LIBBEY INC, 10-K filed on 3/14/2012
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Feb. 29, 2012
Jun. 30, 2011
Document and Entity Information
 
 
 
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, 2011 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
20,519,801 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 311,077,898 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Assets:
 
 
Cash and cash equivalents
$ 58,291 
$ 76,258 
Accounts receivable - net
88,045 
92,101 
Inventories - net
145,859 
148,146 
Prepaid and other current assets
9,701 
6,437 
Total current assets
301,896 
322,942 
Pension asset
17,485 
12,767 
Purchased intangible assets - net
21,200 
23,134 
Goodwill
166,572 
169,340 
Derivative asset
3,606 
2,589 
Other assets
14,674 
17,802 
Total other assets
223,537 
225,632 
Property, plant and equipment - net
264,718 
270,397 
Total assets
790,151 
818,971 
Liabilities and Shareholders' Equity:
 
 
Notes payable
339 
Accounts payable
58,759 
59,095 
Salaries and wages
34,834 
32,087 
Accrued liabilities
53,927 
51,979 
Accrued income taxes
3,121 
Pension liability (current portion)
5,990 
2,330 
Non-pension postretirement benefits (current portion)
4,721 
5,017 
Derivative liability
3,390 
3,392 
Deferred income taxes
3,340 
Long-term debt due within one year
3,853 
3,142 
Total current liabilities
169,153 
160,163 
Long-term debt
393,168 
443,983 
Pension liability
122,145 
115,521 
Non-pension postretirement benefits
68,496 
67,737 
Deferred income taxes
8,376 
Derivative liability
298 
Other long-term liabilities
9,111 
11,925 
Total liabilities
762,371 
807,705 
Shareholders' equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 20,342,342 shares issued in 2011 (19,682,506 shares issued in 2010)
203 
197 
Capital in excess of par value (includes warrants of $0 and $1,034 in 2011 and 2010, respectively, and 0 shares and 485,309 shares in 2011 and 2010, respectively)
310,985 
300,692 
Retained deficit
(155,036)
(178,677)
Accumulated other comprehensive loss
(128,372)
(110,946)
Total shareholders' equity
27,780 
11,266 
Total liabilities and shareholders' equity
$ 790,151 
$ 818,971 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Shareholders' equity:
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
20,342,342 
19,682,506 
Capital in excess of par value, value of warrants issued
$ 0 
$ 1,034 
Capital in excess of par value, number of warrants issued
485,309 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Net sales
$ 817,056 
$ 799,794 
$ 748,635 
Freight billed to customers
2,396 
1,790 
1,605 
Total revenues
819,452 
801,584 
750,240 
Cost of sales
650,713 
633,571 
617,095 
Gross profit
168,739 
168,013 
133,145 
Selling, general and administrative expenses
105,545 
97,390 
94,900 
Special charges
(281)
1,802 
1,631 
Income from operations
63,475 
68,821 
36,614 
(Loss) gain on redemption of debt
(2,803)
58,292 
Other income (expense)
8,031 
(274)
4,053 
Earnings before interest and income taxes
68,703 
126,839 
40,667 
Interest expense
43,419 
45,171 
66,705 
Income (loss) before income taxes
25,284 
81,668 
(26,038)
Provision for income taxes
1,643 
11,582 
2,750 
Net income (loss)
$ 23,641 
$ 70,086 
$ (28,788)
Net income (loss) per share:
 
 
 
Basic
$ 1.17 
$ 3.97 
$ (1.90)
Diluted
$ 1.14 
$ 3.51 
$ (1.90)
Weighted average shares:
 
 
 
Outstanding
20,170 
17,668 
15,149 
Diluted
20,808 
19,957 
15,149 
Consolidated Statements of Shareholders' Equity (Deficit) (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Capital in Excess of Par Value
Treasury Stock
Retained Deficit
Accumulated Other Comprehensive Loss (note 14)
Balance, value at Dec. 31, 2008
$ (57,889)
$ 187 
$ 309,275 
$ (106,411)
$ (145,154)
$ (115,786)
Balance, shares at Dec. 31, 2008
14,730,144 
18,697,630 
 
(3,967,486)
 
 
Comprehensive income (loss):
 
 
 
 
 
 
Net income (loss)
(28,788)
 
 
 
(28,788)
 
Effect of derivatives - net of tax
12,440 
 
 
 
 
12,440 
Pension and other postretirement benefit adjustments - net of tax (notes 9 and 10)
(13,479)
 
 
 
 
(13,479)
Effect of exchange rate fluctuation
1,101 
 
 
 
 
1,101 
Total comprehensive income (loss) (note 14)
(28,726)
 
 
 
 
 
Stock compensation expense (note 12)
2,419 
 
2,419 
 
 
 
Equity issuance costs (note 6)
(1,800)
 
(1,800)
 
 
 
Stock issued from treasury, value
4,563 
 
(148)
36,113 
(31,402)
 
Stock issued, shares
1,367,717 
 
 
1,367,717 
 
 
Issuance of warrants (note 6)
14,526 
 
14,526 
 
 
 
Balance, value at Dec. 31, 2009
(66,907)
187 
324,272 
(70,298)
(205,344)
(115,724)
Balance, shares at Dec. 31, 2009
16,097,861 
18,697,630 
 
(2,599,769)
 
 
Comprehensive income (loss):
 
 
 
 
 
 
Net income (loss)
70,086 
 
 
 
70,086 
 
Effect of derivatives - net of tax
3,049 
 
 
 
 
3,049 
Pension and other postretirement benefit adjustments - net of tax (notes 9 and 10)
9,722 
 
 
 
 
9,722 
Effect of exchange rate fluctuation
(7,993)
 
 
 
 
(7,993)
Total comprehensive income (loss) (note 14)
74,864 
 
 
 
 
 
Stock compensation expense (note 12)
3,496 
 
3,496 
 
 
 
Equity issuance costs (note 6)
145 
 
145 
 
 
 
Stock issued from treasury, value
(455)
 
(1,495)
2,302 
(1,262)
 
Stock issued, value
88 
 
88 
 
 
 
Stock issued, shares
117,789 
4,654 
 
113,135 
 
 
Exercise of warrants, value (note 6)
35 
10 
(25,814)
67,996 
(42,157)
 
Warrants exercised, shares
3,466,856 
980,222 
 
2,486,634 
 
 
Balance, value at Dec. 31, 2010
11,266 
197 
300,692 
(178,677)
(110,946)
Balance, shares at Dec. 31, 2010
19,682,506 
19,682,506 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
 
Net income (loss)
23,641 
 
 
 
23,641 
 
Effect of derivatives - net of tax
(1,249)
 
 
 
 
(1,249)
Pension and other postretirement benefit adjustments - net of tax (notes 9 and 10)
(14,833)
 
 
 
 
(14,833)
Effect of exchange rate fluctuation
(1,344)
 
 
 
 
(1,344)
Total comprehensive income (loss) (note 14)
6,215 
 
 
 
 
 
Stock compensation expense (note 12)
5,016 
 
5,016 
 
 
 
Stock issued, value
(176)
(177)
 
 
 
Stock issued, shares
174,527 
174,527 
 
 
 
 
Exercise of warrants, value (note 6)
5,459 
5,454 
 
 
 
Warrants exercised, shares
485,309 
485,309 
 
 
 
 
Balance, value at Dec. 31, 2011
$ 27,780 
$ 203 
$ 310,985 
$ 0 
$ (155,036)
$ (128,372)
Balance, shares at Dec. 31, 2011
20,342,342 
20,342,342 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Operating activities:
 
 
 
Net income (loss)
$ 23,641 
$ 70,086 
$ (28,788)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
42,188 
41,115 
43,166 
(Gain) loss on asset sales and disposals
(5,941)
3,039 
323 
Change in accounts receivable
3,076 
(11,210)
(6,430)
Change in inventories
(221)
(6,654)
40,834 
Change in accounts payable
403 
4,955 
3,828 
Accrual of interest on old PIK notes
11,916 
Income taxes
(11,200)
1,801 
(93)
Restructuring charges
(828)
811 
(1,728)
Gain on redemption of new PIK notes
(71,693)
Payment of interest on new PIK notes
(29,400)
Call premium on senior notes and floating rate notes
1,203 
8,415 
Write-off of bank fees & discounts on old ABL and floating rate notes
1,600 
4,986 
Pension & non-pension postretirement benefits
(9,074)
5,200 
5,331 
Accrued interest and amortization of discounts, warrants and finance fees
3,047 
17,391 
12,945 
Accrued liabilities & prepaid expenses
1,917 
3,344 
14,920 
Share-based compensation expense
5,016 
3,496 
2,419 
Other operating activities
524 
2,017 
3,505 
Net cash provided by operating activities
55,351 
47,699 
102,148 
Investing activities:
 
 
 
Additions to property, plant and equipment
(41,420)
(28,247)
(17,005)
Net proceeds from sale of Traex
12,478 
Proceeds from asset sales and other
5,222 
265 
Net cash used in investing activities
(23,720)
(28,247)
(16,740)
Financing activities:
 
 
 
Net repayments on ABL credit facility
(34,169)
Other repayments
(14,108)
(10,610)
(5,225)
Other borrowings
365 
215 
Floating rate note payments
(306,000)
Senior note payments
(40,000)
Call premium on senior notes and floating rate notes
(1,203)
(8,415)
PIK note payment
(51,031)
Proceeds from senior secured notes
392,328 
Proceeds from exercise of warrants
5,459 
Stock options exercised
482 
57 
Debt issuance costs and other
(463)
(14,256)
(4,171)
Net cash (used in) provided by financing activities
(49,468)
2,288 
(43,565)
Effect of exchange rate fluctuations on cash
(130)
(571)
(58)
(Decrease) increase in cash
(17,967)
21,169 
41,785 
Cash & cash equivalents at beginning of year
76,258 
55,089 
13,304 
Cash & cash equivalents at end of year
58,291 
76,258 
55,089 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the year for interest
40,025 
27,822 
39,221 
Cash paid during the year for income taxes
$ 10,230 
$ 8,830 
$ 3,133 
Consolidated Statements of Cash Flows (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended 0 Months Ended
Dec. 31, 2010
Oct. 28, 2009
Exchange of Notes
Supplemental disclosure of non-cash financing activities
 
 
Gross gain on redemption of PIK notes
$ 71,693 
 
Expenses related to redemption of PIK notes
13,401 
 
Gain on redemption of PIK notes, net of expenses
58,292 
 
Notes Issued
 
80,431 
Stock issued during period, shares, new issues
 
933,145 
Number of securities available for exchange of warrants
 
3,466,856 
Exercise price per share for common shares which can be purchased upon exercise of warrants
 
$ 0.01 
Value of notes exchanged in noncash transaction
 
$ 160,862 
Description of the Business
Description of the Business
Description of the Business
Libbey is the leading producer of glass tableware products in the Western Hemisphere, in addition to supplying key markets throughout the world. We produce glass tableware in five countries and sell to customers in over 100 countries. We have the largest manufacturing, distribution and service network among glass tableware manufacturers in the Western Hemisphere and are one of the largest glass tableware manufacturers in the world. We design and market an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware to a broad group of customers in the foodservice, retail and business-to-business markets. 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 our plastics product line, Traex, to the Vollrath Company (see note 17 for discussion on this transaction). Prior to April 2009, we owned and operated a ceramic dinnerware plant in New York (see note 7 on closure effective April, 2009). 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 31.3 percent and 31.8 percent of our total inventories in 2011 and 2010, respectively. The remaining inventories are valued using either the first-in, first-out (FIFO) or average cost method. For those inventories valued on the LIFO method, the excess of FIFO cost over LIFO, was $15.7 million and $16.5 million in 2011 and 2010, 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 2011, 2010 and 2009, 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, 2011. For further disclosure on goodwill and intangibles, see note 4.

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

Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 to 14 years for equipment and furnishings and 10 to 40 years for buildings and improvements. Maintenance and repairs are expensed as incurred.
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss for long-lived assets that we expect to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. In 2010, we wrote down decorating assets in our Shreveport, Louisiana facility as a result of our decision to outsource our U.S. decorating business and certain after-processing equipment within our Glass Operations segment. Due to the announcement of our closure of our Syracuse China manufacturing facility and our Mira Loma distribution center, we wrote down the values of certain assets to fair value in 2008 and recorded adjustments to these write-downs in 2009 and 2010. See notes 5 and 7 for further disclosure.
Self-Insurance Reserves Self-Insurance reserves reflect the estimated liability for group health and workers' compensation claims not covered by third-party insurance. We accrue estimated losses based on actuarial models and assumptions as well as our historical loss experience. Workers' compensation accruals are recorded at the estimated ultimate payout amounts based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses based on actuarial models.
Pension and Nonpension Postretirement Benefits We account for pension and nonpension postretirement benefits in accordance with FASB ASC Topic 758 - "Compensation-Retirement Plans" ("FASB ASC 758"). FASB ASC 758 requires recognition of the over-funded or under-funded status of pension and other postretirement benefit plans on the balance sheet. Under FASB ASC 758, gains and losses, prior service costs and credits and any remaining prior transaction amounts that have not yet been recognized through net periodic benefit cost are recognized in accumulated other comprehensive loss, net of tax effect where appropriate.

The U.S. pension plans cover most hourly U.S.-based employees (excluding new hires at Shreveport after 2008 and at Toledo after September 30, 2010) and those salaried U.S.-based employees hired before January 1, 2006. The non-U.S. pension plans cover the employees of our wholly-owned subsidiaries Libbey Holland, Libbey Mexico, and our Canadian employees. For further discussion see note 9.

We also provide certain postretirement health care and life insurance benefits covering substantially all U.S. and Canadian salaried and non-union hourly employees hired before January 1, 2004 and a majority of our union hourly employees (excluding employees hired at Shreveport after 2008 and at Toledo after September 30, 2010). 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, China, the Netherlands and Portugal, 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, $0.1 million and $2.8 million for the year ended December 31, 2011, 2010 and 2009, 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 $5.0 million, $3.5 million and $2.4 million for 2011, 2010 and 2009, respectively. Non-cash compensation charges of $1.7 million related to accelerated vesting of previously issued equity compensation was included in 2011. See note 12 for additional information.
Research and Development Research and development costs are charged to selling, general and administrative expense in the Consolidated Statements of Operations when incurred. Expenses for 2011, 2010 and 2009, respectively, were $3.1 million, $2.6 million and $2.0 million.
Advertising Costs We expense all advertising costs as incurred, and the amounts were immaterial for all periods presented.
Computation of Income Per Share of Common Stock Basic net income per share of common stock is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share of common stock is computed using the weighted average number of shares of common stock outstanding and dilutive potential common share equivalents during the period.
Treasury Stock Treasury stock purchases are recorded at cost. During 2011, 2010 and 2009, we did not purchase any treasury stock. There were no treasury stock issuances during 2011. During 2010 and 2009, we issued 2,599,769 and 1,367,717 shares from treasury stock at an average cost of $27.04 and $26.40, respectively. The shares issued from treasury stock in 2009 were primarily for common stock given to the PIK Notes holder in the October 2009 debt exchange. The shares issued in 2010 from treasury stock were primarily attributable to the exercise of warrants related to our refinancing activities in 2010. See note 6 for further information.
Reclassifications Certain amounts in prior years' financial statements have been reclassified to conform to the presentation used in the year ended December 31, 2011. We revised the classification of the call premium on the senior notes and the floating rate notes and included the cash flow effect within the financing activities.
New Accounting Standards
In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04). ASU 2011-04 explains how to measure fair value and improves the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. ASU 2011-04 does not require additional fair value measurements, and it is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The provisions of this update are effective for periods beginning after December 15, 2011. We do not expect the provisions of this update to have any impact on our Consolidated Financial Statements.
In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (ASU 2011-05). This ASU requires companies to present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate but consecutive statements. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011 with early adoption permitted. In December 2011, ASU 2011-05 was modified by the issuance of Accounting Standards Update 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (ASU 2011-12) which defers certain paragraphs of ASU 2011-05 that would require reclassifications of items from other comprehensive income to net income by component of net income and by component of other comprehensive income. We do not expect the adoption of these ASU's to have a material impact on our Consolidated Financial Statements.
In September 2011, the FASB issued Accounting Standards Update 2011-08, “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (ASU 2011-08). ASU 2011-08 allows for an option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount. If the qualitative factors results in the fair value exceeding the carrying value of a reporting unit, then performing the two-step impairment test is unnecessary. This update is effective for periods beginning after December 15, 2011. We do not expect the provisions of this update to have any impact on our Consolidated Financial Statements.
Balance Sheet Details
Balance Sheet Details
Balance Sheet Details
The following table provides detail of selected balance sheet items:
December 31,
(dollars in thousands)
2011
 
2010
Accounts receivable:
 
 
 
Trade receivables
$
86,523

 
$
90,899

Other receivables
1,522

 
1,202

Total accounts receivable, less allowances of $5,307 and $5,518
$
88,045

 
$
92,101

Inventories:
 
 
 
Finished goods
$
129,091

 
$
132,169

Work in process
1,132

 
653

Raw materials
4,369

 
4,444

Repair parts
9,778

 
9,496

Operating supplies
1,489

 
1,384

Total inventories, less allowances of $4,808 and $4,658
$
145,859

 
$
148,146

Prepaid and other current assets:
 
 
 
Value added tax
$
1,834

 
$
1,332

Prepaid expenses
4,653

 
4,822

Refundable, deferred and prepaid income taxes
3,107

 
283

Derivative asset
107

 

Total prepaid and other current assets
$
9,701

 
$
6,437

Other assets:
 
 
 
Deposits
$
733

 
$
904

Finance fees — net of amortization
9,427

 
13,012

Deferred taxes
567

 

Other assets
3,947

 
3,886

Total other assets
$
14,674

 
$
17,802

Accrued liabilities:
 
 
 
Accrued incentives
$
16,621

 
$
15,060

Workers compensation
8,484

 
9,608

Medical liabilities
3,607

 
3,785

Interest
13,008

 
14,416

Commissions payable
1,137

 
904

Contingency liability
2,719

 

Restructuring charges

 
768

Other accrued liabilities
8,351

 
7,438

Total accrued liabilities
$
53,927

 
$
51,979

Other long-term liabilities:
 
 
 
Deferred liability
$
4,070

 
$
4,622

Other long-term liabilities
5,041

 
7,303

Total other long-term liabilities
$
9,111

 
$
11,925


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

Purchased Intangibles

Changes in purchased intangibles balances are as follows:
(dollars in thousands)
2011
 
2010
Beginning balance
$
23,134

 
$
24,861

Amortization
(1,189
)
 
(1,333
)
Disposal, related to sale of Traex assets
(643
)
 

Foreign currency impact
(102
)
 
(394
)
Ending balance
$
21,200

 
$
23,134


Purchased intangible assets are composed of the following:
December 31,
(dollars in thousands)
2011
 
2010
Indefinite life intangible assets
$
12,274

 
$
12,923

Definite life intangible assets, net of accumulated amortization of $12,942 and $12,123
8,926

 
10,211

Total
$
21,200

 
$
23,134


Amortization expense for definite life intangible assets was $1.2 million, $1.3 million and $1.4 million for years 2011, 2010 and 2009, 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 2011 and 2010 did not indicate impairment of our indefinite life intangible assets. There were also no indicators of impairment at December 31, 2011.

The remaining definite life intangible assets at December 31, 2011 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 8.4 years at December 31, 2011.

Future estimated amortization expense of definite life intangible assets is as follows (dollars in thousands):
2012
2013
2014
2015
2016
 
$1,080
$1,080
$1,080
$1,080
$1,080
 

Goodwill

Changes in goodwill balances are as follows:
 
2011
 
2010
 
Glass
 
Other
 
 
 
Glass
 
Other
 
 
(dollars in thousands)
Operations
 
Operations
 
Total
 
Operations
 
Operations
 
Total
Beginning balance:
 
 
 
 
 
 
 
 
 
 
 
Goodwill
$
164,457

 
$
19,758

 
$
184,215

 
$
163,437

 
$
19,758

 
$
183,195

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

 
14,317

 
169,340

 
154,003

 
14,317

 
168,320

Other

 
(2,768
)
 
(2,768
)
 
1,020

 

 
1,020

Ending balance:
 
 
 
 
 
 
 
 
 
 
 
Goodwill
164,457

 
16,990

 
181,447

 
164,457

 
19,758

 
184,215

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

 
$
11,549

 
$
166,572

 
$
155,023

 
$
14,317

 
$
169,340


Other, in the table above, relates to the sale of substantially all of the assets of Traex in 2011, and 2010 relates to income tax adjustments affecting the fair value of assets acquired and liabilities assumed related to the Libbey Mexico acquisition.

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 2011 and 2010 did not indicate an impairment of goodwill. There were also no indicators of impairment at December 31, 2011.
Property, Plant and Equipment
Property, Plant and Equipment Disclosure
Property, Plant and Equipment

Property, plant and equipment consists of the following:
December 31,
(dollars in thousands)
2011
 
2010
Land
$
19,845

 
$
21,534

Buildings
89,873

 
90,666

Machinery and equipment
437,320

 
438,965

Furniture and fixtures
13,663

 
13,774

Software
20,893

 
21,499

Construction in progress
14,595

 
11,609

Gross property, plant and equipment
596,189

 
598,047

Less accumulated depreciation
331,471

 
327,650

Net property, plant and equipment
$
264,718

 
$
270,397


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 10 to 40 years for buildings and improvements. Software consists of internally developed and purchased software packages for internal use. Capitalized costs include software packages, installation, and/or certain internal labor costs. These costs are generally amortized over a five-year period. Depreciation expense was $40.9 million, $39.8 million and $41.7 million for the years 2011, 2010 and 2009, respectively.

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

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

On March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of its outstanding 10.0 percent Senior Secured Notes due 2015, on a pro rata basis in accordance with the terms of the New Notes Indenture. Pursuant to the terms of the New Notes Indenture, the redemption price for the Senior Secured Notes was 103.0 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 $360.0 million. In conjunction with this redemption, we recorded $2.8 million of expense, representing $1.2 million for an early call premium and $1.6 million for the write off of a pro rata amount of financing fees and discounts.

On February 8, 2010, we completed the refinancing of substantially all of the existing indebtedness of our wholly-owned subsidiaries Libbey Glass and Libbey Europe B.V. The refinancing included:
the entry into an amended and restated credit agreement with respect to our ABL Facility;
the issuance of $400.0 million in aggregate principal amount of 10.0 percent Senior Secured Notes of Libbey Glass due 2015;
the repurchase and cancellation of all of Libbey Glass’s then outstanding $306.0 million in aggregate principal amount of floating rate notes; and
the redemption of all of Libbey Glass’s then outstanding $80.4 million in aggregate principal amount 16.0 percent payment-in-kind notes (New PIK Notes).
We used the proceeds of the offering of the Senior Secured Notes, together with cash on hand, to fund the repurchase of the floating rate notes, the redemption of the New PIK Notes and to pay certain related fees and expenses. Upon completion of the refinancing, we recorded a gain of $71.7 million related to the redemption of the New PIK Notes. This gain was partially offset by $13.4 million representing a write-off of bank fees, discounts and a call premium on the floating rate notes, resulting in a net gain of $58.3 million as shown on the Consolidated Statements of Operations.

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

On October 28, 2009, we entered into a transaction with Merrill Lynch PCG, Inc. (the “Investor”) to exchange the existing 16.0 percent Old PIK Notes due in December 2011, for a combination of debt and equity securities (Exchange Transaction). Pursuant to the Exchange Transaction, Old PIK Notes having an outstanding principal balance of approximately $160.9 million were exchanged for new Senior Subordinated Secured Notes due in June 2021 (New PIK Notes) having a principal amount of approximately $80.4 million, together with common stock and warrants in Libbey Inc. Interest due under the New PIK Notes was to accrue at zero percent until the date (FRN Redemption Date) that is the first to occur of (a) December 10, 2010 or (b) the date on which the Senior Notes due 2011 were redeemed or paid in full. If the New PIK Notes remained outstanding at the FRN Redemption Date, interest under the New PIK Notes would accrue at the rate of 16.0 percent per annum and be payable semi-annually in cash or in additional New PIK Notes, at the option of Libbey Glass.

Management evaluated the application of FASB ASC 470-50, “Modifications and Extinguishments” and FASB ASC 470-60, “Troubled Debt Restructuring by Debtors” and concluded that the Exchange Transaction constituted a troubled debt restructuring, rather than a debt modification or extinguishment. Under FASB ASC 470-60, the carrying value of the New PIK Notes was $150.6 million which was comprised of the $80.4 million principal amount and an excess carrying amount of $70.2 million. $2.7 million of costs associated with the Exchange Transaction were expensed in interest expense in 2009 on the Consolidated Statements of Operations. The remainder of the costs associated with the Exchange Transaction of $1.8 million were related to the equity issued and were recorded in capital in excess of par value on the Consolidated Balance Sheets, and also as shown in the Consolidated Statement of Shareholders’ Equity (Deficit).

As part of the Exchange Transaction, we also issued to the Investor 933,145 shares of Libbey Inc. common stock and warrants (Series I Warrants) conveying the right to purchase, for $0.01 per share, an additional 3,466,856 shares of the Company’s common stock. The amount allocated to the Series I Warrants was recorded in capital in excess of par value, with the offset recorded against the carrying value of the New PIK Notes. Collectively this represented approximately 22.5 percent of the Company’s common stock outstanding following the Exchange Transaction.

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

Borrowings consist of the following:
(dollars in thousands)
Interest Rate
 
Maturity Date
December 31,
2011
 
December 31,
2010
Borrowings under ABL Facility
floating
 
April 29, 2016
$

 
$

Senior Secured Notes
10.00%
(1)
February 15, 2015
360,000

 
400,000

Promissory Note
6.00%
 
January, 2012 to September, 2016
1,111

 
1,307

Notes Payable
floating
 
January, 2012
339

 

RMB Loan Contract
floating
 
July, 2013 to January, 2014
28,332

 
37,925

BES Euro Line
floating
 
December, 2012 to December, 2013
7,835

 
10,934

Total borrowings
 
 
 
397,617

 
450,166

Less — unamortized discount
 
 
 
4,300

 
6,307

Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)
4,043

 
3,266

Total borrowings — net
 
 
 
397,360

 
447,125

Less — long term debt due within one year
 
 
4,192

 
3,142

Total long-term portion of borrowings — net
 
 
$
393,168

 
$
443,983

________________
(1)
See Interest Rate Agreements under “Senior Secured Notes” below and in note 13.
Annual maturities for all of our total borrowings for the next five years and beyond are as follows:
2012
2013
2014
2015
2016
Thereafter
 
$4,192
$23,381
$9,663
$360,219
$162
$—
 
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 on April 29, 2011 (ABL Facility), with a group of five financial institutions. The ABL Facility provides for borrowings of up to $100.0 million (reduced from $110.0 million per the amendment on April 29, 2011), 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 real and personal property of Libbey Glass and its domestic subsidiaries (Credit Agreement Priority Collateral);
a first-priority security interest in:
100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries;
100 percent of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries; and
65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries
a first priority security interest in substantially all proceeds and products of the property and assets described above; and
a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (New Notes Priority Collateral).
Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:
a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and
a first-priority security interest in:
100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and
100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.
Swingline borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe being limited to the US equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swing line borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swing line rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.75 percent and 1.75 percent, respectively, at December 31, 2011. 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, 2011. No compensating balances are required by the ABL Facility. The ABL Facility 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 1:10 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by $10.0 million. There were no Libbey Glass or Libbey Europe borrowings under the facility at December 31, 2011 or at December 31, 2010. 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 ERISA, rent and tax reserves totaling $2.7 million and mark-to-market reserves for natural gas contracts of $3.6 million as of December 31, 2011. 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, 2011, we had $10.4 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $63.8 million at December 31, 2011, compared to $65.2 million under the ABL Facility at December 31, 2010.
Senior Secured Notes
On February 8, 2010, Libbey Glass closed its offering of the $400.0 million Senior Secured Notes. The net proceeds of the offering of Senior Secured Notes were approximately $379.8 million, after the 1.918 percent original issue discount of $7.7 million, $10.0 million of commissions payable to the initial purchasers and $2.5 million of fees related to the offering. These fees will be amortized to interest expense over the life of the notes.

The Senior Secured Notes were issued pursuant to an Indenture, dated February 8, 2010 (New Notes Indenture), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and The Bank of New York Mellon Trust Company, N.A., as trustee (New Notes Trustee), and collateral agent. Under the terms of the New Notes Indenture, the Senior Secured Notes bear interest at a rate of 10.0 percent per year and will mature on February 15, 2015. The New Notes Indenture contains covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:
incur or guarantee additional indebtedness;
pay dividends, make certain investments or other restricted payments;
create liens;
enter into affiliate transactions;
merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and
transfer or sell assets.

The New Notes Indenture provides for customary events of default. In the case of an event of default arising from bankruptcy or insolvency as defined in the New Notes Indenture, all outstanding Senior Secured Notes will become due and payable immediately without further action or notice. If any other event of default under the Indenture occurs or is continuing, the New 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 New Notes Indenture are secured by (i) first priority liens on the New Notes Priority Collateral and (ii) second priority liens on the Credit Agreement Priority Collateral.

In connection with the sale of the Senior Secured Notes, Libbey Glass and the Guarantors entered into a registration rights agreement, dated February 8, 2010 (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 January 25, 2011, we exchanged $400.0 million aggregate principal amount of 10.0 percent Senior Secured Notes due 2015 for an equal principal amount of a new issue of 10.0 percent Senior Secured Notes due 2015, which have been registered under the Securities act of 1933, as amended.

Prior to August 15, 2012, we may redeem in the aggregate up to 35 percent of the original principal amount of Senior Secured Notes with the net cash proceeds of one or more equity offerings at a redemption price of 110 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 August 15, 2012, 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 August 15, 2012 at set redemption prices together with accrued and unpaid interest.

On March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of the Senior Secured Notes in accordance with the terms of the New Notes Indenture. Pursuant to the terms of the New Notes Indenture, the redemption price for the Senior Secured Notes was 103.0 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 $360.0 million. In conjunction with this redemption, we recorded $2.8 million of expense, representing $1.2 million for an early call premium and $1.6 million for the write off of a pro rata amount of financing fees and discounts.

We have an Interest Rate Agreement (Rate Agreement) in place with respect to $80.0 million of debt as a means to manage our fixed to variable interest rate ratio. The Rate Agreement effectively converts this portion of our long-term borrowings from fixed rate debt to variable rate debt. Prior to August 15, 2012, but not more than once in any twelve-month period, the counterparty may call up to 10 percent of the Rate Agreement at a call price of 103 percent. The Rate Agreement originally covered $100.0 million of our fixed rate debt, but the counterparty called $10.0 million in August 2010 and another $10.0 million in August 2011. The Rate Agreement is callable at the counterparty’s option, in whole or in part, at any time on or after August 15, 2012 at set call premiums. The variable interest rate for our borrowings related to the Rate Agreement at December 31, 2011, excluding applicable fees, is 7.74 percent. This Rate Agreement expires on February 15, 2015. Total remaining Senior Secured Notes not covered by the Rate Agreement have a fixed interest rate of 10.0 percent per year through February 15, 2015. If the counterparty to this Rate Agreement were to fail to perform, this 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 AA-, as of December 31, 2011, by Standard and Poor’s.

The fair market value and related carrying value adjustment are as follows:
(dollars in thousands)
December 31, 2011
 
December 31, 2010
Fair market value of Rate Agreement - asset
$
3,606

 
$
2,536

Adjustment to increase the carrying value of the related long-term debt
$
4,043

 
$
3,266

The net impact recorded in other income (expense) on the Consolidated Statements of Operations is as follows:
For the year ended December 31,
(dollars in thousands)
2011
 
2010
 
2009
Income (expense) on hedging activities in other income (expense)
$
293

 
$
(730
)
 
$

The fair value of the Rate Agreement is based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. See note 13 for further discussion.
Promissory Note
In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. At December 31, 2011 and December 31, 2010, we had $1.1 million and $1.3 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. The $0.3 million outstanding at December 31, 2011, was the U.S. dollar equivalent under the euro-based overdraft line and the interest rate was 5.80 percent. At December 31, 2010, there were no borrowings under the facility. Interest with respect to the note is paid monthly.
RMB Loan Contract
On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the equivalent of approximately $39.4 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of December 31, 2011, the annual interest rate was 6.28 percent. As of December 31, 2011, the outstanding balance was RMB 180.0 million (approximately $28.3 million). As of December 31, 2010, the outstanding balance was RMB 250.0 million (approximately $37.9 million). Interest is payable quarterly. We pre-paid the July 20, 2012 principal payment of 30.0 million RMB (approximately $4.7 million) in September 2011 and the December 20, 2012 principal payment of 40.0 million RMB (approximately $ 6.3 million) in November 2011. Three payments of principal in the amount of RMB 60.0 million (approximately $9.4 million) each must be made on July 20, 2013, December 20, 2013, and January 20, 2014, respectively. The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of CCB and a mortgage lien on the Libbey China facility.
BES Euro Line
In January 2007, Crisal entered into a seven year, €11.0 million line of credit (approximately $14.2 million) with Banco Espírito Santo, S.A. (BES). The $7.8 million outstanding at December 31, 2011, was the U.S. dollar equivalent of the €6.1 million outstanding under the line at an interest rate of 3.77 percent. Payment of principal in the amount of €2.8 million (approximately $3.6 million) is due in December 2012 and payment of €3.3 million (approximately $4.2 million) is due in December 2013. Interest with respect to the line is paid every six months.
Fair Value of Borrowings
The fair value of our debt has been calculated based on quoted market prices for the same or similar issues. Our $360.0 million of Senior Secured Notes due February 15, 2015 had an estimated fair value of $385.2 million at December 31, 2011. This compares to our $400.0 million of Senior Secured Notes with an estimated fair value of $428.5 million at December 31, 2010. The fair value of the remainder of our debt approximates carrying value at December 31, 2011 and December 31, 2010 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, 2011 we had no amounts outstanding under our $100.0 million ABL Facility, although we had $10.4 million of letters of credit issued under that facility. As a result, we had $63.8 million of unused availability remaining under the ABL Facility at December 31, 2011, as compared to $65.2 million of unused availability at December 31, 2010 under the prior $110.0 million ABL Facility. In the fourth quarter of 2011, we received $5.5 million of proceeds from the exercise of warrants. In addition, we had $58.3 million of cash on hand at December 31, 2011, compared to $76.3 million of cash on hand at December 31, 2010.

On March 25, 2011, we redeemed an aggregate principal amount of $40.0 million of our outstanding Senior Secured Notes due 2015. In addition, we prepaid 70.0 RMB (approximately $11.0 million) on our loan in China that was not due until 2012, and we repaid €2.2 million (approximately $2.8 million) on our BES Euro Line in 2011.

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

In 2009, we recorded an additional pre-tax charge of $3.8 million related to the closures of the Syracuse China manufacturing facility and the Mira Loma, California distribution center. The principal components of the charge included building site clean up, inventory write-downs related to work-in-process and raw materials of $1.0 million net of fixed asset recoveries (net of write-downs), employee severance related costs and other of $1.7 million and pension and postretirement charges of $0.3 million. Further, depreciation expense was increased by $0.7 million at Syracuse in the first quarter of 2009 to reflect the shorter life of the remaining assets. In addition, natural gas hedges of $0.2 million for the Syracuse China facility were charged to other income (expense) on the Consolidated Statements of Operations.

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

We incurred charges of approximately $0.1 million in 2011 related to other costs net of building site clean-up adjustments in connection with the sale of the property in Syracuse, New York in March 2011. This amount was included in special charges on the Consolidated Statement of Operations.

The following table summarizes the facility closure charges for the years 2011, 2010 and 2009:
 
2011
 
2010
 
2009
(dollars in thousands)
Glass Operations
 
Other Operations
 
Total
 
Glass Operations
 
Other Operations
 
Total
 
Glass Operations
 
Other Operations
 
Total
Inventory write-down
$

 
$

 
$

 
$

 
$
(12
)
 
$
(12
)
 
$

 
$
977

 
$
977

Pension & postretirement welfare

 

 

 

 

 

 

 
278

 
278

Fixed asset depreciation

 

 

 

 

 

 

 
705

 
705

Included in cost of sales

 

 

 

 
(12
)
 
(12
)
 

 
1,960

 
1,960

Building site clean-up & fixed asset write-down

 
(116
)
 
(116
)
 

 
1,012

 
1,012

 
112

 
(138
)
 
(26
)
Employee termination cost & other

 
167

 
167

 
28

 
25

 
53

 
(98
)
 
1,755

 
1,657

Included in special charges

 
51

 
51

 
28

 
1,037

 
1,065

 
14

 
1,617

 
1,631

Ineffectiveness of natural gas hedge

 

 

 

 
130

 
130

 

 
232

 
232

Included in other expense

 

 

 

 
130

 
130

 

 
232

 
232

Total pretax charge
$

 
$
51

 
$
51

 
$
28

 
$
1,155

 
$
1,183

 
$
14

 
$
3,809

 
$
3,823


The following reflects the balance sheet activity related to the facility closure charge for the year ended December 31, 2011:
 
Balances at
January 1, 2011
 
Total
Charge to Earnings
 
Cash
(Payments) Receipts
 
Inventory &
Fixed Asset Write Downs
 
Non-cash Utilization
 
Balances at
December 31, 2011
(dollars in thousands)
 
 
 
 
 
Building site clean-up & fixed asset write-down
$
151

 
$
(116
)
 
$
(5
)
 
$
21

 
$
(51
)
 
$

Employee termination cost & other
301

 
167

 
(314
)
 

 
(154
)
 

Total
$
452

 
$
51

 
$
(319
)
 
$
21

 
$
(205
)
 
$


The following reflects the balance sheet activity related to the facility closure charge for the year ended December 31, 2010:
 
Reserve Balances at
January 1, 2010
 
Total
Charge to Earnings
 
Cash
(Payments) Receipts
 
Inventory &
Fixed Asset Write Downs
 
Non-cash Utilization
 
Balances at
December 31, 2010
(dollars in thousands)
 
 
 
 
 
Inventory write-down
$

 
$
(12
)
 
$
12

 
$

 
$

 
$

Building site clean-up & fixed asset write-down
306

 
1,012

 
(538
)
 
(629
)
 

 
151

Employee termination cost & other
710

 
53

 
(462
)
 

 

 
301

Ineffectiveness of natural gas hedges

 
130

 

 

 
(130
)
 

Total
$
1,016

 
$
1,183

 
$
(988
)
 
$
(629
)
 
$
(130
)
 
$
452


The December 31, 2010 balance of $0.5 million was included in accrued liabilities on the Consolidated Balance Sheets. The carrying value of this balance approximates its fair value.

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

 
$
10,541

 
$
10,733

Pension & postretirement welfare

 
4,448

 
4,448

Fixed asset depreciation

 
966

 
966

Included in cost of sales
192

 
15,955

 
16,147

Employee termination cost & other
548

 
6,149

 
6,697

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

 
10,418

 
10,595

Included in special charges
725

 
16,567

 
17,292

Ineffectiveness of natural gas hedge

 
745

 
745

Included in other expense

 
745

 
745

Total pretax charge
$
917

 
$
33,267

 
$
34,184


Fixed Asset and Inventory Write-down

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

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

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

 
$
(135
)
 
$
(39
)
 
$
(142
)
 
$

Total
$
316

 
$
(135
)
 
$
(39
)
 
$
(142
)
 
$


The following reflects the balance sheet activity related to the fixed asset and inventory write-down charge for the year ended December 31, 2010:
 
Reserve
Balances at
January 1, 2010
 
Total
Charge to Earnings
 
Cash
(Payments) Receipts
 
Inventory &
Fixed Asset Write Downs
 
Reserve
Balances at
December 31, 2010
(dollars in thousands)
 
 
 
 
Inventory write-down
$

 
$
578

 
$

 
$
(578
)
 
$

Building site clean-up & fixed asset write-down

 
737

 
9

 
(430
)
 
316

Total
$

 
$
1,315

 
$
9

 
$
(1,008
)
 
$
316


The activities related to our write-down of decorating fixed assets and inventory are complete.
Summary of Total Special Charges
The following table summarizes by year the special charges mentioned above and their classifications in the Consolidated Statements of Operations:
(dollars in thousands)
2011
 
2010
 
2009
Cost of sales
$
197

 
$
566

 
$
1,960

Special charges
(281
)
 
1,802

 
1,631

Other (income) expense

 
130

 
232

Total (income) expense
$
(84
)
 
$
2,498

 
$
3,823

Income Taxes
Income Taxes
Income Taxes

The provisions for income taxes were calculated based on the following components of earnings (loss) before income taxes:
Year ended December 31,
(dollars in thousands)
2011
 
2010
 
2009
United States
$
(6,662
)
 
$
46,720

 
$
(25,385
)
Non-U.S. 
31,946

 
34,948

 
(653
)
Total earnings (loss) before tax
$
25,284

 
$
81,668

 
$
(26,038
)

The current and deferred provisions (benefit) for income taxes were:
Year ended December 31,
(dollars in thousands)
2011
 
2010
 
2009
Current:
 
 
 
 
 
U.S. federal
$
484

 
$
(423
)
 
$
11,436

Non-U.S. 
5,732

 
13,459

 
10,782

U.S. state and local
100

 
212

 
170

Total current income tax provision
6,316

 
13,248

 
22,388

 
 
 
 
 
 
Deferred:
 
 
 
 
 
U.S. federal
(400
)
 
94

 
(16,053
)
Non-U.S. 
(4,294
)
 
(1,854
)
 
(3,570
)
U.S. state and local
21

 
94

 
(15
)
Total deferred income tax (benefit) provision
(4,673
)
 
(1,666
)
 
(19,638
)
 
 
 
 
 
 
Total:
 
 
 
 
 
U.S. federal
84

 
(329
)
 
(4,617
)
Non-U.S. 
1,438

 
11,605

 
7,212

U.S. state and local
121

 
306

 
155

Total income tax provision
$
1,643

 
$
11,582

 
$
2,750


The significant components of our deferred income tax assets and liabilities are as follows:
December 31,
(dollars in thousands)
2011
 
2010
Deferred income tax assets:
 
 
 
Pension
$
35,813

 
$
33,007

Non-pension postretirement benefits
26,085

 
25,853

Other accrued liabilities
24,200

 
20,426

Receivables
1,279

 
1,496

Net operating loss and charitable contribution carry forwards
23,746

 
15,212

Tax credits
9,026

 
10,056

Total deferred income tax assets
120,149

 
106,050

 
 
 
 
Deferred income tax liabilities:
 
 
 
Property, plant and equipment
27,321

 
22,432

Inventories
4,932

 
7,138

Intangibles and other assets
11,062

 
12,246

Total deferred income tax liabilities
43,315

 
41,816

Net deferred income tax asset before valuation allowance
76,834

 
64,234

Valuation allowance
(79,607
)
 
(72,327
)
Net deferred income tax liability
$
(2,773
)
 
$
(8,093
)

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)
2011
 
2010
Current deferred income tax (liability) asset
$
(3,340
)
 
$
283

Noncurrent deferred income tax asset (liability)
567

 
(8,376
)
Net deferred income tax liability
$
(2,773
)
 
$
(8,093
)

The 2011 deferred income tax asset for net operating loss carry forwards of $22.6 million relates to pre-tax losses incurred in the Netherlands of $14.3 million, in Portugal of $11.0 million, in China of $6.7 million, in the U.S. of $38.6 million for federal and $73.2 million for state and local jurisdictions. Our foreign net operating loss carry forwards of $32.0 million will expire between 2012 and 2018. Our U.S. federal net operating loss carry forward of $38.6 million will expire between 2028 and 2031. The U.S. state and local net operating loss carry forward of $73.2 million will expire between 2016 and 2031. The 2010 deferred income tax asset for net operating loss carry forwards of $15.2 million relates to pre-tax losses incurred in the Netherlands of $12.9 million, in Portugal of $12.5 million, in China of $14.4 million, and in the U.S. of $11.6 million for federal and $77.9 million for state and local jurisdictions.

One of our legal entities in China has a tax holiday which will expire in 2013. We recognized no benefit from the tax holiday in 2011, 2010 or 2009.

The 2011 deferred tax credits of $9.0 million consist of $1.8 million U.S. federal tax credits and $7.2 million non-U.S. credits. The U.S. federal tax credits consist of foreign tax credits, general business research and development credits, and alternative minimum tax credits. The non-U.S. credit of $7.2 million, which is related to withholding tax on inter-company debt in the Netherlands, can be carried forward indefinitely. The 2010 deferred tax credits of $10.1 million consist of $3.1 million U.S. federal tax credits and $7.0 million non-U.S. credits.

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realized on a quarterly basis or whenever events indicate that a review is required. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income (including reversals of deferred income tax liabilities) during the periods in which those temporary differences reverse. As a result, we consider the historical and projected financial results of the legal entity or consolidated group recording the net deferred income tax asset as well as all other positive and negative evidence. Examples of the evidence we consider are cumulative losses in recent years, losses expected in early future years, a history of potential tax benefits expiring unused, 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., China, 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.

Based upon management's assessment, a release of the valuation allowance in China could possibly occur during the next twelve months. The required accounting for the potential release would have a significant deferred tax consequence and would impact earnings in the quarter in which the allowance is released.

The valuation allowance activity for the years ended December 31 is as follows:
Year ended December 31,
(dollars in thousands)
2011
 
2010
 
2009
Beginning balance
$
72,327

 
$
98,989

 
$
87,442

Charge (benefit) to provision for income taxes
842

 
(22,830
)
 
8,140

Charge (benefit) to other comprehensive income
6,438

 
(3,832
)
 
3,407

Ending balance
$
79,607

 
$
72,327

 
$
98,989


The valuation allowance increased $7.3 million in 2011 from $72.3 million at December 31, 2010 to $79.6 million at December 31, 2011. The 2011 increase of $7.3 million is attributable to the 2011 change in deferred tax assets, primarily related to the U.S. federal net operating loss carry forward. The 2011 valuation allowance of $79.6 million consists of $65.5 million related to U.S. entities and $14.1 million related to non-U.S. entities. The valuation allowance decreased $26.7 million in 2010 from $99.0 million at December 31, 2009 to $72.3 million at December 31, 2010. The 2010 decrease in valuation allowance was largely driven by a decrease in our U.S. deferred tax asset related to cancellation of indebtedness income attributed to debt restructuring activities in 2009 and the release of a partial valuation allowance for one of our Mexican entities.
Reconciliation from the statutory U.S. federal income tax rate of 35.0 percent to the consolidated effective income tax rate was as follows:
Year ended December 31,
(dollars in thousands)
2011
2010
2009
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
(14.6
)
 
(3.2
)
 
12.4

 
U.S. state and local income taxes, net of related U.S. federal income taxes
0.3

 
0.3

 
(0.6
)
 
U.S. federal credits and net operating loss carryforward
(0.3
)
 
0.8

 

 
Permanent adjustments
(18.6
)
 
6.9

 
(14.8
)
 
Foreign withholding taxes
6.7

 
0.4

 
(2.5
)
 
Valuation allowance
3.7

 
(25.4
)
 
(31.3
)
 
Income tax impact pursuant to Libbey Mexico acquisition

 

 
(12.1
)
 
Other
(5.7
)
 
(0.6
)
 
3.3

 
Consolidated effective income tax rate
6.5

%
14.2

%
(10.6
)
%

During 2009, the Company identified an income tax adjustment related to the 2006 Libbey Mexico acquisition as reflected in the table above. After review, management believes these items did not have a material impact on the financial statements.

Significant components of our current income tax asset (liability) are as follows:
December 31,
(dollars in thousands)
2011
 
2010
U.S. federal
$
648

 
$
564

Non-U.S. 
2,573

 
(3,519
)
U.S. state and local
(114
)
 
(166
)
Total current income tax asset (liability)
$
3,107

 
$
(3,121
)

Income tax payments consisted of the following:
Year ended December 31,
(dollars in thousands)
2011
 
2010
 
2009
Total income tax payments, net of refunds
$
15,124

 
$
11,250

 
$
4,160

Less: credits or offsets
4,894

 
2,420

 
1,027

Cash paid, net
$
10,230

 
$
8,830

 
$
3,133


There were no accumulated undistributed earnings from non-U.S. subsidiaries in 2011 or 2010. We intend to reinvest any future undistributed earnings indefinitely into non-U.S. operations. Determination of the net amount of unrecognized U.S. income tax and potential foreign withholdings with respect to these earnings is not practicable.

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

During 2011, we accrued a net $0.1 million of total unrecognized tax benefits due to tax positions related to current and prior years and lapses in statutes of limitations. The total gross unrecognized tax benefit and impact on the effective tax rate if recognized is as follow:
December 31,
(dollars in thousands)
2011
 
2010
 
2009
Total gross unrecognized tax benefits
$
1,266

 
$
1,129

 
$
1,029

Impact on the effective tax rate, if unrecognized tax benefits were recognized
$
1,152

 
$
1,015

 
$
906


A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
(dollars in thousands)
2011
 
2010
 
2009
Beginning balance
$
1,129

 
$
1,029

 
$
2,301

Additions based on tax positions related to the current year

 
48

 
1,180

Additions for tax positions of prior years

 

 

Reductions for tax positions of prior years

 
(34
)
 
(229
)
Changes due to lapse of statute of limitations
137

 
86

 
137

Reductions due to settlements with tax authorities

 

 
(2,360
)
Ending balance
$
1,266

 
$
1,129

 
$
1,029


We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. We recognized a $0.3 million benefit in 2011, a $0.3 million benefit in 2010 and a $0.5 million benefit in 2009 in our Consolidated Statements of Operations from a reduction in interest and penalties for uncertain tax positions. In addition, we had $1.4 million, $1.7 million and $2.0 million accrued for interest and penalties, net of tax benefit, at December 31, 2011, 2010 and 2009, respectively.

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

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2011, the tax years that remained subject to examination by major tax jurisdictions were as follows:
Jurisdiction
 
Open Years
Canada
 
2008-2011
China
 
2008-2011
Mexico
 
2006-2011
Netherlands
 
2010-2011
Portugal
 
2008-2011
United States
 
2008-2011
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). The non-U.S. pension plans cover the employees of our wholly owned subsidiaries in the Netherlands and Mexico. The plan in Mexico is not funded.

Effect on Operations
The components of our net pension expense, including the SERP, are as follows:
Year ended December 31,
(dollars in thousands)
U.S. Plans
 
Non-U.S. Plans
 
Total
2011
 
2010
 
2009
 
2011
 
2010
 
2009
 
2011
 
2010
 
2009
Service cost (benefits earned during the period)
$
5,491

 
$
5,341

 
$
5,050

 
$
1,553

 
$
1,603

 
$
1,354

 
$
7,044

 
$
6,944

 
$
6,404

Interest cost on projected benefit obligation
16,057

 
15,896

 
15,623

 
4,981

 
4,557

 
4,147

 
21,038

 
20,453

 
19,770

Expected return on plan assets
(17,173
)
 
(16,683
)
 
(17,573
)
 
(2,299
)
 
(2,463
)
 
(2,530
)
 
(19,472
)
 
(19,146
)
 
(20,103
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
2,163

 
2,328

 
2,242

 
172