LIBBEY INC, 10-K filed on 3/1/2018
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Feb. 23, 2018
Jun. 30, 2017
Entity Information [Line Items]
 
 
 
Entity Registrant Name
LIBBEY INC 
 
 
Entity Central Index Key
0000902274 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
22,018,876 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 175,107,046 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
ASSETS
 
 
Cash and cash equivalents
$ 24,696 
$ 61,011 
Accounts receivable — net
89,997 
85,113 
Inventories — net
187,886 
170,009 
Prepaid and other current assets
12,550 
16,777 
Total current assets
315,129 
332,910 
Pension asset
2,939 
Purchased intangible assets — net
14,565 
15,225 
Goodwill
84,412 
164,112 
Deferred income taxes
24,892 
40,016 
Other assets
9,627 
9,514 
Property, plant and equipment — net
265,675 
256,392 
Total assets
717,239 
818,169 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Accounts payable
78,346 
71,582 
Salaries and wages
27,409 
27,018 
Accrued liabilities
43,223 
41,807 
Accrued income taxes
1,862 
1,384 
Pension liability (current portion)
2,185 
2,461 
Non-pension post-retirement benefits (current portion)
4,185 
4,892 
Derivative liability
697 
1,928 
Long-term debt due within one year
7,485 
5,009 
Total current liabilities
165,392 
156,081 
Long-term debt
376,905 
402,831 
Pension liability
43,555 
43,934 
Non-pension post-retirement benefits
49,758 
55,373 
Deferred income taxes
1,850 
1,859 
Other long-term liabilities
12,885 
12,972 
Total liabilities
650,345 
673,050 
Contingencies (note 17)
   
   
Shareholders’ equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 22,018,010 shares issued in 2017 (21,864,541 shares issued in 2016)
220 
219 
Capital in excess of par value
333,011 
329,722 
Retained deficit
(161,165)
(59,625)
Accumulated other comprehensive loss
(105,172)
(125,197)
Total shareholders’ equity
66,894 
145,119 
Total liabilities and shareholders’ equity
$ 717,239 
$ 818,169 
Consolidated Balance Sheets Parentheticals (USD $)
Dec. 31, 2017
Dec. 31, 2016
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
22,018,010 
21,864,541 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Net sales
$ 781,828 
$ 793,420 
$ 822,345 
Freight billed to customers
3,328 
2,790 
2,885 
Total revenues
785,156 
796,210 
825,230 
Cost of sales
634,185 
629,916 
648,902 
Gross profit
150,971 
166,294 
176,328 
Selling, general and administrative expenses
124,926 
120,984 
132,607 
Goodwill impairment
79,700 
Income (loss) from operations
(53,655)
45,310 
43,721 
Other income (expense)
(3,515)
3,362 
2,880 
Earnings (loss) before interest and income taxes
(57,170)
48,672 
46,601 
Interest expense
20,400 
20,888 
18,484 
Income (loss) before income taxes
(77,570)
27,784 
28,117 
Provision (benefit) for income taxes
15,798 
17,711 
(38,216)
Net income (loss)
$ (93,368)
$ 10,073 
$ 66,333 
Net income (loss) per share:
 
 
 
Basic
$ (4.24)
$ 0.46 
$ 3.04 
Diluted
$ (4.24)
$ 0.46 
$ 2.99 
Weighted average shares:
 
 
 
Basic
22,031,000 
21,880,000 
21,816,935 
Diluted
22,030,672 
22,049,000 
22,159,000 
Dividends declared per share
$ 0.47 
$ 0.46 
$ 0.44 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Net income (loss)
$ (93,368)
$ 10,073 
$ 66,333 
Other comprehensive income (loss):
 
 
 
Pension and other post-retirement benefit adjustments, net of tax
7,514 
(1,395)
33,201 
Change in fair value of derivative instruments, net of tax
866 
1,345 
(1,235)
Foreign currency translation adjustments, net of tax
11,645 
(4,915)
(13,751)
Other comprehensive income (loss), net of tax
20,025 
(4,965)
18,215 
Comprehensive income (loss)
$ (73,343)
$ 5,108 
$ 84,548 
Consolidated Statements of Shareholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Treasury Stock
Capital in Excess of Par Value
Retained Deficit
Accumulated Other Comprehensive Loss
Balance, value at Dec. 31, 2014
$ 77,454 
$ 218 
$ (1,060)
$ 331,391 
$ (114,648)
$ (138,447)
Balance, shares at Dec. 31, 2014
 
21,843,851 
34,985 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income (loss)
66,333 
 
 
 
66,333 
 
Other comprehensive income (loss)
18,215 
 
 
 
 
18,215 
Income tax effect from share-based compensation arrangements
2,797 
 
 
2,797 
 
 
Stock compensation expense
5,873 
 
 
5,873 
 
 
Stock issued, value
(3,378)
 
(11,887)
(8,509)
 
 
Stock issued, shares
 
 
336,741 
 
 
 
Stock withheld for employee taxes
(796)
 
 
(796)
 
 
Dividends
(9,597)
 
 
 
(9,597)
 
Purchase of treasury shares, value
(15,275)
 
(15,275)
 
 
 
Purchase of treasury shares, shares
 
 
412,473 
 
 
 
Balance value at Dec. 31, 2015
148,382 
218 
(4,448)
330,756 
(57,912)
(120,232)
Balance, shares at Dec. 31, 2015
 
21,843,851 
110,717 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income (loss)
10,073 
 
 
 
10,073 
 
Other comprehensive income (loss)
(4,965)
 
 
 
 
(4,965)
Income tax effect from share-based compensation arrangements
(534)
 
 
(534)
 
 
Stock compensation expense
3,724 
 
 
3,724 
 
 
Stock issued, value
(1,404)
(1)
(6,448)
(3,329)
(1,716)
 
Stock issued, shares
 
20,690 
222,009 
 
 
 
Stock withheld for employee taxes
(895)
 
 
(895)
 
 
Dividends
(10,070)
 
 
 
(10,070)
 
Purchase of treasury shares, value
(2,000)
 
(2,000)
 
 
 
Purchase of treasury shares, shares
 
 
111,292 
 
 
 
Balance value at Dec. 31, 2016
145,119 
219 
329,722 
(59,625)
(125,197)
Balance, shares at Dec. 31, 2016
 
21,864,541 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Cumulative-effect adjustment for the adoption of ASU 2016-09
2,310 
 
 
127 
2,183 
 
Net income (loss)
(93,368)
 
 
 
(93,368)
 
Other comprehensive income (loss)
20,025 
 
 
 
 
20,025 
Stock compensation expense
3,372 
 
 
3,372 
 
 
Stock issued, value
(418)
(1)
 
(417)
 
 
Stock issued, shares
 
153,469 
 
 
 
 
Stock withheld for employee taxes
(627)
 
 
(627)
 
 
Dividends
(10,355)
 
 
 
(10,355)
 
Purchase of treasury shares, shares
 
 
 
 
 
Balance value at Dec. 31, 2017
$ 66,894 
$ 220 
$ 0 
$ 333,011 
$ (161,165)
$ (105,172)
Balance, shares at Dec. 31, 2017
 
22,018,010 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Operating activities:
 
 
 
Net income (loss)
$ (93,368)
$ 10,073 
$ 66,333 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
45,544 
48,486 
42,712 
Goodwill impairment
79,700 
Loss on asset sales and disposals
251 
287 
567 
Change in accounts receivable
(2,698)
8,660 
(6,312)
Change in inventories
(13,443)
5,979 
(12,006)
Change in accounts payable
5,574 
(481)
(3,466)
Accrued interest and amortization of discounts and finance fees
1,318 
(1,086)
1,291 
Pension & non-pension post-retirement benefits, net
1,680 
(2,513)
18,865 
Accrued liabilities & prepaid expenses
2,737 
4,032 
4,140 
Income taxes
13,121 
6,296 
(45,003)
Share-based compensation expense
3,460 
4,766 
5,917 
Other operating activities
1,432 
(595)
(3,346)
Net cash provided by operating activities
45,308 
83,904 
69,692 
Investing activities:
 
 
 
Additions to property, plant and equipment
(47,628)
(34,604)
(48,136)
Proceeds from asset sales and other
Net cash used in investing activities
(47,628)
(34,604)
(48,129)
Financing activities:
 
 
 
Borrowings on ABL credit facility
34,086 
6,000 
62,900 
Repayments on ABL credit facility
(34,086)
(6,000)
(62,900)
Other repayments
(632)
(350)
(3,267)
Other borrowings
339 
Repayments on Term Loan B
(24,400)
(24,400)
(4,400)
Stock options exercised
466 
1,400 
3,338 
Taxes paid on distribution of equity awards
(627)
(895)
(796)
Dividends
(10,355)
(10,070)
(9,597)
Treasury shares purchased
(2,000)
(15,275)
Other financing activities
334 
Net cash used in financing activities
(35,214)
(35,976)
(29,997)
Effect of exchange rate fluctuations on cash
1,219 
(1,357)
(2,566)
Increase (decrease) in cash
(36,315)
11,967 
(11,000)
Cash & cash equivalents at beginning of year
61,011 
49,044 
60,044 
Cash & cash equivalents at end of year
24,696 
61,011 
49,044 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the year for interest, net of capitalized interest
18,638 
21,553 
16,545 
Cash paid during the year for income taxes
$ 3,371 
$ 7,559 
$ 5,516 
Description of the Business
Description of the Business
Description of the Business
Libbey is a leading global manufacturer and marketer of glass tableware products. We produce glass tableware in five countries and sell to customers in over 100 countries. We design and market, under our Libbey®, Libbey Signature®, 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 markets. Our sales force presents our tabletop products to the global marketplace in a coordinated fashion. We own and operate two glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in Mexico (Libbey Mexico), the Netherlands (Libbey Holland), Portugal (Libbey Portugal) and China (Libbey China). In addition, we import tabletop products from overseas in order to complement our line of manufactured items. The combination of manufacturing and procurement allows us to compete in the global tabletop market by offering an extensive product line at competitive prices.
Significant Accounting Policies
Significant Accounting Policies
Significant Accounting Policies
Basis of Presentation The Consolidated Financial Statements include Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December 31st. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with United States generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.

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

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

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

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

Inventory Valuation Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method is used for our U.S. glass inventories, which represented 32.2 percent and 29.1 percent of our total inventories in 2017 and 2016, respectively. The remaining inventories are valued using either the first-in, first-out (FIFO) or average cost method. For those inventories valued on the LIFO method, the excess of FIFO cost over LIFO, was $13.4 million and $12.9 million in 2017 and 2016, respectively. Cost includes the cost of materials, direct labor, in-bound freight and the applicable share of manufacturing overhead.

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

Software We account for software in accordance with FASB ASC 350. Software represents the costs of internally developed and/or purchased software for internal use. Capitalized costs include software packages, installation and internal labor costs of employees devoted to the software development project. Costs incurred to modify existing software, providing significant enhancements and creating additional functionality are also capitalized. Once a project is complete, we estimate the useful life of the internal-use software, generally amortizing these costs over a five-year period.

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

The U.S. pension plans cover most hourly U.S.-based employees (excluding new hires at Shreveport after December 15, 2008 and at Toledo after September 30, 2010) and those salaried U.S.-based employees hired before January 1, 2006. Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly-owned subsidiaries in Mexico and the Netherlands (until December 2015). In December 2015, we unwound direct ownership of our defined benefit pension plan in the Netherlands. For further discussion see note 8.

We also provide certain post-retirement healthcare and life insurance benefits covering substantially all U.S. and Canadian salaried employees hired before January 1, 2004 and a majority of our union hourly employees (excluding employees hired at Shreveport after December 15, 2008 and at Toledo after September 30, 2010). Employees are generally eligible for benefits upon reaching a certain age and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. Under a cross-indemnity agreement, Owens-Illinois, Inc. assumed liability for the non-pension post-retirement benefit of our retirees who had retired as of June 24, 1993. Therefore, the benefits related to these retirees are not included in our liability. For further discussion see note 9.
Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax attribute carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. FASB ASC Topic 740, “Income Taxes,” requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are determined separately for each tax paying component in which we conduct our operations or otherwise incur taxable income or losses. For further discussion see note 7.
Derivatives We account for derivatives in accordance with FASB ASC Topic 815 "Derivatives and Hedging" ("FASB ASC 815"). We hold derivative financial instruments to hedge certain of our interest rate risks associated with long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with occasional transactions denominated in a currency other than the U.S. dollar. These derivatives (except for the foreign currency contracts and natural gas hedges in Mexico) qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in earnings. Cash flows from hedges of debt, short-term forward exchange contracts, currency swaps, interest rate swaps and natural gas contracts are classified as operating activities. See additional discussion at note 12.
Environmental In accordance with U.S. GAAP accounting standards, we recognize environmental clean-up liabilities on an undiscounted basis when loss is probable and can be reasonably estimated. The cost of the clean-up is estimated by financial and legal specialists based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required, and the likelihood that, where applicable, other potentially responsible parties will not be able to fulfill their commitments at the sites where the Company may be jointly and severally liable.
Foreign Currency Translation Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Income and expense accounts are translated at average exchange rates during the year. The effect of exchange rate changes on transactions denominated in currencies other than the functional currency is recorded in other income (expense). For further detail see note 16.
Stock-Based Compensation Expense We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” ("FASB ASC 718") and FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees”("FASB ASC 505-50"). Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards.
Treasury Stock Treasury Stock purchases are recorded at cost. During 2017 we did not purchase treasury stock. During 2016 and 2015, we purchased 111,292 and 412,473 shares of treasury stock at an average price of $17.97 and $37.03, respectively. At December 31, 2017, we had 941,250 shares of common stock available for repurchase, as authorized by our Board of Directors.
Research and Development Research and development costs are charged to selling, general and administrative expense in the Consolidated Statements of Operations when incurred. Expenses for 2017, 2016 and 2015, respectively, were $3.0 million, $4.3 million and $6.1 million.
Advertising Costs We expense all advertising costs as incurred. The expenses for 2017, 2016 and 2015, respectively, were $5.3 million, $5.7 million and $10.7 million.
Computation of Income (Loss) Per Share of Common Stock Basic net income (loss) per share of common stock is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share of common stock is computed using the weighted average number of shares of common stock outstanding and dilutive potential common share equivalents during the period.
Reclassifications Certain amounts in prior years' financial statements have been reclassified to conform to the presentation used in the year ended December 31, 2017, including the following:
On the Consolidated Statements of Cash Flows, certain activity was reclassified between operating and financing activities pursuant to adoption of Accounting Standards Update No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," effective January 1, 2017.
In note 18 Segments, net sales and related costs for certain countries were reclassified between segments to align with changes in business unit responsibilities effective January 1, 2017.
In note 18 Segments, the derivative amount included in the Reconciliation of Segment EBIT to Net Income in the prior year financial statements has been included in Segment EBIT to conform to the current year presentation.
New Accounting Standards - Adopted

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." Areas for simplification in this update involve several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. We adopted the new guidance on January 1, 2017, requiring us to recognize all excess tax benefits and tax deficiencies related to stock compensation as income tax expense or benefit in the income statement. Excess tax benefits will be recognized regardless of whether the benefit reduces taxes payable in the current period, subject to normal valuation allowance considerations. Previous guidance resulted in credits to equity for such tax benefits and delayed recognition until the tax benefits reduced income taxes payable. This provision in the standard was applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the year of adoption. As of January 1, 2017, we recorded a $2.3 million reduction to our retained deficit and an increase in deferred income tax assets. In addition, on the modified retrospective basis, we have elected to discontinue estimating forfeitures expected to occur when determining the amount of compensation expense to be recognized in each period, resulting in an immaterial impact to our retained deficit and capital in excess of par. We do not anticipate this change will have a material impact on our future results of operations. The presentation requirements for cash flows under the new standard were adopted on a retrospective basis, resulting in a reclassification on the Consolidated Statements of Cash Flows that increased cash provided by operating activities and increased cash used in financing activities for the years ended December 31, 2016 and 2015.

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

New Accounting Standards - Not Yet Adopted

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

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

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

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

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 amends the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, and eases certain hedge effectiveness assessment requirements. ASU 2017-12 is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption.
Balance Sheet Details
Balance Sheet Details
Balance Sheet Details
The following table provides detail of selected balance sheet items:
December 31,
(dollars in thousands)
 
2017
 
2016
Accounts receivable:
 
 
 
 
Trade receivables
 
$
88,786

 
$
82,851

Other receivables
 
1,211

 
2,262

Total accounts receivable, less allowances of $9,051 and $7,832
 
$
89,997

 
$
85,113

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
170,774

 
$
152,261

Work in process
 
1,485

 
1,625

Raw materials
 
3,906

 
4,432

Repair parts
 
10,240

 
10,558

Operating supplies
 
1,481

 
1,133

Total inventories, less loss provisions of $10,308 and $9,484
 
$
187,886

 
$
170,009

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
19,728

 
$
19,771

Other accrued liabilities
 
23,495

 
22,036

Total accrued liabilities
 
$
43,223

 
$
41,807

 
 
 
 
 

The increase in finished goods inventory is due to higher inventory levels to fulfill customer orders, including maintaining an appropriate safety stock of items we source primarily from the Asia Pacific region and that, as a result, require longer lead times, and currency impacts (primarily the peso and euro).
Purchased Intangible Assets and Goodwill
Purchased Intangible Assets and Goodwill
Purchased Intangible Assets and Goodwill

Purchased Intangibles

Changes in purchased intangibles balances are as follows:
(dollars in thousands)
 
2017
 
2016
Beginning balance
 
$
15,225

 
$
16,364

Amortization
 
(1,073
)
 
(1,039
)
Foreign currency impact
 
413

 
(100
)
Ending balance
 
$
14,565

 
$
15,225



Purchased intangible assets are composed of the following:
December 31,
(dollars in thousands)
 
2017
 
2016
Indefinite life intangible assets
 
$
12,120

 
$
11,888

Definite life intangible assets, net of accumulated amortization of $19,093 and $17,706
 
2,445

 
3,337

Total
 
$
14,565

 
$
15,225



Amortization expense for definite life intangible assets was $1.1 million, $1.0 million and $1.0 million for years 2017, 2016 and 2015, respectively.

Indefinite life intangible assets are composed of trade names and trademarks that have an indefinite life and are therefore individually tested for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise, in accordance with FASB ASC 350. Our measurement date for impairment testing is October 1st of each year. When performing our test for impairment of individual indefinite life intangible assets, we use a relief from royalty method to determine the fair market value that is compared to the carrying value of the indefinite life intangible asset. The inputs used for this analysis are considered Level 3 inputs in the fair value hierarchy. See note 14 for further discussion of the fair value hierarchy. Our October 1st review for 2017 and 2016 did not indicate impairment of our indefinite life intangible assets.

The remaining definite life intangible assets at December 31, 2017 consist of customer relationships that are amortized over a period ranging from 13 to 20 years. The weighted average remaining life on the definite life intangible assets is 2.4 years at December 31, 2017.

Future estimated amortization expense of definite life intangible assets is as follows (dollars in thousands):
2018
2019
2020
2021
2022
 
$1,051
$571
$165
$165
$165
 


Goodwill

Changes in goodwill balances are as follows:
 
 
2017
 
2016
(dollars in thousands)
 
U.S. & Canada
 
Latin America
 
Total
 
U.S. & Canada
 
Latin America
 
Total
Beginning balance:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
$
43,872

 
$
125,681

 
$
169,553

 
$
43,872

 
$
125,681

 
$
169,553

Accumulated impairment losses
 
(5,441
)
 

 
(5,441
)
 
(5,441
)
 

 
(5,441
)
Net beginning balance
 
38,431

 
125,681

 
164,112

 
38,431

 
125,681

 
164,112

Impairment
 

 
(79,700
)
 
(79,700
)
 

 

 

Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
43,872

 
125,681

 
169,553

 
43,872

 
125,681

 
169,553

Accumulated impairment losses
 
(5,441
)
 
(79,700
)
 
(85,141
)
 
(5,441
)
 

 
(5,441
)
Net ending balance
 
$
38,431

 
$
45,981

 
$
84,412

 
$
38,431

 
$
125,681

 
$
164,112



Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. The inputs used for this analysis are considered Level 2 and Level 3 inputs in the fair value hierarchy. See note 14 for further discussion of the fair value hierarchy.

As part of our on-going assessment of goodwill at September 30, 2017, we noted that third quarter 2017 sales, profitability and cash flow of our Mexico reporting unit (within the Latin America segment) significantly underperformed in comparison to the forecast, and expectations for the fourth quarter of 2017 were lowered as well. These factors, as well as continuing competitive pressures, long term weakness of the Mexican peso relative to the U.S. dollar, and an increase in the discount rate of 70 basis points from December 31, 2016 to September 30, 2017, all contributed to increased pressure on the outlook of the reporting unit. As a result, we determined a triggering event had occurred for our Mexico reporting unit. Accordingly, an interim impairment test was performed as of September 30, 2017, indicating that the carrying value of the Mexico reporting unit exceeded its fair value, and in accordance with the early adoption of ASU 2017-04, we recorded a non-cash impairment charge of $79.7 million during the third quarter of 2017.

When performing our test for impairment, we measure each reporting unit's fair value using a combination of "income" and "market" approaches on a shipping point basis. The income approach calculates the fair value of the reporting unit based on a discounted cash flow analysis, incorporating the weighted average cost of capital of a hypothetical third-party buyer. Significant estimates in the income approach include the following: discount rate; expected financial outlook and profitability of the reporting unit's business; and foreign currency impacts (Level 3 inputs). Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors. The market approach uses the "Guideline Company" method, which calculates the fair value of the reporting unit based on a comparison of the reporting unit to comparable publicly traded companies. Significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, assessing comparable multiples, as well as consideration of control premiums (Level 2 inputs). The blended approach assigns a 70 percent weighting to the income approach and 30 percent to the market approach (Level 3 input). The higher weighting is given to the income approach due to some limitations of publicly available peer information used in the market approach. The blended fair value of both approaches is then compared to the carrying value, and to the extent that fair value exceeds the carrying value, no impairment exists. However, to the extent the carrying value exceeds the fair value, an impairment is recorded.

Our annual review was performed as of October 1st for each year presented. As the impairment assessment performed at September 30, 2017 resulted in the fair value of the Mexico reporting unit equaling its carrying value, there was no further impairment as of October 1, 2017. In addition, there were no indicators of impairment at December 31, 2017. Our review for 2016 did not indicate an impairment of goodwill.
Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment

Property, plant and equipment consists of the following:
December 31,
(dollars in thousands)
 
2017
 
2016
Land
 
$
20,859

 
$
19,524

Buildings
 
107,659

 
102,666

Machinery and equipment
 
505,978

 
473,004

Furniture and fixtures
 
15,391

 
14,208

Software
 
24,464

 
22,733

Construction in progress
 
12,933

 
16,113

Gross property, plant and equipment
 
687,284

 
648,248

Less accumulated depreciation
 
421,609

 
391,856

Net property, plant and equipment
 
$
265,675

 
$
256,392



Depreciation expense was $44.4 million, $47.3 million and $41.4 million for the years 2017, 2016 and 2015, respectively.
Borrowings
Borrowings
Borrowings

Borrowings consist of the following:
December 31,
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
2017
 
2016
Borrowings under ABL Facility
 
floating
 
December 7, 2022 (1)
 
$

 
$

Term Loan B
 
floating
(2) 
April 9, 2021
 
384,600

 
409,000

AICEP Loan
 
0.00%
 
July 30, 2018
 
3,085

 
3,320

Total borrowings
 
387,685

 
412,320

Less — unamortized discount and finance fees
 
3,295

 
4,480

Total borrowings — net
 
384,390

 
407,840

Less — long term debt due within one year
 
7,485

 
5,009

Total long-term portion of borrowings — net
 
$
376,905

 
$
402,831

___________________________
(1) Maturity date will be January 9, 2021 if Term Loan B is not refinanced by this date.
(2) See interest rate swap under "Term Loan B" below and note 12.
Annual maturities for all of our total borrowings for the next five years and beyond are as follows:
2018
2019
2020
2021
2022
Thereafter
 
$7,485
$4,400
$4,400
$371,400
$—
$—
 


Amended and Restated ABL Credit Agreement

Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 and amended as of April 29, 2011, May 18, 2012, April 9, 2014 and December 7, 2017 (as amended, the ABL Facility), with a group of four financial institutions. The ABL Facility provides for borrowings of up to $100.0 million, subject to certain borrowing base limitations, reserves and outstanding letters of credit.

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

Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:
a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and
a first-priority security interest in:
100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and
100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first-tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.
Swingline borrowings are limited to $10.0 million, with swingline borrowings for Libbey Europe being limited to the U.S. equivalent of $5.0 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swingline borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swingline rate, as defined in the ABL Facility, subject to a LIBOR floor of 0.0 percent. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.50 percent and 1.50 percent, respectively, at December 31, 2017. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.25 percent at December 31, 2017. No compensating balances are required by the ABL Facility. The ABL Facility does not require compliance with a fixed charge coverage ratio covenant, unless aggregate unused availability falls below $10.0 million. If our aggregate unused ABL availability were to fall below $10.0 million, the fixed charge coverage ratio requirement would be 1:00 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by $25.0 million. There were no Libbey Glass or Libbey Europe borrowings under the facility at December 31, 2017 or at December 31, 2016. Interest is payable on the last day of the interest period, which can range from one month to six months depending on the maturity of each individual borrowing on the ABL facility.

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

At December 31, 2017, the available total borrowing base is offset by a $0.5 million rent reserve and $0.5 million natural gas derivative liability. 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 December 31, 2017, $7.2 million in letters of credit were outstanding. Remaining unused availability under the ABL Facility was $91.9 million at December 31, 2017, compared to $88.4 million under the ABL Facility at December 31, 2016.
Term Loan B
On April 9, 2014, Libbey Glass consummated its $440.0 million Senior Secured Term Loan B of Libbey Glass due 2021 (Term Loan B). The net proceeds of the Term Loan B were $438.9 million, after the 0.25 percent original issue discount of $1.1 million. The Term Loan B had related fees of approximately $6.7 million that will be amortized to interest expense over the life of the loan.

The Term Loan B is evidenced by a Senior Secured Credit Agreement, dated April 9, 2014 (Credit Agreement), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and the lenders. Under the terms of the Credit Agreement, aggregate principal of $1.1 million is due on the last business day of each quarter. The Term Loan B bears interest at the rate of LIBOR plus 3.0 percent, subject to a LIBOR floor of 0.75 percent. The interest rate was 4.43 percent per year at December 31, 2017 and 3.75 percent at December 31, 2016, and will mature on April 9, 2021. Although the Credit Agreement does not contain financial covenants, the Credit Agreement contains other covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:

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

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

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

On April 1, 2015, we executed an interest rate swap on our Term Loan B as part of our risk management strategy to mitigate the risks involved with fluctuating interest rates. The interest rate swap effectively converts $220.0 million of our Term Loan B debt from a variable interest rate to a 4.85 percent fixed interest rate, thus reducing the impact of interest rate changes on future income. The fixed rate swap is effective January 2016 through January 2020. The interest rate swap is designated as a cash flow hedge and is accounted for under FASB ASC 815 "Derivatives and Hedging". See note 12 for further discussion on the interest rate swap.
AICEP Loan
From time to time since July 2012, Libbey Portugal has entered into loan agreements with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese Agency for investment and external trade. The amount of the loans outstanding is €2.6 million (approximately $3.1 million) at December 31, 2017, and the interest rate is 0.0 percent. Semi-annual installments of principal are due through the maturity date in July 2018.
RMB Working Capital Loan

On July 24, 2014, Libbey China entered into a RMB 20.0 million (approximately $3.3 million) working capital loan with China Construction Bank to cover seasonal working capital needs. The working capital loan was set to mature on July 23, 2015, and had a fixed interest rate of 6.78 percent, which was paid monthly. On March 4, 2015, Libbey China prepaid the working capital loan along with accrued and unpaid interest. This obligation was secured by a mortgage lien on the Libbey China facility.
Notes Payable
We have an overdraft line of credit for a maximum of €0.8 million. At December 31, 2017 and 2016, there were no borrowings under the facility, which had an interest rate of 5.80 percent. Interest with respect to the note is paid monthly.
Income Taxes
Income Taxes
Income Taxes

The provisions for income taxes were calculated based on the following components of income (loss) before income taxes:
Year ended December 31,
(dollars in thousands)
 
2017
 
2016
 
2015
United States
 
$
(65,224
)
 
$
29,742

 
$
27,146

Non-U.S. 
 
(12,346
)
 
(1,958
)
 
971

Total income before income taxes
 
$
(77,570
)
 
$
27,784

 
$
28,117



The current and deferred provisions (benefit) for income taxes were:
Year ended December 31,
(dollars in thousands)
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
 
U.S. federal
 
$
(183
)
 
$
470

 
$
300

Non-U.S. 
 
4,517

 
7,625

 
9,142

U.S. state and local
 
834

 
201

 
162

Total current income tax provision (benefit)
 
5,168

 
8,296

 
9,604

 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
U.S. federal
 
9,950

 
9,981

 
(44,068
)
Non-U.S. 
 
1,190

 
334

 
(3,078
)
U.S. state and local
 
(510
)
 
(900
)
 
(674
)
Total deferred income tax provision (benefit)
 
10,630

 
9,415

 
(47,820
)
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
U.S. federal
 
9,767

 
10,451

 
(43,768
)
Non-U.S. 
 
5,707

 
7,959

 
6,064

U.S. state and local
 
324

 
(699
)
 
(512
)
Total income tax provision (benefit)
 
$
15,798

 
$
17,711

 
$
(38,216
)


United States Tax Reform: The Tax Cuts and Jobs Act (the Act), signed into law on December 22, 2017, changed many aspects of the U.S. tax code, by reducing the corporate income tax rate from 35 percent to 21 percent, shifting to a territorial tax system with a related one-time transition tax on accumulated, unremitted earnings of foreign subsidiaries, limiting interest deductions, allowing the current expensing of certain capital expenditures, and numerous other changes that will apply prospectively beginning in 2018. We recorded a charge of $6.7 million in the fourth quarter of 2017, principally related to re-measurement of the net U.S. deferred income tax assets at the 21 percent tax rate. The Company estimates that it will incur no material transition tax related to unremitted foreign earnings and does not anticipate material interest deduction limitations in the foreseeable future. We continue to analyze other changes to the tax code, including the Global Intangible Low Taxed Income (GILTI) provision, which could result in some level of future U.S. taxation of non-U.S. earnings that we cannot reasonably estimate at this time. Until we determine the extent to which GILTI may apply, we have not made an accounting policy decision regarding whether we will treat GILTI as a period cost or establish deferred taxes related thereto. We will continue to assess our income tax provision as we finalize our 2017 U.S. income tax return and as future guidance becomes available, but we do not currently expect that material revisions will be required. If revisions are required, they will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118.

Deferred income tax assets and liabilities result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and from income tax carryovers and credits. The significant components of our deferred income tax assets and liabilities are as follows:
December 31,
(dollars in thousands)
 
2017
 
2016
Deferred income tax assets:
 
 
 
 
Pension
 
$
8,108

 
$
11,799

Non-pension post-retirement benefits
 
13,385

 
22,810

Other accrued liabilities
 
13,213

 
19,244

Receivables
 
2,118

 
2,756

Net operating loss and charitable contribution carry forwards
 
16,599

 
16,861

Tax credits
 
13,288

 
11,502

Total deferred income tax assets
 
66,711

 
84,972

Valuation allowance
 
(19,076
)
 
(13,773
)
Net deferred income tax assets
 
47,635

 
71,199

 
 
 
 
 
Deferred income tax liabilities:
 
 
 
 
Property, plant and equipment
 
18,246

 
23,921

Inventories
 
1,639

 
3,866

Intangibles and other
 
4,708

 
5,255

Total deferred income tax liabilities
 
24,593

 
33,042

Net deferred income tax asset
 
$
23,042

 
$
38,157



The net deferred income tax assets and liabilities were included in the Consolidated Balance Sheets as follows:
December 31,
(dollars in thousands)
 
2017
 
2016
Non-current deferred income tax asset
 
$
24,892

 
$
40,016

Non-current deferred income tax liability
 
(1,850
)
 
(1,859
)
Net deferred income tax asset
 
$
23,042

 
$
38,157



A summary of the deferred tax assets for net operating loss carry forwards is as follows:
December 31,
(dollars in thousands)
 
2017
 
2016
Deferred income tax asset
 
$
16,599

 
$
16,861

Comprised of cumulative net losses from:
 
 
 
 
Netherlands
 
$
40,487

 
$
24,811

Mexico
 
$
1,700

 
$

China
 
$
1,155

 
$
825

Portugal
 
$

 
$
629

U.S. federal
 
$
15,578

 
$
23,019

U.S. state and local
 
$
41,812

 
$
58,551



Our foreign net operating loss carryforwards of $43.3 million will expire between 2018 and 2028. Our U.S. federal net operating loss carryforward of $15.6 million will expire between 2031 and 2034. The U.S. state and local net operating loss carryforward of $41.8 million will expire between 2018 and 2035.

A summary of the deferred income tax assets related to tax credits is as follows:
December 31,
(dollars in thousands)
 
2017
 
2016
Netherlands foreign tax credits
 
$
9,082

 
$
7,695

U.S. general business credits
 
2,885

 
2,628

U.S. alternative minimum tax credits
 
1,321

 
1,179

Total
 
$
13,288

 
$
11,502



The non-U.S. credits can be carried forward indefinitely. The U.S. federal tax credits for general business research and development will expire between 2024 and 2037, and the alternative minimum tax credits do not expire.

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

As of December 31, 2015, management considered the evidence, both positive and negative, in assessing the realizability of our deferred tax assets in the U.S. The positive evidence, including achievement of cumulative income in recent years and expectations for sustainable future income, was strong enough to conclude that it is more likely than not that nearly all of our deferred tax assets are realizable and the valuation allowance was reduced accordingly. In order to fully realize our deferred tax assets as of December 31, 2017 in the U.S., the Company needs to generate approximately $154.6 million of future taxable income.

Our European operations in the Netherlands incurred an operating loss in 2017, continue to be in cumulative loss positions in recent years, and have a history of tax loss carryforwards expiring unused. In addition, European economic conditions continue to be unfavorable. Accordingly, management believes it is not more likely than not that the net deferred tax assets related to these operations will be realized and a valuation allowance continues to be recorded as of December 31, 2017. The Netherlands operation added a new furnace in 2017 that achieves a much higher level of energy efficiency than the furnaces it replaced. Management is optimistic that this new furnace technology will significantly improve the profitability of the Netherlands operation. Thus, it is reasonably possible that the valuation allowance against the net operating loss deferred tax asset could be reduced within the next year.
Reconciliation from the statutory U.S. federal income tax rate to the consolidated effective income tax rate was as follows:
Year ended December 31,
 
2017
 
2016
 
2015
Statutory U.S. federal income tax rate
 
35.0

%
 
35.0

%
 
35.0

%
Increase (decrease) in rate due to:
 
 
 
 
 
 
 
 
 
Non-U.S. income tax differential
 
1.2

 
 
(2.1
)
 
 
(0.9
)
 
U.S. state and local income taxes, net of related U.S. federal income taxes
 
0.1

 
 
(1.3
)
 
 
(2.0
)
 
U.S. federal credits
 
0.3

 
 
(2.2
)
 
 

 
Permanent adjustments
 
0.6

 
 
3.8

 
 
7.5

 
Foreign withholding taxes
 
(2.0
)
 
 
5.7

 
 
4.7

 
Valuation allowance
 
(4.4
)
 
 
11.1

 
 
(174.8
)
 
Unrecognized tax benefits
 
(3.9
)
 
 
10.0

 
 
(0.3
)
 
Impact of foreign exchange
 
(1.6
)
 
 
3.4

 
 
(19.8
)
 
Tax effect of intercompany capitalization
 

 
 

 
 
11.7

 
Impact of legislative changes
 
(8.7
)
 
 

 
 

 
Goodwill impairment
 
(36.0
)
 
 

 
 

 
Other
 
(1.0
)
 
 
0.3

 
 
3.0

 
Consolidated effective income tax rate
 
(20.4
)
%
 
63.7

%
 
(135.9
)
%


U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside of the United States. This amount could become taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. The amount of such temporary differences totaled $11.4 million as of December 31, 2017 and $27.7 million as of December 31, 2016. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

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

The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. In August 2016, one of our Mexican subsidiaries received a tax assessment from the Mexican tax authority (SAT) related to the audit of its 2010 tax year. The amount assessed was approximately 3 billion Mexican pesos, which was equivalent to approximately $157 million U.S. dollars as of the date of the assessment. The Company has filed an administrative appeal with SAT requesting that the assessment be fully nullified. We are awaiting the outcome of the appeal. Management, in consultation with external legal counsel, believes that if contested in the Mexican court system, it is more likely than not that the Company would prevail on all significant components of the assessment. Management intends to continue to vigorously contest all significant components of the assessment in the Mexican courts if they are not nullified at the administrative appeal level. We believe that our tax reserves related to uncertain tax positions are adequate at this time.

A reconciliation of the beginning and ending gross unrecognized tax benefits, excluding interest and penalties, is as follows:
(dollars in thousands)
 
2017
 
2016
 
2015
Beginning balance
 
$
3,521

 
$
431

 
$
378

Additions based on tax positions related to the current year
 
435

 
382

 
293

Additions for tax positions of prior years
 
1,735

 
3,001

 

Reductions for tax positions of prior years
 
(468
)
 
(293
)
 

Changes due to lapse of statute of limitations
 
279

 

 
(240
)
Reductions due to settlements with tax authorities
 
(495
)
 

 

Ending balance
 
$
5,007

 
$
3,521

 
$
431



We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. Other disclosures relating to unrecognized tax benefits are as follows:
December 31,
(dollars in thousands)
 
2017
 
2016
 
2015
Amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate
 
$
4,107

 
$
3,414

 
$
378

Interest, net of tax benefit, accrued in the Consolidated Balance Sheets
 
$
572

 
$
92

 
$
28

Penalties, accrued in the Consolidated Balance Sheets
 
$
38

 
$
181

 
$

Interest expense (benefit) recognized in the Consolidated Statements of Operations
 
$
506

 
$
64

 
$
(146
)
Penalties expense (benefit) recognized in the Consolidated Statements of Operations
 
$
(67
)
 
$
181

 
$



Based upon the outcome of tax examinations, judicial proceedings, other settlements with taxing jurisdictions, or expiration of statutes of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. It is also reasonably possible that gross unrecognized tax benefits may decrease within the next twelve months by approximately $3.6 million due to settlements with tax authorities.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2017, the tax years that remained subject to examination by major tax jurisdictions were as follows:
Jurisdiction
 
Open Years
Canada
 
2014
2017
China
 
2007
2017
Mexico (excluding 2011 which is closed)
 
2010
2017
Netherlands
 
2016
2017
Portugal
 
2014
2017
United States (excluding 2013 which is closed)
 
2011
2017
Pension
Pension
Pension

We have pension plans covering the majority of our employees. Benefits generally are based on compensation and service for salaried employees and job grade and length of service for hourly employees. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006, and most hourly U.S.-based employees (excluding employees hired at Shreveport after December 15, 2008, and at Toledo after September 30, 2010). Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiaries in Mexico and the Netherlands (through 2015). The plans in Mexico are unfunded.
 
In the fourth quarter of 2015, we executed an agreement with Pensioenfonds voor de Grafische Bedrijven (“PGB”), an industry wide pension fund, and unwound direct ownership of our defined benefit pension plan in the Netherlands. In accordance with this agreement, we transferred all assets of the plan and made a cash contribution of $5.2 million to PGB. In return, PGB assumed the related liabilities and administrative responsibilities of the plan. As a result, there is no longer a pension liability on the Consolidated Balance Sheet related to this pension plan. This event also resulted in a settlement charge of $21.6 million being recorded in the Consolidated Statement of Operations in the fourth quarter of 2015. Beginning in 2016, Libbey Holland makes cash contributions to PGB as participating employees earn pension benefits. These related costs are expensed as incurred, similar to the accounting associated with a defined contribution retirement plan and amounted to $1.9 million in both 2017 and 2016.

Effect on Operations
The components of our net pension expense, including the SERP, are as follows:
Year ended December 31,
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Service cost (benefits earned during the period)
 
$
3,916

 
$
3,717

 
$
4,365

 
$
1,085

 
$
1,226

 
$
2,965

 
$
5,001

 
$
4,943

 
$
7,330

Interest cost on projected benefit obligation
 
13,787

 
14,963

 
14,715

 
2,749

 
2,594

 
4,332

 
16,536

 
17,557

 
19,047

Expected return on plan assets
 
(22,479
)
 
(23,027
)
 
(22,661
)
 

 

 
(2,447
)
 
(22,479
)
 
(23,027
)
 
(25,108
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
 
236

 
263

 
417

 
(204
)
 
(207
)
 
(244
)
 
32

 
56

 
173

Actuarial loss
 
5,232

 
4,272

 
7,291

 
594

 
782

 
1,599

 
5,826

 
5,054

 
8,890

Settlement charge
 
245

 
42

 
13

 

 
126

 
21,574

 
245

 
168

 
21,587

Curtailment credit
 

 

 

 

 

 
(14
)
 

 

 
(14
)
Pension expense
 
$
937

 
$
230

 
$
4,140

 
$
4,224

 
$
4,521

 
$
27,765

 
$
5,161

 
$
4,751

 
$
31,905



In 2017, 2016 and 2015, we incurred pension settlement charges of $0.2 million, $0.2 million and $21.6 million, respectively. The pension settlement charges in 2015 were triggered primarily by the liquidation of the Dutch pension fund. The pension settlement charges in 2017 and 2016 were triggered by excess lump sum distributions taken by employees, which required us to record unrecognized gains and losses in our pension plan accounts.

Actuarial Assumptions
The assumptions used to determine the benefit obligations were as follows:
 
 
U.S. Plans
 
Non-U.S. Plans
 
 
2017
 
2016
 
2017
 
2016
Discount rate
 
3.64%
to
3.69%
 
4.18%
to
4.23%
 
9.40%
 
9.30%
Rate of compensation increase
 
Not applicable
 
Not applicable
 
4.30%
 
4.30%

The assumptions used to determine net periodic pension costs were as follows:
 
U.S. Plans
 
Non-U.S. Plans
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Discount rate
4.18
%
to
4.23
%
 
4.66
%
to
4.73
%
 
4.17
%
to
4.29
%
 
9.30%
 
8.10%
 
2.30
%
to
7.60
%
Expected long-term rate of return on plan assets
7.00%
 
7.25%
 
7.25%
 
Not applicable
 
Not applicable
 
4.00%
Rate of compensation increase
Not applicable
 
Not applicable
 
Not applicable
 
4.30%
 
4.30%
 
2.00
%
to
4.30
%


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

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

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

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

For our U.S. pension plans, we use the RP 2014 Sex Distinct Mortality Tables, as released by the Society of Actuaries, to determine our projected benefit obligations. In 2015, 2016 and 2017, the Society of Actuaries published new generational projection scales reflecting additional years of mortality experience. We adopted these updates in each respective year.

Projected Benefit Obligation (PBO) and Fair Value of Assets

The changes in the projected benefit obligations and fair value of plan assets are as follows:
Year ended December 31,
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Change in projected benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation, beginning of year
 
$
336,648

 
$
325,863

 
$
28,161

 
$
35,915

 
$
364,809

 
$
361,778

Service cost
 
3,916

 
3,717

 
1,085

 
1,226

 
5,001

 
4,943

Interest cost
 
13,787

 
14,963

 
2,749

 
2,594

 
16,536

 
17,557

Exchange rate fluctuations
 

 

 
1,214

 
(5,821
)
 
1,214

 
(5,821
)
Actuarial (gain) loss
 
22,991

 
11,108

 
1,409

 
(2,477
)
 
24,400

 
8,631

Settlements paid
 
(281
)
 
(259
)
 

 

 
(281
)
 
(259
)
Benefits paid
 
(23,008
)
 
(18,744
)
 
(2,651
)
 
(3,276
)
 
(25,659
)
 
(22,020
)
Projected benefit obligation, end of year
 
$
354,053

 
$
336,648

 
$
31,967

 
$
28,161

 
$
386,020

 
$
364,809

 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of plan assets:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets, beginning of year
 
$
318,414

 
$
316,184

 
$

 
$

 
$
318,414

 
$
316,184

Actual return on plan assets
 
47,595

 
20,974

 

 

 
47,595

 
20,974

Employer contributions
 
499

 
259

 
2,651

 
3,276

 
3,150

 
3,535

Settlements paid
 
(281
)
 
(259
)
 

 

 
(281
)
 
(259
)
Benefits paid
 
(23,008
)
 
(18,744
)
 
(2,651
)
 
(3,276
)
 
(25,659
)
 
(22,020
)
Fair value of plan assets, end of year
 
$
343,219

 
$
318,414

 
$

 
$

 
$
343,219

 
$
318,414

 
 
 
 
 
 
 
 
 
 
 
 
 
Funded ratio
 
96.9
%
 
94.6
%
 
%
 
%
 
88.9
%
 
87.3
%
Funded status and net accrued pension benefit cost
 
$
(10,834
)
 
$
(18,234
)
 
$
(31,967
)
 
$
(28,161
)
 
$
(42,801
)
 
$
(46,395
)


The current portion of the pension liability reflects the amount of expected benefit payments that are greater than the plan assets on a plan-by-plan basis. The net accrued pension benefit liability at December 31 of the respective year-ends were included in the Consolidated Balance Sheets as follows:
December 31,
(dollars in thousands)
 
2017
 
2016
Pension asset
 
$
2,939

 
$

Pension liability (current portion)
 
(2,185
)
 
(2,461
)
Pension liability
 
(43,555
)
 
(43,934
)
Net accrued pension liability
 
$
(42,801
)
 
$
(46,395
)


The pretax amounts recognized in accumulated other comprehensive loss as of December 31, 2017 and 2016, are as follows:
Year ended December 31,
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Net actuarial loss
 
$
98,228

 
$
105,830

 
$
12,378

 
$
11,077

 
$
110,606

 
$
116,907

Prior service cost (credit)
 
1

 
237

 
(2,636
)
 
(2,704
)
 
(2,635
)
 
(2,467
)
Total cost
 
$
98,229

 
$
106,067

 
$
9,742

 
$
8,373

 
$
107,971

 
$
114,440



The pretax amounts in accumulated other comprehensive loss as of December 31, 2017, that are expected to be recognized as components of net periodic benefit cost during 2018 are as follows:
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
Net actuarial loss
 
$
6,546

 
$
605

 
$
7,151

Prior service cost (credit)
 
1

 
(195
)
 
(194
)
Total cost
 
$
6,547

 
$
410

 
$
6,957



Estimated contributions for 2018, as well as, contributions made in 2017 and 2016 to the pension plans are as follows:
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
Estimated contributions in 2018
 
$
131

 
$
2,148

 
$
2,279

Contributions made in 2017
 
$
499

 
$
2,651

 
$
3,150

Contributions made in 2016
 
$
259

 
$
3,276

 
$
3,535



It is difficult to estimate future cash contributions to the pension plans, as such amounts are a function of actual investment returns, withdrawals from the plans, changes in interest rates and other factors uncertain at this time. It is possible that greater cash contributions may be required in 2018 than the amounts in the above table. Although a decline in market conditions, changes in current pension law and uncertainties regarding significant assumptions used in the actuarial valuations may have a material impact in future required contributions to our pension plans, we currently do not expect funding requirements to have a material adverse impact on current or future liquidity.

Pension benefit payment amounts are anticipated to be paid from the plans (including the SERP) as follows:
Year
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
2018