Notes to Condensed Consolidated Financial Statements
(unaudited)
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1.
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Description of the Business
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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.
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2.
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Significant Accounting Policies
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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 nine month periods ended
September 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:
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Three months ended September 30,
|
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Nine months ended September 30,
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Stock-based compensation expense
|
|
$
|
671
|
|
|
$
|
782
|
|
|
$
|
2,127
|
|
|
$
|
2,930
|
|
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:
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Three months ended September 30, 2017
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Nine months ended September 30, 2017
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(dollars in thousands)
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Previously Reported
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Reclassification
|
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As Revised
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Previously Reported
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Reclassification
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|
As Revised
|
Cost of sales
|
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$
|
151,202
|
|
|
$
|
(806
|
)
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$
|
150,396
|
|
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$
|
452,041
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$
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(2,304
|
)
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$
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449,737
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Selling, general and administrative expenses
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29,082
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|
|
378
|
|
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29,460
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95,733
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1,142
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96,875
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Other income (expense)
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621
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(428
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)
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193
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(2,283
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)
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(1,162
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)
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(3,445
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)
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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 third quarter of 2018, the FASB approved 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 planned adoption method. We continue to evaluate the impact that 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 progressing through system implementation, updating of our internal controls and training. 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. At this time, we do not plan to adopt this optional ASU.
In August 2018, the FASB issued ASU 2018-14,
Compensation - Retirement Benefits - Defined Benefit Plans - General
(Subtopic 715-20):
Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
. This update modifies the annual disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 removes disclosures that are no longer deemed cost beneficial and adds the following disclosure requirements: 1) weighted-average interest crediting rates for cash balance plans; and 2) an explanation of the reasons for significant gains/losses related to changes in the benefit obligation during the period. The update also clarifies the requirements when entities aggregate disclosures for two or more plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, with early application permitted. The ASU provisions only impact annual disclosures and are to be applied on a retrospective basis to all periods presented. We are currently assessing the impact that this standard will have on our annual disclosures.
In August 2018, the FASB issued ASU 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software
(Subtopic 350-40):
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. This standard aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for internal-use software. The new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. ASU 2018-15 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.
The following table provides detail of selected balance sheet items:
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(dollars in thousands)
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September 30, 2018
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December 31, 2017
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Accounts receivable:
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Trade receivables
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$
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89,268
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$
|
88,786
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Other receivables
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1,814
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|
1,211
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Total accounts receivable, less allowances of $7,043 and $9,051
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$
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91,082
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$
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89,997
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Inventories:
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Finished goods
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$
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193,306
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$
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170,774
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Work in process
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1,215
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|
|
1,485
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Raw materials
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|
4,239
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|
|
3,906
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|
Repair parts
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10,430
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|
|
10,240
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|
Operating supplies
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1,401
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|
1,481
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|
Total inventories, less loss provisions of $9,312 and $10,308
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$
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210,591
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$
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187,886
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Accrued liabilities:
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Accrued incentives
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$
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24,463
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|
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$
|
19,728
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Other accrued liabilities
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27,105
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|
|
23,495
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Total accrued liabilities
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$
|
51,568
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$
|
43,223
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Borrowings consist of the following:
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(dollars in thousands)
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Interest Rate
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Maturity Date
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September 30,
2018
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|
December 31,
2017
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Borrowings under ABL Facility
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floating
|
(2)
|
December 7, 2022
(1)
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$
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31,974
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$
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—
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Term Loan B
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floating
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(3)
|
April 9, 2021
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381,300
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|
384,600
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AICEP Loan
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0.00%
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July 30, 2018
|
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—
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|
|
3,085
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Total borrowings
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413,274
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387,685
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Less — unamortized discount and finance fees
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2,622
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|
|
3,295
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Total borrowings — net
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|
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410,652
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|
384,390
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Less — long term debt due within one year
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|
|
4,400
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|
|
7,485
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Total long-term portion of borrowings — net
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$
|
406,252
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$
|
376,905
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________________________
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(1)
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Maturity date will be January 9, 2021, if Term Loan B is not refinanced by this date.
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(2)
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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
3.60 percent
at September 30, 2018.
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(3)
|
We have entered into interest rate swaps that effectively fix a series of our future interest payments on a portion of the Term Loan B debt. See interest rate swaps in
note 8
for additional details. The Term Loan B floating interest rate was
5.13 percent
at September 30, 2018.
|
At
September 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
September 30, 2018
,
$7.9 million
in letters of credit were outstanding. Remaining unused availability under the ABL Facility was
$59.6 million
at
September 30, 2018
, compared to
$91.9 million
at
December 31, 2017
.
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
314.3 percent
for the
nine months ended
September 30, 2018
, compared to
(2.0) percent
for the
nine months ended
September 30, 2017
. Our effective tax rate for the nine months ended September 30, 2018, which was above the United States statutory rate of 21 percent, was increased
195.1 percent
by the timing and mix of pretax income earned outside the United States, increased
30.9 percent
by the impact of foreign exchange, and increased
67.3 percent
by other items including foreign withholding tax and nondeductible expenses. Our effective tax rate for the nine months ended September 30, 2017, which was below the United States statutory rate of 35 percent, was reduced
40.2 percent
by the nondeductible goodwill impairment charge, increased
13.7 percent
by the timing and mix of pretax income earned outside the United States, decreased
5.3 percent
by the impact of foreign exchange, and decreased
5.2 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 nine months ended September 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 nine 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.
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6.
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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:
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Three months ended September 30,
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|
U.S. Plans
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|
Non-U.S. Plans
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|
Total
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
1,003
|
|
|
$
|
979
|
|
|
$
|
289
|
|
|
$
|
286
|
|
|
$
|
1,292
|
|
|
$
|
1,265
|
|
Interest cost
|
|
3,154
|
|
|
3,445
|
|
|
755
|
|
|
725
|
|
|
3,909
|
|
|
4,170
|
|
Expected return on plan assets
|
|
(5,665
|
)
|
|
(5,619
|
)
|
|
—
|
|
|
—
|
|
|
(5,665
|
)
|
|
(5,619
|
)
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
—
|
|
|
59
|
|
|
(51
|
)
|
|
(54
|
)
|
|
(51
|
)
|
|
5
|
|
Actuarial loss
|
|
1,618
|
|
|
1,308
|
|
|
158
|
|
|
156
|
|
|
1,776
|
|
|
1,464
|
|
Pension expense
|
|
$
|
110
|
|
|
$
|
172
|
|
|
$
|
1,151
|
|
|
$
|
1,113
|
|
|
$
|
1,261
|
|
|
$
|
1,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
3,007
|
|
|
$
|
2,937
|
|
|
$
|
865
|
|
|
$
|
814
|
|
|
$
|
3,872
|
|
|
$
|
3,751
|
|
Interest cost
|
|
9,461
|
|
|
10,337
|
|
|
2,259
|
|
|
2,063
|
|
|
11,720
|
|
|
12,400
|
|
Expected return on plan assets
|
|
(16,994
|
)
|
|
(16,859
|
)
|
|
—
|
|
|
—
|
|
|
(16,994
|
)
|
|
(16,859
|
)
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
1
|
|
|
177
|
|
|
(152
|
)
|
|
(153
|
)
|
|
(151
|
)
|
|
24
|
|
Actuarial loss
|
|
4,854
|
|
|
3,925
|
|
|
471
|
|
|
446
|
|
|
5,325
|
|
|
4,371
|
|
Pension expense
|
|
$
|
329
|
|
|
$
|
517
|
|
|
$
|
3,443
|
|
|
$
|
3,170
|
|
|
$
|
3,772
|
|
|
$
|
3,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have contributed
$0.9 million
and
$2.1 million
of cash to our pension plans for the
three months and nine months
ended
September 30, 2018
, respectively. Pension contributions for the remainder of
2018
are estimated to be
$1.3 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 September 30,
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
151
|
|
|
$
|
157
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
152
|
|
|
$
|
157
|
|
Interest cost
|
|
456
|
|
|
526
|
|
|
9
|
|
|
10
|
|
|
465
|
|
|
536
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (credit)
|
|
(71
|
)
|
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|
(50
|
)
|
Actuarial (gain)
|
|
(52
|
)
|
|
(65
|
)
|
|
(16
|
)
|
|
(13
|
)
|
|
(68
|
)
|
|
(78
|
)
|
Non-pension post-retirement benefit expense
|
|
$
|
484
|
|
|
$
|
568
|
|
|
$
|
(6
|
)
|
|
$
|
(3
|
)
|
|
$
|
478
|
|
|
$
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
453
|
|
|
$
|
473
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
454
|
|
|
$
|
474
|
|
Interest cost
|
|
1,367
|
|
|
1,578
|
|
|
29
|
|
|
32
|
|
|
1,396
|
|
|
1,610
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (credit)
|
|
(212
|
)
|
|
(151
|
)
|
|
—
|
|
|
—
|
|
|
(212
|
)
|
|
(151
|
)
|
Actuarial (gain)
|
|
(157
|
)
|
|
(194
|
)
|
|
(49
|
)
|
|
(39
|
)
|
|
(206
|
)
|
|
(233
|
)
|
Non-pension post-retirement benefit expense
|
|
$
|
1,451
|
|
|
$
|
1,706
|
|
|
$
|
(19
|
)
|
|
$
|
(6
|
)
|
|
$
|
1,432
|
|
|
$
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
2018
estimate of non-pension cash payments is
$4.3 million
, of which we have paid
$1.3 million
and
$3.2 million
for the
three months and nine months
ended
September 30, 2018
, respectively.
|
|
7.
|
Net Loss per Share of Common Stock
|
The following table sets forth the computation of basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(dollars in thousands, except earnings per share)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Numerator for earnings per share:
|
|
|
|
|
|
|
|
|
Net loss that is available to common shareholders
|
|
$
|
(4,959
|
)
|
|
$
|
(78,815
|
)
|
|
$
|
(3,932
|
)
|
|
$
|
(86,217
|
)
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
22,222,827
|
|
|
22,075,318
|
|
|
22,162,237
|
|
|
22,015,008
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
Effect of stock options and restricted stock units
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted weighted average shares and assumed conversions
|
|
22,222,827
|
|
|
22,075,318
|
|
|
22,162,237
|
|
|
22,015,008
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(0.22
|
)
|
|
$
|
(3.57
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(3.92
|
)
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.22
|
)
|
|
$
|
(3.57
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(3.92
|
)
|
|
|
|
|
|
|
|
|
|
Shares excluded from diluted loss per share due to:
|
|
|
|
|
|
|
|
Net loss position (excluded from denominator)
|
|
384,885
|
|
|
63,488
|
|
|
164,378
|
|
|
92,051
|
|
Inclusion would have been anti-dilutive (excluded from calculation)
|
|
563,903
|
|
|
893,198
|
|
|
669,496
|
|
|
780,062
|
|
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.
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. Our contracts with counterparties generally contain right of offset provisions. These provisions effectively reduce our exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is our policy to offset on the Condensed Consolidated Balance Sheets the amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement.
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 apply contractually specified component hedging to all of our natural gas hedges. This allows 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 swaps as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of
September 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
|
|
September 30, 2018
|
|
December 31, 2017
|
Cash flow hedges:
|
|
|
|
|
|
|
Interest rate swaps
|
|
Prepaid and other current assets
|
|
$
|
1,548
|
|
|
$
|
—
|
|
Interest rate swaps
|
|
Other assets
|
|
—
|
|
|
646
|
|
Natural gas contracts
|
|
Prepaid and other current assets
|
|
196
|
|
|
—
|
|
Total designated
|
|
1,744
|
|
|
646
|
|
Total derivative assets
|
|
$
|
1,744
|
|
|
$
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Liabilities
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Cash flow hedges:
|
|
|
|
|
|
|
Interest rate swaps
|
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
213
|
|
Interest rate swaps
|
|
Other long-term liabilities
|
|
412
|
|
|
—
|
|
Natural gas contracts
|
|
Derivative liability
|
|
—
|
|
|
220
|
|
Natural gas contracts
|
|
Other long-term liabilities
|
|
—
|
|
|
7
|
|
Total designated
|
|
412
|
|
|
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
|
|
$
|
412
|
|
|
$
|
716
|
|
The following table presents cash settlements (paid) received related to the below derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Natural gas contracts
|
|
$
|
48
|
|
|
$
|
(121
|
)
|
|
$
|
(186
|
)
|
|
$
|
177
|
|
Interest rate swaps
|
|
123
|
|
|
(384
|
)
|
|
(58
|
)
|
|
(1,494
|
)
|
Total
|
|
$
|
171
|
|
|
$
|
(505
|
)
|
|
$
|
(244
|
)
|
|
$
|
(1,317
|
)
|
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 September 30,
|
|
Nine months ended September 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
|
|
$
|
179
|
|
|
$
|
6
|
|
|
$
|
513
|
|
|
$
|
(703
|
)
|
Interest rate swaps
|
|
OCI
|
|
(998
|
)
|
|
87
|
|
|
735
|
|
|
(328
|
)
|
Total
|
|
$
|
(819
|
)
|
|
$
|
93
|
|
|
$
|
1,248
|
|
|
$
|
(1,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effective portion of derivative gain (loss) reclassified from accumulated OCI to current earnings:
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
Cost of Sales
|
|
$
|
48
|
|
|
$
|
(76
|
)
|
|
$
|
(186
|
)
|
|
$
|
81
|
|
Interest rate swaps
|
|
Interest expense
|
|
135
|
|
|
(358
|
)
|
|
32
|
|
|
(1,415
|
)
|
Total
|
|
$
|
183
|
|
|
$
|
(434
|
)
|
|
$
|
(154
|
)
|
|
$
|
(1,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in current earnings:
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
Other income (expense)
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(823
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
(823
|
)
|
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.
The following table presents the notional amount of our natural gas derivatives on the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
|
Derivative Types
|
|
Unit of Measure
|
|
September 30, 2018
|
|
December 31, 2017
|
Natural gas contracts
|
|
Millions of British Thermal Units (MMBTUs)
|
|
3,960,000
|
|
|
2,480,000
|
|
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
$0.2 million
of gain to our Condensed Consolidated Statements of Operations.
Interest Rate Swaps
The table below lists the interest rate swaps we executed as part of our risk management strategy to mitigate the risks associated with the fluctuating interest rates under our Term Loan B. The interest rate swaps effectively convert a portion of our Term Loan B debt from a variable interest rate to a fixed interest rate, thus reducing the impact of interest rate changes on future income.
|
|
|
|
|
|
|
|
|
|
|
|
Swap execution date
|
|
Effective date
|
|
Expiration date
|
|
Notional amount
|
|
Fixed swap rate
|
|
April 1, 2015
|
|
January 11, 2016
|
|
January 9, 2020
|
|
$220.0 million
|
|
4.85
|
%
|
|
September 24, 2018
|
|
January 9, 2020
|
|
January 9, 2025
|
|
$200.0 million
|
|
6.19
|
%
|
(1)
|
________________________
|
|
(1)
|
Upon refinancing our Term Loan B, the fixed interest rate will be
3.19 percent
plus the new refinanced credit spread.
|
Our interest rate swaps are 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 swaps qualify and are designated as cash flow hedges at
September 30, 2018
, and are 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
$1.5 million
in our Condensed Consolidated Statements of Operations.
|
|
9.
|
Accumulated Other Comprehensive Income (Loss)
|
Accumulated other comprehensive income (loss) (AOCI), net of tax, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
(dollars in thousands)
|
|
Foreign Currency Translation
|
|
Derivative Instruments
|
|
Pension and Other Post-retirement Benefits
|
|
Accumulated Other
Comprehensive Loss
|
Balance on June 30, 2018
|
|
$
|
(19,242
|
)
|
|
$
|
2,018
|
|
|
$
|
(85,706
|
)
|
|
$
|
(102,930
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
(2,707
|
)
|
|
(819
|
)
|
|
—
|
|
|
(3,526
|
)
|
Currency impact
|
|
—
|
|
|
—
|
|
|
(356
|
)
|
|
(356
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(183
|
)
|
(1)
|
1,586
|
|
(2)
|
1,403
|
|
Tax effect
|
|
—
|
|
|
268
|
|
|
(356
|
)
|
|
(88
|
)
|
Other comprehensive income (loss), net of tax
|
|
(2,707
|
)
|
|
(734
|
)
|
|
874
|
|
|
(2,567
|
)
|
Balance on September 30, 2018
|
|
$
|
(21,949
|
)
|
|
$
|
1,284
|
|
|
$
|
(84,832
|
)
|
|
$
|
(105,497
|
)
|
|
|
|
|
|
|
|
|
|
Nine months ended September 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
|
|
(5,766
|
)
|
|
1,248
|
|
|
1,527
|
|
|
(2,991
|
)
|
Currency impact
|
|
—
|
|
|
—
|
|
|
(316
|
)
|
|
(316
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
154
|
|
(1)
|
4,756
|
|
(2)
|
4,910
|
|
Tax effect
|
|
—
|
|
|
(194
|
)
|
|
(1,459
|
)
|
|
(1,653
|
)
|
Other comprehensive income (loss), net of tax
|
|
(5,766
|
)
|
|
1,208
|
|
|
4,508
|
|
|
(50
|
)
|
Balance on September 30, 2018
|
|
$
|
(21,949
|
)
|
|
$
|
1,284
|
|
|
$
|
(84,832
|
)
|
|
$
|
(105,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017
(dollars in thousands)
|
|
Foreign Currency Translation
|
|
Derivative Instruments
|
|
Pension and Other Post-retirement Benefits
|
|
Accumulated Other
Comprehensive Loss
|
Balance on June 30, 2017
|
|
$
|
(20,831
|
)
|
|
$
|
(913
|
)
|
|
$
|
(93,404
|
)
|
|
$
|
(115,148
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
3,477
|
|
|
93
|
|
|
—
|
|
|
3,570
|
|
Currency impact
|
|
—
|
|
|
—
|
|
|
110
|
|
|
110
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
434
|
|
(1)
|
1,341
|
|
(2)
|
1,775
|
|
Tax effect
|
|
(827
|
)
|
|
70
|
|
|
(29
|
)
|
|
(786
|
)
|
Other comprehensive income (loss), net of tax
|
|
2,650
|
|
|
597
|
|
|
1,422
|
|
|
4,669
|
|
Balance on September 30, 2017
|
|
$
|
(18,181
|
)
|
|
$
|
(316
|
)
|
|
$
|
(91,982
|
)
|
|
$
|
(110,479
|
)
|
|
|
|
|
|
|
|
|
|
Nine months ended September 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
|
|
10,474
|
|
|
(1,031
|
)
|
|
4,801
|
|
|
14,244
|
|
Currency impact
|
|
—
|
|
|
—
|
|
|
(628
|
)
|
|
(628
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
1,334
|
|
(1)
|
4,011
|
|
(2)
|
5,345
|
|
Tax effect
|
|
(827
|
)
|
|
(104
|
)
|
|
(3,312
|
)
|
|
(4,243
|
)
|
Other comprehensive income (loss), net of tax
|
|
9,647
|
|
|
199
|
|
|
4,872
|
|
|
14,718
|
|
Balance on September 30, 2017
|
|
$
|
(18,181
|
)
|
|
$
|
(316
|
)
|
|
$
|
(91,982
|
)
|
|
$
|
(110,479
|
)
|
___________________________
|
|
(1)
|
We reclassified natural gas contracts through cost of sales and the interest rate swaps 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.
|
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 September 30,
|
|
Nine months ended September 30,
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net Sales:
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
115,304
|
|
|
$
|
112,252
|
|
|
$
|
351,719
|
|
|
$
|
343,452
|
|
Latin America
|
|
35,406
|
|
|
35,339
|
|
|
110,029
|
|
|
102,564
|
|
EMEA
|
|
33,289
|
|
|
33,743
|
|
|
103,712
|
|
|
90,128
|
|
Other
|
|
6,776
|
|
|
6,005
|
|
|
20,762
|
|
|
21,703
|
|
Consolidated
|
|
$
|
190,775
|
|
|
$
|
187,339
|
|
|
$
|
586,222
|
|
|
$
|
557,847
|
|
|
|
|
|
|
|
|
|
|
Segment EBIT:
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
7,538
|
|
|
$
|
10,761
|
|
|
$
|
25,620
|
|
|
$
|
33,307
|
|
Latin America
|
|
1,727
|
|
|
3,721
|
|
|
11,310
|
|
|
2,549
|
|
EMEA
|
|
1,358
|
|
|
1,482
|
|
|
4,984
|
|
|
(1,412
|
)
|
Other
|
|
852
|
|
|
(1,529
|
)
|
|
383
|
|
|
(3,598
|
)
|
Total Segment EBIT
|
|
$
|
11,475
|
|
|
$
|
14,435
|
|
|
$
|
42,297
|
|
|
$
|
30,846
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Segment EBIT to Net Loss:
|
|
|
|
|
|
|
|
|
Segment EBIT
|
|
$
|
11,475
|
|
|
$
|
14,435
|
|
|
$
|
42,297
|
|
|
$
|
30,846
|
|
Retained corporate costs
|
|
(6,683
|
)
|
|
(5,701
|
)
|
|
(21,929
|
)
|
|
(18,087
|
)
|
Goodwill impairment (note 15)
|
|
—
|
|
|
(79,700
|
)
|
|
—
|
|
|
(79,700
|
)
|
Fees associated with strategic initiative
(1)
|
|
(2,341
|
)
|
|
—
|
|
|
(2,341
|
)
|
|
—
|
|
Reorganization charges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,488
|
)
|
Interest expense
|
|
(5,652
|
)
|
|
(5,118
|
)
|
|
(16,192
|
)
|
|
(15,123
|
)
|
Provision for income taxes
|
|
(1,758
|
)
|
|
(2,731
|
)
|
|
(5,767
|
)
|
|
(1,665
|
)
|
Net loss
|
|
$
|
(4,959
|
)
|
|
$
|
(78,815
|
)
|
|
$
|
(3,932
|
)
|
|
$
|
(86,217
|
)
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization:
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
3,850
|
|
|
$
|
2,850
|
|
|
$
|
10,289
|
|
|
$
|
9,016
|
|
Latin America
|
|
4,208
|
|
|
4,850
|
|
|
13,412
|
|
|
13,757
|
|
EMEA
|
|
1,835
|
|
|
1,816
|
|
|
5,784
|
|
|
5,508
|
|
Other
|
|
992
|
|
|
1,138
|
|
|
3,615
|
|
|
3,821
|
|
Corporate
|
|
385
|
|
|
579
|
|
|
1,289
|
|
|
1,514
|
|
Consolidated
|
|
$
|
11,270
|
|
|
$
|
11,233
|
|
|
$
|
34,389
|
|
|
$
|
33,616
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
6,101
|
|
|
$
|
2,751
|
|
|
$
|
18,830
|
|
|
$
|
7,145
|
|
Latin America
|
|
3,718
|
|
|
3,937
|
|
|
8,885
|
|
|
15,401
|
|
EMEA
|
|
1,619
|
|
|
5,050
|
|
|
4,362
|
|
|
15,446
|
|
Other
|
|
129
|
|
|
348
|
|
|
391
|
|
|
816
|
|
Corporate
|
|
2,207
|
|
|
6
|
|
|
2,655
|
|
|
332
|
|
Consolidated
|
|
$
|
13,774
|
|
|
$
|
12,092
|
|
|
$
|
35,123
|
|
|
$
|
39,140
|
|
_____________________
|
|
(1)
|
Legal and professional fees associated with a strategic initiative that we terminated during the third quarter.
|
Our primary source of revenue is the sale of glass tableware products manufactured within a Libbey facility as well as globally sourced tabletop products, including glassware, ceramicware, metalware and others. Our customer contracts generally include a single performance obligation, the shipment of specified products, and are recognized at a point in time when control of the product has transferred to the customer, which primarily takes place when risk of loss transfers in accordance with applicable shipping terms. Revenue is recognized based on the consideration specified in a contract with the customer, and is measured as the amount of consideration to which we expect to be entitled in exchange for transferring goods or providing services. When applicable, the transaction price includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. We estimate provisions for rebates, customer incentives, allowances, returns and discounts based on the terms of the contracts, historical experience and anticipated customer purchases during the rebate period. We continually evaluate the adequacy of these methods used, adjusting our estimates when the amount of consideration to which we expect to be entitled changes. Refund liabilities are included in accrued liabilities on the Condensed Consolidated Balance Sheet. Our payment terms are based on customary business practices and can vary by region and customer type, but are generally
0
-
90
days. Since the term between invoicing and expected payment is less than a year, we do not adjust the transaction price for the effects of a financing component. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate governmental agencies.
For the
three months and nine months
ended
September 30, 2018
, bad debt expense was immaterial. Additionally, adjustments related to revenue recognized in prior periods were not material for the
three months and nine months
ended
September 30, 2018
. There were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheet as of
September 30, 2018
. For contracts with a duration of less than one year, we follow an allowable practical expedient and expense contract acquisition costs when incurred. We do not have any costs to obtain or fulfill a contract that are capitalized under ASC Topic 606.
Disaggregation of Revenue:
The following table presents our net sales disaggregated by business channel:
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three months ended September 30, 2018
|
|
Nine months ended September 30, 2018
|
Foodservice
|
|
$
|
73,625
|
|
|
$
|
242,992
|
|
Retail
|
|
63,325
|
|
|
180,756
|
|
Business-to-business
|
|
53,825
|
|
|
162,474
|
|
Consolidated
|
|
$
|
190,775
|
|
|
$
|
586,222
|
|
Each operating segment has revenues across all our business channels. Each channel has a different marketing strategy, customer base and product composition. For both periods presented, over
75 percent
of each segment's revenue is derived from the following business channels: U.S. and Canada from foodservice and retail; Latin America from retail and business-to-business; and EMEA from business-to-business and retail.
Foodservice
The majority of our tabletop products sold in the foodservice channel are sold through a network of foodservice distributors. Our strong foodservice distributor network and in-house sales force provide broad coverage to a wide variety of foodservice establishments, including restaurants, bars, hotels and other travel and tourism venues. A high percentage of foodservice sales are replacements, driving a relatively predictable revenue stream.
Retail
Our primary customers in the retail channel include mass merchants, department stores, national retail chains, pure play e-commerce retailers or marketers, retail and wholesale distributors, value-oriented retailers, grocers and specialty housewares stores. We also operate outlet stores in the U.S., Mexico and Portugal.
Business-to-business
Our customers for products sold in the diverse business-to-business channel include beverage companies and custom decorators of glass tableware for promotional purposes and resale. In addition, sales of our products in this channel include products for
candle and floral applications, craft industries and gourmet food-packing companies. Our Latin America region also sells blender jars and various OEM products in this channel.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:
|
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities;
|
|
|
•
|
Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
•
|
Level 3 — Unobservable inputs based on our own assumptions.
|
The fair value of our derivative financial instruments by level is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Fair Value at
|
Asset / (Liability)
(dollars in thousands)
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity futures natural gas contracts
|
|
$
|
—
|
|
|
$
|
196
|
|
|
$
|
—
|
|
|
$
|
196
|
|
|
$
|
—
|
|
|
$
|
(503
|
)
|
|
$
|
—
|
|
|
$
|
(503
|
)
|
Interest rate swaps
|
|
—
|
|
|
1,136
|
|
|
—
|
|
|
1,136
|
|
|
—
|
|
|
433
|
|
|
—
|
|
|
433
|
|
Net derivative asset (liability)
|
|
$
|
—
|
|
|
$
|
1,332
|
|
|
$
|
—
|
|
|
$
|
1,332
|
|
|
$
|
—
|
|
|
$
|
(70
|
)
|
|
$
|
—
|
|
|
$
|
(70
|
)
|
The fair values of our commodity futures natural gas contracts are determined using observable market inputs. The fair value of our interest rate swaps are based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy. We also evaluate Company and counterparty risk in determining fair values. The commodity futures natural gas contracts and interest rate swaps are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the above table.
Financial instruments carried at cost on the Condensed Consolidated Balance Sheets, as well as the related fair values, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
(dollars in thousands)
|
|
Fair Value
Hierarchy Level
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Term Loan B
|
|
Level 2
|
|
$
|
381,300
|
|
|
$
|
380,823
|
|
|
$
|
384,600
|
|
|
$
|
370,178
|
|
The fair value of our Term Loan B has been calculated based on quoted market prices for the same or similar issues, and the fair value of our ABL Facility approximates carrying value due to variable rates. The fair value of our other immaterial debt approximates carrying value at
December 31, 2017
. The fair value of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to their short term nature.
|
|
13.
|
Other Income (Expense)
|
Items included in other income (expense) in the Condensed Consolidated Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended
September 30,
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Gain (loss) on currency transactions
|
|
$
|
(1,294
|
)
|
|
$
|
548
|
|
|
$
|
(282
|
)
|
|
$
|
(1,687
|
)
|
(Loss) on mark-to-market natural gas contracts
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(823
|
)
|
Pension and non-pension benefits, excluding service cost
|
|
(295
|
)
|
|
(428
|
)
|
|
(878
|
)
|
|
(1,162
|
)
|
Other non-operating income (expense)
|
|
136
|
|
|
77
|
|
|
180
|
|
|
227
|
|
Other income (expense)
|
|
$
|
(1,453
|
)
|
|
$
|
193
|
|
|
$
|
(980
|
)
|
|
$
|
(3,445
|
)
|
Legal Proceedings
From time to time we are identified as a "potentially responsible party" (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and/or similar state laws that impose liability without regard to fault for costs and damages relating to the investigation and clean-up of contamination resulting from releases or threatened releases of hazardous substances. We are also subject to similar laws in some of the countries where our facilities are located. Our environmental, health and safety department monitors compliance with applicable laws on a global basis.
On October 30, 2009, the United States Environmental Protection Agency ("U.S. EPA") designated Syracuse China Company ("Syracuse China"), our wholly-owned subsidiary, as
one
of
eight
PRPs with respect to the Lower Ley Creek sub-site of the Onondaga Lake Superfund site located near the ceramic dinnerware manufacturing facility that Syracuse China operated from 1995 to 2009 in Syracuse, New York. As a PRP, we may be required to pay a share of the costs of investigation and remediation of the Lower Ley Creek sub-site.
U.S. EPA has completed its Remedial Investigation (RI), Feasibility Study (FS), Risk Assessment (RA) and Proposed Remedial Action Plan (PRAP). U.S. EPA issued its Record of Decision (RoD) on September 30, 2014. The RoD indicates that U.S. EPA's estimate of the undiscounted cost of remediation ranges between approximately
$17.0 million
(assuming local disposal of contaminated sediments is feasible) and approximately
$24.8 million
(assuming local disposal is not feasible). However, the RoD acknowledges that the final cost of the cleanup will depend upon the actual volume of contaminated material, the degree to which it is contaminated, and where the excavated soil and sediment is properly disposed. In connection with the General Motors Corporation (“GM”) bankruptcy, U.S. EPA recovered
$22.0 million
from Motors Liquidation Company (MLC), the successor to GM. If the cleanup costs do not exceed the amount recovered by U.S. EPA from MLC, Syracuse China may suffer
no
loss. If and to the extent the cleanup costs exceed the amount recovered by U.S. EPA from MLC, it is not yet known whether other PRPs will be added to the current group of PRPs or how any excess costs may be allocated among the PRPs.
On March 3, 2015, the EPA issued to the PRPs notices and requests to negotiate performance of the remedial design (RD), work. The notices contemplate that any agreement to perform the RD work would be memorialized in an Administrative Order on Consent (AOC). On July 14, 2016, the PRPs entered into an AOC to perform the RD work. The EPA and PRPs anticipate that the RD work will produce additional information from which the feasibility of a local disposal option and the cleanup costs can be better determined. The EPA has declined to advance the GM Settlement Funds for the RD work, instead conditioning use of those funds to reimburse for the RD work upon the successful completion of the RD work and the finalization of an AOC to perform the remedial action work.
On October 26, 2018, Revitalizing Auto Communities Environmental Response Trust (“RACER Trust”) and RACER Properties LLC filed a complaint in the United States District Court for the Northern District of New York against our wholly-owned subsidiaries Syracuse China Company and Libbey Glass Inc. (collectively, “SCC”) and more than
30
other companies. RACER Properties LLC is the owner of a former GM manufacturing facility located in Onondaga County, New York, and the RACER Trust, established pursuant to a 2010 Environmental Response Trust Consent Decree and Settlement Agreement approved by the U.S. Bankruptcy Court (the "2010 Trust Consent Decree"), was created to clean up and reposition for development certain properties owned by the former GM. The complaint alleges that SCC and the other defendants are jointly and severally liable, along with the plaintiffs, for the remediation of polychlorinated biphenyls (“PCBs”) and certain other hazardous substances in soils and sediments in Upper Ley Creek between Town Line Road and the Route 11 Bridge in Onondaga County, New York (the “Upper Ley Creek sub-site”). The Upper Ley Creek sub-site is located immediately upstream of the Lower Ley Creek sub-site.
Pursuant to a 2015 Consent Order with the New York State Department of Environmental Conservation (“NYSDEC”), the RACER Trust committed to undertake certain remedial work with respect to the Upper Ley Creek sub-site utilizing funds set aside for this purpose by the Bankruptcy Court. According to the complaint, the NYSDEC has directed the RACER Trust to investigate a 22-acre area of land on the north side of Upper Ley Creek that is allegedly outside of the original geographic scope of the remedial work contemplated by the 2010 Trust Consent Decree. The complaint alleges that if additional remediation in that area becomes necessary, the remediation budget for the Upper Ley Creek sub-site could increase to as much as approximately
$93.5 million
.
If SCC is determined to be a PRP for the Upper Ley Creek sub-site, SCC may be required to pay a share of the costs of investigation and remediation of the Upper Ley Creek sub-site. SCC intends to defend this action vigorously and is currently evaluating its legal options. We cannot predict the ultimate outcome of this proceeding, and the amount that SCC may ultimately be required to pay is currently not reasonably estimable.
To the extent that Syracuse China has a liability with respect to the Lower Ley Creek sub-site, including without limitation costs to fund the RD work, or with respect to the Upper Ley Creek sub-site, and to the extent the liability arose prior to our 1995 acquisition of the Syracuse China assets, the liability would be subject to the indemnification provisions contained in the Asset Purchase Agreement between the Company and The Pfaltzgraff Co. (now known as TPC-York, Inc. ("TPC York")) and certain of its subsidiaries. Accordingly, Syracuse China has notified TPC York of its claims for indemnification under the Asset Purchase Agreement.
Although we cannot predict the ultimate outcome of these proceedings, we believe that these environmental proceedings will not have a material adverse impact on our financial condition, results of operations or liquidity.
Income Taxes
The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. Please refer to
note 5
, Income Taxes, for a detailed discussion on tax contingencies.
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 since 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. After the impairment charge at September 31, 2017, the remaining net goodwill balance was
$46.0 million
in our Mexico reporting unit.
There has been
no
goodwill impairment charge in 2018, and there were no goodwill impairment indicators that led to a conclusion that an impairment was more likely than not as of September 30, 2018.
For a complete discussion on how we measure each reporting unit's fair value, please refer to note 4, "Purchased Intangible Assets and Goodwill," in our 2017 Annual Report on Form 10-K.