LIBBEY INC, 10-Q filed on 5/3/2016
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2016
Apr. 29, 2016
Entity Information [Line Items]
 
 
Entity Registrant Name
LIBBEY INC 
 
Entity Central Index Key
0000902274 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2016 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
21,760,562 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Net sales
$ 182,807 
$ 187,365 
Freight billed to customers
618 
606 
Total revenues
183,425 
187,971 
Cost of sales
143,451 
145,476 
Gross profit
39,974 
42,495 
Selling, general and administrative expenses
34,135 
34,399 
Income from operations
5,839 
8,096 
Other income (expense)
(15)
827 
Earnings before interest and income taxes
5,824 
8,923 
Interest expense
5,244 
4,523 
Income before income taxes
580 
4,400 
Provision (benefit) for income taxes
(138)
1,288 
Net income
$ 718 
$ 3,112 
Net income per share:
 
 
Basic
$ 0.03 
$ 0.14 
Diluted
$ 0.03 
$ 0.14 
Dividends declared per share
$ 0.115 
$ 0.11 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Net income
$ 718 
$ 3,112 
Other comprehensive income (loss):
 
 
Pension and other postretirement benefit adjustments, net of tax
989 
4,712 
Change in fair value of derivative instruments, net of tax
(1,858)
(242)
Foreign currency translation adjustments, net of tax
3,205 
(10,490)
Other comprehensive income (loss), net of tax
2,336 
(6,020)
Comprehensive income (loss)
$ 3,054 
$ (2,908)
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
Assets:
 
 
Cash and cash equivalents
$ 25,570 
$ 49,044 
Accounts receivable - net
87,901 
94,379 
Inventories - net
191,950 
178,027 
Prepaid and other current assets
19,845 
19,326 
Total current assets
325,266 
340,776 
Pension asset
977 
977 
Purchased intangible assets - net
16,231 
16,364 
Goodwill
164,112 
164,112 
Deferred income taxes
49,736 
48,662 
Other assets
8,900 
9,019 
Total other assets
239,956 
239,134 
Property, plant and equipment - net
268,913 
272,534 
Total assets
834,135 
852,444 
Liabilities and Shareholders' Equity:
 
 
Accounts payable
63,185 
71,560 
Salaries and wages
25,971 
27,266 
Accrued liabilities
42,545 
45,179 
Accrued income taxes
2,295 
4,009 
Pension liability (current portion)
2,032 
2,297 
Non-pension postretirement benefits (current portion)
4,903 
4,903 
Derivative liability
4,346 
4,265 
Long-term debt due within one year
4,761 
4,747 
Total current liabilities
150,038 
164,226 
Long-term debt
420,469 
426,272 
Pension liability
42,792 
44,274 
Non-pension postretirement benefits
55,446 
55,282 
Deferred income taxes
3,235 
2,822 
Other long-term liabilities
13,736 
11,186 
Total liabilities
685,716 
704,062 
Shareholders' equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 21,843,851 shares issued in 2016 (21,843,851 shares issued in 2015)
218 
218 
Capital in excess of par value
328,473 
330,756 
Treasury stock
(979)
(4,448)
Retained deficit
(61,397)
(57,912)
Accumulated other comprehensive loss
(117,896)
(120,232)
Total shareholders' equity
148,419 
148,382 
Total liabilities and shareholders' equity
$ 834,135 
$ 852,444 
Condensed Consolidated Balance Sheets Parenthetical (USD $)
Mar. 31, 2016
Dec. 31, 2015
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
21,843,851 
21,843,851 
Condensed Consolidated Statement of Shareholders' Equity Statement (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Treasury Stock
Capital in Excess of Par Value
Retained Deficit
Accumulated Other Comprehensive Loss (note 9)
Balance, value at Dec. 31, 2015
$ 148,382 
$ 218 
$ (4,448)
$ 330,756 
$ (57,912)
$ (120,232)
Balance, shares at Dec. 31, 2015
 
21,843,851 
110,717 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income
718 
 
 
 
718 
 
Other comprehensive income
2,336 
 
 
 
 
2,336 
Stock compensation expense
281 
 
 
281 
 
 
Dividends
(2,515)
 
 
 
(2,515)
 
Stock withheld for employee taxes
(473)
 
 
(473)
 
 
Stock issued, value
887 
 
4,666 
(2,091)
 
 
Stock issued, value lower than repurchase price
 
 
 
 
(1,688)
 
Stock issued, shares
 
 
(122,785)
 
 
 
Purchase of treasury shares, value
(1,197)
 
(1,197)
 
 
 
Purchase of treasury shares, shares
 
 
66,115 
 
 
 
Balance, value at Mar. 31, 2016
$ 148,419 
$ 218 
$ (979)
$ 328,473 
$ (61,397)
$ (117,896)
Balance, shares at Mar. 31, 2016
 
21,843,851 
54,047 
 
 
 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating activities:
 
 
Net income
$ 718 
$ 3,112 
Adjustments to reconcile net income to net cash used in operating activities:
 
 
Depreciation and amortization
12,081 
10,184 
Loss on asset sales and disposals
61 
211 
Change in accounts receivable
7,217 
(5,647)
Change in inventories
(12,467)
(16,720)
Change in accounts payable
(5,589)
(2,339)
Accrued interest and amortization of discounts and finance fees
(2,220)
212 
Pension & non-pension postretirement benefits, net
(101)
1,003 
Accrued liabilities & prepaid expenses
(1,616)
(2,876)
Income taxes
(2,965)
(1,360)
Share-based compensation expense
1,816 
2,129 
Other operating activities
(1,909)
(1,145)
Net cash used in operating activities
(4,974)
(13,236)
Investing activities:
 
 
Additions to property, plant and equipment
(9,855)
(16,659)
Net cash used in investing activities
(9,855)
(16,659)
Financing activities:
 
 
Borrowing on ABL credit facility
6,000 
14,100 
Repayments on ABL credit facility
(6,000)
(10,000)
Other repayments
(171)
(3,255)
Repayments on Term Loan B
(6,100)
(1,100)
Stock options exercised
1,029 
1,848 
Dividends
(2,515)
(2,402)
Treasury shares purchased
(1,197)
(9,144)
Net cash used in financing activities
(8,954)
(9,953)
Effect of exchange rate fluctuations on cash
309 
(1,580)
Decrease in cash
(23,474)
(41,428)
Cash at beginning of period
49,044 
60,044 
Cash at end of period
25,570 
18,616 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for interest, net of capitalized interest
7,318 
3,929 
Cash paid during the period for income taxes
$ 1,544 
$ 1,181 
Description of the Business
Description of the Business
Description of the Business

Libbey is a leading global manufacturer and marketer of glass tableware products. We produce glass tableware in five countries and sell to customers in over 100 countries. We design and market, under our Libbey®, 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 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 the Netherlands (Libbey Holland), Portugal (Libbey Portugal), China (Libbey China) and Mexico (Libbey Mexico). In addition, we import 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 tableware 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 MKT exchange under the ticker symbol LBY.
Significant Accounting Policies
Significant Accounting Policies
Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2015 for a description of significant accounting policies not listed below.

Basis of Presentation

The Condensed Consolidated Financial Statements include Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December 31st. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.

Condensed Consolidated Statements of Operations

Net sales in our Condensed Consolidated Statements of Operations include revenue earned 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. Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs.

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).

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. Financial Accounting Standards Board Accounting Standards Codification™ (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. See note 5 for further discussion.

Stock-Based Compensation Expense

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” and FASB ASC Topic 505-50, “Equity — Equity-Based Payments to Non-Employees”. Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards. Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
 
 
Three months ended March 31,
(dollars in thousands)
 
2016
 
2015
Stock-based compensation expense
 
$
1,816

 
$
2,129



Reclassifications

Certain amounts in prior years' financial statements have been reclassified to conform to the presentation used in the quarter ended March 31, 2016, including the segment data in note 10.

New Accounting Standards

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue From Contracts With Customers" (ASU 2014-09), 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 additional 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. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. This update is effective for interim and annual reporting periods beginning after December 15, 2016; early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14 which defers the effective date one year from January 1, 2017 to January 1, 2018, but early adoption as of January 1, 2017 is permitted. In March of 2016 the FASB issued ASU 2016-08, "Revenue From Contracts With Customers: Principal vs. Agent Considerations" (ASU 2016-08). ASU 2016-08 provides more detailed guidance in determining principal or agent determination and when revenue should be recorded when a performance obligation is completed. We are currently assessing the impact that these standards will have on our Condensed Consolidated Financial Statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements-Going Concern" (ASU 2014-15), which establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. ASU 2014-15 also provides guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. This update is effective for the annual reporting period ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We are currently evaluating the impact that this standard will have on our Condensed Consolidated Financial Statements.

In May 2015, the FASB issued Accounting Standards Update 2015-07, "Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent)" (ASU 2015-07), which removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by FASB ASC Topic 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the net asset value practical expedient. ASU 2015-07 is effective for entities for fiscal years beginning after December 15, 2015 and interim periods within, with retrospective application to all periods presented. Early application is permitted. Although there is no impact on our 2016 interim financial statements, we are currently assessing the impact that this standard will have on our Consolidated Financial Statements at December 31, 2016.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory" (ASU 2015-11), which requires that inventory be measured at the lower of its cost or the estimated sale price, minus the costs of completing the sale, which the FASB calls the net realizable value. This update is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact that this standard will have on our Condensed Consolidated Financial Statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" (ASU 2016-02), which requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet. 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. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (ASU 2016-09). 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, with early application permitted. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.
Balance Sheet Details
Balance Sheet Details
Balance Sheet Details

The following table provides detail of selected balance sheet items:
(dollars in thousands)
March 31, 2016
 
December 31, 2015
Accounts receivable:
 
 
 
Trade receivables
$
84,203

 
$
91,324

Other receivables
3,698

 
3,055

Total accounts receivable, less allowances of $6,063 and $7,066
$
87,901

 
$
94,379

 
 
 
 
Inventories:
 
 
 
Finished goods
$
173,597

 
$
159,998

Work in process
1,619

 
1,183

Raw materials
4,497

 
4,944

Repair parts
11,057

 
10,763

Operating supplies
1,180

 
1,139

Total inventories, less loss provisions of $5,533 and $5,313
$
191,950

 
$
178,027

 
 
 
 
Accrued liabilities:
 
 
 
Accrued incentives
$
20,865

 
$
21,450

Other accrued liabilities
21,680

 
23,729

Total accrued liabilities
$
42,545

 
$
45,179

Borrowings
Borrowings
Borrowings

Borrowings consist of the following:
(dollars in thousands)
Interest Rate
 
Maturity Date
March 31,
2016
 
December 31,
2015
Borrowings under ABL Facility
floating
 
April 9, 2019
$

 
$

Term Loan B
floating
(1) 
April 9, 2021
427,300

 
433,400

AICEP Loan
0.00%
 
July, 2016 to July 30, 2018
3,413

 
3,451

Total borrowings
 
 
 
430,713

 
436,851

Less — unamortized discount and finance fees
 
5,483

 
5,832

Total borrowings — net
 
 
 
425,230

 
431,019

Less — long term debt due within one year
 
 
4,761

 
4,747

Total long-term portion of borrowings — net
 
$
420,469

 
$
426,272


________________________
(1) - See interest rate swap in note 8. The interest rate was 3.75 percent at March 31, 2016.

At March 31, 2016, the available borrowing base under the ABL Facility is offset by a $0.4 million rent reserve and a $1.6 million mark-to-market reserve for natural gas contracts. The ABL Facility also provides for the issuance of up to $30.0 million of letters of credit, which when outstanding are applied against the $100.0 million limit; at March 31, 2016, $6.6 million in letters of credit were outstanding. Remaining unused availability under the ABL Facility was $91.4 million at March 31, 2016, compared to $91.0 million at December 31, 2015.
Income Taxes
Income Taxes
Income Taxes

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

Our effective tax rate was (23.8) percent for the quarter ended March 31, 2016, compared to 29.3 percent for the quarter ended March 31, 2015. Our effective tax rate differs from the United States statutory tax rate primarily due to a valuation allowance on deferred tax assets in the Netherlands, earnings in countries with differing statutory tax rates, foreign withholding tax, and tax planning structures.

At March 31, 2016, we continued to record a valuation allowance of approximately $11.9 million against our deferred tax assets in the Netherlands. We review the need for valuation allowances in all jurisdictions on a quarterly basis in order to assess the likelihood of the realization of our deferred tax assets. In assessing the need for recording or reversing a valuation allowance, we weigh all available 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, prudent and feasible tax planning strategies that could be implemented, and whether there were unusual, infrequent or extraordinary items to be considered. With respect to the valuation allowance recorded in the Netherlands, management continues to conclude that the negative evidence outweighs the positive and thus the valuation allowance was maintained.
Pension and Non-pension Postretirement Benefits
Pension and Non-pension Postretirement Benefits
ension and Non-pension Postretirement Benefits

We have pension plans covering the majority of our employees. Benefits generally are based on compensation and service for salaried employees and job grade and length of service for hourly employees. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers certain salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006 and most hourly U.S.-based employees (excluding employees hired at Shreveport after 2008 and at Toledo after September 30, 2010). Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiary in Mexico. The plan in Mexico is 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 to PGB, which now assumes the related liabilities and administrative responsibilities of the plan. In 2016, Libbey Holland continues to make cash contributions to PGB as participating employees earn pension benefits. These related costs are expensed as incurred and are excluded from 2016 pension expense below.

The components of our net pension expense, including the SERP, are as follows:
Three months ended March 31,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
996

 
$
1,161

 
$
317

 
$
748

 
$
1,313

 
$
1,909

Interest cost
3,777

 
3,709

 
672

 
1,103

 
4,449

 
4,812

Expected return on plan assets
(5,755
)
 
(5,662
)
 

 
(598
)
 
(5,755
)
 
(6,260
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
66

 
104

 
(54
)
 
(64
)
 
12

 
40

Actuarial loss
1,120

 
1,886

 
202

 
406

 
1,322

 
2,292

Pension expense
$
204

 
$
1,198

 
$
1,137

 
$
1,595

 
$
1,341

 
$
2,793



We have contributed $1.5 million of cash into our pension plans for the three months ended March 31, 2016. Pension contributions for the remainder of 2016 are estimated to be $1.0 million.

We provide certain retiree health care 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 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 postretirement plans cover the hourly and salaried U.S.-based employees of Libbey (excluding those mentioned above). The non-U.S. non-pension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. The postretirement benefit plans are unfunded.

The provision for our non-pension postretirement benefit expense consists of the following:
Three months ended March 31,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
199

 
$
282

 
$

 
$

 
$
199

 
$
282

Interest cost
652

 
660

 
12

 
19

 
664

 
679

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
35

 
35

 

 

 
35

 
35

Actuarial loss / (gain)
20

 
196

 
(11
)
 

 
9

 
196

Non-pension postretirement benefit expense
$
906

 
$
1,173

 
$
1

 
$
19

 
$
907

 
$
1,192



Our 2016 estimate of non-pension cash payments is $5.0 million, and we have paid $0.8 million for the three months ended March 31, 2016.
Net Income (Loss) per Share of Common Stock
Net Income per Share of Common Stock
Net Income per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings per share:
 
Three months ended March 31,
(dollars in thousands, except earnings per share)
2016
 
2015
Numerators for earnings per share:
 
 
 
Net income that is available to common shareholders
$
718

 
$
3,112

 
 
 
 
Denominator for basic earnings per share:
 
 
 
Weighted average shares outstanding
21,850,171

 
21,853,455

 
 
 
 
Denominator for diluted earnings per share:
 
 
 
Effect of stock options and restricted stock units
150,847

 
495,159

Adjusted weighted average shares and assumed conversions
22,001,018

 
22,348,614

 
 
 
 
Basic earnings per share
$
0.03

 
$
0.14

 
 
 
 
Diluted earnings per share
$
0.03

 
$
0.14

 
 
 
 
Shares excluded from diluted earnings per share due to:
 
 
 
Inclusion would have been anti-dilutive (excluded from calculation)
616,642

 
89,006



When applicable, diluted shares outstanding includes 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. Under the treasury stock method, the tax-effected proceeds that hypothetically would be received from the exercise of all in-the-money options are assumed to be used to repurchase shares.

Derivatives
Derivatives
Derivatives
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 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 (as is the case for natural gas contracts used in our Mexico manufacturing facility) 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. All of these contracts are accounted for under FASB ASC 815 “Derivatives and Hedging.”

Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented:
 
 
Asset Derivatives:
(dollars in thousands)
 
March 31, 2016
 
December 31, 2015
Derivatives not designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Currency contracts
 
Prepaid and other current assets
 
$

 
Prepaid and other current assets
 
$
245

Total undesignated
 
 
 

 
 
 
245

Total
 
 
 
$

 
 
 
$
245

 
 
 
 
 
 
 
 
 
 
 
Liability Derivatives:
(dollars in thousands)
 
March 31, 2016
 
December 31, 2015
Derivatives designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Natural gas contracts
 
Derivative liability - current
 
$
1,129

 
Derivative liability - current
 
$
1,069

Natural gas contracts
 
Other long-term liabilities
 
50

 
Other long-term liabilities
 
34

Interest rate contract
 
Derivative liability - current
 
2,322

 
Derivative liability - current
 
2,132

Interest rate contract
 
Other long-term liabilities
 
2,884

 
Other long-term liabilities
 
246

Total designated
 
 
 
6,385

 
 
 
3,481

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Currency contracts
 
Derivative liability - current
 
173

 
Derivative liability - current
 

Natural gas contracts
 
Derivative liability - current
 
722

 
Derivative liability - current
 
1,064

Natural gas contracts
 
Other long-term liabilities
 
7

 
Other long-term liabilities
 
35

Total undesignated
 
 
 
902

 
 
 
1,099

Total
 
 
 
$
7,287

 
 
 
$
4,580



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. As of March 31, 2016, we had commodity contracts for 2,220,000 million British Thermal Units (BTUs) of natural gas. At December 31, 2015, we had commodity contracts for 3,000,000 million BTUs of natural gas.

All of our derivatives for natural gas in the U.S. qualify and are designated as cash flow hedges at March 31, 2016. 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 Condensed Consolidated Statement 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 being reflected in other income (expense). We recognized a gain (loss) of $0.4 million and $(0.3) million in other income (expense) in the three months ended March 31, 2016 and March 31, 2015, respectively, related to the natural gas contracts where hedge accounting was not elected. Mexico natural gas contracts de-designated in the fourth quarter of 2014 were primarily all utilized by December 31, 2015.

We paid additional cash of $1.2 million in each of the three month periods ended March 31, 2016 and March 31, 2015, due to the difference between the fixed unit rate of our natural gas contracts and the variable unit rate of our natural gas cost from suppliers. 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 $1.1 million of loss in our Condensed Consolidated Statements of Operations.

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss) from our natural gas contracts:
 
 
Three months ended March 31,
(dollars in thousands)
 
2016
 
2015
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
Natural gas contracts
 
$
(616
)
 
$
(829
)
Total
 
$
(616
)
 
$
(829
)


The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statements of Operations from our natural gas contracts:
 
 
 
Three months ended March 31,
(dollars in thousands)
 
 
2016
 
2015
Derivative:
Location:
 
 
 
 
Natural gas contracts
Cost of sales
 
$
(540
)
 
$
(536
)
Total impact on net income (loss)
 
 
$
(540
)
 
$
(536
)


The ineffective portion of derivative gain (loss) related to the de-designated Mexico contracts reclassified from accumulated other comprehensive loss to cost of sales in the Condensed Consolidated Statements of Operations was immaterial for the three months ended March 31, 2015.

The following table provides a summary of the gain (loss) recognized in other income (expense) in the Condensed Consolidated Statements of Operations from our natural gas contracts:
 
 
Three months ended March 31,
(dollars in thousands)
 
2016
 
2015
De-designated contracts
 
$

 
$
(104
)
Contracts where hedge accounting was not elected
 
370

 
(295
)
Total
 
$
370

 
$
(399
)


Interest Rate Swap

On April 1, 2015, we executed an interest rate swap on our Term Loan B as part of our risk management strategy to mitigate the risks involved with fluctuating interest rates. The interest rate swap effectively converts $220.0 million of our Term Loan B debt from a variable interest rate to a 4.85 percent fixed interest rate, thus reducing the impact of interest rate changes on future income. The fixed rate swap became effective in January 2016 and expires in January 2020. This interest rate swap is valued using the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves.

Our interest rate swap qualifies and is designated as a cash flow hedge at March 31, 2016 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 would be 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 $2.3 million of additional interest expense in our Condensed Consolidated Statements of Operations.

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss) from our interest rate swap:
 
 
Three months ended March 31,
(dollars in thousands)
 
2016
 
2015
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
Interest rate swap
 
$
(3,219
)
 
$

Total
 
$
(3,219
)
 
$



The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive income (loss) to the Condensed Consolidated Statements of Operations from our interest rate swap:
 
 
 
Three months ended March 31,
(dollars in thousands)
 
 
2016
 
2015
Derivative:
Location:
 
 
 
 
Interest rate swap
Interest expense
 
$
(391
)
 
$

Total impact on net income (loss)
 
 
$
(391
)
 
$



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 sell Canadian dollars. At March 31, 2016 and December 31, 2015, we had C$7.0 million and C$6.2 million in foreign currency contracts, respectively. 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.

Gains (losses) on currency derivatives that were not designated as hedging instruments are recorded in other income (expense) as follows:
 
 
 
Three months ended March 31,
(dollars in thousands)
 
 
2016
 
2015
Derivative:
Location:
 
 

 
 

Currency contracts
Other income (expense)
 
$
(418
)
 
$
74

Total
 
 
$
(418
)
 
$
74



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 March 31, 2016, by Standard and Poor’s.
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive loss, net of tax, is as follows:
Three months ended March 31, 2016
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Postretirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2015
 
$
(22,913
)
 
$
(1,860
)
 
$
(95,459
)
 
$
(120,232
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
3,350

 
(3,835
)
 

 
(485
)
Currency impact
 

 

 
103

 
103

 
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
    Amortization of actuarial loss (1)
 

 

 
1,331

 
1,331

    Amortization of prior service cost (1)
 

 

 
47

 
47

    Cost of sales
 

 
540

 

 
540

    Interest expense
 

 
391

 

 
391

Current-period other comprehensive income (loss)
 
3,350

 
(2,904
)
 
1,481

 
1,927

Tax effect
 
(145
)
 
1,046

 
(492
)
 
409

Balance on March 31, 2016
 
$
(19,708
)
 
$
(3,718
)
 
$
(94,470
)
 
$
(117,896
)

Three months ended March 31, 2015
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Postretirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on December 31, 2014
 
$
(9,162
)
 
$
(625
)
 
$
(128,660
)
 
$
(138,447
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
(10,490
)
 
(829
)
 

 
(11,319
)
Currency impact
 

 

 
2,291

 
2,291

 
 
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income (loss):
 
 
 
 
 
 
 
 
    Amortization of actuarial loss (1)
 

 

 
2,488

 
2,488

    Amortization of prior service cost (1)
 

 

 
75

 
75

    Cost of sales
 

 
607

 

 
607

Current-period other comprehensive income (loss)
 
(10,490
)
 
(222
)
 
4,854

 
(5,858
)
Tax effect
 

 
(20
)
 
(142
)
 
(162
)
Balance on March 31, 2015
 
$
(19,652
)
 
$
(867
)
 
$
(123,948
)
 
$
(144,467
)
___________________________
(1) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost within the cost of sales and selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.
Segments
Segments
Segments

In the fourth quarter of 2015, we revised our reporting segments. Under the new structure, our U.S. and Canada glass tableware business is combined with our U.S. and Canada sourcing business in order to be consistent with the way we manage and report our other segments. Our reporting segments continue to align with our regionally focused organizational structure, which we believe enables us to better serve customers across the globe. We now report financial results for U.S. and Canada; Latin America; Europe, the Middle East and Africa (EMEA); and Other. Sales and segment EBIT continue to reflect end market reporting pursuant to which sales and related costs are included in segment EBIT based on the geographical destination of the sale. The revised 2015 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 worldwide sales of manufactured and sourced glass tableware and sourced ceramic dinnerware, metal tableware, hollowware and serveware 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 worldwide sales of manufactured and sourced glass tableware having an end market destination in Latin America including glass products for OEMs that have an end market destination outside of Latin America.

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

Other—includes primarily worldwide 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. 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 March 31,
(dollars in thousands)
2016
 
2015
Net Sales:
 
 
 
U.S. & Canada
$
113,101

 
$
109,919

Latin America
34,220

 
39,852

EMEA
26,628

 
28,509

Other
8,858

 
9,085

Consolidated
$
182,807

 
$
187,365

 
 
 
 
Segment EBIT:
 
 
 
U.S. & Canada
$
13,312

 
$
10,860

Latin America
4,340

 
7,088

EMEA
(945
)
 
(766
)
Other
418

 
1,870

Total Segment EBIT
$
17,125

 
$
19,052

 
 
 
 
Reconciliation of Segment EBIT to Net Income:
 
 
 
Segment EBIT
$
17,125

 
$
19,052

Retained corporate costs
(6,724
)
 
(9,495
)
Derivatives (1)
370

 
(399
)
Executive terminations
(4,947
)
 
(235
)
Interest expense
(5,244
)
 
(4,523
)
(Provision) benefit for income taxes
138

 
(1,288
)
Net income
$
718

 
$
3,112

 
 
 
 
Depreciation & Amortization:
 
 
 
U.S. & Canada
$
3,456

 
$
2,792

Latin America
4,542

 
3,285

EMEA
2,158

 
2,177

Other
1,428

 
1,491

Corporate
497

 
439

Consolidated
$
12,081

 
$
10,184

 
 
 
 
Capital Expenditures:
 
 
 
U.S. & Canada
$
3,839

 
$
10,837

Latin America
2,296

 
3,681

EMEA
2,218

 
1,437

Other
695

 
183

Corporate
807

 
521

Consolidated
$
9,855

 
$
16,659


________________________
(1) Derivatives relate to hedge ineffectiveness on our natural gas contracts, as well as, mark-to-market adjustments on our natural gas contracts that have been de-designated and those for which we did not elect hedge accounting.

Fair Value
Fair Value
Fair Value

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. FASB ASC 820 establishes a fair value hierarchy that 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.

 
Fair Value at
 
Fair Value at
Asset / (Liability)
(dollars in thousands)
March 31, 2016
 
December 31, 2015
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Commodity futures natural gas contracts
$

 
$
(1,908
)
 
$

 
$
(1,908
)
 
$

 
$
(2,202
)
 
$

 
$
(2,202
)
Currency contracts

 
(173
)
 

 
(173
)
 

 
245

 

 
245

Interest rate swap

 
(5,206
)
 

 
(5,206
)
 

 
(2,378
)
 

 
(2,378
)
Net derivative asset (liability)
$

 
$
(7,287
)
 
$

 
$
(7,287
)
 
$

 
$
(4,335
)
 
$

 
$
(4,335
)


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.

The total derivative position is recorded on the Condensed Consolidated Balance Sheets as follows:
Asset / (Liability)
(dollars in thousands)
 
March 31, 2016
 
December 31, 2015
Prepaid and other current assets
 
$

 
$
245

Derivative liability
 
(4,346
)
 
(4,265
)
Other long-term liabilities
 
(2,941
)
 
(315
)
Net derivative asset (liability)
 
$
(7,287
)
 
$
(4,335
)


Financial instruments carried at cost on the Condensed Consolidated Balance Sheets, as well as the related fair values, are as follows:
 
 
 
 
March 31, 2016
 
December 31, 2015
(dollars in thousands)
 
Fair Value
Hierarchy Level
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Term Loan B
 
Level 2
 
$
427,300

 
$
423,027

 
$
433,400

 
$
425,815



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 March 31, 2016 and December 31, 2015. The fair value of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to their short term nature.
Other Income (Expense)
Other Income (Expense)
Other Income (Expense)

Items included in other income (expense) in the Condensed Consolidated Statements of Operations are as follows:
 
Three months ended March 31,
(dollars in thousands)
2016
 
2015
Gain (loss) on currency transactions
$
(730
)
 
$
1,115

Hedge ineffectiveness
370

 
(399
)
Other non-operating income (expense)
345

 
111

Other income (expense)
$
(15
)
 
$
827



Contingencies
Contingencies
Contingencies

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). The EPA and PRPs currently are discussing entering into an AOC pursuant to which some or all of the PRPs would agree 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 $1.1 million has been recorded in other long term liabilities and a recoverable amount of $0.6 million has been recorded in other long term assets in the Condensed Consolidated Balance Sheets at both March 31, 2016 and 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.
Significant Accounting Policies (Policies)
Basis of Presentation

The Condensed Consolidated Financial Statements include Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December 31st. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.
Condensed Consolidated Statements of Operations

Net sales in our Condensed Consolidated Statements of Operations include revenue earned 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. Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs.
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).
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. Financial Accounting Standards Board Accounting Standards Codification™ (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. See note 5 for further discussion.
We review the need for valuation allowances in all jurisdictions on a quarterly basis in order to assess the likelihood of the realization of our deferred tax assets. In assessing the need for recording or reversing a valuation allowance, we weigh all available 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, prudent and feasible tax planning strategies that could be implemented, and whether there were unusual, infrequent or extraordinary items to be considered.
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.
Stock-Based Compensation Expense

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” and FASB ASC Topic 505-50, “Equity — Equity-Based Payments to Non-Employees”. Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards.
New Accounting Standards

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue From Contracts With Customers" (ASU 2014-09), 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 additional 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. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. This update is effective for interim and annual reporting periods beginning after December 15, 2016; early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14 which defers the effective date one year from January 1, 2017 to January 1, 2018, but early adoption as of January 1, 2017 is permitted. In March of 2016 the FASB issued ASU 2016-08, "Revenue From Contracts With Customers: Principal vs. Agent Considerations" (ASU 2016-08). ASU 2016-08 provides more detailed guidance in determining principal or agent determination and when revenue should be recorded when a performance obligation is completed. We are currently assessing the impact that these standards will have on our Condensed Consolidated Financial Statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements-Going Concern" (ASU 2014-15), which establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. ASU 2014-15 also provides guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. This update is effective for the annual reporting period ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We are currently evaluating the impact that this standard will have on our Condensed Consolidated Financial Statements.

In May 2015, the FASB issued Accounting Standards Update 2015-07, "Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent)" (ASU 2015-07), which removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by FASB ASC Topic 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate the fair value using the net asset value practical expedient. ASU 2015-07 is effective for entities for fiscal years beginning after December 15, 2015 and interim periods within, with retrospective application to all periods presented. Early application is permitted. Although there is no impact on our 2016 interim financial statements, we are currently assessing the impact that this standard will have on our Consolidated Financial Statements at December 31, 2016.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory" (ASU 2015-11), which requires that inventory be measured at the lower of its cost or the estimated sale price, minus the costs of completing the sale, which the FASB calls the net realizable value. This update is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact that this standard will have on our Condensed Consolidated Financial Statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" (ASU 2016-02), which requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet. 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. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (ASU 2016-09). 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, with early application permitted. We are currently assessing the impact that this standard will have on our Condensed Consolidated Financial Statements.
We have pension plans covering the majority of our employees. Benefits generally are based on compensation and service for salaried employees and job grade and length of service for hourly employees. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers certain salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006 and most hourly U.S.-based employees (excluding employees hired at Shreveport after 2008 and at Toledo after September 30, 2010). Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiary in Mexico. The plan in Mexico is unfunded.
We provide certain retiree health care 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 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 postretirement plans cover the hourly and salaried U.S.-based employees of Libbey (excluding those mentioned above). The non-U.S. non-pension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. The postretirement benefit plans are unfunded.
When applicable, diluted shares outstanding includes 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. Under the treasury stock method, the tax-effected proceeds that hypothetically would be received from the exercise of all in-the-money options are assumed to be used to repurchase shares.
Derivatives
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 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 (as is the case for natural gas contracts used in our Mexico manufacturing facility) 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. All of these contracts are accounted for under FASB ASC 815 “Derivatives and Hedging.”

Segments

In the fourth quarter of 2015, we revised our reporting segments. Under the new structure, our U.S. and Canada glass tableware business is combined with our U.S. and Canada sourcing business in order to be consistent with the way we manage and report our other segments. Our reporting segments continue to align with our regionally focused organizational structure, which we believe enables us to better serve customers across the globe. We now report financial results for U.S. and Canada; Latin America; Europe, the Middle East and Africa (EMEA); and Other. Sales and segment EBIT continue to reflect end market reporting pursuant to which sales and related costs are included in segment EBIT based on the geographical destination of the sale. The revised 2015 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 worldwide sales of manufactured and sourced glass tableware and sourced ceramic dinnerware, metal tableware, hollowware and serveware 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 worldwide sales of manufactured and sourced glass tableware having an end market destination in Latin America including glass products for OEMs that have an end market destination outside of Latin America.

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

Other—includes primarily worldwide 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. 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.
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.
Significant Accounting Policies (Tables)
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]
Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:
 
 
Three months ended March 31,
(dollars in thousands)
 
2016
 
2015
Stock-based compensation expense
 
$
1,816

 
$
2,129

Balance Sheet Details (Tables)
Schedule of Other Assets and Other Liabilities [Table Text Block]
The following table provides detail of selected balance sheet items:
(dollars in thousands)
March 31, 2016
 
December 31, 2015
Accounts receivable:
 
 
 
Trade receivables
$
84,203

 
$
91,324

Other receivables
3,698

 
3,055

Total accounts receivable, less allowances of $6,063 and $7,066
$
87,901

 
$
94,379

 
 
 
 
Inventories:
 
 
 
Finished goods
$
173,597

 
$
159,998

Work in process
1,619

 
1,183

Raw materials
4,497

 
4,944

Repair parts
11,057

 
10,763

Operating supplies
1,180

 
1,139

Total inventories, less loss provisions of $5,533 and $5,313
$
191,950

 
$
178,027

 
 
 
 
Accrued liabilities:
 
 
 
Accrued incentives
$
20,865

 
$
21,450

Other accrued liabilities
21,680

 
23,729

Total accrued liabilities
$
42,545

 
$
45,179

Borrowings (Tables)
Schedule of Debt [Table Text Block]
Borrowings consist of the following:
(dollars in thousands)
Interest Rate
 
Maturity Date
March 31,
2016
 
December 31,
2015
Borrowings under ABL Facility
floating
 
April 9, 2019
$

 
$

Term Loan B
floating
(1) 
April 9, 2021
427,300

 
433,400

AICEP Loan
0.00%
 
July, 2016 to July 30, 2018
3,413

 
3,451

Total borrowings
 
 
 
430,713

 
436,851

Less — unamortized discount and finance fees
 
5,483

 
5,832

Total borrowings — net
 
 
 
425,230

 
431,019

Less — long term debt due within one year
 
 
4,761

 
4,747

Total long-term portion of borrowings — net
 
$
420,469

 
$
426,272


________________________
(1) - See interest rate swap in note 8. The interest rate was 3.75 percent at March 31, 2016.

Pension and Non-pension Postretirement Benefits (Tables)
The components of our net pension expense, including the SERP, are as follows:
Three months ended March 31,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
996

 
$
1,161

 
$
317

 
$
748

 
$
1,313

 
$
1,909

Interest cost
3,777

 
3,709

 
672

 
1,103

 
4,449

 
4,812

Expected return on plan assets
(5,755
)
 
(5,662
)
 

 
(598
)
 
(5,755
)
 
(6,260
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
66

 
104

 
(54
)
 
(64
)
 
12

 
40

Actuarial loss
1,120

 
1,886

 
202

 
406

 
1,322

 
2,292

Pension expense
$
204

 
$
1,198

 
$
1,137

 
$
1,595

 
$
1,341

 
$
2,793

The provision for our non-pension postretirement benefit expense consists of the following:
Three months ended March 31,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
199

 
$
282

 
$

 
$

 
$
199

 
$
282

Interest cost
652

 
660

 
12

 
19

 
664

 
679

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
35

 
35

 

 

 
35

 
35

Actuarial loss / (gain)
20

 
196

 
(11
)
 

 
9

 
196

Non-pension postretirement benefit expense
$
906

 
$
1,173

 
$
1

 
$
19

 
$
907

 
$
1,192

Net Income (Loss) per Share of Common Stock (Tables)
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
The following table sets forth the computation of basic and diluted earnings per share:
 
Three months ended March 31,
(dollars in thousands, except earnings per share)
2016
 
2015
Numerators for earnings per share:
 
 
 
Net income that is available to common shareholders
$
718

 
$
3,112

 
 
 
 
Denominator for basic earnings per share:
 
 
 
Weighted average shares outstanding
21,850,171

 
21,853,455

 
 
 
 
Denominator for diluted earnings per share:
 
 
 
Effect of stock options and restricted stock units
150,847

 
495,159

Adjusted weighted average shares and assumed conversions
22,001,018

 
22,348,614

 
 
 
 
Basic earnings per share
$
0.03

 
$
0.14

 
 
 
 
Diluted earnings per share
$
0.03

 
$
0.14

 
 
 
 
Shares excluded from diluted earnings per share due to:
 
 
 
Inclusion would have been anti-dilutive (excluded from calculation)
616,642

 
89,006

Derivatives (Tables)
The following table provides the fair values of our derivative financial instruments for the periods presented:
 
 
Asset Derivatives:
(dollars in thousands)
 
March 31, 2016
 
December 31, 2015
Derivatives not designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Currency contracts
 
Prepaid and other current assets
 
$

 
Prepaid and other current assets
 
$
245

Total undesignated
 
 
 

 
 
 
245

Total
 
 
 
$

 
 
 
$
245

 
 
 
 
 
 
 
 
 
 
 
Liability Derivatives:
(dollars in thousands)
 
March 31, 2016
 
December 31, 2015
Derivatives designated as hedging
instruments under FASB ASC 815:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Natural gas contracts
 
Derivative liability - current
 
$
1,129

 
Derivative liability - current
 
$
1,069

Natural gas contracts
 
Other long-term liabilities
 
50

 
Other long-term liabilities
 
34

Interest rate contract
 
Derivative liability - current
 
2,322

 
Derivative liability - current
 
2,132

Interest rate contract
 
Other long-term liabilities
 
2,884

 
Other long-term liabilities
 
246

Total designated
 
 
 
6,385

 
 
 
3,481

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Currency contracts
 
Derivative liability - current
 
173

 
Derivative liability - current
 

Natural gas contracts
 
Derivative liability - current
 
722

 
Derivative liability - current
 
1,064

Natural gas contracts
 
Other long-term liabilities
 
7

 
Other long-term liabilities
 
35

Total undesignated
 
 
 
902

 
 
 
1,099

Total
 
 
 
$
7,287

 
 
 
$
4,580

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss) from our interest rate swap:
 
 
Three months ended March 31,
(dollars in thousands)
 
2016
 
2015
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
Interest rate swap
 
$
(3,219
)
 
$

Total
 
$
(3,219
)
 
$

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss) from our natural gas contracts:
 
 
Three months ended March 31,
(dollars in thousands)
 
2016
 
2015
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
Natural gas contracts
 
$
(616
)
 
$
(829
)
Total
 
$
(616
)
 
$
(829
)
The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statements of Operations from our natural gas contracts:
 
 
 
Three months ended March 31,
(dollars in thousands)
 
 
2016
 
2015
Derivative:
Location:
 
 
 
 
Natural gas contracts
Cost of sales
 
$
(540
)
 
$
(536
)
Total impact on net income (loss)
 
 
$
(540
)
 
$
(536
)
The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive income (loss) to the Condensed Consolidated Statements of Operations from our interest rate swap:
 
 
 
Three months ended March 31,
(dollars in thousands)
 
 
2016
 
2015
Derivative:
Location:
 
 
 
 
Interest rate swap
Interest expense
 
$
(391
)
 
$

Total impact on net income (loss)
 
 
$
(391
)
 
$

Gains (losses) on currency derivatives that were not designated as hedging instruments are recorded in other income (expense) as follows:
 
 
 
Three months ended March 31,
(dollars in thousands)
 
 
2016
 
2015
Derivative:
Location:
 
 

 
 

Currency contracts
Other income (expense)
 
$
(418
)
 
$
74

Total
 
 
$
(418
)
 
$
74

The following table provides a summary of the gain (loss) recognized in other income (expense) in the Condensed Consolidated Statements of Operations from our natural gas contracts:
 
 
Three months ended March 31,
(dollars in thousands)
 
2016
 
2015
De-designated contracts
 
$