Libbey (LBY) 10-Q 2013 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2013

OR

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

Commission file number 1-12084

Libbey Inc.

(Exact name of registrant as specified in its charter)

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

	300 Madison Avenue, Toledo, Ohio 43604
(Address of principal executive offices) (Zip Code)
	419-325-2100
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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.

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 21,236,031 shares at July 31, 2013.

TABLE OF CONTENTS

Item 1. Financial Statements	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income (Loss)	6
Condensed Consolidated Balance Sheets	7
Condensed Consolidated Statements of Cash Flows	8
Notes to Condensed Consolidated Financial Statements	10
1. Description of the Business	10
2. Significant Accounting Policies	10
3. Balance Sheet Details	12
4. Borrowings	13
5. Restructuring Charges	16
6. Income Taxes	17
7. Pension and Non-pension Postretirement Benefits	18
8. Net Income (Loss) per Share of Common Stock	20
9. Derivatives	21
10. Comprehensive Income (Loss)	24
11. Condensed Consolidated Guarantor Financial Statements	25
12. Segments	32
13. Fair Value	34
14. Other Income (Expense)	34
15. Contingencies	35
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3. Qualitative and Quantitative Disclosures about Market Risk	48
Item 4. Controls and Procedures	49
PART II — OTHER INFORMATION	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 5. Other Information	50
Item 6. Exhibits	50
EXHIBIT INDEX	51
SIGNATURES	54
EX-3.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements of Libbey Inc. and all majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

The balance sheet at December 31, 2012 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, 2012.

3

Libbey Inc.

Condensed Consolidated Statements of Operations

(dollars in thousands)

(unaudited)

	Three months ended June 30,
	2013			2012
Net sales	$	209,904		$	209,247
Freight billed to customers	771			759
Total revenues	210,675			210,006
Cost of sales	153,213			153,659
Gross profit	57,462			56,347
Selling, general and administrative expenses	29,635			27,378
Special charges	(85		)	—
Income from operations	27,912			28,969
Loss on redemption of debt	(2,518		)	(31,075		)
Other income (expense)	51			427
Earnings (loss) before interest and income taxes	25,445			(1,679		)
Interest expense	8,126			9,957
Income (loss) before income taxes	17,319			(11,636		)
Provision (benefit) for income taxes	4,883			(1,493		)
Net income (loss)	$	12,436		$	(10,143	)
Net income (loss) per share:
Basic	$	0.58		$	(0.49	)
Diluted	$	0.57		$	(0.49	)
Dividends per share	$	—		$	—

See accompanying notes

4

Libbey Inc.

Condensed Consolidated Statements of Operations

(dollars in thousands)

(unaudited)

	Six months ended June 30,
	2013			2012
Net sales	$	393,380		$	397,076
Freight billed to customers	1,523			1,467
Total revenues	394,903			398,543
Cost of sales	295,209			299,140
Gross profit	99,694			99,403
Selling, general and administrative expenses	56,032			55,504
Special charges	4,229			—
Income from operations	39,433			43,899
Loss on redemption of debt	(2,518		)	(31,075		)
Other income (expense)	(384		)	(164		)
Earnings (loss) before interest and income taxes	36,531			12,660
Interest expense	16,561			20,365
Income (loss) before income taxes	19,970			(7,705		)
Provision (benefit) for income taxes	5,545			1,797
Net income (loss)	$	14,425		$	(9,502	)
Net income (loss) per share:
Basic	$	0.68		$	(0.46	)
Diluted	$	0.66		$	(0.46	)
Dividends per share	$	—		$	—

See accompanying notes

5

Libbey Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Net income (loss)	$	12,436		$	(10,143	)	$	14,425		(9,502		)
Other comprehensive income (loss):
Pension and other postretirement benefit adjustments, net of tax	6,412			4,630			9,083			6,837
Change in fair value of derivative instruments, net of tax	(509		)	2,009			536			1,477
Foreign currency translation adjustments	2,335			(6,116		)	(590		)	(2,679		)
Other comprehensive income (loss), net of tax	8,238			523			9,029			5,635
Comprehensive income (loss)	$	20,674		$	(9,620	)	$	23,454		$	(3,867	)

See accompanying notes

6

Libbey Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

	June 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Cash and cash equivalents	$	10,544		$	67,208
Accounts receivable — net	91,482			80,850
Inventories — net	175,911			157,549
Prepaid and other current assets	20,000			12,997
Total current assets	297,937			318,604
Pension asset	10,525			10,196
Purchased intangible assets — net	19,623			20,222
Goodwill	167,162			166,572
Deferred income taxes	9,793			9,830
Derivative asset	—			298
Other assets	14,340			18,300
Total other assets	221,443			225,418
Property, plant and equipment — net	253,800			258,154
Total assets	$	773,180		$	802,176
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$	59,309		$	65,712
Salaries and wages	28,316			41,405
Accrued liabilities	46,182			42,863
Accrued income taxes	—			2,282
Pension liability (current portion)	602			613
Non-pension postretirement benefits (current portion)	4,739			4,739
Derivative liability	69			420
Deferred income taxes	3,223			3,213
Long-term debt due within one year	14,242			4,583
Total current liabilities	156,682			165,830
Long-term debt	415,506			461,884
Pension liability	61,794			60,909
Non-pension postretirement benefits	67,314			71,468
Deferred income taxes	6,898			7,537
Other long-term liabilities	12,104			10,072
Total liabilities	720,298			777,700
Shareholders’ equity:
Common stock, par value $.01 per share, 50,000,000 shares authorized, 21,146,434 shares issued at June 30, 2013 (20,835,489 shares issued in 2012)	211			209
Capital in excess of par value	318,327			313,377
Retained deficit	(133,645		)	(148,070		)
Accumulated other comprehensive loss	(132,011		)	(141,040		)
Total shareholders’ equity	52,882			24,476
Total liabilities and shareholders’ equity	$	773,180		$	802,176

See accompanying notes

7

Libbey Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

	Three months ended June 30,
	2013			2012
Operating activities:
Net income (loss)	$	12,436		$	(10,143	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	11,623			10,288
Loss on asset sales and disposals	31			168
Change in accounts receivable	(4,836		)	(2,078		)
Change in inventories	(7,857		)	(9,925		)
Change in accounts payable	1,428			630
Accrued interest and amortization of discounts and finance fees	(7,521		)	(279		)
Call premium on senior notes	1,350			23,602
Write-off of finance fee & discounts on senior notes and ABL	1,168			10,975
Pension & non-pension postretirement benefits	1,504			(82,019		)
Restructuring charges	(659		)	—
Accrued liabilities & prepaid expenses	(793		)	7,308
Income taxes	(2,553		)	(2,097		)
Share-based compensation expense	1,485			1,138
Other operating activities	2,579			11
Net cash provided by (used in) operating activities	9,385			(52,421		)
Investing activities:
Additions to property, plant and equipment	(10,889		)	(5,386		)
Proceeds from asset sales and other	4			239
Net cash used in investing activities	(10,885		)	(5,147		)
Financing activities:
Borrowings on ABL credit facility	30,400			—
Repayments on ABL credit facility	(20,600		)	—
Other repayments	(55		)	(9,568		)
Proceeds from (payments on) 6.875% senior notes	(45,000		)	450,000
Payments on 10% senior notes	—			(360,000		)
Call premium on senior notes	(1,350		)	(23,602		)
Stock options exercised	2,511			12
Debt issuance costs and other	—			(12,154		)
Net cash provided by (used in) financing activities	(34,094		)	44,688
Effect of exchange rate fluctuations on cash	189			(361		)
Increase (decrease) in cash	(35,405		)	(13,241		)
Cash at beginning of period	45,949			32,818
Cash at end of period	$	10,544		$	19,577
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	15,560		$	10,494
Cash paid during the period for income taxes	$	5,931		$	306

See accompanying notes

8

Libbey Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

	Six months ended June 30,
	2013			2012
Operating activities:
Net income (loss)	$	14,425		$	(9,502	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	22,397			20,824
Loss on asset sales and disposals	33			167
Change in accounts receivable	(10,879		)	(474		)
Change in inventories	(18,492		)	(22,091		)
Change in accounts payable	(6,317		)	(4,588		)
Accrued interest and amortization of discounts and finance fees	610			(7,654		)
Call premium on senior notes	1,350			23,602
Write-off of finance fee & discounts on senior notes and ABL	1,168			10,975
Pension & non-pension postretirement benefits	5,204			(82,579		)
Restructuring charges	3,655			—
Accrued liabilities & prepaid expenses	(16,585		)	(2,028		)
Income taxes	(4,179		)	(120		)
Share-based compensation expense	2,309			1,865
Other operating activities	2,006			84
Net cash provided by (used in) operating activities	(3,295		)	(71,519		)
Investing activities:
Additions to property, plant and equipment	(19,771		)	(11,832		)
Proceeds from asset sales and other	8			419
Net cash used in investing activities	(19,763		)	(11,413		)
Financing activities:
Borrowings on ABL credit facility	30,400			—
Repayments on ABL credit facility	(20,600		)	—
Other repayments	(114		)	(9,962		)
Proceeds from (payments on) 6.875% senior notes	(45,000		)	450,000
Payments on 10% senior notes	—			(360,000		)
Call premium on senior notes	(1,350		)	(23,602		)
Stock options exercised	3,048			40
Debt issuance costs and other	—			(12,154		)
Net cash provided by (used in) financing activities	(33,616		)	44,322
Effect of exchange rate fluctuations on cash	10			(104		)
Increase (decrease) in cash	(56,664		)	(38,714		)
Cash at beginning of period	67,208			58,291
Cash at end of period	$	10,544		$	19,577
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	15,848		$	28,225
Cash paid during the period for income taxes	$	7,815		$	1,191

See accompanying notes

9

Libbey Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of the Business

Libbey is a leading global manufacturer and marketer of glass tableware products. We believe we have the largest manufacturing, distribution and service network among glass tableware manufacturers 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 design and market, under our Libbey^®, Crisa^®, Royal Leerdam^®, World^® Tableware, Syracuse^® China and Crisal Glass^® brand names (among others), an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware items for sale primarily in the foodservice, retail and business-to-business markets. Our sales force presents our products to the global marketplace in a coordinated fashion. We own and operate two glass tableware manufacturing plants in the United States as well as glass tableware manufacturing plants in the Netherlands (Libbey Holland), Portugal (Libbey Portugal), China (Libbey China) and Mexico (Libbey Mexico). In addition, we import products from overseas in order to complement our line of manufactured items. The combination of manufacturing and procurement allows us to compete in the global tableware market by offering an extensive product line at competitive prices.

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

Our shares are traded on the NYSE MKT exchange under the ticker symbol LBY.

2. Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2012 for a description of significant accounting policies not listed below.

Basis of Presentation

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

Condensed Consolidated Statements of Operations

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

Foreign Currency Translation

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

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax attribute carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Financial Accounting Standards Board Accounting Standards Codification™ (FASB ASC) Topic 740, “Income Taxes,”

10

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, Portugal and the Netherlands, we have recorded valuation allowances against our deferred income tax assets. See note 6 for further discussion.

Stock-Based Compensation Expense

We account for stock-based compensation expense in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation,” and FASB ASC Topic 505-50, “Equity — Equity-Based Payments to Non-Employees”. Stock-based compensation cost is measured based on the fair value of the equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested stock-based payment awards. Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:

	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2013		2012		2013		2012
Stock-based compensation expense	$	1,485	$	1,138	$	2,309	$	1,865

New Accounting Standards

In February 2013, the FASB issued Accounting Standards Update 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (ASU 2013-02). ASU 2013-02 requires companies to present, either in a note or parenthetically on the face of the financial statements, the effect of amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. This update is effective for interim and annual reporting periods beginning after December 15, 2012. Required interim disclosures have been made in our Condensed Consolidated Financial Statements at June 30, 2013.

11

3. Balance Sheet Details

The following table provides detail of selected balance sheet items:

(dollars in thousands)	June 30, 2013		December 31, 2012
Accounts receivable:
Trade receivables	$	90,189	$	79,624
Other receivables	1,293		1,226
Total accounts receivable, less allowances of $5,834 and $5,703	$	91,482	$	80,850
Inventories:
Finished goods	$	157,364	$	139,888
Work in process	1,660		1,188
Raw materials	4,709		4,828
Repair parts	10,589		10,283
Operating supplies	1,589		1,362
Total inventories, less allowances of $4,606 and $4,091	$	175,911	$	157,549
Prepaid and other current assets:
Value added tax	$	7,062	$	3,850
Prepaid expenses	6,744		5,036
Deferred and prepaid income taxes	5,736		4,070
Derivative asset	458		41
Total prepaid and other current assets	$	20,000	$	12,997
Other assets:
Deposits	$	880	$	936
Finance fees — net of amortization	11,388		13,539
Other assets	2,072		3,825
Total other assets	$	14,340	$	18,300
Accrued liabilities:
Accrued incentives	$	21,304	$	17,783
Workers compensation	6,607		7,128
Medical liabilities	3,790		3,537
Interest	3,365		3,732
Commissions payable	1,366		1,478
Contingency liability	—		2,719
Restructuring liability	1,523		—
Other accrued liabilities	8,227		6,486
Total accrued liabilities	$	46,182	$	42,863
Other long-term liabilities:
Deferred liability	$	6,266	$	5,591
Derivative liability	1,824		—
Other long-term liabilities	4,014		4,481
Total other long-term liabilities	$	12,104	$	10,072

12

4. Borrowings

Borrowings consist of the following:

(dollars in thousands)	Interest Rate		Maturity Date	June 30, 2013			December 31, 2012
Borrowings under ABL Facility	floating		May 18, 2017	$	9,800		$	—
Senior Secured Notes	6.875%	(1)	May 15, 2020	405,000			450,000
Promissory Note	6.00%		July, 2013 to September, 2016	793			903
RMB Loan Contract	floating		January, 2014	9,720			9,522
BES Euro Line	floating		December, 2013	4,294			4,362
AICEP Loan	0.00%		January, 2016 to July 30, 2018	1,243			1,272
Total borrowings				430,850			466,059
Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)				(1,102		)	408
Total borrowings — net				429,748			466,467
Less — long term debt due within one year				14,242			4,583
Total long-term portion of borrowings — net				$	415,506		$	461,884

_____________________________

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

Amended and Restated ABL Credit Agreement

Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 and amended as of April 29, 2011 and May 18, 2012 (as amended, the ABL Facility), with a group of four financial institutions. The ABL Facility provides for borrowings of up to $100.0 million, subject to certain borrowing base limitations, reserves and outstanding letters of credit.

All borrowings under the ABL Facility are secured by:

• a first-priority security interest in substantially all of the existing and future personal property of Libbey Glass and its domestic subsidiaries (Credit Agreement Priority Collateral);

• a first-priority security interest in:

• 100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries;

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

• 65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries

• a first priority security interest in substantially all proceeds and products of the property and assets described above; and

• a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (Notes Priority Collateral).

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

• a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and

• a first-priority security interest in:

• 100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and

• 100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first-tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.

Swingline borrowings are limited to $15.0 million, with swingline borrowings for Libbey Europe being limited to the US equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swingline borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swingline rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and

13

Eurocurrency Loans were 0.50 percent and 1.50 percent, respectively, at June 30, 2013. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.375 percent at June 30, 2013. No compensating balances are required by the Agreement. The Agreement does not require compliance with a fixed charge coverage ratio covenant, unless aggregate unused availability falls below $10.0 million. If our aggregate unused ABL availability were to fall below $10.0 million, the fixed charge coverage ratio requirement would be 1:00 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by $25.0 million. There were borrowings of $9.8 million under the facility at June 30, 2013. There were no Libbey Glass or Libbey Europe borrowings under the facility at December 31, 2012. Interest is payable on the last day of the interest period, which can range from one month to six months depending on the maturity of each individual borrowing on the facility.

The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable and inventory. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable and (b) the lesser of (i) 85 percent of the net orderly liquidation value (NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million.

The available total borrowing base is offset by rent reserves totaling $0.7 million and natural gas reserves totaling $0.1 million as of June 30, 2013. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $100.0 million limit. At June 30, 2013, we had $8.7 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $68.8 million at June 30, 2013, compared to $68.6 million under the ABL Facility at December 31, 2012.

Senior Secured Notes

On May 18, 2012, Libbey Glass closed its offering of the $450.0 million Senior Secured Notes. The notes offering was issued at par and had related fees of approximately $13.2 million. These fees will be amortized to interest expense over the life of the notes.

The Senior Secured Notes were issued pursuant to an Indenture, dated May 18, 2012 (Notes Indenture), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and The Bank of New York Mellon Trust Company, N.A., as trustee (Notes Trustee) and collateral agent. Under the terms of the Notes Indenture, the Senior Secured Notes bear interest at a rate of 6.875 percent per year and will mature on May 15, 2020. Although the Notes Indenture does not contain financial covenants, the Notes Indenture contains other covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:

• incur, assume or guarantee additional indebtedness;

• pay dividends, make certain investments or other restricted payments;

• create liens;

• enter into affiliate transactions;

• merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and

• transfer or sell assets.

The Notes Indenture provides for customary events of default. In the case of an event of default arising from bankruptcy or insolvency as defined in the Notes Indenture, all outstanding Senior Secured Notes will become due and payable immediately without further action or notice. If any other event of default under the Notes Indenture occurs or is continuing, the Notes Trustee or holders of at least 25 percent in aggregate principal amount of the then outstanding Senior Secured Notes may declare all the Senior Secured Notes to be due and payable immediately.

The Senior Secured Notes and the related guarantees under the Notes Indenture are secured by (i) first priority liens on the Notes Priority Collateral and (ii) second priority liens on the Credit Agreement Priority Collateral.

Prior to May 15, 2015, we may redeem in the aggregate up to 35 percent of the Senior Secured Notes with the net cash proceeds of one or more equity offerings at a redemption price of 106.875 percent of the principal amount, provided that at least 65 percent of the original principal amount of the Senior Secured Notes must remain outstanding after each redemption and that each redemption occurs within 90 days of the closing of the equity offering. In addition, prior to May 15, 2015, but not more than once in any twelve-month period, we may redeem up to 10 percent of the Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid interest.The Senior Secured Notes are redeemable at our option, in whole or in part, at any time on or after May 15, 2015 at set redemption prices together with accrued and unpaid interest.

On May 7, 2013, Libbey Glass redeemed an aggregate principal amount of $45.0 million of the Senior Secured Notes in accordance with the terms of the Notes Indenture. Pursuant to the terms of the Notes Indenture, the redemption price for the

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Senior Secured Notes was 103 percent of the principal amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $405.0 million. In conjunction with this redemption, we recorded $2.5 million of expense, representing $1.3 million for an early call premium and $1.2 million for the write off of a pro rata amount of financing fees.

For the three and six months ended June 30, 2012, loss on redemption of debt included charges of $23.6 million for an early call premium and $11.0 million for the write off of the remaining financing fees and discounts from the former Senior Secured Notes.

We had an Interest Rate Agreement (Old Rate Agreement) in place through April 18, 2012 with respect to $80.0 million of our former Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The Old Rate Agreement effectively converted this portion of our long-term borrowings from fixed rate debt to variable rate debt. The variable interest rate for our borrowings related to the Old Rate Agreement at April 18, 2012, excluding applicable fees, was 7.79 percent. Total remaining Senior Secured Notes not covered by the Old Rate Agreement had a fixed interest rate of 10.0 percent per year. On April 18, 2012, the swap was called at fair value. We received proceeds of $3.6 million. During the second quarter of 2012, $0.1 million of the carrying value adjustment on debt related to the Old Rate Agreement was amortized into interest expense. Upon the refinancing of the former Senior Secured Notes, the remaining unamortized balance of $3.5 million of the carrying value adjustment on debt related to the Old Rate Agreement was recognized as a gain in the loss on redemption of debt on the Condensed Consolidated Statements of Operations.

On June 18, 2012, we entered into an Interest Rate Agreement (New Rate Agreement) with respect to $45.0 million of our Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The New Rate Agreement effectively converts this portion of our long-term borrowings from fixed rate debt to variable rate debt. Prior to May 15, 2015, but not more than once in any twelve-month period, the counterparty may call up to 10 percent of the New Rate Agreement at a call price of 103 percent. The New Rate Agreement is callable at the counterparty’s option, in whole or in part, at any time on or after May 15, 2015 at set call premiums. The variable interest rate for our borrowings related to the New Rate Agreement at June 30, 2013, excluding applicable fees, is 5.5 percent. The New Rate Agreement expires on May 15, 2020. Total remaining Senior Secured Notes not covered by the New Rate Agreement have a fixed interest rate of 6.875 percent per year through May 15, 2020. If the counterparty to this New Rate Agreement were to fail to perform, this New Rate Agreement would no longer afford us a variable rate. However, we do not anticipate non-performance by the counterparty. The interest rate swap counterparty was rated A+, as of June 30, 2013, by Standard and Poor’s.

The fair market value and related carrying value adjustment are as follows:

(dollars in thousands)	June 30, 2013			December 31, 2012
Fair market value of Rate Agreements - asset (liability)	$	(1,781	)	$	298
Adjustment to increase (decrease) carrying value of the related long-term debt	$	(1,102	)	$	408

The net impact recorded on the Condensed Consolidated Statements of Operations is as follows:

	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2013			2012			2013			2012
Income (expense) on hedging activities in other income (expense)	$	(347	)	$	(173	)	$	(569	)	$	246
Income on hedging activities in loss on redemption of debt	$	—		$	3,502		$	—		$	3,502

The fair value of the Old and New Rate Agreements are based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. See note 9 for further discussion.

Promissory Note

In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. At June 30, 2013, we had $0.8 million outstanding on the promissory note. Principal and interest with respect to the promissory note are paid monthly.

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Notes Payable

We have an overdraft line of credit for a maximum of €1.0 million. At June 30, 2013, there were no borrowings under the facility, which has an interest rate of 5.80 percent. Interest with respect to the note 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 $40.5 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 June 30, 2013, the annual interest rate was 5.90 percent. As of June 30, 2013, the outstanding balance was RMB 60.0 million (approximately $9.7 million) which is due on January 20, 2014. Interest is payable quarterly. The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of CCB and a mortgage lien on the Libbey China facility.

BES Euro Line

In January 2007, Crisal (Libbey Portugal) entered into a seven-year €11.0 million line of credit (approximately $14.3 million) with Banco Espírito Santo, S.A. (BES). The $4.3 million outstanding at June 30, 2013, was the U.S. dollar equivalent of the €3.3 million outstanding under the line at an interest rate of 5.32 percent. Payment of principal in the amount of €3.3 million (approximately $4.3 million) is due in December 2013. Interest with respect to the line is paid semi-annually.

AICEP Loan

In July 2012, Libbey Portugal entered into a loan agreement with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese Agency for investment and external trade. The amount of the loan is €1.0 million (approximately $1.2 million) and has an interest rate of 0.0 percent. Semi-annual installments of principal are due beginning in January 2016 through the maturity date of July 2018.

Fair Value of Borrowings

The fair value of our debt has been calculated based on quoted market prices (Level 1 in the fair value hierarchy) for the same or similar issues. Our $405.0 million Senior Secured Notes had an estimated fair value of $423.2 million at June 30, 2013. At December 31, 2012, the $450.0 million outstanding Senior Secured Notes had an estimated fair value of $488.3 million. The fair value of the remainder of our debt approximates carrying value at June 30, 2013 and December 31, 2012 due to variable rates.

Capital Resources and Liquidity

Historically, cash flows generated from operations, cash on hand and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. At June 30, 2013 we had $9.8 million borrowings under our ABL Facility and $8.7 million of letters of credit issued under that facility. As a result, we had $68.8 million of unused availability remaining under the ABL Facility at June 30, 2013. In addition, we had $10.5 million of cash on hand at June 30, 2013.

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

5. Restructuring Charges

Capacity Realignment

In February 2013, we announced our plans to discontinue production of certain glassware in North America and reduce manufacturing capacity at our Shreveport, Louisiana manufacturing facility. As a result, on May 30, 2013, we ceased production of certain glassware in North America, discontinued the use of a furnace at our Shreveport, Louisiana

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manufacturing plant and began relocating a portion of the production from the idled furnace to our Toledo, Ohio and Monterrey, Mexico locations. These activities are all within the Americas segment and are expected to be completed by the end of the first quarter of 2014. In connection with this plan, we expect to incur pretax charges in the range of approximately $8.0 million to $10.0 million. This estimate consists of: (i) up to $4.0 million in fixed asset impairment charges, (ii) up to $2.0 million in severance and other employee related costs and (iii) up to $4.0 million in production transfer expenses. We expect approximately $5.5 million of the pretax charge to result in cash expenditures, most of which is expected to be paid throughout the remainder of 2013. For the three and six months ended June 30, 2013, we recorded a pretax charge of $1.0 million and $5.9 million respectively, which included employee termination costs, fixed asset impairment charges and depreciation expense. Employee termination costs include severance, medical benefits and outplacement services for the terminated employees. The write-down of fixed assets is to adjust certain machinery and equipment to the estimated fair market value.

The following table summarizes the pretax charge incurred for the three and six months ended June 30, 2013:

(dollars in thousands)	Three months ended June 30, 2013			Six months ended June 30, 2013
Accelerated depreciation	$	1,133		$	1,699
Included in cost of sales	1,133			1,699
Employee termination cost & other	(412		)	1,910
Fixed asset write-down	—			1,992
Production transfer expenses	327			327
Included in special charges	(85		)	4,229
Total pretax charge	$	1,048		$	5,928

The following is the capacity realignment reserve activity for the six months ended June 30, 2013:

(dollars in thousands)	Reserve Balance at January 1, 2013		Total Charge to Earnings		Cash (payments) receipts			Non-cash Utilization			Reserve Balance at June 30, 2013
Accelerated depreciation	$	—	$	1,699	$	—		$	(1,699	)	$	—
Employee termination cost & other	—		1,910		(387		)	—			1,523
Fixed asset write-down	—		1,992		—			(1,992		)	—
Production transfer expenses	—		327		(327		)	—			—
Total	$	—	$	5,928	$	(714	)	$	(3,691	)	$	1,523

6. Income Taxes

Our effective tax rate was 27.8 percent for the six months ended June 30, 2013, compared to (23.3) percent for the six months ended June 30, 2012. Our effective tax rate differs from the United States statutory tax rate primarily due to valuation allowances, earnings in countries with differing statutory tax rates, accruals related to uncertain tax positions and tax planning structures. At June 30, 2013 and December 31, 2012, we had $1.0 million and $1.5 million, respectively, of gross unrecognized tax benefits, exclusive of interest and penalties. During the three months ended June 30, 2013, we recorded no additional income tax benefit. During the six months ended June 30, 2013, we recorded an income tax benefit, exclusive of interest and penalties, of $0.5 million due to the reversal of an accrual for an uncertain tax position that expired under the statute of limitations.

FASB ASC 740-20, "Income Taxes - Intraperiod Tax Allocation," requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. A tax benefit of $4.2 million was recorded in our income tax provision for the three months and six months ended June 30, 2012. There was no similar benefit recorded for the three months and six months ended June 30, 2013.

Our current and future provision for income taxes for 2013 is impacted by valuation allowances. In the United States, the Netherlands and Portugal, we have recorded valuation allowances against our deferred income tax assets. We did not change our conclusion related to entities with a recorded valuation allowance for the six months ended June 30, 2013, or the six months

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ended June 30, 2012. In assessing the need for recording or releasing a valuation allowance, we weigh all available positive and negative evidence. Examples of the evidence we consider are cumulative losses in recent years, losses expected in early future years, a history of potential tax benefits expiring unused, prudent and feasible tax planning strategies that could be implemented, and whether there was an unusual, infrequent or extraordinary item to be considered. Based on our analysis of all available evidence, we intend to maintain these allowances until it is more likely than not that the deferred income tax assets will be realized. We will continue to monitor and assess the need for these allowances quarterly in each jurisdiction.

Income tax payments consisted of the following:

	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2013		2012		2013		2012
Total income tax payments, net of refunds	$	7,270	$	1,122	$	9,539	$	2,615
Less: credits or offsets	1,339		816		1,724		1,424
Cash paid, net	$	5,931	$	306	$	7,815	$	1,191

Cash paid for income taxes has increased for the three and six months ended June 30, 2013 due to net operating loss carryforwards being fully utilized in 2012 in China and timing of payments in Mexico.

7. Pension and Non-pension Postretirement Benefits

We have pension plans covering the majority of our employees. Benefits generally are based on compensation for salaried employees and job grade and length of service for hourly employees. Our policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers certain salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006 and most hourly U.S.-based employees (excluding employees hired at Shreveport after 2008 and at Toledo after September 30, 2010). Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiaries in the Netherlands and Mexico. The plan in Mexico is not funded.

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

Three months ended June 30,	U.S. Plans						Non-U.S. Plans						Total
(dollars in thousands)	2013			2012			2013			2012			2013			2012
Service cost	$	1,092		$	1,370		$	686		$	548		$	1,778		$	1,918
Interest cost	3,501			3,827			1,195			1,178			4,696			5,005
Expected return on plan assets	(5,605		)	(4,461		)	(496		)	(583		)	(6,101		)	(5,044		)
Amortization of unrecognized:
Prior service cost	293			522			60			62			353			584
Loss	2,263			1,719			215			124			2,478			1,843
Settlement charge	715			37			—			—			715			37
Pension expense	$	2,259		$	3,014		$	1,660		$	1,329		$	3,919		$	4,343
Six months ended June 30,	U.S. Plans						Non-U.S. Plans						Total
(dollars in thousands)	2013			2012			2013			2012			2013			2012
Service cost	$	2,370		$	2,925		$	1,408		$	990		$	3,778		$	3,915
Interest cost	6,982			7,846			2,451			2,434			9,433			10,280
Expected return on plan assets	(11,204		)	(8,946		)	(977		)	(1,190		)	(12,181		)	(10,136		)
Amortization of unrecognized:
Prior service cost	586			1,043			122			128			708			1,171
Loss	4,350			3,520			453			259			4,803			3,779
Settlement charge	715			457			—			—			715			457
Pension expense	$	3,799		$	6,845		$	3,457		$	2,621		$	7,256		$	9,466

During the second quarter of 2013 and the first half of 2012, we incurred pension settlement charges totaling $0.7 million and $0.5 million, respectively. The pension settlement charges were triggered by excess lump sum distributions, which required us to record unrecognized gains and losses in our pension plan accounts. We have contributed $2.1 million and $2.8 million of cash into our pension plans for the three and six months ended June 30, 2013, respectively. Pension contributions for the remainder of 2013 are estimated to be $3.6 million.

We provide certain retiree health care and life insurance benefits covering our U.S and Canadian salaried and non-union hourly employees hired before January 1, 2004 and a majority of our union hourly employees (excluding employees hired at Shreveport after 2008 and at Toledo after September 30, 2010). Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. Effective January 1, 2013, we ended our existing healthcare benefit for salaried retirees age 65 and older and are now providing a Retiree Health Reimbursement Arrangement (RHRA) that supports retirees in purchasing a Medicare plan that meets their needs. Also effective January 1, 2013, we reduced the maximum life insurance benefit for salaried retirees to $10,000. Benefits for most hourly retirees are determined by collective bargaining. The U.S. non-pension postretirement plans cover the hourly and salaried U.S.-based employees of Libbey (excluding those mentioned above). The non-U.S. non-pension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. The postretirement benefit plans are not funded.

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

Three months ended June 30,	U.S. Plans				Non-U.S. Plans					Total
(dollars in thousands)	2013		2012		2013		2012			2013		2012
Service cost	$	203	$	367	$	1	$	1		$	204	$	368
Interest cost	610		856		31		26			641		882
Amortization of unrecognized:
Prior service cost	36		106		—		—			36		106
Loss / (gain)	138		229		1		(1		)	139		228
Non-pension postretirement benefit expense	$	987	$	1,558	$	33	$	26		$	1,020	$	1,584
Six months ended June 30,	U.S. Plans				Non-U.S. Plans					Total
(dollars in thousands)	2013		2012		2013		2012			2013		2012
Service cost	$	595	$	735	$	1	$	1		$	596	$	736
Interest cost	1,311		1,713		54		52			1,365		1,765
Amortization of unrecognized:
Prior service cost	70		211		—		—			70		211
Loss / (gain)	429		458		—		(1		)	429		457
Non-pension postretirement benefit expense	$	2,405	$	3,117	$	55	$	52		$	2,460	$	3,169

Our 2013 estimate of non-pension cash payments is $4.7 million, and we have paid $1.2 million and $2.2 million for the three and six months ended June 30, 2013, respectively.

8. Net Income (Loss) per Share of Common Stock

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

	Three months ended June 30,					Six months ended June 30,
(dollars in thousands, except earnings per share)	2013		2012			2013		2012
Numerators for earnings per share:
Net income (loss) that is available to common shareholders	$	12,436	$	(10,143	)	$	14,425	$	(9,502	)
Denominator for basic earnings per share:
Weighted average shares outstanding	21,288,897		20,837,843			21,202,411		20,803,629
Denominator for diluted earnings per share:
Effect of stock options and restricted stock units (1)	654,388		—			504,622		—
Adjusted weighted average shares and assumed conversions	21,943,285		20,837,843			21,707,033		20,803,629
Basic earnings (loss) per share	$	0.58	$	(0.49	)	$	0.68	$	(0.46	)
Diluted earnings (loss) per share	$	0.57	$	(0.49	)	$	0.66	$	(0.46	)

(1) The effect of employee stock options and restricted stock units, 437,680 and 424,483 shares for the three months and six months ended June 30, 2012, respectively, were anti-dilutive and thus not included in the earnings per share calculation. This amount would have been dilutive if not for the net loss.

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

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9. Derivatives

We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with transactions denominated in a currency other than the U.S. dollar. Most of these derivatives, except for the foreign currency contracts, qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. All of these contracts were accounted for under FASB ASC 815 “Derivatives and Hedging.”

Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented:

	Asset Derivatives:
(dollars in thousands)	June 30, 2013			December 31, 2012
Derivatives designated as hedging instruments under FASB ASC 815:	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate contract	Derivative asset	$	—	Derivative asset	$	298
Total designated		—			298
Derivatives not designated as hedging instruments under FASB ASC 815:
Currency contracts	Prepaid and other current assets	458		Prepaid and other current assets	41
Total undesignated		458			41
Total		$	458		$	339
	Liability Derivatives:
(dollars in thousands)	June 30, 2013			December 31, 2012
Derivatives designated as hedging instruments under FASB ASC 815:	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Natural gas contracts	Derivative liability	$	69	Derivative liability	$	420
Natural gas contracts	Other long-term liabilities	43		Other long-term liabilities	—
Interest rate contract	Other long-term liabilities	1,781		Other long-term liabilities	—
Total designated		1,893			420
Total		$	1,893		$	420

Interest Rate Swaps as Fair Value Hedges

On June 18, 2012, we entered into an interest rate swap agreement (New Rate Agreement) with a notional amount of $45.0 million that is to mature in 2020. The New Rate Agreement was executed in order to convert a portion of the Senior Secured Notes fixed rate debt into floating rate debt and maintain a capital structure containing fixed and floating rate debt.

Upon the refinancing of the former Senior Secured Notes, the remaining unamortized balance of the carrying value adjustment on debt related to the Old Rate Agreement was recognized as a gain in the loss on redemption of debt on the Condensed Consolidated Statements of Operations, refer to the Borrowings footnote for further discussion.

Our fixed-to-floating interest rate swap is designated and qualifies as a fair value hedge. The change in the fair value of the derivative instrument related to the future cash flows (gain or loss on the derivative), as well as the offsetting change in the fair value of the hedged long-term debt attributable to the hedged risk, are recognized in current earnings. We include the gain or loss on the hedged long-term debt in other income (expense), along with the offsetting loss or gain on the related interest rate swap on the Condensed Consolidated Statements of Operations.

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The following table provides a summary of the gain (loss) recognized on the Condensed Consolidated Statements of Operations:

	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2013			2012			2013			2012
Interest rate swap	$	(1,723	)	$	(352	)	$	(2,079	)	$	(339	)
Related long-term debt	1,376			3,681			1,510			4,087
Net impact	$	(347	)	$	3,329		$	(569	)	$	3,748

The gain or loss on the hedged long-term debt netted with the offsetting gain or loss on the related interest rate swap was recorded on the Condensed Consolidated Statements of Operations as follows:

	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2013			2012			2013			2012
Loss on redemption of debt	$	—		$	3,502		$	—		$	3,502
Other income (expense)	(347		)	(173		)	(569		)	246
Net impact	$	(347	)	$	3,329		$	(569	)	$	3,748

Commodity Futures Contracts Designated as Cash Flow Hedges

We use commodity futures contracts related to forecasted future North American natural gas requirements. The objective of these futures contracts and other derivatives is to limit the fluctuations in prices paid due to price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from 40 percent to 70 percent of our anticipated requirements, up to eighteen months in the future. The fair values of these instruments are determined from market quotes. As of June 30, 2013, we had commodity contracts for 1,550,000 million British Thermal Units (BTUs) of natural gas. At December 31, 2012, we had commodity contracts for 2,400,000 million BTUs of natural gas.

All of our natural gas derivatives qualify and are designated as cash flow hedges at June 30, 2013. Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the effective portion of the fair value of these hedges are recorded in other comprehensive income (loss). The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings. As the natural gas contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from accumulated other comprehensive loss to current expense in cost of sales in our Condensed Consolidated Statements of Operations. We recognized in the three and six months ended June 30, 2013 $0.3 million of ineffectiveness in Other Income (Expense) in the Condensed Consolidated Statements of Operations for certain contracts at our Mexico facility. This ineffectiveness was related to a change in pricing caused by the Mexican government instituting a fixed surcharge. The ineffectiveness is not expected to continue so we have continued to consider the contracts effective as appropriate under FASB ASC 815 "Derivatives and Hedging." We paid (received) additional cash of $(0.3) million and $1.7 million in the three months ended June 30, 2013 and 2012, respectively, and a nil amount and $3.2 million in the six months ended June 30, 2013 and 2012, respectively, due to the difference between the fixed unit rate of our natural gas contracts and the variable unit rate of our natural gas cost from suppliers. Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in $0.1 million of loss in our Condensed Consolidated Statements of Operations.

22

The following table provides a summary of the effective portion of derivative gain (loss) recognized in other comprehensive income (loss):

	Three months ended June 30,					Six months ended June 30,
(dollars in thousands)	2013			2012		2013		2012
Derivatives in Cash Flow Hedging relationships:
Natural gas contracts	$	(377	)	$	586	$	590	$	(1,518	)
Total	$	(377	)	$	586	$	590	$	(1,518	)

The following table provides a summary of the effective portion of derivative gain (loss) reclassified from accumulated other comprehensive loss to the Condensed Consolidated Statements of Operations:

		Three months ended June 30,					Six months ended June 30,
(dollars in thousands)		2013		2012			2013		2012
Derivative:	Location:
Natural gas contracts	Cost of sales	$	252	$	(1,736	)	$	6	$	(3,196	)
Total impact on net income (loss)		$	252	$	(1,736	)	$	6	$	(3,196	)

Currency Contracts

Our foreign currency exposure arises from transactions denominated in a currency other than the U.S. dollar primarily associated with our Canadian dollar denominated accounts receivable. We enter into a series of foreign currency contracts to sell Canadian dollars. As of June 30, 2013 and December 31, 2012, we had contracts for C$7.9 million and C$14.8 million, respectively. The fair values of these instruments are determined from market quotes. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change.

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

		Three months ended June 30,				Six months ended June 30,
(dollars in thousands)		2013		2012		2013		2012
Derivative:	Location:
Currency contracts	Other income (expense)	$	166	$	132	$	417	$	(30	)
Total		$	166	$	132	$	417	$	(30	)

We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate swap, natural gas hedges and currency contracts as the counterparties are established financial institutions. The counterparty for the New Rate Agreement is rated A+ and the counterparties for the other derivative agreements are rated BBB+ or better as of June 30, 2013, by Standard and Poor’s.

23

10. Comprehensive Income (Loss)

Accumulated other comprehensive loss, net of tax, is as follows:

Three months ended June 30, 2013 (dollars in thousands)	Foreign Currency Translation			Derivative Instruments			Pension and Other Postretirement Benefits			Total Accumulated Comprehensive Loss
Balance on March 31, 2013	$	(4,566	)	$	1,534		$	(137,217	)	$	(140,249	)
Other comprehensive income (loss)	2,335			(377		)	3,059			5,017
Currency impact	—			—			307			307
Amounts reclassified from accumulated other comprehensive income (loss):
Amortization of actuarial loss (1)	—			—			2,600			2,600
Amortization of prior service cost (1)	—			—			369			369
Amortization of transition obligation (1)	—			—			21			21
Cost of sales	—			(252		)	—			(252		)
Current-period other comprehensive income (loss)	2,335			(629		)	6,356			8,062
Tax effect	—			120			56			176
Balance on June 30, 2013	$	(2,231	)	$	1,025		$	(130,805	)	$	(132,011	)
Six months ended June 30, 2013 (dollars in thousands)	Foreign Currency Translation			Derivative Instruments			Pension and Other Postretirement Benefits			Total Accumulated Comprehensive Loss
Balance on December 31, 2012	$	(1,641	)	$	489		$	(139,888	)	$	(141,040	)
Other comprehensive income (loss)	(590		)	590			3,059			3,059
Currency impact	—			—			(45		)	(45		)
Amounts reclassified from accumulated other comprehensive income (loss):
Amortization of actuarial loss (1)	—			—			5,200			5,200
Amortization of prior service cost (1)	—			—			738			738
Amortization of transition obligation (1)	—			—			42			42
Cost of sales	—			(6		)	—			(6		)
Current-period other comprehensive income (loss)	(590		)	584			8,994			8,988
Tax effect	—			(48		)	89			41
Balance on June 30, 2013	$	(2,231	)	$	1,025		$	(130,805	)	$	(132,011	)

___________________________

(1) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost within the cost of sales and selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

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11. Condensed Consolidated Guarantor Financial Statements

Libbey Glass is a direct, 100 percent owned subsidiary of Libbey Inc. and is the issuer of the Senior Secured Notes. The obligations of Libbey Glass under the Senior Secured Notes are fully and unconditionally and jointly and severally guaranteed by Libbey Inc. and by certain indirect, 100 percent owned domestic subsidiaries of Libbey Inc., as described below. All are related parties that are included in the Condensed Consolidated Financial Statements for the three months and six months ended June 30, 2013 and June 30, 2012.

At June 30, 2013, December 31, 2012 and June 30, 2012, 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., Libbey.com LLC, LGFS Inc., and LGAC LLC (collectively, 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.

25

Libbey Inc.

Condensed Consolidating Statements of Comprehensive Income (Loss)

(unaudited)

	Three months ended June 30, 2013
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	—	$	101,406		$	22,056		$	99,492	$	(13,050	)	$	209,904
Freight billed to customers	—		132			194			445		—			771
Total revenues	—		101,538			22,250			99,937		(13,050		)	210,675
Cost of sales	—		66,605			16,140			83,518		(13,050		)	153,213
Gross profit	—		34,933			6,110			16,419		—			57,462
Selling, general and administrative expenses	—		18,188			2,484			8,963		—			29,635
Special charges	—		(85		)	—			—		—			(85		)
Income (loss) from operations	—		16,830			3,626			7,456		—			27,912
Other income (expense)	—		(2,506		)	(3		)	42		—			(2,467		)
Earnings (loss) before interest and income taxes	—		14,324			3,623			7,498		—			25,445
Interest expense	—		5,996			—			2,130		—			8,126
Income (loss) before income taxes	—		8,328			3,623			5,368		—			17,319
Provision (benefit) for income taxes	—		1,519			147			3,217		—			4,883
Net income (loss)	—		6,809			3,476			2,151		—			12,436
Equity in net income (loss) of subsidiaries	12,436		5,627			—			—		(18,063		)	—
Net income (loss)	$	12,436	$	12,436		$	3,476		$	2,151	$	(18,063	)	$	12,436
Comprehensive income (loss)	$	20,674	$	20,674		$	3,303		$	4,352	$	(28,329	)	$	20,674

	Three months ended June 30, 2012
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	109,697		$	19,765		$	96,850	$	(17,065	)	$	209,247
Freight billed to customers	—			130			191			438		—			759
Total revenues	—			109,827			19,956			97,288		(17,065		)	210,006
Cost of sales	—			75,608			14,342			80,774		(17,065		)	153,659
Gross profit	—			34,219			5,614			16,514		—			56,347
Selling, general and administrative expenses	—			17,482			1,886			8,010		—			27,378
Special charges	—			—			—			—		—			—
Income (loss) from operations	—			16,737			3,728			8,504		—			28,969
Other income (expense)	—			(31,259		)	(19		)	630		—			(30,648		)
Earnings (loss) before interest and income taxes	—			(14,522		)	3,709			9,134		—			(1,679		)
Interest expense	—			7,681			—			2,276		—			9,957
Income (loss) before income taxes	—			(22,203		)	3,709			6,858		—			(11,636		)
Provision (benefit) for income taxes	—			(2,661		)	131			1,037		—			(1,493		)
Net income (loss)	—			(19,542		)	3,578			5,821		—			(10,143		)
Equity in net income (loss) of subsidiaries	(10,143		)	9,399			—			—		744			—
Net income (loss)	$	(10,143	)	$	(10,143	)	$	3,578		$	5,821	$	744		$	(10,143	)
Comprehensive income (loss)	$	(9,620	)	$	(9,620	)	$	3,818		$	832	$	4,970		$	(9,620	)

26

Libbey Inc.

Condensed Consolidating Statements of Comprehensive Income (Loss)

(unaudited)

	Six months ended June 30, 2013
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—	$	188,336		$	40,416		$	188,871		$	(24,243	)	$	393,380
Freight billed to customers	—		231			428			864			—			1,523
Total revenues	—		188,567			40,844			189,735			(24,243		)	394,903
Cost of sales	—		129,205			30,500			159,747			(24,243		)	295,209
Gross profit	—		59,362			10,344			29,988			—			99,694
Selling, general and administrative expenses	—		33,245			5,153			17,634			—			56,032
Special charges	—		4,229			—			—			—			4,229
Income (loss) from operations	—		21,888			5,191			12,354			—			39,433
Other income (expense)	—		(2,507		)	(12		)	(383		)	—			(2,902		)
Earnings (loss) before interest and income taxes	—		19,381			5,179			11,971			—			36,531
Interest expense	—		12,416			—			4,145			—			16,561
Income (loss) before income taxes	—		6,965			5,179			7,826			—			19,970
Provision (benefit) for income taxes	—		700			149			4,696			—			5,545
Net income (loss)	—		6,265			5,030			3,130			—			14,425
Equity in net income (loss) of subsidiaries	14,425		8,160			—			—			(22,585		)	—
Net income (loss)	$	14,425	$	14,425		$	5,030		$	3,130		$	(22,585	)	$	14,425
Comprehensive income (loss)	$	23,454	$	23,454		$	4,999		$	2,800		$	(31,253	)	$	23,454

	Six months ended June 30, 2012
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	203,177		$	37,210		$	190,009		$	(33,320	)	$	397,076
Freight billed to customers	—			296			374			797			—			1,467
Total revenues	—			203,473			37,584			190,806			(33,320		)	398,543
Cost of sales	—			149,919			27,355			155,186			(33,320		)	299,140
Gross profit	—			53,554			10,229			35,620			—			99,403
Selling, general and administrative expenses	—			35,424			3,402			16,678			—			55,504
Special charges	—			—			—			—			—			—
Income (loss) from operations	—			18,130			6,827			18,942			—			43,899
Other income (expense)	—			(30,962		)	(7		)	(270		)	—			(31,239		)
Earnings (loss) before interest and income taxes	—			(12,832		)	6,820			18,672			—			12,660
Interest expense	—			15,874			—			4,491			—			20,365
Income (loss) before income taxes	—			(28,706		)	6,820			14,181			—			(7,705		)
Provision (benefit) for income taxes	—			(2,436		)	131			4,102			—			1,797
Net income (loss)	—			(26,270		)	6,689			10,079			—			(9,502		)
Equity in net income (loss) of subsidiaries	(9,502		)	16,768			—			—			(7,266		)	—
Net income (loss)	$	(9,502	)	$	(9,502	)	$	6,689		$	10,079		$	(7,266	)	$	(9,502	)
Comprehensive income (loss)	$	(3,867	)	$	(3,867	)	$	7,053		$	7,876		$	(11,062	)	$	(3,867	)

27

Libbey Inc.

Condensed Consolidating Balance Sheet

	June 30, 2013 (unaudited)
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)			Subsidiary Guarantors		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash and equivalents	$	—	$	(3,568	)	$	55	$	14,057		$	—		$	10,544
Accounts receivable — net	—		38,630			5,607		47,245			—			91,482
Inventories — net	—		65,687			21,299		88,925			—			175,911
Other current assets	—		19,420			1,212		16,732			(17,364		)	20,000
Total current assets	—		120,169			28,173		166,959			(17,364		)	297,937
Other non-current assets	—		18,203			—		20,645			(4,190		)	34,658
Investments in and advances to subsidiaries	52,882		394,048			195,294		(44,054		)	(598,170		)	—
Goodwill and purchased intangible assets — net	—		27,423			12,347		147,015			—			186,785
Total other assets	52,882		439,674			207,641		123,606			(602,360		)	221,443
Property, plant and equipment — net	—		65,801			296		187,703			—			253,800
Total assets	$	52,882	$	625,644		$	236,110	$	478,268		$	(619,724	)	$	773,180
Accounts payable	$	—	$	11,939		$	2,798	$	44,572		$	—		$	59,309
Accrued and other current liabilities	—		50,911			21,482		27,653			(16,915		)	83,131
Notes payable and long-term debt due within one year	—		228			—		14,014			—			14,242
Total current liabilities	—		63,078			24,280		86,239			(16,915		)	156,682
Long-term debt	—		414,264			—		1,242			—			415,506
Other long-term liabilities	—		92,289			9,638		50,373			(4,190		)	148,110
Total liabilities	—		569,631			33,918		137,854			(21,105		)	720,298
Total shareholders’ equity (deficit)	52,882		56,013			202,192		340,414			(598,619		)	52,882
Total liabilities and shareholders’ equity (deficit)	$	52,882	$	625,644		$	236,110	$	478,268		$	(619,724	)	$	773,180

28

Libbey Inc.

Condensed Consolidating Balance Sheet

	December 31, 2012
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)		Subsidiary Guarantors		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash and equivalents	$	—	$	43,558	$	70	$	23,580		$	—		$	67,208
Accounts receivable — net	—		33,987		3,560		43,303			—			80,850
Inventories — net	—		52,627		18,477		86,445			—			157,549
Other current assets	—		17,931		810		10,446			(16,190		)	12,997
Total current assets	—		148,103		22,917		163,774			(16,190		)	318,604
Other non-current assets	—		22,373		54		20,387			(4,190		)	38,624
Investments in and advances to subsidiaries	24,476		384,414		194,316		(35,962		)	(567,244		)	—
Goodwill and purchased intangible assets — net	—		26,833		12,347		147,614			—			186,794
Total other assets	24,476		433,620		206,717		132,039			(571,434		)	225,418
Property, plant and equipment — net	—		72,780		298		185,076			—			258,154
Total assets	$	24,476	$	654,503	$	229,932	$	480,889		$	(587,624	)	$	802,176
Accounts payable	$	—	$	15,339	$	2,854	$	47,519		$	—		$	65,712
Accrued and other current liabilities	—		63,674		20,194		27,857			(16,190		)	95,535
Notes payable and long-term debt due within one year	—		221		—		4,362			—			4,583
Total current liabilities	—		79,234		23,048		79,738			(16,190		)	165,830
Long-term debt	—		451,090		—		10,794			—			461,884
Other long-term liabilities	—		94,434		9,691		50,051			(4,190		)	149,986
Total liabilities	—		624,758		32,739		140,583			(20,380		)	777,700
Total shareholders’ equity (deficit)	24,476		29,745		197,193		340,306			(567,244		)	24,476
Total liabilities and shareholders’ equity (deficit)	$	24,476	$	654,503	$	229,932	$	480,889		$	(587,624	)	$	802,176

29

Libbey Inc.

Condensed Consolidating Statements of Cash Flows

(unaudited)

	Three months ended June 30, 2013
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	12,436		$	12,436		$	3,476		$	2,151		$	(18,063	)	$	12,436
Depreciation and amortization	—			4,611			16			6,996			—			11,623
Other operating activities	(12,436		)	(13,590		)	(3,499		)	(3,212		)	18,063			(14,674		)
Net cash provided by (used in) operating activities	—			3,457			(7		)	5,935			—			9,385
Additions to property, plant & equipment	—			(2,065		)	(31		)	(8,793		)	—			(10,889		)
Other investing activities	—			—			—			4			—			4
Net cash (used in) investing activities	—			(2,065		)	(31		)	(8,789		)	—			(10,885		)
Net borrowings (repayments)	—			(35,255		)	—			—			—			(35,255		)
Other financing activities	—			1,161			—			—			—			1,161
Net cash provided by (used in) financing activities	—			(34,094		)	—			—			—			(34,094		)
Exchange effect on cash	—			—			—			189			—			189
Increase (decrease) in cash	—			(32,702		)	(38		)	(2,665		)	—			(35,405		)
Cash at beginning of period	—			29,134			93			16,722			—			45,949
Cash at end of period	$	—		$	(3,568	)	$	55		$	14,057		$	—		$	10,544

	Three months ended June 30, 2012
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	(10,143	)	$	(10,143	)	$	3,578		$	5,821		$	744		$	(10,143	)
Depreciation and amortization	—			3,469			18			6,801			—			10,288
Other operating activities	10,143			(56,501		)	(3,687		)	(1,777		)	(744		)	(52,566		)
Net cash provided by (used in) operating activities	—			(63,175		)	(91		)	10,845			—			(52,421		)
Additions to property, plant & equipment	—			(1,133		)	—			(4,253		)	—			(5,386		)
Other investing activities	—			—			—			239			—			239
Net cash (used in) investing activities	—			(1,133		)	—			(4,014		)	—			(5,147		)
Net borrowings (repayments)	—			89,949			—			(9,517		)	—			80,432
Other financing activities	—			(35,744		)	—			—			—			(35,744		)
Net cash provided by (used in) financing activities	—			54,205			—			(9,517		)	—			44,688
Exchange effect on cash	—			—			—			(361		)	—			(361		)
Increase (decrease) in cash	—			(10,103		)	(91		)	(3,047		)	—			(13,241		)
Cash at beginning of period	—			9,892			157			22,769			—			32,818
Cash at end of period	$	—		$	(211	)	$	66		$	19,722		$	—		$	19,577

30

Libbey Inc.

Condensed Consolidating Statements of Cash Flows

(unaudited)

	Six months ended June 30, 2013
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	14,425		$	14,425		$	5,030		$	3,130		$	(22,585	)	$	14,425
Depreciation and amortization	—			8,725			33			13,639			—			22,397
Other operating activities	(14,425		)	(32,597		)	(5,047		)	(10,633		)	22,585			(40,117		)
Net cash provided by (used in) operating activities	—			(9,447		)	16			6,136			—			(3,295		)
Additions to property, plant & equipment	—			(4,069		)	(31		)	(15,671		)	—			(19,771		)
Other investing activities	—			1			—			7			—			8
Net cash (used in) investing activities	—			(4,068		)	(31		)	(15,664		)	—			(19,763		)
Net borrowings (repayments)	—			(35,309		)	—			(5		)	—			(35,314		)
Other financing activities				1,698			—			—			—			1,698
Net cash provided by (used in) financing activities	—			(33,611		)	—			(5		)	—			(33,616		)
Exchange effect on cash	—			—			—			10			—			10
Increase (decrease) in cash	—			(47,126		)	(15		)	(9,523		)	—			(56,664		)
Cash at beginning of period	—			43,558			70			23,580			—			67,208
Cash at end of period	$	—		$	(3,568	)	$	55		$	14,057		$	—		$	10,544

	Six months ended June 30, 2012
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	(9,502	)	$	(9,502	)	$	6,689		$	10,079		$	(7,266	)	$	(9,502	)
Depreciation and amortization	—			7,007			37			13,780			—			20,824
Other operating activities	9,502			(86,833		)	(6,815		)	(5,961		)	7,266			(82,841		)
Net cash provided by (used in) operating activities	—			(89,328		)	(89		)	17,898			—			(71,519		)
Additions to property, plant & equipment	—			(4,314		)	—			(7,518		)	—			(11,832		)
Other investing activities	—			—			—			419			—			419
Net cash (used in) investing activities	—			(4,314		)	—			(7,099		)	—			(11,413		)
Net borrowings (repayments)	—			89,898			—			(9,860		)	—			80,038
Other financing activities	—			(35,716		)	—			—			—			(35,716		)
Net cash provided by (used in) financing activities	—			54,182			—			(9,860		)	—			44,322
Exchange effect on cash	—			—			—			(104		)	—			(104		)
Increase (decrease) in cash	—			(39,460		)	(89		)	835			—			(38,714		)
Cash at beginning of period	—			39,249			155			18,887			—			58,291
Cash at end of period	$	—		$	(211	)	$	66		$	19,722		$	—		$	19,577

31

12. Segments

Effective January 1, 2013, we revised our reporting segments to align with our previously announced regionally focused organizational structure which we believe enables us to better serve customers across the globe. Under this structure, we now report financial results for the Americas; Europe, the Middle East and Africa (EMEA); and Other. In addition, sales and segment EBIT reflect end market reporting pursuant to which sales and related costs are included in segment EBIT based on the geographical destination of the sale. The revised segment results do not affect any previously reported consolidated financial results. Our two reportable segments are defined below. Our operating segments that do not meet the criteria for reportable segments are disclosed as Other.

Americas—includes worldwide sales of manufactured and sourced glass tableware having an end market destination in North and South America.

EMEA—includes worldwide sales of manufactured and sourced glass tableware having an end market destination in Europe, the Middle East and Africa.

Other —includes worldwide sales of manufactured and sourced glass tableware having an end market destination in Asia Pacific and worldwide sales of sourced ceramic dinnerware, metal tableware, hollowware, and serveware.

Our measure of profit for our reportable segments is Segment Earnings before Interest and Taxes (Segment EBIT) and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs. We use Segment EBIT, along with net sales and selected cash flow information, to evaluate performance and to allocate resources. Segment EBIT for reportable segments includes an allocation of some corporate expenses based on the costs of services performed.

Certain activities not related to any particular reportable segment are reported within retained corporate costs. These costs include certain headquarter, administrative and facility costs, and other costs that are global in nature and are not allocable to the reporting segments.

The accounting policies of the reportable segments are the same as those described in note 2. We do not have any customers who represent 10 percent or more of total sales. Inter-segment sales are consummated at arm’s length and are reflected at end market reporting below.

32

	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2013			2012			2013			2012
Net Sales:
Americas	$	141,815		$	148,584		$	265,350		$	278,259
EMEA	37,981			33,723			72,223			64,515
Other	30,108			26,940			55,807			54,302
Consolidated	$	209,904		$	209,247		$	393,380		$	397,076
Segment EBIT:
Americas	$	32,498		$	31,014		$	50,650		$	46,688
EMEA	569			302			(914		)	(278		)
Other	4,367			5,508			8,164			10,633
Total Segment EBIT	$	37,434		$	36,824		$	57,900		$	57,043
Reconciliation of Segment EBIT to Net Income (Loss):
Segment EBIT	$	37,434		$	36,824		$	57,900		$	57,043
Retained corporate costs	(5,927		)	(7,428		)	(10,427		)	(13,308		)
Loss on redemption of debt (note 4)	(2,518		)	(31,075		)	(2,518		)	(31,075		)
Pension settlement charge	(715		)	—			(715		)	—
Restructuring charges (note 5)	(1,048		)	—			(5,928		)	—
Abandoned property (note 15)	(1,781		)	—			(1,781		)	—
Interest expense	(8,126		)	(9,957		)	(16,561		)	(20,365		)
Income taxes	(4,883		)	1,493			(5,545		)	(1,797		)
Net income (loss)	$	12,436		$	(10,143	)	$	14,425		$	(9,502	)
Depreciation & Amortization:
Americas	$	7,321		$	6,021		$	13,849		$	12,203
EMEA	2,507			2,466			4,993			5,014
Other	1,407			1,414			2,790			2,831
Corporate	388			387			765			776
Consolidated	$	11,623		$	10,288		$	22,397		$	20,824
Capital Expenditures:
Americas	$	7,034		$	3,259		$	13,909		$	8,423
EMEA	1,745			1,301			3,041			2,018
Other	1,320			510			1,655			1,023
Corporate	790			316			1,166			368
Consolidated	$	10,889		$	5,386		$	19,771		$	11,832

(dollars in thousands)	June 30, 2013		December 31, 2012
Segment Assets(1):
Americas	$	172,032	$	150,923
EMEA	47,881		49,981
Other	47,480		37,495
Consolidated	$	267,393	$	238,399

______________________________

(1) Segment assets are defined as net accounts receivable plus net inventory.

33

13. Fair Value

FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 establishes a fair value hierarchy that 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										Fair Value at
Asset / (Liability) (dollars in thousands)	June 30, 2013										December 31, 2012
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Commodity futures natural gas contracts	$	—	$	(112	)	$	—	$	(112	)	$	—	$	(420	)	$	—	$	(420	)
Currency contracts	—		458			—		458			—		41			—		41
Interest rate agreement	—		(1,781		)	—		(1,781		)	—		298			—		298
Net derivative asset (liability)	$	—	$	(1,435	)	$	—	$	(1,435	)	$	—	$	(81	)	$	—	$	(81	)

The fair values of our commodity futures natural gas contracts and currency contracts are determined using observable market inputs. The fair value of our interest rate agreement is based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy. We also evaluate Company and counterparty risk in determining fair values. The commodity futures natural gas contracts, interest rate agreements and currency contracts are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the above table.

The total derivative position is recorded on the Condensed Consolidated Balance Sheets as follows:

Asset / (Liability) (dollars in thousands)	June 30, 2013			December 31, 2012
Prepaid and other current assets	$	458		$	41
Derivative asset	—			298
Derivative liability	(69		)	(420		)
Other long-term liabilities	(1,824		)	—
Net derivative asset (liability)	$	(1,435	)	$	(81	)

14. Other Income (Expense)

Items included in other income (expense) in the Condensed Consolidated Statements of Operations are as follows:

	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2013			2012			2013			2012
Gain (loss) on currency translation	$	481		$	578		$	198		$	(391	)
Hedge ineffectiveness	(623		)	(189		)	(845		)	230
Other non-operating income (expense)	193			38			263			(3		)
Other income (expense)	$	51		$	427		$	(384	)	$	(164	)

34

15. Contingencies

We have completed an unclaimed property audit. The property subject to review in this audit process generally included unclaimed wages, vendor payments and customer refunds. State escheat laws generally require entities to report and remit abandoned and unclaimed property. Failure to timely report and remit the property can result in assessments that include interest and penalties, in addition to the payment of the escheat liability itself. At the completion of the audit in the three months ended June 30, 2013, we paid $4.5 million, which resulted in additional expense of $1.8 million in selling, general and administrative expenses on the Condensed Consolidated Statement of Operations. $2.7 million of expense was recorded in the third quarter of 2011 and accrued at December 31, 2012.

35

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. Our risk factors are set forth in Part I, Item 1A. “Risk Factors” in our 2012 Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

While the Mexican economy appears to have stabilized, the other economies in which we operate continued to be challenging during the second quarter of 2013 and we expect them to remain as such for the balance of the year. The U.S. economy experienced the negative effects of the increased 2.0 percent FICA tax, sequestration and generally uncertain economic environment and unfavorable weather during the first half of 2013. The European economy remains soft, and the rate of economic growth has slowed considerably in China as compared to the first half of 2012. As a result of these factors, our net sales were flat for the second quarter and declined 0.9 percent in the first half of 2013 as compared to the 2012 periods. Despite these conditions and our underutilized capacity in the Americas during the second quarter related to our production realignment and a significant furnace rebuild, we grew our US and Canada foodservice market channel 1.8 percent and saw increased volume in every other region overall and achieved an all-time record for quarterly Adjusted EBITDA of $42.0 million. This improvement of 5.8 percent over $39.7 million in the second quarter of 2012 was a result of our commitment to improving our cost structure while leveraging our leadership positions in key lines of business and strengthening our balance sheet.

Strengthening our balance sheet remains a high priority. We redeemed $45.0 million of our Senior Secured Notes on May 7, 2013. As of June 30, 2013, we had available capacity of $68.8 million under our ABL credit facility, with $9.8 million outstanding under our ABL Facility and $10.5 million in cash on hand.

We continue to successfully implement "Libbey 2015", our comprehensive business strategy launched in the second half of 2012 to improve our financial position and our ability to compete effectively in the market today and into the future. Libbey 2015 is centered on reducing our costs and boosting efficiency, reinforcing our leadership position in key channels, accelerating growth in the Asia Pacific region and reducing our liabilities and the working capital required to operate the core business. In February 2013, we announced our plans to discontinue production of certain glassware in North America and reduce manufacturing capacity at our Shreveport, Louisiana manufacturing facility. On May 30, 2013 we commenced the activities we announced in February and are currently in the process of relocating a portion of the production from Shreveport, Louisiana to our Toledo, Ohio and Monterrey, Mexico locations. These activities are all within the Americas segment and are expected to be completed by the end of the first quarter of 2014. In connection with this plan, we expect to incur a pretax charge in the range of approximately $8.0 million to $10.0 million. Of that amount, we recorded a pretax charge of $1.0 million and $5.9 million for the three and six months ended June 30, 2013, respectively, which included employee termination costs, fixed asset impairment charges and depreciation expense. (See note 5 to the Condensed Consolidated Financial Statements for a further discussion.)

Effective January 1, 2013, we revised our reporting segments to align with our previously announced regionally focused organizational structure which we believe enables us to better serve customers across the globe. Under this structure, we now report financial results for the Americas; Europe, the Middle East and Africa (EMEA); and Other. In addition, sales and segment EBIT reflect end market reporting pursuant to which sales and related costs are included in segment EBIT based on the geographical destination of the sale. The revised segment results do not affect any previously reported consolidated financial results. Our two reportable segments are defined below. Our operating segments that do not meet the criteria for reportable segments are disclosed as Other.

Americas—includes worldwide sales of manufactured and sourced glass tableware having an end market destination in North and South America.

EMEA—includes worldwide sales of manufactured and sourced glass tableware having an end market destination in Europe, the Middle East and Africa.

Other —includes worldwide sales of manufactured and sourced glass tableware having an end market destination in Asia Pacific and worldwide sales of sourced ceramic dinnerware, metal tableware, hollowware, and serveware.

36

Results of Operations

The following table presents key results of our operations for the three and six months ended June 30, 2013 and 2012:

	Three months ended June 30,						Six months ended June 30,
(dollars in thousands, except percentages and per-share amounts)	2013			2012			2013			2012
Net sales	$	209,904		$	209,247		$	393,380		$	397,076
Gross profit  (2)	$	57,462		$	56,347		$	99,694		$	99,403
Gross profit margin	27.4		%	26.9		%	25.3		%	25.0		%
Income from operations (IFO) (3)	$	27,912		$	28,969		$	39,433		$	43,899
IFO margin	13.3		%	13.8		%	10.0		%	11.1		%
Earnings (loss) before interest and income taxes(EBIT)(1)(2)(3)(4)	$	25,445		$	(1,679	)	$	36,531		$	12,660
EBIT margin	12.1		%	(0.8		)%	9.3		%	3.2		%
Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)(1)(3)(4)	$	37,068		$	8,609		$	58,928		$	33,484
EBITDA margin	17.7		%	4.1		%	15.0		%	8.4		%
Adjusted EBITDA(1)	$	41,997		$	39,684		$	68,171		$	64,559
Adjusted EBITDA margin	20.0		%	19.0		%	17.3		%	16.3		%
Net income (loss) (2)(3)(4)	$	12,436		$	(10,143	)	$	14,425		$	(9,502	)
Net income (loss) margin	5.9		%	(4.8		)%	3.7		%	(2.4		)%
Diluted net income (loss) per share	$	0.57		$	(0.49	)	$	0.66		$	(0.46	)

__________________________________

(1) We believe that EBIT, EBITDA and Adjusted EBITDA, all non-GAAP financial measures, are useful metrics for evaluating our financial performance, as they are measures that we use internally to assess our performance. For a reconciliation from net income (loss) to EBIT, EBITDA, and Adjusted EBITDA, see the "Adjusted EBITDA" section below in the Discussion of Second Quarter 2013 Compared to Second Quarter 2012 and the Discussion of First Six Months 2013 Compared to First Six Months 2012 and the reasons we believe these non-GAAP financial measures are useful.

(2) The three and six month periods ended June 30, 2013 include $1.1 million and $1.7 million, respectively, of accelerated depreciation on fixed assets that were impaired from discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, manufacturing facility. (See note 5 to the Condensed Consolidated Financial Statements.)

(3) In addition to item (2) above, the three and six month periods ended June 30, 2013 include ($0.1) million and $4.2 million, respectively, in charges related to discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, manufacturing facility; $1.8 million for abandoned property charges; and $0.7 million of pension settlement charges. (See notes 5, 7 and 15 to the Condensed Consolidated Financial Statements.)

(4) In addition to item (3) above, the three and six month periods ended June 30, 2013 include a loss of $2.5 million related to the redemption of $45.0 million of Senior Secured Notes in May 2013. The three and six month periods ended June 30, 2012 include $31.1 million for the write-off of unamortized finance fees and discounts and call premium payments on the ABL Facility and $360.0 million of former Senior Secured Notes redeemed in May and June 2012, partially offset by the write-off of the debt carrying value adjustment related to the termination of the $80.0 million interest rate swap. (See note 4 to the Condensed Consolidated Financial Statements.)

37

Discussion of Second Quarter 2013 Compared to Second Quarter 2012

Net Sales

For the quarter ended June 30, 2013, net sales increased 0.3 percent to $209.9 million, compared to $209.2 million in the year-ago quarter. When adjusted for currency impact, net sales were down 1.1 percent. The increase in net sales was attributable to increased sales of $4.3 million and $3.2 million in EMEA and Other, respectively, offset by a $6.8 million decrease in the Americas.

	Three months ended June 30,
(dollars in thousands)	2013		2012
Americas	$	141,815	$	148,584
EMEA	37,981		33,723
Other	30,108		26,940
Consolidated	$	209,904	$	209,247

Net Sales — Americas

Net sales in the Americas were $141.8 million, compared to $148.6 million in the second quarter of 2012, a decrease of 4.6 percent (a decrease of 6.1 percent excluding currency fluctuation). The primary contributor was a 7.8 percent decrease in sales within our US and Canadian end market due to weaker retail and business to business sales resulting from mixed point of sale retail results at many major retailers, discontinued items from our realignment of production and weaker volume in the scented candles and floral product lines of our business to business market channel, partially offset by a 1.8 percent increase in shipments to US and Canada foodservice customers. The overall US and Canadian decline was partially offset by a 3.5 percent increase in sales to customers within our Mexican and Latin American end market driven by foodservice and retail sales resulting from increased volume of product sold.

Net Sales — EMEA

Net sales in EMEA were $38.0 million, compared to $33.7 million in the second quarter of 2012, an increase of 12.6 percent (an increase of 10.9 percent excluding currency fluctuation). The primary contributor to the increased net sales was increased shipments to EMEA customers as we aggressively pursued business in Europe.

Gross Profit

Gross profit increased to an all-time record of $57.5 million in the second quarter of 2013, compared to $56.3 million in the prior year quarter. Gross profit as a percentage of net sales increased to 27.4 percent in the second quarter of 2013, compared to 26.9 percent in the prior year period. The primary drivers of the $1.1 million gross profit increase were $3.9 million of favorable labor and benefits, a favorable currency impact of $2.5 million, a favorable sales volume and mix of $1.8 million, favorable repairs and maintenance of $1.2 million, and favorable electricity of $1.0 million. Partially offsetting these was $6.6 million attributable to decreased production activity net of volume-related production costs due to a slower than anticipated start up of a significant furnace rebuild, relocation of production as part of our re-alignment, and loss of production due to a power failure, $1.1 million for accelerated depreciation related to the realignment of capacity in the Americas, $0.8 million for direct materials, and $0.7 million for natural gas.

Income From Operations

Income from operations for the quarter ended June 30, 2013 decreased $1.1 million, to $27.9 million, compared to $29.0 million in the prior year quarter. Income from operations as a percentage of net sales was 13.3 percent for the quarter ended June 30, 2013, compared to 13.8 percent in the prior year quarter. The decrease in income from operations is the result of a $1.8 million charge related to abandoned property and $0.7 million related to a pension settlement charge. Partially offsetting these were the $1.1 million increase in gross profit (discussed above), a favorable $0.9 million in labor and benefit expenses as a result of the cost reduction activities taken in the second half of 2012 and a favorable $0.3 million in legal and professional fees.

38

Earnings (Loss) Before Interest and Income Taxes (EBIT)

EBIT for the quarter ended June 30, 2013 increased by $27.1 million, to $25.4 million from $(1.7) million in the second quarter of 2012. EBIT as a percentage of net sales increased to 12.1 percent in the second quarter of 2013, compared to (0.8) percent in the prior year quarter. The increase in EBIT is a result of the second quarter of 2012 including $31.1 million for loss on redemption of debt, as compared to $2.5 million in the second quarter of 2013, partially offset by the decrease in income from operations (discussed above).

Segment EBIT

The following table summarizes the change in Segment EBIT⁽¹⁾ by reportable segments:

	Three months ended June 30,
(dollars in thousands)	Americas			EMEA
Segment EBIT, June 30, 2012	$	31,014		$	302
Sales, excluding currency	(172		)	924
Manufacturing and distribution	(942		)	(455		)
Selling, general, administrative and other income/expense	161			(190		)
Effects of changing foreign currency rates	2,437			(12		)
Segment EBIT, June 30, 2013	$	32,498		$	569

____________________________________

(1) Segment EBIT represents earnings before interest and taxes and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs. See note 12 to the Condensed Consolidated Financial Statements for reconciliation of Segment EBIT to net income (loss).

Segment EBIT — Americas

Segment EBIT increased to $32.5 million in the second quarter of 2013, compared to $31.0 million in the second quarter of 2012. Segment EBIT as a percentage of net sales for the Americas increased to 22.9 percent in the second quarter of 2013, compared to 20.9 percent in the prior year period. The primary drivers of the $1.5 million Segment EBIT increase were $3.0 million of favorable labor and benefits, a favorable currency impact of $2.4 million, favorable repairs and maintenance of $1.7 million, and favorable selling, general, administrative and other income (expense) of $0.4 million. Partially offsetting these was $5.9 million attributable to decreased production activity net of volume-related production costs due to a slower than anticipated start up of a significant furnace rebuild, relocation of production as part of our re-alignment, and loss of production due to a power failure.

Segment EBIT — EMEA

Segment EBIT increased to $0.6 million in the second quarter of 2013, compared to $0.3 million in the second quarter of 2012. Segment EBIT as a percentage of net sales for EMEA increased to 1.5 percent in the second quarter of 2013, compared to 0.9 percent in the prior-year period. The primary driver of the $0.3 million increase in Segment EBIT was a favorable sales volume and mix.

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

EBITDA increased by $28.5 million in the second quarter 2013, to $37.1 million, compared to $8.6 million in the year-ago quarter. As a percentage of net sales, EBITDA increased to 17.7 percent in the second quarter of 2013, from 4.1 percent in the year-ago quarter. The key contributors to the increase in EBITDA were those factors discussed above under Earnings (Loss) Before Interest and Income Taxes (EBIT) and $1.1 million of accelerated depreciation on certain fixed assets included in the capacity realignment.

Adjusted EBITDA

Adjusted EBITDA increased by $2.3 million in the second quarter of 2013, to $42.0 million, compared to $39.7 million in the second quarter of 2012. As a percentage of net sales, Adjusted EBITDA was 20.0 percent for the second quarter of 2013, compared to 19.0 percent in the year-ago quarter. The key contributors to the increase in Adjusted EBITDA were those factors

39

discussed above under Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) and the elimination of the special items noted below, in the reconciliation of net income (loss) to EBIT, EBITDA and Adjusted EBITDA.

	Three months ended June 30,
(dollars in thousands)	2013			2012
Net income (loss)	$	12,436		$	(10,143	)
Add: Interest expense	8,126			9,957
Add: Provision (benefit) provision for income taxes	4,883			(1,493		)
Earnings (loss) before interest and income taxes (EBIT)	25,445			(1,679		)
Add: Depreciation and amortization	11,623			10,288
Earnings before interest, taxes, deprecation and amortization (EBITDA)	37,068			8,609
Add: Special items before interest and taxes:
Loss on redemption of debt (see note 4) (1)	2,518			31,075
Pension Settlement (see note 7)	715			—
Abandoned property (see note 15)	1,781			—
Restructuring charges (see note 5) (2)	1,048			—
Less: Accelerated depreciation expense included in special items and also in depreciation and amortization above	(1,133		)	—
Adjusted EBITDA	$	41,997		$	39,684

__________________________________

(1) Loss on redemption of debt for the three months ended June 2013 includes the write-off of unamortized finance fees and call premium payments on the $45.0 million Senior Secured Notes redeemed in May 2013. Loss on redemption of debt for the three months ended June 2012 includes the write-off of unamortized finance fees and discounts and call premium payments on the ABL Facility and $360.0 million former Senior Secured Notes redeemed in May and June 2012, partially offset by the write-off of the debt carrying value adjustment related to the termination of the $80.0 million interest rate swap.

(2) Restructuring charges relate to discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, manufacturing facility.

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

We define EBIT as net income (loss) before interest expense and income taxes. The most directly comparable U.S. GAAP financial measure is net income (loss).

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

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

We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization. The most directly comparable U.S. GAAP financial measure is net income (loss).

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

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

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA internally to measure profitability and to set performance targets for managers.

Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:

• Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

• Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

• Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Net Income (Loss) and Diluted Net Income (Loss) Per Share

We recorded net income of $12.4 million, or $0.57 per diluted share, in the second quarter of 2013, compared to a net (loss) of $(10.1) million, or ($0.49) per diluted share, in the year-ago quarter. Net income (loss) as a percentage of net sales was 5.9 percent in the second quarter of 2013, compared to (4.8) percent in the year-ago quarter. The increase in net income (loss) and diluted net income (loss) per share is due to the factors discussed in Earnings (Loss) Before Interest and Income Taxes (EBIT) above and a $1.8 million reduction in interest expense, partially offset by a $6.4 million increase in the provision for income taxes. The reduction in interest expense is primarily the result of lower interest rates resulting from our May 2012 refinancing. The effective tax rate was an expense of 28.2 percent for the second quarter of 2013, compared to a benefit of 12.8 percent in year-ago quarter. The effective tax rate was influenced by jurisdictions with recorded valuation allowances and changes in the mix of earnings in countries with differing statutory tax rates.

Discussion of First Six Months 2013 Compared to First Six Months 2012

Net Sales

For the six months ended June 30, 2013, net sales decreased 0.9 percent to $393.4 million, compared to $397.1 million in the year-ago period. The decrease in net sales was attributable to decreased sales in the Americas, offset by increased sales in EMEA.

	Six months ended June 30,
(dollars in thousands)	2013		2012
Americas	$	265,350	$	278,259
EMEA	72,223		64,515
Other	55,807		54,302
Consolidated	$	393,380	$	397,076

Net Sales — Americas

Net sales in the Americas were $265.4 million in the first six months of 2013 compared to $278.3 million in the first six months of 2012, a decrease of 4.6 percent (a 5.7 percent decrease excluding the impact of currency). The primary contributor was an 8.1 percent decrease in sales within our US and Canadian market due to unfavorable weather, the increased 2.0 percent FICA

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tax, retail and business to business sales resulting from mixed point of sale retail results at many major retailers, discontinued items from our realignment of production and weaker volume in the scented candles and floral product lines of our business to business market channel. Partially offsetting this was a 4.0 percent increase (a 0.5 percent increase excluding the impact of currency) in sales to customers within our Mexican and Latin American end market driven by foodservice and retail sales resulting from increased shipments and a more favorable mix of product sold.

Net Sales — EMEA

Net sales in EMEA were $72.2 million in the first six months of 2013 compared to $64.5 million in the first six months of 2012, an increase of 11.9 percent (10.7 percent excluding the impact of currency). The primary contributor to the increased net sales was increased shipments to EMEA customers.

Gross Profit

Gross profit increased to $99.7 million in the first six months of 2013, compared to $99.4 million in the prior year period. Gross profit as a percentage of net sales remained flat as compared to the prior year period. The primary drivers of the $0.3 million gross profit increase were $5.7 million of favorable labor and benefits, a favorable currency impact of $3.6 million, a favorable sales volume and mix of $1.4 million, favorable repairs and maintenance of $3.3 million, and favorable electricity of $0.7 million. Partially offsetting these was $12.1 million attributable to decreased production activity net of volume-related production costs due to a significant furnace rebuild and its slower than anticipated start up, relocation of production as part of our re-alignment, loss of production due to a power failure, and $1.7 million for accelerated depreciation related to the realignment of capacity in the Americas.

Income From Operations

Income from operations for the six months ended June 30, 2013 decreased $4.5 million, to $39.4 million, compared to $43.9 million in the prior year period. Income from operations as a percentage of net sales was 10.0 percent for the six months ended June 30, 2013, compared to 11.1 percent in the prior-year period. The decrease in income from operations is the result of gross profit remaining flat (discussed above), a $4.2 million charge related to discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, manufacturing facility and a $0.5 million increase in selling, general and administrative expenses. The increase in selling, general and administrative expense is attributable to $1.8 million of abandoned property expense and $0.7 million of pension settlement charges, offset by $2.5 million of favorable labor and benefit expenses as a result of the cost reduction activities taken in the second half of 2012.

Earnings Before Interest and Income Taxes (EBIT)

EBIT for the six months ended June 30, 2013 increased by $23.9 million to $36.5 million from $12.7 million in the first six months of 2012. EBIT as a percentage of net sales increased to 9.3 percent in the first six months of 2013, compared to 3.2 percent in the prior year period. The increase in EBIT is a result of the $28.6 million decrease in loss on redemption of debt, partially offset by a decrease in income from operations (discussed above).

Segment EBIT

The following table summarizes Segment EBIT⁽¹⁾ by operating segments:

	Six months ended June 30,
(dollars in thousands)	Americas			EMEA
Segment EBIT, June 30, 2012	$	46,688		$	(278	)
Sales, excluding currency	115			1,213
Manufacturing and distribution	(1,663		)	(1,495		)
Selling, general, administrative and other income/expense	1,841			(287		)
Effects of changing foreign currency rates	3,669			(67		)
Segment EBIT, June 30, 2013	$	50,650		$	(914	)

____________________________________

(1) Segment EBIT represents earnings (loss) before interest and taxes and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs. See note 12 to the Condensed Consolidated Financial Statements for reconciliation of Segment EBIT to net income (loss).

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Segment EBIT — Americas

Segment EBIT increased to $50.7 million in the first six months of 2013, compared to $46.7 million in the first six months of 2012. Segment EBIT as a percentage of net sales increased to 19.1 percent in the first six months of 2013, compared to 16.8 percent in the prior year period. The primary drivers of the $4.0 million Segment EBIT increase were $4.5 million of favorable labor and benefits, a favorable currency impact of $3.7 million, favorable repairs and maintenance of $3.6 million, favorable electricity of $0.8 million, favorable rent expense of $0.4 million, and $1.8 million favorable impact from changes in selling, general, administrative and other income (expense). Partially offsetting these was $11.0 million attributable to decreased production activity net of volume-related production costs due to a significant furnace rebuild and its subsequent slower than anticipated start up, relocation of production as part of our re-alignment, and loss of production due to a power failure.

Segment EBIT — EMEA

Segment EBIT decreased by $0.6 million to ($0.9) million for the first six months of 2013, compared to ($0.3) million in the prior year period. Segment EBIT as a percentage of net sales decreased to (1.3) percent for the six months ended June 30, 2013, compared to (0.4) percent in the prior year six month period. The primary driver of the $0.6 million decrease in Segment EBIT was the impact of actions taken relative to our Libbey 2015 Strategy to improve cash generation in Europe.

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

EBITDA increased by $25.4 million in the first six months of 2013, to $58.9 million, compared to $33.5 million in the year-ago period. As a percentage of net sales, EBITDA increased to 15.0 percent in the first six months of 2013, from 8.4 percent in the year ago period. The key contributors to the increase in EBITDA were those factors discussed above under Earnings Before Interest and Income Taxes (EBIT) and $1.7 million of accelerated depreciation on certain fixed assets included in the capacity realignment.

Adjusted EBITDA

Adjusted EBITDA increased by $3.6 million in the first six months of 2013, to $68.2 million, compared to $64.6 million in the first six months of 2012. As a percentage of net sales, Adjusted EBITDA was 17.3 percent for the first six months of 2013, compared to 16.3 percent in the year ago period. The key contributors to the increase in Adjusted EBITDA were those factors discussed above under Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) and the elimination of the special items noted below in the reconciliation of net income (loss) to EBIT, EBITDA and Adjusted EBITDA.

	Six months ended June 30,
(dollars in thousands)	2013			2012
Net income (loss)	$	14,425		$	(9,502	)
Add: Interest expense	16,561			20,365
Add: Provision for income taxes	5,545			1,797
Earnings before interest and income taxes (EBIT)	36,531			12,660
Add: Depreciation and amortization	22,397			20,824
Earnings before interest, taxes, deprecation and amortization (EBITDA)	58,928			33,484
Add: Special items before interest and taxes:
Loss on redemption of debt (see note 4) (1)	2,518			31,075
Pension Settlement (see note 7)	715			—
Abandoned property (see note 15)	1,781			—
Restructuring charges (see note 5) (2)	5,928			—
Less: Accelerated depreciation expense included in special items and also in depreciation and amortization above	(1,699		)	—
Adjusted EBITDA	$	68,171		$	64,559

____________________________________

(1) Loss on redemption of debt for the six months ended June 2013 includes the write-off of unamortized finance fees and call premium payments on the $45.0 million Senior Secured Notes redeemed in May 2013. Loss on redemption of debt for the six months ended June 2012 includes the write-off of unamortized finance fees and discounts and call premium payments on the ABL Facility and $360.0 million former Senior Secured Notes redeemed in May and June 2012,

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partially offset by the write-off of the debt carrying value adjustment related to the termination of the $80.0 million interest rate swap.

(2) Restructuring charges relate to discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, manufacturing facility.

We sometimes refer to data derived from condensed consolidated financial information but not required by GAAP to be presented in financial statements. Certain of these data are considered “non-GAAP financial measures” under SEC Regulation G. We believe that certain 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. For our definition of these non-GAAP measures and certain limitations, see the Adjusted EBITDA section in the Discussion of Second Quarter 2013 Compared with Second Quarter 2012 above.

Net Income (Loss) and Diluted Net Income (Loss) Per Share

We recorded net income of $14.4 million, or $0.66 per diluted share, in the first six months of 2013, compared to a net (loss) of $(9.5) million, or $(0.46) per diluted share, in the year ago period. Net income as a percentage of net sales was 3.7 percent in the first six months of 2013, compared to (2.4) percent in the first six months of 2012. The increase in net income and diluted net income per share is generally due to the factors discussed in Earnings Before Interest and Income Taxes (EBIT) above, a $3.8 million reduction in interest expense, partially offset by a $3.7 million increase in the provision for income taxes. The reduction in interest expense is primarily the result of lower interest rates on the Senior Secured Notes. The effective tax rate was 27.8 percent for the first six months of 2013, compared to a negative 23.3 percent in year-ago period. The effective tax rate was influenced by jurisdictions with recorded valuation allowances, changes in the mix of earnings in countries with differing statutory tax rates and changes in accruals related to uncertain tax positions.

Capital Resources and Liquidity

Historically, cash flows generated from operations, cash on hand and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. At June 30, 2013, we had $9.8 million outstanding under our ABL Facility and we had $8.7 million of letters of credit issued under that facility. As a result, we had $68.8 million of unused availability remaining under the ABL Facility at June 30, 2013. In addition, we had $10.5 million of cash on hand at June 30, 2013.

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

On May 7, 2013, Libbey Glass Inc. redeemed an aggregate principal amount of $45.0 million of our outstanding Senior Secured Notes due 2020. We funded this redemption using cash on hand and borrowings under our ABL Facility.

Balance Sheet and Cash Flows

Cash and Equivalents

See the cash flow section below for a discussion of our cash balance.

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Working Capital

The following table presents our working capital components:

(dollars in thousands, except percentages and DSO, DIO, DPO and DWC)	June 30, 2013			December 31, 2012
Accounts receivable — net	$	91,482		$	80,850
DSO (1)	40.6			35.8
Inventories — net	$	175,911		$	157,549
DIO (2)	78.1			69.7
Accounts payable	$	59,309		$	65,712
DPO (3)	26.3			29.1
Working capital (4)	$	208,084		$	172,687
DWC (5)	92.4			76.4
Percentage of net sales	25.3		%	20.9		%

___________________________________________________

(1) Days sales outstanding (DSO) measures the number of days it takes to turn receivables into cash.

(2) Days inventory outstanding (DIO) measures the number of days it takes to turn inventory into cash.

(3) Days payable outstanding (DPO) measures the number of days it takes to pay the balances of our accounts payable.

(4) Working capital is defined as net accounts receivable plus net inventories less accounts payable. See below for further discussion as to the reasons we believe this non-GAAP financial measure is useful.

(5) Days working capital (DWC) measures the number of days it takes to turn our working capital into cash.

DSO, DIO, DPO and DWC are calculated using the last twelve months' net sales as the denominator and are based on a 365-day year.

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.

Working capital (as defined above) was $208.1 million at June 30, 2013, an increase of $35.4 million from December 31, 2012. Our working capital normally increases during the first half of the year due to the seasonality of our business. In particular, inventory normally increases to prepare for seasonally higher orders that typically exceed production levels in the later part of the year. Our increase is primarily due to additional inventories resulting from seasonality and building inventory to service our customers during the re-alignment of the Americas production capacity and for upcoming furnace rebuilds and maintenance activities. The impact of currency decreased total working capital by $0.2 million at June 30, 2013, primarily driven by the euro, with a partial offset by the Mexican peso. As a result of the factors above, working capital as a percentage of last twelve-month net sales increased to 25.3 percent at June 30, 2013 from 20.9 percent at December 31, 2012, but was comparable to the 24.5 percent for the period ended June 30, 2012.

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Borrowings

The following table presents our total borrowings:

(dollars in thousands)	Interest Rate		Maturity Date	June 30, 2013			December 31, 2012
Borrowings under ABL Facility	floating		May 18, 2017	$	9,800		$	—
Senior Secured Notes	6.875%	(1)	May 15, 2020	405,000			450,000
Promissory Note	6.00%		July, 2013 to September, 2016	793			903
RMB Loan Contract	floating		January, 2014	9,720			9,522
BES Euro Line	floating		December, 2013	4,294			4,362
AICEP Loan	0.00%		January, 2016 to July 30, 2018	1,243			1,272
Total borrowings				430,850			466,059
Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)				(1,102		)	408
Total borrowings — net (2)				$	429,748		$	466,467

____________________________________

(1) See “Derivatives” below and notes 4 and 9 to the Condensed Consolidated Financial Statements.

(2) The total borrowings — net includes long-term debt due within one year and long-term debt as stated in our Condensed Consolidated Balance Sheets.

We had total borrowings of $430.9 million and $466.1 million at June 30, 2013 and December 31, 2012, respectively.

Of our total borrowings, $68.8 million, or approximately 16.0 percent, was subject to variable interest rates at June 30, 2013. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.7 million on an annual basis.

Included in interest expense is the amortization of discounts and financing fees. These items amounted to $0.5 million and $0.3 million for the three months ended June 30, 2013 and 2012, respectively, and $0.9 million and $1.4 million for the six months ended June 30, 2013 and 2012, respectively.

Cash Flow

The following table presents key drivers to our free cash flow for the periods presented.

	Three months ended June 30,						Six months ended June 30,
(dollars in thousands)	2013			2012			2013			2012
Net cash provided by (used in) operating activities	$	9,385		$	(52,421	)	$	(3,295	)	$	(71,519	)
Capital expenditures	(10,889		)	(5,386		)	(19,771		)	(11,832		)
Proceeds from asset sales and other	4			239			8			419
Free Cash Flow(1)	$	(1,500	)	$	(57,568	)	$	(23,058	)	$	(82,932	)

________________________________________

(1) We define Free Cash Flow as net cash provided by (used in) operating activities less capital expenditures plus proceeds from asset sales and other. The most directly comparable U.S. GAAP financial measure is net cash provided by (used in) 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 (used in) operating activities recorded under U.S. GAAP. Free Cash Flow may not be comparable to similarly titled measures reported by other companies.

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Discussion of Second Quarter 2013 vs. Second Quarter 2012 Cash Flow

Our net cash provided by (used in) operating activities was $9.4 million in the second quarter 2013 compared to $(52.4) million in the second quarter of 2012 an improvement of $61.8 million. The major factors impacting cash flow from operations was the favorable cash flow of $83.6 million in reduced pension and non-pension postretirement payments, which included a $79.7 million contribution to the U.S. pension plans in 2012. Partially offsetting this was an unfavorable cash flow impact of income tax payments of $5.6 million, interest payments of $5.6 million, abandoned property payments of $4.5 million, prepaid expenses of $2.5 million, and 2012 interest rate swap proceeds of $3.6 million.

Our net cash used in investing activities was $(10.9) million and $(5.1) million in the second quarter of 2013 and 2012, respectively, primarily representing capital expenditures.

Net cash used in financing activities was ($34.1) million in the second quarter of 2013, compared to net cash provided by financing activities of $44.7 million in the year-ago quarter. Second quarter 2013 reflects senior note payments of $45.0 million, offset by $9.8 million in the net borrowings on the ABL credit facility. Second quarter 2012 reflects senior note proceeds of $450.0 million, offset by former senior note payments of $360.0 million, call premium payments of $23.6 million, debt issuance costs of $12.2 million, and other debt payments of $9.6 million.

Our Free Cash Flow was $(1.5) million during the second quarter of 2013, compared to $(57.6) million in the year-ago quarter, an improvement of $56.1 million. The primary contributors to this change were the $61.8 million favorable cash flow impact from operating activities in the current period, as discussed above, offset by an additional $5.5 million in capital expenditures.

Discussion of First Six Months 2013 vs. First Six Months 2012 Cash Flow

Our net cash used in operating activities was $(3.3) million and $(71.5) million in the first six months of 2013 and 2012, respectively, an increase of $68.2 million. The major factors impacting cash flow from operations was the favorable cash flow of $91.1 million in reduced pension and non-pension postretirement payments, which included a $79.7 million contribution to the U.S. pension plans in 2012, and $12.4 million in reduced interest payments. Partially offsetting this was an unfavorable cash flow impact of working capital of $8.5 million, labor related payments of $6.2 million, income tax payments of $6.6 million, abandoned property payments of $4.5 million, prepaid expenses of $4.1 million, and 2012 interest rate swap proceeds of $3.6 million.

Our net cash used in investing activities was $(19.8) million and $(11.4) million in the first six months of 2013 and 2012, respectively, primarily representing capital expenditures.

Net cash (used in) provided by financing activities was $(33.6) million in the first six months of 2013, compared to $44.3 million in the year-ago period. The first half of 2013 reflects senior note payments of $45.0 million and call premium payments of $1.4 million, offset by $9.8 million in the net borrowings on the ABL credit facility and stock options exercised of $3.0 million. The first half of 2012 reflects senior note proceeds of $450.0 million, offset by former senior note payments of $360.0 million, call premium payments of $23.6 million, debt issuance costs of $12.2 million, and other debt payments of $10.0 million.

Our Free Cash Flow was $(23.1) million during the first six months of 2013, compared to $(82.9) million in the first six months of 2012, an increase of $59.9 million. The primary contributors to this change were the $68.2 million favorable cash flow impact from operating activities in the six month period, as discussed above, offset by an additional $7.9 million in capital expenditures.

Derivatives

We had an Interest Rate Agreement (Old Rate Agreement) in place through April 18, 2012 with respect to $80.0 million of our former Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. On April 18, 2012, we called the Old Rate Agreement at fair value and received proceeds of $3.6 million.

On June 18, 2012, we entered into an Interest Rate Agreement (New Rate Agreement) with a notional amount of $45.0 million that is to mature in 2020. The New Rate Agreement was executed in order to convert a portion of the Senior Secured Notes fixed rate debt into floating rate debt and maintain a capital structure containing fixed and floating rate debt. Prior to May 15, 2015, but not more than once in any twelve-month period, the counterparty may call up to 10 percent of the New Rate Agreement at a call price of 103 percent. The New Rate Agreement is callable at the counterparty’s option, in whole or in part, at any time on or after May 15, 2015 at set call premiums. The variable interest rate for our borrowings related to the New Rate

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Agreement at June 30, 2013, excluding applicable fees, is 5.5 percent. This New Rate Agreement expires on May 15, 2020. Total remaining Senior Secured Notes not covered by the New Rate Agreement have a fixed interest rate of 6.875 percent per year through May 15, 2020. If the counterparty to this New Rate Agreement were to fail to perform, this New Rate Agreement would no longer afford us a variable rate. However, we do not anticipate non-performance by the counterparty. The interest rate swap counterparty was rated A+, as of June 30, 2013, by Standard and Poor’s.

The fair market value for the New Rate Agreement at June 30, 2013, was a $1.8 million liability. The fair market value of the New Rate Agreement is based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves.

We also use commodity futures contracts related to forecasted future North American natural gas requirements. The objective of these futures contracts is to reduce the effects of fluctuations and price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from 40 percent to 70 percent of our anticipated requirements up to eighteen months in the future. The fair values of these instruments are determined from market quotes. At June 30, 2013, we had commodity futures contracts for 1,550,000 million British Thermal Units (BTUs) of natural gas with a fair market value of a $0.1 million liability. We have hedged a portion of our forecasted transactions through December 2014. At December 31, 2012, we had commodity futures contracts for 2,400,000 million BTUs of natural gas with a fair market value of a $(0.4) million liability. The counterparties for these derivatives were rated BBB+ or better as of June 30, 2013, by Standard & Poor’s.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Currency

We are exposed to market risks due to changes in currency values, although the majority of our revenues and expenses are denominated in the U.S. dollar. The currency market risks include devaluations and other major currency fluctuations relative to the U.S. dollar, Canadian dollar, euro, RMB or Mexican peso that could reduce the cost competitiveness of our products compared to foreign competition.

Interest Rates

We have an Interest Rate Agreement (New Rate Agreement) with respect to $45.0 million of debt in order to convert a portion of the Senior Secured Notes fixed rate debt into floating rate debt and maintain a capital structure containing fixed and floating rate debt. The interest rate for our borrowings related to the New Rate Agreement at June 30, 2013 is 5.5 percent per year. The New Rate Agreement expires on May 15, 2020. Total remaining Senior Secured Notes not covered by the New Rate Agreement have a fixed interest rate of 6.875 percent. If the counterparty to the New Rate Agreement were to fail to perform, the New Rate Agreement would no longer provide the desired results. However, we do not anticipate nonperformance by the counterparty. The counterparty was rated A+ as of June 30, 2013 by Standard and Poor’s.

Natural Gas

We are exposed to market risks associated with changes in the price of natural gas. We use commodity futures contracts related to forecasted future natural gas requirements of our manufacturing operations in North America. The objective of these futures contracts is to limit the fluctuations in prices paid and potential volatility in earnings or cash flows from price movements in the underlying natural gas commodity. We consider the forecasted natural gas requirements of our manufacturing operations in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from 40 percent to 70 percent of our anticipated requirements up to six quarters in the future. For our natural gas requirements that are not hedged, we are subject to changes in the price of natural gas, which affect our earnings. If the counterparties to these futures contracts were to fail to perform, we would no longer be protected from natural gas fluctuations by the futures contracts. However, we do not anticipate nonperformance by these counterparties. All counterparties were rated BBB+ or better by Standard and Poor’s as of June 30, 2013.

Retirement Plans

We are exposed to market risks associated with changes in the various capital markets. Changes in long-term interest rates affect the discount rate that is used to measure our benefit obligations and related expense. Changes in the equity and debt

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securities markets affect our pension plans' asset performance and related pension expense. Sensitivity to these key market risk factors is as follows:

• A change of 1.0 percent in the discount rate would change our total annual pension and nonpension postretirement expense by approximately $4.5 million.

• A change of 1.0 percent in the expected long-term rate of return on plan assets would change annual pension expense by approximately $3.4 million.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

This document and supporting schedules contain statements that are not historical facts and constitute projections, forecasts or forward-looking statements. These forward-looking statements reflect only our best assessment at this time, and may be identified by the use of words or phrases such as “anticipate,” “target,” “believe,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would” or similar phrases. Such forward-looking statements involve risks and uncertainty; actual results may differ materially from such statements, and undue reliance should not be placed on such statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Item 1A. Risk Factors

Our risk factors are set forth in Part I, Item 1A. "Risk Factors" in our 2012 Annual Report on Form 10-K.

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

Issuer’s Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1 to April 30, 2013	—	—	—	1,000,000
May 1 to May 31, 2013	—	—	—	1,000,000
June 1 to June 30, 2013	—	—	—	1,000,000
Total	—	—	—	1,000,000

__________________________________

(1) We announced on December 10, 2002, that our Board of Directors authorized the purchase of up to 2,500,000 shares of our common stock in the open market and negotiated purchases. There is no expiration date for this plan. In 2003, 1,500,000 shares of our common stock were purchased for $38.9 million. No additional shares were purchased from

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2004 through the six months ended June 30, 2013. Our ABL Facility and the indentures governing the Senior Secured Notes significantly restrict our ability to repurchase additional shares.

Item 5. Other Information

Effective August 7, 2013, our Board of Directors approved the Amended and Restated By-Laws attached as Exhibit 3.2 to this Form 10-Q. The following is a brief summary of the material changes effected by the Amended and Restated By-Laws:

• Pursuant to Article II, Sections 9, 10 and 11, we have established new advance notice deadlines and other procedures and information requirements for our stockholders to nominate directors or to propose other business to be conducted at our annual meeting of shareholders so that we can ensure:

◦ the orderly operations of meetings and conduct of corporate business; and

◦ that we and our stockholders have adequate time and information to evaluate and respond to stockholder proposals.

Under the new By-Laws, (i) in most cases, shareholder proposals (including director nominations) must be submitted no less than 90 or no more than 120 days prior to the first anniversary of the preceding year's annual meeting, (ii) shareholders nominating directors or making other proposals must (a) agree to appear in person (or send a proxy to appear) at the annual meeting, (b) disclose certain information regarding their share ownership and other interests with respect to the Company and (c) otherwise comply with the new procedural and disclosure requirements set forth in the Amended and Restated By-Laws.

• Pursuant to Article II, Section 11, we have also clarified that members of our board of directors may serve on the boards of directors of no more than three (3) other public companies and that members of the audit committee of the board of directors must serve on the audit committees of no more than two (2) other public companies.

• Pursuant to Article III, Section 13, we have clarified that the chairman of our board of directors serves in a non-executive role by virtue of being chairman and is not otherwise an executive or officer of the Company unless the chairman is also our chief executive officer.

• Pursuant to the new Section 8 to Article VI, we have specified that the Court of Chancery of the State of Delaware (or the federal district court for the District of Delaware or other Delaware State courts if the Court of Chancery does not have jurisdiction) shall be the sole and exclusive forum for proceedings which, among other things, are brought on behalf of the Company, claim breaches of fiduciary duties, arise under the Company's governing documents or the Delaware General Corporations Law, challenge the validity of the Company's governing documents or are governed by the internal affairs doctrine.

The foregoing description of the amendments to our By-Laws does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended and Restated By-Laws, a copy of which is attached hereto as Exhibit 3.2.

Item 6. Exhibits

Exhibits: The exhibits listed in the accompanying “Exhibit Index” are filed as part of this report.

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EXHIBIT INDEX
S-K Item 601 No.	Document
3.1	Restated Certificate of Incorporation of Libbey Inc. (filed as Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
3.2	Amended and Restated By-Laws of Libbey Inc.
3.3	Certificate of Incorporation of Libbey Glass Inc. (filed as Exhibit 3.3 to Libbey Glass Inc.’s Form S-4 (Reg No. 333-139358) filed December 14, 2006, and incorporated herein by reference).
3.4	Amended and Restated By-Laws of Libbey Glass Inc. (filed as Exhibit 3.4 to Libbey Glass Inc.’s Form S-4 (Reg No. 333-139358) filed December 14, 2006, and incorporated herein by reference).
4.1	Amended and Restated Registration Rights Agreement, dated October 29, 2009, among Libbey Inc. and Merrill Lynch PCG, Inc. (filed as Exhibit 4.4 to Registrant’s Form 8-K filed October 29, 2009 and incorporated herein by reference).
4.2	Amended and Restated Credit Agreement, dated February 8, 2010, among Libbey Glass Inc. and Libbey Europe B.V., as borrowers, Libbey Inc., as a loan guarantor, the other loan parties party thereto as guarantors, JPMorgan Chase Bank, N.A., as administrative agent with respect to the U.S. loans, J.P. Morgan Europe Limited, as administrative agent with respect to the Netherlands loans, Bank of America, N.A. and Barclays Capital, as Co-Syndication Agents, Wells Fargo Capital Finance, LLC, as Documentation Agent and the other lenders and agents party thereto (filed as Exhibit 4.1 to Libbey Inc.’s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference).
4.3	Amendment No. 1 to Amended and Restated Credit Agreement dated as of January 14, 2011 among Libbey Glass Inc. and Libbey Europe B.V. as borrowers, the other loan parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders with respect to the U.S. loans, and J.P. Morgan Europe Limited, as Administrative Agent for the Lenders with respect to the Netherlands loans (filed as Exhibit 4.6 to Libbey Inc.'s Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference).
4.4	Amendment No. 2 to the Amended and Restated Credit Agreement dated as of April 29, 2011 (filed as Exhibit 10.1 to Libbey Inc.’s Current Report on Form 8-K filed on May 3, 2011 and incorporated herein by reference).
4.5	Amendment No. 3 to Amended and Restated Credit Agreement dated as of September 14, 2011 among Libbey Glass Inc. and Libbey Europe B.V., as borrowers, the other loan parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders with respect to the U.S. loans, and J.P. Morgan Europe Limited, as Administrative Agent for the Lenders with respect to the Netherlands loans (filed as Exhibit 4.8 to Libbey Inc.'s Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference).
4.6	Amendment No. 4 to Amended and Restated Credit Agreement dated as of May 18, 2012 among Libbey Glass Inc. and Libbey Europe B.V., as borrowers, the other loan parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders with respect to the U.S. loans, and J.P. Morgan Europe Limited, as Administrative Agent for the Lenders with respect to the Netherlands loans (filed as Exhibit 4.1 to Libbey Inc.'s Current Report on Form 8-K filed on May 18, 2012 and incorporated herein by reference).
4.7	Indenture, dated May 18, 2012, among Libbey Glass Inc., Libbey Inc., the domestic subsidiaries of Libbey Glass Inc. listed as guarantors therein, and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent (filed as Exhibit 4.2 to Libbey Inc.’s Current Report on Form 8-K filed on May 18, 2012 and incorporated herein by reference).
4.8	Registration Rights Agreement, dated May 18, 2012, among Libbey Glass Inc., Libbey Inc., and the domestic subsidiaries of Libbey Glass Inc. listed as guarantors (filed as Exhibit 4.4 to Libbey Inc.’s Current Report on Form 8-K filed on May 18, 2012 and incorporated herein by reference).
4.9	Intercreditor Agreement, dated May 18, 2012, among Libbey Glass Inc., Libbey Inc., and the domestic subsidiaries of Libbey Glass Inc. listed as guarantors (filed as Exhibit 4.5 to Libbey Inc.’s Current Report on Form 8-K filed on May 18, 2012 and incorporated herein by reference).
10.1	Pension and Savings Plan Agreement dated as of June 17, 1993 between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.4 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
10.2	Cross-Indemnity Agreement dated as of June 24, 1993 between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.5 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).

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S-K Item 601 No.	Document
10.3	Libbey Inc. Guarantee dated as of October 10, 1995 in favor of The Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse China Company of Canada Ltd. guaranteeing certain obligations of LG Acquisition Corp. and Libbey Canada Inc. under the Asset Purchase Agreement for the Acquisition of Syracuse China (Exhibit 2.0) in the event certain contingencies occur (filed as Exhibit 10.17 to Libbey Inc.’s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference).
10.4	Susquehanna Pfaltzgraff Co. Guarantee dated as of October 10, 1995 in favor of LG Acquisition Corp. and Libbey Canada Inc. guaranteeing certain obligations of The Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse China Company of Canada, Ltd. under the Asset Purchase Agreement for the Acquisition of Syracuse China (Exhibit 2.0) in the event certain contingencies occur (filed as Exhibit 10.18 to Libbey Inc.’s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference).
10.5	First Amended and Restated Libbey Inc. Executive Savings Plan (filed as Exhibit 10.23 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference).
10.6	Form of Non-Qualified Stock Option Agreement between Libbey Inc. and certain key employees participating in The 1999 Equity Participation Plan of Libbey Inc. (filed as Exhibit 10.69 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference).
10.7	The 1999 Equity Participation Plan of Libbey Inc. (filed as Exhibit 10.67 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).
10.8	RMB Loan Contract between Libbey Glassware (China) Company Limited and China Construction Bank Corporation Langfang Economic Development Area Sub-branch entered into January 23, 2006 (filed as exhibit 10.75 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).
10.9	Guarantee Contract executed by Libbey Inc. for the benefit of China Construction Bank Corporation Langfang Economic Development Area Sub-branch (filed as exhibit 10.76 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).
10.1	Guaranty, dated May 31, 2006, executed by Libbey Inc. in favor of Fondo Stiva S.A. de C.V. (filed as exhibit 10.2 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference).
10.11	Guaranty Agreement, dated June 16, 2006, executed by Libbey Inc. in favor of Vitro, S.A. de C.V. (filed as exhibit 10.3 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference).
10.12	Libbey Inc. Amended and Restated Deferred Compensation Plan for Outside Directors (incorporated by reference to Exhibit 10.61 to Libbey Glass Inc.’s Registration Statement on Form S-4; File No. 333-139358).
10.13	2009 Director Deferred Compensation Plan (filed as Exhibit 10.51 to Libbey Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference).
10.14	Executive Deferred Compensation Plan (filed as Exhibit 10.52 to Libbey Inc’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference).
10.15	Form of Amended and Restated Indemnity Agreement dated as of December 31, 2008 between Libbey Inc. and the respective officers identified on Appendix 1 thereto (filed as exhibit 10.36 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.16	Form of Amended and Restated Indemnity Agreement dated as of December 31, 2008 between Libbey Inc. and the respective outside directors identified on Appendix 1 thereto (filed as exhibit 10.37 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.17	Amended and Restated Libbey Inc. Supplemental Retirement Benefit Plan effective December 31, 2008 (filed as exhibit 10.38 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).
10.18	Amendment to the First Amended and Restated Libbey Inc. Executive Savings Plan effective December 31, 2008 (filed as exhibit 10.39 to Libbey Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).

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S-K Item 601 No.
	Document
10.19	Amended and Restated 2006 Omnibus Incentive Plan of Libbey Inc. (filed as Exhibit 10.29 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 and incorporated herein by reference).
10.20	Employment Agreement dated as of June 22, 2011 between Libbey Inc. and Stephanie A. Streeter (filed as Exhibit 10.30 to Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 and incorporated herein by reference).
10.21	Form of Employment Agreement dated as of October 31, 2011 (filed as Exhibit 10.1 to Libbey Inc.’s Current Report on Form 8-K filed on November 3, 2011 and incorporated herein by reference) (as to each of Kenneth A. Boerger, Daniel P. Ibele, Timothy T. Paige and Roberto B Rubio).
10.22	Form of Employment Agreement dated as of October 31, 2011 (filed as Exhibit 10.2 to Libbey Inc.’s Current Report on Form 8-K filed on November 3, 2011 and incorporated herein by reference) (as to each of Richard I. Reynolds and Susan A. Kovach).
10.23	Form of Indemnity Agreement dated as of February 7, 2012 between Libbey Inc. and Stephanie A. Streeter (filed as Exhibit 10.25 to Libbey Inc.'s Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference).
10.24	Form of Change in Control Agreement dated as of August 1, 2012 (filed as Exhibit 10.1 to Libbey Inc.’s Current Report on Form 8-K filed on July 19, 2012 and incorporated herein by reference) (as to Sherry Buck).
10.25	Executive Severance Compensation Policy dated as of August 1, 2012 (filed as Exhibit 10.2 to Libbey Inc.’s Current Report on Form 8-K filed on July 19, 2012 and incorporated herein by reference).
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) (filed herein).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) (filed herein).
32.1	Chief Executive Officer Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 (filed herein).
32.2	Chief Financial Officer Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 (filed herein).
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Libbey Inc.
Date:	August 9, 2013	by:	/s/ Sherry L. Buck
			Sherry L. Buck
			Vice President, Chief Financial Officer

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