UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2007

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

Libbey Inc.

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

300 Madison Avenue, Toledo, Ohio 43604

419-325-2100

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

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

Large Accelerated Filer o       Accelerated Filer þ      Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company. 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 — 14,547,476 shares at October 31, 2007.

 

 

TABLE OF CONTENTS

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Business

2. Significant Accounting Policies

3. Balance Sheet Details

4. Acquisitions

5. Borrowings

6. Special Charges

7. Income Taxes

8. Pension and Nonpension Postretirement Benefits

9. Net Income per Share of Common Stock

10. Derivatives

11. Comprehensive Income (Loss)

12. Condensed Consolidated Guarantor Financial Statements

13. Segments

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Item 4. Controls and Procedures

PART II — OTHER INFORMATION

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 5. Other Information

Item 6. Exhibits

EXHIBIT INDEX

SIGNATURES

Certification

Certification

Certification

Certification

EX-31.1

EX-31.2

EX-32.1

EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying unaudited condensed consolidated financial statements of Libbey Inc. and all majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2007, are not necessarily indicative of the results that may be expected for the year ended December 31, 2007.

The balance sheet at December 31, 2006, 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, 2006.

LIBBEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per-share amounts)

(unaudited)

		Three months ended September 30,
		2007				2006
Net sales		$	202,431			$	183,256
Freight billed to customers			507				1,004
Total revenues			202,938				184,260
Cost of sales			164,688				152,692
Gross profit			38,250				31,568
Selling, general and administrative expenses			23,571				20,729
Income from operations			14,679				10,839
Other income (expense)			1,561				(1,733	)
Earnings before interest, income taxes and minority interest			16,240				9,106
Interest expense			16,956				15,551
Loss before income taxes and minority interest			(716	)			(6,445	)
Benefit for income taxes			(1,161	)			(3,116	)
Income (loss) before minority interest			445				(3,329	)
Minority interest			—				22
Net income (loss)		$	445			$	(3,307	)
Net income (loss) per share:
Basic		$	0.03			$	(0.23	)
Diluted		$	0.03			$	(0.23	)
Dividends per share		$	0.025			$	0.025

See accompanying notes

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

		Nine months ended September 30,
		2007				2006
Net sales		$	589,050			$	476,120
Freight billed to customers			1,531				2,387
Total revenues			590,581				478,507
Cost of sales			475,727				396,621
Gross profit			114,854				81,886
Selling, general and administrative expenses			69,272				59,511
Special charges			—				12,587
Income from operations			45,582				9,788
Equity earnings — pretax			—				1,986
Other income (expense)			4,045				(2,244	)
Earnings before interest, income taxes and minority interest			49,627				9,530
Interest expense			48,949				29,360
Income (loss) before income taxes and minority interest			678				(19,830	)
Benefit for income taxes			(1,969	)			(7,535	)
Income (loss) before minority interest			2,647				(12,295	)
Minority interest			—				(66	)
Net income (loss)		$	2,647			$	(12,361	)
Net income (loss) per share:
Basic		$	0.18			$	(0.87	)
Diluted		$	0.18			$	(0.87	)
Dividends per share		$	0.075			$	0.075

See accompanying notes

LIBBEY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share amounts)

		September 30, 2007				December 31, 2006
		(unaudited)
ASSETS
Current assets:
Cash and equivalents		$	13,406			$	41,766
Accounts receivable — net			108,993				96,783
Inventories — net			185,776				159,123
Deferred taxes			4,120				4,120
Prepaid and other current assets			11,329				19,052
Total current assets			323,624				320,844
Other assets:
Repair parts inventories			13,518				9,279
Software — net			4,894				4,704
Deferred taxes			13,492				6,974
Other assets			13,286				17,717
Purchased intangible assets — net			30,891				31,492
Goodwill — net			176,938				174,880
Total other assets			253,019				245,046
Property, plant and equipment — net			320,440				312,241
Total assets		$	897,083			$	878,131
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Notes payable		$	1,637			$	226
Accounts payable			71,824				67,493
Salaries and wages			24,364				28,679
Accrued liabilities			57,475				47,622
Accrued income tax			2,272				—
Pension liability (current portion)			1,389				1,389
Nonpension postretirement benefits (current portion)			3,252				3,252
Derivative liability			5,236				4,132
Payable to Vitro			19,471				—
Long-term debt due within one year			794				794
Total current liabilities			187,714				153,587
Long-term debt			489,311				490,212
Pension liability			75,372				77,174
Nonpension postretirement benefits			37,608				38,495
Payable to Vitro			—				19,673
Other long-term liabilities			8,809				11,140
Total liabilities			798,814				790,281
Shareholders’ equity:
Common stock, par value $.01 per share, 50,000,000 shares authorized, 18,692,630 shares issued (18,689,710 in 2006)			187				187
Capital in excess of par value (includes warrants of $1,034, based on 485,309 shares as of September 30, 2007 and as of December 31, 2006)			289,469				303,381
Treasury stock, at cost, 4,150,796 shares (4,358,175 shares in 2006)			(111,248	)			(129,427	)
Retained deficit			(38,750	)			(40,282	)
Accumulated other comprehensive loss			(41,389	)			(46,009	)
Total shareholders’ equity			98,269				87,850
Total liabilities and shareholders’ equity		$	897,083			$	878,131

See accompanying notes

LIBBEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

		Three months ended September 30,
		2007				2006
Net income (loss)		$	445			$	(3,307	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			11,785				10,671
Change in accounts receivable			(197	)			(2,624	)
Change in inventories			(8,750	)			(5,600	)
Change in accounts payable			5,390				17,373
Pension & nonpension postretirement			(5,042	)			3,225
Income taxes			2,446				(12,241	)
Other operating activities			5,275				3,652
Net cash provided by operating activities			11,352				11,149
Investing activities:
Additions to property, plant and equipment			(9,366	)			(20,301	)
Business acquisition and related costs, less cash acquired			—				(424	)
Proceeds from asset sales and other			678				—
Net cash used in investing activities			(8,688	)			(20,725	)
Financing activities:
Net ABL credit facility activity			(4,380	)			8,889
Other net borrowings (repayments)			(199	)			12,147
Debt financing fees			—				(1,112	)
Dividends			(364	)			(356	)
Other			(138	)			1,078
Net cash (used in) provided by financing activities			(5,081	)			20,646
Effect of exchange rate fluctuations on cash			247				73
(Decrease) increase in cash			(2,170	)			11,143
Cash at beginning of period			15,576				26,661
Cash at end of period		$	13,406			$	37,804
Supplemental disclosure of cash flows information:
Cash paid during the period for interest		$	2,289			$	389
Cash paid (net of refunds received) during the period for income taxes		$	(9,934	)		$	918

See accompanying notes

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

		Nine months ended September 30,
		2007				2006
Net income (loss)		$	2,647			$	(12,361	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			31,711				27,212
Equity earnings — net of tax			—				(1,378	)
Gain on asset sales			(1,268	)			—
Change in accounts receivable			(6,476	)			1,892
Change in inventories			(24,128	)			(2,678	)
Change in accounts payable			2,635				2,061
Special charges			(767	)			18,859
Pension & nonpension postretirement			(2,805	)			9,428
Income taxes			(1,067	)			(16,979	)
Other operating activities			15,195				5,468
Net cash provided by operating activities			15,677				31,524
Investing activities:
Additions to property, plant and equipment			(31,992	)			(54,557	)
Business acquisition and related costs, less cash acquired			—				(77,995	)
Proceeds from asset sales and other			2,631				—
Net cash used in investing activities			(29,361	)			(132,552	)
Financing activities:
Net revolving credit facility activity			—				(147,142	)
Net ABL credit facility activity			(34,958	)			51,927
Other net borrowings (repayments)			21,081				(53,959	)
Note payments			—				(100,000	)
Note proceeds			—				399,840
Debt financing fees			—				(15,468	)
Dividends			(1,083	)			(1,059	)
Other			(138	)			1,273
Net cash (used in) provided by financing activities			(15,098	)			135,412
Effect of exchange rate fluctuations on cash			422				178
(Decrease) increase in cash			(28,360	)			34,562
Cash at beginning of period			41,766				3,242
Cash at end of period		$	13,406			$	37,804
Supplemental disclosure of cash flows information:
Cash paid during the period for interest		$	23,320			$	9,734
Cash paid (net of refunds received) during the period for income taxes		$	(8,160	)		$	6,770

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 to key markets throughout the world. With roots dating back to 1818, we have the largest manufacturing, distribution and service network among North American glass tableware manufacturers. 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, business-to-business and industrial 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 ceramic dinnerware plant in New York and a plastics plant in Wisconsin. 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, as amended, 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 any amendments to those reports. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.

2. Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2006, 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. Prior to June 16, 2006, we recorded our 49 percent interest in Crisa using the equity method. On June 16, 2006, we acquired the remaining 51 percent of Crisa; as a result and effective that date, Crisa’s results are included in the Condensed Consolidated Financial Statements. Prior to October 13, 2006, we owned 95 percent of Crisal-Cristalaria Automatica S.A. (Crisal). The 5 percent equity interest of Crisal that we did not own prior to October 13, 2006 is shown as minority interest in the Condensed Consolidated Financial Statements. On October 13, 2006, we acquired the remaining 5 percent of Crisal. 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, royalty expense 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. Translation adjustments are recorded in other income (expense), where the U.S. dollar is the functional currency.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred 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 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. FAS No. 109, “Accounting for Income Taxes,” requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Deferred 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, we have recorded a net deferred tax asset. Losses before income taxes have been incurred in recent years and, though the risk of not realizing the net deferred tax asset exists, we believe it is more likely than not that the net deferred tax asset will be realized through loss carry backs and the effects of tax planning.

On October 1, 2007, Mexico enacted tax reform legislation which will take effect on January 1, 2008. The Company is studying the effect of the new business flat tax or IETU. At the present time, the new tax is not expected to have a material impact on our consolidated results of operations and financial condition.

Stock-Based Compensation Expense

We account for stock-based compensation in accordance with SFAS No. 123-R, “Accounting for Stock-Based Compensation” (“SFAS No. 123-R”). Stock-based compensation cost is measured based on the fair value of the equity instruments issued. SFAS No. 123-R applies to all of our outstanding unvested stock-based payment awards as of January 1, 2006, and all prospective awards using the modified prospective transition method without restatement of prior periods. Stock-based compensation expense charged to the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2007, was $0.9 million and $2.5 million, respectively. The stock-based compensation expense charged to the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2006, was $0.1 million and $0.4 million, respectively.

New Accounting Standards

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 is effective for the first interim or annual reporting period for the first fiscal year beginning on or after December 15, 2006. On January 1, 2007, we adopted FIN 48. FIN 48 clarified the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 applies to all tax positions for income taxes accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” See Note 7 for the impact of applying the provisions of FIN 48.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This statement clarifies how to measure fair value as permitted under other accounting pronouncements but does not require any new fair value measurements. However, for some companies, the application of this statement will change current practice. We will be required to adopt SFAS No. 157 as of January 1, 2008. We are currently evaluating the impact that SFAS No. 157 will have on our consolidated results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of SFAS No. 115” (“SFAS No. 159”), which is effective for fiscal years beginning after November 15, 2007. This statement permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. We are currently evaluating the potential impact of this statement on our consolidated results of operations and financial condition.

Reclassifications

Certain amounts in the prior year’s financial statements 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:

		September 30, 2007				December 31, 2006
Accounts receivable:
Trade receivables		$	107,362			$	94,490
Other receivables			1,631				2,293
Total accounts receivable, less allowances of $11,847 and $11,507		$	108,993			$	96,783
Inventories:
Finished goods		$	174,491			$	147,423
Work in process			4,129				3,881
Raw materials			5,681				4,922
Operating supplies			1,475				2,897
Total inventories — net		$	185,776			$	159,123
Prepaid and other current assets:
Prepaid expenses		$	11,329			$	10,535
Prepaid and deferred income taxes			—				8,517
Total prepaid and other current assets		$	11,329			$	19,052
Other assets:
Deposits		$	725			$	1,069
Finance fees — net of amortization			11,980				14,275
Other			581				2,373
Total other assets		$	13,286			$	17,717
Accrued liabilities:
Accrued incentives		$	10,625			$	15,341
Workers compensation			8,868				10,008
Medical liabilities			2,453				2,539
Interest			18,638				5,519
Commissions payable			1,546				1,539
Accrued liabilities			15,345				12,676
Total accrued liabilities		$	57,475			$	47,622
Other long-term liabilities:
Deferred liability		$	1,246			$	754
Other			7,563				10,386
Total other long-term liabilities		$	8,809			$	11,140

4. Acquisitions

On June 16, 2006, we purchased from Vitro, S.A. de C.V. the remaining 51 percent of the shares of Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Crisa), located in Monterrey, Mexico, that we did not previously own. The purchase price was $80.0 million in addition to $4.9 million of acquisition costs. In addition, we refinanced approximately $71.9 million of Crisa’s existing indebtedness, $23.0 million of which we guaranteed prior to our purchase of the remaining 51 percent of the shares of Crisa. In connection with the acquisition, Crisa transferred to Vitro the pension liability for Crisa employees who had retired as of the closing date. Vitro also agreed to forgive $0.4 million of net intercompany payables owed to it and to defer receipt of approximately $9.4 million of net intercompany payables until August 15, 2006, and to defer receipt of approximately $19.7 million of net intercompany payables until January 15, 2008. In addition, Vitro waived its right to receive profit sharing payments of approximately $1.3 million from Libbey under a now-terminated distribution agreement. Crisa transferred to Vitro real estate (land and buildings) on which one of Crisa’s two manufacturing facilities is located, but Crisa retained the right to occupy the facility transferred to Vitro for up to three years. Concurrently, Vitro transferred to Crisa ownership of the land on which a leased, state-of-the-

art distribution center is located, along with racks and conveyors that Crisa leased from an affiliate of Vitro. Also, Vitro agreed not to compete with Crisa anywhere in the world (with limited exceptions) for five years.

Crisa is one of the largest glass tableware manufacturers in Latin America and has a significant percentage of the glass tableware market in Mexico. This acquisition is consistent with our strategy to expand our manufacturing platform into low-cost countries in order to become a more cost-competitive source of high-quality glass tableware.

There has been no change in the purchase price allocations since the second quarter 2007 when such allocations were finalized.

Crisa’s results of operations are included in our Condensed Consolidated Financial Statements starting June 16, 2006. Prior to June 16, 2006, 49 percent of Crisa’s earnings were accounted for under the equity method.

The pro forma unaudited results of operations for the nine month period ended September 30, 2006, assuming we had consummated the acquisition of Crisa as of January 1, 2006, are as follows:

		Nine months ended
		September 30, 2006
Net sales		$	550,192
Earnings before interest and taxes		$	21,307
Net loss		$	(10,740	)
Net loss per share:
Basic		$	(0.76	)
Diluted		$	(0.76	)
Depreciation and amortization		$	33,298

5. Borrowings

Our borrowings, prior to the refinancing consummated on June 16, 2006, consisted of a revolving credit and swing line facility permitting borrowings up to an aggregate total of $195.0 million, $100.0 million of privately placed senior notes, a $2.7 million promissory note in connection with the purchase of our Laredo, Texas warehouse, a euro-based working capital line for a maximum of €10.0 million, and other borrowings including the RMB Loan Contract described below and other debt related to Crisal.

On June 16, 2006, Libbey Glass Inc. issued, pursuant to private offerings, $306.0 million aggregate principal amount of floating rate senior secured notes (Senior Notes) and $102.0 million aggregate principal amount of senior subordinated secured pay-in-kind notes (PIK Notes), both due 2011. Concurrently, Libbey Glass Inc. entered into a new $150 million Asset Based Loan facility (ABL Facility) expiring in 2010.

Proceeds from these transactions immediately were used to repay existing bank and private placement indebtedness. In addition, proceeds were used for the acquisition of the remaining 51 percent equity interest in Crisa, for $80.0 million, bringing our ownership of Crisa to 100 percent; for repayment of existing Crisa indebtedness of approximately $71.9 million; and for related fees, expenses and redemption premiums of Libbey and Crisa.

Borrowings consist of the following:

										September 30,				December 31,
		Interest Rate				Maturity Date				2007				2006
Borrowings under ABL facility		floating				December 16, 2010				$	12,845			$	46,210
Senior notes		floating (1)				June 1, 2011					306,000				306,000
PIK notes (2)			16.00	%		December 1, 2011					118,238				109,480
Promissory note			6.00	%		October 2007 to September 2016					1,870				1,985
Notes payable		floating				October 2007					1,637				226
RMB loan contract		floating				July 2012 to January 2014					33,350				32,050
RMB working capital loan		floating				March 2010					6,670				—
Obligations under capital leases		floating				October 2007 to May 2009					1,150				1,548
BES Euro line		floating				January 2010 to January 2014					15,466				—
Other debt		floating				September 2009					1,388				1,954
Total borrowings											498,614				499,453
Less — unamortized discounts and warrants											6,872				8,221
Total borrowings — net											491,742				491,232
Less — current portion of borrowings											2,431				1,020
Total long-term portion of borrowings — net										$	489,311			$	490,212

(1)		See Interest Rate Protection Agreements below.
(2)		Additional PIK notes were issued on June 1, 2007, to pay the semi-annual interest. During the first three years, interest is payable by the issuance of additional PIK notes.

ABL Facility

The ABL Facility is with a group of six banks and provides for a revolving credit and swing line facility permitting borrowings for Libbey Glass and Libbey Europe up to an aggregate of $150.0 million, with Libbey Europe’s borrowings being limited to $75.0 million. Borrowings under the ABL Facility mature December 16, 2010. Swing line borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe being limited to €7.5 million. Swing line U.S. dollar borrowings bear interest calculated at the prime rate plus the Applicable Rate for ABR (Alternate Base Rate) Loans, 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 ABR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for ABR Loans and Eurocurrency Loans were 0 percent and 1.75 percent, respectively, at September 30, 2007. There were no Libbey Glass borrowings under the facility at September 30, 2007, while Libbey Europe had outstanding borrowings of $12.8 million at September 30, 2007, at an interest rate of 6.54 percent.

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

We pay a Commitment Fee, as defined by the ABL Facility, on the total credit provided under the Facility. The Commitment Fee varies depending on our aggregate availability. The Commitment Fee was 0.25 percent at September 30, 2007. No compensating balances are required by the Agreement. The Agreement does not require compliance with restrictive financial covenants, unless aggregate unused availability falls below $25.0 million.

The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable, inventory and fixed assets. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable, (b) the lesser of (i) 85 percent of the net orderly liquidation value (NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million and (c) the lesser of $25.0 million and the aggregate of (i) 75 percent of the NOLV of eligible equipment and (ii) 50 percent of the fair market value of eligible real property.

The available total borrowing base is offset by real estate and ERISA reserves totaling $8.0 million and mark-to-market reserves for natural gas and interest rate swaps of $3.8 million. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $150.0 million limit. At September 30, 2007, we had $8.4 million in letters of credit outstanding under the ABL Facility. Remaining unused availability on the ABL Facility was $105.0 million at September 30, 2007.

Senior Notes

Libbey Glass and Libbey Inc. entered into a purchase agreement pursuant to which Libbey Glass agreed to sell $306.0 million aggregate principal amount of floating rate senior secured notes due 2011 to the initial purchasers named in a private placement. The net proceeds, after deducting a discount and the estimated expenses and fees, were approximately $289.8 million. On February 15, 2007, we exchanged $306.0 million aggregate principal amount of our floating rate senior secured notes due 2011, which have been registered under the Securities Act of 1933, as amended (Senior Notes), for the notes sold in the private placement. The Senior Notes bear interest at a rate equal to nine-month LIBOR plus 7.0 percent and were offered at a discount of 2 percent of face value. Interest with respect to the Senior Notes is payable semiannually on June 1 and December 1. The interest rate was 12.38 percent at September 30, 2007.

We have Interest Rate Protection Agreements (Rate Agreements) with respect to $200.0 million of debt as a means to manage our exposure to fluctuating interest rates. The Rate Agreements effectively convert this portion of our long-term borrowings from variable rate debt to fixed-rate debt, thus reducing the impact of interest rate changes on future income. The fixed interest rate for our borrowings related to the Rate Agreements at September 30, 2007, excluding applicable fees, is 5.24 percent per year and the total interest rate, including applicable fees, is 12.24 percent per year. The average maturity of these Rate Agreements is 2.2 years at September 30, 2007. Total remaining Senior Notes not covered by the Rate Agreements have fluctuating interest rates with a weighted average rate of 12.38 percent per year at September 30, 2007. If the counterparties to these Rate Agreements were to fail to perform, these Rate Agreements would no longer protect us from interest rate fluctuations. However, we do not anticipate nonperformance by the counterparties. All counterparties’ credit ratings were rated AA- or better as of September 2007, by Standard and Poors.

The fair market value for the Rate Agreements at September 30, 2007, was ($2.5) million. The fair value of the Rate Agreements is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. We do not expect to cancel these agreements and expect them to expire as originally contracted.

The Senior Notes are guaranteed by Libbey Inc. and all of Libbey Glass’s existing and future domestic subsidiaries that guarantee any of Libbey Glass’s debt or debt of any subsidiary guarantor (see Note 12). The Senior Notes and related guarantees have the benefit of a second-priority lien, subject to permitted liens, on collateral consisting of substantially all the tangible and intangible assets of Libbey Glass and its domestic subsidiary guarantors that secure all of the indebtedness under Libbey Glass’s ABL Facility. The Collateral does not include the assets of non-guarantor subsidiaries that secure the ABL Facility.

PIK Notes

Concurrently with the execution of the purchase agreement with respect to the Senior Notes, Libbey Glass and Libbey Inc. entered into a purchase agreement (Unit Purchase Agreement) pursuant to which Libbey Glass agreed to sell, to a purchaser named in the private placement, units consisting of $102.0 million aggregate principal amount 16 percent senior subordinated secured pay-in-kind notes due 2011 (PIK Notes) and detachable warrants to purchase 485,309 shares of Libbey Inc. common stock (Warrants) exercisable on or after June 16, 2006 and expiring on December 1, 2011. The warrant holders do not have voting rights. The net proceeds, after deducting a discount and estimated expenses and fees, were approximately $97.0 million. The proceeds were allocated between the Warrants and the underlying debt based on their respective fair values at the time of issuance. The amount allocated to the Warrants has been recorded in equity, with the offset recorded as a discount on the underlying debt. Each Warrant is exercisable at $11.25. The PIK Notes were offered at a discount of 2 percent of face value. Interest is payable semiannually on June 1 and December 1, but during the first three years interest is payable by issuance of additional PIK Notes.

The obligations of Libbey Glass under the PIK Notes are guaranteed by Libbey Inc. and all of Libbey Glass’s existing and future domestic subsidiaries that guarantee any of Libbey Glass’s debt or debt of any subsidiary guarantor (see Note 12). The PIK Notes and related guarantees are senior subordinated obligations of Libbey Glass and the guarantors of the PIK Notes and are entitled to the benefit of a third-priority lien, subject to permitted liens, on the collateral that secures the Senior Notes.

Promissory Note

In September 2001, we issued a $2.7 million promissory note in connection with the purchase of our Laredo, Texas warehouse facility. At September 30, 2007, and December 31, 2006, we had $1.9 million and $2.0 million, respectively, 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 €1.8 million. The $1.6 million outstanding at September 30, 2007, was the U.S. dollar equivalent under the euro-based overdraft line and the interest rate was 5.43 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 $33.4 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, 2007, the annual interest rate was 6.46 percent. As of September 30, 2007, the outstanding balance was RMB 250.0 million (approximately $33.4 million). Interest is payable quarterly. Payments of principal in the amount of RMB 30.0 million (approximately $4.0 million) and RMB 40.0 million (approximately $5.4 million) must be made on July 20, 2012, and December 20, 2012, respectively, and three payments of principal in the amount of RMB 60.0 million (approximately $8.0 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.

RMB Working Capital Loan

In March 2007, Libbey China entered into a 50.0 million RMB working capital loan with CCB. The 3-year term loan matures on March 14, 2010, has a current interest rate of 6.30 percent, and is secured by a Libbey Inc. guarantee. At September 30, 2007, the U.S. dollar equivalent on the line was $6.7 million.

Obligations Under Capital Leases

We lease certain machinery and equipment under agreements that are classified as capital leases. These leases were assumed in the Crisal acquisition on October 13, 2006. The cost of the equipment under capital leases is included in the Condensed Consolidated Balance Sheet as property, plant and equipment, and the related depreciation expense is included in the Condensed Consolidated Statements of Operations.

The future minimum lease payments required under the capital leases as of September 30, 2007, are $0.7 million for year one and $0.5 million for years two and three thereafter.

BES Euro Line

In January 2007, Crisal entered into a seven year, €11.0 million line of credit (approximately $15.7 million) with Banco Espírito Santo, S.A. (BES). The $15.5 million outstanding at September 30, 2007, was the U.S. dollar equivalent under the line at an interest rate of 5.66 percent. Payment of principal in the amount of €1.1 million (approximately $1.6 million) is due in January 2010, payment of €1.6 million (approximately $2.3 million) is due in January 2011, payment of €2.2 (approximately $3.0 million) is due in January 2012, payment of €2.8 million (approximately $4.0 million) is due in January 2013 and payment of €3.3 million (approximately $4.6 million) is due in January 2014. Interest with respect to the line is paid every six months.

Other Debt

The other debt of $1.4 million consists primarily of government-subsidized loans for equipment purchases at Crisal.

6. Special Charges

Crisa Restructuring

In June 2006, we announced plans to consolidate Crisa’s two principal manufacturing facilities into one facility and to discontinue certain product lines in order to reduce fixed costs. See Form 10-K for the year ended December 31, 2006, for further discussion.

As a result, we recorded the following non-recurring special charges within the North American Glass reporting segment:

		Three months ended September 30,								Nine months ended September 30,
		2007				2006				2007				2006
Fixed asset related (included in special charges)		$	—			$	—			$	—			$	12,587
Inventory write-down (included in cost of sales)			—				—				—				2,543
Crisa restructuring		$	—			$	—			$	—			$	15,130

The following reflects the balance sheet activity related to the Crisa restructuring for the nine months ended September 30, 2007:

		Balance at				Cash				Non-cash				Balance at				Cash				Non-cash				Balance at
		December 31, 2006				payments				utilization				June 30, 2007				payments				utilization				September 30, 2007
Employee termination costs & other		$	1,163			$	(614	)		$	5			$	554			$	—			$	14			$	568
Total		$	1,163			$	(614	)		$	5			$	554			$	—			$	14			$	568

The employee termination costs and other of $0.6 million are included in the accrued liabilities on the Condensed Consolidated Balance Sheets.

Write-off of Finance Fees

In June 2006, we wrote off unamortized finance fees related to debt of Libbey and Crisa that we refinanced. See Form 10-K for the year ended December 31, 2006, for further discussion.

As a result, we recorded the following non-recurring special charges within the North American Glass reporting segment:

		Three months ended September 30,								Nine months ended September 30,
		2007				2006				2007				2006
Write-off of finance fees		$	—			$	—			$	—			$	4,906
Included in interest expense		$	—			$	—			$	—			$	4,906

Summary of Special Charges

The following table summarizes the charges related to the Crisa restructuring and write-off of finance fees and their classifications on the Condensed Consolidated Statements of Operations:

		Three months ended September 30,								Nine months ended September 30,
		2007				2006				2007				2006
Cost of sales		$	—			$	—			$	—			$	2,543
Special charges			—				—				—				12,587
Interest expense			—				—				—				4,906
Total special charges		$	—			$	—			$	—			$	20,036

7. Income Taxes

In July 2006, the FASB issued FIN 48. FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes and accounting in interim periods and requires increased disclosures.

We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, we recorded a $6.7 million decrease in the net tax asset for unrecognized tax benefits, offset by an increase in net deferred tax asset of $6.7 million, with no cumulative effect on retained earnings. The amount of unrecognized tax benefits at January 1, 2007, was $8.1 million, of which $1.4 million would impact our effective tax rate, if recognized. The amount of unrecognized tax benefits at September 30, 2007, is $7.3 million, of which $1.7 million would impact our effective tax rate, if recognized.

During the third quarter of 2007, unrecognized tax benefits decreased by $0.5 million from tax positions taken during prior periods resulting from the lapse of the applicable statute of limitations. Offsetting the decline was a $0.5 million increase in unrecognized tax benefits during the quarter as a result of tax positions taken during the period.

It is expected that the amount of the unrecognized tax benefits will change within the next twelve months; however, we do not expect the change to have a significant impact on our results of operations or our financial position.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of January 1, 2007, we had $3.0 million of accrued interest and penalties. The liability for the payment of interest and penalties at September 30, 2007, is $3.7 million.

We are not currently under audit by the Internal Revenue Service for any years; however, we have been contacted for examination. The statutes of limitation for our income tax returns after 2003 remain open for examination by the IRS.

Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. We have various foreign and state income tax returns in the process of examination, administrative appeals or litigation. Years still open to examination by foreign tax authorities in major jurisdictions include Netherlands (2006 onward), Portugal (2002 onward), Mexico (2002 onward), and Canada (2004 onward).

8. Pension and Nonpension Postretirement Benefits

We have pension plans covering the majority of our employees. Benefits generally are based on compensation and length of service for salaried employees and job grade and length of service for hourly employees. In addition, we have a supplemental employee retirement plan (SERP) covering certain employees. The U.S. pension plans, including the SERP, which is an unfunded liability, cover the hourly and salaried U.S.-based employees of Libbey hired before January 1, 2006. The non-U.S. pension plans cover the employees of our wholly owned subsidiaries, Royal Leerdam, Leerdam Crystal and Crisa. The Crisa plan is not funded.

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

		U.S. Plans								Non-U.S. Plans								Total
Three months ended September 30,		2007				2006				2007				2006				2007				2006
Service cost		$	1,481			$	1,231			$	479			$	413			$	1,960			$	1,644
Interest cost			3,651				3,338				956				644				4,607				3,982
Expected return on plan assets			(4,010	)			(4,037	)			(687	)			(565	)			(4,697	)			(4,602	)
Amortization of unrecognized:
Prior service cost (gain)			522				518				(13	)			241				509				759
Loss			535				298				73				10				608				308
Settlement			500				1,000				—				—				500				1,000
Pension expense		$	2,679			$	2,348			$	808			$	743			$	3,487			$	3,091

		U.S. Plans								Non-U.S. Plans								Total
Nine months ended September 30,		2007				2006				2007				2006				2007				2006
Service cost		$	4,442			$	4,497			$	1,440			$	790			$	5,882			$	5,287
Interest cost			10,955				10,368				2,869				1,429				13,824				11,797
Expected return on plan assets			(12,030	)			(11,799	)			(2,062	)			(1,695	)			(14,092	)			(13,494	)
Amortization of unrecognized:
Prior service cost (gain)			1,565				1,560				(36	)			124				1,529				1,684
Loss			1,605				1,916				222				30				1,827				1,946
Settlement			1,500				2,000				—				—				1,500				2,000
Pension expense		$	8,037			$	8,542			$	2,433			$	678			$	10,470			$	9,220

We provide certain retiree health care and life insurance benefits covering a majority of our salaried and non-union hourly employees hired before January 1, 2004 and a majority of our union hourly employees. Employees generally are 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. nonpension postretirement plans cover the hourly and salaried U.S.-based employees of Libbey. The non-U.S. nonpension postretirement plans cover the retirees and active employees of Libbey who are located in Canada.

The provision for our nonpension postretirement benefit expense consists of the following:

		U.S. Plans								Non-U.S. Plans								Total
Three months ended September 30,		2007				2006				2007				2006				2007				2006
Service Cost		$	199			$	141			$	1			$	1			$	200			$	142
Interest cost			561				550				23				3				584				553
Amortization of unrecognized:
Prior service cost (gain)			(221	)			(223	)			—				—				(221	)			(223	)
(Gain)/loss			20				50				(13	)			(48	)			7				2
Nonpension postretirement benefit expense		$	559			$	518			$	11			$	(44	)		$	570			$	474

		U.S. Plans								Non-U.S. Plans								Total
Nine months ended September 30,		2007				2006				2007				2006				2007				2006
Service Cost		$	597			$	557			$	1			$	1			$	598			$	558
Interest cost			1,683				1,538				70				71				1,753				1,609
Amortization of unrecognized:
Prior service cost (gain)			(663	)			(663	)			—				—				(663	)			(663	)
(Gain)/loss			59				34				(38	)			(48	)			21				(14	)
Nonpension postretirement benefit expense		$	1,676			$	1,466			$	33			$	24			$	1,709			$	1,490

In 2007, we expect to utilize $20.5 million to fund our pension plans and nonpension postretirement benefits. Of that amount, $8.6 million and $14.5 million were paid for the three months and nine months ended September 30, 2007, respectively.

9. Net Income 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,
		2007				2006				2007				2006
Numerator for earnings per share — net income (loss) that is available to common shareholders		$	445			$	(3,307	)		$	2,647			$	(12,361	)
Denominator for basic earnings per share — weighted-average shares outstanding			14,534,921				14,254,121				14,444,777				14,139,206
Effect of dilutive securities – employee stock options, employee stock purchase plan (ESPP), warrants and restricted stock units (1)			388,794				—				314,519				—
Denominator for diluted earnings per share – adjusted weighted-average shares and assumed conversions			14,923,715				14,254,121				14,759,296				14,139,206
Basic earnings (loss) per share		$	0.03			$	(0.23	)		$	0.18			$	(0.87	)
Diluted earnings (loss) per share		$	0.03			$	(0.23	)		$	0.18			$	(0.87	)

(1)		The effect of the employee stock purchase plan (ESPP), 6,537 shares for the three months ended September 30, 2006, and 1,504 shares for the nine months ended September 30, 2006 ,was anti-dilutive and thus not included in the earnings per share calculation. These amounts were anti-dilutive due to the net loss. All other employee stock options and warrants were excluded from the diluted weighted average shares calculations as they were not in-the-money as of September 30, 2006.

Diluted shares outstanding include the dilutive impact of in-the-money employee stock options, the ESPP, warrants and restricted stock units, which are calculated based on the average share price for each fiscal period using the treasury stock method in accordance with SFAS 123-R. Under SFAS 123-R and the treasury stock method, the average unrecognized compensation is included with the tax-effected proceeds that hypothetically would be received from the exercise of all in-the-money options and that are assumed to be used to repurchase shares.

10. Derivatives

As of September 30, 2007, we had Interest Rate Protection Agreements for $200.0 million of our variable rate debt, commodity contracts for 3,303,000 million British Thermal Units (BTUs) of natural gas and a foreign currency contract for 212.0 million pesos for a contractual payment due to Vitro, related to the Crisa acquisition, in January 2008, all with a total fair value of $(5.2) million, accounted for under Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (Statement 133). At December 31, 2006, we had Interest Rate Protection Agreements for $200.0 million of variable rate debt and commodity contracts for 3,450,000 million BTUs of natural gas with a total fair value of $(4.1) million. The fair value of these derivatives is included in derivative liability on the Condensed Consolidated Balance Sheets.

We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate, natural gas and foreign currency hedges, as the counterparties are established financial institutions. All counterparties were rated AA- or better as of September 2007, by Standard and Poors.

All of our derivatives (except for the foreign currency contract) qualify and are designated as cash flow hedges at September 30, 2007. Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in anticipated cash flows of the hedged item or transaction. The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings. We recognized a loss of $0.2 million in the three months and a gain of $0.5 million in the nine months ended September 30, 2007, in other income on the Condensed Consolidated Statement of Operations. We recognized a loss of $1.7 million in the three months and a loss of $1.9 million in the nine months ended September 30, 2006, primarily related to non-qualifying natural gas hedges at Crisa.

11. Comprehensive Income (Loss)

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

		Three months ended September 30,								Nine months ended September 30,
		2007				2006				2007				2006
Net income (loss)		$	445			$	(3,307	)		$	2,647			$	(12,361	)
Pension and other postretirement benefit adjustments			70				—				94				(118	)
Change in fair value of derivative instruments (see detail below)			(2,060	)			(959	)			(1,244	)			(5,683	)
Effect of exchange rate fluctuation			3,988				(99	)			5,770				(84	)
Comprehensive income (loss)		$	2,443			$	(4,365	)		$	7,267			$	(18,246	)

Accumulated other comprehensive loss, net of tax, includes:

		September 30, 2007				December 31, 2006
Pension and other postretirement benefit adjustments		$	(41,750	)		$	(41,844	)
Derivatives			(4,331	)			(3,086	)
Exchange rate fluctuation			4,692				(1,079	)
Total		$	(41,389	)		$	(46,009	)

The change in other comprehensive income (loss) for derivative instruments for the Company is as follows:

		Three months ended September 30,								Nine months ended September 30,
		2007				2006				2007				2006
Change in fair value of derivative instruments		$	(2,929	)		$	(1,762	)		$	(1,770	)		$	(9,203	)
Less:
Income tax effect			869				803				526				3,520
Other comprehensive income (loss) related to derivatives		$	(2,060	)		$	(959	)		$	(1,244	)		$	(5,683	)

We adopted the provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB statements No. 87, 88, 106 and 132 (R),” in December 2006. As a result of the adoption of this statement, accumulated other comprehensive income (loss) decreased by $21.8 million. The decrease was incorrectly recorded as a component of comprehensive loss in the 2006 Consolidated Statement of Shareholders’ Equity. Total comprehensive loss was incorrectly reported as $35.8 million and should have been reported as $14.0 million for the year ended December 31, 2006. The decrease due to the adoption of this statement should have been recorded as a direct adjustment to accumulated other comprehensive income (loss).

12. Condensed Consolidated Guarantor Financial Statements

Libbey Glass is a direct, 100 percent owned subsidiary of Libbey Inc. and the issuer of the Senior Notes and the PIK Notes. The obligations of Libbey Glass under the Senior Notes and the PIK Notes are fully and unconditionally and jointly and severally guaranteed by Libbey Inc. and by certain indirect, 100 percent owned domestic subsidiaries of Libbey Inc., as described below. All are related parties that are included in the Condensed Consolidated Financial Statements for the three month and nine month periods ended September 30, 2007.

At September 30, 2007, and December 31, 2006, Libbey Inc.’s indirect, 100 percent owned domestic subsidiaries were Syracuse China Company, World Tableware Inc., LGA4 Corp., LGA3 Corp., The Drummond Glass Company, LGC Corp., Traex Company, Libbey.com LLC, LGFS Inc., LGAC LLC and Crisa Industrial LLC (collectively, the “Subsidiary Guarantors”). The following tables contain condensed consolidating financial statements of (a) the parent, Libbey Inc., (b) the issuer, Libbey Glass, (c) the Subsidiary Guarantors, (d) the indirect subsidiaries of Libbey Inc. that are not Subsidiary Guarantors (collectively, “Non-Guarantor Subsidiaries”), (e) the consolidating elimination entries, and (f) the consolidated totals.

Libbey Inc.

Condensed Consolidating Statement of Operations

(dollars in thousands) (unaudited)

		Three months ended September 30, 2007
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	99,938			$	29,409			$	87,429			$	(14,345	)		$	202,431
Freight billed to customers							137				321				49				—				507
Total revenues			—				100,075				29,730				87,478				(14,345	)			202,938
Cost of sales			—				79,167				23,616				76,250				(14,345	)			164,688
Gross profit			—				20,908				6,114				11,228				—				38,250
Selling, general and administrative expenses			—				13,353				2,400				7,818				—				23,571
Income from operations			—				7,555				3,714				3,410				—				14,679
Other income (expense)			—				1,375				49				137				—				1,561
Earnings (loss) before interest, income taxes and minority interest			—				8,930				3,763				3,547				—				16,240
Interest expense			—				15,265				—				1,691				—				16,956
Earnings (loss) before income taxes and minority interest			—				(6,335	)			3,763				1,856				—				(716	)
Provision (benefit) for income taxes			—				(10,116	)			6,047				2,908				—				(1,161	)
Net income (loss) before minority interest			—				3,781				(2,284	)			(1,052	)			—				445
Minority interest and equity in net income (loss) of subsidiaries			445				(3,336	)			—				—				2,891				—
Net income (loss)		$	445			$	445			$	(2,284	)		$	(1,052	)		$	2,891			$	445

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

		Three months ended September 30, 2006
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	91,693			$	27,822			$	75,698			$	(11,957	)		$	183,256
Freight billed to customers			—				239				326				439				—				1,004
Total revenues			—				91,932				28,148				76,137				(11,957	)			184,260
Cost of sales			—				73,134				24,340				67,175				(11,957	)			152,692
Gross profit			—				18,798				3,808				8,962				—				31,568
Selling, general and administrative expenses			—				13,321				1,685				5,723				—				20,729
Income (loss) from operations			—				5,477				2,123				3,239				—				10,839
Other income (expense)			—				(400	)			147				(1,480	)			—				(1,733	)
Earnings (loss) before interest, income taxes and minority interest			—				5,077				2,270				1,759				—				9,106
Interest expense			—				14,908				—				643				—				15,551
Earnings (loss) before income taxes and minority interest			—				(9,831	)			2,270				1,116				—				(6,445	)
Provision (benefit) for income taxes			—				(3,781	)			937				(272	)			—				(3,116	)
Net income (loss) before minority interest			—				(6,050	)			1,333				1,388				—				(3,329	)
Minority interest and equity in net income (loss) of subsidiaries			(3,307	)			2,743				—				22				564				22
Net income (loss)		$	(3,307	)		$	(3,307	)		$	1,333			$	1,410			$	564			$	(3,307	)

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

		Nine months ended September 30, 2007
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	297,017			$	87,335			$	241,521			$	(36,823	)		$	589,050
Freight billed to customers			—				403				989				139				—				1,531
Total revenues			—				297,420				88,324				241,660				(36,823	)			590,581
Cost of sales			—				235,362				70,026				207,162				(36,823	)			475,727
Gross profit			—				62,058				18,298				34,498				—				114,854
Selling, general and administrative expenses			—				37,506				6,598				25,168				—				69,272
Income from operations			—				24,552				11,700				9,330				—				45,582
Other income (expense)			—				2,646				1,243				156				—				4,045
Earnings before interest, income taxes and minority interest			—				27,198				12,943				9,486				—				49,627
Interest expense			—				44,733				1				4,215				—				48,949
Earnings (loss) before income taxes and minority interest			—				(17,535	)			12,942				5,271				—				678
Provision (benefit) for income taxes			—				(3,625	)			727				929				—				(1,969	)
Net income (loss) before minority interest			—				(13,910	)			12,215				4,342				—				2,647
Minority interest and equity in net income (loss) of subsidiaries			—2,647				16,557				—				—				(19,204	)			—
Net income (loss)		$	2,647			$	2,647			$	12,215			$	4,342			$	(19,204	)		$	2,647

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

		Nine months ended September 30, 2006
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	274,123			$	83,381			$	133,832			$	(15,216	)		$	476,120
Freight billed to customers			—				547				1,017				823				—				2,387
Total revenues			—				274,670				84,398				134,655				(15,216	)			478,507
Cost of sales			—				221,126				72,916				117,795				(15,216	)			396,621
Gross profit			—				53,544				11,482				16,860				—				81,886
Selling, general and administrative expenses			—				42,328				5,127				12,056				—				59,511
Special charges			—				—				—				12,587				—				12,587
Income (loss) from operations			—				11,216				6,355				(7,783	)			—				9,788
Equity earnings (loss) – pretax			—				—				612				1,374				—				1,986
Other income (expense)			—				(153	)			205				(2,296	)			—				(2,244	)
Earnings (loss) before interest, income taxes and minority interest			—				11,063				7,172				(8,705	)			—				9,530
Interest expense			—				25,253				—				4,107				—				29,360
Earnings (loss) before income taxes and minority interest			—				(14,190	)			7,172				(12,812	)			—				(19,830	)
Provision (benefit) for income taxes			—				(5,221	)			2,554				(4,868	)			—				(7,535	)
Net income (loss) before minority interest			—				(8,969	)			4,618				(7,944	)			—				(12,295	)
Minority interest and equity in net income (loss) of subsidiaries			(12,361	)			(3,392	)			—				(66	)			15,753				(66	)
Net income (loss)		$	(12,361	)		$	(12,361	)		$	4,618			$	(8,010	)		$	15,753			$	(12,361	)
The following represents the total special charges included in the above Statement of Operations (see Note 6 for further details):
Special charges included in:
Cost of sales		$	—			$	—			$	—			$	2,543			$	—			$	2,543
Special charges			—				—				—				12,587				—				12,587
Interest expense			—				3,490				—				1,416				—				4,906
Total pretax special charges		$	—			$	3,490			$	—			$	16,546			$	—			$	20,036