LIBBEY INC, 10-Q filed on 5/2/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
Apr. 27, 2018
Entity Information [Line Items]    
Entity Registrant Name LIBBEY INC  
Entity Central Index Key 0000902274  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   22,082,197
v3.8.0.1
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Net sales $ 181,913 $ 172,994
Freight billed to customers 757 676
Total revenues 182,670 173,670
Cost of sales 149,000 142,473
Gross profit 33,670 31,197
Selling, general and administrative expenses 31,523 33,332
Income (loss) from operations 2,147 (2,135)
Other income (expense) (2,107) (2,786)
Earnings (loss) before interest and income taxes 40 (4,921)
Interest expense 5,084 4,867
Loss before income taxes (5,044) (9,788)
Benefit from income taxes (2,083) (3,218)
Net loss $ (2,961) $ (6,570)
Net loss per share:    
Basic $ (0.13) $ (0.30)
Diluted (0.13) (0.30)
Dividends declared per share $ 0.1175 $ 0.1175
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Net loss $ (2,961) $ (6,570)
Other comprehensive income:    
Pension and other post-retirement benefit adjustments, net of tax 755 456
Change in fair value of derivative instruments, net of tax 1,470 165
Foreign currency translation adjustments, net of tax 4,333 1,408
Other comprehensive income, net of tax 6,558 2,029
Comprehensive income (loss) $ 3,597 $ (4,541)
v3.8.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2018
Dec. 31, 2017
Assets:    
Cash and cash equivalents $ 25,746 $ 24,696
Accounts receivable - net 85,593 89,997
Inventories - net 203,644 187,886
Prepaid and other current assets 16,365 12,550
Total current assets 331,348 315,129
Pension asset 3,639 2,939
Purchased intangible assets - net 14,390 14,565
Goodwill 84,412 84,412
Deferred income taxes 25,977 24,892
Other assets 10,740 9,627
Property, plant and equipment - net 266,641 265,675
Total assets 737,147 717,239
Liabilities and Shareholders' Equity:    
Accounts payable 73,305 78,346
Salaries and wages 22,806 27,409
Accrued liabilities 43,855 43,223
Accrued income taxes 824 1,862
Pension liability (current portion) 2,341 2,185
Non-pension post-retirement benefits (current portion) 4,181 4,185
Derivative liability 87 697
Long-term debt due within one year 6,177 7,485
Total current liabilities 153,576 165,392
Long-term debt 406,222 376,905
Pension liability 45,451 43,555
Non-pension post-retirement benefits 49,539 49,758
Deferred income taxes 1,926 1,850
Other long-term liabilities 12,378 12,885
Total liabilities 669,092 650,345
Contingencies (Note 14)
Shareholders' equity:    
Common stock, par value $.01 per share, 50,000,000 shares authorized, 22,081,592 shares issued in 2018 (22,018,010 shares issued in 2017) 221 220
Capital in excess of par value 333,169 333,011
Retained deficit (166,446) (161,165)
Accumulated other comprehensive loss (98,889) (105,172)
Total shareholders' equity 68,055 66,894
Total liabilities and shareholders' equity $ 737,147 $ 717,239
v3.8.0.1
Condensed Consolidated Balance Sheets Parenthetical - $ / shares
Mar. 31, 2018
Dec. 31, 2017
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 22,081,592 22,018,010
v3.8.0.1
Condensed Consolidated Statement of Shareholders' Equity Statement - 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       $ 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 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)
v3.8.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Operating activities:    
Net loss $ (2,961) $ (6,570)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 11,879 11,155
Loss on asset sales and disposals 92 23
Change in accounts receivable 4,962 1,961
Change in inventories (14,311) (3,827)
Change in accounts payable (4,458) (3,921)
Accrued interest and amortization of discounts and finance fees 357 378
Pension & non-pension post-retirement benefits, net 1,975 2,116
Accrued liabilities & prepaid expenses (7,464) (4,545)
Income taxes (2,769) (4,236)
Share-based compensation expense 290 832
Other operating activities (736) 320
Net cash used in operating activities (13,144) (6,314)
Investing activities:    
Additions to property, plant and equipment (11,271) (11,952)
Net cash used in investing activities (11,271) (11,952)
Financing activities:    
Borrowings on ABL credit facility 42,177 0
Repayments on ABL credit facility (12,000) 0
Other repayments (1,383) (169)
Repayments on Term Loan B (1,100) (6,100)
Taxes paid on distribution of equity awards (203) (423)
Dividends (2,595) (2,577)
Net cash provided by (used in) financing activities 24,896 (9,269)
Effect of exchange rate fluctuations on cash 569 267
Increase (decrease) in cash 1,050 (27,268)
Cash & cash equivalents at beginning of period 24,696 61,011
Cash & cash equivalents at end of period 25,746 33,743
Supplemental disclosure of cash flow information:    
Cash paid during the period for interest 4,588 4,504
Cash paid during the period for income taxes $ 1,120 $ 779
v3.8.0.1
Description of the Business
3 Months Ended
Mar. 31, 2018
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.
v3.8.0.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2018
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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

The balance sheet at December 31, 2017 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, 2017.

Cost of Sales

Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs. Shipping and delivery costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales. In addition, reimbursement of certain pre-production costs is considered a development activity and is included in cost of sales.

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)
 
2018
 
2017
Stock-based compensation expense
 
$
290

 
$
832



Reclassifications

In connection with our adoption of ASU 2017-07, certain pension and non-pension expense amounts in prior periods have been reclassified to conform with the current period presentation. See New Accounting Standards - Adopted below.

New Accounting Standards - Adopted

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

On January 1, 2018, we adopted ASU 2014-09, Revenue From Contracts With Customers and all related amendments, also known as ASC Topic 606, using the modified retrospective method. There was no cumulative effect adjustment required of initially applying the new standard to existing contracts at adoption on January 1, 2018, and we expect the impact of adopting the new standard to be immaterial to our Condensed Consolidated Statement of Operations on an ongoing basis. Additionally, there was no impact to our Condensed Consolidated Balance Sheets. The enhanced disclosure requirements are included in note 11, Revenue. Results for reporting periods beginning on or after January 1, 2018, are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our previous accounting under ASC Topic 605.

On January 1, 2018, we adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. ASU 2017-07 improves the presentation of net periodic pension and post-retirement benefit costs. We retrospectively adopted the presentation that the service cost
component of pension and post-retirement benefit costs be reported within income from operations. The other components of net benefit cost (interest costs, expected return on assets, amortization of prior service costs, settlement charges and other costs) have been reclassified from cost of sales and selling, general and administrative expenses to other income (expense). On a prospective basis, only the service cost component will be capitalized in inventory or property, plant and equipment, when applicable. The effect of the retrospective presentation change related to the net periodic pension and non-pension benefit costs (credits) on our Condensed Consolidated Statement of Operations was as follows:
 
 
Three months ended March 31, 2017
(dollars in thousands)
 
Previously Reported
 
Reclassification
 
As Revised
Cost of sales
 
$
143,356

 
$
(883
)
 
$
142,473

Selling, general and administrative expenses
 
32,975

 
357

 
33,332

Other income (expense)
 
(2,260
)
 
(526
)
 
(2,786
)


On January 1, 2018, we early adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amended the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. As of January 1, 2018, we recorded a $0.3 million reduction to our retained deficit and an increase in accumulated other comprehensive loss related to our natural gas swap contracts in Mexico that were previously not designated as hedging instruments. On a prospective basis, the change in fair value of these derivatives will be recognized in other comprehensive income (loss) rather than other income (expense) within the Condensed Consolidated Statement of Operations. Results and disclosures for reporting periods beginning on or after January 1, 2018, are presented under the new guidance within ASU 2017-12, while prior period amounts and disclosures are not adjusted and continue to be reported in accordance with our previous accounting. See note 8, Derivatives, for further details and disclosures.

New Accounting Standards - Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires a lessee to recognize on the balance sheet right-of-use assets and corresponding liabilities for leases with lease terms of more than 12 months. Leases will be classified as either finance or operating leases, with classification affecting the pattern of expense recognition in the income statement. The new guidance also clarifies the definition of a lease and disclosure requirements. ASU 2016-02 is effective for us in the first quarter of 2019. ASU 2016-02 requires lessees and lessors to 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. In the first quarter of 2018, the FASB stated they plan to provide an optional transition method permitting an entity to apply the transition provisions of ASU 2016-02 at its adoption date instead of at the earliest comparative period presented in the financial statements. This would ease the transition burden and allow us to record a cumulative effect adjustment to retained earnings as of January 1, 2019, without restatement of the previously reported comparative periods. Therefore, this is our preferred adoption method. We are currently evaluating the extent of the impact the new lease guidance will have on our financial statements and related disclosures, including the additional assets and liabilities that will be recognized on the balance sheet. To facilitate this, we are utilizing a comprehensive approach to review our lease portfolio, have selected a system for managing our leases, and are in the early stages of system implementation and updating of our controls. See note 15, Operating Leases, in our 2017 Annual Report on Form 10-K for the year ended December 31, 2017 for our minimum lease commitments under non-cancellable operating leases.

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

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard allows an optional reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the stranded tax effects resulting from the Tax Cuts and Jobs Act will be eliminated, resulting in more useful information reported to financial statement users. ASU 2018-02 relates to only the reclassification of the income tax effects of the Tax Cuts and Jobs Act. The underlying guidance requiring that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early application permitted. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.
v3.8.0.1
Balance Sheet Details
3 Months Ended
Mar. 31, 2018
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, 2018
 
December 31, 2017
Accounts receivable:
 
 
 
 
Trade receivables
 
$
84,320

 
$
88,786

Other receivables
 
1,273

 
1,211

Total accounts receivable, less allowances of $9,803 and $9,051
 
$
85,593

 
$
89,997

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
185,957

 
$
170,774

Work in process
 
1,529

 
1,485

Raw materials
 
3,876

 
3,906

Repair parts
 
10,738

 
10,240

Operating supplies
 
1,544

 
1,481

Total inventories, less loss provisions of $10,691 and $10,308
 
$
203,644

 
$
187,886

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
18,689

 
$
19,728

Other accrued liabilities
 
25,166

 
23,495

Total accrued liabilities
 
$
43,855

 
$
43,223

v3.8.0.1
Borrowings
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Borrowings
Borrowings

Borrowings consist of the following:
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
March 31,
2018
 
December 31,
2017
Borrowings under ABL Facility
 
floating
 
December 7, 2022 (1)
 
$
30,177

 
$

Term Loan B
 
floating
(2) 
April 9, 2021
 
383,500

 
384,600

AICEP Loan
 
0.00%
 
July 30, 2018
 
1,777

 
3,085

Total borrowings
 
 
 
 
 
415,454

 
387,685

Less — unamortized discount and finance fees
 
 
3,055

 
3,295

Total borrowings — net
 
 
 
 
 
412,399

 
384,390

Less — long term debt due within one year
 
 
 
6,177

 
7,485

Total long-term portion of borrowings — net
 
 
$
406,222

 
$
376,905


________________________
(1) 
Maturity date will be January 9, 2021, if Term Loan B is not refinanced by this date.
(2) 
We have entered into an interest rate swap that effectively fixes a series of our future interest payments on a portion of the Term Loan B debt. See interest rate swap in note 8 for additional details. The Term Loan B floating interest rate was 4.72 percent at March 31, 2018.
    
At March 31, 2018, the available borrowing base under the ABL Facility was offset by a $0.5 million rent reserve. The ABL Facility also provides for the issuance of up to $15.0 million of letters of credit which, when outstanding, are applied against the $100.0 million limit. At March 31, 2018, $7.5 million in letters of credit were outstanding. Remaining unused availability under the ABL Facility was $61.8 million at March 31, 2018, compared to $91.9 million at December 31, 2017.
v3.8.0.1
Income Taxes
3 Months Ended
Mar. 31, 2018
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 41.3 percent for the three months ended March 31, 2018, compared to 32.9 percent for the three months ended March 31, 2017. Our effective tax rate for the three months ended March 31, 2018, was above the United States statutory rate of 21 percent and was affected by the timing and mix of pretax income earned in jurisdictions with rates different from the United States statutory rate of (1.1) percent, the impact of foreign exchange of 6.0 percent, and other items including foreign withholding tax and nondeductible expenses of 15.4 percent. Our effective tax rate for the three months ended March 31, 2017, was below the United States statutory rate of 35 percent and was affected by the timing and mix of pretax income earned in jurisdictions with rates different from the United States statutory rate of (28.9) percent, the impact of foreign exchange of 12.7 percent, and other items including foreign withholding tax and nondeductible expenses of 14.1 percent.

The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. In August 2016, 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, 2018.

The Tax Cuts and Jobs Act (the Act), enacted December 22, 2017, changed many aspects of the U.S. tax code. Our accounting for the Act is incomplete. As noted at year-end, however, we were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the deemed repatriation transition tax and the revaluation of our deferred taxes. We have not yet made an accounting policy decision regarding whether we will treat Global Intangible Low Taxed Income (GILTI) as a period cost or establish deferred taxes related thereto. We have not made any additional measurement-period adjustments related to these items during the quarter. However, we are continuing to gather additional information to complete our accounting for these items and expect to complete our accounting within the prescribed measurement period.
v3.8.0.1
Pension and Non-pension Post-retirement Benefits
3 Months Ended
Mar. 31, 2018
Retirement Benefits [Abstract]  
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Post-retirement Benefits

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

The components of our net pension expense, including the SERP, are as follows:
Three months ended March 31,
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
979

 
$
1,075

 
$
292

 
$
251

 
$
1,271

 
$
1,326

Interest cost
 
3,165

 
3,450

 
763

 
637

 
3,928

 
4,087

Expected return on plan assets
 
(5,660
)
 
(5,617
)
 

 

 
(5,660
)
 
(5,617
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
 

 
59

 
(51
)
 
(47
)
 
(51
)
 
12

Actuarial loss
 
1,637

 
1,352

 
159

 
138

 
1,796

 
1,490

Pension expense
 
$
121

 
$
319

 
$
1,163

 
$
979

 
$
1,284

 
$
1,298



We have contributed $0.6 million of cash into our pension plans for the three months ended March 31, 2018. Pension contributions for the remainder of 2018 are estimated to be $1.7 million.

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

The provision for our non-pension, post-retirement, benefit expense consists of the following:
Three months ended March 31,
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
151

 
$
220

 
$

 
$

 
$
151

 
$
220

Interest cost
 
456

 
581

 
10

 
11

 
466

 
592

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
 
(71
)
 
(50
)
 

 

 
(71
)
 
(50
)
Actuarial loss / (gain)
 
(52
)
 
25

 
(16
)
 
(13
)
 
(68
)
 
12

Non-pension post-retirement benefit expense
 
$
484

 
$
776

 
$
(6
)
 
$
(2
)
 
$
478

 
$
774



Our 2018 estimate of non-pension cash payments is $4.3 million, and we have paid $0.8 million for the three months ended March 31, 2018.
v3.8.0.1
Net Income (Loss) per Share of Common Stock
3 Months Ended
Mar. 31, 2018
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)
 
2018
 
2017
Numerator for earnings per share:
 
 
 
 
Net loss that is available to common shareholders
 
$
(2,961
)
 
$
(6,570
)
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
Weighted average shares outstanding
 
22,086,640

 
21,938,735

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

 

Adjusted weighted average shares and assumed conversions
 
22,086,640

 
21,938,735

 
 
 
 
 
Basic loss per share
 
$
(0.13
)
 
$
(0.30
)
 
 
 
 
 
Diluted loss per share
 
$
(0.13
)
 
$
(0.30
)
 
 
 
 
 
Shares excluded from diluted loss per share due to:
 
 
 
 
Net loss position (excluded from denominator)
 
79,951

 
153,750

Inclusion would have been anti-dilutive (excluded from calculation)
 
1,006,899

 
615,587



When applicable, diluted shares outstanding include the dilutive impact of restricted stock units. Diluted shares also include the impact of eligible employee stock options, which are calculated based on the average share price for each fiscal period using the treasury stock method.

v3.8.0.1
Derivatives
3 Months Ended
Mar. 31, 2018
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, except for the natural gas contracts used in our Mexican manufacturing facilities prior to 2018, 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.

Prior to January 1, 2018, our derivatives used to reduce economic volatility of natural gas prices in Mexico were not designated as cash flow hedges. All mark-to-market changes on these derivatives were reflected in other income (expense). On January 1, 2018, we adopted ASU 2017-12 for hedge accounting. Under this new guidance, we are now applying contractually specified component hedging to all of our natural gas hedges. This has allowed us to record changes in fair value for outstanding natural gas derivatives to other comprehensive income (loss) beginning January 1, 2018. See note 2 for additional details on the adoption of ASU 2017-12.

We do not believe we are exposed to more than a nominal amount of credit risk in our natural gas hedges and interest rate swap as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of March 31, 2018, 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, 2018
 
December 31, 2017
Cash flow hedges:
 
 
 
 
 
 
Interest rate swap
 
Prepaid and other current assets
 
$
567

 
$

Interest rate swap
 
Other assets
 
1,262

 
646

Total designated
 
1,829

 
646

Total derivative assets
 
$
1,829

 
$
646

 
 
 
 
 
 
 
 
 
 
 
Fair Value of Derivative Liabilities
 
 
 
 
March 31, 2018
 
December 31, 2017
Cash flow hedges:
 
 
 
 
 
 
Interest rate swap
 
Derivative liability
 
$

 
$
213

Natural gas contracts
 
Derivative liability
 
87

 
220

Natural gas contracts
 
Other long-term liabilities
 
7

 
7

Total designated
 
94

 
440

Derivatives not designated as hedging instruments:
 
 
 
 
Natural gas contracts
 
Derivative liability
 

 
264

Natural gas contracts
 
Other long-term liabilities
 

 
12

Total undesignated
 
 
 

 
276

Total derivative liabilities
 
$
94

 
$
716


The following table presents the notional amount of derivatives on the Condensed Consolidated Balance Sheets:
 
 
 
 
Notional Amounts
Derivative Types
 
Unit of Measure
 
March 31, 2018
 
December 31, 2017
Natural gas contracts
 
Millions of British Thermal Units (MMBTUs)
 
2,160,000

 
2,480,000

Interest rate swap
 
Thousands of U.S. dollars
 
$
220,000

 
$
220,000



The following table presents cash settlements (paid) received related to the below derivatives:
 
 
Three months ended March 31,
(dollars in thousands)
 
2018
 
2017
Natural gas contracts
 
$
(198
)
 
$
116

Interest rate swap
 
(178
)
 
(600
)
Total
 
$
(376
)
 
$
(484
)


The following table provides a summary of the impacts of derivative gain (loss) on the Consolidated Statements of Operations and other comprehensive income (OCI):
 
 
 
 
Three months ended March 31,
(dollars in thousands)
 
Location
 
2018
 
2017
Cash flow hedges:
 
 
 
 
 
 
Effective portion of derivative gain (loss) recognized in OCI:
 
 
 
 
Natural gas contracts
 
OCI
 
$
211

 
$
(470
)
Interest rate swap
 
OCI
 
1,253

 
204

Total
 
$
1,464

 
$
(266
)
 
 
 
 
 
 
 
Effective portion of derivative gain (loss) reclassified from accumulated OCI to current earnings:
 
 
 
 
Natural gas contracts
 
Cost of Sales
 
$
(198
)
 
$
67

Interest rate swap
 
Interest expense
 
(143
)
 
(585
)
Total
 
$
(341
)
 
$
(518
)
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Gain (loss) recognized in current earnings:
 
 
 
 
Natural gas contracts
 
Other income (expense)
 

 
(583
)
Total
 
$

 
$
(583
)


Natural Gas Contracts

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

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 losses for natural gas currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in an immaterial impact to our Condensed Consolidated Statements of Operations.

Interest Rate Swap

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

Our interest rate swap qualifies and is designated as a cash flow hedge at March 31, 2018, and is accounted for under FASB ASC 815, "Derivatives and Hedging". Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses are recorded to earnings immediately. Changes in the 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 $0.6 million in our Condensed Consolidated Statements of Operations.
v3.8.0.1
Accumulated Other Comprehensive Income (Loss)
3 Months Ended
Mar. 31, 2018
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, 2018
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance 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, net of tax
 
4,333


1,470


755


6,558

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

 
$
(88,585
)
 
$
(98,889
)
 
 
 
 
 
 
 
 
 

Three months ended March 31, 2017
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2016
 
$
(27,828
)
 
$
(515
)
 
$
(96,854
)
 
$
(125,197
)
 
 
 
 
 
 
 
 
 
Amounts recognized into AOCI
 
1,408

 
(266
)
 

 
1,142

Currency impact
 

 

 
(480
)
 
(480
)
Amounts reclassified from AOCI
 

 
518

(1) 
1,464

(2) 
1,982

Tax effect
 

 
(87
)
 
(528
)
 
(615
)
Other comprehensive income, net of tax
 
1,408


165


456


2,029

Balance on March 31, 2017
 
$
(26,420
)
 
$
(350
)
 
$
(96,398
)
 
$
(123,168
)
 
 
 
 
 
 
 
 
 
___________________________
(1) 
We reclassified natural gas contracts through cost of sales and the interest rate swap 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.
v3.8.0.1
Segments
3 Months Ended
Mar. 31, 2018
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)
 
2018
 
2017
Net Sales:
 
 
 
 
U.S. & Canada
 
$
107,941

 
$
109,329

Latin America
 
34,333

 
30,722

EMEA
 
32,248

 
25,331

Other
 
7,391

 
7,612

Consolidated
 
$
181,913

 
$
172,994

 
 
 
 
 
Segment EBIT:
 
 
 
 
U.S. & Canada
 
$
4,724

 
$
7,501

Latin America
 
2,150

 
(3,079
)
EMEA
 
1,005

 
(837
)
Other
 
(1,129
)
 
(1,215
)
Total Segment EBIT
 
$
6,750

 
$
2,370

 
 
 
 
 
Reconciliation of Segment EBIT to Net Loss:
 
 
 
 
Segment EBIT
 
$
6,750

 
$
2,370

Retained corporate costs
 
(6,710
)
 
(7,291
)
Interest expense
 
(5,084
)
 
(4,867
)
Benefit from income taxes
 
2,083

 
3,218

Net loss
 
$
(2,961
)
 
$
(6,570
)
 
 
 
 
 
Depreciation & Amortization:
 
 
 
 
U.S. & Canada
 
$
3,387

 
$
3,082

Latin America
 
4,710

 
4,397

EMEA
 
2,009

 
1,844

Other
 
1,314

 
1,354

Corporate
 
459

 
478

Consolidated
 
$
11,879

 
$
11,155

 
 
 
 
 
Capital Expenditures:
 
 
 
 
U.S. & Canada
 
$
7,137

 
$
1,937

Latin America
 
2,389

 
6,982

EMEA
 
1,294

 
2,763

Other
 
120

 
213

Corporate
 
331

 
57

Consolidated
 
$
11,271

 
$
11,952



 
 
 
 

v3.8.0.1
Revenue
3 Months Ended
Mar. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue

Our primary source of revenue is the sale of glassware products manufactured within a Libbey facility, as well as globally sourced tabletop products including glassware, ceramicware, metalware and others. Our customer contracts generally include a single performance obligation, the shipment of specified products, and are recognized at a point in time when control of the product has transferred to the customer, which primarily takes place when risk of loss transfers in accordance with applicable shipping terms. Revenue is recognized based on the consideration specified in a contract with the customer, and is measured as the amount of consideration we expect to be entitled in exchange for transferring goods or providing services. When applicable, the transaction price includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. We estimate provisions for rebates, customer incentives, allowances, returns and discounts based on the terms of the contracts, historical experience and anticipated customer purchases during the rebate period. We continually evaluate the adequacy of these methods used, adjusting our estimates when the amount of consideration we expect to be entitled changes. Refund liabilities are included in accrued liabilities on the Condensed Consolidated Balance Sheet. Our payment terms are based on customary business practices and can vary by region and customer type, but are generally 0-90 days. Since the term between invoicing and expected payment is less than a year, we do not adjust the transaction price for the effects of a financing component. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate governmental agencies.

For the three months ended March 31, 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, 2018. There were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheet as of March 31, 2018. For contracts with a duration of less than one year, we follow an allowable practical expedient and expense contract acquisition costs when incurred. We do not have any costs to obtain or fulfill a contract that are capitalized under ASC Topic 606.

Disaggregation of Revenue:

The following table presents our net sales disaggregated by business channel:
 
 
Three months ended
(dollars in thousands)
 
March 31, 2018
Foodservice
 
$
76,173

Retail
 
55,761

Business-to-business
 
49,979

Consolidated
 
$
181,913



Each operating segment has revenues across all our business channels. Each channel has a different marketing strategy, customer base and product composition. 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.

Foodservice

The majority of our tabletop products sold in the foodservice channel are sold through a network of foodservice distributors. Our strong foodservice distributor network and in-house sales force provide broad coverage to a wide variety of foodservice establishments, including restaurants, bars, hotels and other travel and tourism venues. A high percentage of foodservice sales are replacements, driving a relatively predictable revenue stream.

Retail

Our primary customers in the retail channel include mass merchants, department stores, national retail chains, pure play e-commerce retailers or marketers, retail and wholesale distributors, value-oriented retailers, grocers and specialty housewares stores. We also operate outlet stores in the U.S. and Mexico.

Business-to-business

Our customers for products sold in the diverse business-to-business channel include beverage companies and custom decorators of glassware for promotional purposes and resale. In addition, sales of our products in this channel include products for candle and floral applications, craft industries and gourmet food-packing companies. Latin America also sells blender jars and various OEM products in this channel.
v3.8.0.1
Fair Value
3 Months Ended
Mar. 31, 2018
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, 2018
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Commodity futures natural gas contracts
 
$

 
$
(94
)
 
$

 
$
(94
)
 
$

 
$
(503
)
 
$

 
$
(503
)
Interest rate swap
 

 
1,829

 

 
1,829

 

 
433

 

 
433

Net derivative asset (liability)
 
$

 
$
1,735

 
$

 
$
1,735

 
$

 
$
(70
)
 
$

 
$
(70
)


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

Financial instruments carried at cost on the Condensed Consolidated Balance Sheets, as well as the related fair values, are as follows:
 
 
 
 
March 31, 2018
 
December 31, 2017
(dollars in thousands)
 
Fair Value
Hierarchy Level
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Term Loan B
 
Level 2
 
$
383,500

 
$
378,227

 
$
384,600

 
$
370,178



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 other immaterial debt approximates carrying value at March 31, 2018 and December 31, 2017. The fair value of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to their short term nature.
v3.8.0.1
Other Income (Expense)
3 Months Ended
Mar. 31, 2018
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)
2018
 
2017
Gain (loss) on currency transactions
$
(1,650
)
 
$
(1,544
)
Gain (loss) on mark-to-market natural gas contracts

 
(582
)
Pension and non-pension benefits, excluding service cost
(340
)
 
(526
)
Other non-operating income (expense)
(117
)
 
(134
)
Other income (expense)
$
(2,107
)
 
$
(2,786
)


v3.8.0.1
Contingencies
3 Months Ended
Mar. 31, 2018
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 clean-up 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 any proceedings, we believe that our environmental legal 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, 2017. Please refer to Part II, Item 8. “Financial Statements and Supplementary Data,” note 17, Contingencies, included in our 2017 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.
v3.8.0.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2018
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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

The balance sheet at December 31, 2017 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, 2017.

Cost of Sales, Policy
Cost of Sales

Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs. Shipping and delivery costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales. In addition, reimbursement of certain pre-production costs is considered a development activity and is included in cost of sales.
Reclassifications
Reclassifications

In connection with our adoption of ASU 2017-07, certain pension and non-pension expense amounts in prior periods have been reclassified to conform with the current period presentation. See New Accounting Standards - Adopted below.

New Accounting Standards
New Accounting Standards - Adopted

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

On January 1, 2018, we adopted ASU 2014-09, Revenue From Contracts With Customers and all related amendments, also known as ASC Topic 606, using the modified retrospective method. There was no cumulative effect adjustment required of initially applying the new standard to existing contracts at adoption on January 1, 2018, and we expect the impact of adopting the new standard to be immaterial to our Condensed Consolidated Statement of Operations on an ongoing basis. Additionally, there was no impact to our Condensed Consolidated Balance Sheets. The enhanced disclosure requirements are included in note 11, Revenue. Results for reporting periods beginning on or after January 1, 2018, are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our previous accounting under ASC Topic 605.

On January 1, 2018, we adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. ASU 2017-07 improves the presentation of net periodic pension and post-retirement benefit costs. We retrospectively adopted the presentation that the service cost
component of pension and post-retirement benefit costs be reported within income from operations. The other components of net benefit cost (interest costs, expected return on assets, amortization of prior service costs, settlement charges and other costs) have been reclassified from cost of sales and selling, general and administrative expenses to other income (expense). On a prospective basis, only the service cost component will be capitalized in inventory or property, plant and equipment, when applicable.
On January 1, 2018, we early adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amended the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. As of January 1, 2018, we recorded a $0.3 million reduction to our retained deficit and an increase in accumulated other comprehensive loss related to our natural gas swap contracts in Mexico that were previously not designated as hedging instruments. On a prospective basis, the change in fair value of these derivatives will be recognized in other comprehensive income (loss) rather than other income (expense) within the Condensed Consolidated Statement of Operations. Results and disclosures for reporting periods beginning on or after January 1, 2018, are presented under the new guidance within ASU 2017-12, while prior period amounts and disclosures are not adjusted and continue to be reported in accordance with our previous accounting.
New Accounting Standards - Adopted

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

On January 1, 2018, we adopted ASU 2014-09, Revenue From Contracts With Customers and all related amendments, also known as ASC Topic 606, using the modified retrospective method. There was no cumulative effect adjustment required of initially applying the new standard to existing contracts at adoption on January 1, 2018, and we expect the impact of adopting the new standard to be immaterial to our Condensed Consolidated Statement of Operations on an ongoing basis. Additionally, there was no impact to our Condensed Consolidated Balance Sheets. The enhanced disclosure requirements are included in note 11, Revenue. Results for reporting periods beginning on or after January 1, 2018, are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our previous accounting under ASC Topic 605.

On January 1, 2018, we adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. ASU 2017-07 improves the presentation of net periodic pension and post-retirement benefit costs. We retrospectively adopted the presentation that the service cost
component of pension and post-retirement benefit costs be reported within income from operations. The other components of net benefit cost (interest costs, expected return on assets, amortization of prior service costs, settlement charges and other costs) have been reclassified from cost of sales and selling, general and administrative expenses to other income (expense). On a prospective basis, only the service cost component will be capitalized in inventory or property, plant and equipment, when applicable. The effect of the retrospective presentation change related to the net periodic pension and non-pension benefit costs (credits) on our Condensed Consolidated Statement of Operations was as follows:
 
 
Three months ended March 31, 2017
(dollars in thousands)
 
Previously Reported
 
Reclassification
 
As Revised
Cost of sales
 
$
143,356

 
$
(883
)
 
$
142,473

Selling, general and administrative expenses
 
32,975

 
357

 
33,332

Other income (expense)
 
(2,260
)
 
(526
)
 
(2,786
)


On January 1, 2018, we early adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amended the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. As of January 1, 2018, we recorded a $0.3 million reduction to our retained deficit and an increase in accumulated other comprehensive loss related to our natural gas swap contracts in Mexico that were previously not designated as hedging instruments. On a prospective basis, the change in fair value of these derivatives will be recognized in other comprehensive income (loss) rather than other income (expense) within the Condensed Consolidated Statement of Operations. Results and disclosures for reporting periods beginning on or after January 1, 2018, are presented under the new guidance within ASU 2017-12, while prior period amounts and disclosures are not adjusted and continue to be reported in accordance with our previous accounting. See note 8, Derivatives, for further details and disclosures.

New Accounting Standards - Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires a lessee to recognize on the balance sheet right-of-use assets and corresponding liabilities for leases with lease terms of more than 12 months. Leases will be classified as either finance or operating leases, with classification affecting the pattern of expense recognition in the income statement. The new guidance also clarifies the definition of a lease and disclosure requirements. ASU 2016-02 is effective for us in the first quarter of 2019. ASU 2016-02 requires lessees and lessors to 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. In the first quarter of 2018, the FASB stated they plan to provide an optional transition method permitting an entity to apply the transition provisions of ASU 2016-02 at its adoption date instead of at the earliest comparative period presented in the financial statements. This would ease the transition burden and allow us to record a cumulative effect adjustment to retained earnings as of January 1, 2019, without restatement of the previously reported comparative periods. Therefore, this is our preferred adoption method. We are currently evaluating the extent of the impact the new lease guidance will have on our financial statements and related disclosures, including the additional assets and liabilities that will be recognized on the balance sheet. To facilitate this, we are utilizing a comprehensive approach to review our lease portfolio, have selected a system for managing our leases, and are in the early stages of system implementation and updating of our controls. See note 15, Operating Leases, in our 2017 Annual Report on Form 10-K for the year ended December 31, 2017 for our minimum lease commitments under non-cancellable operating leases.

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

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard allows an optional reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the stranded tax effects resulting from the Tax Cuts and Jobs Act will be eliminated, resulting in more useful information reported to financial statement users. ASU 2018-02 relates to only the reclassification of the income tax effects of the Tax Cuts and Jobs Act. The underlying guidance requiring that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early application permitted. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.
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.
Pension and Other Post-retirement Plans, Pensions, Policy
We have pension plans covering the majority of our employees. Benefits generally are based on compensation and service for salaried employees and job grade and length of service for hourly employees. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers certain salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006, and most hourly U.S.-based employees (excluding employees hired at Shreveport after December 15, 2008 and at Toledo after September 30, 2010). Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiary in Mexico and are unfunded.
Pension and Other Post-retirement Plans, Nonpension Benefits, Policy
We provide certain retiree healthcare and life insurance benefits covering our U.S. and Canadian salaried employees hired before January 1, 2004, and a majority of our union hourly employees (excluding employees hired at Shreveport after December 15, 2008, and at Toledo after September 30, 2010). Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. The U.S. non-pension, post-retirement plans cover the hourly and salaried U.S.-based employees of Libbey (excluding those mentioned above). The non-U.S., non-pension, post-retirement plans cover the retirees and active employees of Libbey who are located in Canada. The post-retirement benefit plans are unfunded.
Earnings Per Share, Policy
When applicable, diluted shares outstanding include the dilutive impact of restricted stock units. Diluted shares also include the impact of eligible employee stock options, which are calculated based on the average share price for each fiscal period using the treasury stock method.
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, except for the natural gas contracts used in our Mexican manufacturing facilities prior to 2018, 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.

Prior to January 1, 2018, our derivatives used to reduce economic volatility of natural gas prices in Mexico were not designated as cash flow hedges. All mark-to-market changes on these derivatives were reflected in other income (expense). On January 1, 2018, we adopted ASU 2017-12 for hedge accounting. Under this new guidance, we are now applying contractually specified component hedging to all of our natural gas hedges. This has allowed us to record changes in fair value for outstanding natural gas derivatives to other comprehensive income (loss) beginning January 1, 2018.
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.
Revenue, Policy
Our primary source of revenue is the sale of glassware products manufactured within a Libbey facility, as well as globally sourced tabletop products including glassware, ceramicware, metalware and others. Our customer contracts generally include a single performance obligation, the shipment of specified products, and are recognized at a point in time when control of the product has transferred to the customer, which primarily takes place when risk of loss transfers in accordance with applicable shipping terms. Revenue is recognized based on the consideration specified in a contract with the customer, and is measured as the amount of consideration we expect to be entitled in exchange for transferring goods or providing services. When applicable, the transaction price includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. We estimate provisions for rebates, customer incentives, allowances, returns and discounts based on the terms of the contracts, historical experience and anticipated customer purchases during the rebate period. We continually evaluate the adequacy of these methods used, adjusting our estimates when the amount of consideration we expect to be entitled changes. Refund liabilities are included in accrued liabilities on the Condensed Consolidated Balance Sheet. Our payment terms are based on customary business practices and can vary by region and customer type, but are generally 0-90 days. Since the term between invoicing and expected payment is less than a year, we do not adjust the transaction price for the effects of a financing component. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate governmental agencies.
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 swap is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy. We also evaluate Company and counterparty risk in determining fair values. The commodity futures natural gas contracts and interest rate swap are hedges of either recorded assets or liabilities or anticipated transactions.
v3.8.0.1
Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]
Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
 
 
Three months ended March 31,
(dollars in thousands)
 
2018
 
2017
Stock-based compensation expense
 
$
290

 
$
832

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]
The effect of the retrospective presentation change related to the net periodic pension and non-pension benefit costs (credits) on our Condensed Consolidated Statement of Operations was as follows:
 
 
Three months ended March 31, 2017
(dollars in thousands)
 
Previously Reported
 
Reclassification
 
As Revised
Cost of sales
 
$
143,356

 
$
(883
)
 
$
142,473

Selling, general and administrative expenses
 
32,975

 
357

 
33,332

Other income (expense)
 
(2,260
)
 
(526
)
 
(2,786
)
v3.8.0.1
Balance Sheet Details (Tables)
3 Months Ended
Mar. 31, 2018
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, 2018
 
December 31, 2017
Accounts receivable:
 
 
 
 
Trade receivables
 
$
84,320

 
$
88,786

Other receivables
 
1,273

 
1,211

Total accounts receivable, less allowances of $9,803 and $9,051
 
$
85,593

 
$
89,997

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods