2.	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 31

. 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.

Revenue Recognition

Our customer contracts generally include a single performance obligation, the shipment of specified products, and are recognized at a point in time when control of the product has transferred to the customer. Transfer of control primarily takes place when risk of loss transfers in accordance with applicable shipping terms. Revenue is recognized based on the consideration specified in a contract with the customer, and is measured as the amount of consideration to which we expect to be entitled in exchange for transferring goods or providing services. When applicable, the transaction price includes estimates of variable consideration. We estimate provisions for rebates, customer incentives, allowances, returns and discounts based on the terms of the contracts, historical experience and anticipated customer purchases during the rebate period as sales occur. We continually evaluate the adequacy of these methods used, adjusting our estimates when the amount of consideration to which we expect to be entitled changes. Refund liabilities are included in accrued liabilities on the Consolidated Balance Sheet. Our payment terms are based on customary business practices and can vary by region and customer type, but are generally

days. Since the term between invoicing and expected payment is less than a year, we do

not

adjust the transaction price for the effects of a financing component. Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate governmental agencies. For contracts with a duration of less than

one

year, we follow an allowable practical expedient and expense contract acquisition costs when incurred. We do

not

have any costs to obtain or fulfill a contract that are capitalized under ASC Topic

340

40.

For further discussion see note 18.

Cost of Sales

Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs. Shipping and delivery costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales. In addition, reimbursement of certain pre-production costs is considered a development activity and is included in cost of sales.

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. Outstanding checks in excess of funds on deposit are included in accounts payable or accrued liabilities, depending on the nature of the payment.

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

34.3

percent and

34.9

percent of our total inventories in

2019

and

2018,

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

$16.6

million and

$15.9

million in

2019

and

2018,

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

of each year, we update our separate impairment evaluations for both goodwill and indefinite life intangible assets. 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/or purchased software for internal use. Capitalized costs include software packages, installation and internal labor costs of employees devoted to the software development project. Costs incurred to modify existing software, providing significant enhancements and creating additional functionality are also capitalized. Once a project is complete, we estimate the useful life of the internal-use software, generally amortizing these costs over a

year period. Software is classified on the Consolidated Balance Sheet in property, plant and equipment, and the related cash flows are shown as cash outflows from investing activities.

Cloud Computing Arrangements

We account for implementation costs for software that we gain access to in hosted cloud computing arrangements in accordance with FASB ASC

350.

Capitalized costs of hosted cloud computing arrangements include configuration, installation, other upfront costs and internal labor costs of employees devoted to the cloud computing software implementation project. Once a project is complete, amortization is computed using the straight-line method over the term of the associated hosting arrangement, generally

years. In connection with our adoption of Accounting Standards Update (ASU)

2018

January 1, 2019,

these implementation costs are now classified on the Consolidated Balance Sheet in prepaid and other current assets and other assets, and the related cash flows are presented as cash outflows from operations. Prior to

January 1, 2019,

implementation costs were included in property, plant and equipment, and the related cash flows were shown as cash outflows from investing activities. See

New Accounting Standards - Adopted

below. Our cloud computing arrangements primarily relate to our new global enterprise resource planning (ERP) system. At

December 31, 2019,

the net book value of these implementation costs included

$0.3

million in prepaid and other current assets and

$6.5

million in other assets on the Consolidated Balance Sheet. Expense for

2019

was immaterial.

Leases

We determine if an arrangement is a lease at inception. As of

January 1, 2019,

operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our Consolidated Balance Sheet; related payments are included in operating activities on the Consolidated Statement of Cash Flows. We currently do

not

have any finance leases; but, if we do in the future, we will include them in property, plant and equipment, long-term debt due within

one

year and long-term debt within our Consolidated Balance Sheet.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

When our leases do

not

provide an implicit rate, we use our incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our secured borrowing rates as well as publicly available data for instruments with a similar term in a similar environment when calculating our incremental borrowing rates.

The operating lease ROU asset also includes any lease prepayments made before commencement or in advance of the payment due date. Our lease terms

may

include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with a term of

months or less (short-term leases) are

not

recorded on our Consolidated Balance Sheet. Our lease agreements do

not

contain any residual value guarantees or material restrictive covenants. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease costs represent the incremental change in lease payments associated with an indexed rate (i.e. Consumers Price Index), and these costs are

not

included in the lease liability on the Consolidated Balance Sheet because they are unknown at commencement date.

We have lease agreements with lease and non-lease components. Non-lease components for real estate leases relate primarily to common area maintenance, insurance, taxes and utilities associated with the properties. For real estate leases and a limited class of equipment leases, we account for the lease and non-lease components separately. Non-lease components are

not

recorded on the Consolidated Balance Sheet as a ROU asset and lease liability and are

not

included in lease costs. For all other equipment leases, we account for the lease and non-lease components as a single lease component.

See

New Accounting Standards - Adopted

below for the adoption impact of this lease accounting standard.

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

years for equipment and furnishings and

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. See note 5 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 Non-pension Post-retirement Benefits

We account for pension and non-pension post-retirement benefits in accordance with FASB ASC Topic

715

- “Compensation-Retirement Benefits” (“FASB ASC

715”

). FASB ASC

715

requires recognition of the over-funded or under-funded status of pension and other post-retirement benefit plans on the balance sheet. Under FASB ASC

715,

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 service cost component of pension and post-retirement benefit costs is reported within income from operations while the non-service cost components of net benefit cost (interest costs, expected return on assets, amortization of prior service costs, settlement charges and other costs) are recorded in other income (expense).

The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before

January

2006,

and over half of the hourly U.S.-based employees. Hourly employees hired at Shreveport after

December 15, 2008,

and at Toledo after

September

30,

2010,

are

not

eligible to participate. Effective

January 1, 2013,

we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly-owned subsidiary in Mexico. For further discussion see note 8.

We also provide certain post-retirement healthcare and life insurance benefits covering substantially all U.S. and Canadian salaried employees hired before

January

2004

and over half of our union hourly employees. Hourly employees hired at Shreveport after

December 15, 2008,

and at Toledo after

September 30, 2010,

are

not

eligible to participate. 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 non-pension, post-retirement 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 9.

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. A valuation allowance is recorded when it is more likely than

not

that some portion or all of the deferred income tax assets will

not

be realized. Deferred income tax assets and liabilities are determined separately for each tax paying component in which we conduct our operations or otherwise incur taxable income or losses.

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 uncertain tax positions

may

be challenged despite our belief that the tax return positions are supportable, we record unrecognized tax benefits as liabilities in accordance with the requirements of ASC

740.

When our judgment with respect to these uncertain tax positions changes as a result of a change in facts and circumstances, such as the outcome of a tax audit, we adjust these liabilities through increases or decreases to the income tax provision. For further discussion see note 7.

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 and commodity price risks associated with forecasted future natural gas requirements. These derivatives 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 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 hedges of debt, interest rate swaps and natural gas contracts are classified as operating activities. For further discussion see note 12.

Environmental

In accordance with U.S. GAAP, 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). For further detail see note 16.

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

718

and

505

apply to all of our outstanding, unvested, stock-based payment awards.

Treasury Stock

Treasury stock purchases are recorded at cost. During

2019

and

2018,

we did

not

purchase treasury stock. At

December 31, 2019,

we had

941,250

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

2019

and

2018

were

$3.1

million and

$3.6

million, respectively.

Advertising Costs

We expense all advertising costs as incurred. Expenses for

2019

and

2018

were

$5.0

million and

$6.1

million, respectively.

Computation of Earnings (Loss) Per Share of Common Stock

Basic earnings (loss) per share of common stock is computed using the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share of common stock is computed using the weighted average number of shares of common stock outstanding plus the dilutive effects of equity-based compensation outstanding during the period using the treasury stock method.

New Accounting Standards - Adopted

Each change to U.S. GAAP is established by the FASB in the form of an ASU to the FASB’s ASC. We consider the applicability and impact of all ASUs. ASUs

not

listed below were assessed and either were determined to be

not

applicable or are expected to have minimal impact on the Company’s Consolidated Financial Statements.

February 2016,

the FASB issued ASU

2016

02,

Leases

(Topic

842

), which requires a lessee to recognize on the balance sheet ROU assets and corresponding liabilities for both finance and operating leases with lease terms greater than

months. On

January 1, 2019,

we adopted this standard using the optional transition method of applying the modified retrospective approach at our adoption date. Under this method, previously reported comparative periods prior to

2019

have

not

been restated. We have elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our prior conclusions on existing contracts for lease identification, lease classification and initial direct costs. In addition, for most of our classes of equipment leases, we elected the practical expedient to

not

separate lease and non-lease components. We also made an accounting policy election to keep leases with a term of

months or less off of the balance sheet for all classes of underlying assets. At adoption, we had operating leases which resulted in us recognizing operating ROU assets and lease liabilities on the balance sheet of approximately

$69

million. The adoption of this ASU did

not

have a material impact on our consolidated results of operations or cash flows, and there was

cumulative effect adjustment to retained earnings. The new standard also required additional disclosures which are included in note 15.

January 1, 2019,

we early adopted ASU

2018

15,

Intangibles-Goodwill and Other-Internal-Use Software

(Subtopic

350

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

. This standard aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for internal-use software. The new guidance also prescribes the balance sheet, income statement and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. Prior to

January 1, 2019,

implementation costs for cloud computing arrangements were capitalized into property, plant and equipment and amortized on a straight-line basis. Upon adoption of this new standard, we reclassed

$2.8

million from construction in progress within property, plant, and equipment to other assets. When implementation projects are completed and amortization of capitalized costs begins, a portion is recorded in prepaids and other current assets. Results and disclosures for reporting periods beginning on or after

January 1, 2019,

are presented under the new guidance within ASU

2018

15,

while prior period amounts and disclosures are

not

adjusted and continue to be reported in accordance with our previous accounting.

New Accounting Standards -

Not

Yet Adopted

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments - Credit Losses

(Topic

326

Measurement of Credit Losses on Financial Instruments

. This standard introduces a new approach to estimating credit losses on certain types of financial instruments, including trade receivables, and modifies the impairment model for available-for-sale debt securities. ASU

2016

is effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years, with early application permitted. In

October

2019,

the FASB approved a delayed effective date for Smaller Reporting Company filers; thus, our effective date is now for fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal years. Although we are still evaluating the impact of this standard, we believe it will

not

have a material impact on our Consolidated Financial Statements.

December 2019,

the FASB issued ASU

2019

12,

Income Taxes

(Topic

740

Simplifying the Accounting for Income Taxes

. This standard simplifies the accounting for income taxes by removing certain exceptions in Topic

740

and simplifying other areas. ASU

2019

is effective for fiscal years beginning after

December 15, 2020,

including interim periods within those fiscal years. If early adoption is elected, all amendments must be adopted in the same period. We are currently assessing the impact that this standard will have on our Consolidated Financial Statements.