Document and Entity Information

3 Months Ended

Mar. 31, 2014

Apr. 30, 2014

Entity Information [Line Items]

Entity Registrant Name

LIBBEY INC

Entity Central Index Key

0000902274

Current Fiscal Year End Date

--12-31

Entity Filer Category

Accelerated Filer

Document Type

10-Q

Document Period End Date

Mar. 31, 2014

Document Fiscal Year Focus

2014

Document Fiscal Period Focus

Q1

Amendment Flag

false

Entity Common Stock, Shares Outstanding

21,477,692

Condensed Consolidated Statements of Operations (USD $)

In Thousands, except Per Share data, unless otherwise specified

3 Months Ended

Mar. 31, 2014

Mar. 31, 2013

Net sales

$ 181,581

$ 183,476

Freight billed to customers

814

752

Total revenues

182,395

184,228

Cost of sales

150,056

141,996

Gross profit

32,339

42,232

Selling, general and administrative expenses

28,878

26,397

Special charges

0

4,314

Income from operations

3,461

11,521

Other income (expense)

(322)

(435)

Earnings before interest and income taxes

3,139

11,086

Interest expense

7,701

8,435

Income (loss) before income taxes

(4,562)

2,651

Provision (benefit) for income taxes

(1,178)

662

Net income (loss)

$ (3,384)

$ 1,989

Net income (loss) per share:

Basic

$ (0.16)

$ 0.09

Diluted

$ (0.16)

$ 0.09

Dividends per share

$ 0

Condensed Consolidated Statements of Comprehensive Income (USD $)

In Thousands, unless otherwise specified

3 Months Ended

Mar. 31, 2014

Mar. 31, 2013

Net income (loss)

$ (3,384)

$ 1,989

Other comprehensive income (loss):

Pension and other postretirement benefit adjustments, net of tax

1,349

2,671

Change in fair value of derivative instruments, net of tax

138

1,045

Foreign currency translation adjustments

(588)

(2,925)

Other comprehensive income, net of tax

899

791

Comprehensive income (loss)

$ (2,485)

$ 2,780

Condensed Consolidated Balance Sheets (USD $)

In Thousands, unless otherwise specified

Mar. 31, 2014

Dec. 31, 2013

Assets:

Cash and cash equivalents

$ 24,473

$ 42,208

Accounts receivable - net

87,046

94,549

Inventories - net

174,179

163,121

Prepaid and other current assets

31,899

24,838

Total current assets

317,597

324,716

Pension asset

34,147

33,615

Purchased intangible assets - net

19,051

19,325

Goodwill

167,379

Deferred income taxes

5,734

5,759

Other assets

13,134

13,534

Total other assets

239,445

239,612

Property, plant and equipment - net

264,618

265,662

Total assets

821,660

829,990

Liabilities and Shareholders' Equity:

Accounts payable

74,099

79,620

Salaries and wages

26,796

32,403

Accrued liabilities

46,899

41,418

Accrued income taxes

0

1,374

Pension liability (current portion)

3,161

Non-pension postretirement benefits (current portion)

4,758

Derivative liability

1,644

0

Long-term debt due within one year

5,351

5,391

Total current liabilities

162,708

168,125

Long-term debt

406,808

406,512

Pension liability

40,254

40,033

Non-pension postretirement benefits

58,822

59,065

Deferred income taxes

11,670

11,672

Other long-term liabilities

11,732

13,774

Total liabilities

691,994

699,181

Shareholders' equity:

Common stock, par value $.01 per share, 50,000,000 shares authorized, 21,440,055 shares issued in 2014 (21,316,480 shares issued in 2013)

214

213

Capital in excess of par value

324,708

323,367

Retained deficit

(122,995)

(119,611)

Accumulated other comprehensive loss

(72,261)

(73,160)

Total shareholders' equity

129,666

130,809

Total liabilities and shareholders' equity

$ 821,660

$ 829,990

Condensed Consolidated Balance Sheets Parenthetical (USD $)

Mar. 31, 2014

Dec. 31, 2013

Common stock, par value

$ 0.01

Common stock, shares authorized

50,000,000

Common stock, shares issued

21,440,055

21,316,480

Condensed Consolidated Statements of Cash Flows (USD $)

In Thousands, unless otherwise specified

3 Months Ended

Mar. 31, 2014

Mar. 31, 2013

Operating activities:

Net income (loss)

$ (3,384)

$ 1,989

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

10,676

10,774

(Gain) loss on asset sales and disposals

(4)

2

Change in accounts receivable

3,082

(6,043)

Change in inventories

(11,195)

(10,635)

Change in accounts payable

(5,315)

(7,745)

Accrued interest and amortization of discounts and finance fees

7,256

8,131

Pension & non-pension postretirement benefits

1,372

3,700

Restructuring

(243)

4,314

Accrued liabilities & prepaid expenses

(12,369)

(15,792)

Income taxes

(3,153)

(1,626)

Share-based compensation expense

1,003

824

Other operating activities

(95)

(573)

Net cash provided by (used in) operating activities

(12,369)

(12,680)

Investing activities:

Additions to property, plant and equipment

(9,901)

(8,882)

Proceeds from furnace malfunction insurance recovery

4,346

0

Proceeds from asset sales and other

4

Net cash (used in) investing activities

(5,551)

(8,878)

Financing activities:

Other repayments

(50)

(59)

Stock options exercised

336

537

Net cash provided by (used in) financing activities

286

478

Effect of exchange rate fluctuations on cash

(101)

(179)

Increase (decrease) in cash

(17,735)

(21,259)

Cash at beginning of period

42,208

67,208

Cash at end of period

24,473

45,949

Supplemental disclosure of cash flows information:

Cash paid during the period for interest

184

288

Cash paid during the period for income taxes

$ 1,816

$ 1,884

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.

Significant Accounting Policies

See our Form 10-K for the year ended December 31, 2013 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,” 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. Under the terms of the CEO retention award agreement, 115,687 cash settled restricted stock units were granted during the first quarter of 2014. These awards cliff vest on December 31, 2018. Accordingly, awards that will be settled in cash are subject to liability accounting and the fair value of such awards will be remeasured at the end of each reporting period until settled or expired. Stock-based compensation expense charged to the Condensed Consolidated Statements of Operations is as follows:



	Three months ended March 31,
(dollars in thousands)	2014		2013
Stock-based compensation expense	$	1,003	$	824

Reclassifications

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

New Accounting Standards

There are no new accounting standards effective in 2014 that are applicable to us.

Balance Sheet Details

The following table provides detail of selected balance sheet items:



(dollars in thousands)	March 31, 2014		December 31, 2013
Accounts receivable:
Trade receivables	$	85,472	$	87,499
Other receivables (see note 15)	1,574		7,050
Total accounts receivable, less allowances of $6,216 and $5,846	$	87,046	$	94,549

Inventories:
Finished goods	$	156,237	$	144,945
Work in process	1,650		1,615
Raw materials	4,300		4,558
Repair parts	10,766		10,550
Operating supplies	1,226		1,453
Total inventories, less loss provisions of $4,784 and $4,913	$	174,179	$	163,121

Prepaid and other current assets:
Value added tax	$	9,732	$	6,697
Prepaid expenses	10,590		8,396
Deferred income taxes	5,840		5,840
Prepaid income taxes	5,164		3,511
Derivative asset	573		394
Total prepaid and other current assets	$	31,899	$	24,838

Other assets:
Deposits	$	944	$	919
Finance fees — net of amortization	10,023		10,472
Other assets	2,167		2,143
Total other assets	$	13,134	$	13,534

Accrued liabilities:
Accrued incentives	$	15,801	$	17,830
Workers compensation	7,178		7,108
Medical liabilities	3,246		3,433
Interest	10,138		3,331
Commissions payable	856		1,067
Withholdings and other non-income tax accruals	2,829		1,929
Other accrued liabilities	6,851		6,720
Total accrued liabilities	$	46,899	$	41,418

Other long-term liabilities:
Deferred liability	$	7,863	$	7,424
Derivative liability	—		2,073
Other long-term liabilities	3,869		4,277
Total other long-term liabilities	$	11,732	$	13,774

Borrowings

Borrowings consist of the following:



(dollars in thousands)	Interest Rate		Maturity Date	March 31, 2014			December 31, 2013
Borrowings under ABL Facility	floating		May 18, 2017	$	—		$	—
Senior Secured Notes	6.875%	(1)	May 15, 2020	405,000			405,000
Promissory Note	6.00%		April, 2014 to September, 2016	624			681
RMB Working Capital Loan	floating		September, 2014	5,112			5,157
AICEP Loan	0.00%		January, 2016 to July 30, 2018	2,388			2,389
Total borrowings				413,124			413,227
Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1)				(965		)	(1,324		)
Total borrowings — net				412,159			411,903
Less — long term debt due within one year				5,351			5,391
Total long-term portion of borrowings — net				$	406,808		$	406,512

_____________________________


(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 U.S. equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swingline borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swingline rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.50 percent and 1.50 percent, respectively, at March 31, 2014. 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 March 31, 2014. 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 March 31, 2014 or at December 31, 2013. 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. There were no mark-to-market reserves for natural gas contracts offsetting the borrowing base as of March 31, 2014. 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 March 31, 2014, we had $6.2 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $75.5 million at March 31, 2014, compared to $70.5 million under the ABL Facility at December 31, 2013.

We amended and restated this ABL facility in April 2014. See note 16 for further discussion of this subsequent event.

Senior Secured Notes

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

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


•	incur, assume or guarantee additional indebtedness;


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


•	create liens;


•	enter into affiliate transactions;


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


•	transfer or sell assets.

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

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

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

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

The Senior Secured Notes were repurchased in April and May 2014 in conjunction with a $440.0 million debt offering. See note 16 for a further discussion of this subsequent event.

On June 18, 2012, we entered into an Interest 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 Interest 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 Interest Rate Agreement at a call price of 103 percent. The Interest 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 Interest Rate Agreement at March 31, 2014, excluding applicable fees, is 5.5 percent. The Interest Rate Agreement expires on May 15, 2020. Total remaining Senior Secured Notes not covered by the Interest Rate Agreement have a fixed interest rate of 6.875 percent per year through May 15, 2020. Since we intend to settle the Interest Rate Agreement in the second quarter of 2014 in connection with the refinancing of our Senior Notes, the related derivative liability is classified as current at March 31, 2014. If the counterparty to this Interest Rate Agreement were to fail to perform, this Interest 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 March 31, 2014, by Standard and Poor’s.

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



(dollars in thousands)	March 31, 2014			December 31, 2013
Fair market value of Rate Agreement - asset (liability)	$	(1,644	)	$	(2,073	)
Adjustment to increase (decrease) carrying value of the related long-term debt	$	(965	)	$	(1,324	)

The fair value of the 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. 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 March 31, 2014, we had $0.6 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 March 31, 2014, there were no borrowings under the facility, which has an interest rate of 5.80 percent. Interest with respect to the note is paid monthly.

RMB 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 percent at March 31, 2014, and interest is paid monthly. The obligation is secured by a mortgage lien on the Libbey China facility.

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 $2.4 million) at March 31, 2014, 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 $442.5 million at March 31, 2014. At December 31, 2013, the Senior Secured Notes had an estimated fair value of $437.4 million. The fair value of the remainder of our debt approximates carrying value at March 31, 2014 and December 31, 2013 due to variable rates.

Capital Resources and Liquidity

Historically, cash flows generated from operations, cash on hand and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. At March 31, 2014, we had no borrowings under our ABL Facility and $6.2 million in letters of credit issued under that facility. As a result, we had $75.5 million of unused availability remaining under the ABL Facility at March 31, 2014. In addition, at March 31, 2014, we had $24.5 million of cash on hand.

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.

Restructuring Charges

Capacity Realignment

In February 2013, we announced 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. In connection with this plan, we expect to incur pretax charges of approximately $8.0 million. For the three months ended March 31, 2014 and 2013, we recorded a pretax charge of $1.0 million and $4.9 million, respectively. These charges included employee termination costs, fixed asset impairment charges, depreciation expense and other restructuring expenses. Employee termination costs include severance, medical benefits and outplacement services for the terminated employees. The write-down of fixed assets was to adjust certain machinery and equipment to the estimated fair market value. These activities are all within the Americas segment and were substantially completed by March 31, 2014.

The following table summarizes the pretax charge incurred in 2014 and 2013:



	Three months ended March 31,				Total Charges to Date
(dollars in thousands)	2014		2013		Total Charges to Date
Accelerated depreciation & other	$	—	$	566	$	1,685
Other restructuring expenses	985		—		985
Included in cost of sales	985		566		2,670

Employee termination cost & other	—		2,322		1,794
Fixed asset write-down	—		1,992		1,924
Other restructuring expenses	—		—		1,141
Included in special charges	—		4,314		4,859
Total pretax charge	$	985	$	4,880	$	7,529

The following is the capacity realignment reserve activity for the three months ended March 31, 2014:



(dollars in thousands)	Reserve Balance at January 1, 2014		Total Charge to Earnings		Cash (payments) receipts			Non-cash Utilization		Reserve Balance at March 31, 2014
Employee termination cost & other	$	289	$	—	$	(243	)	$	—	$	46
Other restructuring expenses	—		985		(985		)	—		—
Total	$	289	$	985	$	(1,228	)	$	—	$	46

Income Taxes

Our effective tax rate was 25.8 percent for the quarter ended March 31, 2014, compared to 25.0 percent for the quarter ended March 31, 2013. 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, application of intraperiod tax allocation rules, and tax planning structures. At March 31, 2014 and December 31, 2013, we had $0.8 million and $1.3 million, respectively, of gross unrecognized tax benefits, exclusive of interest and penalties. During the quarter ended March 31, 2014, we recorded an income tax benefit, exclusive of interest and penalties, of $0.5 million due to the reversal of an accrual for an uncertain tax position that expired under the statute of limitations.

FASB ASC 740-20, "Income Taxes - Intraperiod Tax Allocation," requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. A tax benefit of $0.6 million was recorded in our income tax provision for the quarter ended March 31, 2014. There was no similar benefit recorded for the quarter ended March 31, 2013.

Our current and future provision for income taxes for 2014 is impacted by valuation allowances. In the United States, the Netherlands and Portugal, we have recorded valuation allowances against our deferred income tax assets. We review the need for valuation allowances on a quarterly basis, or more frequently, if events indicate that a review is required in order to assess the likelihood of the realization of our deferred 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. Despite recent improvement in financial results in the U.S., management concluded that in consideration of the duration and magnitude of our U.S. operating losses, the current U.S. economic environment and the competitive landscape, it is our judgment that we have not yet achieved profitability of a duration and magnitude sufficient to release our valuation allowance against our deferred tax assets. Accordingly, we continue to maintain a valuation allowance related to our net deferred tax assets in the U.S. and certain foreign jurisdictions.

Income tax payments consisted of the following:



	Three months ended March 31,
(dollars in thousands)	2014		2013
Total income tax payments, net of refunds	$	2,728	$	2,269
Less: credits or offsets	912		385
Cash paid, net	$	1,816	$	1,884

Pension and Non-pension Postretirement Benefits

We have pension plans covering the majority of our employees. Benefits generally are based on compensation and service 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 primarily unfunded.

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



Three months ended March 31,	U.S. Plans						Non-U.S. Plans						Total
(dollars in thousands)	2014			2013			2014			2013			2014			2013
Service cost	$	1,025		$	1,278		$	578		$	722		$	1,603		$	2,000
Interest cost	3,870			3,481			1,424			1,256			5,294			4,737
Expected return on plan assets	(5,608		)	(5,599		)	(632		)	(481		)	(6,240		)	(6,080		)
Amortization of unrecognized:
Prior service cost	265			293			57			62			322			355
Loss	1,242			2,087			258			238			1,500			2,325
Pension expense	$	794		$	1,540		$	1,685		$	1,797		$	2,479		$	3,337

We have contributed $1.1 million of cash into our pension plans for the three months ended March 31, 2014. Pension contributions for the remainder of 2014 are estimated to be $5.2 million.

We provide certain retiree health care and life insurance benefits covering our U.S and Canadian salaried 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 instead provide 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 unfunded.

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



Three months ended March 31,	U.S. Plans				Non-U.S. Plans					Total
(dollars in thousands)	2014		2013		2014		2013			2014		2013
Service cost	$	252	$	392	$	—	$	—		$	252	$	392
Interest cost	710		701		27		23			737		724
Amortization of unrecognized:
Prior service cost	35		34		—		—			35		34
Loss / (gain)	67		291		—		(1		)	67		290
Non-pension postretirement benefit expense	$	1,064	$	1,418	$	27	$	22		$	1,091	$	1,440

Our 2014 estimate of non-pension cash payments is $4.8 million, and we have paid $1.1 million for the three months ended March 31, 2014.

Net Income (loss) per Share of Common Stock

Net Income per Share of Common Stock

Net Income (Loss) per Share of Common Stock

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



	Three months ended March 31,
(dollars in thousands, except earnings per share)	2014			2013
Numerators for earnings per share:
Net income (loss) that is available to common shareholders	$	(3,384	)	$	1,989

Denominator for basic earnings per share:
Weighted average shares outstanding	21,523,077			21,114,963

Denominator for diluted earnings per share:
Effect of stock options and restricted stock units	—			478,785
Adjusted weighted average shares and assumed conversions	21,523,077			21,593,748

Basic earnings (loss) per share	$	(0.16	)	$	0.09

Diluted earnings (loss) per share	$	(0.16	)	$	0.09

Shares excluded from diluted earnings (loss) per share due to:
Net loss position (excluded from denominator)	418,344			—
Inclusion would have been anti-dilutive (excluded from calculation)	382,109			783,843

When applicable, diluted shares outstanding includes the dilutive impact of restricted stock units. Diluted shares also include the impact of eligible 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.

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 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)	March 31, 2014			December 31, 2013
Derivatives designated as hedging instruments under FASB ASC 815:	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Natural gas contracts	Prepaid and other current assets	$	573	Prepaid and other current assets	$	394
Natural gas contracts	Other assets	5		Other assets	19
Total designated		578			413
Total		$	578		$	413

	Liability Derivatives:
(dollars in thousands)	March 31, 2014			December 31, 2013
Derivatives designated as hedging instruments under FASB ASC 815:	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate contract	Derivative liability - current	$	1,537	Derivative liability - current	$	—
Interest rate contract	Other long-term liabilities	—		Other long-term liabilities	1,866
Total designated		1,537			1,866
Derivatives not designated as hedging instruments under FASB ASC 815:
Interest rate contract	Derivative liability - current	107		Derivative liability - current	—
Interest rate contract	Other long-term liabilities	—		Other long-term liabilities	207
Total undesignated		107			207
Total		$	1,644		$	2,073

Interest Rate Swaps as Fair Value Hedges

In 2012, we entered into an interest rate swap agreement (Rate Agreement) with a notional amount of $45.0 million that is to mature in 2020. The 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. Since we intend to settle the Rate Agreement in the second quarter of 2014 in connection with the refinancing of our Senior Notes, the related derivative liability is classified as current at March 31, 2014.

$40.5 million of our Rate Agreement 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 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 Rate Agreement. As a result, the mark-to-market of the $4.5 million portion of the Rate Agreement is recorded in other income (expense) on the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2014, the mark-to-market adjustment was income of $0.1 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 Rate Agreement:



	Three months ended March 31,
(dollars in thousands)	2014			2013
Interest rate swap - designated	$	329		$	(356	)
Related long-term debt	(359		)	134
Net impact in other income (expense)	$	(30	)	$	(222	)

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 March 31, 2014, we had commodity contracts for 1,470,000 million British Thermal Units (BTUs) of natural gas. At December 31, 2013, we had commodity contracts for 1,520,000 million BTUs of natural gas.

All of our natural gas derivatives qualify and are designated as cash flow hedges at March 31, 2014. 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 paid (received) additional cash of $(0.5) million and $0.2 million in the three months ended March 31, 2014 and 2013, respectively, due to the difference between the fixed unit rate of our natural gas contracts and the variable unit rate of our natural gas cost from suppliers. Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next twelve months will result in $0.6 million of loss in our Condensed Consolidated Statements of Operations.

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



	Three months ended March 31,
(dollars in thousands)	2014		2013
Derivatives in Cash Flow Hedging relationships:
Natural gas contracts	$	630	$	967
Total	$	630	$	967

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 March 31,
(dollars in thousands)		2014		2013
Derivative:	Location:
Natural gas contracts	Cost of sales	$	465	$	(246	)
Total impact on net income (loss)		$	465	$	(246	)

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. We had no contracts at March 31, 2014 and December 31, 2013. 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 March 31,
(dollars in thousands)		2014		2013
Derivative:	Location:
Currency contracts	Other income (expense)	$	—	$	251
Total		$	—	$	251

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 Rate Agreement is rated A+ and the counterparties for the other derivative agreements are rated BBB+ or better as of March 31, 2014, by Standard and Poor’s.

Comprehensive Income (Loss)

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



Three months ended March 31, 2014 (dollars in thousands)	Foreign Currency Translation			Derivative Instruments			Pension and Other Postretirement Benefits			Total Accumulated Comprehensive Loss
Balance on December 31, 2013	$	4,554		$	1,221		$	(78,935	)	$	(73,160	)

Other comprehensive income (loss)	(588		)	630			—			42
Currency impact	—			—			13			13

Amounts reclassified from accumulated other comprehensive income (loss):
Amortization of actuarial loss ⁽¹⁾	—			—			1,567			1,567
Amortization of prior service cost ⁽¹⁾	—			—			357			357
Cost of sales	—			(465		)	—			(465		)
Current-period other comprehensive income (loss)	(588		)	165			1,937			1,514
Tax effect	—			(27		)	(588		)	(615		)
Balance on March 31, 2014	$	3,966		$	1,359		$	(77,586	)	$	(72,261	)



Three months ended March 31, 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)	(2,925		)	967			—			(1,958		)
Currency impact	—			—			(352		)	(352		)

Amounts reclassified from accumulated other comprehensive income (loss):
Amortization of actuarial loss ⁽¹⁾	—			—			2,600			2,600
Amortization of prior service cost ⁽¹⁾	—			—			390			390
Cost of sales	—			246			—			246
Current-period other comprehensive income (loss)	(2,925		)	1,213			2,638			926
Tax effect	—			(168		)	33			(135		)
Balance on March 31, 2013	$	(4,566	)	$	1,534		$	(137,217	)	$	(140,249	)

___________________________

(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.

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 ended March 31, 2014 and March 31, 2013.

At March 31, 2014, December 31, 2013 and March 31, 2013, 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.

Libbey Inc.

Condensed Consolidating Statements of Comprehensive Income (Loss)

(unaudited)



	Three months ended March 31, 2014
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	83,792		$	18,697		$	98,794		$	(19,702	)	$	181,581
Freight billed to customers	—			168			191			455			—			814
Total revenues	—			83,960			18,888			99,249			(19,702		)	182,395
Cost of sales	—			69,020			14,998			85,740			(19,702		)	150,056
Gross profit	—			14,940			3,890			13,509			—			32,339
Selling, general and administrative expenses	—			14,635			2,833			11,410			—			28,878
Special charges	—			—			—			—			—			—
Income (loss) from operations	—			305			1,057			2,099			—			3,461
Other income (expense)	—			(332		)	(10		)	20			—			(322		)
Earnings (loss) before interest and income taxes	—			(27		)	1,047			2,119			—			3,139
Interest expense	—			5,773			—			1,928			—			7,701
Income (loss) before income taxes	—			(5,800		)	1,047			191			—			(4,562		)
Provision (benefit) for income taxes	—			(1,035		)	24			(167		)	—			(1,178		)
Net income (loss)	—			(4,765		)	1,023			358			—			(3,384		)
Equity in net income (loss) of subsidiaries	(3,384		)	1,381			—			—			2,003			—
Net income (loss)	$	(3,384	)	$	(3,384	)	$	1,023		$	358		$	2,003		$	(3,384	)

Comprehensive income (loss)	$	(2,485	)	$	(2,485	)	$	1,160		$	164		$	1,161		$	(2,485	)



	Three months ended March 31, 2013
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—	$	86,930		$	18,360		$	89,379		$	(11,193	)	$	183,476
Freight billed to customers	—		99			234			419			—			752
Total revenues	—		87,029			18,594			89,798			(11,193		)	184,228
Cost of sales	—		62,600			14,360			76,229			(11,193		)	141,996
Gross profit	—		24,429			4,234			13,569			—			42,232
Selling, general and administrative expenses	—		15,057			2,669			8,671			—			26,397
Special charges	—		4,314			—			—			—			4,314
Income (loss) from operations	—		5,058			1,565			4,898			—			11,521
Other income (expense)	—		(1		)	(9		)	(425		)	—			(435		)
Earnings (loss) before interest and income taxes	—		5,057			1,556			4,473			—			11,086
Interest expense	—		6,420			—			2,015			—			8,435
Income (loss) before income taxes	—		(1,363		)	1,556			2,458			—			2,651
Provision (benefit) for income taxes	—		(819		)	2			1,479			—			662
Net income (loss)	—		(544		)	1,554			979			—			1,989
Equity in net income (loss) of subsidiaries	1,989		2,533			—			—			(4,522		)	—
Net income (loss)	$	1,989	$	1,989		$	1,554		$	979		$	(4,522	)	$	1,989

Comprehensive income (loss)	$	2,780	$	2,780		$	1,696		$	(1,552	)	$	(2,924	)	$	2,780

Libbey Inc.

Condensed Consolidating Balance Sheet




	March 31, 2014 (unaudited)
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)		Subsidiary Guarantors		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash and equivalents	$	—	$	8,300	$	40	$	16,133		$	—		$	24,473
Accounts receivable — net	—		32,658		5,944		48,444			—			87,046
Inventories — net	—		58,314		22,636		93,229			—			174,179
Other current assets	—		25,444		4,278		23,272			(21,095		)	31,899
Total current assets	—		124,716		32,898		181,078			(21,095		)	317,597
Other non-current assets	—		37,192		1,379		15,051			(607		)	53,015
Investments in and advances to subsidiaries	129,666		314,506		199,079		(48,583		)	(594,668		)	—
Goodwill and purchased intangible assets — net	—		27,423		12,347		146,660			—			186,430
Total other assets	129,666		379,121		212,805		113,128			(595,275		)	239,445
Property, plant and equipment — net	—		67,758		266		196,594			—			264,618
Total assets	$	129,666	$	571,595	$	245,969	$	490,800		$	(616,370	)	$	821,660

Accounts payable	$	—	$	14,458	$	2,444	$	57,197		$	—		$	74,099
Accrued and other current liabilities	—		49,633		27,076		27,644			(21,095		)	83,258
Notes payable and long-term debt due within one year	—		239		—		5,112			—			5,351
Total current liabilities	—		64,330		29,520		89,953			(21,095		)	162,708
Long-term debt	—		404,420		—		2,388			—			406,808
Other long-term liabilities	—		64,542		8,036		50,507			(607		)	122,478
Total liabilities	—		533,292		37,556		142,848			(21,702		)	691,994
Total shareholders’ equity	129,666		38,303		208,413		347,952			(594,668		)	129,666
Total liabilities and shareholders’ equity	$	129,666	$	571,595	$	245,969	$	490,800		$	(616,370	)	$	821,660

Libbey Inc.

Condensed Consolidating Balance Sheet



	December 31, 2013
(dollars in thousands)	Libbey Inc. (Parent)		Libbey Glass (Issuer)		Subsidiary Guarantors		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash and equivalents	$	—	$	22,070	$	62	$	20,076		$	—		$	42,208
Accounts receivable — net	—		41,193		4,562		48,794			—			94,549
Inventories — net	—		51,571		22,907		88,643			—			163,121
Other current assets	—		23,183		3,999		18,751			(21,095		)	24,838
Total current assets	—		138,017		31,530		176,264			(21,095		)	324,716
Other non-current assets	—		38,661		1,379		13,475			(607		)	52,908
Investments in and advances to subsidiaries	130,809		304,266		199,573		(41,361		)	(593,287		)	—
Goodwill and purchased intangible assets — net	—		27,423		12,347		146,934			—			186,704
Total other assets	130,809		370,350		213,299		119,048			(593,894		)	239,612
Property, plant and equipment — net	—		67,836		278		197,548			—			265,662
Total assets	$	130,809	$	576,203	$	245,107	$	492,860		$	(614,989	)	$	829,990

Accounts payable	$	—	$	16,086	$	3,404	$	60,130		$	—		$	79,620
Accrued and other current liabilities	—		50,292		26,243		27,674			(21,095		)	83,114
Notes payable and long-term debt due within one year	—		235		—		5,156			—			5,391
Total current liabilities	—		66,613		29,647		92,960			(21,095		)	168,125
Long-term debt	—		404,122		—		2,390			—			406,512
Other long-term liabilities	—		67,225		8,205		49,721			(607		)	124,544
Total liabilities	—		537,960		37,852		145,071			(21,702		)	699,181
Total shareholders’ equity	130,809		38,243		207,255		347,789			(593,287		)	130,809
Total liabilities and shareholders’ equity	$	130,809	$	576,203	$	245,107	$	492,860		$	(614,989	)	$	829,990

Libbey Inc.

Condensed Consolidating Statements of Cash Flows

(unaudited)



	Three months ended March 31, 2014
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	(3,384	)	$	(3,384	)	$	1,023		$	358		$	2,003		$	(3,384	)
Depreciation and amortization	—			3,199			11			7,466			—			10,676
Other operating activities	3,384			(15,119		)	(1,056		)	(4,867		)	(2,003		)	(19,661		)
Net cash provided by (used in) operating activities	—			(15,304		)	(22		)	2,957			—			(12,369		)
Additions to property, plant & equipment	—			(3,098		)	—			(6,803		)	—			(9,901		)
Other investing activities	—			4,346			—			4			—			4,350
Net cash (used in) investing activities	—			1,248			—			(6,799		)	—			(5,551		)
Net borrowings (repayments)	—			(50		)	—			—			—			(50		)
Other financing activities	—			336			—			—			—			336
Net cash provided by (used in) financing activities	—			286			—			—			—			286
Exchange effect on cash	—			—			—			(101		)	—			(101		)
Increase (decrease) in cash	—			(13,770		)	(22		)	(3,943		)	—			(17,735		)
Cash at beginning of period	—			22,070			62			20,076			—			42,208
Cash at end of period	$	—		$	8,300		$	40		$	16,133		$	—		$	24,473



	Three months ended March 31, 2013
(dollars in thousands)	Libbey Inc. (Parent)			Libbey Glass (Issuer)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	1,989		$	1,989		$	1,554		$	979		$	(4,522	)	$	1,989
Depreciation and amortization	—			4,114			17			6,643			—			10,774
Other operating activities	(1,989		)	(19,007		)	(1,548		)	(7,421		)	4,522			(25,443		)
Net cash provided by (used in) operating activities	—			(12,904		)	23			201			—			(12,680		)
Additions to property, plant & equipment	—			(2,004		)	—			(6,878		)	—			(8,882		)
Other investing activities	—			1			—			3			—			4
Net cash (used in) investing activities	—			(2,003		)	—			(6,875		)	—			(8,878		)
Net borrowings (repayments)	—			(54		)	—			(5		)	—			(59		)
Other financing activities	—			537			—			—			—			537
Net cash provided by (used in) financing activities	—			483			—			(5		)	—			478
Exchange effect on cash	—			—			—			(179		)	—			(179		)
Increase (decrease) in cash	—			(14,424		)	23			(6,858		)	—			(21,259		)
Cash at beginning of period	—			43,558			70			23,580			—			67,208
Cash at end of period	$	—		$	29,134		$	93		$	16,722		$	—		$	45,949

Segments

Our reporting segments align with our regionally focused organizational structure, which we believe enables us to better serve customers across the globe. Under this structure, we report financial results for the Americas; Europe, the Middle East and Africa (EMEA); U.S. Sourcing 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. Our three reportable segments are defined below. Our operating segment that does not meet the criteria to be a reportable segment is 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.

U.S. Sourcing—includes U.S. sales of sourced ceramic dinnerware, metal tableware, hollowware, and serveware.

Other —includes worldwide sales of manufactured and sourced glass tableware having an end market destination in Asia Pacific.

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 and other allocations that are not considered by management when evaluating performance. 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.



	Three months ended March 31,
(dollars in thousands)	2014			2013
Net Sales:
Americas	$	121,925		$	123,535
EMEA	34,398			34,242
U.S. Sourcing	17,734			17,484
Other	7,524			8,215
Consolidated	$	181,581		$	183,476

Segment EBIT:
Americas	$	14,989		$	18,802
EMEA	253			(1,362		)
U.S. Sourcing	868			1,541
Other	445			2,285
Total Segment EBIT	$	16,555		$	21,266

Reconciliation of Segment EBIT to Net Income (Loss):
Segment EBIT	$	16,555		$	21,266
Retained corporate costs	(7,125		)	(5,300		)
Furnace malfunction	(5,306		)	—
Restructuring charges (note 5)	(985		)	(4,880		)
Interest expense	(7,701		)	(8,435		)
Income taxes	1,178			(662		)
Net income (loss)	$	(3,384	)	$	1,989

Depreciation & Amortization:
Americas	$	5,959		$	6,528
EMEA	2,626			2,486
U.S. Sourcing	7			9
Other	1,644			1,374
Corporate	440			377
Consolidated	$	10,676		$	10,774

Capital Expenditures:
Americas	$	7,132		$	6,875
EMEA	1,561			1,296
U.S. Sourcing	—			—
Other	572			335
Corporate	636			376
Consolidated	$	9,901		$	8,882

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)	March 31, 2014										December 31, 2013
Asset / (Liability) (dollars in thousands)	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Commodity futures natural gas contracts	$	—	$	578		$	—	$	578		$	—	$	413		$	—	$	413
Currency contracts	—		—			—		—			—		—			—		—
Interest rate agreement	—		(1,644		)	—		(1,644		)	—		(2,073		)	—		(2,073		)
Net derivative asset (liability)	$	—	$	(1,066	)	$	—	$	(1,066	)	$	—	$	(1,660	)	$	—	$	(1,660	)

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)	March 31, 2014			December 31, 2013
Prepaid and other current assets	$	573		$	394
Other assets	5			19
Derivative liability	(1,644		)	—
Other long-term liabilities	—			(2,073		)
Net derivative asset (liability)	$	(1,066	)	$	(1,660	)

Other Income (Expense)

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



	Three months ended March 31,
(dollars in thousands)	2014			2013
Gain (loss) on currency translation	$	(275	)	$	(283	)
Hedge ineffectiveness	70			(222		)
Other non-operating income (expense)	(117		)	70
Other income (expense)	$	(322	)	$	(435	)

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 ("U.S. 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 U.S. EPA has completed its Remedial Investigation (RI), U.S. 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 U.S. 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 March 31, 2014, 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.

Insurance claim

We currently have an open insurance claim related to a 2013 furnace malfunction at our manufacturing facility in Toledo, Ohio. At December 31, 2013, partial insurance proceeds of $5.0 million were recognized in accounts receivable. Cash was received in the first quarter of 2014 with $4.3 million recorded as an investing activity and $0.7 million recorded as cash from operations on the Condensed Consolidated Statements of Cash Flows. The insurance claim is still ongoing and the amount of any future recovery is uncertain at this time.

Subsequent events

Subsequent Events

On April 9, 2014, we completed the refinancing of substantially all of the existing indebtedness of our wholly-owned subsidiaries Libbey Glass and Libbey Europe B.V. The refinancing included:


•	the entry into an amended and restated credit agreement with respect to our ABL Facility;


•	the issuance of $440.0 million in aggregate principal amount of the Senior Secured Term Loan B facility of Libbey Glass due 2021, which bears an interest rate of LIBOR plus 3.0 percent, subject to a LIBOR "floor" of 0.75 percent. The interest rate was 3.75 percent at commencement; and


•	the repurchase and cancellation of all Libbey Glass's then outstanding $405.0 million in aggregate principal amount Senior Secured Notes ($360.0 million on April 9, 2014 and $45.0 million on May 9, 2014).

Libbey Glass used the proceeds of the Senior Secured Term Loan B facility, together with cash on hand and borrowings under the ABL Facility, to repurchase $360.0 million of the Senior Secured Notes, redeem the remaining $45.0 million of the Senior Secured Notes, and pay certain related fees and expenses.

Significant Accounting Policies (Policies)

Basis of Presentation [Policy Text Block]

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.

Revenue Recognition and Cost of Sales [Policy Text Block]

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 [Policy Text Block]

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 [Policy Text Block]

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,” 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.

FASB ASC 740-20, "Income Taxes - Intraperiod Tax Allocation," requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations.

Our current and future provision for income taxes for 2014 is impacted by valuation allowances. In the United States, the Netherlands and Portugal, we have recorded valuation allowances against our deferred income tax assets. We review the need for valuation allowances on a quarterly basis, or more frequently, if events indicate that a review is required in order to assess the likelihood of the realization of our deferred 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. Despite recent improvement in financial results in the U.S., management concluded that in consideration of the duration and magnitude of our U.S. operating losses, the current U.S. economic environment and the competitive landscape, it is our judgment that we have not yet achieved profitability of a duration and magnitude sufficient to release our valuation allowance against our deferred tax assets. Accordingly, we continue to maintain a valuation allowance related to our net deferred tax assets in the U.S. and certain foreign jurisdictions.

Stock-Based Compensation [Policy Text Block]

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.

New Accounting Standards [Policy Text Block]

New Accounting Standards

There are no new accounting standards effective in 2014 that are applicable to us.

Pension and Other Postretirement Plans, Pensions, Policy [Policy Text Block]

We have pension plans covering the majority of our employees. Benefits generally are based on compensation and service 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 primarily unfunded.

Pension and Other Postretirement Plans, Nonpension Benefits, Policy [Policy Text Block]

We provide certain retiree health care and life insurance benefits covering our U.S and Canadian salaried 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 instead provide 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 unfunded.

Earnings Per Share [Policy Text Block]

When applicable, diluted shares outstanding includes the dilutive impact of restricted stock units. Diluted shares also include the impact of eligible 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.

Derivatives [Policy Text Block]

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 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.”

Segment Reporting [Policy Text Block]