UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Libbey Inc.

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

300 Madison Avenue, Toledo, Ohio 43604

419-325-2100

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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

                          (Do not check if a smaller reporting company)

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

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

     Common Stock, $.01 par value —14,606,199 shares at April 30, 2008.

 

 

TABLE OF CONTENTS

Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business
2. Significant Accounting Policies
3. Balance Sheet Details
4. Borrowings
5. Income Taxes
6. Pension and Nonpension Postretirement Benefits
7. Net Income per Share of Common Stock
8. Derivatives
9. Comprehensive Income (Loss)
10. Condensed Consolidated Guarantor Financial Statements
11. Segments
12. Fair Value
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II — OTHER INFORMATION
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EXHIBIT INDEX
SIGNATURES
Certification
Certification
Certification
Certification
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying unaudited condensed consolidated financial statements of Libbey Inc. and all majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2008, are not necessarily indicative of the results that may be expected for the year ended December 31, 2008.

The balance sheet at December 31, 2007, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

LIBBEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per-share amounts)
(unaudited)

		Three months ended March 31,
		2008				2007
Net sales		$	187,276			$	179,496
Freight billed to customers			668				475
Total revenues			187,944				179,971
Cost of sales			157,607				147,556
Gross profit			30,337				32,415
Selling, general and administrative expenses			20,859				22,034
Income from operations			9,478				10,381
Other income			753				1,845
Earnings before interest and income taxes			10,231				12,226
Interest expense			17,151				15,564
Loss before income taxes			(6,920	)			(3,338	)
Benefit for income taxes			(3,443	)			(1,584	)
Net loss		$	(3,477	)		$	(1,754	)
Net loss per share:
Basic		$	(0.24	)		$	(0.12	)
Diluted		$	(0.24	)		$	(0.12	)
Dividends per share		$	0.025			$	0.025

See accompanying notes

LIBBEY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share amounts)

		March 31,				December 31,
		2008				2007
		(unaudited)
ASSETS
Current assets:
Cash and equivalents		$	7,602			$	36,539
Accounts receivable — net			95,096				93,333
Inventories — net			208,180				194,079
Prepaid and other current assets			26,804				20,072
Total current assets			337,682				344,023
Other assets:
Deferred income taxes			656				855
Purchased intangible assets — net			31,012				30,731
Goodwill — net			178,072				177,360
Other assets			15,133				16,366
Total other assets			224,873				225,312
Property, plant and equipment — net			335,555				329,777
Total assets		$	898,110			$	899,112
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Notes payable		$	1,944			$	622
Accounts payable			66,080				73,593
Salaries and wages			22,858				28,659
Accrued liabilities			57,150				41,453
Pension liability (current portion)			1,883				1,883
Nonpension postretirement benefits (current portion)			3,528				3,528
Derivative liability			5,662				6,737
Payable to Vitro			—				19,575
Deferred income taxes			4,462				4,462
Long-term debt due within one year			913				913
Total current liabilities			164,480				181,425
Long-term debt			508,203				495,099
Pension liability			72,181				71,709
Nonpension postretirement benefits			45,965				45,667
Other long-term liabilities			10,423				12,097
Total liabilities			801,252				805,997
Shareholders’ equity:
Common stock, par value $.01 per share, 50,000,000 shares authorized, 18,697,630 shares issued at March 31, 2008 and at December 31, 2007			187				187
Capital in excess of par value (includes warrants of $1,034, based on 485,309 shares at March 31, 2008 and at December 31, 2007)			306,904				306,874
Treasury stock, at cost, 4,091,431 shares (4,133,074 shares in 2007)			(109,681	)			(110,780	)
Retained deficit			(64,997	)			(60,689	)
Accumulated other comprehensive loss			(35,555	)			(42,477	)
Total shareholders’ equity			96,858				93,115
Total liabilities and shareholders’ equity		$	898,110			$	899,112

See accompanying notes

LIBBEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)
(unaudited)

		Three months ended March 31,
		2008				2007
Net loss		$	(3,477	)		$	(1,754	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			11,296				9,216
Gain on asset sales			(7	)			(1,569	)
Change in accounts receivable			(230	)			3,588
Change in inventories			(11,020	)			(9,460	)
Change in accounts payable			(9,898	)			(4,925	)
Pension & nonpension postretirement benefits			278				2,587
Payable to Vitro			(19,575	)			—
Other operating activities			4,494				2,280
Net cash used in operating activities			(28,139	)			(37	)
Investing activities:
Additions to property, plant and equipment			(9,352	)			(9,793	)
Proceeds from asset sales and other			41				2,069
Net cash used in investing activities			(9,311	)			(7,724	)
Financing activities:
Net ABL credit facility activity			9,068				(25,408	)
Other net borrowings			(473	)			20,093
Dividends			(364	)			(359	)
Net cash provided by (used in) financing activities			8,231				(5,674	)
Effect of exchange rate fluctuations on cash			282				66
Decrease in cash			(28,937	)			(13,369	)
Cash and equivalents at beginning of period			36,539				41,766
Cash and equivalents at end of period		$	7,602			$	28,397
Supplemental disclosure of cash flows information:
Cash paid during the quarter for interest		$	1,041			$	885
Cash paid (net of refunds received) during the quarter for income taxes		$	(19	)		$	1,534

See accompanying notes

LIBBEY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except per share data
(unaudited)

1. Description of the Business

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

Our website can be found at www.libbey.com. We make available, free of charge, at this website all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our Current Reports on Form 8-K, as well as amendments to those reports. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.

2. Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2007 for a description of significant accounting policies not listed below.

Basis of Presentation

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

Condensed Consolidated Statements of Operations

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

Foreign Currency Translation

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

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax attribute carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. FAS No. 109,

“Accounting for Income Taxes,” requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

Deferred income tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. In the United States, we have recorded a full valuation allowance against our deferred income tax assets. In addition, valuation allowances have been recorded in the Netherlands and Mexico.

Stock-Based Compensation Expense

We account for stock-based compensation in accordance with SFAS No. 123-R, “Accounting for Stock-Based Compensation” (“SFAS No. 123-R”). Stock-based compensation cost is measured based on the fair value of the equity instruments issued. SFAS No. 123-R applies to all of our outstanding unvested stock-based payment awards as of January 1, 2006, and all prospective awards using the modified prospective transition method without restatement of prior periods. Stock-based compensation expense charged to the Condensed Consolidated Statement of Operations for the three months ended March 31, 2008, and the three months ended March 31, 2007, was $1.0 million and $0.7 million, respectively.

New Accounting Standards

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This statement clarifies how to measure fair value as permitted under other accounting pronouncements but does not require any new fair value measurements. However, for some companies, the application of this statement will change current practice. In February 2008, the FASB issued Staff Position 157-2, “Effective Date of FASB Statement No. 157”, which delays the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009. We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring, nonfinancial assets and liabilities. The adoption of SFAS 157 had no impact on our consolidated results of operations and financial condition. See Note 12, Fair Value, for additional information.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of SFAS No. 115” (“SFAS 159”), which is effective for fiscal years beginning after November 15, 2007. This statement permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. We adopted SFAS 159 as of January 1, 2008. The adoption of SFAS 159 had no impact on our consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”), which changes how business combinations are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 141R is effective January 1, 2009 for Libbey and will be applied prospectively. The impact of adopting SFAS 141R will depend on the nature and terms of future acquisitions.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”), which changes the accounting and reporting standards for the noncontrolling interests in a subsidiary in consolidated financial statements. SFAS 160 recharacterizes minority interests as noncontrolling interests and requires noncontrolling interests to be classified as a component of shareholders equity. SFAS 160 is effective January 1, 2009 for Libbey, and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. We do not believe adoption of SFAS 160 will have a material impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”), which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. SFAS 161 is effective for us beginning January 1, 2009. We are currently assessing the potential impact that adoption of SFAS 161 may have on our financial statements.

Reclassifications

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

3. Balance Sheet Details

The following table provides detail of selected balance sheet items:

		March 31, 2008				December 31, 2007
Accounts receivable:
Trade receivables		$	92,433			$	91,435
Other receivables			2,663				1,898
Total accounts receivable, less allowances of $11,767 and $11,711		$	95,096			$	93,333
Inventories:
Finished goods		$	184,872			$	170,386
Work in process			4,249				4,052
Raw materials			5,685				5,668
Repair parts			10,471				11,137
Operating supplies			2,903				2,836
Total inventories, less allowances of $6,767 and $6,435		$	208,180			$	194,079
Prepaid and other current assets:
Prepaid expenses		$	17,318			$	13,551
Prepaid income taxes			9,486				6,521
Total prepaid and other current assets		$	26,804			$	20,072
Other assets:
Deposits		$	428			$	596
Finance fees — net of amortization			10,383				11,194
Pension asset			3,998				3,253
Other			324				1,323
Total other assets		$	15,133			$	16,366
Accrued liabilities:
Accrued incentives		$	15,165			$	14,236
Workers compensation			9,344				9,485
Medical liabilities			2,312				2,450
Interest			19,501				5,218
Commissions payable			1,450				1,381
Special charges			—				38
Accrued liabilities			9,378				8,645
Total accrued liabilities		$	57,150			$	41,453
Other long-term liabilities:
Deferred liability		$	1,267			$	1,254
Other			9,156				10,843
Total other long-term liabilities		$	10,423			$	12,097

4. Borrowings

On June 16, 2006, Libbey Glass Inc. issued $306.0 million aggregate principal amount of floating rate senior secured notes (Senior Notes) due June 1, 2011 and $102.0 million aggregate principal amount of senior subordinated secured pay-in-kind notes (PIK Notes) due December 1, 2011. Concurrently, Libbey Glass Inc. entered into a new $150.0 million Asset Based Loan facility (ABL Facility), expiring December 16, 2010.

Borrowings consist of the following:

										March 31,				December 31,
		Interest Rate				Maturity Date				2008				2007
Borrowings under ABL facility		floating				December 16, 2010				$	17,380			$	7,366
Senior notes		floating (1)				June 1, 2011					306,000				306,000
PIK notes			16.00	%		December 1, 2011					127,697				127,697
Promissory note			6.00	%		April 2008 to September 2016					1,790				1,830
Notes payable		floating				April 2008					1,944				622
RMB loan contract		floating				July 2012 to January 2014					35,700				34,275
RMB working capital loan		floating				March 2010					7,140				6,855
Obligations under capital leases		floating				April 2008 to May 2009					909				1,018
BES Euro line		floating				January 2010 to January 2014					17,380				15,962
Other debt		floating				September 2009					1,094				1,432
Total borrowings											517,034				503,057
Less — unamortized discounts and warrants											5,974				6,423
Total borrowings — net											511,060				496,634
Less — current portion of borrowings											2,857				1,535
Total long-term portion of borrowings — net										$	508,203			$	495,099

ABL Facility

The ABL Facility is with a group of six banks and provides for a revolving credit and swing line facility permitting borrowings for Libbey Glass and Libbey Europe up to an aggregate of $150.0 million, with Libbey Europe’s borrowings being limited to $75.0 million. Borrowings under the ABL Facility mature December 16, 2010. Swing line borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe being limited to €7.5 million. Swing line U.S. dollar borrowings bear interest calculated at the prime rate plus the Applicable Rate for ABR (Alternate Base Rate) Loans, and euro-denominated swing line borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swing line rate, as defined in the ABL Facility. The Applicable Rates for ABR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for ABR Loans and Eurocurrency Loans were 0 percent and 1.75 percent, respectively, at March 31, 2008. There were no Libbey Glass borrowings under the facility at March 31, 2008, while Libbey Europe had outstanding borrowings of $17.4 million at March 31, 2008, at an interest rate of 6.13 percent. Interest is payable the last day of the interest period, which can range from one month to six months.

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

We pay a Commitment Fee, as defined by the ABL Facility, on the total credit provided under the Facility. The Commitment Fee varies depending on our aggregate availability. The Commitment Fee was 0.25 percent at March 31, 2008. No compensating balances

are required by the Agreement. The Agreement does not require compliance with restrictive financial covenants, unless aggregate unused availability falls below $25.0 million.

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

The available total borrowing base is offset by real estate and ERISA reserves totaling $8.0 million and mark-to-market reserves for natural gas and interest rate swaps of $9.1 million and a rent reserve of $1.2 million. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $150.0 million limit. At March 31, 2008, we had $8.4 million in letters of credit outstanding under the ABL Facility. Remaining unused availability on the ABL Facility was $82.3 million at March 31, 2008.

Senior Notes

Libbey Glass and Libbey Inc. entered into a purchase agreement pursuant to which Libbey Glass agreed to sell $306.0 million aggregate principal amount of floating rate senior secured notes due 2011 to the initial purchasers named in a private placement. The net proceeds of these notes, after deducting a discount and the estimated expenses and fees, were approximately $289.8 million. On February 15, 2007, we exchanged $306.0 million aggregate principal amount of our floating rate senior secured notes due 2011, which have been registered under the Securities Act of 1933, as amended (Senior Notes), for the notes sold in the private placement. The Senior Notes bear interest at a rate equal to six-month LIBOR plus 7.0 percent and were offered at a discount of 2 percent of face value. Interest with respect to the Senior Notes is payable semiannually on June 1 and December 1. The interest rate was 11.91 percent at March 31, 2008.

We have Interest Rate Protection Agreements (Rate Agreements) with respect to $200.0 million of debt as a means to manage our exposure to fluctuating interest rates. The Rate Agreements effectively convert this portion of our long-term borrowings from variable rate debt to fixed-rate debt, thus reducing the impact of interest rate changes on future income. The fixed interest rate for our borrowings related to the Rate Agreements at March 31, 2008, 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 1.7 years at March 31, 2008. Total remaining Senior Notes not covered by the Rate Agreements have fluctuating interest rates with a weighted average rate of 11.91 percent per year at March 31, 2008. If the counterparties to these Rate Agreements were to fail to perform, these Rate Agreements would no longer protect us from interest rate fluctuations. However, we do not anticipate nonperformance by the counterparties. All counterparties’ credit ratings were rated A+ or better as of March 31, 2008, by Standard and Poors.

The fair market value for the Rate Agreements at March 31, 2008, was a $9.5 million liability. The fair value of the Rate Agreements is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. We do not expect to cancel these agreements and expect them to expire as originally contracted.

The Senior Notes are guaranteed by Libbey Inc. and all of Libbey Glass’s existing and future domestic subsidiaries that guarantee any of Libbey Glass’s debt or debt of any subsidiary guarantor (see Note 10). The Senior Notes and related guarantees have the benefit of a second-priority lien, subject to permitted liens, on collateral consisting of substantially all the tangible and intangible assets of Libbey Glass and its domestic subsidiary guarantors that secure all of the indebtedness under Libbey Glass’s new ABL Facility. The Collateral does not include the assets of non-guarantor subsidiaries that secure the ABL Facility.

PIK Notes

Concurrently with the execution of the purchase agreement with respect to the Senior Notes, Libbey Glass and Libbey Inc. entered into a purchase agreement (Unit Purchase Agreement) pursuant to which Libbey Glass agreed to sell, to a purchaser named in the private placement, units consisting of $102.0 million aggregate principal amount 16 percent senior subordinated secured pay-in-kind notes due 2011 (PIK Notes) and detachable warrants to purchase 485,309 shares of Libbey Inc. common stock (Warrants) exercisable on or after June 16, 2006 and expiring on December 1, 2011. The warrant holders do not have voting rights. The net proceeds, after

deducting a discount and estimated expenses and fees, were approximately $97.0 million. The proceeds were allocated between the Warrants and the underlying debt based on their respective fair values at the time of issuance. The amount allocated to the Warrants has been recorded in equity, with the offset recorded as a discount on the underlying debt. Each Warrant is exercisable at $11.25. The PIK Notes were offered at a discount of 2 percent of face value. Interest is payable semiannually on June 1 and December 1, but during the first three years interest is payable by issuance of additional PIK Notes. At March 31, 2008, additional PIK Notes for interest, that have been issued, bring the total principal amount of PIK notes to $127.7 million.

The obligations of Libbey Glass under the PIK Notes are guaranteed by Libbey Inc. and all of Libbey Glass’s existing and future domestic subsidiaries that guarantee any of Libbey Glass’s debt or debt of any subsidiary guarantor (see Note 10). The PIK Notes and related guarantees are senior subordinated obligations of Libbey Glass and the guarantors of the PIK Notes and are entitled to the benefit of a third-priority lien, subject to permitted liens, on the collateral that secures the Senior Notes.

Promissory Note

In September 2001, we issued a $2.7 million promissory note in connection with the purchase of our Laredo, Texas warehouse facility. At March 31, 2008, we had $1.8 million outstanding on the promissory note. Interest with respect to the promissory note is paid monthly.

Notes Payable

We have an overdraft line of credit for a maximum of €1.8 million. The $1.9 million outstanding at March 31, 2008, was the U.S. dollar equivalent under the euro-based overdraft line and the interest rate was 5.31 percent. Interest with respect to the note payable is paid monthly.

RMB Loan Contract

On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the equivalent of approximately $35.7 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of March 31, 2008, the annual interest rate was 6.56 percent. As of March 31, 2008, the outstanding balance was RMB 250.0 million (approximately $35.7 million). Interest is payable quarterly. Payments of principal in the amount of RMB 30.0 million (approximately $4.3 million) and RMB 40.0 million (approximately $5.7 million) must be made on July 20, 2012, and December 20, 2012, respectively, and three payments of principal in the amount of RMB 60.0 million (approximately $8.6 million) each must be made on July 20, 2013, December 20, 2013, and January 20, 2014, respectively. The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of CCB.

RMB Loan Working Capital Loan

In March 2007, Libbey China entered into a 50.0 million RMB working capital loan with China Construction Bank. The 3-year term loan has a principal payment at maturity on March 14, 2010, has a current interest rate of 6.30 percent, and is secured by a Libbey Inc. guarantee. At March 31, 2008, the U.S. dollar equivalent on the line was $7.1 million.

Obligations Under Capital Leases

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

The future minimum lease payments required under the capital leases as of March 31, 2008 are $767 for year one and $142 for year two.

BES Euro Line

In January 2007, Crisal entered into a seven year, €11.0 million line of credit (approximately $17.4 million) with BANCO ESPÍRITO SANTO, S.A.(BES). The $17.4 million outstanding at March 31, 2008, was the U.S. dollar equivalent under the line at an interest rate of 5.63 percent. Payment of principal in the amount of €1.1 (approximately $1.7 million) is due in January 2010, payment of €1.6 (approximately $2.5 million) is due in January 2011, payment of €2.2 (approximately $3.5 million) is due in January 2012, payment of €2.8 (approximately $4.4 million) is due in January 2013 and payment of €3.3 (approximately $5.3 million) is due in January 2014. Interest with respect to the line is paid every six months.

Other Debt

The other debt of $1.1 million primarily consists of government-subsidized loans for equipment purchases at Crisal.

5. Income Taxes

The Company’s effective tax rate differs from the United States statutory tax rate primarily due to changes in the mix of earnings in countries with differing statutory tax rates, changes in accruals related to uncertain tax positions, tax planning structures and changes in tax laws. Further, the Company’s current and future provision for income taxes is significantly impacted by the recognition of valuation allowances in certain countries, particularly the United States. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized.

6. Pension and Nonpension Postretirement Benefits

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

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

		U.S. Plans								Non-U.S. Plans								Total
Three months ended March 31,		2008				2007				2008				2007				2008				2007
Service cost		$	1,473			$	1,525			$	442			$	479			$	1,915			$	2,004
Interest cost			3,930				3,695				1,226				956				5,156				4,651
Expected return on plan assets			(4,375	)			(4,030	)			(830	)			(687	)			(5,205	)			(4,717	)
Amortization of unrecognized:
Prior service cost (gain)			585				522				(18	)			(12	)			567				510
Loss			354				555				91				74				445				629
Pension expense		$	1,967			$	2,267			$	911			$	810			$	2,878			$	3,077

We provide certain retiree health care and life insurance benefits covering our U.S. and Canadian salaried and non-union hourly hired before January 1, 2004 and a majority of our U.S. union hourly employees. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. The U.S. nonpension postretirement plans cover the hourly and salaried U.S.-based employees of Libbey. The non-U.S. nonpension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. The postretirement benefit plans are not funded.

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

		U.S. Plans								Non-U.S. Plans								Total
Three months ended March 31,		2008				2007				2008				2007				2008				2007
Service cost		$	296			$	208			$	—			$	—			$	296			$	208
Interest cost			713				564				28				23				741				587
Amortization of unrecognized:
Prior service gain			(136	)			(220	)			—				—				(136	)			(220	)
Loss (gain)			48				18				(15	)			(13	)			33				5
Nonpension postretirement benefit expense		$	921			$	570			$	13			$	10			$	934			$	580

We expect to utilize $28.6 million to fund our pension plans and nonpension postretirement benefits in 2008, of which $3.8 million was incurred in the first quarter.

7. Net Income per Share of Common Stock

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

Three months ended March 31,		2008				2007
Numerator for earnings per share — net loss that is available to common shareholders		$	(3,477	)		$	(1,754	)
Denominator for basic earnings per share — weighted-average shares outstanding			14,579,507				14,361,608
Effect of dilutive securities (1)			—				—
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions			14,579,507				14,361,608
Basic loss per share		$	(0.24	)		$	(0.12	)
Diluted loss per share		$	(0.24	)		$	(0.12	)

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

8. Derivatives

As of March 31, 2008, we had Interest Rate Protection Agreements for $200.0 million of our variable rate debt and commodity contracts for 2,090,000 million British Thermal Units (BTUs) of natural gas. In January 2008, we entered into a series of foreign currency contracts to sell Canadian dollars. As of March 31, 2008, we had contracts for 6.8 million Canadian dollars. The total fair value of these derivatives was $(5.7) million as of March 31, 2008, accounted for under Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (Statement 133). At December 31, 2007, we had Interest Rate Protection Agreements for $200.0 million of variable rate debt, commodity contracts for 2,820,000 million BTUs of natural gas and a foreign currency contract for 212.0 million pesos for a contractual payment due to Vitro in January 2008 related to the Crisa acquisition, with a total fair value of $(6.7) million. The fair value of these derivatives is included in derivative liability on the Condensed Consolidated Balance Sheets.

We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate, natural gas and foreign currency hedges, as the counterparties are established financial institutions. All counterparties were rated A+ or better as of March 31, 2008, by Standard and Poors.

Most of our derivatives qualify and are designated as cash flow hedges (except the foreign currency contract) at March 31, 2008. Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or

anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings. For the three months ended March 31, 2008, the ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge was zero. For the three months ended March 31, 2007, we recognized a gain of $0.7 million in other income in the Condensed Consolidated Statement of Operations.

9. Comprehensive Income (Loss)

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

Three months ended March 31,		2008				2007
Net loss		$	(3,477	)		$	(1,754	)
Change in pension liability			(1,057	)			205
Change in fair value of derivative instruments (see detail below)			952				759
Effect of exchange rate fluctuation			7,027				(1,069	)
Comprehensive income (loss)		$	3,445			$	(1,859	)

Accumulated other comprehensive loss (net of tax) includes:

		March 31, 2008				December 31, 2007
Change in pension liability		$	(45,857	)		$	(44,800	)
Derivatives			(5,358	)			(6,310	)
Exchange rate fluctuation			15,660				8,633
Total		$	(35,555	)		$	(42,477	)

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

Three months ended March 31,		2008				2007
Change in fair value of derivative instruments		$	1,475			$	1,113
Less:
Income tax effect			523				354
Other comprehensive income related to derivatives		$	952			$	759

10. Condensed Consolidated Guarantor Financial Statements

Libbey Glass is a direct, 100 percent owned subsidiary of Libbey Inc. and the issuer of the Senior Notes and the PIK Notes. The obligations of Libbey Glass under the Senior Notes and the PIK Notes are fully and unconditionally and jointly and severally guaranteed by Libbey Inc. and by certain indirect, 100 percent owned domestic subsidiaries of Libbey Inc, as described below. All are related parties that are included in the Condensed Consolidated Financial Statements for the quarterly periods ended March 31, 2008, and March 31, 2007.

At March 31, 2008, December 31, 2007 and March 31, 2007, Libbey Inc.’s indirect, 100 percent owned domestic subsidiaries were Syracuse China Company, World Tableware Inc., LGA4 Corp., LGA3 Corp., The Drummond Glass Company, LGC Corp., Traex Company, Libbey.com LLC, LGFS Inc., LGAC LLC and Crisa Industrial LLC (collectively, the “Subsidiary Guarantors”). The following tables contain condensed consolidating financial statements of (a) the parent, Libbey Inc., (b) the issuer, Libbey Glass, (c) the Subsidiary Guarantors, (d) the indirect subsidiaries of Libbey Inc. that are not Subsidiary Guarantors (collectively, “Non-Guarantor Subsidiaries”), (e) the consolidating elimination entries, and (f) the consolidated totals.

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

Three months ended March 31, 2008
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	89,987			$	26,583			$	84,055			$	(13,349	)		$	187,276
Freight billed to customers			—				172				303				193				—				668
Total revenues			—				90,159				26,886				84,248				(13,349	)			187,944
Cost of sales			—				79,775				20,650				70,531				(13,349	)			157,607
Gross profit			—				10,384				6,236				13,717				—				30,337
Selling, general and administrative expenses			—				10,843				2,609				7,407				—				20,859
Income (loss) from operations			—				(459	)			3,627				6,310				—				9,478
Other income (expense)			—				333				38				382				—				753
Earnings (loss) before interest and income taxes			—				(126	)			3,665				6,692				—				10,231
Interest expense			—				15,693				—				1,458				—				17,151
Earnings (loss) before income taxes			—				(15,819	)			3,665				5,234				—				(6,920	)
Provision (benefit) for income taxes			—				(320	)			563				(3,686	)			—				(3,443	)
Net income (loss)			—				(15,499	)			3,102				8,920				—				(3,477	)
Equity in net income (loss) of subsidiaries			(3,477	)			12,022				—				—				(8,545	)			—
Net income (loss)		$	(3,477	)		$	(3,477	)		$	3,102			$	8,920			$	(8,545	)		$	(3,477	)

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

Three months ended March 31, 2007
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	90,708			$	27,434			$	71,505			$	(10,151	)		$	179,496
Freight billed to customers			—				148				301				26				—				475
Total revenues			—				90,856				27,735				71,531				(10,151	)			179,971
Cost of sales			—				74,267				22,398				61,042				(10,151	)			147,556
Gross profit			—				16,589				5,337				10,489				—				32,415
Selling, general and administrative expenses			—				11,958				2,250				7,826				—				22,034
Income (loss) from operations			—				4,631				3,087				2,663				—				10,381
Other income (expense)			—				865				1,128				(148	)			—				1,845
Earnings (loss) before interest and income taxes			—				5,496				4,215				2,515				—				12,226
Interest expense			—				14,668				—				896				—				15,564
Earnings (loss) before income taxes			—				(9,172	)			4,215				1,619				—				(3,338	)
Provision (benefit) for income taxes			—				(4,352	)			2,000				768				—				(1,584	)
Net income (loss)			—				(4,820	)			2,215				851				—				(1,754	)
Equity in net income (loss) of subsidiaries			(1,754	)			3,066				—				—				(1,312	)			—
Net income (loss)		$	(1,754	)		$	(1,754	)		$	2,215			$	851			$	(1,312	)		$	(1,754	)

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

March 31, 2008 (unaudited)
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Cash and equivalents		$	—			$	363			$	1,041			$	6,198			$	—			$	7,602
Accounts receivable — net			—				36,695				8,339				50,062				—				95,096
Inventories — net			—				74,315				37,530				96,335				—				208,180
Other current assets			—				2,750				1,888				22,166				—				26,804
Total current assets			—				114,123				48,798				174,761				—				337,682
Other non-current assets			—				7,619				468				7,702				—				15,789
Investments in and advances to subsidiaries			96,858				435,772				278,777				126,502				(937,909	)			—
Goodwill and purchased intangible assets — net			—				28,775				16,087				164,222				—				209,084
Total other assets			96,858				472,166				295,332				298,426				(937,909	)			224,873
Property, plant and equipment — net			—				100,011				18,878				216,666				—				335,555
Total assets		$	96,858			$	686,300			$	363,008			$	689,853			$	(937,909	)		$	898,110
Accounts payable		$	—			$	13,267			$	3,198			$	49,615			$	—			$	66,080
Accrued and other current liabilities			—				52,962				9,556				33,025				—				95,543
Notes payable and long-term debt due within one year			—				209				—				2,648				—				2,857
Total current liabilities			—				66,438				12,754				85,288				—				164,480
Long-term debt			—				429,258				—				78,945				—				508,203
Other long-term liabilities			—				94,915				5,425				28,229				—				128,569
Total liabilities			—				590,611				18,179				192,462				—				801,252
Total shareholders’ equity			96,858				95,689				344,829				497,391				(937,909	)			96,858
Total liabilities and shareholders’ equity		$	96,858			$	686,300			$	363,008			$	689,853			$	(937,909	)		$	898,110

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

December 31, 2007
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Cash and equivalents		$	—			$	20,834			$	532			$	15,173			$	—			$	36,539
Accounts receivable — net			—				39,249				9,588				44,496				—				93,333
Inventories — net			—				71,856				37,890				84,333				—				194,079
Other current assets			—				8,884				467				10,721				—				20,072
Total current assets			—				140,823				48,477				154,723				—				344,023
Other non-current assets			—				12,955				596				3,670				—				17,221
Investments in and advances to subsidiaries			93,115				346,905				277,576				130,751				(848,347	)			—
Goodwill and purchased intangible assets — net			—				26,833				16,089				165,169				—				208,091
Total other assets			93,115				386,693				294,261				299,590				(848,347	)			225,312
Property, plant and equipment — net			—				100,742				19,389				209,646				—				329,777
Total assets		$	93,115			$	628,258			$	362,127			$	663,959			$	(848,347	)		$	899,112
Accounts payable		$	—			$	20,126			$	7,246			$	46,221				—			$	73,593
Accrued and other current liabilities			—				51,078				7,614				47,605				—				106,297
Notes payable and long-term debt due within one year			—				209				—				1,326				—				1,535
Total current liabilities			—				71,413				14,860				95,152				—				181,425
Long-term debt-net			—				428,896				—				66,203				—				495,099
Other long-term liabilities			—				91,369				5,496				32,608				—				129,473
Total liabilities			—				591,678				20,356				193,963				—				805,997
Total shareholders’ equity			93,115				36,580				341,771				469,996				(848,347	)			93,115
Total liabilities and shareholders’ equity		$	93,115			$	628,258			$	362,127			$	663,959			$	(848,347	)		$	899,112

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

Three months ended March 31, 2008
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net income (loss)		$	(3,477	)		$	(3,477	)		$	3,102			$	8,920			$	(8,545	)		$	(3,477	)
Depreciation and amortization			—				3,882				756				6,658				—				11,296
Other operating activities			3,477				(17,147	)			(3,234	)			(27,599	)			8,545				(35,958	)
Net cash provided by (used in) operating activities			—				(16,742	)			624				(12,021	)			—				(28,139	)
Additions to property, plant & equipment			—				(3,320	)			(115	)			(5,917	)			—				(9,352	)
Other investing activities			—				41				—				—				—				41
Net cash provided by (used in) investing activities			—				(3,279	)			(115	)			(5,917	)			—				(9,311	)
Net borrowings (repayments)			—				(86	)			—				8,681				—				8,595
Other financing activities			—				(364	)			—				—				—				(364	)
Net cash provided by (used in) financing activities			—				(450	)			—				8,681				—				8,231
Exchange effect on cash			—				—				—				282				—				282
Increase (decrease) in cash			—				(20,471	)			509				(8,975	)			—				(28,937	)
Cash and equivalents at beginning of period			—				20,834				532				15,173				—				36,539
Cash and equivalents at end of period		$	—			$	363			$	1,041			$	6,198			$	—			$	7,602

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

Three months ended March 31, 2007
		Libbey				Libbey								Non-
		Inc.				Glass				Subsidiary				Guarantor
		(Parent)				(Issuer)				Guarantors				Subsidiaries				Eliminations				Consolidated
Net Income (loss)		$	(1,754	)		$	(1,754	)		$	2,215			$	851			$	(1,312	)		$	(1,754	)
Depreciation and amortization			—				4,270				880				4,066				—				9,216
Other operating activities			1,754				(10,255	)			(4,343	)			4,033				1,312				(7,499	)
Net cash provided by (used in) operating activities			—				(7,739	)			(1,248	)			8,950				—				(37	)
Additions to property, plant & equipment			—				(2,468	)			(203	)			(7,122	)			—				(9,793	)
Other investing activities			—				—				1,501				568				—				2,069
Net cash provided by (used in) investing activities			—				(2,468	)			1,298				(6,554	)			—				(7,724	)
Net borrowings (repayments)			—				412				—				(5,727	)			—				(5,315	)
Other financing activities			—				(359	)			—				—				—				(359	)
Net cash provided by (used in) financing activities			—				53				—				(5,727	)			—				(5,674	)
Exchange effect on cash			—				—				—				66				—				66
Increase (decrease) in cash			—				(10,154	)			50				(3,265	)			—				(13,369	)
Cash and equivalents at beginning of period			—				22,849				509				18,408				—				41,766
Cash and equivalents at end of period		$	—			$	12,695			$	559			$	15,143			$	—			$	28,397

11. Segments

Our segments are described as follows:

•

North American Glass—includes sales of glass tableware from subsidiaries throughout the United States, Canada and Mexico.

•

North American Other—includes sales of ceramic dinnerware; metal tableware, holloware 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.

The accounting policies of the segments are the same as those described in Note 1 of the Notes to Condensed Consolidated Financial Statements. We do not have any customers who represent 10 percent or more of total net sales. We evaluate the performance of our segments based upon net sales and Earnings Before Interest and Taxes (EBIT). Intersegment sales are consummated at arm’s length and are reflected in eliminations in the table below.

		March 31,				March 31,
Three months ended		2008				2007
Net Sales
North American Glass		$	127,477			$	124,726
North American Other			26,583				27,435
International			36,387				29,782
Eliminations			(3,171	)			(2,447	)
Consolidated		$	187,276			$	179,496
EBIT
North American Glass		$	7,072			$	10,935
North American Other			3,818				3,769
International			(659	)			(2,478	)
Consolidated		$	10,231			$	12,226
Depreciation & Amortization
North American Glass		$	6,553			$	5,762
North American Other			756				881
International			3,987				2,573
Consolidated		$	11,296			$	9,216
Capital Expenditures
North American Glass		$	5,709			$	5,479
North American Other			115				203
International			3,528				4,111
Consolidated		$	9,352			$	9,793
Reconciliation of EBIT to Net Income
Segment EBIT		$	10,231			$	12,226
Interest Expense			(17,151	)			(15,564	)
Benefit for Income Taxes			3,443				1,584
Net Loss		$	(3,477	)		$	(1,754	)

12. Fair Value

We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring, nonfinancial assets and liabilities. The adoption of SFAS 157 had no impact on our fair value measurements. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
 

	•		Level 1 – Quoted prices in active markets for identical assets or liabilities.
	•		Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
	•		Level 3 – Unobservable inputs based on our own assumptions.

		Fair Value at March 31, 2008
		Level 1				Level 2				Level 3				Total
Interest rate protection agreements		$	—			$	(9,452	)		$	—			$	(9,452	)
Foreign currency contracts			—				177				—				177
Commodity futures natural gas contracts			—				3,613				—				3,613
Derivative liability		$	—			$	(5,662	)		$	—			$	(5,662	)

The fair values of our interest rate protection agreements are based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. The fair values of our foreign currency contracts and our commodity futures natural gas contracts are determined from market quotes.

The foreign currency contracts, commodity futures natural gas contracts, and interest rate protection agreements are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the above table.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and in our Annual Report filed with the Securities and Exchange Commission. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ from those anticipated in these forward-looking statements as a result of many factors. [These factors are discussed in “Other Information” in the section “Qualitative and Quantitative Disclosures About Market Risk.”]

Results of Operations — First Quarter 2008 Compared with First Quarter 2007

Dollars in thousands, except percentages and per-share amounts

										Variance
Three months ended March 31,		2008				2007				In dollars				In percent
Net sales		$	187,276			$	179,496			$	7,780				4.3	%
Gross profit		$	30,337			$	32,415			$	(2,078	)			(6.4	)%
Gross profit margin			16.2	%			18.1	%
Income from operations (IFO)		$	9,478			$	10,381			$	(903	)			(8.7	)%
IFO margin			5.1	%			5.8	%
Earnings before interest and income taxes (EBIT)(1)		$	10,231			$	12,226			$	(1,995	)			(16.3	)%
EBIT margin			5.5	%			6.8	%
Earnings before interest, taxes, depreciation and amortization (EBITDA)(1)		$	21,527			$	21,442			$	85				0.4	%
EBITDA margin			11.5	%			11.9	%
Net loss		$	(3,477	)		$	(1,754	)		$	(1,723	)			(98.2	)%
Net loss margin			(1.9	)%			(1.0	)%
Diluted net loss per share		$	(0.24	)		$	(0.12	)		$	(0.12	)			(100.0	)%

Net Sales

For the quarter ended March 31, 2008, net sales increased 4.3 percent to $187.3 million from $179.5 million in the year-ago quarter. The increase in net sales was attributable to continued solid increases of approximately 18.0 percent in shipments to retail glassware customers in the United States and Canada and increased shipments to Crisa customers. These increases were partially offset by lower shipments to U.S. foodservice customers of approximately 12.0 percent. North American Other sales decreased 3.1 percent as shipments to Syracuse China customers were down approximately 12.0 percent, partially offset by an increase of 3.0 percent in shipments of World Tableware products. International sales increased as a result of increased shipments to customers of Libbey China and a favorable currency impact on European sales. International sales increased approximately 8.0 percent excluding the currency impact.

Gross Profit

For the quarter ended March 31, 2008, gross profit decreased by $2.1 million, or 6.4 percent, to $30.3 million, compared to $32.4 million in the year-ago quarter. Gross profit as a percentage of net sales decreased to 16.2 percent, compared to 18.1 percent in the year-ago quarter. Factors contributing to the decrease in gross profit were an unfavorable mix of sales, as a result of the lower U.S. glass foodservice sales, a $1.4 million increase in natural gas expenses and a $2.1 million increase in depreciation expense, partially offset by better manufacturing performance. The $2.1 million increase in depreciation expense is primarily the result of a full quarter of production at our China facility in 2008 and capital expenditures at Crisa related to the capacity rationalization.

Income From Operations

Income from operations for the quarter ended March 31, 2008, decreased by $0.9 million to $9.5 million, compared to income from operations of $10.4 million in the year-ago quarter. Income from operations as a percentage of net sales decreased to 5.1 percent in the first quarter 2008, compared to 5.8 percent in the year-ago quarter. The decrease in income from operations is a result of lower gross profit as discussed above offset by a reduction of $1.2 million in selling, general and administrative expenses primarily related to favorable rulings in connections with an outstanding dispute regarding a warehouse lease in Mexico, lower incentive compensation expense and an increase in stock-based compensation expense.

Earnings Before Interest and Income Taxes (EBIT)

Earnings before interest and income taxes (EBIT) decreased by $2.0 million in the first quarter 2008, compared to the year-ago quarter. EBIT as a percentage of net sales decreased to 5.5 percent in the first quarter 2008, compared to 6.8 percent in the year-ago quarter. Key contributors to the decrease in EBIT compared to the prior year are the same as those discussed above under Income From Operations. In addition, the first quarter 2007 EBIT included a $1.1 million one-time gain on the sale of excess land in Syracuse, NY.

Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)

EBITDA increased by $0.1 million, or 0.4 percent for the first quarter 2008, to $21.5 million compared to $21.4 million in the year-ago quarter. As a percentage of net sales, EBITDA was 11.5 percent for the first quarter 2008, compared to 11.9 percent in the year-ago quarter. The key contributors to the increase in EBITDA were those factors discussed above under Earnings before interest and income taxes (EBIT). Depreciation and amortization increased by $2.1 million to $11.3 million, primarily due to the depreciation related to our new facility in China and to capital expenditures at Crisa related to the capacity rationalization.

Net Loss and Diluted Net Loss Per Share

We recorded a net loss of $3.5 million, or $(0.24) per diluted share, in the first quarter 2008, compared to a net loss of $1.8 million, or $(0.12) per diluted share, in the year-ago quarter. Net loss as a percentage of net sales was 1.9 percent in the first quarter 2008,

compared to net loss of 1.0 percent in the year-ago quarter. As a result of higher debt, primarily driven by the payment in kind (PIK) notes, interest expense increased $1.6 million compared to the year-ago period. The effective tax rate increased to 49.8 percent for the quarter, compared to 47.5 percent in the year-ago quarter.

Segment Results of Operations

Dollars in thousands										Variance
Three Months Ended March 31,		2008				2007				In Dollars				In Percent
Net Sales:
North American Glass		$	127,477			$	124,726			$	2,751				2.2	%
North American Other			26,583				27,435				(852	)			(3.1	)%
International			36,387				29,782				6,605				22.2	%
Eliminations			(3,171	)			(2,447	)
Consolidated		$	187,276			$	179,496			$	7,780				4.3	%
EBIT:
North American Glass		$	7,072			$	10,935			$	(3,863	)			(35.3	)%
North American Other			3,818				3,769				49				1.3	%
International			(659	)			(2,478	)			1,819				73.4	%
Consolidated		$	10,231			$	12,226			$	(1,995	)			(16.3	)%
EBIT Margin:
North American Glass			5.5	%			8.8	%
North American Other			14.4	%			13.7	%
International			(1.8	)%			(8.3	)%
Consolidated			5.5	%			6.8	%