LIBBEY INC, 10-Q filed on 8/1/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Jul. 26, 2018
Entity Information [Line Items]    
Entity Registrant Name LIBBEY INC  
Entity Central Index Key 0000902274  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Document Type 10-Q  
Document Period End Date Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   22,142,475
v3.10.0.1
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Net sales $ 213,534 $ 197,514 $ 395,447 $ 370,508
Freight billed to customers 938 747 1,695 1,423
Total revenues 214,472 198,261 397,142 371,931
Cost of sales 167,979 156,868 316,979 299,341
Gross profit 46,493 41,393 80,163 72,590
Selling, general and administrative expenses 33,537 34,083 65,060 67,415
Income from operations 12,956 7,310 15,103 5,175
Other income (expense) 2,580 (852) 473 (3,638)
Earnings before interest and income taxes 15,536 6,458 15,576 1,537
Interest expense 5,456 5,138 10,540 10,005
Income (loss) before income taxes 10,080 1,320 5,036 (8,468)
Provision (benefit) for income taxes 6,092 2,152 4,009 (1,066)
Net income (loss) $ 3,988 $ (832) $ 1,027 $ (7,402)
Net income (loss) per share:        
Basic $ 0.18 $ (0.04) $ 0.05 $ (0.34)
Diluted 0.18 (0.04) 0.05 (0.34)
Dividends declared per share $ 0 $ 0.1175 $ 0.1175 $ 0.235
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Net income (loss) $ 3,988 $ (832) $ 1,027 $ (7,402)
Other comprehensive income (loss):        
Pension and other post-retirement benefit adjustments, net of tax 2,879 2,994 3,634 3,450
Change in fair value of derivative instruments, net of tax 472 (563) 1,942 (398)
Foreign currency translation adjustments, net of tax (7,392) 5,589 (3,059) 6,997
Other comprehensive income (loss), net of tax (4,041) 8,020 2,517 10,049
Comprehensive income (loss) $ (53) $ 7,188 $ 3,544 $ 2,647
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Assets:    
Cash and cash equivalents $ 19,818 $ 24,696
Accounts receivable - net 100,948 89,997
Inventories - net 200,818 187,886
Prepaid and other current assets 18,406 12,550
Total current assets 339,990 315,129
Pension asset 3,638 2,939
Purchased intangible assets - net 13,967 14,565
Goodwill 84,412 84,412
Deferred income taxes 24,585 24,892
Other assets 10,398 9,627
Property, plant and equipment - net 264,206 265,675
Total assets 741,196 717,239
Liabilities and Shareholders' Equity:    
Accounts payable 80,686 78,346
Salaries and wages 23,515 27,409
Accrued liabilities 50,465 43,223
Accrued income taxes 3,976 1,862
Pension liability (current portion) 2,172 2,185
Non-pension post-retirement benefits (current portion) 4,178 4,185
Derivative liability 0 697
Long-term debt due within one year 6,085 7,485
Total current liabilities 171,077 165,392
Long-term debt 397,626 376,905
Pension liability 40,303 43,555
Non-pension post-retirement benefits 49,152 49,758
Deferred income taxes 1,802 1,850
Other long-term liabilities 12,114 12,885
Total liabilities 672,074 650,345
Contingencies (Note 14)
Shareholders' equity:    
Common stock, par value $.01 per share, 50,000,000 shares authorized, 22,132,408 shares issued in 2018 (22,018,010 shares issued in 2017) 221 220
Capital in excess of par value 334,289 333,011
Retained deficit (162,458) (161,165)
Accumulated other comprehensive loss (102,930) (105,172)
Total shareholders' equity 69,122 66,894
Total liabilities and shareholders' equity $ 741,196 $ 717,239
v3.10.0.1
Condensed Consolidated Balance Sheets Parenthetical - $ / shares
Jun. 30, 2018
Dec. 31, 2017
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 22,132,408 22,018,010
v3.10.0.1
Condensed Consolidated Statement of Shareholders' Equity Statement - USD ($)
$ in Thousands
Total
Common Stock
Capital in Excess of Par Value
Retained Deficit
Accumulated Other Comprehensive Loss
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cumulative-effect adjustment for the adoption of ASU 2017-12       $ 275 $ (275)
Balance, shares at Dec. 31, 2017   22,018,010      
Balance, value at Dec. 31, 2017 $ 66,894 $ 220 $ 333,011 (161,165) (105,172)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income 1,027     1,027  
Other comprehensive income 2,517       2,517
Stock compensation expense 1,401   1,401    
Dividends (2,595)     (2,595)  
Stock withheld for employee taxes (214)   (214)    
Stock issued, shares   114,398      
Stock issued, value 92 $ 1 91    
Balance, shares at Jun. 30, 2018   22,132,408      
Balance, value at Jun. 30, 2018 $ 69,122 $ 221 $ 334,289 $ (162,458) $ (102,930)
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Operating activities:    
Net income (loss) $ 1,027 $ (7,402)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 23,119 22,383
Loss on asset sales and disposals 232 54
Change in accounts receivable (11,477) (2,538)
Change in inventories (13,956) (7,182)
Change in accounts payable 919 (6,344)
Accrued interest and amortization of discounts and finance fees 449 713
Pension & non-pension post-retirement benefits, net 176 2,982
Accrued liabilities & prepaid expenses 1,215 9,442
Income taxes (1,698) (3,619)
Share-based compensation expense 1,456 2,148
Other operating activities (662) (728)
Net cash provided by operating activities 800 9,909
Investing activities:    
Additions to property, plant and equipment (21,349) (27,048)
Net cash used in investing activities (21,349) (27,048)
Financing activities:    
Borrowings on ABL credit facility 51,131 3,277
Repayments on ABL credit facility (28,631) (3,277)
Other repayments (1,383) (169)
Repayments on Term Loan B (2,200) (12,200)
Stock options exercised 0 466
Taxes paid on distribution of equity awards (214) (601)
Dividends (2,595) (5,169)
Other financing activities 0 888
Net cash provided by (used in) financing activities 16,108 (16,785)
Effect of exchange rate fluctuations on cash (437) 1,080
Decrease in cash (4,878) (32,844)
Cash & cash equivalents at beginning of period 24,696 61,011
Cash & cash equivalents at end of period 19,818 28,167
Supplemental disclosure of cash flow information:    
Cash paid during the period for interest 9,766 9,155
Cash paid during the period for income taxes $ 3,584 $ 2,011
v3.10.0.1
Description of the Business
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of the Business
Description of the Business

Libbey is a leading global manufacturer and marketer of glass tableware products. We produce glass tableware in five countries and sell to customers in over 100 countries. We design and market, under our Libbey®, Libbey Signature®, Master's Reserve®, Crisa®, Royal Leerdam®, World® Tableware, Syracuse® China and Crisal Glass® brand names (among others), an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware items for sale primarily in the foodservice, retail and business-to-business channels of distribution. Our sales force presents our tabletop products to the global marketplace in a coordinated fashion. We own and operate two glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in Mexico (Libbey Mexico), the Netherlands (Libbey Holland), Portugal (Libbey Portugal) and China (Libbey China). In addition, we import tabletop products from overseas in order to complement our line of manufactured items. The combination of manufacturing and procurement allows us to compete in the global tabletop market by offering an extensive product line at competitive prices.

Our website can be found at www.libbey.com. We make available, free of charge, at this website all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, as well as amendments to those reports. These reports are made available on our website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission and can also be found at www.sec.gov.

Our shares are traded on the NYSE American exchange under the ticker symbol LBY.
v3.10.0.1
Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Significant Accounting Policies
Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

The balance sheet at December 31, 2017, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The financial information included herein should be read in conjunction with our Consolidated Financial Statements in Item 8 of our Form 10-K for the year ended December 31, 2017.

Cost of Sales

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

Stock-Based Compensation Expense

Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
Stock-based compensation expense
 
$
1,166

 
$
1,316

 
$
1,456

 
$
2,148



Reclassifications

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

New Accounting Standards - Adopted

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

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

On January 1, 2018, we adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. ASU 2017-07 improves the presentation of net periodic pension and post-retirement benefit costs. We retrospectively adopted the presentation that the service cost
component of pension and post-retirement benefit costs be reported within income from operations. The other components of net benefit cost (interest costs, expected return on assets, amortization of prior service costs, settlement charges and other costs) have been reclassified from cost of sales and selling, general and administrative expenses to other income (expense). On a prospective basis, only the service cost component will be capitalized in inventory or property, plant and equipment, when applicable. The effect of the retrospective presentation change related to the net periodic pension and non-pension benefit costs (credits) on our Condensed Consolidated Statement of Operations was as follows:
 
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
(dollars in thousands)
 
Previously Reported
 
Reclassification
 
As Revised
 
Previously Reported
 
Reclassification
 
As Revised
Cost of sales
 
$
157,483

 
$
(615
)
 
$
156,868

 
$
300,839

 
$
(1,498
)
 
$
299,341

Selling, general and administrative expenses
 
33,676

 
407

 
34,083

 
66,651

 
764

 
67,415

Other income (expense)
 
(644
)
 
(208
)
 
(852
)
 
(2,904
)
 
(734
)
 
(3,638
)


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

New Accounting Standards - Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires a lessee to recognize on the balance sheet right-of-use assets and corresponding liabilities for leases with lease terms of more than 12 months. Leases will be classified as either finance or operating leases, with classification affecting the pattern of expense recognition in the income statement. The new guidance also clarifies the definition of a lease and disclosure requirements. ASU 2016-02 is effective for us in the first quarter of 2019. ASU 2016-02 requires lessees and lessors to apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach does not require any transition accounting for leases that expired before the earliest comparative period presented. In the first quarter of 2018, the FASB stated they plan to provide an optional transition method permitting an entity to apply the transition provisions of ASU 2016-02 at its adoption date instead of at the earliest comparative period presented in the financial statements. This would ease the transition burden and allow us to record a cumulative effect adjustment to retained earnings as of January 1, 2019, without restatement of the previously reported comparative periods. Therefore, this is our preferred adoption method if ultimately permitted by the FASB. We are currently evaluating the extent of the impact the new lease guidance will have on our financial statements and related disclosures, including the additional assets and liabilities that will be recognized on the balance sheet. To facilitate this, we are utilizing a comprehensive approach to review our lease portfolio, have selected a system for managing our leases, and are in the middle of system implementation and updating of our controls. See note 15, Operating Leases, in our 2017 Annual Report on Form 10-K for the year ended December 31, 2017, for our minimum lease commitments under non-cancellable operating leases.

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

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard allows an optional reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the stranded tax effects resulting from the Tax Cuts and Jobs Act will be eliminated, resulting in more useful information reported to financial statement users. ASU 2018-02 relates to only the reclassification of the income tax effects of the Tax Cuts and Jobs Act. The underlying guidance requiring that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early application permitted. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.
v3.10.0.1
Balance Sheet Details
6 Months Ended
Jun. 30, 2018
Balance Sheet Details [Abstract]  
Balance Sheet Details
Balance Sheet Details

The following table provides detail of selected balance sheet items:
(dollars in thousands)
 
June 30, 2018
 
December 31, 2017
Accounts receivable:
 
 
 
 
Trade receivables
 
$
99,080

 
$
88,786

Other receivables
 
1,868

 
1,211

Total accounts receivable, less allowances of $6,987 and $9,051
 
$
100,948

 
$
89,997

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
183,560

 
$
170,774

Work in process
 
1,441

 
1,485

Raw materials
 
3,994

 
3,906

Repair parts
 
10,404

 
10,240

Operating supplies
 
1,419

 
1,481

Total inventories, less loss provisions of $10,120 and $10,308
 
$
200,818

 
$
187,886

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
25,075

 
$
19,728

Other accrued liabilities
 
25,390

 
23,495

Total accrued liabilities
 
$
50,465

 
$
43,223

v3.10.0.1
Borrowings
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Borrowings
Borrowings

Borrowings consist of the following:
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
June 30,
2018
 
December 31,
2017
Borrowings under ABL Facility
 
floating
(2) 
December 7, 2022 (1)
 
$
22,500

 
$

Term Loan B
 
floating
(3) 
April 9, 2021
 
382,400

 
384,600

AICEP Loan
 
0.00%
 
July 30, 2018
 
1,685

 
3,085

Total borrowings
 
 
 
 
 
406,585

 
387,685

Less — unamortized discount and finance fees
 
 
2,874

 
3,295

Total borrowings — net
 
 
 
 
 
403,711

 
384,390

Less — long term debt due within one year
 
 
 
6,085

 
7,485

Total long-term portion of borrowings — net
 
 
$
397,626

 
$
376,905


________________________
(1) 
Maturity date will be January 9, 2021, if Term Loan B is not refinanced by this date.
(2) 
The interest rate for the ABL Facility is comprised of several different borrowings at various rates. The weighted average rate of all ABL Facility borrowings was 3.65 percent at June 30, 2018.
(3) 
We have entered into an interest rate swap that effectively fixes a series of our future interest payments on a portion of the Term Loan B debt. See interest rate swap in note 8 for additional details. The Term Loan B floating interest rate was 5.05 percent at June 30, 2018.
    
At June 30, 2018, the available borrowing base under the ABL Facility was offset by a $0.5 million rent reserve. The ABL Facility also provides for the issuance of up to $15.0 million of letters of credit that, when outstanding, are applied against the $100.0 million limit. At June 30, 2018, $9.1 million in letters of credit were outstanding. Remaining unused availability under the ABL Facility was $68.0 million at June 30, 2018, compared to $91.9 million at December 31, 2017.
v3.10.0.1
Income Taxes
6 Months Ended
Jun. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

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

Our effective tax rate was 79.6 percent for the six months ended June 30, 2018, compared to 12.6 percent for the six months ended June 30, 2017. Our effective tax rate for the six months ended June 30, 2018, which was above the United States statutory rate of 21 percent, was increased 33.6 percent by the timing and mix of pretax income earned outside the United States, increased 1.9 percent by the impact of foreign exchange, and increased 23.1 percent by other items including foreign withholding tax and nondeductible expenses. Our effective tax rate for the six months ended June 30, 2017, which was below the United States statutory rate of 35 percent, was reduced 67.7 percent by the timing and mix of pretax income earned outside the United States, increased 28.0 percent by the impact of foreign exchange, and increased 17.3 percent by other items including foreign withholding tax and nondeductible expenses.

The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. In August 2016, the Mexican tax authority (SAT) assessed one of our Mexican subsidiaries related to the audit of its 2010 tax year. The amount assessed was approximately 3 billion Mexican pesos, which was equivalent to approximately $157 million U.S. dollars as of the date of the assessment. The Company has filed an administrative appeal with SAT requesting that the assessment be fully nullified. We are awaiting the outcome of the appeal. Management, in consultation with external legal counsel, believes that if contested in the Mexican court system, it is more likely than not that the Company would prevail on all significant components of the assessment. Management intends to continue to vigorously contest all significant components of the assessment in the Mexican courts if they are not nullified at the administrative appeal level. We believe that our tax reserves related to uncertain tax positions are adequate at this time. There were no significant developments affecting this matter for the six months ended June 30, 2018.

The Tax Cuts and Jobs Act (the Act), enacted December 22, 2017, changed many aspects of the U.S. tax code. Our accounting for the Act is incomplete. As noted at year-end, however, we were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the deemed repatriation transition tax and the revaluation of our deferred taxes. We have not yet adopted an accounting policy regarding whether we will treat Global Intangible Low Taxed Income (GILTI) as a period cost or establish deferred taxes related thereto. We have not made any additional measurement-period adjustments related to these items during the first six months of the year. However, we are continuing to gather additional information to complete our accounting for these items and expect to complete our accounting within the prescribed measurement period.
v3.10.0.1
Pension and Non-pension Post-retirement Benefits
6 Months Ended
Jun. 30, 2018
Retirement Benefits [Abstract]  
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Post-retirement Benefits

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

The components of our net pension expense, including the SERP, are as follows:
Three months ended June 30,
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
1,025

 
$
883

 
$
284

 
$
277

 
$
1,309

 
$
1,160

Interest cost
 
3,142

 
3,442

 
741

 
701

 
3,883

 
4,143

Expected return on plan assets
 
(5,669
)
 
(5,623
)
 

 

 
(5,669
)
 
(5,623
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
 
1

 
59

 
(50
)
 
(52
)
 
(49
)
 
7

Actuarial loss
 
1,599

 
1,265

 
154

 
152

 
1,753

 
1,417

Pension expense
 
$
98

 
$
26

 
$
1,129

 
$
1,078

 
$
1,227

 
$
1,104

 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
2,004

 
$
1,958

 
$
576

 
$
528

 
$
2,580

 
$
2,486

Interest cost
 
6,307

 
6,892

 
1,504

 
1,338

 
7,811

 
8,230

Expected return on plan assets
 
(11,329
)
 
(11,240
)
 

 

 
(11,329
)
 
(11,240
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
 
1

 
118

 
(101
)
 
(99
)
 
(100
)
 
19

Actuarial loss
 
3,236

 
2,617

 
313

 
290

 
3,549

 
2,907

Pension expense
 
$
219

 
$
345

 
$
2,292

 
$
2,057

 
$
2,511

 
$
2,402

 
 
 
 
 
 
 
 
 
 
 
 
 


We have contributed $0.6 million and $1.2 million of cash into our pension plans for the three months and six months ended June 30, 2018, respectively. Pension contributions for the remainder of 2018 are estimated to be $1.1 million.

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

The provision for our non-pension, post-retirement, benefit expense consists of the following:
Three months ended June 30,
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
151

 
$
96

 
$

 
$

 
$
151

 
$
96

Interest cost
 
455

 
471

 
10

 
11

 
465

 
482

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
 
(70
)
 
(51
)
 

 

 
(70
)
 
(51
)
Actuarial loss / (gain)
 
(53
)
 
(154
)
 
(17
)
 
(13
)
 
(70
)
 
(167
)
Non-pension post-retirement benefit expense
 
$
483

 
$
362

 
$
(7
)
 
$
(2
)
 
$
476

 
$
360

 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
302

 
$
316

 
$

 
$

 
$
302

 
$
316

Interest cost
 
911

 
1,052

 
20

 
22

 
931

 
1,074

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
 
(141
)
 
(101
)
 

 

 
(141
)
 
(101
)
Actuarial loss / (gain)
 
(105
)
 
(129
)
 
(33
)
 
(26
)
 
(138
)
 
(155
)
Non-pension post-retirement benefit expense
 
$
967

 
$
1,138

 
$
(13
)
 
$
(4
)
 
$
954

 
$
1,134

 
 
 
 
 
 
 
 
 
 
 
 
 


Our 2018 estimate of non-pension cash payments is $4.3 million, of which we have paid $1.1 million and $1.9 million for the three months and six months ended June 30, 2018, respectively.
v3.10.0.1
Net Income (Loss) per Share of Common Stock
6 Months Ended
Jun. 30, 2018
Earnings Per Share [Abstract]  
Net Income (Loss) per Share of Common Stock
Net Income (Loss) per Share of Common Stock

The following table sets forth the computation of basic and diluted loss per share:
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands, except earnings per share)
 
2018
 
2017
 
2018
 
2017
Numerator for earnings per share:
 
 
 
 
 
 
 
 
Net income (loss) that is available to common shareholders
 
$
3,988

 
$
(832
)
 
$
1,027

 
$
(7,402
)
 
 
 
 
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
22,170,338

 
22,029,519

 
22,130,503

 
21,984,365

 
 
 
 
 
 
 
 
 
Denominator for diluted earnings per share:
 
 
 
 
 
 
 
 
Effect of stock options and restricted stock units
 
185,550

 

 
36,584

 

Adjusted weighted average shares and assumed conversions
 
22,355,888

 
22,029,519

 
22,167,087

 
21,984,365

 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
$
0.18

 
$
(0.04
)
 
$
0.05

 
$
(0.34
)
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
 
$
0.18

 
$
(0.04
)
 
$
0.05

 
$
(0.34
)
 
 
 
 
 
 
 
 
 
Shares excluded from diluted earnings (loss) per share due to:
 
 
 
 
 
 
 
Net loss position (excluded from denominator)
 

 
60,141

 

 
111,791

Inclusion would have been anti-dilutive (excluded from calculation)
 
752,375

 
924,652

 
982,386

 
744,317



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

v3.10.0.1
Derivatives
6 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
Derivatives
We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt and commodity price risks associated with forecasted future natural gas requirements. These derivatives, except for the natural gas contracts used in our Mexican manufacturing facilities prior to 2018, qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings.

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

We do not believe we are exposed to more than a nominal amount of credit risk in our natural gas hedges and interest rate swap as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of June 30, 2018, by Standard and Poor’s.
Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented:
(dollars in thousands)
 
 
 
Fair Value of Derivative Assets
 
Balance Sheet Location
 
June 30, 2018
 
December 31, 2017
Cash flow hedges:
 
 
 
 
 
 
Interest rate swap
 
Prepaid and other current assets
 
$
1,098

 
$

Interest rate swap
 
Other assets
 
1,171

 
646

Natural gas contracts
 
Prepaid and other current assets
 
90

 

Total designated
 
2,359

 
646

Total derivative assets
 
$
2,359

 
$
646

 
 
 
 
 
 
 
 
 
 
 
Fair Value of Derivative Liabilities
 
 
 
 
June 30, 2018
 
December 31, 2017
Cash flow hedges:
 
 
 
 
 
 
Interest rate swap
 
Derivative liability
 
$

 
$
213

Natural gas contracts
 
Derivative liability
 

 
220

Natural gas contracts
 
Other long-term liabilities
 
25

 
7

Total designated
 
25

 
440

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

 
264

Natural gas contracts
 
Other long-term liabilities
 

 
12

Total undesignated
 
 
 

 
276

Total derivative liabilities
 
$
25

 
$
716


The following table presents the notional amount of derivatives on the Condensed Consolidated Balance Sheets:
 
 
 
 
Notional Amounts
Derivative Types
 
Unit of Measure
 
June 30, 2018
 
December 31, 2017
Natural gas contracts
 
Millions of British Thermal Units (MMBTUs)
 
2,740,000

 
2,480,000

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

 
$
220,000



The following table presents cash settlements (paid) received related to the below derivatives:
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
Natural gas contracts
 
$
(36
)
 
$
182

 
$
(234
)
 
$
298

Interest rate swap
 
(3
)
 
(510
)
 
(181
)
 
(1,110
)
Total
 
$
(39
)
 
$
(328
)
 
$
(415
)
 
$
(812
)


The following table provides a summary of the impacts of derivative gain (loss) on the Consolidated Statements of Operations and other comprehensive income (OCI):
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
Location
 
2018
 
2017
 
2018
 
2017
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Effective portion of derivative gain (loss) recognized into OCI:
 
 
 
 
 
 
 
 
Natural gas contracts
 
OCI
 
$
123

 
$
(239
)
 
$
334

 
$
(709
)
Interest rate swap
 
OCI
 
480

 
(619
)
 
1,733

 
(415
)
Total
 
$
603

 
$
(858
)
 
$
2,067

 
$
(1,124
)
 
 
 
 
 
 
 
 
 
 
 
Effective portion of derivative gain (loss) reclassified from accumulated OCI to current earnings:
 
 
 
 
 
 
 
 
Natural gas contracts
 
Cost of Sales
 
$
(36
)
 
$
90

 
$
(234
)
 
$
157

Interest rate swap
 
Interest expense
 
40

 
(472
)
 
(103
)
 
(1,057
)
Total
 
$
4

 
$
(382
)
 
$
(337
)
 
$
(900
)
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Gain (loss) recognized in current earnings:
 
 
 
 
 
 
 
 
Natural gas contracts
 
Other income (expense)
 
$

 
$
(236
)
 
$

 
$
(819
)
Total
 
$

 
$
(236
)
 
$

 
$
(819
)


Natural Gas Contracts

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

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

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

Interest Rate 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 June 30, 2018, and is accounted for under FASB ASC 815, "Derivatives and Hedging." Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses are recorded to earnings immediately. Changes in the fair value of these hedges are recorded in other comprehensive income (loss). Based on our current valuation, we estimate that accumulated gains currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in a reduction to interest expense of $1.1 million in our Condensed Consolidated Statements of Operations.
v3.10.0.1
Accumulated Other Comprehensive Income (Loss)
6 Months Ended
Jun. 30, 2018
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]  
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (AOCI), net of tax, is as follows:
Three months ended June 30, 2018
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on March 31, 2018
 
$
(11,850
)
 
$
1,546

 
$
(88,585
)
 
$
(98,889
)
 
 
 
 
 
 
 
 
 
Amounts recognized into AOCI
 
(7,392
)
 
603

 
1,527

 
(5,262
)
Currency impact
 

 

 
524

 
524

Amounts reclassified from AOCI
 

 
(4
)
(1) 
1,564

(2) 
1,560

Tax effect
 

 
(127
)
 
(736
)
 
(863
)
Other comprehensive income (loss), net of tax
 
(7,392
)

472


2,879


(4,041
)
Balance on June 30, 2018
 
$
(19,242
)
 
$
2,018

 
$
(85,706
)
 
$
(102,930
)
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2018
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2017
 
$
(16,183
)
 
$
351

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

 
(275
)
 

 
(275
)
 
 
 
 
 
 
 
 
 
Amounts recognized into AOCI
 
(3,059
)
 
2,067

 
1,527

 
535

Currency impact
 

 

 
40

 
40

   Amounts reclassified from AOCI
 

 
337

(1) 
3,170

(2) 
3,507

Tax effect
 

 
(462
)
 
(1,103
)
 
(1,565
)
Other comprehensive income (loss), net of tax
 
(3,059
)
 
1,942

 
3,634

 
2,517

Balance on June 30, 2018
 
$
(19,242
)
 
$
2,018

 
$
(85,706
)
 
$
(102,930
)

Three months ended June 30, 2017
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on March 31, 2017
 
$
(26,420
)
 
$
(350
)
 
$
(96,398
)
 
$
(123,168
)
 
 
 
 
 
 
 
 
 
Amounts recognized into AOCI
 
5,589

 
(858
)
 
4,801

 
9,532

Currency impact
 

 

 
(258
)
 
(258
)
Amounts reclassified from AOCI
 

 
382

(1) 
1,206

(2) 
1,588

Tax effect
 

 
(87
)
 
(2,755
)
 
(2,842
)
Other comprehensive income (loss), net of tax
 
5,589


(563
)

2,994


8,020

Balance on June 30, 2017
 
$
(20,831
)
 
$
(913
)
 
$
(93,404
)
 
$
(115,148
)
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Post-retirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2016
 
$
(27,828
)
 
$
(515
)
 
$
(96,854
)
 
$
(125,197
)
 
 
 
 
 
 
 
 
 
Amounts recognized into AOCI
 
6,997

 
(1,124
)
 
4,801

 
10,674

Currency impact
 

 

 
(738
)
 
(738
)
   Amounts reclassified from AOCI
 

 
900

(1) 
2,670

(2) 
3,570

Tax effect
 

 
(174
)
 
(3,283
)
 
(3,457
)
Other comprehensive income (loss), net of tax
 
6,997

 
(398
)
 
3,450

 
10,049

Balance on June 30, 2017
 
$
(20,831
)
 
$
(913
)
 
$
(93,404
)
 
$
(115,148
)
___________________________
(1) 
We reclassified natural gas contracts through cost of sales and the interest rate swap through interest expense on the Condensed Consolidated Statements of Operations. See note 8 for additional information.
(2) 
We reclassified the net pension and non-pension post-retirement benefits amortization and settlement charges through other income (expense) on the Condensed Consolidated Statements of Operations. See note 6 for additional information.
v3.10.0.1
Segments
6 Months Ended
Jun. 30, 2018
Segment Reporting [Abstract]  
Segments
Segments

Our reporting segments align with our regionally focused organizational structure, which we believe enables us to better serve customers across the globe. Under this structure, we report financial results for U.S. and Canada; Latin America; Europe, the Middle East and Africa (EMEA); and Other. Segment results are based primarily on the geographical destination of the sale. Our three reportable segments are defined below. Our operating segment that does not meet the criteria to be a reportable segment is disclosed as Other.

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

Latin America—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Latin America, as well as glass products for OEMs regardless of end–market destination.

EMEA—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Europe, the Middle East and Africa.

Other—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Asia Pacific.

Our measure of profit for our reportable segments is Segment Earnings before Interest and Taxes (Segment EBIT) and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs and other allocations that are not considered by management when evaluating performance. Segment EBIT also includes an allocation of manufacturing costs for inventory produced at a Libbey facility that is located in a region other than the end market in which the inventory is sold. This allocation can fluctuate from year to year based on the relative demands for products produced in regions other than the end markets in which they are sold. We use Segment EBIT, along with net sales and selected cash flow information, to evaluate performance and to allocate resources. Segment EBIT for reportable segments includes an allocation of some corporate expenses based on the costs of services performed.

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

The accounting policies of the reportable segments are the same as those described in note 2. We do not have any customers who represent 10 percent or more of total sales. Inter-segment sales are consummated at arm’s length and are reflected at end-market reporting below.
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
2018
 
2017
 
2018
 
2017
Net Sales:
 
 
 
 
 
 
 
 
U.S. & Canada
 
$
128,474

 
$
121,871

 
$
236,415

 
$
231,200

Latin America
 
40,290

 
36,503

 
74,623

 
67,225

EMEA
 
38,175

 
31,054

 
70,423

 
56,385

Other
 
6,595

 
8,086

 
13,986

 
15,698

Consolidated
 
$
213,534

 
$
197,514

 
$
395,447

 
$
370,508

 
 
 
 
 
 
 
 
 
Segment EBIT:
 
 
 
 
 
 
 
 
U.S. & Canada
 
$
13,358

 
$
15,045

 
$
18,082

 
$
22,546

Latin America
 
7,433

 
1,907

 
9,583

 
(1,172
)
EMEA
 
2,621

 
(2,057
)
 
3,626

 
(2,894
)
Other
 
660

 
(854
)
 
(469
)
 
(2,069
)
Total Segment EBIT
 
$
24,072

 
$
14,041

 
$
30,822

 
$
16,411

 
 
 
 
 
 
 
 
 
Reconciliation of Segment EBIT to Net Income (Loss):
 
 
 
 
 
 
 
 
Segment EBIT
 
$
24,072

 
$
14,041

 
$
30,822

 
$
16,411

Retained corporate costs
 
(8,536
)
 
(5,095
)
 
(15,246
)
 
(12,386
)
Reorganization charges
 

 
(2,488
)
 

 
(2,488
)
Interest expense