LIBBEY INC, 10-K filed on 3/12/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Feb. 28, 2014
Jun. 30, 2013
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, 2013 
 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
21,377,290 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 492,904,289 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
ASSETS
 
 
Cash and cash equivalents
$ 42,208 
$ 67,208 
Accounts receivable — net
94,549 
80,850 
Inventories — net
163,121 
157,549 
Prepaid and other current assets
24,838 
12,997 
Total current assets
324,716 
318,604 
Pension asset
33,615 
10,196 
Purchased intangible assets — net
19,325 
20,222 
Goodwill
167,379 
166,572 
Deferred income taxes
5,759 
9,830 
Derivative asset
19 
298 
Other assets
13,515 
18,300 
Total other assets
239,612 
225,418 
Property, plant and equipment — net
265,662 
258,154 
Total assets
829,990 
802,176 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Accounts payable
79,620 
65,712 
Salaries and wages
32,403 
41,405 
Accrued liabilities
41,418 
42,863 
Accrued income taxes
1,374 
2,282 
Pension liability (current portion)
3,161 
613 
Non-pension postretirement benefits (current portion)
4,758 
4,739 
Derivative liability
420 
Deferred income taxes
3,213 
Long-term debt due within one year
5,391 
4,583 
Total current liabilities
168,125 
165,830 
Long-term debt
406,512 
461,884 
Pension liability
40,033 
60,909 
Non-pension postretirement benefits
59,065 
71,468 
Deferred income taxes
11,672 
7,537 
Other long-term liabilities
13,774 
10,072 
Total liabilities
699,181 
777,700 
Shareholders’ equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 21,316,480 shares issued in 2013 (20,835,489 shares issued in 2012)
213 
209 
Capital in excess of par value
323,367 
313,377 
Retained deficit
(119,611)
(148,070)
Accumulated other comprehensive loss
(73,160)
(141,040)
Total shareholders’ equity
130,809 
24,476 
Total liabilities and shareholders’ equity
$ 829,990 
$ 802,176 
Consolidated Balance Sheets Parentheticals (USD $)
Dec. 31, 2013
Dec. 31, 2012
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
21,316,480 
20,835,489 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Net sales
$ 818,811 
$ 825,287 
$ 817,056 
Freight billed to customers
3,344 
3,165 
2,396 
Total revenues
822,155 
828,452 
819,452 
Cost of sales
634,816 
633,267 
650,713 
Gross profit
187,339 
195,185 
168,739 
Selling, general and administrative expenses
109,981 
113,896 
105,545 
Special charges
4,859 
(281)
Income from operations
72,499 
81,289 
63,475 
Loss on redemption of debt
(2,518)
(31,075)
(2,803)
Other income (expense)
3,725 
188 
8,031 
Earnings before interest and income taxes
73,706 
50,402 
68,703 
Interest expense
32,006 
37,727 
43,419 
Income before income taxes
41,700 
12,675 
25,284 
Provision for income taxes
13,241 
5,709 
1,643 
Net income
$ 28,459 
$ 6,966 
$ 23,641 
Net income per share:
 
 
 
Basic
$ 1.34 
$ 0.33 
$ 1.17 
Diluted
$ 1.31 
$ 0.33 
$ 1.14 
Weighted average shares:
 
 
 
Outstanding
21,216,780 
20,875,959 
20,169,638 
Diluted
21,742,173 
21,315,211 
20,808,077 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Net income
$ 28,459 
$ 6,966 
$ 23,641 
Other comprehensive income (loss):
 
 
 
Pension and other postretirement benefit adjustments, net of tax
60,953 
(17,891)
(14,833)
Change in fair value of derivative instruments, net of tax
732 
2,859 
(1,249)
Foreign currency translation adjustments
6,195 
2,364 
(1,344)
Other comprehensive income (loss), net of tax
67,880 
(12,668)
(17,426)
Comprehensive income (loss)
$ 96,339 
$ (5,702)
$ 6,215 
Consolidated Statements of Shareholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Capital in Excess of Par Value
Retained Deficit
Accumulated Other Comprehensive Loss (note 14)
Balance, value at Dec. 31, 2010
$ 11,266 
$ 197 
$ 300,692 
$ (178,677)
$ (110,946)
Balance, shares at Dec. 31, 2010
 
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
 
174,527 
 
 
 
Exercise of warrants, value (note 6)
5,459 
5,454 
 
 
Warrants exercised, shares (note 6)
 
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 
 
 
 
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
 
493,147 
 
 
 
Balance value at Dec. 31, 2012
24,476 
209 
313,377 
(148,070)
(141,040)
Balance, shares at Dec. 31, 2012
 
20,835,489 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income
28,459 
 
 
28,459 
 
Other comprehensive income (loss)
67,880 
 
 
 
67,880 
Stock compensation expense (note 12)
5,063 
 
5,063 
 
 
Stock issued, value
4,931 
4,927 
 
 
Stock issued, shares
 
480,991 
 
 
 
Balance value at Dec. 31, 2013
$ 130,809 
$ 213 
$ 323,367 
$ (119,611)
$ (73,160)
Balance, shares at Dec. 31, 2013
 
21,316,480 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Operating activities:
 
 
 
Net income
$ 28,459 
$ 6,966 
$ 23,641 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
43,969 
41,471 
42,188 
(Gain) loss on asset sales and disposals
514 
446 
(5,941)
Change in accounts receivable
(12,674)
7,187 
3,076 
Change in inventories
(3,932)
(10,969)
(221)
Change in accounts payable
12,190 
6,285 
403 
Accrued interest and amortization of discounts and finance fees
1,496 
(6,433)
3,047 
Call premium on senior notes
1,350 
23,602 
1,203 
Write-off of finance fee & discounts on senior notes and ABL
1,168 
10,975 
1,600 
Pension & non-pension postretirement benefits
7,746 
(76,344)
(9,074)
Restructuring
2,212 
(828)
Accrued liabilities & prepaid expenses
(17,507)
322 
1,917 
Income taxes
(1,804)
1,628 
(11,200)
Share-based compensation expense
5,063 
3,321 
5,016 
Other operating activities
4,479 
40 
524 
Net cash provided by operating activities
72,729 
8,497 
55,351 
Investing activities:
 
 
 
Additions to property, plant and equipment
(49,407)
(32,720)
(41,420)
Net proceeds from sale of Traex
12,478 
Proceeds from asset sales and other
81 
647 
5,222 
Net cash used in investing activities
(49,326)
(32,073)
(23,720)
Financing activities:
 
 
 
Borrowings on ABL credit facility
51,000 
50,089 
Repayments on ABL credit facility
(51,000)
(50,089)
Other repayments
(14,270)
(23,116)
(14,108)
Other borrowings
6,094 
1,234 
365 
Proceeds from (payments on) 6.875% senior notes
(45,000)
450,000 
Payments on 10% senior notes
(360,000)
(40,000)
Call premium on senior notes
(1,350)
(23,602)
(1,203)
Proceeds from exercise of warrants
5,459 
Stock options exercised
5,384 
1,231 
482 
Debt issuance costs and other
(13,475)
(463)
Net cash provided by (used in) financing activities
(49,142)
32,272 
(49,468)
Effect of exchange rate fluctuations on cash
739 
221 
(130)
Increase (decrease) in cash
(25,000)
8,917 
(17,967)
Cash & cash equivalents at beginning of year
67,208 
58,291 
76,258 
Cash & cash equivalents at end of year
42,208 
67,208 
58,291 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the year for interest
30,008 
44,105 
40,025 
Cash paid during the year for income taxes
$ 10,855 
$ 3,402 
$ 10,230 
Consolidated Statements of Cash Flows Parentheticals (Libbey Glass, Senior Notes)
Dec. 31, 2013
Jun. 29, 2012
Libbey Glass |
Senior Notes
 
 
Interest rate
6.875% 1
10.00% 
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 have the largest manufacturing, distribution and service network among glass tableware manufacturers in the Western Hemisphere, in addition to supplying to key markets throughout 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 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 25.3 percent and 30.6 percent of our total inventories in 2013 and 2012, 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 $14.5 million and $15.0 million in 2013 and 2012, 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 2013, 2012 and 2011, 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, 2013. 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 2013, we wrote down fixed assets within the Americas segment as a result of our decision to reduce manufacturing capacity at our Shreveport, Louisiana, manufacturing facility. 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 were 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 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 $(0.3) million, $(0.8) million and $(0.3) million for the year ended December 31, 2013, 2012 and 2011, 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 $5.1 million, $3.3 million and $5.0 million for 2013, 2012 and 2011, respectively. Non-cash compensation charges of $0.7 million and $1.7 million related to accelerated vesting of previously issued equity compensation was included in 2013 and 2011, respectively. 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 2013, 2012 and 2011, respectively, were $3.4 million, $2.9 million and $3.1 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.
Reclassifications Certain amounts in prior years' financial statements, including segment information, have been reclassified to conform to the presentation used in the year ended December 31, 2013.
New Accounting Standards
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. Required disclosures have been made in our Consolidated Financial Statements at December 31, 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)
 
2013
 
2012
Accounts receivable:
 
 
 
 
Trade receivables
 
$
87,499

 
$
79,624

Other receivables (see note 18)
 
7,050

 
1,226

Total accounts receivable, less allowances of $5,846 and $5,703
 
$
94,549

 
$
80,850

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
144,945

 
$
139,888

Work in process
 
1,615

 
1,188

Raw materials
 
4,558

 
4,828

Repair parts
 
10,550

 
10,283

Operating supplies
 
1,453

 
1,362

Total inventories, less loss provisions of $4,913 and $4,091
 
$
163,121

 
$
157,549

 
 
 
 
 
Prepaid and other current assets:
 
 
 
 
Value added tax
 
$
6,697

 
$
3,850

Prepaid expenses
 
8,396

 
5,036

Deferred income taxes
 
5,840

 
4,070

Prepaid income taxes
 
3,511

 

Derivative asset
 
394

 
41

Total prepaid and other current assets
 
$
24,838

 
$
12,997

 
 
 
 
 
Other assets:
 
 
 
 
Deposits
 
$
919

 
$
936

Finance fees — net of amortization
 
10,472

 
13,539

Other assets
 
2,124

 
3,825

Total other assets
 
$
13,515

 
$
18,300

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
17,830

 
$
17,783

Workers compensation
 
7,108

 
7,128

Medical liabilities
 
3,433

 
3,537

Interest
 
3,331

 
3,732

Commissions payable
 
1,067

 
1,478

Contingency liability
 

 
2,719

Restructuring liability
 
289

 

Other accrued liabilities
 
8,360

 
6,486

Total accrued liabilities
 
$
41,418

 
$
42,863

 
 
 
 
 
Other long-term liabilities:
 
 
 
 
Deferred liability
 
$
7,424

 
$
5,591

Derivative liability
 
2,073

 

Other long-term liabilities
 
4,277

 
4,481

Total other long-term liabilities
 
$
13,774

 
$
10,072

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)
 
2013
 
2012
Beginning balance
 
$
20,222

 
$
21,200

Amortization
 
(1,069
)
 
(1,069
)
Foreign currency impact
 
172

 
91

Ending balance
 
$
19,325

 
$
20,222



Purchased intangible assets are composed of the following:
December 31,
(dollars in thousands)
 
2013
 
2012
Indefinite life intangible assets
 
$
12,404

 
$
12,316

Definite life intangible assets, net of accumulated amortization of $15,226 and $14,054
 
6,921

 
7,906

Total
 
$
19,325

 
$
20,222



Amortization expense for definite life intangible assets was $1.1 million, $1.1 million and $1.2 million for years 2013, 2012 and 2011, 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 2013 and 2012 did not indicate impairment of our indefinite life intangible assets. There were also no indicators of impairment at December 31, 2013.

The remaining definite life intangible assets at December 31, 2013 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 6.5 years at December 31, 2013.

Future estimated amortization expense of definite life intangible assets is as follows (dollars in thousands):
2014
2015
2016
2017
2018
 
$1,069
$1,069
$1,069
$1,069
$1,069
 


Goodwill

Changes in goodwill balances are as follows:
 
 
2013
 
2012
(dollars in thousands)
 
Americas
 
U.S. Sourcing
 
Total
 
Americas
 
US Sourcing
 
Total
Beginning 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 beginning balance
 
155,023

 
11,549

 
166,572

 
155,023

 
11,549

 
166,572

Other
 
807

 

 
807

 

 

 

Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
165,264

 
16,990

 
182,254

 
164,457

 
16,990

 
181,447

Accumulated impairment losses
 
(9,434
)
 
(5,441
)
 
(14,875
)
 
(9,434
)
 
(5,441
)
 
(14,875
)
Net ending balance
 
$
155,830

 
$
11,549

 
$
167,379

 
$
155,023

 
$
11,549

 
$
166,572



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 2013 and 2012 did not indicate an impairment of goodwill. There were also no indicators of impairment at December 31, 2013.
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)
 
2013
 
2012
Land
 
$
21,452

 
$
20,168

Buildings
 
89,734

 
86,498

Machinery and equipment
 
459,244

 
449,805

Furniture and fixtures
 
14,468

 
13,662

Software
 
20,490

 
19,987

Construction in progress
 
17,064

 
21,308

Gross property, plant and equipment
 
622,452

 
611,428

Less accumulated depreciation
 
356,790

 
353,274

Net property, plant and equipment
 
$
265,662

 
$
258,154



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 $42.8 million, $40.3 million and $40.9 million for the years 2013, 2012 and 2011, respectively.

During 2013, we wrote down fixed assets within the Americas segment as a result of our decision to reduce manufacturing capacity at our Shreveport, Louisiana, manufacturing facility. A non-cash charge of $1.9 million was recorded in special charges on the Consolidated Statements of Operations to adjust certain machinery and equipment to the estimated fair market value. See note 7 for further discussion of these restructuring charges.

During 2011, we wrote down unutilized fixed assets within the Americas 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 certain after-processing equipment within the Europe, the Middle East and Africa (EMEA) segment that was no longer being used in our production process. During 2011, we received a $1.0 million credit from the supplier of this equipment which was recorded in the Americas segment.
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;
the repurchase and cancellation of $320.0 million of Libbey Glass’s then outstanding 10.0 percent Senior Secured Notes due 2015; and
the redemption of $40.0 million of Libbey Glass's then outstanding 10.0 percent Senior Secured Notes (completed June 29, 2012).

We used the proceeds of the offering to fund the repurchase and redemption of $320.0 million of the 10.0 percent 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 6.875 percent Senior Secured Notes, together with cash on hand, to redeem the remaining $40.0 million of 10.0 percent 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 10.0 percent Senior Secured Notes and were considered in the computation of the loss on redemption of debt.

In 2006, we issued detachable warrants to purchase 485,309 shares of Libbey Inc. common stock concurrently with the issuance of payment-in-kind notes (PIK notes). These warrants, which did not have voting rights, were exercised in November 2011 at an exercise price of $11.25 per share, totaling approximately $5.5 million.

Borrowings consist of the following:
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
December 31,
2013
 
December 31,
2012
Borrowings under ABL Facility
 
floating
 
May 18, 2017
 
$

 
$

Senior Secured Notes
 
6.875%
(1)
May 15, 2020
 
405,000

 
450,000

Promissory Note
 
6.00%
 
January, 2014 to September, 2016
 
681

 
903

RMB Loan Contract
 
floating
 
January, 2014
 

 
9,522

RMB Working Capital Loan
 
floating
 
September, 2014
 
5,157

 

BES Euro Line
 
floating
 
December, 2013
 

 
4,362

AICEP Loan
 
0.00%
 
January, 2016 to July 30, 2018
 
2,389

 
1,272

Total borrowings
 
413,227

 
466,059

Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)
 
(1,324
)
 
408

Total borrowings — net
 
411,903

 
466,467

Less — long term debt due within one year
 
5,391

 
4,583

Total long-term portion of borrowings — net
 
$
406,512

 
$
461,884

____________________________________
(1)
See Interest Rate Agreement 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:
2014
2015
2016
2017
2018
Thereafter
 
$5,391
$249
$993
$797
$797
$405,000
 

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 (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 swingline 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 swingline borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swingline 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, 2013. 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 0.375 percent at December 31, 2013. 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, 2013 or at December 31, 2012. 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 as of December 31, 2013. There were no mark-to-market reserves for natural gas contracts offsetting the borrowing base as of December 31, 2013. 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, 2013, we had $6.2 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $70.5 million at December 31, 2013, compared to $68.6 million under the ABL Facility at December 31, 2012.
Senior Secured Notes

On May 18, 2012, Libbey Glass closed its offering of the $450.0 million Senior Secured Notes. The notes offering was issued at par and had related fees of approximately $13.2 million. These fees will be amortized to interest expense over the life of the notes.

The Senior Secured Notes were issued pursuant to an Indenture, dated May 18, 2012 (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 (Notes Trustee) and collateral agent. Under the terms of the Notes Indenture, the Senior Secured Notes bear interest at a rate of 6.875 percent per year and will mature on May 15, 2020. Although the Notes Indenture does not contain financial covenants, the 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 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 Notes Indenture, all outstanding Senior Secured Notes will become due and payable immediately without further action or notice. If any other event of default under the Notes Indenture occurs or is continuing, the Notes Trustee or holders of at least 25 percent in aggregate principal amount of the then outstanding Senior Secured Notes may declare all the Senior Secured Notes to be due and payable immediately.

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

In connection with the sale of the 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 Senior Secured Notes and the related guarantees for registered, publicly tradable notes and guarantees that have substantially identical terms to the Senior Secured Notes and the related guarantees, and in certain limited circumstances, to file a shelf registration statement that would allow certain holders of Senior Secured Notes to resell their respective Senior Secured Notes to the public. On November 6, 2012, we exchanged $450.0 million aggregate principal amount of 6.875 percent Senior Secured Notes due 2020 for an equal principal amount of a new issue of 6.875 percent 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 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 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 Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid interest. The 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 May 7, 2013, Libbey Glass redeemed an aggregate principal amount of $45.0 million of the Senior Secured Notes in accordance with the terms of the Notes Indenture. Pursuant to the terms of the Notes Indenture, the redemption price for the Senior Secured Notes was 103 percent of the principal amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $405.0 million. In conjunction with this redemption, we recorded $2.5 million of expense, representing $1.3 million for an early call premium and $1.2 million for the write off of a pro rata amount of financing fees.

On March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of the former Senior Secured Notes in accordance with the terms of the former Notes Indenture. Pursuant to the terms of the former Notes Indenture, the redemption price for the former Senior Secured Notes was 103 percent of the principal amount of the redeemed former Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the former Senior Secured Notes outstanding was $360 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 former 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 former 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 former 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 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, 2013, excluding applicable fees, is 5.50 percent. This New Rate Agreement expires on May 15, 2020. Total remaining 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, 2013, by Standard and Poor’s.

The fair market value and related carrying value adjustment are as follows:
(dollars in thousands)
 
December 31, 2013
 
December 31, 2012
Fair market value of Rate Agreement - asset (liability)
 
$
(2,073
)
 
$
298

Adjustment to increase (decrease) the carrying value of the related long-term debt
 
$
(1,324
)
 
$
408


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 and the net impact recorded on the Consolidated Statements of Operations.
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, 2013 and 2012, we had $0.7 million and $0.9 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, 2013 and 2012, there were no borrowings under the facility, which had an interest rate of 5.80 percent. Interest with respect to the note is paid monthly.
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 eight-year 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 $40.9 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The obligations of Libbey China were secured by a guarantee executed by Libbey Inc. for the benefit of CCB and a mortgage lien on the Libbey China facility. The loan held a variable interest rate as announced by the People’s Bank of China. Interest with respect to the loan was paid quarterly. As of December 31, 2012, the outstanding balance on the loan was RMB 60.0 million (approximately $9.5 million) which was paid in full in 2013 and no longer outstanding.
RMB Working Capital Loan
On September 2, 2013, Libbey China entered into a RMB 31.5 million (approximately $5.2 million) working capital loan with CCB to cover seasonal working capital needs. The 364-day loan matures on September 1, 2014, and bears interest at a variable rate as announced by the People's Bank of China. The annual interest rate was 6.3 percent at December 31, 2013 and interest is paid monthly. The obligation is secured by 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 $15.1 million) with Banco Espírito Santo, S.A. (BES). On August 14, 2013, Libbey Portugal paid in full the final €3.3 million (approximately $4.5 million) principal payment along with accrued and unpaid interest on its BES Euro Line, which was scheduled to expire in December 2013.
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 €1.7 million (approximately $2.4 million) at December 31, 2013 and has an interest rate of 0.0 percent. Semi-annual installments of principal are due beginning in January 2016 through the maturity date in 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 $405.0 million of Senior Secured Notes had an estimated fair value of $437.4 million at December 31, 2013. At December 31, 2012, the $450.0 million outstanding Senior Secured Notes had an estimated fair value of $488.3 million. The fair value of the remainder of our debt approximates carrying value at December 31, 2013 and 2012 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, 2013 we had no borrowings under our $100.0 million ABL Facility and $6.2 million in letters of credit issued under that facility. As a result, we had $70.5 million of unused availability remaining under the ABL Facility at December 31, 2013, as compared to $68.6 million of unused availability at December 31, 2012. In addition, we had $42.2 million of cash on hand at December 31, 2013, compared to $67.2 million of cash on hand at December 31, 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 ABL Facility will provide sufficient cash availability to meet our ongoing liquidity needs.
Restructuring Charges
Restructuring Charges
Restructuring Charges

Capacity Realignment

In February 2013, we announced plans to discontinue production of certain glassware in North America and reduce manufacturing capacity at our Shreveport, Louisiana, manufacturing facility. As a result, on May 30, 2013, we ceased production of certain glassware in North America, discontinued the use of a furnace at our Shreveport, Louisiana, manufacturing plant and began relocating a portion of the production from the idled furnace to our Toledo, Ohio, and Monterrey, Mexico, locations. These activities are all within the Americas segment and are expected to be completed during the first quarter of 2014. In connection with this plan, we expect to incur pretax charges in the range of approximately $8.0 million to $10.0 million. This estimate consists of: (i) up to $4.0 million in fixed asset impairment charges and accelerated depreciation, (ii) up to $2.0 million in severance and other employee related costs and (iii) up to $4.0 million in other restructuring expenses. We expect approximately $5.5 million of the pretax charge to result in cash expenditures. In 2013, we recorded a pretax charge of $6.5 million. These charges included employee termination costs, fixed asset impairment charges, depreciation expense and other restructuring expenses. Employee termination costs include severance, medical benefits and outplacement services for the terminated employees. The write-down of fixed assets was to adjust certain machinery and equipment to the estimated fair market value.

The following table summarizes the pretax charge incurred in the Americas segment for the year 2013:
(dollars in thousands)
 
2013
Accelerated depreciation & other
 
$
1,685

Included in cost of sales
 
1,685

 
 
 
Employee termination cost & other
 
1,794

Fixed asset write-down
 
1,924

Other restructuring expenses
 
1,141

Included in special charges
 
4,859

Total pretax charge
 
$
6,544


The following is the capacity realignment reserve activity for the year ended December 31, 2013:
(dollars in thousands)
 
Reserve
Balance at
January 1, 2013
 
Total
Charge to Earnings
 
Cash
(payments) receipts
 
Non-cash Utilization
 
Reserve
Balance at
December 31, 2013
Accelerated depreciation & other
 
$

 
$
1,685

 
$

 
$
(1,685
)
 
$

Employee termination cost & other
 

 
1,794

 
(1,505
)
 

 
289

Fixed asset write-down
 

 
1,924

 

 
(1,924
)
 

Other restructuring expenses
 

 
1,141

 
(1,141
)
 

 

Total
 
$

 
$
6,544

 
$
(2,646
)
 
$
(3,609
)
 
$
289

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)
 
2013
 
2012
 
2011
United States
 
$
23,211

 
$
(17,030
)
 
$
(6,662
)
Non-U.S. 
 
18,489

 
29,705

 
31,946

Total income before income taxes
 
$
41,700

 
$
12,675

 
$
25,284



The current and deferred provisions (benefit) for income taxes were:
Year ended December 31,
(dollars in thousands)
 
2013
 
2012
 
2011
Current:
 
 
 
 
 
 
U.S. federal
 
$
988

 
$
(18
)
 
$
484

Non-U.S. 
 
8,548

 
9,194

 
5,732

U.S. state and local
 
617

 
(72
)
 
100

Total current income tax provision (benefit)
 
10,153

 
9,104

 
6,316

 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
U.S. federal
 
564

 
1,264

 
(400
)
Non-U.S. 
 
2,517

 
(4,658
)
 
(4,294
)
U.S. state and local
 
7

 
(1
)
 
21

Total deferred income tax provision (benefit)
 
3,088

 
(3,395
)
 
(4,673
)
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
U.S. federal
 
1,552

 
1,246

 
84

Non-U.S. 
 
11,065

 
4,536

 
1,438

U.S. state and local
 
624

 
(73
)
 
121

Total income tax provision (benefit)
 
$
13,241

 
$
5,709

 
$
1,643



Deferred income tax assets and liabilities result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and carryovers and credits for income tax purposes. The significant components of our deferred income tax assets and liabilities are as follows:
December 31,
(dollars in thousands)
 
2013
 
2012
Deferred income tax assets:
 
 
 
 
Pension
 
$

 
$
16,526

Non-pension postretirement benefits
 
22,749

 
27,198

Other accrued liabilities
 
18,084

 
20,213

Receivables
 
1,467

 
1,445

Net operating loss and charitable contribution carry forwards
 
32,806

 
45,592

Tax credits
 
10,953

 
9,770

Total deferred income tax assets
 
86,059

 
120,744

 
 
 
 
 
Deferred income tax liabilities:
 
 
 
 
Property, plant and equipment
 
22,053

 
23,196

Inventories
 
4,762

 
4,377

Pension
 
3,031

 

Intangibles and other assets
 
10,238

 
12,392

Total deferred income tax liabilities
 
40,084

 
39,965

Net deferred income tax asset before valuation allowance
 
45,975

 
80,779

Valuation allowance
 
(46,048
)
 
(77,629
)
Net deferred income tax asset (liability)
 
$
(73
)
 
$
3,150



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)
 
2013
 
2012
Current deferred income tax asset
 
$
5,840

 
$
4,070

Non-current deferred income tax asset
 
5,759

 
9,830

Current deferred income tax liability
 

 
(3,213
)
Non-current deferred income tax liability
 
(11,672
)
 
(7,537
)
Net deferred income tax asset (liability)
 
$
(73
)
 
$
3,150



The 2013 deferred income tax asset for net operating loss carry forwards of $32.8 million relates to pre-tax losses incurred in the Netherlands of $17.9 million, in Portugal of $9.1 million, in China of $2.3 million, in the U.S. of $66.0 million for federal and $96.0 million for state and local jurisdictions. Our foreign net operating loss carry forwards of $29.3 million will expire between 2014 and 2022. Our U.S. federal net operating loss carry forward of $66.0 million will expire between 2031 and 2033. This amount is lower than the actual amount reported on our U.S. federal income tax return by $5.2 million. The difference is attributable to tax deductions in excess of financial statement amounts for stock based compensation. When these amounts are realized, we will record a credit to additional paid in capital. The U.S. state and local net operating loss carry forward of $96.0 million will expire between 2014 and 2033. 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, and in the U.S. of $107.2 million for federal and $107.1 million for state and local jurisdictions.

One of our legal entities in China had a tax holiday which expired effective December 31, 2012. In 2013, we recognized no benefit from the tax holiday. In 2012, we recognized a $0.5 million benefit. In 2011, we recognized no benefit due to net operating losses and a full valuation allowance in place.

The 2013 deferred tax credits of $11.0 million consist of $2.4 million U.S. federal tax credits and $8.6 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 which will expire between 2024 and 2033 The non-U.S. credit of $8.6 million, which is related to withholding tax on inter-company debt in the Netherlands, can be carried forward indefinitely. 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.

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. 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.

Management's decision to maintain the full valuation allowance in place against its U.S. net deferred tax asset was made based on sufficient negative evidence outweighing the positive evidence. The valuation allowance in the U.S. has been maintained since 2007 and a significant piece of evidence used in our assessment has been a history of cumulative tax losses through 2012. The weight applied to the other subjective evidence, such as projected financial results, has been limited. Despite its historical losses, the U.S. moved into a three year cumulative income position during the fourth quarter of 2013. Before we would change our judgment on the need for a full valuation allowance, a sustained period of operating profitability is required. Considering the duration and magnitude of our U.S. operating losses, the current U.S. economic environment and the competitive landscape, it is our judgment that we have not yet achieved profitability of a duration and magnitude sufficient to release our valuation allowance against our deferred tax assets. If we generate significant pre-tax earnings in the U.S. in 2014 and plans for 2015 and beyond show continued profitability, we may have sufficient evidence to release all or a significant portion of our valuation allowance on our U.S. deferred tax assets during 2014.

The valuation allowance activity for the years ended December 31 is as follows:
Year ended December 31,
(dollars in thousands)
 
2013
 
2012
 
2011
Beginning balance
 
$
77,629

 
$
76,452

 
$
72,327

Charge (benefit) to provision for income taxes
 
(9,302
)
 
(1,805
)
 
(2,313
)
Charge (benefit) to other comprehensive income
 
(22,279
)
 
2,982

 
6,438

Ending balance
 
$
46,048

 
$
77,629

 
$
76,452



The valuation allowance decreased $31.6 million in 2013 from $77.6 million at December 31, 2012 to $46.0 million at December 31, 2013. The 2013 decrease of $31.6 million is attributable to the 2013 change in deferred tax assets, primarily related to the U.S. federal net operating loss carry forward and pension. The 2013 valuation allowance of $46.0 million consists of $35.0 million related to U.S. entities and $11.0 million related to non-U.S. entities. 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 in valuation allowance was 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.

Reconciliation from the statutory U.S. federal income tax rate to the consolidated effective income tax rate was as follows:
Year ended December 31,
 
2013
 
2012
 
2011
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
 
(7.9
)
 
 
(43.5
)
 
 
(14.6
)
 
U.S. state and local income taxes, net of related U.S. federal income taxes
 
1.0

 
 
(0.4
)
 
 
0.3

 
U.S. federal credits
 

 
 
(0.9
)
 
 
(0.3
)
 
Permanent adjustments
 
4.2

 
 
60.6

 
 
(18.6
)
 
Foreign withholding taxes
 
4.8

 
 
12.0

 
 
6.7

 
Valuation allowance
 
(16.8
)
 
 
(10.6
)
 
 
3.7

 
Deferred tax impact from 2014 Mexican tax reform
 
10.2

 
 

 
 

 
Other
 
1.3

 
 
(7.2
)
 
 
(5.7
)
 
Consolidated effective income tax rate
 
31.8

%
 
45.0

%
 
6.5

%


Income tax payments consisted of the following:
Year ended December 31,
(dollars in thousands)
 
2013
 
2012
 
2011
Total income tax payments, net of refunds
 
$
13,916

 
$
4,399

 
$
15,124

Less: credits or offsets
 
3,061

 
997

 
4,894

Cash paid, net
 
$
10,855

 
$
3,402

 
$
10,230



There was approximately $6.9 million of accumulated undistributed earnings from non-U.S. subsidiaries in 2013 and none in 2012. We intend to reinvest any future undistributed earnings indefinitely into the majority of our 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 ASC 740.

A reconciliation of the beginning and ending gross unrecognized tax benefits, excluding interest and penalties, is as follows:
(dollars in thousands)
 
2013
 
2012
 
2011
Beginning balance
 
$
1,496

 
$
1,266

 
$
1,129

Additions based on tax positions related to the current year
 
325

 

 

Changes due to lapse of statute of limitations
 
(509
)
 
230

 
137

Ending balance
 
$
1,312

 
$
1,496

 
$
1,266



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)
 
2013
 
2012
 
2011
Impact on the effective tax rate, if unrecognized tax benefits were recognized
 
$
1,198

 
$
1,382

 
 
Interest and penalties, net of tax benefit, accrued in the Consolidated Balance Sheets
 
$
537

 
$
662

 
 
Interest and penalties expense (benefit) recognized in the Consolidated Statements of Operations
 
$
(124
)
 
$
(753
)
 
$
(288
)


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 also reasonably possible that gross unrecognized tax benefits related to U.S. and foreign exposures may decrease within the next twelve months by approximately $0.5 million to $0.8 million due to expiration of statutes of limitations.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2013, the tax years that remained subject to examination by major tax jurisdictions were as follows:
Jurisdiction
 
Open Years
Canada
 
2010
2013
China
 
2010
2013
Mexico
 
2008
2013
Netherlands
 
2012
2013
Portugal
 
2009
2013
United States
 
2010
2013
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 ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiaries in the Netherlands and Mexico. The plan in Mexico is primarily 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
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Service cost (benefits earned during the period)
 
$
4,739

 
$
5,957

 
$
5,491

 
$
2,862

 
$
1,749

 
$
1,553

 
$
7,601

 
$
7,706

 
$
7,044

Interest cost on projected benefit obligation
 
14,093

 
15,398

 
16,057

 
4,981

 
4,954

 
4,981

 
19,074

 
20,352

 
21,038

Expected return on plan assets
 
(22,374
)
 
(18,514
)
 
(17,173
)
 
(1,995
)
 
(2,382
)
 
(2,299
)
 
(24,369
)
 
(20,896
)
 
(19,472
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
 
1,172

 
2,050

 
2,163

 
164

 
159

 
172

 
1,336

 
2,209

 
2,335

Actuarial loss
 
8,604

 
6,429

 
4,661

 
919

 
533

 
493

 
9,523

 
6,962

 
5,154

Transition obligations
 

 

 

 
84

 
102

 
125

 
84

 
102

 
125

Settlement charge
 
1,805

 
3,931

 

 
447

 
200

 
58

 
2,252

 
4,131

 
58

Curtailment charge
 

 
375

 

 

 

 

 

 
375

 

Pension expense
 
$
8,039

 
$
15,626

 
$
11,199

 
$
7,462

 
$
5,315

 
$
5,083

 
$
15,501

 
$
20,941

 
$
16,282



In 2013 and 2012, we incurred pension settlement charges of $2.3 million and $4.1 million, respectively. The pension settlement charges were triggered by excess lump sum distributions taken by employees, which required us to record unrecognized gains and losses in our pension plan accounts.

In May 2012, we used a portion of the proceeds of our debt refinancing to contribute $79.7 million to our U.S. pension plans to fully fund our target obligations under ERISA. During the second quarter of 2012, the pension expense calculation was not adjusted as a result of this discretionary contribution as it was not contemplated in the assumption set used for the expense determination for the year. As a result of the U.S. salaried plan re-measurement on July 31, 2012, the portion of this contribution related to this plan did affect the pension expense calculation.

Actuarial Assumptions

The assumptions used to determine the benefit obligations were as follows:
 
 
U.S. Plans
 
Non-U.S. Plans
 
 
2013
 
2012
 
2013
 
2012
Discount rate
 
4.83%
to
5.12%
 
3.98%
to
4.22%
 
3.70%
to
8.50%
 
3.70%
to
7.00%
Rate of compensation increase
 
—%
to
—%
 
—%
to
—%
 
2.00%
to
4.30%
 
2.00%
to
4.30%

The assumptions used to determine net periodic pension costs were as follows:
 
U.S. Plans
 
Non-U.S. Plans
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Discount rate
3.98
%
to
4.97
%
 
3.87
%
to
5.22
%
 
5.50
%
to
5.76
%
 
3.70
%
to
7.00
%
 
5.80
%
to
8.25
%
 
5.40
%
to
8.25
%
Expected long-term rate of return on plan assets
7.50%
 
7.75%
 
8.00%
 
3.60%
 
5.10%
 
4.80%
Rate of compensation increase
%
to
%
 
2.25
%
to
4.50
%
 
2.25
%
to
4.50
%
 
2.00
%
to
4.30
%
 
2.00
%
to
4.30
%
 
2.00
%
to
4.30
%


The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at our December 31 measurement date. The discount rate at December 31 is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. A higher discount rate decreases the present value of benefit obligations and decreases pension expense.

To determine the expected long-term rate of return on plan assets for our funded plans, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. The expected long-term rate of return on plan assets at December 31st is used to measure the earnings effects for the subsequent year. The assumed long-term rate of return on assets is applied to a calculated value of plan assets that recognizes gains and losses in the fair value of plan assets compared to expected returns over the next five years. This produces the expected return on plan assets that is included in pension expense. The difference between the expected return and the actual return on plan assets is deferred and amortized over five years. The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension expense (income).

Future benefits are assumed to increase in a manner consistent with past experience of the plans except for the Libbey U.S. Salaried Pension Plan and SERP as discussed above, which, to the extent benefits are based on compensation, includes assumed compensation increases as presented above. Amortization included in net pension expense is based on the average remaining service of employees.

We account for our defined benefit pension plans on an expense basis that reflects actuarial funding methods. The actuarial valuations require significant estimates and assumptions to be made by management, primarily with respect to the discount rate and expected long-term return on plan assets. These assumptions are all susceptible to changes in market conditions. The discount rate is based on a selected settlement portfolio from a universe of high quality bonds. In determining the expected long-term rate of return on plan assets, we consider historical market and portfolio rates of return, asset allocations and expectations of future rates of return. We evaluate these critical assumptions on our annual measurement date of December 31st. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.

Considering 2013 results, the disclosure below provides a sensitivity analysis of the impact that changes in the significant assumptions would have on 2013 and 2014 pension expense:
Assumption
(dollars in thousands)
 
 
 
 
 
Estimated Effect on Annual Expense
 
Percentage Point Change
 
2013
 
2014
Discount rate
 
1.0%
 
$
4,100

 
$
4,600

Long-term rate of return on assets
 
1.0%
 
$
3,400

 
$
3,800



Projected Benefit Obligation (PBO) and Fair Value of Assets

The changes in the projected benefit obligations and fair value of plan assets are as follows:
Year ended December 31,
(dollars in thousands)
 
U.S. Plans
 
Non-U.S. Plans
 
Total
 
2013
 
2012
 
2103
 
2012
 
2013
 
2012
Change in projected benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation, beginning of year
 
$
338,133

 
$
315,689

 
$
95,459

 
$
68,990

 
$
433,592

 
$
384,679

Service cost
 
4,739

 
5,957

 
2,862

 
1,749

 
7,601

 
7,706

Interest cost
 
14,093

 
15,398

 
4,981

 
4,954

 
19,074

 
20,352

Exchange rate fluctuations
 

 

 
2,150

 
3,727

 
2,150

 
3,727

Actuarial (gain) loss
 
(25,324
)
 
34,151

 
2,237

 
20,223

 
(23,087
)
 
54,374

Plan participants' contributions
 

 

 
1,108

 
1,087

 
1,108

 
1,087

Curtailment effect
 

 
(5,711
)
 

 

 

 
(5,711
)
Settlements paid
 
(6,307
)
 
(12,552
)
 

 
(692
)
 
(6,307
)
 
(13,244
)
Benefits paid
 
(15,225
)
 
(14,799
)
 
(6,078
)
 
(4,579
)
 
(21,303
)
 
(19,378
)
Projected benefit obligation, end of year
 
$
310,109

 
$
338,133

 
$
102,719

 
$
95,459

 
$
412,828

 
$
433,592

Change in fair value of plan assets:
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets, beginning of year
 
$
316,826

 
$