Notes to Consolidated Financial Statements
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1.
|
Description of the Business
|
Libbey is a leading global manufacturer and marketer of glass tableware products. We produce glass tableware in
five
countries and sell to customers in over
100
countries. We design and market, under our Libbey
®
, Libbey Signature
®
, Master's Reserve
®
, Crisa
®
, Royal Leerdam
®
, World
®
Tableware, Syracuse
®
China and Crisal Glass
®
brand names (among others), an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware items for sale primarily in the foodservice, retail and business-to-business markets. Our sales force presents our tabletop products to the global marketplace in a coordinated fashion. We own and operate
two
glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in Mexico (Libbey Mexico), the Netherlands (Libbey Holland), Portugal (Libbey Portugal) and China (Libbey China). In addition, we import tabletop products from overseas in order to complement our line of manufactured items. The combination of manufacturing and procurement allows us to compete in the global tabletop market by offering an extensive product line at competitive prices.
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2.
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Significant Accounting Policies
|
Basis of Presentation
The Consolidated Financial Statements include Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December 31
st
. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with United States generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.
Revenue Recognition
Revenue is recognized when products are shipped and title and risk of loss have passed to the customer. Revenue is recorded net of returns, discounts and incentives offered to customers. We estimate returns, discounts and incentives at the time of sale based on the terms of the agreements, historical experience and forecasted sales. We continually evaluate the adequacy of these methods used to estimate returns, discounts and incentives. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate governmental agencies.
Cost of Sales
Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original or remaining maturity of less than three months at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.
Accounts Receivable and Allowance for Doubtful Accounts
We record trade receivables when revenue is recorded in accordance with our revenue recognition policy and relieve accounts receivable when payments are received from customers. The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment as to the probability of collecting accounts and our evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance. Generally, we do not require collateral on our accounts receivable.
Inventory Valuation
Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method is used for our U.S. glass inventories, which represented
32.2 percent
and
29.1 percent
of our total inventories in
2017
and
2016
, respectively. The remaining inventories are valued using either the first-in, first-out (FIFO) or average cost method. For those inventories valued on the LIFO method, the excess of FIFO cost over LIFO, was
$13.4 million
and
$12.9 million
in
2017
and
2016
, respectively. Cost includes the cost of materials, direct labor, in-bound freight and the applicable share of manufacturing overhead.
Purchased Intangible Assets and Goodwill
Financial Accounting Standards Board Accounting Standards Codification™ ("FASB ASC") Topic 350 - "Intangibles-Goodwill and other" ("FASB ASC 350") requires goodwill and purchased indefinite life intangible assets to be reviewed for impairment annually, or more frequently if impairment indicators arise. Intangible assets with lives restricted by contractual, legal or other means will continue to be amortized over their useful lives. As of
October 1
st
of each year, we update our separate impairment evaluations for both goodwill and indefinite life intangible assets. For further disclosure on goodwill and intangibles, see
note 4
.
Software
We account for software in accordance with FASB ASC 350. Software represents the costs of internally developed and/or purchased software for internal use. Capitalized costs include software packages, installation and internal labor costs of employees devoted to the software development project. Costs incurred to modify existing software, providing significant enhancements and creating additional functionality are also capitalized. Once a project is complete, we estimate the useful life of the internal-use software, generally amortizing these costs over a
five
-year period.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally
3
to
14
years for equipment and furnishings and
10
to
40
years for buildings and improvements. Maintenance and repairs are expensed as incurred.
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss for long-lived assets that we expect to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. See
note 5
for further disclosure.
Self-Insurance Reserves
Self-insurance reserves reflect the estimated liability for group health and workers' compensation claims not covered by third-party insurance. We accrue estimated losses based on actuarial models and assumptions as well as our historical loss experience. Workers' compensation accruals are recorded at the estimated ultimate payout amounts based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses based on actuarial models.
Pension and Non-pension Post-retirement Benefits
We account for pension and non-pension post-retirement benefits in accordance with FASB ASC Topic 715 - "Compensation-Retirement Benefits" ("FASB ASC 715"). FASB ASC 715 requires recognition of the over-funded or under-funded status of pension and other post-retirement benefit plans on the balance sheet. Under FASB ASC 715, gains and losses, prior service costs and credits and any remaining prior transaction amounts that have not yet been recognized through net periodic benefit cost are recognized in accumulated other comprehensive loss, net of tax effect where appropriate.
The U.S. pension plans cover most hourly U.S.-based employees (excluding new hires at Shreveport after December 15, 2008 and at Toledo after September 30, 2010) and those salaried U.S.-based employees hired before January 1, 2006. Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly-owned subsidiaries in Mexico and the Netherlands (until December 2015). In December 2015, we unwound direct ownership of our defined benefit pension plan in the Netherlands. For further discussion see
note 8
.
We also provide certain post-retirement healthcare and life insurance benefits covering substantially all U.S. and Canadian salaried employees hired before January 1, 2004 and a majority of our union hourly employees (excluding employees hired at Shreveport after December 15, 2008 and at Toledo after September 30, 2010). Employees are generally eligible for benefits upon reaching a certain age and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. Under a cross-indemnity agreement, Owens-Illinois, Inc. assumed liability for the non-pension post-retirement benefit of our retirees who had retired as of June 24, 1993. Therefore, the benefits related to these retirees are not included in our liability. For further discussion see
note 9
.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax attribute carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. FASB ASC Topic 740, “Income Taxes,” requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are determined separately for each tax paying component in which we conduct our operations or otherwise incur taxable income or losses. For further discussion see
note 7
.
Derivatives
We account for derivatives in accordance with FASB ASC Topic 815 "Derivatives and Hedging" ("FASB ASC 815"). We hold derivative financial instruments to hedge certain of our interest rate risks associated with long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with occasional transactions denominated in a currency other than the U.S. dollar. These derivatives (except for the foreign
currency contracts and natural gas hedges in Mexico) qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in earnings. Cash flows from hedges of debt, short-term forward exchange contracts, currency swaps, interest rate swaps and natural gas contracts are classified as operating activities. See additional discussion at
note 12
.
Environmental
In accordance with U.S. GAAP accounting standards, we recognize environmental clean-up liabilities on an undiscounted basis when loss is probable and can be reasonably estimated. The cost of the clean-up is estimated by financial and legal specialists based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required, and the likelihood that, where applicable, other potentially responsible parties will not be able to fulfill their commitments at the sites where the Company may be jointly and severally liable.
Foreign Currency Translation
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Income and expense accounts are translated at average exchange rates during the year. The effect of exchange rate changes on transactions denominated in currencies other than the functional currency is recorded in other income (expense). For further detail see
note 16
.
Stock-Based Compensation Expense
We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” ("FASB ASC 718") and FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees”("FASB ASC 505-50"). Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards.
Treasury Stock
Treasury Stock purchases are recorded at cost. During 2017 we did not purchase treasury stock. During 2016 and 2015, we purchased
111,292
and
412,473
shares of treasury stock at an average price of
$17.97
and
$37.03
, respectively. At December 31, 2017, we had
941,250
shares of common stock available for repurchase, as authorized by our Board of Directors.
Research and Development
Research and development costs are charged to selling, general and administrative expense in the Consolidated Statements of Operations when incurred. Expenses for
2017
,
2016
and
2015
, respectively, were
$3.0 million
,
$4.3 million
and
$6.1 million
.
Advertising Costs
We expense all advertising costs as incurred. The expenses for
2017
,
2016
and
2015
, respectively, were
$5.3 million
,
$5.7 million
and
$10.7 million
.
Computation of Income (Loss) Per Share of Common Stock
Basic net income (loss) per share of common stock is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share of common stock is computed using the weighted average number of shares of common stock outstanding and dilutive potential common share equivalents during the period.
Reclassifications
Certain amounts in prior years' financial statements have been reclassified to conform to the presentation used in the year ended December 31,
2017
, including the following:
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•
|
On the Consolidated Statements of Cash Flows, certain activity was reclassified between operating and financing activities pursuant to adoption of Accounting Standards Update No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," effective January 1, 2017.
|
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•
|
In
note 18
Segments, net sales and related costs for certain countries were reclassified between segments to align with changes in business unit responsibilities effective January 1, 2017.
|
|
|
•
|
In
note 18
Segments, the derivative amount included in the Reconciliation of Segment EBIT to Net Income in the prior year financial statements has been included in Segment EBIT to conform to the current year presentation.
|
New Accounting Standards - Adopted
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." Areas for simplification in this update involve several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. We adopted the new guidance on January 1, 2017, requiring us to recognize all excess tax benefits and tax deficiencies related to stock compensation as income tax expense or benefit in the income statement. Excess tax benefits will be recognized regardless of whether the benefit reduces taxes payable in the current period, subject to normal valuation allowance considerations. Previous guidance resulted in credits to equity for such tax benefits and delayed recognition until the tax benefits reduced income taxes payable. This provision in the standard was applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the year of adoption. As of January 1, 2017, we recorded a
$2.3 million
reduction to our retained deficit and an increase in deferred income tax assets. In addition, on the modified retrospective basis, we have elected to discontinue estimating forfeitures expected to occur when determining the amount of compensation expense to be recognized in each period, resulting in an immaterial impact to our retained deficit and capital in excess of par. We do not anticipate this change will have a material impact on our future results of operations. The presentation requirements for cash flows under the new standard were adopted on a retrospective basis, resulting in a reclassification on the Consolidated Statements of Cash Flows that increased cash provided by operating activities and increased cash used in financing activities for the years ended December 31, 2016 and 2015.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the goodwill impairment testing by eliminating Step 2 from the goodwill impairment testing that is required should an impairment be discovered during its annual or interim assessment. ASU 2017-04 is effective for annual or interim impairment tests beginning after December 15, 2019, with early adoption permitted. We adopted this standard early in conjunction with our assessment performed at September 30, 2017; this is considered a change in accounting principle. This standard decreases the cost and complexity in applying current GAAP without significantly changing the usefulness of the information provided to users of our Consolidated Financial Statements.
New Accounting Standards - Not Yet Adopted
Each change to U.S. GAAP is established by the Financial Accounting Standards Board (FASB) in the form of an accounting standards update (ASU) to the FASB’s Accounting Standards Codification (ASC). We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and either were determined to be not applicable or are expected to have minimal impact on the Company’s Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue From Contracts With Customers", as amended by ASU's 2015-14, 2016-08, 2016-10, 2016-11, 2016-12, 2016-20 and 2017-05, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. This update is effective for interim and annual reporting periods beginning after December 15, 2017. We plan to adopt this standard in the first quarter of 2018 using the modified retrospective method, whereby the cumulative effect of applying the standard is recognized at the date of initial application. We have completed our evaluation of significant contracts and the review of our current accounting policies and practices to identify potential differences that would result from applying the requirements of ASU 2014-09 to our revenue contracts. In addition, we have identified and implemented, appropriate changes to business processes, systems and controls to support recognition and disclosure under the new standard. While we are still assessing the enhanced disclosure requirements of the new guidance, we have determined that we will further disaggregate our revenue, presenting revenue by business channel. Based on the foregoing, we do not expect the adoption of ASU 2014-09 to have a material impact on the amount and timing of revenue recognized in our Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires a lessee to recognize on the balance sheet, assets and liabilities for leases with lease terms of more than 12 months. Leases will be classified as either finance or operating leases, with classification affecting the pattern of expense recognition in the income statement. The new guidance also clarifies the definition of a lease and disclosure requirements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early application permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach does not require any transition accounting for leases that expired before the earliest comparative period presented. We are currently evaluating the impact of this guidance on our financial statements and related disclosures, including the increase in the assets and liabilities on our balance sheet. To facilitate this, we are utilizing a comprehensive approach to review our lease portfolio, have selected a system for managing our leases, and will perform the
system implementation and update our controls accordingly in 2018. See
note 15
, Operating Leases, for our minimum lease commitments under non-cancellable operating leases.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This standard introduces a new approach to estimating credit losses on certain types of financial instruments, including trade receivables, and modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early application permitted. We are currently assessing the impact that this standard will have on our Consolidated Financial Statements.
In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost." ASU 2017-07 requires that only the service cost component of pension and post-retirement benefit costs be reported within income from operations. The other components of net benefit cost are required to be presented in the income statement outside of income from operations, if presented. In addition, this ASU allows only the service cost component to be eligible for capitalization when applicable. ASU 2017-07 is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. Presentation on the Consolidated Statements of Operations will be retrospective and any impact to capitalized costs will be prospectively adopted. We will adopt this standard in the first quarter of 2018 and expect the impact to be reclassifications of applicable costs and credits from income from operations to other income (expense).
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 amends the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, and eases certain hedge effectiveness assessment requirements. ASU 2017-12 is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption.
The following table provides detail of selected balance sheet items:
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|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Accounts receivable:
|
|
|
|
|
Trade receivables
|
|
$
|
88,786
|
|
|
$
|
82,851
|
|
Other receivables
|
|
1,211
|
|
|
2,262
|
|
Total accounts receivable, less allowances of $9,051 and $7,832
|
|
$
|
89,997
|
|
|
$
|
85,113
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
Finished goods
|
|
$
|
170,774
|
|
|
$
|
152,261
|
|
Work in process
|
|
1,485
|
|
|
1,625
|
|
Raw materials
|
|
3,906
|
|
|
4,432
|
|
Repair parts
|
|
10,240
|
|
|
10,558
|
|
Operating supplies
|
|
1,481
|
|
|
1,133
|
|
Total inventories, less loss provisions of $10,308 and $9,484
|
|
$
|
187,886
|
|
|
$
|
170,009
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
Accrued incentives
|
|
$
|
19,728
|
|
|
$
|
19,771
|
|
Other accrued liabilities
|
|
23,495
|
|
|
22,036
|
|
Total accrued liabilities
|
|
$
|
43,223
|
|
|
$
|
41,807
|
|
|
|
|
|
|
The increase in finished goods inventory is due to higher inventory levels to fulfill customer orders, including maintaining an appropriate safety stock of items we source primarily from the Asia Pacific region and that, as a result, require longer lead times, and currency impacts (primarily the peso and euro).
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4.
|
Purchased Intangible Assets and Goodwill
|
Purchased Intangibles
Changes in purchased intangibles balances are as follows:
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2017
|
|
2016
|
Beginning balance
|
|
$
|
15,225
|
|
|
$
|
16,364
|
|
Amortization
|
|
(1,073
|
)
|
|
(1,039
|
)
|
Foreign currency impact
|
|
413
|
|
|
(100
|
)
|
Ending balance
|
|
$
|
14,565
|
|
|
$
|
15,225
|
|
Purchased intangible assets are composed of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Indefinite life intangible assets
|
|
$
|
12,120
|
|
|
$
|
11,888
|
|
Definite life intangible assets, net of accumulated amortization of $19,093 and $17,706
|
|
2,445
|
|
|
3,337
|
|
Total
|
|
$
|
14,565
|
|
|
$
|
15,225
|
|
Amortization expense for definite life intangible assets was
$1.1 million
,
$1.0 million
and
$1.0 million
for years
2017
,
2016
and
2015
, respectively.
Indefinite life intangible assets are composed of trade names and trademarks that have an indefinite life and are therefore individually tested for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise, in accordance with FASB ASC 350. Our measurement date for impairment testing is October 1
st
of each year. When performing our test for impairment of individual indefinite life intangible assets, we use a relief from royalty method to determine the fair market value that is compared to the carrying value of the indefinite life intangible asset. The inputs used for this analysis are considered Level 3 inputs in the fair value hierarchy. See
note 14
for further discussion of the fair value hierarchy. Our October 1
st
review for
2017
and
2016
did not indicate impairment of our indefinite life intangible assets.
The remaining definite life intangible assets at December 31,
2017
consist of customer relationships that are amortized over a period ranging from
13
to
20
years. The weighted average remaining life on the definite life intangible assets is
2.4
years at December 31,
2017
.
Future estimated amortization expense of definite life intangible assets is as follows (dollars in thousands):
|
|
|
|
|
|
|
2018
|
2019
|
2020
|
2021
|
2022
|
|
$1,051
|
$571
|
$165
|
$165
|
$165
|
|
Goodwill
Changes in goodwill balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
(dollars in thousands)
|
|
U.S. & Canada
|
|
Latin America
|
|
Total
|
|
U.S. & Canada
|
|
Latin America
|
|
Total
|
Beginning balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
43,872
|
|
|
$
|
125,681
|
|
|
$
|
169,553
|
|
|
$
|
43,872
|
|
|
$
|
125,681
|
|
|
$
|
169,553
|
|
Accumulated impairment losses
|
|
(5,441
|
)
|
|
—
|
|
|
(5,441
|
)
|
|
(5,441
|
)
|
|
—
|
|
|
(5,441
|
)
|
Net beginning balance
|
|
38,431
|
|
|
125,681
|
|
|
164,112
|
|
|
38,431
|
|
|
125,681
|
|
|
164,112
|
|
Impairment
|
|
—
|
|
|
(79,700
|
)
|
|
(79,700
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
43,872
|
|
|
125,681
|
|
|
169,553
|
|
|
43,872
|
|
|
125,681
|
|
|
169,553
|
|
Accumulated impairment losses
|
|
(5,441
|
)
|
|
(79,700
|
)
|
|
(85,141
|
)
|
|
(5,441
|
)
|
|
—
|
|
|
(5,441
|
)
|
Net ending balance
|
|
$
|
38,431
|
|
|
$
|
45,981
|
|
|
$
|
84,412
|
|
|
$
|
38,431
|
|
|
$
|
125,681
|
|
|
$
|
164,112
|
|
Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. The inputs used for this analysis are considered Level 2 and Level 3 inputs in the fair value hierarchy. See
note 14
for further discussion of the fair value hierarchy.
As part of our on-going assessment of goodwill at September 30, 2017, we noted that third quarter 2017 sales, profitability and cash flow of our Mexico reporting unit (within the Latin America segment) significantly underperformed in comparison to the forecast, and expectations for the fourth quarter of 2017 were lowered as well. These factors, as well as continuing competitive pressures, long term weakness of the Mexican peso relative to the U.S. dollar, and an increase in the discount rate of
70
basis points from December 31, 2016 to September 30, 2017, all contributed to increased pressure on the outlook of the reporting unit. As a result, we determined a triggering event had occurred for our Mexico reporting unit. Accordingly, an interim impairment test was performed as of September 30, 2017, indicating that the carrying value of the Mexico reporting unit exceeded its fair value, and in accordance with the early adoption of ASU 2017-04, we recorded a non-cash impairment charge of
$79.7 million
during the third quarter of 2017.
When performing our test for impairment, we measure each reporting unit's fair value using a combination of "income" and "market" approaches on a shipping point basis. The income approach calculates the fair value of the reporting unit based on a discounted cash flow analysis, incorporating the weighted average cost of capital of a hypothetical third-party buyer. Significant estimates in the income approach include the following: discount rate; expected financial outlook and profitability of the reporting unit's business; and foreign currency impacts (Level 3 inputs). Discount rates use the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium factors. The market approach uses the "Guideline Company" method, which calculates the fair value of the reporting unit based on a comparison of the reporting unit to comparable publicly traded companies. Significant estimates in the market approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, assessing comparable multiples, as well as consideration of control premiums (Level 2 inputs). The blended approach assigns a
70 percent
weighting to the income approach and
30 percent
to the market approach (Level 3 input). The higher weighting is given to the income approach due to some limitations of publicly available peer information used in the market approach. The blended fair value of both approaches is then compared to the carrying value, and to the extent that fair value exceeds the carrying value, no impairment exists. However, to the extent the carrying value exceeds the fair value, an impairment is recorded.
Our annual review was performed as of October 1
st
for each year presented. As the impairment assessment performed at September 30, 2017 resulted in the fair value of the Mexico reporting unit equaling its carrying value, there was no further impairment as of October 1, 2017. In addition, there were no indicators of impairment at December 31, 2017. Our review for
2016
did not indicate an impairment of goodwill.
|
|
5.
|
Property, Plant and Equipment
|
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Land
|
|
$
|
20,859
|
|
|
$
|
19,524
|
|
Buildings
|
|
107,659
|
|
|
102,666
|
|
Machinery and equipment
|
|
505,978
|
|
|
473,004
|
|
Furniture and fixtures
|
|
15,391
|
|
|
14,208
|
|
Software
|
|
24,464
|
|
|
22,733
|
|
Construction in progress
|
|
12,933
|
|
|
16,113
|
|
Gross property, plant and equipment
|
|
687,284
|
|
|
648,248
|
|
Less accumulated depreciation
|
|
421,609
|
|
|
391,856
|
|
Net property, plant and equipment
|
|
$
|
265,675
|
|
|
$
|
256,392
|
|
Depreciation expense was
$44.4 million
,
$47.3 million
and $
41.4 million
for the years
2017
,
2016
and
2015
, respectively.
Borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
Interest Rate
|
|
Maturity Date
|
|
2017
|
|
2016
|
Borrowings under ABL Facility
|
|
floating
|
|
December 7, 2022
(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
Term Loan B
|
|
floating
|
(2)
|
April 9, 2021
|
|
384,600
|
|
|
409,000
|
|
AICEP Loan
|
|
0.00%
|
|
July 30, 2018
|
|
3,085
|
|
|
3,320
|
|
Total borrowings
|
|
387,685
|
|
|
412,320
|
|
Less — unamortized discount and finance fees
|
|
3,295
|
|
|
4,480
|
|
Total borrowings — net
|
|
384,390
|
|
|
407,840
|
|
Less — long term debt due within one year
|
|
7,485
|
|
|
5,009
|
|
Total long-term portion of borrowings — net
|
|
$
|
376,905
|
|
|
$
|
402,831
|
|
___________________________
(1)
Maturity date will be January 9, 2021 if Term Loan B is not refinanced by this date.
(2)
See interest rate swap under "Term Loan B" below and
note 12
.
Annual maturities for all of our total borrowings for the next five years and beyond are as follows:
|
|
|
|
|
|
|
|
2018
|
2019
|
2020
|
2021
|
2022
|
Thereafter
|
|
$7,485
|
$4,400
|
$4,400
|
$371,400
|
$—
|
$—
|
|
Amended and Restated ABL Credit Agreement
Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 and amended as of April 29, 2011, May 18, 2012, April 9, 2014 and December 7, 2017 (as amended, the ABL Facility), with a group of
four
financial institutions. The ABL Facility provides for borrowings of up to
$100.0 million
, subject to certain borrowing base limitations, reserves and outstanding letters of credit.
All borrowings under the ABL Facility are secured by:
|
|
•
|
a first-priority security interest in substantially all of the existing and future personal property of Libbey Glass and its domestic subsidiaries (ABL Priority Collateral);
|
|
|
•
|
a first-priority security interest in:
|
|
|
•
|
100 percent
of the stock of Libbey Glass and
100 percent
of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries;
|
|
|
•
|
100 percent
of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries; and
|
|
|
•
|
65 percent
of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries
|
|
|
•
|
a first-priority security interest in substantially all proceeds and products of the property and assets described above; and
|
|
|
•
|
a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (Term Priority Collateral).
|
Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:
|
|
•
|
a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and
|
|
|
•
|
a first-priority security interest in:
|
|
|
•
|
100 percent
of the stock of Libbey Europe and
100 percent
of the stock of substantially all of the Dutch subsidiaries; and
|
|
|
•
|
100 percent
(or a lesser percentage in certain circumstances) of the outstanding stock issued by the first-tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.
|
Swingline borrowings are limited to
$10.0 million
, with swingline borrowings for Libbey Europe being limited to the U.S. equivalent of
$5.0 million
. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swingline borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swingline rate, as defined in the ABL Facility, subject to a LIBOR floor of
0.0 percent
. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were
0.50 percent
and
1.50 percent
, respectively, at December 31,
2017
. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was
0.25 percent
at December 31,
2017
. No compensating balances are required by the ABL Facility. The ABL Facility does not require compliance with a fixed charge coverage ratio covenant, unless aggregate unused availability falls below
$10.0 million
. If our aggregate unused ABL availability were to fall below
$10.0 million
, the fixed charge coverage ratio requirement would be
1
:00 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by
$25.0 million
. There were
no
Libbey Glass or Libbey Europe borrowings under the facility at December 31,
2017
or at December 31,
2016
. Interest is payable on the last day of the interest period, which can range from
one month
to
six months
depending on the maturity of each individual borrowing on the ABL facility.
The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable and inventory. The borrowing base is the sum of (a)
85 percent
of eligible accounts receivable and (b) the lesser of (i)
85 percent
of the net orderly liquidation value (NOLV) of eligible inventory, (ii)
65 percent
of eligible inventory, or (iii)
$75.0 million
.
At
December 31, 2017
, the available total borrowing base is offset by a
$0.5 million
rent reserve and
$0.5 million
natural gas derivative liability. The ABL Facility also provides for the issuance of up to
$15.0 million
of letters of credit which, when outstanding, are applied against the
$100.0 million
limit. At December 31,
2017
,
$7.2 million
in letters of credit were outstanding. Remaining unused availability under the ABL Facility was
$91.9 million
at December 31,
2017
, compared to
$88.4 million
under the ABL Facility at December 31,
2016
.
Term Loan B
On April 9, 2014, Libbey Glass consummated its
$440.0 million
Senior Secured Term Loan B of Libbey Glass due 2021 (Term Loan B). The net proceeds of the Term Loan B were
$438.9 million
, after the
0.25 percent
original issue discount of
$1.1 million
. The Term Loan B had related fees of approximately
$6.7 million
that will be amortized to interest expense over the life of the loan.
The Term Loan B is evidenced by a Senior Secured Credit Agreement, dated April 9, 2014 (Credit Agreement), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and the lenders. Under the terms of the Credit Agreement, aggregate principal of
$1.1 million
is due on the last business day of each quarter. The Term Loan B bears interest at the rate of LIBOR plus
3.0 percent
, subject to a LIBOR floor of
0.75 percent
. The interest rate was
4.43 percent
per year at
December 31, 2017
and
3.75
percent at
December 31, 2016
, and will mature on
April 9, 2021
. Although the Credit Agreement does not contain financial covenants, the Credit Agreement contains other covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:
|
|
•
|
incur, assume or guarantee additional indebtedness;
|
|
|
•
|
pay dividends, make certain investments or other restricted payments;
|
|
|
•
|
enter into affiliate transactions;
|
|
|
•
|
merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and
|
|
|
•
|
transfer or sell assets.
|
We may voluntarily prepay, in whole or in part, the Term Loan B without premium or penalty but with accrued interest. Beginning with the year-ended December 31, 2015, the Credit Agreement requires us to make an annual mandatory prepayment offer to lenders of
0.0
to
50.0
percent of our excess cash flow, depending on our excess cash flow and leverage ratios as defined in the Credit Agreement. The calculation is made at the end of each year and the mandatory prepayment offer to lenders is made no later than
ten
business days after the filing of our annual compliance certificate to the lenders. The amount of any required mandatory prepayment offer is reduced by the amounts of any optional prepayments we made during the applicable year or prior to the prepayment offer in the year the offer is required to be made.
The Credit Agreement provides for customary events of default. In the case of an event of default as defined in the Credit Agreement, all of the outstanding Term Loan B will become due and payable immediately without further action or notice. The Term Loan B and the related guarantees under the Credit Agreement are secured by (i) first priority liens on the Term Priority Collateral and (ii) second priority liens on the ABL Collateral.
On April 1, 2015, we executed an interest rate swap on our Term Loan B as part of our risk management strategy to mitigate the risks involved with fluctuating interest rates. The interest rate swap effectively converts
$220.0 million
of our Term Loan B debt from a variable interest rate to a
4.85 percent
fixed interest rate, thus reducing the impact of interest rate changes on future income. The fixed rate swap is effective January 2016 through January 2020. The interest rate swap is designated as a cash flow hedge and is accounted for under FASB ASC 815 "Derivatives and Hedging". See
note 12
for further discussion on the interest rate swap.
AICEP Loan
From time to time since July 2012, Libbey Portugal has entered into loan agreements with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese Agency for investment and external trade. The amount of the loans outstanding is
€2.6 million
(approximately
$3.1 million
) at
December 31, 2017
, and the interest rate is
0.0 percent
. Semi-annual installments of principal are due through the maturity date in July 2018.
RMB Working Capital Loan
On July 24, 2014, Libbey China entered into a RMB
20.0 million
(approximately
$3.3 million
) working capital loan with China Construction Bank to cover seasonal working capital needs. The working capital loan was set to mature on July 23, 2015, and had a fixed interest rate of
6.78 percent
, which was paid monthly. On March 4, 2015, Libbey China prepaid the working capital loan along with accrued and unpaid interest. This obligation was secured by a mortgage lien on the Libbey China facility.
Notes Payable
We have an overdraft line of credit for a maximum of
€0.8 million
. At December 31,
2017
and
2016
, there were
no
borrowings under the facility, which had an interest rate of
5.80 percent
. Interest with respect to the note is paid monthly.
The provisions for income taxes were calculated based on the following components of income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2015
|
United States
|
|
$
|
(65,224
|
)
|
|
$
|
29,742
|
|
|
$
|
27,146
|
|
Non-U.S.
|
|
(12,346
|
)
|
|
(1,958
|
)
|
|
971
|
|
Total income before income taxes
|
|
$
|
(77,570
|
)
|
|
$
|
27,784
|
|
|
$
|
28,117
|
|
The current and deferred provisions (benefit) for income taxes were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
(183
|
)
|
|
$
|
470
|
|
|
$
|
300
|
|
Non-U.S.
|
|
4,517
|
|
|
7,625
|
|
|
9,142
|
|
U.S. state and local
|
|
834
|
|
|
201
|
|
|
162
|
|
Total current income tax provision (benefit)
|
|
5,168
|
|
|
8,296
|
|
|
9,604
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
U.S. federal
|
|
9,950
|
|
|
9,981
|
|
|
(44,068
|
)
|
Non-U.S.
|
|
1,190
|
|
|
334
|
|
|
(3,078
|
)
|
U.S. state and local
|
|
(510
|
)
|
|
(900
|
)
|
|
(674
|
)
|
Total deferred income tax provision (benefit)
|
|
10,630
|
|
|
9,415
|
|
|
(47,820
|
)
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
U.S. federal
|
|
9,767
|
|
|
10,451
|
|
|
(43,768
|
)
|
Non-U.S.
|
|
5,707
|
|
|
7,959
|
|
|
6,064
|
|
U.S. state and local
|
|
324
|
|
|
(699
|
)
|
|
(512
|
)
|
Total income tax provision (benefit)
|
|
$
|
15,798
|
|
|
$
|
17,711
|
|
|
$
|
(38,216
|
)
|
United States Tax Reform: The Tax Cuts and Jobs Act (the Act), signed into law on December 22, 2017, changed many aspects of the U.S. tax code, by reducing the corporate income tax rate from
35 percent
to
21 percent
, shifting to a territorial tax system with a related one-time transition tax on accumulated, unremitted earnings of foreign subsidiaries, limiting interest deductions, allowing the current expensing of certain capital expenditures, and numerous other changes that will apply prospectively beginning in 2018. We recorded a charge of
$6.7 million
in the fourth quarter of 2017, principally related to re-measurement of the net U.S. deferred income tax assets at the
21 percent
tax rate. The Company estimates that it will incur no material transition tax related to unremitted foreign earnings and does not anticipate material interest deduction limitations in the foreseeable future. We continue to analyze other changes to the tax code, including the Global Intangible Low Taxed Income (GILTI) provision, which could result in some level of future U.S. taxation of non-U.S. earnings that we cannot reasonably estimate at this time. Until we determine the extent to which GILTI may apply, we have not made an accounting policy decision regarding whether we will treat GILTI as a period cost or establish deferred taxes related thereto. We will continue to assess our income tax provision as we finalize our 2017 U.S. income tax return and as future guidance becomes available, but we do not currently expect that material revisions will be required. If revisions are required, they will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118.
Deferred income tax assets and liabilities result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and from income tax carryovers and credits. The significant components of our deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Deferred income tax assets:
|
|
|
|
|
Pension
|
|
$
|
8,108
|
|
|
$
|
11,799
|
|
Non-pension post-retirement benefits
|
|
13,385
|
|
|
22,810
|
|
Other accrued liabilities
|
|
13,213
|
|
|
19,244
|
|
Receivables
|
|
2,118
|
|
|
2,756
|
|
Net operating loss and charitable contribution carry forwards
|
|
16,599
|
|
|
16,861
|
|
Tax credits
|
|
13,288
|
|
|
11,502
|
|
Total deferred income tax assets
|
|
66,711
|
|
|
84,972
|
|
Valuation allowance
|
|
(19,076
|
)
|
|
(13,773
|
)
|
Net deferred income tax assets
|
|
47,635
|
|
|
71,199
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
|
18,246
|
|
|
23,921
|
|
Inventories
|
|
1,639
|
|
|
3,866
|
|
Intangibles and other
|
|
4,708
|
|
|
5,255
|
|
Total deferred income tax liabilities
|
|
24,593
|
|
|
33,042
|
|
Net deferred income tax asset
|
|
$
|
23,042
|
|
|
$
|
38,157
|
|
The net deferred income tax assets and liabilities were included in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Non-current deferred income tax asset
|
|
$
|
24,892
|
|
|
$
|
40,016
|
|
Non-current deferred income tax liability
|
|
(1,850
|
)
|
|
(1,859
|
)
|
Net deferred income tax asset
|
|
$
|
23,042
|
|
|
$
|
38,157
|
|
A summary of the deferred tax assets for net operating loss carry forwards is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Deferred income tax asset
|
|
$
|
16,599
|
|
|
$
|
16,861
|
|
Comprised of cumulative net losses from:
|
|
|
|
|
Netherlands
|
|
$
|
40,487
|
|
|
$
|
24,811
|
|
Mexico
|
|
$
|
1,700
|
|
|
$
|
—
|
|
China
|
|
$
|
1,155
|
|
|
$
|
825
|
|
Portugal
|
|
$
|
—
|
|
|
$
|
629
|
|
U.S. federal
|
|
$
|
15,578
|
|
|
$
|
23,019
|
|
U.S. state and local
|
|
$
|
41,812
|
|
|
$
|
58,551
|
|
Our foreign net operating loss carryforwards of
$43.3 million
will expire between
2018
and
2028
. Our U.S. federal net operating loss carryforward of
$15.6 million
will expire between
2031
and
2034
. The U.S. state and local net operating loss carryforward of
$41.8 million
will expire between
2018
and
2035
.
A summary of the deferred income tax assets related to tax credits is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Netherlands foreign tax credits
|
|
$
|
9,082
|
|
|
$
|
7,695
|
|
U.S. general business credits
|
|
2,885
|
|
|
2,628
|
|
U.S. alternative minimum tax credits
|
|
1,321
|
|
|
1,179
|
|
Total
|
|
$
|
13,288
|
|
|
$
|
11,502
|
|
The non-U.S. credits can be carried forward indefinitely. The U.S. federal tax credits for general business research and development will expire between 2024 and 2037, and the alternative minimum tax credits do not expire.
In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income (including reversals of deferred income tax liabilities) during the periods in which those deductible temporary differences reverse. As a result, we consider the historical and projected financial results of the tax paying component recording the net deferred income tax asset as well as all other positive and negative evidence. Examples of the evidence we consider are cumulative losses in recent years, losses expected in early future years, a history of potential tax benefits expiring unused and whether there were unusual, infrequent, or extraordinary items to be considered. We currently have a valuation allowance in place on our deferred income tax assets in the Netherlands. We intend to maintain this allowance until a period of sustainable income is achieved and management concludes it is more likely than not that those deferred income tax assets will be realized.
As of December 31, 2015, management considered the evidence, both positive and negative, in assessing the realizability of our deferred tax assets in the U.S. The positive evidence, including achievement of cumulative income in recent years and expectations for sustainable future income, was strong enough to conclude that it is more likely than not that nearly all of our deferred tax assets are realizable and the valuation allowance was reduced accordingly. In order to fully realize our deferred tax assets as of December 31, 2017 in the U.S., the Company needs to generate approximately
$154.6 million
of future taxable income.
Our European operations in the Netherlands incurred an operating loss in 2017, continue to be in cumulative loss positions in recent years, and have a history of tax loss carryforwards expiring unused. In addition, European economic conditions continue to be unfavorable. Accordingly, management believes it is not more likely than not that the net deferred tax assets related to these operations will be realized and a valuation allowance continues to be recorded as of December 31, 2017. The Netherlands operation added a new furnace in 2017 that achieves a much higher level of energy efficiency than the furnaces it replaced. Management is optimistic that this new furnace technology will significantly improve the profitability of the Netherlands operation. Thus, it is reasonably possible that the valuation allowance against the net operating loss deferred tax asset could be reduced within the next year.
Reconciliation from the statutory U.S. federal income tax rate to the consolidated effective income tax rate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Statutory U.S. federal income tax rate
|
|
35.0
|
|
%
|
|
35.0
|
|
%
|
|
35.0
|
|
%
|
Increase (decrease) in rate due to:
|
|
|
|
|
|
|
|
|
|
Non-U.S. income tax differential
|
|
1.2
|
|
|
|
(2.1
|
)
|
|
|
(0.9
|
)
|
|
U.S. state and local income taxes, net of related U.S. federal income taxes
|
|
0.1
|
|
|
|
(1.3
|
)
|
|
|
(2.0
|
)
|
|
U.S. federal credits
|
|
0.3
|
|
|
|
(2.2
|
)
|
|
|
—
|
|
|
Permanent adjustments
|
|
0.6
|
|
|
|
3.8
|
|
|
|
7.5
|
|
|
Foreign withholding taxes
|
|
(2.0
|
)
|
|
|
5.7
|
|
|
|
4.7
|
|
|
Valuation allowance
|
|
(4.4
|
)
|
|
|
11.1
|
|
|
|
(174.8
|
)
|
|
Unrecognized tax benefits
|
|
(3.9
|
)
|
|
|
10.0
|
|
|
|
(0.3
|
)
|
|
Impact of foreign exchange
|
|
(1.6
|
)
|
|
|
3.4
|
|
|
|
(19.8
|
)
|
|
Tax effect of intercompany capitalization
|
|
—
|
|
|
|
—
|
|
|
|
11.7
|
|
|
Impact of legislative changes
|
|
(8.7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Goodwill impairment
|
|
(36.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
(1.0
|
)
|
|
|
0.3
|
|
|
|
3.0
|
|
|
Consolidated effective income tax rate
|
|
(20.4
|
)
|
%
|
|
63.7
|
|
%
|
|
(135.9
|
)
|
%
|
U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside of the United States. This amount could become taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. The amount of such temporary differences totaled
$11.4 million
as of December 31, 2017 and
$27.7 million
as of December 31, 2016. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.
We are subject to income taxes in the U.S. and various foreign jurisdictions. Management judgment is required in evaluating our tax positions and determining our provision for income taxes. Throughout the course of business, there are numerous transactions and calculations for which the ultimate tax determination is uncertain. When management believes uncertain tax positions may be challenged despite our belief that the tax return positions are supportable, we record unrecognized tax benefits as liabilities in accordance with the requirements of ASC 740. When our judgment with respect to these uncertain tax positions changes as a result of a change in facts and circumstances, such as the outcome of a tax audit, we adjust these liabilities through increases or decreases to the income tax provision.
The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. In August 2016, one of our Mexican subsidiaries received a tax assessment from the Mexican tax authority (SAT) related to the audit of its 2010 tax year. The amount assessed was approximately
3 billion
Mexican pesos, which was equivalent to approximately
$157 million
U.S. dollars as of the date of the assessment. The Company has filed an administrative appeal with SAT requesting that the assessment be fully nullified. We are awaiting the outcome of the appeal. Management, in consultation with external legal counsel, believes that if contested in the Mexican court system, it is more likely than not that the Company would prevail on all significant components of the assessment. Management intends to continue to vigorously contest all significant components of the assessment in the Mexican courts if they are not nullified at the administrative appeal level. We believe that our tax reserves related to uncertain tax positions are adequate at this time.
A reconciliation of the beginning and ending gross unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Beginning balance
|
|
$
|
3,521
|
|
|
$
|
431
|
|
|
$
|
378
|
|
Additions based on tax positions related to the current year
|
|
435
|
|
|
382
|
|
|
293
|
|
Additions for tax positions of prior years
|
|
1,735
|
|
|
3,001
|
|
|
—
|
|
Reductions for tax positions of prior years
|
|
(468
|
)
|
|
(293
|
)
|
|
—
|
|
Changes due to lapse of statute of limitations
|
|
279
|
|
|
—
|
|
|
(240
|
)
|
Reductions due to settlements with tax authorities
|
|
(495
|
)
|
|
—
|
|
|
—
|
|
Ending balance
|
|
$
|
5,007
|
|
|
$
|
3,521
|
|
|
$
|
431
|
|
We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. Other disclosures relating to unrecognized tax benefits are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate
|
|
$
|
4,107
|
|
|
$
|
3,414
|
|
|
$
|
378
|
|
Interest, net of tax benefit, accrued in the Consolidated Balance Sheets
|
|
$
|
572
|
|
|
$
|
92
|
|
|
$
|
28
|
|
Penalties, accrued in the Consolidated Balance Sheets
|
|
$
|
38
|
|
|
$
|
181
|
|
|
$
|
—
|
|
Interest expense (benefit) recognized in the Consolidated Statements of Operations
|
|
$
|
506
|
|
|
$
|
64
|
|
|
$
|
(146
|
)
|
Penalties expense (benefit) recognized in the Consolidated Statements of Operations
|
|
$
|
(67
|
)
|
|
$
|
181
|
|
|
$
|
—
|
|
Based upon the outcome of tax examinations, judicial proceedings, other settlements with taxing jurisdictions, or expiration of statutes of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. It is also reasonably possible that gross unrecognized tax benefits may decrease within the next twelve months by approximately
$3.6 million
due to settlements with tax authorities.
We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31,
2017
, the tax years that remained subject to examination by major tax jurisdictions were as follows:
|
|
|
|
|
|
Jurisdiction
|
|
Open Years
|
Canada
|
|
2014
|
–
|
2017
|
China
|
|
2007
|
–
|
2017
|
Mexico (excluding 2011 which is closed)
|
|
2010
|
–
|
2017
|
Netherlands
|
|
2016
|
–
|
2017
|
Portugal
|
|
2014
|
–
|
2017
|
United States (excluding 2013 which is closed)
|
|
2011
|
–
|
2017
|
We have pension plans covering the majority of our employees. Benefits generally are based on compensation and service for salaried employees and job grade and length of service for hourly employees. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006, and most hourly U.S.-based employees (excluding employees hired at Shreveport after December 15, 2008, and at Toledo after September 30, 2010). Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiaries in Mexico and the Netherlands (through 2015). The plans in Mexico are unfunded.
In the fourth quarter of 2015, we executed an agreement with Pensioenfonds voor de Grafische Bedrijven (“PGB”), an industry wide pension fund, and unwound direct ownership of our defined benefit pension plan in the Netherlands. In accordance with this agreement, we transferred all assets of the plan and made a cash contribution of
$5.2 million
to PGB. In return, PGB assumed the related liabilities and administrative responsibilities of the plan. As a result, there is
no
longer a pension liability on the Consolidated Balance Sheet related to this pension plan. This event also resulted in a settlement charge of
$21.6 million
being recorded in the Consolidated Statement of Operations in the fourth quarter of 2015. Beginning in 2016, Libbey Holland makes cash contributions to PGB as participating employees earn pension benefits. These related costs are expensed as incurred, similar to the accounting associated with a defined contribution retirement plan and amounted to
$1.9 million
in both 2017 and 2016.
Effect on Operations
The components of our net pension expense, including the SERP, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Service cost (benefits earned during the period)
|
|
$
|
3,916
|
|
|
$
|
3,717
|
|
|
$
|
4,365
|
|
|
$
|
1,085
|
|
|
$
|
1,226
|
|
|
$
|
2,965
|
|
|
$
|
5,001
|
|
|
$
|
4,943
|
|
|
$
|
7,330
|
|
Interest cost on projected benefit obligation
|
|
13,787
|
|
|
14,963
|
|
|
14,715
|
|
|
2,749
|
|
|
2,594
|
|
|
4,332
|
|
|
16,536
|
|
|
17,557
|
|
|
19,047
|
|
Expected return on plan assets
|
|
(22,479
|
)
|
|
(23,027
|
)
|
|
(22,661
|
)
|
|
—
|
|
|
—
|
|
|
(2,447
|
)
|
|
(22,479
|
)
|
|
(23,027
|
)
|
|
(25,108
|
)
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
236
|
|
|
263
|
|
|
417
|
|
|
(204
|
)
|
|
(207
|
)
|
|
(244
|
)
|
|
32
|
|
|
56
|
|
|
173
|
|
Actuarial loss
|
|
5,232
|
|
|
4,272
|
|
|
7,291
|
|
|
594
|
|
|
782
|
|
|
1,599
|
|
|
5,826
|
|
|
5,054
|
|
|
8,890
|
|
Settlement charge
|
|
245
|
|
|
42
|
|
|
13
|
|
|
—
|
|
|
126
|
|
|
21,574
|
|
|
245
|
|
|
168
|
|
|
21,587
|
|
Curtailment credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Pension expense
|
|
$
|
937
|
|
|
$
|
230
|
|
|
$
|
4,140
|
|
|
$
|
4,224
|
|
|
$
|
4,521
|
|
|
$
|
27,765
|
|
|
$
|
5,161
|
|
|
$
|
4,751
|
|
|
$
|
31,905
|
|
In 2017, 2016 and 2015, we incurred pension settlement charges of
$0.2 million
,
$0.2 million
and
$21.6 million
, respectively. The pension settlement charges in 2015 were triggered primarily by the liquidation of the Dutch pension fund. The pension settlement charges in 2017 and 2016 were triggered by excess lump sum distributions taken by employees, which required us to record unrecognized gains and losses in our pension plan accounts.
Actuarial Assumptions
The assumptions used to determine the benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Discount rate
|
|
3.64%
|
to
|
3.69%
|
|
4.18%
|
to
|
4.23%
|
|
9.40%
|
|
9.30%
|
Rate of compensation increase
|
|
Not applicable
|
|
Not applicable
|
|
4.30%
|
|
4.30%
|
The assumptions used to determine net periodic pension costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
4.18
|
%
|
to
|
4.23
|
%
|
|
4.66
|
%
|
to
|
4.73
|
%
|
|
4.17
|
%
|
to
|
4.29
|
%
|
|
9.30%
|
|
8.10%
|
|
2.30
|
%
|
to
|
7.60
|
%
|
Expected long-term rate of return on plan assets
|
7.00%
|
|
7.25%
|
|
7.25%
|
|
Not applicable
|
|
Not applicable
|
|
4.00%
|
Rate of compensation increase
|
Not applicable
|
|
Not applicable
|
|
Not applicable
|
|
4.30%
|
|
4.30%
|
|
2.00
|
%
|
to
|
4.30
|
%
|
The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at our December 31 measurement date. The discount rate at December 31 is used to measure the year-end benefit obligations and the
earnings effects for the subsequent year. A higher discount rate decreases the present value of benefit obligations and decreases pension expense.
To determine the expected long-term rate of return on plan assets for our funded plans, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. The expected long-term rate of return on plan assets at December 31
st
is used to measure the earnings effects for the subsequent year.
Future benefits are assumed to increase in a manner consistent with past experience of the plans except for the Libbey U.S. Salaried Pension Plan and SERP as discussed above, which, to the extent benefits are based on compensation, includes assumed compensation increases as presented above. Amortization included in net pension expense is based on the average remaining service of employees.
We account for our defined benefit pension plans on an expense basis that reflects actuarial funding methods. The actuarial valuations require significant estimates and assumptions to be made by management, primarily with respect to the discount rate and expected long-term return on plan assets. These assumptions are all susceptible to changes in market conditions. The discount rate is based on a selected settlement portfolio from a universe of high quality bonds. In determining the expected long-term rate of return on plan assets, we consider historical market and portfolio rates of return, asset allocations and expectations of future rates of return. We evaluate these critical assumptions on our annual measurement date of December 31
st
. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.
For our U.S. pension plans, we use the RP 2014 Sex Distinct Mortality Tables, as released by the Society of Actuaries, to determine our projected benefit obligations. In 2015, 2016 and 2017, the Society of Actuaries published new generational projection scales reflecting additional years of mortality experience. We adopted these updates in each respective year.
Projected Benefit Obligation (PBO) and Fair Value of Assets
The changes in the projected benefit obligations and fair value of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
336,648
|
|
|
$
|
325,863
|
|
|
$
|
28,161
|
|
|
$
|
35,915
|
|
|
$
|
364,809
|
|
|
$
|
361,778
|
|
Service cost
|
|
3,916
|
|
|
3,717
|
|
|
1,085
|
|
|
1,226
|
|
|
5,001
|
|
|
4,943
|
|
Interest cost
|
|
13,787
|
|
|
14,963
|
|
|
2,749
|
|
|
2,594
|
|
|
16,536
|
|
|
17,557
|
|
Exchange rate fluctuations
|
|
—
|
|
|
—
|
|
|
1,214
|
|
|
(5,821
|
)
|
|
1,214
|
|
|
(5,821
|
)
|
Actuarial (gain) loss
|
|
22,991
|
|
|
11,108
|
|
|
1,409
|
|
|
(2,477
|
)
|
|
24,400
|
|
|
8,631
|
|
Settlements paid
|
|
(281
|
)
|
|
(259
|
)
|
|
—
|
|
|
—
|
|
|
(281
|
)
|
|
(259
|
)
|
Benefits paid
|
|
(23,008
|
)
|
|
(18,744
|
)
|
|
(2,651
|
)
|
|
(3,276
|
)
|
|
(25,659
|
)
|
|
(22,020
|
)
|
Projected benefit obligation, end of year
|
|
$
|
354,053
|
|
|
$
|
336,648
|
|
|
$
|
31,967
|
|
|
$
|
28,161
|
|
|
$
|
386,020
|
|
|
$
|
364,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
318,414
|
|
|
$
|
316,184
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
318,414
|
|
|
$
|
316,184
|
|
Actual return on plan assets
|
|
47,595
|
|
|
20,974
|
|
|
—
|
|
|
—
|
|
|
47,595
|
|
|
20,974
|
|
Employer contributions
|
|
499
|
|
|
259
|
|
|
2,651
|
|
|
3,276
|
|
|
3,150
|
|
|
3,535
|
|
Settlements paid
|
|
(281
|
)
|
|
(259
|
)
|
|
—
|
|
|
—
|
|
|
(281
|
)
|
|
(259
|
)
|
Benefits paid
|
|
(23,008
|
)
|
|
(18,744
|
)
|
|
(2,651
|
)
|
|
(3,276
|
)
|
|
(25,659
|
)
|
|
(22,020
|
)
|
Fair value of plan assets, end of year
|
|
$
|
343,219
|
|
|
$
|
318,414
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
343,219
|
|
|
$
|
318,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded ratio
|
|
96.9
|
%
|
|
94.6
|
%
|
|
—
|
%
|
|
—
|
%
|
|
88.9
|
%
|
|
87.3
|
%
|
Funded status and net accrued pension benefit cost
|
|
$
|
(10,834
|
)
|
|
$
|
(18,234
|
)
|
|
$
|
(31,967
|
)
|
|
$
|
(28,161
|
)
|
|
$
|
(42,801
|
)
|
|
$
|
(46,395
|
)
|
The current portion of the pension liability reflects the amount of expected benefit payments that are greater than the plan assets on a plan-by-plan basis. The net accrued pension benefit liability at December 31 of the respective year-ends were included in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Pension asset
|
|
$
|
2,939
|
|
|
$
|
—
|
|
Pension liability (current portion)
|
|
(2,185
|
)
|
|
(2,461
|
)
|
Pension liability
|
|
(43,555
|
)
|
|
(43,934
|
)
|
Net accrued pension liability
|
|
$
|
(42,801
|
)
|
|
$
|
(46,395
|
)
|
The pretax amounts recognized in accumulated other comprehensive loss as of December 31, 2017 and 2016, are as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net actuarial loss
|
|
$
|
98,228
|
|
|
$
|
105,830
|
|
|
$
|
12,378
|
|
|
$
|
11,077
|
|
|
$
|
110,606
|
|
|
$
|
116,907
|
|
Prior service cost (credit)
|
|
1
|
|
|
237
|
|
|
(2,636
|
)
|
|
(2,704
|
)
|
|
(2,635
|
)
|
|
(2,467
|
)
|
Total cost
|
|
$
|
98,229
|
|
|
$
|
106,067
|
|
|
$
|
9,742
|
|
|
$
|
8,373
|
|
|
$
|
107,971
|
|
|
$
|
114,440
|
|
The pretax amounts in accumulated other comprehensive loss as of December 31, 2017, that are expected to be recognized as components of net periodic benefit cost during 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
Net actuarial loss
|
|
$
|
6,546
|
|
|
$
|
605
|
|
|
$
|
7,151
|
|
Prior service cost (credit)
|
|
1
|
|
|
(195
|
)
|
|
(194
|
)
|
Total cost
|
|
$
|
6,547
|
|
|
$
|
410
|
|
|
$
|
6,957
|
|
Estimated contributions for 2018, as well as, contributions made in 2017 and 2016 to the pension plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
Estimated contributions in 2018
|
|
$
|
131
|
|
|
$
|
2,148
|
|
|
$
|
2,279
|
|
Contributions made in 2017
|
|
$
|
499
|
|
|
$
|
2,651
|
|
|
$
|
3,150
|
|
Contributions made in 2016
|
|
$
|
259
|
|
|
$
|
3,276
|
|
|
$
|
3,535
|
|
It is difficult to estimate future cash contributions to the pension plans, as such amounts are a function of actual investment returns, withdrawals from the plans, changes in interest rates and other factors uncertain at this time. It is possible that greater cash contributions may be required in 2018 than the amounts in the above table. Although a decline in market conditions, changes in current pension law and uncertainties regarding significant assumptions used in the actuarial valuations may have a material impact in future required contributions to our pension plans, we currently do not expect funding requirements to have a material adverse impact on current or future liquidity.
Pension benefit payment amounts are anticipated to be paid from the plans (including the SERP) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
2018
|
|
$
|
19,838
|
|
|
$
|
2,148
|
|
|
$
|
21,986
|
|
2019
|
|
$
|
19,765
|
|
|
$
|
2,007
|
|
|
$
|
21,772
|
|
2020
|
|
$
|
19,842
|
|
|
$
|
2,193
|
|
|
$
|
22,035
|
|
2021
|
|
$
|
20,304
|
|
|
$
|
2,558
|
|
|
$
|
22,862
|
|
2022
|
|
$
|
20,525
|
|
|
$
|
2,687
|
|
|
$
|
23,212
|
|
2023-2027
|
|
$
|
104,932
|
|
|
$
|
15,143
|
|
|
$
|
120,075
|
|
Accumulated Benefit Obligation in Excess of Plan Assets
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Projected benefit obligation
|
|
$
|
268,887
|
|
|
$
|
336,648
|
|
|
$
|
31,967
|
|
|
$
|
28,161
|
|
|
$
|
300,854
|
|
|
$
|
364,809
|
|
Accumulated benefit obligation
|
|
$
|
268,887
|
|
|
$
|
336,648
|
|
|
$
|
27,055
|
|
|
$
|
23,194
|
|
|
$
|
295,942
|
|
|
$
|
359,842
|
|
Fair value of plan assets
|
|
$
|
255,115
|
|
|
$
|
318,414
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
255,115
|
|
|
$
|
318,414
|
|
Plan Assets
Our investment strategy is to control and manage investment risk through diversification across asset classes and investment styles, within established target asset allocation ranges. The investment risk of the assets is limited by appropriate diversification both within and between asset classes. Assets are diversified among a mix of traditional investments in equity and fixed income instruments, as well as alternative investments including real estate and hedge funds. It would be anticipated that a modest allocation to short-term investments would exist within the plans, since each investment manager is likely to hold some short-term investments in the portfolio with the goal of ensuring that sufficient liquidity will be available to meet expected cash flow requirements.
Our investment valuation policy is to state the investments at fair value. All investments are valued at their respective net asset value (NAV) as a practical expedient and calculated by the Trustee, except for certain hedge fund investments valued at NAV. The real estate, equity securities and fixed income investments are held in a Group Trust which is valued at the unit prices established by the Trustee and are valued using NAV as a practical expedient. Underlying equity securities (including large and small cap domestic and international equities), for which market quotations are readily available, are valued at the last reported readily available sales price on their principal exchange on the valuation date or official close for certain markets. Fixed income investments are valued on a basis of valuations furnished by a trustee-approved pricing service, which determines valuations for normal institutional-size trading units of such securities which are generally recognized at fair value as determined in good faith by the Trustee. The fair value of investments in real estate funds is based on valuation of the fund as determined by periodic appraisals of the underlying investments owned by the respective fund. Investments in registered investment companies are valued at quoted market prices. Collective pooled funds, if any, are recorded using NAV practical expedients. Short-term investments are valued at their respective NAV and have no redemption restrictions. The hedge fund investments using NAV as a practical expedient are valued by using estimated month-end NAV and performance numbers provided by the fund administrator. The Plan is required to provide a month’s advance written notice to liquidate its entire share in the Group Trust. Certain investments in the hedge funds can only be liquidated on either a quarterly or semi-annual basis, require advance notification and are subject to audit holdback provisions.
All investments measured at NAV as a practical expedient for fair value have been excluded from the fair value hierarchy, in accordance with U.S. GAAP. The table below presents our U.S. pension plan assets at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
Measured at NAV as a practical expedient
|
|
Target Allocation
|
|
2017
|
|
2016
|
|
2018
|
Short-term investments
|
|
$
|
8,061
|
|
|
$
|
8,766
|
|
|
3
|
%
|
Real estate
|
|
16,390
|
|
|
15,812
|
|
|
5
|
%
|
Equity securities
|
|
156,434
|
|
|
148,302
|
|
|
45
|
%
|
Debt securities
|
|
125,671
|
|
|
96,658
|
|
|
37
|
%
|
Hedge funds
|
|
36,663
|
|
(1)
|
48,876
|
|
|
10
|
%
|
Total
|
|
$
|
343,219
|
|
|
$
|
318,414
|
|
|
100
|
%
|
_________________________
(1)
Includes
$9.1 million
of hedge funds valued daily at NAV which is considered to be a Level 2 investment in the fair value hierarchy. See
note 14
for discussion of the fair value hierarchy.
|
|
9.
|
Non-pension Post-retirement Benefits
|
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.
Effect on Operations
The provision for our non-pension post-retirement benefit expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Service cost (benefits earned during the period)
|
|
$
|
631
|
|
|
$
|
797
|
|
|
$
|
855
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
632
|
|
|
$
|
798
|
|
|
$
|
856
|
|
Interest cost on projected benefit obligation
|
|
2,104
|
|
|
2,608
|
|
|
2,537
|
|
|
44
|
|
|
51
|
|
|
52
|
|
|
2,148
|
|
|
2,659
|
|
|
2,589
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
(201
|
)
|
|
140
|
|
|
140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(201
|
)
|
|
140
|
|
|
140
|
|
Actuarial loss (gain)
|
|
(257
|
)
|
|
81
|
|
|
592
|
|
|
(59
|
)
|
|
(47
|
)
|
|
(56
|
)
|
|
(316
|
)
|
|
34
|
|
|
536
|
|
Non-pension post-retirement benefit expense
|
|
$
|
2,277
|
|
|
$
|
3,626
|
|
|
$
|
4,124
|
|
|
$
|
(14
|
)
|
|
$
|
5
|
|
|
$
|
(3
|
)
|
|
$
|
2,263
|
|
|
$
|
3,631
|
|
|
$
|
4,121
|
|
Actuarial Assumptions
The discount rates used to determine the accumulated post-retirement benefit obligation and net post-retirement benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Accumulated post-retirement benefit obligation
|
3.60
|
%
|
|
4.05
|
%
|
|
4.56
|
%
|
|
3.26
|
%
|
|
3.48
|
%
|
|
3.69
|
%
|
Net post-retirement benefit cost
|
4.05
|
%
|
|
4.56
|
%
|
|
4.10
|
%
|
|
3.48
|
%
|
|
3.69
|
%
|
|
3.61
|
%
|
The weighted average assumed healthcare cost trend rates at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Healthcare cost trend rate assumed for next year
|
6.50
|
%
|
|
6.75
|
%
|
|
6.50
|
%
|
|
6.75
|
%
|
Ultimate healthcare trend rate
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
Year the ultimate trend rate is reached
|
2024
|
|
|
2024
|
|
|
2024
|
|
|
2024
|
|
We use various actuarial assumptions, including the discount rate and the expected trend in healthcare costs, to estimate the costs and benefit obligations for our retiree health plan. The discount rate is determined based on high-quality fixed income investments that match the duration of expected retiree medical benefits at our December 31 measurement date to establish the discount rate. The discount rate at December 31 is used to measure the year-end benefit obligations and the earnings effects for the subsequent year.
The healthcare cost trend rate represents our expected annual rates of change in the cost of healthcare benefits. The trend rate noted above represents a forward projection of healthcare costs as of the measurement date. A 1.0 percent change in the healthcare trend rate would not have a material impact upon the non-pension post-retirement expense.
Accumulated Post-retirement Benefit Obligation
The components of our non-pension post-retirement benefit obligation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in accumulated non-pension post-retirement benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
58,921
|
|
|
$
|
58,795
|
|
|
$
|
1,344
|
|
|
$
|
1,390
|
|
|
$
|
60,265
|
|
|
$
|
60,185
|
|
Service cost
|
|
631
|
|
|
797
|
|
|
1
|
|
|
1
|
|
|
632
|
|
|
798
|
|
Interest cost
|
|
2,104
|
|
|
2,608
|
|
|
44
|
|
|
51
|
|
|
2,148
|
|
|
2,659
|
|
Plan participants' contributions
|
|
525
|
|
|
528
|
|
|
—
|
|
|
—
|
|
|
525
|
|
|
528
|
|
Actuarial (gain) loss
|
|
(5,483
|
)
|
|
146
|
|
|
(108
|
)
|
|
(102
|
)
|
|
(5,591
|
)
|
|
44
|
|
Exchange rate fluctuations
|
|
—
|
|
|
—
|
|
|
90
|
|
|
46
|
|
|
90
|
|
|
46
|
|
Benefits paid
|
|
(4,050
|
)
|
|
(3,953
|
)
|
|
(76
|
)
|
|
(42
|
)
|
|
(4,126
|
)
|
|
(3,995
|
)
|
Benefit obligation, end of year
|
|
$
|
52,648
|
|
|
$
|
58,921
|
|
|
$
|
1,295
|
|
|
$
|
1,344
|
|
|
$
|
53,943
|
|
|
$
|
60,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status and accrued benefit cost
|
|
$
|
(52,648
|
)
|
|
$
|
(58,921
|
)
|
|
$
|
(1,295
|
)
|
|
$
|
(1,344
|
)
|
|
$
|
(53,943
|
)
|
|
$
|
(60,265
|
)
|
The total accrued non-pension post-retirement benefits liability at December 31 of the respective year-ends were included in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
Non-pension post-retirement benefits (current portion)
|
|
$
|
4,185
|
|
|
$
|
4,892
|
|
Non-pension post-retirement benefits
|
|
49,758
|
|
|
55,373
|
|
Total non-pension post-retirement benefits liability
|
|
$
|
53,943
|
|
|
$
|
60,265
|
|
The pretax amounts recognized in accumulated other comprehensive loss as of December 31, 2017 and 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net actuarial loss (gain)
|
|
$
|
(80
|
)
|
|
$
|
5,146
|
|
|
$
|
(832
|
)
|
|
$
|
(730
|
)
|
|
$
|
(912
|
)
|
|
$
|
4,416
|
|
Prior service cost (credit)
|
|
(1,262
|
)
|
|
(1,463
|
)
|
|
—
|
|
|
—
|
|
|
(1,262
|
)
|
|
(1,463
|
)
|
Total cost (credit)
|
|
$
|
(1,342
|
)
|
|
$
|
3,683
|
|
|
$
|
(832
|
)
|
|
$
|
(730
|
)
|
|
$
|
(2,174
|
)
|
|
$
|
2,953
|
|
The pretax amounts in accumulated other comprehensive loss at December 31, 2017, that are expected to be recognized as components of net periodic benefit cost during 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
Net actuarial loss (gain)
|
|
$
|
(210
|
)
|
|
$
|
(66
|
)
|
|
$
|
(276
|
)
|
Prior service cost (credit)
|
|
(282
|
)
|
|
—
|
|
|
(282
|
)
|
Total cost (credit)
|
|
$
|
(492
|
)
|
|
$
|
(66
|
)
|
|
$
|
(558
|
)
|
Non-pension post-retirement benefit payments net of estimated future Medicare Part D subsidy payments and future retiree contributions, are anticipated to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
(dollars in thousands)
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
2018
|
|
$
|
4,098
|
|
|
$
|
161
|
|
|
$
|
4,259
|
|
2019
|
|
$
|
4,024
|
|
|
$
|
159
|
|
|
$
|
4,183
|
|
2020
|
|
$
|
3,965
|
|
|
$
|
153
|
|
|
$
|
4,118
|
|
2021
|
|
$
|
3,850
|
|
|
$
|
142
|
|
|
$
|
3,992
|
|
2022
|
|
$
|
3,853
|
|
|
$
|
130
|
|
|
$
|
3,983
|
|
2023-2027
|
|
$
|
16,848
|
|
|
$
|
373
|
|
|
$
|
17,221
|
|
|
|
10.
|
Net Income (Loss) per Share of Common Stock
|
The following table sets forth the computation of basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands, except earnings per share)
|
|
2017
|
|
2016
|
|
2015
|
Numerator for earnings per share:
|
|
|
|
|
|
|
Net income (loss) that is available to common shareholders
|
|
$
|
(93,368
|
)
|
|
$
|
10,073
|
|
|
$
|
66,333
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
22,030,672
|
|
|
21,879,613
|
|
|
21,816,935
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
Effect of stock options and restricted stock units
|
|
—
|
|
|
169,330
|
|
|
342,214
|
|
Adjusted weighted average shares and assumed conversions
|
|
22,030,672
|
|
|
22,048,943
|
|
|
22,159,149
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(4.24
|
)
|
|
$
|
0.46
|
|
|
$
|
3.04
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(4.24
|
)
|
|
$
|
0.46
|
|
|
$
|
2.99
|
|
|
|
|
|
|
|
|
Shares excluded from diluted earnings per share due to:
|
|
|
|
|
|
|
Net loss position (excluded from denominator)
|
|
85,588
|
|
|
—
|
|
|
—
|
|
Inclusion would have been anti-dilutive (excluded from calculation)
|
|
846,747
|
|
|
602,402
|
|
|
105,201
|
|
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. As part of the adoption of ASU 2016-09 as of January 1, 2017, anticipated tax windfalls and shortfalls are no longer included in the calculation of assumed proceeds when applying the treasury stock method.
|
|
11.
|
Employee Stock Benefit Plans
|
We have a stock-based employee compensation plan. We account for stock-based compensation in accordance with FASB ASC Topic 718, “Compensation - Stock Compensation” and FASB ASC Topic 505-50, “Equity - Equity Based Payment to Non-Employees”, which requires the measurement and recognition of compensation expense for all share-based awards to our employees and directors. Share-based compensation cost is measured based on the fair value of the equity or liability instruments issued. FASB ASC 718 and FASB ASC 505-50 apply to all of our outstanding unvested share-based payment awards.
Equity Participation Plan Program Description
We have
two
equity participation plans, the Amended and Restated Libbey Inc. 2006 Omnibus Incentive Plan and the Libbey Inc. 2016 Omnibus Incentive Plan, which we refer to as the Omnibus Plans. Up to a total of
2,960,000
and
1,200,000
shares of Libbey Inc. common stock are authorized for issuance as equity-based compensation under the 2006 and 2016 Omnibus Plans, respectively. Under the Omnibus Plans, grants of equity-based compensation may take the form of stock options, stock appreciation rights, performance shares or units, restricted stock or restricted stock units or other stock-based awards.
Employees and directors are eligible for awards under these plans. All option grants have an exercise price equal to the fair market value of the underlying stock on the grant date. The vesting period of options, stock appreciation rights, restricted stock units and cash settled restricted stock units outstanding as of December 31, 2017, is generally
four
years. Awards are subject to alternate vesting plans for death, disability, retirement eligibility and involuntary termination. Dividends are not payable on shares underlying options, stock appreciation rights or unvested restricted stock units. All grants of equity-based compensation are amortized over the vesting period in accordance with FASB ASC 718 expense attribution methodology with the related compensation expense recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.
Non-Qualified Stock Option Information
The Black-Scholes option-pricing model was used to estimate the grant-date fair value for stock options. The exercise price of each stock option equals the closing market price of our common stock on the date of grant. The maximum term is
ten
years. The following table summarizes non-qualified stock option disclosures for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands, except options and assumptions)
|
|
2017
|
|
2016
|
|
2015
|
Stock options granted
|
|
249,392
|
|
|
351,590
|
|
|
108,297
|
|
Stock option compensation expense included in the Consolidated Statements of Operations
|
|
$
|
690
|
|
|
$
|
705
|
|
|
$
|
1,674
|
|
Weighted-average grant-date fair value of options granted using the Black-Scholes model
|
|
$
|
3.00
|
|
|
$
|
4.20
|
|
|
$
|
14.72
|
|
Weighted-average assumptions for stock option grants:
|
|
|
|
|
|
|
|
|
|
Risk-free interest
|
|
2.07%
|
|
1.30%
|
|
1.68%
|
Expected term
|
|
5.8 years
|
|
6.3 years
|
|
6.4 years
|
Expected volatility
|
|
38.54%
|
|
33.14%
|
|
39.92%
|
Dividend yield
|
|
4.32%
|
|
2.69%
|
|
1.16%
|
|
|
•
|
The risk-free interest rate is based on the U.S. Treasury yield curve at the time of grant and has a term equal to the expected life.
|
|
|
•
|
The expected term represents the period of time the options are expected to be outstanding. We use the actual historical exercise activity for determining the expected term.
|
|
|
•
|
Expected volatility is calculated based on Libbey's daily stock closing prices for a period equal to the expected life of the award. For grants prior to March 31, 2016, a peer group volatility was used, with the period still equal to the expected life of the award. The peer group was used due to the Company having a period of history when we were more highly leveraged which is not relevant in evaluating expected volatility. The peer group was established using the criteria of similar industry, size, leverage and length of history.
|
|
|
•
|
The dividend yield is calculated as the ratio based on our most recent historical dividend payments per share of common stock at the grant date to the stock price on the date of grant.
|
Information with respect to our stock option activity for
2017
,
2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares
|
|
Weighted-Average
Exercise Price
per Share
|
|
Weighted-Average
Remaining
Contractual Life
(In Years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Outstanding balance at January 1, 2015
|
|
834,010
|
|
|
$
|
17.28
|
|
|
6.7
|
|
$
|
11,808
|
|
Granted
|
|
108,297
|
|
|
$
|
36.90
|
|
|
|
|
|
Exercised
|
|
(241,122
|
)
|
|
$
|
13.85
|
|
|
|
|
$
|
5,722
|
|
Canceled
|
|
(44,514
|
)
|
|
$
|
25.43
|
|
|
|
|
|
Outstanding balance at December 31, 2015
|
|
656,671
|
|
|
$
|
21.22
|
|
|
6.8
|
|
$
|
2,103
|
|
Granted
|
|
351,590
|
|
|
$
|
17.23
|
|
|
|
|
|
Exercised
|
|
(100,813
|
)
|
|
$
|
13.90
|
|
|
|
|
$
|
379
|
|
Canceled
|
|
(262,225
|
)
|
|
$
|
23.73
|
|
|
|
|
|
Outstanding balance at December 31, 2016
|
|
645,223
|
|
|
$
|
19.17
|
|
|
6.6
|
|
$
|
1,407
|
|
Granted
|
|
249,392
|
|
|
$
|
11.74
|
|
|
|
|
|
Exercised
|
|
(33,389
|
)
|
|
$
|
13.96
|
|
|
|
|
$
|
17
|
|
Canceled
|
|
(98,676
|
)
|
|
$
|
19.42
|
|
|
|
|
|
Outstanding balance at December 31, 2017
|
|
762,550
|
|
|
$
|
16.91
|
|
|
7.0
|
|
$
|
64
|
|
Exercisable at December 31, 2017
|
|
333,761
|
|
|
$
|
19.26
|
|
|
4.8
|
|
$
|
35
|
|
Intrinsic value for share-based instruments is defined as the difference between the current market value and the exercise price.
As of December 31,
2017
,
$0.6 million
of unrecognized compensation expense related to nonvested stock options is expected to be recognized within the next
2.4 years
on a weighted-average basis. The total fair value of shares vested during
2017
,
2016
and
2015
is
$0.7 million
,
$1.6 million
and
$1.7 million
, respectively. Shares issued for exercised options are issued from treasury stock, when available.
The following table summarizes our nonvested stock option activity for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
Nonvested Stock Options
|
|
Shares
|
|
Weighted-Average
Value (per Share)
|
Nonvested at January 1, 2015
|
|
438,515
|
|
|
$
|
9.91
|
|
Granted
|
|
108,297
|
|
|
$
|
14.72
|
|
Vested
|
|
(161,923
|
)
|
|
$
|
10.55
|
|
Forfeited
|
|
(42,887
|
)
|
|
$
|
11.32
|
|
Nonvested at December 31, 2015
|
|
342,002
|
|
|
$
|
10.95
|
|
Granted
|
|
351,590
|
|
|
$
|
4.20
|
|
Vested
|
|
(169,703
|
)
|
|
$
|
9.42
|
|
Forfeited
|
|
(178,954
|
)
|
|
$
|
8.41
|
|
Nonvested at December 31, 2016
|
|
344,935
|
|
|
$
|
6.14
|
|
Granted
|
|
249,392
|
|
|
$
|
3.00
|
|
Vested
|
|
(108,449
|
)
|
|
$
|
6.69
|
|
Forfeited
|
|
(57,089
|
)
|
|
$
|
6.23
|
|
Nonvested at December 31, 2017
|
|
428,789
|
|
|
$
|
4.16
|
|
Stock Appreciation Rights Information
The exercise price of each stock appreciation right equals the closing market price of our common stock on the date of grant. The maximum term is
ten
years. Stock appreciation rights are settled in cash for the difference between the market price on the date of exercise and the exercise price. Awards that are settled in cash are subject to liability accounting. Accordingly, the fair value of such awards is remeasured at the end of each reporting period until settled or expired. The Company entered into a CEO Retention Award Agreement pursuant to which the Company issued
240,829
stock appreciation rights to our former CEO
on December 16, 2013. On January 11, 2016, vesting of all unvested retention stock appreciation rights otherwise scheduled to vest on December 31, 2018 was accelerated as a result of the departure of our former CEO.
The Black-Scholes option-pricing model was used to estimate the grant-date fair value. The following table summarizes stock appreciation rights disclosures for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands, except stock appreciation rights and assumptions)
|
|
2017
|
|
2016
|
|
2015
|
Stock appreciation rights granted
|
|
26,839
|
|
|
—
|
|
|
—
|
|
Stock appreciation rights compensation expense (benefit) included in the Consolidated Statements of Operations
|
|
$
|
39
|
|
|
$
|
(462
|
)
|
|
$
|
(273
|
)
|
Weighted-average grant-date fair value of stock appreciation rights granted using the Black-Scholes model
|
|
$
|
0.19
|
|
|
|
|
|
|
|
Weighted-average assumptions for stock appreciation rights granted:
|
|
|
|
|
|
|
Risk-free interest
|
|
2.17%
|
|
|
|
|
Expected term
|
|
4.5 years
|
|
|
|
|
Expected volatility
|
|
38.93%
|
|
|
|
|
Dividend yield
|
|
6.10%
|
|
|
|
|
The risk-free interest rate, expected term, expected volatility and dividend yield assumptions are calculated consistent with our non-qualified stock option awards. During 2017, some equity awards to foreign employees were modified to cash settled stock appreciation rights. The weighted-average grant-date fair value above represents the incremental value at the date of modification.
Information with respect to our stock appreciation right activity for
2017
,
2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Rights
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted-Average
Remaining
Contractual Life
(In Years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Outstanding Balance at January 1, 2015
|
|
244,229
|
|
|
$
|
21.27
|
|
|
9.0
|
|
$
|
2,483
|
|
Outstanding balance at December 31, 2015
|
|
244,229
|
|
|
$
|
21.27
|
|
|
8.0
|
|
$
|
14
|
|
Outstanding balance at December 31, 2016
|
|
244,229
|
|
|
$
|
21.27
|
|
|
0.1
|
|
$
|
4
|
|
Granted
|
|
26,839
|
|
|
$
|
17.19
|
|
|
|
|
|
Exercised
|
|
(7,060
|
)
|
|
$
|
7.16
|
|
|
|
|
$
|
56
|
|
Canceled
|
|
(240,829
|
)
|
|
$
|
21.29
|
|
|
|
|
|
Outstanding balance at December 31, 2017
|
|
23,179
|
|
|
$
|
20.66
|
|
|
5.2
|
|
$
|
—
|
|
Exercisable at December 31, 2017
|
|
19,999
|
|
|
$
|
20.29
|
|
|
5.0
|
|
$
|
—
|
|
As of December 31,
2017
, the amount of unrecognized compensation expense related to nonvested stock appreciation rights is immaterial. The total fair value of shares vested during
2017
,
2016
and
2015
was immaterial.
The following table summarizes our non-vested stock appreciation rights for
2017
,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
Nonvested Stock Appreciation Rights
|
|
Shares
|
|
Weighted-Average
Value (per Share)
|
Nonvested at January 1, 2015
|
|
244,229
|
|
|
$
|
10.37
|
|
Vested
|
|
(1,250
|
)
|
|
$
|
10.33
|
|
Nonvested at December 31, 2015
|
|
242,979
|
|
|
$
|
10.37
|
|
Vested
|
|
(241,829
|
)
|
|
$
|
10.38
|
|
Nonvested at December 31, 2016
|
|
1,150
|
|
|
$
|
9.88
|
|
Granted
|
|
26,839
|
|
|
$
|
0.19
|
|
Vested
|
|
(24,809
|
)
|
|
$
|
0.29
|
|
Nonvested at December 31, 2017
|
|
3,180
|
|
|
$
|
1.32
|
|
Stock and Restricted Stock Unit Information
Under the Omnibus Plans, we grant non-employee members of our Board of Directors shares of stock. The shares granted to Directors are immediately vested and all compensation expense is recognized in our Consolidated Statements of Operations in the year the grants are made. In addition, we grant restricted stock units to select executives and key employees. Compensation expense for restricted stock is measured based on the closing market price of the stock at date of grant less the present value of expected dividends over the vesting period, as dividends are not payable on unvested restricted stock units.
A summary of the activity for stock and restricted stock units under the Omnibus Plans for
2017
,
2016
and
2015
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands, except share amounts)
|
|
2017
|
|
2016
|
|
2015
|
Beginning nonvested balance
|
|
283,188
|
|
|
315,434
|
|
|
232,824
|
|
Granted
|
|
278,351
|
|
|
298,909
|
|
|
219,010
|
|
Vested
|
|
(154,995
|
)
|
|
(165,372
|
)
|
|
(113,319
|
)
|
Forfeited
|
|
(52,340
|
)
|
|
(165,783
|
)
|
|
(23,081
|
)
|
Ending nonvested balance
|
|
354,204
|
|
|
283,188
|
|
|
315,434
|
|
|
|
|
|
|
|
|
Weighted-average grant-date fair value per restricted stock unit
|
|
$
|
10.38
|
|
|
$
|
16.22
|
|
|
$
|
35.93
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
$
|
2,682
|
|
|
$
|
3,019
|
|
|
$
|
4,199
|
|
The total fair value for shares vested during the years ended December 31,
2017
,
2016
and
2015
was
$1.9 million
,
$3.0 million
and
$4.2 million
, respectively. As of December 31,
2017
, there was
$1.9 million
of unrecognized compensation cost related to nonvested restricted stock units granted. That cost is expected to be recognized over a weighted average period of
1.9 years
. Shares issued for unrestricted stock and restricted stock unit awards are issued from treasury stock, when available.
Cash Settled Restricted Stock Unit Information
Under the terms of the CEO Retention Award Agreement dated December 16, 2013,
115,687
cash settled restricted stock units were granted during the first quarter of 2014. Accordingly, awards that will be settled in cash are subject to liability accounting and the fair value of these awards will be remeasured at the end of each reporting period until settled. On January 11, 2016, vesting of all unvested retention cash settled restricted stock units otherwise scheduled to vest on December 31, 2018 was accelerated as a result of the departure of our former CEO.
A summary of the activity for cash settled restricted stock units is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands, except share amounts)
|
|
2017
|
|
2016
|
|
2015
|
Beginning nonvested balance
|
|
17,067
|
|
|
116,712
|
|
|
115,687
|
|
Granted
|
|
—
|
|
|
16,299
|
|
|
1,025
|
|
Vested
|
|
(5,080
|
)
|
|
(115,944
|
)
|
|
—
|
|
Forfeited
|
|
(1,092
|
)
|
|
—
|
|
|
—
|
|
Ending nonvested balance
|
|
10,895
|
|
|
17,067
|
|
|
116,712
|
|
|
|
|
|
|
|
|
Weighted-average grant-date fair value per restricted stock unit
|
|
$
|
—
|
|
|
$
|
3.57
|
|
|
$
|
36.96
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
$
|
49
|
|
|
$
|
1,504
|
|
|
$
|
317
|
|
During 2016, some equity awards for foreign employees were modified to cash settled restricted stock units. The weighted-average grant-date fair value noted above represents the incremental value at the date of modification. As of December 31,
2017
, the amount of unrecognized compensation cost related to nonvested cash settled restricted stock units granted was immaterial. We paid
$2.3 million
to settle vested cash settled restricted stock units in 2016.
Employee 401(k) Plan Retirement Fund and Non-Qualified Deferred Executive Compensation Plans
We sponsor the Libbey Inc. Salary and Hourly 401(k) plans (the Plans) to provide retirement benefits for our U.S. employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plans provide for tax-deferred wage contributions for eligible employees.
For the Salary Plan, employees can contribute from
1
percent to
50
percent of their annual salary, up to the annual IRS limits. We match
100
percent on the first
6
percent on a per pay basis of pretax contributions. For the Hourly Plan, employees can contribute from
1
percent to
25
percent of their eligible annual pay up to the annual IRS limits. We match
50
percent of the first
6
percent of eligible earnings on a per pay basis that are contributed by employees on a pretax basis. Therefore, the maximum matching contribution that we may allocate to each participant's account did not exceed
$16,200
for the Salary Plan or
$8,100
for the Hourly Plan for the
2017
calendar year due to the
$270,000
annual limit on eligible earnings imposed by the Internal Revenue Code. All matching contributions are invested according to the employees' deferral elections and vest immediately.
Effective January 1, 2009, we have a non-qualified Executive Deferred Compensation Plan (EDCP). Under the EDCP, executives and other members of senior management may elect to defer base salary, annual incentive compensation and equity-based compensation. We provide matching contributions on excess contributions (above the qualified 401(k) plan compensation limits) in the same manner as we provide matching contributions under our 401(k) plan.
Our matching contributions to all Plans totaled
$3.6 million
,
$3.4 million
and
$3.4 million
in
2017
,
2016
and
2015
, respectively.
We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with transactions denominated in a currency other than the U.S. dollar. These derivatives, except for the historical foreign currency contracts and the natural gas contracts used in our Mexican manufacturing facilities, qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective 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.
We do not believe we are exposed to more than a nominal amount of credit risk in our natural gas hedges, interest rate swap and currency contracts as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of
December 31, 2017
, by Standard and Poor’s.
Fair Values
The following table provides the fair values of our derivative financial instruments for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
|
|
Fair Value of Derivative Assets
|
|
Balance Sheet Location
|
|
2017
|
|
2016
|
Cash flow hedges:
|
|
|
|
|
|
|
Interest rate swap
|
|
Other assets
|
|
$
|
646
|
|
|
$
|
—
|
|
Natural gas contracts
|
|
Prepaid and other current assets
|
|
—
|
|
|
702
|
|
Natural gas contracts
|
|
Other assets
|
|
—
|
|
|
45
|
|
Total designated
|
|
|
|
646
|
|
|
747
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Natural gas contracts
|
|
Prepaid and other current assets
|
|
—
|
|
|
732
|
|
Natural gas contracts
|
|
Other assets
|
|
—
|
|
|
29
|
|
Total undesignated
|
|
|
|
—
|
|
|
761
|
|
Total derivative assets
|
|
|
|
$
|
646
|
|
|
$
|
1,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
|
|
Fair Value of Derivative Liabilities
|
|
Balance Sheet Location
|
|
2017
|
|
2016
|
Cash flow hedges:
|
|
|
|
|
|
|
Interest rate swap
|
|
Derivative liability
|
|
$
|
213
|
|
|
$
|
1,928
|
|
Interest rate swap
|
|
Other long-term liabilities
|
|
—
|
|
|
107
|
|
Natural gas contracts
|
|
Derivative liability
|
|
220
|
|
|
—
|
|
Natural gas contracts
|
|
Other long-term liabilities
|
|
7
|
|
|
—
|
|
Total designated
|
|
|
|
440
|
|
|
2,035
|
|
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
|
|
|
|
$
|
716
|
|
|
$
|
2,035
|
|
The following table presents the notional amount of derivatives on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
|
Derivative Types
|
|
Unit of Measure
|
|
December 31, 2017
|
|
December 31, 2016
|
Natural gas contracts
|
|
Millions of British Thermal Units (MMBTUs)
|
|
2,480,000
|
|
|
2,590,000
|
|
Interest rate swap
|
|
Thousands of U.S. dollars
|
|
$
|
220,000
|
|
|
$
|
220,000
|
|
Currency contracts
|
|
Thousands of Canadian dollars
|
|
C$
|
—
|
|
|
C$
|
—
|
|
The following table presents cash settlements (paid) received related to the below derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Natural gas contracts
|
|
$
|
(47
|
)
|
|
$
|
(2,345
|
)
|
|
$
|
(4,567
|
)
|
Interest rate swap
|
|
(1,836
|
)
|
|
(2,244
|
)
|
|
—
|
|
Total
|
|
$
|
(1,883
|
)
|
|
$
|
(4,589
|
)
|
|
$
|
(4,567
|
)
|
The following table provides a summary of the impacts of derivative gain (loss) on the Consolidated Statements of Operations and other comprehensive income (OCI):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
Location
|
|
2017
|
|
2016
|
|
2015
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
Effective portion of derivative gain (loss) recognized in OCI:
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
OCI
|
|
$
|
(1,019
|
)
|
|
$
|
721
|
|
|
$
|
(1,909
|
)
|
Interest rate swap
|
|
OCI
|
|
733
|
|
|
(2,056
|
)
|
|
(2,378
|
)
|
Total
|
|
$
|
(286
|
)
|
|
$
|
(1,335
|
)
|
|
$
|
(4,287
|
)
|
|
|
|
|
|
|
|
|
|
Effective portion of derivative gain (loss) reclassified from accumulated OCI to current earnings:
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
Cost of Sales
|
|
$
|
(45
|
)
|
|
$
|
(1,129
|
)
|
|
$
|
(2,131
|
)
|
Interest rate swap
|
|
Interest expense
|
|
(1,735
|
)
|
|
(2,399
|
)
|
|
—
|
|
Total
|
|
$
|
(1,780
|
)
|
|
$
|
(3,528
|
)
|
|
$
|
(2,131
|
)
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Gain (loss) recognized in current earnings:
|
|
|
|
|
|
|
|
|
Currency contracts
|
|
Other income (expense)
|
|
$
|
—
|
|
|
$
|
(245
|
)
|
|
$
|
(158
|
)
|
Natural gas contracts
|
|
Other income (expense)
|
|
(1,036
|
)
|
|
1,860
|
|
|
218
|
|
Total
|
|
$
|
(1,036
|
)
|
|
$
|
1,615
|
|
|
$
|
60
|
|
Natural Gas Contracts
We use natural gas swap contracts related to forecasted future North American natural gas requirements. The objective of these commodity contracts is to limit the fluctuations in prices paid due to price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from
40 percent
to
70 percent
of our anticipated requirements, up to
eighteen
months in the future. The fair values of these instruments are determined from market quotes.
Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in other income (expense). As the natural gas contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from accumulated other comprehensive loss to current expense in cost of sales in our Consolidated Statements of Operations.
Since October 1, 2014, our derivatives for natural gas in Mexico have not been designated as cash flow hedges. All mark-to-market changes on these derivatives are reflected in other income (expense).
Based on our current valuation, we estimate that accumulated losses for natural gas currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in
$0.2 million
of loss in our Consolidated Statements of Operations.
Interest Rate Swap as Cash Flow Hedge
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
December 31, 2017
and accounted for under FASB ASC 815 "Derivatives and Hedging". Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). The ineffective portion, if any, of the change in the fair value of a derivative designated as a cash flow hedge is recognized in other income (expense). Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in
$0.2 million
of additional interest expense in our Consolidated Statements of Operations.
Currency Contracts
Our foreign currency exposure arises from transactions denominated in a currency other than the U.S. dollar primarily associated with our Canadian dollar denominated accounts receivable. From time to time, we enter into a series of foreign currency contracts to mitigate this exposure. The fair values of these instruments are determined from market quotes. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change.
|
|
13.
|
Accumulated Other Comprehensive Income (Loss)
|
Accumulated other comprehensive income (loss) (AOCI), net of tax, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Foreign Currency Translation
|
|
Derivative Instruments
|
|
Pension and Other Post-retirement Benefits
|
|
Total
Accumulated
Comprehensive Loss
|
Balance on December 31, 2014
|
|
$
|
(9,162
|
)
|
|
$
|
(625
|
)
|
|
$
|
(128,660
|
)
|
|
$
|
(138,447
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
(13,751
|
)
|
|
(4,287
|
)
|
|
4,204
|
|
|
(13,834
|
)
|
Currency impact
|
|
—
|
|
|
—
|
|
|
4,233
|
|
|
4,233
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
2,357
|
|
(1
|
)
|
31,312
|
|
(2)
|
33,669
|
|
Tax effect
|
|
—
|
|
|
695
|
|
|
(6,548
|
)
|
|
(5,853
|
)
|
Other comprehensive income (loss), net of tax
|
|
(13,751
|
)
|
|
(1,235
|
)
|
|
33,201
|
|
|
18,215
|
|
Balance on December 31, 2015
|
|
(22,913
|
)
|
|
(1,860
|
)
|
|
(95,459
|
)
|
|
(120,232
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
(6,244
|
)
|
|
(1,335
|
)
|
|
(10,728
|
)
|
|
(18,307
|
)
|
Currency impact
|
|
—
|
|
|
—
|
|
|
1,271
|
|
|
1,271
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
3,528
|
|
(1
|
)
|
5,452
|
|
(2)
|
8,980
|
|
Tax effect
|
|
1,329
|
|
|
(848
|
)
|
|
2,610
|
|
|
3,091
|
|
Other comprehensive income (loss), net of tax
|
|
(4,915
|
)
|
|
1,345
|
|
|
(1,395
|
)
|
|
(4,965
|
)
|
Balance on December 31, 2016
|
|
(27,828
|
)
|
|
(515
|
)
|
|
(96,854
|
)
|
|
(125,197
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
12,835
|
|
|
(286
|
)
|
|
6,307
|
|
|
18,856
|
|
Currency impact
|
|
—
|
|
|
—
|
|
|
(152
|
)
|
|
(152
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
1,780
|
|
(1
|
)
|
5,586
|
|
(2)
|
7,366
|
|
Tax effect
|
|
(1,190
|
)
|
|
(628
|
)
|
|
(4,227
|
)
|
|
(6,045
|
)
|
Other comprehensive income (loss), net of tax
|
|
11,645
|
|
|
866
|
|
|
7,514
|
|
|
20,025
|
|
Balance on December 31, 2017
|
|
$
|
(16,183
|
)
|
|
$
|
351
|
|
|
$
|
(89,340
|
)
|
|
$
|
(105,172
|
)
|
_________________________
|
|
(1)
|
We reclassified natural gas contracts through cost of sales and the interest rate swap through interest expense on the Consolidated Statements of Operations. See
note 12
for additional information.
|
|
|
(2)
|
We reclassified the net pension and non-pension post-retirement benefits amortization and settlement charges through cost of sales and selling, general and administrative expenses on the Consolidated Statements of Operations. See
notes 8
and
9
for additional information.
|
FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. 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.
|
|
|
•
|
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)
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity futures natural gas contracts
|
|
$
|
—
|
|
|
$
|
(503
|
)
|
|
$
|
—
|
|
|
$
|
(503
|
)
|
|
$
|
—
|
|
|
$
|
1,508
|
|
|
$
|
—
|
|
|
$
|
1,508
|
|
Interest rate swap
|
|
—
|
|
|
433
|
|
|
—
|
|
|
433
|
|
|
—
|
|
|
(2,035
|
)
|
|
—
|
|
|
(2,035
|
)
|
Net derivative asset (liability)
|
|
$
|
—
|
|
|
$
|
(70
|
)
|
|
$
|
—
|
|
|
$
|
(70
|
)
|
|
$
|
—
|
|
|
$
|
(527
|
)
|
|
$
|
—
|
|
|
$
|
(527
|
)
|
The fair values of our commodity futures natural gas contracts and currency contracts are determined using observable market inputs. The fair value of our interest rate swap is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy. We also evaluate Company and counterparty risk in determining fair values. The commodity futures natural gas contracts, interest rate swap and currency contracts 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 Consolidated Balance Sheets, as well as the related fair values, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
(dollars in thousands)
|
|
Fair Value
Hierarchy Level
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Term Loan B
|
|
Level 2
|
|
$
|
384,600
|
|
|
$
|
370,178
|
|
|
$
|
409,000
|
|
|
$
|
412,068
|
|
The fair value of our Term Loan B has been calculated based on quoted market prices for the same or similar issues. The fair value of our other immaterial debt approximates carrying value at
December 31, 2017
and
2016
. The fair value of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to their short term nature.
Rental expense for all non-cancelable operating leases, primarily for warehouses, was
$17.0 million
,
$17.6 million
and
$17.5 million
for the years ended December 31,
2017
,
2016
and
2015
, respectively.
Future minimum rentals under operating leases are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023 and
thereafter
|
|
$15,542
|
|
$13,593
|
|
$11,496
|
|
$8,028
|
|
$7,178
|
|
$24,675
|
|
|
|
16.
|
Other Income (Expense)
|
Items included in other income (expense) in the Consolidated Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Gain (loss) on currency transactions
|
|
$
|
(2,788
|
)
|
|
$
|
775
|
|
|
$
|
2,641
|
|
Gain (loss) on mark-to-market natural gas contracts
|
|
(1,036
|
)
|
|
1,860
|
|
|
(714
|
)
|
Hedge ineffectiveness
|
|
—
|
|
|
—
|
|
|
932
|
|
Other non-operating income
|
|
309
|
|
|
727
|
|
|
21
|
|
Other income (expense)
|
|
$
|
(3,515
|
)
|
|
$
|
3,362
|
|
|
$
|
2,880
|
|
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 bankruptcy, U.S. EPA recovered
$22.0 million
from Motors Liquidation Company (MLC), the successor to General Motors Corporation. 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.
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, 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 claim for indemnification under the Asset Purchase Agreement.
In connection with the above proceedings, an estimated environmental liability of
$0.8 million
and a recoverable amount of
$0.4 million
in other assets have been recorded in the Consolidated Balance Sheet at December 31, 2017. An estimated liability of
$0.9 million
and a recoverable amount of
$0.5 million
in other assets have been recorded in the Consolidated Balance Sheet at December 31, 2016. Immaterial amounts have been recorded in cost of sales in the Consolidated Statements of Operations for the years ended December 31, 2017 and 2016, and
$0.2 million
was recorded for the year ended December 31, 2015.
Although we cannot predict the ultimate outcome of this proceeding, we believe that it 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 7
, Income Taxes, for a detailed discussion on tax contingencies.
|
|
18.
|
Segments and Geographic 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. In the first quarter of 2017, net sales and related costs for certain countries were reclassified between segments to align with changes in business unit responsibilities. Accordingly, 2016 and 2015 segment results have been reclassified to conform with the revised structure. The revised segment results do not affect any previously reported consolidated financial results. Our
three
reportable segments are defined below. Our operating segment that does not meet the criteria to be a reportable segment is disclosed as Other.
U.S. & Canada—includes sales of manufactured and sourced tableware having an end-market destination in the U.S and Canada, excluding glass products for Original Equipment Manufacturers (OEM), which remain in the Latin America segment.
Latin America—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Latin America, 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. As the gain (loss) on mark-to-market natural gas contracts is considered representative of our ongoing operations, it is included in Segment EBIT in 2017; the derivative amounts originally excluded from Segment EBIT in prior years have been reclassified and included in Segment EBIT to conform to the current year presentation. 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. It is impracticable to provide revenue by product categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Net Sales:
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
481,797
|
|
|
$
|
482,296
|
|
|
$
|
492,051
|
|
Latin America
|
|
144,322
|
|
|
151,389
|
|
|
167,069
|
|
EMEA
|
|
126,924
|
|
|
126,591
|
|
|
129,549
|
|
Other
|
|
28,785
|
|
|
33,144
|
|
|
33,676
|
|
Consolidated
|
|
$
|
781,828
|
|
|
$
|
793,420
|
|
|
$
|
822,345
|
|
|
|
|
|
|
|
|
Segment EBIT:
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
48,044
|
|
|
$
|
75,449
|
|
|
$
|
78,144
|
|
Latin America
|
|
6,590
|
|
|
12,583
|
|
|
22,235
|
|
EMEA
|
|
1,321
|
|
|
1,387
|
|
|
3,289
|
|
Other
|
|
(3,838
|
)
|
|
1,001
|
|
|
4,614
|
|
Total Segment EBIT
|
|
$
|
52,117
|
|
|
$
|
90,420
|
|
|
$
|
108,282
|
|
|
|
|
|
|
|
|
Reconciliation of Segment EBIT to Net Income (Loss):
|
|
|
|
|
|
|
Segment EBIT
|
|
$
|
52,117
|
|
|
$
|
90,420
|
|
|
$
|
108,282
|
|
Retained corporate costs
|
|
(27,099
|
)
|
|
(27,265
|
)
|
|
(34,645
|
)
|
Goodwill impairment (
note 4
)
|
|
(79,700
|
)
|
|
—
|
|
|
—
|
|
Pension settlement charges (
note 8
)
|
|
—
|
|
|
(168
|
)
|
|
(21,693
|
)
|
Environmental obligation (
note 17
)
|
|
—
|
|
|
—
|
|
|
(157
|
)
|
Reorganization charges
|
|
(2,488
|
)
|
|
—
|
|
|
(4,316
|
)
|
Product portfolio optimization
(1)
|
|
—
|
|
|
(5,693
|
)
|
|
—
|
|
Work stoppage
(2)
|
|
—
|
|
|
(4,162
|
)
|
|
—
|
|
Executive terminations
|
|
—
|
|
|
(4,460
|
)
|
|
(870
|
)
|
Interest expense
|
|
(20,400
|
)
|
|
(20,888
|
)
|
|
(18,484
|
)
|
(Provision) benefit for income taxes
|
|
(15,798
|
)
|
|
(17,711
|
)
|
|
38,216
|
|
Net income (loss)
|
|
$
|
(93,368
|
)
|
|
$
|
10,073
|
|
|
$
|
66,333
|
|
|
|
|
|
|
|
|
Depreciation & Amortization:
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
12,665
|
|
|
$
|
12,748
|
|
|
$
|
12,214
|
|
Latin America
|
|
18,576
|
|
|
19,068
|
|
|
14,738
|
|
EMEA
|
|
7,377
|
|
|
9,377
|
|
|
8,510
|
|
Other
|
|
5,088
|
|
|
5,588
|
|
|
5,855
|
|
Corporate
|
|
1,838
|
|
|
1,705
|
|
|
1,395
|
|
Consolidated
|
|
$
|
45,544
|
|
|
$
|
48,486
|
|
|
$
|
42,712
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
10,056
|
|
|
$
|
10,671
|
|
|
$
|
25,106
|
|
Latin America
|
|
18,520
|
|
|
11,032
|
|
|
11,944
|
|
EMEA
|
|
17,158
|
|
|
7,571
|
|
|
6,773
|
|
Other
|
|
1,226
|
|
|
2,905
|
|
|
1,855
|
|
Corporate
|
|
668
|
|
|
2,425
|
|
|
2,458
|
|
Consolidated
|
|
$
|
47,628
|
|
|
$
|
34,604
|
|
|
$
|
48,136
|
|
______________________________
(1)
Product portfolio optimization relates to inventory reductions to simplify and improve our operations.
(2)
Work stoppage relates to the lower production volume impact, shipping costs and other direct incremental expenses associated with the two-week Toledo, Ohio work stoppage in the fourth quarter of 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(dollars in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Segment Assets
(1)
:
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
147,809
|
|
|
$
|
130,390
|
|
|
$
|
140,840
|
|
Latin America
|
|
63,093
|
|
|
63,838
|
|
|
68,599
|
|
EMEA
|
|
48,270
|
|
|
44,588
|
|
|
48,924
|
|
Other
|
|
18,711
|
|
|
16,306
|
|
|
14,043
|
|
Consolidated
|
|
$
|
277,883
|
|
|
$
|
255,122
|
|
|
$
|
272,406
|
|
______________________________
(1)
Segment assets are defined as net accounts receivable plus net inventory.
Geographic data for the U.S., Mexico and Other countries for
2017
,
2016
and
2015
is presented below. Net sales are based on the geographical destination of the sale. The long-lived assets include net property, plant and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
United States
|
|
Mexico
|
|
All Other
|
|
Consolidated
|
2017
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
479,018
|
|
|
$
|
93,370
|
|
|
$
|
209,440
|
|
|
$
|
781,828
|
|
Long-lived assets
|
|
$
|
89,838
|
|
|
$
|
87,836
|
|
|
$
|
88,001
|
|
|
$
|
265,675
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
478,342
|
|
|
$
|
100,829
|
|
|
$
|
214,249
|
|
|
$
|
793,420
|
|
Long-lived assets
|
|
$
|
91,834
|
|
|
$
|
89,963
|
|
|
$
|
74,595
|
|
|
$
|
256,392
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
488,582
|
|
|
$
|
107,386
|
|
|
$
|
226,377
|
|
|
$
|
822,345
|
|
Long-lived assets
|
|
$
|
94,206
|
|
|
$
|
93,573
|
|
|
$
|
84,755
|
|
|
$
|
272,534
|
|
Selected Quarterly Financial Data (unaudited)
The following table presents selected quarterly financial data for the years ended December 31,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands,
except per-share amounts)
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net sales
|
|
$
|
172,994
|
|
|
$
|
182,807
|
|
|
$
|
197,514
|
|
|
$
|
207,902
|
|
|
$
|
187,339
|
|
|
$
|
196,873
|
|
|
$
|
223,981
|
|
|
$
|
205,838
|
|
Gross profit
|
|
$
|
30,314
|
|
|
$
|
39,974
|
|
|
$
|
40,778
|
|
|
$
|
50,411
|
|
|
$
|
37,195
|
|
|
$
|
41,882
|
|
|
$
|
42,684
|
|
|
$
|
34,027
|
|
Net income (loss)
|
|
$
|
(6,570
|
)
|
|
$
|
718
|
|
|
$
|
(832
|
)
|
|
$
|
8,695
|
|
|
$
|
(78,815
|
)
|
|
$
|
2,909
|
|
|
$
|
(7,151
|
)
|
|
$
|
(2,249
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.30
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.40
|
|
|
$
|
(3.57
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.32
|
)
|
|
$
|
0.10
|
|
Diluted
|
|
$
|
(0.30
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.40
|
|
|
$
|
(3.57
|
)
|
|
$
|
0.13
|
|
|
$
|
(0.32
|
)
|
|
$
|
0.10
|
|