Notes to Condensed Consolidated Financial Statements
(unaudited)
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1.
|
Description of the Business
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Libbey is a leading global manufacturer and marketer of glass tableware products. We produce glass tableware in
five
countries and sell to customers in over
100
countries. We design and market, under our Libbey
®
, Libbey Signature
®
, Master's Reserve
®
, Crisa
®
, Royal Leerdam
®
, World
®
Tableware, Syracuse
®
China and Crisal Glass
®
brand names (among others), an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware items for sale primarily in the foodservice, retail and business-to-business channels of distribution. Our sales force presents our tabletop products to the global marketplace in a coordinated fashion. We own and operate
two
glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in Mexico (Libbey Mexico), the Netherlands (Libbey Holland), Portugal (Libbey Portugal) and China (Libbey China). In addition, we import tabletop products from overseas in order to complement our line of manufactured items. The combination of manufacturing and procurement allows us to compete in the global tabletop market by offering an extensive product line at competitive prices.
Our website can be found at
www.libbey.com
. We make available, free of charge, at this website all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, as well as amendments to those reports. These reports are made available on our website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission and can also be found at
www.sec.gov
.
Our shares are traded on the NYSE American exchange under the ticker symbol LBY.
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2.
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Significant Accounting Policies
|
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended
June 30, 2019
, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2019
.
The balance sheet at
December 31, 2018
, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The financial information included herein should be read in conjunction with our Consolidated Financial Statements in Item 8 of our Form 10-K for the year ended
December 31, 2018
.
Software
We account for software in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (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
3
to
10
year period. Software is classified on the balance sheet in property, plant and equipment, and the related cash flows are shown as cash outflows from investing activities.
Cloud Computing Arrangements
We account for implementation costs for software that we gain access to in hosted cloud computing arrangements in accordance with FASB ASC 350. Capitalized costs of hosted cloud computing arrangements include configuration, installation, other upfront costs and internal labor costs of employees devoted to the cloud computing software implementation project. Once a project is complete, amortization is computed using the straight-line method over the term of the associated hosting arrangement, generally
3
to
10
years. In connection with our adoption of Accounting Standards Update (ASU) 2018-15 on January 1, 2019, these implementation costs are now classified on the balance sheet in prepaid and other current assets and other assets, and the related cash flows are presented as cash outflows from operations. Prior to January 1, 2019, implementation costs were included in property, plant and equipment, and the related cash flows were shown as cash outflows from investing activities. See
New Accounting Standards - Adopted
below. Our cloud computing arrangements
primarily relate to our new global enterprise resource planning (ERP) system. At June 30, 2019, the net book value of these implementation costs included
$0.3 million
in prepaid and other current assets and
$4.1 million
in other assets on the Condensed Consolidated Balance Sheet. Amortization expense for the three and six-month periods were both immaterial.
Leases
We determine if an arrangement is a lease at inception. As of January 1, 2019, operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our balance sheet; related payments are included in operating activities on the statement of cash flows. We currently do not have any finance leases; but, if we do in the future, we will include them in property, plant and equipment, long-term debt due within one year and long-term debt within our balance sheet.
ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
When our leases do not provide an implicit rate, we use our incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our secured borrowing rates as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
The operating lease ROU asset also includes any lease prepayments made before commencement or in advance of the payment due date. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less (short-term leases) are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease costs represent the incremental change in lease payments associated with an indexed rate (i.e. Consumers Price Index), and these costs are not included in the lease liability on the balance sheet because they are unknown at commencement date.
We have lease agreements with lease and non-lease components. Non-lease components for real estate leases relate primarily to common area maintenance, insurance, taxes and utilities associated with the properties. For real estate leases and a limited class of equipment leases, we account for the lease and non-lease components separately. Non-lease components are not recorded on the balance sheet as a ROU asset and lease liability and are not included in lease costs. For all other equipment leases, we account for the lease and non-lease components as a single lease component.
See
New Accounting Standards - Adopted
below for the adoption impact of this lease accounting standard.
Stock-Based Compensation Expense
Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
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|
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|
|
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|
|
|
|
|
|
|
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Three months ended June 30,
|
|
Six months ended June 30,
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Stock-based compensation expense
|
|
$
|
993
|
|
|
$
|
1,166
|
|
|
$
|
1,935
|
|
|
$
|
1,456
|
|
New Accounting Standards - Adopted
Each change to U.S. GAAP is established by the FASB in the form of an ASU to the FASB’s ASC. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and either were determined to be not applicable or are expected to have minimal impact on the Company’s Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842), which requires a lessee to recognize on the balance sheet ROU assets and corresponding liabilities for both finance and operating leases with lease terms greater than 12 months. On January 1, 2019, we adopted this standard using the optional transition method of applying the modified retrospective approach at our adoption date. Under this method, previously reported comparative periods prior to 2019 have not been restated. We have elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our prior conclusions on existing contracts for lease identification, lease classification and initial direct costs. In addition, for most of our classes of equipment leases, we elected the practical expedient to not separate lease and non-lease components. We also made an accounting policy election to keep leases with a term of 12 months or less off of the balance sheet for all classes of underlying assets. At adoption, we had operating leases which resulted in us recognizing operating ROU
assets and lease liabilities on the balance sheet of approximately
$69 million
. The adoption of this ASU did not have a material impact on our condensed consolidated results of operations or cash flows, and there was
no
cumulative effect adjustment to retained earnings. The new standard also required additional disclosures which are included in
note 13
.
On January 1, 2019, we early adopted ASU 2018-15,
Intangibles-Goodwill and Other-Internal-Use Software
(Subtopic 350-40):
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. This standard aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for internal-use software. The new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. Prior to January 1, 2019, implementation costs for cloud computing arrangements were capitalized into property, plant and equipment and amortized on a straight-line basis. Upon adoption of this new standard, we reclassed
$2.8 million
from construction in progress within property, plant, and equipment to other assets. When implementation projects are completed and amortization of capitalized costs begins, a portion is recorded in prepaids and other current assets. Results and disclosures for reporting periods beginning on or after January 1, 2019, are presented under the new guidance within ASU 2018-15, while prior period amounts and disclosures are not adjusted and continue to be reported in accordance with our previous accounting.
New Accounting Standards - Not Yet Adopted
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. Although we are still evaluating the impact of this standard, we believe it will not have a material impact on our Condensed Consolidated Financial Statements.
The following table provides detail of selected balance sheet items:
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(dollars in thousands)
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|
June 30, 2019
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|
December 31, 2018
|
Accounts receivable:
|
|
|
|
|
Trade receivables
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|
$
|
90,850
|
|
|
$
|
82,521
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|
Other receivables
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|
2,100
|
|
|
1,456
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|
Total accounts receivable, less allowances of $8,956 and $8,538
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$
|
92,950
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|
|
$
|
83,977
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
Finished goods
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|
$
|
185,185
|
|
|
$
|
175,074
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|
Work in process
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|
1,746
|
|
|
1,363
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|
Raw materials
|
|
3,608
|
|
|
4,026
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|
Repair parts
|
|
10,279
|
|
|
10,116
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|
Operating supplies
|
|
1,746
|
|
|
1,524
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|
Total inventories, less loss provisions of $8,051 and $9,453
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|
$
|
202,564
|
|
|
$
|
192,103
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
Accrued incentives
|
|
$
|
22,740
|
|
|
$
|
19,359
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|
Other accrued liabilities
|
|
25,277
|
|
|
24,369
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|
Total accrued liabilities
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|
$
|
48,017
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|
|
$
|
43,728
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Borrowings consist of the following:
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|
|
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(dollars in thousands)
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Interest Rate
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Maturity Date
|
|
June 30,
2019
|
|
December 31,
2018
|
Borrowings under ABL Facility
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|
floating
|
(2)
|
December 7, 2022
(1)
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|
$
|
47,680
|
|
|
$
|
19,868
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|
Term Loan B
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|
floating
|
(3)
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April 9, 2021
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378,000
|
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|
380,200
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Total borrowings
|
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|
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425,680
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|
400,068
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Less — unamortized discount and finance fees
|
|
|
1,867
|
|
|
2,368
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|
Total borrowings — net
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|
|
|
|
423,813
|
|
|
397,700
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|
Less — long term debt due within one year
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|
|
|
4,400
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|
|
4,400
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|
Total long-term portion of borrowings — net
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$
|
419,413
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$
|
393,300
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|
________________________
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(1)
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Maturity date will be January 9, 2021, if Term Loan B is not refinanced by this date.
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(2)
|
The interest rate for the ABL Facility is comprised of several different borrowings at various rates. The weighted average rate of all ABL Facility borrowings was
2.93 percent
at
June 30, 2019
.
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(3)
|
We have entered into interest rate swaps that effectively fix a series of our future interest payments on a portion of the Term Loan B debt. See interest rate swaps in
note 8
for additional details. The Term Loan B floating interest rate was
5.41 percent
at
June 30, 2019
.
|
The ABL Facility also provides for the issuance of up to
$15.0 million
of letters of credit that, when outstanding, are applied against the
$100.0 million
limit. At
June 30, 2019
,
$8.6 million
in letters of credit and other reserves were outstanding. Remaining unused availability under the ABL Facility was
$43.7 million
at
June 30, 2019
, compared to
$71.6 million
at
December 31, 2018
.
On June 17, 2019, Crisa Libbey Mexico S. de R.L. de C.V. entered into a
$3.0 million
working capital line of credit with Banco Santander Mexico to cover seasonal working capital needs, guaranteed by its parent company, Libbey Mexico, S. de R.L. de C.V. The line of credit matures on December 14, 2020, and has a floating interest rate of LIBOR plus
3.2 percent
. At June 30, 2019, there were
no
borrowings under this line of credit. Interest with respect to borrowings on the line of credit is due monthly.
For interim tax reporting, we estimate our annual effective tax rate and apply it to our year-to-date ordinary income. Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded from the annualized effective tax rate. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur.
Our effective tax rate was
(11.6) percent
for the
six months ended
June 30, 2019
, compared to
79.6 percent
for the
six months ended
June 30, 2018
. Our effective tax rate for the six months ended June 30, 2019, which was below the United States statutory rate of 21 percent, was reduced
24.8%
percent by the nondeductible goodwill impairment charge and further reduced by other nondeductible costs, including interest, foreign exchange, certain employee costs and unbenefited losses in the Netherlands.
The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. In August 2016, the Mexican tax authority (SAT) assessed
one
of our Mexican subsidiaries related to the audit of its 2010 tax year. The amount assessed was approximately
3 billion
Mexican pesos, which was equivalent to approximately
$157 million
U.S. dollars as of the date of the assessment. The Company has filed an administrative appeal with SAT requesting that the assessment be fully nullified. We are awaiting the outcome of the appeal. Management, in consultation with external legal counsel, believes that if contested in the Mexican court system, it is more likely than not that the Company would prevail on all significant components of the assessment. Management intends to continue to vigorously contest all significant components of the assessment in the Mexican courts if they are not nullified at the administrative appeal level. We believe that our tax reserves related to uncertain tax positions are adequate at this time. There were no significant developments affecting this matter for the six months ended June 30, 2019.
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6.
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Pension and Non-pension Post-retirement Benefits
|
The components of our net pension expense, including the SERP (supplemental employee retirement plan), are as follows:
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Three months ended June 30,
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U.S. Plans
|
|
Non-U.S. Plans
|
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Total
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
783
|
|
|
$
|
1,025
|
|
|
$
|
260
|
|
|
$
|
284
|
|
|
$
|
1,043
|
|
|
$
|
1,309
|
|
Interest cost
|
|
3,382
|
|
|
3,142
|
|
|
772
|
|
|
741
|
|
|
4,154
|
|
|
3,883
|
|
Expected return on plan assets
|
|
(5,193
|
)
|
|
(5,669
|
)
|
|
—
|
|
|
—
|
|
|
(5,193
|
)
|
|
(5,669
|
)
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
—
|
|
|
1
|
|
|
(51
|
)
|
|
(50
|
)
|
|
(51
|
)
|
|
(49
|
)
|
Actuarial loss
|
|
1,088
|
|
|
1,599
|
|
|
105
|
|
|
154
|
|
|
1,193
|
|
|
1,753
|
|
Pension expense
|
|
$
|
60
|
|
|
$
|
98
|
|
|
$
|
1,086
|
|
|
$
|
1,129
|
|
|
$
|
1,146
|
|
|
$
|
1,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
U.S. Plans
|
|
Non-U.S. Plans
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|
Total
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
1,566
|
|
|
$
|
2,004
|
|
|
$
|
519
|
|
|
$
|
576
|
|
|
$
|
2,085
|
|
|
$
|
2,580
|
|
Interest cost
|
|
6,764
|
|
|
6,307
|
|
|
1,541
|
|
|
1,504
|
|
|
8,305
|
|
|
7,811
|
|
Expected return on plan assets
|
|
(10,386
|
)
|
|
(11,329
|
)
|
|
—
|
|
|
—
|
|
|
(10,386
|
)
|
|
(11,329
|
)
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
—
|
|
|
1
|
|
|
(101
|
)
|
|
(101
|
)
|
|
(101
|
)
|
|
(100
|
)
|
Actuarial loss
|
|
2,175
|
|
|
3,236
|
|
|
208
|
|
|
313
|
|
|
2,383
|
|
|
3,549
|
|
Pension expense
|
|
$
|
119
|
|
|
$
|
219
|
|
|
$
|
2,167
|
|
|
$
|
2,292
|
|
|
$
|
2,286
|
|
|
$
|
2,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have contributed
$0.4 million
and
$1.7 million
of cash to our pension plans for the
three months and six months
ended
June 30, 2019
, respectively. Pension contributions for the remainder of
2019
are estimated to be
$1.7 million
.
The provision for our non-pension, post-retirement, benefit expense consists of the following:
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|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
112
|
|
|
$
|
151
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
112
|
|
|
$
|
151
|
|
Interest cost
|
|
449
|
|
|
455
|
|
|
9
|
|
|
10
|
|
|
458
|
|
|
465
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (credit)
|
|
(71
|
)
|
|
(70
|
)
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|
(70
|
)
|
Actuarial (gain)
|
|
(106
|
)
|
|
(53
|
)
|
|
(19
|
)
|
|
(17
|
)
|
|
(125
|
)
|
|
(70
|
)
|
Non-pension post-retirement benefit expense
|
|
$
|
384
|
|
|
$
|
483
|
|
|
$
|
(10
|
)
|
|
$
|
(7
|
)
|
|
$
|
374
|
|
|
$
|
476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
222
|
|
|
$
|
302
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
222
|
|
|
$
|
302
|
|
Interest cost
|
|
918
|
|
|
911
|
|
|
18
|
|
|
20
|
|
|
936
|
|
|
931
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (credit)
|
|
(141
|
)
|
|
(141
|
)
|
|
—
|
|
|
—
|
|
|
(141
|
)
|
|
(141
|
)
|
Actuarial (gain)
|
|
(188
|
)
|
|
(105
|
)
|
|
(37
|
)
|
|
(33
|
)
|
|
(225
|
)
|
|
(138
|
)
|
Non-pension post-retirement benefit expense
|
|
$
|
811
|
|
|
$
|
967
|
|
|
$
|
(19
|
)
|
|
$
|
(13
|
)
|
|
$
|
792
|
|
|
$
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
2019
estimate of non-pension cash payments is
$5.5 million
, of which we have paid
$1.7 million
and
$3.5 million
for the
three months and six months
ended
June 30, 2019
, respectively.
|
|
7.
|
Net Income (Loss) per Share of Common Stock
|
The following table sets forth the computation of basic and diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(dollars in thousands, except earnings per share)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator for earnings per share:
|
|
|
|
|
|
|
|
|
Net income (loss) that is available to common shareholders
|
|
$
|
(43,767
|
)
|
|
$
|
3,988
|
|
|
$
|
(48,309
|
)
|
|
$
|
1,027
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
22,400,246
|
|
|
22,170,338
|
|
|
22,331,786
|
|
|
22,130,503
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
Effect of stock options and restricted stock units
|
|
—
|
|
|
185,550
|
|
|
—
|
|
|
36,584
|
|
Adjusted weighted average shares and assumed conversions
|
|
22,400,246
|
|
|
22,355,888
|
|
|
22,331,786
|
|
|
22,167,087
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
(1.95
|
)
|
|
$
|
0.18
|
|
|
$
|
(2.16
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
(1.95
|
)
|
|
$
|
0.18
|
|
|
$
|
(2.16
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from computation of diluted income (loss) per share
|
|
1,939,290
|
|
|
752,375
|
|
|
1,700,192
|
|
|
982,386
|
|
When applicable, diluted shares outstanding is calculated using the weighted-average number of common shares outstanding plus the dilutive effects of equity-based compensation outstanding during the period using the treasury stock method.
We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt and commodity price risks associated with forecasted future natural gas requirements. These derivatives qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. Our contracts with counterparties generally contain right of offset provisions. These provisions effectively reduce our exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is our policy to offset on the Condensed Consolidated Balance Sheets the amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement.
We do not believe we are exposed to more than a nominal amount of credit risk in our natural gas hedges and interest rate swaps as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of
June 30, 2019
, by Standard and Poor’s.
Fair Values
The following table provides the fair values of our derivative financial instruments for the periods presented, all of which are cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Fair Value of Derivative Assets
|
|
Balance Sheet Location
|
|
June 30, 2019
|
|
December 31, 2018
|
Interest rate swaps
|
|
Prepaid and other current assets
|
|
$
|
—
|
|
|
$
|
1,425
|
|
Natural gas contracts
|
|
Prepaid and other current assets
|
|
—
|
|
|
226
|
|
Natural gas contracts
|
|
Other assets
|
|
—
|
|
|
39
|
|
Total derivative assets
|
|
$
|
—
|
|
|
$
|
1,690
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Liabilities
|
Interest rate swaps
|
|
Accrued liabilities
|
|
$
|
1,080
|
|
|
$
|
—
|
|
Interest rate swaps
|
|
Other long-term liabilities
|
|
12,363
|
|
|
5,713
|
|
Natural gas contracts
|
|
Accrued liabilities
|
|
854
|
|
|
—
|
|
Natural gas contracts
|
|
Other long-term liabilities
|
|
87
|
|
|
—
|
|
Total derivative liabilities
|
|
$
|
14,384
|
|
|
$
|
5,713
|
|
The following table presents cash settlements (paid) received related to the below derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Natural gas contracts
|
|
$
|
(65
|
)
|
|
$
|
(36
|
)
|
|
$
|
63
|
|
|
$
|
(234
|
)
|
Interest rate swaps
|
|
347
|
|
|
(3
|
)
|
|
691
|
|
|
(181
|
)
|
Total
|
|
$
|
282
|
|
|
$
|
(39
|
)
|
|
$
|
754
|
|
|
$
|
(415
|
)
|
The following table provides a summary of the impacts of derivative gain (loss) of our cash flow hedges on the Condensed Consolidated Statements of Operations and other comprehensive income (OCI):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(dollars in thousands)
|
|
Location
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Derivative gain (loss) recognized into OCI:
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
OCI
|
|
$
|
(1,106
|
)
|
|
$
|
123
|
|
|
$
|
(1,143
|
)
|
|
$
|
334
|
|
Interest rate swaps
|
|
OCI
|
|
(4,987
|
)
|
|
480
|
|
|
(8,465
|
)
|
|
1,733
|
|
Total
|
|
$
|
(6,093
|
)
|
|
$
|
603
|
|
|
$
|
(9,608
|
)
|
|
$
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative gain (loss) reclassified from accumulated OCI to current earnings:
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
Cost of Sales
|
|
$
|
(65
|
)
|
|
$
|
(36
|
)
|
|
$
|
63
|
|
|
$
|
(234
|
)
|
Interest rate swaps
|
|
Interest expense
|
|
335
|
|
|
40
|
|
|
690
|
|
|
(103
|
)
|
Total
|
|
$
|
270
|
|
|
$
|
4
|
|
|
$
|
753
|
|
|
$
|
(337
|
)
|
Natural Gas Contracts
We use natural gas swap contracts related to forecasted future North American natural gas requirements. The objective of these commodity contracts is to limit the fluctuations in prices paid due to price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from
40 percent
to
70 percent
of our anticipated requirements,
18
months in the future, or more, depending on market conditions. The fair values of these instruments are determined from market quotes.
The following table presents the notional amount of our natural gas derivatives on the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
|
Derivative Types
|
|
Unit of Measure
|
|
June 30, 2019
|
|
December 31, 2018
|
Natural gas contracts
|
|
Millions of British Thermal Units (MMBTUs)
|
|
3,710,000
|
|
|
3,150,000
|
|
Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the fair value of these hedges are recorded in other comprehensive income (loss). As the natural gas contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from accumulated other comprehensive loss to current expense in cost of sales in our Condensed Consolidated Statement of Operations.
Based on our current valuation, we estimate that accumulated losses for natural gas contracts currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in a loss of
$0.9 million
in our Condensed Consolidated Statements of Operations.
Interest Rate Swaps
The table below lists the interest rate swaps we executed as part of our risk management strategy to mitigate the risks associated with the fluctuating interest rates under our Term Loan B. The interest rate swaps effectively convert a portion of our Term Loan B debt from a variable interest rate to a fixed interest rate, thus reducing the impact of interest rate changes on future income.
|
|
|
|
|
|
|
|
|
|
|
|
Swap execution date
|
|
Effective date
|
|
Expiration date
|
|
Notional amount
|
|
Fixed swap rate
|
|
April 1, 2015
|
|
January 11, 2016
|
|
January 9, 2020
|
|
$220.0 million
|
|
4.85
|
%
|
|
September 24, 2018
|
|
January 9, 2020
|
|
January 9, 2025
|
|
$200.0 million
|
|
6.19
|
%
|
(1)
|
________________________
|
|
(1)
|
Upon refinancing our Term Loan B, the fixed interest rate will be
3.19 percent
plus the new refinanced credit spread.
|
Our interest rate swaps are valued using the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves.
Our interest rate swaps qualify and are designated as cash flow hedges at
June 30, 2019
, and are accounted for under FASB ASC 815, "Derivatives and Hedging." Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses are recorded to earnings immediately. Changes in the fair value of these hedges are recorded in other comprehensive income (loss). Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in an increase to interest expense of
$1.1 million
in our Condensed Consolidated Statements of Operations.
|
|
9.
|
Accumulated Other Comprehensive Income (Loss)
|
Accumulated other comprehensive income (loss) (AOCI), net of tax, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019
(dollars in thousands)
|
|
Foreign Currency Translation
|
|
Derivative Instruments
|
|
Pension and Other Post-retirement Benefits
|
|
Accumulated Other
Comprehensive Loss
|
Balance on March 31, 2019
|
|
$
|
(23,266
|
)
|
|
$
|
(5,920
|
)
|
|
$
|
(87,522
|
)
|
|
$
|
(116,708
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
(533
|
)
|
|
(6,093
|
)
|
|
1,148
|
|
|
(5,478
|
)
|
Currency impact
|
|
—
|
|
|
—
|
|
|
(84
|
)
|
|
(84
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(270
|
)
|
(1)
|
945
|
|
(2)
|
675
|
|
Tax effect
|
|
262
|
|
|
1,533
|
|
|
(499
|
)
|
|
1,296
|
|
Other comprehensive income (loss), net of tax
|
|
(271
|
)
|
|
(4,830
|
)
|
|
1,510
|
|
|
(3,591
|
)
|
Balance on June 30, 2019
|
|
$
|
(23,537
|
)
|
|
$
|
(10,750
|
)
|
|
$
|
(86,012
|
)
|
|
$
|
(120,299
|
)
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2019
(dollars in thousands)
|
|
Foreign Currency Translation
|
|
Derivative Instruments
|
|
Pension and Other Post-retirement Benefits
|
|
Accumulated Other
Comprehensive Loss
|
Balance on December 31, 2018
|
|
$
|
(23,240
|
)
|
|
$
|
(2,866
|
)
|
|
$
|
(88,299
|
)
|
|
$
|
(114,405
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
(289
|
)
|
|
(9,608
|
)
|
|
1,148
|
|
|
(8,749
|
)
|
Currency impact
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
|
(50
|
)
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(753
|
)
|
(1)
|
1,915
|
|
(2)
|
1,162
|
|
Tax effect
|
|
(8
|
)
|
|
2,477
|
|
|
(726
|
)
|
|
1,743
|
|
Other comprehensive income (loss), net of tax
|
|
(297
|
)
|
|
(7,884
|
)
|
|
2,287
|
|
|
(5,894
|
)
|
Balance on June 30, 2019
|
|
$
|
(23,537
|
)
|
|
$
|
(10,750
|
)
|
|
$
|
(86,012
|
)
|
|
$
|
(120,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2018
(dollars in thousands)
|
|
Foreign Currency Translation
|
|
Derivative Instruments
|
|
Pension and Other Post-retirement Benefits
|
|
Accumulated Other
Comprehensive Loss
|
Balance on March 31, 2018
|
|
$
|
(11,850
|
)
|
|
$
|
1,546
|
|
|
$
|
(88,585
|
)
|
|
$
|
(98,889
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
(7,392
|
)
|
|
603
|
|
|
1,527
|
|
|
(5,262
|
)
|
Currency impact
|
|
—
|
|
|
—
|
|
|
524
|
|
|
524
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
(4
|
)
|
(1)
|
1,564
|
|
(2)
|
1,560
|
|
Tax effect
|
|
—
|
|
|
(127
|
)
|
|
(736
|
)
|
|
(863
|
)
|
Other comprehensive income (loss), net of tax
|
|
(7,392
|
)
|
|
472
|
|
|
2,879
|
|
|
(4,041
|
)
|
Balance on June 30, 2018
|
|
$
|
(19,242
|
)
|
|
$
|
2,018
|
|
|
$
|
(85,706
|
)
|
|
$
|
(102,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2018
(dollars in thousands)
|
|
Foreign Currency Translation
|
|
Derivative Instruments
|
|
Pension and Other Post-retirement Benefits
|
|
Accumulated Other
Comprehensive Loss
|
Balance on December 31, 2017
|
|
$
|
(16,183
|
)
|
|
$
|
351
|
|
|
$
|
(89,340
|
)
|
|
$
|
(105,172
|
)
|
|
|
|
|
|
|
|
|
|
Cumulative-effect adjustment for the adoption of ASU 2017-12
|
|
—
|
|
|
(275
|
)
|
|
—
|
|
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized into AOCI
|
|
(3,059
|
)
|
|
2,067
|
|
|
1,527
|
|
|
535
|
|
Currency impact
|
|
—
|
|
|
—
|
|
|
40
|
|
|
40
|
|
Amounts reclassified from AOCI
|
|
—
|
|
|
337
|
|
(1)
|
3,170
|
|
(2)
|
3,507
|
|
Tax effect
|
|
—
|
|
|
(462
|
)
|
|
(1,103
|
)
|
|
(1,565
|
)
|
Other comprehensive income (loss), net of tax
|
|
(3,059
|
)
|
|
1,942
|
|
|
3,634
|
|
|
2,517
|
|
Balance on June 30, 2018
|
|
$
|
(19,242
|
)
|
|
$
|
2,018
|
|
|
$
|
(85,706
|
)
|
|
$
|
(102,930
|
)
|
___________________________
|
|
(1)
|
We reclassified natural gas contracts through cost of sales and the interest rate swaps through interest expense on the Condensed Consolidated Statements of Operations. See
note 8
for additional information.
|
|
|
(2)
|
We reclassified the net pension and non-pension post-retirement benefits amortization and settlement charges through other income (expense) on the Condensed Consolidated Statements of Operations. See
note 6
for additional information.
|
Our reporting segments align with our regionally focused organizational structure, which we believe enables us to better serve customers across the globe. Under this structure, we report financial results for U.S. and Canada; Latin America; Europe, the Middle East and Africa (EMEA); and Other. Segment results are based primarily on the geographical destination of the sale. Our
three
reportable segments are defined below. Our operating segment that does not meet the criteria to be a reportable segment is disclosed as Other.
U.S. & Canada—includes sales of manufactured and sourced tableware having an end-market destination in the U.S and Canada, excluding glass products for Original Equipment Manufacturers (OEM), which remain in the Latin America segment.
Latin America—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Latin America, as well as glass products for OEMs regardless of end–market destination.
EMEA—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Europe, the Middle East and Africa.
Other—includes primarily sales of manufactured and sourced glass tableware having an end-market destination in Asia Pacific.
Our measure of profit for our reportable segments is Segment Earnings before Interest and Taxes (Segment EBIT) and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs and other allocations that are not considered by management when evaluating performance. Segment EBIT also includes an allocation of manufacturing costs for inventory produced at a Libbey facility that is located in a region other than the end market in which the inventory is sold. This allocation can fluctuate from year to year based on the relative demands for products produced in regions other than the end markets in which they are sold. We use Segment EBIT, along with net sales and selected cash flow information, to evaluate performance and to allocate resources. Segment EBIT for reportable segments includes an allocation of some corporate expenses based on the costs of services performed.
Certain activities not related to any particular reportable segment are reported within retained corporate costs. These costs include certain headquarter, administrative and facility costs, and other costs that are global in nature and are not allocable to the reporting segments.
The accounting policies of the reportable segments are the same as those described in
note 2
. We do not have any customers who represent 10 percent or more of total sales. Inter-segment sales are consummated at arm’s length and are reflected at end-market reporting below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net Sales:
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
128,897
|
|
|
$
|
128,474
|
|
|
$
|
238,803
|
|
|
$
|
236,415
|
|
Latin America
|
|
38,208
|
|
|
40,290
|
|
|
68,609
|
|
|
74,623
|
|
EMEA
|
|
32,678
|
|
|
38,175
|
|
|
60,720
|
|
|
70,423
|
|
Other
|
|
6,375
|
|
|
6,595
|
|
|
12,992
|
|
|
13,986
|
|
Consolidated
|
|
$
|
206,158
|
|
|
$
|
213,534
|
|
|
$
|
381,124
|
|
|
$
|
395,447
|
|
|
|
|
|
|
|
|
|
|
Segment EBIT:
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
17,267
|
|
|
$
|
13,358
|
|
|
$
|
27,064
|
|
|
$
|
18,082
|
|
Latin America
|
|
3,187
|
|
|
7,433
|
|
|
3,836
|
|
|
9,583
|
|
EMEA
|
|
2,763
|
|
|
2,621
|
|
|
2,713
|
|
|
3,626
|
|
Other
|
|
(1,169
|
)
|
|
660
|
|
|
(2,321
|
)
|
|
(469
|
)
|
Total Segment EBIT
|
|
$
|
22,048
|
|
|
$
|
24,072
|
|
|
$
|
31,292
|
|
|
$
|
30,822
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Segment EBIT to Net Income (Loss):
|
|
|
|
|
|
|
|
Segment EBIT
|
|
$
|
22,048
|
|
|
$
|
24,072
|
|
|
$
|
31,292
|
|
|
$
|
30,822
|
|
Retained corporate costs
|
|
(6,756
|
)
|
|
(8,536
|
)
|
|
(16,206
|
)
|
|
(15,246
|
)
|
Impairment of goodwill and other intangible assets (note 16)
|
(46,881
|
)
|
|
—
|
|
|
(46,881
|
)
|
|
—
|
|
Interest expense
|
|
(5,879
|
)
|
|
(5,456
|
)
|
|
(11,511
|
)
|
|
(10,540
|
)
|
Provision for income taxes
|
|
(6,299
|
)
|
|
(6,092
|
)
|
|
(5,003
|
)
|
|
(4,009
|
)
|
Net income (loss)
|
|
$
|
(43,767
|
)
|
|
$
|
3,988
|
|
|
$
|
(48,309
|
)
|
|
$
|
1,027
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization:
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
3,214
|
|
|
$
|
3,052
|
|
|
$
|
6,347
|
|
|
$
|
6,439
|
|
Latin America
|
|
3,837
|
|
|
4,494
|
|
|
7,617
|
|
|
9,204
|
|
EMEA
|
|
1,706
|
|
|
1,940
|
|
|
3,405
|
|
|
3,949
|
|
Other
|
|
893
|
|
|
1,309
|
|
|
1,775
|
|
|
2,623
|
|
Corporate
|
|
341
|
|
|
445
|
|
|
778
|
|
|
904
|
|
Consolidated
|
|
$
|
9,991
|
|
|
$
|
11,240
|
|
|
$
|
19,922
|
|
|
$
|
23,119
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
U.S. & Canada
|
|
$
|
2,540
|
|
|
$
|
5,592
|
|
|
$
|
5,924
|
|
|
$
|
12,729
|
|
Latin America
|
|
3,531
|
|
|
2,778
|
|
|
7,722
|
|
|
5,167
|
|
EMEA
|
|
1,392
|
|
|
1,449
|
|
|
3,738
|
|
|
2,743
|
|
Other
|
|
41
|
|
|
142
|
|
|
300
|
|
|
262
|
|
Corporate
|
|
435
|
|
|
117
|
|
|
616
|
|
|
448
|
|
Consolidated
|
|
$
|
7,939
|
|
|
$
|
10,078
|
|
|
$
|
18,300
|
|
|
$
|
21,349
|
|
Our primary source of revenue is the sale of glass tableware products manufactured within a Libbey facility as well as globally sourced tabletop products, including glassware, ceramicware, metalware and others. Adjustments related to revenue recognized in prior periods was not material for the
three months and six months
ended
June 30, 2019
and
2018
. There were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheets as of
June 30, 2019
and
December 31, 2018
.
Disaggregation of Revenue:
The following table presents our net sales disaggregated by business channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Foodservice
|
|
$
|
86,999
|
|
|
$
|
93,194
|
|
|
$
|
157,816
|
|
|
$
|
169,367
|
|
Retail
|
|
60,222
|
|
|
61,670
|
|
|
115,795
|
|
|
117,431
|
|
Business-to-business
|
|
58,937
|
|
|
58,670
|
|
|
107,513
|
|
|
108,649
|
|
Consolidated
|
|
$
|
206,158
|
|
|
$
|
213,534
|
|
|
$
|
381,124
|
|
|
$
|
395,447
|
|
Each operating segment has revenues across all our business channels. Each channel has a different marketing strategy, customer base and product composition. For all periods presented, over
75 percent
of each segment's revenue is derived from the following business channels: U.S. and Canada from foodservice and retail; Latin America from retail and business-to-business; and EMEA from business-to-business and retail.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:
|
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities;
|
|
|
•
|
Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
•
|
Level 3 — Unobservable inputs based on our own assumptions.
|
The fair value of our derivative financial instruments by level is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Fair Value at
|
Asset / (Liability)
(dollars in thousands)
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Commodity futures natural gas contracts
|
|
$
|
—
|
|
|
$
|
(941
|
)
|
|
$
|
—
|
|
|
$
|
(941
|
)
|
|
$
|
—
|
|
|
$
|
265
|
|
|
$
|
—
|
|
|
$
|
265
|
|
Interest rate swaps
|
|
—
|
|
|
(13,443
|
)
|
|
—
|
|
|
(13,443
|
)
|
|
—
|
|
|
(4,288
|
)
|
|
—
|
|
|
(4,288
|
)
|
Net derivative asset (liability)
|
|
$
|
—
|
|
|
$
|
(14,384
|
)
|
|
$
|
—
|
|
|
$
|
(14,384
|
)
|
|
$
|
—
|
|
|
$
|
(4,023
|
)
|
|
$
|
—
|
|
|
$
|
(4,023
|
)
|
The fair values of our commodity futures natural gas contracts are determined using observable market inputs. The fair value of our interest rate swaps are based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy. We also evaluate Company and counterparty risk in determining fair values. The commodity futures natural gas contracts and interest rate swaps are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the above table.
Financial instruments carried at cost on the Condensed Consolidated Balance Sheets, as well as the related fair values, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
(dollars in thousands)
|
|
Fair Value
Hierarchy Level
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Term Loan B
|
|
Level 2
|
|
$
|
378,000
|
|
|
$
|
291,060
|
|
|
$
|
380,200
|
|
|
$
|
362,141
|
|
The fair value of our Term Loan B has been calculated based on quoted market prices for the same or similar issues, and the fair value of our ABL Facility approximates carrying value due to variable rates. The fair value of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to their short-term nature.
Globally, we lease certain warehouses, office space, showrooms, manufacturing and office equipment, automobiles and outlet stores. Many of the real estate leases contain one or more options to renew, with renewal options that can extend the lease term from
one
to
20
years or more. The exercise of lease renewal options is at our discretion and is not reasonably certain at lease commencement. Most of our equipment leases have a lease term of
two
to
eight
years with limited renewal options. However, one class of equipment has a lease term of
15
years with annual renewal options thereafter. Generally, the longer term lease agreements contain escalating lease payments or are adjusted periodically for inflation.
At
June 30, 2019
, the weighted-average remaining lease term was
6.7 years
, and the weighted-average discount rate was
4.06
percent. Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
The following table presents the lease costs and supplemental cash flow information related to our operating leases:
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three months ended June 30, 2019
|
|
Six months ended June 30, 2019
|
Operating lease costs
|
|
$
|
3,972
|
|
|
$
|
7,933
|
|
Short-term lease costs
(1)
|
|
938
|
|
|
1,818
|
|
Total lease costs
|
|
$
|
4,910
|
|
|
$
|
9,751
|
|
(1)
Includes variable lease costs which are immaterial.
|
|
|
|
|
|
|
|
|
|
Cash paid for operating leases included in the measurement of lease liabilities
|
|
|
|
$
|
7,847
|
|
ROU assets obtained in exchange for lease liabilities
|
|
|
|
$
|
73,041
|
|
The following table reconciles the undiscounted cash flows to the operating lease liabilities recorded on the balance sheet:
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2019
|
2019 (remainder of year)
|
|
$
|
7,850
|
|
2020
|
|
14,432
|
|
2021
|
|
10,966
|
|
2022
|
|
9,742
|
|
2023
|
|
9,096
|
|
2024 and thereafter
|
|
23,884
|
|
Total minimum lease payments
|
|
75,970
|
|
Less: interest
|
|
(9,420
|
)
|
Present value of future minimum lease payments
|
|
66,550
|
|
Less: lease liabilities (current portion)
|
|
(12,800
|
)
|
Noncurrent lease liabilities
|
|
$
|
53,750
|
|
As presented in our 2018 Form 10-K, the future minimum rental commitments under ASC 840 for non-cancelable operating leases as of December 31, 2018, was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024 and
thereafter
|
|
$15,407
|
|
$13,787
|
|
$10,339
|
|
$9,143
|
|
$8,551
|
|
$20,755
|
|
|
|
14.
|
Other Income (Expense)
|
Items included in other income (expense) in the Condensed Consolidated Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(dollars in thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Gain (loss) on currency transactions
|
|
$
|
(186
|
)
|
|
$
|
2,662
|
|
|
$
|
(1,349
|
)
|
|
$
|
1,012
|
|
Pension and non-pension benefits, excluding service cost
|
|
(365
|
)
|
|
(243
|
)
|
|
(771
|
)
|
|
(583
|
)
|
Other non-operating income (expense)
|
|
(69
|
)
|
|
161
|
|
|
(84
|
)
|
|
44
|
|
Other income (expense)
|
|
$
|
(620
|
)
|
|
$
|
2,580
|
|
|
$
|
(2,204
|
)
|
|
$
|
473
|
|
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 cleanup 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.
Although we cannot predict the ultimate outcome of these proceedings, we believe that these environmental proceedings will not have a material adverse impact on our financial condition, results of operations or liquidity. There were no significant changes to our environmental legal proceedings since
December 31, 2018
. Please refer to Part II, Item 8. "Financial Statements and Supplementary Data," note 17, Contingencies, included in our
2018
Annual Report on Form 10-K for a more complete discussion.
Income Taxes
The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. Please refer to
note 5
, Income Taxes, for a detailed discussion on tax contingencies.
|
|
16.
|
Purchased Intangible Assets and Goodwill
|
Purchased Intangibles
Changes in purchased intangibles balances are as follows:
|
|
|
|
|
|
(dollars in thousands)
|
|
Six months ended June 30, 2019
|
Beginning balance December 31, 2018
|
|
$
|
13,385
|
|
Amortization
|
|
(484
|
)
|
Impairment
(see below)
|
|
(900
|
)
|
Foreign currency impact
|
|
(24
|
)
|
Ending balance June 30, 2019
|
|
$
|
11,977
|
|
Purchased intangible assets are composed of the following:
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
June 30, 2019
|
|
December 31, 2018
|
Indefinite life intangible assets
|
|
$
|
11,117
|
|
|
$
|
12,035
|
|
Definite life intangible assets, net of accumulated amortization of $20,472 and $20,006
|
|
860
|
|
|
1,350
|
|
Total
|
|
$
|
11,977
|
|
|
$
|
13,385
|
|
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 on-going assessment of goodwill as of June 30, 2019 resulted in the need to test
Libbey Holland's indefinite life intangible asset (Royal Leerdam
®
trade name) for impairment. We used a relief from royalty method to determine the fair market value that was compared to the carrying value of the indefinite life intangible asset. The sales forecast for Royal Leerdam
®
branded product was lowered due to declining performance of mid-tier retailers as consumers in EMEA move to discount and on-line retailers. As a result, the estimated fair value was determined to be lower than the carrying value, and we recorded a non-cash impairment charge of
$0.9 million
during the second quarter of 2019 in our EMEA reporting segment. The inputs used for this analysis are considered Level 3 inputs in the fair value hierarchy (see
note 12
).
The remaining definite life intangible assets at
June 30, 2019
consist of customer relationships that are amortized over a period of
20
years and have a weighted average remaining life of
5.5 years
. Amortization expense for definite life intangible assets was
$0.5 million
for the six months ended
June 30, 2019
. The future annual amortization expense remains unchanged from the Form 10-K for the year ended December 31, 2018.
Goodwill
Changes in goodwill balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
U.S. & Canada
|
|
Latin America
|
|
Total
|
Beginning balance December 31, 2018:
|
|
|
|
|
|
|
Goodwill
|
|
$
|
43,872
|
|
|
$
|
125,681
|
|
|
$
|
169,553
|
|
Accumulated impairment losses
|
|
(5,441
|
)
|
|
(79,700
|
)
|
|
(85,141
|
)
|
Net beginning balance
|
|
38,431
|
|
|
45,981
|
|
|
84,412
|
|
Impairment
(see below)
|
|
—
|
|
|
(45,981
|
)
|
|
(45,981
|
)
|
Ending balance June 30, 2019:
|
|
|
|
|
|
|
Goodwill
|
|
43,872
|
|
|
125,681
|
|
|
169,553
|
|
Accumulated impairment losses
|
|
(5,441
|
)
|
|
(125,681
|
)
|
|
(131,122
|
)
|
Net ending balance
|
|
$
|
38,431
|
|
|
$
|
—
|
|
|
$
|
38,431
|
|
As part of our on-going assessment of goodwill at June 30, 2019, we determined that a triggering event occurred due to the Company's market capitalization being less than the carrying value, resulting from the significant decline in the Company's share price during the quarter. Thus, an interim impairment test was performed. Additionally, during the second quarter, management updated its long-range plan; the updated plan contemplates lower sales and profitability within the Mexico reporting unit (within the Latin America reporting segment) as compared to the projections used in the most recent goodwill impairment testing performed as of October 1, 2018. As the impairment testing indicated that the carrying value of the Mexico reporting unit exceeded its fair value, we recorded a non-cash impairment charge of
$46.0 million
during the second quarter of 2019. After recording the impairment charge, there is no longer any goodwill on the balance sheet related to the Mexico acquisition.
When performing our test for impairment, we measured 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 (all Level 3 inputs in the fair value hierarchy). 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.
The estimated fair value of our other reporting unit that has goodwill continued to exceed its carrying value, by approximately
40 percent
, and is in the U.S. and Canada reporting segment.