Libbey 10Q 2013 Q3 Quarterly report

Table of Contents

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 September 30, 2013



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 21,298,288 shares at October 31, 2013.

Table of Contents

TABLE OF CONTENTS



Item 1. Financial Statements	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income	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	17
6. Income Taxes	17
7. Pension and Non-pension Postretirement Benefits	18
8. Net Income 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	50
Item 1A. Risk Factors	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	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

Table of Contents

PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements

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

Table of Contents

Libbey Inc.

Condensed Consolidated Statements of Operations

(dollars in thousands)

(unaudited)



	Three months ended September 30,
	2013			2012
Net sales	$	204,386		$	209,150
Freight billed to customers	924			1,015
Total revenues	205,310			210,165
Cost of sales	165,405			158,956
Gross profit	39,905			51,209
Selling, general and administrative expenses	25,519			26,887
Special charges	390			—
Income from operations	13,996			24,322
Other income (expense)	(706		)	(195		)
Earnings before interest and income taxes	13,290			24,127
Interest expense	7,706			8,720
Income before income taxes	5,584			15,407
Provision for income taxes	835			546
Net income	$	4,749		$	14,861

Net income per share:
Basic	$	0.22		$	0.71
Diluted	$	0.21		$	0.70
Dividends per share	$	—		$	—

See accompanying notes

Table of Contents

Libbey Inc.

Condensed Consolidated Statements of Operations

(dollars in thousands)

(unaudited)



	Nine months ended September 30,
	2013			2012
Net sales	$	597,766		$	606,226
Freight billed to customers	2,447			2,482
Total revenues	600,213			608,708
Cost of sales	460,614			458,096
Gross profit	139,599			150,612
Selling, general and administrative expenses	81,551			82,391
Special charges	4,619			—
Income from operations	53,429			68,221
Loss on redemption of debt	(2,518		)	(31,075		)
Other income (expense)	(1,090		)	(359		)
Earnings before interest and income taxes	49,821			36,787
Interest expense	24,267			29,085
Income before income taxes	25,554			7,702
Provision for income taxes	6,380			2,343
Net income	$	19,174		$	5,359

Net income per share:
Basic	$	0.90		$	0.26
Diluted	$	0.87		$	0.25
Dividends per share	$	—		$	—

See accompanying notes

Table of Contents

Libbey Inc.

Condensed Consolidated Statements of Comprehensive Income

(dollars in thousands)

(unaudited)



	Three months ended September 30,					Nine months ended September 30,
	2013			2012		2013		2012

Net income	$	4,749		$	14,861	$	19,174	$	5,359

Other comprehensive income (loss):
Pension and other postretirement benefit adjustments, net of tax	3,577			3,028		12,660		9,865
Change in fair value of derivative instruments, net of tax	(27		)	1,545		509		3,022
Foreign currency translation adjustments	4,528			2,196		3,938		(483		)
Other comprehensive income, net of tax	8,078			6,769		17,107		12,404

Comprehensive income	$	12,827		$	21,630	$	36,281	$	17,763

See accompanying notes

Table of Contents

Libbey Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share amounts)



	September 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Cash and cash equivalents	$	29,466		$	67,208
Accounts receivable — net	91,611			80,850
Inventories — net	173,394			157,549
Prepaid and other current assets	23,145			12,997
Total current assets	317,616			318,604
Pension asset	11,129			10,196
Purchased intangible assets — net	19,517			20,222
Goodwill	167,162			166,572
Deferred income taxes	9,807			9,830
Derivative asset	—			298
Other assets	14,931			18,300
Total other assets	222,546			225,418
Property, plant and equipment — net	254,498			258,154
Total assets	$	794,660		$	802,176

LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$	60,767		$	65,712
Salaries and wages	29,560			41,405
Accrued liabilities	56,088			42,863
Accrued income taxes	—			2,282
Pension liability (current portion)	596			613
Non-pension postretirement benefits (current portion)	4,739			4,739
Derivative liability	193			420
Deferred income taxes	3,219			3,213
Long-term debt due within one year	15,146			4,583
Total current liabilities	170,308			165,830
Long-term debt	406,998			461,884
Pension liability	61,297			60,909
Non-pension postretirement benefits	67,304			71,468
Deferred income taxes	6,975			7,537
Other long-term liabilities	13,021			10,072
Total liabilities	725,903			777,700

Shareholders’ equity:
Common stock, par value $.01 per share, 50,000,000 shares authorized, 21,284,538 shares issued at September 30, 2013 (20,835,489 shares issued in 2012)	213			209
Capital in excess of par value	321,373			313,377
Retained deficit	(128,896		)	(148,070		)
Accumulated other comprehensive loss	(123,933		)	(141,040		)
Total shareholders’ equity	68,757			24,476
Total liabilities and shareholders’ equity	$	794,660		$	802,176

See accompanying notes

Table of Contents

Libbey Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)



	Three months ended September 30,
	2013			2012
Operating activities:
Net income	$	4,749		$	14,861
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	11,773			10,073
Loss on asset sales and disposals	481			127
Change in accounts receivable	732			(6,023		)
Change in inventories	3,722			(3,006		)
Change in accounts payable	318			(7,499		)
Accrued interest and amortization of discounts and finance fees	7,266			8,186
Pension & non-pension postretirement benefits	3,118			1,241
Restructuring	(797		)	—
Accrued liabilities & prepaid expenses	3,533			9,770
Income taxes	(2,106		)	(921		)
Share-based compensation expense	990			601
Other operating activities	988			479
Net cash provided by (used in) operating activities	34,767			27,889

Investing activities:
Additions to property, plant and equipment	(10,381		)	(5,412		)
Proceeds from asset sales and other	73			131
Net cash used in investing activities	(10,308		)	(5,281		)

Financing activities:
Borrowings on ABL credit facility	12,400			—
Repayments on ABL credit facility	(22,200		)	—
Other repayments	(4,397		)	(9,551		)
Other borrowings	6,094			1,234
Stock options exercised	2,059			253
Debt issuance costs and other	—			(880		)
Net cash provided by (used in) financing activities	(6,044		)	(8,944		)

Effect of exchange rate fluctuations on cash	507			106
Increase (decrease) in cash	18,922			13,770

Cash at beginning of period	10,544			19,577
Cash at end of period	$	29,466		$	33,347

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	271		$	376
Cash paid during the period for income taxes	$	2,280		$	875

See accompanying notes

Table of Contents

Libbey Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)



	Nine months ended September 30,
	2013			2012
Operating activities:
Net income	$	19,174		$	5,359
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	34,170			30,897
Loss on asset sales and disposals	514			294
Change in accounts receivable	(10,147		)	(6,497		)
Change in inventories	(14,770		)	(25,097		)
Change in accounts payable	(5,999		)	(12,087		)
Accrued interest and amortization of discounts and finance fees	7,876			532
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	8,322			(81,338		)
Restructuring	2,858			—
Accrued liabilities & prepaid expenses	(13,052		)	7,742
Income taxes	(6,285		)	(1,041		)
Share-based compensation expense	3,299			2,466
Other operating activities	2,994			563
Net cash provided by (used in) operating activities	31,472			(43,630		)

Investing activities:
Additions to property, plant and equipment	(30,152		)	(17,244		)
Proceeds from asset sales and other	81			550
Net cash used in investing activities	(30,071		)	(16,694		)

Financing activities:
Borrowings on ABL credit facility	42,800			—
Repayments on ABL credit facility	(42,800		)	—
Other repayments	(4,511		)	(19,513		)
Other borrowings	6,094			1,234
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	5,107			293
Debt issuance costs and other	—			(13,034		)
Net cash provided by (used in) financing activities	(39,660		)	35,378

Effect of exchange rate fluctuations on cash	517			2
Increase (decrease) in cash	(37,742		)	(24,944		)

Cash at beginning of period	67,208			58,291
Cash at end of period	$	29,466		$	33,347

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	16,119		$	28,601
Cash paid during the period for income taxes	$	10,095		$	2,066

See accompanying notes

Table of Contents

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,”

Table of Contents

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 September 30,				Nine months ended September 30,
(dollars in thousands)	2013		2012		2013		2012
Stock-based compensation expense	$	990	$	601	$	3,299	$	2,466

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 September 30, 2013.

Table of Contents


3.	Balance Sheet Details

The following table provides detail of selected balance sheet items:



(dollars in thousands)	September 30, 2013		December 31, 2012
Accounts receivable:
Trade receivables	$	90,225	$	79,624
Other receivables	1,386		1,226
Total accounts receivable, less allowances of $5,898 and $5,703	$	91,611	$	80,850

Inventories:
Finished goods	$	155,354	$	139,888
Work in process	1,826		1,188
Raw materials	4,080		4,828
Repair parts	10,690		10,283
Operating supplies	1,444		1,362
Total inventories, less allowances of $4,452 and $4,091	$	173,394	$	157,549

Prepaid and other current assets:
Value added tax	$	6,667	$	3,850
Prepaid expenses	8,099		5,036
Deferred and prepaid income taxes	8,194		4,070
Derivative asset	185		41
Total prepaid and other current assets	$	23,145	$	12,997

Other assets:
Deposits	$	1,951	$	936
Finance fees — net of amortization	10,929		13,539
Other assets	2,051		3,825
Total other assets	$	14,931	$	18,300

Accrued liabilities:
Accrued incentives	$	24,485	$	17,783
Workers compensation	6,802		7,128
Medical liabilities	3,870		3,537
Interest	10,169		3,732
Commissions payable	1,166		1,478
Contingency liability	—		2,719
Restructuring liability	867		—
Other accrued liabilities	8,729		6,486
Total accrued liabilities	$	56,088	$	42,863

Other long-term liabilities:
Deferred liability	$	7,088	$	5,591
Derivative liability	1,636		—
Other long-term liabilities	4,297		4,481
Total other long-term liabilities	$	13,021	$	10,072

Table of Contents


4.	Borrowings

Borrowings consist of the following:



(dollars in thousands)	Interest Rate		Maturity Date	September 30, 2013			December 31, 2012
Borrowings under ABL Facility	floating		May 18, 2017	$	—		$	—
Senior Secured Notes	6.875%	(1)	May 15, 2020	405,000			450,000
Promissory Note	6.00%		October, 2013 to September, 2016	738			903
RMB Loan Contract	floating		January, 2014	9,780			9,522
RMB Working Capital Loan	floating		September, 2014	5,135			—
BES Euro Line	floating		December, 2013	—			4,362
AICEP Loan	0.00%		January, 2016 to July 30, 2018	2,348			1,272
Total borrowings				423,001			466,059
Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)				(857		)	408
Total borrowings — net				422,144			466,467
Less — long term debt due within one year				15,146			4,583
Total long-term portion of borrowings — net				$	406,998		$	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

Table of Contents

and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.50 percent and 1.50 percent, respectively, at September 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 September 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 no Libbey Glass or Libbey Europe borrowings under the facility at September 30, 2013 or 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 $0.2 million as of September 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 September 30, 2013, we had $8.7 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $82.9 million at September 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.

Table of Contents

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 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 nine months ended September 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 September 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 September 30, 2013, by Standard and Poor’s.

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



(dollars in thousands)	September 30, 2013			December 31, 2012
Fair market value of Rate Agreements - asset (liability)	$	(1,613	)	$	298
Adjustment to increase (decrease) carrying value of the related long-term debt	$	(857	)	$	408

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 and the net impact recorded on the Condensed Consolidated Statements of Operations.

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 September 30, 2013, we had $0.7 million outstanding on the promissory note. Principal and interest with respect to the promissory note are paid monthly.

Notes Payable

We have an overdraft line of credit for a maximum of €1.0 million. At September 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.

Table of Contents

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 $40.8 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of September 30, 2013, the annual interest rate was 5.90 percent. As of September 30, 2013, the outstanding balance was RMB 60.0 million (approximately $9.8 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.

RMB Working Capital Loan

On September 2, 2013, Libbey China entered into a RMB 31.5 million (approximately $5.1 million) working capital loan with CCB to cover seasonal working capital needs. The 364-day loan matures on September 1, 2014, and bears interest at a variable rate as announced by the People's Bank of China. The annual interest rate was 6.3% at September 30, 2013, and interest is paid monthly. The obligation is secured by 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 $14.9 million) with Banco Espírito Santo, S.A. (BES). On August 14, 2013, Libbey Portugal pre-paid the final €3.3 million (approximately $4.5 million) principal payment along with accrued and unpaid interest on its BES Euro Line.

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 €1.7 million (approximately $2.3 million) at September 30, 2013, and has an interest rate of 0.0 percent. Semi-annual installments of principal are due beginning in January 2016 through the maturity date in 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 September 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 September 30, 2013 and December 31, 2012 due to variable rates.

Capital Resources and Liquidity

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

On August 14, 2013, Libbey Portugal pre-paid the final €3.3 million (approximately $4.5 million) principal payment along with accrued and unpaid interest on its BES Euro Line. On October 10, 2013, Libbey China made a RMB 30.0 million (approximately $4.9 million) pre-payment of principal on the RMB Loan Contract using cash on hand. The remaining RMB 30.0 million (approximately $4.9 million) loan principal balance matures January 2014.

Table of Contents


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, 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 during 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. For the three and nine months ended September 30, 2013, we recorded a pretax charge of $0.4 million and $6.3 million, respectively. These charges included employee termination costs, fixed asset impairment charges, production transfer cost 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 nine months ended September 30, 2013:



(dollars in thousands)	Three months ended September 30, 2013			Nine months ended September 30, 2013
Accelerated depreciation	$	—		$	1,699
Included in cost of sales	—			1,699

Employee termination cost & other	(23		)	1,887
Fixed asset write-down	—			1,992
Production transfer expenses	413			740
Included in special charges	390			4,619
Total pretax charge	$	390		$	6,318

The following is the capacity realignment reserve activity for the nine months ended September 30, 2013:



(dollars in thousands)	Reserve Balance at January 1, 2013		Total Charge to Earnings		Cash (payments) receipts			Non-cash Utilization			Reserve Balance at September 30, 2013
Accelerated depreciation	$	—	$	1,699	$	—		$	(1,699	)	$	—
Employee termination cost & other	—		1,887		(1,020		)	—			867
Fixed asset write-down	—		1,992		—			(1,992		)	—
Production transfer expenses	—		740		(740		)	—			—
Total	$	—	$	6,318	$	(1,760	)	$	(3,691	)	$	867


6.	Income Taxes

Our effective tax rate was 25.0 percent for the nine months ended September 30, 2013, compared to 30.4 percent for the nine months ended September 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 September 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 September 30, 2013, we recorded no additional income tax benefit. During the nine months ended September 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

Table of Contents

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 nine months ended September 30, 2012. There was no similar benefit recorded for the three months ended September 30, 2012 or the three and nine months ended September 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. 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 September 30,				Nine months ended September 30,
(dollars in thousands)	2013		2012		2013		2012
Total income tax payments, net of refunds	$	2,715	$	1,366	$	12,254	$	3,981
Less: credits or offsets	435		491		2,159		1,915
Cash paid, net	$	2,280	$	875	$	10,095	$	2,066

Cash paid for income taxes has increased for the three and nine months ended September 30, 2013 due to net operating loss carryforwards being fully utilized in 2012 in China, timing of payments in Mexico, and payments for federal Alternative Minimum Tax and state income tax where net operating loss carryforwards cannot be fully utilized.


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.

Table of Contents

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



Three months ended September 30,	U.S. Plans						Non-U.S. Plans						Total
(dollars in thousands)	2013			2012			2013			2012			2013			2012
Service cost	$	1,184		$	1,543		$	729		$	118		$	1,913		$	1,661
Interest cost	3,582			3,702			1,271			1,327			4,853			5,029
Expected return on plan assets	(5,571		)	(4,939		)	(547		)	(596		)	(6,118		)	(5,535		)
Amortization of unrecognized:
Prior service cost	293			494			65			70			358			564
Loss	2,095			1,302			223			149			2,318			1,451
Settlement charge	424			—			336			93			760			93
Curtailment charge (credit)	—			(125		)	—			—			—			(125		)
Pension expense	$	2,007		$	1,977		$	2,077		$	1,161		$	4,084		$	3,138

Nine months ended September 30,	U.S. Plans						Non-U.S. Plans						Total
(dollars in thousands)	2013			2012			2013			2012			2013			2012
Service cost	$	3,554		$	4,468		$	2,137		$	1,108		$	5,691		$	5,576
Interest cost	10,564			11,548			3,722			3,761			14,286			15,309
Expected return on plan assets	(16,775		)	(13,885		)	(1,524		)	(1,786		)	(18,299		)	(15,671		)
Amortization of unrecognized:
Prior service cost	879			1,537			187			198			1,066			1,735
Loss	6,445			4,822			676			408			7,121			5,230
Settlement charge	1,139			457			336			93			1,475			550
Curtailment charge (credit)	—			(125		)	—			—			—			(125		)
Pension expense	$	5,806		$	8,822		$	5,534		$	3,782		$	11,340		$	12,604

During the three and nine months ended September 30, 2013, we incurred pension settlement charges totaling $0.8 million and $1.5 million, respectively. The pension settlement charges were triggered by excess lump sum distributions that required us to record unrecognized gains and losses in our pension plan accounts. We have contributed $1.2 million and $4.0 million of cash into our pension plans for the three and nine months ended September 30, 2013, respectively. Pension contributions for the remainder of 2013 are estimated to be $1.8 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.

Table of Contents

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



Three months ended September 30,	U.S. Plans				Non-U.S. Plans					Total
(dollars in thousands)	2013		2012		2013		2012			2013		2012
Service cost	$	298	$	368	$	—	$	—		$	298	$	368
Interest cost	655		857		29		28			684		885
Amortization of unrecognized:
Prior service cost	35		105		—		—			35		105
Loss / (gain)	214		229		—		—			214		229
Non-pension postretirement benefit expense	$	1,202	$	1,559	$	29	$	28		$	1,231	$	1,587

Nine months ended September 30,	U.S. Plans				Non-U.S. Plans					Total
(dollars in thousands)	2013		2012		2013		2012			2013		2012
Service cost	$	893	$	1,103	$	1	$	1		$	894	$	1,104
Interest cost	1,966		2,570		83		80			2,049		2,650
Amortization of unrecognized:
Prior service cost	105		316		—		—			105		316
Loss / (gain)	643		687		—		(1		)	643		686
Non-pension postretirement benefit expense	$	3,607	$	4,676	$	84	$	80		$	3,691	$	4,756

Our 2013 estimate of non-pension cash payments is $4.7 million, and we have paid $0.9 million and $3.1 million for the three and nine months ended September 30, 2013, respectively.


8.	Net Income per Share of Common Stock

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



	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands, except earnings per share)	2013		2012		2013		2012
Numerators for earnings per share:
Net income that is available to common shareholders	$	4,749	$	14,861	$	19,174	$	5,359

Denominator for basic earnings per share:
Weighted average shares outstanding	21,492,625		20,896,291		21,300,212		20,834,742

Denominator for diluted earnings per share:
Effect of stock options and restricted stock units	730,697		464,195		629,200		432,535
Adjusted weighted average shares and assumed conversions	22,223,322		21,360,486		21,929,412		21,267,277

Basic earnings per share	$	0.22	$	0.71	$	0.90	$	0.26

Diluted earnings per share	$	0.21	$	0.70	$	0.87	$	0.25

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.

Table of Contents


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 and a portion of our interest rate swap, 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)	September 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	185		Prepaid and other current assets	41
Total undesignated		185			41
Total		$	185		$	339

	Liability Derivatives:
(dollars in thousands)	September 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	$	193	Derivative liability	$	420
Natural gas contracts	Other long-term liabilities	23		Other long-term liabilities	—
Interest rate contract	Other long-term liabilities	1,451		Other long-term liabilities	—
Total designated		1,667			420
Derivatives not designated as hedging instruments under FASB ASC 815:
Interest rate contract	Other long-term liabilities	162		Other long-term liabilities	—
Total undesignated		162			—
Total		$	1,829		$	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 has a maturity date 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.

$40.5 million of 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) and the offsetting change in

Table of Contents

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, along with the offsetting loss or gain on the related interest rate swap, in other income (expense), on the Condensed Consolidated Statements of Operations.

As of July 1, 2013, we de-designated 10 percent, or $4.5 million, of our New Rate Agreement. As a result, the mark-to-market of the $4.5 million portion of the New Rate Agreement is recorded in other income (expense) on the Condensed Consolidated Statement of Operations. For the three months and nine months ended September 30, 2013, the mark-to-market adjustment was expense of ($0.2) million.

The following table provides a summary of the gain (loss) recognized on the Condensed Consolidated Statements of Operations from the designated portion of our New Rate Agreement:



	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2013			2012			2013			2012
Interest rate swap - designated	$	330		$	582		$	(1,749	)	$	243
Related long-term debt	(245		)	(1,248		)	1,265			2,839
Net impact	$	85		$	(666	)	$	(484	)	$	3,082

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



	Three months ended September 30,					Nine months ended September 30,
(dollars in thousands)	2013		2012			2013			2012
Loss on redemption of debt	$	—	$	—		$	—		$	3,502
Other income (expense)	85		(666		)	(484		)	(420		)
Net impact	$	85	$	(666	)	$	(484	)	$	3,082

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 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 September 30, 2013, we had commodity contracts for 1,620,000 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 September 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 nine months ended September 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 $1.1 million and $4.3 million in the three and nine months ended September 30, 2012, respectively, (comparable 2013 amounts were immaterial), 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 $0.2 million of loss in our Condensed Consolidated Statements of Operations.

Table of Contents

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



	Three months ended September 30,					Nine months ended September 30,
(dollars in thousands)	2013			2012		2013		2012
Derivatives in Cash Flow Hedging relationships:
Natural gas contracts	$	(78	)	$	682	$	512	$	(836	)
Total	$	(78	)	$	682	$	512	$	(836	)

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 September 30,					Nine months ended September 30,
(dollars in thousands)		2013		2012			2013		2012
Derivative:	Location:
Natural gas contracts	Cost of sales	$	26	$	(1,088	)	$	32	$	(4,284	)
Total impact on net income (loss)		$	26	$	(1,088	)	$	32	$	(4,284	)

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 September 30, 2013 and December 31, 2012, we had contracts for C$4.3 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) on derivatives that were not designated as hedging instruments are recorded in current earnings as follows:



		Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)		2013			2012			2013		2012
Derivative:	Location:
Currency contracts	Other income (expense)	$	(273	)	$	(190	)	$	144	$	(220	)
Total		$	(273	)	$	(190	)	$	144	$	(220	)

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 September 30, 2013, by Standard and Poor’s.

Table of Contents


10.	Comprehensive Income (Loss)

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



Three months ended September 30, 2013 (dollars in thousands)	Foreign Currency Translation			Derivative Instruments			Pension and Other Postretirement Benefits			Total Accumulated Comprehensive Loss
Balance on June 30, 2013	$	(2,231	)	$	1,025		$	(130,805	)	$	(132,011	)

Other comprehensive income (loss)	4,528			(78		)	760			5,210
Currency impact	—			—			(33		)	(33		)

Amounts reclassified from accumulated other comprehensive income (loss):
Amortization of actuarial loss ⁽¹⁾	—			—			2,532			2,532
Amortization of prior service cost ⁽¹⁾	—			—			393			393
Cost of sales	—			(26		)	—			(26		)
Current-period other comprehensive income (loss)	4,528			(104		)	3,652			8,076
Tax effect	—			77			(75		)	2
Balance on September 30, 2013	$	2,297		$	998		$	(127,228	)	$	(123,933	)

Nine months ended September 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)	3,938			512			3,819			8,269
Currency impact	—			—			(108		)	(108		)

Amounts reclassified from accumulated other comprehensive income (loss):
Amortization of actuarial loss ⁽¹⁾	—			—			7,764			7,764
Amortization of prior service cost ⁽¹⁾	—			—			1,171			1,171
Cost of sales	—			(32		)	—			(32		)
Current-period other comprehensive income (loss)	3,938			480			12,646			17,064
Tax effect	—			29			14			43
Balance on September 30, 2013	$	2,297		$	998		$	(127,228	)	$	(123,933	)

___________________________

(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.

Table of Contents


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 nine months ended September 30, 2013 and September 30, 2012.

At September 30, 2013, December 31, 2012 and September 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.

Table of Contents

Libbey Inc.

Condensed Consolidating Statements of Comprehensive Income (Loss)

(unaudited)



	Three months ended September 30, 2013
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—	$	96,699		$	20,926		$	104,251		$	(17,490	)	$	204,386
Freight billed to customers	—		170			212			542			—			924
Total revenues	—		96,869			21,138			104,793			(17,490		)	205,310
Cost of sales	—		79,960			15,840			87,095			(17,490		)	165,405
Gross profit	—		16,909			5,298			17,698			—			39,905
Selling, general and administrative expenses	—		13,476			3,103			8,940			—			25,519
Special charges	—		373			—			17			—			390
Income (loss) from operations	—		3,060			2,195			8,741			—			13,996
Other income (expense)	—		(238		)	(4		)	(464		)	—			(706		)
Earnings (loss) before interest and income taxes	—		2,822			2,191			8,277			—			13,290
Interest expense	—		5,704			—			2,002			—			7,706
Income (loss) before income taxes	—		(2,882		)	2,191			6,275			—			5,584
Provision (benefit) for income taxes	—		452			81			302			—			835
Net income (loss)	—		(3,334		)	2,110			5,973			—			4,749
Equity in net income (loss) of subsidiaries	4,749		8,083			—			—			(12,832		)	—
Net income (loss)	$	4,749	$	4,749		$	2,110		$	5,973		$	(12,832	)	$	4,749

Comprehensive income (loss)	$	12,827	$	12,827		$	2,031		$	1,641		$	(16,499	)	$	12,827



	Three months ended September 30, 2012
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)			Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	—	$	104,840		$	20,210	$	104,166	$	(20,066	)	$	209,150
Freight billed to customers	—		140			158		717		—			1,015
Total revenues	—		104,980			20,368		104,883		(20,066		)	210,165
Cost of sales	—		79,164			14,483		85,375		(20,066		)	158,956
Gross profit	—		25,816			5,885		19,508		—			51,209
Selling, general and administrative expenses	—		17,261			1,495		8,131		—			26,887
Special charges	—		—			—		—		—			—
Income (loss) from operations	—		8,555			4,390		11,377		—			24,322
Other income (expense)	—		(541		)	9		337		—			(195		)
Earnings (loss) before interest and income taxes	—		8,014			4,399		11,714		—			24,127
Interest expense	—		6,719			—		2,001		—			8,720
Income (loss) before income taxes	—		1,295			4,399		9,713		—			15,407
Provision (benefit) for income taxes	—		(1,536		)	—		2,082		—			546
Net income (loss)	—		2,831			4,399		7,631		—			14,861
Equity in net income (loss) of subsidiaries	14,861		12,030			—		—		(26,891		)	—
Net income (loss)	$	14,861	$	14,861		$	4,399	$	7,631	$	(26,891	)	$	14,861

Comprehensive income (loss)	$	21,630	$	21,630		$	4,522	$	10,244	$	(36,396	)	$	21,630

Table of Contents

Libbey Inc.

Condensed Consolidating Statements of Comprehensive Income (Loss)

(unaudited)



	Nine months ended September 30, 2013
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—	$	285,035		$	61,342		$	293,122		$	(41,733	)	$	597,766
Freight billed to customers	—		401			640			1,406			—			2,447
Total revenues	—		285,436			61,982			294,528			(41,733		)	600,213
Cost of sales	—		209,165			46,340			246,842			(41,733		)	460,614
Gross profit	—		76,271			15,642			47,686			—			139,599
Selling, general and administrative expenses	—		46,721			8,256			26,574			—			81,551
Special charges	—		4,602			—			17			—			4,619
Income (loss) from operations	—		24,948			7,386			21,095			—			53,429
Other income (expense)	—		(2,745		)	(16		)	(847		)	—			(3,608		)
Earnings (loss) before interest and income taxes	—		22,203			7,370			20,248			—			49,821
Interest expense	—		18,120			—			6,147			—			24,267
Income (loss) before income taxes	—		4,083			7,370			14,101			—			25,554
Provision (benefit) for income taxes	—		1,152			230			4,998			—			6,380
Net income (loss)	—		2,931			7,140			9,103			—			19,174
Equity in net income (loss) of subsidiaries	19,174		16,243			��			—			(35,417		)	—
Net income (loss)	$	19,174	$	19,174		$	7,140		$	9,103		$	(35,417	)	$	19,174

Comprehensive income (loss)	$	36,281	$	36,281		$	7,030		$	4,441		$	(47,752	)	$	36,281



	Nine months ended September 30, 2012
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)			Subsidiary Guarantors		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	—	$	308,017		$	57,420	$	294,175	$	(53,386	)	$	606,226
Freight billed to customers	—		436			532		1,514		—			2,482
Total revenues	—		308,453			57,952		295,689		(53,386		)	608,708
Cost of sales	—		229,083			41,838		240,561		(53,386		)	458,096
Gross profit	—		79,370			16,114		55,128		—			150,612
Selling, general and administrative expenses	—		52,685			4,897		24,809		—			82,391
Special charges	—		—			—		—		—			—
Income (loss) from operations	—		26,685			11,217		30,319		—			68,221
Other income (expense)	—		(31,503		)	2		67		—			(31,434		)
Earnings (loss) before interest and income taxes	—		(4,818		)	11,219		30,386		—			36,787
Interest expense	—		22,593			—		6,492		—			29,085
Income (loss) before income taxes	—		(27,411		)	11,219		23,894		—			7,702
Provision (benefit) for income taxes	—		(3,972		)	131		6,184		—			2,343
Net income (loss)	—		(23,439		)	11,088		17,710		—			5,359
Equity in net income (loss) of subsidiaries	5,359		28,798			—		—		(34,157		)	—
Net income (loss)	$	5,359	$	5,359		$	11,088	$	17,710	$	(34,157	)	$	5,359

Comprehensive income (loss)	$	17,763	$	17,763		$	11,575	$	18,120	$	(47,458	)	$	17,763

Table of Contents

Libbey Inc.

Condensed Consolidating Balance Sheet




	September 30, 2013 (unaudited)
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)		Subsidiary Guarantors		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash and equivalents	$	—	$	6,217	$	52	$	23,197		$	—		$	29,466
Accounts receivable — net	—		38,967		5,551		47,093			—			91,611
Inventories — net	—		60,035		21,295		92,064			—			173,394
Other current assets	—		19,638		2,284		17,630			(16,407		)	23,145
Total current assets	—		124,857		29,182		179,984			(16,407		)	317,616
Other non-current assets	—		18,806		—		21,251			(4,190		)	35,867
Investments in and advances to subsidiaries	68,757		372,239		197,806		(40,632		)	(598,170		)	—
Goodwill and purchased intangible assets — net	—		27,423		12,347		146,909			—			186,679
Total other assets	68,757		418,468		210,153		127,528			(602,360		)	222,546
Property, plant and equipment — net	—		64,876		288		189,334			—			254,498
Total assets	$	68,757	$	608,201	$	239,623	$	496,846		$	(618,767	)	$	794,660

Accounts payable	$	—	$	12,330	$	2,118	$	46,319		$	—		$	60,767
Accrued and other current liabilities	—		56,489		22,473		28,767			(13,334		)	94,395
Notes payable and long-term debt due within one year	—		231		—		14,915			—			15,146
Total current liabilities	—		69,050		24,591		90,001			(13,334		)	170,308
Long-term debt	—		404,655		—		2,343			—			406,998
Other long-term liabilities	—		91,818		9,432		51,537			(4,190		)	148,597
Total liabilities	—		565,523		34,023		143,881			(17,524		)	725,903
Total shareholders’ equity (deficit)	68,757		42,678		205,600		352,965			(601,243		)	68,757
Total liabilities and shareholders’ equity (deficit)	$	68,757	$	608,201	$	239,623	$	496,846		$	(618,767	)	$	794,660

Table of Contents

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

Table of Contents

Libbey Inc.

Condensed Consolidating Statements of Cash Flows

(unaudited)



	Three months ended September 30, 2013
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	4,749		$	4,749		$	2,110		$	5,973		$	(12,832	)	$	4,749
Depreciation and amortization	—			2,921			13			8,839			—			11,773
Other operating activities	(4,749		)	12,531			(2,122		)	(247		)	12,832			18,245
Net cash provided by (used in) operating activities	—			20,201			1			14,565			—			34,767
Additions to property, plant & equipment	—			(2,620		)	(4		)	(7,757		)	—			(10,381		)
Other investing activities	—			1			—			72			—			73
Net cash (used in) investing activities	—			(2,619		)	(4		)	(7,685		)	—			(10,308		)
Net borrowings (repayments)	—			(9,856		)	—			1,753			—			(8,103		)
Other financing activities	—			2,059			—			—			—			2,059
Net cash provided by (used in) financing activities	—			(7,797		)	—			1,753			—			(6,044		)
Exchange effect on cash	—			—			—			507			—			507
Increase (decrease) in cash	—			9,785			(3		)	9,140			—			18,922
Cash at beginning of period	—			(3,568		)	55			14,057			—			10,544
Cash at end of period	$	—		$	6,217		$	52		$	23,197		$	—		$	29,466



	Three months ended September 30, 2012
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	14,861		$	14,861		$	4,399		$	7,631		$	(26,891	)	$	14,861
Depreciation and amortization	—			3,143			17			6,913			—			10,073
Other operating activities	(14,861		)	159			(4,328		)	(4,906		)	26,891			2,955
Net cash provided by (used in) operating activities	—			18,163			88			9,638			—			27,889
Additions to property, plant & equipment	—			(1,478		)	—			(3,934		)	—			(5,412		)
Other investing activities	—			—			—			131			—			131
Net cash (used in) investing activities	—			(1,478		)	—			(3,803		)	—			(5,281		)
Net borrowings (repayments)	—			(53		)	—			(8,264		)	—			(8,317		)
Other financing activities	—			(627		)	—			—			—			(627		)
Net cash provided by (used in) financing activities	—			(680		)	—			(8,264		)	—			(8,944		)
Exchange effect on cash	—			—			—			106			—			106
Increase (decrease) in cash	—			16,005			88			(2,323		)	—			13,770
Cash at beginning of period	—			(211		)	66			19,722			—			19,577
Cash at end of period	$	—		$	15,794		$	154		$	17,399		$	—		$	33,347

Table of Contents

Libbey Inc.

Condensed Consolidating Statements of Cash Flows

(unaudited)



	Nine months ended September 30, 2013
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	19,174		$	19,174		$	7,140		$	9,103		$	(35,417	)	$	19,174
Depreciation and amortization	—			11,646			46			22,478			—			34,170
Other operating activities	(19,174		)	(20,066		)	(7,169		)	(10,880		)	35,417			(21,872		)
Net cash provided by (used in) operating activities	—			10,754			17			20,701			—			31,472
Additions to property, plant & equipment	—			(6,689		)	(35		)	(23,428		)	—			(30,152		)
Other investing activities	—			2			—			79			—			81
Net cash (used in) investing activities	—			(6,687		)	(35		)	(23,349		)	—			(30,071		)
Net borrowings (repayments)	—			(45,165		)	—			1,748			—			(43,417		)
Other financing activities	—			3,757			—			—			—			3,757
Net cash provided by (used in) financing activities	—			(41,408		)	—			1,748			—			(39,660		)
Exchange effect on cash	—			—			—			517			—			517
Increase (decrease) in cash	—			(37,341		)	(18		)	(383		)	—			(37,742		)
Cash at beginning of period	—			43,558			70			23,580			—			67,208
Cash at end of period	$	—		$	6,217		$	52		$	23,197		$	—		$	29,466



	Nine months ended September 30, 2012
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	5,359		$	5,359		$	11,088		$	17,710		$	(34,157	)	$	5,359
Depreciation and amortization	—			10,150			54			20,693			—			30,897
Other operating activities	(5,359		)	(86,674		)	(11,143		)	(10,867		)	34,157			(79,886		)
Net cash provided by (used in) operating activities	—			(71,165		)	(1		)	27,536			—			(43,630		)
Additions to property, plant & equipment	—			(5,792		)	—			(11,452		)	—			(17,244		)
Other investing activities	—			—			—			550			—			550
Net cash (used in) investing activities	—			(5,792		)	—			(10,902		)	—			(16,694		)
Net borrowings (repayments)	—			89,845			—			(18,124		)	—			71,721
Other financing activities	—			(36,343		)	—			—			—			(36,343		)
Net cash provided by (used in) financing activities	—			53,502			—			(18,124		)	—			35,378
Exchange effect on cash	—			—			—			2			—			2
Increase (decrease) in cash	—			(23,455		)	(1		)	(1,488		)	—			(24,944		)
Cash at beginning of period	—			39,249			155			18,887			—			58,291
Cash at end of period	$	—		$	15,794		$	154		$	17,399		$	—		$	33,347

Table of Contents


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.

Table of Contents



	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2013			2012			2013			2012
Net Sales:
Americas	$	141,390		$	146,169		$	406,740		$	424,428
EMEA	35,491			34,454			107,714			98,969
Other	27,505			28,527			83,312			82,829
Consolidated	$	204,386		$	209,150		$	597,766		$	606,226

Segment EBIT:
Americas	$	20,580		$	27,020		$	71,230		$	73,708
EMEA	(258		)	1,804			(1,172		)	1,526
Other	202			5,378			8,366			16,011
Total Segment EBIT	$	20,524		$	34,202		$	78,424		$	91,245

Reconciliation of Segment EBIT to Net Income:
Segment EBIT	$	20,524		$	34,202		$	78,424		$	91,245
Retained corporate costs	(3,647		)	(6,289		)	(14,074		)	(19,597		)
Loss on redemption of debt (note 4)	—			—			(2,518		)	(31,075		)
Severance	—			(3,911		)	—			(3,911		)
Pension settlement and curtailment	(760		)	125			(1,475		)	125
Furnace malfunction	(2,437		)	—			(2,437		)	—
Restructuring charges (note 5)	(390		)	—			(6,318		)	—
Abandoned property (note 15)	—			—			(1,781		)	—
Interest expense	(7,706		)	(8,720		)	(24,267		)	(29,085		)
Income taxes	(835		)	(546		)	(6,380		)	(2,343		)
Net income	$	4,749		$	14,861		$	19,174		$	5,359

Depreciation & Amortization:
Americas	$	5,975		$	6,045		$	19,824		$	18,248
EMEA	2,930			2,375			7,923			7,389
Other	2,587			1,325			5,377			4,156
Corporate	281			328			1,046			1,104
Consolidated	$	11,773		$	10,073		$	34,170		$	30,897

Capital Expenditures:
Americas	$	4,231		$	3,839		$	18,140		$	12,262
EMEA	1,307			942			4,348			2,960
Other	3,955			152			5,610			1,175
Corporate	888			479			2,054			847
Consolidated	$	10,381		$	5,412		$	30,152		$	17,244



(dollars in thousands)	September 30, 2013		December 31, 2012
Segment Assets⁽¹⁾:
Americas	$	169,667	$	150,923
EMEA	49,715		49,981
Other	45,623		37,495
Consolidated	$	265,005	$	238,399

______________________________

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

Table of Contents


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)	September 30, 2013										December 31, 2012
Asset / (Liability) (dollars in thousands)	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Commodity futures natural gas contracts	$	—	$	(216	)	$	—	$	(216	)	$	—	$	(420	)	$	—	$	(420	)
Currency contracts	—		185			—		185			—		41			—		41
Interest rate agreement	—		(1,613		)	—		(1,613		)	—		298			—		298
Net derivative asset (liability)	$	—	$	(1,644	)	$	—	$	(1,644	)	$	—	$	(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)	September 30, 2013			December 31, 2012
Prepaid and other current assets	$	185		$	41
Derivative asset	—			298
Derivative liability	(193		)	(420		)
Other long-term liabilities	(1,636		)	—
Net derivative asset (liability)	$	(1,644	)	$	(81	)


14.	Other Income (Expense)

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



	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2013			2012			2013			2012
Gain (loss) on currency translation	$	(636	)	$	(374	)	$	(438	)	$	(765	)
Hedge ineffectiveness	(78		)	(666		)	(923		)	(436		)
Other non-operating income (expense)	8			845			271			842
Other income (expense)	$	(706	)	$	(195	)	$	(1,090	)	$	(359	)

Table of Contents


15.	Contingencies

Legal Proceedings

From time to time, we are identified as a "potentially responsible party" (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and/or similar state laws that impose liability without regard to fault for costs and damages relating to the investigation and clean-up of contamination resulting from releases or threatened releases of hazardous substances. We are also subject to similar laws in some of the countries where our facilities are located. Our environmental, health, and safety department monitors compliance with applicable laws on a global basis.

On October 30, 2009, the United States Environmental Protection Agency ("US EPA") designated Syracuse China Company ("Syracuse China"), our wholly-owned subsidiary, as one of eight PRPs with respect to the Lower Ley Creek sub-site of the Onondaga Lake Superfund site located near the ceramic dinnerware manufacturing facility that Syracuse China operated from 1995 to 2009 in Syracuse, New York. As a PRP, we may be required to pay a share of the costs of investigation and clean-up of the Lower Ley Creek sub-site.

Although US EPA has completed its Remedial Investigation (RI), US EPA has not yet issued a Feasibility Study (FS), Risk Assessment (RA) or Proposed Remedial Action Plan (PRAP) with respect to the Lower Ley Creek sub-site. Accordingly, the nature of any plan of remediation, and the costs of any such plan of remediation, are not yet known. Additionally, it is not yet known whether amounts previously recovered by US EPA are adequate to cover the costs associated with any such plan of remediation, nor is it known how any excess costs may be allocated among the PRPs.

Depending on the results of the FS, RA and PRAP, it is reasonably possible that Syracuse China may be required to record a liability related to remediation costs at the Ley Creek sub-site. As of September 30, 2013, the possible loss or range of loss is not reasonably estimable. To the extent that Syracuse China may have liability with respect to this sub-site and to the extent that the liability arose prior to our 1995 acquisition of the Syracuse China assets, the liability would be subject to the indemnification provisions contained in the Asset Purchase Agreement between the Company and The Pfaltzgraff Co. (now known as TPC-York, Inc. ("TPC York")) and certain of its subsidiaries. Accordingly, Syracuse China has notified TPC York of its claim for indemnification under the Asset Purchase Agreement. Although we cannot predict the ultimate impact of this proceeding, we believe that the outcome will not have a material impact on our financial condition, results of operations or liquidity.

Abandoned Property Audit

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 for the nine months ended September 30, 2013. Expense of $2.7 million was recorded in the third quarter of 2011 and accrued at December 31, 2012.

Table of Contents


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

During the third quarter of 2013, our operating environment proved challenging and we expect it to remain as such for the balance of the year and into 2014. For the nine months ended September 30, 2013, the U.S. continued to experience a generally uncertain economic environment. U.S. consumer sentiment deteriorated in October to the weakest level in nine months and major foodservice indices indicate continued declining restaurant traffic for the third quarter of 2013. U.S. retailer confidence regarding the fourth quarter holiday period of 2013 is characterized as guarded, as there are fewer shopping days between Thanksgiving and Christmas. While the Mexican economy was stable for the first half of 2013, significant proposed fiscal reform is reducing consumer confidence and government spending, which drives a sizable portion of the economy, has not materialized to date. The European economy remains fragile and uneven. The rate of economic growth within the consumer segment in China has slowed considerably compared to the first nine months of 2012. Specifically affecting our business is the very tight credit environment and Chinese government tightening on consumption and entertaining, referred to as the "Eight Regulations". As a result of the combination of these factors, our net sales were down 2.3 percent for the third quarter and 1.4 percent for the first nine months of 2013 as compared to the 2012 periods. Despite these conditions and our underutilized capacity in the Americas during the third quarter related to our production realignment, we grew our Mexican and Latin American end market net sales by 4.0 percent as a result of increased shipments and EMEA net sales by 3.0 percent for the third quarter 2013, as compared to the 2012 period. Although sales were sluggish in the US and Canada and Asia Pacific regions, we are pleased with our ability to control costs despite softness in these markets.

Adjusted EBITDA for the third quarter of 2013 was $28.7 million, a reduction of 24.6 percent from the prior year period. The decline was primarily attributable to underabsorption of fixed costs of approximately $4.9 million due to:


•	previously announced strategic initiatives and additional maintenance activities as part of the capacity re-alignment from our Shreveport, Louisiana facility to our Toledo, Ohio and Monterrey, Mexico facilities; and


•	underabsorption of fixed costs at our China facility related to a planned furnace rebuild.

Treated as a special item in the third quarter of 2013 is $2.4 million for unexpected costs and underutilization of capacity resulting from a furnace malfunction in our Toledo, Ohio manufacturing facility.

We continued to strengthen our balance sheet subsequent to the redemption of $45.0 million of our Senior Secured Notes on May 7, 2013, by pre-paying the final €3.3 million (approximately $4.5 million) principal balance along with accrued interest on our BES Euro Line, on August 14, 2013. On October 10, 2013, Libbey China made a RMB 30.0 million (approximately $4.9 million) pre-payment of principal on the RMB Loan Contract. As of September 30, 2013, we had available capacity of $82.9 million under our ABL credit facility, with no outstanding borrowings under our ABL Facility and $29.5 million in cash on hand. Net operating cash flow for the third quarter was $34.8 million, an all time record for any third quarter.

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 effectively compete 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 other emerging markets 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 substantially completed during 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 $0.4 million and $6.3 million for the three and nine months ended September 30, 2013, respectively, which included employee termination costs, fixed asset impairment charges, depreciation expense and production transfer expenses. (See note 5 to the Condensed Consolidated Financial Statements for a further discussion.)

Table of Contents

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.

Results of Operations

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



	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands, except percentages and per-share amounts)	2013			2012			2013			2012
Net sales	$	204,386		$	209,150		$	597,766		$	606,226
Gross profit ⁽²⁾	$	39,905		$	51,209		$	139,599		$	150,612
Gross profit margin	19.5		%	24.5		%	23.4		%	24.8		%
Income from operations (IFO) ⁽³⁾	$	13,996		$	24,322		$	53,429		$	68,221
IFO margin	6.8		%	11.6		%	8.9		%	11.3		%
Earnings before interest and income taxes(EBIT)^(1)(2)(3)(4)	$	13,290		$	24,127		$	49,821		$	36,787
EBIT margin	6.5		%	11.5		%	8.3		%	6.1		%
Earnings before interest, taxes, depreciation and amortization (EBITDA)^(1)(2)(3)(4)	$	25,063		$	34,200		$	83,991		$	67,684
EBITDA margin	12.3		%	16.4		%	14.1		%	11.2		%
Adjusted EBITDA⁽¹⁾	$	28,650		$	37,986		$	96,821		$	102,545
Adjusted EBITDA margin	14.0		%	18.2		%	16.2		%	16.9		%
Net income ^(2)(3)(4)	$	4,749		$	14,861		$	19,174		$	5,359
Net income margin	2.3		%	7.1		%	3.2		%	0.9		%
Diluted net income per share	$	0.21		$	0.70		$	0.87		$	0.25

__________________________________

(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 to EBIT, EBITDA, and Adjusted EBITDA, see the "Adjusted EBITDA" section below in the Discussion of Third Quarter 2013 Compared to Third Quarter 2012 and the Discussion of First Nine Months 2013 Compared to First Nine Months 2012 and the reasons we believe these non-GAAP financial measures are useful.

(2)

The three and nine months ended September 30, 2013 include $2.4 million for the loss of production and disposal of fixed assets at our Toledo, Ohio, manufacturing facility due to a furnace malfunction; and $0.3 million of pension settlement charges. The nine month period ended September 30, 2013 also includes $1.7 million 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, facility. The three and nine month periods ended September 30, 2012 include $2.3 million of severance and other related to the implementation of our new strategic plan. (See notes 5 and 7 to the Condensed Consolidated Financial Statements.)

(3)

In addition to item (2) above, the three and nine month periods ended September 30, 2013 include $0.4 million and $4.6 million, respectively, in charges related to discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, facility; and $0.4 million and $1.2 million, respectively of pension settlement charges. The nine month period ended September 30, 2013 also includes $1.8 million for

Table of Contents

abandoned property charges. The three and nine month periods ended September 30, 2012 include $1.4 million of severance and other related to the implementation of our new strategic plan. (See notes 5, 7 and 15 to the Condensed Consolidated Financial Statements.)

(4)

In addition to item (3) above, the nine month period ended September 30, 2013 includes a loss of $2.5 million related to the redemption of $45.0 million of Senior Secured Notes in May 2013. The nine month period ended September 30, 2012 includes $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.)

Discussion of Third Quarter 2013 Compared to Third Quarter 2012

Net Sales

For the quarter ended September 30, 2013, net sales decreased 2.3 percent to $204.4 million, compared to $209.2 million in the year-ago quarter. When adjusted for currency impact, net sales were down 3.6 percent. The decrease in net sales was attributable to decreased sales of $4.8 million in the Americas and Other, partially offset by the increased net sales in the EMEA region.



	Three months ended September 30,
(dollars in thousands)	2013		2012
Americas	$	141,390	$	146,169
EMEA	35,491		34,454
Other	27,505		28,527
Consolidated	$	204,386	$	209,150

Net Sales — Americas

Net sales in the Americas were $141.4 million, compared to $146.2 million in the third quarter of 2012, a decrease of 3.3 percent (a decrease of 3.8 percent excluding currency fluctuation). The primary contributor was a 6.5 percent decrease in sales within our US and Canadian end market largely due to weaker retail performance and to a lesser extent, lower net sales in our foodservice channel resulting from the effect of discontinued items and mixed point of sale retail results at a few major retailers and lower restaurant traffic, partially offset by an 11.6 percent increase in shipments to US and Canada business to business customers. The overall decline in sales in the US and Canada end market was partially offset by a 4.0 percent increase (a 2.7 percent increase excluding the impact of currency) in sales to customers within our Mexican and Latin American end market, driven by increased shipments to foodservice customers and by retailer promotions.

Net Sales — EMEA

Net sales in EMEA were $35.5 million, compared to $34.5 million in the third quarter of 2012, an increase of 3.0 percent (a decrease of 2.2 percent excluding currency fluctuation). The primary contributor to the increased net sales was the favorable currency impact partially offset by reduced shipments to EMEA customers.

Gross Profit

Gross profit decreased to $39.9 million in the third quarter of 2013, compared to $51.2 million in the prior year quarter. Gross profit as a percentage of net sales decreased to 19.5 percent in the third quarter of 2013, compared to 24.5 percent in the prior year period. Primarily responsible for the $11.3 million decrease in gross profit were decreased production activity net of volume-related production costs ($8.4 million), which includes the impact of our previously announced strategic initiatives for capacity re-alignment within our North American manufacturing facilities and the planned furnace rebuild at our China facility discussed above; unfavorable sales volume and mix ($2.8 million); increased electricity expense ($1.0 million); increased depreciation expense ($1.7 million); and a $2.4 million special item related to the furnace malfunction at the Toledo, Ohio, manufacturing facility. Partially offsetting these were $5.4 million in favorable labor and benefits expenses.

Income From Operations

Income from operations for the quarter ended September 30, 2013 decreased $10.3 million, to $14.0 million, compared to $24.3 million in the prior year quarter. Income from operations as a percentage of net sales was 6.8 percent for the quarter

Table of Contents

ended September 30, 2013, compared to 11.6 percent in the prior year quarter. The decrease in income from operations is the result of the decrease in gross profit (discussed above), $0.4 million in restructuring charges, and $0.4 million in additional selling and marketing expenses. Partially offsetting these was a favorable $2.0 million in labor and benefit expenses (inclusive of the prior year severance of $1.4 million).

Earnings Before Interest and Income Taxes (EBIT)

EBIT for the quarter ended September 30, 2013 decreased by $10.8 million, to $13.3 million from $24.1 million in the third quarter of 2012. EBIT as a percentage of net sales decreased to 6.5 percent in the third quarter of 2013, compared to 11.5 percent in the prior year quarter. The decrease in EBIT is primarily the result of 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 September 30,
(dollars in thousands)	Americas			EMEA
Segment EBIT, September 30, 2012	$	27,020		$	1,804
Sales, excluding currency	(2,610		)	818
Manufacturing and distribution	(3,430		)	(2,455		)
Selling, general, administrative and other income/expense	(638		)	(473		)
Effects of changing foreign currency rates	238			48
Segment EBIT, September 30, 2013	$	20,580		$	(258	)

____________________________________


(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.

Segment EBIT — Americas

Segment EBIT decreased to $20.6 million in the third quarter of 2013, compared to $27.0 million in the third quarter of 2012. Segment EBIT as a percentage of net sales for the Americas decreased to 14.6 percent in the third quarter of 2013, compared to 18.5 percent in the prior year period. The primary drivers of the $6.4 million decline in Segment EBIT were decreased production activity net of volume-related production costs ($5.7 million), of which $3.6 million were related to our previously announced strategic initiatives and additional maintenance activities as part of the capacity realignment of our North American manufacturing facilities; unfavorable sales volume and mix ($2.6 million); and increased electricity expense ($0.9 million), partially offset by a $2.9 million reduction in labor and benefit expense.

Segment EBIT — EMEA

Segment EBIT decreased to ($0.3) million in the third quarter of 2013, compared to $1.8 million in the third quarter of 2012. Segment EBIT as a percentage of net sales for EMEA decreased to (0.7) percent in the third quarter of 2013, compared to 5.2 percent in the prior-year period. The primary driver of the $2.1 million decrease in Segment EBIT was decreased production activity net of volume-related production costs of $1.9 million.

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

EBITDA decreased by $9.1 million in the third quarter 2013, to $25.1 million, compared to $34.2 million in the year-ago quarter. As a percentage of net sales, EBITDA decreased to 12.3 percent in the third quarter of 2013, from 16.4 percent in the year-ago quarter. The key contributors to the increase in EBITDA were those factors discussed above under Earnings Before Interest and Income Taxes (EBIT), partially offset by $1.7 million of additional depreciation and amortization.

Table of Contents

Adjusted EBITDA

Adjusted EBITDA decreased by $9.3 million in the third quarter of 2013, to $28.7 million, compared to $38.0 million in the third quarter of 2012. As a percentage of net sales, Adjusted EBITDA was 14.0 percent for the third quarter of 2013, compared to 18.2 percent in the year-ago quarter. The key contributors to the decrease 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 to EBIT, EBITDA and Adjusted EBITDA.



	Three months ended September 30,
(dollars in thousands)	2013		2012
Net income	$	4,749	$	14,861
Add: Interest expense	7,706		8,720
Add: Provision provision for income taxes	835		546
Earnings before interest and income taxes (EBIT)	13,290		24,127
Add: Depreciation and amortization	11,773		10,073
Earnings before interest, taxes, deprecation and amortization (EBITDA)	25,063		34,200
Add: Special items before interest and taxes:
Furnace malfunction ⁽¹⁾	2,437		—
Pension settlement and curtailment (see note 7)	760		(125		)
Severance	—		3,911
Restructuring charges (see note 5) ⁽²⁾	390		—
Adjusted EBITDA	$	28,650	$	37,986

__________________________________


(1)	Furnace malfunction relates to loss of production and disposal of fixed assets at our Toledo, Ohio, manufacturing facility.


(2)	Restructuring charges relate to discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, 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 before interest expense and income taxes. The most directly comparable U.S. GAAP financial measure is net income.

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

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

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

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.

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

Table of Contents

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 and Diluted Net Income Per Share

We recorded net income of $4.7 million, or $0.21 per diluted share, in the third quarter of 2013, compared to a net income of $14.9 million, or $0.70 per diluted share, in the year-ago quarter. Net income as a percentage of net sales was 2.3 percent in the third quarter of 2013, compared to 7.1 percent in the year-ago quarter. The decrease in net income and diluted net income per share is due to the factors discussed in Earnings Before Interest and Income Taxes (EBIT) above and a $0.3 million increase in the provision for income taxes, partially offset by a $1.0 million reduction in interest expense. The reduction in interest expense is primarily the result of lower debt levels from the redemption of $45.0 million of Senior Secured Notes on May 7, 2103. The effective tax rate was 15.0 percent for the third quarter of 2013, compared to 3.5 percent in the year-ago quarter. The effective tax rate was influenced by jurisdictions with recorded valuation allowances, foreign withholding tax and changes in the mix of earnings in countries with differing statutory tax rates.

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

Net Sales

For the nine months ended September 30, 2013, net sales decreased 1.4 percent to $597.8 million, compared to $606.2 million in the year-ago period. The decrease in net sales was attributable to decreased sales in the Americas and Other, partially offset by increased sales in EMEA.



	Nine months ended September 30,
(dollars in thousands)	2013		2012
Americas	$	406,740	$	424,428
EMEA	107,714		98,969
Other	83,312		82,829
Consolidated	$	597,766	$	606,226

Net Sales — Americas

Net sales in the Americas were $406.7 million in the first nine months of 2013 compared to $424.4 million in the first nine months of 2012, a decrease of 4.2 percent (a 5.0 percent decrease excluding the impact of currency). The primary contributor was a 7.6 percent decrease in sales within our US and Canadian end market due to weaker retail performance and to a lesser extent lower sales in our foodservice channel. Lower retail sales resulted from mixed point of sale results at a few major retailers and discontinued items from our realignment of production. The foodservice channel was unfavorably impacted by

Table of Contents

reduced restaurant traffic. Partially offsetting this was a 4.0 percent increase (a 1.3 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.

Net Sales — EMEA

Net sales in EMEA were $107.7 million in the first nine months of 2013 compared to $99.0 million in the first nine months of 2012, an increase of 8.8 percent (6.1 percent excluding the impact of currency). The primary contributor to the increased net sales was increased shipments to EMEA customers and a more favorable mix of product sold.

Gross Profit

Gross profit decreased to $139.6 million in the first nine months of 2013, compared to $150.6 million in the prior year period. Gross profit as a percentage of net sales decreased to 23.4 percent in the nine months ended September 30, 2013, compared to 24.8 percent in the prior year period. The primary drivers of the $11.0 million decline in gross profit were decreased production activity net of volume-related production costs due to planned furnace rebuilds, relocation of production as part of our re-alignment, and loss of production due to a power failure ($20.8 million); higher depreciation expense ($3.3 million); the special item related to loss of production and fixed asset disposal costs associated with the furnace malfunction at our Toledo, Ohio manufacturing facility ($2.4 million); increased utility expenses ($1.5 million); and unfavorable sales volume and mix ($1.4 million). Partially offsetting these unfavorable impacts were the reduction in labor and benefit expenses of $11.0 million (including severance of $2.3 million in 2012), favorable currency impact of $4.7 million, and the reduction of repair and maintenance expense of $3.1 million.

Income From Operations

Income from operations for the nine months ended September 30, 2013 decreased $14.8 million, to $53.4 million, compared to $68.2 million in the prior year period. Income from operations as a percentage of net sales was 8.9 percent for the nine months ended September 30, 2013, compared to 11.3 percent in the prior-year period. The decrease in income from operations is the result of the decrease in gross profit (discussed above) and a $4.6 million charge related to discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, manufacturing facility. Also impacting income from operations in the first nine months of 2013 were $1.8 million of abandoned property expense, $1.2 million of pension settlement charges, $0.7 million of increased selling and marketing expenses, and a $0.6 million unfavorable currency impact, all of which were more than offset by a $4.9 million reduction in labor and benefit expense.

Earnings Before Interest and Income Taxes (EBIT)

EBIT for the nine months ended September 30, 2013 increased by $13.0 million to $49.8 million from $36.8 million in the first nine months of 2012. EBIT as a percentage of net sales increased to 8.3 percent in the first nine months of 2013, compared to 6.1 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 the decrease in income from operations (discussed above).

Segment EBIT

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



	Nine months ended September 30,
(dollars in thousands)	Americas			EMEA
Segment EBIT, September 30, 2012	$	73,708		$	1,526
Sales, excluding currency	(2,453		)	2,030
Manufacturing and distribution	(5,268		)	(3,975		)
Selling, general, administrative and other income/expense	1,196			(765		)
Effects of changing foreign currency rates	4,047			12
Segment EBIT, September 30, 2013	$	71,230		$	(1,172	)

____________________________________


(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.

Table of Contents

Segment EBIT — Americas

Segment EBIT decreased to $71.2 million in the first nine months of 2013, compared to $73.7 million in the first nine months of 2012. Segment EBIT as a percentage of net sales was 17.5 percent and remained flat compared to the prior year period. The primary drivers of the $2.5 million Segment EBIT decrease were decreased production activity net of lower volume-related production costs due to a significant furnace rebuild; relocation of production as part of our North American manufacturing re-alignment; loss of production due to a power failure ($16.9 million) and unfavorable sales volume and mix ($2.5 million). Partially offsetting these unfavorable items were reduced labor and benefit expense of $7.2 million, a favorable currency impact of $4.0 million, reduced repair and maintenance expense of $4.0 million and reduced selling, general, administrative and other income (expense) of $1.2 million.

Segment EBIT — EMEA

Segment EBIT decreased by $2.7 million to ($1.2) million for the first nine months of 2013, compared to $1.5 million in the prior year period. Segment EBIT as a percentage of net sales decreased to (1.1) percent for the nine months ended September 30, 2013, compared to 1.5 percent in the prior year nine month period. The primary driver of the $2.7 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 $16.3 million in the first nine months of 2013, to $84.0 million, compared to $67.7 million in the year-ago period. As a percentage of net sales, EBITDA increased to 14.1 percent in the first nine months of 2013, from 11.2 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 $3.3 million of additional depreciation expense (including $1.7 million of accelerated depreciation on certain fixed assets included in the North American manufacturing capacity realignment).

Adjusted EBITDA

Adjusted EBITDA decreased by $5.7 million in the first nine months of 2013, to $96.8 million, compared to $102.5 million in the first nine months of 2012. As a percentage of net sales, Adjusted EBITDA was 16.2 percent for the first nine months of 2013, compared to 16.9 percent in the year ago period. The key contributors to the decrease 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 to EBIT, EBITDA and Adjusted EBITDA.



	Nine months ended September 30,
(dollars in thousands)	2013			2012
Net income	$	19,174		$	5,359
Add: Interest expense	24,267			29,085
Add: Provision for income taxes	6,380			2,343
Earnings before interest and income taxes (EBIT)	49,821			36,787
Add: Depreciation and amortization	34,170			30,897
Earnings before interest, taxes, deprecation and amortization (EBITDA)	83,991			67,684
Add: Special items before interest and taxes:
Loss on redemption of debt (see note 4)⁽¹⁾	2,518			31,075
Pension settlement and curtailment (see note 7)	1,475			(125		)
Severance	—			3,911
Furnace malfunction ⁽²⁾	2,437			—
Abandoned property (see note 15)	1,781			—
Restructuring charges (see note 5) ⁽³⁾	6,318			—
Less: Accelerated depreciation expense included in special items and also in depreciation and amortization above	(1,699		)	—
Adjusted EBITDA	$	96,821		$	102,545

____________________________________


(1)	Loss on redemption of debt for the nine months ended September 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

Table of Contents

redemption of debt for the nine months ended September 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)	Furnace malfunction relates to loss of production and disposal of fixed assets at our Toledo, Ohio, manufacturing facility.


(3)	Restructuring charges relate to discontinuing production of certain glassware in North America and reducing manufacturing capacity at our Shreveport, Louisiana, 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 Third Quarter 2013 Compared with Third Quarter 2012 above.

Net Income and Diluted Net Income Per Share

We recorded net income of $19.2 million, or $0.87 per diluted share, in the first nine months of 2013, compared to net income of $5.4 million, or $0.25 per diluted share, in the year ago period. Net income as a percentage of net sales was 3.2 percent in the first nine months of 2013, compared to 0.9 percent in the first nine 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 and a $4.8 million reduction in interest expense, partially offset by a $4.0 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 and lower debt levels due to the redemption of $45.0 million Senior Secured Notes in May 2013. The effective tax rate was 25.0 percent for the first nine months of 2013, compared to 30.4 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, changes in accruals related to uncertain tax positions and foreign withholding tax.

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 September 30, 2013, we had no borrowings under our ABL Facility and we had $8.7 million in letters of credit issued under that facility. As a result, we had $82.9 million of unused availability remaining under the ABL Facility at September 30, 2013. In addition, we had $29.5 million of cash on hand at September 30, 2013, compared to $67.2 million of cash on hand at December 31, 2012. Of our total cash on hand at September 30, 2013 and December 31, 2012, $23.2 million and $23.6 million, respectively, were held in foreign subsidiaries and can be repatriated primarily through the repayment of intercompany loans without creating additional income tax expense. For further information regarding potential dividends from our non-U.S. subsidiaries, see note 8, Income Taxes, in our 2012 Annual Report on Form 10-K for the year ended December 31, 2012.

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.

Balance Sheet and Cash Flows

Cash and Equivalents

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

Table of Contents

Working Capital

The following table presents our working capital components:



(dollars in thousands, except percentages and DSO, DIO, DPO and DWC)	September 30, 2013			December 31, 2012
Accounts receivable — net	$	91,611		$	80,850
DSO⁽¹⁾	40.9			35.8
Inventories — net	$	173,394		$	157,549
DIO⁽²⁾	77.5			69.7
Accounts payable	$	60,767		$	65,712
DPO⁽³⁾	27.2			29.1
Working capital⁽⁴⁾	$	204,238		$	172,687
DWC⁽⁵⁾	91.3			76.4
Percentage of net sales	25.0		%	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 $204.2 million at September 30, 2013, an increase of $31.6 million from December 31, 2012. Our working capital normally increases during the first nine months 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, furnace rebuilds and maintenance activities. The impact of currency increased total working capital by $1.1 million at September 30, 2013, primarily driven by the euro and Chinese RMB. As a result of the factors above, working capital as a percentage of last twelve-month net sales increased to 25.0 percent at September 30, 2013 from 20.9 percent at December 31, 2012, and was slightly lower compared to the 26.6 percent for the period ended September 30, 2012.

Table of Contents

Borrowings

The following table presents our total borrowings:



(dollars in thousands)	Interest Rate		Maturity Date	September 30, 2013			December 31, 2012
Borrowings under ABL Facility	floating		May 18, 2017	$	—		$	—
Senior Secured Notes	6.875%	(1)	May 15, 2020	405,000			450,000
Promissory Note	6.00%		October, 2013 to September, 2016	738			903
RMB Loan Contract	floating		January, 2014	9,780			9,522
RMB Working Capital Loan	floating		September, 2014	5,135			—
BES Euro Line	floating		December, 2013	—			4,362
AICEP Loan	0.00%		January, 2016 to July 30, 2018	2,348			1,272
Total borrowings				423,001			466,059
Plus — carrying value adjustment on debt related to the Interest Rate Agreement ⁽¹⁾				(857		)	408
Total borrowings — net⁽²⁾				$	422,144		$	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 $423.0 million and $466.1 million at September 30, 2013 and December 31, 2012, respectively.

Of our total borrowings, $59.9 million, or approximately 14.2 percent, was subject to variable interest rates at September 30, 2013. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.6 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 $0.5 million for the three months ended September 30, 2013 and 2012, respectively, and $1.4 million and $1.9 million for the nine months ended September 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 September 30,						Nine months ended September 30,
(dollars in thousands)	2013			2012			2013			2012
Net cash provided by (used in) operating activities	$	34,767		$	27,889		$	31,472		$	(43,630	)
Capital expenditures	(10,381		)	(5,412		)	(30,152		)	(17,244		)
Proceeds from asset sales and other	73			131			81			550
Free Cash Flow⁽¹⁾	$	24,459		$	22,608		$	1,401		$	(60,324	)

________________________________________


(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.

Table of Contents

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

Our net cash provided by operating activities was $34.8 million in the third quarter 2013, compared to $27.9 million in the third quarter of 2012, an improvement of $6.9 million. Favorably impacting cash flow from operations were reduced working capital of $21.3 million and reduced pension and non-pension postretirement payments of $2.6 million. Partially offsetting these favorable items were reduced net income of $10.1 million, the unfavorable change in accrued liabilities and prepaid expenses of $6.2 million, and increased income tax payments of $1.4 million.

Our net cash used in investing activities was ($10.3) million and ($5.3) million in the third quarter of 2013 and 2012, respectively, primarily representing capital expenditures.

Net cash used in financing activities was ($6.0) million in the third quarter of 2013, compared to ($8.9) million in the year-ago quarter. Contributing to the reduction in net cash used in financing activities in 2013 were net repayments on the ABL credit facility of $9.8 million and other debt repayments of $4.4 million ($4.3 million pre-payment on the BES Euro Line), partially offset by other debt borrowings of $6.1 million ($5.1 million for a new China Working Capital Loan and $1.0 million AICEP loan) and stock options exercises of $2.1 million. In comparison, the third quarter 2012 included other debt repayments of $9.6 million and debt issuance costs of $0.9 million, partially offset by other debt borrowing of $1.2 million and stock options exercises of $0.3 million.

Our Free Cash Flow was $24.5 million during the third quarter of 2013, compared to $22.6 million in the year-ago quarter, an improvement of $1.9 million. The primary contributors to this change were the $6.9 million favorable cash flow impact from operating activities in the current period, as discussed above, offset by an additional $5.0 million in capital expenditures.

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

Our net cash provided by (used in) operating activities was $31.5 million and ($43.6) million in the first nine months of 2013 and 2012, respectively, an increase of $75.1 million. Contributing to the year-over-year improvement in cash provided by (used in) operating activities in the first nine months of 2013 were a reduction in pension and non-pension postretirement payments of $93.7 million, of which $79.7 million represents the 2012 contribution to our U.S. pension plans to fully fund our target obligations under the Employee Retirement Income Security Act, and a reduction in interest payments of $12.5 million. Partially offsetting these were an unfavorable cash flow impact of labor related accruals of $9.3 million, increased income tax payments of $8.0 million, payments in settlement of abandoned property audits of $4.5 million, an unfavorable change in prepaid expenses of $4.0 million, and 2012 interest rate swap proceeds of $3.6 million.

Our net cash used in investing activities was ($30.1) million and ($16.7) million in the first nine months of 2013 and 2012, respectively, primarily representing capital expenditures.

Net cash (used in) provided by financing activities was ($39.7) million in the first nine months of 2013, compared to $35.4 million in the year-ago period. Contributing to the year-over-year decrease in net cash (used in) provided by financing activities in the first nine months of 2013 were the redemption of $45.0 million of Senior Secured Notes, together with the payment of $1.4 million of related call premiums, partially offset by stock option exercises of $5.1 million and other debt net borrowings of $1.6 million. In comparison, the first nine months of 2012 included the receipt of proceeds of $450.0 million Senior Secured Notes, partially offset by the repayment of $360.0 million in former senior notes and related call premiums of $23.6 million, debt issuance costs of $13.0 million, and other debt payments of $19.5 million.

Our Free Cash Flow was $1.4 million during the first nine months of 2013, compared to ($60.3) million in the first nine months of 2012, an improvement of $61.7 million. The primary contributors to this change were the $75.1 million favorable cash flow impact from operating activities in the first nine months of 2013, as discussed above, offset by an additional $12.9 million in capital expenditures.

Derivatives

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,

Table of Contents

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. As of July 1, 2013, we de-designated 10 percent of the New Rate Agreement representing $4.5 million in order to keep the designated notional amount of the New Rate Agreement in alignment with 10 percent of our Senior Secured Notes. The variable interest rate for our borrowings related to the New Rate Agreement at September 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 September 30, 2013, by Standard and Poor’s.

The fair market value for the New Rate Agreement at September 30, 2013, was a $1.6 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 September 30, 2013, we had commodity futures contracts for 1,620,000 million British Thermal Units (BTUs) of natural gas with a fair market value of a $0.2 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 September 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 September 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 September 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 September 30, 2013.

Table of Contents

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 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.

Table of Contents

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⁾
July 1 to July 31, 2013	—	—	—	1,000,000
August 1 to August 31, 2013	—	—	—	1,000,000
September 1 to September 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 2004 through the nine months ended September 30, 2013. Our ABL Facility and the indentures governing the Senior Secured Notes significantly restrict our ability to repurchase additional shares.


Item 6.	Exhibits

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

Table of Contents



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. (filed as Exhibit 3.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 and incorporated herein by reference).

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).

Table of Contents



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).

Table of Contents



S-K Item 601 No.
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

Table of Contents

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:	November 8, 2013	by:	/s/ Sherry L. Buck
			Sherry L. Buck
			Vice President, Chief Financial Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Libbey (LBY) 10-Q2013 Q3 Quarterly report

Content analysis