LIBBEY INC, 10-K filed on 3/13/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Feb. 27, 2015
Jun. 30, 2014
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, 2014 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
21,765,972 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 564,173,429 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
ASSETS
 
 
Cash and cash equivalents
$ 60,044 
$ 42,208 
Accounts receivable — net
91,106 
94,549 
Inventories — net
169,828 
163,121 
Prepaid and other current assets
27,701 
24,838 
Total current assets
348,679 
324,716 
Pension asset
848 
33,615 
Purchased intangible assets — net
17,771 
19,325 
Goodwill
164,112 
167,379 
Deferred income taxes
5,566 
5,759 
Other assets
13,976 
13,534 
Total other assets
202,273 
239,612 
Property, plant and equipment — net
277,978 
265,662 
Total assets
828,930 
829,990 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
Accounts payable
82,485 
79,620 
Salaries and wages
29,035 
32,403 
Accrued liabilities
42,638 
41,418 
Accrued income taxes
2,010 
1,374 
Pension liability (current portion)
1,488 
3,161 
Non-pension postretirement benefits (current portion)
4,800 
4,758 
Derivative liability
2,653 
Deferred income taxes
3,633 
Long-term debt due within one year
7,658 
5,391 
Total current liabilities
176,400 
168,125 
Long-term debt
436,264 
406,512 
Pension liability
56,462 
40,033 
Non-pension postretirement benefits
63,301 
59,065 
Deferred income taxes
5,893 
11,672 
Other long-term liabilities
13,156 
13,774 
Total liabilities
751,476 
699,181 
Shareholders’ equity:
 
 
Common stock, par value $.01 per share, 50,000,000 shares authorized, 21,843,851 shares issued in 2014 (21,316,480 shares issued in 2013)
218 
213 
Capital in excess of par value
331,391 
323,367 
Treasury stock
(1,060)
Retained deficit
(114,648)
(119,611)
Accumulated other comprehensive loss
(138,447)
(73,160)
Total shareholders’ equity
77,454 
130,809 
Total liabilities and shareholders’ equity
$ 828,930 
$ 829,990 
Consolidated Balance Sheets Parentheticals (USD $)
Dec. 31, 2014
Dec. 31, 2013
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
50,000,000 
50,000,000 
Common stock, shares issued
21,843,851 
21,316,480 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Net sales
$ 852,492 
$ 818,811 
$ 825,287 
Freight billed to customers
3,400 
3,344 
3,165 
Total revenues
855,892 
822,155 
828,452 
Cost of sales
652,747 
632,738 
633,267 
Gross profit
203,145 
189,417 
195,185 
Selling, general and administrative expenses
121,909 
109,981 
113,896 
Special charges
4,859 
Income from operations
81,236 
74,577 
81,289 
Loss on redemption of debt
(47,191)
(2,518)
(31,075)
Other income (expense)
2,351 
1,647 
188 
Earnings before interest and income taxes
36,396 
73,706 
50,402 
Interest expense
22,866 
32,006 
37,727 
Income before income taxes
13,530 
41,700 
12,675 
Provision for income taxes
8,567 
13,241 
5,709 
Net income
$ 4,963 
$ 28,459 
$ 6,966 
Net income per share:
 
 
 
Basic
$ 0.23 
$ 1.34 
$ 0.33 
Diluted
$ 0.22 
$ 1.31 
$ 0.33 
Weighted average shares:
 
 
 
Outstanding
21,716,288 
21,216,780 
20,875,959 
Diluted
22,183,537 
21,742,173 
21,315,211 
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Net income
$ 4,963 
$ 28,459 
$ 6,966 
Other comprehensive income (loss):
 
 
 
Pension and other postretirement benefit adjustments, net of tax
(49,725)
60,953 
(17,891)
Change in fair value of derivative instruments, net of tax
(1,846)
732 
2,859 
Foreign currency translation adjustments
(13,716)
6,195 
2,364 
Other comprehensive income (loss), net of tax
(65,287)
67,880 
(12,668)
Comprehensive income (loss)
$ (60,324)
$ 96,339 
$ (5,702)
Consolidated Statements of Shareholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Treasury Stock
Capital in Excess of Par Value
Retained Deficit
Accumulated Other Comprehensive Loss (note 14)
Balance, value at Dec. 31, 2011
$ 27,780 
$ 203 
$ 0 
$ 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 
 
 
 
 
Purchase of treasury shares, shares
 
 
 
 
 
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 
 
 
 
 
Purchase of treasury shares, shares
 
 
 
 
 
Balance value at Dec. 31, 2013
130,809 
213 
323,367 
(119,611)
(73,160)
Balance, shares at Dec. 31, 2013
 
21,316,480 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income
4,963 
 
 
 
4,963 
 
Other comprehensive income (loss)
(65,287)
 
 
 
 
(65,287)
Stock compensation expense (note 12)
3,932 
 
 
3,932 
 
 
Stock issued, value
4,097 
 
4,092 
 
 
Stock issued, shares
 
527,371 
 
 
 
 
Purchase of treasury shares, value
(1,060)
 
(1,060)
 
 
 
Purchase of treasury shares, shares
34,985 
 
34,985 
 
 
 
Balance value at Dec. 31, 2014
$ 77,454 
$ 218 
$ (1,060)
$ 331,391 
$ (114,648)
$ (138,447)
Balance, shares at Dec. 31, 2014
 
21,843,851 
34,985 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Operating activities:
 
 
 
Net income
$ 4,963 
$ 28,459 
$ 6,966 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
40,388 
43,969 
41,471 
Loss on asset sales and disposals
674 
514 
446 
Change in accounts receivable
(1,808)
(12,674)
7,187 
Change in inventories
(10,828)
(3,932)
(10,969)
Change in accounts payable
5,088 
12,190 
6,285 
Accrued interest and amortization of discounts and finance fees
2,039 
1,496 
(6,433)
Call premium on senior notes
(37,348)
(1,350)
(23,602)
Write-off of finance fee & discounts on senior notes and ABL
9,086 
1,168 
10,975 
Pension & non-pension postretirement benefits
(879)
7,746 
(76,344)
Restructuring
(289)
2,212 
Accrued liabilities & prepaid expenses
(7,222)
(17,507)
322 
Income taxes
885 
(1,804)
1,628 
Share-based compensation expense
5,283 
5,063 
3,321 
Other operating activities
(2,857)
4,479 
40 
Net cash provided by operating activities
81,871 
72,729 
8,497 
Investing activities:
 
 
 
Additions to property, plant and equipment
(54,393)
(49,407)
(32,720)
Proceeds from furnace malfunction insurance recovery
2,350 
Proceeds from asset sales and other
24 
81 
647 
Net cash used in investing activities
(52,019)
(49,326)
(32,073)
Financing activities:
 
 
 
Borrowings on ABL credit facility
83,000 
51,000 
Repayments on ABL credit facility
(83,000)
(51,000)
Other repayments
(5,863)
(14,270)
(23,116)
Other borrowings
5,214 
6,094 
1,234 
Proceeds from (payments on) 6.875% senior notes
(405,000)
(45,000)
450,000 
Payments on 10% senior notes
(360,000)
Proceeds from Term Loan B
438,900 
Payments on 10% senior notes
(2,200)
Call premium on senior notes
(37,348)
(1,350)
(23,602)
Stock options exercised
4,571 
5,384 
1,231 
Debt issuance costs and other
(6,959)
(13,475)
Treasury shares purchased
(1,060)
Net cash provided by (used in) financing activities
(9,745)
(49,142)
32,272 
Effect of exchange rate fluctuations on cash
(2,271)
739 
221 
Increase (decrease) in cash
17,836 
(25,000)
8,917 
Cash & cash equivalents at beginning of year
42,208 
67,208 
58,291 
Cash & cash equivalents at end of year
60,044 
42,208 
67,208 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the year for interest, net of capitalized interest
20,302 
30,008 
44,105 
Cash paid during the year for income taxes
$ 7,228 
$ 10,855 
$ 3,402 
Consolidated Statements of Cash Flows Parentheticals (Libbey Glass, Senior Notes)
May 9, 2014
Jun. 29, 2012
May 18, 2012
Libbey Glass |
Senior Notes
 
 
 
Interest rate
6.875% 
10.00% 
6.875% 
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). 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. Generally, we do not require collateral on our accounts receivable.

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 29.0 percent and 25.3 percent of our total inventories in 2014 and 2013, 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 $13.6 million and $14.5 million in 2014 and 2013, 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 2014, 2013 and 2012, 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, 2014. 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 and natural gas hedges in Mexico) 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.
Environmental In accordance with U.S. GAAP accounting standards, we recognize environmental clean-up liabilities on an undiscounted basis when loss is probable and can be reasonably estimated. The cost of the clean-up is estimated by financial and legal specialists based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required, and the likelihood that, where applicable, other potentially responsible parties will not be able to fulfill their commitments at the sites where the Company may be jointly and severally liable.
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 $1.9 million, $(0.3) million and $(0.8) million for the year ended December 31, 2014, 2013 and 2012, 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 $5.3 million, $5.1 million and $3.3 million for 2014, 2013 and 2012, respectively. Non-cash compensation charges of $0.1 million and $0.7 million related to accelerated vesting of previously issued equity compensation was included in 2014 and 2013, respectively. See note 12 for additional information.
Treasury Stock Treasury Stock purchases are recorded at cost. During 2014, we purchased 34,985 shares of treasury stock at an average price of $30.30. During 2013 and 2012, we did not purchase any treasury stock. At December 31, 2014, we had 965,015 shares of common stock available for repurchase, as authorized by our Board of Directors.
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 2014, 2013 and 2012, respectively, were $6.2 million, $3.4 million and $2.9 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 have been reclassified to conform to the presentation used in the year ended December 31, 2014, including the allocation of the 2013 furnace malfunction recovery within the Statement of Operations (see note 18).
New Accounting Standards
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue From Contracts With Customers" (ASU 2014-09), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. This update is effective for interim and annual reporting periods beginning after December 15, 2016; early adoption is not permitted. We are currently assessing the impact that this standard will have on our Consolidated Financial Statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements-Going Concern" (ASU 2014-15), which establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. ASU 2014-15 also provides guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. This update is effective for interim and annual reporting periods beginning after December 15, 2016; early adoption is permitted. We are currently evaluating the impact that this standard will have 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)
 
2014
 
2013
Accounts receivable:
 
 
 
 
Trade receivables
 
$
87,700

 
$
87,499

Other receivables (see note 18)
 
3,406

 
7,050

Total accounts receivable, less allowances of $5,586 and $5,846
 
$
91,106

 
$
94,549

 
 
 
 
 
Inventories:
 
 
 
 
Finished goods
 
$
151,698

 
$
144,945

Work in process
 
1,153

 
1,615

Raw materials
 
4,708

 
4,558

Repair parts
 
10,840

 
10,550

Operating supplies
 
1,429

 
1,453

Total inventories, less loss provisions of $4,370 and $4,913
 
$
169,828

 
$
163,121

 
 
 
 
 
Prepaid and other current assets
 
 
 
 
Value added tax
 
$
13,512

 
$
6,697

Prepaid expenses
 
6,947

 
8,396

Deferred income taxes
 
4,888

 
5,840

Prepaid income taxes
 
1,951

 
3,511

Derivative asset
 
403

 
394

Total prepaid and other current assets
 
$
27,701

 
$
24,838

 
 
 
 
 
Other assets:
 
 
 
 
Deposits
 
$
890

 
$
919

Finance fees — net of amortization
 
6,958

 
10,472

Other assets
 
6,128

 
2,143

Total other assets
 
$
13,976

 
$
13,534

 
 
 
 
 
Accrued liabilities:
 
 
 
 
Accrued incentives
 
$
17,648

 
$
17,830

Workers compensation
 
7,121

 
7,108

Medical liabilities
 
3,887

 
3,433

Interest
 
3,876

 
3,331

Commissions payable
 
1,068

 
1,067

Withholdings and other non-income tax accruals
 
3,078

 
1,929

Other accrued liabilities
 
5,960

 
6,720

Total accrued liabilities
 
$
42,638

 
$
41,418

 
 
 
 
 
Other long-term liabilities:
 
 
 
 
Deferred liability
 
$
8,081

 
$
7,424

Derivative liability
 
215

 
2,073

Environmental obligation (see note 18)
 
1,000

 

Other long-term liabilities
 
3,860

 
4,277

Total other long-term liabilities
 
$
13,156

 
$
13,774

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)
 
2014
 
2013
Beginning balance
 
$
19,325

 
$
20,222

Amortization
 
(1,069
)
 
(1,069
)
Foreign currency impact
 
(485
)
 
172

Ending balance
 
$
17,771

 
$
19,325



Purchased intangible assets are composed of the following:
December 31,
(dollars in thousands)
 
2014
 
2013
Indefinite life intangible assets
 
$
12,148

 
$
12,404

Definite life intangible assets, net of accumulated amortization of $15,975 and $15,226
 
5,623

 
6,921

Total
 
$
17,771

 
$
19,325



Amortization expense for definite life intangible assets was $1.1 million, $1.1 million and $1.1 million for years 2014, 2013 and 2012, 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 2014 and 2013 did not indicate impairment of our indefinite life intangible assets. There were also no indicators of impairment at December 31, 2014.

The remaining definite life intangible assets at December 31, 2014 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 5.4 years at December 31, 2014.

Future estimated amortization expense of definite life intangible assets is as follows (dollars in thousands):
2015
2016
2017
2018
2019
 
$1,069
$1,069
$1,069
$1,069
$589
 


Goodwill

Changes in goodwill balances are as follows:
 
 
2014
 
2013
(dollars in thousands)
 
Americas
 
U.S. Sourcing
 
Total
 
Americas
 
U.S. Sourcing
 
Total
Beginning 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 beginning balance
 
155,830

 
11,549

 
167,379

 
155,023

 
11,549

 
166,572

Other
 
(3,267
)
 

 
(3,267
)
 
807

 

 
807

Ending balance:
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
161,997

 
16,990

 
178,987

 
165,264

 
16,990

 
182,254

Accumulated impairment losses
 
(9,434
)
 
(5,441
)
 
(14,875
)
 
(9,434
)
 
(5,441
)
 
(14,875
)
Net ending balance
 
$
152,563

 
$
11,549

 
$
164,112

 
$
155,830

 
$
11,549

 
$
167,379



In 2014, we adjusted goodwill to correct property, plant and equipment acquired in connection with the acquisition of Libbey Mexico. As a result of application of the provisions of FASB ASC Topic 805, Business Combinations, in June 2006, the adjustment should have been reflected in our purchase accounting related to this acquisition. As of December 31, 2014, we have accordingly decreased goodwill by $3.3 million, increased property, plant and equipment by $4.7 million and recorded a corresponding deferred tax liability of $1.4 million to reflect this adjustment.

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 2014 and 2013 did not indicate an impairment of goodwill. There were also no indicators of impairment at December 31, 2014.
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)
 
2014
 
2013
Land
 
$
20,353

 
$
21,452

Buildings
 
97,485

 
89,734

Machinery and equipment
 
448,241

 
459,244

Furniture and fixtures
 
15,431

 
14,468

Software
 
19,950

 
20,490

Construction in progress
 
34,134

 
17,064

Gross property, plant and equipment
 
635,594

 
622,452

Less accumulated depreciation
 
357,616

 
356,790

Net property, plant and equipment
 
$
277,978

 
$
265,662



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 $39.1 million, $42.8 million and $40.3 million for the years 2014, 2013 and 2012, 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.
Borrowings
Borrowings
Borrowings

On April 9, 2014, 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 entry into a $440.0 million in aggregate principal amount of Senior Secured Term Loan B of Libbey Glass due 2021 (Term Loan B); and
the repurchase and cancellation of all Libbey Glass's then outstanding $405.0 million in aggregate principal amount Senior Secured Notes ($360.0 million on April 9, 2014 and $45.0 million on May 9, 2014).

We used the proceeds of the Term Loan B, together with cash on hand and borrowings under the ABL Facility, to repurchase $360.0 million of the Senior Secured Notes, redeem the remaining $45.0 million of the Senior Secured Notes, and pay certain related fees and expenses.

The above transactions included charges of $37.3 million for an early call premium and $9.1 million for the write off of the remaining financing fees from the Senior Secured Notes. These charges were considered in the computation of the loss on redemption of debt.

Borrowings consist of the following:
(dollars in thousands)
 
Interest Rate
 
Maturity Date
 
December 31,
2014
 
December 31,
2013
Borrowings under ABL Facility
 
floating
 
April 9, 2019
 
$

 
$

Term Loan B
 
floating
 
April 9, 2021
 
437,800

 

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

 
405,000

Promissory Note
 
6.00%
 
September, 2016
 

 
681

RMB Working Capital Loan
 
floating
 
September, 2014
 

 
5,157

RMB Working Capital Loan
 
6.78%
 
July, 2015
 
3,258

 

AICEP Loan
 
0.00%
 
January, 2016 to July 30, 2018
 
3,846

 
2,389

Total borrowings
 
444,904

 
413,227

Less — unamortized discount
 
982

 

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

 
(1,324
)
Total borrowings — net
 
443,922

 
411,903

Less — long term debt due within one year
 
7,658

 
5,391

Total long-term portion of borrowings — net
 
$
436,264

 
$
406,512

____________________________________
(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:
2015
2016
2017
2018
2019
Thereafter
 
$7,658
$5,682
$5,682
$5,682
$4,400
$415,800
 


Amended and Restated ABL Credit Agreement

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, May 18, 2012 and April 9, 2014 (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 (Term 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 U.S. 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, 2014. 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 0.25 percent at December 31, 2014. 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 1:00 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, 2014 or at December 31, 2013. 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 ABL 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 $0.6 million as of December 31, 2014. There were $3.5 million mark-to-market reserves for natural gas contracts offsetting the borrowing base as of December 31, 2014. 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, 2014, we had $6.8 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $82.3 million at December 31, 2014, compared to $70.5 million under the ABL Facility at December 31, 2013.
Term Loan B
On April 9, 2014, Libbey Glass consummated its $440.0 million Term Loan B. The net proceeds of the Term Loan B were $438.9 million, after the 0.25 percent original issue discount of $1.1 million. The Term Loan B had related fees of approximately $6.7 million that will be amortized to interest expense over the life of the loan.

The Term Loan B is evidenced by a Senior Secured Credit Agreement, dated April 9, 2014 (Credit Agreement), 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 lenders. Under the terms of the Credit Agreement, aggregate principal of $1.1 million is due on the last business day of each quarter beginning September 30, 2014. The Term Loan B bears interest at the rate of LIBOR plus 3.0 percent, subject to a LIBOR "floor" of 0.75 percent. The interest rate was 3.75 percent per year at December 31, 2014, and will mature on April 9, 2021. We may voluntarily prepay, in whole or in part, the Term Loan B without premium or penalty but with accrued interest. Although the Credit Agreement does not contain financial covenants, the Credit Agreement 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 Credit Agreement provides for customary events of default. In the case of an event of default as defined in the Credit Agreement, all of the outstanding Term Loan B will become due and payable immediately without further action or notice.

The Term Loan B and the related guarantees under the Credit Agreement are secured by (i) first priority liens on the Term Priority Collateral and (ii) second priority liens on the ABL Collateral.
Senior Secured Notes
On May 18, 2012, Libbey Glass closed its offering of the $450.0 million 6.875 percent Senior Secured Notes. The notes offering was issued at par and had related fees of approximately $13.2 million. These fees were amortized to interest expense over the life of the notes until the notes were refinanced in 2014. We used the proceeds of the offering to fund the repurchase and redemption of $320.0 million of the former 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 the former 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.

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 had interest at a rate of 6.875 percent per year and a maturity date of May 15, 2020.

Prior to May 15, 2015, we were able to 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 remained outstanding after each redemption and that each redemption occurred 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 were able to 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 were 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.

We had an Interest Rate Agreement (Old Rate Agreement) in place through April 18, 2012 with respect to $80.0 million of our former 10.0 percent 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.

We had an Interest Rate Agreement (New Rate Agreement) in place from June 18, 2012 through May 9, 2014 with respect to $45.0 million of our 6.875 percent Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The New 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 Interest Rate Agreement at May 9, 2014, excluding applicable fees, was 5.5 percent. Total remaining Senior Secured Notes not covered by the Interest Rate Agreement had a fixed interest rate of 6.875 percent per year. We settled the swap at fair value, resulting in a payment of $1.1 million on May 13, 2014. Upon the redemption of the Senior Secured Notes, the unamortized balance of $0.8 million of the carrying value adjustment on debt related to the Interest Rate Agreement was recognized as expense in loss on redemption of debt on the Consolidated Statements of Operations.

The fair market value and related carrying value adjustment are as follows:
(dollars in thousands)
 
December 31, 2014
 
December 31, 2013
Fair market value of Rate Agreement - asset (liability)
 
$

 
$
(2,073
)
Adjustment to increase (decrease) carrying value of the related long-term debt
 
$

 
$
(1,324
)


The fair value of the Old and New Rate Agreements was 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 were 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. On December 10, 2014, we paid in full the remaining principal and unpaid interest due on the note, totaling $0.4 million. At December 31, 2013, we had $0.7 million outstanding on the promissory note. Principal and interest with respect to the promissory note were paid monthly.
Notes Payable
We have an overdraft line of credit for a maximum of €1.0 million. At December 31, 2014 and 2013, 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 Working Capital Loan
On September 2, 2013, Libbey China entered into a RMB 31.5 million (approximately $5.2 million) working capital loan with China Construction Bank (CCB) to cover seasonal working capital needs. The 364-day loan was set to mature on September 1, 2014, and had a variable interest rate as announced by the People's Bank of China. On July 14, 2014, Libbey China prepaid the working capital loan along with accrued and unpaid interest. The loan held an annual interest rate of 6.3 percent at the repayment date. This obligation was secured by a mortgage lien on the Libbey China facility.

On July 24, 2014, Libbey China entered into a new RMB 20.0 million (approximately $3.3 million) working capital loan with CCB to cover seasonal working capital needs. The new working capital loan will mature on July 23, 2015, and has a fixed interest rate of 6.78 percent, which is paid monthly. This obligation is secured by a mortgage lien on the Libbey China facility.
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 €3.2 million (approximately $3.8 million) at December 31, 2014 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.
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. In 2013, Libbey China repaid the final RMB 60.0 million (approximately $9.5 million) due on the loan.
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.
Fair Value of Borrowings
The fair value of our debt has been calculated based on quoted market prices (Level 2 in the fair value hierarchy) for the same or similar issues. The $437.8 million outstanding on the Term Loan B had an estimated fair value of $430.1 million at December 31, 2014. The fair value of the remainder of our debt approximates carrying value at December 31, 2014 due to the short term nature of the RMB Working Capital Loan and other immaterial debt. At December 31, 2013, the Senior Secured Notes had an estimated fair value of $437.4 million. The fair value of the remainder of our debt approximates carrying value at December 31, 2013 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, 2014 we had no borrowings under our $100.0 million ABL Facility and $6.8 million in letters of credit issued under that facility. As a result, we had $82.3 million of unused availability remaining under the ABL Facility at December 31, 2014, as compared to $70.5 million of unused availability at December 31, 2013. In addition, we had $60.0 million of cash on hand at December 31, 2014, compared to $42.2 million of cash on hand at December 31, 2013.

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. In connection with this plan, we incurred pretax charges of approximately $7.5 million. For the year end December 31, 2014 and 2013, we recorded a pretax charge of $1.0 million and $6.5 million, respectively. 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. These activities are all within the Americas segment and were completed by March 31, 2014.

The following table summarizes the pretax charges incurred in 2014 and 2013:
(dollars in thousands)
 
2014
 
2013
 
Total Charges to Date
Accelerated depreciation
 
$

 
$
1,699

 
$
1,699

Other restructuring expenses
 
985

 
(14
)
 
971

Included in cost of sales
 
985

 
1,685

 
2,670

 
 
 
 
 
 
 
Employee termination cost & other
 

 
1,794

 
1,794

Fixed asset write-down
 

 
1,924

 
1,924

Other restructuring expenses
 

 
1,141

 
1,141

Included in special charges
 

 
4,859

 
4,859

Total pretax charge
 
$
985

 
$
6,544

 
$
7,529


The following is the capacity realignment reserve activity for the year ended December 31, 2014:
(dollars in thousands)
 
Reserve
Balance at
January 1, 2014
 
Total
Charge to Earnings
 
Cash
(payments) receipts
 
Non-cash Utilization
 
Reserve
Balance at
December 31, 2014
Employee termination cost & other
 
$
289

 
$

 
$
(289
)
 
$

 
$

Other restructuring expenses
 

 
985

 
(985
)
 

 

Total
 
$
289

 
$
985

 
$
(1,274
)
 
$

 
$



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
 
$

 
$
1,699

 
$

 
$
(1,699
)
 
$

Employee termination cost & other
 

 
1,794

 
(1,505
)
 

 
289

Fixed asset write-down
 

 
1,924

 

 
(1,924
)
 

Other restructuring expenses
 

 
1,127

 
(1,141
)
 
14

 

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)
 
2014
 
2013
 
2012
United States
 
$
(15,488
)
 
$
23,211

 
$
(17,030
)
Non-U.S. 
 
29,018

 
18,489

 
29,705

Total income before income taxes
 
$
13,530

 
$
41,700

 
$
12,675



The current and deferred provisions (benefit) for income taxes were:
Year ended December 31,
(dollars in thousands)
 
2014
 
2013
 
2012
Current:
 
 
 
 
 
 
U.S. federal
 
$
59

 
$
988

 
$
(18
)
Non-U.S. 
 
10,180

 
8,548

 
9,194

U.S. state and local
 
157

 
617

 
(72
)
Total current income tax provision (benefit)
 
10,396

 
10,153

 
9,104

 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
U.S. federal
 
227

 
564

 
1,264

Non-U.S. 
 
(2,066
)
 
2,517

 
(4,658
)
U.S. state and local
 
10

 
7

 
(1
)
Total deferred income tax provision (benefit)
 
(1,829
)
 
3,088

 
(3,395
)
 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
U.S. federal
 
286

 
1,552

 
1,246

Non-U.S. 
 
8,114

 
11,065

 
4,536

U.S. state and local
 
167

 
624

 
(73
)
Total income tax provision (benefit)
 
$
8,567

 
$
13,241

 
$
5,709



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)
 
2014
 
2013
Deferred income tax assets:
 
 
 
 
Pension
 
$
12,317

 
$

Non-pension postretirement benefits
 
24,326

 
22,749

Other accrued liabilities
 
18,726

 
18,084

Receivables
 
1,798

 
1,467

Net operating loss and charitable contribution carry forwards
 
33,531

 
32,806

Tax credits
 
10,320

 
10,953

Total deferred income tax assets
 
101,018

 
86,059

 
 
 
 
 
Deferred income tax liabilities:
 
 
 
 
Property, plant and equipment
 
20,986

 
22,053

Inventories
 
5,037

 
4,762

Pension
 

 
3,031

Intangibles and other assets
 
7,581

 
10,238

Total deferred income tax liabilities
 
33,604

 
40,084

Net deferred income tax asset before valuation allowance
 
67,414

 
45,975

Valuation allowance
 
(66,486
)
 
(46,048
)
Net deferred income tax asset (liability)
 
$
928

 
$
(73
)


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)
 
2014
 
2013
Current deferred income tax asset
 
$
4,888

 
$
5,840

Non-current deferred income tax asset
 
5,566

 
5,759

Current deferred income tax liability
 
(3,633
)
 

Non-current deferred income tax liability
 
(5,893
)
 
(11,672
)
Net deferred income tax asset (liability)
 
$
928

 
$
(73
)


The 2014 deferred income tax asset for net operating loss carry forwards of $33.5 million relates to cumulative pre-tax losses incurred in the Netherlands of $10.3 million, in Portugal of $4.2 million, in China of $2.9 million, and in the U.S. of $75.6 million for federal and $99.1 million for state and local jurisdictions. Our foreign net operating loss carry forwards of $17.4 million will expire between 2015 and 2026. Our U.S. federal net operating loss carry forward of $75.6 million will expire between 2031 and 2034. This amount is lower than the actual amount reported on our U.S. federal income tax return by $10.8 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 $99.1 million will expire between 2015 and 2034. 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, and in the U.S. of $66.0 million for federal and $96.0 million for state and local jurisdictions.

One of our legal entities in China had a tax holiday which expired effective December 31, 2012. In 2014 and 2013, we recognized no benefit from the tax holiday. In 2012, we recognized a $0.5 million benefit.

The 2014 deferred tax credits of $10.3 million consist of $2.3 million U.S. federal tax credits and $8.0 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 2025 and 2034. The non-U.S. credit of $8.0 million, which is related to withholding tax on inter-company debt in the Netherlands, can be carried forward indefinitely. 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.

In assessing the need for a valuation allowance, management considers on a quarterly basis whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. 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.

Despite our 2013 improvement in financial results in the U.S., management has concluded that in consideration of our current year loss and cumulative U.S. operating losses and the current U.S. economic environment and competitive landscape, we have not yet achieved profitability of a duration and magnitude sufficient to release our valuation allowance against our U.S. deferred tax assets. If we generate significant pre-tax earnings in the U.S. in 2015 and expectations for 2016 and beyond indicate continued profitability and improved economic conditions, we may have sufficient evidence to release all or a portion of our valuation allowance on our U.S. net deferred tax assets in the foreseeable future.

The Netherlands financial performance improved during 2014 and its cumulative loss position is relatively small at December 31, 2014. Nonetheless, before we would change our judgment of the need for a full valuation allowance, a sustained period of operating profitability is required. Considering the duration and magnitude of our Netherlands operating losses and the current European economic environment and competitive landscape, it is our judgment that we have not yet achieved a level of sufficient profitability needed in order to release our valuation allowance against our deferred tax assets. If we generate significant pre-tax earnings in the Netherlands in 2015 and expectations for 2016 and beyond indicate continued profitability and improved economic conditions, we may have sufficient evidence to release all or a portion of our valuation allowance on our Netherlands deferred tax assets in the foreseeable future.

The valuation allowance activity for the years ended December 31 is as follows:
Year ended December 31,
(dollars in thousands)
 
2014
 
2013
 
2012
Beginning balance
 
$
46,048

 
$
77,629

 
$
76,452

Charge (benefit) to provision for income taxes
 
3,507

 
(9,302
)
 
(1,805
)
Charge (benefit) to other comprehensive income
 
16,931

 
(22,279
)
 
2,982

Ending balance
 
$
66,486

 
$
46,048

 
$
77,629



The valuation allowance increased $20.4 million in 2014 from $46.0 million at December 31, 2013 to $66.5 million at December 31, 2014. The 2014 increase of $20.4 million is attributable to the 2014 change in deferred tax assets, primarily related to the U.S. operating loss and other comprehensive losses related to pensions. The 2014 valuation allowance of $66.5 million consists of $55.8 million related to U.S. entities and $10.7 million related to non-U.S. entities. 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 2012 increase in valuation allowance of $1.2 million 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,
 
2014
 
2013
 
2012
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
 
(10.5
)
 
 
(7.9
)
 
 
(43.5
)
 
U.S. state and local income taxes, net of related U.S. federal income taxes
 
0.8

 
 
1.0

 
 
(0.4
)
 
U.S. federal credits
 

 
 

 
 
(0.9
)
 
Permanent adjustments
 
(9.2
)
 
 
4.2

 
 
60.6

 
Foreign withholding taxes
 
14.8

 
 
4.8

 
 
12.0

 
Valuation allowance
 
42.9

 
 
(16.8
)
 
 
(10.6
)
 
Unrecognized tax benefits
 
(9.3
)
 
 
(0.7
)
 
 
(3.1
)
 
Deferred tax impact from 2014 Mexican tax reform
 

 
 
10.2

 
 

 
Other
 
(1.2
)
 
 
2.0

 
 
(4.1
)
 
Consolidated effective income tax rate
 
63.3

%
 
31.8

%
 
45.0

%


There was approximately $3.3 million of accumulated undistributed earnings from non-U.S. subsidiaries in 2014 and $6.9 million in 2013. We intend to reinvest any existing and 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)
 
2014
 
2013
 
2012
Beginning balance
 
$
1,312

 
$
1,496

 
$
1,266

Additions based on tax positions related to the current year
 

 
325

 

Reductions for tax positions of prior years
 
(325
)
 

 

Changes due to lapse of statute of limitations
 
(609
)
 
(509
)
 
230

Ending balance
 
$
378

 
$
1,312

 
$
1,496



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)
 
2014
 
2013
 
2012
Impact on the effective tax rate, if unrecognized tax benefits were recognized
 
$
306

 
$
1,198

 
 
Interest and penalties, net of tax benefit, accrued in the Consolidated Balance Sheets
 
$
174

 
$
537

 
 
Interest and penalties expense (benefit) recognized in the Consolidated Statements of Operations
 
$
(363
)
 
$
(124
)
 
$
(753
)


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 $0.2 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, 2014, the tax years that remained subject to examination by major tax jurisdictions were as follows:
Jurisdiction
 
Open Years
Canada
 
2011
2014
China
 
2011
2014
Mexico
 
2009
2014
Netherlands
 
2013
2014
Portugal
 
2010
2014
United States (excluding 2009 which is closed)
 
2008
2014
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 unfunded.

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
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Service cost (benefits earned during the period)
 
$
3,664

 
$
4,739

 
$
5,957

 
$
2,264

 
$
2,862

 
$
1,749

 
$
5,928

 
$
7,601

 
$
7,706

Interest cost on projected benefit obligation
 
15,378

 
14,093

 
15,398

 
5,566

 
4,981

 
4,954

 
20,944

 
19,074

 
20,352

Expected return on plan assets
 
(22,387
)
 
(22,374
)
 
(18,514
)
 
(2,447
)
 
(1,995
)
 
(2,382
)
 
(24,834
)
 
(24,369
)
 
(20,896
)
Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
 
1,059

 
1,172

 
2,050

 
164

 
164

 
159

 
1,223

 
1,336

 
2,209

Actuarial loss
 
4,057

 
8,604

 
6,429

 
1,012

 
919

 
533

 
5,069

 
9,523

 
6,962

Transition obligations
 

 

 

 
60

 
84

 
102

 
60

 
84

 
102

Settlement charge
 
483

 
1,805

 
3,931

 
291

 
447

 
200

 
774

 
2,252

 
4,131

Curtailment charge
 

 

 
375

 

 

 

 

 

 
375

Pension expense
 
$
2,254

 
$
8,039

 
$
15,626

 
$
6,910

 
$
7,462

 
$
5,315

 
$
9,164

 
$
15,501

 
$
20,941



In 2014, 2013 and 2012, we incurred pension settlement charges of $0.8 million, $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
 
 
2014
 
2013
 
2014
 
2013
Discount rate
 
4.17%
to
4.29%
 
4.83%
to
5.12%
 
2.30%
to
7.60%
 
3.70%
to
8.50%
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
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Discount rate
4.83
%
to
5.12
%
 
3.98
%
to
4.97
%
 
3.87
%
to
5.22
%
 
3.70
%
to
8.50
%
 
3.70
%
to
7.00
%
 
5.80
%
to
8.25
%
Expected long-term rate of return on plan assets
7.25%
 
7.50%
 
7.75%
 
4.10%
 
3.60%
 
5.10%
Rate of compensation increase
%
to
%
 
%
to
%
 
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.

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.

During 2014, the Society of Actuaries released a new mortality table, which is believed to better reflect current mortality expectations and is to be used in calculating pension obligations. We adopted these new tables for our U.S. pension plans for use in determining our projected benefit obligations. Adoption of the new mortality tables increased our projected benefit obligation by approximately $22.1 million at December 31, 2014.
Considering 2014 results, the disclosure below provides a sensitivity analysis of the impact that changes in the significant assumptions would have on 2014 and 2015 pension expense:
Assumption
(dollars in thousands)
 
 
 
 
 
Estimated Effect on Annual Expense
 
Percentage Point Change
 
2014
 
2015
Discount rate
 
1.0%
 
$
4,600

 
$
5,100

Long-term rate of return on assets
 
1.0%
 
$
3,800

 
$
3,900



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
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Change in projected benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation, beginning of year
 
$
310,109

 
$
338,133

 
$
102,719

 
$
95,459

 
$
412,828

 
$
433,592

Service cost
 
3,664

 
4,739

 
2,264

 
2,862

 
5,928

 
7,601

Interest cost
 
15,378

 
14,093

 
5,566

 
4,981