LIBBEY INC, 10-K filed on 3/18/2013
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2012
Feb. 28, 2013
Jun. 30, 2012
Entity Information [Line Items]
 
 
 
Entity Registrant Name
LIBBEY INC 
 
 
Entity Central Index Key
0000902274 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2012 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
20,918,730 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 309,265,933 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
ASSETS
 
 
Cash and cash equivalents
$ 67,208 
$ 58,291 
Accounts receivable — net
80,850 
88,045 
Inventories — net
157,549 
145,859 
Prepaid and other current assets
12,997 
12,775 
Total current assets
318,604 
304,970 
Pension asset
10,196 
17,485 
Purchased intangible assets — net
20,222 
21,200 
Goodwill
166,572 
166,572 
Deferred income taxes
9,830 
6,911 
Derivative asset
298 
3,606 
Other assets
18,300 
14,107 
Total other assets
225,418 
229,881 
Property, plant and equipment — net
258,154 
264,718 
Total assets
802,176 
799,569 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Notes payable
339 
Accounts payable
65,712 
58,759 
Salaries and wages
41,405 
34,834 
Accrued liabilities
42,863 
53,927 
Accrued income taxes
2,282 
Pension liability (current portion)
613 
5,990 
Non-pension postretirement benefits (current portion)
4,739 
4,721 
Derivative liability
420 
3,390 
Deferred income taxes
3,213 
1,369 
Long-term debt due within one year
4,583 
3,853 
Total current liabilities
165,830 
167,182 
Long-term debt
461,884 
393,168 
Pension liability
60,909 
122,145 
Non-pension postretirement benefits
71,468 
68,496 
Deferred income taxes
7,537 
11,389 
Other long-term liabilities
10,072 
9,409 
Total liabilities
777,700 
771,789 
Shareholders’ equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 20,835,489 shares issued in 2012 (20,342,342 shares issued in 2011)
209 
203 
Capital in excess of par value
313,377 
310,985 
Retained deficit
(148,070)
(155,036)
Accumulated other comprehensive loss
(141,040)
(128,372)
Total shareholders’ equity
24,476 
27,780 
Total liabilities and shareholders’ equity
$ 802,176 
$ 799,569 
Consolidated Balance Sheets Parentheticals (USD $)
Dec. 31, 2012
Dec. 31, 2011
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
20,835,489 
20,342,342 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Net sales
$ 825,287 
$ 817,056 
$ 799,794 
Freight billed to customers
3,165 
2,396 
1,790 
Total revenues
828,452 
819,452 
801,584 
Cost of sales
633,267 
650,713 
633,571 
Gross profit
195,185 
168,739 
168,013 
Selling, general and administrative expenses
113,896 
105,545 
97,390 
Special charges
(281)
1,802 
Income from operations
81,289 
63,475 
68,821 
Gain (loss) on redemption of debt
(31,075)
(2,803)
58,292 
Other income (expense)
188 
8,031 
(274)
Earnings before interest and income taxes
50,402 
68,703 
126,839 
Interest expense
37,727 
43,419 
45,171 
Income before income taxes
12,675 
25,284 
81,668 
Provision for income taxes
5,709 
1,643 
11,582 
Net income
$ 6,966 
$ 23,641 
$ 70,086 
Net income per share:
 
 
 
Basic
$ 0.33 
$ 1.17 
$ 3.97 
Diluted
$ 0.33 
$ 1.14 
$ 3.51 
Weighted average shares:
 
 
 
Outstanding
20,875,959 
20,169,638 
17,668,214 
Diluted
21,315,211 
20,808,077 
19,957,081 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Net income
$ 6,966 
$ 23,641 
$ 70,086 
Other comprehensive income (loss):
 
 
 
Pension and other postretirement benefit adjustments, net of tax
(17,891)
(14,833)
9,722 
Change in fair value of derivative instruments, net of tax
2,859 
(1,249)
3,049 
Foreign currency translation adjustments
2,364 
(1,344)
(7,993)
Other comprehensive income (loss), net of tax
(12,668)
(17,426)
4,778 
Comprehensive income (loss)
$ (5,702)
$ 6,215 
$ 74,864 
Consolidated Statements of Shareholders' Equity (Deficit) (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Capital in Excess of Par Value
Treasury Stock
Retained Deficit
Accumulated Other Comprehensive Loss (note 14)
Balance, value at Dec. 31, 2009
$ (66,907)
$ 187 
$ 324,272 
$ (70,298)
$ (205,344)
$ (115,724)
Balance, shares at Dec. 31, 2009
16,097,861 
18,697,630 
 
2,599,769 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income
70,086 
 
 
 
70,086 
 
Other comprehensive income (loss)
4,778 
 
 
 
 
4,778 
Stock compensation expense (note 12)
3,496 
 
3,496 
 
 
 
Equity issuance costs (note 6)
145 
 
145 
 
 
 
Stock issued from treasury, value
(455)
 
(1,495)
2,302 
(1,262)
 
Stock issued, value
88 
 
88 
 
 
 
Stock issued, shares (note 2)
117,789 
4,654 
 
113,135 
 
 
Exercise of warrants, value (note 6)
35 
10 
(25,814)
67,996 
(42,157)
 
Warrants exercised, shares (note 6)
3,466,856 
980,222 
 
2,486,634 
 
 
Balance, value at Dec. 31, 2010
11,266 
197 
300,692 
(178,677)
(110,946)
Balance, shares at Dec. 31, 2010
19,682,506 
19,682,506 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income
23,641 
 
 
 
23,641 
 
Other comprehensive income (loss)
(17,426)
 
 
 
 
(17,426)
Stock compensation expense (note 12)
5,016 
 
5,016 
 
 
 
Stock issued, value
(176)
(177)
 
 
 
Stock issued, shares (note 2)
174,527 
174,527 
 
 
 
 
Exercise of warrants, value (note 6)
5,459 
5,454 
 
 
 
Warrants exercised, shares (note 6)
485,309 
485,309 
 
 
 
 
Balance, value at Dec. 31, 2011
27,780 
203 
310,985 
(155,036)
(128,372)
Balance, shares at Dec. 31, 2011
20,342,342 
20,342,342 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income
6,966 
 
 
 
6,966 
 
Other comprehensive income (loss)
(12,668)
 
 
 
 
(12,668)
Stock compensation expense (note 12)
3,321 
 
3,321 
 
 
 
Stock issued, value
(923)
(929)
 
 
 
Stock issued, shares (note 2)
493,147 
493,147 
 
 
 
 
Balance, value at Dec. 31, 2012
$ 24,476 
$ 209 
$ 313,377 
$ 0 
$ (148,070)
$ (141,040)
Balance, shares at Dec. 31, 2012
20,835,489 
20,835,489 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Operating activities:
 
 
 
Net income
$ 6,966 
$ 23,641 
$ 70,086 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
41,471 
42,188 
41,115 
(Gain) loss on asset sales and disposals
446 
(5,941)
3,039 
Change in accounts receivable
7,187 
3,076 
(11,210)
Change in inventories
(10,969)
(221)
(6,654)
Change in accounts payable
6,285 
403 
4,955 
Accrued interest and amortization of discounts, warrants and finance fees
(6,433)
3,047 
17,391 
Call premium on senior notes and floating rate notes
23,602 
1,203 
8,415 
Write-off of finance fee & discounts on senior notes, floating rate notes and ABL
10,975 
1,600 
4,986 
Gain on redemption of PIK notes
(71,693)
Payment of interest on PIK notes
(29,400)
Pension & non-pension postretirement benefits
(76,344)
(9,074)
5,200 
Restructuring charges
(828)
811 
Accrued liabilities & prepaid expenses
322 
1,917 
3,344 
Income taxes
1,628 
(11,200)
1,801 
Share-based compensation expense
3,321 
5,016 
3,496 
Other operating activities
40 
524 
2,017 
Net cash provided by operating activities
8,497 
55,351 
47,699 
Investing activities:
 
 
 
Additions to property, plant and equipment
(32,720)
(41,420)
(28,247)
Net proceeds from sale of Traex
12,478 
Proceeds from asset sales and other
647 
5,222 
Net cash used in investing activities
(32,073)
(23,720)
(28,247)
Financing activities:
 
 
 
Other repayments
(23,116)
(14,108)
(10,610)
Other borrowings
1,234 
365 
215 
PIK note payment
(51,031)
Call premium on 10% senior notes and floating rate notes
(23,602)
(1,203)
(8,415)
Proceeds from exercise of warrants
5,459 
Stock options exercised
1,231 
482 
57 
Debt issuance costs and other
(13,475)
(463)
(14,256)
Net cash provided by (used in) financing activities
32,272 
(49,468)
2,288 
Effect of exchange rate fluctuations on cash
221 
(130)
(571)
Increase (decrease) in cash
8,917 
(17,967)
21,169 
Cash & cash equivalents at beginning of year
58,291 
76,258 
55,089 
Cash & cash equivalents at end of year
67,208 
58,291 
76,258 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the year for interest
44,105 
40,025 
27,822 
Cash paid during the year for income taxes
3,402 
10,230 
8,830 
New Senior Secured Notes
 
 
 
Financing activities:
 
 
 
Proceeds from senior notes
450,000 
Old Senior Secured Notes
 
 
 
Financing activities:
 
 
 
Proceeds from senior notes
392,328 
Payments on senior notes
(360,000)
(40,000)
Floating Rate Senior Secured Notes
 
 
 
Financing activities:
 
 
 
Payments on senior notes
$ 0 
$ 0 
$ (306,000)
Consolidated Statements of Cash Flows Parentheticals (USD $)
12 Months Ended 12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2010
Payment in Kind (PIK) Note
Feb. 8, 2010
Payment in Kind (PIK) Note
Dec. 31, 2010
Floating Rate Senior Secured Notes
Jun. 29, 2012
Libbey Glass
Senior Notes
Old Senior Secured Notes
Dec. 31, 2012
Libbey Glass
Senior Notes
New Senior Secured Notes
Interest rate
 
 
 
 
0.00% 
 
10.00% 1
6.875% 1
Supplemental disclosure of non-cash financing activities:
 
 
 
 
 
 
 
 
Gain on redemption of PIK notes
$ 0 
$ 0 
$ 71,693,000 
$ 71,693,000 
 
 
 
 
Expenses related to redemption of floating rate notes
 
 
 
 
 
13,400,000 
 
 
Noncash gain (loss) on redemption of debt, net of expenses
 
 
 
$ 58,292,000 
 
 
 
 
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 believe we are the largest such manufacturer in the Western Hemisphere, in addition to supplying to key markets throughout the world. We believe we have the largest manufacturing, distribution and service network among glass tableware manufacturers in the Western Hemisphere and are one of the largest glass tableware manufacturers in the world. 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 (amongst 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 global 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). Until April 28, 2011, we also owned and operated a plastics plant in Wisconsin. On April 28, 2011, we sold substantially all of the assets of the Traex® plastics product line, including the Traex name®, to the Vollrath Company (see note 17 for discussion on this transaction). 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.
Significant Accounting Policies
Significant Accounting Policies
Significant Accounting Policies
Basis of Presentation The Consolidated Financial Statements include Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December 31st. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with United States generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.
Consolidated Statements of Operations Net sales in our 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.

Revenue Recognition Revenue is recognized when products are shipped and title and risk of loss have passed to the customer. Revenue is recorded net of returns, discounts and incentives offered to customers. We estimate returns, discounts and incentives at the time of sale based on the terms of the agreements, historical experience and forecasted sales. We continually evaluate the adequacy of these methods used to estimate returns, discounts and incentives.

Cash and Cash Equivalents We consider all highly liquid investments purchased with an original or remaining maturity of less than three months at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.

Accounts Receivable and Allowance for Doubtful Accounts We record trade receivables when revenue is recorded in accordance with our revenue recognition policy and relieve accounts receivable when payments are received from customers. The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment as to the probability of collecting accounts and our evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance.

Inventory Valuation Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method is used for our U.S. glass inventories, which represented 30.6 percent and 31.3 percent of our total inventories in 2012 and 2011, respectively. The remaining inventories are valued using either the first-in, first-out (FIFO) or average cost method. For those inventories valued on the LIFO method, the excess of FIFO cost over LIFO, was $15.0 million and $15.7 million in 2012 and 2011, respectively. Cost includes the cost of materials, direct labor, in-bound freight and the applicable share of manufacturing overhead.

Purchased Intangible Assets and Goodwill Financial Accounting Standards Board Accounting Standards Codification™ ("FASB ASC") Topic 350 - "Intangibles-Goodwill and other" ("FASB ASC 350") requires goodwill and purchased indefinite life intangible assets to be reviewed for impairment annually, or more frequently if impairment indicators arise. Intangible assets with lives restricted by contractual, legal or other means will continue to be amortized over their useful lives. As of October 1st of each year, we update our separate impairment evaluations for both goodwill and indefinite life intangible assets. In 2012, 2011 and 2010, our October 1st assessment did not indicate any impairment of goodwill or indefinite life intangibles. There were also no indicators of impairment at December 31, 2012. For further disclosure on goodwill and intangibles, see note 4.

Software We account for software in accordance with FASB ASC 350. Software represents the costs of internally developed and purchased software packages for internal use. Capitalized costs include software packages, installation and/or internal labor costs. These costs generally are amortized over a five-year period.

Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 to 14 years for equipment and furnishings and 10 to 40 years for buildings and improvements. Maintenance and repairs are expensed as incurred.
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss for long-lived assets that we expect to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. In 2010, we wrote down decorating assets in our Shreveport, Louisiana facility as a result of our decision to outsource our U.S. decorating business and certain after-processing equipment within our Glass Operations segment. Due to the announcement of the closure of our Syracuse China manufacturing facility and our Mira Loma distribution center, we wrote down the values of certain assets to fair value in 2008 and recorded adjustments to these write-downs in 2010. See notes 5 and 7 for further disclosure.
Self-Insurance Reserves Self-Insurance reserves reflect the estimated liability for group health and workers' compensation claims not covered by third-party insurance. We accrue estimated losses based on actuarial models and assumptions as well as our historical loss experience. Workers' compensation accruals are recorded at the estimated ultimate payout amounts based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses based on actuarial models.
Pension and Nonpension Postretirement Benefits We account for pension and nonpension postretirement benefits in accordance with FASB ASC Topic 758 - "Compensation-Retirement Plans" ("FASB ASC 758"). FASB ASC 758 requires recognition of the over-funded or under-funded status of pension and other postretirement benefit plans on the balance sheet. Under FASB ASC 758, gains and losses, prior service costs and credits and any remaining prior transaction amounts that have not yet been recognized through net periodic benefit cost are recognized in accumulated other comprehensive loss, net of tax effect where appropriate.

The U.S. pension plans cover most hourly U.S.-based employees (excluding new hires at Shreveport after 2008 and at Toledo after September 30, 2010) and those salaried U.S.-based employees hired before January 1, 2006. U.S. salaried employees are not eligible for additional company contribution credits after December 31, 2012. The non-U.S. pension plans cover the employees of our wholly-owned subsidiaries in the Netherlands and Mexico. For further discussion see note 9.

We also provide certain postretirement health care and life insurance benefits covering substantially all U.S. and Canadian salaried and non-union hourly 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). Effective January 1, 2013, the existing healthcare benefit for salaried retirees age 65 and older ceased. We now provide a Retiree Health Reimbursement Arrangement (RHRA) that supports salaried retirees in purchasing a Medicare plan that meets their needs. Also effective January 1, 2013, we reduced the maximum life insurance benefit for salaried retirees to $10,000. Employees are generally eligible for benefits upon reaching a certain age and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. Under a cross-indemnity agreement, Owens-Illinois, Inc. assumed liability for the nonpension postretirement benefit of our retirees who had retired as of June 24, 1993. Therefore, the benefits related to these retirees are not included in our liability. For further discussion see note 10.
Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax attribute carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. FASB ASC Topic 740, “Income Taxes,” requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
Deferred income tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. In the United States, Portugal and the Netherlands, we have recorded valuation allowances against our deferred income tax assets. For further discussion see note 8.
Derivatives We account for derivatives in accordance with FASB ASC Topic 815 "Derivatives and Hedging" ("FASB ASC 815"). We hold derivative financial instruments to hedge certain of our interest rate risks associated with long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with occasional transactions denominated in a currency other than the U.S. dollar. These derivatives (except for the foreign currency contracts) qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in earnings. Cash flows from fair value hedges of debt and short-term forward exchange contracts are classified as an operating activity. Cash flows of currency swaps, interest rate swaps, and commodity futures contracts are classified as operating activities. See additional discussion at note 13.
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). Gain (loss)on currency translation was $(0.8) million, $(0.3) million and $0.1 million for the year ended December 31, 2012, 2011 and 2010, respectively.
Stock-Based Compensation Expense We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” ("FASB ASC 718") and FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees”("FASB ASC 505-50"). Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards. Stock-based compensation expense charged to the Consolidated Statement of Operations was a pre-tax charge of $3.3 million, $5.0 million and $3.5 million for 2012, 2011 and 2010, respectively. Non-cash compensation charges of $1.7 million related to accelerated vesting of previously issued equity compensation was included in 2011. See note 12 for additional information.
Research and Development Research and development costs are charged to selling, general and administrative expense in the Consolidated Statements of Operations when incurred. Expenses for 2012, 2011 and 2010, respectively, were $2.9 million, $3.1 million and $2.6 million.
Advertising Costs We expense all advertising costs as incurred, and the amounts were immaterial for all periods presented.
Computation of Income Per Share of Common Stock Basic net income per share of common stock is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share of common stock is computed using the weighted average number of shares of common stock outstanding and dilutive potential common share equivalents during the period.
Treasury Stock Treasury stock purchases are recorded at cost. During 2012, 2011 and 2010, we did not purchase any treasury stock. There were no treasury stock issuances during 2012 and 2011. During 2010, we issued 2,599,769 shares from treasury stock at an average cost of $27.04, and the shares were primarily attributable to the exercise of warrants related to our refinancing activities in 2010. See note 6 for further information.
Reclassifications Certain amounts in prior years' financial statements, including deferred tax assets and liabilities, have been reclassified to conform to the presentation used in the year ended December 31, 2012.
New Accounting Standards
In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04). ASU 2011-04 explains how to measure fair value and improves the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. ASU 2011-04 does not require additional fair value measurements, and it is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The provisions of this update are effective for periods beginning after December 15, 2011. The provisions of this update did not have any impact on our Consolidated Financial Statements.

In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (ASU 2011-05). This ASU requires companies to present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate but consecutive statements. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011 with early adoption permitted. In December 2011, ASU 2011-05 was modified by the issuance of Accounting Standards Update 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (ASU 2011-12) which defers certain paragraphs of ASU 2011-05 that would require reclassifications of items from other comprehensive income to net income by component of net income and by component of other comprehensive income. We have made all of the required disclosures within our Consolidated Financial Statements.

In July 2012, the FASB issued Accounting Standards Update 2012-02, “Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” (ASU 2012-02). ASU 2012-02 allows for an option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the indefinite-lived intangible asset exceeds its carrying amount. If the qualitative factors result in the fair value exceeding the carrying value of the indefinite-lived intangible asset, then the fair value does not need to be calculated. This update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The provisions of this update did not have any impact on our Consolidated Financial Statements.

In February 2013, the FASB issued Accounting Standards Update 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (ASU 2013-02), which amends Topic 220 Comprehensive Income. ASU 2013-02 requires companies to present, either in a note or parenthetically on the face of the financial statements, the effect of amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. This update is effective for interim and annual reporting periods beginning after December 15, 2012. We will include the additional disclosures in our Consolidated Financial Statements beginning on January 1, 2013.
Balance Sheet Details
Balance Sheet Details
Balance Sheet Details
The following table provides detail of selected balance sheet items:
December 31,
(dollars in thousands)
 
2012
 
2011
Accounts receivable:
 
 
 
 
Trade receivables
 
$
79,624

 
$
86,523

Other receivables
 
1,226

 
1,522

Total accounts receivable, less allowances of $5,703 and $5,307
 
$
80,850

 
$
88,045

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
139,888

 
$
129,091

Work in process
 
1,188

 
1,132

Raw materials
 
4,828

 
4,369

Repair parts
 
10,283

 
9,778

Operating supplies
 
1,362

 
1,489

Total inventories, less allowances of $4,091 and $4,808
 
$
157,549

 
$
145,859

 
 
 
 
 
Prepaid and other current assets:
 
 
 
 
Value added tax
 
$
3,850

 
$
1,834

Prepaid expenses
 
5,036

 
4,653

Deferred income taxes
 
4,070

 
3,074

Refundable and prepaid income taxes
 

 
3,107

Derivative asset
 
41

 
107

Total prepaid and other current assets
 
$
12,997

 
$
12,775

 
 
 
 
 
Other assets:
 
 
 
 
Deposits
 
$
936

 
$
733

Finance fees — net of amortization
 
13,539

 
9,427

Other assets
 
3,825

 
3,947

Total other assets
 
$
18,300

 
$
14,107

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
17,783

 
$
16,621

Workers compensation
 
7,128

 
8,484

Medical liabilities
 
3,537

 
3,607

Interest
 
3,732

 
13,008

Commissions payable
 
1,478

 
1,137

Contingency liability
 
2,719

 
2,719

Other accrued liabilities
 
6,486

 
8,351

Total accrued liabilities
 
$
42,863

 
$
53,927

 
 
 
 
 
Other long-term liabilities:
 
 
 
 
Deferred liability
 
$
5,591

 
$
4,070

Derivative liability
 

 
298

Other long-term liabilities
 
4,481

 
5,041

Total other long-term liabilities
 
$
10,072

 
$
9,409

Purchased Intangible Assets and Goodwill
Purchased Intangible Assets and Goodwill
Purchased Intangible Assets and Goodwill

Purchased Intangibles

Changes in purchased intangibles balances are as follows:
(dollars in thousands)
 
2012
 
2011
Beginning balance
 
$
21,200

 
$
23,134

Amortization
 
(1,069
)
 
(1,189
)
Disposal, related to sale of Traex assets
 

 
(643
)
Foreign currency impact
 
91

 
(102
)
Ending balance
 
$
20,222

 
$
21,200



Purchased intangible assets are composed of the following:
December 31,
(dollars in thousands)
 
2012
 
2011
Indefinite life intangible assets
 
$
12,316

 
$
12,274

Definite life intangible assets, net of accumulated amortization of $14,054 and $12,942
 
7,906

 
8,926

Total
 
$
20,222

 
$
21,200



Amortization expense for definite life intangible assets was $1.1 million, $1.2 million and $1.3 million for years 2012, 2011 and 2010, respectively.

Indefinite life intangible assets are composed of trade names and trademarks that have an indefinite life and are therefore individually tested for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise, in accordance with FASB ASC 350. Our measurement date for impairment testing is October 1st of each year. When performing our test for impairment of individual indefinite life intangible assets, we use a relief from royalty method to determine the fair market value that is compared to the carrying value of the indefinite life intangible asset. The inputs used for this analysis are considered as Level 3 inputs in the fair value hierarchy. See note 15 for further discussion of the fair value hierarchy. Our October 1st review for 2012 and 2011 did not indicate impairment of our indefinite life intangible assets. There were also no indicators of impairment at December 31, 2012.

The remaining definite life intangible assets at December 31, 2012 primarily consist of customer relationships that are amortized over a period ranging from 13 to 20 years. The weighted average remaining life on the definite life intangible assets is 7.4 years at December 31, 2012.

Future estimated amortization expense of definite life intangible assets is as follows (dollars in thousands):
2013
2014
2015
2016
2017
 
$1,065
$1,065
$1,065
$1,065
$1,065
 


Goodwill

Changes in goodwill balances are as follows:
 
 
2012
 
2011
(dollars in thousands)
 
Glass Operations
 
Other Operations
 
Total
 
Glass Operations
 
Other Operations
 
Total
Beginning balance:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
$
164,457

 
$
16,990

 
$
181,447

 
$
164,457

 
$
19,758

 
$
184,215

Accumulated impairment losses
 
(9,434
)
 
(5,441
)
 
(14,875
)
 
(9,434
)
 
(5,441
)
 
(14,875
)
Net beginning balance
 
155,023

 
11,549

 
166,572

 
155,023

 
14,317

 
169,340

Other
 

 

 

 

 
(2,768
)
 
(2,768
)
Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
164,457

 
16,990

 
181,447

 
164,457

 
16,990

 
181,447

Accumulated impairment losses
 
(9,434
)
 
(5,441
)
 
(14,875
)
 
(9,434
)
 
(5,441
)
 
(14,875
)
Net ending balance
 
$
155,023

 
$
11,549

 
$
166,572

 
$
155,023

 
$
11,549

 
$
166,572


Other, in the table above, relates to the sale of substantially all of the assets of Traex in 2011.

Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. The inputs used for this analysis are considered as Level 3 inputs in the fair value hierarchy. See note 15 for further discussion of the fair value hierarchy. When performing our test for impairment, we use an approach which includes a discounted cash flow analysis, incorporating the weighted average cost of capital of a hypothetical third party buyer to compute the fair value of each reporting unit. The fair value is then compared to the carrying value. To the extent that fair value exceeds the carrying value, no impairment exists. However, to the extent the carrying value exceeds the fair value, we compare the implied fair value of goodwill to its book value to determine if an impairment should be recorded. Our annual review was performed as of October 1st for each year presented, and our review for 2012 and 2011 did not indicate an impairment of goodwill. There were also no indicators of impairment at December 31, 2012.
Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment

Property, plant and equipment consists of the following:
December 31,
(dollars in thousands)
 
2012
 
2011
Land
 
$
20,168

 
$
19,845

Buildings
 
86,498

 
89,873

Machinery and equipment
 
449,805

 
437,320

Furniture and fixtures
 
13,662

 
13,663

Software
 
19,987

 
20,893

Construction in progress
 
21,308

 
14,595

Gross property, plant and equipment
 
611,428

 
596,189

Less accumulated depreciation
 
353,274

 
331,471

Net property, plant and equipment
 
$
258,154

 
$
264,718



Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 to 14 years for equipment and furnishings and 10 to 40 years for buildings and improvements. Software consists of internally developed and purchased software packages for internal use. Capitalized costs include software packages, installation, and/or certain internal labor costs. These costs are generally amortized over a five-year period. Depreciation expense was $40.3 million, $40.9 million and $39.8 million for the years 2012, 2011 and 2010, respectively.

During 2011, we wrote down unutilized fixed assets within our Glass Operations segment. The non-cash charge of $0.8 million was included in cost of sales on the Consolidated Statements of Operations.

In 2010, we wrote down decorating assets in our Shreveport, Louisiana facility as a result of our decision to outsource our U.S. decorating business. A non-cash charge of $0.4 million was recorded in special charges on the Consolidated Statements of Operations. In addition, in 2010, we wrote down certain after-processing equipment within our Glass Operations segment that was no longer being used in our production process. A non-cash charge of $2.7 million was recorded in cost of sales on the Consolidated Statements of Operations. During 2011, we received a $1.0 million credit from the supplier of this equipment. Also in 2010, we recorded a $0.6 million reduction in the carrying value of our land at the Syracuse China manufacturing facility that was recorded in special charges on the Consolidated Statements of Operations. See note 7 for further discussion of these restructuring charges.
Borrowings
Borrowings
Borrowings

On May 18, 2012, we completed the refinancing of substantially all of the existing indebtedness of our wholly-owned subsidiaries Libbey Glass Inc. (Libbey Glass) and Libbey Europe B.V. (Libbey Europe). The refinancing included:

the entry into an amended and restated credit agreement with respect to our ABL Facility;
the issuance of $450.0 million in aggregate principal amount of 6.875 percent Senior Secured Notes of Libbey Glass due 2020 (New Senior Secured Notes);
the repurchase and cancellation of $320.0 million of Libbey Glass’s then outstanding 10.0 percent Senior Secured Notes due 2015 (Old Senior Secured Notes); and
the redemption of $40.0 million of Libbey Glass's then outstanding 10.0 percent Old Senior Secured Notes (completed June 29, 2012).

We used the proceeds of the offering of the New Senior Secured Notes to fund the repurchase and redemption of $320.0 million of the Old Senior Secured Notes, pay related fees and expenses, and contribute $79.7 million to our U.S. pension plans to fully fund our target obligations under ERISA.

On June 29, 2012, we used the remaining proceeds of the New Senior Secured Notes, together with cash on hand, to redeem the remaining $40.0 million of Old Senior Secured Notes and to pay related fees.

The above transactions included charges of $23.6 million for an early call premium and $11.0 million for the write off of the remaining financing fees and discounts from the Old Senior Secured Notes and were considered in the computation of the loss on redemption of debt.

On February 8, 2010, we completed the refinancing of substantially all of the existing indebtedness of our wholly-owned subsidiaries Libbey Glass and Libbey Europe. The refinancing included:
the entry into an amended and restated credit agreement with respect to our ABL Facility;
the issuance of $400.0 million in aggregate principal amount of 10.0 percent Old Senior Secured Notes;
the repurchase and cancellation of all of Libbey Glass’s then outstanding $306.0 million in aggregate principal amount of floating rate notes; and
the redemption of all of Libbey Glass’s then outstanding $80.4 million in aggregate principal amount 0.0 percent payment-in-kind notes (PIK Notes).
We used the proceeds of the offering of the Old Senior Secured Notes, together with cash on hand, to fund the repurchase of the floating rate notes, the redemption of the PIK Notes and to pay certain related fees and expenses. Upon completion of the refinancing, we recorded a gain of $71.7 million related to the redemption of the PIK Notes. This gain was partially offset by $13.4 million representing a write-off of bank fees, discounts and a call premium on the floating rate notes, resulting in a net gain of $58.3 million as shown on the Consolidated Statements of Operations.

Concurrently with the issuance of the original PIK Notes in 2006, we issued, to the holder of the original PIK Notes, detachable warrants to purchase 485,309 shares of Libbey Inc. common stock at an exercise price of $11.25 per share. These warrants, which did not have voting rights, were exercised in November, 2011 for approximately $5.5 million.

In October 2009, we entered into a transaction with Merrill Lynch PCG, Inc. to exchange the PIK Notes due in December 2011, for a combination of debt and equity securities. As part of this transaction, we issued to the Merrill Lynch PCG, Inc. 933,145 shares of Libbey Inc. common stock and warrants conveying the right to purchase, for $0.01 per share, an additional 3,466,856 shares of the Company’s common stock.

The additional 3.5 million shares were issued in August, 2010 as the warrant holder chose to exercise these warrants, and on August 18, 2010, we announced the closing of a secondary offering of these 4.4 million shares of our common stock on behalf of Merrill Lynch PCG, Inc., the selling stockholder, at a price to the public of $10.25 per share. The total offering size reflects the underwriters’ exercise of their option to purchase an additional 573,913 shares of common stock, on the same terms and conditions, to cover over-allotments. We did not receive any proceeds from the offering. The fees of approximately $1.0 million related to this transaction were recorded as selling, general and administrative expense in the Consolidated Statements of Operations in 2010.

Borrowings consist of the following:
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
December 31,
2012
 
December 31,
2011
Borrowings under ABL Facility
 
floating
 
May 18, 2017
 
$

 
$

New Senior Secured Notes
 
6.875%
(1)
May 15, 2020
 
450,000

 

Old Senior Secured Notes
 
10.00%
(1)
February 15, 2015
 

 
360,000

Promissory Note
 
6.00%
 
January, 2013 to September, 2016
 
903

 
1,111

Notes Payable
 
floating
 
January, 2013
 

 
339

RMB Loan Contract
 
floating
 
January, 2014
 
9,522

 
28,332

BES Euro Line
 
floating
 
December, 2013
 
4,362

 
7,835

AICEP Loan
 
0.00%
 
January, 2016 to July 30, 2018
 
1,272

 

Total borrowings
 
466,059

 
397,617

Less — unamortized discount
 

 
4,300

Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)
 
408

 
4,043

Total borrowings — net
 
466,467

 
397,360

Less — long term debt due within one year
 
4,583

 
4,192

Total long-term portion of borrowings — net
 
$
461,884

 
$
393,168

____________________________________
(1)
See Interest Rate Agreements under “Senior Secured Notes” below and in note 13.
Annual maturities for all of our total borrowings for the next five years and beyond are as follows:
2013
2014
2015
2016
2017
Thereafter
 
$4,583
$9,757
$249
$621
$424
$450,425
 

Amended and Restated ABL Credit Agreement
Pursuant to the refinancing, Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 and amended as of April 29, 2011 and May 18, 2012 (as amended, the ABL Facility), with a group of four financial institutions. The ABL Facility provides for borrowings of up to $100.0 million, subject to certain borrowing base limitations, reserves and outstanding letters of credit.

All borrowings under the ABL Facility are secured by:
a first-priority security interest in substantially all of the existing and future personal property of Libbey Glass and its domestic subsidiaries (Credit Agreement Priority Collateral);
a first-priority security interest in:
100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries;
100 percent of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries; and
65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries
a first-priority security interest in substantially all proceeds and products of the property and assets described above; and
a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (New Notes Priority Collateral).

Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:
a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and
a first-priority security interest in:
100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and
100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.
Swingline borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe being limited to the US equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swing line borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swing line rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.50 percent and 1.50 percent, respectively, at December 31, 2012. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.38 percent at December 31, 2012. No compensating balances are required by the Agreement. The Agreement does not require compliance with a fixed charge coverage ratio covenant, unless aggregate unused availability falls below $10.0 million. If our aggregate unused ABL availability were to fall below $10.0 million, the fixed charge coverage ratio requirement would be 1:00 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by $25.0 million. There were no Libbey Glass or Libbey Europe borrowings under the facility at December 31, 2012 or at December 31, 2011. Interest is payable on the last day of the interest period, which can range from one month to six months depending on the maturity of each individual borrowing on the facility.

The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable and inventory. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable and (b) the lesser of (i) 85 percent of the net orderly liquidation value (NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million.

The available total borrowing base is offset by rent reserves totaling $0.7 million and mark-to-market reserves for natural gas contracts of $0.4 million as of December 31, 2012. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $100.0 million limit. At December 31, 2012, we had $8.5 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $68.6 million at December 31, 2012, compared to $63.8 million under the ABL Facility at December 31, 2011.
New Senior Secured Notes

On May 18, 2012, Libbey Glass closed its offering of the $450.0 million New Senior Secured Notes. The notes offering was issued at par and had related fees of approximately $13.6 million. These fees will be amortized to interest expense over the life of the notes.

The New Senior Secured Notes were issued pursuant to an Indenture, dated May 18, 2012 (New Notes Indenture), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and The Bank of New York Mellon Trust Company, N.A., as trustee (New Notes Trustee) and collateral agent. Under the terms of the New Notes Indenture, the New Senior Secured Notes bear interest at a rate of 6.875 percent per year and will mature on May 15, 2020. Although the New Notes Indenture does not contain financial covenants, the New Notes Indenture contains other covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:

incur, assume or guarantee additional indebtedness;
pay dividends, make certain investments or other restricted payments;
create liens;
enter into affiliate transactions;
merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and
transfer or sell assets.

The New Notes Indenture provides for customary events of default. In the case of an event of default arising from bankruptcy or insolvency as defined in the New Notes Indenture, all outstanding New Senior Secured Notes will become due and payable immediately without further action or notice. If any other event of default under the New Notes Indenture occurs or is continuing, the New Notes Trustee or holders of at least 25 percent in aggregate principal amount of the then outstanding New Senior Secured Notes may declare all the New Senior Secured Notes to be due and payable immediately.

The New Senior Secured Notes and the related guarantees under the New Notes Indenture are secured by (i) first priority liens on the New Notes Priority Collateral and (ii) second priority liens on the Credit Agreement Priority Collateral.

On February 8, 2010, Libbey Glass closed its offering of the $400.0 million Old Senior Secured Notes. The net proceeds of the offering of Senior Secured Notes were approximately $379.8 million, after the 1.918% percent original issue discount of $7.7 million, $10.0 million of commissions payable to the initial purchasers and $2.5 million of fees related to the offering. These fees were amortized to interest expense over the life of the notes.

In connection with the sale of the New Senior Secured Notes, Libbey Glass and the Guarantors entered into a registration rights agreement, dated May 18, 2012 (Registration Rights Agreement), under which they agreed to make an offer to exchange the New Senior Secured Notes and the related guarantees for registered, publicly tradable notes and guarantees that have substantially identical terms to the New Senior Secured Notes and the related guarantees, and in certain limited circumstances, to file a shelf registration statement that would allow certain holders of New Senior Secured Notes to resell their respective New Senior Secured Notes to the public. On November 6, 2012, we exchanged $450.0 million aggregate principal amount of 6.875 percent New Senior Secured Notes due 2020 for an equal principal amount of a new issue of 6.875 percent New Senior Secured Notes due 2020, which have been registered under the Securities act of 1933, as amended.

Prior to May 15, 2015, we may redeem in the aggregate up to 35 percent of the New Senior Secured Notes with the net cash proceeds of one or more equity offerings at a redemption price of 106.875 percent of the principal amount, provided that at least 65 percent of the original principal amount of the New Senior Secured Notes must remain outstanding after each redemption and that each redemption occurs within 90 days of the closing of the equity offering. In addition, prior to May 15, 2015, but not more than once in any twelve-month period, we may redeem up to 10 percent of the New Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid interest. The New Senior Secured Notes are redeemable at our option, in whole or in part, at any time on or after May 15, 2015 at set redemption prices together with accrued and unpaid interest.

On March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of the Old Senior Secured Notes in accordance with the terms of the Old Notes Indenture. Pursuant to the terms of the Old Notes Indenture, the redemption price for the Old Senior Secured Notes was 103 percent of the principal amount of the redeemed Old Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Old Senior Secured Notes outstanding was $360.0 million. In conjunction with this redemption, we recorded $2.8 million of expense, representing $1.2 million for an early call premium and $1.6 million for the write off of a pro rata amount of financing fees and discounts.

We had an Interest Rate Agreement (Old Rate Agreement) in place through April 18, 2012 with respect to $80.0 million of our Old Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The Old Rate Agreement effectively converted this portion of our long-term borrowings from fixed rate debt to variable rate debt. The variable interest rate for our borrowings related to the Old Rate Agreement at April 18, 2012, excluding applicable fees, was 7.79 percent. Total remaining Old Senior Secured Notes not covered by the Old Rate Agreement had a fixed interest rate of 10.0 percent per year. On April 18, 2012, the swap was called at fair value. We received proceeds of $3.6 million. During the second quarter of 2012, $0.1 million of the carrying value adjustment on debt related to the Old Rate Agreement was amortized into interest expense. Upon the refinancing of the Old Senior Secured Notes, the remaining unamortized balance of $3.5 million of the carrying value adjustment on debt related to the Old Rate Agreement was recognized as a gain in the loss on redemption of debt on the Consolidated Statements of Operations.

On June 18, 2012, we entered into an Interest Rate Agreement (New Rate Agreement) with respect to $45.0 million of our New Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The New Rate Agreement effectively converts this portion of our long-term borrowings from fixed rate debt to variable rate debt. Prior to May 15, 2015, but not more than once in any twelve-month period, the counterparty may call up to 10 percent of the New Rate Agreement at a call price of 103 percent. The New Rate Agreement is callable at the counterparty’s option, in whole or in part, at any time on or after May 15, 2015 at set call premiums. The variable interest rate for our borrowings related to the New Rate Agreement at December 31, 2012, excluding applicable fees, is 5.57 percent. This New Rate Agreement expires on May 15, 2020. Total remaining New Senior Secured Notes not covered by the New Rate Agreement have a fixed interest rate of 6.875 percent per year through May 15, 2020. If the counterparty to this New Rate Agreement were to fail to perform, this New Rate Agreement would no longer afford us a variable rate. However, we do not anticipate non-performance by the counterparty. The interest rate swap counterparty was rated A+, as of December 31, 2012, by Standard and Poor’s.

The fair market value and related carrying value adjustment are as follows:
(dollars in thousands)
 
December 31, 2012
 
December 31, 2011
Fair market value of Rate Agreements - asset (liability)
 
$
298

 
$
3,606

Adjustment to increase (decrease) the carrying value of the related long-term debt
 
$
408

 
$
4,043

The net impact recorded on the Consolidated Statements of Operations is as follows:
For the year ended December 31,
(dollars in thousands)
 
2012
 
2011
 
2010
Income (expense) on hedging activities in other income (expense)
 
$
280

 
$
293

 
$
(730
)
Income on hedging activities in loss on redemption of debt
 
$
3,502

 
$

 
$


The fair value of the Old and New Rate Agreements are based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. See note 13 for further discussion.
Promissory Note
In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. At December 31, 2012 and December 31, 2011, we had $0.9 million and $1.1 million, respectively, outstanding on the promissory note. Principal and interest with respect to the promissory note are paid monthly.
Notes Payable
We have an overdraft line of credit for a maximum of €1.0 million. At December 31, 2012, there were no borrowing under the facility, which had an interest rate of 5.80 percent. The $0.3 million outstanding at December 31, 2011, was the U.S. dollar equivalent under the euro-based overdraft line. Interest with respect to the note is paid monthly.
RMB Loan Contract
On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the equivalent of approximately $39.7 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of December 31, 2012, the annual interest rate was 5.90 percent. As of December 31, 2012, the outstanding balance was RMB 60.0 million (approximately $9.5 million). As of December 31, 2011, the outstanding balance was RMB 180.0 million (approximately $28.3 million). Interest is payable quarterly. In 2012 and 2011, we pre-paid principal payments of RMB 120.0 million (approximately $19.0 million) and RMB 70.0 million (approximately $11.1 million), respectively. A principal payment in the amount of RMB 60.0 million (approximately $9.5 million) is due on January 20, 2014. The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of CCB and a mortgage lien on the Libbey China facility.
BES Euro Line
In January 2007, Crisal entered into a seven-year, €11.0 million line of credit (approximately $14.5 million) with Banco Espírito Santo, S.A. (BES). The $4.4 million outstanding at December 31, 2012, was the U.S. dollar equivalent of the €3.3 million outstanding under the line at an interest rate of 3.77 percent. Payment of principal in the amount of €3.3 million (approximately $4.4 million) is due in December 2013. Interest with respect to the line is paid every semi-annually.
AICEP Loan
In July 2012, Libbey Portugal entered into a loan agreement with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese Agency for investment and external trade. The amount of the loan is €1.0 million (approximately $1.3 million) and has an interest rate of 0.0 percent. Semi-annual installments of principal are due beginning in January 2016 through the maturity date of July 2018.
Fair Value of Borrowings
The fair value of our debt has been calculated based on quoted market prices (Level 1 in the fair value hierarchy) for the same or similar issues. Our $450.0 million of New Senior Secured Notes had an estimated fair value of $488.3 million at December 31, 2012. This compares to our $360.0 million of Old Senior Secured Notes with an estimated fair value of $385.2 million at December 31, 2011. The fair value of the remainder of our debt approximates carrying value at December 31, 2012 and 2011 due to variable rates.
Capital Resources and Liquidity
Historically, cash flows generated from operations, cash on hand and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. At December 31, 2012 we had no amounts outstanding under our $100.0 million ABL Facility, although we had $8.5 million of letters of credit issued under that facility. As a result, we had $68.6 million of unused availability remaining under the ABL Facility at December 31, 2012, as compared to $63.8 million of unused availability at December 31, 2011. In addition, we had $67.2 million of cash on hand at December 31, 2012, compared to $58.3 million of cash on hand at December 31, 2011.

On May 18, 2012, we used the proceeds of a debt offering of $450.0 million of 6.875 percent New Senior Secured Notes, to repurchase and cancel $320.0 million of 10.0 percent Old Senior Notes that were outstanding at that date, amend and restate our ABL Facility, and contribute $79.7 million to our U.S. pension plans to fully fund our target obligations under ERISA. On June 29, 2012, we used the remaining proceeds of the New Senior Secured Notes, together with cash on hand, to redeem the remaining $40.0 million of Old Senior Secured Notes.

In addition, we prepaid RMB 120.0 million (approximately $19.0 million) on our loan in China that was not due until 2013, and we repaid €2.8 million (approximately $3.7 million) on our BES Euro Line in 2012.

Based on our operating plans and current forecast expectations, we anticipate that our level of cash on hand, cash flows from operations and our borrowing capacity under our amended and restated ABL Facility will provide sufficient cash availability to meet our ongoing liquidity needs.
Restructuring Charges
Restructuring Charges
Restructuring Charges
Facility Closures
In December 2008, we announced that our Syracuse China manufacturing facility and our Mira Loma, California distribution center would be shut down in early to mid-2009 in order to reduce costs, and accordingly recorded a pre-tax charge of $29.1 million in 2008 and $3.8 million in 2009. The principal components of the 2008 charge included fixed asset and inventory write-downs, employee severance and pension and postretirement charges. The 2009 charge related primarily to building site clean up, inventory write-downs, pension and postretirement charges, depreciation expense, natural gas hedges, and employee severance and other. The Syracuse China facility was closed on April 9, 2009 and the Mira Loma distribution center was closed on May 31, 2009.

In 2010, we recorded an additional pre-tax charge of $1.2 million related to the closures of the Syracuse China manufacturing facility and the Mira Loma, California distribution center. The principal components of the charge included a $0.6 million charge to write-down the value of land at Syracuse, and site cleanup of $0.4 million. In addition, natural gas hedge ineffectiveness of $0.1 million was charged to other income (expense) on the Consolidated Statements of Operations.

We incurred charges of approximately $0.1 million in 2011 related to other costs net of building site clean-up adjustments in connection with the sale of the property in Syracuse, New York in March 2011. This amount was included in special charges on the Consolidated Statement of Operations. Since the activities related to our closure of the Syracuse China manufacturing facility were complete as of March 31, 2011, no additional charges were incurred for the year ended December 31, 2012.

The following table summarizes the facility closure charges for the years 2011 and 2010:
 
 
2011
 
2010
(dollars in thousands)
 
Glass Operations
 
Other Operations
 
Total
 
Glass Operations
 
Other Operations
 
Total
Inventory write-down
 
$

 
$

 
$

 
$

 
$
(12
)
 
$
(12
)
Included in cost of sales
 

 

 

 

 
(12
)
 
(12
)
Employee termination cost & other
 

 
167

 
167

 
28

 
25

 
53

Building site clean-up & fixed asset/land write-down
 

 
(116
)
 
(116
)
 

 
1,012

 
1,012

Included in special charges
 

 
51

 
51

 
28

 
1,037

 
1,065

Ineffectiveness of natural gas hedge
 

 

 

 

 
130

 
130

Included in other (income) expense
 

 

 

 

 
130

 
130

Total pretax charge
 
$

 
$
51

 
$
51

 
$
28

 
$
1,155

 
$
1,183



The following reflects the balance sheet activity related to the facility closure charge for the year ended December 31, 2011:
 
 
Reserve Balances at
January 1, 2011
 
Total
Charge to Earnings
 
Cash
(Payments) Receipts
 
Inventory &
Fixed Asset Write Downs
 
Non-cash Utilization
 
Reserve Balances at
December 31, 2011
(dollars in thousands)
 
 
 
 
 
 
Employee termination cost & other
 
$
301

 
$
167

 
$
(314
)
 
$

 
$
(154
)
 
$

Building site clean-up & fixed asset/land write-down
 
151

 
(116
)
 
(5
)
 
21

 
(51
)
 

Total
 
$
452

 
$
51

 
$
(319
)
 
$
21

 
$
(205
)
 
$



The activities related to our closure of the Syracuse China manufacturing facility and our Mira Loma, California distribution center were complete in 2011. The following reflects the total cumulative expenses (incurred from the fourth quarter of 2008 through December 31, 2011) related to the facility closure activity:
(dollars in thousands)
 
Glass Operations
 
Other Operations
 
Charges To Date
Inventory write-down
 
$
192

 
$
10,541

 
$
10,733

Pension & postretirement welfare
 

 
4,448

 
4,448

Fixed asset depreciation
 

 
966

 
966

Included in cost of sales
 
192

 
15,955

 
16,147

Employee termination cost & other
 
548

 
6,149

 
6,697

Building site clean-up & fixed asset/land write-down
 
177

 
10,418

 
10,595

Included in special charges
 
725

 
16,567

 
17,292

Ineffectiveness of natural gas hedge
 

 
745

 
745

Included in other (income) expense
 

 
745

 
745

Total pretax charge
 
$
917

 
$
33,267

 
$
34,184



Fixed Asset and Inventory Write-down

In August 2010, we wrote down decorating assets in our Shreveport, Louisiana facility as a result of our decision to outsource our U.S. decorating business. In 2010, we recorded a charge of $0.6 million to write down inventory and spare machine parts. This amount was included in cost of sales on the Consolidated Statement of Operations in the Glass Operations segment. Charges of $0.7 million were recorded in 2010 for site cleanup and fixed assets write down. This amount was included in special charges on the Consolidated Statement of Operations in the Glass Operations segment. No employee related costs were incurred, as all employees were reassigned into the facility.

In 2011, we recorded a $(0.3) million income adjustment to special charges on the Consolidated Statement of Operations in the Glass Operations segment. Also in 2011, we recorded a charge of $0.2 million to write down inventory and spare machine parts. This amount was included in cost of sales on the Consolidated Statement of Operations in the Glass Operations segment.

The activities related to our write-down of decorating fixed assets and inventory were completed in 2011. The following reflects the balance sheet activity related to the fixed asset and inventory write-down charge for the year ended December 31, 2011:
 
 
Reserve
Balances at
January 1, 2011
 
Total
Charge to Earnings
 
Cash
(Payments) Receipts
 
Inventory &
Fixed Asset Write Downs
 
Reserve
Balances at
December 31, 2011
(dollars in thousands)
 
 
 
 
 
Building site clean-up & fixed asset write-down
 
$
316

 
$
(135
)
 
$
(39
)
 
$
(142
)
 
$

Total
 
$
316

 
$
(135
)
 
$
(39
)
 
$
(142
)
 
$



Summary of Total Special Charges
The following table summarizes by year the special charges mentioned above and their classifications in the Consolidated Statements of Operations:
(dollars in thousands)
 
2012
 
2011
 
2010
Cost of sales
 
$

 
$
197

 
$
566

Special charges
 

 
(281
)
 
1,802

Other (income) expense
 

 

 
130

Total (income) expense
 
$

 
$
(84
)
 
$
2,498

Income Taxes
Income Taxes
Income Taxes

The provisions for income taxes were calculated based on the following components of income (loss) before income taxes:
Year ended December 31,
(dollars in thousands)
 
2012
 
2011
 
2010
United States
 
$
(17,030
)
 
$
(6,662
)
 
$
46,720

Non-U.S. 
 
29,705

 
31,946

 
34,948

Total income before income taxes
 
$
12,675

 
$
25,284

 
$
81,668



The current and deferred provisions (benefit) for income taxes were:
Year ended December 31,
(dollars in thousands)
 
2012
 
2011
 
2010
Current:
 
 
 
 
 
 
U.S. federal
 
$
(18
)
 
$
484

 
$
(423
)
Non-U.S. 
 
9,194

 
5,732

 
13,459

U.S. state and local
 
(72
)
 
100

 
212

Total current income tax provision (benefit)
 
9,104

 
6,316

 
13,248

 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
U.S. federal
 
1,264

 
(400
)
 
94

Non-U.S. 
 
(4,658
)
 
(4,294
)
 
(1,854
)
U.S. state and local
 
(1
)
 
21

 
94

Total deferred income tax provision (benefit)
 
(3,395
)
 
(4,673
)
 
(1,666
)
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
U.S. federal
 
1,246

 
84

 
(329
)
Non-U.S. 
 
4,536

 
1,438

 
11,605

U.S. state and local
 
(73
)
 
121

 
306

Total income tax provision (benefit)
 
$
5,709

 
$
1,643

 
$
11,582



The significant components of our deferred income tax assets and liabilities are as follows:
December 31,
(dollars in thousands)
 
2012
 
2011
Deferred income tax assets:
 
 
 
 
Pension
 
$
16,526

 
$
35,813

Non-pension postretirement benefits
 
27,198

 
26,085

Other accrued liabilities
 
20,213

 
21,045

Receivables
 
1,445

 
1,279

Net operating loss and charitable contribution carry forwards
 
45,592

 
23,746

Tax credits
 
9,770

 
9,026

Total deferred income tax assets
 
120,744

 
116,994

 
 
 
 
 
Deferred income tax liabilities:
 
 
 
 
Property, plant and equipment
 
23,196

 
27,321

Inventories
 
4,377

 
4,932

Intangibles and other assets
 
12,392

 
11,062

Total deferred income tax liabilities
 
39,965

 
43,315

Net deferred income tax asset before valuation allowance
 
80,779

 
73,679

Valuation allowance
 
(77,629
)
 
(76,452
)
Net deferred income tax asset (liability)
 
$
3,150

 
$
(2,773
)


The net deferred income tax assets and liabilities at December 31 of the respective year-ends were included in the Consolidated Balance Sheets as follows:
December 31,
dollars in thousands)
 
2012
 
2011
Current deferred income tax asset
 
$
4,070

 
$
3,074

Non-current deferred income tax asset
 
9,830

 
6,911

Current deferred income tax liability
 
(3,213
)
 
(1,369
)
Non-current deferred income tax liability
 
(7,537
)
 
(11,389
)
Net deferred income tax asset (liability)
 
$
3,150

 
$
(2,773
)


The 2012 deferred income tax asset for net operating loss carry forwards of $44.4 million relates to pre-tax losses incurred in the Netherlands of $15.9 million, in Portugal of $9.4 million, in China of $0.2 million, in the U.S. of $107.2 million for federal and $107.1 million for state and local jurisdictions. Our foreign net operating loss carry forwards of $25.5 million will expire between 2013 and 2021. Our U.S. federal net operating loss carry forward of $107.2 million will expire between 2028 and 2032. The U.S. state and local net operating loss carry forward of $107.1 million will expire between 2017 and 2032. The 2011 deferred income tax asset for net operating loss carry forwards of $22.6 million relates to pre-tax losses incurred in the Netherlands of $14.3 million, in Portugal of $11.0 million, in China of $6.7 million, and in the U.S. of $38.6 million for federal and $73.2 million for state and local jurisdictions.

One of our legal entities in China had a tax holiday which expired effective December 31, 2012. In 2012, we recognized a benefit of $0.5 million from the tax holiday. In 2011 and 2010, we recognized no benefit due to net operating losses incurred and a full valuation allowance in place.

The 2012 deferred tax credits of $9.8 million consist of $2.0 million U.S. federal tax credits and $7.8 million non-U.S. credits. The U.S. federal tax credits consist of foreign tax credits, general business research and development credits, and alternative minimum tax credits. The non-U.S. credit of $7.8 million, which is related to withholding tax on inter-company debt in the Netherlands, can be carried forward indefinitely. The 2011 deferred tax credits of $9.0 million consist of $1.8 million U.S. federal tax credits and $7.2 million non-U.S. credits.

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realized on a quarterly basis or whenever events indicate that a review is required. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income (including reversals of deferred income tax liabilities) during the periods in which those temporary differences reverse. As a result, we consider the historical and projected financial results of the legal entity or consolidated group recording the net deferred income tax asset as well as all other positive and negative evidence. Examples of the evidence we consider are cumulative losses in recent years, losses expected in early future years, a history of potential tax benefits expiring unused and whether there was an unusual, infrequent, or extraordinary item to be considered. We currently have valuation allowances in place on our deferred income tax assets in the U.S., Portugal and the Netherlands. We intend to maintain these allowances until it is more likely than not that those deferred income tax assets will be realized. During 2012, the valuation allowances against our deferred tax assets in China were released due to positive three-year cumulative earnings and forecasted future earnings.

The valuation allowance activity for the years ended December 31 is as follows:
Year ended December 31,
(dollars in thousands)
 
2012
 
2011
 
2010
Beginning balance
 
$
76,452

 
$
72,327

 
$
98,989

Charge (benefit) to provision for income taxes
 
(1,805
)
 
(2,313
)
 
(22,830
)
Charge (benefit) to other comprehensive income
 
2,982

 
6,438

 
(3,832
)
Ending balance
 
$
77,629

 
$
76,452

 
$
72,327



The valuation allowance increased $1.2 million in 2012 from $76.5 million at December 31, 2011 to $77.6 million at December 31, 2012. The 2012 increase of $1.2 million is attributable to the 2012 change in deferred tax assets, primarily related to the U.S. federal net operating loss carry forward partially offset by the release of the Chinese valuation allowance. The 2012 valuation allowance of $77.6 million consists of $68.8 million related to U.S. entities and $8.8 million related to non-U.S. entities. The valuation allowance increased $4.1 million in 2011 from $72.3 million at December 31, 2010 to $76.5 million at December 31, 2011. The 2011 decrease in valuation allowance was attributable to the 2011 change in deferred tax assets, primarily related to the U.S. federal net operating loss carry forward.

Reconciliation from the statutory U.S. federal income tax rate to the consolidated effective income tax rate was as follows:
Year ended December 31,
(dollars in thousands)
 
2012
 
2011
 
2010
Statutory U.S. federal income tax rate
 
35.0

%
 
35.0

%
 
35.0

%
Increase (decrease) in rate due to:
 
 
 
 
 
 
 
 
 
Non-U.S. income tax differential
 
(43.5
)
 
 
(14.6
)
 
 
(3.2
)
 
U.S. state and local income taxes, net of related U.S. federal income taxes
 
(0.4
)
 
 
0.3

 
 
0.3

 
U.S. federal credits
 
(0.9
)
 
 
(0.3
)
 
 
0.8

 
Permanent adjustments
 
60.6

 
 
(18.6
)
 
 
6.9

 
Foreign withholding taxes
 
12.0

 
 
6.7

 
 
0.4

 
Valuation allowance
 
(10.6
)
 
 
3.7

 
 
(25.4
)
 
Other
 
(7.2
)
 
 
(5.7
)
 
 
(0.6
)
 
Consolidated effective income tax rate
 
45.0

%
 
6.5

%
 
14.2

%


Income tax payments consisted of the following:
Year ended December 31,
(dollars in thousands)
 
2012
 
2011
 
2010
Total income tax payments, net of refunds
 
$
4,399

 
$
15,124

 
$
11,250

Less: credits or offsets
 
997

 
4,894

 
2,420

Cash paid, net
 
$
3,402

 
$
10,230

 
$
8,830



There were no accumulated undistributed earnings from non-U.S. subsidiaries in 2012 or 2011. We intend to reinvest any future undistributed earnings indefinitely into non-U.S. operations. Determination of the net amount of unrecognized U.S. income tax and potential foreign withholdings with respect to these earnings is not practicable.

We are subject to income taxes in the U.S. and various foreign jurisdictions. Management judgment is required in evaluating our tax positions and determining our provision for income taxes. Throughout the course of business, there are numerous transactions and calculations for which the ultimate tax determination is uncertain. When management believes certain tax positions may be challenged despite our belief that the tax return positions are supportable, we establish reserves for tax uncertainties based on estimates of whether additional taxes will be due. We adjust these reserves taking into consideration changing facts and circumstances, such as an outcome of a tax audit. The income tax provision includes the impact of reserve provisions and changes to reserves that are considered appropriate. Accruals for tax contingencies are provided for in accordance with the requirements of FASB ASC 740.

A reconciliation of the beginning and ending gross unrecognized tax benefits, excluding interest and penalties, is as follows:
(dollars in thousands)
 
2012
 
2011
 
2010
Beginning balance
 
$
1,266

 
$
1,129

 
$
1,029

Additions based on tax positions related to the current year
 

 

 
48

Reductions for tax positions of prior years
 

 

 
(34
)
Changes due to lapse of statute of limitations
 
230

 
137

 
86

Ending balance
 
$
1,496

 
$
1,266

 
$
1,129



We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. Other disclosures relating to unrecognized tax benefits are as follows:
December 31,
(dollars in thousands)
 
2012
 
2011
 
2010
Impact on the effective tax rate, if unrecognized tax benefits were recognized
 
$
1,382

 
$
1,152

 
 
Interest and penalties, net of tax, accrued in the Consolidated Balance Sheets
 
$
662

 
$
1,415

 
 
Interest and penalties expense (benefit) recognized in the Consolidated Statements of Operations
 
$
(753
)
 
$
(288
)
 
$
(271
)


Based upon the outcome of tax examinations, judicial proceedings, or expiration of statutes of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. It is not possible at this point in time, however, to estimate whether there will be a significant change in our gross unrecognized tax benefits.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2012, the tax years that remained subject to examination by major tax jurisdictions were as follows:
Jurisdiction
 
Open Years
Canada
 
2009
2012
China
 
2009
2012
Mexico
 
2007
2012
Netherlands
 
2011
2012
Portugal
 
2008
2012
United States
 
2009
2012
Pension
Pension
Pension
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. Our policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006 and most hourly U.S.-based employees (excluding employees hired at Shreveport after 2008 and at Toledo after September 30, 2010). Effective January 1, 2013, we are ceasing annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiaries in the Netherlands and Mexico. The plan in Mexico is not funded.

Effect on Operations
The components of our net pension expense, including the SERP, are as follows:
Year ended December 31,
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Service cost (benefits earned during the period)
 
$
5,957

 
$
5,491

 
$
5,341

 
$
1,749

 
$
1,553

 
$
1,603

 
$
7,706

 
$
7,044

 
$
6,944

Interest cost on projected benefit obligation
 
15,398

 
16,057

 
15,896

 
4,954

 
4,981

 
4,557

 
20,352

 
21,038

 
20,453

Expected return on plan assets
 
(18,514
)
 
(17,173
)
 
(16,683
)
 
(2,382
)
 
(2,299
)
 
(2,463
)