UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2007

or

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 Jurisdiction of		(IRS Employer
Incorporation or Organization)		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)
Securities registered pursuant to Section 12(b) of the Act:

		Name of Each Exchange on
Title of Each Class		Which Registered
Common Stock, $.01 par value		New York Stock Exchange

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o   No þ

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

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

     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

     The aggregate market value (based on the consolidated tape closing price on June 29, 2007) of the voting stock beneficially held by non-affiliates of the registrant was approximately $308,374,534. For the sole purpose of making this calculation, the term “non-affiliate” has been interpreted to exclude directors and executive officers of the registrant. Such interpretation is not intended to be, and should not be construed to be, an admission by the registrant or such directors or executive officers that any such persons are “affiliates” of the registrant, as that term is defined under the Securities Act of 1934.

     The number of shares of common stock, $.01 par value, of the registrant outstanding as of February 29, 2008 was 14,596,691.

     Certain information required by Items 10, 11, 12, 13 and 14 of Form 10-K is incorporated by reference into Part III hereof from the registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held May 16, 2008 (“Proxy Statement”).

     Certain information required by Part II of this Form 10-K is incorporated by reference from registrant’s 2007 Annual Report to Shareholders where indicated.

 

 

TABLE OF CONTENTS

PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNACE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
SIGNATURES
INDEX TO FINANCIAL STATEMENT SCHEDULE
CERTIFICATIONS
EX-13.1
EX-21
EX-23.1
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2

     This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. Libbey desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, forecasts and projections, and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “believe,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would,” variations of such words, and similar expressions are intended to identify these forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

PART I

ITEM 1. BUSINESS

General

     Libbey Inc. (Libbey or the Company) is the leading producer of glass tableware products in the Western Hemisphere, in addition to supplying to key markets throughout the world. 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 produce glass tableware in five countries and sell to customers in over 100 countries. We design and market, under our LIBBEY^®, Crisa^®, Royal Leerdam^®, World^® Tableware, Syracuse^® China and Traex^® brand names, an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware, and plastic items for sale primarily in the foodservice, retail, business-to-business and industrial markets. Through our subsidiary B.V. Koninklijke Nederlandsche Glasfabriek Leerdam (Royal Leerdam), we manufacture and market high-quality glass stemware under the Royal Leerdam^® brand name. Through our subsidiary Crisal-Cristalaria Automática S.A. (Crisal), we manufacture glass tableware in Portugal and market it worldwide. We also manufacture and market ceramic dinnerware under the Syracuse^® China brand name through our subsidiary Syracuse China. Through our World Tableware subsidiary, we import and sell metal flatware, hollowware and serveware and ceramic dinnerware. We design, manufacture and distribute an extensive line of plastic items for the foodservice industry under the Traex^® brand name through our subsidiary Traex Company. We are the largest glass tableware manufacturer in Latin America through our Crisa subsidiary that goes to market under the Crisa^® brand name. We have a new state-of-the-art glass tableware manufacturing facility in China that has been operational since the first quarter of 2007. See note 21 to the Consolidated Financial Statements for segment information.

     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 the Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and 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.

Growth Strategy

     Our vision is to be the premier provider of tabletop glassware and related products worldwide. To achieve this vision, we have a growth strategy that emphasizes internal growth as well as growth in low-cost countries through acquired businesses and green meadow facilities. Having completed the acquisition of Crisa and construction of our new glass tableware manufacturing facility in China in 2006, we focused on internal growth and positioning Libbey to improve its capital structure during 2007.

     We continue to focus on our strong brand recognition and identity. We understand that our customers are key to our success. Therefore, we continue to assist our customers by providing new product development and improved service and support. New product development continues to be an essential competency of the company, creating excitement for our customers in all trade areas, around the world. Libbey introduced over 400 distinct new shapes worldwide in 2007, coupled with many additional sizes, decorations, color variations and packaging alternatives for our discriminating customers. In addition, our expanded manufacturing platform in Mexico, Portugal and China provide a cost-competitive source of glass tableware, enabling us to grow our tableware business in North American and International markets, including in Asia-Pacific markets, where we except to continue to grow rapidly.

Products

     Our tableware products consist of glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware, and plastic items. Our glass tableware includes tumblers, stemware (including wine glasses), mugs, bowls, ashtrays, bud vases, salt and pepper shakers, shot glasses, canisters, candleholders and various other items. Our subsidiary Royal Leerdam sells high-quality stemware. Crisal sells glass tableware, mainly tumblers, stemware and glassware accessories. Crisa’s glass tableware product assortment includes the product types produced by Libbey as well as glass bakeware and handmade glass tableware. In addition, Crisa products include blender jars, washing machine windows, meter covers and other industrial glassware sold principally to original equipment manufacturers. Through our Syracuse China and World Tableware subsidiaries, we sell a wide range of ceramic dinnerware products. These include plates, bowls, platters, cups, saucers and other tableware accessories. Our World Tableware subsidiary provides an extensive selection of metal flatware, including knives, forks, spoons and serving utensils. In addition, World Tableware sells metal hollowware, including serving trays, chafing dishes, pitchers and other metal tableware accessories. Through our Traex subsidiary, we sell a wide range of plastic products. These include warewashing and storage racks, trays, dispensers and organizers for the foodservice industry.

     We also have an agreement to be the exclusive distributor of Luigi Bormioli glassware in the U.S. and Canada to foodservice users. Luigi Bormioli, based in Italy, is a highly regarded supplier of high-end glassware used in the finest eating and drinking establishments.

Customers

     The customers for our tableware products include approximately 500 foodservice distributors in the U.S. and Canada. In the retail market, we sell to mass merchants, department stores, retail distributors, national retail chains and specialty housewares stores. In addition, our industrial market primarily includes customers that use glass containers for candle and floral applications, gourmet food packaging companies, and various OEM applications. In Mexico, we sell to retail mass merchants and wholesale distributors, as well as candle and food packers, and various OEM users of custom molded glass. In Europe, we market glassware to approximately 60 distributors and decorators that service the highly developed business-to-business channel, which includes large breweries and distilleries, for which products are decorated with company logos for promotional and resale purposes. We also have other customers who use our products for promotional or other private uses. In China, we sell to distributors and wholesalers. No single customer accounts for 10 percent or more of our sales, although the loss of any of our major customers could have a meaningful effect on us.

Sales, Marketing and Distribution

     Approximately 80 percent of our sales are to customers located in North America, and 20 percent of our sales are to customers located outside of North America. For segment information for the last three fiscal years, see note 21 to the Consolidated Financial Statements. We sell our products to over 100 countries around the world, competing in the tableware markets of Latin America, Asia and Europe, as well as North America.

     We have our own sales staff of professionals who call on customers and distributors. In addition, we retain the services of manufacturing representative organizations to assist in selling our products.

     We also have a marketing staff located at our corporate headquarters in Toledo, Ohio, as well as in Mexico, the Netherlands and China. They engage in developing strategies relating to product development, pricing, distribution, advertising and sales promotion.

     We operate distribution centers located at or near each of our manufacturing facilities (see Properties section). In addition, we operate distribution centers for our Crisa-supplied products in Laredo, Texas; for our World Tableware and Traex products in West Chicago, Illinois; and for our glass tableware products in Mira Loma, California. We also operate a distribution center for many of our products at Gorinchem, in the Netherlands. The glass tableware manufacturing and distribution centers are strategically located (geographically) to enable us to supply significant quantities of our product to virtually all of our customers on a timely and cost effective basis.

     The majority of our sales are in the foodservice, retail, business-to-business and industrial markets, which are further detailed below.

     Foodservice

     We have, according to our estimates, the leading market share in glass tableware sales in the U.S. and Canadian foodservice market. Syracuse China, World Tableware and Traex are recognized as long-established suppliers of high-quality ceramic dinnerware, metal flatware, hollowware and serveware, and plastic items, respectively. They are among the leading suppliers of their respective product categories to foodservice end users. The majority of our tableware sales to foodservice end users are made through a network of foodservice distributors. The distributors, in turn, sell to a wide variety of foodservice establishments, including national and regional hotel chains, national and regional restaurant chains, independently owned bars and restaurants, and casinos.

     Retail

     Our primary customers in the retail market are national and international mass merchants. In recent years, we have been able to increase our retail sales by increasing our sales to specialty housewares stores. Royal Leerdam and Crisa sell to similar retail clients in Europe and Mexico, while Crisal is increasingly positioned with retailers on the Iberian Peninsula. With this expanded retail representation, we are better positioned to successfully introduce profitable new products. We also operate outlet stores located at or near the majority of our manufacturing locations. In addition, we sell selected items on the internet at www.libbey.com.

     Business-to-Business

     Royal Leerdam and Crisal supply glassware to the business-to-business channel of distribution in Europe. Customers in this channel include marketers who decorate our glassware with company logos and resell these products to large breweries and distilleries, which redistribute the glassware for promotional purposes and resale.

     Industrial

     We are a major supplier of glassware for industrial markets in the U.S. and Mexico. Industrial uses primarily include candle, floral applications and blender jars as well as washing machine windows and meter covers. The craft industries and gourmet food packing companies are also industrial consumers of glassware. We have expanded our sales to industrial users by offering ceramic and metalware items.

Seasonality

     Primarily due to the impact of consumer buying patterns and production activity, our operating income, excluding special charges, tends to be stronger in the second and fourth quarters and weaker in the first and third quarters of each year. In addition, our cash flow from operations tends to be stronger in the second half of the year and weaker in the first half of the year due to seasonal working capital needs.

Backlog

     As of December 31, 2007, our backlog was approximately $41.4 million, compared to approximately $41.1 million at December 31, 2006. Backlog includes orders confirmed with a purchase order for products scheduled to be shipped to customers in a future period. Because orders may be changed and/or cancelled, we do not believe that our backlog is necessarily indicative of actual sales for any future period.

Manufacturing and Sourcing

     In North America, we currently own and operate three glass tableware manufacturing plants - two in the United States (one in Toledo, Ohio and one in Shreveport, Louisiana) and one in Monterrey, Mexico. Additionally, we own and operate a ceramic dinnerware plant in Syracuse, New York, and a plastics plant in Dane, Wisconsin. In Europe, we own and operate two glass tableware manufacturing plants — one in Leerdam, the Netherlands, and the other in Marinha Grande, Portugal. In Asia, we own and operate a new glass tableware production facility in Langfang, China, from which we began shipping product in March 2007.

     The manufacture of our tableware products involves the use of automated processes and technologies. We design much of our glass tableware production machinery, and we continuously refine it to incorporate technological advances to create competitive advantage. We believe that our production machinery and equipment continue to be adequate for our needs in the foreseeable future, but we continue to invest in ways to further improve our production efficiency and reduce our cost profile.

     Our glass tableware products generally are produced using one of two manufacturing methods or, in the case of certain stemware, a combination of such methods. Most of our tumblers, stemware and other glass tableware products are produced by forming molten glass in molds with the use of compressed air. These products are known as “blown” glass products. Our other glass tableware products and the stems of certain stemware are “pressware” products, which are produced by pressing molten glass into the desired product shape.

     Ceramic dinnerware is also produced through the forming of raw materials into the desired product shape and is either manufactured at our Syracuse, New York, production facility or imported primarily from China and Bangladesh. We source all metal flatware and metal hollowware through our World Tableware subsidiary, primarily from China. Plastic products are also produced through the molding of raw materials into the desired shape and are manufactured at our Dane, Wisconsin, production facility or imported primarily from Taiwan and China.

     To assist in the manufacturing process, we employ a team of engineers whose responsibilities include efforts to improve and upgrade our manufacturing facilities, equipment and processes. In addition, they provide engineering required to manufacture new products and implement the large number of innovative changes continuously being made to our product designs, sizes and shapes. See “Research and Development” below for additional information.

Materials

     Our primary materials are sand, lime, soda ash, corrugated packaging, clay, resins and colorants. Historically, these materials have been available in adequate supply from multiple sources. However, there may be temporary shortages of certain materials due to weather or other factors, including disruptions in supply caused by material transportation or production delays. Such shortages have not previously had, and are not expected in the future to have, a material adverse effect on our operations. Natural gas is a primary source of energy in most of our production processes, and variability in the price for natural gas has had and could continue to have an impact on our profitability. Historically, we have used natural gas hedging contracts to partially mitigate this impact. In addition, resins are a primary source of materials for our Traex operation, and, historically, the price for resins has fluctuated, directly impacting our profitability. We also experience fluctuations in the cost to deliver materials to our facilities, and such changes may affect our earnings.

Research and Development

     Our core competencies include our engineering excellence and world-class manufacturing techniques. Our focus is to increase the quality of our products and enhance the profitability of our business through research and development. We will continue to invest in strategic research and development projects that will further enhance our ability to compete in our core business.

     We employ a team of engineers, in addition to external consultants, to conduct research and development. During the last three years, our expenditures on research and development activities related to new and/or improved products and processes were $1.5 million in 2007, $2.3 million in 2006, and $2.4 million in 2005. These costs were expensed as incurred.

Patents, Trademarks and Licenses

     Based upon market research and surveys, we believe that our trade names and trademarks, as well as our product shapes and styles, enjoy a high degree of consumer recognition and are valuable assets. We believe that the Libbey^®, Syracuse^® China, World^® Tableware, Crisa^®, Royal Leerdam^® and Traex^® trade names and trademarks are material to our business.

     We have rights under a number of patents that relate to a variety of products and processes. However, we do not consider that any patent or group of patents relating to a particular product or process is of material importance to our business as a whole.

Competitors

     Our business is highly competitive, with the principal competitive factors being customer service, price, product quality, new product development, brand name, and delivery time.

     Competitors in glass tableware include, among others:

	•		Arc International (a private French company), which manufactures and distributes glass tableware worldwide;
	•		Pasabahce (a unit of Sisecam, a Turkish Company), which manufactures glass tableware at various sites throughout the world and sells to retail and foodservice customers worldwide;
	•		Anchor Hocking and Indiana Glass Company (both of which are owned by Monomoy Capital Partners, L.P.), which manufacture and distribute glass beverageware, industrial products, and bakeware primarily to retail, foodservice and industrial markets.
	•		Oneida Ltd., which sources glass tableware from foreign manufacturers;
	•		Bormioli Rocco group, which manufactures glass tableware in Europe, where the majority of its sales are to retail and foodservice customers; and
	•		Various sourcing companies.

     Other materials such as plastics also compete with glassware.

     Competitors in U.S. ceramic dinnerware include, among others:

	•		Homer Laughlin;
	•		Oneida Ltd.;
	•		Steelite; and
	•		Various sourcing companies.

     Competitors in metalware include:

	•		Oneida Ltd.;
	•		Walco, Inc.; and
	•		Various sourcing companies.

     Competitors in plastic products are, among others:

	•		Cambro Manufacturing Company;
	•		Carlisle Companies Incorporated; and
	•		Various sourcing companies.

Environmental Matters

     Our operations, in common with those of industry generally, are subject to numerous existing laws and governmental regulations designed to protect the environment, particularly regarding plant wastes and emissions and solid waste disposal. We also may be subject to proposed laws and governmental regulations as they become finalized. We have shipped, and we continue to ship, waste materials for off-site disposal. However, we are not named as a potentially responsible party with respect to any waste disposal site matters pending prior to June 24, 1993, the date of Libbey’s initial public offering and separation from Owens-Illinois, Inc. (Owens-Illinois). Owens-Illinois has been named as a potentially responsible party or other participant in connection with certain waste disposal sites to which we also may have shipped wastes prior to June 24, 1993. We may bear some responsibility in connection with those shipments. Pursuant to an indemnification agreement between Owens-Illinois and Libbey, Owens-Illinois has agreed to defend and hold us harmless against any costs or liabilities we may incur in connection with any such matters identified and pending as of June 24, 1993, and to indemnify us for any liability that results from these matters in excess of $3 million. We believe that if it is necessary to draw upon this indemnification, collection is probable.

     Pursuant to the indemnification agreement referred to above, Owens-Illinois is defending us with respect to the King Road landfill. In January 1999, the Board of Commissioners of Lucas County, Ohio instituted a lawsuit against Owens-Illinois, Libbey and numerous other defendants. (Fifty-nine companies were named in the complaint as potentially responsible parties.) In the lawsuit, which was filed in the United States District Court for the Northern District of Ohio, the Board of Commissioners sought to recover contribution for past and future costs incurred by the County in response to the release or threatened release of hazardous substances at the King Road landfill formerly operated and closed by the County. The Board of Commissioners dismissed the lawsuit without prejudice in October 2000. At the time of the dismissal, the parties to the lawsuit anticipated that the Board of Commissioners would re-file the lawsuit after obtaining more information as to the appropriate environmental remedy. As of this date, it does not appear that re-filing of the lawsuit is imminent. In view of the uncertainty as to re-filing of the suit, the numerous defenses that may be available against the County on the merits of its claim for contribution, the uncertainty as to the environmental remedy, and the uncertainty as to the number of potentially responsible parties, it currently is not possible to quantify any exposure that Libbey may have with respect to the King Road landfill.

     Subsequent to June 24, 1993, we have been named a potentially responsible party at four other sites. In each case, the claims have been settled for immaterial amounts. We do not anticipate that we will be required to pay any further sums with respect to these sites unless unusual and unanticipated contingencies occur.

     On October 10, 1995, Syracuse China Company, our wholly owned subsidiary, acquired from The Pfaltzgraff Co. and certain of its subsidiary corporations, the assets operated by them as Syracuse China. The Pfaltzgraff Co. and the New York State Department of Environmental Conservation (DEC) entered into an Order on Consent effective November 1, 1994, that required Pfaltzgraff to prepare a Remedial Investigation and Feasibility Study (RI/FS) to develop a remedial action plan for the site (which includes among other items a landfill and wastewater and sludge ponds and adjacent wetlands located on the property purchased by Syracuse China Company) and to remediate the site. Although Syracuse China Company was not a party to the Order on Consent, as part of the Asset Purchase Agreement Syracuse China Company agreed to share a part of the remediation and related expense up to the lesser of 50 percent of such costs or $1,350,000. Construction of the approved remedy began in 2000 and was substantially completed in 2003. Accordingly, Syracuse China Company’s obligation with respect to the associated costs has been satisfied.

     In addition, Syracuse China Company has been named as a potentially responsible party by reason of its potential ownership of certain property that adjoins its plant and that has been designated a sub-site of a superfund site. We believe that any contamination of the sub-site was caused by and will be remediated by other parties at no cost to Syracuse China Company. Those other parties have acquired ownership of the sub-site, and their acquisition of the sub-site should end any responsibility of Syracuse China with respect to the sub-site. We believe that, even if Syracuse China Company were deemed to be responsible for any expense in connection with the contamination of the sub-site, it is likely the expense would be shared with Pfaltzgraff pursuant to the Asset Purchase Agreement.

     In connection with the closure of our City of Industry, California, glassware manufacturing facility, on December 30, 2004, we sold the property on which the facility was located to an entity affiliated with Sares-Regis Group, a large real estate development and investment firm. Pursuant to the purchase agreement, the buyer leased the property back to us in order to enable us to cease operations, to relocate equipment to our other glassware manufacturing facilities, to demolish the improvements on the property and to remediate certain environmental conditions affecting the property. All demolition and required remediation were completed by December 31, 2005, and the lease was terminated on that date. We have agreed to indemnify the buyer for hazardous substances

located on, in, or under, or migrating from, the property prior to December 31, 2005. We do not expect to incur any significant future losses related to this site.

     We regularly review the facts and circumstances of the various environmental matters affecting us, including those covered by indemnification. Although not free of uncertainties, we believe that our share of the remediation costs at the various sites, based upon the number of parties involved at the sites and the estimated cost of undisputed work necessary for remediation based upon known technology and the experience of others, will not be material to us. There can be no assurance, however, that our future expenditures in such regard will not have a material adverse effect on our financial position or results of operations.

     In addition, occasionally the federal government and various state authorities have investigated possible health issues that may arise from the use of lead or other ingredients in enamels such as those used by us on the exterior surface of our decorated products. In that connection, Libbey Glass Inc. and numerous other glass tableware manufacturers, distributors and importers entered into a consent judgment on August 31, 2004 in connection with an action, Leeman v. Arc International North America, Inc. et al, Case No. CGC-003-418025 (Superior Court of California, San Francisco County) brought under California’s so-called “Proposition 65.” Proposition 65 requires businesses with ten or more employees to give a “clear and reasonable warning” prior to exposing any person to a detectable amount of a chemical listed by the state as covered by this statute. Lead is one of the chemicals covered by that statute. Pursuant to the consent judgment, Libbey Glass Inc. and the other defendants (including Anchor Hocking and Arc International North America, Inc.) agreed, over a period of time, to reformulate the enamels used to decorate the external surface of certain glass tableware items to reduce the lead content of those enamels.

     Capital expenditures for property, plant and equipment for environmental control activities were not material during 2007. We believe that we are in material compliance with applicable federal, state and local environmental laws, and we are not aware of any regulatory initiatives that are expected to have a material effect on our products or operations.

Employees

     Our employees are vital to achieving our vision to be “the premier provider of tabletop glassware and related products worldwide” and our mission “to create value by delivering quality products, great service and strong financial results through the power of our people worldwide.” We strive to achieve our vision and mission through our values of customer focus, performance, continuous improvement, teamwork, respect and development.

     We employed approximately 7,442 persons at December 31, 2007. Approximately 60 percent of our employees are employed outside the U.S., and the majority of our employees are paid hourly and covered by collective bargaining agreements. The agreement with our unionized employees in Shreveport, Louisiana expires on December 15, 2008. The agreement with our unionized employees at our Syracuse China facility expires on May 15, 2009. The agreement covering approximately 30 hourly employees at our Mira Loma, California distribution center expires on November 15, 2009, and agreements with our unionized employees in Toledo, Ohio expire on September 30, 2010. Crisa’s collective bargaining agreements with its unionized employees have no expiration, but wages are reviewed annually and benefits are reviewed every two years. Crisal does not have a written collective bargaining agreement with its unionized employees but does have an oral agreement that is revisited annually. Royal Leerdam’s collective bargaining agreement with its unionized employees expires on July 1, 2008.

ITEM 1A. RISK FACTORS

     The following factors are the most significant factors that can impact year-to-year comparisons and may affect the future performance of our businesses. New risks may emerge, and management cannot predict those risks or estimate the extent to which they may affect our financial performance.

Slowdowns in the retail, travel, restaurant and bar, or entertainment industries, such as those caused by general economic downturns, terrorism, health concerns or strikes or bankruptcies within those industries, could reduce our revenues and production activity levels.

     Our business is affected by the health of the retail, travel, restaurant, bar or entertainment industries. Expenditures in these industries are sensitive to business and personal discretionary spending levels and may decline during general economic downturns. Additionally, travel is sensitive to safety concerns, and thus may decline after incidents of terrorism, during periods of geopolitical conflict in which travelers become concerned about safety issues, or when travel might involve health-related risks. For example, demand for our products in the foodservice industry, which is critical to our success, was significantly impacted by the events of

September 11, 2001. In addition, demand for glassware in some of the industrial markets that we supply has declined in recent years. This decline is due, in part, to a decrease in retail sales of candle items by candle item manufacturers for whom we supply glassware. Demand for glassware with external enamel decorations that we supply to the foodservice, retail and premium channels and for undecorated glassware that buyers decorate and redistribute to retail and industrial customers also has decreased as a result of marketplace confusion related to California’s Proposition 65. Proposition 65 requires that clear and reasonable warnings be given in connection with the sale or distribution of products that expose consumers to certain chemicals, such as the lead contained in some enamels used to decorate glassware, that the State of California has determined either are carcinogenic or pose a risk of reproductive toxicity. We have received claims from retailers for indemnification in litigation relating to Proposition 65, and, in order to avoid litigation expenses, we have agreed to pay an immaterial amount to settle one such claim. Further declines in these sectors may lead to continued adverse effect on our results of operations. The long-term effects of events or trends such as these could include, among other things, a protracted decrease in demand for our products. These effects, depending on their scope and duration, which we cannot predict at this time, could significantly impact our results of operations and financial condition.

We face intense competition and competitive pressures that could adversely affect our results of operations and financial condition.

     Our business is highly competitive, with the principal competitive factors being customer service, price, product quality, new product development, brand name, and delivery time. Advantages or disadvantages in any of these competitive factors may be sufficient to cause the customer to consider changing manufacturers.

     Competitors in glass tableware include, among others:

	•		Imports from around the world, including varied and numerous factories from China;
	•		Arc International (a private French company), which manufactures and distributes glass tableware worldwide;
	•		Pasabahce (a unit of Sisecam, a Turkish company), which manufactures glass tableware at various sites throughout the world and sells to all sectors of the glass industry worldwide;
	•		Oneida Ltd., which sources glass tableware from foreign manufacturers;
	•		Anchor Hocking and Indiana Glass Company (both of which are owned by Monomoy Capital Partners, L.P.), which manufacture and distribute glass beverageware, industrial products and bakeware to retail, foodservice and industrial markets;
	•		Bormioli Rocco Group, which manufactures glass tableware in Europe, where the majority of its sales are to retail and foodservice customers; and
	•		Numerous other sourcing companies.

     In addition, tableware made of other materials such as plastics competes with glassware.

     Some of our competitors have greater financial and capital resources than we do and continue to invest heavily to achieve increased production efficiencies. Competitors may have incorporated more advanced technology in their manufacturing processes, including more advanced automation techniques. Our labor and energy costs may also be higher than those of some foreign producers of glass and ceramic tableware. We may not be successful in managing our labor and energy costs or gaining operating efficiencies that may be necessary to remain competitive. In addition, our products may be subject to competition from low-cost imports that intensify the price competition we face in our markets. Finally, we may need to increase incentive payments in our marketing incentive programs in order to remain competitive. Increases in these payments would adversely affect our operating margins.

     Competitors in the U.S. market for ceramic dinnerware include, among others: Homer Laughlin; Oneida Ltd.; Steelite; and various sourcing companies. Competitors in metalware include, among others: Oneida Ltd.; Walco, Inc.; and various sourcing companies. Competitors in plastic products include, among others: Cambro Manufacturing Company; Carlisle Companies Incorporated; and various sourcing companies. In Mexico, where a larger portion of our sales are in the retail market, our primary competitors include imports from foreign manufacturers located in countries such as China, France, Italy and Colombia, and Vidriera Santos and Vitro Par

in the candle category. Competitive pressures from these competitors and producers could adversely affect our results of operations and financial condition.

International economic and political factors could affect demand for imports and exports, and our financial condition and results of operations could be adversely impacted as a result.

     Our operations may be affected by actions of foreign governments and global or regional economic developments. Global economic events, such as changes in foreign import/export policy, the cost of complying with environmental regulations or currency fluctuations, could also affect the level of U.S. imports and exports, thereby affecting our sales. Foreign subsidies, foreign trade agreements and each country’s adherence to the terms of these agreements can raise or lower demand for our products. National and international boycotts and embargoes of other countries’ or U.S. imports and/or exports, together with the raising or lowering of tariff rates, could affect the level of competition between our foreign competitors and us. Foreign competition has, in the past, and may, in the future, result in increased low-cost imports that drive prices downward. The World Trade Organization met in November 2001 in Doha, Qatar, where members launched new multilateral trade negotiations aimed at improving market access, reducing and eventually phasing out all forms of export subsidies and substantially reducing trade-distorting domestic support. The current range of tariff rates applicable to glass tableware products that are imported into the U.S. and are of the type we manufacture in North America is approximately 21.0 percent. However, any negative changes to international agreements that lower duties or improve access to U.S. markets for our competitors, particularly changes arising out of the World Trade Organization’s Doha round of negotiations, could have an adverse effect on our financial condition and results of operations. As we execute our strategy of acquiring manufacturing platforms in lower cost regions and increasing our volume of sales in overseas markets, our dependence on international markets and our ability to effectively manage these risks has increased and will continue to increase significantly.

We may not be able to effectively integrate businesses we acquire.

     On June 16, 2006, we completed the acquisition of Vitro’s 51 percent equity interest in Crisa, bringing our ownership in Crisa to 100 percent. The acquisition of Crisa and any future acquisitions are subject to various risks and uncertainties, including:

	•		the inability to integrate effectively the operations, products, technologies and personnel of the acquired companies (some of which are spread out in different geographic regions) and to achieve expected synergies;
	•		the potential disruption of existing business and diversion of management’s attention from day-to-day operations;
	•		the inability to maintain uniform standards, controls, procedures and policies or correct deficient standards, controls, procedures and policies, including internal controls and procedures sufficient to satisfy regulatory requirements of a public company in the U.S.;
	•		the incurrence of contingent obligations that were not anticipated at the time of the acquisitions;
	•		the failure of Vitro to provide necessary transition services to Crisa, including the services of a general manager, information technology services and others;
	•		the need or obligation to divest portions of the acquired companies; and
	•		the potential impairment of relationships with customers.

     In addition, we cannot assure you that the integration and consolidation of newly acquired businesses will achieve any anticipated cost savings and operating synergies. The inability to integrate and consolidate operations and improve operating efficiencies at newly acquired businesses could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to achieve the international growth contemplated by our strategic plan.

     Our strategy contemplates significant growth in international markets in which we have significantly less experience than we have in our domestic operations. Since we intend to benefit from our international initiatives primarily by expanding our sales in the local markets of other countries, our success depends on continued growth in these markets, including Europe, Latin America and Asia-Pacific.

Natural gas, the principal fuel we use to manufacture our products, is subject to fluctuating prices; fluctuations in natural gas prices could adversely affect our results of operations and financial condition.

     Natural gas is the primary source of energy in most of our production processes. We do not have long-term contracts for natural gas and are therefore subject to market variables and widely fluctuating prices. Consequently, our operating results are strongly linked to the cost of natural gas. As of December 31, 2007, we had forward contracts in place to hedge approximately 50 percent of our estimated 2008 natural gas needs with respect to our North American manufacturing facilities and approximately 28 percent of our estimated 2008 natural gas needs with respect to our international manufacturing facilities. For the years ended December 31, 2007 and 2006, including Crisa on a pro forma basis for 2006, we spent approximately $60.6 million and $53.3 million, respectively, on natural gas. We have no way of predicting to what extent natural gas prices will rise in the future. To the extent that we are not able to offset increases in natural gas prices, such as by passing along the cost to our customers, these increases could adversely impact our margins and operating performance.

If we are unable to obtain sourced products or materials at favorable prices, our operating performance may be adversely affected.

     Sand, soda ash, lime, clay, corrugated packaging and resins are the principal materials we use. In addition, we obtain glass tableware, ceramic dinnerware, metal flatware and hollowware from third parties. We may experience temporary shortages due to disruptions in supply caused by weather, transportation, production delays or other factors that would require us to secure our sourced products or raw materials from sources other than our current suppliers. If we are forced to procure sourced products or materials from alternative suppliers, we may not be able to do so on terms as favorable as our current terms or at all. In addition, resins are a primary material for our Traex operation and, historically, the price for resins has fluctuated with the price of oil, directly impacting our profitability. Material increases in the cost of any of these items on an industry-wide basis may have an adverse impact on our operating performance and cash flows if we are unable to pass on these increased costs to our customers.

Charges related to our employee pension and postretirement welfare plans resulting from market risk and headcount realignment may adversely affect our results of operations and financial condition.

     In connection with our employee pension and postretirement welfare plans, we are exposed to market risks associated with changes in the various capital markets. Changes in long-term interest rates affect the discount rate that is used to measure our obligations and related expense. Our total pension and postretirement welfare expense, including pension settlement and curtailment charges, for all U.S. and non-U.S. plans was $14.4 million and $14.8 million for the years ended December 31, 2007 and 2006, respectively. Changes in the equity and debt securities markets affect our pension plan asset performance and related pension expense. Sensitivity to these key market risk factors is as follows:

	•		A change of 1 percent in the discount rate would change our total pension expense by approximately $1.3 million.
	•		A change of 1 percent in the expected long-term rate of return on plan assets would change total pension expense by approximately $2.6 million based on year-end data.

     Because the market rate for high-quality fixed income investments is higher than in 2006, our assumed discount rate has been increased from a range of 5.82 percent to 5.91 percent in 2006 to a range of 6.16 percent to 6.32 percent in 2007 for our U.S. pension and postretirement welfare plans. A higher discount rate decreases the present value of benefit obligations and decreases pension expense. We had significant nonpension postretirement obligations in the U.S. and Canada, totaling $49.2 million and $41.7 million, at December 31, 2007 and December 31, 2006, respectively. None of those non-pension postretirement obligations is funded. A change of 1 percent in the discount rate changes our nonpension postretirement expense by $0.3 million.

     As part of our pension expense, we incurred pension settlement charges of $2.0 million in 2006 and pension curtailment charges of $4.9 million during 2005. These charges were triggered by excess lump sum distributions taken by employees. For further discussion, see notes 10 and 12 to our consolidated financial statements. To the extent that we experience additional headcount shifts or changes as we continue to implement our capacity realignment programs, we may incur further expenses related to our employee pension plans, which could have a material adverse effect on our results of operations and financial condition.

Our business requires significant capital investment and maintenance expenditures that we may be unable to fulfill.

     Our operations are capital intensive, requiring us to maintain a large fixed cost base. Our total capital expenditures were $43.1 million for the year ended December 31, 2007, and $73.6 million for the year ended December 31, 2006. Our capital expenditures associated with Crisa’s operations include approximately $1.5 million and $11.4 million in 2007 and 2006, respectively, relating to capacity rationalization as we consolidate Crisa’s two manufacturing facilities into a single facility. In addition, we incurred capital expenditures of approximately $9.3 million and $36.9 million, as of December 31, 2007 and December 31, 2006, respectively, related to construction of our facility in China.

     Our business may not generate sufficient operating cash flow, and external-financing sources may not be available in an amount sufficient to enable us to make anticipated capital expenditures.

Our business requires us to maintain a large fixed cost base that can affect our profitability.

     The high levels of fixed costs associated with operating glass production plants encourage high levels of output, even during periods of reduced demand, which can lead to excess inventory levels and exacerbate the pressure on profit margins. For example, in 2005, we liquidated approximately $13.0 million of inventory at reduced margins and slowed production in certain areas of our operations in order to reduce our inventory levels. Our profitability is dependent, in part, on our ability to spread fixed costs over an increasing number of products sold and shipped, and if we reduce our rate of production, as we did in 2005, our costs per unit increase, negatively impacting our gross margins. Decreased demand or the need to reduce inventories can lower our ability to absorb fixed costs and materially impact our results of operations.

Unexpected equipment failures may lead to production curtailments or shutdowns.

     Our manufacturing processes are dependent upon critical glass-producing equipment, such as furnaces, forming machines and lehrs. This equipment may incur downtime as a result of unanticipated failures. We may in the future experience facility shutdowns or periods of reduced production as a result of these equipment failures. Unexpected interruptions in our production capabilities would adversely affect our productivity and results of operations for the affected period. We also face shutdowns as the result of not obtaining enough energy in the peak heating seasons.

If our investments in new technology and other capital expenditures do not yield expected returns, our results of operations could be reduced.

     The manufacture of our tableware products involves the use of automated processes and technologies. We designed much of our glass tableware production machinery internally and have continued to develop and refine this equipment to incorporate advancements in technology. We will continue to invest in equipment and make other capital expenditures to further improve our production efficiency and reduce our cost profile. To the extent that these investments do not generate targeted levels of returns in terms of efficiency or improved cost profile, our financial condition and results of operations could be adversely affected.

An inability to meet targeted production and profit margin goals in connection with the operation of our new production facility in China could result in significant additional costs or lost sales.

     We incurred startup losses in connection with the operation of our new facility in China. We intend to use this production facility to supply China and the rest of the Asia-Pacific market and to improve our competitive position in that region. We began production of glass tableware at this facility in early 2007.

     If we are unable to meet targeted production and profit margin goals in connection with the operation of our Chinese facility, our profits could be reduced, which would adversely affect our results of operations and financial condition.

We may not be able to renegotiate collective bargaining agreements successfully when they expire; organized strikes or work stoppages by unionized employees may have an adverse effect on our operating performance.

     We are party to collective bargaining agreements that cover most of our manufacturing employees. The agreement with our unionized employees in Shreveport, Louisiana expires on December 15, 2008. The agreement with our unionized employees at our Syracuse China facility expires on May 15, 2009. The agreement with the approximately 30 hourly employees at our Mira Loma,

California distribution center expires on November 15, 2009 and agreements with our unionized employees in Toledo, Ohio expire on September 30, 2010. Crisa’s collective bargaining agreements with its unionized employees have no expiration, but wages are reviewed annually and benefits are reviewed every two years. Crisal does not have a written collective bargaining agreement with its unionized employees but does have an oral agreement that is revisited annually. Royal Leerdam’s collective bargaining agreement with its unionized employees expires on July 1, 2008.

     We may not be able to successfully negotiate new collective bargaining agreements without any labor disruption. If any of our unionized employees were to engage in a strike or work stoppage prior to expiration of their existing collective bargaining agreements, or if we are unable in the future to negotiate acceptable agreements with our unionized employees in a timely manner, we could experience a significant disruption of operations. In addition, we could experience increased operating costs as a result of higher wages or benefits paid to union members upon the execution of new agreements with our labor unions. We could also experience operating inefficiencies as a result of preparations for disruptions in production, such as increasing production and inventories. Finally, companies upon which we are dependent for raw materials, transportation or other services could be affected by labor difficulties. These factors and any such disruptions or difficulties could have an adverse impact on our operating performance and financial condition.

     In addition, we are dependent on the cooperation of our largely unionized workforce to implement and adopt the LEAN initiatives that are critical to our ability to improve our production efficiency. The effect of strikes and other slowdowns may adversely affect the degree and speed with which we can adopt LEAN optimization objectives and the success of that program.

We are subject to risks associated with operating in foreign countries. These risks could adversely affect our results of operations and financial condition.

     We operate manufacturing and other facilities throughout the world. As a result of our international operations, we are subject to risks associated with operating in foreign countries, including:

	•		political, social and economic instability;
	•		war, civil disturbance or acts of terrorism;
	•		taking of property by nationalization or expropriation without fair compensation;
	•		changes in government policies and regulations, including with respect to environmental matters;
	•		devaluations and fluctuations in currency exchange rates;
	•		imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries;
	•		imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries;
	•		ineffective intellectual property protection;
	•		hyperinflation in certain foreign countries; and
	•		impositions or increase of investment and other restrictions or requirements by foreign governments.

     The risks associated with operating in foreign countries may have a material adverse effect on our results of operations and financial condition.

High levels of inflation and high interest rates in Mexico could adversely affect the operating results and cash flows of Crisa.

     Although the annual rate of inflation, as measured by changes in the Mexican National Consumer Price Index, was approximately 3.8 percent for 2007, 4.0 percent for 2006 and 3.3 percent for 2005, Mexico has historically experienced high levels of inflation and high domestic interest rates. If Mexico experiences high levels of inflation, Crisa’s operating results and cash flows could be adversely

affected, and, more generally, high inflation might result in lower demand or lower growth in demand for our products, thereby adversely affecting our results of operations and financial condition.

Fluctuation of the currencies in which we conduct operations could adversely affect our financial condition and results of operations.

     Changes in the value of the various currencies in which we conduct operations relative to the U.S. dollar, including the euro, the Mexican peso and the Chinese Yuan (“RMB”), may result in significant changes in the indebtedness of our non-U.S. subsidiaries.

     Currency fluctuations between the U.S. dollar and the currencies of our non-U.S. subsidiaries affect our results as reported in U.S. dollars, particularly the earnings of Crisa as expressed under U.S. GAAP, and will continue to affect our financial income and expense, our revenues from international settlements.

Fluctuations in the value of the foreign currencies in which we operate relative to the U.S. dollar could reduce the cost competitiveness of our products or those of our subsidiaries.

     Major fluctuations in the value of the euro, the Mexican peso or the RMB relative to the U.S. dollar and other major currencies could reduce the cost competitiveness of our products or those of our subsidiaries, as compared to foreign competition. For example, if the U.S. dollar were to appreciate against the euro, the Mexican peso or the RMB, the purchasing power of those currencies effectively would be reduced against the U.S. dollar, making our U.S.-manufactured products more expensive in the euro zone, Mexico and China, respectively, compared to the products of local competitors. An appreciation of the U.S. dollar against the euro, the Mexican peso or the RMB also would increase the cost of U.S. dollar-denominated purchases for our operations in the euro zone, Mexico and China, respectively, including purchases of raw materials. We would be forced to deduct these cost increases from our profit margin or attempt to pass them along to consumers. These fluctuations could adversely affect our results of operations and financial condition.

Devaluation or depreciation of, or governmental conversion controls over, the foreign currencies in which we operate could affect our ability to convert the earnings of our foreign subsidiaries into U.S. dollars.

     Major devaluation or depreciation of the Mexican peso could result in disruption of the international foreign exchange markets and may limit our ability to transfer or to convert Crisa’s Mexican peso earnings into U.S. dollars and other currencies upon which we will rely in part to satisfy our debt obligations. While the Mexican government does not currently restrict, and for many years has not restricted, the right or ability of Mexican or foreign persons or entities to convert pesos into U.S. dollars or to transfer other currencies out of Mexico, the government could institute restrictive exchange rate policies in the future; restrictive exchange rate policies could adversely affect our results of operations and financial condition.

     In addition, the government of China imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Shortages in the availability of foreign currency may restrict the ability of our Chinese subsidiaries to remit sufficient foreign currency to make payments to us. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the Chinese State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB are to be converted into foreign currencies and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. In the future, the Chinese government could institute restrictive exchange rate policies for current account transactions. These policies could adversely affect our results of operations and financial condition.

If our hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings.

     We account for derivatives in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS Nos. 137 and 138. We hold derivative financial instruments to hedge certain of our interest rate risks associated with long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with transactions denominated in a currency other than the U.S. dollar. These derivatives qualify for hedge accounting if the hedges are highly effective and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. If our hedges do not qualify as highly effective or if we do not believe that forecasted transactions would

occur, the changes in the fair value of the derivatives used as hedges will impact our results of operations and could significantly impact our earnings.

We are subject to various environmental and legal requirements and may be subject to new legal requirements in the future; these requirements could have a material adverse effect on our operations.

     Our operations and properties, both in the U.S. and abroad, are subject to extensive laws, ordinances, regulations and other legal requirements relating to environmental protection, including legal requirements governing investigation and clean-up of contaminated properties as well as water discharges, air emissions, waste management and workplace health and safety. These legal requirements frequently change and vary among jurisdictions. Compliance with these legal requirements, or the failure to comply with these requirements, may have a material adverse effect on our operations.

     We have incurred, and expect to incur, costs to comply with environmental legal requirements, and these costs could increase in the future. Many environmental legal requirements provide for substantial fines, orders (including orders to cease operations) and criminal sanctions for violations. These legal requirements may apply to conditions at properties that we presently or formerly owned or operated, as well as at other properties for which we may be responsible, including those at which wastes attributable to the Company were disposed. A significant order or judgment against us, the loss of a significant permit or license or the imposition of a significant fine may have a material adverse effect on operations.

Our failure to protect our intellectual property or prevail in any intellectual property litigation could materially and adversely affect our competitive position, reduce revenue or otherwise harm our business.

     Our success depends in part on our ability to protect our intellectual property rights. We rely on a combination of patent, trademark, copyright and trade secret laws, licenses, confidentiality and other agreements to protect our intellectual property rights. However, this protection may not be fully adequate. Our intellectual property rights may be challenged or invalidated, an infringement suit by us against a third party may not be successful and/or third parties could adopt trademarks similar to our own. In particular, third parties could design around or copy our proprietary furnace, manufacturing and mold technologies, which are important contributors to our competitive position in the glass tableware industry. We may be particularly susceptible to these challenges in countries where protection of intellectual property is not strong. In addition, we may be accused of infringing or violating the intellectual property rights of third parties. Any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our personnel. Our failure to protect our intellectual property or prevail in any intellectual property litigation could materially and adversely affect our competitive position, reduce revenue or otherwise harm our business.

Our business may suffer if we do not retain our senior management.

     We depend on our senior management. The loss of services of any of the members of our senior management team could adversely affect our business until a suitable replacement can be found. There may be a limited number of persons with the requisite skills to serve in these positions, and we may be unable to locate or employ such qualified personnel on acceptable terms.

Our high level of debt, as well as incurrence of additional debt, may limit our operating flexibility, which could adversely affect our results of operations and financial condition and prevent us from fulfilling our obligations.

     We have a high degree of financial leverage. As of December 31, 2007, we had $496.6 million of debt outstanding, net of discounts and warrants, of which approximately $7.4 million consisted of debt secured by a first-priority lien on our assets and $427.3 million consisted of the Senior Secured Notes, which are secured by a second-priority lien on our collateral, and the PIK Notes, which are secured by a third-priority lien on our collateral. Our ABL Facility provides for borrowings up to $150.0 million by Libbey Glass and Libbey Europe B.V. (a non-guarantor subsidiary), of which, as of December 31, 2007, we had borrowed $7.4 million, with another $8.4 million of availability being used for outstanding letters of credit. As a result of borrowing base limitations, an additional $89.7 million was immediately available for borrowing. We have a loan (“RMB Loan Contract”) in the amount of RMB 250 million (approximately $34.3 million) from China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (“CCBC”). We used the proceeds of the RMB Loan Contract to finance the construction of our greenfield facility in China. As of December 31, 2007, we had borrowed the entire amount available under that line of credit. We also have a loan in the amount of RMB 50 million (approximately $6.9 million) from CCBC to finance the working capital needs of our China facility (“RMB Working Capital Loan”). As of December 31, 2007, we had borrowed the entire amount available under that line of credit. In January 2007, we entered into an 11 million euro loan (approximately $16.0 million) with Banco Espirito Santo, S.A. (“BES Euro Line”). As of December 31, 2007, we had borrowed 10.8 million euros available under that line of credit. Our ABL Facility, the indenture

governing the Senior Secured Notes and the indenture governing the PIK Notes require us to comply with certain covenants, including limits on additional indebtedness, certain business activities and investments and, under certain circumstances in the case of our ABL Facility, the maintenance of financial ratios under certain circumstances. See “Management’s Discussion and Analysis; Capital Resources and Liquidity — Borrowings” below. We may incur additional debt in the future.

     Our high degree of leverage, as well as the incurrence of additional debt, could have important consequences for our business, such as:

	•		making it more difficult for us to satisfy our financial obligations, including with respect to the Senior Secured Notes and the PIK Notes;
	•		limiting our ability to make capital investments in order to expand our business;
	•		limiting our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, debt service requirements, acquisitions or other purposes;
	•		limiting our ability to invest operating cash flow in our business and future business opportunities, because we use a substantial portion of these funds to service debt and because our covenants restrict the amount of our investments;
	•		limiting our ability to withstand business and economic downturns and/or place us at a competitive disadvantage compared to our competitors that have less debt, because of the high percentage of our operating cash flow that is dedicated to servicing our debt; and
	•		limiting our ability to pay dividends.

     If we cannot service our debt or if we fail to meet our covenants, we could have substantial liquidity problems. In those circumstances, we might have to sell assets, delay planned investments, obtain additional equity capital or restructure our debt. Depending on the circumstances at the time, we may not be able to accomplish any of these actions on favorable terms or at all.

     In addition, the indenture governing the Senior Secured Notes and the indenture governing the PIK Notes contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our indebtedness.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     The following information sets forth the location and size of our principal facilities at December 31, 2007:

		Square Feet
Location		Owned				Leased
Toledo, Ohio:
Manufacturing			974,000				—
Warehousing/Distribution			988,000				305,000
Shreveport, Louisiana:
Manufacturing			494,000				—
Warehousing/Distribution			165,000				646,000
Syracuse, New York:
Manufacturing			549,000				—
Warehousing/Distribution			104,000				—
Dane, Wisconsin:
Manufacturing			56,000				—
Warehousing/Distribution			62,000				—
Monterrey, Mexico:
Manufacturing			543,000				122,000
Warehousing/Distribution			228,000				585,000
Leerdam, Netherlands:
Manufacturing			162,000				—
Warehousing/Distribution			111,000				326,000
Mira Loma, California:
Warehousing/Distribution			—				351,000
Laredo, Texas:
Warehousing/Distribution			149,000				117,000
West Chicago, Illinois:
Warehousing/Distribution			—				249,000
Marinha Grande, Portugal:
Manufacturing			217,000				—
Warehousing/Distribution			193,000				13,000
Langfang, China:
Manufacturing			430,000				—
Warehousing/Distribution			215,000				—

     In addition to the facilities listed above, our headquarters (Toledo, Ohio), some warehouses (various locations), sales offices (various locations), showrooms (various locations) and various outlet stores are located in leased space. We also utilize various warehouses as needed on a month-to-month basis.

     All of our properties are currently being utilized for their intended purpose. We believe that all of our facilities are well maintained and adequate for our planned operational requirements.

ITEM 3. LEGAL PROCEEDINGS

     We are involved in various routine legal proceedings arising in the ordinary course of our business. No pending legal proceeding is deemed to be material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None

EXECUTIVE OFFICERS OF THE REGISTRANT

     Our executive officers have a wealth of business knowledge, experience and commitment to Libbey. In 2007, each of Mr. Meier, Chairman of the Board and Chief Executive Officer, and Mr. Reynolds, Executive Vice President and Chief Operating Officer, celebrated 37 years of service with Libbey. In addition, the average years of service of all of our executive officers is 17 years.

Name and Title		Professional Background
John F. Meier Chairman and Chief Executive Officer		Mr. Meier, 60, has been Chairman of the Board and Chief Executive Officer of Libbey since the Company went public in June 1993. Since joining the Company in 1970, Mr. Meier has served in various marketing positions, including a five-year assignment with Durobor, S.A., Belgium. In 1990, Mr. Meier was named General Manager of Libbey and a corporate Vice President of Owens-Illinois, Inc., Libbey’s former parent company. Mr. Meier is a member of the Board of Directors of Cooper Tire & Rubber Company (NYSE: CTB) and Applied Industrial Technologies (NYSE: AIT). Mr. Meier has been a director of the Company since 1987.
Richard I. Reynolds Executive Vice President and Chief Operating Officer		Mr. Reynolds, 61, has served as Libbey’s Executive Vice President and Chief Operating Officer since 1995. Mr. Reynolds was Libbey’s Vice President and Chief Financial Officer from June 1993 to 1995. From 1989 to June 1993, Mr. Reynolds was Director of Finance and Administration. Mr. Reynolds has been with Libbey since 1970 and has been a director of the Company since 1993.
Gregory T. Geswein Vice President and Chief Financial Officer		Mr. Geswein, 53, joined Libbey Inc. as Vice President, Chief Financial Officer on May 23, 2007. Prior to joining Libbey, Mr. Geswein was Senior Vice President, Chief Financial Officer of Reynolds & Reynolds Company in Dayton, Ohio, from 2005 through April 2007. Before joining Reynolds & Reynolds, Mr. Geswein was Senior Vice President, Chief Financial Officer for Diebold, Inc. from 2000 to 2005 and Senior Vice President, Chief Financial Officer of Pioneer-Standard Electronics Inc. from 1999 to 2000. Prior to joining Pioneer-Standard Electronics, Mr. Geswein spent 14 years at Mead Corporation (now MeadWestvaco) in successive financial management positions, including Vice President and Controller, and Treasurer.
Jonathon S. Freeman Vice President, Global Supply Chain		Mr. Freeman, 46, joined Libbey Inc. as Vice President, Global Supply Chain on May 7, 2007. Prior to joining Libbey, Mr. Freeman was with Delphi Corporation and Packard Electric Systems, a division of General Motors (the former parent of Delphi), since 1985, serving most recently as Director of Global Logistics. Mr. Freeman has worked in a wide range of operations and supply chain assignments in the United States, Mexico and Europe.
Kenneth G. Wilkes Vice President, General Manager International Operations		Mr. Wilkes, 50, has served as Vice President, General Manager International Operations since May 2003. He served as Vice President and Chief Financial Officer of the Company from November 1995 to May 2003. From August 1993 to November 1995, Mr. Wilkes was Vice President and Treasurer of the Company. Prior to joining the Company, Mr. Wilkes was a Senior Corporate Banker, Vice President of The First National Bank of Chicago.
Scott M. Sellick Vice President and Chief Accounting Officer		Mr. Sellick, 45, has served as Vice President, Chief Accounting Officer since May 2007. He served as Vice President, Chief Financial Officer from May 2003 to May 2007. From May 2002 to May 2003, Mr. Sellick was Libbey’s Director of Tax and Accounting. From August 1997 to May 2002, he served as Director of Taxation. Before joining the Company in August 1997, Mr. Sellick was Tax Director for Stant Corporation and worked in public accounting for Deloitte & Touche in the audit and tax areas.

Name and Title		Professional Background
Kenneth A. Boerger Vice President and Treasurer		Mr. Boerger, 49, has been Vice President and Treasurer since July 1999. From 1994 to July 1999, Mr. Boerger was Corporate Controller and Assistant Treasurer. Since joining the Company in 1984, Mr. Boerger has held various financial and accounting positions. He has been involved in the Company’s financial matters since 1980, when he joined Owens-Illinois, Inc., Libbey’s former parent company.
Daniel P. Ibele Vice President, General Sales Manager, North America		Mr. Ibele, 47, has served as Vice President, General Sales Manager, North America since June 2006. From March 2002 to June 2006 he was Vice President, General Sales Manager of the Company. Previously, Mr. Ibele had been Vice President, Marketing and Specialty Operations since September 1997. Mr. Ibele was Vice President and Director of Marketing at Libbey from 1995 to September 1997. From the time he joined Libbey in 1983 until 1995, Mr. Ibele held various marketing and sales positions.
Timothy T. Paige Vice President- Administration		Mr. Paige, 50, has been Vice President-Administration since December 2002. From January 1997 until December 2002, Mr. Paige was Vice President and Director of Human Resources of the Company. From May 1995 to January 1997, Mr. Paige was Director of Human Resources of the Company. Prior to joining the Company, Mr. Paige was employed by Frito-Lay, Inc. in human resources management positions.
Susan A. Kovach Vice President, General Counsel and Secretary		Ms. Kovach, 48, has been Vice President, General Counsel and Secretary of the Company since July 2004. She joined Libbey in December 2003 as Vice President, Associate General Counsel and Assistant Secretary. Prior to joining Libbey, Ms. Kovach was Of Counsel to Dykema, a large, Detroit-based law firm, from 2001 through November 2003. She served from 1997 to 2001 as Vice President, General Counsel and Corporate Secretary of Omega Healthcare Investors, Inc. (NYSE: OHI). From 1998 to 2000 she held the same position for Omega Worldwide, Inc., a NASDAQ-listed firm providing management services and financing to the aged care industry in the United Kingdom and Australia. Prior to joining Omega Healthcare Investors, Inc., Ms. Kovach was a partner in Dykema from 1995 through November 1997 and an associate in Dykema from 1985 to 1995.

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock and Dividends

     Libbey Inc. common stock is listed for trading on the New York Stock Exchange under the symbol LBY. The price range for the Company’s common stock as reported by the New York Stock Exchange and dividends declared for our common stock were as follows:

		2007												2006
										Cash												Cash
		Price Range								Dividend				Price Range								Dividend
		High				Low				Declared				High				Low				Declared
First Quarter		$	14.28			$	11.17			$	0.025			$	12.19			$	6.85			$	0.025
Second Quarter		$	24.65			$	13.98			$	0.025			$	15.58			$	5.91			$	0.025
Third Quarter		$	24.06			$	13.76			$	0.025			$	11.75			$	5.90			$	0.025
Fourth Quarter		$	19.32			$	14.28			$	0.025			$	12.53			$	10.33			$	0.025

     The closing market price of our common stock on March 3, 2008 was $15.46 per share.

     On March 3, 2008, there were 832 registered common shareholders of record. We have paid a regular quarterly cash dividend since our Initial Public Offering in 1993. The declaration of future dividends is within the discretion of the Board of Directors of Libbey and will depend upon, among other things, business conditions, earnings and the financial condition of Libbey.

Comparison of Cumulative Total Returns

     The graph below compares the total stockholder return on our common stock to the cumulative total return for the Standard & Poor’s SmallCap 600 Index (“S&P SmallCap 600”), a broad market index; the Russell 2000 Index (“Russell 2000”), a small-cap index to which Libbey was added as component in June 2007; the Standard & Poor’s Housewares & Specialties Index, a capitalization-weighted index that measures the performance of the housewares’ sector of the Standard & Poor’s SmallCap Index (“Housewares-Small”); and our peer group. The indices reflect the year-end market value of an investment in the stock of each company in the index, including additional shares assumed to have been acquired with cash dividends, if any.

     There are no other glass tableware manufacturers with stock that is publicly traded in the United States. Accordingly, we chose the companies in our peer group because they are manufacturers with revenues comparable to ours. The peer group is the same peer group that we use for executive compensation benchmarking purposes. The peer group is limited to those companies for whom market quotations are available and consists of Ameron International Corporation, Ametek Inc., Blyth Inc., Brady Corporation, Church & Dwight Inc., EnPro Industries Inc., ESCO Technologies Inc., Graco Inc., Jarden Corporation, Johnson Outdoors Inc, Lancaster Colony Corporation, Milacron Inc., Polaris Industries Inc., Sypris Solutions Inc., Teradyne Inc., Thermadyne Holdings Corporation, Tupperware Brands Corporation, Waters Corporation, and Woodward Governor Company.

     The graph assumes a $100 investment in our common stock on January 1, 2003, and also assumes investments of $100 in each of the S&P SmallCap 600, the Russell 2000, the Housewares-Small index and the peer group, respectively, on January 1, 2003. The value of these investments on December 31 of each year from 2003 through 2007 is shown in the table below the graph.

TOTAL SHAREHOLDER RETURN

		ANNUAL RETURN PERCENTAGE
		Years Ending
Company Name / Index		Dec03				Dec04				Dec05				Dec06				Dec07
Libbey Inc.			11.27				-20.64				-52.89				21.97				29.12
S&P SmallCap 600 Index			38.79				22.65				7.68				15.12				-0.30
Russell 2000 Index			47.25				18.33				4.55				18.37				-1.57
S&P 600 Housewares & Specialties			11.39				-2.68				-37.48				10.07				8.57
Peer Group			44.93				22.07				-5.85				14.43				17.05

						INDEXED RETURNS
		Base				Years Ending
		Period
Company Name / Index		Dec02				Dec03				Dec04				Dec05				Dec06				Dec07
Libbey Inc.			100				111.27				88.30				41.60				50.73				65.51
S&P SmallCap 600 Index			100				138.79				170.22				183.30				211.01				210.38
Russell 2000 Index			100				147.25				174.24				182.18				215.64				212.26
S&P 600 Housewares & Specialties			100				111.39				108.40				67.77				74.60				80.99
Peer Group			100				144.93				176.91				166.56				190.59				223.09

Equity Compensation Plan Information

     Following are the number of securities and weighted average exercise price thereof under our compensation plans approved and not approved by security holders as of December 31, 2007:

Number of

Number of

Securities to be

Securities

Issued Upon

Weighted Average

Remaining Available

Exercise of

Exercise Price of

for Future Issuance

Outstanding

Outstanding

Under Equity

Options, Warrants

Options, Warrants

Compensation Plans

Plan Category

and Rights

and Rights

(1)

Equity compensation plans approved by security holders

1,520,296

$

24.67

1,458,271

Equity compensation plans not approved by security holders

—

—

—

Total

1,520,296

$

24.67

1,458,271

Issuer Purchases of Equity Securities

     Following is a summary of the 2007 fourth quarter activity in our share repurchase program:

										Total Number of				Maximum Number
										Shares Purchased				of Shares that May
										as Part of Publicly				Yet Be Purchased
		Total Number of				Average Price Paid				Announced Plans				Under the Plans or
Period		Shares Purchased				per Share				or Programs				Programs (1)
October 1 to October 31, 2007			—				—				—				1,000,000
November 1 to November 30, 2007			—				—				—				1,000,000
December 1 to December 31, 2007			—				—				—				1,000,000
Total			—				—				—				1,000,000

ITEM 6. SELECTED FINANCIAL DATA

     Information with respect to Selected Financial Data is incorporated by reference to our 2007 Annual Report to Shareholders.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

     This document and supporting schedules contain statements that are not historical facts and constitute projections, forecasts or forward-looking statements. For a description of the forward-looking statements and risk factors that may affect our performance, see the “Risk Factors” section above.

     Additionally, for an understanding of the significant factors that influenced our performance during the past three years, the following should be read in conjunction with the audited Consolidated Financial Statements and Notes.

OVERVIEW

     Libbey is the leading producer of glass tableware products in the Western Hemisphere, in addition to supplying to 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 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.

     We are committed to “executing a transformation” and 2007 was a year of significant accomplishments:

	•		The start-up of our new glassware plant in Langfang, China.
	•		The successful execution of “Project Tiger” involving the closing of a factory and the rationalization of production in Mexico.
	•		The continuation of our LEAN Transformation.

	•		Very strong retail and international sales growth.
	•		Delivery of four strong quarters of financial performance.

RESULTS OF OPERATIONS

The following table presents key results of our operations for the years 2007, 2006 and 2005:

Dollars in thousands,
except percentages and										Variance																Variance
per-share amounts										In				In												In				In
Year end December 31,		2007				2006(2)				dollars				percent				2006(2)				2005(3)				dollars				percent
Net sales		$	814,160			$	689,480			$	124,680				18.1	%		$	689,480			$	568,133			$	121,347				21.4	%
Gross profit		$	157,669			$	123,164			$	34,505				28.0	%		$	123,164			$	86,542			$	36,622				42.3	%
Gross profit margin			19.4	%			17.9	%											17.9	%			15.2	%
Income (loss) from operations (IFO)		$	66,101			$	19,264			$	46,837				243.1	%		$	19,264			$	(8,917	)		$	28,181				316.0	%
IFO margin			8.1	%			2.8	%											2.8	%			(1.6	)%
Earnings (loss) before interest and income taxes after minority interest (EBIT)(1)		$	74,879			$	17,948			$	56,931				317.2	%		$	17,948			$	(10,484	)		$	28,432				271.2	%
EBIT margin			9.2	%			2.6	%											2.6	%			(1.8	)%
Earnings before interest, taxes, depreciation, and amortization after minority interest (EBITDA)(1)		$	116,451			$	53,504			$	62,947				117.6	%		$	53,504			$	21,733			$	31,771				146.2	%
EBITDA margin			14.3	%			7.8	%											7.8	%			3.8	%
Net loss		$	(2,307	)		$	(20,899	)		$	18,592				89.0	%		$	(20,899	)		$	(19,355	)		$	(1,544	)			(8.0	)%
Net (loss) income margin			(0.3	%)			(3.0	%)											(3.0	%)			(3.4	)%
Diluted net loss per share		$	(0.16	)		$	(1.47	)		$	1.31				89.1	%		$	(1.47	)		$	(1.39	)		$	(0.08	)			(5.8	)%

Discussion of 2007 vs. 2006 Results of Operations

     Net Sales

     In 2007, sales increased 18.1 percent, including a favorable currency impact of 1.4 percent, to $814.2 million from $689.5 in 2006. The increase in net sales was primarily attributable to the full year consolidation of Crisa, the Company’s former joint venture in Mexico, and an 11.3 percent increase in shipments to U.S. and Canadian retail glassware customers in North American Glass. International net sales grew 28.0 percent, which includes the commencement of shipments from Libbey’s new factory in China. Net sales from Royal Leerdam and Crisal customers increased over 21.0 percent compared to 2006, including a favorable currency impact of 9.1 percent. North American Other net sales increased 5.8 percent, as shipments of World Tableware products increased 9.0 percent while shipments of Syracuse China products were up 5.0 percent.

     Gross Profit

     Gross profit increased in 2007 by $34.5 million, or 28.0 percent, compared to 2006. Gross profit as a percentage of net sales increased to 19.4 percent in 2007, compared to 17.9 percent in 2006. Contributing to the increase in gross profit and gross profit margin were the full year consolidation of Crisa, higher sales and higher production activity, including the benefit of Crisa’s capacity rationalization – “Project Tiger”. In addition, 2006 gross profit included an inventory write-down of $2.2 million related to “Project Tiger”. Partially offsetting these improvements were higher distribution expenses, higher natural gas expense and expenses related to the start-up of our new facility in China.

     Income from operations

     Income from operations was $66.1 million in 2007, compared to income from operations of $19.3 million in 2006. Income from operations as a percentage of net sales increased to 8.1 percent in 2007, compared to 2.8 percent in 2006. Contributing to the increase in income from operations and income from operation margin is the higher gross profit and gross profit margin (discussed above), the non-recurrence of $16.3 million of special charges related to “Project Tiger”, offset by an increase in selling, general and administrative expenses primarily due to the full year consolidation of Crisa.

     Earnings before interest and income taxes (EBIT)

     Earnings before interest and income taxes increased by $56.9 million, or 317.2 percent, from $17.9 million in 2006 to $74.9 million in 2007. EBIT as a percentage of net sales increased to 9.2 percent in 2007, compared to 2.6 percent in 2006. The contributors to the improvement in EBIT compared to the prior period are the same as those discussed above under “Income from Operations”. In addition, we recognized a $4.3 million gain on the sale of land in the Netherlands and a $1.1 million gain on the sale of excess land in Syracuse, N.Y. We also recorded a currency translation gain of $2.0 million in 2007, compared to a currency translation loss of $1.0 million in 2006, and a decrease of approximately $2.8 million in charges related to the ineffectiveness on our natural gas contracts as compared to 2006.

     Earnings before interest, taxes, depreciation and amortization (EBITDA)

     EBITDA increased by $62.9 million, or 117.6 percent, from $53.5 million in 2006 to $116.5 million in 2007. As a percentage of net sales, EBITDA was 14.3 percent in 2007, compared to 7.8 percent in 2006. The key contributors to the increase in EBITDA were those factors discussed above under “Earnings before interest and income taxes (EBIT)”. Depreciation and amortization, adjusted for minority interest in 2006, increased $5.9 million to $41.6 million, primarily due to the consolidation of Crisa and depreciation related to our new facility in China.

     Net loss and diluted loss per share

     We reported a net loss of $2.3 million, or loss of $0.16 per diluted share, in 2007, compared to a net loss of $20.9 million, or loss of $1.47 per diluted share, in 2006. The net loss as a percentage of net sales was 0.3 percent, compared to 3.0 percent in 2006. The decrease in net loss was driven primarily by the items discussed above under “Earnings before interest and income taxes (EBIT)”, offset by a $19.3 million increase in interest expense and a $19.0 million increase in income taxes. The $19.3 million increase in interest expense is the result of the refinancing consummated on June 16, 2006, which resulted in higher debt and higher average interest rates. Income taxes increased $19.0 million and the effective tax rate increased from 27.1 percent in 2006 to 125.7 percent in 2007. The increase in income taxes and the effective tax rate was primarily driven by a non-cash tax charge of $15.3 million to establish a full valuation allowance against the net deferred income tax asset balance in the U.S.

Discussion of 2006 vs. 2005 Results of Operations

     Net Sales

     In 2006, sales increased 21.4 percent to $689.5 million from $568.1 million in 2005. The increase in sales was primarily attributable to the consolidation of the sales of Crisa, increases of more than 6.0 percent in shipments to foodservice glassware customers and increases of over 9.0 percent to retail glassware customers. Shipments of Traex products and World Tableware products increased over 8.0 percent. Royal Leerdam and Crisal also experienced increased shipments in 2006 of approximately 15.0

percent. However, shipments to industrial customers were down 7.0 percent, and shipments of Syracuse China products were down 2.4 percent during 2006.

     Gross Profit

     Gross profit increased in 2006 by $36.6 million, or 42.3 percent, compared to 2005. Gross profit as a percentage of net sales increased to 17.9 percent in 2006, compared to 15.2 percent in 2005. Gross profit, excluding special charges, was $125.3 million for 2006, compared to $88.5 million for 2005, representing an increase of $36.8 million or 41.6 percent. As a percentage of net sales, gross profit, excluding special charges, for 2006 was 18.2 percent, compared to 15.6 percent for 2005. Contributing to the increase in gross profit, excluding special charges, were the consolidation of Crisa, higher overall sales and higher production activity in both the United States and Europe, offset by increased expenses for pension and retiree medical benefits and natural gas, higher distribution expenses related to the increased sales, and the warehouse management software implementation issues at our Toledo facility. For a reconciliation of gross profit to gross profit, excluding special charges, see “Reconciliation of Non-GAAP Financial Measures” below.

     Income (loss) from operations

     Income from operations was $19.3 million in 2006, compared to a loss from operations of $8.9 million in 2005. Income from operations as a percentage of net sales increased to 2.8 percent in 2006, compared to (1.6) percent in 2005. Income from operations, excluding special charges, was $37.8 million for 2006, compared to $18.3 million for 2005, representing an increase of $19.4 million, or 106.1 percent. As a percentage of net sales, income from operations, excluding special charges, for 2006 was 5.5 percent, compared to 3.2 percent for 2005. Selling, general and administrative expenses, excluding special charges, increased by $17.4 million from 2005 to 2006, and represented 12.7 percent of net sales for 2006, compared to 12.4 percent of net sales for 2005. The increase in selling, general and administrative expenses primarily related to the consolidation of Crisa, the new accounting rules with respect to equity compensation expense, accrued profit sharing based on the improved financial results, and start-up costs for our new facility in China. For a reconciliation of income from operations, to income from operations, excluding special charges, see “Reconciliation of Non-GAAP Financial Measures” below.

     Earnings (loss) before interest and income taxes (EBIT)

     Earnings before interest and income taxes increased by $28.4 million, from $(10.5) million in 2005 to $17.9 million in 2006. EBIT as a percentage of net sales increased to 2.6 percent in 2006, compared to (1.8) percent in 2005. EBIT, excluding special charges, was $36.4 million for 2006, compared to $16.8 million for 2005, representing an increase of $19.6 million or 116.7 percent. As a percentage of net sales, EBIT, excluding special charges, for 2006 was 5.3 percent, compared to 3.0 percent for 2005. EBIT, excluding special charges, increased due to the increase in income from operations, excluding special charges, and an increase in pretax equity earnings from Crisa of $6.1 million as a result of higher sales, higher translation gain, and lower natural gas and electricity expenses. Partially offsetting these improvements was an increase in other expense of $5.8 million, primarily attributable to an increase in our natural gas contracts (note 16) and translation losses. For a reconciliation of EBIT to net loss and a reconciliation of EBIT, excluding special charges, see “Reconciliation of Non-GAAP Financial Measures” below.

     Earnings before interest, taxes, depreciation and amortization (EBITDA)

     EBITDA increased by $31.8 million, or 146.2 percent, from $21.7 million in 2005 to $53.5 million in 2006. As a percentage of net sales, EBITDA was 7.8 percent in 2006, compared to 3.8 percent in 2005. EBITDA, excluding special charges, was $72.0 million for 2006, compared to $49.0 million for 2005, representing an increase of $23.0 million or 47.0 percent. As a percentage of net sales, EBITDA, excluding special charges, for 2006 was 10.4 percent, compared to 8.6 percent for 2005. The increase in EBITDA, excluding special charges, is attributable to the factors described above with respect to EBIT, excluding special charges, and to an increase in depreciation and amortization in 2006 resulting from higher capital expenditures and the consolidation of Crisa. For a reconciliation of EBITDA to net loss and a reconciliation of EBITDA, excluding special charges, see “Reconciliation on Non-GAAP Financial Measures” below.

     Net loss and diluted loss per share

     We reported a net loss of $20.9 million, or loss of $1.47 per diluted share, in 2006, compared to a net loss of $19.4 million, or loss of $1.39 per diluted share, in 2005. Net loss as a percentage of net sales was (3.0) percent, compared to (3.4) percent in 2005. Net loss, excluding special charges, increased by $4.9 million from $1.1 million in 2005 to $(3.8) million in 2006. Net loss increased in 2006 as the result of increased interest expense of $31.3 million, partially offset by the increase in EBIT described above. The increase in

interest expense is the result of the refinancing consummated on June 16, 2006. Contributing to the increase in interest expense was a write-off of $4.9 million of financing fees associated with debt retired during 2006, as well as higher debt and higher average interest rates. See further discussion under “Borrowings” below. The effective tax rate increased to 27.1 percent during 2006 from 24.8 percent in 2005. This change in the rate was primarily attributable to the Crisa acquisition and related financing.

SEGMENT RESULTS OF OPERATIONS

     The following table summarizes the results of operations for our three segments described as follows:

	•		North American Glass-includes sales of glass tableware from subsidiaries throughout the United States, Canada and Mexico.
	•		North American Other-includes sales of ceramic dinnerware; metal tableware, hollowware and serveware; and plastic items from subsidiaries in the United States.
	•		International-includes worldwide sales of glass tableware from subsidiaries outside the United States, Canada and Mexico.

										Variance																Variance
Dollars in Thousands, Except Percentages										In				In												In				In
Year End December 31,		2007				2006				Dollars				Percent				2006				2005				Dollars				Percent
Net sales:
North American Glass		$	568,495			$	476,696			$	91,799				19.3	%		$	476,696			$	365,037			$	111,659				30.6	%
North American Other			121,217				114,581				6,636				5.8	%			114,581				109,945				4,636				4.2	%
International			136,727				106,798				29,929				28.0	%			106,798				95,399				11,399				11.9	%
Eliminations			(12,279	)			(8,595	)											(8,595	)			(2,248	)
Consolidated net sales		$	814,160			$	689,480			$	124,680				18.1	%		$	689,480			$	568,133			$	121,347				21.4	%
Earnings (loss) before interest and taxes (EBIT):
North American Glass		$	54,492			$	5,471			$	49,021				896.0	%		$	5,471			$	7,062			$	(1,591	)			(22.5	)%
North American Other			15,670				9,382				6,288				67.0	%			9,382				(14,411	)			23,793				165.1	%
International			4,717				3,161				1,556				49.2	%			3,161				(3,101	)			6,262				201.9	%
Consolidated EBIT		$	74,879			$	18,014			$	56,865				315.7	%		$	18,014			$	(10,450	)		$	28,464				272.4	%
EBIT Margin:
North American Glass			9.6	%			1.1	%											1.1	%			1.9	%
North American Other			12.9	%			8.2	%											8.2	%			(13.1	)%
International			3.4	%			3.0	%											3.0	%			(3.3	)%
Consolidated EBIT Margin			9.2	%			2.6	%											2.6	%			(1.8	)%
Special Charges (excluding write-off of financing fees):
North American Glass		$	—			$	18,534			$	(18,534	)			100.0	%		$	18,534			$	10,136			$	8,398				82.9	%
North American Other			—				(42	)			42				100.0	%			(42	)			17,100				(17,142	)			(100.2	)%
International			—				—				—								—				—				—
Consolidated special charges		$	—			$	18,492			$	(18,492	)			100.0	%		$	18,492			$	27,236			$	(8,744	)			32.1	%

Discussion of 2007 vs. 2006 Segment Results of Operations

North American Glass

     Net sales increased 19.3 percent from $476.7 million in 2006 to $568.5 million in 2007. Of the total increase in net sales, approximately 14.5 percent is attributable to the consolidation of Crisa, 2.7 percent relates to shipments to retail glassware customers, approximately 1.1 percent relates to shipments to foodservice and industrial glassware customers and approximately 0.7 percent relates to shipments to export customers outside of North America.

     EBIT increased by $49.0 million to $54.5 million in 2007, compared to $5.5 million in 2006. EBIT as a percentage of net sales, increased to 9.6 percent in 2007, compared to 1.1 percent in 2006. The key contributors to the improvement in EBIT were the impact of higher net sales and operating activity in North American Glass operations of $11.6 million, the full year consolidation of Crisa of approximately $9.1 million and an approximately $6.2 million increase in non-operating income primarily related to foreign currency translation gains, non-recurring charges on Crisa’s prior year natural gas contracts and the sale of environmental credits. In addition, EBIT increased due to a $4.7 million reduction in North American Glass selling, general and administrative expense primarily resulting from lower incentive based compensation. The prior year included a fixed asset charge and inventory write-down of $18.5 million related to Crisa’s capacity rationalization (“Project Tiger”). Offsetting these improvements was an increase in natural gas expense of $1.9 million.

North American Other

     Net sales increased 5.8 percent to $121.2 million from $114.6 million in 2006. Of the total increase in net sales, approximately 3.7 percent is attributed to an increase in shipments of World Tableware products and a 1.8 percent increase in shipments of Syracuse China products.

     EBIT increased by $6.3 million to $15.7 million in 2007, compared to $9.4 million in 2006. EBIT as a percentage of net sales increased to 12.9 percent in 2007, compared to 8.2 percent in 2006. The key contributors to the increased EBIT were higher net sales and operating activity at Syracuse China of $3.6 million, higher net sales of World Tableware products of approximately $2.7 million, higher net sales and operating activity at Traex of $0.3 million and a $1.1 million gain on the sale of excess land at Syracuse China. Partially offsetting these improvements were higher North American Other selling, general and administrative expenses of $1.8 million primarily resulting from the increased net sales.

International

     In 2007, net sales increased 28.0 percent to $136.7 million from $106.8 million in 2006. Of the total increase in net sales, approximately 12.7 percent is attributed to an increase in shipments to Royal Leerdam and Crisal customers, approximately 7.4 percent relates to shipments from Libbey China, and approximately 9.1 percent relates to a stronger euro compared to the prior year.

     EBIT increased by $1.6 million to $4.7 million in 2007, compared to $3.2 million in 2006. EBIT as a percentage of net sales increased to 3.4 percent in 2007, compared to 3.0 percent in 2006. The key contributors to the increased EBIT were increased net sales and operating activity at Royal Leerdam and Crisal of $5.8 million and a $4.3 million gain on the sale of excess land in the Netherlands. Partially offsetting these improvements were start-up costs at Libbey China of approximately $2.4 million, higher natural gas expense in Europe of approximately $3.4 million, a $2.0 million reduction in equity earnings from our 49 percent ownership of Crisa prior to the acquisition of the remaining 51 percent in June of 2006 and a $0.7 million increase in selling, general and administrative expenses primarily related to the increased net sales.

Discussion of 2006 vs. 2005 Segment Results of Operations

     North American Glass

     Net sales increased 30.6 percent from $365.0 million in 2005 to $476.7 million in 2006. Excluding Crisa’s net sales from June 16, 2006 through December 31, 2006, net sales increased 6.0 percent compared to 2005. This increase in net sales, excluding Crisa, was attributable to an increase of more than 6.0 percent in shipments to foodservice glassware customers and an increase of 9.0 percent to retail glassware customers. Shipments to industrial customers declined 7.0 percent during 2006.

     EBIT decreased by $1.6 million to $5.5 million in 2006, compared to $7.1 million in 2005. EBIT as a percentage of net sales decreased to 1.1 percent in 2006, compared to 1.9 percent in 2005. EBIT, excluding special charges, was $24.0 million for 2006, compared to $17.2 million in 2005. As a percentage of net sales, EBIT, excluding special charges, increased to 5.0 percent in 2006, compared to 4.7 percent in 2005. Higher net sales and production activity of approximately $12.5 million, together with the consolidation of Crisa of $3.0 million, contributed to the improvement in EBIT, excluding special charges, compared to 2005. Partially offsetting these improvements were higher distribution costs related to the increased net sales of $2.5 million and the warehouse management software implementation issues at our Toledo facility, and a $3.5 million increase in charges related to natural gas contracts. For a reconciliation of North American Glass EBIT, excluding special charges, see “Reconciliation of Non-GAAP Financial Measures” below.

     North American Other

     Net sales increased 4.2 percent from $109.9 million in 2005 to $114.6 million in 2006. This increase in net sales was attributable to increases of more than 8.0 percent in shipments of Traex products and World Tableware products, partially offset by a decline of 2.4 percent in shipments of Syracuse China products.

     EBIT increased by $23.8 million to $9.4 million, compared to $(14.4) million in 2005. EBIT as a percentage of net sales increased to 8.2 percent in 2006, compared to (13.1) percent in 2005. EBIT, excluding special charges, was $9.3 million for 2006, compared to $2.7 million in 2005. As a percentage of net sales, EBIT, excluding special charges, increased to 8.2 percent in 2006, compared to 2.4 percent in 2005. Higher net sales, improved margins and significantly higher production activity of $5.7 million contributed to the increase in EBIT, excluding special charges. For a reconciliation of North American Other EBIT, excluding special charges, see “Reconciliation of Non-GAAP Financial Measures” below.

     International

     For 2006, net sales increased 11.9 percent to $106.8 million from $95.4 million in 2005. This increase in net sales was attributable to increased shipments of Royal Leerdam product of approximately 12.3 percent and shipments of Crisal product of 13.9 percent. The foreign exchange impact of translating euros to U.S. dollars was 0.8 percent.

     EBIT increased by $6.3 million to $3.2 million in 2006, compared to $(3.1) million in 2005. EBIT as a percentage of net sales increased to 3.0 percent in 2006, compared to (3.3) percent in 2005. Contributing to the improvement in EBIT in 2006 compared to 2005 were increased net sales and production activity at Royal Leerdam and Crisal of $3.3 million and an increase in pretax equity earnings from Crisa of $6.1 million (Crisa results of operations post June 15, 2006 are included in the North American Glass reporting segment), all of which more than offset costs associated with the start up of the new facility in China of approximately $3.3 million.

CAPITAL RESOURCES AND LIQUIDITY

     Balance Sheet and Cash flows

     Cash and Equivalents

     At December 31, 2007, our cash balance decreased to $36.5 million from $41.8 million at December 31, 2006. The $5.3 million decrease was primarily due to funding of our ongoing working capital needs and a reduction of borrowings under our ABL Facility.

     Working Capital

     The following table presents working capital components for 2007 and 2006:

Dollars in thousands, except percentages, DSO, DIO, DPO, and DWC										Variance
December 31,		2007				2006				In Dollars				In Percent
Accounts receivable — net		$	93,333			$	96,783			$	(3,450	)			(3.6	%)
DSO(1)(6)			41.8				46.3
Inventories — net			182,942				159,123				23,819				15.0	%
DIO(2)(6)			82.0				76.1
Accounts payable			75,387				67,493				7,894				11.7	%
DPO(3)(6)			33.8				32.3
Working Capital(4)		$	200,888			$	188,413			$	12,475				6.6	%
DWC(5)(6)			90.0				90.1
Percentage of net sales(6)			24.7	%			24.7	%

     Working capital, defined as inventories and accounts receivable less accounts payable, increased by $12.5 million in 2007, compared to 2006. As a percentage of net sales, working capital remained constant at 24.7 percent in 2007, compared to 2006. The increase in working capital is primarily the result of the working capital investment at our new production facility in China and higher inventories in the United States and Portugal.

     Borrowings

     The following table presents our total borrowings:

		Interest								December 31,				December 31,
Dollars in thousands		Rate				Maturity Date				2007				2006
Borrowings under ABL facility		floating				December 16, 2010				$	7,366			$	46,210
Senior notes		floating (1)				June 1, 2011					306,000				306,000
PIK notes (2)			16.00	%		December 1, 2011					127,697				109,480
Promissory note			6.00	%		January 2008 to September 2016					1,830				1,985
Notes payable		floating				January 2008					622				226
RMB loan contract		floating				July 2012 to January 2014					34,275				32,050
RMB working capital loan		floating				March 2010					6,855				—
Obligations under capital leases		floating				January 2008 to May 2009					1,018				1,548
BES Euro line		floating				January 2010 to January 2014					15,962				—
Other debt		floating				September 2009					1,432				1,954
Total borrowings										$	503,057			$	499,453
Less – unamortized discounts and warrants											6,423				8,221
Total borrowings – net (3)(4)										$	496,634			$	491,232

     We had total net borrowings of $496.6 million at December 31, 2007, compared to total net borrowings of $491.2 million at December 31, 2006. The $5.4 million increase in borrowings was the result of additional PIK notes issued on June 1 and December 1 and new credit facilities at Crisal and Libbey Glassware (China) to fund working capital requirements, offset by a reduction in borrowings under our ABL facility.

     Of our total indebtedness, $173.5 million is subject to fluctuating interest rates at December 31, 2007. A change of one percentage point in such rates would result in a change in interest expense of approximately $1.7 million on an annual basis.

     Included in interest expense is the amortization of discounts and warrants on the Senior Notes and PIK Notes and financing fees of $5.1 million and $1.6 million for December 31, 2007, and December 31, 2006, respectively.

     Cash Flow

     The following table presents key drivers to free cash flow for 2007, 2006 and 2005:

Dollars in thousands, except
percentages										Variance																Variance
Year ended December 31,		2007				2006				In dollars				In percent				2006				2005				In dollars				In percent
Net cash provided by operating activities		$	51,457			$	54,858			$	(3,401	)			(6.2	)%		$	54,858			$	38,113			$	16,745				43.9	%
Capital expenditures			(43,121	)			(73,598	)			(30,477	)			(41.4	)%			(73,598	)			(44,270	)			29,328				66.2	%
Acquisitions and related costs			—				(78,434	)			(78,434	)			(100.0	)%			(78,434	)			(28,948	)			49,486				170.9	%
Proceeds from asset sales and other			8,213				—				8,213				100.0	%			—				212				(212	)			(100.0	)%
Free cash flow(1)		$	16,549			$	(97,174	)		$	113,723				117.0	%		$	(97,174	)		$	(34,893	)		$	(62,281	)			(178.5	)%

Discussion of 2007 vs. 2006 Cash Flow

     Our net cash provided by operating activities was $51.5 million in 2007, compared to net cash provided by operating activities of $54.9 million in 2006, or a decrease of $3.4 million. The decrease is primarily related to an increase in earnings more than offset by higher uses of cash for inventory and pension contributions.

     Net cash used in investing activities was $34.9 million in 2007, compared to $152.0 million in 2006, or a decrease of $117.1 million. The primary contributors to this reduction were the purchase of Crisa in 2006 for $78.4 million, a $30.5 million decrease in capital expenditures (driven by a reduction in spending resulting from the completion of the construction of our new facility in China in 2006), and proceeds from asset sales and other items of $8.2 million in 2007, primarily attributable to the sale of excess land in Syracuse, N.Y. and the Netherlands.

     Net cash used by financing activities was $22.4 million in 2007, compared to $135.3 million net cash provided by financing activities in 2006. The net cash used by financing activities in 2007 is primarily attributable to the repayment of borrowings under our ABL facility, partially offset by new working capital facilities in Europe and China. The 2006 net cash provided by financing activities resulted from the additional debt incurred in connection with the acquisition of Crisa and the construction of our production facility in China.

     Free cash flow was $16.5 million in 2007, compared to $(97.2) million in 2006, an improvement of $113.7 million. The primary contributors to this improvement are the result of the changes in net cash used in investing activities discussed above. These were partially offset by a decrease in cash flow from operating activities as discussed above.

Discussion of 2006 vs. 2005 Cash Flow

     Net cash provided by operating activities increased $16.7 million to $54.9 million in 2006, compared to $38.1 million in 2005. The increase is primarily related to an increase in earnings, excluding special charges, and a reduction in working capital. Other factors impacting cash flow were an increase in non-cash pension and nonpension postretirement expense and a decrease in non-cash workers compensation expense.

     Net cash used in investing activities was $152.0 million in 2006, compared to $73.0 million in 2005, or an increase of $79.0 million. The primary contributors to this change were the purchase of Crisa in 2006 for $78.4 million and a $29.3 million increase in capital expenditures (driven by the expenditures related to the construction of our new facility in China). In 2005, we incurred acquisition and related costs for our purchase of Crisal of $28.9 million.

     Net cash provided by financing activities was $135.3 million in 2006, compared to $31.9 million in 2005, or an increase of $103.4 million. The 2006 net cash provided by financing activities resulted from the additional debt incurred in connection with the acquisition of Crisa and the construction of our production facility in China. The 2005 net cash provided by financing activities resulted from additional debt incurred in connection with the purchase of Crisal.

     Free cash flow was $(97.2) million in 2006, compared to $(34.9) million in 2005, a decrease of $62.3 million. This decline is mainly attributable to the increase in net cash provided by operating activities, which was more than offset by an increase in capital expenditures (including $36.9 million for the construction of our new facility in China) and the Crisa acquisition of $78.4 million.

     Derivatives

     We have Interest Rate Protection Agreements (Rate Agreements) with respect to $200 million of debt as a means to manage our exposure to variable 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 results. The fixed interest rate for our borrowings related to the Rate Agreements at December 31, 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 1.9 years at December 31, 2007. Total remaining debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 11.91 percent per year at December 31, 2007. The fair market value for the Rate Agreements at December 31, 2007 and 2006, respectively, was $(5.3) million and $1.2 million.

     We also use commodity futures contracts related to forecasted future natural gas requirements. The objective of these futures contracts is to limit the fluctuations in prices paid and potential losses in earnings or cash flows from adverse price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from 40 percent to 70 percent of our anticipated requirements, generally six or more months in the future. At December 31, 2007, we had commodity futures contracts for 2,820,000 million British Thermal Units (BTU’s) of natural gas with a fair market value of $(1.8) million. We have hedged a portion of our forecasted transactions through February 2009. At December 31, 2006, we had commodity futures contracts for 3,450,000 million BTU’s of natural gas with a fair market value of $(5.3) million.

     During 2007, we entered into a foreign currency contract for 212.0 million pesos for a contractual payment due to Vitro in January 2008, related to the Crisa acquisition. The fair market value of the foreign currency contract at December 31, 2007 was $0.4 million.

     Share Repurchase Program

     Since mid-1998, we have repurchased 5,125,000 shares for $140.7 million, as authorized by our Board of Directors. As of December 31, 2007, authorization remains for the purchase of an additional 1,000,000 shares. During 2007 and 2006, we did not repurchase any common stock. Our ABL Facility and the indentures governing the Senior Secured Notes and the PIK Notes significantly restrict our ability to repurchase additional shares.

     We are using a portion of the repurchased common stock to fund our Employee Stock Benefit Plans. See note 15 to the Consolidated Financial Statements for further discussion.

     Contractual Obligations

     The following table presents our existing contractual obligations at December 31, 2007 and related future cash requirements:

		Payments Due by Period
Dollars in thousands						Less than												More than
Contractual Obligations		Total				1 Year				1 - 3 Years				3 - 5 Years				5 Years
Borrowings		$	496,634			$	1,535			$	17,985			$	442,992			$	34,122
Interest payments(2)			213,603				41,398				120,559				49,892				1,754
Long term operating leases			117,356				18,810				31,009				26,419				41,118
Payable to Vitro			19,575				19,575				—				—				—
Pension and nonpension(1)			297,956				24,660				51,997				56,917				164,382
Total obligations		$	1,145,124			$	105,978			$	221,550			$	576,220			$	241,376

     In addition to the above, we have commercial commitments secured by letters of credit and guarantees. Our letters of credit outstanding at December 31, 2007, totaled $8.4 million.

     The Company is unable to make a reasonably reliable estimate as to when cash settlement with taxing authorities may occur for our unrecognized tax benefits. Therefore, our liability for unrecognized tax benefits is not included in the table above. See note 11 to the Consolidated Financial Statements for additional information.

     Off-Balance Sheet Arrangements

     We were a joint venture partner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Crisa), the largest glass tableware manufacturer in Latin America, through June 15, 2006. On June 16, 2006, we purchased the remaining 51 percent equity interest in Crisa (see note 4 to the Consolidated Financial Statements). Through June 15, 2006, we recorded our 49 percent interest in Crisa using the equity method of accounting. From this joint venture, we recorded equity earnings (loss), dividends and certain technical assistance income. We also had a reciprocal distribution agreement with our joint venture partner that gave us exclusive distribution rights with respect to Crisa’s glass tableware products in the U.S. and Canada, and gave Crisa the exclusive distribution rights with respect to our glass tableware products in Latin America. In addition, we guaranteed a portion of Crisa’s bank debt. While we owned 49 percent of Crisa, we evaluated this investment and related arrangements in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (FIN 46R), and determined that Crisa was a Variable Interest Entity (VIE), as defined by FIN 46R; however, we were not considered the primary beneficiary, as we did not absorb the majority of expected losses or received the majority of expected residual returns. Therefore, Crisa was not consolidated in our Consolidated Financial Statements through June 15, 2006. Since we acquired the remaining 51 percent of Crisa on June 16, 2006, we have consolidated Crisa’s financial statements. See notes 4 and 6 to the Consolidated Financial Statements for disclosure regarding financial information relating to Crisa.

Capital Resources and Liquidity

     Based on our current level of operations, we believe our cash flow from operations, our cash and cash equivalents and available capacity under our ABL Facility will be adequate to meet our liquidity needs for at least the next twelve months. Our ability to fund our working capital needs, debt payments and other obligations, capital expenditures program and other funding requirements, and to comply with debt agreements, depends on our future operating performance and cash flow (see Part II, Item 1A. Risk Factors).

Reconciliation of Non-GAAP Financial Measures

     We sometimes refer to data derived from consolidated financial information but not required by GAAP to be presented in financial statements. Certain of these data are considered “non-GAAP financial measures” under Securities and Exchange Commission (SEC)

Regulation G. We believe that non-GAAP data provide investors with a more complete understanding of underlying results in our core business and trends. In addition, we use non-GAAP data internally to assess performance. Although we believe that the non-GAAP financial measures presented enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered an alternative to GAAP.

Reconciliation of net loss to EBIT and EBITDA

Dollars in Thousands
Year ended December 31,		2007				2006				2005
Net loss		$	(2,307	)		$	(20,899	)		$	(19,355	)
Add:
Interest expense			65,888				46,594				15,255
Provision (benefit) for income taxes			11,298				(7,747	)			(6,384	)
Earning (loss) before interest and income taxes (EBIT)			74,879				17,948				(10,484	)
Add:
Depreciation and amortization (adjusted for minority interest)			41,572				35,556				32,217
Earnings before interest, taxes, depreciation and amortization, after minority interest adjustment (EBITDA)		$	116,451			$	53,504			$	21,733

     We define EBIT as net income before interest expense and income taxes, after minority interest adjustment. The most directly comparable U.S. GAAP financial measure is earnings before interest, income taxes and minority interest.

     We believe that EBIT is an important supplemental measure for investors in evaluating operating performance in that it provides insight into company profitability. Libbey’s senior management uses this measure internally to measure profitability. EBIT also allows for a measure of comparability to other companies with different capital and legal structures, which accordingly may be subject to different interest rates and effective tax rates.

     The non-GAAP measure of EBIT does have certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations. Because this is a material and recurring item, any measure that excludes it has a material limitation. EBIT may not be comparable to similarly titled measures reported by other companies.

     We define EBITDA as net income before interest expense, income taxes, depreciation and amortization, after minority interest adjustment. The most directly comparable U.S. GAAP financial measure is earnings before interest, income taxes and minority interest.

     We believe that EBITDA is an important supplemental measure for investors in evaluating operating performance in that it provides insight into company profitability and cash flow. Libbey’s senior management uses this measure internally to measure profitability and to set performance targets for managers. It also has been used regularly as one of the means of publicly providing guidance on possible future results. EBITDA also allows for a measure of comparability of other companies with different capital and legal structures, which accordingly may be subject to different interest rates and effective tax rates, and to companies that may incur different depreciation and amortization expenses or impairment charges.

     The non-GAAP measure of EBITDA does have certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations. EBITDA also excludes depreciation and amortization expenses. Because these are material and recurring items, any measure that excludes them has a material limitation. EBITDA may not be comparable to similarly titled measures reported by other companies.

Reconciliation of net cash provided by operating activities to free cash flow

Dollars in Thousands
Year ended December 31,		2007				2006				2005
Net cash provided by operating activities		$	51,457			$	54,858			$	38,113
Less:
Capital expenditures			43,121				73,598				44,270
Acquisition and related costs			—				78,434				28,948
Plus:
Proceeds from asset sales and other			8,213				—				212
Free cash flow		$	16,549			$	(97,174	)		$	(34,893	)

     We define free cash flow as net cash provided by operating activities, less capital expenditures and acquisition –related costs, adjusted for proceeds from asset sales and other. The most directly comparable U.S. GAAP financial measure is net cash provided by operating activities.

     We believe that free cash flow is important supplemental information for investors in evaluating cash flow performance in that it provides insight into the cash flow available to fund such things as discretionary debt service, acquisitions and other strategic investment opportunities. It is a measure of performance we use to internally evaluate the overall performance of the business.

     Free cash flow is used in conjunction with and in addition to results presented in accordance with U.S. GAAP. Free cash flow is neither intended to represent nor be an alternative to the measure of net cash provided by operating activities recorded under U.S. GAAP. Free cash flow may not be comparable to similarly titled measures reported by other companies.

Reconciliation of working capital

Dollars in Thousands
December 31,		2007				2006
Accounts receivable — net		$	93,333			$	96,783
Plus:
Inventories — net			182,942				159,123
Less:
Accounts payable			75,387				67,493
Working capital		$	200,888			$	188,413

     We define working capital as accounts receivable (net) plus inventories (net) less accounts payable.

     We believe that working capital is important supplemental information for investors in evaluating liquidity in that it provides insight into the availability of net current resources to fund our ongoing operations. Working capital is a measure used by management in internal evaluations of cash availability and operational performance.

     Working capital is used in conjunction with and in addition to results presented in accordance with U.S. GAAP. Working capital is neither intended to represent nor be an alternative to any measure of liquidity and operational performance recorded under U.S. GAAP. Working capital may not be comparable to similarly titled measures reported by other companies.

Reconciliation of Non-GAAP Financial Measures for Special Charges

Dollars in Thousands
Year ended December 31,		2007				2006				2005
Gross profit		$	157,669			$	123,164			$	86,542
Special charges reported in cost of sales			—				2,158				1,965
Gross profit, excluding special charges		$	157,669			$	125,322			$	88,507
Income (loss) from operations		$	66,101			$	19,264			$	(8,917	)
Special charges (excluding write-off of finance fees)			—				18,492				27,236
Income from operations, excluding special charges		$	66,101			$	37,756			$	18,319
Earnings (loss) before interest and income tax before minority interest (EBIT)		$	74,879			$	18,014			$	(10,450	)
Minority Interest			—				(66	)			(34	)
Earnings (loss) before interest and income tax after minority interest (EBIT)			74,879				17,948				(10,484	)
Special charges (excluding write-off of finance fees)			—				18,492				27,236
Earnings (loss) before interest and income tax after minority interest (EBIT), excluding special charges		$	74,879			$	36,440			$	16,752
Reported net loss		$	(2,307	)		$	(20,899	)		$	(19,355	)
Special charges — net of tax			—				17,055				20,454
Net (loss) income, excluding special charges		$	(2,307	)		$	(3,844	)		$	1,099
Income (loss) before income taxes		$	8,991			$	(28,646	)		$	(25,739	)
Add: interest expense			65,888				46,594				15,255
Earnings (loss) before interest and taxes after minority interest (EBIT)			74,879				17,948				(10,484	)
Add: depreciation and amortization			41,572				35,556				32,217
Earnings before interest, taxes, depreciation and amortization after minority interest (EBITDA)			116,451				53,504				21,733
Add: Special charges (excluding write-off of finance fees) — pre-tax			—				18,492				27,236
EBITDA, excluding special charges		$	116,451			$	71,996			$	48,969

Reconciliation of Non-GAAP Financial Measures for Special Charges — Segments

Dollars in Thousands
Year ended December 31,		2007				2006				2005
Earnings before interest and income tax (EBIT):
North American Glass		$	54,492			$	5,471			$	7,062
North American Other			15,670				9,382				(14,411	)
International			4,717				3,161				(3,101	)
Total earnings (loss) before interest and income tax (EBIT)		$	74,879			$	18,014			$	(10,450	)
Special charges (excluding write-off of finance fees):
North American Glass		$	—			$	18,534			$	10,136
North American Other			—				(42	)			17,100
International			—				—				—
Total special charges (excluding write-off of finance fees)		$	—			$	18,492			$	27,236
Earnings before interest and income tax (EBIT), excluding special charges:
North American Glass		$	54,492			$	24,005			$	17,198
North American Other			15,670				9,340				2,689
International			4,717				3,161				(3,101	)
Total earnings before interest and income tax (EBIT), excluding special charges		$	74,879			$	36,506			$	16,786

     CRITICAL ACCOUNTING ESTIMATES

     The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements describes the significant accounting policies and methods used in their preparation. The areas described below are affected by critical accounting estimates and are impacted significantly by

judgments and assumptions in the preparation of the Consolidated Financial Statements. Actual results could differ materially from the amounts reported based on these critical accounting estimates.

Revenue Recognition

     Revenue is recognized when products are shipped and title and risk of loss has passed to the customer. Revenue is recorded net of returns, discounts and sales incentive programs offered to customers. We offer various incentive programs to a broad base of customers, and we record accruals for these as sales occur. These programs typically offer incentives for purchase activities by customers that include growth objectives. Criteria for payment include the achievement by customers of certain purchase targets and the purchase by customers of particular product types. Management regularly reviews the adequacy of the accruals based on current customer purchases, targeted purchases and payout levels.

Allowance for Doubtful Accounts

     Our accounts receivable balance, net of allowances for doubtful accounts, was $93.3 million in 2007, compared to $96.8 million in 2006. The allowance for doubtful accounts was $11.7 million in 2007, compared to $11.5 million in 2006. The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment as to the probability of collecting accounts and our evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance.

Allowance for Slow-Moving and Obsolete Inventory

     We identify slow-moving or obsolete inventories and estimate appropriate allowance provisions accordingly. We provide inventory allowances based upon excess and obsolete inventories driven primarily by future demand forecasts. Historically, these loss provisions have not been significant, as a significant percentage of our inventories is valued using the last-in, first-out (LIFO) method. At December 31, 2007, our inventories were $182.9 million, with loss provisions of $6.4 million, compared to inventories of $159.1 million and loss provisions of $6.1 million at December 31, 2006.

Asset Impairment

Fixed Assets

     We review fixed assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether impairment has occurred typically requires various estimates and assumptions. In 2005, we wrote down certain assets to fair value at our Syracuse China facility based upon appraisals performed by an independent third party. This write-down is further disclosed in note 10 to the Consolidated Financial Statements.

Goodwill and Indefinite Life Intangible Assets

     Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. When performing our test for impairment, we use the discounted cash flow method, which incorporates the weighted average cost of capital of a hypothetical third party buyer to compute the fair value of each reporting unit. The fair value is then compared to the carrying value. To the extent that fair value exceeds the carrying value, no impairment exists. However, to the extent the carrying value exceeds fair value, we compare the implied fair value of goodwill to its book value to determine if an impairment should be recorded. This was done as of October 1st for each year presented. Our review indicated an impairment of goodwill of $5.4 million at our Syracuse China facility during 2005. This impairment is further disclosed in note 10 to the Consolidated Financial Statements.

     Individual indefinite life intangible assets are also evaluated for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise. When performing our test for impairment, we use the discounted cash flow method to compute the fair value, which is then compared to the carrying value of the indefinite life intangible asset. To the extent that fair value exceeds the carrying value, no impairment exists. This was done as of October 1 for each year presented. An impairment loss for intangible assets of $3.7 million was recorded in 2005 for our Syracuse China facility. This impairment is further disclosed in note 10 to the Consolidated Financial Statements.

     If the Company’s projected future cash flows were lower, or if the assumed weighted average cost of capital were higher, the testing performed as of October 1, 2007, may have indicated an impairment of one or more of the Company’s other reporting units and, as a result, the related goodwill would also have been impaired.

Self-Insurance Reserves

     We use self-insurance mechanisms to provide for potential liabilities related to workers’ compensation and employee health care benefits that are not covered by third-party insurance. Workers’ compensation accruals are recorded at the estimated ultimate payout amounts based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses based on actuarial models.

     Group health accruals include estimates of incurred-but-not-reported estimates received from our third party administrator of the plan.

     Although we believe that the estimated liabilities for self-insurance are adequate, the estimates described above may not be indicative of current and future losses. In addition, the actuarial calculations used to estimate self-insurance liabilities are based on numerous assumptions, some of which are subjective. We will continue to adjust our estimated liabilities for self-insurance, as deemed necessary, in the event that future loss experience differs from historical loss patterns.

Pension Assumptions

     The following are the assumptions used to determine the benefit obligations and pretax income effect for our pension plan benefits for 2007, 2006 and 2005:

		U.S. Plans												Non-U.S. Plans
		2007				2006				2005				2007				2006				2005
Discount rate		6.16% to 6.32		%		5.82% to 5.91		%			5.6	%		5.5% to 8.5		%		4.5% to 8.75		%			4.25	%
Expected long-term rate of return on plan assets			8.5	%			8.75	%			8.75	%			6.5	%			6.5	%			6.5	%
Rate of compensation increase		3.0% to 6.0		%			3.0 to 6.0	%			3.0 to 6.0	%		2.0% to 4.3%					2.0 to 3.5	%			2.0 to 2.5	%

     Two critical assumptions, discount rate and expected long-term rate of return on plan assets, are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions on our annual measurement date of December 31. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.

     The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at our December 31 measurement date. The discount rate at December 31 is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. A lower discount rate increases the present value of benefit obligations and increases pension expense.

     To determine the expected long-term rate of return on plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. The expected long-term rate of return on plan assets at December 31 is used to measure the earnings effects for the subsequent year.

     Sensitivity to changes in key assumptions is as follows:

	•		A change of 1 percent in the discount rate would change our total pension expense by approximately $1.3 million.
	•		A change of 1 percent in the expected long-term rate of return on plan assets would change total pension expense by approximately $2.6 million based on year-end data.

     Nonpension Postretirement Assumptions

     We use various actuarial assumptions, including the discount rate and the expected trend in health care costs, to estimate the costs and benefit obligations for our retiree welfare plan. The discount rate is determined based on high-quality fixed income investments that match the duration of expected retiree medical benefits at our December 31 measurement date. The discount rate at December 31 is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. The following are the actuarial assumptions used to determine the benefit obligations and pretax income effect for our nonpension postretirement benefits:

		U.S. Plans												Non-U.S. Plans
		2007				2006				2005				2007				2006				2005
Discount rate			6.16	%			5.77	%			5.60	%			5.14	%			4.87	%			5.00	%
Initial health care trend			8.00	%			8.50	%			9.00	%			8.00	%			8.50	%			8.00	%
Ultimate health care trend			5.00	%			5.00	%			5.00	%			5.00	%			5.00	%			5.00	%
Years to reach ultimate trend rate			7				7				4				7				7				3