LIBBEY INC, 10-Q filed on 8/5/2016
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2016
Jul. 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
Jun. 30, 2016 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
21,827,445 
Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Net sales
$ 207,902 
$ 214,051 
$ 390,709 
$ 401,416 
Freight billed to customers
662 
735 
1,280 
1,341 
Total revenues
208,564 
214,786 
391,989 
402,757 
Cost of sales
158,153 
157,896 
301,604 
303,372 
Gross profit
50,411 
56,890 
90,385 
99,385 
Selling, general and administrative expenses
30,673 
36,390 
64,808 
70,789 
Income from operations
19,738 
20,500 
25,577 
28,596 
Other income
802 
846 
787 
1,673 
Earnings before interest and income taxes
20,540 
21,346 
26,364 
30,269 
Interest expense
5,154 
4,538 
10,398 
9,061 
Income before income taxes
15,386 
16,808 
15,966 
21,208 
Provision for income taxes
6,691 
2,414 
6,553 
3,702 
Net income
$ 8,695 
$ 14,394 
$ 9,413 
$ 17,506 
Net income per share:
 
 
 
 
Basic
$ 0.40 
$ 0.66 
$ 0.43 
$ 0.80 
Diluted
$ 0.40 
$ 0.65 
$ 0.43 
$ 0.78 
Dividends declared per share
$ 0.115 
$ 0.11 
$ 0.23 
$ 0.22 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Net income
$ 8,695 
$ 14,394 
$ 9,413 
$ 17,506 
Other comprehensive income (loss):
 
 
 
 
Pension and other postretirement benefit adjustments, net of tax
3,038 
7,709 
4,027 
12,421 
Change in fair value of derivative instruments, net of tax
157 
572 
(1,701)
330 
Foreign currency translation adjustments, net of tax
(2,879)
2,181 
326 
(8,309)
Other comprehensive income, net of tax
316 
10,462 
2,652 
4,442 
Comprehensive income
$ 9,011 
$ 24,856 
$ 12,065 
$ 21,948 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2016
Dec. 31, 2015
Assets:
 
 
Cash and cash equivalents
$ 46,446 
$ 49,044 
Accounts receivable - net
93,287 
94,379 
Inventories - net
189,567 
178,027 
Prepaid and other current assets
14,279 
19,326 
Total current assets
343,579 
340,776 
Pension asset
977 
977 
Purchased intangible assets - net
15,901 
16,364 
Goodwill
164,112 
164,112 
Deferred income taxes
40,050 
48,662 
Other assets
8,820 
9,019 
Total other assets
229,860 
239,134 
Property, plant and equipment - net
261,036 
272,534 
Total assets
834,475 
852,444 
Liabilities and Shareholders' Equity:
 
 
Accounts payable
63,459 
71,560 
Salaries and wages
25,218 
27,266 
Accrued liabilities
52,503 
45,179 
Accrued income taxes
295 
4,009 
Pension liability (current portion)
1,960 
2,297 
Non-pension postretirement benefits (current portion)
4,903 
4,903 
Derivative liability
2,529 
4,265 
Long-term debt due within one year
4,577 
4,747 
Total current liabilities
155,444 
164,226 
Long-term debt
414,643 
426,272 
Pension liability
36,511 
44,274 
Non-pension postretirement benefits
55,304 
55,282 
Deferred income taxes
2,558 
2,822 
Other long-term liabilities
14,490 
11,186 
Total liabilities
678,950 
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
328,500 
330,756 
Treasury stock
(367)
(4,448)
Retained deficit
(55,246)
(57,912)
Accumulated other comprehensive loss
(117,580)
(120,232)
Total shareholders' equity
155,525 
148,382 
Total liabilities and shareholders' equity
$ 834,475 
$ 852,444 
Condensed Consolidated Balance Sheets Parenthetical (USD $)
Jun. 30, 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
9,413 
 
 
 
9,413 
 
Other comprehensive income
2,652 
 
 
 
 
2,652 
Stock compensation expense
2,270 
 
 
2,270 
 
 
Income tax effect from share-based compensation arrangements
(469)
 
 
(469)
 
 
Dividends
(5,032)
 
 
 
(5,032)
 
Stock withheld for employee taxes
(764)
 
 
(764)
 
 
Stock issued, value
1,073 
 
6,081 
(3,293)
 
 
Stock issued, value lower than repurchase price
 
 
 
 
(1,715)
 
Stock issued, shares
 
 
(200,915)
 
 
 
Purchase of treasury shares, value
(2,000)
 
(2,000)
 
 
 
Purchase of treasury shares, shares
 
 
111,292 
 
 
 
Balance, value at Jun. 30, 2016
$ 155,525 
$ 218 
$ (367)
$ 328,500 
$ (55,246)
$ (117,580)
Balance, shares at Jun. 30, 2016
 
21,843,851 
21,094 
 
 
 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Operating activities:
 
 
Net income
$ 9,413 
$ 17,506 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
25,435 
20,653 
Loss on asset sales and disposals
119 
303 
Change in accounts receivable
1,389 
(7,449)
Change in inventories
(11,303)
(26,419)
Change in accounts payable
(6,688)
(7,341)
Accrued interest and amortization of discounts and finance fees
(1,890)
602 
Pension & non-pension postretirement benefits, net
(1,766)
1,898 
Accrued liabilities & prepaid expenses
14,687 
12,102 
Income taxes
1,415 
(938)
Share-based compensation expense
3,323 
4,644 
Excess tax benefit from share-based compensation arrangements
(257)
Other operating activities
(2,543)
(1,055)
Net cash provided by operating activities
31,334 
14,506 
Investing activities:
 
 
Additions to property, plant and equipment
(15,511)
(33,236)
Proceeds from asset sales and other
Net cash used in investing activities
(15,511)
(33,234)
Financing activities:
 
 
Borrowings on ABL credit facility
6,000 
44,500 
Repayments on ABL credit facility
(6,000)
(30,500)
Other repayments
(350)
(3,267)
Repayments on Term Loan B
(12,200)
(2,200)
Stock options exercised
1,050 
2,989 
Excess tax benefit from share-based compensation arrangements
257 
Dividends
(5,032)
(4,800)
Treasury shares purchased
(2,000)
(15,275)
Net cash used in financing activities
(18,275)
(8,553)
Effect of exchange rate fluctuations on cash
(146)
(1,411)
Decrease in cash
(2,598)
(28,692)
Cash & cash equivalents at beginning of period
49,044 
60,044 
Cash & cash equivalents at end of period
46,446 
31,352 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for interest, net of capitalized interest
12,160 
8,085 
Cash paid during the period for income taxes
$ 4,469 
$ 2,862 
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 tableware 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.

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 June 30,
 
Six months ended June 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Stock-based compensation expense
 
$
1,507

 
$
2,515

 
$
3,323

 
$
4,644



Reclassifications

Certain amounts in prior years' financial statements have been reclassified to conform to the presentation used in the three and six month periods ended June 30, 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. In the second quarter of 2016, three additional revenue recognition amendments, ASU 2016-10, 2016-11 and 2016-12, were issued that become effective upon adoption of the new standard. 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 do not expect this standard to have a material impact 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 do not expect this standard to have a material impact 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)
June 30, 2016
 
December 31, 2015
Accounts receivable:
 
 
 
Trade receivables
$
90,566

 
$
91,324

Other receivables
2,721

 
3,055

Total accounts receivable, less allowances of $6,429 and $7,066
$
93,287

 
$
94,379

 
 
 
 
Inventories:
 
 
 
Finished goods
$
171,408

 
$
159,998

Work in process
1,610

 
1,183

Raw materials
4,535

 
4,944

Repair parts
10,915

 
10,763

Operating supplies
1,099

 
1,139

Total inventories, less loss provisions of $12,314 and $5,313
$
189,567

 
$
178,027

 
 
 
 
Accrued liabilities:
 
 
 
Accrued incentives
$
31,325

 
$
21,450

Other accrued liabilities
21,178

 
23,729

Total accrued liabilities
$
52,503

 
$
45,179



During the second quarter of 2016, we undertook an initiative to optimize our product portfolio to reduce inventory and simplify and improve our operations. At June 30, 2016, the inventory loss provision includes a $6.8 million charge related to this initiative.
Borrowings
Borrowings
Borrowings

Borrowings consist of the following:
(dollars in thousands)
Interest Rate
 
Maturity Date
June 30,
2016
 
December 31,
2015
Borrowings under ABL Facility
floating
 
April 9, 2019
$

 
$

Term Loan B
floating
(1) 
April 9, 2021
421,200

 
433,400

AICEP Loan
0.00%
 
January, 2017 to July 30, 2018
3,161

 
3,451

Total borrowings
 
 
 
424,361

 
436,851

Less — unamortized discount and finance fees
 
5,141

 
5,832

Total borrowings — net
 
 
 
419,220

 
431,019

Less — long term debt due within one year
 
 
4,577

 
4,747

Total long-term portion of borrowings — net
 
$
414,643

 
$
426,272


________________________
(1) - A portion of the Term Loan B debt has been converted to a fixed rate. See interest rate swap in note 8 for additional details. The Term Loan B floating interest rate was 3.75 percent at June 30, 2016.

At June 30, 2016, the available borrowing base under the ABL Facility is offset by a $0.4 million rent reserve. 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 June 30, 2016, $6.6 million in letters of credit were outstanding. Remaining unused availability under the ABL Facility was $92.6 million at June 30, 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 41.0 percent for the six months ended June 30, 2016, compared to 17.5 percent for the six months ended June 30, 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 June 30, 2016, we maintained a valuation allowance of approximately $12.7 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
Pension 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 June 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
863

 
$
1,022

 
$
318

 
$
762

 
$
1,181

 
$
1,784

Interest cost
3,705

 
3,649

 
670

 
1,107

 
4,375

 
4,756

Expected return on plan assets
(5,760
)
 
(5,668
)
 

 
(638
)
 
(5,760
)
 
(6,306
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
66

 
105

 
(53
)
 
(61
)
 
13

 
44

Actuarial loss
1,016

 
1,759

 
203

 
409

 
1,219

 
2,168

Settlement charge
42

 

 
170

 

 
212

 

Pension expense
$
(68
)
 
$
867

 
$
1,308

 
$
1,579

 
$
1,240

 
$
2,446

 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
1,859

 
$
2,183

 
$
635

 
$
1,510

 
$
2,494

 
$
3,693

Interest cost
7,482

 
7,358

 
1,342

 
2,210

 
8,824

 
9,568

Expected return on plan assets
(11,515
)
 
(11,330
)
 

 
(1,236
)
 
(11,515
)
 
(12,566
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
132

 
209

 
(107
)
 
(125
)
 
25

 
84

Actuarial loss
2,136

 
3,645

 
405

 
815

 
2,541

 
4,460

Settlement charge
42

 

 
170

 

 
212

 

Pension expense
$
136

 
$
2,065

 
$
2,445

 
$
3,174

 
$
2,581

 
$
5,239

 
 
 
 
 
 
 
 
 
 
 
 


We have contributed $1.0 million and $2.5 million of cash into our pension plans for the three months and six months ended June 30, 2016. Pension contributions for the remainder of 2016 are estimated to be $1.9 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 June 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
199

 
$
145

 
$
1

 
$
1

 
$
200

 
$
146

Interest cost
652

 
609

 
12

 
10

 
664

 
619

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
35

 
35

 

 

 
35

 
35

Actuarial loss / (gain)
20

 
100

 
(11
)
 
(24
)
 
9

 
76

Non-pension postretirement benefit expense
$
906

 
$
889

 
$
2

 
$
(13
)
 
$
908

 
$
876

 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
U.S. Plans
 
Non-U.S. Plans
 
Total
(dollars in thousands)
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
398

 
$
427

 
$
1

 
$
1

 
$
399

 
$
428

Interest cost
1,304

 
1,269

 
24

 
29

 
1,328

 
1,298

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
70

 
70

 

 

 
70

 
70

Actuarial loss / (gain)
40

 
296

 
(22
)
 
(24
)
 
18

 
272

Non-pension postretirement benefit expense
$
1,812

 
$
2,062

 
$
3

 
$
6

 
$
1,815

 
$
2,068

 
 
 
 
 
 
 
 
 
 
 
 


Our 2016 estimate of non-pension cash payments is $5.0 million, and we have paid $0.9 million and $1.7 million for the three months and six months ended June 30, 2016.
Net Income 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 June 30,
 
Six months ended June 30,
(dollars in thousands, except earnings per share)
2016
 
2015
 
2016
 
2015
Numerator for earnings per share:
 
 
 
 
 
 
 
Net income that is available to common shareholders
$
8,695

 
$
14,394

 
$
9,413

 
$
17,506

 
 
 
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
 
 
 
Weighted average shares outstanding
21,865,315

 
21,775,280

 
21,857,743

 
21,826,566

 
 
 
 
 
 
 
 
Denominator for diluted earnings per share:
 
 
 
 
 
 
 
Effect of stock options and restricted stock units
138,071

 
458,746

 
143,860

 
478,309

Adjusted weighted average shares and assumed conversions
22,003,386

 
22,234,026

 
22,001,603

 
22,304,875

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.40

 
$
0.66

 
$
0.43

 
$
0.80

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.40

 
$
0.65

 
$
0.43

 
$
0.78

 
 
 
 
 
 
 
 
Shares excluded from diluted earnings per share due to:
 
 
 
 
 
 
 
Inclusion would have been anti-dilutive (excluded from calculation)
641,964

 
87,164

 
628,134

 
84,046



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)
 
June 30, 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
 
Prepaid and other current assets
 
$
45

 
Prepaid and other current assets
 
$

Natural gas contracts
 
Other assets
 
1

 
Other assets
 

Total designated
 
 
 
46

 
 
 

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Natural gas contracts
 
Prepaid and other current assets
 
$
42

 
Prepaid and other current assets
 
$

Currency contracts
 
Prepaid and other current assets
 

 
Prepaid and other current assets
 
245

Total undesignated
 
 
 
42

 
 
 
245

Total
 
 
 
$
88

 
 
 
$
245

 
 
 
 
 
 
 
 
 
 
 
Liability Derivatives:
(dollars in thousands)
 
June 30, 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
 
$

 
Derivative liability - current
 
$
1,069

Natural gas contracts
 
Other long-term liabilities
 

 
Other long-term liabilities
 
34

Interest rate contract
 
Derivative liability - current
 
2,386

 
Derivative liability - current
 
2,132

Interest rate contract
 
Other long-term liabilities
 
3,803

 
Other long-term liabilities
 
246

Total designated
 
 
 
6,189

 
 
 
3,481

Derivatives not designated as hedging
instruments under FASB ASC 815:
 
 
 
 
 
 
 
 
Currency contracts
 
Derivative liability - current
 
143

 
Derivative liability - current
 

Natural gas contracts
 
Derivative liability - current
 

 
Derivative liability - current
 
1,064

Natural gas contracts
 
Other long-term liabilities
 
2

 
Other long-term liabilities
 
35

Total undesignated
 
 
 
145

 
 
 
1,099

Total
 
 
 
$
6,334

 
 
 
$
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 June 30, 2016, we had commodity contracts for 1,830,000 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 June 30, 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. The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in other income. 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. We recognized a gain of $0.8 million and $0.1 million in other income in the three months ended June 30, 2016 and June 30, 2015, respectively, and a gain (loss) of $1.1 million and $(0.2) million in other income in the six months ended June 30, 2016 and June 30, 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 related to natural gas derivative settlements of $1.0 million in each of the three month periods ended June 30, 2016 and June 30, 2015, and $2.2 million in each of the six month periods ended June 30, 2016 and June 30, 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 gains for natural gas currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in an immaterial gain 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 from our natural gas contracts:
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
 
 
 
 
Natural gas contracts
 
$
710

 
$
53

 
$
94

 
$
(776
)
Total
 
$
710

 
$
53

 
$
94

 
$
(776
)


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 June 30,
 
Six months ended June 30,
(dollars in thousands)
 
 
2016
 
2015
 
2016
 
2015
Derivative:
Location:
 
 
 
 
 
 
 
 
Natural gas contracts
Cost of sales
 
$
(515
)
 
$
(484
)
 
$
(1,055
)
 
$
(1,020
)
Total impact on net income (loss)
 
 
$
(515
)
 
$
(484
)
 
$
(1,055
)
 
$
(1,020
)


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 and six months ended June 30, 2015.


The following table provides a summary of the gain (loss) recognized in other income in the Condensed Consolidated Statements of Operations from our natural gas contracts:
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
De-designated contracts
 
$

 
$
508

 
$

 
$
404

Contracts where hedge accounting was not elected
 
769

 
58

 
1,139

 
(237
)
Total
 
$
769

 
$
566

 
$
1,139

 
$
167



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 June 30, 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. 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. 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 $2.4 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 from our interest rate swap:
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
2016
 
2015
 
2016
 
2015
Derivatives in Cash Flow Hedging relationships:
 
 
 
 
 
 
 
 
Interest rate swap
 
$
(1,603
)
 
$
(11
)
 
$
(4,822
)
 
$
(11
)
Total
 
$
(1,603
)
 
$
(11
)
 
$
(4,822
)
 
$
(11
)


The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive income to the Condensed Consolidated Statements of Operations from our interest rate swap:
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
 
2016
 
2015
 
2016
 
2015
Derivative:
Location:
 
 
 
 
 
 
 
 
Interest rate swap
Interest expense
 
$
(620
)
 
$

 
$
(1,011
)
 
$

Total impact on net income (loss)
 
 
$
(620
)
 
$

 
$
(1,011
)
 
$



Currency Contracts

Our foreign currency exposure arises from transactions denominated in a currency other than the U.S. dollar and is 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 June 30, 2016 and December 31, 2015, we had C$7.2 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 as follows:
 
 
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
 
 
2016
 
2015
 
2016
 
2015
Derivative:
Location:
 
 

 
 

 
 

 
 

Currency contracts
Other income
 
$
31

 
$
(361
)
 
$
(387
)
 
$
(287
)
Total
 
 
$
31

 
$
(361
)
 
$
(387
)
 
$
(287
)


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 June 30, 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 June 30, 2016
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Postretirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance March 31, 2016
 
$
(19,708
)
 
$
(3,718
)
 
$
(94,470
)
 
$
(117,896
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
(3,298
)
 
(893
)
 
2,755

 
(1,436
)
Currency impact
 

 

 
409

 
409

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

 

 
1,228

 
1,228

    Amortization of prior service cost (1)
 

 

 
48

 
48

    Cost of sales
 

 
515

 

 
515

    Interest expense
 

 
620

 

 
620

Current-period other comprehensive income (loss)
 
(3,298
)
 
242

 
4,440

 
1,384

Tax effect
 
419

 
(85
)
 
(1,402
)
 
(1,068
)
Balance on June 30, 2016
 
$
(22,587
)
 
$
(3,561
)
 
$
(91,432
)
 
$
(117,580
)
 
 
 
 
 
 
 
 
 
Six months ended June 30, 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)
 
52

 
(4,728
)
 
2,755

 
(1,921
)
Currency impact
 

 

 
512

 
512

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

 

 
2,559

 
2,559

    Amortization of prior service cost (1)
 

 

 
95

 
95

    Cost of sales
 

 
1,055

 

 
1,055

    Interest Expense
 

 
1,011

 

 
1,011

Current-period other comprehensive income (loss)
 
52

 
(2,662
)
 
5,921

 
3,311

Tax effect
 
274

 
961

 
(1,894
)
 
(659
)
Balance on June 30, 2016
 
$
(22,587
)
 
$
(3,561
)
 
$
(91,432
)
 
$
(117,580
)

Three months ended June 30, 2015
(dollars in thousands)
 
Foreign Currency Translation
 
Derivative Instruments
 
Pension and Other Postretirement Benefits
 
Accumulated Other
Comprehensive Loss
Balance on March 31, 2015
 
$
(19,652
)
 
$
(867
)
 
$
(123,948
)
 
$
(144,467
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
 
2,181

 
42

 
5,394

 
7,617

Currency impact
 

 

 
122

 
122

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

 

 
2,244

 
2,244

    Amortization of prior service cost (1)
 

 

 
79

 
79

    Cost of sales
 

 
552

 

 
552

Current-period other comprehensive income (loss)
 
2,181

 
594

 
7,839

 
10,614

Tax effect
 

 
(22
)
 
(130
)
 
(152
)
Balance on June 30, 2015
 
$
(17,471
)
 
$
(295
)
 
$
(116,239
)
 
$
(134,005
)
 
 
 
 
 
 
 
 
 
Six months ended June 30, 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)
 
(8,309
)
 
(787
)
 
5,394

 
(3,702
)
Currency impact
 

 

 
2,413

 
2,413

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

 

 
4,732

 
4,732

    Amortization of prior service cost (1)
 

 

 
154

 
154

    Cost of sales
 

 
1,159

 

 
1,159

Current-period other comprehensive income (loss)
 
(8,309
)
 
372

 
12,693

 
4,756

Tax effect
 

 
(42
)
 
(272
)
 
(314
)
Balance on June 30, 2015
 
$
(17,471
)
 
$
(295
)
 
$
(116,239
)
 
$
(134,005
)
___________________________
(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 sales of manufactured and sourced tableware having an end market destination in the U.S and Canada excluding glass products for Original Equipment Manufacturers (OEM), which remain in the Latin America segment.

Latin America—includes primarily sales of manufactured and sourced glass tableware having an end market destination in Latin America including glass products for OEMs that have an end market destination outside of Latin America.

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

Other—includes primarily sales of manufactured and sourced glass tableware having an end market destination in Asia Pacific.

Our measure of profit for our reportable segments is Segment Earnings before Interest and Taxes (Segment EBIT) and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs and other allocations that are not considered by management when evaluating performance. We use Segment EBIT, along with net sales and selected cash flow information, to evaluate performance and to allocate resources. Segment EBIT for reportable segments includes an allocation of some corporate expenses based on the costs of services performed.

Certain activities not related to any particular reportable segment are reported within retained corporate costs. These costs include certain headquarter, administrative and facility costs, and other costs that are global in nature and are not allocable to the reporting segments.

The accounting policies of the reportable segments are the same as those described in note 2. We do not have any customers who represent 10 percent or more of total sales. Inter-segment sales are consummated at arm’s length and are reflected at end market reporting below.
 
Three months ended June 30,
 
Six months ended June 30,
(dollars in thousands)
2016
 
2015
 
2016
 
2015
Net Sales:
 
 
 
 
 
 
 
U.S. & Canada
$
126,167

 
$
127,435

 
$
239,268

 
$
237,354

Latin America
40,619

 
44,614

 
74,839

 
84,466

EMEA
31,268

 
32,126

 
57,896

 
60,635

Other
9,848

 
9,876

 
18,706

 
18,961

Consolidated
$
207,902

 
$
214,051

 
$
390,709

 
$
401,416

 
 
 
 
 
 
 
 
Segment EBIT:
 
 
 
 
 
 
 
U.S. & Canada
$
24,927

 
$
25,315

 
$
38,239

 
$
36,175

Latin America
7,800

 
5,003

 
12,140

 
12,091

EMEA
(97
)
 
1,786

 
(1,042
)
 
1,020

Other
859

 
1,076

 
1,277

 
2,946

Total Segment EBIT
$
33,489

 
$
33,180

 
$
50,614

 
$
52,232

 
 
 
 
 
 
 
 
Reconciliation of Segment EBIT to Net Income:
 
 
 
 
 
 
 
Segment EBIT
$
33,489

 
$
33,180

 
$
50,614

 
$
52,232

Retained corporate costs
(7,050
)
 
(9,162
)
 
(13,774
)
 
(18,657
)
Pension settlement
(212
)
 

 
(212
)
 

Environmental obligation (note 13)

 
(223
)
 

 
(223
)
Reorganization charges (1)

 
(3,015
)
 

 
(3,015
)
Derivatives (2)
769

 
566

 
1,139

 
167

Product portfolio optimization (3)
(6,784
)
 

 
(6,784
)
 

Executive terminations
328

 

 
(4,619
)
 
(235
)
Interest expense
(5,154
)
 
(4,538
)
 
(10,398
)
 
(9,061
)
Income taxes
(6,691
)
 
(2,414
)
 
(6,553
)
 
(3,702
)
Net income
$
8,695

 
$
14,394

 
$
9,413

 
$
17,506

 
 
 
 
 
 
 
 
Depreciation & Amortization:
 
 
 
 
 
 
 
U.S. & Canada
$
3,379

 
$
2,987

 
$
6,835

 
$
5,779

Latin America
4,516

 
3,430

 
9,058

 
6,715

EMEA
3,617

 
2,137

 
5,775

 
4,314

Other
1,409

 
1,481

 
2,837

 
2,972

Corporate
433

 
434

 
930

 
873

Consolidated
$
13,354

 
$
10,469

 
$
25,435

 
$
20,653

 
 
 
 
 
 
 
 
Capital Expenditures:
 
 
 
 
 
 
 
U.S. & Canada
$
2,154

 
$
9,931

 
$
5,993

 
$
20,768

Latin America
1,380

 
4,329

 
3,676

 
8,010

EMEA
889

 
1,338

 
3,107

 
2,775

Other
895

 
357

 
1,590

 
540

Corporate
338

 
622

 
1,145

 
1,143

Consolidated
$
5,656

 
$
16,577

 
$
15,511

 
$
33,236


________________________
(1) Management reorganization to support our growth strategy.
(2) 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.
(3) Product portfolio optimization relates to inventory reductions to simplify and improve our operations.
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)
June 30, 2016
 
December 31, 2015
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Commodity futures natural gas contracts
$

 
$
86

 
$

 
$
86

 
$

 
$
(2,202
)
 
$

 
$
(2,202
)
Currency contracts

 
(143
)
 

 
(143
)
 

 
245

 

 
245

Interest rate swap

 
(6,189
)
 

 
(6,189
)
 

 
(2,378
)
 

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

 
$
(6,246
)
 
$

 
$
(6,246
)
 
$

 
$