LIBBEY INC, 10-Q filed on 11/4/2016
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2016
Oct. 31, 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
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2016 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
21,843,762 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Net sales
$ 196,873 
$ 201,784 
$ 587,582 
$ 603,200 
Freight billed to customers
703 
734 
1,983 
2,075 
Total revenues
197,576 
202,518 
589,565 
605,275 
Cost of sales
155,694 
154,827 
457,298 
458,199 
Gross profit
41,882 
47,691 
132,267 
147,076 
Selling, general and administrative expenses
28,540 
28,101 
93,348 
98,890 
Income from operations
13,342 
19,590 
38,919 
48,186 
Other income (expense)
248 
(396)
1,035 
1,277 
Earnings before interest and income taxes
13,590 
19,194 
39,954 
49,463 
Interest expense
5,231 
4,701 
15,629 
13,762 
Income before income taxes
8,359 
14,493 
24,325 
35,701 
Provision (benefit) for income taxes
5,450 
(2,226)
12,003 
1,476 
Net income
$ 2,909 
$ 16,719 
$ 12,322 
$ 34,225 
Net income per share:
 
 
 
 
Basic
$ 0.13 
$ 0.77 
$ 0.56 
$ 1.57 
Diluted
$ 0.13 
$ 0.75 
$ 0.56 
$ 1.54 
Dividends declared per share
$ 0.115 
$ 0.11 
$ 0.345 
$ 0.33 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Net income
$ 2,909 
$ 16,719 
$ 12,322 
$ 34,225 
Other comprehensive income (loss):
 
 
 
 
Pension and other postretirement benefit adjustments, net of tax
1,063 
2,739 
5,090 
15,160 
Change in fair value of derivative instruments, net of tax
501 
(3,212)
(1,200)
(2,882)
Foreign currency translation adjustments, net of tax
485 
(1,265)
811 
(9,574)
Other comprehensive income (loss), net of tax
2,049 
(1,738)
4,701 
2,704 
Comprehensive income
$ 4,958 
$ 14,981 
$ 17,023 
$ 36,929 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Assets:
 
 
Cash and cash equivalents
$ 42,670 
$ 49,044 
Accounts receivable - net
98,547 
94,379 
Inventories - net
191,479 
178,027 
Prepaid and other current assets
18,653 
19,326 
Total current assets
351,349 
340,776 
Pension asset
977 
977 
Purchased intangible assets - net
15,670 
16,364 
Goodwill
164,112 
164,112 
Deferred income taxes
35,397 
48,662 
Other assets
8,968 
9,019 
Total other assets
225,124 
239,134 
Property, plant and equipment - net
257,779 
272,534 
Total assets
834,252 
852,444 
Liabilities and Shareholders' Equity:
 
 
Accounts payable
63,191 
71,560 
Salaries and wages
26,176 
27,266 
Accrued liabilities
53,964 
45,179 
Accrued income taxes
4,009 
Pension liability (current portion)
2,330 
2,297 
Non-pension postretirement benefits (current portion)
4,903 
4,903 
Derivative liability
2,293 
4,265 
Long-term debt due within one year
5,049 
4,747 
Total current liabilities
157,906 
164,226 
Long-term debt
408,784 
426,272 
Pension liability
34,652 
44,274 
Non-pension postretirement benefits
55,282 
55,282 
Deferred income taxes
2,410 
2,822 
Other long-term liabilities
16,072 
11,186 
Total liabilities
675,106 
704,062 
Shareholders' equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 21,843,851 shares issued in 2016 (21,843,851 shares issued in 2015)
218 
218 
Capital in excess of par value
329,324 
330,756 
Treasury stock
(8)
(4,448)
Retained deficit
(54,857)
(57,912)
Accumulated other comprehensive loss
(115,531)
(120,232)
Total shareholders' equity
159,146 
148,382 
Total liabilities and shareholders' equity
$ 834,252 
$ 852,444 
Condensed Consolidated Balance Sheets Parenthetical (USD $)
Sep. 30, 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
21,843,851 
21,843,851 
Condensed Consolidated Statement of Shareholders' Equity Statement (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 (note 9)
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
12,322 
 
 
 
12,322 
 
Other comprehensive income
4,701 
 
 
 
 
4,701 
Stock compensation expense
3,367 
 
 
3,367 
 
 
Income tax effect from share-based compensation arrangements
(396)
 
 
(396)
 
 
Dividends
(7,551)
 
 
 
(7,551)
 
Stock withheld for employee taxes
(862)
 
 
(862)
 
 
Stock issued, value
1,183 
 
6,440 
(3,541)
 
 
Stock issued, value lower than repurchase price
 
 
 
 
(1,716)
 
Stock issued, shares
 
 
(221,536)
 
 
 
Purchase of treasury shares, value
(2,000)
 
(2,000)
 
 
 
Purchase of treasury shares, shares
 
 
111,292 
 
 
 
Balance, value at Sep. 30, 2016
$ 159,146 
$ 218 
$ (8)
$ 329,324 
$ (54,857)
$ (115,531)
Balance, shares at Sep. 30, 2016
 
21,843,851 
473 
 
 
 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Operating activities:
 
 
Net income
$ 12,322 
$ 34,225 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
36,669 
31,286 
Loss on asset sales and disposals
165 
390 
Change in accounts receivable
(3,714)
(7,702)
Change in inventories
(12,949)
(31,904)
Change in accounts payable
(6,669)
(8,656)
Accrued interest and amortization of discounts and finance fees
(1,510)
946 
Pension & non-pension postretirement benefits, net
(1,653)
1,453 
Accrued liabilities & prepaid expenses
15,174 
12,800 
Income taxes
2,344 
(4,925)
Share-based compensation expense
4,334 
5,549 
Excess tax benefit from share-based compensation arrangements
(366)
Other operating activities
(554)
(1,414)
Net cash provided by operating activities
43,593 
32,048 
Investing activities:
 
 
Additions to property, plant and equipment
(23,523)
(41,480)
Proceeds from asset sales and other
Net cash used in investing activities
(23,523)
(41,478)
Financing activities:
 
 
Borrowings on ABL credit facility
6,000 
44,500 
Repayments on ABL credit facility
(6,000)
(37,500)
Other repayments
(350)
(3,267)
Other borrowings
339 
Repayments on Term Loan B
(18,300)
(3,300)
Stock options exercised
1,153 
3,334 
Excess tax benefit from share-based compensation arrangements
366 
Dividends
(7,551)
(7,197)
Treasury shares purchased
(2,000)
(15,275)
Net cash used in financing activities
(26,343)
(18,705)
Effect of exchange rate fluctuations on cash
(101)
(1,808)
Decrease in cash
(6,374)
(29,943)
Cash & cash equivalents at beginning of period
49,044 
60,044 
Cash & cash equivalents at end of period
42,670 
30,101 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for interest, net of capitalized interest
16,927 
12,237 
Cash paid during the period for income taxes
$ 5,576 
$ 3,858 
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®, Crisa®, Royal Leerdam®, World® Tableware, Syracuse® China and Crisal Glass® brand names (among others), an extensive line of high-quality tableware items for sale primarily in the foodservice, retail and business-to-business markets. Our sales force presents our 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 the Netherlands (Libbey Holland), Portugal (Libbey Portugal), China (Libbey China) and Mexico (Libbey Mexico). In addition, we import 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 tableware 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 MKT exchange under the ticker symbol LBY.
Significant Accounting Policies
Significant Accounting Policies
Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2015 for a description of significant accounting policies not listed below.

Basis of Presentation

The Condensed 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 U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.

Condensed Consolidated Statements of Operations

Net sales in our Condensed Consolidated Statements of Operations include revenue earned 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. Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs.

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 (expense).

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. Financial Accounting Standards Board Accounting Standards Codification™ (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. See note 5 for further discussion.

Stock-Based Compensation Expense

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” and FASB ASC Topic 505-50, “Equity — Equity-Based Payments to Non-Employees”. Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards. Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Stock-based compensation expense
 
$
1,011

 
$
905

 
$
4,334

 
$
5,549



Reclassifications

Certain amounts in prior years' financial statements have been reclassified to conform to the presentation used in the three and nine month periods ended September 30, 2016, including the segment data in note 10.

New Accounting Standards

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue From Contracts With Customers" (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, 2016; early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14 which defers the effective date one year from January 1, 2017 to January 1, 2018, but early adoption as of January 1, 2017 is permitted. In March of 2016 the FASB issued ASU 2016-08, "Revenue From Contracts With Customers: Principal vs. Agent Considerations" (ASU 2016-08). ASU 2016-08 provides more detailed guidance to make the principal or agent determination and to determine when revenue should be recorded when a performance obligation is completed. In the second quarter of 2016, three additional revenue recognition amendments, ASU 2016-10, 2016-11 and 2016-12, were issued that become effective upon adoption of the new standard. We do not plan to early adopt and are still assessing the impact that these standards will have on our Condensed 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 is permitted. We are currently evaluating the impact this guidance will have on our financial disclosures; however, as the guidance only impacts disclosure, the adoption of this guidance is not expected to have any impact on our balance sheet, results of operations or cash flows 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 practical expedient provided by FASB ASC Topic 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the net asset value 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 is permitted. There is no impact on our 2016 interim financial statements. We are currently assessing the impact that this standard will have on our disclosures in our Consolidated Financial Statements at December 31, 2016.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory" (ASU 2015-11), which requires that inventory be measured at the lower of its cost or the estimated sale price, minus the costs of completing the sale, which the FASB calls the net realizable value. This update is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. We do not expect this standard to have a material impact on our Condensed Consolidated Financial Statements.

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. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.

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. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.

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 Condensed 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 Condensed Consolidated Financial Statements.
Balance Sheet Details
Balance Sheet Details
Balance Sheet Details

The following table provides detail of selected balance sheet items:
(dollars in thousands)
September 30, 2016
 
December 31, 2015
Accounts receivable:
 
 
 
Trade receivables
$
97,057

 
$
91,324

Other receivables
1,490

 
3,055

Total accounts receivable, less allowances of $6,407 and $7,066
$
98,547

 
$
94,379

 
 
 
 
Inventories:
 
 
 
Finished goods
$
173,357

 
$
159,998

Work in process
1,581

 
1,183

Raw materials
4,585

 
4,944

Repair parts
10,790

 
10,763

Operating supplies
1,166

 
1,139

Total inventories, less loss provisions of $12,860 and $5,313
$
191,479

 
$
178,027

 
 
 
 
Accrued liabilities:
 
 
 
Accrued incentives
$
31,470

 
$
21,450

Other accrued liabilities
22,494

 
23,729

Total accrued liabilities
$
53,964

 
$
45,179



The increase in inventory loss provisions at September 30, 2016 is due to our second quarter initiative to optimize our product portfolio to reduce inventory and simplify and improve our operations.
Borrowings
Borrowings
Borrowings

Borrowings consist of the following:
(dollars in thousands)
Interest Rate
 
Maturity Date
September 30,
2016
 
December 31,
2015
Borrowings under ABL Facility
floating
 
April 9, 2019
$

 
$

Term Loan B
floating
(1) 
April 9, 2021
415,100

 
433,400

AICEP Loan
0.00%
 
January, 2017 to July 30, 2018
3,536

 
3,451

Total borrowings
 
 
 
418,636

 
436,851

Less — unamortized discount and finance fees
 
4,803

 
5,832

Total borrowings — net
 
 
 
413,833

 
431,019

Less — long term debt due within one year
 
 
5,049

 
4,747

Total long-term portion of borrowings — net
 
$
408,784

 
$
426,272


________________________
(1) - We have entered into an interest rate swap which 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 3.75 percent at September 30, 2016.

At September 30, 2016, the available borrowing base under the ABL Facility was offset by a $0.4 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 September 30, 2016, $7.0 million in letters of credit were outstanding. Remaining unused availability under the ABL Facility was $92.4 million at September 30, 2016, compared to $91.0 million at December 31, 2015.
Income Taxes
Income Taxes
Income Taxes

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

Our effective tax rate was 49.3 percent for the nine months ended September 30, 2016, compared to 4.1 percent for the nine months ended September 30, 2015. Our effective tax rate for the nine months ended September 30, 2016 exceeded the United States statutory rate primarily due to the following key drivers: unrecognized tax benefits of 9.7 percent, other permanent adjustments including such items as nondeductible expenses and U.S. Subpart F income of 9.0 percent, a valuation allowance on deferred tax assets in the Netherlands of 7.7 percent, and foreign withholding taxes of 4.4 percent, all partially offset by the impact of foreign exchange of (15.4) percent. Our effective tax rate for the nine months ended September 30, 2015 was substantially below the United States statutory rate primarily due to the following key drivers: impact of foreign exchange of (21.0) percent, valuation allowances on deferred tax assets in the United States and Netherlands of (12.5) percent, and non-U.S. income tax rate differential of (7.7) percent, all partially offset by other permanent adjustments including such items as nondeductible expenses and U.S. Subpart F income of 7.8 percent and foreign withholding taxes of 7.7 percent.

The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. In August 2016, one of our Mexican subsidiaries received a tax assessment from the Mexican tax authority (SAT) related to the audit of its 2010 tax year. The amount assessed was approximately 3 billion Mexican Pesos, which was equivalent to approximately $157 million US 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.
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Postretirement 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 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. 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 to PGB, which now assumes the related liabilities and administrative responsibilities of the plan. In 2016, Libbey Holland continues to make cash contributions to PGB as participating employees earn pension benefits. These related costs are expensed as incurred and are excluded from 2016 pension expense below.

The components of our net pension expense, including the SERP, are as follows:
Three months ended September 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
929

 
$
1,091

 
$
313

 
$
741

 
$
1,242

 
$
1,832

Interest cost
3,740

 
3,678

 
663

 
1,085

 
4,403

 
4,763

Expected return on plan assets
(5,757
)
 
(5,666
)
 

 
(608
)
 
(5,757
)
 
(6,274
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
65

 
104

 
(53
)
 
(62
)
 
12

 
42

Actuarial loss
1,068

 
1,823

 
412

 
400

 
1,480

 
2,223

Pension expense
$
45

 
$
1,030

 
$
1,335

 
$
1,556

 
$
1,380

 
$
2,586

 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
2,788

 
$
3,274

 
$
948

 
$
2,251

 
$
3,736

 
$
5,525

Interest cost
11,222

 
11,036

 
2,005

 
3,295

 
13,227

 
14,331

Expected return on plan assets
(17,272
)
 
(16,996
)
 

 
(1,844
)
 
(17,272
)
 
(18,840
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
197

 
313

 
(160
)
 
(187
)
 
37

 
126

Actuarial loss
3,204

 
5,468

 
817

 
1,215

 
4,021

 
6,683

Settlement charge
42

 

 
170

 

 
212

 

Pension expense
$
181

 
$
3,095

 
$
3,780

 
$
4,730

 
$
3,961

 
$
7,825

 
 
 
 
 
 
 
 
 
 
 
 


We have contributed $0.7 million and $3.1 million of cash into our pension plans for the three months and nine months ended September 30, 2016. Pension contributions for the remainder of 2016 are estimated to be $1.2 million.

We provide certain retiree health care and life insurance benefits covering our U.S. and Canadian salaried employees hired before January 1, 2004 and a majority of our union hourly employees (excluding employees hired at Shreveport after 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 postretirement plans cover the hourly and salaried U.S.-based employees of Libbey (excluding those mentioned above). The non-U.S. non-pension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. The postretirement benefit plans are unfunded.

The provision for our non-pension postretirement benefit expense consists of the following:
Three months ended September 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
200

 
$
214

 
$

 
$

 
$
200

 
$
214

Interest cost
652

 
634

 
11

 
10

 
663

 
644

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
35

 
35

 

 

 
35

 
35

Actuarial loss / (gain)
21

 
148

 
(10
)
 
(19
)
 
11

 
129

Non-pension postretirement benefit expense
$
908

 
$
1,031

 
$
1

 
$
(9
)
 
$
909

 
$
1,022

 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
598

 
$
641

 
$
1

 
$
1

 
$
599

 
$
642

Interest cost
1,956

 
1,903

 
35

 
39

 
1,991

 
1,942

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
105

 
105

 

 

 
105

 
105

Actuarial loss / (gain)
61

 
444

 
(32
)
 
(43
)
 
29

 
401

Non-pension postretirement benefit expense
$
2,720

 
$
3,093

 
$
4

 
$
(3
)
 
$
2,724

 
$
3,090

 
 
 
 
 
 
 
 
 
 
 
 


Our 2016 estimate of non-pension cash payments is $4.0 million, and we have paid $0.9 million and $2.7 million for the three months and nine months ended September 30, 2016.
Net Income per Share of Common Stock
Net Income per Share of Common Stock
Net Income per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings per share:
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands, except earnings per share)
2016
 
2015
 
2016
 
2015
Numerator for earnings per share:
 
 
 
 
 
 
 
Net income that is available to common shareholders
$
2,909

 
$
16,719

 
$
12,322

 
$
34,225

 
 
 
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
 
 
 
Weighted average shares outstanding
21,894,017

 
21,796,172

 
21,869,922

 
21,816,323

 
 
 
 
 
 
 
 
Denominator for diluted earnings per share:
 
 
 
 
 
 
 
Effect of stock options and restricted stock units
177,176

 
402,536

 
156,304

 
452,161

Adjusted weighted average shares and assumed conversions
22,071,193

 
22,198,708

 
22,026,226

 
22,268,484

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.13

 
$
0.77

 
$
0.56

 
$
1.57

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.13

 
$
0.75

 
$
0.56

 
$
1.54

 
 
 
 
 
 
 
 
Shares excluded from diluted earnings per share due to:
 
 
 
 
 
 
 
Inclusion would have been anti-dilutive (excluded from calculation)
605,032

 
127,258

 
619,058

 
97,951



When applicable, diluted shares outstanding includes 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. Under the treasury stock method, the tax-effected proceeds that hypothetically would be received from the exercise of all in-the-money options are assumed to be used to repurchase shares.

Derivatives
Derivatives
Derivatives
We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with transactions denominated in a currency other than the U.S. dollar. These derivatives, except for the foreign currency contracts and the natural gas contracts used in our Mexican manufacturing facilities, qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective (as is the case for natural gas contracts used in our Mexico manufacturing facility) 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. All of these contracts are accounted for under FASB ASC 815 “Derivatives and Hedging.”
Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented:
 
 
Asset Derivatives:
(dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Derivatives designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Natural gas contracts
 
Prepaid and other current assets
 
$
60

 
Prepaid and other current assets
 
$

Total designated
 
 
 
60

 
 
 

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Natural gas contracts
 
Prepaid and other current assets
 
75

 
Prepaid and other current assets
 

Currency contracts
 
Prepaid and other current assets
 

 
Prepaid and other current assets
 
245

Total undesignated
 
 
 
75

 
 
 
245

Total
 
 
 
$
135

 
 
 
$
245

 
 
 
 
 
 
 
 
 
 
 
Liability Derivatives:
(dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Derivatives designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Natural gas contracts
 
Derivative liability - current
 
$

 
Derivative liability - current
 
$
1,069

Natural gas contracts
 
Other long-term liabilities
 
8

 
Other long-term liabilities
 
34

Interest rate contract
 
Derivative liability - current
 
2,257

 
Derivative liability - current
 
2,132

Interest rate contract
 
Other long-term liabilities
 
3,159

 
Other long-term liabilities
 
246

Total designated
 
 
 
5,424

 
 
 
3,481

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Currency contracts
 
Derivative liability - current
 
36

 
Derivative liability - current
 

Natural gas contracts
 
Derivative liability - current
 

 
Derivative liability - current
 
1,064

Natural gas contracts
 
Other long-term liabilities
 
24

 
Other long-term liabilities
 
35

Total undesignated
 
 
 
60

 
 
 
1,099

Total
 
 
 
$
5,484

 
 
 
$
4,580



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 eighteen months in the future. The fair values of these instruments are determined from market quotes. As of September 30, 2016, we had commodity contracts for 2,510,000 million British Thermal Units (BTUs) of natural gas. At December 31, 2015, we had commodity contracts for 3,000,000 million BTUs of natural gas.

All of our derivatives for natural gas in the U.S. qualify and are designated as cash flow hedges at September 30, 2016. Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in other income (expense). As the natural gas contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from accumulated other comprehensive loss to current expense in cost of sales in our Condensed Consolidated Statement of Operations.

Since October 1, 2014, our derivatives for natural gas in Mexico have not been designated as cash flow hedges. All mark-to-market changes on these derivatives are being reflected in other income (expense). We recognized an immaterial gain and a loss of $(0.2) million in other income (expense) in the three months ended September 30, 2016 and 2015, respectively, and a gain (loss) of $1.2 million and $(0.5) million in other income (expense) in the nine months ended September 30, 2016 and 2015, respectively, related to the natural gas contracts where hedge accounting was not elected. Mexico natural gas contracts de-designated in the fourth quarter of 2014 were primarily all utilized by December 31, 2015.

We paid additional cash related to natural gas derivative settlements of $0.1 million and $1.0 million in the three months ended September 30, 2016 and 2015, respectively, and $2.3 million and $3.2 million in the nine months ended September 30, 2016 and 2015, respectively, due to the difference between the fixed unit rate of our natural gas contracts and the variable unit rate of our natural gas cost from suppliers. Based on our current valuation, we estimate that accumulated gains for natural gas currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in a $0.1 million gain in our Condensed Consolidated Statements of Operations.

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss) from our natural gas contracts:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
 
 
 
 
Natural gas contracts
 
$
(35
)
 
$
(489
)
 
$
59

 
$
(1,265
)
Total
 
$
(35
)
 
$
(489
)
 
$
59

 
$
(1,265
)


The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statements of Operations from our natural gas contracts:
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
 
2016
 
2015
 
2016
 
2015
Derivative:
Location:
 
 
 
 
 
 
 
 
Natural gas contracts
Cost of sales
 
$
(41
)
 
$
(448
)
 
$
(1,096
)
 
$
(1,468
)
Total impact on net income (loss)
 
 
$
(41
)
 
$
(448
)
 
$
(1,096
)
 
$
(1,468
)


The ineffective portion of derivative gain (loss) related to the de-designated Mexico contracts reclassified from accumulated other comprehensive loss to cost of sales in the Condensed Consolidated Statements of Operations was immaterial for the three and nine months ended September 30, 2015.


The following table provides a summary of the gain (loss) recognized in other income (expense) in the Condensed Consolidated Statements of Operations from our natural gas contracts:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
De-designated contracts
 
$

 
$
180

 
$

 
$
584

Contracts where hedge accounting was not elected
 
11

 
(222
)
 
1,150

 
(459
)
Total
 
$
11

 
$
(42
)
 
$
1,150

 
$
125



Interest Rate Swap

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

Our interest rate swap qualifies and is designated as a cash flow hedge at September 30, 2016 and 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 would be discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). The ineffective portion, if any, of the change in the fair value of a derivative designated as a cash flow hedge is recognized in other income (expense). Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in $2.3 million of additional interest expense in our Condensed Consolidated Statements of Operations.

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss) from our interest rate swap:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
 
 
 
 
Interest rate swap
 
$
6

 
$
(3,211
)
 
$
(4,816
)
 
$
(3,222
)
Total
 
$
6

 
$
(3,211
)
 
$
(4,816
)
 
$
(3,222
)


The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive income to the Condensed Consolidated Statements of Operations from our interest rate swap:
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
 
2016
 
2015
 
2016
 
2015
Derivative:
Location:
 
 
 
 
 
 
 
 
Interest rate swap
Interest expense
 
$
(767
)
 
$

 
$
(1,778
)
 
$

Total impact on net income (loss)
 
 
$
(767
)
 
$

 
$
(1,778
)
 
$



Currency Contracts

Our foreign currency exposure arises from transactions denominated in a currency other than the U.S. dollar and is primarily associated with our Canadian dollar denominated accounts receivable. From time to time, we enter into a series of foreign currency contracts to sell Canadian dollars. At September 30, 2016 and December 31, 2015, we had C$3.9 million and C$6.2 million in foreign currency contracts, respectively. The fair values of these instruments are determined from market quotes. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change.
Gains (losses) on currency derivatives that were not designated as hedging instruments are recorded in other income (expense) as follows:
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
 
 
2016
 
2015
 
2016
 
2015
Derivative:
Location:
 
 

 
 

 
 

 
 

Currency contracts
Other income (expense)
 
$
106

 
$
135

 
$
(281
)
 
$
(152
)
Total
 
 
$
106

 
$
135

 
$
(281
)
 
$
(152
)


We do not believe we are exposed to more than a nominal amount of credit risk in our natural gas hedges, interest rate swap and currency contracts as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of September 30, 2016, by Standard and Poor’s.
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive loss, net of tax, is as follows:
Three months ended September 30, 2016
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Postretirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance June 30, 2016
 
$
(22,587
)
 
$
(3,561
)
 
$
(91,432
)
 
$
(117,580
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
407

 
(29
)
 

 
378

Currency impact
 

 

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

 

 
1,491

 
1,491

    Amortization of prior service cost (1)
 

 

 
47

 
47

    Cost of sales
 

 
41

 

 
41

    Interest expense
 

 
767

 

 
767

Current-period other comprehensive income (loss)
 
407

 
779

 
1,507

 
2,693

Tax effect
 
78

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

 
(4,757
)
 
2,755

 
(1,543
)
Currency impact
 

 

 
481

 
481

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

 

 
4,050

 
4,050

    Amortization of prior service cost (1)
 

 

 
142

 
142

    Cost of sales
 

 
1,096

 

 
1,096

    Interest expense
 

 
1,778

 

 
1,778

Current-period other comprehensive income (loss)
 
459

 
(1,883
)
 
7,428

 
6,004

Tax effect
 
352

 
683

 
(2,338
)
 
(1,303
)
Balance on September 30, 2016
 
$
(22,102
)
 
$
(3,060
)
 
$
(90,369
)
 
$
(115,531
)

Three months ended September 30, 2015
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Postretirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on June 30, 2015
 
$
(17,471
)
 
$
(295
)
 
$
(116,239
)
 
$
(134,005
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
(1,265
)
 
(3,700
)
 

 
(4,965
)
Currency impact
 

 

 
709

 
709

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

 

 
2,352

 
2,352

    Amortization of prior service cost (1)
 

 

 
77

 
77

    Cost of sales
 

 
507

 

 
507

Current-period other comprehensive income (loss)
 
(1,265
)
 
(3,193
)
 
3,138

 
(1,320
)
Tax effect
 

 
(19
)
 
(399
)
 
(418
)
Balance on September 30, 2015
 
$
(18,736
)
 
$
(3,507
)
 
$
(113,500
)
 
$
(135,743
)
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2015
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Postretirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2014
 
$
(9,162
)
 
$
(625
)
 
$
(128,660
)
 
$
(138,447
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
(9,574
)
 
(4,487
)
 
5,394

 
(8,667
)
Currency impact
 

 

 
3,122

 
3,122

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

 

 
7,084

 
7,084

    Amortization of prior service cost (1)
 

 

 
231

 
231

    Cost of sales
 

 
1,666

 

 
1,666

Current-period other comprehensive income (loss)
 
(9,574
)
 
(2,821
)
 
15,831

 
3,436

Tax effect
 

 
(61
)
 
(671
)
 
(732
)
Balance on September 30, 2015
 
$
(18,736
)
 
$
(3,507
)
 
$
(113,500
)
 
$
(135,743
)
___________________________
(1) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost within the cost of sales and selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.
Segments
Segments
Segments

In the fourth quarter of 2015, we revised our reporting segments. Under the new structure, our U.S. and Canada glass tableware business is combined with our U.S. and Canada sourcing business in order to be consistent with the way we manage and report our other segments. Our reporting segments continue to align with our regionally focused organizational structure, which we believe enables us to better serve customers across the globe. We now report financial results for U.S. and Canada; Latin America; Europe, the Middle East and Africa (EMEA); and Other. Sales and segment EBIT continue to reflect end market reporting pursuant to which sales and related costs are included in segment EBIT based on the geographical destination of the sale. The revised 2015 segment results do not affect any previously reported consolidated financial results. Our three reportable segments are defined below. Our operating segment that does not meet the criteria to be a reportable segment is disclosed as Other.

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

Latin America—includes primarily sales of manufactured and sourced glass tableware having an end market destination in Latin America including glass products for OEMs that have an end market destination outside of Latin America.

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. We use Segment EBIT, along with net sales and selected cash flow information, to evaluate performance and to allocate resources. Segment EBIT for reportable segments includes an allocation of some corporate expenses based on the costs of services performed.

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

The accounting policies of the reportable segments are the same as those described in note 2. We do not have any customers who represent 10 percent or more of total sales. Inter-segment sales are consummated at arm’s length and are reflected at end market reporting below.
 
Three months ended September 30,
 
Nine months ended September 30,
(dollars in thousands)
2016
 
2015
 
2016
 
2015
Net Sales:
 
 
 
 
 
 
 
U.S. & Canada
$
119,345

 
$
120,600

 
$
358,613

 
$
357,954

Latin America
40,149

 
42,372

 
114,988

 
126,838

EMEA
30,147

 
30,572

 
88,043

 
91,207

Other
7,232

 
8,240

 
25,938

 
27,201

Consolidated
$
196,873

 
$
201,784

 
$
587,582

 
$
603,200

 
 
 
 
 
 
 
 
Segment EBIT:
 
 
 
 
 
 
 
U.S. & Canada
$
19,501

 
$
20,842

 
$
57,740

 
$
57,017

Latin America
1,944

 
6,280

 
14,084

 
18,371

EMEA
(660
)
 
254

 
(1,702
)
 
1,274

Other
(379
)
 
905

 
898

 
3,851

Total Segment EBIT
$
20,406

 
$
28,281

 
$
71,020

 
$
80,513

 
 
 
 
 
 
 
 
Reconciliation of Segment EBIT to Net Income:
 
 
 
 
 
 
 
Segment EBIT
$
20,406

 
$
28,281

 
$
71,020

 
$
80,513

Retained corporate costs
(6,925
)
 
(7,969
)
 
(20,699
)
 
(26,626
)
Pension settlement

 

 
(212
)
 

Environmental obligation (note 13)

 
100

 

 
(123
)
Reorganization charges (1)

 
(1,176
)
 

 
(4,191
)
Derivatives (2)
11

 
(42
)
 
1,150

 
125

Product portfolio optimization (3)

 

 
(6,784
)
 

Executive terminations
98

 

 
(4,521
)
 
(235
)
Interest expense
(5,231
)
 
(4,701
)
 
(15,629
)
 
(13,762
)
(Provision) benefit for income taxes
(5,450
)
 
2,226

 
(12,003
)
 
(1,476
)
Net income
$
2,909

 
$
16,719

 
$
12,322

 
$
34,225

 
 
 
 
 
 
 
 
Depreciation & Amortization:
 
 
 
 
 
 
 
U.S. & Canada
$
2,883

 
$
3,010

 
$
9,718

 
$
8,789

Latin America
4,667

 
3,662

 
13,725

 
10,377

EMEA
1,885

 
2,131

 
7,660

 
6,445

Other
1,325

 
1,462

 
4,162

 
4,434

Corporate
474

 
368

 
1,404

 
1,241

Consolidated
$
11,234

 
$
10,633

 
$
36,669

 
$
31,286

 
 
 
 
 
 
 
 
Capital Expenditures:
 
 
 
 
 
 
 
U.S. & Canada
$
3,037

 
$
2,666

 
$
9,030

 
$
23,434

Latin America
2,041

 
3,160

 
5,717

 
11,170

EMEA
1,549

 
1,726

 
4,656

 
4,501

Other
939

 
451

 
2,529

 
991

Corporate
446

 
241

 
1,591

 
1,384

Consolidated
$
8,012

 
$
8,244

 
$
23,523

 
$
41,480


________________________
(1) Management reorganization to support our growth strategy.
(2) Derivatives relate to hedge ineffectiveness on our natural gas contracts, as well as, mark-to-market adjustments on our natural gas contracts that have been de-designated and those for which we did not elect hedge accounting.
(3) Product portfolio optimization relates to inventory reductions to simplify and improve our operations.
Fair Value
Fair Value
Fair Value

FASB ASC 820 defines fair value as 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. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in measuring fair value into three broad levels as follows:

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

 
Fair Value at
 
Fair Value at
Asset / (Liability)
(dollars in thousands)
September 30, 2016
 
December 31, 2015
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Commodity futures natural gas contracts
$

 
$
103

 
$

 
$
103

 
$

 
$
(2,202
)
 
$

 
$
(2,202
)
Currency contracts

 
(36
)
 

 
(36
)
 

 
245

 

 
245

Interest rate swap

 
(5,416
)
 

 
(5,416
)
 

 
(2,378
)
 

 
(2,378
)
Net derivative asset (liability)
$

 
$
(5,349
)
 
$

 
$
(5,349
)
 
$

 
$
(4,335