Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K

(Mark One)	 	 	 	
þ	 	Annual Report Pursuant to Section 13 or 15(d) of the	 	
	 	Securities Exchange Act of 1934	 	
	 	For the fiscal year ended December 31, 2004	 	
	 	or	 	
o	 	Transition Report Pursuant to Section 13 or 15(d) of the	 	
	 	Securities Exchange Act of 1934	 	
Commission File Number 1-12084
LIBBEY INC.
(Exact name of registrant as specified in its charter)
 	 	 	
Delaware	 	34-1559357	
(State or Other Jurisdiction of	 	(IRS Employer	
Incorporation or Organization)	 	Identification No.)	
 	 	 	
300 Madison Avenue, Toledo, Ohio	 	43604	
(Address of Principal Executive Offices)	 	(Zip Code)	
(419) 325-2100
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:

	 	Name of each exchange on	
Title of each class	 	which registered	
 	 	 	
Common Stock, $.01 par value	 	New York Stock Exchange	
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
     Yes þ      No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
     Yes þ      No o
The aggregate market value (based on the consolidated tape closing price on June 30, 2004) of the voting stock beneficially held by non-affiliates of the registrant was approximately $376,414,566. For the sole purpose of making this calculation, the term “non-affiliate” has been interpreted to exclude directors and executive officers of the registrant. Such interpretation is not intended to be, and should not be construed to be, an admission by the registrant or such directors or executive officers that any such persons are “affiliates” of the registrant, as that term is defined under the Securities Act of 1934.
The number of shares of common stock, $.01 par value, of the registrant outstanding as of February 28, 2005 was 13,828,323.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 9, 10, 11, 12, 13 and 14 of Form 10-K is incorporated by reference into Part III hereof from the registrant’s Proxy Statement for The Annual Meeting of Shareholders to be held May 5, 2005 (“Proxy Statement”).
Certain information required by Part II of this Form 10-K is incorporated by reference from registrant’s 2004 Annual Report to Shareholders where indicated.

TABLE OF CONTENTS

PART I	 	 	2	 	
 	 	 	 	 	
ITEM 1. BUSINESS	 	 	2	 	
ITEM 2. PROPERTIES	 	 	9	 	
ITEM 3. LEGAL PROCEEDINGS	 	 	10	 	
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	 	 	11	 	
EXECUTIVE OFFICERS OF THE REGISTRANT	 	 	11	 	
 	 	 	 	 	
PART II	 	 	12	 	
 	 	 	 	 	
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	 	 	12	 	
ITEM 6. SELECTED FINANCIAL DATA	 	 	13	 	
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	 	 	14	 	
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK	 	 	30	 	
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	 	 	31	 	
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	 	 	69	 	
ITEM 9A. CONTROLS AND PROCEDURES	 	 	69	 	
ITEM 9B. OTHER INFORMATION	 	 	70	 	
 	 	 	 	 	
PART III	 	 	70	 	
 	 	 	 	 	
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	 	 	70	 	
ITEM 11. EXECUTIVE COMPENSATION	 	 	71	 	
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	 	 	71	 	
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	 	 	71	 	
ITEM 14. PRINCIPLE ACCOUNTANT FEES AND SERVICES	 	 	71	 	
 	 	 	 	 	
PART IV	 	 	72	 	
 	 	 	 	 	
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K	 	 	72	 	
 	 	 	 	 	
SIGNATURES	 	 	73	 	
INDEX TO FINANCIAL STATEMENT SCHEDULE	 	 	75	 	
EXHIBIT INDEX	 	 	E-1	 	
  Exhibit 10.74	
  Exhibit 10.75	
  Exhibit 10.76	
  EX-13.1	
  Exhibit 21	
  Exhibit 23	
  Exhibit 24	
  Exhibit 31.1	
  Exhibit 31.2	
  Exhibit 32.1	
  Exhibit 32.2	
  Exhibit 99.1	

Table of Contents

This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “believe,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
PART I
ITEM 1. BUSINESS
General
Libbey Inc. (Libbey or the Company) is a leading supplier of tableware products in the U.S. and Canada, in addition to supplying to other key export markets. We were established in 1818 and are the largest manufacturing, distribution and service network among North American glass tableware manufacturers. We design and market, under our LIBBEY ® , Royal Leerdam ® , World Tableware, Syracuse ® China and Traex ® brand names, an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, holloware and serveware, and plastic items for sale primarily in the foodservice, retail and industrial markets. Through our subsidiary B.V. Koninklijke Nederlandsche Glasfabriek Leerdam (Royal Leerdam), we manufacture and market high-quality glass stemware under the Royal Leerdam ® brand name. Through our newly acquired subsidiary, Crisal-Cristalaria Automática S.A. (Crisal), we manufacture and market glass tableware in Portugal. We also manufacture and market ceramic dinnerware under the Syracuse ® China brand name through our subsidiary Syracuse China. Through our World Tableware subsidiary, we import and sell metal flatware, holloware and serveware and ceramic dinnerware. We design, manufacture and distribute an extensive line of plastic items for the foodservice industry under the Traex ® brand name through our subsidiary Traex Company. We are a joint venture partner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Vitrocrisa), the largest glass tableware manufacturer in Latin America. In addition, through this joint venture, we have reciprocal distribution agreements, giving us exclusive distribution rights for Vitrocrisa’s glass tableware products in the U.S. and Canada, and Vitrocrisa the exclusive distribution rights for our glass tableware products in Latin America.
Our website can be found at www.libbey.com . We make available, free of charge, at this website all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our Current Reports on Form 8-K, as well as amendments to those reports. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.
Growth Strategy
Our vision is to be “World Class, Second to None.” To achieve this vision, we have a growth strategy that emphasizes internal growth as well as growth through acquired businesses.
Internal Growth
We continue to focus on our strong brand recognition and identity. We understand that our customers are key to our success. Therefore, we continue to assist our customers by providing new product development and improved service and support. In 2004, we introduced more than 500 new stock-keeping units. These initiatives allow us to grow our existing tableware business.
Acquisitions
An important part of our strategy is to grow sales and profits through acquisitions. This strategy is primarily focused on two fronts:
2

Table of Contents

 	•  	Acquiring foodservice supply companies, enabling us to become a broader supplier of products to our foodservice distributors; and	
 	
 	•  	Leveraging our proprietary glass-making technology through joint ventures, outright acquisitions and new green meadow facilities for international glass tableware manufacturing.	
Recent acquisition activity includes the following:

 	•  	In late 2004, we obtained a business license in the People’s Republic of China to manufacture glass tableware, and in early 2005 we procured land use rights in the People’s Republic of China with respect to property on which we plan to build a new glass tableware facility. This facility will be a wholly-owned factory aimed at the growing Chinese and Asia-Pacific markets and other key export markets. Currently, production of glass tableware is planned to begin in early 2007.	
 	
 	•  	In January 2005, we acquired 95 percent of the shares of Crisal located in Marinha Grande, Portugal. Crisal manufactures and markets glass tableware, mainly tumblers, stemware and glassware accessories. Crisal’s products complement those of our subsidiary, Royal Leerdam, located in the Netherlands. Royal Leerdam, acquired in 2002, and Crisal are important additions to our growth strategy to be a supplier of high-quality, machine-made glass tableware products to key markets worldwide.	
Products
Our tableware products consist of glass tableware, ceramic dinnerware, metal flatware, holloware and serveware, and plastic items. Our glass tableware includes tumblers, stemware (including wine glasses), mugs, bowls, ashtrays, bud vases, salt and pepper shakers, shot glasses, canisters, candle holders and various other items. Our subsidiary Royal Leerdam sells high-quality stemware. Crisal sells glass tableware, mainly tumblers, stemware and glassware accessories. Through our Syracuse China and World Tableware subsidiaries, we sell a wide range of ceramic dinnerware products. These include plates, bowls, platters, cups, saucers and other tableware accessories. Our World Tableware subsidiary provides an extensive selection of metal flatware. These include knives, forks, spoons and serving utensils. In addition, World Tableware sells metal holloware, including serving trays, chafing dishes, pitchers and other metal tableware accessories. Through our Traex subsidiary, we sell a wide range of plastic products. These include ware washing and storage racks, trays, dispensers and organizers for the foodservice industry.
Vitrocrisa’s glass tableware product assortment includes the product types produced by us as well as glass bakeware and handmade glass tableware. In addition, Vitrocrisa products include glass coffee pots, blender jars, meter covers and other industrial glassware sold principally to original equipment manufacturers.
We also have an agreement to be the exclusive distributor of Luigi Bormioli glassware in the U.S. and Canada to foodservice users. Luigi Bormioli, based in Italy, is a highly regarded supplier of high-end glassware used in the finest eating and drinking establishments.
Customers
The customers for our tableware products include approximately 500 foodservice distributors. In the retail market, we sell to mass merchants, department stores, retail distributors, national retail chains and specialty houseware stores. In addition, our industrial market primarily includes customers that use candle and floral applications, craft stores and gourmet food packaging companies. We also have other customers who use our products for promotional or other private uses. No single customer accounts for 10% or more of our sales, although the loss of any of our major customers could have a meaningful effect on us.
Sales, Marketing and Distribution
Approximately 77% of our sales are to customers located in the United States and 23% of our sales are to customers located outside of the United States (for industry segment information for the last three fiscal years, see note 20 to the Consolidated Financial Statements). We export our products to over 90 countries around the world, competing in the tableware markets of Latin America, Asia and Europe.
We have our own sales staff of over 100 sales professionals who call on customers and distributors. In addition, we retain the services of manufacturing representative organizations to assist in selling our products. The vast majority of our tableware sales to foodservice end users are made through foodservice distributors, who serve a vital function in
3

Table of Contents

the distribution of our products and with whom we work closely in connection with marketing and selling efforts. Most of our retail and industrial market sales are made directly by our sales force.
We also have a marketing staff that is located at our corporate headquarters in Toledo, Ohio and in the Netherlands. They engage in developing strategies relating to product development, pricing, distribution, advertising and sales promotion.
We operate distribution centers located at or near each of our manufacturing facilities (see Properties section). In addition, we operate distribution centers for our Vitrocrisa-supplied products in Laredo, Texas; World Tableware and Traex products in West Chicago, Illinois; and glass tableware products in Mira Loma, California. The glass tableware manufacturing and distribution centers are strategically located (geographically) to enable us to supply significant quantities of our product to virtually all of our customers on a timely basis.
The majority of our sales are in the foodservice, retail and industrial markets, which are further detailed below:
Foodservice
We have, according to our estimates, the leading market share in glass tableware sales in the U.S. foodservice markets. Syracuse China, World Tableware and Traex are also recognized as long-established suppliers of high-quality ceramic dinnerware, metal flatware, holloware and serveware, and plastic items, respectively. They are among the leading suppliers of their respective product categories to foodservice end users. The majority of our tableware sales to foodservice end users are made through a network of foodservice distributors. The distributors, in turn, sell to a wide variety of foodservice establishments, including national and regional hotel chains, national and regional restaurant chains, independently owned bars, restaurants and casinos.
Retail
Our primary customers in retail are national and international discount retailers. In recent years, we have been able to increase our retail sales by increasing our sales to specialty houseware stores. Royal Leerdam sells to similar retail clients in Europe, while Crisal is increasingly positioned with retailers on the Iberian Peninsula. In addition to glassware, we sell imported ceramic dinnerware to retailers in the United States and Canada under the LIBBEY ® brand name. With this expanded retail representation, we are better positioned to successfully introduce profitable new products. We also operate outlet stores located at or near the majority of our manufacturing locations. In addition, we sell selected items on the internet at www.libbey.com.
Industrial
We are a major supplier of glassware for industrial markets in the U.S. Industrial uses primarily include candle and floral applications. The craft industries and gourmet food packing companies are also industrial consumers of glassware. We have expanded our sales to industrial users by offering ceramic and metal ware items.
Seasonality
Primarily due to the impact of consumer buying patterns and production activity, our net income tends to be stronger in the second and third quarters and weaker in the first and fourth quarters of each year. Profits historically range between 30% and 55% in the first half of each year and 45% to 70% in the second half of the year. In 2004, we incurred a pretax charge of $11.7 million in the third quarter and $2.8 million in the fourth quarter in connection with the realignment of our glass tableware production capacity, which resulted in lower profits in these quarters. For our net income in 2004, excluding the capacity realignment charge, see the section “Reconciliation of Non-GAAP Financial Measures” in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Backlog
Our backlog as of December 31, 2004 was approximately $13.2 million, compared to approximately $16.5 million at December 31, 2003. Backlog includes orders confirmed with a purchase order for products scheduled to be shipped to customers during the year 2005. Because orders may be changed and/or cancelled, we do not believe that our backlog is necessarily indicative of actual sales for any future period.
4

Table of Contents

Manufacturing and Sourcing
We currently own and operate two glass tableware manufacturing plants in the United States located in Toledo, Ohio, and Shreveport, Louisiana, a glass tableware manufacturing plant in Leerdam, the Netherlands, and a glass tableware manufacturing plant in Marinha Grande, Portugal. We own and operate a ceramic dinnerware plant in Syracuse, New York, and a plastics plant in Dane, Wisconsin.
In August 2004, we announced that we were realigning our glass tableware production capacity in order to improve our cost structure. In mid-February 2005, we ceased operations at our glass tableware manufacturing facility in City of Industry, California, and realigned production among our other domestic glass tableware manufacturing facilities. The closure of the City of Industry facility and realignment of production will allow us to reduce our overall fixed costs and improve future operational performance.
As mentioned in the Growth Strategy section, we acquired Crisal (a glass manufacturing facility in Portugal) in January 2005. In addition, in late 2004, we obtained a business license in the People’s Republic of China to manufacture glass tableware. In early 2005, we procured land use rights in China in order to begin construction on a new glass tableware facility, which is expected to begin glass tableware production in early 2007.
The manufacture of our tableware products involves the use of automated processes and technologies. Much of our glass tableware production machinery was designed by us and has evolved and been continuously refined to incorporate technology advancements. We believe that our production machinery and equipment continue to be adequate for our needs in the foreseeable future, but continue to invest in equipment to further improve our production efficiency and reduce our cost profile.
Our glass tableware products generally are produced using one of two manufacturing methods or, in the case of certain stemware, a combination of such methods. Most of our tumblers, stemware and certain other glass tableware products are produced by forming molten glass in molds with the use of compressed air. These products are known as “blown” glass products. Our other glass tableware products and the stems of certain of our stemware are “pressware” products, which are produced by pressing molten glass into the desired product shape. In addition, we source glass tableware, primarily from our joint venture, Vitrocrisa, located in Mexico.
Ceramic dinnerware is also produced through the forming of raw materials into the desired product shape and is either manufactured at our Syracuse, New York, production facility or imported primarily from China and Bangladesh. All metal flatware and metal holloware are sourced by our World Tableware subsidiary, primarily from China. Plastic products are also produced through the molding of raw materials into the desired shape and are manufactured at our Dane, Wisconsin, production facility or imported primarily from Taiwan and China.
To assist in the manufacturing process, we employ a team of engineers whose responsibilities include efforts to improve and upgrade our manufacturing facilities, equipment and processes. In addition, they provide engineering required to manufacture new products and implement the large number of innovative changes continuously being made to our product designs, sizes and shapes (see Research and Development section).
Raw Materials
Our primary raw materials are sand, lime, soda ash, clay, resins and colorants. Historically, these raw materials have been available in adequate supply from multiple sources. However, for certain raw materials, there may be temporary shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays. Such shortages have not previously had, and are not expected to have, a material adverse effect on our operations in the future. However, in 2004 our supplier of aragonite (a glass colorant) ceased to operate as a business. We adjusted our glass-making formula accordingly, and we continue to explore alternative glass formulations in order to achieve the best glass color possible. Natural gas is a primary source of energy in most of our production processes, and variability in the price for natural gas has and could continue to have an impact on our profitability. Historically, we have used natural gas hedging contracts to partially mitigate this impact. In addition, resins are a primary source of raw materials for our subsidiary Traex Company, and, historically, the price for resins has fluctuated, directly impacting our profitability. We also experience fluctuations in the cost to deliver raw materials to our facilities, and such changes affect our earnings.
5

Table of Contents

Research and Development
Our core competencies include our engineering excellence and world-class manufacturing techniques. Our focus is to increase the quality of our products and enhance the profitability of our business through research and development. We will continue to invest in strategic research and development projects that will further enhance our ability to compete in our core business.
We employ a team of engineers, in addition to external consultants, to conduct this research and development. During the last three years, our expenditures on research and development activities related to new and/or improved products and processes were $2.2 million in 2004, $2.1 million in 2003, and $2.1 million in 2002. These costs were expensed as incurred.
Patents, Trademarks and Licenses
Based upon market research and surveys, we believe our trade names and trademarks as well as our product shapes and styles enjoy a high degree of consumer recognition and are valuable assets. We believe that the Libbey, Syracuse China, World Tableware, Royal Leerdam, Crisal and Traex trade names and trademarks are material to our business.
We have rights under a number of patents that relate to a variety of products and processes. However, we do not consider that any patent or group of patents relating to a particular product or process is of material importance to our business as a whole.
Competitors
Our business is highly competitive, with the principal competitive factors being customer service, brand name, product quality, new product development, delivery time and price.
Glass tableware
In recent years, we have experienced increased competition from foreign glass tableware manufacturers, particularly from France, Indonesia, Turkey and the People’s Republic of China. In addition, other materials, such as plastics, also compete with glassware. Competitors in glass tableware include among others:

 	•  	Arc International (a private French company), which manufactures and distributes glass tableware worldwide.	
 	
 	•  	Indiana Glass Company (a unit of Lancaster Colony Corporation), which manufactures in the U.S. and sells glassware.	
 	
 	•  	Oneida Ltd., which sources glass tableware from foreign and domestic manufacturers.	
 	
 	•  	Anchor Hocking (a unit of Global Home Products), which manufactures and distributes glass beverageware, industrial products and bakeware to retail, foodservice and industrial markets in the U.S.	
 	
 	•  	Pasabahce (a unit of Sisecam), which manufactures glass tableware in various sites throughout the world and sells to retail and foodservice customers in Europe, the U.S. and around the world.	
 	
 	•  	Bormioli Rocco Group, which manufactures glass tableware in Europe, where the majority of their sales are to retail and foodservice customers.	
Ceramic dinnerware
Competitors in U.S. ceramic dinnerware include, among others:

 	•  	Homer Laughlin	
 	
 	•  	Oneida Ltd.	
 	
 	•  	Steelite	
 	
 	•  	Other sourcing companies	
6

Table of Contents

Metalware
Competitors in metalware include, among others:

 	•  	Oneida Ltd.	
 		
 	•  	Walco, Inc.	
 		
 	•  	Other sourcing companies	
Plastic products
Competitors in plastic products are, among others:

 	•  	Cambro Manufacturing Company	
 	
 	•  	Carlisle Companies Incorporated	
Environmental Matters
Our operations, in common with those of industry generally, are subject to numerous existing laws and governmental regulations designed to protect the environment, particularly regarding plant wastes and emissions and solid waste disposal. We also may be subject to proposed laws and governmental regulations as they become finalized. We have shipped, and continue to ship, waste materials for off-site disposal. However, we are not named as a potentially responsible party with respect to any waste disposal site matters pending prior to June 24, 1993, the date of Libbey’s initial public offering and separation from Owens-Illinois, Inc. (Owens-Illinois). Owens-Illinois has been named as a potentially responsible party or other participant in connection with certain waste disposal sites to which we also may have shipped wastes prior to June 24, 1993. We may bear some responsibility in connection with those shipments. Pursuant to an indemnification agreement between Owens-Illinois and Libbey, Owens-Illinois has agreed to defend and hold us harmless against any costs or liabilities we may incur in connection with any such matters identified and pending as of June 24, 1993, and to indemnify us for any liability that results from these matters in excess of $3 million. We believe that if it is necessary to draw upon this indemnification, collection is probable.
Pursuant to the indemnification agreement referred to above, Owens-Illinois is defending us with respect to the King Road landfill. In January 1999, the Board of Commissioners of Lucas County, Ohio instituted a lawsuit against Owens-Illinois, Libbey and numerous other defendants. (Fifty-nine companies were named in the complaint as potentially responsible parties.) In the lawsuit, which was filed in the United States District Court for the Northern District of Ohio, the Board of Commissioners sought to recover contribution for past and future costs incurred by the County in response to the release or threatened release of hazardous substances at the King Road landfill formerly operated and closed by the County. The Board of Commissioners dismissed the lawsuit without prejudice in October 2000. At the time of the dismissal, the parties to the lawsuit anticipated that the Board of Commissioners would refile the lawsuit after obtaining more information as to the appropriate environmental remedy. As of this date, it does not appear that refiling of the lawsuit is imminent. In view of the uncertainty as to refiling of the suit, the numerous defenses that may be available against the County on the merits of its claim for contribution, the uncertainty as to the environmental remedy, and the uncertainty as to the number of potentially responsible parties, it currently is not possible to quantify any exposure that Libbey may have with respect to the King Road landfill.
Subsequent to June 24, 1993, we have been named a potentially responsible party at four other sites. In each case, the claims have been settled for immaterial amounts. We do not anticipate that we will be required to pay any further sums with respect to these sites unless unusual and unanticipated contingencies occur.
On October 10, 1995, Syracuse China Company, our wholly owned subsidiary, acquired from The Pfaltzgraff Co. and certain of its subsidiary corporations, the assets operated by them as Syracuse China. The Pfaltzgraff Co. and the New York State Department of Environmental Conservation (DEC) entered into an Order on Consent effective November 1, 1994, that requires Pfaltzgraff to prepare a Remedial Investigation and Feasibility Study (RI/FS) to develop a remedial action plan for the site (which includes among other items a landfill and wastewater and sludge ponds and adjacent wetlands located on the property purchased by Syracuse China Company) and to remediate the site. Although Syracuse China Company was not a party to the Order on Consent, as part of the Asset Purchase Agreement Syracuse China Company agreed to share a part of the remediation and related expense up to the lesser of 50% of such costs or $1,350,000. Construction of the approved remedy began in 2000 and was substantially completed in 2003. Accordingly, Syracuse China Company’s obligation with respect to the associated costs has been satisfied.
7

Table of Contents

In addition, Syracuse China Company has been named as a potentially responsible party by reason of its potential ownership of certain property that adjoins its plant and has been designated a sub-site of a superfund site. We believe that any contamination of the sub-site was caused by and will be remediated by other parties at no cost to Syracuse China Company. Those other parties have acquired ownership of the sub-site, and their acquisition of the sub-site should end any responsibility of Syracuse China with respect to the sub-site. We believe that, even if Syracuse China Company were deemed to be responsible for any expense in connection with the contamination of the sub-site, it is likely the expense will be shared with Pfaltzgraff pursuant to the Asset Purchase Agreement.
In connection with the closure of our City of Industry, California, glassware manufacturing facility, on December 30, 2004, we sold the property on which the facility is located to an entity affiliated with Sares-Regis Group, a large real estate development and investment firm. Pursuant to the purchase agreement, the buyer has leased the property back to us in order to enable us to cease operations, to relocate equipment to our other glassware manufacturing facilities, to demolish the improvements on the property and to remediate certain environmental conditions affecting the property. Prior to entering into the purchase agreement, Libbey and the buyer performed a significant amount of environmental testing, the results of which indicated that site remediation may need to occur for purposes of satisfying the contract. During the course of demolition, additional environmental testing will be performed, and we will be required to remediate any additional environmental contamination discovered during the process. We anticipate that all demolition and required remediation will be completed on or before December 31, 2005. We have agreed to indemnify the buyer for hazardous substances located on, in or under, or migrating from, the property prior to the date on which we complete the demolition and remediation and turn the property over to the buyer for redevelopment.
We regularly review the facts and circumstances of the various environmental matters affecting us, including those covered by indemnification. Although not free of uncertainties, we believe that our share of the remediation costs at the various sites, based upon the number of parties involved at the sites and the estimated cost of undisputed work necessary for remediation based upon known technology and the experience of others, will not be material to us. There can be no assurance; however, that our future expenditures in such regard will not have a material adverse effect on our financial position or results of operations.
In addition, occasionally the federal government and various state authorities have investigated possible health issues that may arise from the use of lead or other ingredients in enamels such as those used by us on the exterior surface of our decorated products. In that connection, Libbey Glass Inc. and numerous other glass tableware manufacturers, distributors and importers entered into a consent judgment on August 31, 2004 in connection with an action , Leeman v. Arc International North America, Inc. et al, Case No. CGC-003-418025 (Superior Court of California, San Francisco County), brought under California’s so-called “Proposition 65.” Proposition 65 requires businesses with ten or more employees to give a “clear and reasonable warning” prior to exposing any person to a detectable amount of a chemical listed by the state as covered by this statute. Lead is one of the chemicals covered by that statute. Pursuant to the consent judgment, Libbey Glass Inc. and the other defendants (including Anchor Hocking and Arc International North America, Inc.) agreed, over a period of time, to reformulate the enamels used to decorate the external surface of certain glass tableware items to reduce the lead content of those enamels.
Capital expenditures for property, plant and equipment for environmental control activities were not material during 2004. We believe that we are in material compliance with all federal, state and local environmental laws, and we are not aware of any regulatory initiatives that are expected to have a material effect on our products or operations.
Employees
Our employees are vital to our success and our vision to be “World Class, Second to None.” We strive to achieve this through our values of teamwork, change, performance, respect and development.
We employed approximately 3,800 persons at December 31, 2004. The majority of our glass tableware employees are U.S.-based hourly-paid employees covered by six collective bargaining agreements. In October 2004, new three-year agreements for the Toledo, Ohio, plant were ratified. In December 2004, the Shreveport, Louisiana, plant’s collective bargaining agreement was ratified for a four-year term.
Substantially all of our Royal Leerdam employees are covered by a collective bargaining agreement, which is scheduled to expire in July 2005. We are currently in the process of negotiating a new contract. Our ceramic dinnerware hourly employees are covered by a collective bargaining agreement that expires in March 2006. Most of our Crisal employees are covered by a labor agreement. In connection with the enactment of a new labor law in
8

Table of Contents

Portugal, we are in the process of negotiating a new labor agreement for those employees. We consider all of our labor relations to be good.
ITEM 2. PROPERTIES
The following information sets forth the location and size of our principle facilities at December 31, 2004. 

 	 	Square Feet	 	
Location	 	Owned	 	 	Leased	 	
Toledo, Ohio:	 	 	 	 	 	 	 	 	
Manufacturing	 	 	974,000	 	 	 	—	 	
Warehousing/Distribution	 	 	988,000	 	 	 	305,000	 	
 	 	 	 	 	 	 	 	 	
Shreveport, Louisiana:	 	 	 	 	 	 	 	 	
Manufacturing	 	 	549,000	 	 	 	—	 	
Warehousing/Distribution	 	 	204,000	 	 	 	751,000	 	
 	 	 	 	 	 	 	 	 	
City of Industry, California: (1)	 	 	 	 	 	 	 	 	
Manufacturing	 	 	—	 	 	 	288,000	 	
Warehousing/Distribution	 	 	—	 	 	 	60,000	 	
 	 	 	 	 	 	 	 	 	
Syracuse, New York:	 	 	 	 	 	 	 	 	
Manufacturing	 	 	549,000	 	 	 	—	 	
Warehousing/Distribution	 	 	97,000	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Dane, Wisconsin:	 	 	 	 	 	 	 	 	
Manufacturing	 	 	56,000	 	 	 	—	 	
Warehousing/Distribution	 	 	62,000	 	 	 	55,000	 	
 	 	 	 	 	 	 	 	 	
Leerdam, Netherlands:	 	 	 	 	 	 	 	 	
Manufacturing	 	 	162,000	 	 	 	—	 	
Warehousing/Distribution	 	 	184,000	 	 	 	255,000	 	
 	 	 	 	 	 	 	 	 	
Mira Loma, California:	 	 	 	 	 	 	 	 	
Warehousing/Distribution	 	 	—	 	 	 	351,000	 	
 	 	 	 	 	 	 	 	 	
Laredo, Texas:	 	 	 	 	 	 	 	 	
Warehousing/Distribution	 	 	149,000	 	 	 	117,000	 	
 	 	 	 	 	 	 	 	 	
West Chicago, Illinois:	 	 	 	 	 	 	 	 	
Warehousing/Distribution	 	 	—	 	 	 	137,000	 	

(1)	 	In late 2004, we sold the City of Industry property consisting of approximately 27 acres. We then leased the property back from the buyer, during which time we ceased operation of the manufacturing and distribution facility in mid-February 2005. We are responsible for demolishing the buildings on the property as well as related site work, including any environmental remediation, if needed. We anticipate turning the property over to the buyer by the end of 2005.	
In addition to the above, our headquarters (Toledo, Ohio), some warehouses (various locations), sales offices (various locations) and an outlet store (Toledo, Ohio) are located in leased space. We also utilize various warehouses as needed on a month-to-month basis.
All of our properties are currently being utilized for their intended purpose. We believe that all of our facilities are well maintained and adequate for our planned operational requirements.
9

Table of Contents
ITEM 3. LEGAL PROCEEDINGS
We are involved in various routine legal proceedings arising in the ordinary course of our business. No pending legal proceeding is deemed to be material.
10

Table of Contents
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers have a wealth of business knowledge, experience and commitment to Libbey. In 2005, Mr. Meier, Chairman of the Board and Chief Executive Officer, and Mr. Reynolds, Executive Vice President and Chief Operating Officer, are both celebrating 35 years of service with Libbey. In addition, the average years of service of all of our executive officers is 17 years. 

 	

Name and Title	 	Professional Background	
 	
John F. Meier
Chairman and Chief
Executive Officer	 	Mr. Meier, 57, has been Chairman of the Board and Chief Executive Officer of Libbey since the Company went public in June 1993. Since joining the Company in 1970, Mr. Meier has served in various marketing positions, including a five-year assignment with Durobor, S.A., Belgium. In 1990, Mr. Meier was named General Manager of Libbey and a corporate Vice President of Owens-Illinois, Inc., Libbey’s former parent company. Mr. Meier is a member of the Board of Directors of Cooper Tire & Rubber Company (NYSE: CTB). Mr. Meier has been a director of the Company since 1987.	
 	
Richard I. Reynolds
Executive Vice President and Chief
Operating Officer	 	Mr. Reynolds, 58, has served as Libbey’s Executive Vice President and Chief Operating Officer since 1995. Prior to his current position, Mr. Reynolds was Libbey’s Vice President and Chief Financial Officer since June 1993. Prior to June 1993, Mr. Reynolds was Director of Finance and Administration since 1989. Mr. Reynolds has been with Libbey since 1970 and has been a director of the Company since 1993.	
 	
Kenneth G. Wilkes
Vice President, General Manager
International Operations	 	Mr. Wilkes, 47, has served as Vice President, General Manager International Operations since May 2003. He served as Vice President and Chief Financial Officer of the Company from November 1995 to May 2003. From August 1993 to November 1995, Mr. Wilkes was Vice President and Treasurer of the Company. Prior to joining the Company, Mr. Wilkes was a Senior Corporate Banker, Vice President of The First National Bank of Chicago.	
 	
Scott M. Sellick
Vice President and Chief Financial Officer	 	Mr. Sellick, 42, has served as Vice President, Chief Financial Officer since May 2003. Prior to his current position, Mr. Sellick was Libbey’s Director of Tax and Accounting until May 2002. From August 1997 to May 2002, he served as Director of Taxation. Before joining the Company in 1997, Mr. Sellick was Tax Director for Stant Corporation and worked in public accounting for Deloitte & Touche in the audit and tax areas.	
 	
Kenneth A. Boerger
Vice President and Treasurer	 	Mr. Boerger, 46, has been Vice President and Treasurer since July 1999. From 1994 to July 1999, Mr. Boerger was Corporate Controller and Assistant Treasurer. Since joining the Company in 1984, Mr. Boerger has held various financial and accounting positions. He has been involved in the Company’s financial matters since 1980, when he joined Owens-Illinois, Inc., Libbey’s former parent company.	
 	
John A. Zarb
Vice President and Chief Information Officer	 	Mr. Zarb, 53, has been Vice President and Chief Information Officer of the Company since April 1996. Prior to joining the Company, Mr. Zarb was employed by AlliedSignal Inc. (now Honeywell Inc.) in information technology senior management positions in Europe and the U.S.	
 	
Daniel P. Ibele
Vice President, General Sales Manager	 	Mr. Ibele, 44, was named Vice President, General Sales Manager of the Company in March 2002. Previously, Mr. Ibele had been Vice President, Marketing and Specialty Operations since September 1997. Mr. Ibele was Vice President and Director of Marketing at Libbey since 1995. Since joining Libbey in 1983, Mr. Ibele has held various marketing and sales positions.	
 	
Timothy T. Paige
Vice President-Administration	 	Mr. Paige, 47, has been Vice President-Administration since December 2002. Prior to his current position, Mr. Paige had been Vice President and Director of Human Resources of the Company since January 1997. From May 1995 to January 1997, Mr. Paige was Director of Human Resources of the Company. Prior to joining the Company, Mr. Paige was employed by Frito-Lay, Inc. in human resources management positions.	
 	
Susan A. Kovach
Vice President, General Counsel and Secretary	 	Ms. Kovach, 45, has been Vice President, General Counsel and Secretary of the Company since July 2004. She joined Libbey in December 2003 as Vice President, Associate General Counsel and Assistant Secretary. Prior to joining Libbey, Ms. Kovach was Of Counsel to Dykema Gossett PLLC, a large, Detroit-based law firm, from 2001 through November 2003. She served from 1997 to 2001 as Vice President, General Counsel and Corporate Secretary of Omega Healthcare Investors, Inc. (NYSE: OHI). From 1998 to 2000 she held the same position for Omega Worldwide, Inc., a NASDAQ-listed firm providing management services and financing to the aged care industry in the United Kingdom and Australia. Prior to joining Omega Healthcare Investors, Inc., Ms. Kovach was a partner in Dykema Gossett PLLC from 1995 through November 1997 and an associate in Dykema Gossett PLLC from 1985 to 1995.	
 	
11

Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 
Common Stock and Dividends
Libbey Inc. common stock is listed for trading on the New York Stock Exchange under the symbol LBY . The price range and dividends declared for our common stock was as follows:

 	
 	 	2004	 	 	2003	 	
 	
 	 	 	 	 	 	 	 	 	 	Cash	 	 	 	 	 	 	 	 	 	 	Cash	 	
 	 	Price Range	 	 	dividend	 	 	Price Range	 	 	dividend	 	
 	 	High	 	 	Low	 	 	declared	 	 	High	 	 	Low	 	 	declared	 	
 	
First Quarter	 	$	30.67	 	 	$	24.05	 	 	$	0.10	 	 	$	27.50	 	 	$	22.08	 	 	$	0.10	 	
Second Quarter	 	$	27.95	 	 	$	24.08	 	 	$	0.10	 	 	$	25.40	 	 	$	20.30	 	 	$	0.10	 	
Third Quarter	 	$	27.71	 	 	$	16.80	 	 	$	0.10	 	 	$	29.65	 	 	$	22.70	 	 	$	0.10	 	
Fourth Quarter	 	$	22.23	 	 	$	17.70	 	 	$	0.10	 	 	$	29.89	 	 	$	26.23	 	 	$	0.10	 	
 	
On March 1, 2005, there were 945 registered common shareholders of record. We have paid a regular quarterly cash dividend since our Initial Public Offering in 1993. However, the declaration of future dividends is within the discretion of the Board of Directors of Libbey and will depend upon, among other things, business conditions, earnings and the financial condition of Libbey. 
Equity Compensation Plan Information
Following are the number of securities and weighted average exercise price thereof under our compensation plans approved and not approved by security holders as of December 31, 2004:

 	 	
 	 	Number of securities to	 	Weighted average exercise	 	 	 	
 	 	be issued upon exercise	 	price of outstanding	 	Number of securities	
 	 	of outstanding options,	 	options, warrants and	 	remaining available for	
Plan Category	 	warrants and rights	 	rights	 	future issuance (1)	
 	
Equity compensation plans approved by security holders	 	 	1,517,636	 	 	$	28.87	 	 	 	2,105,518	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity compensation plans not approved by security holders	 	 	0	 	 	 	0	 	 	 	0	 	
 	
Total	 	 	1,517,636	 	 	$	28.87	 	 	 	2,105,518	 	

(1)	 	This total includes 869,130 securities that are available for grant under the Amended and Restated 1999 Equity Participation Plan of Libbey Inc. and 1,236,388 securities that are available under the Libbey Inc. 2002 Employee Stock Purchase Plan (ESPP). See note 15 to the Consolidated Financial Statements for further disclosure on these plans.	
12

Table of Contents

Issuer Purchases of Equity Securities
Following is a summary of the 2004 fourth quarter activity in our share repurchase program:

 	
 	 	 	 	 	 	 	 	 	 	Total Number of	 	Maximum Number of	
 	 	 	 	 	 	 	 	 	 	Shares Purchased	 	Shares that May Yet	
 	 	Total Number of	 	 	 	 	 	as Part of Publicly	 	Be Purchased Under	
 	 	Shares	 	Average Price	 	Announced Plans or	 	the Plans or	
Period	 	Purchased	 	Paid per Share	 	Programs	 	Programs (1)	
 	
October 1 to October 31, 2004	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,000,000	 	
November 1, to November 30, 2004	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,000,000	 	
December 1, to December 31, 2004	 	 	—	 	 	 	—	 	 	 	—	 	 	 	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 the our common stock in the open market and negotiated purchases. The timing of the purchases will depend on financial and market conditions. 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 in 2004.	
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data is incorporated by reference to page 17 of our 2004 Annual Report to Shareholders.
13

Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This document and supporting schedules contain statements that are not historical facts and constitute projections, forecasts or forward-looking statements. 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,” “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. Important factors potentially affecting our performance include, but are not limited to:

 	•  	major slowdowns in the retail, travel, restaurant and bar or entertainment industries, including the impact of armed hostilities or any other international or national calamity, including any act of terrorism, on the retail, travel, restaurant and bar or entertainment industries;	
 	
 	•  	significant increases in interest rates that increase our borrowing costs;	
 	
 	•  	significant increases in per-unit costs for natural gas, electricity, corrugated packaging, aragonite, resins and other purchased materials;	
 	
 	•  	increases in expenses associated with higher medical costs, increased pension expense associated with lower returns on pension investments and lower interest rates on pension obligations;	
 	
 	•  	currency fluctuations relative to the U.S. dollar, euro or Mexican peso that could reduce the cost competitiveness of our or Vitrocrisa’s products compared to foreign competition;	
 	
 	•  	the effect of high inflation in Mexico on the operating results and cash flows of Vitrocrisa;	
 	
 	•  	the impact of exchange rate changes in the Mexican peso relative to the U.S. dollar on the earnings of Vitrocrisa expressed under accounting principles generally accepted in the United States;	
 	
 	•  	the inability to achieve savings and profit improvements at targeted levels at Libbey and Vitrocrisa from capacity realignment, re-engineering and operational restructuring programs or within the intended time periods;	
 	
 	•  	protracted work stoppages related to collective bargaining agreements;	
 	
 	•  	increased competition from foreign suppliers endeavoring to sell glass tableware in the United States, Mexico, Europe and other key markets worldwide, including the impact of lower duties for imported products; and	
 	
 	•  	whether we complete any significant acquisitions and whether such acquisitions can operate profitably.	
For an understanding of the significant factors that influenced our performance during the past three years, the following should be read in conjunction with the audited Consolidated Financial Statements and Notes.
OVERVIEW
Libbey is the leading supplier of tableware products in the U.S. and Canada, in addition to supplying to other key export markets. Established in 1818, we are the largest manufacturing, distribution and service network among North American glass tableware manufacturers. We design and market an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, holloware and serveware, and plastic items. We are a joint venture partner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Vitrocrisa), the largest glass tableware manufacturer in Latin America.
2004 was a challenging year from a consolidated net income standpoint; however, we undertook several key strategic projects that will enhance our long-term financial performance. These key initiatives were as follows:

 	•  	In August 2004, we announced the realignment of our domestic glass tableware production capacity to allow us to reduce our overall fixed costs and improve future operational performance. This realignment resulted in the closure of our City of Industry, California glass tableware manufacturing facility in mid-February 2005 and realignment of production to our other domestic glass tableware facilities. During 2004, we incurred a $14.5 million pretax charge, and we expect to incur an additional $2.2 million in 2005, for the closing of the City of Industry facility and realignment of our glass tableware production. The closure of this facility is expected to add $11 to 13 million to annual income from operations, starting in the second quarter of 2005.	
14

Table of Contents

 	•  	In connection with the closure of our City of Industry, California glass tableware facility, we sold approximately 27 acres of land for $16.6 million (net of selling costs) in December 2004, subject to the performance of certain site preparation costs. These cash proceeds were used to pay down outstanding debt in 2004.	
 	
 	•  	In January 2005, we acquired 95 percent of the shares of Crisal-Cristalaria Automática S.A. (Crisal) located in Marinha Grande, Portugal. Crisal manufactures and markets glass tableware, mainly tumblers, stemware and glassware accessories. Royal Leerdam, acquired in 2002, and Crisal are complementary and key to our growth strategy to supply high-quality, machine-made glass tableware products to key markets worldwide.	
 	
 	•  	In late 2004, we obtained a business license in the People’s Republic of China to manufacture glass tableware and in early 2005, we procured land use rights in the People’s Republic of China with respect to property on which we plan to build a new glass tableware manufacturing facility. This facility will be a wholly-owned factory aimed at the growing Chinese and Asia-Pacific markets and other key export markets. Currently, glass tableware production is scheduled to begin in early 2007.	
 	
 	•  	In June 2004, we entered into a new, unsecured Revolving Credit Agreement for $250 million for a five-year term. This will allow us to continue to finance our operational and acquisition requirements.	
 	
 	•  	During the fourth quarter of 2004, we reduced our inventories by $14.7 million as we achieved an aggressive plan for inventory reduction. In 2005, we plan continued inventory reduction.	
 	
 	•  	During 2004, our U.S.-based hourly-paid employee collective bargaining agreements at our manufacturing plants in Toledo, Ohio, and Shreveport, Louisiana, expired, but we successfully negotiated new agreements. The new agreements with respect to our Toledo plant are for a three-year term and the new agreement with respect to our Shreveport plant is for a four-year term.	
 	
 	•  	Our capital spending in 2004 set a record for the company at $40.5 million, as we initiated our plan to focus on improved inspection techniques and enhanced robotic applications in our glass factories. During 2005, we expect to make approximately $35 to $40 million in capital expenditures, excluding expenditures related to the construction of our Chinese factory.	
 	
 	•  	We have complied with the internal control requirements of Section 404 of the Sarbanes-Oxley Act of 2002 as they relate to the Company’s 2004 fiscal year. Although we historically have placed significant emphasis on controls, we made a significant commitment of internal and external resources in order to comply with Section 404. As we enter 2005, we are well-positioned to comply with these requirements on an ongoing basis.	
15

Table of Contents

RESULTS OF OPERATIONS
The following table presents key results of our operations for the years 2004, 2003 and 2002:

Dollars in thousands, except percentages and per-share amounts	
 	
  	 	 	 	 	 	 	 	 	 	Variance	 	 	 	 	 	 	 	 	 	 	Variance	 	
Year end December 31,	 	2004	 	 	2003	 	 	in dollars	 	 	in percent	 	 	2003	 	 	2002	 	 	in dollars	 	 	in percent	 	
 	
Net sales	 	$	544,767	 	 	$	513,632	 	 	$	31,135	 	 	 	6.1	%	 	$	513,632	 	 	$	433,761	 	 	$	79,871	 	 	 	18.4	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	 	$	100,462	 	 	$	108,206	 	 	$	(7,744	)	 	 	(7.2	)%	 	$	108,206	 	 	$	107,928	 	 	$	278	 	 	 	0.3	%	
gross profit margin	 	 	18.4	%	 	 	21.1	%	 	 	 	 	 	 	 	 	 	 	21.1	%	 	 	24.9	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from operations (IFO)	 	$	23,895	 	 	$	39,727	 	 	$	(15,832	)	 	 	(39.9	)%	 	$	39,727	 	 	$	51,297	 	 	$	(11,570	)	 	 	(22.6	)%	
IFO margin	 	 	4.4	%	 	 	7.7	%	 	 	 	 	 	 	 	 	 	 	7.7	%	 	 	11.8	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings before interest and income taxes (EBIT) (1)	 	$	24,829	 	 	$	47,640	 	 	$	(22,811	)	 	 	(47.9	)%	 	$	47,640	 	 	$	44,936	 	 	$	2,704	 	 	 	6.0	%	
EBIT margin	 	 	4.6	%	 	 	9.3	%	 	 	 	 	 	 	 	 	 	 	9.3	%	 	 	10.4	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings before interest, taxes, depreciation and amortization (EBITDA) (1)	 	$	54,334	 	 	$	75,749	 	 	$	(21,415	)	 	 	(28.3	)%	 	$	75,749	 	 	$	64,079	 	 	$	11,670	 	 	 	18.2	%	
EBITDA margin	 	 	10.0	%	 	 	14.7	%	 	 	 	 	 	 	 	 	 	 	14.7	%	 	 	14.8	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	8,252	 	 	$	29,073	 	 	$	(20,821	)	 	 	(71.6	)%	 	$	29,073	 	 	$	28,055	 	 	$	1,018	 	 	 	3.6	%	
net income margin	 	 	1.5	%	 	 	5.7	%	 	 	 	 	 	 	 	 	 	 	5.7	%	 	 	6.5	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted net income per share	 	$	0.60	 	 	$	2.11	 	 	$	(1.51	)	 	 	(71.6	)%	 	$	2.11	 	 	$	1.82	 	 	$	0.29	 	 	 	15.9	%	

(1)	 	We believe that EBIT and EBITDA, non-GAAP financial measures, are useful metrics for evaluting our financial performance as they are measures in which we internally assess our performance. For a reconcilation from income before income taxes to EBIT to EBITDA, see the section “Reconciliation of Non-GAAP Financial Measures.”	
Discussion of 2004 vs. 2003 Results of Operations
Net sales
We design, market and sell our products under the Libbey, Syracuse China, World Tableware, Royal Leerdam, and Traex brands which are sold primarily in the foodservice, retail and industrial markets. In 2004, our net sales were $544.8 million, an increase of 6.1%, or $31.1 million, compared to 2003. The increase in sales was attributable to increased sales to foodservice, retail and non-U.S. customers. Sales to foodservice customers of Libbey glass tableware products, Syracuse China dinnerware products, Traex plastic products and World Tableware products were all higher by at least 6 percent when compared with the full year 2003. Retail sales grew over 3 percent as compared to the prior year.
Total sales outside of the U.S. increased 7.7% to $125.4 million in 2004, compared to $116.5 million in 2003. Royal Leerdam glass tableware sales in U.S. dollars increased compared to prior year due to the exchange rate between the euro and U.S. dollar. However, in euros, sales were down slightly compared to 2003.
The increase in net sales mentioned above was offset by decreased sales in the glass tableware industrial markets. In addition, in 2004, we elected to exit certain low-margin business as a result of our glass tableware capacity realignment.
Gross profit
Gross profit decreased in 2004 by $7.7 million, or 7.2%, compared to 2003, and gross profit as a percent of net sales declined to 18.4% in 2004, as compared to 21.1% in 2003. The reduction was attributable to increased costs for distribution, packaging, medical benefits, pension and natural gas in addition to the capacity realignment charge discussed below.
During 2004, we incurred a pretax charge of $14.5 million for the realignment of our glass tableware production capacity. This plan called for the closure of our glass tableware manufacturing facility in City of Industry, California, and the realignment of production among our other domestic glass tableware manufacturing facilities. The charge is outlined in further detail below and in note 10 to the Consolidated Financial Statements. Of the $14.5 million charge,
16

Table of Contents

$6.5 million was recorded in cost of sales, and the remaining $8.0 million was recorded in the line item “capacity realignment charge” included as part of income from operations. The capacity realignment is expected to add $11 to $13 million to annual income from operations, starting in the second quarter of 2005. The closure of our City of Industry facility occurred in mid-February 2005.
The following table summarizes the capacity realignment charge incurred during 2004, and the total estimated charge related to the capacity realignment, the balance of which we expect to incur in 2005. 

 	 	
 	 	Twelve months ended	 	 	Total estimated	 	
Dollars in thousands	 	December 31, 2004	 	 	charge (gain)	 	
 	
Pension & postretirement welfare	 	$	4,621	 	 	$	4,621	 	
Inventory write-down	 	 	1,905	 	 	 	1,905	 	
 	
Included in cost of sales	 	 	6,526	 	 	 	6,526	 	
 	 	 	 	 	 	 	 	 	
Equipment write-down	 	 	4,678	 	 	 	4,678	 	
Net gain on land sale	 	 	—	 	 	 	(2,600	)	
Employee termination cost	 	 	3,315	 	 	 	8,100	 	
 	
Included in capacity realignment charge	 	 	7,993	 	 	 	10,178	 	
 	
Total pretax capacity realignment charge	 	$	14,519	 	 	$	16,704	 	
 	
Income from operations
Income from operations decreased by $15.8 million, or 39.9%, in 2004, compared to 2003. Income from operations as a percentage of net sales was 4.4% in 2004, compared to 7.7% in 2003. The reduction in income from operations was the result of the decrease in gross profit and the charge of $8.0 million for the capacity realignment as discussed above. This $8.0 million charge, which is attributable primarily to employee termination cost and the write-down of fixed assets, is in addition to the charge of $6.5 million included in gross profit. Selling, general and administrative expenses increased by less than $0.1 million in 2004 compared to 2003; and as a percentage of net sales they decreased to 12.6% in 2004, compared to 13.3% in 2003.
Earnings before interest and income taxes (EBIT)
Earnings before interest and income taxes decreased by $22.8 million, or 47.9%, in 2004, compared to 2003. As a percentage of net sales, EBIT was 4.6% in 2004, compared to 9.3% in 2003. EBIT decreased due to the reduction in income from operations in addition to the pretax equity loss from Vitrocrisa of $1.4 million, as compared to pretax equity earnings of $4.4 million in 2003. The Vitrocrisa equity loss was the result of higher natural gas costs, an unfavorable sales mix and a remeasurement loss. Also contributing to the lower EBIT in 2004 were slightly lower royalties and net technical assistance income and other expense of $0.5 million compared to other income of $0.5 million in 2003. The reduction in other income was primarily the result of foreign currency losses. For a reconciliation of EBIT to income before income taxes, see “Reconciliation of Non-GAAP Financial Measures” below.
It is important to note that royalties and net technical assistance income have been reclassified and are now reported below income from operations. Historically, royalties and net technical assistance income were included in total revenues.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
EBITDA decreased by $21.4 million, or 28.3%, in 2004, compared to 2003. As a percentage of net sales, EBITDA was 10.0% in 2004, compared to 14.7% in 2003. The reduction in EBITDA was primarily driven by the lower EBIT that was partially offset by slightly higher depreciation and amortization in 2004 compared to 2003. For a reconciliation of EBITDA to income before income taxes, see “Reconciliation of Non-GAAP Financial Measures” below.
Net income and diluted earnings per share
Net income was $8.3 million in 2004, or $0.60 per diluted share, compared to $29.1 million, or $2.11 per diluted share in 2003. Net income as a percentage of net sales was 1.5% in 2004, compared to 5.7% in 2003. Net income decreased in 2004 as the result of lower EBIT offset by lower interest and income tax expense (on lower earnings) in 2004 compared to 2003. Interest expense decreased in 2004 by $0.4 million compared to 2003 as a result of lower interest rates during 2004. The effective tax rate increased to 30% during 2004 from 15% in 2003. The lower effective
17

Table of Contents

tax rate in 2003 was primarily due to a tax restructuring of our foreign operations. As detailed in “Reconciliation of Non-GAAP Financial Measures” below, net income per diluted share, excluding the capacity realignment charge, was $1.34 in 2004, compared to net income per diluted share, excluding tax adjustments, of $1.71 in 2003.
Discussion of 2003 vs. 2002 Results of Operations
Net sales
Net sales for 2003 was $513.6 million, an increase of 18.4%, or $79.9 million, compared to 2002. The increase in sales was mainly attributable to the sales of Royal Leerdam and Traex, both acquired in December 2002. In addition, we had strong sales in the second half of 2003 of glassware products. For 2003, despite a sluggish first half, sales excluding these acquisitions were within 0.3% of the prior year. Sales outside of the United States were $116.5 million in 2003, compared to $46.1 million in 2002. Over $60 million of net sales were due to the acquisition of Royal Leerdam, whose sales are mainly to customers located outside of the United States. Excluding Royal Leerdam sales, export sales increased to $53.6 million, or 16%, as compared to the prior-year period, primarily as the result of increased sales to our Canadian customers.
Gross profit
Gross profit increased slightly in 2003 to $108.2 million compared to the prior year period of $107.9 million. As a percent of net sales, gross profit in 2003 was 21.1% compared to 24.9% in 2002. The decline in gross profit margin is primarily due to greater sales of products with lower profit margins in addition to higher natural gas costs of over $6.2 million and additional costs for pension and postretirement medical costs of $5.4 million in 2003 compared to 2002.
Income from operations
Income from operations decreased by $11.6 million, or 22.6%, in 2003 compared to 2002. As a percentage of net sales, income from operations was 7.7% in 2003, compared to 11.8% in 2002. The decrease in income from operations was primarily the result of the higher selling, general and administrative expenses in 2003 offset by the slight increase in gross profit. Selling, general and administrative expenses increased in 2003, compared to 2002, by $11.8 million, of which $10.8 million was attributable to the acquisitions of Royal Leerdam and Traex. As a percentage of net sales, selling, general and administrative expenses were relatively flat at 13.3% of net sales in 2003, compared to 13.1% in 2002.
Earnings before interest and income taxes (EBIT)
Earnings before interest and income taxes were $47.6 million in 2003, an increase of $2.7 million, or 6.0%, compared to 2002. As a percentage of net sales, EBIT was 9.3% in 2003, compared to 10.4% in 2002. In 2002, EBIT included $13.6 million of expenses related to an abandoned acquisition. For further details on the abandoned acquisition charge, see note 4 to the Consolidated Financial Statements. Equity earnings from Vitrocrisa in 2003 were $4.4 million on a pretax basis, as compared with $6.4 million in the year-ago period, primarily as the result of higher natural gas costs and lower activity levels. Other income in 2003 was $0.5 million, as compared to expense of $1.5 million in the year-ago period. The 2002 lower income was primarily attributable to a write-down in value of an advance made to a supplier. Royalties and net technical assistance income was $3.0 million in 2003, compared to $2.4 million in 2002. For a reconciliation of EBIT to income before income taxes, see “Reconciliation of Non-GAAP Financial Measures” below.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
EBITDA increased to $75.7 million in 2003, an increase of $11.7 million, or 18.2%, compared to 2002. While $2.7 million of this increase was the result of increased EBIT, the primary driver was the increase in depreciation and amortization expense in 2003 attributable to the acquisitions of Royal Leerdam and Traex, both of which we acquired in late 2002. For a reconciliation of EBIT to EBITDA, “Reconciliation of Non-GAAP Financial Measures” below.
Net income and diluted earnings per share
Net income in 2003 was $29.1 million, or $2.11 per diluted share, compared to $28.1 million, or $1.82 per diluted share in 2002. Net income as a percentage of net sales was 5.7% in 2003 compared to 6.5% in 2002. Interest expense increased $5.2 million in 2003, primarily as the result of higher debt. The higher debt was the result of over $60 million
18

Table of Contents

in funding for acquisitions of Royal Leerdam and Traex (see note 4 to the Consolidated Financial Statements for further disclosure on acquisitions), both acquired in late 2002, and $38.9 million in share repurchases (see Capital Resources and Liquidity Section for further detail on our share repurchase program).
The effective tax rate in 2003 was 15.0%, compared to 23.5% in 2002. The 2003 reduction in effective tax rate was primarily attributable to a tax restructuring whereby the undistributed earnings of our joint venture in Mexico will be permanently reinvested outside of the United States, eliminating the need for a previously established net deferred U.S. income tax liability on those undistributed earnings. The effective tax rate in 2002 of 23.5% was primarily attributable to lower Mexican tax, the elimination of non-deductible goodwill amortization and an adjustment to estimated U.S. income tax accruals.
The weighted average diluted shares outstanding as of December 31, 2003 decreased approximately 1.7 million, primarily as a result of our repurchase of 1.5 million shares in March of 2003.
As detailed below “Reconciliation of Non-GAAP Financial Measures,” net income per diluted share, excluding tax adjustment, was $1.71 for 2003, as compared with $1.82 per diluted share for 2002. In 2002, net income included expenses associated with an abandoned acquisition as further disclosed in note 4 to the Consolidated Financial Statements. These expenses totaled $13.6 million, less a tax effect of $5.1 million, or an after-tax impact of $8.5 million, or $0.55 per diluted share as noted in “Reconciliation of Non-GAAP Financial Measures” below. Due to the unusual nature and magnitude of the tax adjustment and expenses related to the abandoned acquisition, management believes exclusion of these expenses is necessary for a more meaningful comparison of net income.
19

Table of Contents
CAPITAL RESOURCES AND LIQUIDITY 
Cash Flow
The following table presents key drivers to free cash flow for 2004, 2003 and 2002:

Dollars in thousands, except percentages	
 	 	 	 	 	 	 	 	 	 	Variance	 	 	 	 	 	 	 	 	 	 	Variance	 	
December 31,	 	2004	 	 	2003	 	 	in dollars	 	 	in percent	 	 	2003	 	 	2002	 	 	in dollars	 	 	in percent	 	
 	
Net cash provided by operating activities	 	$	42,750	 	 	$	29,210	 	 	$	13,540	 	 	 	46.4	%	 	$	29,210	 	 	$	55,001	 	 	$	(25,791	)	 	 	(46.9	)%	
Capital expenditures	 	 	40,482	 	 	 	25,718	 	 	 	14,764	 	 	 	57.4	%	 	 	25,718	 	 	 	17,535	 	 	 	8,183	 	 	 	46.7	%	
Acquisitions and related costs	 	 	—	 	 	 	513	 	 	 	(513	)	 	 	(100.0	)%	 	 	513	 	 	 	62,046	 	 	 	(61,533	)	 	 	(99.2	)%	
Proceeds from asset sales and other	 	 	16,623	 	 	 	1,410	 	 	 	15,213	 	 	 	1078.9	%	 	 	1,410	 	 	 	3,523	 	 	 	(2,113	)	 	 	(60.0	)%	
Dividends from Vitrocrisa	 	 	980	 	 	 	4,900	 	 	 	(3,920	)	 	 	(80.0	)%	 	 	4,900	 	 	 	4,659	 	 	 	241	 	 	 	5.2	%	
 	
Free cash flow (a)	 	$	19,871	 	 	$	9,289	 	 	$	10,582	 	 	 	113.9	%	 	$	9,289	 	 	$	(16,398	)	 	$	25,687	 	 	 	(156.6	)%	

(a)	 	We believe that Free Cash Flow (net cash provided by operating activities, less capital expenditures and acquisition and related costs, plus proceeds from asset sales and other and dividends received from Vitrocrisa) is a useful metric for evaluting our financial performance as it is a measure in which we internally assess performance.	
Our net cash provided by operating activities was $42.8 million in 2004 compared to $29.2 million in 2003. Our trade working capital increased by $8.5 million in 2004 compared to an increase of $14.6 million in 2003. This lower increase in trade working capital in 2004 compared to 2003 was partially attributable to our increase in net cash provided by operating activities. In 2004, we spent $40.5 million in capital expenditures, compared to $25.7 million in 2003. This $14.8 million increase in capital expenditures is the result of our increased furnace rebuild activity and execution of the initial phase of “cold end” improvements focused primarily on inspection techniques and enhanced robotic applications in our glass factories. Our free cash flow was $19.9 million in 2004 compared to $9.3 million in 2003. The $10.6 million increase was driven by increased cash provided by operating activities and proceeds from asset sales, offset by increased capital expenditures and lower dividends from Vitrocrisa in 2004 compared to 2003. The net cash proceeds from asset sales in 2004 of $16.6 million related to the sale of land in City of Industry, California. For a reconciliation of net cash provided by operating activities to free cash flow, see “Reconciliation of Non-GAAP Financial Measures” below.
In 2003, we had free cash flow of $9.3 million compared to cash used of $16.4 million in 2002. In 2002, we used cash of $62.0 million for the acquisitions of Royal Leerdam and Traex (see note 4 to the Consolidated Financial Statements for further disclosure on acquisitions). In addition, net cash provided by operating activities was $25.8 million lower in 2003 compared to 2002. 
Trade Working Capital
The following table presents trade working capital items for 2004 and 2003:

Dollars in thousands, except percentages and DSO, Inventory turns, and DPO	
 	 	 	 	 	 	 	 	 	 	Variance	 	
December 31,	 	2004	 	 	2003	 	 	in dollars	 	 	in percent	 	
 	
Accounts receivable	 	$	67,522	 	 	$	57,122	 	 	$	10,400	 	 	 	18.2	%	
DSO (1)	 	 	41.2	 	 	 	37.5	 	 	 	 	 	 	 	 	 	
Inventories	 	 	126,625	 	 	 	125,696	 	 	 	929	 	 	 	0.7	%	
Inventory turns (2)	 	 	3.5	 	 	 	3.4	 	 	 	 	 	 	 	 	 	
Accounts payable	 	 	43,140	 	 	 	40,280	 	 	 	2,860	 	 	 	7.1	%	
DPO (3)	 	 	33.8	 	 	 	31.9	 	 	 	 	 	 	 	 	 	
 	
Trade working capital	 	$	151,007	 	 	$	142,538	 	 	$	8,469	 	 	 	5.9	%	
Percentage of net sales	 	 	27.7	%	 	 	27.8	%	 	 	 	 	 	 	 	 	

(1)	 	Days sales outstanding (DSO) measures the number of days it takes, based on a 90-day average, to turn receivables into cash.	
 		
(2)	 	Inventory turns measures the number of times per year, based on a 90-day average, in which our inventory turns.	
 		
(3)	 	Days payable outstanding (DPO) measures the number of days it takes, to pay the balances of our accounts payable.	
Trade working capital, defined as accounts receivable plus inventories less accounts payable, increased by $8.5 million in 2004 compared to 2003. However, as a percentage of net sales, trade working capital decreased slightly to 27.7% in 2004, compared to 27.8% in 2003. The increase in trade working capital in 2004 was mainly attributable to the
20

Table of Contents

increase in accounts receivable due to increased net sales. Days sales outstanding (DSO) increased by 3.7 days in 2004 compared to 2003. The increase was partially attributable to the increase in net sales in the fourth quarter of 2004 compared to 2003 of $9.8 million. Although inventories increased slightly for the year, we reduced inventories by $14.7 million in the fourth quarter of 2004 pursuant to an aggressive inventory reduction plan. This reduction in inventory in the fourth quarter of 2004 assisted in the increase of our inventory turns to 3.5 times in 2004 compared to 3.4 times in 2003. Our accounts payable increased in 2004 to $43.1 million, compared to $40.3 million in 2003. However, we were able to increase our days payable outstanding (DPO) in 2004 to 33.8 days compared to 31.9 days in 2003. For a reconciliation of trade working capital, see “Reconciliation of Non-GAAP Financial Measures” below. 
Debt
The following table presents our total debt for 2004 and 2003:

Dollars in thousands, except percentages	
 	 	Interest	 	 	Maturity	 	 	December 31,	 	 	Variance	 	
 	 	Rate	 	 	Date	 	 	2004	 	 	2003	 	 	in dollars	 	 	in percent	 	
 	
Borrowings under credit facility (1)	 	floating	 	June 24, 2009	 	$	113,690	 	 	$	127,926	 	 	$	(14,236	)	 	 	(11.1	)%	
Senior notes	 	 	3.69	%	 	March 31, 2008	 	 	25,000	 	 	 	25,000	 	 	 	0	 	 	 	0.0	%	
Senior notes	 	 	5.08	%	 	March 31, 2013	 	 	55,000	 	 	 	55,000	 	 	 	0	 	 	 	0.0	%	
Senior notes	 	floating	 	March 31, 2010	 	 	20,000	 	 	 	20,000	 	 	 	0	 	 	 	0.0	%	
Promissory Note	 	 	6.00	%	 	January 2005 to
September 2016	 	 	2,267	 	 	 	2,396	 	 	 	(129	)	 	 	(5.4	)%	
Notes payable	 	floating	 	January 2005	 	 	9,415	 	 	 	611	 	 	 	8,804	 	 	 	1440.9	%	
 	
Total debt (2)(3)	 	 	 	 	 	 	 	 	 	$	225,372	 	 	$	230,933	 	 	$	(5,561	)	 	 	(2.4	)%	

(1)	 	In 2003, our borrowings under the credit facility were under the Amended and Restated Revolving Credit Agreement scheduled to mature April 23, 2005. We entered into a new agreement in June, 2004 to replace the Amended Agreement.	
 		
(2)	 	Total debt includes notes payable, long-term debt due within one year and long-term debt as stated in our Consolidated Balance Sheet.	
 		
(3)	 	See contractual obligations section below on scheduled payments by period.	
We had total debt of $225.4 million at December 31, 2004, compared with $230.9 million at December 31, 2003. The $5.6 million reduction in debt was primarily attributable to the net proceeds received from the City of Industry, California, land sale.
In June 2004, we entered into an unsecured agreement for an Amended and Restated Revolving Credit Agreement (Revolving Credit Agreement or Agreement) for $250 million for a five-year term. The Agreement will allow us to continue to finance our operational and acquisition funding requirements. At December 31, 2004, we had additional debt capacity of $131.0 million, including outstanding letters of credit of $5.3 million under our debt obligations, limited by our performance against certain financial ratios. Note 9 to the Consolidated Financial Statements provides additional information regarding the Agreement.
On March 31, 2003, we issued $100 million of privately placed senior notes (Note Purchase Agreement). Eighty million dollars of the notes have an average interest rate of 4.65% per year, with an initial average maturity of 8.4 years and a remaining average maturity of 6.7 years. The additional $20 million has a floating interest rate at a margin over the London Interbank Offer Rate (LIBOR). The proceeds of the note issuance were used to retire debt outstanding under the Revolving Credit Agreement.
In December 2004, we amended the Revolving Credit Agreement and Note Purchase Agreement to allow for the purchase of Crisal. The material terms of the amendment for the Revolving Credit Agreement, as defined in the Agreement, were (1) the Offshore Currency sublimit was increased from $100 million to $125 million; and (2) the leverage ratio for the quarters ending December 31, 2004, and March 31, 2005, was increased from a maximum of 3.50 to 1.00 to a maximum of 3.75 to 1.00, respectively. The amendment for the Note Purchase Agreement allows for a short-term increase in the consolidated leverage ratio for the quarters ending December 31, 2004, and March 31, 2005, from a maximum of 3.50 to 1.00 to a maximum of 3.75 to 1.00, respectively.
Our weighted average annual interest rate at December 31, 2004, for our total debt was 4.9%. We have entered into interest rate protection agreements with respect to $50 million of debt as a way to manage our exposure to fluctuating
21

Table of Contents

interest rates. The average fixed rate of interest under these interest rate protection agreements, excluding applicable fees, is 6.0% per year, and the total interest rate, including applicable fees, is 7.8% per year. The average maturity of these interest rate protection agreements is 1.0 year at December 31, 2004. Of our total outstanding indebtedness, $93.1 million is subject to fluctuating interest rates at December 31, 2004. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.9 million on an annual basis.
In September 2001, we issued a $2.7 million promissory note in connection with the purchase of a warehouse facility. At December 31, 2004, we had $2.3 million outstanding on the promissory note. During 2005, $0.1 million of the principal is payable.
Share Repurchase Program
Since mid-1998, we have repurchased 5,125,000 shares for $140.7 million, as authorized by our Board of Directors. As of December 31, 2004, authorization remains for the purchase of an additional 1,000,000 shares. During 2004, we did not purchase any treasury shares. In 2003, 1,500,000 shares of our common stock were purchased for $38.9 million. 
Contractual Obligations
The following table presents our existing contractual obligations at December 31, 2004 and related future cash requirements:

Dollars in thousands	
 	 	Payments Due by Period	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	After 5	 	
Contractual Obligations	 	Total	 	 	1 Year	 	 	2 - 3 Years	 	 	4 - 5 Years	 	 	Years	 	
 	
Debt	 	$	225,372	 	 	$	9,530	 	 	$	230	 	 	$	138,920	 	 	$	76,692	 	
Long term operating leases	 	 	40,430	 	 	 	6,608	 	 	 	11,788	 	 	 	8,499	 	 	 	13,535	 	
Natural gas obligations	 	 	15,950	 	 	 	11,572	 	 	 	4,378	 	 	 	—	 	 	 	—	 	
Pension (1)	 	 	173,214	 	 	 	13,716	 	 	 	29,426	 	 	 	33,718	 	 	 	96,354	 	
Nonpension postretirement (1)	 	 	52,691	 	 	 	3,369	 	 	 	8,013	 	 	 	9,719	 	 	 	31,590	 	
 	
Total obligations	 	$	507,657	 	 	$	44,795	 	 	$	53,835	 	 	$	190,856	 	 	$	218,171	 	

(1)	 	The obligations for pension and nonpension postretirement obligations are based on the plans’ current funded status and actuarial assumptions and include those projected benefit payments to participants through 2014. For further disclosure on pension and nonpension postretirement, see notes 12 and 13, respectively, to the Consolidated Financial Statements.	
In addition to the above, we have commercial commitments for letters of credit and guarantees. Our letters of credit outstanding at December 31, 2004, totaled $5.3 million. For further detail with respect to our guarantees, see note 19 to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We are a joint venture partner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Vitrocrisa), the largest glass tableware manufacturer in Latin America. We record our 49% interest in Vitrocrisa using the equity method of accounting. From this joint venture, we receive equity earnings (loss), dividends and certain technical assistance income. We also have a reciprocal distribution agreement with our joint venture partner, giving us exclusive distribution rights for Vitrocrisa’s glass tableware products in the U.S. and Canada, and giving Vitrocrisa the exclusive distribution rights for our glass tableware products in Latin America. In addition, we guarantee a portion of Vitrocrisa’s bank debt (see note 19 to the Consolidated Financial Statements). We have evaluated this investment and related arrangements in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (FIN 46R) and determined that Vitrocrisa is a Variable Interest Entity (VIE), as defined by FIN 46R, but is not considered the primary beneficiary, as we do not absorb the majority of expected losses or receive the majority of expected residual returns. Therefore, Vitrocrisa is not consolidated in our Consolidated Financial Statements.
Liquidity and Capital Resource Requirements
Based on past performance and current expectations, we believe that our free cash flow and available borrowings under the Revolving Credit Agreement, private placement senior notes and other short-term lines of credit will be
22

Table of Contents

sufficient to fund our operating requirements, capital expenditures, investment requirements, share repurchases, commitments and all other obligations (including debt service and dividends) throughout the remaining term of the Revolving Credit Agreement. We believe that the most strategic uses of our cash resources include strategic investments to further enhance our manufacturing processes, acquisitions, payment of debt principal and interest, and working capital requirements. We are not aware of any trends, demands, commitments or uncertainties that will result or that are reasonably likely to result in a material change in our liquidity.
23

Table of Contents

Reconciliation of Non-GAAP Financial Measures
We sometimes refer to data derived from consolidated financial information but not required by GAAP to be presented in financial statements. Certain of these data are considered “non-GAAP financial measures” under Securities and Exchange Commission (SEC) Regulation G. We believe that non-GAAP data provide investors with a more complete understanding of underlying results in our core business and trends. In addition, it is the basis on which we internally assess performance, and certain non-GAAP measures are relevant to our determination of compliance with financial covenants included in our debt agreements. Although we believe that the non-GAAP financial measures presented enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered an alternative to GAAP.
Reconciliation of Income before income taxes to EBIT and EBITDA 

(Dollars in thousands)	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Income before income taxes	 	$	11,780	 	 	$	34,204	 	 	$	36,673	 	
Add: interest expense	 	 	13,049	 	 	 	13,436	 	 	 	8,263	 	
 	
Earnings before interest and taxes (EBIT)	 	$	24,829	 	 	$	47,640	 	 	$	44,936	 	
Add: depreciation and amortization	 	 	29,505	 	 	 	28,109	 	 	 	19,143	 	
 	
Earnings before interest, taxes, depreciation and amortization (EBITDA)	 	$	54,334	 	 	$	75,749	 	 	$	64,079	 	
 	
Net Income excluding capacity realignment charge 

(Dollars in thousands, except per-share amounts)	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Reported net income	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	
Capacity realignment charge — net of tax	 	 	10,163	 	 	 	—	 	 	 	—	 	
 	
Net income excluding capacity realignment charge	 	$	18,415	 	 	$	29,073	 	 	$	28,055	 	
 	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported net income	 	$	0.60	 	 	$	2.11	 	 	$	1.82	 	
Capacity realignment charge — net of tax	 	 	0.74	 	 	 	—	 	 	 	—	 	
 	
Net income per diluted share excluding capacity realignment charge	 	$	1.34	 	 	$	2.11	 	 	$	1.82	 	
 	
Net Income excluding tax adjustment 

(Dollars in thousands, except per-share amounts)	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Reported net income	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	
Tax adjustment	 	 	—	 	 	 	5,472	 	 	 	—	 	
 	
Net income excluding tax adjustment	 	$	8,252	 	 	$	23,601	 	 	$	28,055	 	
 	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported net income	 	$	0.60	 	 	$	2.11	 	 	$	1.82	 	
Tax adjustment	 	 	—	 	 	 	0.40	 	 	 	—	 	
 	
Net income per diluted share excluding tax adjustment	 	$	0.60	 	 	$	1.71	 	 	$	1.82	 	
 	
Net Income excluding abandoned acquisition 

(Dollars in thousands, except per-share amounts)	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Reported net income	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	
Expenses associated with abandoned acquisition — net of tax	 	 	—	 	 	 	—	 	 	 	8,508	 	
 	
Net income excluding expenses associated with abandoned acquisition	 	$	8,252	 	 	$	29,073	 	 	$	36,563	 	
 	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported net income	 	$	0.60	 	 	$	2.11	 	 	$	1.82	 	
Expenses associated with abandoned acquisition — net of tax	 	 	—	 	 	 	—	 	 	 	0.55	 	
 	
Net income per diluted share excluding expenses associated with abandoned acquisition	 	$	0.60	 	 	$	2.11	 	 	$	2.37	 	
 	
24

Table of Contents

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

(Dollars in thousands)	
December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Net cash provided by operating activities	 	$	42,750	 	 	$	29,210	 	 	$	55,001	 	
Less:	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	40,482	 	 	 	25,718	 	 	 	17,535	 	
Acquisition and related costs	 	 	—	 	 	 	513	 	 	 	62,046	 	
Plus:	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from asset sales and other	 	 	16,623	 	 	 	1,410	 	 	 	3,523	 	
Dividends from equity investments	 	 	980	 	 	 	4,900	 	 	 	4,659	 	
 	
Free cash flow	 	$	19,871	 	 	$	9,289	 	 	$	(16,398	)	
 	
Reconciliation of trade working capital 

(Dollars in thousands)	
December 31,	 	2004	 	 	2003	 	
 	
Accounts receivable	 	$	67,522	 	 	$	57,122	 	
Plus:	 	 	 	 	 	 	 	 	
Inventories	 	 	126,625	 	 	 	125,696	 	
Less:	 	 	 	 	 	 	 	 	
Accounts payable	 	 	43,140	 	 	 	40,280	 	
 	
Trade working capital	 	$	151,007	 	 	$	142,538	 	
 	
25

Table of Contents

CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The areas described below are affected by critical accounting estimates and are impacted significantly by judgments and assumptions in the preparation of the Consolidated Financial Statements. Actual results could differ materially from the amounts reported based on these critical accounting estimates.
Allowance for Doubtful Accounts
Our accounts receivable balance, net of allowances for doubtful accounts, was $67.5 million in 2004, compared to $57.1 million in 2003. The allowance for doubtful accounts was $7.7 million in 2004, compared to $7.2 million in 2003. The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment as to the probability of collecting accounts and our evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance.
Allowance for Slow-Moving and Obsolete Inventory
We identify slow-moving or obsolete inventories and estimate appropriate allowance provisions accordingly. We provide inventory allowances based upon excess and obsolete inventories driven primarily from future demand forecasts. Historically, these loss provisions have not been significant, as the majority of our inventories are valued using the last-in, first-out (LIFO) method. At December 31, 2004, our inventories were $126.6 million, with loss provisions of $2.8 million, compared to inventories of $125.7 million and loss provisions of $1.1 million at December 31, 2003. The allowance increase in 2004 compared to 2003 is mainly attributable to the allowance that we established for inventories related to the low-margin business that we elected to exit due to the realignment of our glass tableware manufacturing capacity.
Asset Impairment
Investments
We review our investment in Vitrocrisa if indicators of impairment arise. To the extent that the analysis is performed, the analysis is based upon the discounted cash flow method to determine the fair value of our investment. The fair value is then compared to the carrying amount of our investment. To the extent the fair value exceeds the carrying value, no impairment exists. For all periods presented, no impairment existed.
Fixed Assets
We review fixed assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether impairment has occurred typically requires various estimates and assumptions. Due to the closure of our facility in City of Industry, California, we wrote down the values of certain assets based upon appraisals performed by an independent third party. These write-downs occurred in 2004 and are further disclosed in note 10 to the Consolidated Financial Statements.
Goodwill and Indefinite Life Intangible Assets
Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. When performing our test for impairment, we use the discounted cash flow method to compute the fair value of each reporting unit. The fair value is then compared to the carrying value. To the extent that fair value exceeds the carrying value, no impairment exists. This was done as of October 1 st for each year presented, and there was no goodwill impairment indicated.
Individual indefinite life intangible assets are also evaluated for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise. When performing our test for impairment, we use the discounted cash flow method to compute the fair value, which is then compared to the carrying value of the indefinite life intangible asset. To the extent that fair value exceeds the carrying value, no impairment exists. This was done as of October 1 st for each year presented, and there was no impairment indicated.
26

Table of Contents

Revenue Recognition
Revenue is recognized when products are shipped and title and risk of loss has passed to the customer. Revenue is recorded net of returns, discounts and sales incentive programs offered to customers. Our various incentive programs are offered to a broad base of customers and we record accruals for these as sales occur. These programs typically offer incentives for purchase activities by customers that include growth objectives. Criteria for payment include the achievement by customers of certain purchase targets and the purchase by customers of particular product types. Management regularly reviews the adequacy of the accruals based on current customer purchases, targeted purchases and payout levels.
Self-Insurance Reserves
We use self-insurance mechanisms to provide for potential liabilities related to workers’ compensation and employee health care benefits that are not covered by third-party insurance. Workers’ compensation accruals are recorded at the estimated ultimate payout amounts received from our third party administrator based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses developed from past experience. Group health accruals include estimates of incurred-but-not-reported estimates received from our third party administrator of the plan. 
Pension Assumptions
The following are the assumptions used to determine the benefit obligations and pretax income effect for our pension plan benefits for 2004, 2003 and 2002:

 	
 	 	U.S. Plans	 	 	Non-U.S. Plans	 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	 	2004	 	 	2003	 	
Discount rate	 	 	5.75	%	 	 	6.25	%	 	 	6.75	%	 	 	4.70	%	 	 	5.60	%	
Expected long-term rate of return on plan assets	 	 	8.75	%	 	 	9.00	%	 	 	9.00	%	 	 	6.50	%	 	 	6.50	%	
Rate of compensation increase	 	 	4.00	%	 	 	4.00	%	 	 	4.00	%	 	2.0 to 2.5%	 	 	2.0 to 2.5	%	
 	
We account for our defined benefit pension plans on an expense basis that reflects actuarial funding methods. Two critical assumptions, discount rate and expected long-term rate of return on plan assets, are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions on our annual measurement date of December 31st. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.
The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. We use the yield on high-quality fixed income investments at our December 31 st measurement date. The discount rate at December 31 st is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. A lower discount rate increases the present value of benefit obligations and increases pension expense. To reflect market interest rate conditions, we reduced our discount rate 0.50% for our U.S. Plans and 0.90% for our non-U.S. plans at December 31, 2004.
To determine the expected long-term rate of return on plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We reduced our expected long-term rate of return 0.25% for our U.S. Plans at December 31, 2004. We made no change to the expected long-term rate of return for our non-U.S. Plans at December 31, 2004. The expected long-term rate of return on plan assets at December 31 st is used to measure the earnings effects for the subsequent year. The assumed long-term rate of return on assets is applied to a calculated value of plan assets that recognizes gains and losses in the fair value of plan assets compared to expected returns over the next five years. This produces the expected return on plan assets that is included in pension expense (income). The difference between the expected return and the actual return on plan assets is deferred and amortized over five years. The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension expense (income).
Sensitivity to changes in key assumptions is as follows:
27

Table of Contents

 	•  	A change of .50% in the expected long-term rate of return on plan assets would change total pension expense by approximately $1.2 million based on year-end data.	
 	
 	•  	A change of .50% in the discount rate would change our total pension expense by approximately $1.9 million.	
Nonpension Postretirement Assumptions
We use various actuarial assumptions, including the discount rate and the expected trend in health care costs, to estimate the costs and benefit obligations for our retiree health plan. We use the yield on high-quality fixed income investments at our December 31 st measurement date to establish the discount rate. The discount rate at December 31 st is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. The following are the actuarial assumptions used to determine the benefit obligations and pretax income effect for our nonpension postretirement benefits: 

 	
 	 	U.S. Plans	 	Non-U.S. Plans	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	 	2004	 	 	2003	 	 	2002	 	
Discount rate	 	 	5.75	%	 	 	6.25	%	 	 	6.75	%	 	 	5.75	%	 	 	6.25	%	 	 	6.75	%	
Initial health care trend	 	 	9.00	%	 	 	10.00	%	 	 	10.00	%	 	 	9.00	%	 	 	9.00	%	 	 	8.00	%	
Ultimate health care trend	 	 	5.00	%	 	 	5.00	%	 	 	5.00	%	 	 	5.00	%	 	 	5.00	%	 	 	4.00	%	
Years to reach ultimate trend rate	 	 	4	 	 	 	5	 	 	 	5	 	 	 	4	 	 	 	8	 	 	 	4	 	
 	
Sensitivity to changes in key assumptions is as follows:

 	•  	A change of .50% in the discount rate would change nonpension postretirement expense by $0.1 million.	
 	
 	•  	A change of .50% in health care trend rates would not have a material impact upon the nonpension postretirement expense.	
Income Taxes
We are subject to income taxes in both the U.S. and certain foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes and interest will be due. These reserves are established when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and may not be sustained on review by tax authorities. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit and the expiration of a statute of limitation.
American Jobs Creation Act of 2004
In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Act creates a temporary incentive for U.S. corporations to repatriate earnings from foreign subsidiaries by providing an 85% dividends received deduction for certain dividends from controller foreign corporations to the extent the dividends exceed a base amount and are invested in the United States pursuant to a domestic reinvestment plan. This temporary incentive is available to the Company in 2005.
The deduction is subject to a number of limitations and uncertainty remains as to the interpretation of numerous provisions in the Act. The U.S. Treasury Department is in the process of providing clarifying guidance on key elements of the repatriation provision, and Congress may reintroduce legislation that provides for certain technical corrections to the Act. We have not completed our evaluation of the repatriation provision due to the uncertainty associated with the interpretation of the provision, as well as numerous tax, legal, treasury and business considerations. We expect to complete our evaluation of the potential dividends we may pursue, if any, and the related tax ramifications after additional guidance is issued.
New Accounting Standards
In January 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 106-1 , “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP No. 106-1), which permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug,
28

Table of Contents

Improvement and Modernization Act of 2003 (the Act). We have elected to defer accounting for the effects of the Act pending clarification of the Act on our nonpension postretirement plans. In May 2004, the FASB issued FSP No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP 106-2). FSP 106-2 supersedes FAS No. 106-1. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004. FSP 106-2 provides authoritative guidance on the accounting for the Act and specifies the disclosure requirements for employers who have adopted FSP 106-2. Our 2004 net postretirement benefit costs do not reflect the effects of the Act because it is currently not expected to be a significant event for the plan. As regulations are clarified and marketplace factors emerge, the postretirement benefit cost could result in a change in the future.
In December 2004, the FASB issued Statement of Financial Accounting Statements(SFAS) No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123 revised). This is an amendment to SFAS No. 123, “Accounting for Stock-Based Compensation.” This new standard eliminates the ability to account for share-based compensation transactions using Accounting Principles Board (APB) No. 25, “Accounting for Stock Issued to Employees” (APB 25) and requires such transactions to be accounted for using a fair-value-based method and the resulting cost recognized in our financial statements. This new standard is effective for interim and annual periods beginning after June 15, 2005. We are currently evaluating SFAS No. 123 revised and intend to implement it in the third quarter of 2005 and do not presently have an estimate of its effect on our financial statements.
The FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” This statement clarifies the requirement that abnormal inventory-related costs be recognized as current-period charges and requires that the allocation of fixed production overheads to inventory conversion costs be based on the normal capacity of the production facilities. The provisions of this statement are to be applied prospectively to inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the effects of adoption to be significant.
29

Table of Contents
ITEM 7A. 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, euro or Mexican peso that could reduce the cost competitiveness of our products or those of Vitrocrisa compared to foreign competition and the impact of exchange rate changes in the Mexican peso relative to the U.S. dollar on the earnings of Vitrocrisa expressed under accounting principles generally accepted in the United States.
Interest Rates
We are exposed to market risk associated with changes in interest rates in the U.S. and have entered into Interest Rate Protection Agreements (Rate Agreements) with respect to $50 million of debt as a means to manage our exposure to fluctuating interest rates. The Rate Agreements effectively convert a portion of our long-term borrowings from variable rate debt to fixed-rate debt, thus reducing the impact of interest rate changes on future income. The average fixed rate of interest for our borrowings related to the Rate Agreements at December 31, 2004, excluding applicable fees, is 6.0% per year, and the total interest rate, including applicable fees, is 7.8% per year. The average maturity of these Rate Agreements is 1.0 year at December 31, 2004. Debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 3.5% per year at December 31, 2004. We had $93.1 million of debt subject to fluctuating interest rates at December 31, 2004. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.9 million on an annual basis. If the counterparties to these Rate Agreements were to fail to perform, we would no longer be protected from interest rate fluctuations by these Rate Agreements. However, we do not anticipate nonperformance by the counterparts.
Natural Gas
We are also 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 domestic manufacturing operations. The objective of these futures contracts is to limit the fluctuations in prices paid and potential losses in earnings or cash flows from adverse price movements in the underlying natural gas commodity. We consider our forecasted natural gas requirements of our domestic 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% to 60% of our anticipated requirements, generally twelve to eighteen months in the future. For our natural gas requirements that are not hedged, we are subject to changes in the price of natural gas, which affects our earnings.
Pension
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 pension benefit obligations and related pension expense. Changes in the equity and debt securities markets affect the performance of our pension plan asset performance and related pension expense. Sensitivity to these key market risks factors is as follows:

 	•  	A change of .50% in the expected long-term rate of return on plan assets would change total pension expense by approximately $1.2 million based on year-end data.	
 	
 	•  	A change of .50% in the discount rate would change our total pension expense by approximately $1.9 million.	
30

Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 	 	Page	
Reports of Independent Registered Public Accounting Firms	 	 	32	 	
 	 	 	 	 	
Consolidated Balance Sheets at December 31, 2004 and 2003	 	 	36	 	
 	 	 	 	 	
For the years ended December 31, 2004, 2003 and 2002	 	 	 	 	
 	 	 	 	 	
Consolidated Statements of Income	 	 	37	 	
Consolidated Statements of Shareholders’ Equity	 	 	38	 	
Consolidated Statements of Cash Flows	 	 	39	 	
 	 	 	 	 	
Notes to Consolidated Financial Statements	 	 	40	 	
 	 	 	 	 	
Selected Quarterly Financial Data	 	 	68	 	
31

Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Libbey Inc.
We have audited the accompanying consolidated balance sheets of Libbey Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule for the three years in the period ended December 31, 2004, included in Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the combined financial statements of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A de C.V. (collectively the “Vitrocrisa Companies”) (corporations in which Libbey Inc. has a 49% equity interest). These statements were audited by other auditors whose reports have been furnished to us; and, insofar as our opinion on the consolidated financial statements relates to the amounts included for these companies, it is based solely on the report of other auditors, except as noted below. In the consolidated financial statements, the Company’s investment in Vitrocrisa Companies is stated at $10,305,000 and $12,541,000, respectively, at December 31, 2004 and 2003, and the Company’s equity in the net (loss) income of Vitrocrisa Companies is stated at $(1,449,000), $3,376,000 and $3,589,000 for the three years in the period ended December 31, 2004.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Libbey Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the three years in the period ended December 31, 2004, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Our audits were conducted for the purpose of forming an opinion on Libbey Inc.’s consolidated financial statements taken as a whole. The other auditors issued a 2002 auditors report in accordance with accounting principles generally accepted in Mexico. The conversion of the Vitrocrisa Companies’ combined financial statements from accounting principles generally accepted in Mexico to U.S. generally accepted accounting principles is the responsibility of the Libbey Inc.’s management. Such conversion for 2002 has been subjected to the auditing procedures applied in our audits of Libbey Inc.’s consolidated financial statements.
As discussed in Note 2 to the financial statements, in 2002 Libbey Inc. changed its method of accounting for goodwill.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Libbey Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Toledo, Ohio
March 16, 2005
32

Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Libbey Inc.
We have audited management’s assessment, included in the accompanying Report of Management, that Libbey Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Libbey Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Libbey Inc. maintained effective internal control over financial reporting as of December 31, 2004 is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Libbey Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria .
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Libbey Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004 of Libbey Inc. and our report dated March 16, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Toledo, Ohio
March 16, 2005
33

Table of Contents
Report of Independent Registered Public Accounting Firm
To the stockholders of
Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V.
Monterrey, N.L.
We have audited the combined balance sheets of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V. (the “Companies”) as of December 31, 2004 and 2003, and the related combined statements of operations, changes in stockholders’ equity and cash flows for the years then ended (not presented separately herein). These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Companies are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying combined financial statements have been remeasured in accordance with the standards set forth in Statement of Financial Accounting Standards No. 52 from Mexican peso (the currency of the country in which the Companies are incorporated and in which they operate) amounts (after elimination of monetary adjustments) into U.S. dollars (the functional currency of the Companies) for purpose of the application of the equity method of accounting in the financial statements of Libbey Inc. (49% investor).
In our opinion, for the purpose of the application of the equity method of accounting in the financial statements of Libbey Inc. (49% investor), the remeasured combined financial statements present fairly, in all material respects, the combined financial position of the Companies as of December 31, 2004 and 2003, and the combined results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu
/s/ C.P.C. Ernesto Cruz Velázquez de León
March 11, 2005
34

Table of Contents
Report of Independent Registered Public Accounting Firm
To the stockholders of
Vitrocrisa Holding, S. de R.L. de C.V. and Subsidiaries and Crisa Libbey, S.A. de C.V.
Monterrey, N.L.
We have audited the combined balance sheet of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V. (the “Companies”) as of December 31, 2002, and the related combined statements of operations, changes in stockholders’ equity and changes in financial position for the year ended December 31, 2002, all expressed in thousands of constant Mexican pesos as of December 31, 2002 (not presented separately herein). These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they are prepared in accordance with accounting principles generally accepted in Mexico. The Companies are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V. as of December 31, 2002, and the combined results of their operations, changes in their stockholders’ equity and changes in their financial position for the year ended December 31, 2002, in conformity with accounting principles generally accepted in Mexico.
The financial statements (not presented separately herein) and the report of independent registered public accounting firm have been translated into English for the convenience of readers.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu
/s/ C.P.C. Jorge Alberto Villarreal G.
February 7, 2003
35

Table of Contents

Libbey Inc. Consolidated Balance Sheets

 	
		
 	 	Footnote	 	 	 	 	 	 	 	
December 31,	 	reference	 	 	2004	 	 	2003	 	
Dollars in thousands, except share amounts	 	 	 	 	 	 	 	 	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	 	
Cash	 	 	 	 	 	$	6,244	 	 	$	2,750	 	
Accounts receivable	 	(note 3)	 	 	67,522	 	 	 	57,122	 	
Inventories	 	(note 3)	 	 	126,625	 	 	 	125,696	 	
Deferred taxes	 	(note 11)	 	 	7,462	 	 	 	7,402	 	
Prepaid and other current assets	 	(note 3)	 	 	3,308	 	 	 	3,208	 	
 	
Total current assets	 	 	 	 	 	 	211,161	 	 	 	196,178	 	
Other assets:	 	 	 	 	 	 	 	 	 	 	 	 	
Repair parts inventories	 	 	 	 	 	 	6,965	 	 	 	7,058	 	
Intangible pension asset	 	(note 12)	 	 	22,140	 	 	 	15,512	 	
Software — net	 	(note 5)	 	 	3,301	 	 	 	2,354	 	
Other assets	 	(note 3)	 	 	4,131	 	 	 	2,987	 	
Investments	 	(note 6)	 	 	82,125	 	 	 	87,574	 	
Purchased intangible assets — net	 	(note 7)	 	 	12,314	 	 	 	12,834	 	
Goodwill — net	 	(note 7)	 	 	53,689	 	 	 	53,133	 	
 	
Total other assets	 	 	 	 	 	 	184,665	 	 	 	181,452	 	
Property, plant and equipment — net	 	(note 8)	 	 	182,378	 	 	 	173,486	 	
 	
Total assets	 	 	 	 	 	$	578,204	 	 	$	551,116	 	

Liabilities and Shareholders’ Equity	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Notes payable	 	(note 9)	 	$	9,415	 	 	$	611	 	
Accounts payable	 	 	 	 	 	 	43,140	 	 	 	40,280	 	
Salaries and wages	 	 	 	 	 	 	13,481	 	 	 	14,096	 	
Accrued liabilities	 	(note 3)	 	 	25,515	 	 	 	33,555	 	
Deposit liability	 	(note 10)	 	 	16,623	 	 	 	—	 	
Capacity realignment reserve	 	(note 10)	 	 	3,025	 	 	 	—	 	
Income taxes	 	(note 11)	 	 	5,839	 	 	 	185	 	
Long-term debt due within one year	 	(note 9)	 	 	115	 	 	 	115	 	
 	
Total current liabilities	 	 	 	 	 	 	117,153	 	 	 	88,842	 	
Long-term debt	 	(note 9)	 	 	215,842	 	 	 	230,207	 	
Deferred taxes	 	(note 11)	 	 	12,486	 	 	 	15,469	 	
Pension liability	 	(note 12)	 	 	32,668	 	 	 	17,092	 	
Nonpension postretirement benefits	 	(note 13)	 	 	45,716	 	 	 	47,245	 	
Other long-term liabilities	 	(note 3)	 	 	10,776	 	 	 	12,404	 	
 	
Total liabilities	 	 	 	 	 	 	434,641	 	 	 	411,259	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Shareholders’ equity:	 	 	 	 	 	 	 	 	 	 	 	 	
Common stock, par value $.01 per share, 50,000,000 shares authorized, 18,685,210 shares issued (18,660,960 shares issued in 2003)	 	 	 	 	 	 	187	 	 	 	187	 	
Capital in excess of par value	 	 	 	 	 	 	300,922	 	 	 	300,378	 	
Treasury stock, at cost, 4,879,310 shares (5,046,597 in 2003)	 	 	 	 	 	 	(135,865	)	 	 	(139,449	)	
Retained earnings	 	 	 	 	 	 	6,925	 	 	 	4,154	 	
Accumulated other comprehensive loss	 	(note 17)	 	 	(28,606	)	 	 	(25,413	)	
 	
Total shareholders’ equity	 	 	 	 	 	 	143,563	 	 	 	139,857	 	
 	
Total liabilities and shareholders’ equity	 	 	 	 	 	$	578,204	 	 	$	551,116	 	
 	
See accompanying notes
36

Table of Contents

Libbey Inc. Consolidated Statements of Income

 	
 	 	Footnote	 	 	 	 	 	 	 	 	 	 	
December 31,	 	reference	 	 	2004	 	 	2003	 	 	2002	 	
Dollars in thousands, except per-share amounts	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	(note 2)	 	$	544,767	 	 	$	513,632	 	 	$	433,761	 	
Freight billed to customers	 	 	 	 	 	 	2,030	 	 	 	1,965	 	 	 	1,732	 	
 	
Total revenues	 	 	 	 	 	 	546,797	 	 	 	515,597	 	 	 	435,493	 	
Cost of sales	 	(note 2)	 	 	446,335	 	 	 	407,391	 	 	 	327,565	 	
 	
Gross profit	 	 	 	 	 	 	100,462	 	 	 	108,206	 	 	 	107,928	 	
Selling, general and administrative expenses	 	 	 	 	 	 	68,574	 	 	 	68,479	 	 	 	56,631	 	
Capacity realignment charge	 	(note 10)	 	 	7,993	 	 	 	—	 	 	 	—	 	
 	
Income from operations	 	 	 	 	 	 	23,895	 	 	 	39,727	 	 	 	51,297	 	
Equity (loss) earnings — pretax	 	(note 6)	 	 	(1,435	)	 	 	4,429	 	 	 	6,379	 	
Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses related to abandoned acquisition	 	(note 4)	 	 	—	 	 	 	—	 	 	 	(13,634	)	
Royalties and net technical assistance income	 	(note 2)	 	 	2,861	 	 	 	3,022	 	 	 	2,404	 	
Other	 	 	 	 	 	 	(492	)	 	 	462	 	 	 	(1,510	)	
 	
Total other income (expense)	 	 	 	 	 	 	2,369	 	 	 	3,484	 	 	 	(12,740	)	
 	
Earnings before interest and income taxes	 	 	 	 	 	 	24,829	 	 	 	47,640	 	 	 	44,936	 	
Interest expense	 	 	 	 	 	 	13,049	 	 	 	13,436	 	 	 	8,263	 	
 	
Income before income taxes	 	 	 	 	 	 	11,780	 	 	 	34,204	 	 	 	36,673	 	
Provision for income taxes	 	(note 11)	 	 	3,528	 	 	 	5,131	 	 	 	8,618	 	
 	
Net income	 	 	 	 	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	

Net income per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	(note 14)	 	$	0.60	 	 	$	2.12	 	 	$	1.84	 	
Diluted	 	(note 14)	 	$	0.60	 	 	$	2.11	 	 	$	1.82	 	
 	
See accompanying notes
37

Table of Contents

Libbey Inc. Consolidated Statements of Shareholders’ Equity

 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	
 	 	Common	 	 	Capital in	 	 	Treasury	 	 	Retained	 	 	Other	 	 	 	 	
 	 	Stock	 	 	Excess of	 	 	Stock	 	 	Earnings	 	 	Comprehensive	 	 	 	 	
Dollars in thousands, except per-share amounts	 	Amount (1)	 	 	Par Value	 	 	Amount (1)	 	 	(Deficit)	 	 	Income (Loss)	 	 	Total	 	
 	
Balance January 1, 2002	 	$	180	 	 	$	288,418	 	 	$	(75,369	)	 	$	(42,894	)	 	$	(4,970	)	 	$	165,365	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	28,055	 	 	 	 	 	 	 	28,055	 	
Effect of derivatives — net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(493	)	 	 	(493	)	
Net minimum pension liability — net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(26,419	)	 	 	(26,419	)	
Effect of exchange rate fluctuation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(1	)	 	 	(1	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,142	 	
Stock options exercised	 	 	3	 	 	 	3,298	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,301	 	
Income tax benefit on stock options	 	 	 	 	 	 	1,821	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,821	 	
Purchase of treasury shares	 	 	 	 	 	 	 	 	 	 	(26,837	)	 	 	 	 	 	 	 	 	 	 	(26,837	)	
Dividends — $0.30 per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(4,574	)	 	 	 	 	 	 	(4,574	)	
 	
Balance December 31, 2002	 	 	183	 	 	 	293,537	 	 	 	(102,206	)	 	 	(19,413	)	 	 	(31,883	)	 	 	140,218	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	29,073	 	 	 	 	 	 	 	29,073	 	
Effect of derivatives — net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,871	 	 	 	1,871	 	
Net minimum pension liability — net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4,567	 	 	 	4,567	 	
Effect of exchange rate fluctuation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	32	 	 	 	32	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	35,543	 	
Stock options exercised	 	 	4	 	 	 	5,383	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,387	 	
Income tax benefit on stock options	 	 	 	 	 	 	1,458	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,458	 	
Purchase of treasury shares	 	 	 	 	 	 	 	 	 	 	(38,918	)	 	 	 	 	 	 	 	 	 	 	(38,918	)	
Stock issued from treasury	 	 	 	 	 	 	 	 	 	 	1,675	 	 	 	 	 	 	 	 	 	 	 	1,675	 	
Dividends — $0.40 per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5,506	)	 	 	 	 	 	 	(5,506	)	
 	
Balance December 31, 2003	 	 	187	 	 	 	300,378	 	 	 	(139,449	)	 	 	4,154	 	 	 	(25,413	)	 	 	139,857	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	8,252	 	 	 	 	 	 	 	8,252	 	
Effect of derivatives — net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2,067	 	 	 	2,067	 	
Net minimum pension liability (including equity investments) — net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5,514	)	 	 	(5,514	)	
Effect of exchange rate fluctuation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	254	 	 	 	254	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,059	 	
Stock options exercised	 	 	 	 	 	 	472	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	472	 	
Income tax benefit on stock options	 	 	 	 	 	 	72	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	72	 	
Stock issued from treasury	 	 	 	 	 	 	 	 	 	 	3,584	 	 	 	 	 	 	 	 	 	 	 	3,584	 	
Dividends — $0.40 per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5,481	)	 	 	 	 	 	 	(5,481	)	
 	
Balance December 31, 2004	 	$	187	 	 	$	300,922	 	 	$	(135,865	)	 	$	6,925	 	 	$	(28,606	)	 	$	143,563	 	

(1)	 	Share amounts are as follows:	

 	 	 	Common	 	 	Treasury	 	 	 	 	 	
 	 	 	Stock	 	 	Stock	 	 	 	 	 	
 	 	 	Shares	 	 	Shares	 	 	Total	 	 	
 	 	 	
 	Balance January 1, 2002	 	 	18,025,843	 	 	 	2,689,400	 	 	 	15,336,443	 	 	
 	Stock options exercised	 	 	230,434	 	 	 	 	 	 	 	230,434	 	 	
 	Purchase of treasury shares	 	 	 	 	 	 	935,600	 	 	 	(935,600	)	 	
 	 	 	
 	Balance December 31, 2002	 	 	18,256,277	 	 	 	3,625,000	 	 	 	14,631,277	 	 	
 	Stock options exercised	 	 	404,683	 	 	 	 	 	 	 	404,683	 	 	
 	Purchase of treasury shares	 	 	 	 	 	 	1,500,000	 	 	 	(1,500,000	)	 	
 	Stock issued from treasury	 	 	 	 	 	 	(78,403	)	 	 	78,403	 	 	
 	 	 	
 	Balance December 31, 2003	 	 	18,660,960	 	 	 	5,046,597	 	 	 	13,614,363	 	 	
 	Stock options exercised	 	 	24,250	 	 	 	 	 	 	 	24,250	 	 	
 	Stock issued from treasury	 	 	 	 	 	 	(167,287	)	 	 	167,287	 	 	
 	 	 	
 	Balance December 31, 2004	 	 	18,685,210	 	 	 	4,879,310	 	 	 	13,805,900	 	 	
 	 	 	
See accompanying notes
38

Table of Contents

Libbey Inc. Consolidated Statements of Cash Flow

 	
 	 	Footnote	 	 	 	 	 	 	 	 	 	 	
December 31,	 	reference	 	 	2004	 	 	2003	 	 	2002	 	
Dollars in thousands	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	 	 	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	 	 	 	 	29,505	 	 	 	28,109	 	 	 	19,143	 	
Equity loss (earnings) — net of tax	 	(note 6)	 	 	893	 	 	 	(4,420	)	 	 	(9,774	)	
Change in accounts receivable	 	 	 	 	 	 	(10,280	)	 	 	(5,632	)	 	 	3,495	 	
Change in inventories	 	 	 	 	 	 	87	 	 	 	(14,116	)	 	 	(91	)	
Change in accounts payable	 	 	 	 	 	 	2,250	 	 	 	6,413	 	 	 	(6,095	)	
Capacity realignment charge	 	(note 10)	 	 	14,519	 	 	 	—	 	 	 	—	 	
Capacity realignment cash payments	 	(note 10)	 	 	(290	)	 	 	—	 	 	 	—	 	
Deferred income taxes, less equity earnings portion	 	 	 	 	 	 	(2,710	)	 	 	(1,537	)	 	 	4,040	 	
Other operating activities	 	 	 	 	 	 	524	 	 	 	(8,680	)	 	 	16,228	 	
 	
Net cash provided by operating activities	 	 	 	 	 	 	42,750	 	 	 	29,210	 	 	 	55,001	 	
Investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Additions to property, plant and equipment	 	 	 	 	 	 	(40,482	)	 	 	(25,718	)	 	 	(17,535	)	
Proceeds from asset sales and other	 	 	 	 	 	 	16,623	 	 	 	1,410	 	 	 	3,523	 	
Dividends received from equity investments	 	 	 	 	 	 	980	 	 	 	4,900	 	 	 	4,659	 	
Acquisitions and related costs	 	 	 	 	 	 	—	 	 	 	(513	)	 	 	(62,046	)	
 	
Net cash used in investing activities	 	 	 	 	 	 	(22,879	)	 	 	(19,921	)	 	 	(71,399	)	
Financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net bank credit facility activity	 	 	 	 	 	 	(18,000	)	 	 	(66,254	)	 	 	43,001	 	
Senior notes	 	 	 	 	 	 	—	 	 	 	100,000	 	 	 	—	 	
Other net borrowings (repayments)	 	 	 	 	 	 	7,984	 	 	 	(2,275	)	 	 	145	 	
Stock options exercised	 	 	 	 	 	 	491	 	 	 	5,387	 	 	 	3,301	 	
Treasury shares purchased	 	 	 	 	 	 	—	 	 	 	(38,918	)	 	 	(26,837	)	
Dividends paid	 	 	 	 	 	 	(5,481	)	 	 	(5,506	)	 	 	(4,574	)	
Other financing activities	 	 	 	 	 	 	(1,370	)	 	 	(663	)	 	 	(815	)	
 	
Net cash (used in) provided by financing activities	 	 	 	 	 	 	(16,376	)	 	 	(8,229	)	 	 	14,221	 	
Effect of exchange rate fluctuations on cash	 	 	 	 	 	 	(1	)	 	 	7	 	 	 	—	 	
 	
Increase (decrease) in cash	 	 	 	 	 	 	3,494	 	 	 	1,067	 	 	 	(2,177	)	
Cash at beginning of year	 	 	 	 	 	 	2,750	 	 	 	1,683	 	 	 	3,860	 	
 	
Cash at end of year	 	 	 	 	 	$	6,244	 	 	$	2,750	 	 	$	1,683	 	

Supplemental disclosure of cash flows information:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash paid during the year for interest	 	 	 	 	 	$	13,361	 	 	$	11,678	 	 	$	8,115	 	
Cash paid (net of refunds received) during the year for income taxes	 	 	 	 	 	$	349	 	 	$	8,996	 	 	$	3,555	 	
 	
See accompanying notes
39

Table of Contents

LIBBEY INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data and per-share amounts)
1. Description of the Business
We are the leading supplier of tableware products in the U.S. and Canada, in addition to supplying to other key export markets. We operate in one business segment, tableware products. Established in 1818, we are the largest manufacturing, distribution and service network among North American glass tableware manufacturers. We design and market an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, holloware and serveware, and plastic items to a broad group of customers in the foodservice, retail and industrial markets. We also import and distribute various products and have a 49% interest in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Vitrocrisa), the largest glass tableware manufacturer in Latin America, based in Monterrey, Mexico.
We own and operate two glass tableware manufacturing plants in the United States, a glass tableware manufacturing plant in the Netherlands, a ceramic dinnerware plant in New York, and a plastics plant in Wisconsin. In addition, we import products from overseas in order to complement our line of manufactured items. The assortment of manufacturing, procurement and our investment in a joint venture allows us to compete in the tableware market by offering an extensive product line at competitive prices. For more information on Libbey, refer to Item 1 of this Form 10-K.
2. Significant Accounting Policies
Basis of Presentation The Consolidated Financial Statements include Libbey Inc. and all wholly owned subsidiaries (Libbey or the Company). Our fiscal year end is December 31 st . We record our 49% interest in Vitrocrisa using the equity method. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ materially from management’s estimates.
Consolidated Statements of Income Net sales in our Consolidated Statements of Income include revenue earned when products are shipped and title and risk of loss has passed to the customer. Revenue is recorded net of returns, discounts and incentives offered to customers. Cost of sales includes cost to manufacture and/or purchase products, warehouse, shipping and delivery costs, royalty expense and other costs.
Accounts Receivable We record trade receivables when revenue is recorded in accordance with our revenue recognition policy and relieve accounts receivable when payments are received from customers.
Allowance for Doubtful Accounts The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment of the probability of collecting accounts and our evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance.
Inventory Valuation Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method was used for 52.2% and 58.1% of our inventories in 2004 and 2003, respectively. The remaining inventories are valued using either the first-in, first-out (FIFO) or average cost method. The excess of FIFO, or average cost over LIFO, was $14,940 and $11,435 for 2004 and 2003, respectively.
Purchased Intangible Assets and Goodwill Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142) and SFAS No. 141, “Business Combinations” (SFAS No. 141). SFAS No. 142 requires goodwill and purchased indefinite life intangible
40

Table of Contents

assets to no longer be amortized but reviewed for impairment annually, or more frequently if impairment indicators arise. Intangible assets with lives restricted by contractual, legal or other means will continue to be amortized over their useful lives. During the fourth quarter of 2004, we updated our separate impairment evaluations for both goodwill and indefinite life intangible assets. Our review indicated that there was no impairment. For further disclosure on goodwill and intangibles, see note 7.
Software We account for software in accordance with Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Software represents the costs of internally developed and purchased software packages for internal use. Capitalized costs include software packages, installation, and/or internal labor costs. These costs generally are amortized over a five-year period.
Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 to 14 years for equipment and furnishings and 10 to 40 years for buildings and improvements. Maintenance and repairs are expensed as incurred.
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Due to the closure of our facility in City of Industry, California, we wrote down the values of certain assets to fair value based upon appraisals performed by an independent third party. These write-downs occurred in 2004 and are further disclosed in note 10.
Self-Insurance Reserves Self-Insurance reserves reflect the estimated liability for group health and workers’ compensation claims not covered by third-party insurance. Workers’ compensation accruals are recorded at the estimated ultimate payout amounts received from our third party administrator based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses developed from past experience. Group health accruals are based on estimates of incurred-but-not-reported estimates received from our third party administrator of the plan.
Pension We account for our defined benefit pension plans in accordance with SFAS No. 87, “Employers’ Accounting for Pensions” (SFAS No. 87), which requires that amounts recognized in financial statements be determined on an actuarial basis. The U.S. pension plans, including the SERP, which is an unfunded liability, cover our hourly and salaried U.S.-based employees. The non-U.S. pension plan covers the employees of our wholly owned subsidiaries, Royal Leerdam and Leerdam Crystal, both located in the Netherlands. For further disclosures, see note 12.
Nonpension Postretirement Benefits We also provide certain postretirement health care and life insurance benefits covering substantially all U.S. and Canadian salaried and hourly employees that are accounted for in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” Employees are generally eligible for benefits upon reaching a certain age and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. Under a cross-indemnity agreement, Owens-Illinois, Inc. assumed liability for the nonpension postretirement benefits of our retirees who had retired as of June 24, 1993. Therefore, the obligation related to these retirees is not included in our liability. The U.S. nonpension postretirement plans cover our hourly and salaried U.S.-based employees. The non-U.S. nonpension postretirement plans cover our former retirees and active employees who are located in Canada.
Income Taxes Income taxes are accounted for under the asset and liability method. Deferred 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 credit carry-forwards. Deferred 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.
Derivatives We account for derivatives in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS Nos. 137 and 138. We hold derivative financial instruments to hedge certain of our interest rate risks associated with long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with occasional transactions denominated in a currency other than the U.S. dollar. These derivatives 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
41

Table of Contents

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 earnings. Derivatives are more fully disclosed in note 16.
Foreign Currency Translation Our wholly owned foreign subsidiary’s financial statements are translated at current exchange rates and any related translation adjustments are recorded directly in shareholders’ equity with the euro being the functional currency. See note 6 for Vitrocrisa’s remeasurement process.
Revenue Recognition Revenue is recognized 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. We estimate returns, discounts and incentives at the time of sale based on the terms of the agreements, historical experience and forecasted sales. We continually evaluate the adequacy of these methods used to estimate returns, discounts and incentives.
Royalties and Net Technical Assistance Royalties and net technical assistance income are accrued based on the terms of the respective agreements, which typically specify that a percentage of the licensee’s sales be paid to us monthly, quarterly or semi-annually in exchange for our assistance with manufacturing and engineering and support in functions such as marketing, sales and administration. Beginning in 2004, royalties and net technical assistance are included below income from operations on the Consolidated Statements of Income for all periods presented. Historically, royalties and net technical assistance were reported as part of total revenues.
Stock Options We account for our two stock option plans using the intrinsic value method of accounting in accordance with APB No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related Interpretations. Under the intrinsic value method, because the exercise price of our stock options equals the market price of the underlying common stock on the date of grant, no compensation expense is recognized in the Consolidated Statements of Income. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provision of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), to stock-based employee compensation. 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Net Income:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported net income	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	
Less: Stock-based employee compensation expense determined under fair value-based method of all awards, net of related tax effects	 	 	(1,253	)	 	 	(1,373	)	 	 	(1,511	)	
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	 	 	96	 	 	 	—	 	 	 	—	 	
 	
Pro forma net income	 	$	7,095	 	 	$	27,700	 	 	$	26,544	 	
 	
Basic earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported basic earnings per share	 	$	0.60	 	 	$	2.12	 	 	$	1.84	 	
Pro forma basic earnings per share	 	$	0.52	 	 	$	2.02	 	 	$	1.74	 	
 	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported diluted earnings per share	 	$	0.60	 	 	$	2.11	 	 	$	1.82	 	
Pro forma diluted earnings per share	 	$	0.52	 	 	$	2.01	 	 	$	1.72	 	
 	
We also have an Employee Stock Purchase Plan (ESPP) where eligible employees may purchase a limited number of shares of Libbey’s common stock at a discount. In accordance with APB 25, this plan is considered non-compensatory, and therefore no expense related to this plan is included in our Consolidated Statements of Income. For further information on stock options and the ESPP, see note 15.
Research and Development Research and development costs are charged to the Consolidated Statements of Income when incurred. Expenses for 2004, 2003 and 2002, respectively, were $2,247, $2,051, and $2,124.
Advertising Costs We expense all advertising costs as incurred, and the amounts were immaterial for all periods presented.
Computation of Income Per Share of Common Stock Basic net income per share of common stock is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per
42

Table of Contents

share of common stock is computed using the weighted average number of shares of common stock outstanding and dilutive potential common share equivalents during the period. Dilutive potential common share equivalents primarily consist of employee stock options.
Treasury Stock Treasury stock purchases are recorded at cost. During 2004, we did not purchase any treasury stock. During 2003 and 2002, we purchased 1,500,000, and 935,600 shares of stock at an average cost of $25.95 and $28.68, respectively. During 2004 and 2003, we issued 167,287 and 78,403 shares from treasury stock at an average cost of $21.42 and $21.36, respectively.
Guarantees We account for guarantees in accordance with Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Guarantees meeting the characteristics described in the Interpretation are required to be initially recorded at fair value. The Interpretation also requires us to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantor’s having to make payments under the guarantee is remote. For further information and disclosure on our guarantees, see note 19.
Variable Interest Entities FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46) was issued in January 2003. In December 2003, the FASB issued Interpretation No. 46R (FIN 46R) which serves to clarify guidance on FIN 46. The objective of FIN 46R is to provide guidance on the identification of a variable interest and a variable interest entity (VIE) to determine when the assets, liabilities, and results of operations of a VIE should be consolidated in a company’s financial statements. A company that holds a variable interest in an entity is required to consolidate the entity if the company absorbs a majority of the VIE’s expected losses and/or receives a majority of the VIE’s expected residual returns. FIN 46R requires the adoption of either FIN 46 or FIN 46R in financial statements of public entities that have interests in structures that are referred to as special purpose entities for periods ending after December 15, 2003. Application for all other types of variable interest entities is required in financial statements for periods ending after March 15, 2004. As a result of FIN 46R, we identified our joint venture in Vitrocrisa and related arrangements as a VIE; however, we determined that we are not the primary beneficiary. Accordingly, we are not required to consolidate the financial statements of Vitrocrisa into our financial statements. For further disclosure see note 6.
Reclassifications Certain amounts in prior years’ financial statements have been reclassified to conform to the presentation used in the year-ended December 31, 2004.
New Accounting Standards
In January 2004, the FASB issued FASB Staff Position (FSP) No. FAS 106-1 , “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP No. 106-1), which permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). We have elected to defer accounting for the effects of the Act pending clarification of the Act on our nonpension postretirement plans. In May 2004, the FASB issued FSP No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP 106-2). FSP 106-2 supersedes FAS No. 106-1. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004. FSP 106-2 provides authoritative guidance on the accounting for the Act and specifies the disclosure requirements for employers who have adopted FSP 106-2. Our 2004 net postretirement benefit costs do not reflect the effects of the Act because it is currently not expected to be a significant event for the plan. As regulations are clarified and marketplace factors emerge, the postretirement benefit cost could result in a change in the future.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123 revised). This is an amendment to SFAS No. 123, “Accounting for Stock-Based Compensation.” This new standard eliminates the ability to account for share-based compensation transactions using APB 25 and requires such transactions to be accounted for using a fair-value-based method and the resulting cost recognized in our financial statements. This new standard is effective for interim and annual periods beginning after June 15, 2005. We are currently evaluating SFAS No. 123 revised and intend to implement it in the third quarter of 2005 and do not presently have an estimate of its effect on our financial statements.
The FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4.” This statement clarifies the requirement that abnormal inventory-related costs be recognized as current-period charges and requires that the allocation of fixed production overheads to inventory conversion costs be based on the normal capacity of the
43

Table of Contents

production facilities. The provisions of this statement are to be applied prospectively to inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the effects of adoption to be significant.
3. Balance Sheet Details
The following tables provide detail of selected balance sheet items: 

 	
December 31,	 	2004	 	 	2003	 	

Accounts receivable:	 	 	 	 	 	 	 	 	
Trade receivables	 	$	64,744	 	 	$	53,333	 	
Other receivables	 	 	2,778	 	 	 	3,789	 	
 	
Total accounts receivable, less allowances of $7,661 and $7,160	 	$	67,522	 	 	$	57,122	 	

Inventories:	 	 	 	 	 	 	 	 	
Finished goods	 	$	115,691	 	 	$	116,408	 	
Work in process	 	 	6,017	 	 	 	4,590	 	
Raw materials	 	 	4,109	 	 	 	3,859	 	
Operating supplies	 	 	808	 	 	 	839	 	
 	
Total inventories, less allowances and LIFO reserve of $17,779 and $12,508	 	$	126,625	 	 	$	125,696	 	

Prepaid and other current assets:	 	 	 	 	 	 	 	 	
Prepaid expenses	 	$	3,147	 	 	$	2,870	 	
Hedge assets	 	 	161	 	 	 	338	 	
 	
Total prepaid and other current assets	 	$	3,308	 	 	$	3,208	 	

Other assets:	 	 	 	 	 	 	 	 	
Deposits	 	$	1,661	 	 	$	1,953	 	
Finance fees – net of amortization	 	 	2,002	 	 	 	1,023	 	
Other	 	 	468	 	 	 	11	 	
 	
Total other assets	 	$	4,131	 	 	$	2,987	 	

Accrued liabilities:	 	 	 	 	 	 	 	 	
Accrued incentives	 	$	12,881	 	 	$	12,483	 	
Hedge liabilities	 	 	1,375	 	 	 	5,107	 	
Workers compensation & medical liabilities	 	 	4,318	 	 	 	4,851	 	
Interest	 	 	1,538	 	 	 	1,627	 	
Commissions payable	 	 	756	 	 	 	758	 	
Accrued taxes	 	 	83	 	 	 	503	 	
Other	 	 	4,564	 	 	 	8,226	 	
 	
Total accrued liabilities	 	$	25,515	 	 	$	33,555	 	

Other long-term liabilities:	 	 	 	 	 	 	 	 	
Supplemental employee retirement plan (SERP)	 	$	3,797	 	 	$	4,958	 	
Deferred liability	 	 	689	 	 	 	2,747	 	
Guarantee of Vitrocrisa debt	 	 	421	 	 	 	—	 	
Other	 	 	5,869	 	 	 	4,699	 	
 	
Total other long-term liabilities	 	$	10,776	 	 	$	12,404	 	
 	
44

Table of Contents

4. Acquisitions
In 2002, we acquired Royal Leerdam and Traex for a total cost of $62.6 million. Both acquisitions were accounted for under the purchase method accounting, and accordingly, the assets and liabilities of the acquired businesses were recorded at their estimated fair values at the dates of the acquisition.
In 2005, we acquired Crisal (a subsequent event). These acquisitions are discussed below:
Traex
On December 2, 2002, we acquired substantially all the assets of the Traex business (Traex) from Menasha Corporation for $16.8 million in cash. Traex manufactures and markets a widerange of plastic products, including ware-washing and storage racks, trays, dispensers and organizers for the foodservice industry. Traex is located in Dane, Wisconsin. The operating results of Traex have been included in the Consolidated Financial Statements since the date of acquisition.
Royal Leerdam
On December 31, 2002, we acquired the stock of Royal Leerdam from BSN Glasspack N.V. (BSN) for $44.1 million in cash. Royal Leerdam manufactures and markets high-quality glass stemware. Royal Leerdam is located in Leerdam, the Netherlands. As part of the stock acquisition of Royal Leerdam, we purchased the stock of Leerdam Crystal (a wholly owned subsidiary of Royal Leerdam) for the price of one euro. Leerdam Crystal manufactures and markets various hand-made crystal items. Royal Leerdam owns 100% of the stock of Leerdam Crystal. Since the acquisition was completed on December 31, 2002, there were no operating results included in the Consolidated Statements of Income for 2002. Results were included for 2004 and 2003 for both Royal Leerdam and Leerdam Crystal.
Following is a summary of the fair values of the assets acquired and liabilities assumed as of the date of acquisitions: 

 	
Current assets (including cash of $382)	 	$	22,844	 	
Property, plant and equipment	 	 	42,242	 	
Intangible assets – amortizable	 	 	1,124	 	
Intangible assets (indefinite life)	 	 	4,168	 	
Goodwill	 	 	8,641	 	
Other assets	 	 	1,975	 	
 	
Total assets acquired	 	 	80,994	 	
 	
Less liabilities assumed:	 	 	 	 	
Current liabilities	 	 	10,316	 	
Long-term liabilities	 	 	7,737	 	
 	
Total liabilities assumed	 	 	18,053	 	

Less acquisition-related costs	 	 	2,064	 	
 	
Net cash paid to seller	 	 	60,877	 	
 	
Add acquisition-related costs	 	 	2,064	 	
 	
Less cash received	 	 	382	 	
 	
Total acquisition costs	 	$	62,559	 	
 	
The pro forma unaudited results of operations for Royal Leerdam and Traex for the year ended December 31, 2002, assuming the acquisitions had been consummated as of January 1, 2002, are as follows: 

 	
Total revenues	 	$	505,216	 	
Net Income	 	 	30,227	 	
Net income per share:	 	 	 	 	
 	
Basic	 	$	1.98	 	
Diluted	 	$	1.96	 	
 	
The unaudited pro forma information is not necessarily indicative either of the results of operations that would have occurred had the acquisition been consummated as of January 1, 2002, or of future operating results.
45

Table of Contents

Crisal-Cristalaria Automática, S.A (subsequent event)
On January 10, 2005, we purchased 95 percent of the shares of Crisal-Cristalaria Automática S.A.(Crisal) located in Marinha Grande, Portugal, from Vista Alegre Atlantis SGPS, SA. The cash transaction was valued at approximately € 28 million. Pursuant to the agreement, we will acquire the remaining shares of Crisal for approximately € 2 million approximately three years after the closing date, provided that Crisal meets a specified target relating to earnings before interest, taxes, depreciation and amortization (EBITDA). The agreement provides that, if Crisal does not meet the specified target, we will acquire the remaining shares of Crisal for one euro. In addition, the agreement provides that, if Crisal meets other specified EBITDA and net sales targets, we will pay the seller an earn-out payment in the amount of € 5.5 million no earlier than three years after the closing date. The closing date was January 10, 2005.
Crisal manufactures and markets glass tableware, mainly tumblers, stemware and glassware accessories, and the majority of its sales are in Portugal and Spain. This acquisition of another European glassware manufacturer is complementary to our 2002 acquisition of Royal Leerdam, a maker of fine European glass stemware. Royal Leerdam’s primary markets are located in countries in the North of Europe. This acquisition is consistent with our external growth strategy to be a supplier of high-quality, machine-made glass tableware products to key markets worldwide.
Abandoned Anchor Hocking Transaction
In June of 2001, we entered into an agreement to acquire the Anchor Hocking operations of Newell Rubbermaid Inc. On June 10, 2002, we abandoned our proposed acquisition of the Anchor Hocking business in light of the challenge to the acquisition by the United States Federal Trade Commission (FTC). As a result in 2002, we expensed costs of $13,634 directly related to the abandoned acquisition. These costs, consisting primarily of professional and financing fees, represent all of the costs incurred in connection with the acquisition. Due to the unusual nature of this event, these costs have been classified in Other income (expense) in the 2002 Consolidated Statement of Income.
5. Software
Software consists of internally developed and purchased software packages for internal use. Capitalized costs include software packages, installation, and/or internal labor costs. These costs are generally amortized over a five-year period. Software is reported net of accumulated amortization. 

 	
December 31,	 	2004	 	 	2003	 	
 	
Software	 	$	16,986	 	 	$	15,109	 	
Accumulated amortization	 	 	13,685	 	 	 	12,755	 	
 	
Software — net	 	$	3,301	 	 	$	2,354	 	
 	
Amortization expense was $921, $1,058 and $1,168 for years 2004, 2003 and 2002, respectively.
6. Investments in Unconsolidated Affiliates
We are a 49% equity owner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Vitrocrisa), which manufactures, markets and sells glass tableware (beverageware, plates, bowls, serveware and accessories) and industrial glassware (coffee pots, blender jars, meter covers, glass covers for cooking ware and lighting fixtures sold to original equipment manufacturers). We record our 49% interest in Vitrocrisa Holding, S. de R.L. de C.V. and related companies using the equity method.
Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V. use the U.S. dollar as the functional currency. As a result, the accompanying financial statements have been remeasured from Mexican pesos into U.S. dollars using (i) current exchange rates for monetary asset and liability accounts, (ii) historical exchange rates for nonmonetary asset and liability accounts, (iii) historical exchange rates for revenues and expenses associated with nonmonetary assets and liabilities and (iv) the weighted average exchange rate of the reporting period for all other revenues and expenses. In addition, foreign currency transaction gains and losses resulting from U.S. dollar denominated transactions are eliminated. The resulting remeasurement gain (loss) is recorded in results of operations.
Condensed balance sheet information for Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries, Crisa Libbey, S.A. de C.V. and Crisa Industrial, L.L.C. (including adjustments for U.S. GAAP equity method accounting) is as follows: 

 	
December 31,	 	2004	 	 	2003	 	
 	
Current assets	 	$	88,195	 	 	$	82,060	 	
Non-current assets	 	 	100,274	 	 	 	101,722	 	
 	
Total assets	 	 	188,469	 	 	 	183,782	 	
 	
46

Table of Contents

 	 	 	 	 	 	 	 	 	
 	
December 31,	 	2004	 	 	2003	 	
 	
Current liabilities	 	 	69,426	 	 	 	117,941	 	
Other liabilities	 	 	93,962	 	 	 	37,093	 	
 	
Total liabilities	 	 	163,388	 	 	 	155,034	 	
 	
Net assets	 	$	25,081	 	 	$	28,748	 	
 	
Condensed statements of operations for Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries, Crisa Libbey, S.A. de C.V. and Crisa Industrial, L.L.C. (including adjustments for U.S. GAAP equity method accounting) is as follows: 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Total revenues	 	$	189,761	 	 	$	183,650	 	 	$	196,459	 	
Cost of sales	 	 	162,046	 	 	 	150,939	 	 	 	158,801	 	
 	
Gross profit	 	 	27,715	 	 	 	32,711	 	 	 	37,658	 	
Selling, general and administrative expenses	 	 	22,250	 	 	 	20,626	 	 	 	21,108	 	
 	
Income from operations	 	 	5,465	 	 	 	12,085	 	 	 	16,550	 	
Remeasurement (loss) gain	 	 	(1,341	)	 	 	2,652	 	 	 	3,030	 	
Other expense	 	 	(463	)	 	 	(662	)	 	 	(435	)	
 	
Earnings before interest and taxes	 	 	3,661	 	 	 	14,075	 	 	 	19,145	 	
Interest expense	 	 	6,589	 	 	 	5,036	 	 	 	6,127	 	
 	
(Loss) income before income taxes	 	 	(2,928	)	 	 	9,039	 	 	 	13,018	 	
Income taxes	 	 	(1,106	)	 	 	18	 	 	 	(6,928	)	
 	
Net (loss) income	 	$	(1,822	)	 	$	9,021	 	 	$	19,946	 	
 	
We record 49% of Vitrocrisa’s (loss) income before income taxes in the line “equity (loss) earnings-pretax” in our Consolidated Statements of Income. We record 49% of Vitrocrisa’s income taxes in the line “provision for income taxes” in our Consolidated Statements of Income. These items are shown below: 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Equity (loss) earnings – pretax	 	$	(1,435	)	 	$	4,429	 	 	$	6,379	 	
Provision (credit) for income taxes	 	 	(542	)	 	 	9	 	 	 	(3,395	)	
 	
Net equity earnings	 	$	(893	)	 	$	4,420	 	 	$	9,774	 	
 	
On our Consolidated Statements of Cash Flow, we record the net equity earnings amount as part of operating activities.
We test for impairment of our investment in accordance with APB 18, “The Equity Method of Accounting for Investments in Common Stock.” For all periods presented, no impairment exists.
Interpretation No. 46 “Consolidation of Variable Interest Entities” (FIN 46R), requires a company that holds a variable interest in an entity to consolidate the entity if the company’s interest in the variable interest entity (VIE) is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the VIE’s expected residual returns, and therefore is the primary beneficiary. We have determined that Vitrocrisa is a VIE. Our 49% equity ownership in Vitrocrisa began in 1997. Our analysis was based upon our agreements with the joint venture, specifically, our 49% participation in equity earnings (loss), dividends, certain contractual technical assistance arrangements, and a distribution agreement giving us exclusive distribution rights to sell Vitrocrisa’s glass tableware products in the U.S. and Canada, and giving Vitrocrisa the exclusive distribution rights for our glass tableware products in Latin America. In addition, we guarantee a portion of Vitrocrisa’s bank debt. We have evaluated this investment and related arrangements. We have determined that we are not the primary beneficiary and should not consolidate Vitrocrisa into our Consolidated Financial Statements.
Our maximum exposure to loss in regards to Vitrocrisa and related arrangements is $23 million for a guarantee for Vitrocrisa’s bank debt, the investment in Vitrocrisa valued at $82.1 million at December 31, 2004, $5 million for our guarantee of Vitrocrisa’s obligation to purchase electricity and any losses incurred by the joint venture, of which we incur 49% as an equity loss. We are also exposed to losses in regard to the distribution agreement. These losses are difficult to quantify as some products could be sourced from other third party vendors and/or produced by us.
47

Table of Contents

7. Purchased Intangible Assets and Goodwill 
Purchased Intangibles
Purchased intangible assets are composed of the following:

 	
December 31,	 	2004	 	 	2003	 	
 	
Indefinite life intangible assets	 	$	10,617	 	 	$	10,318	 	
Definite life intangible assets, net of accumulated amortization of $5,629 and $4,809	 	 	1,697	 	 	 	2,516	 	
 	
Total	 	$	12,314	 	 	$	12,834	 	
 	
Amortization expense for definite life intangible assets was $820, $1,594 and $713 for years 2004, 2003 and 2002, respectively.
Indefinite life intangible assets are composed of trade names and trademarks that have an indefinite life and are therefore individually tested for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise, in accordance with SFAS No. 142. Our measurement date for impairment testing is October 1 st of each year. When performing our test for impairment of individual indefinite life intangible assets, we use the discounted cash flow method to determine the fair market value that is compared to the carrying value of the indefinite life intangible asset. This was done as of October 1, 2004, and there was no impairment indicated.
The definite life intangible assets primarily consist of technical assistance agreements, noncompete agreements and patents. The definite life assets are generally amortized over a period ranging from one to thirteen years. The weighted average remaining life on the definite life intangible assets is 2.1 years at December 31, 2004.
Future estimated amortization expense of definite life intangible assets is as follows:

 	
2005	 	2006	 	 	2007	 	 	2008	 	 	2009	 	
 	
$810	 	$	761	 	 	$	51	 	 	$	9	 	 	$	9	 	
 	
Goodwill
Changes in goodwill balances, net of accumulated amortization, are as follows:

 	
 	 	2004	 	 	2003	 	
 	
 	 	 	 	 	 	 	 	 	 	Foreign	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Foreign	 	 	 	 	
 	 	Balance	 	 	 	 	 	 	currency	 	 	Balance	 	 	Balance	 	 	 	 	 	 	currency	 	 	Balance	 	
 	 	January 1	 	 	Acquired	 	 	impact	 	 	December 31	 	 	January 1	 	 	Acquired	 	 	Impact	 	 	December 31	 	
 	
Goodwill	 	$	53,133	 	 	 	—	 	 	 	556	 	 	$	53,689	 	 	$	59,795	 	 	 	(7,807	)	 	 	1,145	 	 	$	53,133	 	
 	
The purchase price allocations for the Traex and Royal Leerdam acquisitions were finalized during the fourth quarter of 2003. The primary changes in the finalization of the purchase price allocation were related to Royal Leerdam. Property, plant and equipment increased by $3.6 million, intangible assets (indefinite life) increased by $3.6 million and intangible assets (definite life) increased by $0.7 million. The aforementioned increases were the result of independent appraisals that were finalized during the fourth quarter of 2003. Due to the increases in assets, goodwill at Royal Leerdam decreased by $7.9. Goodwill at Traex increased by $0.1 million.
Goodwill impairment tests are completed for each reporting unit at October 1 st of each year, or more frequently in certain circumstances where impairment indicators arise, in accordance with SFAS No. 142. No impairment was indicated since the inception of SFAS No. 142 in January 2002.
48

Table of Contents

8. Property, Plant and Equipment
Property, plant and equipment consists of the following: 

 	
December 31,	 	2004	 	 	2003	 	
 	
Land	 	$	17,781	 	 	$	17,199	 	
Buildings	 	 	45,277	 	 	 	51,485	 	
Machinery and equipment	 	 	234,670	 	 	 	239,104	 	
Furniture and fixtures	 	 	12,328	 	 	 	13,952	 	
Construction in progress	 	 	11,395	 	 	 	6,001	 	
 	
 	 	 	321,451	 	 	 	327,741	 	
Less accumulated depreciation	 	 	139,073	 	 	 	154,255	 	
 	
Net property, plant and equipment	 	$	182,378	 	 	$	173,486	 	
 	
Depreciation expense was $27,764, $25,457 and $17,262 for years 2004, 2003 and 2002, respectively.
9. Note Payable and Long-Term Debt
Long-term debt consists of the following: 

 	
December 31,	 	Interest Rate	 	 	Maturity Date	 	2004	 	 	2003	 	
 	
Borrowings under credit facility	 	floating	 	 	June 24, 2009	 	$	113,690	 	 	$	127,926	 	
Senior note	 	3.69%	 	 	March 31, 2008	 	 	25,000	 	 	 	25,000	 	
Senior notes	 	5.08%	 	 	March 31, 2013	 	 	55,000	 	 	 	55,000	 	
 		
Senior notes	 	floating	 	 	March 31, 2010	 	 	20,000	 	 	 	20,000	 	
Promissory Note	 	6.00%	 	 	January 2005 to
September 2016	 	 	2,267	 	 	 	2,396	 	
Notes payable	 	floating	 	 	January 2005	 	 	9,415	 	 	 	611	 	
 	
Total debt	 	 	 	 	 	 	 	 	 	 	225,372	 	 	 	230,933	 	
Less — current portion of debt	 	 	 	 	 	 	 	 	 	 	9,530	 	 	 	726	 	
 	
Total long-term portion of debt	 	 	 	 	 	 	 	 	 	$	215,842	 	 	$	230,207	 	
 	
Annual maturities for all of our long-term debt for the next five years are as follows:

 	
2005	 	2006	 	 	2007	 	 	2008	 	 	2009	 	
 	
$115	 	$115	 	 	$115	 	 	$25,115	 	 	$113,805	 	
 	
We were in compliance with all debt agreement covenants as of December 31, 2004 and December 31, 2003.
Revolving Credit Facility
In June 2004, we entered into an unsecured agreement for an Amended and Restated Revolving Credit Agreement (Revolving Credit Agreement or Agreement) with Libbey Glass Inc. and Libbey Europe B.V. as borrowers. We entered into an amendment to the Agreement in December 2004. The Agreement is with a group of banks that provides for a Revolving Credit and Swing Line Facility (Facility) permitting borrowings up to an aggregate total of $250 million, maturing June 24, 2009. Swing Line borrowings are limited to $25 million. Swing Line U.S. dollar borrowings bear interest calculated at the prime rate plus the Applicable Rate for Base Rate Loans as defined in the Agreement. Revolving Credit Agreement U.S. dollar borrowings bear interest at our option at either the prime rate plus the Applicable Rate for Base Rate Loans or a Eurodollar rate plus the Applicable Rate for Eurodollar Loans as defined in the Agreement. The Applicable Rates for Base Rate Loans and Eurodollar Loans vary depending on our performance against certain financial ratios. The Applicable Rates for Base Rate Loans and Eurodollar Loans were 0.40% and
49

Table of Contents

1.35%, respectively, at December 31, 2004. The weighted average interest rate on these borrowings at December 31, 2004, was 4.0% per year.
Libbey Europe B.V. may have euro-denominated swing line or revolving borrowings under the Revolving Credit Agreement in an aggregate amount not to exceed the Offshore Currency Equivalent, as defined in the Revolving Credit Agreement, of $125 million. Offshore Currency Swing Line borrowings are currently limited to $15 million of the $25 million total Swing Line borrowings. Interest is calculated at the Offshore Currency Swing Line rate plus the Applicable Rate for Swing Line Loans in euros. Revolving Offshore Currency Borrowings bear interest at the Offshore Currency Rate plus the Applicable Rate for Offshore Currency Rate Loans, as defined in the Agreement. The Applicable Rates for Swing Line Loans in euros and Offshore Currency Rate Loans vary depending on our performance against certain financial ratios. The Applicable Rates for Swing Line Loans in euros and Offshore Currency Rate Loans were 1.85% and 1.35%, respectively, at December 31, 2004.
We may also elect to borrow under a Negotiated Rate Loan alternative of the Facility at negotiated rates of interest up to a maximum of $125 million. The Facility also provides for the issuance of $30 million of letters of credit, with such usage applied against the $250 million limit. At December 31, 2004, we had $5.3 million in letters of credit outstanding under the Facility.
We pay a Facility Fee, as defined by the Agreement, on the total credit provided under the Facility. The Facility Fee varies depending on our performance against certain financial ratios. The Facility Fee was 0.40% at December 31, 2004.
No compensating balances are required by the Agreement. The Agreement does require the maintenance of certain financial ratios, restricts the incurrence of indebtedness and other contingent financial obligations, and restricts certain types of business activities and investments.
Senior Notes
On March 31, 2003, we issued $100 million of privately placed senior notes. Eighty million dollars of the notes have an average interest rate of 4.65% per year, with an initial average maturity of 8.4 years and a remaining average maturity of 6.7 years. Twenty million dollars of the senior notes have a floating interest rate at a margin over the London Interbank Offer Rate (LIBOR) that is set quarterly. The floating interest rate at December 31, 2004, on the $20 million debt was 3.03% per year.
Promissory Note
In September 2001, we issued a $2.7 million promissory note in connection with the purchase of our Laredo, Texas warehouse facility. At December 31, 2004 and 2003, we had $2,267 and $2,396 outstanding on the promissory note, respectively.
Notes Payable
We have two working capital lines of credit, one for a maximum of $10 million and the second for a maximum of €10 million. The $9,415 outstanding at December 31, 2004, was the U.S. dollar equivalent under the euro-based working capital line and the interest rate was 3.2%. The balance outstanding of $611 at December 31, 2003 was also under the euro-based working capital line and the interest rate was 3.2%.
Interest Rate Protection Agreements
We have Interest Rate Protection Agreements (Rate Agreements) with respect to $50 million of debt as a means to manage our exposure to fluctuating interest rates. The Rate Agreements effectively convert this portion of our borrowings from variable rate debt to fixed-rate debt, thus reducing the impact of interest rate changes on future income. The fixed interest rate for our borrowings related to the Rate Agreements at December 31, 2004, excluding applicable fees, is 6.0% per year and the total interest rate, including applicable fees, is 7.8% per year. The average maturity of these Rate Agreements is 1.0 year at December 31, 2004. Total remaining debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 4.1% per year at December 31, 2004. If the counterparts to these Rate Agreements were to fail to perform, we would no longer be protected from interest rate fluctuations by these Rate Agreements. However, we do not anticipate nonperformance by the counterparts.
The fair market value for the Rate Agreements at December 31, 2004, was $(1,578). The fair value of the Rate Agreements is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of
50

Table of Contents

future interest rates derived from observed market interest rate forward curves. We do not expect to cancel these agreements and expect them to expire as originally contracted.
10. Capacity Realignment Charge
In August 2004, we announced that we were realigning our production capacity in order to improve our cost structure. In mid-February 2005, we ceased operations at our manufacturing facility in City of Industry, California, and began realignment of production among our other domestic glass manufacturing facilities.
During 2004, we recorded a pretax charge of $14,519 related to the closure of the City of Industry facility and realignment of our production capacity. Of the $14,519 charged during 2004, $6,526 is included in cost of sales in the Consolidated Statements of Income. These cost of sales charges included pension and retiree welfare expenses and the write-down of inventories. The pension and retiree welfare charge is explained further in notes 12 and 13. As a result of the capacity realignment, we will reduce our total glass tableware manufacturing capacity. Therefore, we will exit certain low-margin business. Inventories of these items were written down in the third quarter of 2004.
The remaining $7,993 was recorded in the line item “capacity realignment charge.” These charges were primarily for employee termination costs and the writedown of fixed assets. Employee termination costs primarily include severance, medical benefits and outplacement services for the estimated 140 hourly and salary employees that will be terminated.
The write-down of fixed assets of $4,678 is to write-down certain machinery and equipment to the estimated fair market value based upon appraisals performed by an independent third party.
In December 2004, we sold approximately 27 acres of property in City of Industry, California, for net proceeds of $16,623. Pursuant to the purchase agreement, the buyer has leased the property back to us in order to enable us to cease operations, to relocate certain equipment to our other glassware manufacturing facilities, to demolish the buildings on the property and perform related site work, as required by the contract. We anticipate that all demolition and required remediation will be completed on or before December 31, 2005.
The annual base rent payable under the lease is $1 (one dollar) until December 31, 2005. As stated above, we anticipate that the demolition, site work and remediation will be completed, and the lease terminated on or before December 31, 2005. If, however, that work is not completed, and the lease terminates, by December 31, 2005, then the lease will be extended on a month-to-month basis at rent equal to $170 thousand per month.
Because the risks and rewards of ownership have not unconditionally transferred to the buyer at December 31, 2004, and the property site development activities are not completed, we continue to carry the land and building on our Consolidated Balance Sheets. The cash received in December 2004 was recorded as a deposit liability at December 31, 2004. The demolition of the buildings and related site work was estimated by an independent third party to be $4 to $6 million. We will capitalize these costs in 2005 because we ultimately expect to recover these development costs and the net book value of the land and building of $8,435 at December 31, 2004. Assuming our estimated site preparation costs are reasonably accurate, we expect to recognize a gain equal to the excess of the deposit received over the net book value of the land and building, including the capitalized site development costs.
51

Table of Contents

The following table summarizes the capacity realignment charge incurred during 2004, and the total estimated charge, the balance of which we expect to recognize in 2005. 

 	
 	 	Twelve months	 	 	 	 	
 	 	ended	 	 	 	 	
 	 	December 31,	 	 	Total estimated	 	
 	 	2004	 	 	charge (gain)	 	
 	
Pension & postretirement welfare	 	$	4,621	 	 	$	4,621	 	
Inventory write-down	 	 	1,905	 	 	 	1,905	 	
 	
Included in cost of sales	 	 	6,526	 	 	 	6,526	 	
 	 	 	 	 	 	 	 	 	
Equipment write-down	 	 	4,678	 	 	 	4,678	 	
Net gain on land sale	 	 	—	 	 	 	(2,600	)	
Employee termination cost	 	 	3,315	 	 	 	8,100	 	
 	
Included in capacity realignment charge	 	 	7,993	 	 	 	10,178	 	
 	
Total pretax capacity realignment charge	 	$	14,519	 	 	$	16,704	 	
 	
Following is the capacity realignment reserve activity for the year ended December 31, 2004: 

 	
 	 	Reserve	 	 	Total	 	 	Cash	 	 	 	 	 	 	 	 	 	 	Reserve balance	 	
 	 	balances at	 	 	charge to	 	 	receipts/	 	 	Inventory	 	 	Non-cash	 	 	at December 31,	 	
 	 	January 1, 2004	 	 	earnings	 	 	(payments)	 	 	disposition	 	 	utilization	 	 	2004	 	
 	
Pension & postretirement welfare	 	$	—	 	 	$	4,621	 	 	$	—	 	 	$	—	 	 	$	(4,621	)	 	$	—	 	
Inventory write-down	 	 	—	 	 	 	1,905	 	 	 	—	 	 	 	(388	)	 	 	—	 	 	 	1,517	 	
Land proceeds received	 	 	—	 	 	 	—	 	 	 	16,623	 	 	 	—	 	 	 	—	 	 	 	16,623	 	
Fixed asset write-down	 	 	—	 	 	 	4,678	 	 	 	—	 	 	 	—	 	 	 	(4,678	)	 	 	—	 	
Employee termination costs	 	 	—	 	 	 	3,315	 	 	 	(290	)	 	 	—	 	 	 	—	 	 	 	3,025	 	
 	
Total	 	$	—	 	 	$	14,519	 	 	$	16,333	 	 	$	(388	)	 	$	(9,299	)	 	$	21,165	 	
 	
The inventory reserve of $1,517 is included in the inventories’ line item, $16,623 as a included in deposit liability and $3,025 is included in the line item capacity realignment reserve on the Consolidated Balance Sheets.
52

Table of Contents

11. Income Taxes
The provision for income taxes was calculated based on the following components of earnings before income taxes: 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
United States	 	$	10,180	 	 	$	27,049	 	 	$	31,202	 	
Non-U.S.	 	 	1,600	 	 	 	7,155	 	 	 	5,471	 	
 	
Total earnings before tax	 	$	11,780	 	 	$	34,204	 	 	$	36,673	 	
 	
     The provision (credit) for income taxes consists of the following: 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Current:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. federal	 	$	5,798	 	 	$	5,419	 	 	$	7,146	 	
Non-U.S.	 	 	1,156	 	 	 	1,105	 	 	 	740	 	
U.S. state and local	 	 	648	 	 	 	540	 	 	 	645	 	
 	
Total current tax provision	 	 	7,602	 	 	 	7,064	 	 	 	8,531	 	
 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. federal	 	 	(2,483	)	 	 	(2,438	)	 	 	3,439	 	
Non-U.S.	 	 	(1,256	)	 	 	336	 	 	 	(3,854	)	
U.S. state and local	 	 	(335	)	 	 	169	 	 	 	502	 	
 	
Total deferred tax provision	 	 	(4,074	)	 	 	(1,933	)	 	 	87	 	
 	
Total:	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. federal	 	 	3,315	 	 	 	2,981	 	 	 	10,585	 	
Non-U.S.	 	 	(100	)	 	 	1,441	 	 	 	(3,114	)	
U.S. state and local	 	 	313	 	 	 	709	 	 	 	1,147	 	
 	
Total tax provision	 	$	3,528	 	 	$	5,131	 	 	$	8,618	 	
 	
Our deferred income tax provision includes a benefit of $1,490 for the effect of reduced statutory non-U.S. tax rates.
Significant components of our deferred tax liabilities and assets are as follows: 

 	
December 31,	 	2004	 	 	2003	 	
 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	
Property, plant and equipment	 	$	31,874	 	 	$	32,660	 	
Inventories	 	 	5,804	 	 	 	5,860	 	
Intangibles and other assets	 	 	7,959	 	 	 	8,395	 	
 	
Total deferred tax liabilities	 	 	45,637	 	 	 	46,915	 	
 	
Deferred tax assets:	 	 	 	 	 	 	 	 	
Nonpension postretirement benefits	 	 	15,956	 	 	 	17,377	 	
Other accrued liabilities	 	 	11,078	 	 	 	12,177	 	
Pension	 	 	5,000	 	 	 	2,402	 	
Receivables	 	 	2,670	 	 	 	2,628	 	
Net operating loss carry forwards	 	 	3,019	 	 	 	—	 	
Tax credits	 	 	3,845	 	 	 	4,459	 	
 	
Total deferred tax assets	 	 	41,568	 	 	 	39,043	 	
 	
Net deferred tax liability before valuation Allowance	 	 	4,069	 	 	 	7,872	 	
 	
Valuation allowance	 	 	955	 	 	 	195	 	
 	
Net deferred tax liability	 	$	5,024	 	 	$	8,067	 	
 	
The 2004 valuation allowance of $955 is for U.S. federal tax credits of $289, U.S. state tax credits of $195 and non-U.S. net operating losses of $471.
The 2003 valuation allowance of $195 is related to U.S. state tax credits.
53

Table of Contents

The net deferred tax liability is included in the Consolidated Balance Sheet as follows: 

 	
December 31,	 	2004	 	 	2003	 	
 	
Current deferred tax asset	 	$	7,462	 	 	$	7,402	 	
Noncurrent deferred tax liability	 	 	12,486	 	 	 	15,469	 	
 	
Net deferred tax liability	 	$	5,024	 	 	$	8,067	 	
 	
The 2004 deferred asset for net operating loss carryforwards of $3,019 relates to losses incurred in the Netherlands of $8,650. There is no expiration to these net operating loss carryforwards.
The 2004 deferred tax credits of $3,845 consists of U.S. federal tax credits of $1,155 and U.S. state tax credits of $2,690. The 2003 deferred tax credits of $4,459 consists of U.S. federal tax credits of $1,717 and U.S. state tax credits of $2,742 The U.S. federal tax credits are foreign tax credits associated with undistributed earnings of our Canadian operations, which are not permanently reinvested. The U.S. state tax credits are primarily related to investment tax credits and will expire between 2007 and 2019.
A reconciliation from the statutory U.S. federal tax rate of 35% to the consolidated effective tax rate is as follows: 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Statutory U.S. federal tax rate	 	 	35.0	%	 	 	35.0	%	 	 	35.0	%	
Increase (decrease) in rate due to:	 	 	 	 	 	 	 	 	 	 	 	 	
Non-U.S. tax differential	 	 	(4.5	)	 	 	(19.0	)	 	 	(10.5	)	
U.S. state and local income taxes, net of related U.S. federal taxes	 	 	1.7	 	 	 	1.3	 	 	 	2.0	 	
U.S. federal credits	 	 	(3.3	)	 	 	(2.0	)	 	 	(1.5	)	
Other	 	 	1.1	 	 	 	(0.3	)	 	 	(1.5	)	
 	
Consolidated effective tax rate	 	 	30.0	%	 	 	15.0	%	 	 	23.5	%	
 	
U.S. income taxes and non-U.S. withholding taxes were not provided for on a cumulative total of $12,866 of undistributed earnings for certain non-U.S. subsidiaries. We intend to reinvest these earnings indefinitely in the non-U.S. operations. Determination of the net amount of unrecognized U.S. income tax with respect to these earnings is not practicable.
Income tax related to employee stock option transactions of $72, $1,458 and $1,821 for the years ended December 31, 2004, 2003 and 2002, respectively, was allocated to shareholders’ equity. In addition, income tax related to other comprehensive income pension changes of $(879), $2,751 and $(15,919) for the years ended December 31, 2004, 2003 and 2002, respectively, and income tax related to derivatives of $1,246, $1,128 and $(297) for the years ended December 31, 2004, 2003 and 2002, respectively, were allocated to shareholders’ equity.
Significant components of our current income tax liability are as follows: 

 	
December 31,	 	2004	 	 	2003	 	
 	
U.S. federal	 	$	5,836	 	 	$	2,162	 	
Non-U.S.	 	 	245	 	 	 	(2,093	)	
U.S. state and local	 	 	(242	)	 	 	116	 	
 	
Total current income tax liability	 	$	5,839	 	 	$	185	 	
 	
54

Table of Contents

American Jobs Creation Act of 2004
In October 2004, The American Jobs Creation Act of 2004 (the Act) was signed into law. The Act creates a temporary incentive for U.S. corporations to repatriate earnings from foreign subsidiaries by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations to the extent the dividends exceed a base amount and are invested in the United States pursuant to a domestic reinvestment plan. This temporary incentive is available to the Company in 2005.
The deduction is subject to a number of limitations and uncertainty remains as to the interpretation of numerous provisions in the Act. The U.S. Treasury Department is in the process of providing clarifying guidance on key elements of the repatriation provision, and Congress may reintroduce legislation that provides for certain technical corrections to the Act. We have not completed our evaluation of the repatriation provision due to the uncertainty associated with the interpretation of the provision, as well as numerous tax, legal, treasury and business considerations. We expect to complete our evaluation of the potential dividends it may pursue, if any, and the related tax ramifications after additional guidance is issued.
12. Pension
We have pension plans covering the majority of our employees. Benefits generally are based on compensation for salaried employees 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 a supplemental employee retirement plan (SERP) covering certain employees. The U.S. pension plans, including the SERP, which is an unfunded liability, cover the hourly and salaried U.S.-based employees of Libbey. The non-U.S. pension plans cover the employees of our wholly owned subsidiaries, Royal Leerdam and Leerdam Crystal, both located in the Netherlands. 
Effect on Operations
The components of our net pension expense (credit), including the SERP, are as follows:

 	
 	 	U.S. Plans	 	 	Non-U.S. Plans	 	 	Total	 	
 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	 	2004	 	 	2003	 	 	2004	 	 	2003	 	 	2002	 	
 	
Service cost (benefits earned during the period)	 	$	5,755	 	 	$	5,439	 	 	$	4,819	 	 	$	615	 	 	$	584	 	 	$	6,370	 	 	$	6,023	 	 	$	4,819	 	
Interest cost on projected benefit obligation	 	 	13,932	 	 	 	14,361	 	 	 	14,373	 	 	 	1,568	 	 	 	1,274	 	 	 	15,500	 	 	 	15,635	 	 	 	14,373	 	
Expected return on plan assets	 	 	(18,309	)	 	 	(20,032	)	 	 	(23,158	)	 	 	(1,864	)	 	 	(1,500	)	 	 	(20,173	)	 	 	(21,532	)	 	 	(23,158	)	
Amortization of unrecognized:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Prior service cost	 	 	1,416	 	 	 	1,487	 	 	 	1,527	 	 	 	(366	)	 	 	(165	)	 	 	1,050	 	 	 	1,322	 	 	 	1,527	 	
Recognized gain (loss)	 	 	794	 	 	 	117	 	 	 	(1,245	)	 	 	—	 	 	 	—	 	 	 	794	 	 	 	117	 	 	 	(1,245	)	
Curtailment charge	 	 	3,963	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,963	 	 	 	—	 	 	 	—	 	
 	
Pension expense (credit)	 	$	7,551	 	 	$	1,372	 	 	$	(3,684	)	 	$	(47	)	 	$	193	 	 	$	7,504	 	 	$	1,565	 	 	$	(3,684	)	
 	
During 2004, we incurred $3,963 for a pension curtailment charge as a result of the planned capacity realignment whereby our manufacturing facility in City of Industry, California, ceased operations in mid-February 2005. As a result of the plant closure, approximately 140 employees were terminated. In addition, due to the announcement of the closure of the City of Industry plant, the U.S. pension and postretirement plans were revalued as of August 16, 2004. This revaluation resulted in additional net periodic benefit cost of $810 in 2004. This amount is included in the above table. The normal measurement date for the U.S. and non-U.S. plans is December 31st. The capacity realignment is explained in further detail in note 10. 
Actuarial Assumptions
Following are the assumptions used to determine the financial statement impact for our pension plan benefits for 2004, 2003 and 2002:

 	
 	 	U.S. Plans	 	 	Non-U.S. Plans	 	
 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	 	2004	 	 	2003	 	
 	
Discount rate	 	 	5.75	%	 	 	6.25	%	 	 	6.75	%	 	 	4.70	%	 	 	5.60	%	
Expected long-term rate of return on assets	 	 	8.75	%	 	 	9.00	%	 	 	9.00	%	 	 	6.50	%	 	 	6.50	%	
Salary growth rate	 	 	4.00	%	 	 	4.00	%	 	 	4.00	%	 	 	2.00-2.50	%	 	 	2.00-2.50	%	
 	
55

Table of Contents

We account for our defined benefit pension plans on an expense basis that reflects actuarial funding methods. Two critical assumptions, discount rate and expected long-term rate of return on plan assets, are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions on our annual measurement date of December 31st. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.
The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. We use the yield on high-quality fixed income investments at our December 31 st measurement date. The discount rate at December 31 st is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. A lower discount rate increases the present value of benefit obligations and increases pension expense. To reflect market interest rate conditions, we reduced our discount rate 0.50% for our U.S. Plans and 0.90% for our non-U.S. plans at December 31, 2004.
To determine the expected long-term rate of return on plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We reduced our expected long-term rate of return 0.25% for our U.S. Plans at December 31, 2004. We made no change to the expected long-term rate of return for our non-U.S. Plans at December 31, 2004. The expected long-term rate of return on plan assets at December 31 st is used to measure the earnings effects for the subsequent year. The assumed long-term rate of return on assets is applied to a calculated value of plan assets that recognizes gains and losses in the fair value of plan assets compared to expected returns over the next five years. This produces the expected return on plan assets that is included in pension expense (income). The difference between the expected return and the actual return on plan assets is deferred and amortized over five years. The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension expense (income).
Sensitivity to changes in key assumptions is as follows:

 	•  	A change of .50% in the expected long-term rate of return on plan assets would change total pension expense by approximately $1.2 million based on year-end data.	
 	
 	•  	A change of .50% in the discount rate would change our total pension expense by approximately $1.9 million.	
56

Table of Contents

Projected Benefit Obligation (PBO) and Fair Value of Assets
The changes in the projected benefit obligations and fair value of plan assets are as follows:

 	
 	 	U.S. Plans	 	 	Non-U.S. Plans	 	 	Total	 	
 	
December 31,	 	2004	 	 	2003	 	 	2004	 	 	2003	 	 	2004	 	 	2003	 	
 	
Change in projected benefit obligation:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Projected benefit obligation, beginning of year	 	$	227,368	 	 	$	210,383	 	 	$	26,601	 	 	$	—	 	 	$	253,969	 	 	$	210,383	 	
Assumed liability	 	 	—	 	 	 	—	 	 	 	—	 	 	 	22,086	 	 	 	—	 	 	 	22,086	 	
Service cost	 	 	5,755	 	 	 	5,439	 	 	 	615	 	 	 	1,320	 	 	 	6,370	 	 	 	6,759	 	
Interest cost	 	 	13,932	 	 	 	14,361	 	 	 	1,569	 	 	 	1,274	 	 	 	15,501	 	 	 	15,635	 	
Plan amendments	 	 	11,233	 	 	 	—	 	 	 	—	 	 	 	(2,303	)	 	 	11,233	 	 	 	(2,303	)	
Exchange rate fluctuations	 	 	—	 	 	 	—	 	 	 	3,005	 	 	 	4,381	 	 	 	3,005	 	 	 	4,381	 	
Actuarial loss	 	 	6,991	 	 	 	14,711	 	 	 	10,051	 	 	 	—	 	 	 	17,042	 	 	 	14,711	 	
Curtailment	 	 	969	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	969	 	 	 	—	 	
Benefits paid	 	 	(15,246	)	 	 	(17,526	)	 	 	(619	)	 	 	(157	)	 	 	(15,865	)	 	 	(17,683	)	
 	
Projected benefit obligation, end of year	 	$	251,002	 	 	$	227,368	 	 	$	41,222	 	 	$	26,601	 	 	$	292,224	 	 	$	253,969	 	
 	
Change in fair value of plan assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets, beginning of year	 	$	197,397	 	 	$	172,757	 	 	$	28,327	 	 	$	—	 	 	$	225,724	 	 	$	172,757	 	
Acquired asset	 	 	—	 	 	 	—	 	 	 	—	 	 	 	20,541	 	 	 	—	 	 	 	20,541	 	
Actual return on plan assets	 	 	23,856	 	 	 	41,552	 	 	 	1,219	 	 	 	2,200	 	 	 	25,075	 	 	 	43,752	 	
Exchange rate fluctuations	 	 	—	 	 	 	—	 	 	 	2,389	 	 	 	4,443	 	 	 	2,389	 	 	 	4,443	 	
SERP payments	 	 	499	 	 	 	615	 	 	 	—	 	 	 	—	 	 	 	499	 	 	 	615	 	
Employer contributions	 	 	80	 	 	 	—	 	 	 	1,456	 	 	 	1,300	 	 	 	1,536	 	 	 	1,300	 	
Benefits paid	 	 	(15,246	)	 	 	(17,527	)	 	 	(619	)	 	 	(157	)	 	 	(15,865	)	 	 	(17,684	)	
 	
Fair value of plan assets, end of year	 	$	206,586	 	 	$	197,397	 	 	$	32,772	 	 	$	28,327	 	 	$	239,358	 	 	$	225,724	 	
 	
Funded ratio	 	 	82.3	%	 	 	86.8	%	 	 	79.5	%	 	 	106.5	%	 	 	81.9	%	 	 	88.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of prepaid (accrued) cost:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Funded Status of the plans	 	$	(44,415	)	 	$	(29,971	)	 	$	(8,450	)	 	$	1,726	 	 	$	(52,865	)	 	$	(28,245	)	
Unrecognized net loss	 	 	45,540	 	 	 	44,890	 	 	 	11,491	 	 	 	—	 	 	 	57,031	 	 	 	44,890	 	
Unrecognized prior year service cost	 	 	21,594	 	 	 	14,762	 	 	 	(2,172	)	 	 	(2,379	)	 	 	19,422	 	 	 	12,383	 	
Adjustment to recognize additional minimum liability	 	 	(60,053	)	 	 	(51,078	)	 	 	—	 	 	 	—	 	 	 	(60,053	)	 	 	(51,078	)	
 	
Net prepaid (accrued) pension benefit cost	 	$	(37,334	)	 	$	(21,397	)	 	$	869	 	 	$	(653	)	 	$	(36,465	)	 	$	(22,050	)	
 	
The pension plans are reflected in the Consolidated Balance Sheets as follows: 

 	
December 31,	 	2004	 	 	2003	 	
 	
Pension liabilities	 	$	(32,668	)	 	$	(17,092	)	
Other long-term liabilities (SERP liability, note 3)	 	 	(3,797	)	 	 	(4,958	)	
 	
Accrued pension benefit cost	 	$	(36,465	)	 	$	(22,050	)	
 	
The plan amendments in 2004 for the U.S. pension plans result from an increase in pension benefits negotiated as part of the collective bargaining agreements at our plants in Toledo, Ohio, and Shreveport, Louisiana. Plan amendments in 2003 for the non-U.S. pension plans resulted from a change in benefit structure that allows for pension benefits based upon the employee’s career average salary.
In addition to the net prepaid (accrued) pension benefit cost, we have an intangible pension asset that represents the plans’ unrecognized prior year service costs:

 	
December 31,	 	2004	 	 	2003	 	
 	
Intangible pension asset	 	$	22,140	 	 	$	15,512	 	
 	
We recorded a change in the additional minimum pension liability of $8,975 and $(8,974) for 2004 and 2003, respectively, representing the amount required to bring our recorded pension liability to equal the excess of the accumulated benefit obligation (ABO) over fair value of plan assets for the applicable plans. In addition, a change in the intangible pension asset of $6,628 and $(1,656) for 2004 and 2003, respectively, was recorded to the extent of the plans’ unrecognized prior service cost. The difference between the change in additional minimum pension liability and intangible pension asset was included in other comprehensive
57

Table of Contents

income in the amount of $(2,338), less income tax of $879, $7,318, less income tax of $(2,751), and $(42,338), less income tax of $15,919, for the years ended December 31, 2004, 2003 and 2002, respectively.
In 2004, we contributed $0.1 million to the U.S. pension plan. This was the first contribution since the plans’ inception in 1993. We contributed $1.5 million in 2004 to the non-U.S. pension plan compared to $1.3 million in 2003. It is difficult to estimate potential cash contributions, as such amounts are a function of actual investment returns, withdrawals from the plans, changes in interest rates and other factors uncertain at this time. However, at this time, we anticipate making cash contributions of approximately $0.2 million for the U.S. pension plans and $1.6 million for the non-U.S. pension plans in 2005.
Pension benefit payment amounts are anticipated to be paid as follows: 

 	
Year	 	U.S. Plans	 	 	Non-U.S. Plans	 	 	Total	 	
 	
2005	 	$	12,900	 	 	$	816	 	 	$	13,716	 	
2006	 	 	13,049	 	 	 	904	 	 	 	13,953	 	
2007	 	 	14,346	 	 	 	1,127	 	 	 	15,473	 	
2008	 	 	15,217	 	 	 	1,377	 	 	 	16,594	 	
2009	 	 	15,845	 	 	 	1,279	 	 	 	17,124	 	
2010-2014	 	 	90,077	 	 	 	6,277	 	 	 	96,354	 	
 	
Accumulated Benefit Obligation (ABO)
The ABO represents the value of pension benefits attributed to current and future employees’ service to date based on current pay levels. The ABO is used for purposes of determining the minimum pension liability and related intangible asset. The ABO for the U.S. and non-U.S. pension plans for 2004 and 2003 was as follows:

 	
December 31,	 	2004	 	 	2003	 	
 	
U.S. Plans	 	$	243,912	 	 	$	218,785	 	
Non-U.S. Plans	 	 	32,527	 	 	 	20,261	 	
 	
Total	 	$	276,439	 	 	$	239,046	 	
 	
Plan Asset Allocation
The asset allocation for our U.S. pension plans at the end of 2004 and 2003 and the target allocation for 2005, by asset category, are as follows.

 	
     U. S. Plans	 	Target Allocation	 	Percentage of Plan	 	Assets at Year End	
 	
Asset Category	 	            2005	 	            2004	 	            2003	
 	
Equity securities	 	 	65	%	 	 	64	%	 	 	64	%	
Debt securities	 	 	30	%	 	 	30	%	 	 	30	%	
Real estate	 	 	5	%	 	 	5	%	 	 	5	%	
Other	 	 	0	%	 	 	1	%	 	 	1	%	
 	
Total	 	 	100	%	 	 	100	%	 	 	100	%	
 	
The asset allocation for our non-U.S. pension plans at the end of 2004 and 2003 and the target allocation for 2005, by asset category, are as follows. 

 	
    Non-U. S. Plans	 	Target Allocation	 	Percentage of Plan	 	Assets at Year End	
 	
Asset Category	 	2005	 	2004	 	2003	
 	
Equity securities	 	 	33	%	 	 	33	%	 	 	43	%	
Debt securities	 	 	57	%	 	 	57	%	 	 	51	%	
Real estate	 	 	10	%	 	 	10	%	 	 	6	%	
 	
Total	 	 	100	%	 	 	100	%	 	 	100	%	
 	
58

Table of Contents

Our investment strategy is to control and manage investment risk through diversification across asset classes and investment styles. Assets will be diversified among traditional investments in equity and fixed income instruments, as well as alternative investments including real estate and hedge funds. It would be anticipated that a modest allocation to cash would exist within the plans, since each investment manager is likely to hold fractional cash in a portfolio.
13. Nonpension Postretirement Benefits
We provide certain retiree health care and life insurance benefits covering a majority of our salaried and hourly employees. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. Benefits for most hourly retirees are determined by collective bargaining. Under a cross-indemnity agreement, Owens-Illinois, Inc. assumed liability for the nonpension postretirement benefits of Libbey retirees who had retired as of June 24, 1993. The U.S. nonpension postretirement plans cover the hourly and salaried U.S.-based employees of Libbey. The non-U.S. nonpension postretirement plans cover the retirees and active employees of Libbey who are located in Canada. 
Effect on Operations
The provision for our nonpension postretirement benefit expense (credit) consists of the following:

 	
 	 	U.S. Plans	 	 	Non- U.S. Plans	 	 	Total	 	
 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	 	2004	 	 	2003	 	 	2002	 	 	2004	 	 	2003	 	 	2002	 	
 	
Service cost (benefits earned during the period)	 	$	802	 	 	$	910	 	 	$	736	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	802	 	 	$	910	 	 	$	736	 	
Interest cost on projected benefit obligation	 	 	2,186	 	 	 	2,389	 	 	 	2,214	 	 	 	147	 	 	 	—	 	 	 	—	 	 	 	2,333	 	 	 	2,389	 	 	 	2,214	 	
Amortization of unrecognized:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Prior service cost	 	 	(1,843	)	 	 	(1,916	)	 	 	(1,915	)	 	 	—	 	 	 	129	 	 	 	145	 	 	 	(1,843	)	 	 	(1,787	)	 	 	(1,770	)	
Recognized (gain) loss	 	 	(93	)	 	 	63	 	 	 	(241	)	 	 	(11	)	 	 	(19	)	 	 	(5	)	 	 	(104	)	 	 	44	 	 	 	(246	)	
Curtailment charge	 	 	(152	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(152	)	 	 	—	 	 	 	—	 	
 	
Nonpension postretirement benefit expense (credit)	 	$	900	 	 	$	1,446	 	 	$	794	 	 	$	136	 	 	$	110	 	 	$	140	 	 	$	1,036	 	 	$	1,556	 	 	$	934	 	
 	
The postretirement benefit curtailment charge of $(152) in 2004 is the result of the planned capacity realignment discussed in notes 10 and 12. 
Actuarial Assumptions
The following are the actuarial assumptions used to determine the benefit obligations and pretax income effect for our nonpension postretirement benefits:

 	
 	 	U.S. Plans	 	 	Non-U.S. Plans	 	
 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	 	2004	 	 	2003	 	 	2002	 	
 	
Discount rate	 	 	5.75	%	 	 	6.25	%	 	 	6.75	%	 	 	5.75	%	 	 	6.25	%	 	 	6.75	%	
Initial health care trend	 	 	9.00	%	 	 	10.00	%	 	 	10.00	%	 	 	9.00	%	 	 	9.00	%	 	 	8.00	%	
Ultimate health care trend	 	 	5.00	%	 	 	5.00	%	 	 	5.00	%	 	 	5.00	%	 	 	5.00	%	 	 	4.00	%	
Years to reach ultimate trend rate	 	 	4	 	 	 	5	 	 	 	5	 	 	 	4	 	 	 	8	 	 	 	4	 	
 	
We use various actuarial assumptions, including the discount rate and the expected trend in health care costs, to estimate the costs and benefit obligations for our retiree health plan. We use the yield on high-quality fixed income investments at our December 31 st measurement date to establish the discount rate. The discount rate at December 31 st is used to measure the year-end benefit obligations and the earnings effects for the subsequent year.
The health care cost trend rate represents our expected annual rates of change in the cost of health care benefits. The trend rate noted above represents a forward projection of health care costs as of the measurement date.
Sensitivity to changes in key assumptions is as follows:
59

Table of Contents

 	•  	A 1% change in the health care trend rate would not have a material impact upon the nonpension postretirement expense and would change the benefit obligation by approximately $0.6 million.	
 	
 	•  	A 1% change in the discount rate would change the nonpension postretirement expense by $0.2 million.	
Accumulated Postretirement Benefit Obligation
The components of our nonpension postretirement benefit obligation are as follows:

 	
 	 	U.S. Plans	 	 	Non-U.S. Plans	 	 	Total	 	
December 31,	 	2004	 	 	2003	 	 	2004	 	 	2003	 	 	2004	 	 	2003	 	
Change in accumulated nonpension postretirement benefit obligation:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Benefit obligation, beginning of year	 	$	39,390	 	 	$	35,363	 	 	$	2,898	 	 	$	2,184	 	 	$	42,288	 	 	$	37,547	 	
Service cost	 	 	802	 	 	 	910	 	 	 	—	 	 	 	—	 	 	 	802	 	 	 	910	 	
Interest cost	 	 	2,186	 	 	 	2,389	 	 	 	147	 	 	 	129	 	 	 	2,333	 	 	 	2,518	 	
Plan participants’ contributions	 	 	616	 	 	 	436	 	 	 	—	 	 	 	—	 	 	 	616	 	 	 	436	 	
Plan amendments	 	 	618	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	618	 	 	 	—	 	
Actuarial (gain) loss	 	 	(2,847	)	 	 	2,294	 	 	 	(292	)	 	 	364	 	 	 	(3,139	)	 	 	2,658	 	
Exchange rate fluctuations	 	 	—	 	 	 	—	 	 	 	202	 	 	 	509	 	 	 	202	 	 	 	509	 	
Curtailment	 	 	272	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	272	 	 	 	—	 	
Benefits paid	 	 	(3,106	)	 	 	(2,002	)	 	 	(255	)	 	 	(288	)	 	 	(3,361	)	 	 	(2,290	)	
 	
Benefit obligation, end of year	 	$	37,931	 	 	$	39,390	 	 	$	2,700	 	 	$	2,898	 	 	$	40,631	 	 	$	42,288	 	

Reconciliation of funded status of plans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Funded Status	 	$	(37,931	)	 	$	(39,390	)	 	$	(2,700	)	 	$	(2,898	)	 	$	(40,631	)	 	$	(42,288	)	
Unrecognized actuarial loss (gain)	 	 	161	 	 	 	2,618	 	 	 	(338	)	 	 	(32	)	 	 	(177	)	 	 	2,586	 	
Unrecognized prior year service cost	 	 	(4,908	)	 	 	(7,543	)	 	 	—	 	 	 	—	 	 	 	(4,908	)	 	 	(7,543	)	
 	
Accrued benefit cost	 	$	(42,678	)	 	$	(44,315	)	 	$	(3,038	)	 	$	(2,930	)	 	$	(45,716	)	 	$	(47,245	)	
 	
Nonpension postretirement benefit payments are anticipated to be paid as follows: 

 	
Fiscal Year	 	U.S. Plan	 	 	Non-U.S. Plans	 	 	Total	 	
 	
2005	 	$	3,141	 	 	$	228	 	 	$	3,369	 	
2006	 	 	3,565	 	 	 	230	 	 	 	3,795	 	
2007	 	 	3,987	 	 	 	231	 	 	 	4,218	 	
2008	 	 	4,420	 	 	 	227	 	 	 	4,647	 	
2009	 	 	4,852	 	 	 	220	 	 	 	5,072	 	
2010-2014	 	 	30,559	 	 	 	1,031	 	 	 	31,590	 	
 	
We also provide retiree health care benefits to certain union hourly employees through participation in a multi-employer retiree health care benefit plan. This is an insured, premium-based arrangement. Related to these plans, approximately $570, $559 and $312 were charged to expense for the years ended December 31, 2004, 2003 and 2002, respectively.
60

Table of Contents

14. Net Income per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share: 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Numerator for earnings per share — net income that is available to common shareholders	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	
 	
Denominator for basic earnings per share — weighted-average shares outstanding	 	 	13,711,667	 	 	 	13,733,806	 	 	 	15,240,429	 	
 	
Effect of dilutive securities – employee stock options and employee stock purchase plan (ESPP)	 	 	7,658	 	 	 	27,356	 	 	 	190,693	 	
 	
Denominator for diluted earnings per share – adjusted weighted-average shares and assumed conversions	 	 	13,719,325	 	 	 	13,761,162	 	 	 	15,431,122	 	
 	
Basic earnings per share	 	$	0.60	 	 	$	2.12	 	 	$	1.84	 	
 	
Diluted earnings per share	 	$	0.60	 	 	$	2.11	 	 	$	1.82	 	
 	
Diluted shares outstanding include the dilutive impact of in-the-money options, which are calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the tax-effected proceeds that would be hypothetically received from the exercise of all in-the-money options are assumed to be used to repurchase shares.
15. Employee Stock Benefit Plans
We account for our two stock option plans using the intrinsic value method of accounting in accordance with APB No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related Interpretations. Under the intrinsic value method, because the exercise price of our stock options equals the market price of the underlying common stock on the date of grant, no compensation expense is recognized in the Consolidated Statements of Income. We disclose the proforma effect on net income and earnings per share if we had applied the fair value recognition provision of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), to stock-based employee compensation, as disclosed below.
We also have an Employee Stock Purchase Plan (ESPP) where eligible employees may purchase a limited number of shares of Libbey’s common stock at a discount. In accordance with APB 25, this plan is considered non-compensatory, and therefore no expense related to this plan is included in our Consolidated Statements of Income.
Employee Stock Purchase Plan
We have an ESPP under which 550,000 shares of Libbey’s common stock have been reserved for issuance. Eligible employees may purchase a limited number of shares of Libbey’s common stock at a discount of up to 15% of the market value at certain plan-defined dates. The ESPP terminates on May 31, 2012. In 2004 and 2003, the shares issued under the Employee Stock Purchase Plan were 59,177 and 54,435, respectively. At December 31, 2004, 1,236,388 shares were available for issuance under the Employee Stock Purchase Plan. Starting in 2003, repurchased common stock is being used to fund the ESPP.
Employee Stock Option Plans
Stock Option Program Description
We have two stock option plans for key employees: (1) the Libbey Inc. Amended and Restated Stock Option Plan for Key Employees and (2) the Amended and Restated 1999 Equity Participation Plan of Libbey Inc. Stock option grants are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with Libbey.
The maximum number of shares issuable over the term of the Libbey Inc. Amended and Restated Stock Option Plan for Key Employees is limited to 1,800,000 shares. Options granted under the Libbey Inc. Amended and Restated Stock Option Plan for Key Employees have an exercise price equal to the fair market value of the underlying stock on the grant date and expire no later
61

Table of Contents

than 10 years and a day from the grant date. The options will generally become exercisable for 40% of the option shares one year from the date of grant and then 20% on the second, third and fourth anniversary dates. In addition, the Board of Directors, or other committee administering the plan, has the discretion to use a different vesting schedule and has done so from time to time. Since the inception of the Libbey Inc. Amended and Restated Stock Option Plan for Key Employees, we have granted options to key employees.
In 2004, we adopted the Amended and Restated 1999 Equity Participation Plan of Libbey Inc., under which options can be granted or shares can be directly issued to eligible employees. Under the Amended and Restated 1999 Equity Participation Plan of Libbey Inc. up to a total of 2,000,000 shares of common stock are authorized for issuance upon exercise of options or grants of restricted stock or other awards. Of those shares, 1,135,446 options and 7,500 restricted shares have been granted. All option grants have an exercise price equal to the fair market value of the underlying stock on the grant date. 
General Option Information
A summary of option activity follows for 2004, 2003 and 2002:

 	
 	 	 	 	 	 	 	 	 	 	Options Outstanding	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Weighted-Average	 	
 	 	Options available	 	 	Restricted	 	 	 	 	 	 	exercise price per	 	
 	 	for grant	 	 	shares	 	 	Shares	 	 	share	 	
 	
Balance at January 1, 2002	 	 	454,000	 	 	 	 	 	 	 	1,629,483	 	 	$	24.37	 	
Granted	 	 	(247,950	)	 	 	 	 	 	 	247,950	 	 	 	24.11	 	
Exercised	 	 	—	 	 	 	 	 	 	 	(230,434	)	 	 	14.32	 	
Canceled	 	 	200	 	 	 	 	 	 	 	(200	)	 	 	32.31	 	
Additional shares reserved	 	 	—	 	 	 	 	 	 	 	—	 	 	 	—	 	
 	
Balance at December 31, 2002	 	 	206,250	 	 	 	 	 	 	 	1,646,799	 	 	 	25.73	 	
Granted	 	 	(173,410	)	 	 	 	 	 	 	173,410	 	 	 	28.33	 	
Exercised	 	 	—	 	 	 	 	 	 	 	(404,683	)	 	 	13.31	 	
Canceled	 	 	—	 	 	 	 	 	 	 	(5,350	)	 	 	30.14	 	
Additional shares reserved	 	 	—	 	 	 	 	 	 	 	—	 	 	 	—	 	
 	
Balance at December 31, 2003	 	 	32,840	 	 	 	 	 	 	 	1,410,176	 	 	 	29.60	 	
Granted	 	 	(156,210	)	 	 	 	 	 	 	156,210	 	 	 	20.39	 	
Restricted shares issued	 	 	(7,500	)	 	 	7,500	 	 	 	—	 	 	 	—	 	
Restricted shares vested	 	 	 	 	 	 	(3,750	)	 	 	—	 	 	 	—	 	
Exercised	 	 	—	 	 	 	—	 	 	 	(24,250	)	 	 	19.45	 	
Canceled	 	 	—	 	 	 	—	 	 	 	(24,500	)	 	 	26.46	 	
Additional shares reserved	 	 	1,000,000	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	
Balance at December 31, 2004	 	 	869,130	 	 	 	3,750	 	 	 	1,517,636	 	 	$	28.87	 	
 	
The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2004 (aggregate intrinsic value in thousands): 

 	
 	 	Options Outstanding	 	 	Options Exercisable	 	
 	 	 	 	 	 	Weighted-	 	 	Weighted-	 	 	 	 	 	 	 	 	 	 	Weighted-	 	 	 	 	
 	 	 	 	 	 	Average	 	 	Average	 	 	 	 	 	 	 	 	 	 	Average	 	 	 	 	
 	 	 	 	 	 	Remaining	 	 	Exercise	 	 	Aggregate	 	 	 	 	 	 	Exercise	 	 	Aggregate	 	
Range of Exercise	 	Number	 	 	Contractual Life	 	 	Price per	 	 	Intrinsic	 	 	 	 	 	 	Price per	 	 	Intrinsic	 	
      Prices	 	Outstanding	 	 	(in Years)	 	 	Share	 	 	Value	 	 	Number Exercisable	 	 	Share	 	 	Value	 	
 	 	 	
$0.01 – 18.75	 	 	1,000	 	 	 	0.36	 	 	$	18.75	 	 	$	3.5	 	 	 	1,000	 	 	$	18.75	 	 	$	3.5	 	
18.76 – 20.39	 	 	156,210	 	 	 	9.95	 	 	 	20.39	 	 	 	284.3	 	 	 	—	 	 	 	—	 	 	 	—	 	
20.40 – 23.84	 	 	90,200	 	 	 	1.59	 	 	 	23.00	 	 	 	2.0	 	 	 	85,700	 	 	 	22.95	 	 	 	2.0	 	
23.85 – 23.93	 	 	231,350	 	 	 	7.47	 	 	 	23.93	 	 	 	—	 	 	 	145,070	 	 	 	23.93	 	 	 	—	 	
23.94 – 27.13	 	 	107,350	 	 	 	2.00	 	 	 	26.86	 	 	 	—	 	 	 	107,350	 	 	 	26.86	 	 	 	—	 	
27.14 – 28.53	 	 	162,910	 	 	 	8.48	 	 	 	28.53	 	 	 	—	 	 	 	72,364	 	 	 	28.53	 	 	 	—	 	
28.54 – 29.50	 	 	750	 	 	 	3.75	 	 	 	29.50	 	 	 	—	 	 	 	750	 	 	 	29.50	 	 	 	—	 	
29.51 – 30.55	 	 	226,250	 	 	 	6.28	 	 	 	30.55	 	 	 	—	 	 	 	186,560	 	 	 	30.55	 	 	 	—	 	
30.56 – 31.15	 	 	3,750	 	 	 	5.70	 	 	 	31.12	 	 	 	—	 	 	 	3,150	 	 	 	31.11	 	 	 	—	 	
31.16 – 38.44	 	 	537,866	 	 	 	4.16	 	 	 	34.23	 	 	 	—	 	 	 	537,866	 	 	 	34.23	 	 	 	—	 	
 	 	 	
Total	 	 	1,517,636	 	 	 	5.74	 	 	$	28.87	 	 	$	289.8	 	 	 	1,139,810	 	 	$	30.39	 	 	$	5.5	 	
 	 	 	
62

Table of Contents

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on Libbey Inc.’s closing stock price of $22.21 as of December 31, 2004, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of December 31, 2004 was 7,000. As of December 31, 2003, 968,167 outstanding options were exercisable, and the weighted average exercise price was $30.49. As of December 31, 2002, 1,158,489 outstanding options were exercisable, and the weighted average exercise price was $24.95.
Pro forma Information
Pro forma information regarding option grants relating to our two options plans is based on specified valuation techniques that produce estimated compensation charges. The following table reflects the pro forma information: 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Net Income:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported net income	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	
Less: Stock-based employee compensation expense determined under fair value-based method of all awards, net of related tax effects	 	 	(1,253	)	 	 	(1,373	)	 	 	(1,511	)	
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	 	 	96	 	 	 	—	 	 	 	—	 	
 	
Pro forma net income	 	$	7,095	 	 	$	27,700	 	 	$	26,544	 	
 	
Basic earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported basic earnings per share	 	$	0.60	 	 	$	2.12	 	 	$	1.84	 	
Pro forma basic earnings per share	 	$	0.52	 	 	$	2.02	 	 	$	1.74	 	
 	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Reported diluted earnings per share	 	$	0.60	 	 	$	2.11	 	 	$	1.82	 	
Pro forma diluted earnings per share	 	$	0.52	 	 	$	2.01	 	 	$	1.72	 	
 	
The value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: 

 	
 	 	Employee Stock Option Plans	 	
Year ended December 31,	 	2004	 	2003	 	2002	
 	
Expected dividend	 	 	2.0	%	 	 	1.8	%	 	 	1.2	%	
Risk-free interest rate	 	 	3.9	%	 	 	4.1	%	 	 	3.7	%	
Expected volatility	 	 	.31	 	 	 	.30	 	 	 	.31	 	
Expected life (in years)	 	 	9	 	 	 	9	 	 	 	9	 	
 	
The Black-Scholes option pricing model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected stock price volatility and expected life. We use projected data for expected volatility and expected life of our stock options based upon historical and other economic data trended into future years. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the estimate, in our opinion the existing valuation models do not provide a reliable measure of the fair value of our employee stock options. Under the Black-Scholes option pricing model, the weighted-average estimated values of employee stock options granted during 2004, 2003, and 2002 were $7.08, $10.07, and $9.11, respectively.
Employee 401(k) Plan Retirement Fund and Non-Qualified Executive Savings Plan
We sponsor the Libbey Inc. 401(k) Plan (the Plan) to provide retirement benefits for our employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary contributions for eligible employees.
Employees can contribute from 1% to 50% of their annual salary on a pre-tax basis, up to the annual IRS limits. We match employee contributions 50% of the first 6% of eligible earnings that are contributed by employees. Therefore, the maximum matching contribution that we may allocate to each participant’s account did not exceed $6,150 for the 2004 calendar year due to the $205,000 annual limit on eligible earnings imposed by the Internal Revenue Code. Starting in 2003, we use treasury stock for
63

Table of Contents

the company match contributions to the employee’s 401(k) plan. All matching contributions vest immediately.
We have a non-qualified Executive Savings Plan for those employees whose salaries exceed the IRS limit. Libbey matched employee contributions 50% of the first 6% of eligible earnings that are contributed by the employees.
Our matching contributions to both Plans totaled $2,369, $2,285, and $2,138 in 2004, 2003, and 2002, respectively.
Effective January 1, 2005, employees who meet the age requirements and reach the Plan contribution limits can make a catch-up contribution not to exceed the lesser of 50% of their eligible compensation or the limit of $4,000 set forth in the Internal Revenue Code for the 2005 calendar year. The catch-up contributions are not eligible for matching contributions.
16. Derivatives
We hold derivative financial instruments to hedge certain of our interest rate risks associated with long-term debt, commodity price risks associated with forecasted future natural gas requirements and foreign exchange rate risks associated with occasional transactions denominated in a currency other than the U.S. dollar. These derivatives 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.
We use Interest Rate Protection Agreements (Rate Agreements) to manage our exposure to fluctuating interest rates. These Rate Agreements effectively convert a portion of our borrowings from variable rate debt to our fixed-rate debt, thus reducing the impact of interest rate changes on future income. These instruments are valued using the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. At December 31, 2004, we had Rate Agreements for $50 million of variable rate debt with a fair market value of $(1,578). At December 31, 2003, we had Rate Agreements for $100 million of variable rate debt with a fair market value of $(5,453). The fair value of these Rate Agreements are included on the Consolidated Balance Sheet in accrued liabilities.
We also use commodity futures contracts related to forecasted future U.S. natural gas requirements. The objective of these futures contracts and other derivatives is to limit the fluctuations in prices paid and potential losses in earnings or cash flows from adverse price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from 40% to 60% of our anticipated domestic requirements, generally twelve to eighteen months in the future. The fair values of these instruments are determined from market quotes. At December 31, 2004, we had commodity futures contracts for 2,410,000 million British Thermal Units (BTU’s) of natural gas with a fair market value of $161. At December 31, 2003, we had commodity futures contracts for 2,170,000 million BTU’s of natural gas with a fair market value of $338. The fair values of these commodity contracts are included in our Consolidated Balance Sheets in other current assets.
Our contractual obligations for natural gas is as follows:

 	
2005	 	2006	 	 	2007	 	 	2008	 	 	2009	 	
 	
$11,572	 	$	3,438	 	 	$	940	 	 	 	—	 	 	 	—	 	
 	
Our foreign currency exposure arises from occasional transactions denominated in a currency other than the U.S. dollar, primarily associated with anticipated purchases of new equipment or net investment in a foreign operation. The fair values of these instruments are determined from market quotes. We have not changed our methods of calculating these values or developing underlying assumptions. The values of these derivatives will change over time as cash receipts and payments are made and as market conditions change. At December 31, 2004 and 2003, we did not have any foreign currency derivatives.
We do not believe we are exposed to more than a nominal amount of credit risk in its interest rate, natural gas and foreign currency hedges, as the counterparties are established financial institutions.
64

Table of Contents

All of our derivatives qualify and are designated as cash flow hedges at December 31, 2004. Hedge accounting is only applied when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings. Ineffectiveness recognized in earnings during 2004 was not material.
The effective portion of changes in the fair value of a derivative that is designated as and meets the required criteria for a cash flow hedge is recorded in other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. Amounts reclassified into earnings related to Rate Agreements are included in interest expense, natural gas futures contracts in natural gas expense included in cost of sales, and foreign currency forward contracts for the purchase of new equipment in capital expenditures.
17. Comprehensive Income (Loss)
Total comprehensive income includes: 

 	
Balance at December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Net income	 	$	8,252	 	 	$	29,073	 	 	$	28,055	 	
Effect of derivatives – net of tax of $1,246, $1,128 and $(297)	 	 	2,067	 	 	 	1,871	 	 	 	(493	)	
Minimum pension liability (including equity investments) and intangible pension asset — net of tax	 	 	(5,514	)	 	 	4,567	 	 	 	(26,419	)	
Effect of exchange rate fluctuation	 	 	254	 	 	 	32	 	 	 	(1	)	
 	
Total comprehensive income	 	$	5,059	 	 	$	35,543	 	 	$	1,142	 	
 	
Accumulated other comprehensive loss (net of tax) includes: 

 	
December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Minimum pension liability (including equity investments) and intangible pension asset	 	$	27,594	 	 	$	22,081	 	 	$	26,647	 	
Derivatives	 	 	1,297	 	 	 	3,364	 	 	 	5,235	 	
Exchange rate fluctuation	 	 	(285	)	 	 	(32	)	 	 	1	 	
 	
Total	 	$	28,606	 	 	$	25,413	 	 	$	31,883	 	
 	
The change in other comprehensive income (loss) related to cash flow hedges is as follows: 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Change in fair value of derivative instruments	 	$	3,313	 	 	$	2,999	 	 	$	(790	)	
Less:	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax (expense) benefit	 	 	(1,246	)	 	 	(1,128	)	 	 	297	 	
 	
Other comprehensive income (loss) related to derivatives	 	$	2,067	 	 	$	1,871	 	 	$	(493	)	
 	
The following table identifies the detail of cash flow hedges in other comprehensive income (loss): 

 	
Year ended December 31,	 	2004	 	 	2003	 	 	2002	 	
 	
Balance at beginning of year	 	$	(3,364	)	 	$	(5,235	)	 	$	(4,742	)	
Current year impact of changes in value (net of taxes):	 	 	 	 	 	 	 	 	 	 	 	 	
Rate agreements	 	 	2,329	 	 	 	2,105	 	 	 	(2,460	)	
Natural gas	 	 	(262	)	 	 	(441	)	 	 	2,174	 	
Foreign currency	 	 	—	 	 	 	207	 	 	 	(207	)	
 	
Subtotal	 	 	2,067	 	 	 	1,871	 	 	 	(493	)	
 	
Balance at end of year	 	$	(1,297	)	 	$	(3,364	)	 	$	(5,235	)	
 	
65

Table of Contents

18. Operating Leases
Rental expense for all non-cancelable operating leases, primarily for warehouses, was $6,294, $7,123 and $6,637 for the years ended December 31, 2004, 2003 and 2002, respectively.
Future minimum rentals under operating leases are as follows: 

 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2010 and	 	
2005	 	2006	 	 	2007	 	 	2008	 	 	2009	 	 	thereafter	 	
 	
$6,608	 	$	6,246	 	 	$	5,542	 	 	$	4,578	 	 	$	3,921	 	 	$	13,535	 	
 	
19. Guarantees
The following is a list of our guarantees, in accordance with Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”
The debt of Libbey Glass Inc. and Libbey Europe B.V, pursuant to the Amended and Restated Revolving Credit Agreement and the privately placed senior notes, is guaranteed by Libbey Inc. and by certain subsidiaries of Libbey Glass Inc. Also, Libbey Glass Inc. guarantees a € 10 million working capital facility of Libbey Europe B.V. and Royal Leerdam. All are related parties that are included in the Consolidated Financial Statements. See note 9 for further disclosure on debt of Libbey.
In addition, Libbey Inc. guarantees the payment by Vitrocrisa of its obligation to purchase electricity. The guarantee is based on the provisions of a Power Purchase Agreement to which Vitrocrisa is a party. The guarantee is limited to 49% of any such obligation of Vitrocrisa and limited to an aggregate amount of $5.0 million. The guarantee was entered into in October 2000 and continues for 15 years from the initial date of electricity generation, which commenced on April 12, 2003.
In October 1995, Libbey Inc. guaranteed the obligations of Syracuse China Company and Libbey Canada Inc. under the Asset Purchase Agreement for the acquisition of Syracuse China. The guarantee is limited to $5.0 million expiring on the fifteenth anniversary of the Closing Date (October 10, 1995). The guarantee is in favor of The Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse China Company of Canada Ltd.
On April 2, 2004, Libbey Inc. and Libbey Glass Inc. guaranteed the obligations of Vitrocrisa Comercial, S. de R.L. de C.V. (Comercial) and Vitrocrisa under Tranche B loans pursuant to a certain Credit Agreement. Our portion of the guarantee is for 31% of the total indebtedness, up to a maximum amount of $23.0 million. At December 31, 2004, $23.0 million was outstanding. The term of the Tranche B loans of the Credit Agreement is three years, expiring April 2007. We would be obligated in the event of default by Comercial or Vitrocrisa, as outlined in the guarantee agreement. In exchange for the guarantee, we receive a fee. The guarantee was recorded during the second quarter of 2004 at the fair market value of $0.4 million in the Consolidated Balance Sheet as an increase in Other long-term liabilities with an offset to Investments.
In connection with our acquisition of Crisal-Cristalaria Automática, S.A. (Crisal), Libbey Inc. agreed to guarantee the payment, if and when such payment becomes due and payable, by Libbey Europe B.V. of the Earn-Out Payment, as defined in the Stock Promissory Sale and Purchase Agreement dated January 10, 2005 between Libbey Europe B.V., as purchaser, and VAA-Vista Alegre Atlantis SGPS, SA, as seller. The obligation of Libbey Europe B.V., and hence Libbey Inc., to pay the Earn-Out Payment (which is equal to 5.5 million euros) is contingent upon Crisal achieving certain targets relating to earnings before interest, taxes, depreciation and amortization and net sales. In no event will the Earn-Out Payment be due prior to the third anniversary of the closing date, which was January 10, 2005.
66

Table of Contents

20. Industry Segment Information
We have one reportable segment, tableware products, from which revenues from external customers are derived. We do not have any customer who represents 10% or more of total sales. Our operations by geographic areas for 2004, 2003 and 2002 are presented below. Intercompany sales to affiliates represent products that are transferred between geographic areas on a basis intended to reflect as nearly as possible the market value of the products. The long-lived assets include net fixed assets, goodwill and equity investments. 

 	
 	 	United States	 	 	Non-U.S.	 	 	Eliminations	 	 	Consolidated	 	
 	
2004	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Customers	 	$	419,368	 	 	$	125,399	 	 	 	—	 	 	$	544,767	 	
Intercompany	 	$	3,839	 	 	 	—	 	 	$	(3,839	)	 	 	—	 	
 	
Total net sales	 	$	423,207	 	 	$	125,399	 	 	$	(3,839	)	 	$	544,767	 	
 	
Long-lived assets	 	$	183,501	 	 	$	134,691	 	 	 	—	 	 	$	318,192	 	
 	
2003	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Customers	 	$	397,174	 	 	$	116,458	 	 	 	—	 	 	$	513,632	 	
Intercompany	 	$	2,663	 	 	 	—	 	 	$	(2,663	)	 	 	—	 	
 	
Total net sales	 	$	399,837	 	 	$	116,458	 	 	$	(2,663	)	 	$	513,632	 	
 	
Long-lived assets	 	$	179,813	 	 	$	134,380	 	 	 	—	 	 	$	314,193	 	
 	
2002	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Customers	 	$	387,662	 	 	$	46,099	 	 	 	—	 	 	$	433,761	 	
Intercompany	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	
Total net sales	 	$	387,662	 	 	$	46,099	 	 	 	—	 	 	$	433,761	 	
 	
Long-lived assets	 	$	223,644	 	 	$	87,119	 	 	 	—	 	 	$	310,763	 	
 	
67

Table of Contents

Selected Quarterly Financial Data (unaudited)
The following tables present selected quarterly financial data for the years ended December 31, 2004 and 2003:

 	
 	 	First Quarter	 	 	Second Quarter	 	 	Third Quarter	 	 	Fourth Quarter	 	
 	 	2004	 	 	2003	 	 	2004	 	 	2003	 	 	2004	 	 	2003	 	 	2004	 	 	2003	 	
 	
Net sales	 	$	123,123	 	 	$	111,903	 	 	$	135,752	 	 	$	128,254	 	 	$	131,790	 	 	$	129,126	 	 	$	154,102	 	 	$	144,349	 	
Gross profit	 	$	22,317	 	 	$	21,558	 	 	$	32,922	 	 	$	29,698	 	 	$	20,347	 	 	$	28,607	 	 	$	24,876	 	 	$	28,343	 	
gross profit margin	 	 	18.1	%	 	 	19.3	%	 	 	24.3	%	 	 	23.2	%	 	 	15.4	%	 	 	22.2	%	 	 	16.1	%	 	 	19.6	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general & administrative expenses	 	$	16,993	 	 	$	16,766	 	 	$	17,486	 	 	$	17,514	 	 	$	15,771	 	 	$	15,758	 	 	$	18,324	 	 	$	18,441	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from operations (IFO)	 	$	5,323	 	 	$	4,793	 	 	$	15,436	 	 	$	12,184	 	 	$	(1,172	)	 	$	12,849	 	 	$	4,308	 	 	$	9,901	 	
IFO margin	 	 	4.3	%	 	 	4.3	%	 	 	11.4	%	 	 	9.5	%	 	 	-0.9	%	 	 	10.0	%	 	 	2.8	%	 	 	6.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity earnings	 	($	1,389	)	 	($	150	)	 	$	1,456	 	 	$	1,997	 	 	($	914	)	 	$	1,172	 	 	($	588	)	 	$	1,410	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings before interest and income taxes (EBIT)	 	$	4,432	 	 	$	5,518	 	 	$	17,480	 	 	$	15,031	 	 	($	1,608	)	 	$	15,014	 	 	$	4,525	 	 	$	12,077	 	
EBIT margin	 	 	3.6	%	 	 	4.9	%	 	 	12.9	%	 	 	11.7	%	 	 	-1.2	%	 	 	11.6	%	 	 	2.9	%	 	 	8.4	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	564	 	 	$	2,001	 	 	$	9,365	 	 	$	7,910	 	 	($	3,204	)	 	$	12,018	 	 	$	1,527	 	 	$	7,144	 	
net income margin	 	 	0.5	%	 	 	1.8	%	 	 	6.9	%	 	 	6.2	%	 	 	-2.4	%	 	 	9.3	%	 	 	1.0	%	 	 	4.9	%	
 	
Diluted earnings per share	 	$	0.04	 	 	$	0.14	 	 	$	0.68	 	 	$	0.59	 	 	($	0.23	)	 	$	0.88	 	 	$	0.11	 	 	$	0.52	 	

 	
Accounts receivable	 	$	56,275	 	 	$	53,413	 	 	$	63,380	 	 	$	56,535	 	 	$	66,863	 	 	$	63,130	 	 	$	67,522	 	 	$	57,122	 	
DSO	 	 	37.6	 	 	 	41.9	 	 	 	40.5	 	 	 	42.2	 	 	 	43.7	 	 	 	41.3	 	 	 	41.2	 	 	 	37.5	 	

Inventories	 	$	128,865	 	 	$	116,501	 	 	$	134,297	 	 	$	123,520	 	 	$	141,366	 	 	$	129,236	 	 	$	126,625	 	 	$	125,696	 	
Inventory Turns	 	 	3.4	 	 	 	3.3	 	 	 	3.3	 	 	 	3.3	 	 	 	3.2	 	 	 	3.3	 	 	 	3.5	 	 	 	3.4	 	

Accounts payable	 	$	34,842	 	 	$	29,328	 	 	$	35,625	 	 	$	32,474	 	 	$	39,594	 	 	$	35,852	 	 	$	43,140	 	 	$	40,280	 	
DPO	 	 	27.7	 	 	 	27.0	 	 	 	29.2	 	 	 	28.5	 	 	 	31.5	 	 	 	29.6	 	 	 	33.8	 	 	 	31.9	 	

Total debt	 	$	237,017	 	 	$	250,916	 	 	$	237,942	 	 	$	235,975	 	 	$	251,370	 	 	$	244,942	 	 	$	225,372	 	 	$	230,933	 	

 	
Net cash provided by (used in) operating activities	 	$	453	 	 	($	9,022	)	 	$	10,478	 	 	$	15,757	 	 	($	1,361	)	 	($	4,695	)	 	$	33,180	 	 	$	27,170	 	
 	
Stock Market Information
Libbey Inc. common stock is listed for trading on the New York Stock Exchange under the symbol LBY . The price range and dividends declared for our common stock was as follows:

 	
 	 	2004	 	 	2003	 	
 	 	 	 	 	 	 	 	 	 	Cash	 	 	 	 	 	 	 	 	 	 	Cash	 	
 	 	Price Range	 	 	dividend	 	 	Price Range	 	 	dividend	 	
 	 	High	 	 	Low	 	 	declared	 	 	High	 	 	Low	 	 	declared	 	
 	
First Quarter	 	$	30.67	 	 	$	24.05	 	 	$	0.10	 	 	$	27.50	 	 	$	22.08	 	 	$	0.10	 	
Second Quarter	 	$	27.95	 	 	$	24.08	 	 	$	0.10	 	 	$	25.40	 	 	$	20.30	 	 	$	0.10	 	
Third Quarter	 	$	27.71	 	 	$	16.80	 	 	$	0.10	 	 	$	29.65	 	 	$	22.70	 	 	$	0.10	 	
Fourth Quarter	 	$	22.23	 	 	$	17.70	 	 	$	0.10	 	 	$	29.89	 	 	$	26.23	 	 	$	0.10	 	
 	
68

Table of Contents

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s 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 the Company’s management, including its 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. Also, we have investments in certain unconsolidated entities. As we do not control or manage these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
Report of Management
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personal, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

 	(1)  	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;	
 	
 	(2)  	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of managements and directors of the Company; and	
 	
 	(3)  	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.	
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Management has used the framework set forth in the report entitled “Internal Control – Integrated Framework” published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has concluded that the Company’s internal control over financial reporting was effective as of the end of the most recent fiscal year. Ernst & Young LLP has issued an attestation report on management’s
69

Table of Contents

assessment of the Company’s internal control over financial reporting.
There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
On January 31, 2005, the Compensation Committee of the Board of Directors authorized the payment of annual incentive (i.e., bonus) awards to each of our executive officers, including without limitation the Named Executive Officers, in respect of the year ended December 31, 2004. The annual incentive awards were made pursuant to the Company’s Senior Management Incentive Plan Amended as of January 1, 1996 (the “Incentive Plan”). The annual incentive awards were determined based upon the Company’s and each executive’s performance during 2004 as measured against performance measures established early that year. The performance measures included financial measures (for example, income from operations, operating cash flow and growth in sales), as well as a discretionary component based upon the respective executives’ contributions to the Company’s other financial and non-financial objectives, such as quality of service and products, customer satisfaction, adherence to or furtherance of the Company’s legal and ethical policies, product development, market share, improvement in financial indicators of the Company’s success other than the financial measures indicated above and effective response to adverse economic conditions or to events beyond the control of the Company. The following table sets forth the cash payments to the Named Executive Officers in respect of their annual incentive awards for 2004: 

 	
Name and Position	 	Annual Incentive Award	 	
 	
John F. Meier
Chairman and Chief Executive Officer	 	$	100,024	 	
Richard I. Reynolds
Executive Vice President and Chief Operating Officer	 	 	59,032	 	
Kenneth G. Wilkes
Vice President, General Manager International Operations	 	 	38,949	 	
Daniel P. Ibele
Vice President, General Sales Manager	 	 	27,926	 	
Susan A Kovach
Vice President, General Counsel and Secretary	 	 	23,291	 	
 	
In addition, on January 31, 2005 the Compensation Committee established the performance measures under the Incentive Plan with respect to the Company’s 2005 fiscal year. The performance measures for the 2005 fiscal year include financial measures (for example, income from operations, earnings before interest, taxes, depreciation and amortization and net sales) and a discretionary component as generally described above with respect to the 2004 fiscal year.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers of Libbey is incorporated herein by reference to Item 4 of this report under the caption “Executive Officers of the Registrant.” Information with respect to directors of Libbey is incorporated herein by reference to the information set forth under the caption “Libbey Corporate Governance-Who are the current members of Libbey’s Board of Directors?” in the Proxy Statement. Certain information regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the information set forth under the caption “Stock Ownership — Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. Information with respect to the Audit Committee members, the Audit Committee financial expert, and material changes in the procedures by which shareholders can recommend nominees to the Board of Directors is incorporated herein by reference to the information set forth under the caption “Libbey Corporate Governance-Who are the current members of Libbey’s Board of Directors?, What is the role of the Board’s Committees? and How does the Board select nominees for the Board?”.
Libbey’s Code of Business Ethics and Conduct applicable to its Directors, Officers (including Libbey’s principal executive officer and principal financial & accounting officer) and employees, along with the Audit Committee Charter, Nominating and Governance
70

Table of Contents

Committee Charter, Compensation Committee Charter and Corporate Governance Guidelines is posted on Libbey’s website at www.libbey.com . It also available to any shareholder who submits a request in writing addressed to Susan A. Kovach, Vice President, General Counsel and Secretary, Libbey Inc., 300 Madison Avenue, P.O. Box 10060, Toledo, Ohio 43699-0060. In the event that Libbey amends or waives any of the provisions of the Code of Business Ethics and Conduct applicable to the principal executive officer or principal financial & accounting officer, Libbey intends to disclose the subsequent information on Libbey’s website.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by reference to the information set forth under the captions “Executive Compensation,” “Comparison of Cumulative Total Returns,” “Total Shareholder Return” and “Indexed Returns” in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to the information set forth under the caption “Stock Ownership-Who are the largest owners of Libbey stock? and How much stock do Libbey’s directors and officers own?,” in the Proxy Statement. Information regarding equity compensation plans is incorporated herein by reference to Item 5 of this report under the caption “Equity Compensation Plan Information.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is incorporated herein by reference to the information set forth under the caption “Libbey Corporate Governance-Certain Relationships and Related Transactions – What related party transactions involved directors?,” in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services is incorporated herein by reference to the information set forth under the caption “Audit-Related Matters-Who are Libbey’s auditors? and What fees has Libbey paid to its auditors for Fiscal Year 2004 and 2003?” in the Proxy Statement.
71

Table of Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

a)  	Index of Financial Statements and Financial Statement Schedule Covered by Report of Independent Auditors.	
 	 	 	 	 	
 	 	Page	 	
Reports of Independent Registered Public Accounting Firms	 	 	32	 	
 	 	 	 	 	
Consolidated Balance Sheets at December 31, 2004 and 2003	 	 	36	 	
 	 	 	 	 	
For the years ended December 31, 2004, 2003 and 2002:	 	 	 	 	
 	 	 	 	 	
Consolidated Statements of Income	 	 	37	 	
 	 	 	 	 	
Consolidated Statements of Shareholders’ Equity	 	 	38	 	
 	 	 	 	 	
Consolidated Statements of Cash Flows	 	 	39	 	
 	 	 	 	 	
Notes to Consolidated Financial Statements	 	 	40	 	
 	 	 	 	 	
Selected Quarterly Financial Data (Unaudited)	 	 	68	 	
 	 	 	 	 	
Financial statement schedule for the years ended December 31, 2004, 2003 and 2002:	 	 	 	 	
 	 	 	 	 	
II — Valuation and Qualifying Accounts (Consolidated)	 	 	S-1	 	
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the Consolidated Financial Statements or the accompanying notes.
The accompanying Exhibit Index is hereby incorporated herein by this reference. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report.
72

Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.	
 	 	 	
	 	by:   /s/ Scott M. Sellick	
	 	Scott M. Sellick	
	 	Vice President and Chief Financial Officer	
Date: March 16, 2005
73

Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	 	Title	
William A. Foley	 	Director	
 	 	 	
Peter C. McC. Howell	 	Director	
 	 	 	
Carol B. Moerdyk	 	Director	
 	 	 	
Gary L. Moreau	 	Director	
 	 	 	
Terence P. Stewart	 	Director	
 	 	 	
Carlos V. Duno	 	Director	
 	 	 	
Deborah G. Miller	 	Director	
 	 	 	
Richard I. Reynolds	 	Director, Executive Vice President,
Chief Operating Officer	
 	 	 	
John F. Meier	 	Chairman of the Board of Directors, Chief Executive Officer	

 	By:  	/s/ Scott M. Sellick  	 	
 	 	Scott M. Sellick 
Attorney-In-Fact 	 	
 	Date: March 16, 2005  	 	

 	 	 	
/s/ Scott M. Sellick  	 	 	
Scott M. Sellick 	 	 	
Vice President and Chief Financial Officer
(Principal Accounting Officer) 	 	 	
 	
Date: March 16, 2005
74

Table of Contents

INDEX TO FINANCIAL STATEMENT SCHEDULE

 	 	Page	 	
Financial Statement Schedule of Libbey Inc. for the years ended December 31, 2004, 2003, and 2002 for Schedule II Valuation and Qualifying Accounts (Consolidated)	 	 	S-1	 	
75

Table of Contents
LIBBEY INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS (Consolidated)
Years ended December 31, 2004, 2003 and 2002
(Dollars in thousands)

 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Allowance for	 	 	Valuation	 	
 	 	Allowance for	 	 	slow moving	 	 	allowance for	 	
 	 	doubtful	 	 	and obsolete	 	 	deferred tax	 	
 	 	accounts	 	 	inventory	 	 	asset	 	
 	
Balance at January 1, 2002	 	$	5,962	 	 	$	2,171	 	 	$	195	 	
Charged to expense or other accounts	 	 	3,164	 	 	 	1,272	 	 	 	 	 	
Deductions	 	 	(1,334	)	 	 	(2,022	)	 	 	 	 	
 	
Balance at December 31, 2002	 	 	7,792	 	 	 	1,421	 	 	 	195	 	
Charged to expense or other accounts	 	 	(19	)	 	 	830	 	 	 	 	 	
Deductions	 	 	(613	)	 	 	(1,178	)	 	 	 	 	
 	
Balance at December 31, 2003	 	 	7,160	 	 	 	1,073	 	 	 	195	 	
Charged to expense or other accounts	 	 	2,158	 	 	 	3,357	 	 	 	760	 	
Deductions	 	 	(1,657	)	 	 	(1,591	)	 	 	 	 	
 	
Balance at December 31, 2004	 	$	7,661	 	 	$	2,839	 	 	$	955	 	

Table of Contents
Exhibit Index 

2.0	 	—	 	Asset Purchase Agreement dated as of September 22, 1995 by and among The Pfaltzgraff Co., The Pfaltzgraff Outlet Co., Syracuse China Company of Canada Ltd., LG Acquisition Corp. and Libbey Canada Inc., Acquisition of Syracuse China Company (filed as Exhibit 2.0 to the Registrant’s Current Report on Form 8-K dated September 22, 1995 and incorporated herein by reference).	
 	 	 	 	 	
2.1	 	—	 	Master Investment Agreement, dated to be effective as of August 15, 1997, entered into by and between Libbey Inc., Libbey Glass Inc., LGA2 Corp., LGA3 Corp., LGA4 Corp., Vitro S.A., Vitrocrisa Holding, S.A. de C.V., Vitro Corporativo, S.A., Vitrocrisa S.A. de C.V. Crisa Corporation, and WorldCrisa Corporation (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated August 29, 1997 and incorporated herein by reference).	
 	 	 	 	 	
2.2	 	—	 	Asset Purchase Agreement dated as of December 2, 2002 by and between Menasha Corporation and Libbey Inc. (filed as Exhibit 2.2 to Registrant’s Annual Report on Form 10-K for the year-ended December 31, 2002, and incorporated herein by reference).	
 	 	 	 	 	
2.3	 	—	 	Stock Purchase Agreement dated as of December 31, 2002 between BSN Glasspack N.V. and Saxophone B.V. (filed as Exhibit 2.3 to Registrant’s Annual Report on Form 10-K for the year-ended December 31, 2002, and incorporated herein by reference).	
 	 	 	 	 	
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, 1993 and incorporated herein by reference).	
 	 	 	 	 	
4.1	 	—	 	Restated Certificate of Incorporation of Libbey Inc. (incorporated by reference herein to Exhibit 3.1).	
 	 	 	 	 	
4.2	 	—	 	Amended and Restated By-Laws of Libbey Inc. (incorporated by reference herein to Exhibit 3.2).	
 	 	 	 	 	
4.3	 	—	 	Rights Agreement, dated January 5, 1995, between Libbey Inc. and The Bank of New York, which includes the form of Certificate of Designations of the Series A Junior Participating Preferred Stock of Libbey Inc. as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C, (filed as Exhibit 1 to Registrant’s Registration Statement on Form 8-A dated January 20, 1995 and incorporated herein by reference).	
 	 	 	 	 	
4.4	 	—	 	First Amendment to Rights Agreement, dated February 3, 1999, between Libbey Inc. and The Bank of New York (filed as Exhibit 4.4 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).	
 	 	 	 	 	
10.1	 	—	 	Management Services Agreement dated as of June 24, 1993 between Owens-Illinois General Inc. and Libbey Glass Inc. (filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).	
E-1

Table of Contents

 	 	 	 	 	
10.2	 	—	 	Tax Allocation and Indemnification Agreement dated as of May 18, 1993 by and among Owens-Illinois, Inc., Owens-Illinois Group, Inc. and Libbey Inc. (filed as Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).	
 	 	 	 	 	
*10.3	 	—	 	Pension and Savings Plan Agreement dated as of June 17, 1993 between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).	
 	 	 	 	 	
10.4	 	—	 	Cross-Indemnity Agreement dated as of June 24, 1993 between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).	
 	 	 	 	 	
*10.5	 	—	 	Form of Non-Qualified Stock Option Agreement between Libbey Inc. and certain key employees participating in the Libbey Inc. Stock Option Plan for Key Employees (filed as Exhibit 10.8 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference).	
 	 	 	 	 	
*10.6	 	—	 	Description of Libbey Inc. Senior Executive Life Insurance Plan (filed as Exhibit 10.9 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference).	
 	 	 	 	 	
*10.7	 	—	 	Libbey Inc. Deferred Compensation Plan for Outside Directors (filed as Exhibit 10.11 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference).	
 	 	 	 	 	
*10.8	 	—	 	The Amended and Restated Libbey Inc. Stock Option Plan for Key Employees (filed as Exhibit 10.14 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and incorporated herein by reference).	
 	 	 	 	 	
10.9	 	—	 	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 the Registrant’s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference).	
 	 	 	 	 	
10.10	 	—	 	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 the Registrant’s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference).	
 	 	 	 	 	
10.11	 	—	 	Letter Agreement dated as of October 10, 1995 by and between The Pfaltzgraff Co., The Pfaltzgraff Outlet Co., Syracuse China Company of Canada Ltd., LG Acquisition Corp. and Libbey Canada Inc., amending the Letter Agreement dated September 22, 1995 filed as part of the Asset Purchase Agreement for the Acquisition of Syracuse China (Exhibit 2.0) (filed as Exhibit 10.19 to the Registrant’s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference).	
E-2

Table of Contents

 	 	 	 	 	
*10.12	 	—	 	The Amended and Restated Libbey Inc. Senior Management Incentive Plan (filed as Exhibit 10.22 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference).	
 	 	 	 	 	
*10.13	 	—	 	First Amended and Restated Libbey Inc. Executive Savings Plan (filed as Exhibit 10.23 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference).	
 	 	 	 	 	
10.14	 	—	 	The Second Amended and Restated Credit Agreement dated as of April 23, 1997 to the First Amended and Restated Credit Agreement dated as of July 17, 1995 among Libbey Glass Inc. and Libbey Canada Inc. as Borrowers, the lenders listed therein, The Bank of Nova Scotia, as Canadian Agent, The First National Bank of Chicago, as Syndication Agents, NationsBank, N.A., as Documentation Agent, The Bank of New York, The Bank of Nova Scotia, Caisse National De Credit Agricole, Fleet Bank, N.A. and Keybank National Association, as Co-Agents and Bankers Trust Company, as Administrative Agent (filed as Exhibit 10.25 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference).	
 	 	 	 	 	
10.15	 	—	 	Amended and Restated Distribution Agreement dated to be effective as of August 29, 1997, by and among Vitro S.A., Vitrocrisa, S.A. de C.V., Libbey Inc. and Libbey Glass Inc. whereby Libbey Glass Inc. will distribute certain products (filed as Exhibit 10.26 to Registrant’s Current Report on Form 8-K/A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).	
 	 	 	 	 	
10.16	 	—	 	Vitrocrisa S.A. de C.V. Shareholders Agreement dated to be effective as of August 29,1997 by and among Libbey Inc., LGA3 Corp., Vitro S.A., Vitrocrisa Holding S.A. de C.V. and Vitrocrisa S.A. de C.V. (filed as Exhibit 10.28 to Registrant’s Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).	
 	 	 	 	 	
10.17	 	—	 	Vitrocrisa Holding S.A. de C.V. Shareholders Agreement dated to be effective as of August 29,1997 by and among Libbey Inc., LGA3 Corp., Vitro S.A. and Vitrocrisa Holding S.A. de C.V. (filed as Exhibit 10.29 to Registrant’s Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).	
 	 	 	 	 	
10.18	 	—	 	Amended and Restated Covenant Not to Compete dated to be effective as of August 29, 1997 by and between Libbey Inc. and Vitro S.A. (filed as Exhibit 10.30 to Registrant’s Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).	
 	 	 	 	 	
10.19	 	—	 	Crisa Libbey S.A. de C.V. Shareholders Agreement dated to be effective as of August 29,1997 by and among Libbey Inc., LGA3 Corp., Vitro S.A. and Crisa Libbey S.A. de C.V. (filed as Exhibit 10.31 to Registrant’s Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).	
 	 	 	 	 	
10.20	 	—	 	Limited Liability Company Agreement of Crisa Industrial, L.L.C. dated to be effective as of August 29, 1997 by and among Crisa Corporation, LGA4 Corp., Vitro S.A. and Libbey Inc. (filed as Exhibit 10.32 to Registrant’s Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).	
 	 	 	 	 	
10.21	 	—	 	Management Services Agreement dated to be effective August 29, 1997 by and between Libbey Inc. and Vitrocrisa S. A. de C.V. for services to be provided by one or more subsidiary corporations of Libbey Inc. (filed as Exhibit 10.33 to Registrant’s	
E-3

Table of Contents

 	 	 	 	 	
	 	 	 	Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).	
 	 	 	 	 	
*10.22	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Rob A. Bules (filed as Exhibit 10.38 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.23	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Robert A. Dunton (filed as Exhibit 10.39 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.24	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Terry E. Hartman (filed as Exhibit 10.40 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.25	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and William M. Herb (filed as Exhibit 10.41 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.26	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Daniel P. Ibele (filed as Exhibit 10.42 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.27	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Pete D. Kasper (filed as Exhibit 10.43 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.28	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and John F. Meier (filed as Exhibit 10.44 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.29	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Timothy T. Paige (filed as Exhibit 10.45 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.30	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and John P. Pranckun (filed as Exhibit 10.46 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.31	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Willie B. Purvis (filed as Exhibit 10.47 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.32	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Richard I. Reynolds (filed as Exhibit 10.48 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.33	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Kenneth G. Wilkes (filed as Exhibit 10.51 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.34	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and John A. Zarb (filed as Exhibit 10.52 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
E-4

Table of Contents

 	 	 	 	 	
*10.35	 	—	 	Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Wayne J. Zitkus (filed as Exhibit 10.53 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).	
 	 	 	 	 	
*10.36	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and J. F. Meier (filed as Exhibit 10.49 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.37	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Richard I. Reynolds (filed as Exhibit 10.51 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.38	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Kenneth G. Wilkes (filed as Exhibit 10.52 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.39	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Timothy T. Paige (filed as Exhibit 10.53 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.40	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and John A. Zarb (filed as Exhibit 10.54 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.41	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Daniel P. Ibele (filed as Exhibit 10.55 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.42	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Willie Purvis (filed as Exhibit 10.57 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.43	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Robert Dunton (filed as Exhibit 10.58 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.44	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and William Herb (filed as Exhibit 10.59 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.45	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Wayne Zitkus (filed as Exhibit 10.60 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.46	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and John P. Pranckun (filed as Exhibit 10.61 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
E-5

Table of Contents

 	 	 	 	 	
*10.47	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Pete Kasper (filed as Exhibit 10.63 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.48	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Rob Bules (filed as Exhibit 10.65 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.49	 	—	 	Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Terry Hartman (filed as Exhibit 10.66 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.50	 	—	 	Change of Control Agreement dated as of August 1, 1999 between Libbey Inc. and Kenneth A. Boerger (filed as Exhibit 10.68 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.51	 	—	 	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 Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.52	 	—	 	The 1999 Equity Participation Plan of Libbey Inc. (filed as Exhibit 10.67 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).	
 	 	 	 	 	
*10.53	 	—	 	The Libbey Inc. Long-Term Incentive Compensation Plan effective as of January 1, 2001 (filed as Exhibit 10.66 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference).	
 	 	 	 	 	
10.54	 	—	 	Amended and Restated Credit Agreement, dated February 10, 2003, among Libbey Glass Inc. and Libbey Europe B.V., as the borrowers, Bank of America, N.A., as the administrative agent, swing line lender and letter of credit issuer, Bank One, N.A. and Fleet National Bank, as syndication agents and the other lenders party thereto (filed as Exhibit (b) to Registrant’s Tender Offer Statement on Schedule TO incorporated herein by reference).	
 	 	 	 	 	
10.55	 	—	 	Note Purchase Agreement, dated March 31, 2003, among Libbey Glass Inc. and Purchasers of the notes (filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter-ended March 31, 2003, and incorporated herein by reference).	
 	 	 	 	 	
10.56	 	—	 	Guaranty Agreement, dated March 31, 2003, among Libbey Glass Inc., and the Purchasers of the notes referenced in 10.65 above (filed as Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter-ended March 31, 2003, and incorporated herein by reference).	
 	 	 	 	 	
10.57	 	—	 	Subsidiary Guaranty dated as of March 31, 2003, among Libbey Inc. and wholly owned subsidiaries of Libbey Glass Inc. and the Purchasers of the notes referenced in 10.65 above (filed as Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarter-ended March 31, 2003, and incorporated herein by reference).	
E-6

Table of Contents

 	 	 	 	 	
*10.58	 	—	 	Change in Control Agreement dated as of May 1, 2003, between Libbey Inc. and Scott M. Sellick (filed as Exhibit 10.66 to Registrant’s Quarterly Report on Form 10-Q for the quarter-ended June 30, 2003, and incorporated herein by reference).	
 	 	 	 	 	
*10.59	 	—	 	Change of Control Agreement dated as of December 15, 2003, between Susan A. Kovach (filed as Exhibit 10.69 to Registrant’s Annual Report on Form 10-K for the year-ended December 31,2003, and incorporated herein by reference).	
 	 	 	 	 	
*10.60	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Kenneth A. Boerger (filed as Exhibit 10.1 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004, and incorporated herein by reference).	
 	 	 	 	 	
*10.61	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Daniel P. Ibele (filed as Exhibit 10.2 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004, and incorporated herein by reference).	
 	 	 	 	 	
*10.62	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Susan Allene Kovach (filed as Exhibit 10.3 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004, and incorporated herein by reference).	
 	 	 	 	 	
*10.63	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and John F. Meier (filed as Exhibit 10.4 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004, and incorporated herein by reference).	
 	 	 	 	 	
*10.64	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Timothy T. Paige (filed as Exhibit 10.5 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004, and incorporated herein by reference).	
 	 	 	 	 	
*10.65	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Richard I. Reynolds (filed as Exhibit 10.6 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004, and incorporated herein by reference).	
 	 	 	 	 	
*10.66	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Scott M. Sellick (filed as Exhibit 10.7 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004 and incorporated herein by reference).	
 	 	 	 	 	
*10.67	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and Kenneth G. Wilkes (filed as Exhibit 10.8 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004 and incorporated herein by reference).	
 	 	 	 	 	
*10.68	 	—	 	Employment Agreement dated as of March 22, 2004 between Libbey Inc. and John A. Zarb (filed as Exhibit 10.9 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended March 31, 2004 and incorporated herein by reference).	
 	 	 	 	 	
10.69	 	—	 	Credit Agreement dated June 24, 2004, among Libbey Glass Inc. and Libbey Europe B.V., as the borrowers, the Bank of America, N.A., as the Administrative Agent, Swing Line Lender and as an L/C Issuer, The Bank of New York, as the Syndication Agent, The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch, as the Documentation Agent, and the other lenders listed therein (filed as Exhibit 10.1 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended June 30, 2004 and incorporated herein by reference).	
 	 	 	 	 	
10.70	 	—	 	Libbey Inc. Guaranty Agreement dated June 24, 2004, among Libbey Inc. in favor of Bank of America, N.A., and the guaranteed creditors of the Credit Agreement (filed as Exhibit 10.2 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended June 30, 2004 and incorporated herein by reference).	
E-7

Table of Contents

 	 	 	 	 	
10.71	 	—	 	Subsidiary Guaranty Agreement dated June 24, 2004, among certain subsidiaries of Libbey Glass Inc. in favor of Bank of America, N.A. and the guaranteed creditors of the Credit Agreement (filed as Exhibit 10.3 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended June 30, 2004 and incorporated herein by reference).	
 	 	 	 	 	
10.72	 	—	 	Libbey Glass Inc. Guaranty Agreement dated June 24, 2004, among Libbey Glass Inc. in favor of Bank of America, N.A., as administrative agent for each of the lenders of the Credit Agreement (filed as Exhibit 10.4 to Registrant’s Quarterly report on Form10-Q for the quarter-ended June 30, 2004 and incorporated herein by reference.)	
 	 	 	 	 	
10.73	 	—	 	Libbey and Libbey Glass Guaranty dated April 2, 2004, among Libbey Inc and Libbey Glass Inc. in favor of the Tranche B lenders and the administrative agent of the certain Credit Agreement (filed as Exhibit 10.5 to Registrant’s Quarterly report on Form 10-Q for the quarter-ended June 30, 2004 and incorporated herein by reference).	
 	 	 	 	 	
10.74	 	—	 	First Amendment to Parent Guaranty Agreement Dated December 21, 2004 (filed herein).	
 	 	 	 	 	
10.75	 	—	 	Amendment No. 1 and Waiver to Credit Agreement dated December 21, 2004 among Libbey Glass Inc and Libbey Europe B.V. in favor of Bank of America, N.A., as administrative agent for each of the lenders of the Credit Agreement (filed herein).	
 	 	 	 	 	
10.76	 	—	 	Stock Promissory Sale and Purchase Agreement between VAA – Vista Alegre Atlantis SGPS, SA and Libbey Europe B.V. dated January 10, 2005 (filed herein).	
 	 	 	 	 	
13.1	 	—	 	Selected Financial Information included in Registrant’s 2004 Annual Report to Shareholders (filed herein).	
 	 	 	 	 	
21	 	—	 	Subsidiaries of the Registrant (filed herein).	
 	 	 	 	 	
23	 	—	 	Consent of Independent Registered Public Accounting Firm (filed herein).	
 	 	 	 	 	
24	 	—	 	Power of Attorney (filed herein).	
 	 	 	 	 	
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).	
 	 	 	 	 	
99.1	 	—	 	Safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (filed herein).	

* Management Contract or Compensation Plan or Arrangement.
E-8
 
EXHIBIT 10.74
LIBBEY INC.
FIRST AMENDMENT TO PARENT GUARANTY AGREEMENT
Dated as of December 21, 2004
Re: Parent Guaranty Agreement dated as of March 31, 2003, Note Purchase Agreement dated as of March 31, 2003 and $25,000,000 3.69% Senior Notes, Series 2003A-1, due March 31, 2008 $55,000,000 5.08% Senior Notes, Series 2003A-2, due March 31, 2013 $20,000,000 Floating Rate Senior Notes, Series 2003B, due March 31, 2010
LIBBEY INC.
FIRST AMENDMENT TO PARENT GUARANTY AGREEMENT
Dated as of December 21, 2004
Re: Parent Guaranty Agreement dated as of March 31, 2003, Note Purchase Agreement dated as of March 31, 2003 and $25,000,000 3.69% Senior Notes, Series 2003A-1, due March 31, 2008 $55,000,000 5.08% Senior Notes, Series 2003A-2, due March 31, 2013 $20,000,000 Floating Rate Senior Notes, Series 2003B, due March 31, 2010
To the institutional investors (the "Noteholders") Named in Schedule I attached hereto
Ladies and Gentlemen:
Reference is made to the Parent Guaranty Agreement dated as of March 31, 2003 (the "Guaranty Agreement") between Libbey Inc., a Delaware corporation (the "Guarantor"), and each of the institutional investors party thereto, pursuant to which the Guarantor has guaranteed the obligations of Libbey Glass Inc., a Delaware corporation (the "Company"), under the Note Purchase Agreement dated as of March 31, 2003 (the "Note Purchase Agreement") between the Company and the institutional investors party thereto, under and pursuant to which the Company originally issued and sold its 3.69% Senior Notes, Series 2003A-1, due March 31, 2008 in an aggregate principal amount of $25,000,000 (the "Series A-1 Notes"), 5.08% Senior Notes, Series 2003A-2, due March 31, 2013 in an aggregate principal amount of $55,000,000 (the "Series A-2 Notes"), and Floating Rate Senior Notes, Series 2003B, due March 31, 2010 in an aggregate principal amount of $20,000,000 (the "Series 2003B Notes," and together with the Series A-1 Notes and the Series A-2 Notes, the "Notes"). Terms used but not otherwise defined herein shall have the same meaning as ascribed to such terms in the Guaranty Agreement.
The Guarantor hereby agrees with you in this First Amendment to Parent Guaranty Agreement (this or the "Amendment") as follows:
ARTICLE 1.
AMENDMENT OF GUARANTY AGREEMENT.
Section 1.1. Amendment to Section 5.1 (Limitation on Debt). Section 5.1 of the Guaranty Agreement shall be and is hereby amended in its entirety to read as follows:
"Section 5.1. Limitation on Debt. The Guarantor will not at any time permit:
(a) the Consolidated Leverage Ratio to exceed (i) from October 1, 2004 through and including June 29, 2005, 3.75 to 1.00, and (ii) from June 30, 2005 and at all times thereafter, 3.50 to 1.00; and
(b) Priority Debt to exceed 20% of Consolidated Total Capitalization as of the end of the most recently completed fiscal quarter."
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES.
The Guarantor represents and warrants that as of the date hereof and after giving effect hereto:
(a) The execution and delivery of the Amendment by the Guarantor and compliance by the Guarantor with all of the provisions of the Guaranty Agreement, as amended by the Amendment --
(i) are within the corporate power and authority of the Guarantor; and
(ii) will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the certificate of incorporation or by-laws of the Guarantor, or any indenture or other agreement or instrument to which the Guarantor is party or by which the Guarantor may be bound or result in the imposition of any Liens or encumbrances on any property of the Guarantor.
(b) The execution and delivery of the Amendment has been duly authorized by all necessary corporate action on the part of the Guarantor; and the Amendment has been duly executed and delivered by the Guarantor, and the Guaranty Agreement, as amended by the Amendment, constitutes the legal, valid and binding obligation, contract and agreement of the Guarantor enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law).
(c) Upon the effectiveness of this Amendment and that certain Amendment No. 1 and Waiver to Credit Agreement, dated as of December 21, 2004 (the "Credit Agreement Amendment"), in respect of the Credit Agreement dated as of June 24, 2004
-2-
(the "Bank Credit Agreement") by and among the Company, Libbey Europe B.V. and the banks and financial institutions named therein, no Default or Event of Default exists or shall be continuing under the Guaranty Agreement or the Note Purchase Agreement.
(d) Neither the Guarantor nor any Subsidiary has paid any fee or other consideration to any Lender (as defined in the Bank Credit Agreement) or to any Noteholder in connection with the execution and delivery of the Credit Agreement Amendment or this Amendment except (i) an amendment fee equal to .05% of the commitment amount of each Lender party to the Credit Agreement Amendment, (ii) the fee referenced in Section 3.4 of this Amendment, and (iii) routine fees of counsel.
ARTICLE 3.
MISCELLANEOUS.
Section 3.1. References to Guaranty Agreement. References in the Guaranty Agreement or the Note Purchase Agreement or in any Note, certificate, instrument or other document delivered in connection with or in respect of the Guaranty Agreement to the Guaranty Agreement shall be deemed to be references to the Guaranty Agreement as amended hereby and as further amended from time to time without making specific reference to this Amendment or any such other amendment.
Section 3.2. Effect of Amendment; Reaffirmation of Guaranty Agreement. Except as expressly amended hereby, the Guarantor agrees that the Guaranty Agreement and all other documents and agreements executed by the Guarantor in connection with the Guaranty Agreement in favor of the Noteholders are ratified and confirmed in all respects and continue unimpaired and shall remain in full force and effect.
Section 3.3. Successors and Assigns. This Amendment shall be binding upon the Guarantor and its successors and assigns and shall inure to the benefit of the Noteholders and to the benefit of the Noteholders' successors and assigns, including each successive holder or holders of any Notes.
Section 3.4. Requisite Approval; Expenses. This Amendment shall be effective as of the date first written above upon the satisfaction of the following conditions precedent: (a) the Guarantor and the Required Holders shall have executed this Amendment, (b) the Company shall have executed and delivered the Acknowledgment and Consent in respect of the Note Purchase Agreement and this Amendment in the form attached hereto as Exhibit A, (c) each of the Subsidiary Guarantors shall have executed and delivered the Acknowledgment and Consent in respect of the Subsidiary Guaranty Agreement and this Amendment in the form attached hereto as Exhibit B, (d) a copy of the executed Credit Agreement Amendment shall have been delivered to the Noteholders, (e) the Guarantor and the Company shall have paid a fee to each Noteholder in an amount equal to 0.05% of the principal amount of the Notes held by such Noteholder, and
(f) the Guarantor and the Company shall have paid all reasonable fees and disbursements of Chapman and Cutler LLP which are reflected in statements of such counsel rendered on or prior to the date of this Amendment.
-3-
Section 3.5. Counterparts. This Amendment to Guaranty Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement.
Section 3.6. Governing Law. This Amendment shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.
Remainder of Page Intentionally Left Blank
-4-
IN WITNESS WHEREOF, the Guarantor has executed this First Amendment to Parent Guaranty Agreement as of the day and year first above written.
LIBBEY INC.

By     /s/ Kenneth A. Boerger
   ---------------------------------------------
Name:  Kenneth A. Boerger
Title: Vice President & Treasurer	

-5-
This Amendment is accepted and agreed to as of the day and year first above written.
METROPOLITAN LIFE INSURANCE COMPANY

By     /s/ Timothy L. Powell
   ---------------------------------------------
Name:  Timothy L. Powell
Its    Director	

GENERAL AMERICAN LIFE INSURANCE COMPANY
 By: Metropolitan Life Insurance Company,
as Investment Manager

By     /s/ Timothy L. Powell
   ---------------------------------------------
Name:  Timothy L. Powell
Title  Director	

THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
AIG LIFE INSURANCE COMPANY
SUNAMERICA LIFE INSURANCE COMPANY
By AIG Global Investment Corp., investment
advisor

By     /s/ Gerald F. Herman
   ---------------------------------------------
Name:  Gerald F. Herman
Its    Vice President	

ALL STATE LIFE INSURANCE COMPANY

By     /s/ Jeffrey J. Cannon
   ---------------------------------------------
Name:  Jeffrey J. Cannon

By     /s/ Dorothy E. Even
   ---------------------------------------------
Name:  Dorothy E. Even	

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
C.M. LIFE INSURANCE COMPANY
MASSMUTUAL ASIA LIMITED
By Babson Capital Management LLC as
Investment Advisor

By     /s/ Elisabeth A. Perenick
   ---------------------------------------------
Name:  Elisabeth A. Perenick
Its    Managing Director	

-6-
NATIONWIDE LIFE INSURANCE COMPANY NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY NATIONWIDE MUTUAL FIRE INSURANCE COMPANY

By     /s/ Mark W. Poeppelman
   ---------------------------------------------
Name:  Mark W. Poeppelman
Its --------------------------------------------	

THE CANDA LIFE ASSURANCE COMPANY

By     /s/ Eve Hampton
   ---------------------------------------------
Name:  Eve Hampton
Its    V.P., Investments, U.S. Operations

By     /s/ J.G. Lowery
   ---------------------------------------------
Name:  J.G. Lowery
Its    A.V.P., Investments, U.S. Operations	

-7-
 
NOTEHOLDERS

          NAMES OF NOTEHOLDERS                    SERIES OF NOTES      OUTSTANDING PRINCIPAL AMOUNT
METROPOLITAN LIFE INSURANCE COMPANY                     A-1                     $ 25,000,000
GENERAL AMERICAN LIFE INSURANCE COMPANY                 A-2                     $  4,000,000
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY             A-2                     $  7,000,000
AIG LIFE INSURANCE COMPANY                              A-2                     $  6,000,000
ALLSTATE LIFE INSURANCE COMPANY                         A-2                     $  5,000,000
                                                                                $  5,000,000
                                                                                $  5,000,000
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY             A-2                     $  3,550,000
                                                                                $  2,200,000
                                                                                $  1,250,000
                                                                                $    750,000
                                                                                $    350,000
C.M. LIFE INSURANCE COMPANY                             A-2                     $  1,450,000
MASSMUTUAL ASIA LIMITED                                 A-2                     $    450,000
NATIONWIDE LIFE INSURANCE COMPANY                       A-2                     $  4,000,000
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY           A-2                     $  3,000,000
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY                A-2                     $  2,000,000
THE CANADA LIFE ASSURANCE COMPANY                       A-2                     $  4,000,000
SUNAMERICA LIFE INSURANCE COMPANY                        B                      $  7,000,000
MONUMENTAL LIFE INSURANCE COMPANY                        B                      $ 13,000,000
                                                       TOTAL                    $100,000,000	

SCHEDULE I
 (to First Amendment to Parent Guaranty Agreement)
ACKNOWLEDGMENT AND CONSENT
To the institutional investors named in
Schedule I to the Amendment (as hereinafter described)
This Acknowledgment and Consent (this "Acknowledgment and Consent"), dated as of December 21, 2004, is being delivered by the undersigned, Libbey Glass Inc., a Delaware corporation (the "Company"), in respect of that certain Note Purchase Agreement dated as of March 31, 2003 (the "Note Purchase Agreement") between the Company and the institutional investors party thereto and in connection with the transactions contemplated by the First Amendment to Parent Guaranty Agreement, effective as of even date herewith (the "Amendment"), between Libbey Inc., a Delaware corporation (the "Guarantor"), and the institutional investors party thereto, in respect of the original Parent Guaranty Agreement dated as of March 31, 2003 (the "Amendment") between the Guarantor and the institutional investors party thereto relating to the Note Purchase Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Amendment.
By executing this Acknowledgment and Consent as of the date hereof, the Company:
(i) acknowledges receipt of a copy of, and hereby consents to the terms of, the Amendment;
(ii) ratifies and confirms the Note Purchase Agreement and the Notes thereunder; and
(iii) confirms that the Note Purchase Agreement and the Notes thereunder continue unimpaired and in full force effect.
[Signature Pages for Acknowledgment and Consent Follow]
EXHIBIT A
 (to First Amendment to Parent Guaranty Agreement)
This Acknowledgment and Consent may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures to this Acknowledgment and Consent may be given by facsimile or other electronic transmission, and such signatures shall be fully binding on the party sending the same.
IN WITNESS WHEREOF, the Company has caused this Acknowledgment and Consent to be executed as of the day and year first above written.
LIBBEY GLASS INC.

By     /s/ Kenneth A. Boerger
   ---------------------------------------
Name:  Kenneth A. Boerger
Title: Vice President & Treasurer	

A-2
ACKNOWLEDGMENT AND CONSENT
To the institutional investors named in
Schedule I to the Amendment (as hereinafter described)
This Acknowledgment and Consent (this "Acknowledgment and Consent"), dated as of December 21, 2004, is being delivered by each of the undersigned (each, a "Subsidiary Guarantor"), in respect of that certain Subsidiary Guaranty dated as of March 31, 2003 (the "Subsidiary Guaranty"), given in favor of the institutional investors referred to therein, and in connection with the transactions contemplated by the First Amendment to Parent Guaranty Agreement, effective as of even date herewith (the "Amendment"), between Libbey Inc., a Delaware corporation (the "Guarantor"), and the institutional investors party thereto, in respect of the original Parent Guaranty Agreement dated as of March 31, 2003 (the "Amendment") between the Guarantor and the institutional investors party thereto relating to the original Note Purchase Agreement, dated as of March 31, 2003 between Libbey Glass Inc. and the institutional investors party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Amendment.
By executing this Acknowledgment and Consent as of the date hereof, each Subsidiary Guarantor:
(i) acknowledges receipt of a copy of, and hereby consents to the terms of, the Amendment;
(ii) ratifies and confirms the Subsidiary Guaranty; and
(iii) confirms that the Subsidiary Guaranty continues unimpaired and in full force effect.
[Signature Pages for Acknowledgment and Consent Follow]
EXHIBIT B
 (to First Amendment to Parent Guaranty Agreement)
This Acknowledgment and Consent may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures to this Acknowledgment and Consent may be given by facsimile or other electronic transmission, and such signatures shall be fully binding on the party sending the same.
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused this Acknowledgment and Consent to be executed as of the day and year first above written.
THE DRUMMOND GLASS COMPANY
SYRACUSE CHINA COMPANY
WORLD TABLEWARE INC.
LGA3 CORP.
LGA4 CORP.
LGFS INC.
LGAC LLC
LGC CORP.
TRAEX COMPANY

By     /s/ Kenneth A. Boerger
    ----------------------------------------
Name:  Kenneth A. Boerger
Title: Vice President & Treasurer	

B-2
 
EXHIBIT 10.75
AMENDMENT NO. 1 AND WAIVER TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 AND WAIVER TO CREDIT AGREEMENT (this "Amendment Agreement") is made and entered into as of December 21, 2004, by and among LIBBEY GLASS INC., a Delaware corporation (the "US Borrower"), LIBBEY EUROPE B.V., a company organized and existing under the laws of the Netherlands (the "Dutch Borrower", and together with the US Borrower, the "Borrowers"), EACH LENDER SIGNATORY HERETO, and BANK OF AMERICA, N.A., as the administrative agent for the Lenders (in such capacity, the "Administrative Agent"), Swing Line Lender and an L/C Issuer.
W1TNESSETH:
WHEREAS, the Administrative Agent, the lenders party thereto (collectively, the "Lenders" and individually, a "Lender") and the Borrowers have entered into that certain Credit Agreement dated as of June 24, 2004 (as hereby and from time to time amended, restated, supplemented, modified or replaced, the "Credit Agreement"; capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement), pursuant to which the Lenders have agreed to make and have made available to the Borrowers a revolving credit facility in an aggregate principal amount of $250,000,000; and
WHEREAS, the Borrowers have requested that certain terms of the Credit Agreement be amended in the manner set forth herein, and that certain covenants under the Credit Agreement be waived, and the Administrative Agent and the Lenders, subject to the terms and conditions contained herein, have agreed to such amendment, to be effective as of the date hereof; and
WHEREAS, the Borrowers, the Administrative Agent and the Lenders acknowledge that the terms of this Amendment Agreement constitute an amendment and modification of, and not a novation of, the Credit Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and the fulfillment of the conditions set forth herein, the parties hereby agree as follows:
1. Definitions. The term "Credit Agreement" or "Agreement" (as the case may be) as used herein, in the Credit Agreement and in the other Loan Documents shall mean the Credit Agreement as hereby amended and modified, and as further amended, modified replaced or supplemented from time to time as permitted thereby.
2. Amendments to and Restatements of Terms of the Credit Agreement. Subject to the conditions hereof and upon satisfaction of the terms set forth in
Section 6, the Credit Agreement is hereby amended, effective as of the date hereof, as follows:
(a) THE DEFINITION OF "OFFSHORE CURRENCY SUBLIMIT" IN SECTION 1.01 OF THE CREDIT AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
"Offshore Currency Sublimit" means an amount equal to the lesser of (a) the combined Revolving Loan Commitments and (b) $125,000,000. The Offshore Currency Sublimit is a part of, and not in addition to, the Revolving Loan Commitments.
(b) THE FINANCIAL COVENANT IN SECTION 7.14(A) OF THE CREDIT AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
(a) Leverage Ratio. Permit the Leverage Ratio at any time to be greater than (i) from the Effective Date through and including September 30, 2004, 3.50 to 1.00; (ii) from October 1, 2004 through and including June 29 2005, 3.75 to 1.00; (iii) from June 30, 2005 through and including March 30, 2006, 3.50 to 1.00; and (iv) from March 31, 2006 and continuing thereafter, 3.25 to 1.00.
3. Waiver. Effective as of the date hereof, the Administrative Agent and the Lenders hereby waive, solely in connection with the Acquisition of Crisal-Cristalaria Automatica, S.A., the requirement pursuant to Section 7.02(i)(iii) of the Credit Agreement that the US Borrower provide the Administrative Agent and the Lenders with a certificate at least five days prior to the consummation of such Acquisition evidencing that, after giving effect to such Acquisition, the US Borrower is in compliance with Section 7.14(a) and (b) (as determined on a Pro Forma Basis as of the last day of the preceding fiscal quarter). This waiver shall be a one-time waiver and shall in no way serve to waive any obligations of the Borrowers other than as expressly set forth above.
4. Full Force and Effect of Agreement. Except as hereby specifically amended, modified or supplemented, each Borrower hereby acknowledges and agrees that the Credit Agreement and all of the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms.
5. Representations and Warranties. The US Borrower hereby certifies that after giving effect to this Amendment Agreement:
(a) The representations and warranties of the US Borrower contained in Article V of the Credit Agreement, or which are contained in any document furnished at any time under or in connection with the Credit Agreement, that are qualified by materiality are true and correct on and as of the date hereof, and each of the representations and warranties of the US Borrower contained in Article V of the Credit Agreement, or which are contained in any document furnished at any time under or in connection with the Credit Agreement, that are not qualified by materiality are true and correct in all material respects on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct, or true and correct in all material respects, as the case may be, as of such earlier date;
- 2 -
(b) Each Borrower has the power and authority to execute and perform this Amendment Agreement and has taken all action required for the lawful execution, delivery and performance thereof; and
(c) No Default or Event of Default exists.
6. Conditions to Effectiveness. This Amendment Agreement shall not be effective until the Administrative Agent has received to its reasonable satisfaction each of the following:
(a) four (4) counterparts of this Amendment Agreement executed by the Borrowers, the Administrative Agent and the Required Lenders;
(b) payment of (i) all reasonable out of pocket fees and expenses of counsel to the Administrative Agent incurred in connection with the execution and delivery of this Amendment Agreement to the extent invoiced prior to the date hereof; (ii) an upfront fee to each Lender executing this Amendment by 5:00 p.m. (New York, New York time) on December 17, 2004, such upfront fee for each such Lender's own account, equal to five basis points (5 "bps") multiplied by each such Lender's pro-rata portion of the Commitments immediately prior to the effective date of this Amendment Agreement; and (iii) all other fees agreed to be paid;
(c) an executed copy of an amendment to the US Borrower's note purchase agreement and the related guaranty agreement by Libbey Inc., each dated as of March 31, 2003 and entered into with institutional investors covering the issuance of the US Borrower's senior notes maturing on March 31, 2008, March 31, 2010 and March 31, 2013, in form and substance satisfactory to the Administrative Agent; and
(d) such other documents, instruments and certificates as reasonably requested by the Agent.
Upon the satisfaction of the conditions set forth in this Section 6, the Amendment Agreement shall be effective as of the date hereof.
7. Counterparts. This Amendment Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
8. Governing Law. This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of New York.
9. Enforceability. Should any one or more of the provisions of this Amendment Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto.
10. No Novation. This Amendment Agreement is given as an amendment and modification of, and not as a payment of, the Obligations of each Borrower under the Credit Agreement and is not intended to constitute a novation of the Credit Agreement. All of the
- 3 -
indebtedness, liabilities and obligations owing by each Borrower under the Credit Agreement shall continue.
11. Successors and Assigns. This Amendment Agreement shall be binding upon and inure to the benefit of each of the Borrowers, the Lenders and the Administrative Agent and their respective successors, assigns and legal representatives; provided, however, that the Borrowers, without the prior consent of the Administrative Agent, may not assign any rights, powers, duties or obligations hereunder.
12. Expenses. Without limiting the provisions of Section 10.04 of the Credit Agreement, the Borrowers agree to pay all reasonable out of pocket costs and expenses (including without limitation reasonable legal fees and expenses) incurred before or after the date hereof by the Administrative Agent and its Affiliates in connection with the preparation, negotiation, execution, delivery and administration of this Amendment Agreement.
[SIGNATURE PAGES FOLLOW.]
- 4 -
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 and Waiver to Credit Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written.
BORROWERS:
LIBBEY GLASS INC.

By: /s/ Kenneth A. Boerger
    ------------------------
Name: Kenneth A. Boerger
Title:  Vice President and Treasurer	

LIBBEY EUROPE B.V.

By: /s/ Kenneth G. Wilkes
    ------------------------
Name: Kenneth G. Wilkes
Title: Director

By : ________________________
Name: _______________________
Title: ______________________	

Signature Page
- 1 -
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 and Waiver to Credit Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written.
BORROWERS:
LIBBEY GLASS INC.
By: ___________________________
Name: _________________________
Title: ________________________
LIBBEY EUROPE B.V.
By: ___________________________
Name: _________________________
Title: ________________________

By : /s/ P. T. Buch
     --------------------------
Name: P. T. BUCH
Title: Managing Director	

Signature Page
- 1 -
BANK OF AMERICA, N.A., as Administrative Agent

By: /s/ Cayce McCain
    ----------------
Name: Cayce McCain
Title: Assistant Vice President	

Signature Page
- 2 -
BANK OF AMERICA, N.A., as a Lender, Swing Line Lender and an L/C Issuer

By: /s/ Thomas R. Durham
    --------------------
Name: Thomas R. Durham
Title: Senior Vice President	

Signature Page
- 3 -
THE BANK OF NEW YORK, as a Lender

By: /s/ Kenneth R. McDonnell
    ------------------------
Name: Kenneth R. McDonnell
Title: Vice President.	

Signature Page
- 4 -
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH, AS A LENDER

By: /s/ Shinichiro Munechika
    ------------------------
Name: Shinichiro Munechika
Title: Deputy General Manager	

Signature Page
- 5 -
PNC BANK NATIONAL ASSOCIATION, as a
Lender

By: /s/ Louis K. McLinden
    ---------------------
Name: Louis K. McLinden
Title: Vice President	

Signature Page
- 6 -
THE BANK OF NOVA SCOTIA, as a Lender

By:   /s/ N. Bell
      -----------------------
Name:  N. BELL.
Title: Senior Manager	

Signature Page
- 7 -
CITIZENS BANK OF PENNSYLVANIA, as a
Lender

By: /s/ Clifford A. Mull
    --------------------
Name: Clifford A. Mull
Title: Vice President	

Signature Page
- 8 -
CREDIT INDUSTRIEL ET COMMERCIAL, as
a Lender

By: /s/ Eric Dulot
    --------------
Name: Eric Dulot
Title: Vice President

BY: /s/ Albert M. Calo
    ------------------
Name: Albert M. Calo
Title: Vice President	

Signature Page
- 9 -
CALYON NEW YORK BRANCH, as a Lender

By: /s/ LEE E. Greve
    ----------------
Name: LEE E. GREVE
TITLE: MANAGING DIRECTOR

By: /s/ Joseph A. Philbin
    ---------------------
Name: JOSEPH A. PHILBIN
Title: Director	

Signature Page
- 10 -
FIFTH THIRD BANK, as a Lender

By: /s/ Michael R. Miller
    ---------------------
Name: Michael R. Miller
Title: Executive Vice President	

Signature Page
- 11 -
JPMORGAN CHASE BANK, as a Lender

By: /s/ Steven P. Sullivan
    ----------------------
Name: Steven P. Sullivan
Title: Director	

Signature Page
- 12 -
NATIONAL CITY BANK, as a Lender

By: /s/ Thomas E. Redmond
    ---------------------
Name: Thomas E. Redmond
Title: Senior Vice President	

Signature Page
- 13 -
THE NORTHERN TRUST COMPANY, as a
Lender

By: /s/ Ashish S. Bhagwat
    ---------------------
Name: Ashish S. Bhagwat
Title: Vice-President	

Signature Page
- 14 -
STANDARD FEDERAL BANK N.A., as a
Lender

By: /s/ Chris Thomson
    -----------------
Name: Chris Thomson
Title: V.P.	

Signature Page
- 15 -
 
EXHIBIT 10.76
STOCK PROMISSORY SALE AND PURCHASE AGREEMENT
between
VAA - VISTA ALEGRE ATLANTIS SGPS, SA
and
LIBBEY EUROPE B.V.
DATED AS OF JANUARY 10, 2005
TABLE OF CONTENTS

                                                                                                PAGE
PREAMBLE; RECITALS.............................................................................   1

ARTICLE 1 SALE AND PURCHASE OF SHARES..........................................................   1

1.1.        Sale and Purchase..................................................................   1

1.2.        Purchase Price.....................................................................   2

1.3.        Earn-out Payment...................................................................   3

1.4.        Post-Closing Adjustment............................................................   6

1.5.        Payments...........................................................................   7

ARTICLE 2 CLOSING..............................................................................   7

2.1.        Date and Place of Closing..........................................................   7

2.2.        Closing Transactions and Deliveries................................................   8

2.3.        Endorsement of Share Certificates..................................................   8

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................   9

3.1.        Organization; Authority; Execution.................................................   9

3.2.        Consents...........................................................................   9

3.3.        Effect of the Transaction..........................................................   9

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLER.........................................   9

4.1.        Organization; Authority; Execution.................................................   9

4.2.        Capital............................................................................  10

4.3.        Ownership of the Shares............................................................  11

4.4.        Consents...........................................................................  11

4.5.        Effect of the Transaction..........................................................  11

4.6.        Compliance with Law................................................................  12

4.7.        Accounting and Financial Documents.................................................  12

4.8.        Conduct of Business................................................................  13

4.9.        Sufficiency of Information Technology; Services....................................  14

4.10.       Real Property......................................................................  15

4.11.       Movable Property and Business......................................................  15

4.12.       Intellectual Property Rights.......................................................  15

4.13.       Receivables........................................................................  16

4.14.       Inventory..........................................................................  16

4.15.       Contracts..........................................................................  16

4.16.       Bonus Programs.....................................................................  18

4.17.       Subsidies..........................................................................  18	

i
TABLE OF CONTENTS
 (continued)

                                                                                                Page
4.18.       Insurance..........................................................................  18

4.19.       Employment Matters.................................................................  18

4.20.       Pension and Other Employee Benefit Matters.........................................  20

4.21.       Tax; Social Security; Customs......................................................  21

4.22.       Environment........................................................................  22

4.23.       Litigation and Proceedings.........................................................  22

4.24.       Product Liability..................................................................  23

4.25.       Bank Accounts and Signature Powers.................................................  23

4.26.       Intermediaries.....................................................................  23

4.27.       Customer-owned Molds...............................................................  23

4.28.       Completeness of Representations and Warranties.....................................  23

ARTICLE 5 COVENANTS OF THE PURCHASER...........................................................  23

5.1.        Best Efforts Undertaking...........................................................  23

5.2.        Confidentiality....................................................................  24

5.3.        Restricted Actions; Board of Directors.............................................  24

5.4.        Board Member.......................................................................  24

ARTICLE 6 COVENANTS OF THE SELLER..............................................................  25

6.1.        Best Efforts Undertaking...........................................................  25

6.2.        Confidentiality and Exclusivity....................................................  25

6.3.        Management of the Company..........................................................  25

6.4.        Non-competition and Non-solicitation...............................................  25

6.5.        Employee Notification..............................................................  26

6.6.        Access and Information.............................................................  26

6.7.        Cancellation of Related-Party Contracts and Satisfaction of Debts..................  26

6.8.        Waivers............................................................................  27

6.9.        Assistance with Regard to Relationships............................................  27

6.10.       Further Agreements.................................................................  27

6.11.       Transfer Pricing File..............................................................  27

6.12.       Remaining Shares...................................................................  27

6.13.       Intellectual Property..............................................................  28

6.14.       Governmental Authorities...........................................................  28

6.15.       Government Incentive Contract......................................................  28

6.16.       Satisfaction of Indebtedness.......................................................  28	

ii
TABLE OF CONTENTS
 (continued)

                                                                                                 Page
6.17         Receipts of Payment................................................................  28

ARTICLE 7  INDEMNIFICATION......................................................................  28

7.1.         Indemnification by the Seller......................................................  28

7.2.         Indemnification by the Purchaser...................................................  29

7.3.         Environmental Matters..............................................................  29

7.4.         Notification and Payment of Claims.................................................  30

7.5.         Third Party Claims.................................................................  30

7.6.         Determination of the Indemnification Amount........................................  31

7.7.         Threshold..........................................................................  32

7.8.         Deductible.........................................................................  32

7.9.         Maximum Amount.....................................................................  32

7.10.        Exceptions to Limitations on Indemnification.......................................  32

7.11.        Interest...........................................................................  33

7.12.        Deadlines for Claims...............................................................  33

7.13.        Release............................................................................  33

7.14.        Duty to Mitigate...................................................................  33

ARTICLE 8  FURTHER AGREEMENTS...................................................................  33

8.1.         Merger Notification................................................................  33

8.2.         Employee Issues....................................................................  33

8.3.         Outlet Stores......................................................................  34

8.4.         Historical Data on BAAN............................................................  34

8.5.         Supply of Non-Soda Lime Glassware and Ceramic Products.............................  34

8.6.         IVIMA Warehouse....................................................................  34

8.7.         Cancellation and Replacement of Guarantees.........................................  34

8.8.         Government Incentive Contract......................................................  35

8.9          Payments for Furnace Repairs.......................................................  36

ARTICLE 9  CONDITIONS TO CLOSING; TERMINATION...................................................  36

9.1.         Conditions to Each Party's Obligations.............................................  36

9.2.         Conditions to the Purchaser's Obligations..........................................  37

9.3.         Conditions to the Seller's Obligations.............................................  37

9.4.         Termination........................................................................  38

ARTICLE 10 MISCELLANEOUS........................................................................  38

10.1.        Arbitration........................................................................  38	

iii
TABLE OF CONTENTS
 (continued)

                                                                                                 Page
10.2.        Language...........................................................................  38

10.3.        Waiver; Enforcement................................................................  38

10.4.        Right to Set-off...................................................................  38

ARTICLE 11 INTERPRETATION; DEFINITIONS..........................................................  38

11.1.        Headings...........................................................................  38

11.2.        Definitions........................................................................  39

ARTICLE 12 GENERAL PROVISIONS...................................................................  45

12.1.        Cooperation........................................................................  45

12.2.        Announcements......................................................................  45

12.3.        Assignment.........................................................................  46

12.4.        Third Party Beneficiaries..........................................................  46

12.5.        Entire Agreement...................................................................  46

12.6.        Severability.......................................................................  46

12.7.        Notices and Communications.........................................................  46

12.8.        Costs..............................................................................  47

12.9.        No Waiver..........................................................................  47

12.10.       Specific Performance...............................................................  47

12.11.       Governing Law......................................................................  47	

iv
 
TABLE OF ANNEXES

Annex 1.2(d)          Form of Remaining Shares Escrow Agreement
Annex 1.3(b)          Net Sales and EBITDA Calculation Principles
Annex 2.2(a)(ii)      Form of Resignation Letters
Annex 2.2(a)(iv)      Form of Transfer Letter for Original Shares
Annex 2.2(c)          Form of Guarantee Letter*
Annex 2.2(e)          Form of Transfer Letter for Remaining Shares
Annex 4.1(a)          Extracts from Trade Register and Organizational Documents
Annex 4.4             Seller Consents
Annex 4.7(a)          2003 Financial Statements
Annex 4.7(b)          2004 Financial Statements
Annex 4.7(e)          Amounts Outstanding under Government Incentive Contract
Annex 4.8(a)          Conduct of Business Exceptions (January 1, 2004)
Annex 4.8(b)          Conduct of Business Exceptions (October 1, 2004)
Annex 4.9             Services by Seller and its Affiliates
Annex 4.10(a)         Real Property Ownership
Annex 4.10(b)         Real Property Leases
Annex 4.11(a)         Assets Used but not Owned or Leased
Annex 4.11(c)         Assets Used by Printglass
Annex 4.12(a)         Intellectual Property Ownership
Annex 4.12(b)         Intellectual Property Licenses
Annex 4.14            Inventory
Annex 4.15            Material Contracts
Annex 4.16            Bonus Programs
Annex 4.17            Subsidies
Annex 4.18            Insurance Claims
Annex 4.19(b)         Collective Agreements and Benefits
Annex 4.19(c)         Employees
Annex 4.19(d)         Temporary and Term Employment Agreements
Annex 4.19(e)         Increased Payments to Employees
Annex 4.20(a)         Pension and Other Benefit Commitments
Annex 4.20(b)         Pension Plan
Annex 4.20(c)         Actuarial Report
Annex 4.20(d)         Authorization of New Plan
Annex 4.21(e)         Tax and Social Receivables
Annex 4.23            Litigation
Annex 4.25            Accounts and Signatories
Annex 4.27            Customer-owned Molds
Annex 8.2             Employees Subject to Transfer
Annex 8.3             Outlet Store Employees	

*Only Annex 2.2(c) is attached. All other annexes have been omitted intentionally. The registrant shall furnish a supplementary copy of each such other annex to the Commission upon its request.
STOCK PROMISSORY SALE AND PURCHASE AGREEMENT
This Stock Promissory Sale and Purchase Agreement, dated as of January 10, 2005 (this "AGREEMENT"), is between VAA - Vista Alegre Atlantis SGPS, SA, incorporated and organized under the laws of Portugal with its registered office at Largo Barao de Quintela, 3-1(degree), 1200-046 Lisbon, Portugal, registered in the Commercial Registry of Lisboa under number 466 (the "SELLER"), and Libbey Europe B.V., a limited liability company (besloten vennootschap met beperkte aansprakelijkheid) organized under the laws of the Netherlands and having its principal place of business at Lingedijk 8, 4142 LD Leerdam, The Netherlands or, if the Purchaser notifies the Seller in writing at least five (5) days prior to the Closing Date, an Affiliate of the Purchaser (the "PURCHASER"). The Seller and the Purchaser are referred to herein collectively as the "Parties" and individually as a "PARTY."
RECITALS
A. The Seller is the owner of all of the shares representing one hundred percent (100%) of the entire issued and outstanding interest of Crisal-Cristalaria Automatica, S.A., (the "SHARES"), a company incorporated and organized under the laws of Portugal with its registered office at Lugar de Casal de Areia, Freguesia de Cos, Concelho de Alcobaca, Portugal, with share capital of thirteen million five hundred thousand euro ((euro) 13,500,000) registered in the Commercial Registry of Alcobaca under number 3086, tax number 505 210 150 (the "COMPANY").
B. The Seller wishes to sell and transfer, and the Purchaser wishes to purchase, the Shares, on the terms and subject to the conditions set forth hereunder.
The Parties have therefore agreed as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1. Sale and Purchase.
(a) Subject to the terms and conditions of this Agreement, the Seller hereby promises to sell and transfer to the Purchaser and the Purchaser hereby promises to purchase from the Seller, the Shares, in accordance with the following schedule:
(i) On the Closing Date, the Seller shall sell and transfer and the Purchaser shall purchase ninety-five percent (95%) of the Shares (the "ORIGINAL SHARES").
(ii) The Seller shall sell and transfer to the Purchaser and the Purchaser shall purchase from the Seller the remaining five percent (5%) of the Shares (or, if the Company is transformed from an S.A. into another type of legal entity after the Closing Date, such other right or title representing the remaining five percent (5%) ownership in the Company), including all rights attached thereto (the "REMAINING SHARES"), on the earlier of (a) a date to be determined at the sole discretion of the Purchaser and set forth in a written notice sent to the Seller, but which shall not be earlier than seven (7) Business Days as
from such written notice, or (b) seven (7) days after the date on which the Contingency Payment Statement for the Initial Earn-out Calculation Period becomes final (the "REMAINING SHARES PURCHASE DATE").
(b) The Original Shares and the Remaining Shares shall be sold free and clear of all Encumbrances, together with all rights attaching thereto. The representations and warranties set forth in Sections 4.1(b), 4.1(c), 4.3(a), 4.3(b) and 4.4 of this Agreement shall be deemed to have been restated by the Seller as of the effective date of sale of the Remaining Shares, as if such representations and warranties were made as of such date; provided, however, that for purposes of this
Section 1.1(b) only, "Shares" as used in Sections 4.1(b), 4.1(c), 4.3(a), 4.3(b) and 4.4 shall be deemed to mean "Remaining Shares" and the Seller shall make no representations and warranties concerning the Company.
1.2. Purchase Price.
(a) The consideration to be paid by the Purchaser to the Seller shall consist of
(i) a payment equal to twenty-seven million five hundred thousand euro ((euro) 27,500,000) (the "INITIAL PAYMENT"), minus (a) the amount of the principal balance of any reimbursable loans (incentivos reembolsaveis), plus any accrued and unpaid interest and fees or penalties, specified on the Government Incentive Contract Statement required under Section 1.2(b)(i),
(b) the amount (if any) specified on the Indebtedness Statement required under Section 1.2(b)(ii), and (c) two hundred fifty thousand euro ((euro) 250,000); plus
(ii) an additional payment to be determined in accordance with
Section 1.2(c), to be paid on the Remaining Shares Purchase Date; plus
(iii) a contingent payment as described in Section 1.3 below.
(b) Four (4) Business Days before the Closing Date, the Seller shall provide the Purchaser with the following:
(i) a statement setting forth (a) the amount of principal balance of any reimbursable loans (incentivos reembolsaveis), plus accrued and unpaid interest and fees or penalties, in each case as may be outstanding under the Government Incentive Contract as of the Closing Date, and (b) the amount of funds earned or received under the Government Incentive Contract that the Seller (or the Company) has characterized as non-reimbursable loans (incentivos nao reembolsaveis) as of the Closing Date (the "GOVERNMENT INCENTIVE CONTRACT
STATEMENT"); and
(ii) a written notice specifying the amount of Indebtedness including any accrued and unpaid interest (other than amounts under Section 1.2(a)(i)(a)) that will remain outstanding on the Closing Date and detailing the amounts of any additional borrowings or payments made
2
between the date of the last monthly report provided to the Purchaser pursuant to Section 6.6 and the Closing Date (the "INDEBTEDNESS Statement");
provided, however, that if the Closing Date will occur fewer than four (4) Business Days after all of the conditions in Article 9 are fulfilled, the Seller shall provide such documents at such time as reasonably agreed by the Seller and the Purchaser.
(c) On the Remaining Shares Purchase Date, the Purchaser shall pay to the Seller either a "PERFORMANCE PAYMENT" equal to two million euros
((euro) 2,000,000) (reduced by the sum of any amounts due on the Remaining Shares Purchase Date by the Seller to the Company pursuant to Sections 8.8(a) and (c)), or a "DEFERRED PAYMENT" equal to one euro ((euro) 1) (reduced by the sum of any amounts due on the Remaining Shares Purchase Date by the Seller to the Company pursuant to Sections 8.8(a) and (c)), as follows:
(i) If the Remaining Shares Purchase Date is not prior to the third (3rd) anniversary of the Closing Date, the Purchaser shall pay an amount equal to (a) the Performance Payment if the cumulative EBITDA of the Company for any eight (8) calendar quarters between the Closing Date and the third (3rd) anniversary of the Closing Date equals or exceeds ten million euro ((euro) 10,000,000), or (b) the Deferred Payment if the cumulative EBITDA of the Company does not equal or exceed ten million euro ((euro) 10,000,000) for any eight (8) calendar quarters during such period; and
(ii) If the Remaining Shares Purchase Date is on or prior to the third (3rd) anniversary of the Closing Date, the Purchaser shall pay an amount equal to the Performance Payment.
(d) On the Closing Date, the Parties shall execute and deliver, together with the Escrow Agent, an escrow agreement (the "REMAINING SHARES ESCROW AGREEMENT") in the form attached hereto as ANNEX 1.2(D). In accordance with the Remaining Shares Escrow Agreement and Section 2.2(e), the Seller shall, on the Closing Date, deposit the Remaining Shares and the letter referred to in Section 2.2(e)(ii) with the Escrow Agent in accordance with the Remaining Shares Escrow Agreement. Such documents will be released in accordance with the Remaining Shares Escrow Agreement and Section 2.2(e)(ii).
1.3. Earn-out Payment.
(a) The Purchaser shall pay to the Seller an earn-out payment (the "EARN-OUT PAYMENT"), subject to the following:
(i) The Purchaser shall pay an Earn-out Payment of five million five hundred thousand euro ((euro)5,500,000) if
a. for the thirty-six (36) month period beginning on the EBITDA Start Date (the "INITIAL EARN-OUT CALCULATION
PERIOD"), (i) the
3
Company's cumulative EBITDA equals or exceeds eighteen million euro ((euro) 18,000,000), and (ii) the value of the Company's cumulative Net Sales averages thirty million euro ((euro) 30,000,000) or more per annum during such Initial Earn-out Calculation Period; or
b. for the last twelve (12) months of the Initial Earn-out Calculation Period, (i) the Company's cumulative EBITDA equals or exceeds six million euro ((euro) 6,000,000), and (ii) the value of the Company's cumulative Net Sales equals or exceeds thirty million euro ((euro) 30,000,000).
(ii) If the conditions in neither Section 1.3(a)(i)(a) nor Section 1.3(a)(i)(b) are satisfied, the following provisions will apply:
a. The Purchaser shall pay an Earn-out Payment of five million five hundred thousand euro ((euro) 5,500,000) plus interest if, during any period of four (4) consecutive calendar quarters during the sixty (60) month period beginning on the day after the last day of the Initial Earn-out Calculation Period, (i) the Company's cumulative EBITDA equals or exceeds six million euro ((euro) 6,000,000), and (ii) the value of the Company's cumulative Net Sales equals or exceeds thirty million euro ((euro) 30,000,000). The "EXTENDED EARN-OUT CALCULATION PERIOD" shall mean the period beginning on the day after the last day of the Initial Earn-out Calculation Period and ending on the earlier of
(x) the last day of such sixty (60) month period and (y) the last day of the first four (4) consecutive calendar quarter period in which the conditions in this Section 1.3(a)(ii)(a) are satisfied.
b. Interest due pursuant to Section 1.3(a)(ii)(a) shall accrue at a rate per annum equal to EURIBOR for three
(3) month interbank loans plus two and a half percent (2.5%) per annum and shall be compounded. Interest shall be calculated on the basis of a three hundred sixty-five
(365) day year and the actual number of days elapsed, shall begin accruing on the first day of the Extended Earn-out Calculation Period and shall cease accruing on the last day of the Extended Earn-out Calculation Period.
(iii) If the Seller is not entitled to an Earn-out Payment pursuant to Sections 1.3(a)(i)(a), 1.3(a)(i)(b) or 1.3(a)(ii)(a), the Purchaser shall not owe the Seller an Earn-out Payment. For the avoidance of doubt, the Seller shall in no event be entitled to more than one Earn-out Payment.
(iv) The "EBITDA START DATE" shall mean January 1, 2005.
(b) Calculations of Net Sales and EBITDA pursuant to this Section 1.3 shall be made on a Consistent Basis in accordance with the principles in ANNEX 1.3(B), which sets forth a detailed calculation of the Company's Net Sales and
4
EBITDA for 2003 and a detailed reconciliation of the Company's EBIT for 2003 to Portuguese GAAP.
(c) The Purchaser shall calculate Net Sales and EBITDA for the first and second twelve (12) month periods during the Initial Earn-out Calculation Period, and shall send to the Seller, within sixty (60) days following the end of the first twelve (12) month period and second twelve (12) month period, respectively, a statement setting forth the Net Sales and EBITDA. The Seller may notify the Purchaser of any disagreements it has with such calculations; provided, however, that the Seller shall only have the right to dispute the calculations relating to the first and second twelve (12) month periods at the end of the Initial Earn-out Calculation Period in accordance with Section 1.3(d). Any exercise of, or failure to exercise, such notice rights by the Seller shall not constitute a waiver of any rights or claims the Seller has under Section 1.3(d).
(d) The Purchaser shall calculate Net Sales and EBITDA for the applicable periods and shall send to the Seller, within sixty (60) days following the end of the Initial Earn-out Calculation Period and, if applicable, commencing with the fourth (4th) calendar quarter, at the end of each calendar quarter during the Extended Earn-out Calculation Period, a statement (a "CONTINGENCY PAYMENT STATEMENT") setting forth the Net Sales and EBITDA and stating the amount to be paid for the Remaining Shares pursuant to Section 1.2(c), if applicable, and stating whether the Earn-Out Payment is payable to the Seller and, if applicable, the amount of interest due. The Contingency Payment Statement shall become final and binding upon the Parties thirty (30) days after the Seller's receipt of the Contingency Payment Statement, unless the Seller gives written notice to the Purchaser before such date of its disagreement with the Contingency Payment Statement (a "SELLER'S CONTINGENCY PAYMENT OBJECTION"). Any Seller's Contingency Payment Objection shall specify in reasonable detail the nature of any disagreement with the Contingency Payment Statement. During the thirty (30) days following the Purchaser's receipt of a Seller's Contingency Payment Objection, the Parties shall attempt to resolve in writing any differences that they may have concerning any matters set out in the Seller's Contingency Payment Objection. If, at the end of such thirty (30) day period, the Parties have not reached written agreement on all such matters, then either Party may refer the remaining differences by written notice to the Independent Accountant. If such a referral is not made by either Party within forty-five (45) days following the Purchaser's receipt of a Seller's Contingency Payment Objection, the Contingency Payment Statement will become final and binding on the Parties. If such a referral is made, the Independent Accountant shall resolve the matters set forth in the Seller's Contingency Payment Objection on which the Parties have not agreed, as set out in the written notice to it. The Independent Accountant shall give the Parties the opportunity to set forth in writing their positions regarding the matters in dispute and shall deliver its written determination of such matters to the Parties as soon as reasonably possible after being notified of the dispute. The Independent Accountant's determination shall be conclusive and binding upon the Parties. The fees and disbursements of the Independent Accountant shall be borne equally by the Purchaser and the Seller. The Purchaser shall make readily
5
available to the Seller, and the Parties shall make readily available to the Independent Accountant, all relevant books and records and any work papers relating to the Contingency Payment Statement. Upon resolution of all disputed matters, the Independent Accountant shall cause to be prepared and shall deliver to the Parties the Contingency Payment Statement, reflecting the resolution of such disputed matters, which shall then be final and binding on the Parties, absent manifest error.
(e) If an Earn-out Payment is due, such payment shall be paid by the Purchaser to the Seller within seven (7) days following the date on which the Contingency Payment Statement for the relevant calculation period has become final.
(f) Without prejudice to Section 5.3(b) of this Agreement, the Seller's sole remedy in connection with any claim by the Seller that its contingent payment interests in the Earn-out Payment have been adversely affected as a result of the management of the Company's business after Closing shall be, in the event that an Earn-out Payment is not made during the Initial Earn-out Calculation Period, the possibility of an Earn-out Payment in relation to the Extended Earn-out Calculation Period in accordance with this Section 1.3.
1.4. Post-Closing Adjustment.
(a) As soon as possible after the Closing, but in any event within sixty
(60) days thereafter, the Purchaser shall at its expense prepare or cause to be prepared, and deliver to the Seller an audited balance sheet of the Company as of the Closing Date, in accordance with Portuguese GAAP, Applied on a Consistent Basis (the "CLOSING STATEMENT"), which will include information for determining the Closing Indebtedness and Closing Cash. In preparing such Closing Statement, the Purchaser shall cause the newly appointed Company's auditors to consult with the former auditors of the Company, and the Seller shall be liable for the expenses of the former auditors.
(b) The Closing Statement shall become final and binding upon the Parties thirty (30) days after the Seller's receipt of the Closing Statement, unless the Seller gives written notice to the Purchaser before such date of its disagreement with the Closing Statement (a "SELLER'S CLOSING STATEMENT OBJECTION"). Any Seller's Closing Statement Objection shall specify in reasonable detail the nature of any disagreement with the Closing Statement. During the fifteen (15) days following the Purchaser's receipt of a Seller's Closing Statement Objection, the Parties shall attempt to resolve in writing any differences that they may have concerning any matters set out in the Seller's Closing Statement Objection. If, at the end of such fifteen (15) day period, the Parties have not reached written agreement on all such matters, then either Party may refer the remaining differences by written notice to the Independent Accountant. If such a referral is not made by either Party within thirty (30) days following the Purchaser's receipt of a Seller's Closing Statement Objection, the Closing Statement will become final and binding on the Parties. If such a referral is made, the Independent Accountant shall resolve the matters set forth in the Seller's Closing Statement Objection on which the Parties have not agreed, as set out in the written notice to it. The Independent Accountant shall give the Parties the opportunity to set forth in writing their positions regarding the matters in dispute and shall deliver its written
6
determination of such matters to the Parties as soon as reasonably possible after being notified of the dispute. The Independent Accountant's determination shall be conclusive and binding upon the Parties. The fees and disbursements of the Independent Accountant shall be borne equally by the Purchaser and the Seller. The Purchaser shall make readily available to the Seller, and the Parties shall make readily available to the Independent Accountant, all relevant books and records and any work papers relating to the Closing Statement. Upon resolution of all disputed matters, the Independent Accountant shall cause to be prepared and shall deliver to the Parties the Closing Statement, reflecting the resolution of such disputed matters, which shall then be final and binding on the Parties, absent manifest error.
(c) If the Closing Indebtedness, less the amount of any outstanding reimbursable amounts (including any accrued and unpaid interest and fees or penalties) under the Government Incentive Contract and the amount of any other Indebtedness that, in each case, have been deducted in accordance with Section 1.2(a)(i), is greater than the Closing Cash, the Seller shall pay such difference to the Purchaser as a post-Closing Purchase Price adjustment. If the Closing Cash is greater than the Closing Indebtedness, less the amount of any outstanding reimbursable amounts under the Government Incentive Contract (including any accrued and unpaid interest and fees or penalties) and the amount of any other Indebtedness that, in each case, have been deducted in accordance with Section 1.2(a)(i), the Purchaser shall pay such difference to the Seller as a post-Closing Purchase Price adjustment.
(d) Payments due under this Section 1.4 shall be made within five (5) days after the Closing Statement becomes final and binding on the Parties and shall bear interest at a rate per annum equal to EURIBOR for three (3) month interbank loans plus two and a half percent
(2.5%) calculated on the basis of a three hundred sixty-five (365) day year and the actual number of days elapsed, from the Closing Date until the date of effective payment.
1.5. Payments. All payments to be made pursuant to this Agreement shall be made in euros, for same day value, by certified bankers check or by wire transfer to the bank account notified in writing by the Seller to the Purchaser, or by the Purchaser to the Seller, as applicable, no later than four (4) Business Days before the date of payment.
ARTICLE 2
CLOSING
2.1. Date and Place of Closing. Subject to Section 9.4 of this Agreement, the closing of the sale and purchase of the Original Shares (the "CLOSING") shall take place, at the option of the Purchaser, (i) within five (5) Business Days of the fulfillment or waiver of the last of the conditions set out in Article 9, (ii) on the last Business Day of the month in which the last of the conditions set out in Article 9 has been fulfilled or waived, or (iii) within the first three (3) Business Days of the month following the month in which the last of the conditions set out in Article 9 has been fulfilled or waived, at the offices of Goncalves Pereira, Castelo Branco & Associados, PC. Marques de Pombal, 1-8(degree), 1250-160, Lisbon, Portugal, provided that all the conditions set out in Article 9 remain satisfied or waived on that date. The Closing shall take place at a time to be set by agreement among the Parties, or failing such
7
agreement, at 10.00 a.m. The date on which the Closing takes place is referred to herein as the "CLOSING DATE."
2.2. Closing Transactions and Deliveries. On the Closing Date:
(a) The Seller shall deliver to the Purchaser:
(i) all corporate documents relating to the Company that are not in the Company's possession (if any);
(ii) the written resignations of members of the corporate bodies of the Company as required by the Purchaser in the form attached as ANNEX 2.2(A)(II);
(iii) copies of resolutions of the Seller's Board of Directors approving the Transaction; and
(iv) the original of the Seller letter to the Company requesting the transfer of the Original Shares in the form attached as ANNEX 2.2(A)(IV).
(b) The Seller shall deliver to the Purchaser the share certificates representing the Original Shares duly endorsed in favor of the Purchaser.
(c) The Purchaser shall deliver a letter from Libbey Inc. guaranteeing the payment to the Seller of the Earn-out Payment, if and when it becomes due, in the form attached as ANNEX 2.2(C).
(d) The Purchaser shall pay to the Seller the Initial Payment in accordance with Section 1.2(a)(i).
(e) With regard to the Remaining Shares, the Seller shall deliver to the Escrow Agent:
(i) the respective share certificates with the endorsement in blank; and
(ii) a letter from the Seller to the Company requesting the transfer of the Remaining Shares, in the form attached as ANNEX 2.2(E).
2.3. Endorsement of Share Certificates. On the Remaining Shares Purchase Date and upon the payment of the Performance Payment or the Deferred Payment, as applicable, by the Purchaser to the Escrow Agent for the benefit of the Seller, the Escrow Agent will (x) fill in and complete the endorsement in the share certificates of the Remaining Shares referred to in Section 2.2(e)(i) above with the identity of the Purchaser, (y) deliver to the Purchaser such certificates and to the Company the letter referred to in
Section 2.2(e)(ii) above, upon releasing to the Seller the Performance Payment or the Deferred Payment, as applicable; provided that, in the event that the Company is transformed from an S.A. into another type of legal entity after the Closing Date, with respect to the formalities contemplated under (x) and (y) above, the Parties and the Escrow Agent shall comply with such other formalities as are required under Portuguese law in order to transfer the ownership interest held by the Seller in the Company to the Purchaser, and the Seller shall cooperate with the Purchaser in entering into such new arrangements with the Escrow Agent, including
8
depositing any necessary documentation into the Remaining Shares Escrow Agreement, necessary to realize the objectives of this Section 2.3.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants that the following statements are true and correct as of the date hereof and will be true and correct as of the Closing Date, unless otherwise stated:
3.1. Organization; Authority; Execution.
(a) The Purchaser is a corporation duly organized and validly existing under the Laws of its jurisdiction of incorporation, and has the corporate power and authority to conduct its business as currently conducted.
(b) The Purchaser has the power and authority to enter into this Agreement and to carry out its obligations hereunder. The Purchaser has duly authorized the execution of this Agreement and the consummation of the Transaction, and no other corporate action on the part of the Purchaser is necessary to authorize the execution by it of this Agreement or the consummation of the Transaction.
(c) This Agreement has been duly executed by the Purchaser and constitutes a legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms.
3.2. Consents. Except for the Merger Notification, the Purchaser is not required to obtain any Consents from third parties in connection with the execution or enforceability of this Agreement or the consummation of any of the Transactions.
3.3. Effect of the Transaction. The execution of this Agreement by the Purchaser, its performance of its obligations hereunder, and the consummation by it of the Transaction does not give rise to any conflict with, or violation or breach of, any provision of its organizational documents (including its by-laws), or of any applicable Law.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants that the following statements, taking into account any exceptions, disclosures, limitations and qualifications with regard to each such statement in the Annexes to this Article 4, are true and correct as of the date hereof and will be true and correct as of the Closing Date:
4.1. Organization; Authority; Execution.
(a) The Company is a corporation duly organized, validly existing and, where applicable, in good standing under the Laws of its jurisdiction of incorporation; the Company has the corporate power and authority to own, lease and operate the assets held or used by it. The Company is duly registered with the Commercial Registry of Alcobaca under number 3086, and the information contained in such trade register as reflected in extracts from
9
such trade register dated January 6, 2005, copies of which are attached in ANNEX 4.1(a), is correct and complete. A copy of the current organizational documents of the Company is attached hereto in ANNEX 4.1(a).
(b) The Seller has the power and authority to enter into this Agreement and to carry out its obligations hereunder. The Seller has duly authorized the execution of this Agreement and the consummation of the Transaction, and no other corporate action on the part of the Seller is necessary to authorize the execution by it of this Agreement or the consummation of the transactions contemplated herein.
(c) This Agreement has been duly executed by the Seller, and constitutes a legal, valid and binding obligation of the Seller, enforceable against it in accordance with its terms.
(d) Neither the Seller nor the Company is the subject of any current, pending or to the Seller's best knowledge threatened Proceeding under any bankruptcy, insolvency, moratorium on payments, judicial composition, dissolution, liquidation or any other debtor relief or similar Laws, and no circumstances exist that would form the basis for the initiation of any such Proceeding.
(e) There has been no proposal made or resolution adopted by any competent corporate body of either of the Seller or the Company for the dissolution, liquidation, merger or split-up of either of them, and no circumstances exist that would form the basis for the mandatory dissolution or liquidation of either of them.
(f) The minute books or similar records of the Company (or, to the extent that separate minute books or similar records have not been kept for the Company, the documents referred to in Section 4.1(g)) contain an accurate record of all meetings and other corporate action of the Company's stockholders, Board of Directors or other governing bodies, and any committees thereof. All of the registers, account books and corporate documents of the Company (or, to the extent that separate minute books or similar records have not been kept for the Company, the documents referred to in Section 4.1(g)) have been and continue to be regularly maintained, and give a true and accurate account of the activities of the Company as required by Law in all material respects.
(g) The Seller has delivered to the Company, or the Company is otherwise in possession of all corporate documents of the Company, including all documents that the Company is required to keep or maintain by Law.
4.2. Capital. The Seller owns all of the Shares in the Company. All of the Shares have been validly issued and are fully paid up and, where applicable, non-assessable. Except for the Shares, the Company has not issued or cooperated with the issue of any shares or other securities (including warrants) or depositary receipts of shares ("titulos definitivos ou provisorios ou quaisquer outros tipos de valores mobiliarios"). There are no options, warrants or other agreements or undertakings pursuant to which the Company is or could be bound to issue any shares or other securities (including warrants). No securities issued by the Company are listed on any stock exchange or unregulated market.
10
4.3. Ownership of the Shares.
(a) The Seller is the unconditional legal and beneficial owner and the holder of record of the Shares, free and clear of all Encumbrances. The rights of the Seller with respect to the Shares is not subject to revocation, rescission or any form of annulment whatsoever.
(b) None of the Shares have been transferred or encumbered in advance ("oneradas por qualquer forma"), and the Seller has not received any notice of an attachment ("Penhora ou qualquer outro tipo de apreensao judicial ou extra judicial") thereon.
(c) Except in relation to Printglass - Transformacao de Vidro LDA, the Company does not own and has not committed to acquire, directly or indirectly, any shareholding or other interest in any corporation, partnership or other entity, nor does the Company serve as director or manager in any company or entity.
(d) As of the Closing Date, the Company shall be the unconditional legal and beneficial owner and the holder of record of share capital in Printglass, representing an ownership interest of nineteen percent (19%) of Printglass, free and clear of all Encumbrances. The rights of the Company with respect to such share capital will not be subject to revocation, rescission or any form of annulment whatsoever.
4.4. Consents. Except for the Merger Notification, the Declaration and as set out in ANNEX 4.4, neither the Seller nor the Company is required to obtain any Consents from, make any filings with, or give any notices to any Governmental Authority or other person in connection with the execution or enforceability of this Agreement or the consummation of any part of the Transaction.
4.5. Effect of the Transaction. The execution of this Agreement by the Seller, the performance by it of its obligations hereunder, and the consummation by it of the Transaction, does not and will not affect the legal situation of the Company or the Company's rights and obligations vis-a-vis third parties and will not give rise to any of the following:
(a) any conflict with, or violation of, any provision of the organizational documents ("Estatutos, deliberacoes dos orgaos sociais, regulamentos internos e similares") of the Company;
(b) any conflict with, or violation or breach of, any applicable Law, or any other obligation of the Company;
(c) any loss or material change in the terms of any Subsidy;
(d) any breach of or default or event that, with the lapse of time or giving of notice would constitute a default, under any Contract, or any contractual cause for early termination of or acceleration of payment under any Contract;
(e) any obligation to pay a bonus or indemnity of any type whatsoever to any employee or corporate executive of the Company;
11
(f) any change to, suspension, cancellation or withdrawal of, any Consent granted to the Company, or any favorable Tax or Social benefit or regime enjoyed by the Company;
(g) any entitlement for any party to be released from its obligations under the terms of any guarantee, comfort letter or other similar document issued as a surety or in support of any undertakings by the Company;
(h) any registration or creation of a pledge or other security interest on the assets of the Company; and
(i) any impairment to the continued ownership or use by the Company of the Intellectual Property Rights set out in Annex 4.12(a) and Annex 4.12(b).
4.6. Compliance with Law.
(a) The Company has conducted in all material respects its business in compliance with all applicable Laws (including, without exception, Laws concerning competition), Consents and Permits.
(b) The Company possesses all Consents and Permits required in connection with its operations as currently conducted, and all such Consents and Permits are in full force and effect. There are no Proceedings to modify, suspend or terminate any such Consent or Permit pending or, to the Seller's best knowledge, threatened, in each case that could reasonably be expected to have a material adverse effect on the Company's business as currently conducted.
(c) The Seller is not aware of any planned modifications to any Permits that could reasonably be expected to be, individually or in the aggregate, materially adverse to the Company.
4.7. Accounting and Financial Documents.
(a) ANNEX 4.7(a) contains complete and correct copies of the audited financial statements (balance sheet, profit and loss statement, cash flow statement and notes on the accounts (including any off-balance sheet undertakings)) of the Company, including the report and opinion of the independent auditor of the Company, as of and for the period ended December 31, 2003, prepared in accordance with Portuguese GAAP Applied on a Consistent Basis (the "2003 FINANCIAL
STATEMENTS").
(b) ANNEX 4.7(b) contains complete and correct copies of the unaudited financial statements (balance sheet, profit and loss statement and notes on the accounts (including off-balance sheet undertakings)) of the Company as of and for the period ended September 30, 2004, prepared in accordance with Portuguese GAAP Applied on a Consistent Basis and including a comparison to the comparable period ended September 30, 2003 (the "2004 FINANCIAL STATEMENTS" and, together with the 2003 Financial Statements, the "FINANCIAL STATEMENTS").
(c) Subject to any applicable year-end adjustments in relation to the 2004 Financial Statements, the Financial Statements give a true and accurate
12
account of the financial condition, assets, liabilities and results of operations of the Company as of the respective dates thereof and for the periods then ended. The 2003 Financial Statements have been certified without qualification by the independent auditor of the Company.
(d) As of the dates of the Financial Statements, the Company did not have any Liabilities, whether due or to become due, that were either
(i) required by Portuguese GAAP to be reflected in the relevant Financial Statements, or (ii) individually or in the aggregate material to the financial condition of the Company, and that, in either case, were not reflected or expressly reserved against in the Financial Statements, specifically disclosed or provided for in the notes thereto.
(e) ANNEX 4.7(e) sets forth the amount of principal balance, plus accrued and unpaid interest and fees or penalties, outstanding under the Government Incentive Contract as of the date hereof.
4.8. Conduct of Business.
(a) Since January 1, 2004, except as specifically contemplated herein or as indicated in ANNEX 4.8(a):
(i) The Company has not undertaken any transaction materially modifying the substance of, or the rights over, its assets, such as any transfer, pledge, lease, grant of license or other rights to third parties with respect to its tangible or intangible assets;
(ii) The Company has not incurred or become subject to any Liability, whether due or to become due, or entered into any material transaction that is outside the Ordinary Course of Business;
(iii) The Company has not made any change in its accounting procedures or practices; and
(iv) The Company has not agreed to do any of the foregoing.
(b) Since October 1, 2004, except as specifically contemplated herein or as indicated in ANNEX 4.8(b):
(i) The Company has carried out its activities in the Ordinary Course of Business, using commercially reasonable efforts to
(a) preserve the organization and value of its business, its goodwill and reputation, its relationships with its main clients, suppliers, customers and agents, as well as with public authorities, (b) keep available the services of its employees, (c) maintain all its material assets and properties in working condition, and (d) comply in all material respects with all contractual and other obligations applicable to its business.
(ii) The Company has not undergone or suffered any change in its condition (financial or otherwise), income, properties, Liabilities whether due or to become due or operations that has been, or could reasonably be expected to be, individually or in the aggregate,
13
materially adverse to the Company and, to the Seller's best knowledge, no such change is pending or threatened;
(iii) The Company has not terminated any business relationship the severing or cessation of which could have a material adverse effect on its financial condition;
(iv) The Company has not declared any dividends or made any other distribution of profits, reserves or retained earnings;
(v) The Company has not accelerated the collection of, granted any discounts (other than in the Ordinary Course of Business) with respect to, or sold to third parties, any accounts receivable related to the Company, or delayed the payment of any payables related to the Company or any portion thereof for a period longer than fifteen (15) days beyond the normal payment conditions of the Company; without limitation of the foregoing, all charges and expenses related to the Contracts listed in Annex 4.15, as required by Section 4.15(m) (except in relation to the financial leases listed under Section 6.16), to the extent that such charges and expenses relate to the Company's furnace number 2 (including expenditures made for the reconfiguration of its machines), have been paid in full;
(vi) The Company has not agreed to any merger, de-merger, spin-off or consolidation; changed its share capital, issued any securities of any nature whatsoever (including warrants), granted any stock options, or purchased any of its own securities;
(vii) No amendments have been made to the organizational documents (including articles of association and by-laws) of the Company;
(viii) The Company has not, except in the Ordinary Course of Business, (i) varied the terms of any existing Indebtedness or guarantee; (ii) subjected any of its properties or other assets to any Encumbrance other than Permitted Encumbrances;
(iii) discharged or satisfied any Encumbrance or paid or satisfied any Liability, whether due or to become due, in each case other than upon it becoming due and payable; (iv) cancelled, compromised, settled or otherwise adjusted any debt, claim or Proceeding or waived or released any right relating to its business; or (v) sold, assigned, transferred or otherwise disposed of any assets with a book value greater than fifty thousand euro ((euro)50,000); and
(ix) The Company has not agreed to do any of the foregoing.
4.9. Sufficiency of Information Technology; Services. The Company owns, leases or licenses or is otherwise legally entitled to use all computer hardware, software, databases and other information technology necessary for the operation of its business, as currently conducted. Except as set forth in ANNEX 4.9, the Seller and its Affiliates do not provide any services to the Company.
14
4.10. Real Property.
(a) ANNEX 4.10(a) sets out a complete and accurate list of real property owned by the Company. The Company has good and valid title to all such property and, as of the Closing, all such property will be owned by the Company free and clear of all Encumbrances, except for Permitted Encumbrances. Without limiting the foregoing, no third party may invoke retention or similar rights in order to encumber or restrict the rights of the Company to the real property listed in Annex 4.10(a) due to any events occurring or any circumstances arising on or prior to the Closing Date or due to continuing events that started on or prior to the Closing Date.
(b) ANNEX 4.10(b) sets out a complete and accurate list of each parcel of real property leased by the Company or otherwise used (but not owned) by it. In each case, the Company has a valid and subsisting right to use the premises subject to the current conditions of use, in each instance free and clear of all Encumbrances other than Permitted Encumbrances.
(c) There are no zoning, condemnation or expropriation Proceedings pending or to the Seller's best knowledge threatened that would preclude or materially impair the use of any property owned, leased or used by the Company.
(d) The buildings and other facilities or installations owned by the Company are not built or situated on land not owned by the Company.
4.11. Movable Property and Business.
(a) Except as set out in ANNEX 4.11(a), the Company either owns free and clear of all Encumbrances other than Permitted Encumbrances, or uses under the terms of a valid operational or financial lease, all movable property, machinery and equipment that it uses (including, without limitation, the movable property obtained from the IVIMA facility and currently used by the Company).
(b) The computers, equipment, servers, communications networks and computer facilities and hardware necessary for the running and operation of the Company's business are in good working order, have received proper maintenance to assure their good working order and do not have nor is there reason to believe that they may have any defects that could materially affect their performance or limit the undertaking of the activities of the business taken as a whole.
(c) ANNEX 4.11(c) sets out a complete and accurate list of all assets owned or leased by the Company and used by Printglass. The Company either owns all such assets free and clear of all Encumbrances other than Permitted Encumbrances or has entered into financial leases for such assets.
4.12. Intellectual Property Rights.
(a) ANNEX 4.12(a) sets out a complete and accurate list of all Intellectual Property Rights that the Company owns. All such Intellectual Property Rights are valid and free from any Encumbrances (other than Permitted Encumbrances), and
15
the Company has made all filings, payments and formalities necessary to ensure that they have full and exclusive ownership of such Intellectual Property Rights, enforceable against third parties. No license or right to use of any of the Intellectual Property Rights set out therein has been granted to any Person other than the Company.
(b) ANNEX 4.12(b) sets out a complete and accurate list of all Intellectual Property Rights that the Company uses under license.
(c) The Company is not infringing or has not infringed, or is not participating or has not participated in any infringement of, any Intellectual Property Rights of any other Person. There are no adverse claims with respect to any Intellectual Property Rights, either owned or licensed, that are currently pending. To the Seller's best knowledge, no Person is infringing any Intellectual Property Rights of the Company.
(d) To the Seller's best knowledge, there are no valid grounds for any bona fide claim: (i) to the effect that the use, sale or licensing of any product or process as now used, sold or licensed by the Company infringes any Intellectual Property Right of any other Person; (ii) against the use by the Company of any Intellectual Property Right of any other Person; (iii) challenging the ownership or validity of any Intellectual Property Right of the Company; or
(iv) challenging the license or legally-enforceable right to use any Intellectual Property Right that the Company uses under license.
4.13. Receivables. Except for amounts specifically reserved for in the Financial Statements, all accounts receivable set out in the Financial Statements and all other rights of payment, including, without limitation, unbilled amounts and credits extended to third parties acquired by the Company between September 30, 2004, and the date hereof or the Closing Date, as applicable, (a) have arisen from bona fide transactions in the Ordinary Course of Business, (b) are free from any Encumbrances, and (c) to the Seller's best knowledge should be collectible in full within six (6) months from the date such right to payment arose; provided, however, that nothing herein may be construed as an express -------- ------- or implied warranty by the Seller in respect of actual collection of any such accounts receivable.
4.14. Inventory. The inventory set out in the Financial Statements and all inventory acquired by the Company between the date of the Financial Statements and the date hereof consist of raw materials, cartons, semi-finished and finished products that are usable and/or saleable in the Ordinary Course of Business for the purpose for which they were produced, subject to the percentage for depreciation of inventory as consistently recorded by the Company, and in quantities sufficient for the usual requirements of the Company and its customers. All inventory that was not located on the Company's site as of December 31, 2004, is set forth on ANNEX 4.14.
4.15. Contracts. ANNEX 4.15 sets out a complete list of all Contracts (setting forth only with respect to oral agreements an indication of the purpose of the Contract, the names of the parties thereto, its duration (definite or indefinite) and the amounts involved thereunder) falling under any of the following categories:
16
(a) Contracts (including customer contracts) involving the Company's obligation to pay, or entitlement to receive, under the normal course of such Contracts, a total amount in excess of fifty thousand euro ((euro) 50,000) or the equivalent thereof in any other currency, calculated on the date hereof;
(b) Contracts, the term of which exceeds one (1) year or is unlimited in duration (with the exception of labor agreements), that the Company may not terminate on less than three (3) months' notice without payment of an indemnity;
(c) Contracts giving rise to the payment by the Company of fees or any other consideration to the other party (or to any entity or individual connected therewith), other than as provided in Section 4.15(l), in consideration for business referred or otherwise provided to the Company by such party;
(d) Contracts providing for the sharing of profits, the payment of commissions, or the payment of any amounts based on profits or revenues;
(e) Contracts under which the Company is bound not to carry out, or to restrict the performance of, certain activities, or to refrain from competing;
(f) Contracts granting exclusive rights;
(g) Any outstanding loans granted by the Company;
(h) Guarantees, sureties, warranties and credit support agreements given by (i) the Seller or its Affiliates for the benefit of the Company or (ii) the Company, excluding guarantees to secure utility purchases or rental payments unless such guarantees are to or for the benefit of the Seller or its Affiliates.
(i) Contracts that do not fall within the scope of the Company's Ordinary Course of Business, or which have been entered into under conditions other than those usually granted to independent parties, or which do not reflect market conditions or normal commercial practices;
(j) Contracts relating to the holding and/or transfer of securities or interest in any entity or to the control or management thereof;
(k) Contracts with the Seller or any of the Seller's Affiliates other than those in the Ordinary Course of Business;
(l) Representative, agency, distribution or sales contracts;
(m) Contracts relating to the rebuilding or the repairing of the Company's furnace(s) or the reconfiguration of its machines, involving the Company's obligation to pay, or entitlement to receive, under the normal course of such Contracts, a total amount in excess of fifty thousand euro ((euro) 50,000) or the equivalent thereof in any other currency, calculated on the date hereof; and
(n) Contracts for the supply of raw materials, electricity, mold repair services, natural gas or packaging materials, involving the Company's obligation to pay, or entitlement to receive, under the normal course of such Contracts, a
17
total amount in excess of fifty thousand euro ((euro) 50,000) or the equivalent thereof in any other currency, calculated on the date hereof.
All such Contracts, together with the leases under Sections 4.10(b) and 4.11(a), licenses under Section 4.12(b), Government Incentive Contract under Section 4.17, and collective bargaining agreements and employment contracts under Sections 4.19(b) and 4.19(d), are valid and binding and in full force and effect, and the Company is in a position to obtain enforcement of the terms thereof. The Company is not in material breach of any such Contract and has not waived any right under any such Contract that could have a material adverse effect on the Company, and the Company has not received any notice of breach, default, acceleration or transfer under any such Contract. To the Seller's best knowledge, no other party to any Contract is in material default thereunder.
4.16. Bonus Programs. ANNEX 4.16 sets out a complete and accurate list of all incentive, bonus, rappel and similar programs with customers of the Company currently in effect.
4.17. Subsidies. ANNEX 4.17 sets out a complete and accurate list of all Subsidies that impose on the Company any obligations or conditions that remain in effect as of the date hereof or that will come into effect hereafter, setting out the amounts received as of the date hereof and any amounts remaining to be dispensed thereunder. The Company is not in breach of any of the terms and conditions of any Subsidy and does not anticipate being in breach based on current conditions, in either case that would result in a material adverse effect on the Company.
4.18. Insurance. ANNEX 4.18 sets out a complete list of the insurance policies of the Company. The corresponding premiums have been duly paid and the Company has complied in all material respects with the provisions thereof. The continuity and cost of the coverage provided by those policies shall not be affected by the sale of the Original Shares or the Remaining Shares to the Purchaser. Except as set forth on ANNEX 4.18, there is no insurance claim pending and, to the Seller's best knowledge, there are no circumstances likely to give rise to any such claim.
4.19. Employment Matters.
(a) There are no current or pending collective or individual labor disputes with the employees of the Company and, to the Seller's best knowledge, no such collective or individual disputes are threatened.
(b) ANNEX 4.19(B) sets out, for the Company:
(i) all applicable collective bargaining agreements;
(ii) the compensation scheme, including premiums, bonuses, commissions, fringe benefits (without limitation, automobiles and cellular telephones supplied by the Company) and any other acquired rights, applicable to all of the employees or certain categories thereof; and
(iii) the profit-sharing, incentive, stock-option, company savings and other similar plans,
18
and no changes have been made by the Company to the rights granted collectively by it to its employees since January 1, 2004.
(c) ANNEX 4.19(c) sets out a list of all employees of the Company, listing the name, age, date of hire, type of employment contract and length of service, professional category, gross annual compensation, and corresponding benefits. Except as set out in ANNEX 4.19(C), no person is an employee of the Company or may claim such status due to any events occurring or circumstances arising on or prior to the Closing Date or due to continuing events that started on or prior to the Closing Date.
(d) Except for employment contracts with temporary and term employees, copies of which are set out in ANNEX 4.19(d), the Company has not entered into any other written employment agreements that are currently in effect.
(e) Except as set out in ANNEX 4.19(e), the Company did not undertake vis-a-vis its directors, collaborators or employees to pay any amount, as increased wages or termination payment in excess to amounts required by Law. ANNEX 4.19(e) sets forth any additional benefits granted to such persons since January 1, 2004, with the exception of compulsory salary increases made pursuant to the terms of any applicable collective bargaining agreement or as otherwise required by Law.
(f) There are no outstanding undertakings or obligations vis-a-vis former employees or corporate officers of the Company.
(g) There are no obligations of the Company vis-a-vis bodies representing its employees, insofar as such obligations exceed those provided for by applicable Law or the collective status referred to in Section 4.19(b).
(h) No claim has been made against the Company by any relevant authority for failure to comply with labor rules and regulations that is not fully and finally settled, nor are, to the best knowledge of the Seller, claims of such type anticipated.
(i) Neither the Seller nor the Company has undertaken to grant any benefits to any employee or corporate officer of the Company as a result of the completion of the sale of the Shares contemplated hereunder.
(j) The Company has not made any commitment vis-a-vis its employees in connection with any future dismissal or reorganization.
(k) The Company is and has been in compliance in all material respects with all provisions of labor and Social Laws, the collective status described in Section 4.19(b), and individual employment contracts, including payment of any amounts due from the retroactive salary increase as from due January 1, 2004, and obligations as towards the relevant labor authorities, including communications, notifications and authorizations.
19
(l) No senior executive or key employee of the Company has declared his or her intention to resign, and no senior executive or key employee of the Company has resigned since the date three (3) months before the date hereof.
4.20. Pension and Other Employee Benefit Matters.
(a) ANNEX 4.20(a) sets out a complete and accurate list of all pension, pre-pension, health, disability and other employee benefit commitments of the Company other than the Plan (as defined below).
(b) A copy of the Company's updated defined benefit pension and disability plan established to grant or to have granted pensions to current or former employees of the Company (the "PLAN") is attached as ANNEX 4.20(b). As of the date hereof and as of Closing, the Liabilities, whether due or to become due, for present or former employees of the Company under the Plan are and will be adequately funded under Portuguese GAAP and consistent with all statutory and regulatory pension funding obligations.
(c) A copy of the latest Certified Actuarial Report, which certifies as of April 30, 2004, the adequacy of the Plan reserves for the pension responsibilities of the Company, is attached as ANNEX 4.20(c). Since the date of such report, the Company has not granted, committed to or agreed to any salary raises or other adjustments to pensionable salaries that will or could result in back service or future service payment obligations.
(d) The Company was granted authorization by the applicable regulatory authorities for the incorporation of a new defined benefit pension and disability plan, a copy of which is attached as ANNEX 4.20(d). The Plan's assets that were transferred to such new plan are sufficient to fund the Liabilities, whether due or to become due, for present or former employees of the Company under the Plan and are adequately funded under Portuguese GAAP and consistent with all statutory and regulatory pension funding obligations.
(e) The Plan is the only collective and/or individual pension or disability scheme to which the Company is obligated to make any contribution or otherwise fulfill any commitment. Other than the Plan, the Company has no Liability (whether due or to become due) for any pension, pre-pension, health, disability or other employee benefit commitments or plans of the Seller or any of the Seller's Affiliates.
(f) All contributions to the Plan are and have been made in full, and all other obligations of the Company under the Plan have been fully satisfied, in a timely manner.
(g) There are no current or pending Proceedings regarding the Plan, or the implementation thereof, and to the Seller's best knowledge, no such Proceedings are threatened.
20
4.21. Tax; Social Security; Customs.
(a) The Company has timely filed and maintained true, accurate and complete Tax and Social reports, returns, notices and other documentation as required by applicable Laws, has withheld from its employees and timely paid to the appropriate Governmental Authority proper and accurate amounts for all periods through the date hereof as required by applicable Tax withholding provisions of applicable Laws, and has otherwise complied in all material respects with all applicable Tax and Social Laws.
(b) The Company has timely paid all Taxes and Social Charges that became due before the date hereof. The reserves appearing on the books of the Company at the Closing Date are sufficient to pay all Taxes and Social Charges due or that may become due with respect to the period covered thereby, regardless of whether the liability for such Taxes is disputed.
(c) No Tax or Social audit or inquiry relating to any Taxes for which the Company is or may be liable is pending, and the Company has not received any information request or similar notice from said authorities, which remains unsatisfied or unresolved. To the Seller's best knowledge, no such audit or inquiry is threatened.
(d) The Company is not bound by any undertaking or obligation given in consideration for any Tax or Social benefit or Consent. The Company does not own any asset (i) the tax value of which is less than its net book value, (ii) which is subject to any holding obligation, or
(iii) to which any Tax or Social Liability (whether due or to become due) not shown in the Financial Statements is attached. The information provided and the representations made to the Tax or Social authorities by the Company in connection with the obtaining of any Tax or Social benefits or Consents enjoyed by them were true, accurate and complete in all material respects. The incentive and other similar plans enjoyed by the employees of the Company duly qualify for the Tax and Social exemptions normally applicable to them.
(e) The Company is entitled to the Tax and Social receivables (including the carry-back receivables) described in ANNEX 4.21(e).
(f) The distributable reserves and other distributable amounts appearing in the Financial Statements may be distributed without any Tax burden for the Company.
(g) The Company has not been made aware by its tax counsel (external or in-house) or auditors that a position it has taken on certain Tax or Social matters is based on an interpretation of the Tax rules and regulations likely to be challenged by the Tax or Social authorities.
(h) The Company has not made any Tax elections that are still in effect (including, but not limited to corporate income tax and V.A.T.).
21
(i) The Company has not assumed or is not bound to assume the Tax Liabilities of any other Person or to indemnify such Person for such Tax Liabilities (whether due or to become due).
4.22. Environment.
(a) No activities of the Company and no facilities or properties owned, leased, used or operated by it at any time between March 29, 1996, and the Closing are or have been the source of any pollution, contamination or Release that would violate or require remediation under any applicable Law.
(b) None of the land, premises or facilities owned, leased, used or operated by the Company as of or at any time between March 29, 1996, and the Closing are contaminated or polluted in a way that would violate or require remediation under any applicable Law.
(c) No dangerous or toxic wastes or substances are or have been stored or treated on land owned, leased, used or operated by the Company as of or at any time between March 29, 1996, and the Closing. The Company has not shipped or transported or caused the shipment or transportation of any dangerous or toxic wastes or substances. The Company has not disposed or caused the disposal of wastes on sites other than those designed for their storage, treatment or destruction and in compliance with applicable Laws.
(d) There are no prohibitions, injunctions, restrictions or limitations of any nature whatsoever on the free use or disposal by the Company of any of its movable assets or real property arising from their environmental condition, and there are no facts or circumstances that could reasonably provide a basis for any such prohibition, injunction, restriction or limitation.
(e) The Company has obtained and is and, to the Seller's best knowledge, has at all times between March 29, 1996 and the Closing been in compliance in all material respects with all Permits that are required under, and has complied in all material respects with all applicable Laws relating to, public health and safety, worker health and safety, and pollution or protection of the Environment, including Laws relating to Releases of pollutants, contaminants or chemical, industrial, hazardous or toxic materials or wastes or otherwise relating to the testing, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants or chemical, industrial, hazardous or toxic materials or wastes. All such Permits are valid and in full force for the operation of the Company's business as currently conducted and, where applicable, timely renewal applications have been submitted for all such Permits.
(f) The Company is not liable with respect to matters covered under this
Section 4.22 for any other Person.
4.23. Litigation and Proceedings. Except as set out in ANNEX 4.23, there are no current or pending Proceedings to which the Company is a party or in which the Company is otherwise involved, in each case for which the Company is or could be reasonably expected to be liable for amounts in excess of two thousand five hundred euro
22
((euro) 2,500), and no such Proceedings are, to the Seller's best knowledge, threatened. There are no Judgments in force or outstanding against the Company.
4.24. Product Liability.
(a) The Company has not been ordered or requested by any Governmental Authority or judicial authority, or by any professional or consumer body whatsoever, to recall any product manufactured or marketed by it, or to inform the users thereof of the existence of any defect in any such product or danger caused by, or related to, its use. The Company does not anticipate proceeding with a spontaneous recall of any of its products.
(b) To the Seller's best knowledge, there are no grounds for the liability of the Company in respect of products manufactured or marketed by the Company.
4.25. Bank Accounts and Signature Powers. ANNEX 4.25 sets out a complete and accurate list of the bank accounts and safe deposit boxes opened in the name of or for the benefit of the Company, with the names of the persons authorized to operate such accounts or to have access to such deposit boxes, as well as a list of all of the powers of attorney granted by the Company.
4.26. Intermediaries. All negotiations relating to this Agreement have been carried out without the involvement of any person acting on behalf of the Seller, the Purchaser or the Company in a manner that could give rise to any valid claim against the Company or the Purchaser for any broker's or finder's fee or similar compensation in connection with the transactions contemplated hereby.
4.27. Customer-owned Molds. ANNEX 4.27 sets out a complete and accurate list of all molds used by the Company and owned by customers of the Company.
4.28. Completeness of Representations and Warranties. The Seller has not omitted to disclose to the Purchaser any facts that (i) would be necessary to make the information contained in this Agreement and its annexes not misleading in any material respect, or (ii) might reasonably have caused the Purchaser not to enter into the Transaction, or to have entered into the Transaction on materially different terms. Where representations and warranties in this Article 4 are subject to the Seller's best knowledge, the Seller has made reasonable efforts to obtain from Messrs. Carlos Alberto Martins da Silva, Mario Augusto Lopes Freire and Avelino Montez de Sousa Lopes, Ms. Ana Adelaide Barreira Aires, Ms. Ana Maria Campos de Oliveira, and the Company's directors and professional advisors all relevant information, and in making those representations and warranties the Seller has relied upon the information so obtained by it.
ARTICLE 5
COVENANTS OF THE PURCHASER
5.1. Best Efforts Undertaking. The Purchaser shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable under all applicable Laws to cause each of the conditions to Closing set out in Article 9 to be satisfied and to consummate and make effective the Transaction. In case at any time after Closing any further action is necessary or
23
desirable to carry out the purposes of this Agreement, the Purchaser shall use its best efforts to take or cause to be taken any such action.
5.2. Confidentiality. From the date hereof through and including the Closing Date, the Purchaser shall refrain from providing any third parties with any Confidential Information whatsoever concerning the Company, other than
(a) as required by applicable Law or otherwise necessary in relation to the Merger Notification or to a courtesy notification to the antitrust authorities in the United States, or (b) as necessary to undertake the actions specifically contemplated by this Agreement. If this Agreement is terminated in accordance with Section 9.4, the Purchaser will, at the Seller's option, (a) promptly deliver to the Seller all documents furnished to the Purchaser or its representatives by or on behalf of the Seller (and all copies thereof) containing Confidential Information or destroy the same and send to the Seller written confirmation of such destruction and (b) destroy all documents prepared by it or its representatives that contain or reflect Confidential Information and send to the Seller written confirmation of such destruction; provided, however, that the Purchaser may retain one copy of any such document in its files for internal recordkeeping and accounting purposes only. Notwithstanding the return or destruction of the Confidential Information and the termination of this Agreement, the Purchaser and its representatives will continue to be bound by this Section 5.2 until the second anniversary of the date hereof.
5.3. Restricted Actions; Board of Directors. During the Initial Earn-out Calculation Period and the Extended Earn-out Calculation Period, if applicable:
(a) the Purchaser shall have the sole authority to manage and operate the business of the Company; provided; however, that the Purchaser shall ensure that the Company shall not enter into any transactions that are not arms' length or that constitute illegal transfer pricing;
(b) the Purchaser agrees not to take and to prevent the Company from taking actions for the primary purpose of adversely affecting the Seller's contingent payment rights to the Performance Payment and the Earn-out Payment; and
(c) the Board of Directors (Conselho de Administracao) of the Company shall meet no less frequently than twice per year, to resolve upon matters that it is required to act upon by Law. The Purchaser shall ensure that all Board members timely receive monthly management reports generally consistent with prior practice.
5.4. Board Member. Until the Remaining Shares Purchase Date, the Seller shall have the right to appoint a member to the Board of Directors of the Company, such person to be appointed with the consent of the Purchaser, which shall not to be unreasonably withheld; it is understood that such board position shall entail no executive powers in relation to the Company and the member appointed by the Seller shall not be entitled to any remuneration in such capacity from the Company.
24
ARTICLE 6
COVENANTS OF THE SELLER
6.1. Best Efforts Undertaking. The Seller shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable under all applicable Laws to cause each of the conditions to Closing set out in Article 9 to be satisfied and to consummate and make effective the Transaction. In case at any time after Closing any further action is necessary or desirable to carry out the purposes of this Agreement, the Seller shall use its best efforts to take or cause to be taken any such action.
6.2. Confidentiality and Exclusivity. From the date hereof through and including the Closing Date, the Seller shall refrain, and shall cause the Company to refrain, from providing any third parties with any information whatsoever concerning the Company, other than (a) within the course of the Seller's Ordinary Course of Business, (b) as required by applicable Law or otherwise necessary in relation to the Merger Notification, or (c) as necessary to undertake the actions specifically contemplated by this Agreement. During the same period, the Seller shall refrain from initiating or continuing, either directly or indirectly, with any Person other than the Purchaser, any negotiations concerning the sale of all or part of the Shares, or of any part of the business of the Company.
6.3. Management of the Company. From the date hereof through and including the Closing Date, except as expressly and specifically envisioned in this Agreement, the Seller shall cause the Company:
(a) to take each of the actions described in Section 4.8(b)(i) and not to take any of the actions described in Sections 4.8(a)(i) through 4.8(a)(ii) and Sections 4.8(b)(iii) through 4.8(viii);
(b) without prejudice to the generality of the foregoing, not to (i) enter into any employment agreement with any Person; (ii) adopt, enter into, amend in any material respect, announce any intention to adopt or terminate any collective bargaining or similar agreement or other employee benefit plan, program or arrangement of general applicability; or (iii) make any capital expenditures in excess of one hundred thousand euro ((euro) 100,000);
(c) not to change the rights granted by the Company collectively to its employees as described in Annex 4.19(b), nor grant any additional benefit to any of its directors, consultants or employees, with the exception of compulsory salary increases made pursuant to the terms of any applicable collective bargaining agreement or as otherwise required by Law; and
(d) to give written notice to the Purchaser of any additional borrowings made or funds received under the Government Incentive Contract.
6.4. Non-competition and Non-solicitation.
(a) For three (3) years following the Closing Date, the Seller shall not undertake, directly or indirectly, personally or through Affiliates or other individuals or entities, whether or not for compensation, throughout the territory where the
25
Company is active, any activity that might compete with that of the Company except for the sale of the Company's products in outlet stores owned by the Seller or any of its Affiliates, or cooperate in any manner whatsoever with any company that competes with the Company; and
(b) Except as specifically contemplated by this Agreement, for two (2) years following the Closing Date, the Seller shall not employ or solicit for employment, either directly or indirectly, employees of the Company, or incite any of those employees to leave any position they occupy now or in the future with the Company.
6.5. Employee Notification. The Seller shall not provide any information to employee representatives concerning the Purchaser and its plans for the Company without the Purchaser's prior written approval.
6.6. Access and Information. From the date hereof until the Closing, the Seller shall cause the Company to grant the Purchaser and its representatives, without unduly interfering with the normal operations of the Company, access to the books, records, management, consultants, facilities, properties and assets of the Company (and those of the Seller to the extent that its books, records, management personnel, consultants, facilities and assets relate to the Company's business) to enable them to conduct such additional audits, reviews, evaluations and investigations as the Purchaser may reasonably request. The Seller shall cause the Company to produce regular monthly reports on deadlines consistent with historical practice and will provide the Purchaser with copies of such reports as soon as possible but in no event later than five (5) days after their production. At the option of the Purchaser, the Seller shall (and shall cause the Company to) assist the Purchaser in preparing a reconciliation of the 2003 Financial Statements to U.S. GAAP.
6.7. Cancellation of Related-Party Contracts and Satisfaction of Debts. Except as specifically envisioned by this Agreement, the Seller shall, on or before the Closing Date:
(a) repay or procure the repayment to the Company of any debt owed to the Company, including trade accounts payables, by any of the Seller, its Affiliates or any Related Person thereof, including interest thereon (if any) through the Closing Date, without any penalty for prepayment;
(b) terminate or procure the termination of, without any penalty or payment by, or Liability (whether due or to become due) to, the Company, all Contracts between any of the Seller, its Affiliates or any Related Person thereof, on the one hand, and the Company, on the other hand; and
(c) procure the full release, without any Liability (whether due or to become due) to the Company, effective as of the Closing Date, of all past, present or future primary or guarantor obligations of the Company, in any form whatsoever, including as joint and several obligor, that benefit in whole or in part the Seller, its Affiliates or any Related Person, on terms reasonably satisfactory to the Purchaser, and provide the Purchaser with evidence reasonably satisfactory to the Purchaser that the Company has been released from its obligations.
6.8. Waivers. The Seller shall obtain that, on the Closing Date, all persons that have entered into any Contract entitling them to terminate such Contract in the event of a change of control of the Company shall have waived such right in writing in connection with the transactions provided for herein.
6.9. Assistance with Regard to Relationships. During the Initial Earn-out Calculation Period, the Seller shall use reasonable commercial efforts to assist the Company in maintaining its relationships with customers, government authorities, suppliers, and banks.
6.10. Further Agreements.
(a) Until the earlier of the first anniversary of the Closing Date and the date on which Mr. Antonio Sa Cunha is no longer employed by the Seller or one of its Affiliates, the Seller agrees to make available (or to cause its Affiliates to make available) the services of Mr. Sa Cunha for twelve (12) hours per month (approximately three (3) hours per week) to assist in the financial oversight of the Company.
(b) Until the Remaining Shares Repurchase Date and at the option of the Purchaser, the Seller shall assist (in a manner reasonably consistent with past practice) the Company in negotiations with the Glass-Industrial Sector - Cristal Industry (Sector Vidreiro - Industria de Cristalaria). Any out-of-pocket expenses incurred by the Seller in providing such assistance shall be reimbursed to the Seller by the Company.
(c) For a period of ninety (90) days following the Closing Date, the Seller shall (and shall cause its Affiliates to) provide the Company with transitional administrative services, such as human resources support, information technology support and the forwarding of electronic mail delivered to the Seller's corporate server, reasonably required by the Company to allow the Company to conduct its business as currently conducted and to facilitate an orderly change of control, on such terms as are customary for these types of administrative services; provided that the human resources support shall correspond to the level of services previously available to the Company as was provided by Mr. Arlindo Duarte and Mr. Sousa Lopes and the amount the Company shall pay to the Seller for such equivalent support shall not exceed the amount that would have been paid to Mr. Arlindo Duarte for the same services; and provided further that if any costs are imposed by Law on the Company, including Social Charges, pensions, employee benefits or severance costs, in relation to any person providing transitional administrative services, the Seller shall pay all such costs.
6.11. Transfer Pricing File. On or before the Closing Date, the Seller shall prepare and deliver to the Purchaser a file documenting and substantiating the 2002 and 2003 transactions between the Company and the Seller, the Seller's Affiliates and any Related Person, as required under applicable Law, including Article 58 of the Portuguese Corporate Income Tax Code.
6.12. Remaining Shares. Until the Remaining Shares Purchase Date, the Seller shall hold the Remaining Shares free and clear of any Encumbrances.
27
6.13. Intellectual Property. The Seller shall take any and all measures necessary to ensure that (a) as of the Closing Date, the Company shall have the software licensing rights, source codes, maintenance contracts, hardware and other assets necessary to operate twenty-five (25) BAAN seats, and (b) as soon as possible after the Closing Date, all Intellectual Property listed on Annex 4.12(a) is registered in the name of the Company with the applicable Governmental Authority.
6.14. Governmental Authorities. The Seller shall use its reasonable commercial efforts to assist the Purchaser in negotiating new government incentive Contracts after the Closing Date.
6.15. Government Incentive Contract. The Seller shall use its reasonable best efforts and proceed in a diligent manner to terminate the Government Incentive Contract as soon as possible and to settle the obligations thereunder with no continuing obligation or Liability (whether due or to become due) for the Company or the Purchaser (or any Affiliate of the Purchaser).
6.16. Satisfaction of Indebtedness. The Seller shall cause the Company to have no Indebtedness as of the Closing Date other than Indebtedness listed on the Government Incentive Contract Statement or the Indebtedness Statement.
6.17. Receipts of Payment. Prior to the Closing Date, the Seller shall provide the Purchaser with receipts for all payments made in relation to the contracts for the repair of the Company's furnace number 1 and shall ensure that the receipts for all payments in relation to the contracts for the rebuild of the Company's furnace number 2, as well as the repair of any equipment related thereto, are in the Company's possession.
ARTICLE 7
INDEMNIFICATION
7.1. Indemnification by the Seller. The Seller shall indemnify, defend and hold harmless the Company and the Purchaser and its Affiliates and Related Persons thereof (an "INDEMNIFIED PARTY") from and against any and all Damages that may be imposed on, incurred by or asserted against an Indemnified Party as a result of:
(a) any breach or inaccuracy of any representation or warranty of the Seller hereunder, taking into account any exceptions, disclosures, limitations and qualifications of such representation or warranty made in the applicable Annex to Article 4;
(b) any breach of any covenant, undertaking or agreement of the Seller contained in this Agreement, including any document entered into pursuant to this Agreement;
(c) any Liability of the Seller or the Seller's Affiliates (other than the Company) for which an Indemnified Party is liable as joint and several obligor or otherwise (excluding any liability that is not related to, or does not otherwise arise out of, this Transaction);
(d) any Indebtedness of the Company on the Closing Date not reflected on the Closing Statement;
28
(e) any Liability of the Company on account of Social Charges, pensions or other employee benefits, to any Person who ceased to be an employee of the Company before the Closing Date;
(f) any claim made by Printglass with respect to retention or similar rights over the property listed in Annex 4.10(a) and Section 4.11(c) and any claim by employees of Printglass for employment status with the Company due to events occurring or circumstances existing on or prior to the Closing Date or due to continuing events that started on or prior to the Closing Date;
(g) any one-time, annual or maintenance fees incurred on or prior to the Closing Date and billed retroactively after the Closing Date related to the software contracts currently used by the Company; and
(h) any claim for Liability in relation to the contract entered into between Crisal - Cristais de Alcobaca, SA, and Instituto de Apoio as Pequenas e Medias Empresas e ao Investimento, dated June 7, 1996.
7.2. Indemnification by the Purchaser. The Purchaser shall indemnify, defend and hold harmless the Seller and its Affiliates and Related Parties thereof (an "INDEMNIFIED PARTY"), from and against any and all Damages that may be imposed on, incurred by or asserted against an Indemnified Party as a result of:
(a) any breach or inaccuracy of any representation or warranty of the Purchaser hereunder; and
(b) any breach of any covenant, undertaking or agreement of the Purchaser contained in this Agreement, including any document entered into pursuant to this Agreement.
7.3. Environmental Matters.
(a) Subject to paragraphs (b) and (d) of this Section 7.3, the Seller shall indemnify, defend and hold harmless the Purchaser (by way of a payment to be made to the Purchaser or the Company, at the Purchaser's direction) from and against any and all Damages that may be imposed on, incurred by or asserted against the Company as a result of any of the following events and circumstances, to the extent that they occurred or existed at any time on or before the Closing Date:
(i) any pollution, contamination or Release that would violate or require remediation under any applicable Law, the source of which is or was any activity of the Company or any property owned, leased, used or operated by it;
(ii) any pollution or contamination of any land, premises or facilities owned, leased, used or operated by the Company that would violate or require remediation under any applicable Law;
(iii) any storage or treatment of dangerous or toxic wastes or substances on land owned, leased, used or operated by the Company in a manner that would violate any applicable Law;
29
(iv) any shipment or transportation of any dangerous or toxic wastes or substances by the Company or at its direction in a manner that would violate any applicable Law;
(v) any disposal of wastes by the Company or at its direction in a manner that would violate any applicable Law; and
(vi) any failure of the Company to obtain, maintain in full force for the operation of the Company's business, submit timely renewal applications for and comply with all Permits required under applicable Environmental Laws.
(b) The Seller shall be obligated to make indemnification payments for claims arising out of the matters set out in this Section 7.3 only if the aggregate amount of such claims exceeds one hundred seventy-five thousand euro ((euro) 175,000); provided that, in the event this threshold is exceeded, the full amount of all such Claims shall be indemnified; provided, however, that the Seller shall be obligated to make indemnification payments for any and all amounts relating to Proceedings, including any costs of remediation, initiated on or before the Closing Date.
(c) No disclosure by the Seller or any other Person, whether in this Agreement or otherwise, pertaining to the matters set out in Section 7.3(a), shall qualify or limit the Seller's obligations under this
Section 7.3.
(d) The Purchaser shall not make any claim to the Seller regarding the cost of the installation of air emissions equipment with respect to the Company's furnaces nor claim from the Seller any Damages which may have resulted from the failure by the Purchaser or the Company to apply after the Closing Date the amount of two hundred fifty thousand euro ((euro) 250,000) referred to in Section 1.2(a)(i) to the acquisition and installation of such environmental equipment, including any Damages resulting from emissions after the Closing Date from these furnaces.
7.4. Notification and Payment of Claims. All claims made by an Indemnified Party hereunder (a "CLAIM") shall be made in writing in a notice (a "CLAIM NOTICE") to the Seller or the Purchaser, as applicable (the "INDEMNIFYING PARTY"), providing in sufficient detail the reasons for the claim and the amount to be indemnified, if it may be determined, or an estimate thereof (which estimate shall not be conclusive of the final amount of the Claim). If the Indemnifying Party does not notify any objection to the Claim to the Indemnified Party within thirty (30) days of the Indemnifying Party's receipt of a Claim Notice, the related indemnification shall become due and payable. If the Indemnifying Party notifies an objection to the Claim to the Indemnified Party within thirty (30) days of the Indemnifying Party's receipt of a Claim Notice, the parties shall settle the Claim in accordance with Article 10.
7.5. Third Party Claims.
(a) In the event a Claim is made as a result of or in connection with a Proceeding instituted by a third party (a "THIRD PARTY CLAIM"), the Indemnified Party shall send to the Indemnifying Party a copy of the related claim notice (a
30
"THIRD PARTY CLAIM NOTICE") promptly; provided, however, that any delay in sending such a Third Party Claim Notice shall not result in the Indemnified Party forfeiting any right hereunder, but may result only in the payment of Damages to the Indemnifying Party, to the extent that the Indemnifying Party establishes that such delay has actually prejudiced its defense against such Third Party Claim.
(b) The Indemnifying Party may notify the Indemnified Party of its decision to participate in the defense of any Third Party Claim within fifteen (15) days after receipt of the related Third Party Claim Notice; provided, however, that such period may be shortened at the Indemnified Party's reasonable request in order to comply with any applicable procedural deadlines. If the Indemnifying Party does not notify the Indemnified Party of such decision within such period, it shall be deemed to have waived its right to participate in the defense of such Third Party Claim. Any such waiver shall authorize the Indemnified Party to defend against such Third Party Claim as it sees fit, and in particular to enter into any settlements, agreements or withdrawals, without prejudice to its right to indemnification hereunder.
(c) If the Indemnifying Party notifies the Indemnified Party of its intent to participate in the defense of a Third Party Claim within the time period referred to in Section 7.5(b), and if the Indemnifying Party acknowledges in writing that it is liable hereunder for any Damages resulting from such Third Party Claim, the Indemnified Party shall not, and shall cause its respective Affiliates not to, enter into any settlement, agreement or withdrawal in connection with such Third Party Claim without the Indemnifying Party's prior consent, not to be unreasonably withheld.
(d) Regardless of whether the Indemnifying Party chooses to participate in the defense of a Third Party Claim:
(i) the Indemnified Party shall allow the Indemnifying Party reasonable access to information and documents relating thereto; and
(ii) the Indemnified Party shall invite the Indemnifying Party to participate, at the Indemnifying Party's expense, in all major phases of the proceedings and, without prejudice to Section 7.5(c), in any strategic decisions to be taken in connection with the defense against such Third Party Claim.
(e) The Indemnifying Party shall not enter into any settlement, agreement or withdrawal in connection with any Third Party Claim that would impose obligations on the Indemnified Party without the Indemnified Party's prior written consent, not to be unreasonably withheld.
7.6. Determination of the Indemnification Amount. Any indemnification payable hereunder shall be equal to the entire amount of the Damages, subject to the following:
(a) Any reassessment made by the Tax authorities, the sole consequence of which is to shift a deductible or a taxable element from one fiscal year to another,
31
shall give rise to indemnification only to the extent of the resulting effective Damages sustained by the Company, if any, including, without limitation, penalties, interest, and increases in Tax liability resulting from differing applicable Tax rates or the transfer of a taxable element from a loss-making to a profit-making year.
(b) The provisions of Sections 7.7 through 7.10, 7.12 and 7.13 hereunder.
7.7. Threshold. Subject to Section 7.10, the Seller shall not be obligated to make any indemnification payment if the aggregate amount of the Claims made by the Purchaser does not exceed four hundred thousand euro ((euro) 400,000), provided that, in the event this threshold is exceeded, the full amount of all Claims shall be indemnified in accordance with this Article 7.
7.8. Deductible. Subject to Section 7.10, no indemnification shall be paid in connection with any Claim for an amount less than fifteen thousand euro
((euro)15,000), and in any case only for the excess of any such Claims over that amount; provided, however, that when the total of such Claims equals or exceeds seventy-five thousand euro ((euro)75,000), such deductible shall no longer apply and the Seller shall pay indemnification for the full amount of all additional Claims, subject to Sections 7.7 and 7.9 and provided further that the Seller shall have no liability for Claims for an amount less than one thousand five hundred euro
((euro)1,500). A series of Claims having the same cause shall be considered together as one Claim for the purposes of this Section 7.8.
7.9. Maximum Amount. Subject to Section 7.10, the Seller shall not be obligated to make any indemnification payment relating to Claims under Section 7.3 for any amount in excess of thirty percent (30%) of the sum of (a) the Initial Payment (before the subtraction of any amounts relating to the Government Incentive Contract or other Indebtedness pursuant to Section 1.2(a)(i)), (b) to the extent such payment has been made or is due at the time the indemnification is payable, the Deferred Payment or the Performance Payment, as applicable, and (c) to the extent such payment has been made or is due at the time the indemnification is payable, the Earn-out Payment (the sum of such payments, the "TOTAL PAYMENT AMOUNT"); provided that the Total Payment Amount shall be recalculated and applied retroactively if the Deferred Payment, Performance Payment and/or Earn-out Payment becomes due at a later date. Moreover, and subject to Section 7.10, the Seller shall not be obligated to make any indemnification payments relating to Claims, other than Claims under Section 7.3, for amounts which would exceed twenty-five percent (25%) of the Total Payment Amount. For the avoidance of doubt, the aforesaid indemnification limits of thirty percent (30%) and twenty-five percent (25%) shall not be cumulative and indemnification will be limited to thirty percent (30%) or twenty-five (25%), as the case may be.
7.10. Exceptions to Limitations on Indemnification.
(a) Sections 7.7, 7.8 and 7.9 shall not apply to Claims arising out of:
(i) breaches of the Seller's representations under Sections 4.1(a), 4.1(b), 4.1(c), 4.1(d), 4.1(e), 4.2, 4.3(a), 4.4, or 4.21;
32
(ii) breaches of the Seller's covenants and agreements set out in Sections 6.4(a), 6.12, 8.8 and 8.9.
(iii) the matters set out in Sections 7.1(c), 7.1(d), 7.1(e), and 7.1(h).
(b) Sections 7.7 and 7.8 shall not apply to the Claims arising out of the matters set out in Section 7.3 (subject, for the avoidance of doubt, to Section 7.3(b)).
7.11. Interest. Any amounts due under this Article 7 shall automatically bear interest at a rate per annum equal to EURIBOR for three (3) month interbank loans plus two and a half percent (2.5%) calculated on the basis of a three hundred sixty-five (365) day year and the actual number of days elapsed, from the thirtieth (30th) day after the Indemnifying Party's receipt of the first request for payment of such amount.
7.12. Deadlines for Claims.
(a) Any Claim for breach of a representation or warranty under Section 7.1(a) shall give rise to indemnification only to the extent that the Indemnified Party notifies it to the Seller before the expiration of a two-year period from the Closing Date; provided, however, that Claims related to Tax and Social matters can be made until the expiration of a one (1) month period after the expiration of the relevant statute of limitations.
(b) Any Claims for breach of Section 7.3 can be made until December 31, 2012.
7.13. Release. The Seller shall not be released from any obligations under this Article 7 as a result of (a) any knowledge that the Purchaser has or may have had of such events, facts or circumstances, as a result, in particular, of any investigations made by the Purchaser, its representatives or its counsel, or (b) the approval of the yearly accounts of the current fiscal year by the shareholders' meeting of the Company.
7.14. Duty to Mitigate. The Indemnified Party shall take reasonable steps to mitigate the Damages under a Claim.
ARTICLE 8
FURTHER AGREEMENTS
8.1. Merger Notification. The Purchaser shall be responsible for the Merger Notification. The Seller shall cooperate with the Purchaser in the preparation of all forms, reports and information required in connection with the Merger Notification and will deliver in due time and in an expeditious manner all the documentation and information required for the Merger Notification and such other information and documentation that, from time to time, may be deemed necessary and/or requested by the competition authorities.
8.2. Employee Issues. Within four (4) months of the Closing Date, the Purchaser shall have the right, at its sole discretion, to give the Seller notice of its intention to terminate the employment of any employee listed in ANNEX 8.2, and the Seller shall negotiate with such employee to obtain the employee's agreement to transfer his or her employment to the Seller or an Affiliate of the Seller. If the Seller is unable to obtain the consent of such employee for such transfer within fifteen (15) days of such
33
notice, the Purchaser may terminate the employment of such employee and the Seller shall pay all amounts relating to the termination, including without limitation, any severance costs required by Law or by Contract provisions in effect as of the Closing Date, including Social Charges, pensions, and employee benefits.
8.3. Outlet Stores. On or before the Closing Date, the lease between the Seller and the Company relating to the outlet store located on the Company's property shall be terminated, all assets at the store, including equipment, fixtures and inventory used for its operation in the ordinary course consistent with past practice, shall be owned by the Company, and the five employees listed on ANNEX 8.3 employed in the conduct of the outlet store activities shall have been employed by the Company. The Purchaser and the Seller shall (or, as applicable, the Seller shall cause its Affiliates to) enter into (i) a commercial relationship providing for the Company to sell the products of the Seller and/or its Affiliates in the outlet store located on the Company's property on commercially reasonable terms and (ii) a commercial relationship providing for the Seller and/or its Affiliates, as applicable, to sell the Company's products in all outlet stores owned by the Seller or its Affiliates on the same terms and conditions as those currently in place.
8.4. Historical Data on BAAN. Until the expiration of the relevant statute of limitations, the Purchaser shall cause the Company to use its best efforts to retain, either on the BAAN systems or on downloaded flat files, the historical data of the Seller that is stored as of the Closing Date on the BAAN systems that are transferred from the Seller to the Company pursuant to Section 6.13, and to provide the Seller and its Affiliates with assistance in recovering such data; provided, that the -------- Seller, or its Affiliates, as applicable, shall provide the Company with reasonable notice of its or their data retrieval needs and the Company shall not be required to incur unreasonable cost in fulfilling such requests, nor shall it be obligated to provide more than eight (8) hours of service per month without charge. The Seller shall pay to the Company an hourly rate of fifteen euro ((euro)15) per hour for time spent by the Company's employees on data retrieval in excess of eight (8) hours per month. The Company shall have the right, in its sole discretion, to discontinue using BAAN, without prejudice to the Purchaser's and the Company's rights and obligations hereunder.
8.5. Supply of Non-Soda Lime Glassware and Ceramic Products. The Parties shall enter into a commercial relationship under which the Seller shall sell to the Company non-soda lime glassware, crystal and ceramic products.
8.6. IVIMA Warehouse. The Seller shall allow (or, as applicable, cause its Affiliates to allow) the Company to use the warehouse at the IVIMA facility in the same manner in which the Company has historically used such warehouse for a period of six (6) months from the date hereof, without charge.
8.7. Cancellation and Replacement of Guarantees. The Seller (and its Affiliates) shall be entitled to cancel any guarantees, sureties, warranties and credit support agreements listed on Annex 4.15 given by the Seller (or any of its Affiliates) for the benefit of the Company; provided that the Seller either (i) notifies the Purchaser of its intention to cancel any such guarantee, surety, warranty or credit support on or before the Closing Date, in which case the Purchaser shall (or shall cause an Affiliate to) replace any such guarantee, surety, warranty or credit support as soon as possible after the Closing Date and the cancellation shall only become effective as of the date of replacement, or
34
(ii) notifies the Purchaser of its intention to cancel any such guarantee, surety, warranty or credit support at such later date as the Seller may elect in its sole discretion, provided that the Seller notifies the Purchaser thirty (30) days or more in advance, in which case the cancellation shall become effective as of such later date elected by the Seller.
8.8. Government Incentive Contract.
(a) Reduction of Non-reimbursable Loans (incentivos nao reembolsaveis)
(i) If, after the Closing Date but before the date on which the Closing Statement becomes final, either (a) the Company is required to reimburse to the relevant Governmental Authority any amounts that were characterized as non-reimbursable loans (incentives nao reembolsaveis) on the Government Incentive Contract Statement, or (b) such Governmental Authority otherwise requires the Company to pay any amounts (including interest, fees or penalties) in excess of those included in
Section 1.2(a)(i)(a), then the amount that has been recharacterized or that the Company must pay shall be treated as Closing Indebtedness for purposes of the Closing Statement.
(ii) If, on or after the date on which the Closing Statement becomes final, either (a) the Company is required to reimburse to the relevant Governmental Authority any amounts that were characterized as non-reimbursable loans (incentives nao reembolsaveis) for purposes of the Closing Statement, or (b) such Governmental Authority otherwise requires the Company to pay any amounts (including interest, fees or penalties) in excess of those included as Indebtedness in the Closing Statement, then the amount that has been recharacerized or that the Company must pay shall be treated as a post-Closing adjustment to the Closing Indebtedness and the Seller shall pay such amount to the Company within five (5) days of receiving notice from the Company that such amount is due.
(b) Additional Non-reimbursable Loans (incentivos nao reembolsaveis)
(i) If, after the Closing Date but before the date on which the Closing Statement becomes final, either (a) the relevant Governmental Authority characterizes any amount that was treated as reimbursable loans (incentivos reembolsaveis) on the Government Incentive Contract Statement as non-reimbursable loans (incentivos nao reembolsaveis) under the Government Incentive Contract, or (b) the Company receives from such Governmental Authority in the form of cash any non-reimbursable loans (incentivos nao reembolsaveis) under the Government Incentive Contract that was not included in the Government Incentive Contract Statement, then the amount that has been recharacterized or received shall be treated as Closing Cash for purposes of the Closing Statement.
(ii) If, on or after the date on which the Closing Statement becomes final, either (a) the relevant Governmental Authority characterizes any
35
amount that was treated as reimbursable loans (incentivos reembolsaveis) for purposes of the Closing Statement as non-reimbursable loans (incentivos nao reembolsaveis) under the Government Incentive Contract, or (b) the Company receives from such Governmental Authority in the form of cash any non-reimbursable loans (incentivos nao reembolsaveis) under the Government Incentive Contract, then the amount that has been recharacterized or received shall be treated as a post-Closing adjustment to the Closing Cash and the Purchaser shall pay such amount to the Seller within five (5) days of receiving or being credited such amount from the relevant Governmental Authority.
(c) Late payments under this Section 8.8 shall bear interest at a rate per annum equal to EURIBOR for three (3) month interbank loans plus two and a half percent (2.5%) calculated on the basis of a three hundred sixty-five (365) day year and the actual number of days elapsed, from the date such payment was due.
8.9 Payments for Furnace Repair. If the Company receives any bills or invoices associated with the repair of furnace number 1 due to the events having occurred prior to the date hereof for amounts not listed on a statement showing the Initial Payment calculation to be provided by the Seller on the Closing Date, the Company shall promptly notify the Seller of any bills or invoices it receives after the Closing Date related to such repair, and the Seller shall pay to the Company such amounts concurrently with the time at which they become due to third parties. The Seller shall be entitled to any insurance proceeds collected by the Company from its insurers in relation thereto. The Company shall pay the Seller an amount equal to proceeds received from the insurance company relating to such repair as soon as possible, but in no event later than five (5) days, after the Company is aware that they have been received.
ARTICLE 9
CONDITIONS TO CLOSING; TERMINATION
9.1. Conditions to Each Party's Obligations. Each Party's obligation to consummate the Transaction contemplated hereby at the Closing is subject to the fulfillment to each Party's satisfaction on or before the Closing Date of each of the following conditions:
(a) Approvals and Consents. All Consents required for the consummation of the Transaction or for preventing the termination of any material Permit, Contract, Consent or other right of the Company upon the consummation of the Transaction shall have been obtained in writing and shall be in full force and effect on the Closing Date.
(b) No judgment. No Judgment or Law shall be in effect preventing or imposing any materially adverse conditions on the consummation of the Transaction.
(c) No proceedings. No Proceeding that seeks, or may seek to prevent, or questions the validity or legality of the Transaction shall be pending or, to the extent that there is a reasonable basis for such threat, threatened as of the Closing Date, and no Person shall have given any notice, made any claim or
36
submitted any other communication to any Party threatening any such Proceeding or otherwise seeking to prevent or questioning the validity or legality of the Transaction.
9.2. Conditions to the Purchaser's Obligations. The Purchaser's obligation to consummate the Transaction on the Closing Date is subject to the fulfillment of each of the following conditions, to its reasonable satisfaction, on or before the Closing Date. These conditions are for the exclusive benefit of the Purchaser, which may waive such conditions, in whole or in part, in writing at any time before the Closing.
(a) Representations and Warranties. The representations and warranties of the Seller set out in this Agreement shall be true and correct in all material respects on the date or dates as of which such representations and warranties are made.
(b) Performance. The Seller and the Company shall have performed or complied with each covenant, agreement and condition set out in this Agreement that it is to perform or comply with on or before the Closing Date.
(c) No Material Adverse Effect. The Company shall not have undergone or suffered, between the date hereof and the Closing Date, any change in its financial condition, income, properties, Liabilities (whether due or to become due) or operations that has been, or could reasonably be expected to be, individually or in the aggregate, materially adverse to the Company.
(d) Contractual Waivers. The Seller shall have delivered to the Purchaser evidence reasonably satisfactory to it of the waiver of any right to terminate any Contract listed in Annex 4.15 by the third party or parties entitled to such right to terminate such Contract under applicable change in control provisions.
(e) Outlet Store. The lease relating to the outlet store located on the Company's property shall have been terminated and the assets at the outlet store shall be owned by the Company in accordance with
Section 8.3.
(f) Furnace Repair. The Seller shall have delivered to the Purchaser a statement from Nikolaus Sorg GmbH & Co. KG confirming that the work relating to the repair has been completed satisfactorily and consistent with commercial standards.
9.3. Conditions to the Seller's Obligations. The Seller's obligation to sell and transfer the Original Shares on the Closing Date is subject in addition to the fulfillment of each of the following conditions, to its reasonable satisfaction, on or before the Closing Date. These conditions are for the exclusive benefit of the Seller, which may waive such conditions, in whole or in part, in writing at any time before the Closing:
(a) Representations and Warranties. The representations and warranties of the Purchaser set out in this Agreement shall be true and correct in all material respects on the date or dates as of which such representations and warranties are made.
37
(b) Performance. The Purchaser shall have performed or complied with each covenant, agreement and condition set out in this Agreement that it is to perform or comply with on or before the Closing Date.
(c) Guarantee Letter. The Purchaser shall have obtained and delivered to the Seller a guarantee letter from Libbey Inc. in the form attached as Annex 2.2(c).
9.4. Termination. If all the conditions set forth in this Article 9 are not met or waived on or before January 31, 2005, or such later date on which the Parties may agree in writing, any Party may terminate this Agreement and the transactions contemplated hereby, at any time after such date and with immediate effect, in which case no compensation or indemnification, except as specifically provided for under this Agreement, shall be owed by either Party to the other.
ARTICLE 10
MISCELLANEOUS
10.1. Arbitration. Any disputes that may arise out of or in connection with this Agreement shall be settled finally and exclusively by arbitration by a single arbitrator appointed and proceeding in accordance with the Rules of Arbitration of the International Chamber of Commerce. The arbitration tribunal shall be located in Paris, France.
10.2. Language. All submissions and awards in relation to arbitration under this Agreement shall be made in English and all arbitration proceedings and all pleadings shall be in English.
10.3. Waiver; Enforcement. Any award made pursuant to this Article 10 shall be final and not subject to appeal. The Parties hereby waive all challenges to any such award. Any Party may present any such award in any court of competent jurisdiction for enforcement. In any such enforcement action, regardless of location, no Party will (and the Parties hereby waive any right to) seek to invalidate or modify the decision of the arbitrators or otherwise to invalidate or circumvent the procedures set out in this Article 10. The Parties understand and agree that this Article 10 may be specifically enforced by injunction or otherwise in any court of competent jurisdiction.
10.4. Right to Set-off. Any amount payable by one Party to the other Party under this Agreement that is not disputed by the other Party or that is the result of an arbitration proceeding in accordance with this Article 10 may be set off against any amount owed to such Party by such other Party under this Agreement that itself is not disputed by the other Party or that is the result of an arbitral or judicial process.
ARTICLE 11
INTERPRETATION; DEFINITIONS
11.1. Headings. The Article headings in this Agreement are for convenience of reference only and shall not be deemed in themselves to have any contractual value or particular interpretation.
38
11.2. Definitions. As used in this Agreement, the following terms shall have the following meanings:
"2003 FINANCIAL STATEMENTS" has the meaning given to it in Section 4.7(a).
"2004 FINANCIAL STATEMENTS" has the meaning given to it in Section 4.7(b).
"AFFILIATE" means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person. As used in this definition of Affiliate, "control" shall mean (a) the direct or indirect ownership of more than fifty percent (50%) of the total voting securities or other evidences of ownership interest of such Person, or (b) the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
"AGREEMENT" has the meaning given to it in the preamble hereto and shall be deemed to include all Annexes hereto.
"API" means Agencia Portuguesa para o Investimento.
"APPLIED ON A CONSISTENT BASIS" or "CONSISTENT BASIS" means, with respect to the Company, except as otherwise herein provided, prepared using the same accounting principles, policies, standards, practices and estimates consistently used by the Company in prior periods and as used in the preparation of the Company's most recent audited financial statements.
"BUSINESS DAY" means a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in New York and Lisbon.
"CLAIM" has the meaning given to it in Section 7.4.
"CLAIM NOTICE" has the meaning given to it in Section 7.4.
"CLOSING" has the meaning given to it in Section 2.1.
"CLOSING CASH" means the sum of the Company's cash on hand (including cash in immediately available funds) and amounts credited to the Company's bank accounts as of the end of the day on the Closing Date (but excluding any amounts that were credited but become uncollectible prior to the date on which the Closing Statement becomes final).
"CLOSING DATE" has the meaning given to it in Section 2.1.
"CLOSING INDEBTEDNESS" means the total amount of Indebtedness of the Company as of the end of the day on the Closing Date.
"CLOSING STATEMENT" has the meaning given to it in Section 1.4(a).
"COMPANY" has the meaning given to it in the recitals hereto.
39
"CONFIDENTIAL INFORMATION" means information concerning the business of the Company (whether prepared by the Seller, the Company or otherwise and irrespective of the form any such information is documented and communicated) which has been or is furnished to the Purchaser, its representatives or its professional advisers by or on behalf of the Seller, including all notes, analyses, compilations, studies, interpretations or other documents prepared by the Purchaser or its representatives that contain or reflect in whole or in part, the information furnished to the Purchaser, its representatives or its professional advisers by or on behalf of the Seller; provided, however, that Confidential Information does not include information which (i) is or becomes available to the public other than as a result of a disclosure by the Purchaser, its representatives or its professional advisers (or any one of them), (ii) the Purchaser is able to establish was in its or any of its representatives' or professional advisers' possession prior to it being furnished by or on behalf of the Purchaser pursuant thereto, (iii) becomes available to the Purchaser or any of its representatives or professional advisers on a non-confidential basis from a source other than the Seller, the Company or any of their representatives, provided that to the Purchaser's knowledge such source is not bound by a confidentiality agreement with or to the Seller or any other party with respect to such information, or (iv) is developed by the Purchaser or any of its representatives or professional advisers independently of information provided by or on behalf of the Seller.
"CONTINGENCY PAYMENT STATEMENT" has the meaning given to it in Section 1.3(d).
"CONSENT" means any consent, waiver, approval, positive advice, authorization, exemption, registration, license or declaration of or by, or filing with, any Person.
"CONTRACT" means any agreement, contract, commitment or undertaking, whether or not in writing, to which the Company is a party or made by or given to the Company.
"DAMAGES" means all Liabilities, penalties, expenses, fees or actual losses suffered by any party (including reasonable attorney's fees), in each case after the application of any amounts recovered by that Party, directly or indirectly, under insurance contracts or similar arrangements (other than amounts recovered under such contracts or arrangements the premiums of which are adjusted by an amount equal to any proceeds paid), and after subtraction of any amounts recovered from third parties by the damaged party, directly or indirectly.
"DECLARATION" means the consent of API, which is required under the Government Incentive Contract, to the transfer to the Purchaser of the capital stock in the Company held by the Seller.
"DEFERRED PAYMENT" has the meaning given to it in Section 1.2(c).
"EARN-OUT PAYMENT" has the meaning given to it in Section 1.3(a).
"EBITDA" means , with respect to any period, net income for such period, plus interest, taxes (as determined below), depreciation and amortization that would have been deducted in determining net income for such period, subject to the following:
40
(a) Provisions for doubtful receivables, excess and obsolete inventory and other risks and charges, all as recorded in general ledger account 67 to 679, shall not be deducted in determining net income.
(b) Extraordinary costs and expenses unrelated to the normal operations of the Company, including costs for restructuring and severance payments to former employees and other costs and expenses, all as recorded in general ledger accounts 69 through 698, shall not be deducted in determining net income.
(c) Extraordinary income and gains unrelated to the normal operations of the Company, including amortization of provisions and gains on the sale of operating assets of the Company, and other income and gains, all as recorded in general ledger accounts 79 through 798, shall not be included in determining net income.
(d) For purposes of the definition of EBITDA, taxes shall be the amount recorded in general ledger account 861.
(e) For purposes of the definition of EBITDA, interest shall include other costs and financial expenses, as recorded in general ledger accounts 68 through 688, reduced by income and financial gains as recorded in general ledger accounts 78 through 788.
(f) Notwithstanding the foregoing, EBITDA shall not include income or loss of Printglass or any other Person acquired by the Company after the Closing Date, whether recognized by the Company through recording equity earnings, dividend distributions or consolidation accounting.
(g) Notwithstanding the foregoing, the Parties agree that, in relation to Claims for indemnification by the Purchaser or the Company (or their Affiliates) to the Seller (or its Affiliates),
(i) for amounts relating to such Claims that are accepted by the Seller (i.e., Claims that are not in dispute), any amounts paid by the Purchaser or the Company shall be deducted in determining net income and any amounts received by the Purchaser or the Company from the Seller (or its Affiliates) shall be included in determining net income;
(ii) for amounts relating to such Claims that are disputed by the Seller, such amounts shall only be deducted in determining net income if (x) the indemnification Claims arise from Third Party Claims, assessments or directives relating to Tax or environmental issues, and (y) such amounts in the aggregate equal or exceed six hundred thousand euro ((euro)600,000) during a calendar year in the case of the Initial Earn-out Calculation Period or during a consecutive four (4) quarter period during the Extended Earn-out Calculation Period, in which case the total amount of such Claims shall be deducted;
(iii) the Purchaser shall not be entitled to deduct internal costs relating to any indemnification Claim; provided, however, for the avoidance of doubt, that the Purchaser shall be entitled to deduct legal counsel fees,
41
expert fees (subject to the Seller's consent to retaining such expert, not to be unreasonably withheld), court fees and other related third party expenses; and
(iv) any amounts deducted from or added to net income under this
Section (g) shall only be deducted or added one time; provided, however, that if such addition or deduction is made during the Extended Earn-out Calculation Period, it shall be included in the calculations for four (4) consecutive four (4) quarter periods.
"EBITDA START DATE" has the meaning given to it in Section 1.3(a)(iv).
"ENCUMBRANCE" means any mortgage, security interest, lien, pledge, claim, right of first refusal, right to use or occupy, option, charge, covenant, lease, order, Judgment, settlement, attachment or any other similar restriction, except as fairly disclosed under relevant annexes to this Agreement, and actually affecting title to the assets or rights related thereto and their economic value.
"ENVIRONMENT" means soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.
"ESCROW AGENT" means Bilbao Viscaya Bank.
"EXTENDED EARN-OUT CALCULATION PERIOD" has the meaning given to it in
Section 1.3(a)(ii)(a).
"FINANCIAL STATEMENTS" has the meaning given to it in Section 4.7(b).
"GOVERNMENTAL AUTHORITY" means any government or governmental or regulatory body or political subdivision thereof (or similar body), whether supranational, federal, state, local or foreign, or any agency or instrumentality thereof, or any court or arbitrator (public or private).
"GOVERNMENT INCENTIVE CONTRACT" means the contract listed on Annex 4.17 entered into between the Company, the Seller and API, dated July 14, 2003.
"GOVERNMENT INCENTIVE CONTRACT STATEMENT" has the meaning given to it in
Section 1.2(b)(i).
"INDEBTEDNESS" means, in each case as determined under Portuguese GAAP, any: (i) amounts borrowed from any Person, whether or not under normal commercial lending terms or upon the issue of bills, bonds or notes (including, for the avoidance of doubt, all amounts borrowed under the Government Incentive Contract and all balances between the Company and the Seller or its Affiliates); (ii) monetary Liabilities (whether due or to become due) under financial leases (other than financial leases relating to vehicles, including trucks); (iii) monetary Liabilities (whether due or to become due) in connection with receivables sold or discounted; (iv) monetary Liabilities (whether due or to become due) under foreign exchange contracts and all derivative instruments (including, without limitation, any interest or currency
42
protection, hedging or financial future transactions); (v) monetary Liabilities (whether due or to become due) under the Plan; and (vi) accrued interest, prepayment penalties or other costs of discharge relating to the matters set out in clauses (i) through (v).
"INDEBTEDNESS STATEMENT" has the meaning given to it in Section 1.2(b)(ii).
"INDEMNIFIED PARTY" has the meaning given to it in Sections 7.1 and 7.2.
"INDEMNIFYING PARTY" has the meaning given to it in Section 7.4.
"INDEPENDENT ACCOUNTANT" means a member firm of Pricewaterhouse Coopers International Limited or such other accountant on which the Parties may agree in writing.
"INITIAL EARN-OUT CALCULATION PERIOD" has the meaning set forth in Section 1.3(a)(i)(a).
"INITIAL PAYMENT" has the meaning given to it in Section 1.2(a)(i).
"INTELLECTUAL PROPERTY RIGHTS" means any patents, trademarks, trade names, designs, copyrights and other similar industrial or intellectual property rights.
"IVIMA" means Nova IVIMA - Industria do Vidro, SA.
"JUDGMENT" means any judgment, order, injunction, ruling, award or administrative act of any court, arbitrator, judicial or administrative authority or other Governmental Authority.
"LAW" means any statute, act, law, directive, code, regulation, rule, order, decision or Judgment of any Governmental Authority.
"LIABILITY" means any liability or obligations of any nature, whether known or unknown, accrued, absolute, contingent or otherwise, upon it becoming due (except as otherwise specifically provided herein).
"MERGER NOTIFICATION" means the notification of the Transaction contemplated under this Agreement to the relevant authorities in Brazil under applicable Laws.
"NET SALES" means, with respect to any period, the amount invoiced during such period to customers for products and services (net of Value Added Tax), less deductions allowed or accrued for discounts, returns, price and quality differences, and annual bonus incentive programs (rappel), in each case as recorded in general ledger accounts 71 through 729.
"ORDINARY COURSE OF BUSINESS" means (i) the usual, regular and ordinary course of the business conducted by the Company consistent with past practice and custom, and (ii) all transactions being conducted on an arm's length basis.
"ORIGINAL SHARES" has the meaning given to it in Section 1.1(a)(i).
"PARTY" and "PARTIES" have the meanings given to them in the preamble hereto.
43
"PERFORMANCE PAYMENT" has the meaning given to it in Section 1.2(c).
"PERMIT" means any permit, license or similar instrument, in each case as required for the Company to carry out in all material respects its business substantially as currently conducted.
"PERMITTED ENCUMBRANCES" means (i) liens for Taxes not yet due, (ii) warehousemen's, mechanics', carriers', landlords', employees', repairmen's or similar liens imposed by applicable Law, created in the Ordinary Course of Business and for amounts not yet due and payable, (iii) minor imperfections of title or minor Encumbrances that in the aggregate do not materially detract from the value of the property subject thereto or impair in any material respect the use of the property subject thereto, and (iv) leases of property owned by the Company.
"PERSON" means any individual, partnership, corporation, trust, unincorporated organization, Governmental Authority or other entity.
"PLAN" has the meaning given to it in Section 4.20(b).
"PORTUGUESE GAAP" means the generally accepted accounting principles applicable in Portugal and accounting rules and regulations applicable to the Company.
"PRINTGLASS" means Printglass - Transformacao de Vidro LDA.
"PROCEEDING" means any legal, administrative, arbitration or other alternative dispute resolution suit, action, investigation, inquiry or other proceeding initiated by any Person, Governmental Authority or other party.
"PURCHASER" has the meaning given to it in the preamble hereto.
"RELATED PERSON" means, with respect to any entity, any stockholder, member of the board of directors or officer of such entity or any relative of any such person.
"RELEASE" means any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping or other releasing into the Environment, whether intentional or unintentional.
"REMAINING SHARES" has the meaning given to it in Section 1.1(a)(ii).
"REMAINING SHARES ESCROW AGREEMENT" has the meaning given to it in Section 1.2(d).
"REMAINING SHARES PURCHASE DATE" has the meaning given to it in Section 1.1(a)(ii).
"SELLER" has the meaning given to it in the preamble hereto.
"SELLER'S CLOSING STATEMENT OBJECTION" has the meaning given to it in
Section 1.4(b).
"SELLER'S CONTINGENCY PAYMENT OBJECTION" has the meaning given to it in
Section 1.3(d).
44
"SHARES" has the meaning given to it in the recitals hereto.
"SOCIAL" means related to Social Charges.
"SOCIAL CHARGE" shall mean any social security contribution and any other charge or liability relating to employment, including contributions relating to unemployment, medical costs, disability, death, pensions, retirement and vacation.
"SUBSIDY" means any governmental, quasi-governmental or other public and private grant or subsidy that provides any reimbursement, refund, abatement, Tax reduction bonus, exemption, discounted loan, rebate or other advantage or benefit, including without limitation, the Government Incentive Contract.
"TAX" and "TAXES" mean any taxes and more generally any mandatory levies (including their principal amount and, as the case may be, penalties, surcharges and interest thereon) whatever their legal characterization and beneficiary may be, including, without limitation: (i) corporation taxes, withholding taxes, Value Added Tax (V.A.T.), excise taxes, property taxes, business taxes, custom duties, transfer and contribution taxes, stamp duty, registration taxes and any taxes based on salaries, (ii) any duty paid in consideration for a service provided to the Company, (iii) any Liability (whether due or to become due) of the Company determined on the basis of any tax or by reference to any taxable basis, and (iv) any tax due by a Person other than the Company and for which the Company would be liable. Where used as an adjective, "TAX" means related to Taxes.
"TOTAL PAYMENT AMOUNT" has the meaning given to it in Section 7.9.
"TRANSACTION" means the sale and transfer of the Shares pursuant to this Agreement and all (i) actions to be taken and (ii) transactions and agreements to be entered into, pursuant to this Agreement.
"THIRD PARTY CLAIM" has the meaning given to it in Section 7.5(a).
"THIRD PARTY CLAIM NOTICE" has the meaning given to it in Section 7.5(a).
"U.S. GAAP" means generally accepted accounting principle in the United States.
ARTICLE 12
GENERAL PROVISIONS
12.1. Cooperation. Each of the Parties shall make every effort to ensure that all measures necessary or useful for the completion of the Transaction are taken in a timely manner. Each of the Parties shall also take all necessary steps to permit the other Party and its attorneys to ascertain the satisfactory performance of all of its undertakings made herein.
12.2. Announcements. After the date hereof, the Parties shall not issue or cause the publication of any press release or other announcement with respect to this Agreement or the Transaction without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, in the event any such press release or announcement is required by or warranted (in the
45
opinion of legal counsel) under applicable Law to be made by the Party proposing to issue the same, such Party shall use its best efforts to consult in good faith the other Party before the issuance of any such press release or announcement.
12.3. Assignment.
(a) Any Party may transfer some or all of its rights and obligations under this Agreement to any of its Affiliates, provided that such Party remains jointly liable for all obligations under this Agreement.
(b) This Agreement and the rights and obligations arising out of it shall not otherwise be transferable, either in whole or in part, without the prior written consent of the other Party.
12.4. Third Party Beneficiaries. The Parties intend the Company to be a third-party beneficiary of this Agreement and for it to remain a third-party beneficiary of this Agreement, notwithstanding any sale of any or all of the Shares to any third party. Except for the foregoing, nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person other than the Parties and their successors and assigns any rights or remedies under or by reason of this Agreement.
12.5. Entire Agreement. This Agreement (including the annexes hereto) represents the entire agreement existing between the Parties relative to the subject matter hereof and supersedes all previous negotiations, discussions, correspondence, communications, understandings and agreements between the Parties relating to the subject matter of this Agreement. This Agreement may not be amended except by a written instrument signed by the Parties.
12.6. Severability. If any provision of this Agreement is held to be invalid in whole or in part, the validity of the remaining provisions of the Agreement shall not be affected thereby. In such event, the Parties shall, to the extent possible, substitute for such invalid provision a valid provision corresponding to the spirit and purpose thereof.
12.7. Notices and Communications. All notices and other communications required under or in connection with this Agreement shall be in writing and, except as otherwise expressly provided herein, shall be deemed to have been given when delivered in person, on the date of confirmed delivery by a nationally recognized overnight courier service, or in any other case upon actual receipt by the intended recipient. All such notices and other communications shall be dispatched to the appropriate Party at the address specified below:
If to the Purchaser, to:
Libbey Inc.
300 Madison Avenue
Toledo, OH 43604
U.S.A.
Attention: General Counsel
46
With a copy to:
Libbey Europe B.V.
Lingedijk 8
4142 LD Leerdam
The Netherlands
Attention: Managing Director
If to the Seller, to:
VAA - Vista Alegre Atlantis SGPS, SA,
Largo Barao de Quintela, 3-1(degree), 1200-046 Lisbon
Portugal
Attention: General Counsel
or to such other addressee as the addressees above shall indicate to the other Party in accordance with the provisions of this Section 12.7.
12.8. Costs. Unless otherwise stipulated herein, each Party shall be responsible for the payment of all fees and costs incurred by it in connection with this Agreement and the transactions contemplated hereby, including the fees and disbursements of their respective financial advisors, accountants and counsel.
12.9. No Waiver. The failure to exercise or delay in exercising a right or remedy under this Agreement shall not constitute a waiver of the right or remedy or a waiver of any other rights or remedies and no single or partial exercise of any right or remedy under this Agreement shall prevent any further exercise of the right or remedy or the exercise of any other right or remedy.
12.10. Specific Performance. The performance of any of the obligations under this Agreement shall be subject to specific performance ("Execucao Especifica") as set forth in article 830(0) of the Portuguese Civil Code, if applicable.
12.11. Governing Law. This Agreement shall be governed by the Laws of Portugal.
47
Done in Lisbon, on January 10, 2005 in two original copies.
VAA-VISTA ALEGRE ATLANTIS SGPS, SA

by: /s/ Bernardo Luis de Azevedo de Vasconcellos e Souza
    -----------------------------------------------------
Name: Bernardo Luis de Azevedo de Vasconcellos e Souza
Title: Chairman of the Board of Directors	

VAA-VISTA ALEGRE ATLANTIS SGPS, SA

by: /s/  Rui Manuel Rego Lopes Ferreira
   -----------------------------------------------------
Name: Rui Manuel Rego Lopes Ferreira
Title: Director	

LIBBEY EUROPE B.V.

by: /s/ Kenneth G. Wilkes
   -----------------------------------------------------
Name: Kenneth G. Wilkes
Title: Managing Director	

LIBBEY EUROPE B.V.

by: /s/ Tom Buch
    -----------------------------------------------------
Name: Tom Buch
Title: Managing Director	

48
CLOSING ACKNOWLEDGEMENT
CLOSING ACKNOWLEDGEMENT, dated as of January 10, 2005, by and among VAA - Vista Alegre Atlantis SGPS, S.A., a sociedade anonima duly incorporated and organized under the laws of Portugal with its registered office at Largo Barao de Quintela, 3-1(degree), 1200-046 Lisbon, Portugal (the "SELLER") and Libbey Europe B.V., a company organized under the laws of the Netherlands with its principal place of business at Lingedijk 8, 4142 LD Leerdam, the Netherlands (the "PURCHASER" and, each of the Seller and the Purchaser, a "PARTY"). Capitalized terms used but not defined herein have the meanings specified in the Stock Promissory Sale and Purchase Agreement (the "PURCHASE AGREEMENT") entered into by the Seller and the Purchaser on the date hereof.
The Purchaser hereby represents that each of the conditions to Closing in Sections 9.1 and 9.3 of the Purchase Agreement have been fulfilled and the Seller does not need to provide any waivers thereunder. The Seller hereby represents that each of the conditions to Closing in Sections 9.1 and 9.2 of the Purchase Agreement have been fulfilled and the Purchaser does not need to provide any waivers thereunder, except in relation to the following sections of the Purchase Agreement:
a) the covenant contained in Section 6.11, compliance with which is required by Section 9.2;
b) the representations contained in Sections 4.4 and 4.9, compliance with which is required by Section 9.2(a), and the covenant contained in Section 6.13(a), compliance with which is required by Section 9.2(b), to the extent that these sections relate to the Microsoft, BAAN licenses or other software licenses; and
c) Section 9.2(f).
The Purchaser hereby waives, as a condition to Closing, fulfillment of Sections 6.11, 6.13(a) and 9.2(f) and compliance with Sections 4.4 and 4.9, and the Seller hereby covenants to (a) provide as soon as possible but in no event later than seventy-five (75) days from the date hereof the transfer pricing file and any other documentation and information relating thereto required by the relevant Governmental Authority; (b) secure as soon as possible but in no event later than thirty (30) days from the date hereof the software licenses mentioned above in the name of the Company; and (c) provide as soon as possible but in no event later than thirty (30) days from the date hereof a statement from Nikolaus SORG GmbH & Co. The Seller acknowledges that it will be liable for any penalties, fines, and costs relating to such transfer file, the securing of the software licenses and the use of the software prior thereto, and the costs of the statement from Nikolaus SORG GmbH & Co. The Seller further agrees that Sections 7.7 and 7.8 of the Purchase Agreement shall not apply to any Claims in relation to any of the above and that Section 7.9 shall not apply to Claims in relation to the transfer pricing file.
The Parties acknowledge that the Closing is occurring on the date hereof. The Parties further acknowledge that, on the date hereof, the Purchaser is giving an irrevocable transfer order for payments for the Company's account in the following amounts to the following entities, which amounts are included on the Indebtedness Statement provided by the Seller and are being deducted from the Initial Payment pursuant to Section 1.2(a)(i): two million
49
two thousand two hundred seventy-four euro and eleven cents ((euro) 2,002,274.11) to Banco Espirito Santo SA; one million two hundred eighty-nine thousand three hundred fifteen euro and sixty-six cents ((euro) 1,289,315.66) to Fortis Bank; and one million five hundred eighty-nine thousand four hundred ninety-seven euro and twelve cents ((euro) 1,589,497.12) to Banco BPI, SA. In accordance with Section 1.2(a)(i) of the Share Purchase Agreement, the Purchaser is giving an irrevocable transfer order for payment to the Seller in the amount of sixteen million one hundred one thousand five hundred sixty-nine euro and nine cents ((euro) 16,101,569.09) on the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Closing Acknowledgement as of the day and year first above written.
VAA-VISTA ALEGRE ATLANTIS SGPS, SA

by: /s/ Bernardo Luis de Azevedo de Vasconcellos e Souza
    -----------------------------------------------------
Name: Bernardo Luis de Azevedo de Vasconcellos e Souza
Title: Chairman of the Board of Directors

by: /s/ Rui Manuel Rego Lopes Ferreira
   ------------------------------------------------------
Name: Rui Manuel Rego Lopes Ferreira
Title: Director	

LIBBEY EUROPE B.V.

by: /s/ Kenneth G. Wilkes
   ------------------------------------------------------
Name: Kenneth G. Wilkes
Title: Managing Director

by: /s/ Tom Buch
   ------------------------------------------------------
Name: Tom Buch
Title: Managing Director	

50
Annex 2.2(c)
[LIBBEY LETTERHEAD]
January 10, 2005
To: VAA - Vista Alegre Atlantis SGPS, SA Largo Barao de Quintela, 3-1(o), 1200-046 Lisbon
Portugal
Libbey Inc. (the "Guarantor") hereby refers to the Stock Promissory Sale and Purchase Agreement by and between VAA - Vista Alegre Atlantis SGPS, SA (the "Seller") and Libbey Europe B.V. (the "Purchaser"), dated January 10, 2005 (the "Purchase Agreement"). Terms used but not defined herein shall have the meaning given to them in the Purchase Agreement.
The Guarantor hereby constitutes itself jointly and severally liable, together with the Purchaser, with respect to the due and punctual payment, if and when such payment becomes due and payable, of the Earn-out Payment under
Section 1.3 of the Purchase Agreement, waiving any rights of prior execution of Purchaser's assets (beneficio de excussao previa) pursuant to Article 638 of the Civil Code (the "Guarantee").
The Guarantor agrees that the following terms and conditions shall apply to the Guarantee:
1. Procedure. If and when the Purchaser shall fail to pay the Earn-out Payment (if and when such payment becomes due and payable), the Guarantor shall pay such amount to the Seller upon its first demand. The Seller shall make such demand by providing a written notice to the Guarantor to the effect that the amount that has become due and payable has not been paid by the Purchaser within the time provided in the Purchase Agreement. Except as provided in this Section 1, the Seller shall not be required to give notice to or exercise any right or remedy against the Purchaser or to take any other step prior to making a demand under this Guarantee.
2. Guarantee of Payment. This Guarantee constitutes a guarantee of payment when due.
3. Amount of Payment. The amount of any Earn-out Payment due to the Seller shall be reduced by (a) any amounts the Purchaser is permitted to set-off under Section 10.4 of the Purchase Agreement, and (b) any partial payments of the Earn-out Payment made by the Purchaser in accordance with the Purchase Agreement.
4. Terms of Payment. All payments due under this Guarantee shall be paid by the Guarantor to the Seller within seven (7) days following notice by the Seller in accordance with Section 1. All such payments shall be made in euros, for same day value, by wire transfer to the bank account notified in writing by the Seller to the Guarantor in such notice.
5. Representations and Warranties. The Guarantor represents and warrants that the following statements are true, valid and correct as of the date hereof and will remain true, valid and correct during the Term of this Guarantee:
(a) The Guarantor is a corporation duly organized and validly existing under the Laws of its jurisdiction of incorporation.
(b) The Guarantor has the power and authority to enter into this Guarantee and to carry out its obligations hereunder. The Guarantor has duly authorized the execution of this Guarantee and no other corporate action on the part of the Guarantor is necessary to authorize the execution by it of this Guarantee.
(c) This Guarantee has been duly executed by the Guarantor and constitutes a legal, valid and binding obligation of the Guarantor, enforceable against it in accordance with its terms.
6. Term. This Guarantee shall remain in full force and effect until the Earn-out Payment, if any, has been paid in full to the Seller.
7. Governing Law; Arbitration. This letter shall be governed by the laws of Portugal. Any disputes that may arise out of or in connection with this letter shall be settled finally and exclusively by arbitration by a single arbitrator appointed and proceeding in accordance with the Rules of Arbitration of the International Chamber of Commerce. The arbitration tribunal shall be located in Paris, France.
8. Entire Agreement. This letter represents the entire agreement existing between the Guarantor and the Seller relative to the subject matter hereof and supersedes all previous negotiations, discussions, correspondence, communications, understandings and agreements between the Guarantor and the Seller relating to the subject matter of the Guarantee. This letter may not be amended except by a written instrument signed by the Guarantor and the Seller.
9. Assignment. The Seller may transfer some or all of its rights under this Guarantee to any of its Affiliates. The rights of the Seller under this Guarantee shall not otherwise be transferable, either in whole or in part, without the prior written consent of the Guarantor.
10. Notices. All notices and other communications in connection with this Guarantee shall be in writing and, except as otherwise expressly provided herein, shall be
2
deemed to have been given when delivered in person, on the date of confirmed delivery by a nationally recognized overnight courier service, or in any other case upon actual receipt by the intended recipient. All such notices and other communications shall be dispatched to the appropriate party at the address specified below:
If to the Guarantor, to:
Libbey Inc.
300 Madison Avenue
Toledo, OH 43604
U.S.A.
Attention: General Counsel
With a copy to:
Libbey Europe B.V.
Lingedijk 8
4142 LD Leerdam
The Netherlands
Attention: Managing Director
If to the Seller, to:
VAA - Vista Alegre Atlantis SGPS, SA
Largo Barao de Quintela, 3-1(o)
1200-046 Lisbon
Portugal
Attention: General Counsel
or to such other addressee as the addressees above shall indicate to the other party in accordance with the provisions of this
Section 10.
3
IN WITNESS WHEREOF, the Guarantor has executed this letter as of the date first written above.
LIBBEY INC.

By:  /s/ Kenneth G. Wilkes
    ----------------------
    Name: Kenneth G. Wilkes
          ----------------
    Title: Managing Directory
           ------------------	

ACKNOWLEDGED AND ACCEPTED
VAA - VISTA ALEGRE ATLANTIS SGPS, SA
By: Bernardo Luis de Azevedo de Vasconcellos e Souza
 Name: Bernardo Luis de Azevedo de Vasconcellos e Souza Title: Chairman of the Board of Directors

4
 
.
.
.
EXHIBIT 13.1
TEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA

Dollars in thousands, except per-share and
  share amounts                                           2004 (a)    2003    2002(b)(f)   2001       2000      1999(e)
                                                         ---------  --------  ---------  ---------  ---------  --------
OPERATING RESULTS:
Net sales                                                $ 544,767  $513,632  $ 433,761  $ 419,594  $ 441,828  $460,592
Gross profit (e)                                         $ 100,462  $108,206  $ 107,928  $ 114,424  $ 138,099  $138,959
   Gross profit margin                                        18.4%     21.1%      24.9%      27.3%      31.3%     30.2%

Selling, general and administrative expenses             $  68,574  $ 68,479  $  56,631  $  55,716  $  61,185  $ 64,131
Income from operations (IFO) (e)                         $  23,895  $ 39,727  $  51,297  $  58,708  $  76,914  $ 73,837
   IFO margin                                                  4.4%      7.7%      11.8%      14.0%      17.4%     16.0%

Equity (loss) earnings - pretax                          $  (1,435) $  4,429  $   6,379  $   6,384  $  12,016  $  8,857
Other income (expense) (f)                               $   2,369  $  3,484  $ (12,740) $   3,500  $   3,765  $  4,410
Earnings before interest and income taxes
  (EBIT) (e) (f)                                         $  24,829  $ 47,640  $  44,936  $  68,592  $  92,695  $ 87,104
   EBIT margin                                                 4.6%      9.3%      10.4%      16.3%      21.0%     18.9%

Interest expense                                         $  13,049  $ 13,436  $   8,263  $   9,360  $  12,216  $ 12,501
Income before income taxes (e) (f)                       $  11,780  $ 34,204  $  36,673  $  59,232  $  80,479  $ 74,603
Provision for income taxes                               $   3,528  $  5,131  $   8,618  $  19,840  $  33,613  $ 31,175
   Effective tax rate                                         30.0%     15.0%      23.5%      33.5%      41.8%     41.8%
                                                         ---------  --------  ---------  ---------  ---------  --------
Net income (b) (e) (f)                                   $   8,252  $ 29,073  $  28,055  $  39,392  $  46,866  $ 43,428
                                                         =========  ========  =========  =========  =========  ========
   Net income margin                                           1.5%      5.7%       6.5%       9.4%      10.6%      9.4%

PER-SHARE AMOUNTS:
Diluted net income (b) (e) (f)                           $    0.60  $   2.11  $    1.82  $    2.53  $    3.01  $   2.64
Dividends paid                                           $    0.40  $   0.40  $    0.30  $    0.30  $    0.30  $   0.30

OTHER INFORMATION:
EBIT (c)                                                 $  24,829  $ 47,640  $  44,936  $  68,592  $  92,695  $ 87,104
Depreciation & amortization (b)                             29,505    28,109     19,143     18,843     18,352    18,753
                                                         ---------  --------  ---------  ---------  ---------  --------
EBITDA (c)                                               $  54,334  $ 75,749  $  64,079  $  87,435  $ 111,047  $105,857
                                                         =========  ========  =========  =========  =========  ========
   EBITDA margin                                              10.0%     14.7%      14.8%      20.8%      25.1%     23.0%

Employees (annual average)                                   3,808     3,838      3,510      3,218      3,270     3,552

BALANCE SHEET DATA:
Total assets                                             $ 578,204  $551,116  $ 524,527  $ 468,082  $ 446,707  $434,395
Total liabilities                                        $ 434,641  $411,259  $ 384,309  $ 302,717  $ 313,436  $342,552

Trade working capital (a)                                $ 151,007  $142,538  $ 127,945  $ 107,877  $ 126,384  $123,092
   % of net sales                                             27.7%     27.8%      29.5%      25.7%      28.6%     26.7%

Total debt                                               $ 225,372  $230,933  $ 191,178  $ 148,032  $ 161,404  $184,626

CASH FLOW DATA:
Net cash provided by operating activities                $  42,750  $ 29,210  $  55,001  $  52,930  $  37,423  $ 70,597
Capital expenditures                                        40,482    25,718     17,535     36,863     18,621    11,069
Acquisitions and related costs                                   -       513     62,046          -          -         -
Proceeds from asset sales and other                         16,623     1,410      3,523     (1,563)       (63)       94
Dividends received from equity investments                     980     4,900      4,659      4,918      2,940       517
                                                         ---------  --------  ---------  ---------  ---------  --------
Free cash flow (d)                                       $  19,871  $  9,289  $ (16,398) $  19,422  $  21,679  $ 60,139
                                                         =========  ========  =========  =========  =========  ========

Shares repurchased                                       $       -  $ 38,918  $  26,837  $   1,229  $   4,053  $ 42,828
Dividends paid                                           $   5,481  $  5,506  $   4,574  $   4,588  $   4,569  $  4,821

Dollars in thousands, except per-share and
  share amounts                                           1998(e)    1997      1996      1995
                                                         --------  --------  --------  ---------
OPERATING RESULTS:
Net sales                                                $436,522  $411,966  $397,656  $ 357,546
Gross profit (e)                                         $114,573  $116,957  $109,118  $  99,601
   Gross profit margin                                       26.2%     28.4%     27.4%      27.9%

Selling, general and administrative expenses             $ 54,191  $ 49,585  $ 44,620  $  38,953
Income from operations (IFO) (e)                         $ 40,336  $ 67,372  $ 64,498  $  60,648
   IFO margin                                                 9.2%     16.4%     16.2%      17.0%

Equity (loss) earnings - pretax                          $ 12,300  $  5,843  $      -  $       -
Other income (expense) (f)                               $  4,519  $  2,355  $  4,000  $   3,035
Earnings before interest and income taxes
  (EBIT) (e) (f)                                         $ 57,155  $ 75,570  $ 68,498  $  63,683
   EBIT margin                                               13.1%     18.3%     17.2%      17.8%

Interest expense                                         $ 12,674  $ 14,840  $ 14,962  $  13,974
Income before income taxes (e) (f)                       $ 44,481  $ 60,730  $ 53,536  $  49,709
Provision for income taxes                               $ 19,038  $ 24,604  $ 20,986  $  19,685
   Effective tax rate                                        42.8%     40.5%     39.2%      39.6%
                                                         --------  --------  --------  ---------
Net income (b) (e) (f)                                   $ 25,443  $ 36,126  $ 32,550  $  30,024
                                                         ========  ========  ========  =========
   Net income margin                                          5.8%      8.8%      8.2%       8.4%

PER-SHARE AMOUNTS:
Diluted net income (b) (e) (f)                           $   1.42  $   2.27  $   2.12  $    1.97
Dividends paid                                           $   0.30  $   0.30  $   0.30  $    0.30

OTHER INFORMATION:
EBIT (c)                                                 $ 57,155  $ 75,570  $ 68,498  $  63,683
Depreciation & amortization (b)                            19,506    19,896    21,485     18,158
                                                         --------  --------  --------  ---------
EBITDA (c)                                               $ 76,661  $ 95,466  $ 89,983  $  81,841
                                                         ========  ========  ========  =========
EBITDA margin                                                17.6%     23.2%     22.6%      22.9%

Employees (annual average)                                  3,969     4,136     4,110      3,870

BALANCE SHEET DATA:
Total assets                                             $439,671  $449,600  $315,733  $ 321,815
Total liabilities                                        $324,882  $349,611  $334,180  $ 368,931

Trade working capital(a)                                 $118,554  $123,783  $ 95,929  $  99,461
   % of net sales                                            27.2%     30.0%     24.1%      27.8%

Total debt                                               $191,232  $213,946  $209,233  $ 251,018

CASH FLOW DATA:
Net cash provided by operating activities                $ 54,325  $ 39,793  $ 64,639  $  31,565
Capital expenditures                                       19,579    19,585    19,812     22,709
Acquisitions and related costs                                  -         -         -     40,819
Proceeds from asset sales and other                         1,639       654       170          -
Dividends received from equity investments                 14,232         -         -          -
                                                         --------  --------  --------  ---------
Free cash flow (d)                                       $ 50,617  $ 20,862  $ 44,997  $ (31,963)
                                                         ========  ========  ========  =========

Shares repurchased                                       $ 27,258  $      -  $      -  $       -
Dividends paid                                           $  5,253  $  4,550  $  4,511  $   4,501	

(a) Defined as inventory plus accounts receivable less accounts payable.
(b) Effective January 1, 2002, we adopted SFAS 142, "Goodwill and Other Intangible Assets." The detail of the impact of the adoption are disclosed in note 7 to the Consolidated Financial Statements.
(c) We believe that EBIT and EBITDA (earnings before interest, taxes, depreciation and amortization), non-GAAP financial measures, are useful metrics for evaluating our financial performance as they are measures in which we internally assess performance.
(d) We believe that Free Cash Flow (net cash provided by operating activities, less capital expenditures and acquisition & related costs, plus proceeds from asset sales and other and dividends received from equity investments) is a useful metric for evaluating our financial performance as it is the measure in which we internally assess performance.
(e) In 2004, we incurred $14,519 of pretax charges related to the realignment of our glassware production capacity. Of this amount, $6,526 is included in gross profit with the remaining $7,993 included in income from operations (see note 10 to the Consolidated Financial Statements). We incurred a pretax charge of $991 in 1999 and $20,046 in 1998 for the closure of our Canadian facility. These amounts are included in income from operations.
(f) 2002 includes $13,634 of expenses related to abandoned acquisition (see
note 4 to the Consolidated Financial Statements).
 
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Syracuse China Company - Incorporated in Delaware
World Tableware Inc. - Incorporated in Delaware
LGA4 Corp. - Incorporated in Delaware
LGA3 Corp. - Incorporated in Delaware
The Drummond Glass Company - Incorporated in Delaware
Libbey Canada Inc. - Incorporated in Ontario, Canada
Libbey Glass Inc. - Incorporated in Delaware
LGC Corp. - Incorporated in Delaware
Traex Company - Incorporated in Delaware
Libbey.com LLC - Formed in Delaware
LGFS Inc. - Incorporated in Delaware
LGAC LLC - Formed in Delaware
Libbey Europe B.V. - Incorporated in the Netherlands
B.V. Koninklijke Nederlandsche Glasfabriek Leerdam - Incorporated in the Netherlands
B.V. Leerdam Crystal - Incorporated in the Netherlands
Libbey Asia Limited - Formed in Hong Kong
Libbey Glassware (China) Co., Ltd. - Formed in China
Crisal - Cristalaria Automatica, S.A. - Formed in Portugal (95% Ownership)
 
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Libbey Inc. listed below, of our reports dated March 16, 2005, with respect to the Consolidated Financial Statements and schedule of Libbey Inc. and Libbey Inc.'s management's assessment of internal control over financial reporting and the effectiveness of internal control over financial reporting of Libbey Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2004:

Form S-3        No. 333-28735        Registration and Related Prospectus for 2,000,000
                                     shares of common stock

Form S-8        No. 33-64726         Libbey Inc. Retirement Savings Plan and the Libbey
                                     Inc. Supplemental Retirement Plan (formally known as
                                     Libbey Inc. Stock Purchase and Retirement Savings
                                     Plan and the Libbey
                                     Inc. Stock Purchase and Supplemental Retirement Plan,
                                     respectively)
                No. 33-80448         Libbey Inc. Stock Option Plan for Key Employees
                No. 33-98234         Libbey Inc. Amended and Restated Stock Option Plan
                                     for Key Employees
                No. 333-49082        The 1999 Equity Participation Plan of Libbey Inc.
                No. 333-88752        Libbey Inc. 2002 Employee Stock Purchase Plan
                No. 333-119413       Amended and Restated 1999 Equity Participation Plan
                                     of Libbey Inc.	

                                                      /s/   ERNST & YOUNG LLP

Toledo, Ohio

March 16, 2005	

EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer, or both, of LIBBEY INC., a Delaware corporation (the "Company"), hereby does constitute and appoint JOHN F. MEIER, RICHARD I. REYNOLDS, SUSAN ALLENE KOVACH and SCOTT M. SELLICK, with full power to each of them to act alone, as the true and lawful attorneys and agents of the undersigned, with full power of substitution and resubstitution to each of said attorneys, to execute, file or deliver any and all instruments and to do any and all acts and things which said attorneys and agents, or any of them, deem advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereto, relating to annual reports on Form 10-K, including specifically, but without limitation of the general authority hereby granted, the power and authority to sign his or her name in the name and on behalf of the Company or as a director or officer, or both, of the Company, as indicated below opposite his or her signature to annual reports on Form 10-K for the year ending December 31, 2004 or any amendment or papers supplemental thereto; and each of the undersigned hereby does fully ratify and confirm all that said attorneys and agents, or any of them, or the substitute of any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents as of this 1st day of March, 2005.

/s/  John F. Meier                     Director, Chairman of the Board and
------------------------------------         Chief Executive Officer
     John F. Meier

/s/  Richard I. Reynolds               Director, Executive Vice President and
------------------------------------          Chief Operating Officer
     Richard I. Reynolds

/s/  Scott M. Sellick                  Vice President, Chief Financial Officer
------------------------------------
     Scott M. Sellick

/s/  Carlos V. Duno                    Director
------------------------------------
     Carlos V. Duno

/s/  William A. Foley                  Director
------------------------------------
     William A. Foley

/s/  Peter C. McC. Howell              Director
------------------------------------
     Peter C. McC. Howell

/s/  Deborah G. Miller                 Director
------------------------------------
     Deborah G. Miller

/s/  Carol B. Moerdyk                  Director
------------------------------------
     Carol B. Moerdyk

/s/  Gary L. Moreau                    Director
------------------------------------
     Gary L. Moreau

/s/  Terence P. Stewart                Director
------------------------------------

     Terence P. Stewart	

EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John F. Meier, certify that:
1. I have reviewed this annual report on Form 10-K of Libbey Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designated under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date March 16, 2005                       By /s/ John F. Meier
                                             -----------------------------------
                                             John F. Meier,
                                             Chief Executive Officer	

EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott M. Sellick, certify that:
1. I have reviewed this annual report on Form 10-K of Libbey Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designated under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date March 16, 2005                       By /s/ Scott M. Sellick
                                             -----------------------------------
                                             Scott M. Sellick,
                                             Chief Financial Officer	

EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Libbey Inc. (the "Company") hereby certifies, to such officer's knowledge, that:
(i) the accompanying Annual Report on Form 10-K of Libbey for the year ended December 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Libbey.

Dated: March 16, 2005                     /s/ John F. Meier
                                          --------------------------------------
                                          John F. Meier
                                          Chief Executive Officer	

EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Libbey Inc. (the "Company") hereby certifies, to such officer's knowledge, that:
(i) the accompanying Annual Report on Form 10-K of Libbey for the year ended December 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Libbey.

Dated: March 16, 2005                     /s/ Scott M. Sellick
                                          --------------------------------------
                                          Scott M. Sellick

                                          Chief Financial Officer	

EXHIBIT 99.1
SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Libbey desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Libbey wishes to caution readers that the following important factors, among others, could affect Libbey's actual results and could cause Libbey's actual consolidated results to differ materially from those expressed in any forward-looking statements made by, or on behalf of Libbey.
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, euro or Mexican peso that could reduce the cost competitiveness of our products or those of Vitrocrisa compared to foreign competition and the impact of exchange rate changes in the Mexican peso relative to the U.S. dollar on the earnings of Vitrocrisa expressed under accounting principles generally accepted in the United States.
INTEREST RATES
We are exposed to market risk associated with changes in interest rates in the U.S. and have entered into Interest Rate Protection Agreements (Rate Agreements) with respect to $50 million of debt as a means to manage our exposure to fluctuating interest rates. The Rate Agreements effectively convert a portion of our long-term borrowings from variable rate debt to fixed-rate debt, thus reducing the impact of interest rate changes on future income. The average fixed rate of interest for our borrowings related to the Rate Agreements at December 31, 2004, excluding applicable fees, is 6.0% per year, and the total interest rate, including applicable fees, is 7.8% per year. The average maturity of these Rate Agreements is 1.0 year at December 31, 2004. Debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 3.5% per year at December 31, 2004. We had $93.1 million of debt subject to fluctuating interest rates at December 31, 2004. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.9 million on an annual basis. If the counterparts to these Rate Agreements were to fail to perform, we would no longer be protected from interest rate fluctuations by these Rate Agreements. However, we do not anticipate nonperformance by the counterparts.
NATURAL GAS
We are also 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 domestic manufacturing operations. The objective of these futures contracts is to limit the fluctuations in prices paid and potential losses in earnings or cash flows from adverse price movements in the underlying natural gas commodity. We consider our forecasted natural gas requirements of our domestic 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% to 60% of our anticipated requirements, generally twelve or eighteen months in the future. For our natural gas requirements that are not hedged, we are subject to changes in the price of natural gas, which affects our earnings.
PENSION
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 pension benefit obligations and related pension expense. Changes in the equity and debt securities markets affect the performance of our pension plan asset performance and related pension expense. Sensitivity to these key market risks factors are as follows:
- A change of .50% in the expected long-term rate of return on plan assets would change total pension expense by approximately $1.2 million based on year-end data.
- A change of .50% in the discount rate would change our total pension expense by approximately $1.9 million.
We do not believe that we are exposed to more than a nominal amount of credit risk in its interest rate, natural gas and foreign currency hedges as the counterparts are established financial institutions.
Other important factors potentially affecting performance include:
- major slowdowns in the retail, travel, restaurant and bar or entertainment industries, including the impact of armed hostilities or any other international or national calamity, including any act of terrorism, on the retail, travel, restaurant and bar or entertainment industries;
- significant increases in interest rates that increase our borrowing costs;
- significant increases in per-unit costs for natural gas, electricity, corrugated packaging, aragonite, resins and other purchased materials;
- increases in expenses associated with higher medical costs, increased pension expense associated with lower returns on pension investments and lower interest rates on pension obligations;
- currency fluctuations relative to the U.S. dollar, euro or Mexican peso that could reduce the cost competitiveness of our or Vitrocrisa's products compared to foreign competition;
- the effect of high inflation in Mexico on the operating results and cash flows of Vitrocrisa;
- the impact of exchange rate changes in the Mexican peso relative to the U.S. dollar on the earnings of Vitrocrisa expressed under accounting principles generally accepted in the United States;
- the inability to achieve savings and profit improvements at targeted levels at Libbey and Vitrocrisa from capacity realignment, re-engineering and operational restructuring programs or within the intended time periods;
- protracted work stoppages related to collective bargaining agreements;
- increased competition from foreign suppliers endeavoring to sell glass tableware in the United States, Mexico, Europe and other key markets worldwide, including the impact of lower duties for imported products; and
- whether we complete any significant acquisitions and whether such acquisitions can operate profitably.