7.	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)	2019			2018
United States	$	(6,405	)	$	(12,682	)
Non-U.S.		(53,861	)		14,979
Total income (loss) before income taxes	$	(60,266	)	$	2,297

The current and deferred provisions (benefit) for income taxes were:

Year ended December 31,
(dollars in thousands)	2019		2018
Current:
U.S. federal	$	1,011	$	1,945
Non-U.S.		5,142		6,780
U.S. state and local		326		694
Total current income tax provision		6,479		9,419

Deferred:
U.S. federal		576		687
Non-U.S.		1,645		310
U.S. state and local		53		(163	)
Total deferred income tax provision		2,274		834

Total:
U.S. federal		1,587		2,632
Non-U.S.		6,787		7,090
U.S. state and local		379		531
Total income tax provision	$	8,753	$	10,253

U.S. income and foreign withholding taxes have

not

been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside of the United States. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary.

There were

such temporary differences as of

December 31, 2019.

December 31, 2018,

the temporary differences totaled

$14.6

million and the unrecognized

deferred income tax liability was

$3.0

million.

Reconciliation from the statutory U.S. federal income tax rate to the consolidated effective income tax rate was as follows:

Year ended December 31,	2019			2018
Statutory U.S. federal income tax rate		21.0	%		21.0	%
Increase (decrease) in rate due to:
Non-U.S. income tax differential		0.2			19.9
U.S. state and local income taxes, net of related U.S. federal income taxes		0.3			22.6
U.S. federal credits		1.4			(9.8	)
Permanent adjustments		(1.9	)		27.7
Foreign withholding taxes		(1.0	)		75.9
Valuation allowances		(9.6	)		143.5
Unrecognized tax benefits		0.7			48.4
Impact of foreign exchange		(1.6	)		71.6
Asset impairments		(17.6	)		—
Other		(6.4	)		25.6
Consolidated effective income tax rate		(14.5	)%		446.4	%

Deferred income tax assets and liabilities:

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 from income tax carryovers and credits. The significant components of our deferred income tax assets and liabilities are as follows:

December 31,
(dollars in thousands)	2019				2018
Deferred income tax assets:
Pension	$	7,510			$	9,722
Non-pension post-retirement benefits		12,271				11,712
Other accrued liabilities		22,486				16,477
Receivables		2,544				1,994
Operating lease liabilities		15,068				—
Net operating loss and charitable contribution carryforwards		11,333		(1)		14,143
Tax credits		11,432		(2)		13,373
Total deferred income tax assets		82,644		(3)		67,421
Valuation allowances		(26,963	)			(22,068	)
Net deferred income tax assets		55,681				45,353

Deferred income tax liabilities:
Property, plant and equipment		13,213				15,332
Inventories		1,587				1,699
Operating lease right-of-use assets		14,009				—
Intangibles and other		4,229				4,987
Total deferred income tax liabilities		33,038				22,018
Net deferred income tax asset	$	22,643			$	23,335

___________________________

(

)

December 31, 2019,

non-U.S. operating loss carryforwards of

$42.0

million expire between

2021

and

2027.

(

)

December 31, 2019,

U.S. general business credit carryforwards of

$2.2

million expire between

2024

and

2038.

U.S. AMT credits of

$0.1

million and the foreign credits of

$9.1

million do

not

expire.

(

)

In order to fully realize our U.S. deferred tax assets as of

December 31, 2019,

the Company needs to generate approximately

$179.2

million of future taxable income.

Valuation Allowances:

We currently have a valuation allowance in place on our deferred income tax assets in the Netherlands

We intend to maintain this allowance until a period of sustainable income is achieved and management concludes it is more likely than

not

that those deferred income tax assets will be realized.

Management’s outlook regarding the future profitability of our China operations make it unlikely that any of its deferred tax assets will ever be utilized. As a result, a valuation allowance was recorded against the net deferred tax assets of our primary China subsidiary.

Management concluded that it is

not

more likely than

not

that the disallowed interest expense for

2019

and

2018

can be fully utilized in future years. Accordingly, a partial valuation allowance has been recorded against the deferred tax asset related to the limitation on the U.S. deduction for interest expense. In addition, partial valuation allowances have been recorded against state operating loss carryforwards.

Uncertain Tax Positions:

The Company and its subsidiaries are subject to examination by various countries’ tax authorities. These examinations

may

lead to proposed or assessed adjustments to our taxes. In

August 2016,

one

of our Mexican subsidiaries received a tax assessment from the Mexican tax authority (SAT) related to the audit of its

2010

tax year. The amount assessed was approximately

billion Mexican pesos, which was equivalent to approximately

$157

million U.S. dollars as of the date of the assessment.

During

December

2019,

Management and SAT reached an agreement whereby Libbey would concede certain tax issues resulting in payment of tax, interest and penalty of

$3.2

million. SAT would uphold its adverse finding on the remaining issue. Libbey believes SAT’s position on the remaining issue is invalid, intends to litigate the issue, and believes it is more likely than

not

that the Company will prevail in litigation. The SAT Legal Division formalized this agreement in

January, 2020

by issuing a resolution ordering SAT Audit Division to issue a revised assessment consistent with this agreement. We believe that our tax reserves related to uncertain tax positions are adequate at this time.

A reconciliation of the beginning and ending gross unrecognized tax benefits, excluding interest and penalties, is as follows:

(dollars in thousands)	2019			2018
Beginning balance	$	4,212		$	5,007
Additions based on tax positions related to the current year		1,199			438
Additions for tax positions of prior years		6			9
Reductions for tax positions of prior years		(82	)		(1,698	)
Changes due to lapse of statute of limitations		-			513
Reductions due to settlements with tax authorities		(3,045	)		(57	)
Ending balance	$	2,290		$	4,212

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)	2019		2018
Amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate	$	2,455	$	5,283
Interest, net of tax benefit, accrued in the Consolidated Balance Sheets	$	91	$	1,027
Penalties, accrued in the Consolidated Balance Sheets	$	74	$	43
Interest expense recognized in the Consolidated Statements of Operations	$	36	$	523
Penalties expense (benefit) recognized in the Consolidated Statements of Operations	$	31	$	5

Based upon the outcome of tax examinations, judicial proceedings, other settlements with taxing jurisdictions, 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

may

decrease within the next

twelve

months by approximately

$0.1

million due to settlements with tax authorities.

Other Matters:

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of

December

31,

2019,

the tax years that remained subject to examination by major tax jurisdictions were as follows:

Jurisdiction	Open Years
Canada		2016 – 2019
China		2014 – 2019
Mexico (excluding 2011 which is closed)		2010 – 2019
Netherlands		2018 – 2019
Portugal		2009 – 2019
United States (excluding 2012 and 2013 which are closed)		2011 – 2019