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Table of Contents

 
 
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
For the quarterly period ended September 30, 2010
OR
     
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.
             
Large Accelerated Filer o   Accelerated Filer o   Non-Accelerated Filer þ   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 19,679,232 shares at October 29, 2010.
 
 

 


 

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 EX-10.29
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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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, 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.

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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per-share amounts)
(unaudited)
                 
    Three months ended September 30,  
    2010     2009  
Net sales
  $ 200,007     $ 186,878  
Freight billed to customers
    457       419  
 
           
Total revenues
    200,464       187,297  
Cost of sales
    158,779       144,337  
 
           
Gross profit
    41,685       42,960  
Selling, general and administrative expenses
    25,335       24,811  
Restructuring charges
    700       300  
 
           
Income from operations
    15,650       17,849  
Other income
    23       2,703  
 
           
Earnings before interest and income taxes
    15,673       20,552  
Interest expense
    11,855       17,451  
 
           
Income before income taxes
    3,818       3,101  
Provision for (benefit from) income taxes
    1,472       (432 )
 
           
Net income
  $ 2,346     $ 3,533  
 
           
 
               
Net income per share:
               
Basic
  $ 0.13     $ 0.23  
 
           
Diluted
  $ 0.12     $ 0.23  
 
           
Dividends per share
  $     $  
 
           
See accompanying notes

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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per-share amounts)
(unaudited)
                 
    Nine months ended September 30,  
    2010     2009  
Net sales
  $ 576,947     $ 540,557  
Freight billed to customers
    1,311       1,163  
 
           
Total revenues
    578,258       541,720  
Cost of sales
    454,665       453,761  
 
           
Gross profit
    123,593       87,959  
Selling, general and administrative expenses
    72,878       69,699  
Restructuring charges
    1,088       974  
 
           
Income from operations
    49,627       17,286  
Gain on redemption of debt
    56,792        
Other income
    916       5,424  
 
           
Earnings before interest and income taxes
    107,335       22,710  
Interest expense
    33,243       52,162  
 
           
Income (loss) before income taxes
    74,092       (29,452 )
Provision for (benefit from) income taxes
    6,769       (7,756 )
 
           
Net income (loss)
  $ 67,323     $ (21,696 )
 
           
 
               
Net income (loss) per share:
               
Basic
  $ 3.98     $ (1.45 )
 
           
Diluted
  $ 3.26     $ (1.45 )
 
           
Dividends per share
  $     $  
 
           
See accompanying notes

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LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
                 
    September 30, 2010     December 31, 2009  
    (unaudited)          
Assets:
               
 
               
Cash and cash equivalents
  $ 35,568     $ 55,089  
Accounts receivable — net
    110,574       82,424  
Inventories — net
    159,374       144,015  
Prepaid and other current assets
    12,374       11,783  
 
           
Total current assets
    317,890       293,311  
 
               
Pension asset
    10,700       9,454  
Purchased intangible assets — net
    23,594       24,861  
Goodwill
    168,320       168,320  
Other assets
    21,556       8,854  
 
           
Total other assets
    224,170       211,489  
Property, plant and equipment — net
    272,723       290,013  
 
           
Total assets
  $ 814,783     $ 794,813  
 
           
 
               
Liabilities and Shareholders’ Equity (Deficit):
               
 
               
Notes payable
  $     $ 672  
Accounts payable
    58,937       58,838  
Salaries and wages
    29,328       34,064  
Accrued liabilities
    48,532       35,699  
Accrued restructuring charges
    921       1,016  
Pension liability (current portion)
    2,031       1,984  
Non-pension postretirement benefits (current portion)
    4,363       4,363  
Derivative liability
    5,730       3,346  
Deferred income taxes
    3,511       3,559  
Long-term debt due within one year
    9,878       9,843  
 
           
Total current liabilities
    163,231       153,384  
 
               
Long-term debt
    446,224       504,724  
Pension liability
    113,314       119,727  
Non-pension postretirement benefits
    65,447       64,780  
Deferred income taxes
    6,196       6,226  
Other long-term liabilities
    12,018       12,879  
 
           
Total liabilities
    806,430       861,720  
 
               
Shareholders’ equity (deficit):
               
Common stock, par value $.01 per share, 50,000,000 shares authorized, 19,678,152 shares issued at September 30, 2010 and 18,697,630 shares at December 31, 2009
    197       187  
Capital in excess of par value (includes warrants of $1,034 based on 485,309 shares at September 30, 2010 and and $15,560 based on 3,952,165 at December 31, 2009)
    299,719       324,272  
Treasury stock, at cost, 0 shares at September 30, 2010 and 2,599,769 shares in 2009
          (70,298 )
Accumulated deficit
    (181,439 )     (205,344 )
Accumulated other comprehensive loss
    (110,124 )     (115,724 )
 
           
Total shareholders’ equity (deficit)
    8,353       (66,907 )
 
           
Total liabilities and shareholders’ equity (deficit)
  $ 814,783     $ 794,813  
 
           
See accompanying notes

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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
                 
    Three months ended September 30,  
    2010     2009  
Operating activities:
               
Net income
  $ 2,346     $ 3,533  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
               
Depreciation and amortization
    10,040       10,629  
Loss on asset disposals
    78       77  
Change in accounts receivable
    (15,355 )     864  
Change in inventories
    (2,418 )     (6,196 )
Change in accounts payable
    77       (3,191 )
Accrued interest and amortization of discounts, warrants and finance fees
    (8,996 )     13,447  
Pension & non-pension postretirement benefits
    917       (453 )
Restructuring charges
    627       (1,086 )
Accrued liabilities & prepaid expenses
    7,007       8,344  
Accrued income taxes
    1,129       (862 )
Other operating activities
    1,768       1,533  
 
           
Net cash (used in) provided by operating activities
    (2,780 )     26,639  
 
               
Investing activities:
               
Additions to property, plant and equipment
    (7,743 )     (2,737 )
Proceeds from asset sales and other
          172  
 
           
Net cash used in investing activities
    (7,743 )     (2,565 )
 
               
Financing activities:
               
Net repayments on ABL credit facility
          (16,799 )
Other repayments
    (878 )     (662 )
 
           
Net cash used in financing activities
    (878 )     (17,461 )
 
               
Effect of exchange rate fluctuations on cash
    796       (47 )
 
           
(Decrease) increase in cash
    (10,605 )     6,566  
Cash at beginning of period
    46,173       24,082  
 
           
Cash at end of period
  $ 35,568     $ 30,648  
 
           
 
               
Supplemental disclosure of cash flows information:
               
Cash paid during the period for interest
  $ 21,765     $ 894  
Cash refunded during the period for income taxes
  $ (243 )   $ (546 )
See accompanying notes

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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
                 
    Nine months ended September 30,  
    2010     2009  
Operating activities:
               
Net income (loss)
  $ 67,323     $ (21,696 )
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
               
Depreciation and amortization
    30,994       32,875  
Loss on asset disposals
    343       109  
Change in accounts receivable
    (28,967 )     (14,733 )
Change in inventories
    (17,218 )     32,050  
Change in accounts payable
    914       (3,078 )
Accrued interest and amortization of discounts, warrants and finance fees
    6,795       14,998  
Accrual of interest on PIK notes
          11,916  
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
    3,788       2,712  
Restructuring charges
    3,023       (1,837 )
Accrued liabilities & prepaid expenses
    4,494       21,128  
Accrued income taxes
    890       (9,499 )
Other operating activities
    2,980       784  
 
           
Net cash (used in) provided by operating activities
    (10,833 )     65,729  
 
               
Investing activities:
               
Additions to property, plant and equipment
    (19,122 )     (12,287 )
Call premium on floating rate notes
    (8,415 )      
Proceeds from asset sales and other
          260  
 
           
Net cash used in investing activities
    (27,537 )     (12,027 )
 
               
Financing activities:
               
Net repayments on ABL credit facility
          (33,488 )
Other repayments
    (969 )     (2,785 )
Other borrowings
    215        
Floating rate note payments
    (306,000 )      
PIK note payment
    (51,031 )      
Proceeds from senior secured notes
    392,328        
Debt issuance costs and other
    (15,488 )      
 
           
Net cash provided by (used in) financing activities
    19,055       (36,273 )
 
               
Effect of exchange rate fluctuations on cash
    (206 )     (85 )
 
           
(Decrease) increase in cash
    (19,521 )     17,344  
Cash at beginning of period
    55,089       13,304  
 
           
Cash at end of period
  $ 35,568     $ 30,648  
 
           
 
               
Supplemental disclosure of cash flows information:
               
Cash paid during the period for interest
  $ 27,905     $ 20,897  
Cash paid during the period for income taxes
  $ 4,459     $ 761  
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

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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 31st. 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 income.

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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 and nine months ended September 30, 2010 was $0.7 million and $2.6 million, respectively. 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.
New Accounting Standards
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. 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.

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3. Balance Sheet Details
The following table provides detail of selected balance sheet items:
                 
(dollars in thousands)   September 30, 2010     December 31, 2009  
 
Accounts receivable:
               
Trade receivables
  $ 109,998     $ 81,032  
Other receivables
    576       1,392  
 
Total accounts receivable, less allowances of $6,618 and $7,457
  $ 110,574     $ 82,424  
 
Inventories:
               
Finished goods
  $ 143,065     $ 126,858  
Work in process
    762       1,255  
Raw materials
    4,701       4,201  
Repair parts
    9,599       9,933  
Operating supplies
    1,247       1,768  
 
Total inventories, less allowances of $4,794 and $4,528
  $ 159,374     $ 144,015  
 
Prepaid and other current assets:
               
Value added tax
  $ 6,383     $ 4,946  
Prepaid expenses
    5,729       6,362  
Derivative asset
    147        
Refundable and prepaid income taxes and other
    115       475  
 
Total prepaid and other current assets
  $ 12,374     $ 11,783  
 
Other assets:
               
Deposits
  $ 895     $ 583  
Finance fees — net of amortization
    13,571       4,056  
Derivative asset (long-term portion)
    3,228        
Other assets
    3,862       4,215  
 
Total other assets
  $ 21,556     $ 8,854  
 
Accrued liabilities:
               
Accrued incentives
  $ 20,621     $ 13,790  
Workers compensation
    9,384       8,834  
Medical liabilities
    3,778       2,948  
Interest
    5,034       1,998  
Commissions payable
    1,070       1,134  
Other accrued liabilities
    8,645       6,995  
 
Total accrued liabilities
  $ 48,532     $ 35,699  
 
Other long-term liabilities:
               
Derivative liability (long term portion)
  $ 497     $ 2,061  
Deferred liability
    4,158       3,350  
Other long-term liabilities
    7,363       7,468  
 
Total other long-term liabilities
  $ 12,018     $ 12,879  
 

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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;
 
  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.
We 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.
As part of an exchange transaction last year involving our PIK notes, 933,145 shares were issued to Merrill Lynch PCG, Inc. in October, 2009 along with warrants conveying the right to purchase, for $0.01 per share, an additional 3,466,856 shares of our common stock. Please see note 6 to our Annual Report on Form 10-K for the year ended December 31, 2009 for further information on this transaction. The additional 3.5 million shares were issued in August, 2010 as the warrant holder chose to exercise these warrants, and on August 18, 2010, we announced the closing of a secondary offering of these 4.4 million shares of our common stock on behalf of Merrill Lynch PCG, Inc., the selling stockholder, at a price to the public of $10.25 per share. The total offering size reflects the underwriters’ exercise of their option to purchase an additional 573,913 shares of common stock, on the same terms and conditions, to cover over-allotments. We did not receive any proceeds from the offering. The fees of approximately $1.1 million related to this transaction were recorded as Selling, General and Administrative expense in the Condensed Consolidated Statement of Operations and were reflected in our North American Glass segment in the third quarter.
Borrowings consist of the following:
                                 
                    September 30,     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
                          306,000  
PIK notes (2)
                          80,431  
Promissory note
    6.00 %   October, 2010 to September, 2016     1,355       1,492  
Notes payable
  floating   October, 2010           672  
RMB loan contract
  floating   July, 2012 to January, 2014     37,425       36,675  
RMB working capital loan
  floating   January, 2011     7,485       7,335  
BES Euro line
  floating   December, 2010 to December, 2013     13,476       14,190  
 
Total borrowings
                    459,741       446,795  
Less — unamortized discount
                    6,689       1,749  
Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)     3,050        
Plus — carrying value in excess of principal on PIK notes (2)           70,193  
 
Total borrowings — net
                    456,102       515,239  
Less — long term debt due within one year and notes payable     9,878       10,515  
 
Total long-term portion of borrowings — net   $ 446,224     $ 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

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    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), with 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 of Libbey Glass and its domestic subsidiaries (the “Credit Agreement Priority Collateral”);
 
  a first-priority security interest in:
    100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries;
 
    100 percent of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries; and
 
    65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries
  a first priority security interest in substantially all proceeds and products of the property and assets described above; and
 
  a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (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 of Libbey Europe and its Dutch subsidiaries; and
 
  a first-priority security interest in:
    100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and
 
    100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.
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 2.5 percent and 3.5 percent, respectively, at September 30, 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 September 30, 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 September 30, 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 $3.4 million and mark-to-market reserves for natural gas contracts of $4.9 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 September 30, 2010, we had $18.4 million in letters of credit outstanding under the ABL Facility. Remaining unused availability on the new ABL Facility was $69.6 million at September 30, 2010 compared to $79.2 million under the old ABL Facility at December 31, 2009.

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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 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, 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. In addition, prior to August 15, 2012, but not more than once in any twelve-month period, we may redeem in the aggregate up to 10 percent of the Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid interest. The Senior Secured Notes 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.
We have an Interest Rate Agreement (Rate Agreement) in place with respect to $90.0 million of debt as a means to manage our fixed to variable interest rate ratio. Of the original $100 million agreement, $10 million was called in August, 2010 for a premium of $0.3 million, at the counterparty’s option. 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 September 30, 2010, excluding applicable fees, is 7.66 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 September 30, 2010, by Standard and Poor’s.

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The fair market value for the Rate Agreement at September 30, 2010 was a $3.2 million asset. An adjustment of $3.0 million was recorded to increase the carrying value of the related long-term debt. The net impact of $0.2 million expense and $0.2 million income is recorded in other income on the Condensed Consolidated Statement of Operations for the three months and nine months ended September 30, 2010, respectively. 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 September 30, 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 at our Crisal facility for a maximum of €1.1 million. There were no borrowings under the facility at September 30, 2010, which has an interest rate of 5.80 percent.
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 $37.4 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, 2010, the annual interest rate was 5.35 percent. As of September 30, 2010, the outstanding balance was RMB 250.0 million (approximately $37.4 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 $6.0 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 $9.0 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 three-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 September 30, 2010, the U.S. dollar equivalent on the line was $7.5 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 $15.0 million) with Banco Espírito Santo, S.A. (BES). The $13.5 million outstanding at September 30, 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 $3.8 million) is due in December 2012 and payment of €3.3 million (approximately $4.5 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 $430.0 million at September 30, 2010. The fair value of the remainder of our debt approximates carrying value at September 30, 2010.

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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 September 30, 2010 we had no amounts outstanding under our ABL Facility, although we had $18.4 million of letters of credit issued under that facility. As a result, we had $69.6 million of unused availability remaining under the ABL Facility at September 30, 2010. In addition, we had $35.6 million of cash on hand at September 30, 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 level of cash on hand, 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
Facility Closures
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.
There were no additional charges related to these closures in the three months ended September 30, 2010. We incurred additional charges of approximately $0.5 million in the nine months ended September 30, 2010, related to these closures, including charges of $0.4 million primarily related to employee termination and building site clean up costs. These amounts were included in restructuring charges on the Condensed Consolidated Statement of Operations in the North American Other and North American Glass segments as detailed in the tables below.
Other income on the Condensed Consolidated Statement of Operations included a charge of immaterial amounts for the three months ending September 30, 2010 and the three months ending September 30, 2009 and $0.1 million and $0.2 million for the first nine months of 2010 and 2009, respectively, 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.
We incurred charges of approximately $0.5 million and $3.2 million related to these closures in the three months and nine months ended September 30, 2009, respectively. This included a charge of $1.1 million 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. An immaterial amount of this inventory was subsequently sold in the second and third quarters of 2009, resulting in a reversal of a portion of this write-down. A pension settlement charge of approximately $0.2 million was recorded in the third quarter of 2009 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. This amount was included in cost of sales on the Condensed Consolidated Statement of Operations in the North American Other segment.
Charges of $1.0 million and $1.6 million recorded during the three months and nine months ended September 30, 2009, respectively, included various legal, consulting and employee severance 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

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were included in restructuring charges on the Condensed Consolidated Statement of Operations in the North American Other segment.
The following table summarizes the facility closure charges in the third quarter of 2010 and 2009:
                                                 
    Three months ended September 30, 2010     Three 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 )
Pension settlement charges
                            239       239  
 
                                   
Included in cost of sales
                      (1 )     163       162  
Employee termination cost & other
                      (4 )     954       950  
Building site clean-up & fixed asset
                                               
write-down
                      112       (762 )     (650 )
 
                                   
Included in restructuring charges
                      108       192       300  
Ineffectiveness of natural gas hedge
                            (27 )     (27 )
 
                                   
Included in other (expense) income
                            (27 )     (27 )
 
                                   
Total pretax charge
  $     $     $     $ 107     $ 382     $ 489  
 
                                   
The following table summarizes the facility closure charges in the first nine months of 2010 and 2009:
                                                 
    Nine months ended September 30, 2010     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
  $     $     $     $     $ 1,039     $ 1,039  
Pension settlement charges
                            239       239  
Fixed asset depreciation
                            705       705  
 
                                   
Included in cost of sales
                            1,983       1,983  
Employee termination cost & other
    29       76       105       (31 )     1,612       1,581  
Building site clean-up & fixed asset
                                               
write-down
          283       283       112       (719 )     (607 )
 
                                   
Included in restructuring charges
    29       359       388       81       893       974  
Ineffectiveness of natural gas hedge
          (130 )     (130 )           (213 )     (213 )
 
                                   
Included in other (expense) income
          (130 )     (130 )           (213 )     (213 )
 
                                   
Total pretax charge
  $ 29     $ 489     $ 518     $ 81     $ 3,089     $ 3,170  
 
                                   
The following reflects the balance sheet activity related to the facility closure charge for the period ended September 30, 2010:
                                         
    Reserve                             Reserve  
    Balances     Total                     Balances  
    at December 31,     Charge to     Cash     Non-cash     at September 30,  
(dollars in thousands)   2009     Earnings     Payments     Utilization     2010  
Building site clean-up & fixed asset write-down
  $ 306     $ 283     $ (538 )   $     $ 51  
Employee termination cost & other
    710       105       (224 )           591  
Ineffectiveness of natural gas hedges
          130             (130 )      
 
                             
Total
  $ 1,016     $ 518     $ (762 )   $ (130 )   $ 642  
 
                             

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The ending balance of $0.6 million at September 30, 2010 was included in accrued restructuring charges on the Condensed Consolidated Balance Sheet and we expect this to result in cash payments in the remainder of 2010 and 2011. 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       9,805       9,982  
 
                 
Included in restructuring charges
    726       15,838       16,564  
Ineffectiveness of natural gas hedge
          745       745  
 
                 
Included in other income
          745       745  
 
                 
Total pretax charge to date
  $ 918     $ 32,550     $ 33,468  
 
                 
We expect the total expenses for each of these activities to approximate the expenses incurred to date.
Fixed Asset and Inventory Write-down
In August 2010, we wrote down decorating assets in our Shreveport, Louisiana facility as a result of our decision to outsource our U.S. decorating business. In the third quarter of 2010, a charge of $0.6 million was recorded to write down inventory and spare machine parts. This amount was included in cost of sales on the Condensed Consolidated Statement of Operations in the North American Glass segment. Charges of $0.7 million were recorded in the third quarter of 2010 for site cleanup and fixed assets write down. This amount was included in restructuring charges on the Condensed Consolidated Statement of Operations in the North American Glass segment. No employee related costs were incurred, as all employees will be reassigned into the facility.
                                         
    Reserve                             Reserve  
    Balances     Total                     Balances  
    at December 31,     Charge to     Cash     Non-cash     at September 30,  
(dollars in thousands)   2009     Earnings     Payments     Utilization     2010  
Inventory write-down
  $     $ 578     $     $ (578 )   $  
Building site clean-up & fixed asset write-down
          700       9       (430 )     279  
 
                             
Total
  $     $ 1,278     $ 9     $ (1,008 )   $ 279  
 
                             
The ending balance of $0.3 million at September 30, 2010 was included in accrued restructuring charges on the Condensed Consolidated Balance Sheet and we expect this to result in cash payments in the remainder of 2010.
During the second quarter of 2010, we wrote down certain after-processing equipment within our International segment. The non-cash charge of $2.7 million was included in cost of sales on the Consolidated Statements of Operations.

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Summary of Total Charges
The following table summarizes the charges mentioned above and their classifications in the Condensed Consolidated Statements of Operations:
                                 
    Three months ended September 30,     Nine months ended September 30,  
(dollars in thousands)   2010     2009     2010     2009  
Cost of sales
  $ 578     $ 162     $ 3,265     $ 1,983  
Restructuring charges
    700       300       1,088       974  
Other income
          27       130       213  
 
                       
 
  $ 1,278     $ 489     $ 4,483     $ 3,170  
 
                       
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 and changes in tax laws. At September 30, 2010 and December 31, 2009 we had $1.3 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 of 2010, we released a 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. net deferred income tax asset, there was no impact to the Condensed Consolidated Balance Sheet or the Condensed Consolidated Statements 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. Except for the Crisa plan, our policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006 and most hourly U.S.-based employees (excluding employees hired at Shreveport after 2008 and employees hired at Toledo after September 30, 2010). The non-U.S. pension plans cover the employees of our wholly owned subsidiaries Royal Leerdam and Crisa. The Crisa plan is not funded.

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The components of our net pension expense, including the SERP, are as follows:
                                                 
Three months ended September 30,   U.S. Plans     Non-U.S. Plans     Total  
(dollars in thousands)   2010     2009     2010     2009     2010     2009  
 
Service cost
  $ 1,106     $ 1,271     $ 383     $ 339     $ 1,489     $ 1,610  
Interest cost
    3,800       3,878       1,103       1,037       4,903       4,915  
Expected return on plan assets
    (4,141 )     (4,383 )     (612 )     (632 )     (4,753 )     (5,015 )
Amortization of unrecognized:
                                               
Prior service cost (gain)
    582       560       30       (23 )     612       537  
Loss
    760       227       98       93       858       320  
Settlement charge
          687                         687  
 
Pension expense
  $ 2,107     $ 2,240     $ 1,002     $ 814     $ 3,109     $ 3,054  
 
                                                 
Nine months ended September 30,   U.S. Plans     Non-U.S. Plans     Total  
(dollars in thousands)   2010     2009     2010     2009     2010     2009  
 
Service cost
  $ 4,006     $ 3,761     $ 1,184     $ 1,015     $ 5,190     $ 4,776  
Interest cost
    11,922       11,774       3,348       3,111       15,270       14,885  
Expected return on plan assets
    (12,513 )     (13,184 )     (1,795 )     (1,897 )     (14,308 )     (15,081 )
Amortization of unrecognized:
                                               
Prior service cost (gain)
    1,746       1,681       92       (70 )     1,838       1,611  
Loss
    2,716       662       308       281       3,024       943  
Settlement charge
          3,387                         3,387  
 
Pension expense
  $ 7,877     $ 8,081     $ 3,137     $ 2,440     $ 11,014     $ 10,521  
 
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. Lump sum distributions to retirees during the first nine 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 (excluding employees hired at Shreveport after 2008 and employees hired at Toledo after September 30, 2010). 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 September 30,   U.S. Plans     Non-U.S. Plans     Total  
(dollars in thousands)   2010     2009     2010     2009     2010     2009  
 
Service cost
  $ 242     $ 333     $     $     $ 242     $ 333  
Interest cost
    877       946       30       29       907       975  
Amortization of unrecognized:
                                               
Prior service cost (gain)
    296       (104 )                 296       (104 )
Loss / (gain)
    299       191       (8 )     (9 )     291       182  
Curtailment credit
          (94 )                       (94 )
 
Non-pension postretirement benefit expense
  $ 1,714     $ 1,272     $ 22     $ 20     $ 1,736     $ 1,292  
 

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Nine months ended September 30,   U.S. Plans     Non-U.S. Plans     Total  
(dollars in thousands)   2010     2009     2010     2009     2010     2009  
 
Service cost
  1,020     999     1     1     1,021     1,000  
Interest cost
    2,713       2,838       92       84       2,805       2,922  
Amortization of unrecognized:
                                               
Prior service cost (gain)
    292       (313 )                 292       (313 )
Loss / (gain)
    771       573       (21 )     (26 )     750       547  
Curtailment credit
          (94 )                       (94 )
 
Non-pension postretirement benefit expense
  $ 4,796     $ 4,003     $ 72     $ 59     $ 4,868     $ 4,062  
 
In 2010, we expect to utilize approximately $19.1 million to fund our pension plans and pay for non-pension postretirement benefits. Of that amount, $5.3 million and $13.8 million were utilized in the three months and nine months ended September 30, 2010, respectively.
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 re-measurement 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 September 30,     Nine months Ended September 30,  
(dollars in thousands, except earnings per share)   2010     2009     2010     2009  
 
Numerators for earnings per share —
                               
—Net income (loss) that is available to common shareholders
  $ 2,346     $ 3,533     $ 67,323     $ (21,696 )
 
Denominator for basic earnings per share —
                               
Weighted average shares outstanding
    18,148,127       15,152,337       16,927,812       14,926,422  
 
Effect of stock options and restricted stock units
    391,486       435,212       424,602        
 
Effect of warrants
    1,746,983             3,305,639        
 
Total effect of dilutive securities (1)
    2,138,469       435,212       3,730,241        
 
Denominator for diluted earnings per share —
                               
—Adjusted weighted average shares and assumed conversions
    20,286,596       15,587,549       20,658,053       14,926,422  
 
Basic earnings (loss) per share:
  $ 0.13     $ 0.23     $ 3.98     $ (1.45 )
 
Diluted earnings (loss) per share:
  $ 0.12     $ 0.23     $ 3.26     $ (1.45 )
 
 
(1)   The effect of employee stock options, warrants, restricted stock units and the employee stock purchase plan (ESPP) (236,265 shares for the nine months ended September 30, 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 for the nine month period ended September 30, 2009.
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.

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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 hedge 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:
                                 
    Asset Derivatives:  
    September 30, 2010     December 31, 2009  
    Balance             Balance        
    Sheet     Fair     Sheet     Fair  
(dollars in thousands)   Location:     Value     Location:     Value  
Derivatives designated as
hedging instruments
under FASB ASC 815:
                               
Interest rate contract
  Other assets   $ 3,228             $  
 
                           
Total designated
            3,228                
 
                               
Derivatives not designated as
hedging instruments
under FASB ASC 815:
                               
Currency contracts
  Prepaid and other current assets     147                
 
                           
Total undesignated
            147                
 
                           
Total
          $ 3,375             $  
 
                           
 
    Liability Derivatives:  
    September 30, 2010     December 31, 2009  
    Balance             Balance        
    Sheet     Fair     Sheet     Fair  
(dollars in thousands)   Location     Value     Location     Value  
Derivatives designated as
hedging instruments
under FASB ASC 815:
                               
Natural gas contracts
  Derivative liability   $ 5,601     Derivative liability   $ 3,129  
Natural gas contracts
  Other long-term liabilities     497     Other long-term liabilities     1,982  
 
                           
Total designated
            6,098               5,111  
 
                               
Derivatives not designated as
hedging instruments
under FASB ASC 815:
                               
Natural gas contracts
  Derivative liability     129     Derivative liability     217  
Natural gas contracts
  Other long-term liabilities         Other long-term liabilities     79  
 
                           
Total undesignated
            129               296  
 
                           
Total
          $ 6,227             $ 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

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in 2015. The swap was executed in order to convert a portion of the Senior Secured Note fixed rate debt into floating rate debt and maintain a capital structure containing appropriate amounts of fixed and floating rate debt. In August 2010, $10.0 million of the swap was called for a premium of $0.3 million.
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 income along with the offsetting loss or gain on the related interest rate swap.
                                 
  Amount of gain (loss) recognized in other income  
    Three months ended September 30,     Nine months ended September 30,  
(dollars in thousands)   2010     2009     2010     2009  
Interest rate swap
  $ 1,740     $     $ 3,229     $  
Related long-term debt
    (1,977 )           (3,050 )      
 
                       
Net impact on other expense
  $ (237 )   $     $ 179     $  
 
                       
Commodity Futures Contracts and Interest Rate Swaps Designated as Cash Flow Hedges
We 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 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 September 30, 2010, we had commodity contracts for 3,120,000 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 September 30, 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 $2.1 million and $4.4 million in the three months ended September 30, 2010 and 2009, respectively, and $9.1 million and $18.8 million in the nine months ended September 30, 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 $6.1 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 classified 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.

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Amount of derivative gain/(loss) recognized in OCI (effective portion)  
    Three months ended September 30,     Nine months ended September 30,  
(dollars in thousands)   2010     2009     2010     2009  
Derivatives in Cash Flow Hedging relationships:
                               
Interest rate contracts
  $     $ 2,021     $     $ 4,950  
Natural gas contracts
    (2,667 )     (31 )     (8,919 )     (7,056 )
 
                       
Total
  $ (2,667 )   $ 1,990     $ (8,919 )   $ (2,106 )
 
                       
                                 
Gain / (loss) reclassified from Accumulated Other Comprehensive Income (Loss) to income (effective portion)  
    Three months ended September 30,     Nine months ended September 30,  
(dollars in thousands)   2010     2009     2010     2009  
Derivative:                          Location:
                               
Natural gas contracts       Cost of sales
  $ (2,097 )   $ (4,422 )   $ (8,550 )   $ (18,783 )
 
                       
Total impact on net income (loss)
  $ (2,097 )   $ (4,422 )   $ (8,550 )   $ (18,783 )
 
                       
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 September 30,     Nine months ended September 30,  
(dollars in thousands)   2010     2009     2010     2009  
Derivative:                         Location:
                               
Natural gas contracts      Other income (expense)
  $ (30 )   $ (27 )   $ (131 )   $ (136 )
 
                       
Total
  $ (30 )   $ (27 )   $ (131 )   $ (136 )
 
                       
Currency Contracts
Our foreign currency exposure arises from transactions denominated in a currency other than the U.S. dollar, primarily associated with our Canadian dollar denominated accounts receivable. 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. In April, 2010, we entered into a series of foreign currency contracts to sell Canadian dollars. As of September 30, 2010, we had contracts for $8.0 million Canadian dollars.
Gains and losses for derivatives which were not designated as hedging instruments are recorded in current earnings as follows:
                                 
    Three months ended September 30,     Nine months ended September 30,  
(dollars in thousands)   2010     2009     2010     2009  
Derivative:                     Location:
                               
Currency contracts      Other income (expense)
  $ (491 )   $     $ 148     $  
 
                       
Total
  $ (491 )   $     $ 148     $  
 
                       
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 to the other derivative agreements as of September 30, 2010, by Standard and Poor’s.

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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,  
(dollars in thousands)   2010     2009     2010     2009  
Net income (loss)
  $ 2,346     $ 3,533     $ 67,323     $ (21,696 )
 
                               
Change in pension and nonpension postretirement liability (1)
    7,420       1,090       11,330       5,571  
Change in fair value of derivatives (2)
    (573 )     4,687       (289 )     7,329  
Exchange rate fluctuations
    10,221       2,608       (5,441 )     2,438  
 
                       
Total comprehensive income (loss)
  $ 19,414     $ 11,918     $ 72,923     $ (6,358 )
 
                       
 
                                 
(1)     Net of the following tax amounts for the respective periods
  $ (117 )   $ 378     $ (92 )   $ (5,938 )
(2)     Net of the following tax amounts for the respective periods
  $ (62 )   $ (1,626 )   $ (145 )   $ (3,897 )
Accumulated other comprehensive loss (net of tax) is as follows:
                 
    September 30,     December 31,  
(dollars in thousands)   2010     2009  
Minimum pension liability and intangible pension asset
  $ (105,556 )   $ (116,886 )
Derivatives
    (4,459 )     (4,170 )
Exchange rate fluctuations
    (109 )     5,332  
 
               
 
           
Balance at end of period
  $ (110,124 )   $ (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 and nine-month periods ended September 30, 2010 and September 30, 2009.
At September 30, 2010, December 31, 2009 and September 30, 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.

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Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
(unaudited)
                                                 
Three months ended September 30, 2010  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Net sales
  $     $ 97,576     $ 20,768     $ 99,919     $ (18,256 )   $ 200,007  
Freight billed to customers
          146       212       99             457  
 
Total revenues
          97,722       20,980       100,018       (18,256 )     200,464  
Cost of sales
          80,221       15,739       81,075       (18,256 )     158,779  
 
Gross profit
          17,501       5,241       18,943             41,685  
Selling, general and administrative expenses
          15,118       2,424       7,793             25,335  
Restructuring charges
          700                         700  
 
Income (loss) from operations
          1,683       2,817       11,150             15,650  
Other income (expense)
          418       (16 )     (379 )           23  
 
Earnings (loss) before interest and income taxes
          2,101       2,801       10,771             15,673  
Interest expense
          10,542             1,313             11,855  
 
Earnings (loss) before income taxes
          (8,441 )     2,801       9,458             3,818  
Provision (benefit) for income taxes
          502       18       952             1,472  
 
Net income (loss)
          (8,943 )     2,783       8,506             2,346  
Equity in net income (loss) of subsidiaries
    2,346       11,289                   (13,635 )      
 
Net income (loss)
  $ 2,346     $ 2,346     $ 2,783     $ 8,506     $ (13,635 )   $ 2,346  
 
The following represents the total special items included in the above Condensed Consolidated Statement of Operations (see notes 4 and 5):
                                                 
Three months ended September 30, 2010  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Cost of sales
  $     $ 578     $     $     $     $ 578  
Selling, general and administrative expenses
          1,096                         1,096  
Restructuring charges
          700                         700  
 
Total pretax special items
  $     $ 2,374     $     $     $     $ 2,374  
 
Special items net of tax
  $     $ 2,374     $     $     $     $ 2,374  
 

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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  
Restructuring 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  
 
The following represents the total special items included in the above Condensed Consolidated Statement of Operations (see note 5):
                                                 
Three months ended September 30, 2009  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Cost of sales
  $     $ (1 )   $ 163     $     $     $ 162  
Selling, general and administrative expenses
          255                         255  
Restructuring charges
          108       192                   300  
Other income (expense)
                (27 )                 (27 )
 
Total pretax special items
  $     $ 362     $ 382     $     $     $ 744  
 
Special items net of tax
  $     $ 362     $ 382     $     $     $ 744  
 

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Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
(unaudited)
                                                 
            Nine months ended September 30, 2010  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Net sales
  $     $ 287,273     $ 63,488     $ 272,714     $ (46,528 )   $ 576,947  
Freight billed to customers
          471       641       199             1,311  
 
Total revenues
          287,744       64,129       272,913       (46,528 )     578,258  
Cost of sales
          230,569       46,081       224,543       (46,528 )     454,665  
 
Gross profit
          57,175       18,048       48,370             123,593  
Selling, general and administrative expenses
          41,369       7,012       24,497             72,878  
Restructuring charges
          729       359                   1,088  
 
Income (loss) from operations
          15,077       10,677       23,873             49,627  
Other income (expense)
          56,809       (158 )     1,057             57,708  
 
Earnings (loss) before interest and income taxes
          71,886       10,519       24,930             107,335  
Interest expense
          29,676       (6 )     3,573             33,243  
 
Earnings (loss) before income taxes
          42,210       10,525       21,357             74,092  
Provision (benefit) for income taxes
          (241 )     76       6,934             6,769  
 
Net income (loss)
          42,451       10,449       14,423             67,323  
Equity in net income (loss) of subsidiaries
    67,323       24,872                   (92,195 )      
 
Net income (loss)
  $ 67,323     $ 67,323     $ 10,449     $ 14,423     $ (92,195 )   $ 67,323  
 
The following represents the total special items included in the above Condensed Consolidated Statement of Operations (see notes 4 and 5):
                                                 
            Nine months ended September 30, 2010  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Cost of sales
  $     $ (367 )   $     $ 2,687     $     $ 2,320  
Selling, general and administrative expenses
          1,096                         1,096  
Restructuring charges
          729       359                   1,088  
Other expense (income)
          (56,792 )     130                   (56,662 )
 
Total pretax special items
  $     $ (55,334 )   $ 489     $ 2,687     $     $ (52,158 )
 
Special items net of tax
  $     $ (55,334 )   $ 489     $ 2,687     $     $ (52,158 )
 

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Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
(unaudited)
                                                 
            Nine months ended September 30, 2009  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Net sales
  $     $ 277,396     $ 66,180     $ 228,874     $ (31,893 )   $ 540,557  
Freight billed to customers
          433       631       99             1,163  
 
Total revenues
          277,829       66,811       228,973       (31,893 )     541,720  
Cost of sales
          224,217       54,260       207,177       (31,893 )     453,761  
 
Gross profit
          53,612       12,551       21,796             87,959  
Selling, general and administrative expenses
            39,076       6,352       24,271               69,699  
Restructuring charges
          81       893                   974  
 
Income (loss) from operations
          14,455       5,306       (2,475 )           17,286  
Other income (expense)
          3,452       (143 )     2,115             5,424  
 
Earnings (loss) before interest and income taxes
          17,907       5,163       (360 )           22,710  
Interest expense
          47,687       1       4,474             52,162  
 
Earnings (loss) before income taxes
          (29,780 )     5,162       (4,834 )           (29,452 )
Provision (benefit) for income taxes
          (7,059 )     249       (946 )           (7,756 )
 
Net income (loss)
          (22,721 )     4,913       (3,888 )           (21,696 )
Equity in net income (loss) of subsidiaries
    (21,696 )     1,025                   20,671        
 
Net income (loss)
  $ (21,696 )   $ (21,696 )   $ 4,913     $ (3,888 )   $ 20,671     $ (21,696 )
 
The following represents the total special items included in the above Condensed Consolidated Statement of Operations (see note 5):
                                                 
            Nine months ended September 30, 2009  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Cost of sales
  $     $     $ 1,983     $     $     $ 1,983  
Selling, general and administrative expenses
          2,955                         2,955  
Restructuring charges
          81       893                   974  
Other income (expense)
                (213 )                 (213 )
 
Total pretax special items
  $     $ 3,036     $ 3,089     $     $     $ 6,125  
 
Special items net of tax
  $     $ 3,036     $ 3,089     $     $     $ 6,125  
 

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Libbey Inc.
Condensed Consolidating Balance Sheet
(dollars in thousands)
                                                 
            September 30, 2010 (unaudited)  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Cash and equivalents
  $     $ 19,118     $ 368     $ 16,082     $     $ 35,568  
Accounts receivable — net
          41,031       6,300       63,243             110,574  
Inventories — net
          60,487       19,315       79,572             159,374  
Other current assets
          (6,189 )     14,739       16,232       (12,408 )     12,374  
 
Total current assets
          114,447       40,722       175,129       (12,408 )     317,890  
Other non-current assets
          6,638       2,779       41,603       (18,764 )     32,256  
Investments in and advances to subsidiaries
    8,353       382,730       274,712       (746 )     (665,049 )      
Goodwill and purchased intangible assets — net
          26,833       15,764       149,317             191,914  
 
Total other assets
    8,353       416,201       293,255       190,174       (683,813 )     224,170  
Property, plant and equipment — net
          74,149       5,500       193,074             272,723  
 
Total assets
  $ 8,353     $ 604,797     $ 339,477     $ 558,377     $ (696,221 )   $ 814,783  
 
Accounts payable
  $     $ 12,460     $ 3,023     $ 43,454     $     $ 58,937  
Accrued and other current liabilities
          40,138       29,332       37,354       (12,408 )     94,416  
Notes payable and long-term debt due within one year
          215             9,663             9,878  
 
Total current liabilities
          52,813       32,355       90,471       (12,408 )     163,231  
Long-term debt
          397,501             48,723             446,224  
Other long-term liabilities
          126,589       22,480       67,040       (19,134 )     196,975  
 
Total liabilities
          576,903       54,835       206,234       (31,542 )     806,430  
Total shareholders’ equity (deficit)
    8,353       27,894       284,642       352,143       (664,679 )     8,353  
 
Total liabilities and shareholders’ equity (deficit)
  $ 8,353     $ 604,797     $ 339,477     $ 558,377     $ (696,221 )   $ 814,783  
 
                                                 
            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  
 

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Libbey Inc.
Condensed Consolidating Statement of Cash Flows
(dollars in thousands)
(unaudited)
                                                 
            Three months ended September 30, 2010  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Net income (loss)
  $ 2,346     $ 2,346     $ 2,783     $ 8,506     $ (13,635 )   $ 2,346  
Depreciation and amortization
          3,571       184       6,285             10,040  
Other operating activities
    (2,346 )     (16,818 )     (2,783 )     (6,854 )     13,635       (15,166 )
 
Net cash provided by (used in) operating activities
          (10,901 )     184       7,937             (2,780 )
Additions to property, plant & equipment
          (3,278 )     (62 )     (4,403 )           (7,743 )
Other investing activities
                                   
 
 
                                               
Net cash (used in) investing activities
          (3,278 )     (62 )     (4,403 )           (7,743 )
Net borrowings
          160             (1,038 )           (878 )
Other financing activities
                                   
 
Net cash provided by (used in) financing activities
          160             (1,038 )           (878 )
Exchange effect on cash
                      796             796  
 
Increase (decrease) in cash
          (14,019 )     122       3,292             (10,605 )
Cash at beginning of period
          33,137       246       12,790             46,173  
 
Cash at end of period
  $     $ 19,118     $ 368     $ 16,082     $     $ 35,568  
 
                                                 
            Three months ended September 30, 2009  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Net income (loss)
  $ 3,533     $ 3,533     $ 2,909     $ 5,152     $ (11,594 )   $ 3,533  
Depreciation and amortization
          3,447       244       6,938             10,629  
Other operating activities
    (3,533 )     1,996       (3,060 )     5,480       11,594       12,477  
 
Net cash provided by (used in) operating activities
          8,976       93       17,570             26,639  
Additions to property, plant & equipment
          (833 )     (53 )     (1,851 )           (2,737 )
Other investing activities
          (33 )     5       200             172  
 
 
                                               
Net cash (used in) investing activities
          (866 )     (48 )     (1,651 )           (2,565 )
Net borrowings
          (48 )           (17,413 )           (17,461 )
Other financing activities
                                   
 
Net cash provided by (used in) financing activities
          (48 )           (17,413 )           (17,461 )
Exchange effect on cash
                      (47 )           (47 )
 
Increase (decrease) in cash
          8,062       45       (1,541 )           6,566  
Cash at beginning of period
          11,784       261       12,037             24,082  
 
Cash at end of period
  $     $ 19,846     $ 306     $ 10,496     $     $ 30,648  
 

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Libbey Inc.
Condensed Consolidating Statement of Cash Flows
(dollars in thousands)
(unaudited)
                                                 
Nine months ended September 30, 2010  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Net income (loss)
  $ 67,323     $ 67,323     $ 10,449     $ 14,423     $ (92,195 )   $ 67,323  
Depreciation and amortization
          11,282       570       19,142             30,994  
Other operating activities
    (67,323 )     (102,014 )     (10,994 )     (21,014 )     92,195       (109,150 )
 
Net cash provided by (used in) operating activities
          (23,409 )     25       12,551             (10,833 )
Additions to property, plant & equipment
          (6,322 )     (76 )     (12,724 )           (19,122 )
Other investing activities
          (8,415 )                       (8,415 )
 
 
                                               
Net cash (used in) investing activities
          (14,737 )     (76 )     (12,724 )           (27,537 )
Net borrowings
          35,366             (823 )           34,543  
Other financing activities
          (15,488 )                       (15,488 )
 
Net cash provided by (used in) financing activities
          19,878             (823 )           19,055  
Exchange effect on cash
                      (206 )           (206 )
 
Increase (decrease) in cash
          (18,268 )     (51 )     (1,202 )           (19,521 )
Cash at beginning of period
          37,386       419       17,284             55,089  
 
Cash at end of period
  $     $ 19,118     $ 368     $ 16,082     $     $ 35,568  
 
                                                 
Nine months ended September 30, 2009  
    Libbey     Libbey             Non-              
    Inc.     Glass     Subsidiary     Guarantor              
    (Parent)     (Issuer)     Guarantors     Subsidiaries     Eliminations     Consolidated  
 
Net income (loss)
  $ (21,696 )   $ (21,696 )   $ 4,913     $ (3,888 )   $ 20,671     $ (21,696 )
Depreciation and amortization
          11,223       1,830       19,822             32,875  
Other operating activities
    21,696       28,135       (6,588 )     31,978       (20,671 )     54,550  
 
Net cash provided by (used in) operating activities
          17,662       155       47,912             65,729  
Additions to property, plant & equipment
          (4,194 )     (267 )     (7,826 )           (12,287 )
Other investing activities
          55       5       200             260  
 
 
                                               
Net cash (used in) investing activities
          (4,139 )     (262 )     (7,626 )           (12,027 )
Net borrowings
          (130 )           (36,143 )           (36,273 )
Other financing activities
                                   
 
Net cash provided by (used in) financing activities
          (130 )           (36,143 )           (36,273 )
Exchange effect on cash
                      (85 )           (85 )
 
Increase (decrease) in cash
          13,393       (107 )     4,058             17,344  
Cash at beginning of period
          6,453       413       6,438             13,304  
 
Cash at end of period
  $     $ 19,846     $ 306     $ 10,496     $     $ 30,648  
 

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12. Segments
Our segments are described as follows:
  North American Glass—includes sales of glass tableware from subsidiaries throughout the United States, Canada and Mexico.
  North American Other—includes sales of ceramic dinnerware; metal tableware, hollowware and serveware; and plastic items from subsidiaries in the United States.
  International—includes worldwide sales of glass tableware from subsidiaries outside the United States, Canada and Mexico.
Some operating segments were aggregated to arrive at the disclosed reportable segments. The accounting policies of the segments are the same as those described in Note 2 of the Notes to Condensed Consolidated Financial Statements. No customer represents more than 10 percent of total net sales. We evaluate the performance of our segments based upon net sales and Earnings Before Interest and Taxes (EBIT). Intersegment sales are consummated at arm’s length and are reflected in eliminations in the table below.
                                 
    Three months ended September 30,     Nine months ended September 30,  
(dollars in thousands)   2010     2009     2010     2009  
  | | | |
Net Sales:
                               
North American Glass
  $ 137,101     $ 128,316     $ 404,083     $ 374,803  
North American Other
    20,768       20,462       63,488       66,180  
International
    45,245       40,279       118,381       103,663  
Eliminations
    (3,107 )     (2,179 )     (9,005 )     (4,089 )
 
Consolidated
  $ 200,007     $ 186,878     $ 576,947     $ 540,557  
 
EBIT:
                               
North American Glass
  $ 9,182     $ 16,594     $ 98,423     $ 19,727  
North American Other
    2,831       2,953       10,598       5,263  
International
    3,660       1,005       (1,686 )     (2,280 )
 
Consolidated
  $ 15,673     $ 20,552     $ 107,335     $ 22,710  
 
Special Items — (income) expense:
                               
North American Glass
  $ 2,374     $ 362     $ (55,334 ) (1)   $ 3,036  
North American Other
          382       489       3,089  
International
                2,687        
 
Consolidated
  $ 2,374     $ 744     $ (52,158 )   $ 6,125  
 
Depreciation & Amortization:
                               
North American Glass
  $ 5,968     $ 6,074     $ 18,250     $ 18,857  
North American Other
    184       244       570       1,830  
International
    3,888       4,311       12,174       12,188  
 
Consolidated
  $ 10,040     $ 10,629     $ 30,994     $ 32,875  
 
Capital Expenditures:
                               
North American Glass
  $ 5,054     $ 1,714     $ 11,685     $ 6,855  
North American Other
    62       53       76       267  
International
    2,627       970       7,361       5,165  
 
Consolidated
  $ 7,743     $ 2,737     $ 19,122     $ 12,287  
 
Reconciliation of EBIT to Net Income (Loss):
                               
Segment EBIT
  $ 15,673     $ 20,552     $ 107,335     $ 22,710  
Interest Expense
    (11,855 )     (17,451 )     (33,243 )     (52,162 )
Benefit from (provision for) Income Taxes
    (1,472 )     432       (6,769 )     7,756  
 
Net Income (Loss)
  $ 2,346     $ 3,533     $ 67,323     $ (21,696 )
 
 
(1)   Includes a $56,792 gain on redemption of debt and $1,096 of expenses from the secondary stock offering as discussed in note 4, $29 of restructuring charges, $945 from an insurance recovery and $1,278 of costs related to the write-off of decorating assets at our Shreveport, Louisiana facility as discussed in note 5.

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13. Fair Value
FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
    Level 1 — Quoted prices in active markets for identical assets or liabilities.
    Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
    Level 3 — Unobservable inputs based on our own assumptions.
                                                                 
Asset / (Liability)   Fair Value at September 30, 2010     Fair Value at December 31, 2009  
(dollars in thousands)   Level 1     Level 2     Level 3     Total     Level 1     Level 2     Level 3     Total  
         
Commodity futures natural gas contracts
  $     $ (6,227 )   $     $ (6,227 )   $     $ (5,407 )   $     $ (5,407 )
Currency contracts
          147             147                          
Interest rate agreements
          3,228             3,228                          
         
Net derivative liability
  $     $ (2,852 )   $     $ (2,852 )   $     $ (5,407 )   $     $ (5,407 )
         
The fair values of our commodity futures natural gas contracts and currency contracts are determined using observable market inputs. The fair value of our interest 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. Since these inputs are observable in active markets over the terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy. We also evaluate Company and counterparty risk in determining fair values. The total derivative position is recorded on the Condensed Consolidated Balance Sheets with $0.1 million in prepaid and other current assets, $3.2 million in other assets, $5.7 million in derivative liability and $0.5 million in other long-term liabilities as of September 30, 2010. As of December 31, 2009 $3.3 million was recorded in derivative liability and $2.1 million in other long-term liabilities.
The commodity futures natural gas contracts, interest rate agreements and currency contracts are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the above table.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes thereto appearing elsewhere in this report and in our Annual Report filed with the Securities and Exchange Commission. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ from those anticipated in these forward-looking statements as a result of many factors. These factors are discussed in “Risk Factors” under Item 1A of “Part II — Other Information”.
Overview
Compared to the three months ended September 30, 2009, our net sales increased during the three months ended September 30, 2010, with our U.S. and Canadian retail business as well as our International segment continuing their strong performances. Although net sales in our U.S. and Canadian foodservice business increased in the third quarter of 2010 compared to the same quarter of 2009, that business continues to be impacted by a slow recovery in general market conditions. As a result of the refinancing of most of our debt during the first quarter of 2010, we already have benefited from lower interest rates and reduced borrowings. In addition, during the third quarter of 2010 we completed a secondary offering of 4.4 million shares of our stock on behalf of Merrill Lynch, PCG, Inc., the selling stockholder, but we incurred $1.1 million of costs (which are included in selling, general and administrative costs in our Condensed Consolidated Statement of Operations) in connection with that offering. Please see note 4 to the Condensed Consolidated Financial Statements for a further discussion of the refinancing and secondary offering transaction.
Results of Operations — Third Quarter 2010 Compared with Third Quarter 2009
                                 
(dollars in thousands, except percentages and per-share   Three months ended September 30,     Variance  
amounts)   2010     2009     In dollars     In percent  
  | | | |
Net sales
  $ 200,007     $ 186,878     $ 13,129       7.0 %
Gross profit (2)
  $ 41,685     $ 42,960     $ (1,275 )     (3.0 )%
Gross profit margin
    20.8 %     23.0 %                
Income from operations (IFO) (2)(3)
  $ 15,650     $ 17,849     $ (2,199 )     (12.3 )%
IFO margin
    7.8 %     9.6 %                
Earnings before interest and income taxes (EBIT)(1)(2)(3)
  $ 15,673     $ 20,552     $ (4,879 )     (23.7 )%
EBIT margin
    7.8 %     11.0 %                
Earnings before interest, taxes, depreciation and amortization (EBITDA)(1)(2)(3)
  $ 25,713     $ 31,181     $ (5,468 )     (17.5 )%
EBITDA margin
    12.9 %     16.7 %                
Adjusted EBITDA(1)
  $ 28,087     $ 31,925     $ (3,838 )     (12.0 )%
Adjusted EBITDA margin
    14.0 %     17.1 %                
Net income (2)(3)
  $ 2,346     $ 3,533     $ (1,187 )     (33.6 )%
Net income margin
    1.2 %     1.9 %                
Diluted net income per share
  $ 0.12     $ 0.23     $ (0.11 )     (47.8 )%
 
NM = Not Meaningful
 
(1)   We believe that EBIT, EBITDA and Adjusted EBITDA, non-GAAP financial measures, are useful metrics for evaluating our financial performance, as they are measures that we use internally to assess our performance. See Table 1 for a reconciliation of net income (loss) to EBIT, EBITDA and Adjusted EBITDA and a further discussion as to the reasons we believe these non-GAAP financial measures are useful.
 
(2)   Includes a pretax asset write-down of $0.6 million in 2010 related to the write-off of our decorating assets in our North American Glass segment and $0.2 million of write-downs related to a facility closure in our North American Other segment in 2009. (See note 5 to the Condensed Consolidated Financial Statements).
 
(3)   In addition to item (2) above, includes pre-tax fees of $1.1 million related to our secondary stock offering and restructuring charges of $0.7 million related to the write-off of our decorating assets in our North American Glass segment in 2010, charges of $0.3 million in 2009 related to the closing of our Syracuse China manufacturing facility and our Mira Loma distribution center, and $0.3 million in 2009 related to pension settlement charges. (See notes 4, 5 and 7 to the Condensed Consolidated Financial Statements).

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Net Sales
For the quarter ended September 30, 2010, net sales increased 7.0 percent to $200.0 million from third quarter sales of $186.9 million in the year-ago quarter. The improvement was primarily attributable to our North American Glass operations, where net sales increased 6.8 percent to $137.1 million from $128.3 million in the year-ago quarter. The increase in sales was mainly attributable to a 14.6 percent increase in sales to Crisa customers, which included a 1.6 percent increase from the currency impact of the Mexican peso. Sales to U.S. and Canadian retail customers increased 4.9 percent while sales to our U.S. and Canadian foodservice glassware customers increased 1.3 percent, as the full service restaurant sector into which our products are primarily sold continues to face inconsistent traffic trends. North American Other net sales increased 1.5 percent, due to a 3.4 percent increase in sales to World Tableware customers and a 7.6 percent increase in sales to Traex customers when compared to the third quarter of 2009. These increases were partially offset by a 5.6 percent decline in sales of Syracuse China products. International net sales increased 12.3 percent compared to the year-ago quarter. Excluding the impact of currency exchange, sales growth was 22.2 percent compared to the prior-year quarter. This increase in International sales resulted from an 11.4 percent increase in sales to Royal Leerdam customers, an increase of 27.3 percent in sales to Libbey China customers and a 16.3 percent increase in sales to Crisal customers.
Gross Profit
For the quarter ended September 30, 2010, gross profit decreased by $1.3 million, or 3.0 percent, to $41.7 million, compared to $43.0 million in the year-ago quarter. Gross profit as a percentage of net sales decreased to 20.8 percent, compared to 23.0 percent in the year-ago quarter. The major reasons for the decline in gross profit were increased sales of lower margin products in the retail market and a $2.8 million increase in packaging costs compared to the prior-year period. Restructuring charges for the three months ended September 30, 2010 were $0.6 million primarily due to costs related to the write-off of the decorating assets at our Shreveport, Louisiana facility. Restructuring charges for the quarter ended September 30, 2009 were $0.2 million primarily due to costs related to the Syracuse China facility closure. These were offset by higher sales levels.
Income From Operations
Income from operations for the quarter ended September 30, 2010 decreased $2.2 million, or 12.3 percent, to $15.7 million, compared to $17.8 million in the year-ago quarter. Income from operations as a percentage of net sales declined to 7.8 percent in the third quarter of 2010, compared to 9.6 percent in the year-ago quarter. The decrease in income from operations is a result of lower gross profit and gross profit margin (discussed above), increased workers compensation expense of $1.0 million related to a facility in California which was closed in 2005 and $1.1 million of finance fees related to the secondary stock offering completed in August 2010. This was partially offset by a $0.9 million reduction in other selling, general and administrative expenses (primarily labor and benefits). In addition, the $0.3 million of pension settlement charges that we incurred in the third quarter of 2009 did not recur in the current period.
Earnings Before Interest and Income Taxes (EBIT)
Earnings before Interest and Income Taxes (EBIT) for the quarter ended September 30, 2010 decreased by $4.9 million, or 23.7 percent, to $15.7 million in 2010 from $20.6 million in 2009. EBIT as a percentage of net sales decreased to 7.8 percent in the third quarter of 2010, compared to 11.0 percent in the year-ago quarter. Key contributors to the decrease in EBIT compared to the year-ago quarter are the same as those discussed above under Income From Operations, together with a $2.9 million translation gain included in other income in the third quarter of 2009, which did not repeat in 2010.
Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)
EBITDA decreased by $5.5 million in the third quarter of 2010, to $25.7 million, compared to $31.2 million in the year-ago quarter. As a percentage of net sales, EBITDA decreased to 12.9 percent for the third quarter of 2010, from 16.7 percent in the year-ago quarter. The key contributors to the change in EBITDA were those factors discussed above under Earnings Before Interest and Income Taxes (EBIT).
Adjusted EBITDA
Adjusted EBITDA decreased by $3.8 million in the third quarter of 2010, to $28.1 million, compared to $31.9 million in the year-ago quarter. As a percentage of net sales, Adjusted EBITDA was 14.0 percent for the third quarter of 2010, compared to 17.1 percent in

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the year-ago quarter. The key contributors to the change in Adjusted EBITDA were those factors discussed above under Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), the exclusion of $1.1 million of finance fees related to the secondary stock offering and a $1.3 million charge related to the write-down of the decorating assets at our Shreveport, Louisiana facility in 2010, and $0.5 million related to facility closure costs and a $0.3 million pension settlement charge in 2009.
Net Income and Diluted Net Income Per Share
We recorded net income of $2.3 million, or $0.12 per diluted share, in the third quarter of 2010, compared to $3.5 million, or $0.23 per diluted share, in the year-ago quarter. Net income as a percentage of net sales was 1.2 percent in the third quarter of 2010, compared to 1.9 percent in the year-ago quarter. The decline in net income and diluted net income per share is generally due to the factors discussed in EBIT above and a $5.6 million reduction in interest expense offset by a $1.9 million increase in provision for (benefit from) income taxes. The reduction in interest expense is driven by lower debt levels and the impact of the debt refinancing completed in February 2010. The effective tax rate was a 38.6 percent expense for the quarter compared to a 13.9 percent benefit in the year-ago quarter. 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 and changes in tax laws.
Results of Operations — First Nine Months 2010 Compared with First Nine Months 2009
                                 
(dollars in thousands, except percentages and per-share   Nine months ended September 30,     Variance  
amounts)   2010     2009     In dollars     In percent  
 
Net sales
  $ 576,947     $ 540,557     $ 36,390       6.7 %
Gross profit (2)
  $ 123,593     $ 87,959     $ 35,634       40.5 %
Gross profit margin
    21.4 %     16.3 %                
Income from operations (IFO)(2)(3)
  $ 49,627     $ 17,286     $ 32,341       187.1 %
IFO margin
    8.6 %     3.2 %                
Earnings before interest and income taxes (EBIT)(1)(2)(3)(4)
  $ 107,335     $ 22,710     $ 84,625       372.6 %
EBIT margin
    18.6 %     4.2 %                
Earnings before interest, taxes, depreciation and amortization (EBITDA)(1)(2)(3)(4)
  $ 138,329     $ 55,585     $ 82,744       148.9 %
EBITDA margin
    24.0 %     10.3 %                
Adjusted EBITDA(1)
  $ 86,171     $ 61,005     $ 25,166       41.3 %
Adjusted EBITDA margin
    14.9 %     11.3 %                
Net income (loss)(2)(3)(4)
  $ 67,323     $ (21,696 )   $ 89,019       410.3 %
Net income (loss) margin
    11.7 %     (4.0 )%                
Diluted net income (loss) per share
  $ 3.26     $ (1.45 )   $ 4.71       324.8 %
 
 
(1)   We believe that EBIT, EBITDA and Adjusted EBITDA, non-GAAP financial measures, are useful metrics for evaluating our financial performance, as they are measures that we use internally to assess our performance. See Table 1 for a reconciliation of net income (loss) to EBIT, EBITDA and Adjusted EBITDA and for further discussion as to the reasons we believe these non-GAAP financial measures are useful.
 
(2)   Includes a pre-tax fixed asset write-down of $2.7 million related to after-processing equipment in our International segment and $0.6 million related to the write-off of decorating assets at our Shreveport, Louisiana facility in 2010. Also includes pre-tax restructuring charges of $2.0 million in 2009 related to the closing of our Syracuse China manufacturing facility and our Mira Loma distribution center. (See note 5 to the Condensed Consolidated Financial Statements).
 
(3)   In addition to item (2) above, includes a $1.1 million charge related to fees for the secondary stock offering and $0.7 million related to the write-off of decorating assets at our Shreveport, Louisiana facility in 2010, pre-tax restructuring charges of $0.4 million in 2010 and $1.0 million in 2009 related to the closing of our Syracuse China manufacturing facility and our Mira Loma distribution center and $3.0 million in 2009 related to pension settlement charges. (See notes 4, 5 and 7 to the Condensed Consolidated Financial Statements).
 
(4)   In addition to item (3) above, includes pre-tax income of $56.8 million in 2010 related to the gain on redemption of the PIK Notes and pre-tax restructuring charges of $0.1 million in 2010 and $0.2 million in 2009 related to the closing of our Syracuse China manufacturing facility and our Mira Loma distribution center. (See notes 4 and 5 to the Condensed Consolidated Financial Statements).

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Net Sales
For the nine months ended September 30, 2010, net sales increased 6.7 percent to $576.9 million from $540.6 million in the year-ago period. The improvement was primarily attributable to our North American Glass operations, where net sales increased 7.8 percent to $404.1 million from $374.8 million in the year-ago period. The increase in net sales was mainly attributable to a 24.4 percent increase in sales to Crisa customers. The increase in net sales to Crisa customers included a 4.2 percent increase from the currency impact of the Mexican peso. Sales to U.S. and Canadian retail customers increased 10.0 percent. These increases were partially offset by a 2.4 percent decline in sales to our U.S. and Canadian foodservice glassware customers. North American Other net sales decreased 4.1 percent, primarily due to a 21.5 percent decline in sales of Syracuse China products related to the April 2009 closure of the Syracuse China production facility and the decision to reduce the Syracuse China product offering. Sales to World Tableware customers increased 5.5 percent when compared to the first nine months of 2009, while sales to Traex customers were 0.5 percent below sales for the comparable period in 2009. International net sales increased 14.2 percent compared to the year-ago period, resulting primarily from a 15.5 percent increase in sales to Royal Leerdam customers. Increases of 29.0 percent in sales to Libbey China customers and 11.6 percent in sales to Crisal customers also contributed to the International sales improvement. Excluding the currency impact, International sales increased approximately 18.6 percent.
Gross Profit
For the nine months ended September 30, 2010, gross profit increased by $35.6 million, or 40.5 percent, to $123.6 million, compared to $88.0 million in the year-ago period. Gross profit as a percentage of net sales increased to 21.4 percent, compared to 16.3 percent in the year-ago period. The major reason for the improvement in gross profit was increased production activity that resulted in a $28.2 million benefit, net of cost increases inherent with the higher level of activity. Favorable currency impact contributed another $8.8 million to the margin, primarily from movement in the Mexican peso. Higher levels of net sales and favorable mix contributed another $2.0 million to gross profit, while restructuring charges related to facility closures decreased by $2.0 million. These improvements were offset by a $2.9 million increase in distribution costs due to increased sales and a $2.7 million fixed asset write-down in 2010 related to after-processing equipment in our International segment.
Income From Operations
Income from operations for the nine months ended September 30, 2010 increased $32.3 million, to $49.6 million, compared to $17.3 million in the year-ago period. Income from operations as a percentage of net sales increased to 8.6 percent in the first nine months of 2010, compared to 3.2 percent in the year-ago period. The improvement in income from operations is a result of higher gross profit and gross profit margin (discussed above), offset by a $3.2 million increase in selling, general and administrative expenses and a $0.1 million increase in items on the restructuring charges line. The increase in selling, general and administrative expenses included $1.1 million in fees related to the secondary stock offering in 2010 and increases of $3.2 million in labor and benefits (which includes the $1.0 million workers compensation charge and $2.0 million of other benefit cost increases), $0.9 million in legal and professional fees and $0.7 million in supplies and other costs, offset by $3.0 million of pension settlement expenses in 2009 that did not recur in 2010.
Earnings Before Interest and Income Taxes (EBIT)
Earnings before Interest and Income Taxes (EBIT) for the nine months ended September 30, 2010 increased by $84.6 million, to $107.3 million in 2010 from $22.7 million in 2009. EBIT as a percentage of net sales increased to 18.6 percent in the first nine months of 2010, compared to 4.2 percent in the year-ago period. Key contributors to the increase in EBIT compared to the year-ago period are the same as those discussed above under Income From Operations. In addition, we recorded a $56.8 million gain on redemption of debt in 2010, net of certain transaction expenses. See note 4 for further discussion of this gain. Other income decreased by $4.5 million primarily related to an unfavorable swing in foreign currency translation gains versus the prior-year period and a decrease in miscellaneous income.
Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)
EBITDA increased by $82.7 million, or 148.9 percent in the first nine months of 2010, to $138.3 million, compared to $55.6 million in the year-ago period. As a percentage of net sales, EBITDA for the first nine months of 2010 was 24.0 percent, compared to 10.3 percent in the year-ago period. The key contributors to the increase in EBITDA were those factors discussed above under Earnings Before Interest and Income Taxes (EBIT). These improvements were slightly offset as EBITDA does not include the benefit of a $1.2

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million decrease in depreciation and amortization expenses primarily due to the shutdown of our Syracuse China operations.
Adjusted EBITDA
Adjusted EBITDA increased by $25.2 million, or 41.3 percent in the first nine months of 2010, to $86.2 million, compared to $61.0 million in the year-ago period. As a percentage of net sales, Adjusted EBITDA was 14.9 percent for the first nine months of 2010, compared to 11.3 percent in the year-ago period. The key contributors to the increase in Adjusted EBITDA were those factors discussed above under Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). Negatively impacting Adjusted EBITDA for the first nine months of 2010 were the exclusion of a $56.8 million gain on redemption of debt and a $0.9 million insurance claim recovery in 2010, a $1.1 million charge for fees related to a secondary equity offering in 2010, a $2.7 million fixed asset write down of after-processing equipment in our International segment in 2010, a $1.3 million charge to write off decorating assets at our Shreveport, Louisiana facility in 2010 and a $0.5 million facility closure charge in 2010. Negatively impacting Adjusted EBITDA in the first nine months of 2009 were pension settlement charges of $3.0 million and facility closure charges of $3.2 million less $0.7 million of accelerated depreciation included in those charges in 2009.
Net Income (Loss) and Diluted Net Income (Loss) Per Share
We recorded net income of $67.3 million, or $3.26 per diluted share, in the first nine months of 2010, compared to a net loss of $(21.7) million, or $(1.45) per diluted share, in the year-ago period. Net income (loss) as a percentage of net sales was 11.7 percent in the first nine months of 2010, compared to (4.0) percent in the year-ago period. The improvement in net income (loss) and diluted net income (loss) per share is generally due to the factors discussed in EBIT above, together with an $18.9 million reduction in interest expense offset by a $14.5 million increase in provision for (benefit from) income taxes. The reduction in interest expense is driven by lower debt levels and the impact of the debt refinancing completed in February 2010. The effective tax rate was a 9.1 percent expense for the current nine-month period compared to a 26.3 percent benefit in the year-ago period, primarily due to changes in the mix of earnings in countries with differing statutory tax rates, changes in accruals related to uncertain tax positions and changes in tax laws.
Segment Results of Operations
                                                                 
    Three months ended                     Nine months ended        
    September 30,     Variance     September 30,     Variance  
(dollars in thousands)   2010     2009     In dollars     In percent     2010     2009     In dollars     In percent  
 
Net Sales:
                                                               
North American Glass
  $ 137,101     $ 128,316     $ 8,785       6.8 %   $ 404,083     $ 374,803     $ 29,280       7.8 %
North American Other
    20,768       20,462       306       1.5 %     63,488       66,180       (2,692 )     (4.1 )%
International
    45,245       40,279       4,966       12.3 %     118,381       103,663       14,718       14.2 %
Eliminations
    (3,107 )     (2,179 )                     (9,005 )     (4,089 )                
 
Consolidated
  $ 200,007     $ 186,878     $ 13,129       7.0 %   $ 576,947     $ 540,557     $ 36,390       6.7 %
 
EBIT:
                                                               
North American Glass
  $ 9,182     $ 16,594     $ (7,412 )     (44.7 )%   $ 98,423     $ 19,727     $ 78,696       398.9 %
North American Other
    2,831       2,953       (122 )     (4.1 )%     10,598       5,263       5,335       101.4 %
International
    3,660       1,005       2,655       264.2 %     (1,686 )     (2,280 )     594       26.1 %
 
Consolidated
  $ 15,673     $ 20,552     $ (4,879 )     (23.7 )%   $ 107,335     $ 22,710     $ 84,625       372.6 %
 
EBIT Margin:
                                                               
North American Glass
    6.7 %     12.9 %                     24.4 %     5.3 %                
North American Other
    13.6 %     14.4 %                     16.7 %     8.0 %                
International
    8.1 %     2.5 %                     (1.4 )%     (2.2 )%                
Consolidated
    7.8 %     11.0 %                     18.6 %     4.2 %                
 
Special items — (income) expense:
                                                               
North American Glass
  $ 2,374     $ 362     $ 2,012       555.8 %   $ (55,334 )   $ 3,036     $ (58,370 )   NM
North American Other
          382       (382 )     (100.0 )%     489       3,089       (2,600 )     (84.2 )%
International
                    NM     2,687             2,687     NM
 
Consolidated
  $ 2,374     $ 744     $ 1,630       219.1 %   $ (52,158 )   $ 6,125     $ (58,283 )   NM
 
NM = Not Meaningful

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Segment Results of Operations — Third Quarter 2010 Compared to Third Quarter 2009
North American Glass
For the quarter ended September 30, 2010, net sales increased 6.8 percent to $137.1 million from $128.3 million in the year-ago quarter. Of the increase in net sales, approximately 5.5 percent was attributable to increased sales to Crisa customers and 1.4 percent was attributable to increased sales to U.S. and Canadian retail glassware customers. Of the 5.5 percent attributable to increased sales to Crisa customers, 0.6 percent was related to a favorable currency impact.
EBIT decreased to $9.2 million for the third quarter of 2010, compared to $16.6 million for the year-ago quarter. EBIT as a percentage of net sales decreased to 6.7 percent in the third quarter of 2010, compared to 12.9 percent in the year-ago quarter. The key factors in the decrease in EBIT compared to the year-ago quarter were a $2.2 million decline due to higher manufacturing costs offset by higher production activity, a $1.0 million workers compensation expense related to a facility in California that we closed in 2005, a $1.1 million charge for fees related to the secondary equity offering, $1.3 million of charges related to the write-off of decorating assets at our Shreveport, Louisiana facility and a $3.1 million decrease in other income due to unfavorable movement in currency translation. Selling, general and administrative costs were favorable due to a $1.2 million decrease in labor and benefit costs and a $0.3 million pension settlement charge in 2009 that did not repeat in 2010. These were offset by increases of $0.5 million in legal and professional fees, $0.2 million of repairs and other costs and $0.1 million in selling and marketing expense.
North American Other
For the quarter ended September 30, 2010, net sales increased 1.5 percent to $20.8 million from $20.5 million in the year-ago quarter. Components of the total increase in net sales were increases of approximately 1.7 percent and 1.5 percent in sales of World Tableware and Traex products, respectively, offset by declines of 1.4 percent in sales of Syracuse China products. EBIT decreased by $0.1 million, or 4.1 percent, to $2.8 million for the third quarter of 2010, compared to $3.0 million in the year-ago quarter. EBIT as a percentage of net sales decreased to 13.6 percent in the third quarter of 2010, compared to 14.4 percent in the year-ago quarter. The key contributors to the decreased EBIT were $1.2 million in increased costs primarily related to increased purchases of finished products and a $0.4 million increase in selling, general and administrative expenses. These increased costs were offset by an improvement of $0.8 million due to improved sales volume and mix, a $0.3 million reduction in distribution costs and a $0.4 million decrease in special charges.
International
For the quarter ended September 30, 2010, net sales increased 12.3 percent to $45.2 million from $40.3 million in the year-ago quarter. Components of the increase were increases of 6.3 percent, 5.0 percent and 4.9 percent in sales to customers of Royal Leerdam, Libbey China, and Crisal, respectively. These increases in net sales included a 10.5 percent reduction in sales due to a weaker euro.
EBIT improved by $2.7 million to $3.7 million in the third quarter of 2010 from $1.0 million in the year-ago quarter. EBIT as a percentage of net sales improved to 8.1 percent in the third quarter of 2010, compared to 2.5 percent in the year-ago quarter. An improvement from higher production activity offset by higher manufacturing costs contributed $2.4 million, while improved sales volume and mix produced a $0.9 million favorable impact and other income increased $0.4 million due to higher currency translation gains. These improvements were offset by an increase of $0.9 million in distribution costs.
Segment Results of Operations — First Nine Months 2010 Compared to First Nine Months 2009
North American Glass
For the nine months ended September 30, 2010, net sales increased 7.8 percent to $404.1 million from $374.8 million in the year-ago period. Of the increase in net sales, approximately 6.1 percent was attributable to increased sales to Crisa customers and 2.6 percent was attributable to increased sales to U.S. and Canadian retail glassware customers, offset by a 0.5 percent decline in sales to U.S. and Canadian foodservice glassware customers. Of the 8.3 percent attributable to increased sales to Crisa customers, 1.4 percent was related to a favorable currency impact.

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EBIT increased $78.7 million or 398.9 percent to $98.4 million for the first nine months of 2010, compared to $19.7 million for the year-ago period. EBIT as a percentage of net sales increased to 24.4 percent in the first nine months 2010, compared to 5.3 percent in the year-ago period. The key factors in the increase in EBIT compared to the year-ago period were a $56.8 million gain on redemption of debt, $28.2 million due to higher production activity offset by higher manufacturing costs and $8.5 million due to favorable currency exchange movement. Selling, general and administrative costs included a $1.1 million charge for fees related to the secondary equity offering in 2010, offset by a $2.7 million pension settlement charge in 2009 that did not recur in 2010. Excluding the impact of these two items, selling, general and administrative expenses increased $3.6 million in the first nine months of 2010 due primarily to higher labor and benefit costs, including a $1.0 million charge in workers compensation related to a facility in California that we closed in 2005, and legal and professional fees. Distribution costs increased $1.3 million, unfavorable changes in sales and sales mix, excluding currency exchange impact, caused a $7.5 million impact and other income decreased $3.8 million related to an unfavorable swing in foreign currency translation gains versus the prior-year period.
North American Other
For the nine months ended September 30, 2010, net sales declined 4.1 percent to $63.5 million from $66.2 million in the year-ago period. Components of the total decrease in net sales were declines of approximately 5.9 percent in sales of Syracuse China products related to the closure of the Syracuse China facility in April 2009 and the decision to reduce the Syracuse China product offering and approximately 0.1 percent in sales of Traex products. These declines were offset by an increase of 2.7 percent in sales of products to World Tableware customers.
EBIT increased by $5.3 million, or 101.4 percent, to $10.6 million for the first nine months of 2010, compared to $5.3 million in the year-ago period. EBIT as a percentage of net sales increased to 16.7 percent in the first nine months of 2010, compared to 8.0 percent in the year-ago period. The key contributors to the increased EBIT were a decrease of $1.9 million in special charges and an improvement of $4.1 million due to improved sales volume and mix. These improvements were primarily the result of the April 2009 closure of our Syracuse China production facility. These improvements were offset by an increase of $0.7 million in selling, general and administrative expenses.
International
For the nine months ended September 30, 2010, net sales increased 14.2 percent to $118.4 million from $103.7 million in the year-ago period. Components of the increase were increases of 8.0 percent, 5.0 percent and 4.1 percent in sales to customers of Royal Leerdam, Libbey China, and Crisal, respectively. These improvements include an offsetting impact of movement in the euro which caused a 4.7 percent decline for the segment.
EBIT improved by $0.6 million to a loss of $(1.7) million in the first nine months of 2010 from a loss of $(2.3) million in the year-ago period. EBIT as a percentage of net sales improved to (1.4) percent in the first nine months of 2010, compared to (2.2) percent in the year-ago period. Improved sales volume and mix produced a $5.3 million favorable impact, while currency impact contributed an additional $0.3 million improvement and production costs declined by $0.4 million net of production activity. These improvements were offset by a fixed asset write-down on certain after-processing equipment of $2.7 million, an increase of $0.7 million in selling, general and administrative costs, an increase of $1.4 million in distribution costs related to the higher sales volume and $0.7 million in other expense.
Capital Resources and Liquidity
Balance Sheet and Cash Flows
Cash and Equivalents
At September 30, 2010 our cash balance was $35.6 million, a decrease of $19.5 million from $55.1 million at December 31, 2009. The decrease was primarily due to our utilization of a portion of our cash on hand to complete the refinancing of our indebtedness in February, 2010, to pay interest on our senior secured notes in August, 2010 and to fund the seasonal increases in working capital.

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Working Capital
The following table presents our working capital components:
                                 
(dollars in thousands, except percentages                   Variance  
and DSO, DIO, DPO and DWC)   September 30, 2010     December 31, 2009     In dollars     In percent  
                                 
Accounts receivable — net
  $ 110,574     $ 82,424     $ 28,150       34.2 %
DSO (1)
    51.4       40.2                  
Inventories — net
  $ 159,374     $ 144,015     $ 15,359       10.7 %
DIO (2)
    74.1       70.2                  
Accounts payable
  $ 58,937     $ 58,838     $ 99       0.2 %
DPO (3)
    27.4       28.7                  
Working capital (4)
  $ 211,011     $ 167,601     $ 43,410       25.9 %
DWC (5)
    98.1       81.7                  
Percentage of net sales
    26.9 %     22.4 %                
                                 
     DSO, DIO, DPO and DWC are calculated using net sales as the denominator and are based on a 365-day calendar year.
 
(1)   Days sales outstanding (DSO) measures the number of days it takes to turn receivables into cash.
 
(2)   Days inventory outstanding (DIO) measures the number of days it takes to turn inventory into cash.
 
(3)   Days payable outstanding (DPO) measures the number of days it takes to pay the balances of our accounts payable.
 
(4)   Working capital is defined as net accounts receivable plus net inventories less accounts payable. See Table 3 for the calculation of this non-GAAP financial measure and for further discussion as to the reasons we believe this non-GAAP financial measure is useful.
 
(5)   Days working capital (DWC) measures the number of days it takes to turn our working capital into cash.
Working capital (as defined above) was $211.0 million at September 30, 2010, an increase of $43.4 million from December 31, 2009. This increase is primarily due to higher inventories and accounts receivable, as we continue to experience the effects of both higher sales and production levels. In addition, a portion of the inventory increase was the result of normal seasonal trends and our normal practice of building inventory in preparation for a potential work stoppage associated with the scheduled September 30, 2010 expiration of collective bargaining agreements relating to our Toledo, Ohio facility. The collective bargaining agreements were extended, and new contracts were ratified, subsequent to the end of the quarter, with no resulting work stoppages. The increase in our accounts receivable balance reflects higher late-quarter sales when compared to the end of the year. Our days sales outstanding also increased compared to the end of the year as increased collections will typically lag any increase in sales volume. While the balance in accounts payable is comparable to the balance at December 31, 2009, we also experienced a decrease in days payable outstanding when compared to the end of 2009, as cash payments typically are slower during the final weeks of the year due to holidays. As a result of the factors above, working capital as a percentage of net sales increased to 26.9 percent at September 30, 2010 from 22.4 percent at December 31, 2009. Working capital as a percentage of net sales at September 30, 2010 is comparable to that of 26.5 percent at September 30, 2009.

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Borrowings
The following table presents our total borrowings:
                                 
                    September 30,     December 31,  
(dollars in thousands)   Interest Rate     Maturity Date     2010     2009  
                                 
Borrowings under ABL facility
  floating     April 8, 2014   $     $  
Senior Secured Notes
    10.0 %(1)   February 15, 2015     400,000        
Floating rate notes
                          306,000  
PIK Notes (2)
                          80,431  
Promissory note
    6.00 %   October, 2010 to September, 2016     1,355       1,492  
Notes payable
  floating     October, 2010           672  
RMB loan contract
  floating     July, 2012 to January, 2014     37,425       36,675  
RMB working capital loan
  floating     January, 2011     7,485       7,335  
BES Euro line
  floating     December, 2010 to December, 2013     13,476       14,190  
                                 
Total borrowings
                    459,741       446,795  
Less — unamortized discount
                    6,689       1,749  
Plus — Carrying value adjustment on debt related to the Interest Rate Agreement (1)     3,050        
Plus — Carrying value in excess of principal on PIK Notes (2)           70,193  
                                 
Total borrowings — net (3)
                  $ 456,102     $ 515,239  
                                 
 
(1)   See “Derivatives” below and note 9 to the Condensed Consolidated Financial Statements.
 
(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 of the senior floating rate notes and recognized the $70.2 million gain in gain on redemption of debt on the Condensed Consolidated Statement of Operations.
 
(3)   The total borrowings net include notes payable, long-term debt due within one year and long-term debt as stated in our Condensed Consolidated Balance Sheets.
We had total borrowings of $459.7 million at September 30, 2010, compared to total borrowings of $446.8 million at December 31, 2009. The $12.9 million increase in borrowings was the result of the debt refinancing completed on February 8, 2010. In connection with that refinancing, we used the proceeds of a $400.0 million debt offering and cash on hand to redeem the PIK notes and repurchase the $306.0 million Floating Rate notes. We also amended and restated the credit agreement relating to our ABL facility. See note 4 to the Condensed Consolidated Financial Statements.
Of our total borrowings, $148.4 million, or approximately 32.3 percent, was subject to variable interest rates at September 30, 2010. A change of one percentage point in such rates would result in a change in interest expense of approximately $1.5 million on an annual basis.
Included in interest expense is the amortization of discounts, warrants and financing fees. These items amounted to $1.1 million and $1.3 million for the three months ended September 30, 2010 and 2009, respectively, and $3.2 million and $3.8 million for the nine months ended September 30, 2010 and 2009, respectively.

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Cash Flow
The following table presents key drivers to our free cash flow for the third quarter.
                                 
    Three months ended September 30,     Variance  
(dollars in thousands, except percentages)   2010     2009     In dollars     In percent  
                                 
Net cash (used in) provided by operating activities
  $ (2,780 )   $ 26,639     $ (29,419 )     (110.4 )%
Capital expenditures
    (7,743 )     (2,737 )     (5,006 )     (182.9 )%
Proceeds from asset sales and other
          172       (172 )     (100.0 )%
                                 
Free cash flow (1)
  $ (10,523 )   $ 24,074     $ (34,597 )     (143.7 )%
                                 
 
(1)   We believe that Free cash flow [net cash (used in) provided by operating activities, less capital expenditures, plus proceeds from assets sales and other] is a useful metric for evaluating our financial performance, as it is a measure we use internally to assess performance. See Table 2 for a reconciliation of net cash (used in) provided by operating activities to Free cash flow and a further discussion as to the reasons we believe this non-GAAP financial measure is useful.
Our net cash used in operating activities was $(2.8) million in the third quarter of 2010, compared to net cash provided by operating activities of $26.6 million in the year-ago quarter, or a decrease of $29.4 million. The major factors causing the decline in cash flow from operations were $1.2 million from decreased net income, $22.4 million from changes in accrued interest and amortization of discounts, warrants and finance fees as the interest payment in 2010 was made in August while in 2009 the interest payment was made in June, and unfavorable cash flow impact of $9.2 million due to increased working capital related to increased sales and production, offset by favorable impact of $1.7 million and $2.0 million from changes in restructuring charges and accrued income taxes, respectively.
Our net cash used in investing activities increased to $7.7 million in the third quarter of 2010, compared to $2.6 million in the year-ago period, primarily as a result of the $5.0 million increase in capital expenditures compared to the prior-year third quarter.
Net cash used in financing activities was $0.9 million in the third quarter of 2010, compared to $17.5 million in the year-ago quarter. During the third quarter of 2009, we utilized $16.8 million for repayments on our ABL credit facility, while there were no borrowings or repayments on this facility for the first nine months of 2010.
Our free cash flow was $(10.5) million during the third quarter of 2010, compared to $24.1 million in the year-ago quarter, a decrease of $34.6 million. The primary contributors to this change were the decrease in cash flow from operating activities and increased capital expenditures in the current period, as discussed above.
The following table presents key drivers to our free cash flow for the first nine months.
                                 
    Nine months ended September 30,     Variance  
(dollars in thousands, except percentages)   2010     2009     In dollars     In percent  
                                 
Net cash (used in) provided by operating activities
  $ (10,833 )   $ 65,729     $ (76,562 )     (116.5 )%
Capital expenditures
    (19,122 )     (12,287 )     (6,835 )     (55.6 )%
Proceeds from asset sales and other
          260       (260 )     (100.0 )%
                                 
Free cash flow (1)
  $ (29,955 )   $ 53,702     $ (83,657 )     (155.8 )%
Payment of interest on PIK Notes
    29,400             29,400     NM
                                 
Adjusted Free cash flow (1)
  $ (555 )   $ 53,702     $ (54,257 )     (101.0 )%
                                 
 
(1)   We believe that Free cash flow and Adjusted free cash flow [net cash (used in) provided by operating activities, less capital expenditures, plus proceeds from assets sales and other; further adjusted for payment of interest on PIK notes in the case of Adjusted free cash flow] are useful metrics for evaluating our financial performance, as they are measures we use internally to assess performance. See Table 2 for a reconciliation of net cash (used in) provided by operating activities to Free cash flow and Adjusted free cash flow and a further discussion as to the reasons we believe these non-GAAP financial measures are useful.
Our net cash used in operating activities was $(10.8) million in the first nine months of 2010, compared to net cash provided by operating activities of $65.7 million in the year-ago period, or a decrease of $76.6 million. The major factors impacting cash flow

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from operations were the $89.0 million improvement in net income (loss) and $4.9 million improvement from special charge activity, offset by $8.2 million from changes in accrued interest and amortization of discounts, warrants and finance fees, $86.2 million of items related to our debt refinancing, unfavorable cash flow impact of $59.5 million from increased working capital related to increased sales and production and $16.6 million from a decrease in accrued liabilities net of prepaid expenses primarily the result of incentive compensation payments in the first quarter of 2010.
Our net cash used in investing activities increased to $27.5 million in the first nine months of 2010, compared to $12.0 million in the year-ago period, primarily as a result of the $8.4 million payment of call premiums on our floating rate notes as part of our debt refinancing and an increase of $6.8 million in capital expenditures compared to the prior-year period.
Net cash provided by (used in) financing activities was $19.1 million in the first nine months of 2010, compared to a use of cash of $(36.3) million in the year-ago period. During the first nine months of 2010, our proceeds from the Senior Secured Notes were only partially offset by the repurchase of our floating rate notes, the redemption of the PIK notes and payment of debt issuance costs. The increase in cash provided by financing activities, along with cash on hand, was used to pay interest on the PIK notes and the call premium on the floating rate notes.
Our Free cash flow was $(30.0) million during the first nine months of 2010, compared to $53.7 million in the year-ago period, a decrease of $83.7 million. The primary contributors to this change were the decrease in cash flow from operating activities, which included payment of interest on the PIK Notes, and increased capital expenditures in the current period, as discussed above.
Our Adjusted free cash flow was $(0.6) million during the first nine months of 2010, compared to $53.7 million in the year-ago period, a decrease of $54.3 million. The primary contributors to this change were the decrease in cash flow from operating activities excluding payment of interest on the PIK Notes, and increased capital expenditures in the current period.
Derivatives
We have an Interest Rate Agreement (Rate Agreement) with respect to $90.0 million of debt in order to convert a portion of the Senior Secured Note fixed rate debt into floating rate debt and maintain a capital structure containing appropriate amounts of fixed and floating rate debt. The interest rate for our borrowings related to the Rate Agreement at September 30, 2010 is 7.66 percent per year. 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. If the counterparty to this Rate Agreement was to fail to perform, the Rate Agreement would no longer provide the desired results. However, we do not anticipate nonperformance by the counterparty. The counterparty was rated AA- as of September 30, 2010, by Standard and Poor’s.
The fair market value for the Rate Agreement at September 30, 2010, was a $3.2 million asset. 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 do not expect to cancel this agreement and expect it to mature as originally contracted.
We also use commodity futures contracts related to forecasted future North American natural gas requirements. The objective of these futures contracts is to reduce the effects of fluctuations and 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. At September 30, 2010, we had commodity futures contracts for 3,120,000 million British Thermal Units (BTUs) of natural gas with a fair market value of a $(6.2) million liability. We have hedged approximately 54.0 percent of forecasted transactions through December 2010. At December 31, 2009, we had commodity futures contracts for 3,610,000 million BTUs of natural gas with a fair market value of a $(5.4) million liability. The counterparties for these derivatives were rated BBB+ or better as of September 30, 2010, by Standard & Poor’s.
We use foreign currency contracts to manage our currency exposure, which arises from transactions denominated in a currency other than the U.S. dollar, primarily associated with our Canadian dollar denominated accounts receivable. 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. In April, 2010, we entered into a series of foreign currency contracts to sell Canadian dollars. As of September 30, 2010, we had contracts for $8.0 million Canadian dollars.

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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 September 30, 2010 we had no amounts outstanding under our ABL Facility, although we had $18.4 million of letters of credit issued under that facility. As a result, we had $69.6 million of unused availability remaining under the ABL Facility at September 30, 2010. In addition, we had $35.6 million of cash on hand at September 30, 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 level of cash on hand, 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.

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Reconciliation of Non-GAAP Financial Measures
We sometimes refer to data derived from condensed consolidated financial information but not required by GAAP to be presented in financial statements. Certain of these data are considered “non-GAAP financial measures” under Securities and Exchange Commission (SEC) Regulation G. We believe that non-GAAP data provide investors with a more complete understanding of underlying results in our core business and trends. In addition, we use non-GAAP data internally to assess performance. Although we believe that the non-GAAP financial measures presented enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered an alternative to GAAP.
Table 1
                                 
Reconciliation of net income (loss) to EBIT, EBITDA and   Three months ended     Nine months ended  
adjusted EBITDA   September 30,     September 30,  
(dollars in thousands)   2010     2009     2010     2009  
 
Net income (loss)
  $ 2,346     $ 3,533     $ 67,323     $ (21,696 )
Add: Interest expense
    11,855       17,451       33,243       52,162  
Add: provision for (benefit from) income taxes
    1,472       (432 )     6,769       (7,756 )
 
Earnings before interest and income taxes (EBIT)
    15,673       20,552       107,335       22,710  
Add: Depreciation and amortization
    10,040       10,629       30,994       32,875  
 
Earnings before interest, taxes, deprecation and amortization (EBITDA)
    25,713       31,181       138,329       55,585  
Add: Special items before interest and taxes:
                               
Gain on redemption of debt (see note 4)
                (56,792 )      
Pension settlement charges (see note 7)
          255             2,955  
Facility closure charges (see note 5)
          489       518       3,170  
Fixed asset write-down (see note 5)
                2,687        
Write-off of Shreveport decorating assets (see note 5)
    1,278             1,278        
Expenses of secondary stock offering (see note 4)
    1,096             1,096        
Insurance claim recovery
                (945 )      
Less: Depreciation expense included in special charges and also in depreciation and amortization above
                      (705 )
 
Adjusted EBITDA
  $ 28,087     $ 31,925     $ 86,171     $ 61,005  
 
We define EBIT as net income (loss) before interest expense and income taxes. The most directly comparable U.S. GAAP financial measure is net income (loss).
We believe that EBIT is an important supplemental measure for investors in evaluating operating performance in that it provides insight into company profitability. Libbey’s senior management uses this measure internally to measure profitability. EBIT also allows for a measure of comparability to other companies with different capital and legal structures, which accordingly may be subject to different interest rates and effective tax rates.
The non-GAAP measure of EBIT does have certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations. Because this is a material and recurring item, any measure that excludes it has a material limitation. EBIT may not be comparable to similarly titled measures reported by other companies.
We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization. The most directly comparable U.S. GAAP financial measure is net income (loss).
We believe that EBITDA is an important supplemental measure for investors in evaluating operating performance in that it provides insight into company profitability and cash flow. Libbey’s senior management uses this measure internally to measure profitability and to set performance targets for managers. It also has been used regularly as one of the means of publicly providing guidance on possible future results. EBITDA also allows for a measure of comparability to other companies with different capital and legal structures, which accordingly may be subject to different interest rates and effective tax rates, and to companies that may incur different depreciation and amortization expenses or impairment charges.

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The non-GAAP measure of EBITDA does have certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations. EBITDA also excludes depreciation and amortization expenses. Because these are material and recurring items, any measure that excludes them has a material limitation. EBITDA may not be comparable to similarly titled measures reported by other companies.
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA internally to measure profitability and to set performance targets for managers.
Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:
    Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
 
    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 
    Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
 
    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
 
    Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
 
    other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.
Table 2
                                 
Reconciliation of net cash (used in) provided by operating   Three months ended     Nine months ended  
activities to free cash flow and adjusted free cash flow   September 30,     September 30,  
(dollars in thousands)   2010     2009     2010     2009  
 
Net cash (used in) provided by operating activities
  $ (2,780 )   $ 26,639     $ (10,833 )   $ 65,729  
Capital expenditures
    (7,743 )     (2,737 )     (19,122 )     (12,287 )
Proceeds from asset sales and other
          172             260  
 
Free cash flow
    (10,523 )     24,074       (29,955 )     53,702  
Payment of interest on PIK Notes
                29,400        
 
Adjusted free cash flow
  $ (10,523 )   $ 24,074     $ (555 )   $ 53,702  
 
We define Free cash flow as net cash (used in) provided by operating activities less capital expenditures, adjusted for proceeds from asset sales and other. The most directly comparable U.S. GAAP financial measure is net cash (used in) provided by operating activities.
We believe that Free cash flow is important supplemental information for investors in evaluating cash flow performance in that it provides insight into the cash flow available to fund such things as discretionary debt service, acquisitions and other strategic investment opportunities. It is a measure of performance we use to internally evaluate the overall performance of the business.
Free cash flow is used in conjunction with and in addition to results presented in accordance with U.S. GAAP. Free cash flow is neither intended to represent nor be an alternative to the measure of net cash (used in) provided by operating activities recorded under U.S. GAAP. Free cash flow may not be comparable to similarly titled measures reported by other companies.

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We present Adjusted free cash flow because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted free cash flow internally to measure profitability and to set performance targets for managers.
Adjusted free cash flow is used in conjunction with and in addition to results presented in accordance with U.S. GAAP. Adjusted free cash flow is neither intended to represent nor be an alternative to the measure of net cash (used in) provided by operating activities recorded under U.S. GAAP. Adjusted free cash flow may not be comparable to similarly titled measures reported by other companies.
Table 3
                 
Reconciliation of working capital   September 30,     December 31,  
(dollars in thousands)   2010     2009  
 
Accounts receivable (net)
  $ 110,574     $ 82,424  
Plus: Inventories (net)
    159,374       144,015  
Less: Accounts payable
    58,937       58,838  
 
Working capital
  $ 211,011     $ 167,601  
 
We define working capital as net accounts receivable plus net inventories less accounts payable.
We believe that working capital is important supplemental information for investors in evaluating liquidity in that it provides insight into the availability of net current resources to fund our ongoing operations. Working capital is a measure used by management in internal evaluations of cash availability and operational performance.
Working capital is used in conjunction with and in addition to results presented in accordance with U.S. GAAP. Working capital is neither intended to represent nor be an alternative to any measure of liquidity and operational performance recorded under U.S. GAAP. Working capital may not be comparable to similarly titled measures reported by other companies.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Currency
We are exposed to market risks due to changes in currency values, although the majority of our revenues and expenses are denominated in the U.S. dollar. The currency market risks include devaluations and other major currency fluctuations relative to the U.S. dollar, euro, RMB or Mexican peso that could reduce the cost competitiveness of our products compared to foreign competition.
Interest Rates
We have an Interest Rate Agreement (Rate Agreement) with respect to $90.0 million of debt in order to convert a portion of the Senior Secured Note fixed rate debt into floating rate debt and maintain a capital structure containing appropriate amounts of fixed and floating rate debt. The interest rate for our borrowings related to the Rate Agreement at September 30, 2010 is 7.66 percent per year. The 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. If the counterparty to the Rate Agreement was to fail to perform, the Rate Agreement would no longer provide the desired results. However, we do not anticipate nonperformance by the counterparty. The counterparty was rated AA- as of September 30, 2010, by Standard and Poor’s.
Natural Gas
We are also exposed to market risks associated with changes in the price of natural gas. We use commodity futures contracts related to forecasted future North American natural gas requirements of our manufacturing operations. The objective of these futures contracts is to limit the fluctuations in prices paid and potential volatility in earnings or cash flows from price movements in the underlying natural gas commodity. We consider the forecasted natural gas requirements of our manufacturing operations 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. For our natural gas requirements that are not hedged, we are subject to changes in the price of natural gas, which affect our earnings. If the

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counterparties to these futures contracts were to fail to perform, we would no longer be protected from natural gas fluctuations by the futures contracts. However, we do not anticipate nonperformance by these counterparties. All counterparties were rated BBB+ or better by Standard and Poor’s as of September 30, 2010.
Retirement Plans
We are exposed to market risks associated with changes in the various capital markets. Changes in long-term interest rates affect the discount rate that is used to measure our benefit obligations and related expense. Changes in the equity and debt securities markets affect the performance of our pension plans asset performance and related pension expense. Sensitivity to these key market risk factors is as follows:
    A change of 1.0 percent in the discount rate would change our total annual pension and nonpension postretirement expense by approximately $3.6 million.
 
    A change of 1.0 percent in the expected long-term rate of return on plan assets would change annual pension expense by approximately $2.4 million.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
There has been no change in our controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II — OTHER INFORMATION
This document and supporting schedules contain statements that are not historical facts and constitute projections, forecasts or forward-looking statements. These forward-looking statements reflect only our best assessment at this time, and may be identified by the use of words or phrases such as “anticipate,” “believe,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would” or similar phrases. Such forward-looking statements involve risks and uncertainty; actual results may differ materially from such statements, and undue reliance should not be placed on such statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
Item 1A. Risk Factors
The following factors are the most significant factors that can impact period-to-period comparisons and may affect the future performance of our businesses. New risks may emerge, and management cannot predict those risks or estimate the extent to which they may affect our financial performance.
    Slowdowns in the retail, travel, restaurant and bar or entertainment industries, such as those caused by general economic downturns, terrorism, health concerns or strikes or bankruptcies within those industries, could reduce our revenues and production activity levels.

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    Our high level of debt, as well as incurrence of additional debt, may limit our operating flexibility, which could adversely affect our results of operations and financial condition.
We have a high degree of financial leverage. As of September 30, 2010, we had $459.7 million aggregate principal amount of debt outstanding. Of that amount:
    $400.0 million consisted of our Senior Secured Notes, which were secured by a first-priority lien on 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 and a second-priority lien on 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);
 
    we had no debt outstanding under our amended and restated ABL Facility, which was secured by a first-priority lien on certain inventories and receivables, although we had $18.4 million of letters of credit issued under that facility;
 
    RMB 250 million (approximately $37.4 million at September 30, 2010) consisted of a loan made by China Construction Bank Corporation Langfang Economic Development Area Sub-branch, or CCBC. We used the proceeds of this loan to finance the construction of our manufacturing facility in China that began operations in early 2007;
 
    RMB 50 million (approximately $7.5 million at September 30, 2010) consisted of a loan, which is fully drawn, made by CCBC to finance the working capital needs of our China facility;
 
    €9.9 million (approximately $13.5 million at September 30, 2010) consisted of a loan made by Banco Espirito Santo, S.A., or the BES Euro Line, to finance operational improvements associated with our Portuguese operations;
 
    $1.4 million consisted of amounts we owed under a promissory note related to the purchase of our Laredo, Texas warehouse; and
Although neither our amended and restated ABL Facility nor the indenture governing our Senior Secured Notes contains financial covenants, they do contain other covenants that limit our operational and financial flexibility, such as by limiting the additional indebtedness that we may incur, limiting certain business activities, investments and payments, and limiting our ability to dispose of certain assets. These covenants may limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our debt.
We are permitted, subject to limitations contained in the agreements relating to our existing debt, to incur additional debt in the future. Our high degree of leverage, as well as the incurrence of additional debt, could have important consequences for our business, such as:
    making it more difficult for us to satisfy our financial obligations;
 
    limiting our ability to make capital investments in order to expand our business;
 
    limiting our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, debt service requirements, acquisitions or other purposes;
 
    limiting our ability to invest operating cash flow in our business and future business opportunities, because we use a substantial portion of these funds to service debt and because our covenants restrict the amount of our investments;
 
    limiting our ability to withstand business and economic downturns and/or placing us at a competitive disadvantage compared to our competitors that have less debt, because of the high percentage of our operating cash flow that is dedicated to servicing our debt; and
 
    limiting our ability to pay dividends.
If cash generated from operations is insufficient to satisfy our liquidity requirements, if we cannot service our debt, or if we fail to meet our covenants, we could have substantial liquidity problems. In those circumstances, we might have to sell assets,

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delay planned investments, obtain additional equity capital or restructure our debt. Depending on the circumstances at the time, we may not be able to accomplish any of these actions on favorable terms or at all.
In addition, our failure to comply with the covenants contained in our loan agreements could result in an event of default that, if not cured or waived, could result in the acceleration of all of our indebtedness.
    Natural gas, the principal fuel we use to manufacture our products, is subject to fluctuating prices; fluctuations in natural gas prices could adversely affect our results of operations and financial condition.
    International economic and political factors could affect demand for imports and exports, and our financial condition and results of operations could be adversely impacted as a result.
    Fluctuation of the currencies in which we conduct operations could adversely affect our financial condition and results of operations or reduce the cost competitiveness of our products or those of our subsidiaries.
    Our business requires us to maintain a large fixed cost base that can affect our profitability.
    We may not be able to achieve the international growth contemplated by our strategy.
    We face intense competition and competitive pressures, which could adversely affect our results of operations and financial condition.
    We may not be able to renegotiate collective bargaining agreements successfully when they expire; organized strikes or work stoppages by unionized employees may have an adverse effect on our operating performance.
    The inability to extend or refinance debt of our foreign subsidiaries, or the calling of that debt before scheduled maturity, could adversely impact our liquidity and financial condition.
    Our cost-reduction projects may not result in anticipated savings in operating costs.
    We are subject to risks associated with operating in foreign countries. These risks could adversely affect our results of operations and financial condition.
    If we have a fair value impairment in a business segment, our net earnings and net worth could be materially and adversely affected by a write-down of goodwill, intangible assets or fixed assets.
    A severe outbreak, epidemic or pandemic of the H1N1 virus or other contagious disease in a location where we have a facility could adversely impact our results of operations and financial condition.
    We are subject to various environmental legal requirements and may be subject to new legal requirements in the future; these requirements could have a material adverse effect on our operations.
    If we are unable to obtain sourced products or materials at favorable prices, our operating performance may be adversely affected.
    Unexpected equipment failures may lead to production curtailments or shutdowns.
    High levels of inflation and high interest rates in Mexico could adversely affect the operating results and cash flows of Crisa. In addition, similar issues could impact China in the future.
    Charges related to our employee pension and postretirement welfare plans resulting from market risk and headcount realignment may adversely affect our results of operations and financial condition.
    If our 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.

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    Our business may suffer if we do not retain our senior management.
    We rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions. If our information systems fail to perform these functions adequately, or if we experience an interruption in their operation, our business and results of operations could suffer.
    We may not be able to effectively integrate future businesses we acquire or joint ventures we enter into.
    Our business requires significant capital investment and maintenance expenditures that we may be unable to fulfill.
    If our investments in new technology and other capital expenditures do not yield expected returns, our results of operations could be reduced.
    Our failure to protect our intellectual property or prevail in any intellectual property litigation could materially and adversely affect our competitive position, reduce revenue or otherwise harm our business.
    Devaluation or depreciation of, or governmental conversion controls over, the foreign currencies in which we operate could affect our ability to convert the earnings of our foreign subsidiaries into U.S. dollars.
    Payment of severance or retirement benefits earlier than anticipated could strain our cash flow.
    We are involved in litigation from time to time in the ordinary course of business.
    Our products are subject to various health and safety requirements and may be subject to new health and safety requirements in the future; these requirements could have a material adverse effect on our operations.
Our glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware and plastic products are subject to certain legal requirements relating to health and safety. These legal requirements frequently change and vary among jurisdictions. Compliance with these requirements, or the failure to comply with these requirements, may have a material adverse effect on our operations. If any of our products becomes subject to new regulations, or if any of our products becomes specifically regulated by additional governmental or other regulatory entities, the cost of compliance could be material. For example, the U.S. Consumer Product Safety Commission (“CPSC”) regulates many consumer products, including glass tableware products that are externally decorated with certain ceramic enamels. New regulations or policies by the CPSC could require us to change our manufacturing processes, which could materially raise our manufacturing costs. Furthermore, a significant order or judgment against us by any such governmental or regulatory entity relating to health or safety matters, or the imposition of a significant fine relating to such matters, may have a material adverse effect on our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer’s Purchases of Equity Securities
                                 
                    Total Number of        
                    Shares Purchased as     Maximum Number of  
                    Part of Publicly     Shares that May Yet Be  
    Total Number of     Average Price     Announced Plans or     Purchased Under the  
Period   Shares Purchased     Paid per Share     Programs     Plans or Programs (1)  
 
July 1 to July 31, 2010
                      1,000,000  
August 1 to August 31, 2010
                      1,000,000  
September 1 to September 30, 2010
                    1,000,000  
 
Total
                      1,000,000  
 
(1)   We announced on December 10, 2002, that our Board of Directors authorized the purchase of up to 2,500,000 shares of our common stock in the open market and negotiated purchases. There is no expiration date for this plan. In 2003, 1,500,000 shares of our common stock were purchased for $38.9 million. No additional shares were purchased in 2009, 2008, 2007, 2006, 2005 or 2004 or during the first nine months of 2010. Our ABL Facility and the indentures governing the Senior Secured Notes significantly restrict our ability to repurchase additional shares.

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Item 5. Other Information
(b) There has been no material change to the procedures by which security holders may recommend nominees to the Company’s board of directors.

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Item 6. Exhibits
Exhibits: The exhibits listed in the accompanying “Exhibit Index” are filed as part of this report.
EXHIBIT INDEX
     
Exhibit    
Number   Description
3.1
  Restated Certificate of Incorporation of Libbey Inc. (filed as Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
3.2
  Amended and Restated By-Laws of Libbey Inc. (filed as Exhibit 3.2 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, as amended as set forth in Exhibit 3.01 to Libbey Inc.’s Form 8-K filed February 7, 2005, both of which filings are incorporated herein by reference).
4.1
  Warrant, issued June 16, 2006. (filed as Exhibit 4.7 to Registrant’s Form 8-K filed June 21, 2006 and incorporated herein by reference).
4.2
  Amended and Restated Registration Rights Agreement, dated October 28, 2009, among Libbey Inc. and Merrill Lynch PCG, Inc. (filed as Exhibit 4.4 to Registrant’s Form 8-K filed October 29, 2009 and incorporated herein by reference).
4.3
  Series I Warrant, issued October 28, 2009 (filed as Exhibit 4.3 to Registrant’s Form 8-K filed October 29, 2009 and incorporated herein by reference).
4.4
  Amendment and Restated Credit Agreement, dated February 8, 2010, among Libbey Glass Inc. and Libbey Europe B.V., as borrowers, Libbey Inc., as a loan guarantor, the other loan parties party thereto as guarantors, JPMorgan Chase Bank, N.A., as administrative agent with respect to the U.S. loans, J.P. Morgan Europe Limited, as administrative agent with respect to the Netherlands loans, Bank of America, N.A. and Barclays Capital, as Co-Syndication Agents, Wells Fargo Capital Finance, LLC, as Documentation Agent and the other lenders and agents party thereto (filed as Exhibit 4.1 to Libbey Inc.’s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference).
4.5
  New Notes Indenture, dated February 8, 2010, among Libbey Glass Inc., Libbey Inc., the domestic subsidiaries of Libbey Glass Inc. listed as guarantors therein, and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent (filed as Exhibit 4.2 to Libbey Inc.’s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference).
4.6
  Registration Rights Agreement, dated February 8, 2010, among Libbey Glass Inc., Libbey Inc., and the domestic subsidiaries of Libbey Glass Inc. listed as guarantors (filed as Exhibit 4.4 to Libbey Inc.’s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference).
4.7
  Intercreditor Agreement, dated February 8, 2010, among Libbey Glass Inc., Libbey Inc., and the domestic subsidiaries of Libbey Glass Inc. listed as guarantors (filed as Exhibit 4.5 to Libbey Inc.’s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference).
10.1
  Pension and Savings Plan Agreement dated as of June 17, 1993 between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.4 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
10.2
  Cross-Indemnity Agreement dated as of June 24, 1993 between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.5 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
10.3
  Libbey Inc. Guarantee dated as of October 10, 1995 in favor of The Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse China Company of Canada Ltd. guaranteeing certain obligations of LG Acquisition Corp. and Libbey Canada Inc. under the Asset Purchase Agreement for the Acquisition of Syracuse China (Exhibit 2.0) in the event certain contingencies occur (filed as Exhibit 10.17 to Libbey Inc.’s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference).
10.4
  Susquehanna Pfaltzgraff Co. Guarantee dated as of October 10, 1995 in favor of LG Acquisition Corp. and Libbey Canada Inc. guaranteeing certain obligations of The Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse China Company of Canada, Ltd. under the Asset Purchase Agreement for the Acquisition of Syracuse China (Exhibit 2.0) in the event certain contingencies occur (filed as Exhibit 10.18 to Libbey Inc.’s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference).
10.5
  First Amended and Restated Libbey Inc. Executive Savings Plan (filed as Exhibit 10.23 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference).
10.6
  Form of Non-Qualified Stock Option Agreement between Libbey Inc. and certain key employees participating in The 1999 Equity Participation Plan of Libbey Inc. (filed as Exhibit 10.69 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference).
10.7
  The 1999 Equity Participation Plan of Libbey Inc. (filed as Exhibit 10.67 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).

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Exhibit    
Number   Description
10.8
  Stock Promissory Sale and Purchase Agreement between VAA — Vista Alegre Atlantis SGPS, SA and Libbey Europe B.V. dated January 10, 2005 (filed as Exhibit 10.76 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference).
10.9
  RMB Loan Contract between Libbey Glassware (China) Company Limited and China Construction Bank Corporation Langfang Economic Development Area Sub-branch entered into January 23, 2006 (filed as exhibit 10.75 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).
10.10
  Guarantee Contract executed by Libbey Inc. for the benefit of China Construction Bank Corporation Langfang Economic Development Area Sub-branch (filed as exhibit 10.76 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).
10.11
  Guaranty, dated May 31, 2006, executed by Libbey Inc. in favor of Fondo Stiva S.A. de C.V. (filed as exhibit 10.2 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference).
10.12
  Guaranty Agreement, dated June 16, 2006, executed by Libbey Inc. in favor of Vitro, S.A. de C.V. (filed as exhibit 10.3 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference).
10.13
  Libbey Inc. Amended and Restated Deferred Compensation Plan for Outside Directors (incorporated by reference to Exhibit 10.61 to Libbey Glass Inc.’s Registration Statement on Form S-4; File No. 333-139358).
10.14
  2009 Director Deferred Compensation Plan (filed as Exhibit 10.51 to Libbey Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference).
10.15
  Executive Deferred Compensation Plan (filed as Exhibit 10.52 to Libbey Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference).
10.16
  Amended and Restated Employment Agreement dated as of December 31, 2008 between Libbey Inc. and John F. Meier (filed as exhibit 10.29 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.17
  Amended and Restated Employment Agreement dated as of December 31, 2008 between Libbey Inc. and Richard I. Reynolds (filed as exhibit 10.30 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.18
  Amended and Restated Employment Agreement dated as of December 31, 2008 between Libbey Inc. and Gregory T. Geswein (filed as exhibit 10.31 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.19
  Form of Amended and Restated Employment Agreement dated as of December 31, 2008 between Libbey Inc. and the respective executive officers identified on Appendix 1 thereto (filed as exhibit 10.32 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.20
  Amended and restated change in control agreement dated as of December 31, 2008 between Libbey Inc. and John F. Meier (filed as exhibit 10.33 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.21
  Form of amended and restated change in control agreement dated as of December 31, 2008 between Libbey Inc. and the respective executive officers identified on Appendix 1 thereto (filed as exhibit 10.34 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.22
  Form of amended and restated change in control agreement dated as of December 31, 2008 between Libbey Inc. and the respective individuals identified on Appendix 1 thereto (filed as exhibit 10.35 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.23
  Form of Amended and Restated Indemnity Agreement dated as of December 31, 2008 between Libbey Inc. and the respective officers identified on Appendix 1 thereto (filed as exhibit 10.36 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.24
  Form of Amended and Restated Indemnity Agreement dated as of December 31, 2008 between Libbey Inc. and the respective outside directors identified on Appendix 1 thereto (filed as exhibit 10.37 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.25
  Amended and Restated Libbey Inc. Supplemental Retirement Benefit Plan effective December 31, 2008 (filed as exhibit 10.38 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.26
  Amendment to the First Amended and Restated Libbey Inc. Executive Savings Plan effective December 31, 2008 (filed as exhibit 10.39 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.27
  Employment Agreement dated as of January 1, 2010 between Libbey Inc. and Roberto B. Rubio (filed as exhibit 10.39 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference).
10.28
  Change in control agreement dated as of January 1, 2010 between Libbey Inc. and Roberto B. Rubio (filed as exhibit 10.40 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by

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Exhibit    
Number   Description
 
  reference).
10.29
  Amended and Restated 2006 Omnibus Incentive Plan (filed herein).
31.1
  Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) (filed herein).
31.2
  Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) (filed herein).
32.1
  Chief Executive Officer Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 (filed herein).
32.2
  Chief Financial Officer Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 (filed herein).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  LIBBEY INC.
 
 
Date: November 5, 2010  By   /s/ Richard I. Reynolds    
    Richard I. Reynolds,   
    Executive Vice President, Chief Financial Officer   

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