variable interest rate for our borrowings related to the agreement at May 9, 2014, excluding applicable fees, was 5.5 percent. We settled the swap at fair value, resulting in a payment of $1.1 million on May 13, 2014. Upon the redemption of the Senior Secured Notes, the unamortized balance of $0.8 million of the carrying value adjustment on debt related to the interest rate agreement was recognized as expense in loss on redemption of debt on the Consolidated Statements of Operations. See note 13 for further discussion and the net impact recorded on the Consolidated Statements of Operations.
AICEP Loan
From time to time since July 2012, Libbey Portugal has entered into loan agreements with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese Agency for investment and external trade. The amount of the loans outstanding is €3.2 million (approximately $3.3 million) at December 31, 2016, and the interest rate is 0.0 percent. Semi-annual installments of principal are due through the maturity date in July 2018.
RMB Working Capital Loan
On September 2, 2013, Libbey China entered into a RMB 31.5 million (approximately $5.2 million) working capital loan with China Construction Bank (CCB) to cover seasonal working capital needs. The 364-day loan was set to mature on September 1, 2014, and had a variable interest rate as announced by the People's Bank of China. On July 14, 2014, Libbey China prepaid the working capital loan along with accrued and unpaid interest. The loan held an annual interest rate of 6.3 percent at the repayment date. This obligation was secured by a mortgage lien on the Libbey China facility.

On July 24, 2014, Libbey China entered into a RMB 20.0 million (approximately $3.3 million) working capital loan with CCB to cover seasonal working capital needs. The working capital loan was set to mature on July 23, 2015, and had a fixed interest rate of 6.78 percent, which was paid monthly. On March 4, 2015, Libbey China prepaid the working capital loan along with accrued and unpaid interest. This obligation was secured by a mortgage lien on the Libbey China facility.
Promissory Note
In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. On December 10, 2014, we paid in full the remaining principal and unpaid interest due on the note, totaling $0.4 million. Principal and interest with respect to the promissory note were paid monthly.
Notes Payable
We have an overdraft line of credit for a maximum of €0.8 million. At December 31, 2016 and 2015, there were no borrowings under the facility, which had an interest rate of 5.80 percent. Interest with respect to the note is paid monthly.
Restructuring Charges
Restructuring Charges
Restructuring Charges

Capacity Realignment

In February 2013, we announced plans to discontinue production of certain glassware in North America and reduce manufacturing capacity at our Shreveport, Louisiana, manufacturing facility. As a result, on May 30, 2013, we ceased production of certain glassware in North America, discontinued the use of a furnace at our Shreveport, Louisiana, manufacturing plant and began relocating a portion of the production from the idled furnace to our Toledo, Ohio, and Monterrey, Mexico, locations. These activities were all within the U.S. and Canada and Latin America segments and were completed by March 31, 2014. In connection with this plan, we incurred pretax charges of $7.5 million for employee termination costs, fixed asset impairment charges, depreciation expense and other restructuring expenses. Employee termination costs included severance, medical benefits and outplacement services for the terminated employees. The fixed asset impairment charges were to adjust certain machinery and equipment to the estimated fair market value. For the year end December 31, 2014, we recorded a pretax charge of $1.0 million in cost of sales related to other restructuring expenses in the Latin America segment.
Income Taxes
Income Taxes
Income Taxes

The provisions for income taxes were calculated based on the following components of income (loss) before income taxes:
Year ended December 31,
(dollars in thousands)
 
2016
 
2015
 
2014
United States
 
$
29,742

 
$
27,146

 
$
(15,488
)
Non-U.S. 
 
(1,958
)
 
971

 
29,018

Total income before income taxes
 
$
27,784

 
$
28,117

 
$
13,530



The current and deferred provisions (benefit) for income taxes were:
Year ended December 31,
(dollars in thousands)
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
 
U.S. federal
 
$
470

 
$
300

 
$
59

Non-U.S. 
 
7,625

 
9,142

 
10,180

U.S. state and local
 
201

 
162

 
157

Total current income tax provision (benefit)
 
8,296

 
9,604

 
10,396

 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
U.S. federal
 
9,981

 
(44,068
)
 
227

Non-U.S. 
 
334

 
(3,078
)
 
(2,066
)
U.S. state and local
 
(900
)
 
(674
)
 
10

Total deferred income tax provision (benefit)
 
9,415

 
(47,820
)
 
(1,829
)
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
U.S. federal
 
10,451

 
(43,768
)
 
286

Non-U.S. 
 
7,959

 
6,064

 
8,114

U.S. state and local
 
(699
)
 
(512
)
 
167

Total income tax provision (benefit)
 
$
17,711

 
$
(38,216
)
 
$
8,567



Deferred income tax assets and liabilities result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and from income tax carryovers and credits. The significant components of our deferred income tax assets and liabilities are as follows:
December 31,
(dollars in thousands)
 
2016
 
2015
Deferred income tax assets:
 
 
 
 
Pension
 
$
11,799

 
$
9,644

Non-pension postretirement benefits
 
22,810

 
21,751

Other accrued liabilities
 
19,244

 
20,432

Receivables
 
2,756

 
2,341

Net operating loss and charitable contribution carry forwards
 
16,861

 
25,754

Tax credits
 
11,502

 
10,245

Total deferred income tax assets
 
84,972

 
90,167

 
 
 
 
 
Deferred income tax liabilities:
 
 
 
 
Property, plant and equipment
 
23,921

 
22,882

Inventories
 
3,866

 
2,378

Intangibles and other
 
5,255

 
7,883

Total deferred income tax liabilities
 
33,042

 
33,143

Net deferred income tax asset before valuation allowance
 
51,930

 
57,024

Valuation allowance
 
(13,773
)
 
(11,184
)
Net deferred income tax asset (liability)
 
$
38,157

 
$
45,840



The net deferred income tax assets and liabilities at December 31 of the respective year-ends were included in the Consolidated Balance Sheets as follows:
December 31,
(dollars in thousands)
 
2016
 
2015
Non-current deferred income tax asset
 
40,016

 
48,662

Non-current deferred income tax liability
 
(1,859
)
 
(2,822
)
Net deferred income tax asset (liability)
 
$
38,157

 
$
45,840



The 2016 deferred income tax asset for net operating loss carry forwards of $16.8 million relates to cumulative pretax losses incurred in the Netherlands of $24.8 million, in Portugal of $0.6 million, in China of $0.9 million, and in the U.S. of $23.0 million for federal and $58.6 million for state and local jurisdictions. Our foreign net operating loss carry forwards of $26.3 million will expire between 2017 and 2027. Our U.S. federal net operating loss carry forward of $23.0 million will expire between 2031 and 2034. This $23.0 million is lower than the actual amount reported on our U.S. federal income tax return by $6.6 million. The difference is attributable to tax deductions in excess of financial statement expenses for stock based compensation. Effective January 1, 2017, Libbey will implement ASU 2016-09 resulting in this amount being recorded as an increase to additional paid in capital and an increase to our U.S. federal net operating loss carry forward. The U.S. state and local net operating loss carry forward of $58.6 million will expire between 2017 and 2034. The 2015 deferred income tax asset for net operating loss carry forwards of $25.5 million related to pretax losses incurred in the Netherlands of $16.9 million, in Portugal of $1.8 million, in China of $1.3 million, and in the U.S. of $53.8 million for federal and $68.5 million for state and local jurisdictions.

The 2016 deferred tax credits of $11.5 million consist of $3.8 million U.S. federal tax credits and $7.7 million non-U.S. credits. The U.S. federal tax credits consist of $2.6 million of general business research and development credits which will expire between 2024 and 2036 and $1.2 million of alternative minimum tax credits which do not expire. The non-U.S. credit of $7.7 million, which is related to withholding tax on inter-company debt in the Netherlands, can be carried forward indefinitely. The 2015 deferred tax credits of $10.2 million consisted of $2.6 million U.S. federal tax credits and $7.6 million non-U.S. credits.

In assessing the need for a valuation allowance, management considers on a quarterly basis whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income (including reversals of deferred income tax liabilities) during the periods in which those deductible temporary differences reverse. As a result, we consider the historical and projected financial results of the tax paying component recording the net deferred income tax asset as well as all other positive and negative evidence. Examples of the evidence we consider are cumulative losses in recent years, losses expected in early future years, a history of potential tax benefits expiring unused and whether there were unusual, infrequent, or extraordinary items to be considered. We currently have a valuation allowance in place on our deferred income tax assets in the Netherlands. We intend to maintain this allowance until a period of sustainable income is achieved and management concludes it is more likely than not that those deferred income tax assets will be realized.

As of December 31, 2015, management considered the evidence, both positive and negative, in assessing the realizability of our deferred tax assets in the U.S. The positive evidence, including achievement of cumulative income in recent years and expectations for sustainable future income, was strong enough to conclude that it is more likely than not that nearly all of our deferred tax assets are realizable and the valuation allowance was reduced accordingly. In order to fully realize our deferred tax assets in the U.S., the Company needs to generate approximately $176.6 million of future taxable income.

Our European operations in the Netherlands incurred an operating loss in 2016, continues to be in cumulative loss positions in recent years, and has a history of tax loss carry-forwards expiring unused. In addition, European economic conditions continue to be unfavorable. Accordingly, management believes it is not more likely than not that a portion of the deferred tax assets related to these operations will be realized and a valuation allowance continues to be recorded as of December 31, 2016.

The valuation allowance activity for the years ended December 31 is as follows:
Year ended December 31,
(dollars in thousands)
 
2016
 
2015
 
2014
Beginning balance
 
$
11,184

 
$
66,486

 
$
46,048

Charge (benefit) to provision for income taxes
 
2,589

 
(49,877
)
 
3,507

Charge (benefit) to other comprehensive income
 

 
(5,425
)
 
16,931

Ending balance
 
$
13,773

 
$
11,184

 
$
66,486



The valuation allowance increased $2.6 million in 2016 from $11.2 million at December 31, 2015 to $13.8 million at December 31, 2016. The 2016 increase of $2.6 million is attributable to changes in deferred tax assets in foreign jurisdictions where valuation allowances are recorded. The 2016 valuation allowance of $13.8 million relates to net operating losses and foreign tax credits in the Netherlands. The valuation allowance decreased $55.3 million in 2015 from $66.5 million at December 31, 2014 to $11.2 million at December 31, 2015. The 2015 decrease of $55.3 million was primarily attributable to the 2015 reversal of substantially all of the U.S. valuation allowance, partially offset by changes in deferred tax assets in foreign jurisdictions where valuation allowances were recorded. The 2014 increase in valuation allowance of $20.4 million was attributable to the 2014 change in deferred tax assets, primarily related to the U.S. federal net operating loss carry forward and other comprehensive income losses related to pensions.

Reconciliation from the statutory U.S. federal income tax rate to the consolidated effective income tax rate was as follows:
Year ended December 31,
 
2016
 
2015
 
2014
Statutory U.S. federal income tax rate
 
35.0

%
 
35.0

%
 
35.0

%
Increase (decrease) in rate due to:
 
 
 
 
 
 
 
 
 
Non-U.S. income tax differential
 
(2.1
)
 
 
(0.9
)
 
 
(25.9
)
 
U.S. state and local income taxes, net of related U.S. federal income taxes
 
(1.3
)
 
 
(2.0
)
 
 
0.8

 
U.S. federal credits
 
(2.2
)
 
 

 
 

 
Permanent adjustments
 
3.8

 
 
7.5

 
 
20.1

 
Foreign withholding taxes
 
5.7

 
 
4.7

 
 
14.8

 
Valuation allowance
 
11.1

 
 
(174.8
)
 
 
42.9

 
Unrecognized tax benefits
 
10.0

 
 
(0.3
)
 
 
(9.3
)
 
Impact of foreign exchange
 
3.4

 
 
(19.8
)
 
 
(14.0
)
 
Tax effect of intercompany capitalization
 

 
 
11.7

 
 

 
Other
 
0.3

 
 
3.0

 
 
(1.1
)
 
Consolidated effective income tax rate
 
63.7

%
 
(135.9
)
%
 
63.3

%


U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside of the United States. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. The amount of such temporary differences totaled $27.7 million as of December 31, 2016 and $35.0 million as of December 31, 2015. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

We are subject to income taxes in the U.S. and various foreign jurisdictions. Management judgment is required in evaluating our tax positions and determining our provision for income taxes. Throughout the course of business, there are numerous transactions and calculations for which the ultimate tax determination is uncertain. When management believes uncertain tax positions may be challenged despite our belief that the tax return positions are supportable, we record unrecognized tax benefits as liabilities in accordance with the requirements of ASC 740. When our judgment with respect to these uncertain tax positions changes as a result of a change in facts and circumstances, such as the outcome of a tax audit, we adjust these liabilities through increases or decreases to the income tax provision.

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.

A reconciliation of the beginning and ending gross unrecognized tax benefits, excluding interest and penalties, is as follows:
(dollars in thousands)
 
2016
 
2015
 
2014
Beginning balance
 
$
431

 
$
378

 
$
1,312

Additions based on tax positions related to the current year
 
382

 
293

 

Additions for tax positions of prior years
 
3,001

 

 

Reductions for tax positions of prior years
 
(293
)
 

 
(325
)
Changes due to lapse of statute of limitations
 

 
(240
)
 
(609
)
Ending balance
 
$
3,521

 
$
431

 
$
378



We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. Other disclosures relating to unrecognized tax benefits are as follows:
December 31,
(dollars in thousands)
 
2016
 
2015
 
2014
Impact on the effective tax rate, if unrecognized tax benefits were recognized
 
$
3,414

 
$
378

 
$
306

Interest and penalties, net of tax benefit, accrued in the Consolidated Balance Sheets
 
$
273

 
$
28

 
$
174

Interest and penalties expense (benefit) recognized in the Consolidated Statements of Operations
 
$
245

 
$
(146
)
 
$
(363
)


Based upon the outcome of tax examinations, judicial proceedings, other settlements with taxing jurisdictions, or expiration of statutes of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. It is also reasonably possible that gross unrecognized tax benefits may decrease within the next twelve months by approximately $3.9 million due to settlements with tax authorities.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2016, the tax years that remained subject to examination by major tax jurisdictions were as follows:
Jurisdiction
 
Open Years
Canada
 
2012
2016
China
 
2007
2016
Mexico
 
2010
2016
Netherlands
 
2015
2016
Portugal
 
2013
2016
United States (excluding 2009 which is closed)
 
2008
2016
Pension
Pension
Pension

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 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 subsidiaries in the Netherlands and Mexico. The plan in Mexico is unfunded.
 
In the fourth quarter of 2015, we executed an agreement with Pensioenfonds voor de Grafische Bedrijven (“PGB”), an industry wide pension fund, and unwound direct ownership of our defined benefit pension plan in the Netherlands. In accordance with this agreement, we transferred all assets of the plan and made a cash contribution of $5.2 million to PGB. In return, PGB assumed the related liabilities and administrative responsibilities of the plan. As a result, there is no longer a pension liability on the Consolidated Balance Sheet related to this pension plan. This event also resulted in a settlement charge of $21.6 million being recorded in the Consolidated Statement of Operations in the fourth quarter of 2015. Beginning in 2016, Libbey Holland made cash contributions to PGB as participating employees earned pension benefits. These related costs were expensed as incurred, similar to the accounting associated with a defined contribution retirement plan and amounted to $1.9 million in 2016.

Effect on Operations
The components of our net pension expense, including the SERP, are as follows:
Year ended December 31,
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Service cost (benefits earned during the period)
 
$
3,717

 
$
4,365

 
$
3,664

 
$
1,226

 
$
2,965

 
$
2,264

 
$
4,943

 
$
7,330

 
$
5,928

Interest cost on projected benefit obligation
 
14,963

 
14,715

 
15,378

 
2,594

 
4,332

 
5,566

 
17,557

 
19,047

 
20,944

Expected return on plan assets
 
(23,027
)
 
(22,661
)
 
(22,387
)
 

 
(2,447
)
 
(2,447
)
 
(23,027
)
 
(25,108
)
 
(24,834
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
 
263

 
417

 
1,059

 
(207
)
 
(244
)
 
164

 
56

 
173

 
1,223

Actuarial loss
 
4,272

 
7,291

 
4,057

 
782

 
1,599

 
1,012

 
5,054

 
8,890

 
5,069

Transition obligations
 

 

 

 

 

 
60

 

 

 
60

Settlement charge
 
42

 
13

 
483

 
126

 
21,574

 
291

 
168

 
21,587

 
774

Curtailment charge (credit)
 

 

 

 

 
(14
)
 

 

 
(14
)
 

Pension expense
 
$
230

 
$
4,140

 
$
2,254

 
$
4,521

 
$
27,765

 
$
6,910

 
$
4,751

 
$
31,905

 
$
9,164



In 2016, 2015 and 2014, we incurred pension settlement charges of $0.2 million, $21.6 million and $0.8 million, respectively. The pension settlement charges in 2015 were triggered primarily by the liquidation of the Dutch pension fund. The pension settlement charges in 2016 and 2014 were triggered by excess lump sum distributions taken by employees, which required us to record unrecognized gains and losses in our pension plan accounts.

Actuarial Assumptions

The assumptions used to determine the benefit obligations were as follows:
 
 
U.S. Plans
 
Non-U.S. Plans
 
 
2016
 
2015
 
2016
 
2015
Discount rate
 
4.18%
to
4.23%
 
4.60%
to
4.73%
 
9.30%
 
8.10%
Rate of compensation increase
 
Not applicable
 
Not applicable
 
4.30%
 
4.30%

The assumptions used to determine net periodic pension costs were as follows:
 
U.S. Plans
 
Non-U.S. Plans
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Discount rate
4.66
%
to
4.73
%
 
4.17
%
to
4.29
%
 
4.83
%
to
5.12
%
 
8.10%
 
2.30
%
to
7.60
%
 
3.70
%
to
8.50
%
Expected long-term rate of return on plan assets
7.25%
 
7.25%
 
7.25%
 
—%
 
4.00%
 
4.10%
Rate of compensation increase
Not applicable
 
Not applicable
 
Not applicable
 
4.30%
 
2.00
%
to
4.30
%
 
2.00
%
to
4.30
%


The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at our December 31 measurement date. The discount rate at December 31 is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. A higher discount rate decreases the present value of benefit obligations and decreases pension expense.

To determine the expected long-term rate of return on plan assets for our funded plans, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. The expected long-term rate of return on plan assets at December 31st is used to measure the earnings effects for the subsequent year.

Future benefits are assumed to increase in a manner consistent with past experience of the plans except for the Libbey U.S. Salaried Pension Plan and SERP as discussed above, which, to the extent benefits are based on compensation, includes assumed compensation increases as presented above. Amortization included in net pension expense is based on the average remaining service of employees.

We account for our defined benefit pension plans on an expense basis that reflects actuarial funding methods. The actuarial valuations require significant estimates and assumptions to be made by management, primarily with respect to the discount rate and expected long-term return on plan assets. These assumptions are all susceptible to changes in market conditions. The discount rate is based on a selected settlement portfolio from a universe of high quality bonds. In determining the expected long-term rate of return on plan assets, we consider historical market and portfolio rates of return, asset allocations and expectations of future rates of return. We evaluate these critical assumptions on our annual measurement date of December 31st. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.

During 2014, the Society of Actuaries released a new mortality table, which is believed to better reflect current mortality expectations and is to be used in calculating pension obligations. In 2014, we adopted these new tables for our U.S. pension plans for use in determining our projected benefit obligations. In 2015 and 2016, the Society of Actuaries published new mortality projection scales which reflected additional years of mortality experience. We adopted these updates in each respective year.

Projected Benefit Obligation (PBO) and Fair Value of Assets

The changes in the projected benefit obligations and fair value of plan assets are as follows:
Year ended December 31,
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Change in projected benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation, beginning of year
 
$
325,863

 
$
351,477

 
$
35,915

 
$
119,986

 
$
361,778

 
$
471,463

Service cost
 
3,717

 
4,365

 
1,226

 
2,965

 
4,943

 
7,330

Interest cost
 
14,963

 
14,715

 
2,594

 
4,332

 
17,557

 
19,047

Exchange rate fluctuations
 

 

 
(5,821
)
 
(13,948
)
 
(5,821
)
 
(13,948
)
Actuarial (gain) loss
 
11,108

 
(26,796
)
 
(2,477
)
 
11,105

 
8,631

 
(15,691
)
Plan participants' contributions
 

 

 

 
1,359

 

 
1,359

Plan amendments
 

 

 

 
(4,354
)
 

 
(4,354
)
Curtailment effect
 

 

 

 
(7,414
)
 

 
(7,414
)
Settlements paid
 
(259
)
 
(96
)
 

 
(74,485
)
 
(259
)
 
(74,581
)
Benefits paid
 
(18,744
)
 
(17,802
)
 
(3,276
)
 
(3,631
)
 
(22,020
)
 
(21,433
)
Projected benefit obligation, end of year
 
$
336,648

 
$
325,863

 
$
28,161

 
$
35,915

 
$
364,809

 
$
361,778

Change in fair value of plan assets:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets, beginning of year
 
$
316,184

 
$
340,082

 
$

 
$
74,279

 
$
316,184

 
$
414,361

Actual return on plan assets
 
20,974

 
(6,096
)
 

 
(213
)
 
20,974

 
(6,309
)
Exchange rate fluctuations
 

 

 

 
(7,761
)
 

 
(7,761
)
Employer contributions
 
259

 
96

 
3,276

 
10,452

 
3,535

 
10,548

Plan participants' contributions
 

 

 

 
1,359

 

 
1,359

Settlements paid
 
(259
)
 
(96
)
 

 
(74,485
)
 
(259
)
 
(74,581
)
Benefits paid
 
(18,744
)
 
(17,802
)
 
(3,276
)
 
(3,631
)
 
(22,020
)
 
(21,433
)
Fair value of plan assets, end of year
 
$
318,414

 
$
316,184

 
$

 
$

 
$
318,414

 
$
316,184

 
 
 
 
 
 
 
 
 
 
 
 
 
Funded ratio
 
94.6
%
 
97.0
%
 
%
 
%
 
87.3
%
 
87.4
%
Funded status and net accrued pension benefit asset (cost)
 
$
(18,234
)
 
$
(9,679
)
 
$
(28,161
)
 
$
(35,915
)
 
$
(46,395
)
 
$
(45,594
)


The non-U.S. settlements paid in 2015 relate to us unwinding our direct ownership of the defined benefit pension plan in the Netherlands.

The current portion of the pension liability reflects the amount of expected benefit payments that are greater than the plan assets on a plan-by-plan basis. The net accrued pension benefit liability at December 31 of the respective year-ends were included in the Consolidated Balance Sheets as follows:
December 31,
(dollars in thousands)
 
2016
 
2015
Non-current asset
 
$

 
$
977

Current liability
 
(2,461
)
 
(2,297
)
Long-term liability
 
(43,934
)
 
(44,274
)
Net accrued pension liability
 
$
(46,395
)
 
$
(45,594
)


The pretax amounts recognized in accumulated other comprehensive loss as of December 31, 2016 and 2015, are as follows:
Year ended December 31,
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Net actuarial loss
 
$
105,830

 
$
96,983

 
$
11,077

 
$
16,988

 
$
116,907

 
$
113,971

Prior service cost (credit)
 
237

 
500

 
(2,704
)
 
(3,472
)
 
(2,467
)
 
(2,972
)
Total cost
 
$
106,067

 
$
97,483

 
$
8,373

 
$
13,516

 
$
114,440

 
$
110,999



The pretax amounts in accumulated other comprehensive loss as of December 31, 2016, that are expected to be recognized as components of net periodic benefit cost during 2017 are as follows: