UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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

Commission file number 1-12084

Libbey Inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

Common Stock, $.01 par value 19,833,046 shares at April 29, 2011.

 

 

TABLE OF CONTENTS

Item 1. Financial Statements			3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS			4
CONDENSED CONSOLIDATED BALANCE SHEETS			5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS			6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			7
1. Description of the Business			7
2. Significant Accounting Policies			7
3. Balance Sheet Details			10
4. Borrowings			11
5. Special Charges			15
6. Income Taxes			16
7. Pension and Non-pension Postretirement Benefits			17
8. Net (Loss) Income per Share of Common Stock			17
9. Derivatives			18
10. Comprehensive Income			21
11. Condensed Consolidated Guarantor Financial Statements			21
12. Segments			27
13. Fair Value			28
14. Other income (expense)			28
15. Subsequent Events			29
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Qualitative and Quantitative Disclosures about Market Risk			38
Item 4. Controls and Procedures			39
PART II — OTHER INFORMATION			39
Item 1A. Risk Factors			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			41
Item 6. Exhibits			42
EXHIBIT INDEX			42
SIGNATURES			45
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements of Libbey Inc. and all majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The balance sheet at December 31, 2010 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, 2010.

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

		Three months ended March 31,
		2011				2010
Net sales		$	181,015			$	173,904
Freight billed to customers			411				434
Total revenues			181,426				174,338
Cost of sales			145,280				140,461
Gross profit			36,146				33,877
Selling, general and administrative expenses			25,402				22,824
Special charges			51				232
Income from operations			10,693				10,821
(Loss) gain on redemption of debt			(2,803	)			56,792
Other income (expense)			3,006				(763	)
Earnings before interest and income taxes			10,896				66,850
Interest expense			11,583				9,620
(Loss) income before income taxes			(687	)			57,230
Provision for income taxes			314				1,820
Net (loss) income		$	(1,001	)		$	55,410
Net (loss) income per share:
Basic		$	(0.05	)		$	3.44
Diluted		$	(0.05	)		$	2.76
Dividends per share		$	—			$	—

See accompanying notes

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

		March 31, 2011				December 31, 2010
		(unaudited)
Assets
Cash and cash equivalents		$	13,112			$	76,258
Accounts receivable — net			94,222				92,101
Inventories — net			165,081				148,146
Prepaid and other current assets			10,185				6,437
Total current assets			282,600				322,942
Pension asset			13,969				12,767
Purchased intangible assets — net			23,095				23,134
Goodwill			169,340				169,340
Derivative asset			1,999				2,589
Other assets			16,109				17,802
Total other assets			224,512				225,632
Property, plant and equipment — net			271,761				270,397
Total assets		$	778,873			$	818,971
Liabilities and Shareholders’ Equity
Accounts payable		$	60,164			$	59,095
Salaries and wages			28,816				32,087
Accrued liabilities			42,991				51,211
Accrued special charges			623				768
Accrued income taxes			—				3,121
Pension liability (current portion)			2,372				2,330
Non-pension postretirement benefits (current portion)			5,017				5,017
Derivative liability			3,222				3,392
Long-term debt due within one year			3,329				3,142
Total current liabilities			146,534				160,163
Long-term debt			408,742				443,983
Pension liability			116,427				115,521
Non-pension postretirement benefits			68,697				67,737
Deferred income taxes			8,661				8,376
Other long-term liabilities			9,525				11,925
Total liabilities			758,586				807,705
Shareholders’ equity
Common stock, par value $.01 per share, 50,000,000 shares authorized, 19,833,046 shares issued at March 31, 2011 and 19,682,506 at December 31, 2010			198				197
Capital in excess of par value (includes warrants of $1,034 based on 485,309 shares at March 31, 2011 and at December 31, 2010)			301,391				300,692
Retained deficit			(179,678	)			(178,677	)
Accumulated other comprehensive loss			(101,624	)			(110,946	)
Total shareholders’ equity			20,287				11,266
Total liabilities and shareholders’ equity		$	778,873			$	818,971

See accompanying notes

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

		Three months ended March 31,
		2011				2010
Operating activities:
Net (loss) income		$	(1,001	)		$	55,410
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization			10,881				10,386
(Gain) loss on asset sales			(3,360	)			80
Change in accounts receivable			(586	)			(6,516	)
Change in inventories			(14,741	)			(10,904	)
Change in accounts payable			(667	)			(4,402	)
Accrued interest and amortization of discounts, warrants and finance fees			(8,653	)			5,206
Gain on redemption of new PIK notes			—				(70,193	)
Payment of interest on new PIK notes			—				(29,400	)
Call premium on senior notes and floating rate notes			1,203				8,415
Write-off of finance fees & discounts on senior notes, old ABL & floating rate notes			1,600				4,986
Pension & non-pension postretirement benefits			3,451				3,005
Restructuring charges			(145	)			(431	)
Accrued liabilities & prepaid expenses			(8,267	)			(9,307	)
Accrued income taxes			(4,303	)			(3,644	)
Share-based compensation expense			827				446
Other operating activities			681				698
Net cash used in operating activities			(23,080	)			(46,165	)
Investing activities:
Additions to property, plant and equipment			(8,506	)			(4,148	)
Call premium on senior notes and floating rate notes			(1,203	)			(8,415	)
Proceeds from asset sales and other			4,602				—
Net cash used in investing activities			(5,107	)			(12,563	)
Financing activities:
Net borrowings on ABL credit facility			4,350				—
Other repayments			(48	)			(45	)
Other borrowings			—				801
Floating rate note payments			—				(306,000	)
Senior note payments			(40,000	)			—
PIK note payment			—				(51,031	)
Proceeds from senior secured notes			—				392,328
Stock options exercised			475				—
Debt issuance costs			(116	)			(14,033	)
Net cash (used in) provided by financing activities			(35,339	)			22,020
Effect of exchange rate fluctuations on cash			380				(354	)
Decrease in cash			(63,146	)			(37,062	)
Cash at beginning of period			76,258				55,089
Cash at end of period		$	13,112			$	18,027
Supplemental disclosure of cash flows information:
Cash paid during the period for interest		$	20,171			$	5,017
Cash paid during the period for income taxes		$	4,480			$	4,934

Supplemental disclosure of non-cash financing activities:

During the first quarter of 2010, our PIK notes were redeemed, resulting in the recognition of a gain of $70.2 million. The gain was offset by $13.4 million of expenses related to the transaction, resulting in a net gain of $56.8 million on the Condensed Consolidated Statement of Operations. See note 4 for further information on this transaction.

See accompanying notes

LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)

1. Description of the Business

Libbey is the leading producer of glass tableware products in the Western Hemisphere, in addition to supplying key markets throughout the world. We produce glass tableware in five countries and sell to customers in over 100 countries. We have the largest manufacturing, distribution and service network among glass tableware manufacturers in the Western Hemisphere and are one of the largest glass tableware manufacturers in the world. We design and market an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware, and plastic items to a broad group of customers in the foodservice, retail and business-to-business markets. We own and operate two glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in the Netherlands, Portugal, China and Mexico. We also owned and operated a plastics plant in Wisconsin. On April 28, 2011, we sold substantially all of the assets of our plastics plant, Traex, to the Vollrath Company. See note 15 for a further discussion of this subsequent event. 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, 2010 for a description of significant accounting policies not listed below.

Basis of Presentation

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

Condensed Consolidated Statements of Operations

Net sales in our Condensed Consolidated Statements of Operations include revenue earned when products are shipped and title and risk of loss have passed to the customer. Revenue is recorded net of returns, discounts and incentives offered to customers. Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs.

Foreign Currency Translation

Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Income and expense accounts are translated at average exchange rates during the year. The effect of exchange rate changes on transactions denominated in currencies other than the functional currency is recorded in other income (expense).

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax attribute carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Financial Accounting Standards Board Accounting Standards Codification™ (FASB ASC) Topic 740, “Income Taxes”, requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. In the United States, China, the Netherlands and Portugal we have recorded valuation allowances against our deferred income tax assets.

Stock-Based Compensation Expense

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation”, and FASB ASC Topic 505-50, “Equity — Equity-Based Payments to Non-Employees”. Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards. Stock-based compensation expense charged to the Condensed Consolidated Statement of Operations for the three months ended March 31, 2011 and March 31, 2010 was $0.8 million and $0.4 million, respectively.

New Accounting Standards

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. See note 13 for a description of the levels. 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 were effective for Libbey in the first quarter of 2011. The adoption of ASU 2010-06 did not impact our disclosures to our Condensed Consolidated Financial Statements, as we do have any items classified as Level 3 nor amounts transferring between the various Levels.

In April 2010, the FASB issued Accounting Standards Update 2010-13, “Compensation — Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades — A consensus of the FASB Emerging Issues Task Force” (“ASU 2010-13”). The provisions of ASU 2010-13 affect entities with equity awards that, because of their characteristics, have been classified as liabilities. This guidance applies to interim and annual periods beginning after December 15, 2010, and did not impact our Condensed Consolidated Financial Statements as our stock awards are classified as equity.

In July 2010, the FASB issued Accounting Standards Update 2010-20, “Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”). The amendments in this update affect all entities with financing receivables, generally excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value. This update also requires additional disclosure of certain types of receivables, and disclosures of policies related to measurement and valuation of the receivables and related reserves. The effectiveness of this update was delayed until periods ending after June 15, 2011 by Update No. 2011-01. We do not expect the provisions of this update to have any impact on our Condensed Consolidated Financial Statements.

In December 2010, the FASB issued Accounting Standards Update 2010-28, “Intangibles — Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2010-28”). ASU 2010-28 addresses the decision process involved in testing for impairment of goodwill when the carrying value of a reporting unit is zero or less. The provisions of this update are effective for periods beginning after December 15, 2010. We do not expect the provisions of this update to have any impact on our Condensed Consolidated Financial Statements or on our process of testing for potential impairment of goodwill.

In December 2010, the FASB issued Accounting Standards Update 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force)” (“ASU

2010-29”). ASU 2010-29 clarifies the extent to which pro forma historical information must be prepared and presented in comparative financial statements for periods following a merger or acquisition. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. For Libbey, the required disclosures are effective for combinations with acquisition dates during or after 2011. The impact on our Condensed Consolidated Financial Statements will depend on the nature and timing of any potential future business combinations.

Reclassifications

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

3. Balance Sheet Details

The following table provides detail of selected balance sheet items:

(dollars in thousands)		March 31, 2011				December 31, 2010
Accounts receivable:
Trade receivables		$	93,642			$	90,899
Other receivables			580				1,202
Total accounts receivable, less allowances of $5,399 and $5,518		$	94,222			$	92,101
Inventories:
Finished goods		$	148,164			$	132,169
Work in process			752				653
Raw materials			4,643				4,444
Repair parts			9,932				9,496
Operating supplies			1,590				1,384
Total inventories, less allowances of $4,769 and $4,658		$	165,081			$	148,146
Prepaid and other current assets:
Value added tax		$	2,113			$	1,332
Prepaid expenses			4,313				4,822
Refundable, deferred and prepaid income taxes			3,759				283
Total prepaid and other current assets		$	10,185			$	6,437
Other assets:
Deposits		$	914			$	904
Finance fees — net of amortization			11,293				13,012
Other assets			3,902				3,886
Total other assets		$	16,109			$	17,802
Accrued liabilities:
Accrued incentives		$	17,142			$	15,060
Workers compensation			9,244				9,608
Medical liabilities			3,461				3,785
Interest			4,555				14,416
Commissions payable			981				904
Other accrued liabilities			7,608				7,438
Total accrued liabilities		$	42,991			$	51,211
Other long-term liabilities:
Deferred liability		$	5,000			$	4,622
Other long-term liabilities			4,525				7,303
Total other long-term liabilities		$	9,525			$	11,925

4. Borrowings

As previously announced, on March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of its outstanding 10.0 percent Senior Secured Notes due 2015, on a pro rata basis in accordance with the terms of the New Notes Indenture. Pursuant to the terms of the New Notes Indenture, the redemption price for the Senior Secured Notes was 103.0 percent of the principal amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $360.0 million. In conjunction with this redemption, we recorded $2.8 million of expense, representing $1.2 million of an early call premium and $1.6 million for the write off of a pro rata amount of financing fees and discounts.

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 New 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 New PIK notes and to pay certain related fees and expenses. Upon completion of the refinancing, we recorded a gain of $71.7 million related to the redemption of the New PIK notes, of which $70.2 million of this gain was recorded in the three months ended March 31, 2010. 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 $58.3 million, of which $56.8 million of this gain was recorded in the three months ended March 31, 2010 as shown on the Condensed Consolidated Statement of Operations.

Borrowings consist of the following:

										March 31,				December 31,
(dollars in thousands)		Interest Rate				Maturity Date				2011				2010
Borrowings under ABL facility		floating				April 8, 2014				$	4,350			$	—
Senior Secured Notes			10.00%	(1)		February 15, 2015					360,000				400,000
Promissory note			6.00	%		April, 2011 to September, 2016					1,260				1,307
RMB loan contract		floating				July, 2012 to January, 2014					38,175				37,925
BES Euro line		floating				December, 2011 to December, 2013					11,632				10,934
Total borrowings											415,417				450,166
Less — unamortized discount											5,332				6,307
Plus — Carrying value adjustment on debt related to the Interest Rate Agreement (1)											1,986				3,266
Total borrowings — net											412,071				447,125
Less — long term debt due within one year											3,329				3,142
Total long-term portion of borrowings — net										$	408,742			$	443,983

(1)		See Interest Rate Agreements under “Senior Secured Notes” below and in note 9.

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

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

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

•		a first-priority lien on substantially all of the existing and future real and personal property 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 March 31, 2011. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.75 percent at March 31, 2011. No financial covenants or compensating balances are required by the Agreement. Libbey Europe had no borrowings under the facility at March 31, 2011, while Libbey Glass had outstanding borrowings of $4.4 million, at an interest rate of 6.50 percent. There were no Libbey Glass or Libbey Europe borrowings under the facility at December 31, 2010. Interest is payable on the last day of the interest period, which can range from one month to six months depending on the maturity of each individual borrowing on the facility.

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 $3.7 million and mark-to-market reserves for natural gas contracts of $1.8 million. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $110.0 million limit. At March 31, 2011, we had $10.4 million in letters of credit outstanding under the ABL Facility. Remaining unused availability on the new ABL Facility was $64.9 million at March 31, 2011 compared to $65.2 million under the ABL Facility at December 31, 2010.

We amended the ABL Facility on April 29, 2011. See note 15 for a further discussion of this subsequent event.

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 could restrict the ability of Libbey Glass and the Guarantors to, among other things:

	•		incur or guarantee additional indebtedness;
	•		pay dividends or 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 bankruptcy or insolvency as defined in the New Notes Indenture, 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. On January 25, 2011, we exchanged $400.0 million aggregate principal amount of 10.0 percent Senior Secured Notes due 2015 for an equal principal amount of a new issue of 10.0 percent Senior Secured Notes due 2015, which have been registered under the Securities act of 1933, as amended.

Prior to August 15, 2012, we may redeem in the aggregate up to 35 percent of the original principal amount of the 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 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.

As previously announced, on March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of its outstanding 10.0 percent Senior Secured Notes Due 2015, on a pro rata basis in accordance with the terms of the New Notes Indenture. Pursuant to the terms of the New Notes Indenture, the redemption price for the Senior Secured Notes was 103.0 percent of the principal amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $360.0 million. In conjunction with this redemption, we recorded $2.8 million of expense, representing $1.2 million of an early call premium and $1.6 million for the write off of a pro rata amount of financing fees and discounts.

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. The Rate Agreement effectively converts this portion of our long-term borrowings from fixed rate debt to variable rate debt. The variable interest rate for our borrowings related to the Rate Agreement at March 31, 2011, excluding applicable fees, is 7.60 percent. This Rate Agreement expires on February 15, 2015. Total remaining Senior Secured Notes not covered by the Rate Agreement have a fixed interest rate of 10.0 percent per year through February 15, 2015. If the counterparty to this Rate Agreement were to fail to perform, this Rate Agreement would no longer afford us a variable rate. However, we do not anticipate non-performance by the counterparty. The interest rate swap counterparty was rated AA-, as of March 31, 2011, by Standard and Poor’s.

The fair market value for the Rate Agreement at March 31, 2011 and December 31, 2010 was a $1.9 million asset and a $2.5 million asset, respectively. An adjustment of $2.0 million and $3.3 million was recorded to increase the carrying value of the related long-term debt as of March 31, 2011 and December 31, 2010, respectively. The net impact of $0.6 million income and $0.2 million expense is

recorded in other income (expense) on the Condensed Consolidated Statement of Operations for the three months ended March 31, 2011 and March 31, 2010, respectively. See note 9 for further discussion. The fair value of the Rate Agreement is based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. We expect this agreement to expire as originally contracted.

Promissory Note

In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. At March 31, 2011, we had $1.3 million outstanding on the promissory note. Interest with respect to the promissory note is paid monthly.

Notes Payable

We have an overdraft line of credit for a maximum of €1.0 million. At March 31, 2011, there were no borrowings under the facility, which has an interest rate of 5.80 percent. Interest with respect to the note payable is paid monthly.

RMB Loan Contract

On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the equivalent of approximately $38.2 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of March 31, 2011, the annual interest rate was 5.42 percent. As of March 31, 2011, the outstanding balance was RMB 250.0 million (approximately $38.2 million). Interest is payable quarterly. Payments of principal in the amount of RMB 30.0 million (approximately $4.6 million) and RMB 40.0 million (approximately $6.1 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 $9.2 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.

BES Euro Line

In January 2007, Crisal entered into a seven year, €11.0 million line of credit (approximately $15.5 million) with Banco Espírito Santo, S.A. (BES). The $11.6 million outstanding at March 31, 2011 was the U.S. dollar equivalent of the €8.3 million outstanding under the line at an interest rate of 3.77 percent. Payment of principal in the amount of €2.2 million (approximately $3.1 million) is due in December 2011, payment of €2.8 million (approximately $3.9 million) is due in December 2012 and payment of €3.3 million (approximately $4.6 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 $360.0 million Senior Secured Notes due February 15, 2015 had an estimated fair value of $391.5 million at March 31, 2011. The fair value of the remainder of our debt approximates carrying value at March 31, 2011 due to variable interest rates.

Capital Resources and Liquidity

Historically, cash flows generated from operations and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. As of March 31, 2011 we had $4.4 million outstanding under our ABL Facility, and we had $10.4 million of letters of credit issued under that facility. As a result, we had $64.9 million of unused availability remaining under the ABL Facility at March 31, 2011. In addition, we had $13.1 million of cash on hand at March 31, 2011.

Based on our operating plans and current forecast expectations, we anticipate that our level of cash on hand, cash flows from operations and our borrowing capacity under our ABL Facility will provide sufficient cash availability to meet our ongoing liquidity needs.

5. Special 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, 2010 for further discussion.

We incurred additional charges of approximately $0.1 million in the three months ended March 31, 2011 related to our Syracuse China facility closure, primarily related to other costs net of building site clean-up adjustments in connection with the sale of the property in Syracuse, New York in March 2011. This amount was included in special charges on the Condensed Consolidated Statements of Operations in the Other Operations segment as detailed in the table below.

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

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

The following table summarizes the facility closure charges in the first quarter of 2011 and 2010:

		Three months ended March 31, 2011												Three months ended March 31, 2010
		Glass				Other								Glass				Other
(dollars in thousands)		Operations				Operations				Total				Operations				Operations				Total
Employee termination cost & other		$	—			$	167			$	167			$	29			$	76			$	105
Building site clean-up & fixed asset write-down			—				(116	)			(116	)			—				127				127
Included in special charges			—				51				51				29				203				232
Ineffectiveness of natural gas hedge			—				—				—				—				130				130
Included in other (income) expense			—				—				—				—				130				130
Total pretax charge		$	—			$	51			$	51			$	29			$	333			$	362

The following reflects the balance sheet activity related to the facility closure charge for the quarter ended March 31, 2011:

		Reserve																				Reserve
		Balances				Total								Inventory &								Balances
		at December 31,				Charge to				Cash				Fixed Asset				Non-cash				at March 31
(dollars in thousands)		2010				Earnings				Payments				Write Downs				Utilization				2011
Building site clean-up & fixed asset write-down		$	151			$	(116	)		$	(5	)		$	21			$	—			$	51
Employee termination cost & other			301				167				(140	)			—				(72	)			256
Total		$	452			$	51			$	(145	)		$	21			$	(72	)		$	307

The ending balance of $0.3 million at March 31, 2011 was included in accrued special charges on the Condensed Consolidated Balance Sheets. 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:

		Glass				Other				Charges
(dollars in thousands)		Operations				Operations				To Date
Inventory write-down		$	192			$	10,541			$	10,733
Pension & postretirement welfare			—				4,448				4,448
Fixed asset depreciation			—				966				966
Included in cost of sales			192				15,955				16,147
Employee termination cost & other			548				6,149				6,697
Building site clean-up & fixed asset write-down			177				10,418				10,595
Included in special charges			725				16,567				17,292
Ineffectiveness of natural gas hedge			—				745				745
Included in other (income) expense			—				745				745
Total pretax charge to date		$	917			$	33,267			$	34,184

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. See Form 10-K for the year ended December 31, 2010 for further discussion.

There were no additional charges for the three months ended March 31, 2011.

There was no balance sheet activity for the three months ended March 31, 2011. The ending balance of $0.3 million at March 31, 2011 was included in accrued special charges on the Condensed Consolidated Balance Sheets and we expect this to result in cash payments during the remainder of 2011.

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 tax planning structures. At March 31, 2011 and December 31, 2010, we had $1.3 million and $1.1 million, respectively, of gross unrecognized tax benefits, exclusive of interest and penalties.

FASB ASC 740-20, “Income Taxes — Intraperiod Tax Allocation”, requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. Included in our income tax provision is a tax benefit of $0.9 million for the three months ended March 31, 2011. There was no tax benefit recorded for the three months ended March 31, 2010. Depending upon the level of our future earnings and losses and their impact on other comprehensive income, it is possible that these tax adjustments may change or even reverse in future periods.

Further, our current and future provision for income taxes for 2011 is significantly impacted by valuation allowances. In the United States, China, the Netherlands and Portugal we have recorded valuation allowances against our deferred income tax assets. For the three months ended March 31, 2011 we did not release any valuation allowance. For the three months ended March 31, 2010, we reduced our valuation allowance by $1.1 million. The release of valuation in 2010 was related to net operating losses in Mexico that were utilized. 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 are unusual, infrequent, or extraordinary items 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.

Total income tax payments at March 31, 2011, were $6.6 million, which consisted of $4.5 million in cash and $2.1 million in credits or offsets. Total income tax payments at March 31, 2010, were $5.6 million, which consisted of $4.9 million in cash and $0.7 million in credits or offsets.

7. Pension and Non-pension Postretirement Benefits

We have pension plans covering the majority of our employees. Benefits generally are based on compensation for salaried employees and job grade and length of service for hourly employees. Our policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006 and most hourly U.S.-based employees (excluding employees hired at Shreveport after 2008 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.

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

Three months ended March 31,		U.S. Plans								Non-U.S. Plans								Total
(dollars in thousands)		2011				2010				2011				2010				2011				2010
Service cost		$	1,432			$	1,450			$	428			$	396			$	1,860			$	1,846
Interest cost			4,088				4,061				1,260				1,162				5,348				5,223
Expected return on plan assets			(4,313	)			(4,186	)			(565	)			(665	)			(4,878	)			(4,851	)
Amortization of unrecognized:
Prior service cost			541				582				82				30				623				612
Loss			1,218				978				126				101				1,344				1,079
Pension expense		$	2,966			$	2,885			$	1,331			$	1,024			$	4,297			$	3,909

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 (excluding those mentioned above). The non-U.S. non-pension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. The postretirement benefit plans are not funded.

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

Three months ended March 31,		U.S. Plans								Non-U.S. Plans								Total
(dollars in thousands)		2011				2010				2011				2010				2011				2010
Service cost		$	373			$	389			$	—			$	—			$	373			$	389
Interest cost			925				918				29				31				954				949
Amortization of unrecognized:
Prior service loss (gain)			105				(2	)			—				—				105				(2	)
Loss / (gain)			290				236				(4	)			(7	)			286				229
Non-pension postretirement benefit expense		$	1,693			$	1,541			$	25			$	24			$	1,718			$	1,565

In 2011, we expect to utilize approximately $31.5 million to fund our pension plans and pay for non-pension postretirement benefits. Of that amount, $3.6 million was utilized in the three months ended March 31, 2011.

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. 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. 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 (Loss) Income per Share of Common Stock

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

		Three Months Ended March 31,
(dollars in thousands, except earnings per share)		2011				2010
Numerators for earnings per share —
—Net (loss) income that is available to common shareholders		$	(1,001	)		$	55,410
Denominator for basic earnings per share —
Weighted average shares outstanding			19,955,188				16,123,555
Effect of stock options and restricted stock units			—				497,689
Effect of warrants			—				3,463,664
Total effect of dilutive securities (1)			—				3,961,353
Denominator for diluted earnings per share —
—Adjusted weighted average shares and assumed conversions			19,955,188				20,084,908
Basic (loss) income per share:		$	(0.05	)		$	3.44
Diluted (loss) income per share:		$	(0.05	)		$	2.76

In October 2009, we entered into a transaction with Merrill Lynch PCG, Inc. (the “Investor”) to exchange the existing 16.0 percent Old PIK Notes due in December 2011, for a combination of debt and equity securities (Exchange Transaction). As part of the Exchange Transaction, we issued warrants conveying the right to purchase, for $0.01 per share, 3,466,856 shares of Libbey Inc. common stock. These warrants were exercised and shares were issued in August, 2010.

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

9. Derivatives

We utilize derivative financial instruments to manage our interest rate exposure associated with our long-term debt, to hedge 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:

(dollars in thousands)

March 31, 2011

December 31, 2010

Derivatives designated as

Balance

Balance

hedging instruments

Sheet

Fair

Sheet

Fair

under FASB ASC 815:

Location:

Value

Location:

Value

Interest rate contracts

Derivative asset

$

1,891

Derivative asset

$

2,536

Natural gas contracts

Derivative asset

108

Derivative asset

53

Total designated

$

1,999

$

2,589

Liability Derivatives:

(dollars in thousands)

March 31, 2011

December 31, 2010

Derivatives designated as

Balance

Balance

hedging instruments

Sheet

Fair

Sheet

Fair

under FASB ASC 815:

Location

Value

Location

Value

Natural gas contracts

Derivative liability

$

2,491

Derivative liability

$

3,117

Total designated

2,491

3,117

Derivatives not designated as
hedging instruments
under FASB ASC 815:
Natural gas contracts		Derivative liability					126			Derivative liability					124
Currency contracts		Derivative liability					605			Derivative liability					151
Total undesignated							731								275
Total						$	3,222							$	3,392

Interest Rate Swaps as Fair Value Hedges

In the first quarter of 2010, we entered into an interest rate swap agreement with a notional amount of $100.0 million that is to mature in 2015. The swap was executed in order to convert a portion of the Senior Secured Note fixed rate debt into floating rate debt 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. As of March 31, 2011 the notional amount of the interest rate swap agreement is $90.0 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 (expense) on the Condensed Consolidated Statements of Operations along with the offsetting loss or gain on the related interest rate swap.

Amount of gain (loss) recognized in other income (expense)

		Three months ended March 31,
(dollars in thousands)		2011				2010
Interest rate swap		$	(644	)		$	(885	)
Related long-term debt			1,280				722
Net impact on other income (expense)		$	636			$	(163	)

Commodity Future Contracts 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. Under FASB ASC 815, “Derivatives and Hedging”, when the forecasted transactions of a hedging relationship become not probable of occurring, the gains or losses that have been classified in accumulated other comprehensive loss in prior periods for those contracts affected should be reclassified into earnings. We recognized an immaterial amount and $0.1 million for the three months ended March 31, 2011 and 2010, respectively, in other income (expense) on the Condensed Consolidated Statements of Operations relating to these contracts. As of March 31,

2011, we had commodity contracts for 2,910,000 million British Thermal Units (BTUs) of natural gas. At December 31, 2010, we had commodity contracts for 3,090,000 million BTUs of natural gas.

Most of our natural gas derivatives qualify and are designated as cash flow hedges (except certain contracts originally designated to expected purchases at Syracuse China) at March 31, 2011. 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. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). 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 loss to current expense in cost of sales in our Condensed Consolidated Statements of Operations. We paid additional cash of $0.8 million and $1.3 million in the three months ended March 31, 2011 and 2010, 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 $2.5 million of expense in our Condensed Consolidated Statements of Operations.

Amount of derivative gain/(loss) recognized in OCI (effective portion)

		Three months ended March 31,
(dollars in thousands)		2011				2010
Derivatives in Cash Flow Hedging relationships:
Natural gas contracts		$	(149	)		$	(4,421	)
Total		$	(149	)		$	(4,421	)

Gain / (loss) reclassified from Accumulated Other Comprehensive Loss
to Condensed Consolidated Statements of Operations (effective portion)

						Three months ended March 31,
(dollars in thousands)						2011				2010
Derivative:		Location:
Natural gas contracts		Cost of sales				$	(829	)		$	(759	)
Total impact on net (loss) income						$	(829	)		$	(759	)

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

Gain (loss) recognized in income
(ineffective portion and amount excluded from effectiveness testing)

						Three months ended March 31,
(dollars in thousands)						2011				2010
Derivative:		Location:
Natural gas contracts		Other income (expense)				$	(1	)		$	(130	)
Total						$	(1	)		$	(130	)

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. During 2010, we entered into a series of foreign currency contracts to sell Canadian dollars. As of March 31, 2011 and December 31, 2010, we had contracts for $21.9 million Canadian dollars and $18.7 million Canadian dollars, respectively.

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

						Three months ended
						March 31,
(dollars in thousands)						2011				2010
Derivative:		Location:
Currency contracts		Other income (expense)				$	(454	)		$	—
Total						$	(454	)		$	—

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 counterparties to the other derivative agreements as March 31, 2011, by Standard and Poor’s.

10. Comprehensive Income

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

		Three months ended
		March 31,
(dollars in thousands)		2011				2010
Net (loss) income		$	(1,001	)		$	55,410
Effect of derivatives, net of tax			614				(2,158	)
Minimum pension and non-pension retirement liability and intangible pension asset, net of tax			2,112				1,578
Effect of exchange rate fluctuations			6,596				(6,514	)
Total comprehensive income		$	8,321			$	48,316

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

										Minimum Pension
		Effect of								and Non-Pension				Total
		Exchange								Retirement Liability				Accumulated
		Rate				Cash Flow				and Intangible				Comprehensive
(dollars in thousands)		Fluctuation				Derivatives				Pension Asset				Loss
Balance on December 31, 2010		$	(2,661	)		$	(1,121	)		$	(107,164	)		$	(110,946	)
2011 change			6,596				716				2,362				9,674
Translation effect			—				(36	)			(412	)			(448	)
Tax effect			—				(66	)			162				96
Balance on March 31, 2011		$	3,935			$	(507	)		$	(105,052	)		$	(101,624	)

11. Condensed Consolidated Guarantor Financial Statements

Libbey Glass is a direct, 100 percent owned subsidiary of Libbey Inc. and the issuer of the Senior Secured Notes. The obligations of Libbey Glass under the Senior Secured Notes are fully and unconditionally and jointly and severally guaranteed by Libbey Inc. and by certain indirect, 100 percent owned domestic subsidiaries of Libbey Inc., as described below. All are related parties that are included in the Condensed Consolidated Financial Statements for the three month periods ended March 31, 2011 and March 31, 2010.

At March 31, 2011, December 31, 2010 and March 31, 2010, 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. and LGAC LLC (collectively, the “Subsidiary Guarantors”). The following tables contain Condensed Consolidating Financial Statements of (a) the parent, Libbey Inc., (b) the issuer, Libbey Glass, (c) the Subsidiary Guarantors, (d) the indirect subsidiaries of Libbey Inc. that are not Subsidiary Guarantors (collectively, “Non-Guarantor Subsidiaries”), (e) the consolidating elimination entries, and (f) the consolidated totals.

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

Three months ended March 31, 2011
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	—				90,569				19,756				83,344				(12,654	)		$	181,015
Freight billed to customers			—				151				194				66				—				411
Total revenues			—				90,720				19,950				83,410				(12,654	)			181,426
Cost of sales							74,863				14,870				68,201				(12,654	)			145,280
Gross profit			—				15,857				5,080				15,209				—				36,146
Selling, general and administrative expenses			—				13,940				2,282				9,180				—				25,402
Special charges			—				—				51				—				—				51
Income from operations			—				1,917				2,747				6,029				—				10,693
Other (expense) income			—				(2,555	)			34				2,724				—				203
Earnings before interest and income taxes			—				(638	)			2,781				8,753				—				10,896
Interest expense			—				8,793				—				2,790				—				11,583
Earnings before income taxes			—				(9,431	)			2,781				5,963				—				(687	)
Provision (benefit) for income taxes			—				(622	)			72				864				—				314
Net income			—				(8,809	)			2,709				5,099				—				(1,001	)
Equity in net (loss) income of subsidiaries			(1,001	)			7,808				—				—				(6,807	)			—
Net income (loss)		$	(1,001	)		$	(1,001	)		$	2,709			$	5,099			$	(6,807	)		$	(1,001	)

The following represents the total special items included in the above Condensed Consolidated Statement of Operations (see notes 4, 5 and 14):

Three months ended March 31, 2011
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Special charges		$	—			$	—			$	51			$	—			$	—			$	51
Other expense (income)			—				2,803				—				(3,445	)			—				(642	)
Total pretax special items			—				2,803				51				(3,445	)			—				(591	)
Provision for income taxes			—				—				—				922				—				922
Special items net of tax		$	—			$	2,803			$	51			$	(2,523	)		$	—			$	331

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

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

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

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

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

March 31, 2011 (unaudited)
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Cash and equivalents		$	—			$	(229	)		$	187			$	13,154			$	—			$	13,112
Accounts receivable — net			—				36,756				6,585				50,881				—				94,222
Inventories — net			—				55,624				20,906				88,551				—				165,081
Other current assets			—				19,710				3,375				9,506				(22,406	)			10,185
Total current assets			—				111,861				31,053				162,092				(22,406	)			282,600
Other non-current assets			—				17,746				—				33,333				(19,002	)			32,077
Investments in and advances to subsidiaries			20,287				362,737				190,278				(30,711	)			(542,591	)			—
Goodwill and purchased intangible assets — net			—				26,833				15,759				149,843				—				192,435
Total other assets			20,287				407,316				206,037				152,465				(561,593	)			224,512
Property, plant and equipment — net			—				70,790				4,170				196,801				—				271,761
Total assets		$	20,287			$	589,967			$	241,260			$	511,358			$	(583,999	)		$	778,873
Accounts payable		$	—			$	11,384			$	3,207			$	45,573			$	—			$	60,164
Accrued and other current liabilities			—				48,262				24,855				33,946				(24,022	)			83,041
Notes payable and long-term debt due within one year			—				227				—				3,102				—				3,329
Total current liabilities			—				59,873				28,062				82,621				(24,022	)			146,534
Long-term debt			—				362,036				—				46,706				—				408,742
Other long-term liabilities			—				150,191				14,232				56,273				(17,386	)			203,310
Total liabilities			—				572,100				42,294				185,600				(41,408	)			758,586
Total shareholders’ equity (deficit)			20,287				17,867				198,966				325,758				(542,591	)			20,287
Total liabilities and shareholders’ equity (deficit)		$	20,287			$	589,967			$	241,260			$	511,358			$	(583,999	)		$	778,873