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.

(Exact name of registrant as specified in its charter)

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

300 Madison Avenue, Toledo, Ohio 43604
(Address of principal executive offices) (Zip Code)

419-325-2100
(Registrant’s telephone number, including area code)

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.

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 16,162,606 shares at April 30, 2010.

 

 

TABLE OF CONTENTS

Item 1. Financial Statements			3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS			4
CONDENSED CONSOLIDATED BALANCE SHEETS			5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS			6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			7
1. Description of the Business			7
2. Significant Accounting Policies			7
3. Balance Sheet Details			10
4. Borrowings			11
5. Restructuring Charges			15
6. Income Taxes			17
7. Pension and Non-pension Postretirement Benefits			17
8. Net Income (Loss) per Share of Common Stock			18
9. Derivatives			19
10. Comprehensive Income (Loss)			21
11. Condensed Consolidated Guarantor Financial Statements			21
12. Segments			27
13. Fair Value			28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Qualitative and Quantitative Disclosures about Market Risk			39
Item 4. Controls and Procedures			40
PART II — OTHER INFORMATION			40
Item 1A. Risk Factors			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 5. Other Information			44
Item 6. Exhibits			45
EXHIBIT INDEX			45
SIGNATURES			48
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 period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

The balance sheet at December 31, 2009 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, 2009.

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

		Three months ended March 31,
		2010				2009
Net sales		$	173,904			$	157,853
Freight billed to customers			434				345
Total revenues			174,338				158,198
Cost of sales			140,461				147,482
Gross profit			33,877				10,716
Selling, general and administrative expenses			22,824				22,374
Special charges			232				396
Income (loss) from operations			10,821				(12,054	)
Gain on redemption of debt			56,792				-
Other expense			(763	)			(37	)
Earnings (loss) before interest and income taxes			66,850				(12,091	)
Interest expense			9,620				17,179
Income (loss) before income taxes			57,230				(29,270	)
Provision for (benefit from) income taxes			1,820				(1,377	)
Net income (loss)		$	55,410			$	(27,893	)
Net income (loss) per share:
Basic:		$	3.44			$	(1.89	)
Diluted:		$	2.76			$	(1.89	)
Dividends per share		$	-			$	-

See accompanying notes

LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)

		March 31, 2010				December 31, 2009
		(unaudited)
Assets:
Cash and cash equivalents		$	18,027			$	55,089
Accounts receivable — net			87,506				82,424
Inventories — net			152,503				144,015
Prepaid and other current assets			17,733				11,783
Total current assets			275,769				293,311
Pension asset			9,558				9,454
Purchased intangible assets — net			24,206				24,861
Goodwill			168,320				168,320
Other assets			19,697				8,854
Total other assets			221,781				211,489
Property, plant and equipment — net			279,374				290,013
Total assets		$	776,924			$	794,813
Liabilities and Shareholders’ Deficit:
Notes payable		$	1,409			$	672
Accounts payable			53,010				58,838
Salaries and wages			24,241				34,064
Accrued liabilities			42,090				35,699
Accrued special charges			586				1,016
Pension liability (current portion)			2,038				1,984
Non-pension postretirement benefits (current portion)			4,363				4,363
Derivative liability			6,663				3,346
Deferred income taxes			3,501				3,559
Long-term debt due within one year			9,843				9,843
Total current liabilities			147,744				153,384
Long-term debt			440,759				504,724
Pension liability			121,382				119,727
Non-pension postretirement benefits			65,408				64,780
Deferred income taxes			6,183				6,226
Other long-term liabilities			13,736				12,879
Total liabilities			795,212				861,720
Shareholders’ deficit:
Common stock, par value $.01 per share, 50,000,000 shares authorized, 18,697,630 shares issued at March 31, 2010 and at December 31, 2009			187				187
Capital in excess of par value (includes warrants of $15,560 based on 3,952,165 shares at March 31, 2010 and at December 31, 2009)			323,809				324,272
Treasury stock, at cost, 2,535,324 shares (2,599,769 shares in 2009)			(68,550	)			(70,298	)
Accumulated deficit			(150,916	)			(205,344	)
Accumulated other comprehensive loss			(122,818	)			(115,724	)
Total shareholders’ deficit			(18,288	)			(66,907	)
Total liabilities and shareholders’ deficit		$	776,924			$	794,813

See accompanying notes

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

		Three months ended March 31,
		2010				2009
Operating activities:
Net income (loss)		$	55,410			$	(27,893	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization			10,386				11,728
Loss on asset sales			80				9
Change in accounts receivable			(6,516	)			410
Change in inventories			(10,904	)			11,284
Change in accounts payable			(4,241	)			(2,043	)
Accrued interest and amortization of discounts, warrants and finance fees			5,206				14,680
Gain on redemption of PIK notes			(70,193	)			-
Payment of interest on PIK notes			(29,400	)			-
Call premium on floating rate notes			8,415				-
Write-off of bank fees & discounts on old ABL and floating rate notes			4,986				-
Pension & non-pension postretirement benefits			3,005				2,971
Restructuring charges			(431	)			1,550
Accrued liabilities & prepaid expenses			(9,468	)			2,680
Accrued income taxes			(3,644	)			(1,963	)
Other operating activities			1,144				971
Net cash (used in) provided by operating activities			(46,165	)			14,384
Investing activities:
Additions to property, plant and equipment			(4,148	)			(4,940	)
Call premium on floating rate notes			(8,415	)			-
Proceeds from asset sales and other			-				67
Net cash used in investing activities			(12,563	)			(4,873	)
Financing activities:
Net (repayments) borrowings on ABL credit facility			-				(5,886	)
Other repayments			(45	)			(117	)
Other borrowings			801				-
Floating rate note payments			(306,000	)			-
PIK note payment			(51,031	)			-
Proceeds from senior secured notes			392,328				-
Debt issuance costs			(14,033	)			-
Net cash provided by (used in) financing activities			22,020				(6,003	)
Effect of exchange rate fluctuations on cash			(354	)			(349	)
(Decrease) increase in cash			(37,062	)			3,159
Cash at beginning of period			55,089				13,304
Cash at end of period		$	18,027			$	16,463
Supplemental disclosure of cash flows information:
Cash paid during the period for interest		$	5,017			$	1,136
Cash paid during the period for income taxes		$	4,934			$	1,201

Supplemental disclosure of non-cash financing activities:

At December 31, 2009 our borrowings included a $70.2 million liability representing carrying value in excess of the principal amount for our PIK notes (see notes 6 and 20 to our report on Form 10-K for 2009). During the first quarter of 2010, the PIK notes were redeemed, resulting in the recognition of a gain of $70.2 million. The gain was offset by $13.4 million of expenses related to the transaction, resulting in a net gain of $56.8 million on the Condensed Consolidated Statement of Operations. See note 4 for further information on this transaction.

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. Prior to April 2009, we owned and operated a ceramic dinnerware plant in New York (see note 5 for information on closure costs). 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 NYSE Amex exchange under the ticker symbol LBY.

2. Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2009 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 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” 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 and Portugal.

Stock-Based Compensation Expense

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation” and FASB ASC Topic 505-50, “Equity — Equity-Based Payments to Non-Employees”. Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards. Stock-based compensation expense charged to the Condensed Consolidated Statement of Operations for the three months ended March 31, 2010 and the three months ended March 31, 2009 was $0.4 million and $0.8 million, respectively.

New Accounting Standards

On July 1, 2009 the FASB Accounting Standards Codification™ (FASB ASC) 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 became effective for financial statements issued for interim and annual periods ending after September 15, 2009. Accordingly, in our discussion of New Accounting Standards in our third quarter 2009 filing on form 10-Q and in our annual filing on form 10-K, we incorporated references to the Codification Topics. For this report on Form 10-Q and in future filings, we will refer accounting standards as described in the FASB ASC.

In April 2009, the FASB issued guidance contained in FASB ASC 825, “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 guidance also requires those disclosures in summarized financial information at interim reporting periods effective for interim reporting periods ending after June 15, 2009. Adoption of this statement did not have a material impact on our Condensed Consolidated Financial Statements. See note 4 of the Condensed Consolidated Financial Statements for additional information.

In May 2009, the FASB issued guidance contained in FASB ASC 855, “Subsequent Events” to establish 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. This guidance was effective for interim or annual financial periods ending after June 15, 2009. In February, 2010, the FASB issued Accounting Standards Update 2010-09 — “Subsequent Events” which removed the requirement to disclose the date through which subsequent events had been considered for disclosure. This update was effective upon issuance. In accordance with this guidance, we have evaluated and, as necessary, made changes to these unaudited Condensed Consolidated Financial Statements for the events.

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 was effective for the first reporting period (including interim periods) beginning after issuance, which for Libbey was the fourth quarter of 2009. The adoption of ASU 2009-5 did not have a material impact on our Condensed Consolidated Financial Statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). ASU 2010-06 requires new disclosures regarding the amounts transferring between the various Levels within the fair value hierarchy, and increased disclosures regarding the activities impacting the balance of items classified in Level 3 of the fair value hierarchy. In addition, ASU 2010-06 clarifies increases in existing disclosure requirements for classes of assets and liabilities carried at fair value, and regarding the inputs and valuation techniques used to arrive at the fair value measurements for items classified as Level 2 or Level 3 in the fair value hierarchy. The new

disclosure requirements of ASU 2010-06 were effective for Libbey in the first quarter of 2010, except for certain disclosures regarding the activities within Level 3 fair value measurements, which are effective for Libbey in the first quarter of 2011. As this Standards Update only required additional disclosures, the adoption of ASU 2010-06 did not have a material impact on our Condensed 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)		March 31, 2010				December 31, 2009
Accounts receivable:
Trade receivables		$	86,010			$	81,032
Other receivables			1,496				1,392
Total accounts receivable, less allowances of $7,159 and $7,457		$	87,506			$	82,424
Inventories:
Finished goods		$	135,770			$	126,651
Work in process			1,195				1,255
Raw materials			4,294				4,408
Repair parts			10,213				9,933
Operating supplies			1,031				1,768
Total inventories, less allowances of $4,285 and $4,528		$	152,503			$	144,015
Prepaid and other current assets:
Value added tax		$	6,631			$	4,946
Prepaid expenses			6,112				6,362
Refundable and prepaid income taxes			4,990				475
Total prepaid and other current assets		$	17,733			$	11,783
Other assets:
Deposits		$	570			$	583
Finance fees — net of amortization			14,926				4,056
Other assets			4,201				4,215
Total other assets		$	19,697			$	8,854
Accrued liabilities:
Accrued incentives		$	15,570			$	13,790
Workers compensation			8,817				8,834
Medical liabilities			3,439				2,948
Interest			5,826				1,998
Commissions payable			877				1,134
Other accrued liabilities			7,561				6,995
Total accrued liabilities		$	42,090			$	35,699
Other long-term liabilities:
Derivative liability (long term portion)		$	2,783			$	2,061
Deferred liability			3,921				3,350
Other long-term liabilities			7,032				7,468
Total other long-term liabilities		$	13,736			$	12,879

4. Borrowings

On February 8, 2010, we completed the refinancing of substantially all of the existing indebtedness of our wholly-owned subsidiaries Libbey Glass and Libbey Europe B.V. The refinancing included:

•		the entry into an amended and restated credit agreement with respect to our ABL Facility;
•		the issuance of $400.0 million in aggregate principal amount of 10.0 percent Senior Secured Notes of Libbey Glass due 2015 (New Notes);
•		the repurchase and cancellation of all of Libbey Glass’s then outstanding $306.0 million in aggregate principal amount of floating rate notes; and
•		the redemption of all of Libbey Glass’s then outstanding $80.4 million in aggregate principal amount 16.0 percent PIK notes.

Libbey Glass used the proceeds of the offering of the Senior Secured Notes, together with cash on hand, to fund the repurchase of the floating rate notes, the redemption of the PIK notes and to pay certain related fees and expenses. Upon completion of the refinancing, we recorded a gain of $70.2 million related to the redemption of the PIK notes. This gain was partially offset by $13.4 million representing a write-off of bank fees, discounts and a call premium on the floating rate notes, resulting in a net gain of $56.8 million as shown on the Condensed Consolidated Statement of Operations.

Borrowings consist of the following:

						March 31,				December 31,
(dollars in thousands)		Interest Rate		Maturity Date		2010				2009
Borrowings under ABL facility		floating		April 8, 2014		$	-			$	-
Senior Secured Notes		10.00% (1)		February 15, 2015			400,000				-
Floating rate notes		floating					-				306,000
PIK notes (2)		0.00%					-				80,431
Promissory note		6.00%		April, 2010 to September, 2016			1,447				1,492
Notes payable		floating		April, 2010			1,409				672
RMB loan contract		floating		July, 2012 to January, 2014			36,675				36,675
RMB working capital loan		floating		January, 2011			7,335				7,335
BES Euro line		floating		December, 2010 to December, 2013			13,320				14,190
Total borrowings							460,186				446,795
Less — unamortized discount							7,454				1,749
Less — Carrying value adjustment on debt related to the Interest Rate Agreement (1)							721				-
Plus — Carrying value in excess of principal on PIK notes (2)							-				70,193
Total borrowings — net							452,011				515,239
Less — long term debt due within one year and notes payable							11,252				10,515
Total long-term portion of borrowings — net						$	440,759			$	504,724

	(1)		See Interest Rate Agreements under “Senior Secured Notes” below and in note 9.
	(2)		On October 28, 2009, we exchanged approximately $160.9 million of Old PIK Notes for approximately $80.4 million of New PIK Notes and additional common stock and warrants to purchase common stock of Libbey Inc. Under U.S. GAAP, we were required to record the New PIK Notes at their carrying value of approximately $150.6 million instead of their face value of $80.4 million. During the first quarter of 2010, we redeemed the New PIK Notes in conjunction with the refinancing discussed above and recognized the $70.2 million gain in gain on redemption of debt on the Condensed Consolidated Statement of Operations.

Amended and Restated ABL Credit Agreement

Pursuant to the refinancing, Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 (ABL Facility), between Libbey Glass and Libbey Europe, as borrowers, the Company, as a loan guarantor, the other loan parties party thereto as guarantors, and a group of five financial institutions. The ABL Facility replaces the previous ABL Facility and provides for borrowings of up to $110.0 million, subject to certain borrowing base limitations, reserves and outstanding letters of credit.

All borrowings under the ABL Facility are secured by:

•		a first-priority security interest in substantially all of the existing and future real and personal property (including without limitation tangible and intangible assets) of Libbey Glass and its domestic subsidiaries (other than certain real property and equipment located in the United States and certain general intangibles, instruments, books and records and supporting obligations related to such real property and equipment, and certain proceeds of the foregoing) (the “Credit Agreement Priority Collateral”);
•		a first-priority security interest in:

	o		100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’ present and future direct and indirect domestic subsidiaries;
	o		100 percent of the non-voting stock of substantially all of Libbey Glass’ first-tier present and future foreign subsidiaries; and
	o		65 percent of the voting stock of substantially all of Libbey Glass’ first-tier present and future foreign subsidiaries

•		a first priority security interest in substantially all proceeds and products of the property and assets described above; and
•		a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (the “New Notes Priority Collateral”).

Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:

•		a first-priority lien on substantially all of the existing and future real and personal property (including without limitation all of the tangible and intangible property) of Libbey Europe and its Dutch subsidiaries; and
•		a first-priority security interest in:

	o		100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and
	o		100 percent (or a lesser percentage to the extent a security interest in such shares would cause a material tax cost, but in no case less than 65 percent) of the outstanding stock issued by the first tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.

Swing line borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe being limited to the US equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swing line borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swing line rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 2.50 percent and 3.50 percent, respectively, at March 31, 2010. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.75 percent at March 31, 2010. No financial covenants or compensating balances are required by the Agreement. There were no Libbey Glass or Libbey Europe borrowings under the facility at March 31, 2010 or at December 31, 2009. Interest is payable on the last day of the interest period, which can range from one month to six months.

The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable and inventory. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable and (b) the lesser of (i) 85 percent of the net orderly liquidation value (NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million.

The available total borrowing base is offset by ERISA, rent and tax reserves totaling $3.5 million and mark-to-market reserves for natural gas contracts of $6.2 million. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $110.0 million limit. At March 31, 2010, we had $17.9 million in letters of credit outstanding under the ABL Facility. Remaining unused availability on the new ABL Facility was $51.2 million at March 31, 2010 compared to $79.2 million under the old ABL Facility at December 31, 2009.

Senior Secured Notes

On February 8, 2010, Libbey Glass closed its offering of the $400.0 million Senior Secured Notes. The net proceeds of the offering of Senior Secured Notes were approximately $379.8 million, after the 1.918 percent original issue discount of $7.7 million, $10.0 million of commissions payable to the initial purchasers and $2.5 million of fees related to the offering. These fees will be amortized to interest expense over the life of the notes.

The Senior Secured Notes were issued pursuant to an Indenture, dated February 8, 2010 (the “New Notes Indenture”), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (the “Subsidiary Guarantors” and together with the Company, the “Guarantors”), and The Bank of New York Mellon Trust Company, N.A., as trustee (the “New Notes Trustee”), and collateral agent. Under the terms of the New Notes Indenture, the Senior Secured Notes bear interest at a rate of 10.0 percent per year and will mature on February 15, 2015. The New Notes Indenture contains covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:

	•		incur or guarantee additional indebtedness;
	•		pay dividends, make certain investments or other restricted payments;
	•		create liens;
	•		enter into affiliate transactions;
	•		merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and
	•		transfer or sell assets.

The New Notes Indenture provides for customary events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Senior Secured Notes will become due and payable immediately without further action or notice. If any other event of default under the Indenture occurs or is continuing, the New Notes Trustee or holders of at least 25 percent in aggregate principal amount of the then outstanding Senior Secured Notes may declare all the Senior Secured Notes to be due and payable immediately.

The Senior Secured Notes and the related guarantees under the New Notes Indenture are secured by (i) first priority liens on the New Notes Priority Collateral and (ii) second priority liens on the Credit Agreement Priority Collateral.

In connection with the sale of the Senior Secured Notes, Libbey Glass and the Guarantors entered into a registration rights agreement, dated February 8, 2010 (the “Registration Rights Agreement”), under which they agreed, pursuant to the terms and conditions set forth therein, to make an offer to exchange the Senior Secured Notes and the related guarantees for registered, publicly tradable notes and guarantees that have substantially identical terms to the Senior Secured Notes and the related guarantees, and in certain limited circumstances, to file a shelf registration statement that would allow certain holders of Senior Secured Notes to resell their respective Senior Secured Notes to the public.

Prior to August 15, 2012, we may redeem in the aggregate up to 35 percent of the original principal amount Senior Secured Notes with the net cash proceeds of one or more equity offerings at a redemption price of 110 percent of the principal amount thereof, provided that at least 65 percent of the original principal amount of the Senior Secured Notes must remain outstanding after each redemption and that each redemption occurs within 90 days of the closing of the equity offering. The Senior Secured Notes are redeemable at our option, in whole or in part, at any time on or after August 15, 2012 at set redemption prices together with accrued and unpaid interest. In addition, prior to August 15, 2012, but not more than once in any twelve-month period, we may redeem up to 10 percent of the Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid interest.

We have an Interest Rate Agreement (Rate Agreement) in place with respect to $100.0 million of debt as a means to manage our fixed to variable interest rate ratio. The Rate Agreement effectively converts this portion of our long-term borrowings from fixed rate debt to variable rate debt. The variable interest rate for our borrowings related to the Rate Agreement at March 31, 2010, excluding applicable fees, is 7.55 percent. This Rate Agreement expires on February 15, 2015. Total remaining Senior Secured Notes not covered by the Rate Agreement have a fixed interest rate of 10.0 percent per year through February 15, 2015. If the counterparty to this Rate Agreement were to fail to perform, this Rate Agreement would no longer afford us a variable rate. However, we do not anticipate non-performance by the counterparty. The interest rate swap counterparty was rated AA, as of March 31, 2010, by Standard and Poor’s.

The fair market value for the Rate Agreement at March 31, 2010 was a $0.9 million liability. An adjustment of $0.7 million was recorded to reduce the carrying value of the related long-term debt. The net impact of $0.2 million expense is recorded in other expense on the Condensed Consolidated Statement of Operations. The fair value of the Rate Agreement is based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. We expect this agreement to expire as originally contracted.

Promissory Note

In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. At March 31, 2010, we had $1.4 million outstanding on the promissory note. Interest with respect to the promissory note is paid monthly.

Notes Payable

We have an overdraft line of credit for a maximum of €1.1 million. The $1.4 million outstanding at March 31, 2010, was the U.S. dollar equivalent under the euro-based overdraft line and the interest rate was 5.80 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 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 March 31, 2010, the annual interest rate was 5.35 percent. As of March 31, 2010, 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 CCB. The 3-year term loan is secured by a Libbey Inc. guarantee and had an original principal payment at maturity on March 14, 2010. On February 25, 2010, the terms of the working capital loan were extended. Under the new terms, the loan matures in January, 2011 and is secured by a letter of credit. At March 31, 2010, the U.S. dollar equivalent on the line was $7.3 million at a current interest rate of 5.31 percent. Interest is payable quarterly.

BES Euro Line

In January 2007, Crisal entered into a seven year, €11.0 million line of credit (approximately $14.8 million) with Banco Espírito Santo, S.A. (BES). The $13.3 million outstanding at March 31, 2010 was the U.S. dollar equivalent of the €9.9 million outstanding under the line at an interest rate of 3.77 percent. Payment of principal in the amount of €1.6 million (approximately $2.2 million) is due in December 2010, payment of €2.2 million (approximately $3.0 million) is due in December 2011, payment of €2.8 million (approximately $3.7 million) is due in December 2012 payment of €3.3 million (approximately $4.4 million) is due in December 2013. Interest with respect to the line is paid every six months.

Fair Value of Borrowings

The fair value of our debt has been calculated based on quoted market prices for the same or similar issues. Our $400.0 million senior secured notes due February 15, 2015 had an estimated fair value of $416.0 million at March 31, 2010. The fair value of the remainder of our debt approximates carrying value at March 31, 2010.

Capital Resources and Liquidity

Historically, cash flows generated from operations and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. As of March 31, 2010 we had no amounts outstanding under our ABL Facility, although we had $17.9 million of letters of credit issued under that facility. As a result, we had

$51.2 million of unused availability remaining under the ABL Facility at March 31, 2010. In addition, we had $18.0 million of cash on hand at March 31, 2010.

On February 8, 2010, we used the proceeds of a debt offering of $400.0 million of Senior Secured Notes due 2015, together with cash on hand, to redeem the $80.4 million face amount of PIK notes that were outstanding at that date and to repurchase the $306.0 million of floating rate notes due 2011. We also amended and restated our ABL Facility to, among other things, extend the maturity to 2014 and reduce the amount that we can borrow under that facility from $150.0 million to $110.0 million. In addition, effective February 25, 2010, we extended the maturity of our RMB 50.0 million working capital loan from March 2010 to January 2011.

Based on our operating plans and current forecast expectations (including expectations that the global economy will not deteriorate further), we anticipate that our cash flows from operations and our borrowing capacity under our amended and restated ABL Facility will provide sufficient cash availability to meet our ongoing liquidity needs.

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. The Syracuse China facility was closed on April 9, 2009 and the Mira Loma distribution center was closed on May 31, 2009. See Form 10-K for the year ended December 31, 2009 for further discussion.

We incurred additional charges of approximately $0.4 million in the three months ended March 31, 2010 related to these planned closures. Special charges of $0.2 million were primarily related to employee termination and building site clean up costs. This amount was included in special charges on the Condensed Consolidated Statement of Operations in the North American Other and North American Glass segments as detailed in the table below.

Other expense on the Condensed Consolidated Statement of Operations included a charge of $0.1 million and $0.2 million for the first quarter of 2010 and 2009, respectively, for the change in fair value of ineffective natural gas hedges related to our Syracuse China operation. This amount was included in the North American Other segment.

We incurred charges of approximately $2.4 million related to these planned closures in the three months ended March 31, 2009. A charge of $1.1 million was incurred to write down certain raw materials and work in process inventory that could not be converted to finished product. This amount was 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. This amount was included in cost of sales on the Condensed Consolidated Statement of Operations in the North American Other segment.

Special charges of $0.4 million recorded during the first quarter of 2009 included various legal, consulting and employee severance related costs. This amount was included in special charges on the Condensed Consolidated Statement of Operations in the North American Other segment.

The following table summarizes the facility closure charges in the first quarter of 2010 and 2009:

		Three months ended March 31, 2010												Three months ended March 31, 2009
		North				North								North				North
		American				American								American				American
(dollars in thousands)		Glass				Other				Total				Glass				Other				Total
Inventory write-down		$	-			$	-			$	-			$	-			$	1,118			$	1,118
Fixed asset depreciation			-				-				-				-				705				705
Included in cost of sales			-				-				-				-				1,823				1,823
Employee termination cost & other			29				76				105				2				351				353
Building site clean-up & fixed asset write-down			-				127				127				-				43				43
Included in special charges			29				203				232				2				394				396
Ineffectiveness of natural gas hedge			-				130				130				-				229				229
Included in other expense			-				130				130				-				229				229
Total pretax charge		$	29			$	333			$	362			$	2			$	2,446			$	2,448

The following reflects the balance sheet activity related to the facility closure charge for the quarter ended March 31, 2010:

		Reserve																Reserve
		Balances				Total												Balances
		at December 31,				Charge to				Cash				Non-cash				at March 31,
(dollars in thousands)		2009				Earnings				Payments				Utilization				2010
Building site clean-up & fixed asset write-down		$	306			$	127			$	(433	)		$	-			$	-
Employee termination cost & other			710				105				(229	)			-				586
Ineffectiveness of natural gas hedges			-				130				-				(130	)			-
Total		$	1,016			$	362			$	(662	)		$	(130	)		$	586

The ending balance of $0.6 million at March 31, 2010 was included in accrued special charges on the Condensed Consolidated Balance Sheet and we expect this to result in cash payments in 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			$	10,553			$	10,745
Pension & postretirement welfare			-				4,448				4,448
Fixed asset depreciation			-				966				966
Included in cost of sales			192				15,967				16,159
Employee termination cost & other			549				6,033				6,582
Building site clean-up & fixed asset write-down			177				9,649				9,826
Included in special charges			726				15,682				16,408
Ineffectiveness of natural gas hedge			-				745				745
Included in other expense			-				745				745
Total pretax charge to date		$	918			$	32,394			$	33,312

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 March 31, 2010 and December 31, 2009 we had $1.4 million and $1.0 million, respectively, of gross unrecognized tax benefits, exclusive of interest and penalties. Further, our current and future provision for income taxes for 2010 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 and Portugal. During the first quarter, we released our partial valuation allowance of $1.1 million in 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 and 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.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care Education and Affordability Reconciliation Act (the Acts) were signed into law. The Acts contain provisions that eliminate the tax-free status of the Part D subsidy beginning in 2013. The affect of this change was a $0.7 million reduction to our gross deferred income tax asset related to retiree medical benefits. However, since we have a valuation allowance against our U.S. deferred income tax asset, there was no impact to the Condensed Consolidated Balance Sheet or the Condensed Consolidated Statement of Operations.

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 (excluding employees hired at Shreveport after 2008). 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:

Three months ended March 31,		U.S. Plans								Non-U.S. Plans								Total
(dollars in thousands)		2010				2009				2010				2009				2010				2009
Service cost		$	1,450			$	1,274			$	396			$	338			$	1,846			$	1,612
Interest cost			4,061				4,097				1,162				1,037				5,223				5,134
Expected return on plan assets			(4,186	)			(4,526	)			(665	)			(632	)			(4,851	)			(5,158	)
Amortization of unrecognized:
Prior service cost (gain)			582				560				30				(24	)			612				536
Loss			978				317				101				94				1,079				411
Settlement charge			-				2,500				-				-				-				2,500
Pension expense		$	2,885			$	4,222			$	1,024			$	813			$	3,909			$	5,035

We incurred pension settlement charges of $2.5 million during the three months ended March 31, 2009. The pension settlement charges were triggered by excess lump sum distributions to retirees. Lump sum distributions to retirees during the first three months of 2010 have not been large enough to trigger settlement charges thus far during 2010.

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. 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:

Three months ended March 31,		U.S. Plans								Non-U.S. Plans								Total
(dollars in thousands)		2010				2009				2010				2009				2010				2009
Service cost		$	389			$	325			$	-			$	-			$	389			$	325
Interest cost			918				937				31				29				949				966
Amortization of unrecognized:
Prior service gain			(2	)			(128	)			-				-				(2	)			(128	)
Loss / (Gain)			236				205				(7	)			(8	)			229				197
Non-pension postretirement benefit expense		$	1,541			$	1,339			$	24			$	21			$	1,565			$	1,360

In 2010, we expect to utilize approximately $18.3 million to fund our pension plans and pay for non-pension postretirement benefits. Of that amount, $3.5 million was utilized in the three months ended March 31, 2010.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care Education and Affordability Reconciliation Act (the Acts) were signed into law. The Acts contain provisions which could impact our accounting for retiree medical benefits in future periods. However, the extent of that impact, if any, cannot be determined until additional interpretations of the Acts become available. Based on the analysis to date, the impact of provisions in the Acts which are reasonably determinable is not expected to have a material impact on our postretirement benefit plans. Accordingly, a remeasurement of our postretirement benefit obligation is not required at this time. We will continue to assess the provisions of the Acts and may consider plan amendments in future periods to better align these plans with the provisions of the Acts.

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 March 31,
(dollars in thousands, except earnings per share)		2010				2009
Numerators for earnings per share —
—Net income (loss) that is available to common shareholders		$	55,410			$	(27,893	)
Denominator for basic earnings per share —
Weighted average shares outstanding			16,123,555				14,740,886
Effect of stock options and restricted stock units			497,689				-
Effect of warrants			3,463,664				-
Total effect of dilutive securities (1)			3,961,353				-
Denominator for diluted earnings per share —
—Adjusted weighted average shares and assumed conversions			20,084,908				14,740,886
Basic earnings (loss) per share:		$	3.44			$	(1.89	)
Diluted earnings (loss) per share:		$	2.76			$	(1.89	)

(1)		The effect of employee stock options, warrants, restricted stock units and the employee stock purchase plan (ESPP) (289,976 shares for the three months ended March 31, 2009), was anti-dilutive and thus not included in the earnings per share calculation. This amount would have been dilutive if not for the net loss.

When applicable, diluted shares outstanding include the dilutive impact of warrants and restricted stock units. Diluted shares also include the 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. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. All of these contracts were accounted for under FASB ASC 815 “Derivatives and Hedging.”

Fair Values

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

Liability Derivatives:

(dollars in thousands)

March 31, 2010

December 31, 2009

Derivatives designated as

Balance

Balance

hedging instruments

Sheet

Fair

Sheet

Fair

under FASB ASC 815:

Location

Value

Location

Value

Natural gas contracts

Derivative liability

$

6,437

Derivative liability

$

3,129

Interest rate contracts

Other long term liability

885

Derivative liability

-

Natural gas contracts

Other long term liability

1,793

Other long term liability

1,982

Total designated

9,115

5,111

Derivatives not designated as hedging instruments under FASB ASC 815:

Natural gas contracts

Derivative liability

226

Derivative liability

217

Natural gas contracts

Other long term liability

105

Other long term liability

79

Total undesignated

331

296

Total

$

9,446

$

5,407

Interest Rate Swaps as Fair Value Hedges

In the first quarter of 2010, we entered into an interest rate swap agreement with a notional amount of $100.0 million that is to mature in 2015. The swap was executed in order to convert a portion of the Senior Secured Note fixed rate debt into floating rate debt, maintain a capital structure containing appropriate amounts of fixed and floating rate debt and reduce net interest payments and expenses in the near-term.

Our fixed-to-floating interest rate swap is designated and qualifies as a fair value hedge. The change in the fair value of the derivative instrument related to the future cash flows (gain or loss on the derivative), as well as the offsetting change in the fair value of the hedged long-term debt attributable to the hedged risk are recognized in current earnings. We include the gain or loss on the hedged long-term debt in other expense along with the offsetting loss or gain on the related interest rate swap.

Amount of gain (loss) recognized in other expense
		Three months ended March 31,
(dollars in thousands)		2010				2009
Interest rate swap		$	(885	)		$	-
Related long-term debt			722				-
Net impact on other expense		$	(163	)		$	-

Commodity Future Contracts and Interest Rate Swaps Designated as Cash Flow Hedges

We use commodity futures contracts related to forecasted future natural gas requirements. The objective of these futures contracts and other derivatives is to limit the fluctuations in prices paid due to 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. As of March 30, 2010, we had commodity contracts for 3,190,000 million British Thermal Units (BTUs) of natural gas. At December 31, 2009, we had commodity contracts for 3,610,000 million BTUs of natural gas.

Most of our natural gas derivatives qualify and are designated as cash flow hedges (except certain contracts originally designated to expected purchases at Syracuse China) at March 31, 2010. 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. 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. We paid cash of $4.5 million and $6.5 million in the three months ended March 31, 2010 and 2009, respectively due to the difference between the fixed unit rate of our natural gas contracts and the variable unit rate of our natural gas cost from suppliers. Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in $6.4 million of expense in our Condensed Consolidated Statement of Operations.

We also used Interest Rate Protection Agreements to manage our exposure to variable interest rates. These Interest Rate Protection Agreements effectively converted 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 were 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 were based on an expectation of future interest rates derived from observed market interest rate forward curves. These agreements expired in December 2009.

As fixed interest payments were made pursuant to the interest rate protection agreements, they were recorded together with the related receipt of variable interest, 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.

Amount of derivative gain/(loss) recognized in OCI (effective portion)
		Three months ended March 31,
(dollars in thousands)		2010				2009
Derivatives in Cash Flow Hedging relationships:
Interest rate contracts		$	-			$	1,496
Natural gas contracts			(6,523	)			(3,744	)
Total		$	(6,523	)		$	(2,248	)

Gain / (loss) reclassified from Accumulated Other
Comprehensive Income (Loss) to income (effective portion)
						Three months ended March 31,
(dollars in thousands)						2010				2009
Derivative:				Location:
Natural gas contracts				Cost of sales		$	(3,957	)		$	(6,451	)
Total impact on net income (loss)						$	(3,957	)		$	(6,451	)

The following table provides the impact on the Condensed Consolidated Statement of Operations from derivatives no longer designated as cash flow hedges, primarily related to the closure of our Syracuse China facility:

Gain (loss) recognized in income
(ineffective portion and amount excluded from effectiveness testing)
						Three months ended March 31,
(dollars in thousands)						2010				2009
Derivative:				Location:
Natural gas contracts				Other expense		$	(130	)		$	(399	)
Total						$	(130	)		$	(399	)

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 counterparty is rated AA for the Interest Rate Agreement and BBB+ or better for the counterparties for the other derivative agreements as of March 31, 2010, by Standard and Poor’s.

10. Comprehensive Income (Loss)

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

		Three months ended
		March 31,
(dollars in thousands)		2010				2009
Net income (loss)		$	55,410			$	(27,893	)
Change in pension and nonpension postretirement liability (1)			1,578				(955	)
Change in fair value of derivatives (2)			(2,158	)			(1,789	)
Exchange rate fluctuations			(6,514	)			(4,070	)
Total comprehensive income (loss)		$	48,316			$	(34,707	)
(1) Net of the following tax amounts for the respective periods		$	102			$	(2,575	)
(2) Net of the following tax amounts for the respective periods		$	408			$	(638	)

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

		March 31,				December 31,
(dollars in thousands)		2010				2009
Minimum pension liability and intangible pension asset		$	(115,308	)		$	(116,886	)
Derivatives			(6,328	)			(4,170	)
Exchange rate fluctuations			(1,182	)			5,332
Balance at end of period		$	(122,818	)		$	(115,724	)

11. Condensed Consolidated Guarantor Financial Statements

Libbey Glass is a direct, 100 percent owned subsidiary of Libbey Inc. and the issuer of the Senior Secured Notes. The obligations of Libbey Glass under the Senior Secured 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 periods ended March 31, 2010 and March 31, 2009.

At March 31, 2010, December 31, 2009 and March 31, 2009, 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 March 31, 2010
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	-			$	86,163			$	19,562			$	81,067			$	(12,888	)		$	173,904
Freight billed to customers			-				166				214				54				-				434
Total revenues			-				86,329				19,776				81,121				(12,888	)			174,338
Cost of sales			-				71,556				14,107				67,686				(12,888	)			140,461
Gross profit			-				14,773				5,669				13,435				-				33,877
Selling, general and administrative expenses			-				12,406				2,166				8,252				-				22,824
Special charges			-				29				203				-				-				232
Income (loss) from operations			-				2,338				3,300				5,183				-				10,821
Other income (expense)			-				55,992				(148	)			185				-				56,029
Earnings (loss) before interest and income taxes			-				58,330				3,152				5,368				-				66,850
Interest expense			-				8,478				-				1,142				-				9,620
Earnings (loss) before income taxes			-				49,852				3,152				4,226				-				57,230
Provision (benefit) for income taxes			-				20				144				1,656				-				1,820
Net income (loss)			-				49,832				3,008				2,570				-				55,410
Equity in net income (loss) of subsidiaries			55,410				5,578				-				-				(60,988	)			-
Net income (loss)		$	55,410			$	55,410			$	3,008			$	2,570			$	(60,988	)		$	55,410

The following represents the total special items included in the above Condensed Consolidated Statement of Operations (see notes 4 and 5):

Three months ended March 31, 2010
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Special charges		$	-			$	29			$	203			$	-			$	-			$	232
Other expense (income)			-				(56,792)				130				-				-				(56,662)
Total pretax special items		$	-			$	(56,763	)		$	333			$	-			$	-			$	(56,430	)
Special items net of tax		$	-			$	(56,763	)		$	333			$	-			$	-			$	(56,430	)

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

Three months ended March 31, 2009
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	-			$	82,766			$	21,377			$	63,109			$	(9,399	)		$	157,853
Freight billed to customers			-				111				205				29				-				345
Total revenues			-				82,877				21,582				63,138				(9,399	)			158,198
Cost of sales			-				76,923				19,896				60,062				(9,399	)			147,482
Gross profit			-				5,954				1,686				3,076				-				10,716
Selling, general and administrative expenses							12,500				2,176				7,698								22,374
Special charges			-				2				394				-				-				396
Income (loss) from operations			-				(6,548	)			(884	)			(4,622	)			-				(12,054	)
Other income (expense)			-				(54	)			(262	)			279				-				(37	)
Earnings (loss) before interest and income taxes			-				(6,602	)			(1,146	)			(4,343	)			-				(12,091	)
Interest expense			-				15,888				-				1,291				-				17,179
Earnings (loss) before income taxes			-				(22,490	)			(1,146	)			(5,634	)			-				(29,270	)
Provision (benefit) for income taxes			-				(1,087	)			336				(626	)			-				(1,377	)
Net income (loss)			-				(21,403	)			(1,482	)			(5,008	)			-				(27,893	)
Equity in net income (loss) of subsidiaries			(27,893	)			(6,490	)			-				-				34,383				-
Net income (loss)		$	(27,893	)		$	(27,893	)		$	(1,482	)		$	(5,008	)		$	34,383			$	(27,893	)

The following represents the total special items included in the above Condensed Consolidated Statement of Operations (see note 4):

Three months ended March 31, 2009
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Cost of sales		$	-			$	-			$	1,823			$	-			$	-			$	1,823
Special charges			-				2				394				-				-				396
Other expense (income)			-				-				229				-				-				229
Total pretax special items		$	-			$	2			$	2,446			$	-			$	-			$	2,448
Special items net of tax		$	-			$	2			$	2,446			$	-			$	-			$	2,448

Libbey Inc.
Condensed Consolidating Balance Sheet
(dollars in thousands)

March 31, 2010 (unaudited)
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Cash and equivalents		$	-			$	11,640			$	270			$	6,117			$	-			$	18,027
Accounts receivable — net			-				33,563				5,812				48,131				-				87,506
Inventories — net			-				55,764				16,295				80,444				-				152,503
Other current assets			-				(1,367	)			12,399				16,716				(10,015	)			17,733
Total current assets			-				99,600				34,776				151,408				(10,015	)			275,769
Other non-current assets			-				4,371				2,779				40,869				(18,764	)			29,255
Investments in and advances to subsidiaries			(18,288	)			399,406				265,161				(968	)			(645,311	)			-
Goodwill and purchased intangible assets — net			-				26,833				15,768				149,925				-				192,526
Total other assets			(18,288	)			430,610				283,708				189,826				(664,075	)			221,781
Property, plant and equipment — net			-				76,860				5,799				196,715				-				279,374
Total assets		$	(18,288	)		$	607,070			$	324,283			$	537,949			$	(674,090	)		$	776,924
Accounts payable		$	-			$	8,800			$	1,798			$	42,412			$	-			$	53,010
Accrued and other current liabilities			-				37,005				28,180				30,705				(12,408	)			83,482
Notes payable and long-term debt due within one year			-				215				-				11,037				-				11,252
Total current liabilities			-				46,020				29,978				84,154				(12,408	)			147,744
Long-term debt			-				393,055				-				47,704				-				440,759
Other long-term liabilities			-				135,960				22,079				67,804				(19,134	)			206,709
Total liabilities			-				575,035				52,057				199,662				(31,542	)			795,212
Total shareholders’ equity (deficit)			(18,288	)			32,035				272,226				338,287				(642,548	)			(18,288	)
Total liabilities and shareholders’ equity (deficit)		$	(18,288	)		$	607,070			$	324,283			$	537,949			$	(674,090	)		$	776,924
December 31, 2009
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Cash and equivalents		$	-			$	37,386			$	419			$	17,284			$	-			$	55,089
Accounts receivable — net			-				36,173				5,125				41,126				-				82,424
Inventories — net			-				48,493				18,024				77,498				-				144,015
Other current assets			-				13,840				946				12,382				(15,385	)			11,783
Total current assets			-				135,892				24,514				148,290				(15,385	)			293,311
Other non-current assets			-				(4,912	)			3,535				38,819				(19,134	)			18,308
Investments in and advances to subsidiaries			(66,907	)			403,403				276,755				140,289				(753,540	)			-
Goodwill and purchased intangible assets — net			-				26,833				15,771				150,577				-				193,181
Total other assets			(66,907	)			425,324				296,061				329,685				(772,674	)			211,489
Property, plant and equipment — net			-				79,773				5,990				204,250				-				290,013
Total assets		$	(66,907	)		$	640,989			$	326,565			$	682,225			$	(788,059	)		$	794,813
Accounts payable		$	-			$	13,503			$	3,289			$	42,046			$	-			$	58,838
Accrued and other current liabilities			-				48,440				9,375				35,064				(8,848	)			84,031
Notes payable and long-term debt due within one year			-				215				-				10,300				-				10,515
Total current liabilities			-				62,158				12,664				87,410				(8,848	)			153,384
Long-term debt			-				456,152				-				48,572				-				504,724
Other long-term liabilities			-				151,754				15,618				61,911				(25,671	)			203,612
Total liabilities			-				670,064				28,282				197,893				(34,519	)			861,720
Total shareholders’ equity (deficit)			(66,907	)			(29,075	)			298,283				484,332				(753,540	)			(66,907	)
Total liabilities and shareholders’ equity (deficit)		$	(66,907	)		$	640,989			$	326,565			$	682,225			$	(788,059	)		$	794,813