UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12084

Libbey Inc.

Delaware		34-1559357
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

300 Madison Avenue, Toledo, Ohio 43604

419-325-2100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o		Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value 16,088,705 shares at October 30, 2009.

 

 

TABLE OF CONTENTS

Item 1. Financial Statements			3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS			4
CONDENSED CONSOLIDATED BALANCE SHEETS			6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS			7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			9
1. Description of the Business			9
2. Significant Accounting Policies			9
3. Balance Sheet Details			13
4. Borrowings			14
5. Restructuring Charges			18
6. Income Taxes			19
7. Pension and Non-pension Postretirement Benefits			20
8. Net Income (Loss) per Share of Common Stock			21
9. Derivatives			22
10. Comprehensive Income (Loss)			25
11. Condensed Consolidated Guarantor Financial Statements			25
12. Segments			33
13. Fair Value			34
14. Subsequent Event			34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 3. Qualitative and Quantitative Disclosures about Market Risk			48
Item 4. Controls and Procedures			49
PART II — OTHER INFORMATION			50
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			54
Item 5. Other Information			54
Item 6. Exhibits			55
EXHIBIT INDEX			55
SIGNATURES			58
EX-4.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements of Libbey Inc. and all majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

LIBBEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per-share amounts)

(unaudited)

		Three months ended September 30,
		2009				2008
Net sales		$	186,878			$	211,536
Freight billed to customers			419				664
Total revenues			187,297				212,200
Cost of sales			144,337				174,266
Gross profit			42,960				37,934
Selling, general and administrative expenses			24,811				23,377
Special charges			300				—
Income from operations			17,849				14,557
Other income (expense)			2,703				(1,000	)
Earnings before interest and income taxes			20,552				13,557
Interest expense			17,451				17,509
Income (loss) before income taxes			3,101				(3,952	)
(Benefit from) provison for income taxes			(432	)			2,006
Net income (loss)		$	3,533			$	(5,958	)
Net income (loss) per share:
Basic		$	0.23			$	(0.40	)
Diluted		$	0.23			$	(0.40	)
Dividends per share		$	—			$	0.025

See accompanying notes

LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per-share amounts)
(unaudited)

		Nine months ended September 30,
		2009				2008
Net sales		$	540,557			$	623,640
Freight billed to customers			1,163				1,947
Total revenues			541,720				625,587
Cost of sales			453,761				515,148
Gross profit			87,959				110,439
Selling, general and administrative expenses			69,699				67,687
Special charges			974				—
Income from operations			17,286				42,752
Other income			5,424				339
Earnings before interest and income taxes			22,710				43,091
Interest expense			52,162				52,280
Loss before income taxes			(29,452	)			(9,189	)
(Benefit from) provision for income taxes			(7,756	)			2,365
Net loss		$	(21,696	)		$	(11,554	)
Net loss per share:
Basic		$	(1.45	)		$	(0.79	)
Diluted		$	(1.45	)		$	(0.79	)
Dividends per share		$	—			$	0.075

See accompanying notes

LIBBEY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share amounts)

		September 30, 2009				December 31, 2008
		(unaudited)
Assets:
Cash and equivalents		$	30,648			$	13,304
Accounts receivable — net			91,119				76,072
Inventories — net			153,523				185,242
Prepaid and other current assets			14,116				17,167
Total current assets			289,406				291,785
Pension asset			10,560				9,351
Purchased intangible assets — net			25,293				26,121
Goodwill			165,023				166,736
Other assets			12,033				12,714
Total other assets			212,909				214,922
Property, plant and equipment — net			296,862				314,847
Total assets		$	799,177			$	821,554
Liabilities and Shareholders’ Deficit:
Notes payable		$	1,517			$	3,284
Accounts payable			52,087				54,428
Salaries and wages			31,703				22,597
Accrued liabilities			60,033				39,675
Accrued special charges			908				4,248
Pension liability (current portion)			1,579				1,778
Non-pension postretirement benefits (current portion)			4,684				4,684
Derivative liability			10,720				17,936
Deferred income taxes			1,791				1,279
Long-term debt due within one year			9,152				1,117
Total current liabilities			174,174				151,026
Long-term debt			516,030				545,856
Pension liability			99,328				109,505
Non-pension postretirement benefits			59,612				57,197
Deferred income taxes			3,726				3,648
Other long-term liabilities			8,299				12,211
Total liabilities			861,169				879,443
Shareholders’ deficit:
Common stock, par value $.01 per share, 50,000,000 shares authorized, 18,697,630 shares issued at September 30, 2009 and at December 31, 2008			187				187
Capital in excess of par value (includes warrants of $1,034 based on 485,309 shares at September 30, 2009 and at December 31, 2008)			310,792				309,275
Treasury stock, at cost, 3,542,070 shares (3,967,486 shares in 2008)			(95,184	)			(106,411	)
Retained deficit			(177,339	)			(145,154	)
Accumulated other comprehensive loss			(100,448	)			(115,786	)
Total shareholders’ deficit			(61,992	)			(57,889	)
Total liabilities and shareholders’ deficit		$	799,177			$	821,554

See accompanying notes

LIBBEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

		Three months ended September 30,
		2009				2008
Operating activities:
Net income (loss)		$	3,533			$	(5,958	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			10,629				10,899
Loss on asset sales			77				159
Change in accounts receivable			864				7,109
Change in inventories			(6,196	)			(5,712	)
Change in accounts payable			(3,191	)			(9,695	)
Accrued interest and amortization of discounts, warrants and finance fees			13,447				14,749
Pension & non-pension postretirement benefits			(453	)			(13,252	)
Restructuring charges			(1,086	)			—
Accrued liabilities & prepaid expenses			8,344				5,842
Accrued income taxes			(862	)			2,900
Other operating activities			1,533				6,268
Net cash provided by operating activities			26,639				13,309
Investing activities:
Additions to property, plant and equipment			(2,737	)			(12,390	)
Proceeds from asset sales and other			172				71
Net cash used in investing activities			(2,565	)			(12,319	)
Financing activities:
Net repayments on ABL credit facility			(16,799	)			(8,669	)
Other repayments			(662	)			(587	)
Dividends			—				(369	)
Net cash used in financing activities			(17,461	)			(9,625	)
Effect of exchange rate fluctuations on cash			(47	)			(529	)
Increase (decrease) in cash			6,566				(9,164	)
Cash at beginning of period			24,082				17,883
Cash at end of period		$	30,648			$	8,719
Supplemental disclosure of cash flows information:
Cash paid during the period for interest		$	894			$	1,721
Cash refunded during the period for income taxes		$	(546	)		$	(167	)

See accompanying notes

LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)

		Nine months ended September 30,
		2009				2008
Operating activities:
Net loss		$	(21,696	)		$	(11,554	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			32,875				33,433
Loss on asset sales			109				35
Change in accounts receivable			(14,733	)			(10,351	)
Change in inventories			32,050				(10,756	)
Change in accounts payable			(3,078	)			(15,607	)
Accrued interest and amortization of discounts, warrants and finance fees			14,998				16,709
Pay-in-kind note interest			11,916				10,216
Pension & non-pension postretirement benefits			2,712				(13,982	)
Restructuring charges			(1,837	)			—
Payable to Vitro			—				(19,575	)
Accrued liabilities & prepaid expenses			21,128				3,277
Accrued income taxes			(9,499	)			3,661
Other operating activities			784				4,744
Net cash provided by (used in) operating activities			65,729				(9,750	)
Investing activities:
Additions to property, plant and equipment			(12,287	)			(30,002	)
Proceeds from asset sales and other			260				117
Net cash used in investing activities			(12,027	)			(29,885	)
Financing activities:
Net (repayments) borrowings on ABL credit facility			(33,488	)			14,713
Other repayments			(2,785	)			(1,460	)
Dividends			—				(1,098	)
Net cash (used in) provided by financing activities			(36,273	)			12,155
Effect of exchange rate fluctuations on cash			(85	)			(340	)
Increase (decrease) in cash			17,344				(27,820	)
Cash at beginning of period			13,304				36,539
Cash at end of period		$	30,648			$	8,719
Supplemental disclosure of cash flows information:
Cash paid during the period for interest		$	20,897			$	23,011
Cash paid (refunded) during the period for income taxes		$	761			$	(562	)

See accompanying notes

LIBBEY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except per share data

(unaudited)

1. Description of the Business

Libbey is the leading producer of glass tableware products in the Western Hemisphere, in addition to supplying key markets throughout the world. We produce glass tableware in five countries and sell to customers in over 100 countries. We have the largest manufacturing, distribution and service network among glass tableware manufacturers in the Western Hemisphere and are one of the largest glass tableware manufacturers in the world. We design and market an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware, and plastic items to a broad group of customers in the foodservice, retail and business-to-business markets. We own and operate two glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in the Netherlands, Portugal, China and Mexico. We also own and operate a plastics plant in Wisconsin. Until April 9, 2009, we operated a ceramic dinnerware manufacturing facility in Syracuse, New York. 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.

Our website can be found at www.libbey.com. We make available, free of charge, at this website all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, as well as amendments to those reports. These reports are made available on our website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission and can also be found at www.sec.gov.

Our shares are traded on the Over the Counter Bulletin Board (OTC BB) under the ticker symbol LYBI.OB.

2. Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2008 for a description of significant accounting policies not listed below.

Basis of Presentation

The Condensed Consolidated Financial Statements include Libbey Inc. and its majority-owned subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December 31^st. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.

Condensed Consolidated Statements of Operations

Net sales in our Condensed 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.

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 (expense) income.

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. Financial Accounting Standards Board Accounting Standards Codification™ (FASB ASC) Topic 740, “Income Taxes” (formerly FAS No. 109, “Accounting for 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 and China, we have recorded a full valuation allowance against our deferred income tax assets. In addition, partial valuation allowances have been recorded in the Netherlands, Portugal and Mexico.

Stock-Based Compensation Expense

We account for stock-based compensation in accordance with Financial Accounting Standards Board Accounting Standards Codification™ ( FASB ASC) Topic 718, “Compensation – Stock Compensation” and in FASB ASC 505-50, “Equity – Equity-Based Payments to Non-Employees” (formerly SFAS No. 123-R, “Accounting for Stock-Based Compensation”). Stock-based compensation cost is measured based on the fair value of the equity instruments issued. SFAS No. 123-R applies to all of our outstanding unvested stock-based payment awards as of January 1, 2006, and all prospective awards using the modified prospective transition method without restatement of prior periods. Stock-based compensation expense charged to the Condensed Consolidated Statement of Operations for the three months and nine months ended September 30, 2009 was $0.5 million and $1.6 million, respectively. The stock-based compensation expense charged to the Condensed Consolidated Statement of Operations for the three months and nine months ended September 30, 2008 was $0.7 million and $2.8 million, respectively.

New Accounting Standards

On July 1, 2009 the FASB Accounting Standards Codification™ became the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. The Codification is not intended to change U.S. GAAP; instead, it reorganized the various U.S. GAAP pronouncements into approximately 90 accounting Topics, and displays all Topics using a consistent structure. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Accordingly, in our discussion of New Accounting Standards below, we have incorporated references to the Codification Topics. For further discussion of the Codification, see the discussion of SFAS No. 168 below.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This statement clarifies how to measure fair value as permitted under other accounting pronouncements but does not require any new fair value measurements. In February 2008, the FASB issued FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” (“FSP157-2”), which delayed until January 1, 2009 the effective date of SFAS 157 for nonfinancial assets and liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis. In October 2008, the FASB issued FASB Staff Position 157-3, “Determining the Fair Value of a Financial Asset when the Market for That Asset is Not Active” (“FSP 157-3”), which clarifies the application of SFAS 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. FSP 157-3 was effective upon issuance. In April 2009, the FASB issued FASB Staff Position 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are not Orderly” (“FSP 157-4”). This FSP provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 was effective for financial periods ending after June 15, 2009. We adopted SFAS 157 as of January 1, 2008, but had not applied it to non-recurring, nonfinancial assets and liabilities. The adoption of SFAS 157 and its related FSPs (FSP 157-2, FSP 157-3 and FSP 157-4) had no impact on our consolidated results of operations and financial condition. We adopted SFAS 157 for nonfinancial assets and liabilities as of January 1, 2009. The adoption of SFAS 157 for nonfinancial assets and liabilities did not have a material impact on our consolidated financial statements. See notes 4, 9 and 13 of the Condensed Consolidated Financial Statements for additional information. The requirements of SFAS No. 157 and its related FSPs have been incorporated primarily into FASB ASC 820, “Fair Value Measurements and Disclosures” and FASB ASC 250, “Accounting Changes and Error Corrections.”

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”), which changes the accounting and reporting standards for the noncontrolling interests in a subsidiary in consolidated financial statements. SFAS 160 re-characterizes minority interests as noncontrolling interests and requires noncontrolling interests to be classified as a component of shareholders equity. We adopted SFAS 160 as of January 1, 2009. The adoption of SFAS 160 did not have any impact on our consolidated financial statements as we currently do not have any noncontrolling interests. The requirements of SFAS No. 160 have been incorporated primarily into FASB ASC 810, “Consolidation.”

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”), which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. SFAS 161 was effective for Libbey on January 1, 2009. Since SFAS 161 only requires additional disclosures, adoption of this statement did not have a material impact on our consolidated financial statements. See note 9 of the Condensed Consolidated Financial Statements for additional information. The requirements of SFAS No. 161 have been incorporated primarily into FASB ASC 815, “Derivatives and Hedging”.

In April 2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3 was effective for Libbey on January 1, 2009. The adoption of FSP 142-3 did not have a material impact on our consolidated financial statements. The requirements of FSP 142-3 have been incorporated primarily into FASB ASC 350-30, “Intangibles – Goodwill and Other – General Intangibles Other than Goodwill” and FASB ASC 275, “Risks and Uncertainties.”

In June 2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 was effective for Libbey on January 1, 2009. The adoption of EITF 07-5 did not have any impact on our consolidated financial statements. The requirements of EITF 07-5 have been incorporated primarily into FASB ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity.”

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP 03-6-1”). FSP 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method described in paragraphs 60 and 61 of SFAS No. 128, “Earnings per Share.” FSP 03-6-1 was effective for Libbey on January 1, 2009, and requires that all prior period EPS data is adjusted retrospectively. The adoption of FSP 03-6-1 did not have a material impact on our consolidated financial statements. The requirements of FSP 03-6-1 have been incorporated primarily into FASB ASC 260, “Earnings Per Share.”

In December 2008, the FASB issued FASB Staff Position 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP 132(R)-1”). FSP 132(R)-1 amends FASB Statement No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP 132(R)-1 is effective for financial statements issued for fiscal years ending after December 15, 2009. We are currently evaluating the potential impact of the adoption of FSP 132(R)-1. The requirements of FSP 132(R)-1 have been incorporated primarily into FASB ASC 715-20, “Compensation – Retirement Benefits.”

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”). FSP 107-1 amends FASB statement 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. FSP 107-1 was effective for interim reporting periods ending after June 15, 2009. Since FSP 107-1 required only additional disclosures, adoption of this statement did not have a material impact on our consolidated financial statements. See note 4 of the Condensed Consolidated Financial Statements for additional information. The requirements of FSP 107-1 have been incorporated primarily into FASB ASC 825, “Financial Instruments.”

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. In accordance with SFAS 165, we have evaluated and, as necessary, made changes to these unaudited condensed financial statements for the events through November 9, 2009, the date that the financial statements were issued. As documented in our filing on Form 8-K on October 29, 2009, we announced a debt exchange wherein $160.9 million of PIK notes were exchanged for a combination of debt and equity. This is considered a nonrecognized subsequent event, meaning that we have provided disclosure of the event, but have not recognized the transaction in the financial statements. Please see note 14 for further discussion of this subsequent event. The requirements of SFAS 165 have been incorporated primarily into FASB ASC 855, “Subsequent Events.”

In June 2009 the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“SFAS 168”). The objective of SFAS 168 is to replace SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”) and to establish the FASB Accounting Standards Codification™ (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All previous existing accounting standards are superseded by the Codification as described in SFAS 168. All other accounting literature not included in the Codification is non-authoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of SFAS 168 did not have a material impact on our consolidated financial statements. The first update of the Codification was Accounting Standards Update (ASU) 2009-01, issued in June, 2009. ASU 2009-01 amended the Codification to include the guidance of SFAS 168 in its entirety.

In August 2009, the FASB issued Accounting Standards Update 2009-5 “Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value (“ASU 2009-5.”) The objective of ASU 2009-5 is to provide clarification for the determination of fair value of liabilities in circumstances in which a quoted price in an active market for the identical liability is not available. The amendments in this update apply to all entities that measure liabilities at fair value within the scope of Topic 820. ASU 2009-5 is effective for the first reporting period (including interim periods) beginning after issuance, which for Libbey would be the fourth quarter of 2009. We do not expect the adoption of ASU 2009-5 to have a material impact on our consolidated financial statements.

Reclassifications

Certain amounts in the prior year’s financial statements may have been reclassified to conform to the presentation used in the current year financial statements.

3. Balance Sheet Details

The following table provides detail of selected balance sheet items:

(Dollars in thousands)		September 30, 2009				December 31, 2008
Accounts receivable:
Trade receivables		$	90,570			$	74,393
Other receivables			549				1,679
Total accounts receivable, less allowances of $7,362 and $10,479		$	91,119			$	76,072
Inventories:
Finished goods		$	135,594			$	163,817
Work in process			1,403				2,805
Raw materials			4,745				5,748
Repair parts			9,942				10,271
Operating supplies			1,839				2,601
Total inventories, less allowances of $4,358 and $6,582		$	153,523			$	185,242
Prepaid and other current assets:
Prepaid expenses		$	11,796			$	14,865
Refundable and prepaid income taxes			2,320				2,302
Total prepaid and other current assets		$	14,116			$	17,167
Other assets:
Finance fees — net of amortization		$	7,251			$	8,183
Other			4,782				4,531
Total other assets		$	12,033			$	12,714
Accrued liabilities:
Accrued incentives		$	21,678			$	12,760
Workers compensation			9,900				9,384
Medical liabilities			2,730				2,736
Interest			17,311				4,575
Commissions payable			1,209				1,135
Other			7,205				9,085
Total accrued liabilities		$	60,033			$	39,675
Other long-term liabilities:
Derivative liability (long term portion)		$	1,840			$	3,693
Deferred liability			1,306				1,566
Other			5,153				6,952
Total other long-term liabilities		$	8,299			$	12,211

4. Borrowings

On June 16, 2006, Libbey Glass Inc. issued $306.0 million aggregate principal amount of floating rate senior secured notes (Senior Notes) due June 1, 2011, and $102.0 million aggregate principal amount of senior subordinated secured pay-in-kind notes (PIK Notes) due December 1, 2011. Concurrently, Libbey Glass Inc. entered into a $150.0 million Asset Based Loan facility (ABL Facility) expiring December 16, 2010.

On October 28, 2009, we announced a debt exchange with respect to the PIK Notes. Please see note 14 for a further discussion of this subsequent event.

Borrowings consist of the following:

										September 30,				December 31,
(Dollars in thousands)		Interest Rate				Maturity Date				2009				2008
Borrowings under ABL facility		floating				December 16, 2010				$	—			$	34,538
Senior notes		floating(1)				June 1, 2011					306,000				306,000
PIK notes (2)		16.00%				December 1, 2011					160,862				148,946
Promissory note		6.00%				October, 2009 to September, 2016					1,537				1,666
Notes payable		floating				October, 2009					1,517				3,284
RMB loan contract		floating				July, 2012 to January, 2014					36,675				36,675
RMB working capital loan		floating				March, 2010					7,335				7,335
Obligations under capital leases		floating				May, 2009					—				302
BES Euro line		floating				December, 2009 to December, 2013					16,051				15,507
Other debt		floating				September, 2009					—				630
Total borrowings											529,977				554,883
Less — unamortized discounts and warrants											3,278				4,626
Total borrowings — net											526,699				550,257
Less — long term debt due within one year and notes payable											10,669				4,401
Total long-term portion of borrowings — net										$	516,030			$	545,856

ABL Facility

The ABL Facility is with a group of six banks and provides for a revolving credit and swing line facility permitting borrowings for Libbey Glass and Libbey Europe up to an aggregate of $150.0 million, with Libbey Europe’s borrowings being limited to $75.0 million. Borrowings under the ABL Facility mature December 16, 2010. Swing line borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe being limited to €7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swing line borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swing line rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.0 percent and 1.75 percent, respectively, at September 30, 2009. There were no Libbey Glass or Libbey Europe borrowings under the facility at September 30, 2009. Interest is payable on the last day of the interest period, which can range from one month to six months.

All borrowings under the ABL Facility are secured by a first priority security interest in (i) substantially all assets of (a) Libbey Glass and (b) substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries, (ii) (a) 100 percent of the stock of Libbey Glass, (b) 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries, (c) 100 percent of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries and (d) 65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries, and (iii) substantially all proceeds and products of the property and assets described in clauses (i) and (ii) of this sentence.

Additionally, borrowings by Libbey Europe under the ABL Facility are secured by a first priority security interest in (i) substantially all of the assets of Libbey Europe, the parent of Libbey Europe and certain of its subsidiaries, (ii) 100 percent of the stock of Libbey Europe and certain subsidiaries of Libbey Europe, and (iii) substantially all proceeds and products of the property and assets described in clauses (i) and (ii) of this sentence.

Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the Facility. The Commitment Fee varies depending on our aggregate availability. The Commitment Fee was 0.25 percent at September 30, 2009. No compensating balances are required by the Agreement. The Agreement does not require compliance with a fixed charge coverage ratio covenant, unless aggregate unused availability falls below $15.0 million. If our aggregate unused ABL availability were to fall below $15.0 million, the fixed charge coverage ratio requirement would be 1:10 to 1:00. The fixed charge coverage ratio is defined as the ratio of earnings before interest, taxes, depreciation, amortization and minority interest (EBITDA) minus capital expenditures to fixed charges (EBITDA minus capital expenditures / fixed charges). Among the items included in the calculation of fixed charges are cash interest expense, scheduled principal payments on outstanding debt and capital lease obligations, taxes paid in cash, dividends paid in cash and required cash contributions to our pension plans in excess of expense.

The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable, inventory and fixed assets. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable, (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, and (c) the lesser of $25.0 million and the aggregate of (i) 75 percent of the NOLV of eligible equipment and (ii) 50 percent of the fair market value of eligible real property.

The available total borrowing base is offset by real estate and ERISA reserves totaling $8.2 million and mark-to-market reserves for natural gas and interest rate swaps of $9.1 million. The ABL Facility also provides for the issuance of up to $30.0 million of letters of credit, which are applied against the $150.0 million limit. At September 30, 2009, we had $9.9 million in letters of credit outstanding under the ABL Facility. Remaining unused availability on the ABL Facility was $81.3 million at September 30, 2009 and $44.6 million at December 31, 2008.

Senior Notes

Libbey Glass and Libbey Inc. entered into a purchase agreement pursuant to which Libbey Glass agreed to sell $306.0 million aggregate principal amount of floating rate senior secured notes due June 1, 2011 to the initial purchasers named in a private placement. The net proceeds of these notes, after deducting a discount and the estimated expenses and fees, were approximately $289.8 million. On February 15, 2007, we exchanged $306.0 million aggregate principal amount of our floating rate senior secured notes due June 1, 2011, which have been registered under the Securities Act of 1933, as amended (Senior Notes), for the notes sold in the private placement. The Senior Notes bear interest at a rate equal to six-month LIBOR plus 7.0 percent and were offered at a discount of 2 percent of face value. Interest with respect to the Senior Notes is payable semiannually on June 1 and December 1. The interest rate was 8.26 percent at September 30, 2009. Neither the Senior Notes nor the indenture governing them contain financial covenants.

We have Interest Rate Protection Agreements (Rate Agreements) with respect to $200.0 million of debt as a means to manage our exposure to fluctuating interest rates. The Rate Agreements effectively convert this portion of our long-term borrowings from variable rate debt to fixed-rate debt, thus reducing the impact of interest rate changes on future income. The fixed interest rate for our borrowings related to the Rate Agreements at September 30, 2009, excluding applicable fees, is 5.24 percent per year and the total interest rate, including applicable fees, is 12.24 percent per year. These Rate Agreements expire on December 1, 2009. Total remaining Senior Notes not covered by the Rate Agreements have fluctuating interest rates with a weighted average rate of 8.26 percent per year at September 30, 2009. If the counterparties to these Rate Agreements were to fail to perform, these Rate Agreements would no longer protect us from interest rate fluctuations. However, we do not anticipate nonperformance by the counterparties. All interest rate swap counterparties were rated A+ or better, as of September 30, 2009, by Standard and Poor’s.

The fair market value for the Rate Agreements at September 30, 2009 was a $4.0 million liability. The fair values of the Rate Agreements are based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. We do not expect to cancel these agreements and expect them to expire as originally contracted.

The Senior Notes are guaranteed by Libbey Inc. and all of Libbey Glass’s existing and future domestic subsidiaries that guarantee any of Libbey Glass’s debt or debt of any subsidiary guarantor (see Note 11). The Senior Notes and related guarantees have the benefit of a second-priority lien, subject to permitted liens, on collateral consisting of substantially all the tangible and intangible assets of Libbey Glass and its domestic subsidiary guarantors that secure all of the indebtedness under Libbey Glass’s ABL Facility. The Collateral does not include the assets of non-guarantor subsidiaries that secure the ABL Facility.

PIK Notes

Concurrently with the execution of the purchase agreement with respect to the Senior Notes, Libbey Glass and Libbey Inc. entered into a purchase agreement (Unit Purchase Agreement) pursuant to which Libbey Glass agreed to sell, to a purchaser named in the private placement, units consisting of $102.0 million aggregate principal amount 16 percent senior subordinated secured pay-in-kind notes due December 1, 2011 (PIK Notes) and detachable warrants to purchase 485,309 shares of Libbey Inc. common stock (Warrants) exercisable on or after June 16, 2006 and expiring on December 1, 2011. The warrant holders do not have voting rights. The net proceeds, after deducting a discount and estimated expenses and fees, were approximately $97.0 million. The proceeds were allocated between the Warrants and the underlying debt based on their respective fair values at the time of issuance. The amount allocated to the Warrants has been recorded in equity, with the offset recorded as a discount on the underlying debt. Each Warrant is exercisable at $11.25. The PIK Notes were offered at a discount of 2 percent of face value. Interest is payable semiannually on June 1 and December 1, but during the first three years interest was payable by issuance of additional PIK Notes. Under the terms and conditions in place at September 30, 2009, interest on our PIK Notes would have been payable in cash beginning December 1, 2009. At September 30, 2009, the total principal amount of PIK Notes was $160.9 million. Neither the PIK Notes nor the indenture governing them contain financial covenants.

The obligations of Libbey Glass under the PIK Notes are guaranteed by Libbey Inc. and all of Libbey Glass’s existing and future domestic subsidiaries that guarantee any of Libbey Glass’s debt or debt of any subsidiary guarantor (see Note 11). The PIK Notes and related guarantees are senior subordinated obligations of Libbey Glass and the guarantors of the PIK Notes and are entitled to the benefit of a third-priority lien, subject to permitted liens, on the collateral that secures the Senior Notes.

On October 28, 2009, we announced a debt exchange with respect to the PIK Notes. Please see note 14 for a further discussion of this subsequent event.

Promissory Note

In September 2001, we issued a $2.7 million promissory note in connection with the purchase of our Laredo, Texas warehouse facility. At September 30, 2009, we had $1.5 million outstanding on the promissory note. Interest with respect to the promissory note is paid monthly.

Notes Payable

We have overdraft lines of credit for a maximum of €1.1 million. The $1.5 million outstanding at September 30, 2009 was the U.S. dollar equivalent under the euro-based overdraft line, and the interest rate was 5.44 percent. Interest with respect to the note payable is paid monthly.

RMB Loan Contract

On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the current equivalent of approximately $36.7 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of September 30, 2009, the annual interest rate was 5.51 percent. As of September 30, 2009, the outstanding balance was RMB 250.0 million (approximately $36.7 million). Interest is payable quarterly. Payments of principal in the amount of RMB 30.0 million (approximately $4.4 million) and RMB 40.0 million (approximately $5.9 million) must be made on July 20, 2012, and December 20, 2012, respectively, and three payments of principal in the amount of RMB 60.0 million (approximately $8.8 million) each must be made on July 20, 2013, December 20, 2013, and January 20, 2014, respectively. The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of CCB and a mortgage lien on the Libbey China facility.

RMB Working Capital Loan

In March 2007, Libbey China entered into a RMB 50.0 million working capital loan with China Construction Bank. The 3-year term loan has a principal payment at maturity on March 14, 2010, has a current interest rate of 5.40 percent, and is secured by a Libbey Inc. guarantee. At September 30, 2009, the U.S. dollar equivalent on the line was $7.3 million. Interest is payable quarterly.

BES Euro Line

In January 2007, Crisal entered into a seven year, €11.0 million line of credit (approximately $16.1 million) with BANCO ESPÍRITO SANTO, S.A. (BES). The $16.1 million outstanding at September 30, 2009 was the U.S. dollar equivalent under the line at an interest rate of 3.77 percent. Payment of principal in the amount of €1.1 million (approximately $1.6 million) is due in December 2009, payment of €1.6 million (approximately $2.3 million) is due in December 2010, payment of €2.2 million (approximately $3.2 million) is due in December 2011, payment of €2.8 million (approximately $4.1 million) is due in December 2012 and payment of €3.3 million (approximately $4.9 million) is due in December 2013. Interest with respect to the line is paid every six months.

Other Debt

The other debt primarily consisted of government-subsidized loans for equipment purchases at Crisal. At September 30, 2009, other debt was $0.

Fair Value of Borrowings

The fair value of the Company’s debt has been calculated based on quoted market prices for the same or similar issues. Our floating rate $306.0 million Senior Notes due June, 2011 had an estimated fair value of $273.9 million at September 30, 2009. The $160.9 million PIK Notes have been held by a single holder since inception, and there is no active market from which a fair value could be derived. On October 28, 2009, we announced a debt exchange with respect to the PIK Notes. Please see note 14 for a further discussion of this subsequent event. The value of the remainder of our debt approximates carrying value at September 30, 2009.

Capital Resources and Liquidity

Historically, cash flows generated from operations and our borrowing capacity under our ABL facility have allowed us to meet our cash requirements, including capital expenditures and working capital needs. Remaining unused availability on the ABL Facility was $81.3 million at September 30, 2009 and $44.6 million at December 31, 2008. In addition, our cash and cash equivalents balance of $30.6 million at September 30, 2009 is available for our short-term operating needs. We were impacted by recessionary pressures in 2008, especially during the fourth quarter of the year, and the first nine months of 2009, and we anticipate that the global economic recession will continue for the fourth quarter of 2009 and perhaps beyond. Under the terms and conditions in place at September 30, 2009, interest on our PIK Notes would have been payable in cash beginning December 1, 2009. We began taking a number of steps to enhance our liquidity in 2008, have continued with further steps in 2009 (including those announced in February, 2009), and have begun to see the benefits of these measures in our positive cash flow from operations for the first nine months of 2009. Additionally, as further discussed in Note 14, “Subsequent Events,” on October 28, 2009, we announced that we had entered into a transaction to exchange the PIK Notes for a combination of debt and equity which will have the impact of reducing cash paid for interest. The original requirement for a cash interest payment of $12.9 million on December 1, 2009 has been canceled. However, if cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or arrange additional debt financing. Global financial markets and economic conditions have been, and continue to be, volatile. The credit and capital markets remain challenging. These issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions, have made it difficult, and will likely continue to make it difficult, to obtain funding in future periods. If cash generated from operations and cash available from our ABL Facility are not sufficient to meet our needs, we cannot provide assurance that we will be able to obtain additional financing in sufficient amounts and/or on acceptable terms in the near future or when our debt obligations reach maturity. Our ABL Facility expires in December 2010, the Senior Notes expire in June 2011, and the PIK Notes originally were scheduled to expire in December 2011. As mentioned above, please see note 14 for a discussion of a debt exchange which occurred subsequent to the end of the third quarter. Based upon our operating plans and current forecast expectations (including expectations that the global economy will not deteriorate further) and in light of our debt exchange which occurred subsequent to the quarter’s end, we anticipate that we will generate positive cash flow from operations and, if necessary, have sufficient cash availability from our ABL Facility to meet our ongoing liquidity needs.

5. Restructuring Charges

In December 2008, we announced that our Syracuse China manufacturing facility and our Mira Loma, California distribution center would be shut down in early to mid-2009 in order to reduce costs. See Form 10-K for the year ended December 31, 2008 for further discussion. We incurred additional charges of approximately $0.5 million and $3.2 million in the three months and nine months ended September 30, 2009, respectively, related to these planned closures. The Syracuse China facility was closed on April 9, 2009 and the Mira Loma distribution center was closed on May 31, 2009.

A charge of $1.1 million was incurred in the first quarter of 2009 to write down certain raw materials and work in process inventory that could not be converted to finished product. Approximately $0.1 million of this inventory was subsequently sold in the third quarter of 2009, resulting in a reversal of this portion of the write-down. A pension settlement charge of approximately $0.2 million was recorded in the third quarter related to lump sum distributions which resulted from the plant closing. These amounts were included in cost of sales on the Condensed Consolidated Statement of Operations in the North American Other segment.

Additional depreciation expense of $0.7 million was recorded in the first quarter of 2009 to reflect the shorter remaining useful life of the assets. These amounts were included in cost of sales on the Condensed Consolidated Statement of Operations in the North American Other segment.

Special charges of $1.0 million and $1.6 million in the three months and nine months ended September 30, 2009, respectively, included various legal, consulting and employee related costs. In addition, during the three months ended September 30, 2009, we recorded a charge of $0.1 million to write down certain fixed assets at our Mira Loma facility, and received cash proceeds of $0.8 million for the sale of certain fixed assets which previously had been written off at our Syracuse China facility. This resulted in a net charge of $0.6 million related to the write-down of fixed assets for the nine months ended September 30, 2009. These amounts were included in special charges on the Condensed Consolidated Statement of Operations in the North American Other and North American Glass segments.

Other income (expense) on the Condensed Consolidated Statement of Operations included expenses of an immaterial amount in the third quarter and $0.2 million in the nine months ended September 30, 2009 for the change in fair value of ineffective natural gas hedges related to our Syracuse China operation. These amounts were included in the North American Other segment.

The following table summarizes the facility closure charges in the third quarter and first nine months of 2009:

		Three months ended September 30, 2009												Nine months ended September 30, 2009
		North				North								North				North
		American				American								American				American
(Dollars in thousands)		Glass				Other				Total				Glass				Other				Total
Inventory write-down		$	(1	)		$	(76	)		$	(77	)		$	—			$	1,039			$	1,039
Pension Settlement charges			—				239				239				—				239				239
Fixed asset depreciation			—				—				—				—				705				705
Included in cost of sales			(1	)			163				162				—				1,983				1,983
Employee termination cost & other			(4	)			954				950				(31	)			1,612				1,581
Fixed asset write-down			112				(762	)			(650	)			112				(719	)			(607	)
Included in special charges			108				192				300				81				893				974
Ineffectiveness of natural gas hedge			—				(27	)			(27	)			—				(213	)			(213	)
Included in other income (expense)			—				(27	)			(27	)			—				(213	)			(213	)
Total pretax expense		$	107			$	382			$	489			$	81			$	3,089			$	3,170

The following reflects the balance sheet activity related to the facility closure charge for the nine months ended September 30, 2009:

		Reserve																				Reserve
		Balances				Total				Cash				Inventory &								Balances
		at December 31,				Charge to				Receipts				Fixed asset				Non-cash				at September 30,
(Dollars in thousands)		2008				Earnings				(Payments)				Write Downs				Utilization				2009
Inventory write-down		$	—			$	1,039			$	79			$	(1,118	)		$	—			$	—
Pension Settlement charges			—				239				—				—				(239	)			—
Fixed asset depreciation			—				705				—				—				(705	)			—
Fixed asset write-down			—				(607	)			761				(154	)			—				—
Employee termination cost & other			4,248				1,581				(4,921	)			—				—				908
Ineffectiveness of natural gas hedges			—				213				—				—				(213	)			—
Total		$	4,248			$	3,170			$	(4,081	)		$	(1,272	)		$	(1,157	)		$	908

The ending balance of $0.9 million at September 30, 2009 was included in accrued special charges on the Condensed Consolidated Balance Sheets and we expect this to result in cash payments in 2009 and early 2010. The carrying value of this balance approximates its fair value.

The following reflects the total cumulative expenses to date (incurred from the fourth quarter of 2008 through the Balance Sheet date) related to the facility closure activity:

		North				North				Total
		American				American				Charges
(Dollars in thousands)		Glass				Other				To Date
Inventory write-down		$	192			$	10,615			$	10,807
Pension & postretirement welfare			—				4,409				4,409
Fixed asset depreciation			—				966				966
Included in cost of sales			192				15,990				16,182
Employee termination cost & other			587				5,814				6,401
Fixed asset write-down			177				8,941				9,118
Included in special charges			764				14,755				15,519
Ineffectiveness of natural gas hedge			—				(596	)			(596	)
Included in other (expense) income			—				(596	)			(596	)
Total pretax expenses to date		$	956			$	31,341			$	32,297

We expect the total expenses for each of these activities to approximate the expenses incurred to date.

6. Income Taxes

The Company’s effective tax rate differs from the United States statutory tax rate primarily due to changes in the mix of earnings in countries with differing statutory tax rates, changes in accruals related to uncertain tax positions, tax planning structures and changes in tax laws. At September 30, 2009 and December 31, 2008 we had $1.2 million and $2.3 million, respectively, of gross unrecognized tax benefits, exclusive of interest and penalties. The decrease of $1.1 million was primarily attributable to an income tax settlement during the second quarter, offset by additions based on tax positions related to the current year.

In addition, guidance in FASB ASC 740, Income Taxes (previously SFAS No. 109, Accounting for Income Taxes) requires that the provision for (benefit from) income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other

categories of earnings. A related tax benefit is then recorded in continuing operations. Included in our income tax provision are tax benefits of $1.4 million for the third quarter of 2009 and $5.3 million for the first nine months of 2009 related to these intra-period allocations. Depending upon the level of our future earnings and losses and their impact on other comprehensive income, it is possible that these tax adjustments may change or even reverse in future periods.

Further, our current and future provision for (benefit from) income taxes for 2009 is significantly impacted by valuation allowances. In the United States and China, we have recorded a full valuation allowance against our deferred income tax assets. In addition, partial valuation allowances have been recorded in the Netherlands, Portugal and Mexico. In assessing the need for recording a valuation allowance we weigh all available positive and negative evidence. Examples of the evidence we consider are cumulative losses in recent years, losses expected in early future years, a history of potential tax benefits expiring unused, whether there was an unusual, infrequent, or extraordinary item to be considered. We intend to maintain these allowances until it is more likely than not that the deferred income tax assets will be realized.

7. Pension and Non-pension Postretirement Benefits

We have pension plans covering the majority of our employees. Benefits generally are based on compensation 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. The non-U.S. pension plans cover the employees of our wholly owned subsidiaries Royal Leerdam and Crisa. The Crisa plan is not funded.

The components of our net pension expense, including the SERP, are as follows:

		U.S. Plans								Non-U.S. Plans								Total
Three months ended September 30,		2009				2008				2009				2008				2009				2008
Service cost		$	1,271			$	1,348			$	339			$	438			$	1,610			$	1,786
Interest cost			3,878				3,908				1,037				1,182				4,915				5,090
Expected return on plan assets			(4,383	)			(4,393	)			(632	)			(813	)			(5,015	)			(5,206	)
Amortization of unrecognized:
Prior service cost (gain)			560				597				(23	)			(18	)			537				579
Loss			227				330				93				73				320				403
Settlement charge			687				—				—				—				687				—
Pension expense		$	2,240			$	1,790			$	814			$	862			$	3,054			$	2,652

		U.S. Plans								Non-U.S. Plans								Total
Nine months ended September 30,		2009				2008				2009				2008				2009				2008
Service cost		$	3,761			$	4,044			$	1,015			$	1,314			$	4,776			$	5,358
Interest cost			11,774				11,723				3,111				3,547				14,885				15,270
Expected return on plan assets			(13,184	)			(13,180	)			(1,897	)			(2,441	)			(15,081	)			(15,621	)
Amortization of unrecognized:
Prior service cost (gain)			1,681				1,792				(70	)			(53	)			1,611				1,739
Loss			662				989				281				220				943				1,209
Settlement charge			3,387				—				—				—				3,387				—
Pension expense		$	8,081			$	5,368			$	2,440			$	2,587			$	10,521			$	7,955

We incurred pension settlement charges of $0.7 million and $3.4 million during the three months and nine months ended September 30, 2009, respectively. The pension settlement charges were triggered by excess lump sum distributions to retirees.

We provide certain retiree health care and life insurance benefits covering our U.S and Canadian salaried and non-union hourly employees hired before January 1, 2004 and a majority of our union hourly employees. Employees are generally eligible for benefits

upon retirement and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. The U.S. non-pension postretirement plans cover the hourly and salaried U.S.-based employees of Libbey. During the second quarter of 2008, we amended our U.S. non-pension postretirement plans to cover employees and retirees of Syracuse China previously covered under a multi-employer plan. This plan amendment was effective September 1, 2008. The non-U.S. non-pension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. The postretirement benefit plans are not funded.

The provision for our non-pension postretirement benefit expense consists of the following:

		U.S. Plans								Non-U.S. Plans								Total
Three months ended September 30,		2009				2008				2009				2008				2009				2008
Service cost		$	333			$	274			$	—			$	—			$	333			$	274
Interest cost			946				788				29				32				975				820
Amortization of unrecognized:
Prior service gain			(104	)			115				—				—				(104	)			115
Loss / (Gain)			191				60				(9	)			(8	)			182				52
Curtailment credit			(94	)			—				—				—				(94	)			—
Non-pension postretirement benefit expense		$	1,272			$	1,237			$	20			$	24			$	1,292			$	1,261

		U.S. Plans								Non-U.S. Plans								Total
Nine months ended September 30,		2009				2008				2009				2008				2009				2008
Service cost		$	999			$	824			$	1			$	1			$	1,000			$	825
Interest cost			2,838				2,215				84				96				2,922				2,311
Amortization of unrecognized:
Prior service cost (gain)			(313	)			(116	)			—				—				(313	)			(116	)
Loss / (Gain)			573				179				(26	)			(24	)			547				155
Curtailment credit			(94	)			—				—				—				(94	)			—
Non-pension postretirement benefit expense		$	4,003			$	3,102			$	59			$	73			$	4,062			$	3,175

In 2009, we expect to utilize approximately $18.0 million to fund our pension plans and pay for non-pension postretirement benefits. Of that amount, $3.6 million and $11.7 million was utilized in the three months and nine months ended September 30, 2009.

8. Net Income (Loss) per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended September 30,								Nine months Ended September 30,
		2009				2008				2009				2008
Numerator for earnings per share — net income (loss ) that is available to common shareholders		$	3,533			$	(5,958	)		$	(21,696	)		$	(11,554	)
Denominator for basic earnings per share — weighted average shares outstanding			15,152,337				14,729,958				14,926,422				14,651,810
Effect of dilutive securities (1)			435,212				—				—				—
Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversions			15,587,549				14,729,958				14,926,422				14,651,810
Basic earnings (loss) per share		$	0.23			$	(0.40	)		$	(1.45	)		$	(0.79	)
Diluted earnings (loss) per share		$	0.23			$	(0.40	)		$	(1.45	)		$	(0.79	)

When applicable, diluted shares outstanding include the dilutive impact of in-the-money employee stock options, which are calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the tax-effected proceeds that hypothetically would be received from the exercise of all in-the-money options are assumed to be used to repurchase shares.

9. Derivatives

We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt, commodity price risks associated with forecasted future natural gas requirements, and foreign exchange rate risks associated with transactions denominated in a currency other than the U.S. dollar. Most of these derivatives, except for certain natural gas contracts originally designated to expected purchases at Syracuse China and the foreign currency contracts, qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. Changes in the effective portion of the fair value of these hedges are recorded in Other Comprehensive Income (OCI). 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 the forecasted transactions will occur, the changes in the fair value of the derivatives used as hedges will be reflected in our earnings. All of these contracts were accounted for under FASB ASC 815 “Derivatives and Hedging” (formerly FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”).

We use Interest Rate Protection Agreements (Rate Agreements) to manage our exposure to variable interest rates. These Rate Agreements effectively convert a portion of our borrowings from variable rate debt to fixed-rate debt, thus reducing the impact of interest rate changes on future results. These instruments are valued using the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves.

We also use commodity futures contracts related to forecasted future North American natural gas requirements. The objective of these futures contracts and other derivatives is to limit the fluctuations in prices paid due to adverse price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from 40 percent to 70 percent of our anticipated requirements, up to eighteen months in the future. The fair values of these instruments are determined from market quotes. Certain of our natural gas futures contracts are now classified as ineffective, as the forecasted transactions are not probable of occurring due to the closure of our Syracuse China facility in April 2009.

Our foreign currency exposure arises from transactions denominated in a currency other than the U.S. dollar, primarily associated with anticipated purchases of new equipment or net investment in a foreign operation. The fair values of these instruments are determined from market quotes. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change.

Notional Amounts

As of September 30, 2009, we had commodity contracts for 3,220,000 million British Thermal Units (BTUs) of natural gas. We also had Interest Rate Protection Agreements for $200.0 million of our variable rate debt, as discussed in Note 4. At December 31, 2008, we had Interest Rate Protection Agreements for $200.0 million of variable rate debt and commodity contracts for 5,280,000 million BTUs of natural gas. In January 2008, we entered into a series of foreign currency contracts to sell Canadian dollars. As of September 30, 2008, we had contracts for 2.5 million Canadian dollars. During April 2007, we entered into a foreign currency contract for 212.0 million pesos for a contractual payment due to Vitro in January 2008. As of December 31, 2008, all of these currency contracts had expired.

Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented:

Liability Derivatives:

September 30, 2009

December 31, 2008

Balance

Balance

Sheet

Fair

Sheet

Fair

Location

Value

Location

Value

Derivatives designated as hedging instruments under SFAS 133:

Interest rate contracts

Derivative liability

$

4,029

Derivative liability

$

6,761

Natural gas contracts

Derivative liability

6,354

Derivative liability

10,908

Natural gas contracts

Other long term liability

1,778

Other long term liability

3,500

Total designated

12,161

21,169

Derivatives undesignated as hedging instruments under SFAS 133:

Natural gas contracts

Derivative liability

337

Derivative liability

267

Natural gas contracts

Other long term liability

62

Other long term liability

193

Total undesignated

399

460

Total

$

12,560

$

21,629

Change in value of derivatives

Most of our derivatives qualify and are designated as cash flow hedges (except certain natural gas contracts originally designated to expected purchases at Syracuse China) at September 30, 2009. Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings.

		Amount of derivative gain/(loss) recognized in OCI (effective portion)
		Three months ended September 30,								Nine months ended September 30,
		2009				2008				2009				2008
Derivatives in Cash Flow Hedging relationships:
Interest rate contracts		$	2,023			$	114			$	4,952			$	(60	)
Natural gas contracts			285				(12,476	)			(6,476	)			(4,490	)
Total		$	2,308			$	(12,362	)		$	(1,524	)		$	(4,550	)

				Gain / (loss) reclassified from Accumulated Other
				Comprehensive Income (loss) to income (effective portion)
				Three months ended September 30,								Nine months ended September 30,
				2009				2008				2009				2008
Derivative:		Location:
Interest rate contracts		Interest expense		$	2,021			$	1,183			$	4,924			$	2,134
Natural gas contracts		Cost of sales			(4,006	)			2,401				(12,750	)			2,854
Total impact on net income (loss)				$	(1,985	)		$	3,584			$	(7,826	)		$	4,988

Certain of our natural gas futures contracts are now classified as ineffective, as the forecasted transactions are not probable of occurring due to the closure of our Syracuse China facility in April 2009 as well as decreased production at some of our plants. As a result, we recorded an immaterial expense in the three months ended September 30, 2009 and expense of $0.1 million in the nine months ended September 30, 2009. Expenses reclassified from Accumulated Other Comprehensive Income to earnings as a result of contracts becoming ineffective during the three and nine months ended September 30, 2009 were immaterial.

The following table provides the impact on the Condensed Consolidated Statement of Operations from derivatives no longer designated as cash flow hedges:

				Gain (loss) recognized in income (ineffective portion)
				Three months ended September 30,								Nine months ended September 30,
				2009				2008				2009				2008
Derivative:		Location:
Natural gas contracts		Other (expense) income		$	(27	)		$	—			$	(136	)		$	—
Total				$	(27	)		$	—			$	(136	)		$	—

As the natural gas contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from accumulated other comprehensive income to current expense in cost of sales in our Condensed Consolidated Statement of Operations. Similarly, as fixed interest payments are made pursuant to the interest rate protection agreements, they are recorded together with the related receipt of variable interest receipts, the payment of contractual interest expense to the banks and the reclassification of accumulated gains (losses) from accumulated other comprehensive income related to the interest rate agreements. We paid additional cash interest of $2.7 million and $0.3 million in the nine months ended September 30, 2009 and 2008, respectively, due to the difference between the contractual fixed interest rates in our interest rate protection agreements and the variable interest rates associated with our long-term debt. Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive income that will be reclassified into earnings over the next twelve months will result in $10.7 million of expense in our Condensed Consolidated Statement of Operations.

Gains and losses for derivatives that were not designated as hedging instruments are recorded in current earnings as follows:

						Three months ended September 30,								Nine months ended September 30,
						2009				2008				2009				2008
Derivative:		Location:
Currency contracts		Other (expense) income				$	—			$	65			$	—			$	(218	)
Total						$	—			$	65			$	—			$	(218	)

We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate and natural gas hedges, as the counterparties are established financial institutions. The counterparties are rated A+ or better for the Interest Rate Protection Agreements and BBB+ or better for the other derivative agreements as of September 30, 2009, by Standard and Poor’s.

10. Comprehensive Income (Loss)

Components of comprehensive income (loss) (net of tax) are as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2009				2008				2009				2008
Net income (loss)		$	3,533			$	(5,958	)		$	(21,696	)		$	(11,554	)
Change in pension and nonpension postretirement liability (1)			1,090				2,403				5,571				(728	)
Change in fair value of derivatives (2)			4,687				(11,311	)			7,329				(6,368	)
Exchange rate fluctuations			2,608				(7,999	)			2,438				(1,067	)
Total comprehensive income (loss)		$	11,918			$	(22,865	)		$	(6,358	)		$	(19,717	)
(1) Net of the following tax amounts for the respective periods		$	378			$	(1,639	)		$	(5,938	)		$	(78	)
(2) Net of the following tax amounts for the respective periods		$	(1,626	)		$	3,453			$	(3,897	)		$	1,037

Accumulated other comprehensive loss (net of tax) is as follows:

		September 30,				December 31,
		2009				2008
Minimum pension liability and intangible pension asset		$	(97,836	)		$	(103,407	)
Derivatives			(9,281	)			(16,610	)
Exchange rate fluctuations			6,669				4,231
Balance at end of period		$	(100,448	)		$	(115,786	)

11. Condensed Consolidated Guarantor Financial Statements

Libbey Glass is a direct, 100 percent owned subsidiary of Libbey Inc. and the issuer of the Senior Notes and the PIK Notes. The obligations of Libbey Glass under the Senior Notes and the PIK Notes are fully and unconditionally and jointly and severally guaranteed by Libbey Inc. and by certain indirect, 100 percent owned domestic subsidiaries of Libbey Inc., as described below. All are related parties that are included in the Condensed Consolidated Financial Statements for the three month and nine months periods ended September 30, 2009 and September 30, 2008.

At September 30, 2009, December 31, 2008 and September 30, 2008, Libbey Inc.’s indirect, 100 percent owned domestic subsidiaries were Syracuse China Company, World Tableware Inc., LGA4 Corp., LGA3 Corp., The Drummond Glass Company, LGC Corp., Traex Company, Libbey.com LLC, LGFS Inc., LGAC LLC and Crisa Industrial LLC (collectively, the “Subsidiary Guarantors”). The following tables contain Condensed Consolidating Financial Statements of (a) the parent, Libbey Inc., (b) the issuer, Libbey Glass, (c) the Subsidiary Guarantors, (d) the indirect subsidiaries of Libbey Inc. that are not Subsidiary Guarantors (collectively, “Non-Guarantor Subsidiaries”), (e) the consolidating elimination entries, and (f) the consolidated totals.

Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
(unaudited)

Three months ended September 30, 2009
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	92,450			$	20,462			$	88,058			$	(14,092	)		$	186,878
Freight billed to customers			—				181				204				34				—				419
Total revenues			—				92,631				20,666				88,092				(14,092	)			187,297
Cost of sales			—				69,653				15,541				73,235				(14,092	)			144,337
Gross profit			—				22,978				5,125				14,857				—				42,960
Selling, general and administrative expenses			—				14,223				2,018				8,570				—				24,811
Special charges			—				108				192				—				—				300
Income (loss) from operations			—				8,647				2,915				6,287				—				17,849
Other income (expense)			—				1,258				(10	)			1,455				—				2,703
Earnings (loss) before interest and income taxes			—				9,905				2,905				7,742				—				20,552
Interest expense			—				15,782				1				1,668				—				17,451
Earnings (loss) before income taxes			—				(5,877	)			2,904				6,074				—				3,101
Provision (benefit) for income taxes			—				(1,349	)			(5	)			922				—				(432	)
Net income (loss)			—				(4,528	)			2,909				5,152				—				3,533
Equity in net income (loss) of subsidiaries			3,533				8,061				—				—				(11,594	)			—
Net income (loss)		$	3,533			$	3,533			$	2,909			$	5,152			$	(11,594	)		$	3,533