10-K 1 l05646ae10vk.txt LIBBEY INC. 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) |X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003 or | | 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 |X| No | | 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. |X| Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes |X| No | | The aggregate market value (based on the consolidated tape closing price on June 30, 2003) of the voting stock beneficially held by non-affiliates of the registrant was approximately $304,152,961. 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 March 1, 2004 was 13,637,660. 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 Thursday, May 6, 2004 ("Proxy Statement"). TABLE OF CONTENTS PART I..............................................................................2 ITEM 1. BUSINESS..............................................................2 ITEM 2. PROPERTIES............................................................8 ITEM 3. LEGAL PROCEEDINGS.....................................................8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................9 EXECUTIVE OFFICERS OF THE REGISTRANT..................................9 PART II............................................................................10 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............................................................10 ITEM 6. SELECTED FINANCIAL DATA..............................................11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................12 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK...........19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................21 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................52 ITEM 9A. CONTROLS AND PROCEDURES..............................................52 PART III...........................................................................52 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................52 ITEM 11. EXECUTIVE COMPENSATION...............................................52 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS......................................52 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................52 ITEM 14. PRINCIPLE ACCOUNTANT FEES AND SERVICES...............................53 PART IV............................................................................54 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.........54 SIGNATURES......................................................................55 INDEX TO FINANCIAL STATEMENT SCHEDULE...........................................57 EXHIBIT INDEX...................................................................E-1 PART I ITEM 1. BUSINESS GENERAL Libbey Inc. (Libbey or the Company) is a leading supplier of tableware products in the U.S., Canada and the Netherlands. The products are also exported to more than 75 countries. Libbey designs and markets, under the LIBBEY(R) brand name, an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, and plastic items. Through its subsidiary B.V. Koninklijke Nederlandsche Glasfabriek Leerdam (Royal Leerdam), Libbey manufactures and markets high-quality glass stemware under the Royal Leerdam(R) brand name. Libbey also manufactures and markets ceramic dinnerware under the Syracuse(R) China brand name through its subsidiary Syracuse China. Through its World Tableware subsidiary, Libbey imports and sells flatware, holloware and ceramic dinnerware. Libbey designs, manufactures and distributes an extensive line of plastic items for the foodservice industry under the Traex(R) brand name through its subsidiary Traex Company. Through its joint venture, Vitrocrisa Holding, S. de R.L. de C.V. and related Mexican companies (Vitrocrisa), the Company has established reciprocal distribution agreements, giving Libbey exclusive distribution rights for Vitrocrisa's glass tableware products under the Crisa(R) brand name in the U.S. and Canada, and Vitrocrisa the exclusive distribution rights for Libbey's glass tableware products in Latin America. In late 2002, the Company completed two acquisitions: Libbey acquired Traex Company, a manufacturer and marketer of plastic products, including ware washing and storage racks, trays, dispensers and organizers for the foodservice industry. In a separate transaction, the Company acquired Royal Leerdam and its wholly owned subsidiary Leerdam Crystal B.V. (Leerdam Crystal). Royal Leerdam is a leading producer and marketer of high-quality glass stemware in the world. Leerdam Crystal manufactures and markets various handmade crystal items. Acquisitions have been and will be an important part of the strategy to grow sales and profits. The Company's strategy is to be a more global provider of glass tableware and a provider of a broader supply of products to the foodservice industry. This strategy is primarily focused on two fronts: 1) acquiring foodservice supply companies, enabling Libbey to become a broader supplier of products to its foodservice distributors; and 2) leveraging its proprietary glass-making technology through joint ventures, outright acquisitions and new green meadow facilities for international glass tableware manufacturing. The acquisitions of the business of Libbey Canada (1993) and the joint venture investment in Vitrocrisa (1997) have made Libbey a leading supplier of glass tableware in North America. The acquisitions of Syracuse China (1995), World Tableware (1997) and Traex (2002) have expanded the Company's portfolio of foodservice supply products. The acquisition of Royal Leerdam (2002) has increased Libbey's global presence for glass stemware. PRODUCTS Libbey's tableware products consist of glass tableware, ceramic dinnerware, metal flatware, metal holloware and plastic items. Libbey's glass tableware includes tumblers, stemware (which includes wine glasses), mugs, plates, bowls, ashtrays, bud vases, salt and pepper shakers, canisters, candle holders and various other items. The Company's plastic items include ware washing and storage racks, trays, dispensers, beverage pitchers and various other items. Vitrocrisa's glass tableware product assortment includes the product types produced by Libbey, 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. Libbey sells high-quality stemware, including wine glasses, through its subsidiary, Royal Leerdam. Libbey also has an agreement to be the exclusive distributor of Luigi Bormioli glassware in the U.S. and Canada to foodservice users. Luigi Bormioli is a highly regarded supplier of high-end glassware, which is used in the finest eating and drinking establishments. Through its Syracuse China and World Tableware subsidiaries, Libbey sells a wide range of ceramic dinnerware products. These include plates, bowls, platters, cups, saucers and other tableware accessories. Its World Tableware subsidiary provides Libbey an extensive selection of metal flatware. These include knives, forks, spoons and serving utensils. In addition, World Tableware sells metal holloware, which includes serving trays, chafing dishes, 2 pitchers and other metal tableware accessories. Through its Traex subsidiary, Libbey sells a wide range of plastic products. These include ware washing and storage racks, trays, dispensers and organizers for the foodservice industry. SALES IN THE UNITED STATES Approximately 77% of Libbey's sales are to customers located in the United States and are sold for a broad range of uses (for industry segment information for the last three fiscal years, see Note 15 to the Consolidated Financial Statements). Libbey sells both directly to end users of the product and through networks of distributors and utilizes both a direct sales force and manufacturers' representatives. Libbey has the largest manufacturing, distribution and service network among North American glass tableware manufacturers. Libbey defines the U.S. glass tableware market to include glass beverageware, ovenware, cookware, dinnerware, serveware, floral items, items used for specialized packaging, handmade glassware and lead crystal valued at less than $5 per piece. Libbey has, according to management estimates, the leading market share in glass tableware sales in U.S. foodservice applications. The majority of Libbey's tableware sales to foodservice end users are made through a network of approximately 500 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. Syracuse China, World Tableware and Traex are recognized as long-established suppliers of high quality ceramic dinnerware, flatware and plastic items, respectively. They are among the leading suppliers of their respective product categories to foodservice end users. Libbey's leading customers in retail are national discount retailers. In recent years, Libbey has been able to increase its total sales by also increasing its sales to specialty housewares stores. With this expanded retail representation, Libbey is better positioned to successfully introduce profitable new products. Libbey also sells imported dinnerware to retailers in the United States and Canada under the LIBBEY(R) brand name. Libbey sources this ceramic dinnerware by leveraging the relationships it has with its existing suppliers for World Tableware products for foodservice applications. Libbey operates outlet stores located at or near each of its glassware and ceramic dinnerware manufacturing locations. Libbey is a major supplier of glassware for industrial applications in the U.S., according to management estimates. Industrial uses include candle and gift packaging, floral purposes and lighting. The craft industries and gourmet food packing companies are also industrial consumers of glassware. Libbey has expanded its sales to industrial users by offering ceramic and metal ware items. Libbey believes that its success with industrial applications is based on its extensive manufacturing and distribution network, which enables it to provide superior service, and its broad product offering, which allows Libbey to meet its customers' desire for differentiated glassware products. The production capabilities and broad product portfolio of Vitrocrisa has enabled Libbey to expand its product offering for its industrial customers. Another application of Libbey's products is for use as a premium. Fast-food restaurant chains use glassware as incentives or premiums, as an example. Libbey believes that its success with premium customers is dependent upon custom design, varied production capabilities and the ability to produce large quantities of product in a short period of time. INTERNATIONAL EXPANSION AND NON-U.S. SALES Libbey exports its products through independent agents and distributors to over 75 countries around the world, competing in the tableware markets of Latin America, Asia and Europe. Through its export operation, Libbey sells its tableware products to foodservice, retail and premium customers internationally. Libbey's non-U.S. sales represent approximately 23% of total sales in 2003. Libbey believes that expanding its sales to export markets represents an important growth opportunity for the future. Refer to Note 15 to the Consolidated Financial Statements for further information. 3 The acquisition of Royal Leerdam has increased Libbey's penetration in the global market for glass stemware and, in addition, expanded the selection of glass tableware products offered by Libbey to customers world wide. Libbey currently has technical service agreements with foreign glass tableware companies. These agreements cover areas ranging from manufacturing and engineering assistance to support in functions such as marketing, sales and administration. During 2003, Libbey's technical assistance agreements and licenses produced royalties of $3.0 million. MANUFACTURING Libbey owns and operates three glass tableware manufacturing plants in the United States located in Toledo, Ohio; Shreveport, Louisiana; City of Industry, California; and a glass tableware manufacturing plant in Leerdam, the Netherlands. Libbey owns and operates a ceramic dinnerware plant in Syracuse, New York, and a plastics plant in Dane, Wisconsin. Libbey operates distribution centers located at or near each of its manufacturing facilities (See "Properties"). In addition, Libbey operates distribution centers for its Vitrocrisa-supplied products in Laredo, Texas, and World Tableware products near Chicago, Illinois. The glass tableware manufacturing and distribution centers are strategically located (geographically) to enable Libbey to supply significant quantities of its product to virtually all of its customers in a short period of time. Libbey is the only glass tableware producer operating more than two manufacturing facilities in the United States. The manufacture of Libbey's glass tableware products involves the use of automated processes and technologies in the manufacturing and warehousing processes. Much of Libbey's glass tableware production machinery was designed by Libbey and has evolved and been continuously refined to incorporate technology advancements. Libbey believes that its production machinery and equipment continue to be adequate for its needs in the foreseeable future, but continues to invest in equipment to further increase its production and distribution efficiency and reduce its cost profile. Libbey's 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 Libbey's tumblers, stemware and certain other glass tableware products are produced by forming molten glass in molds with the use of compressed air and are known as "blown" glass products. Libbey's other glass tableware products and the stems of certain of its stemware are "pressware" products, which are produced by pressing molten glass into the desired product shape. Ceramic dinnerware is also produced through the forming of raw materials into the desired product shape and is either manufactured at Libbey's Syracuse, New York, production facility or imported by World Tableware primarily from China, Malaysia and Bangladesh. All metal flatware and metal holloware are sourced by Libbey's World Tableware subsidiary primarily from China. Plastic products are also produced through the forming of raw materials into the desired shape and are manufactured at Libbey's Dane, Wisconsin, production facility or imported primarily from Taiwan, China and Malaysia. Libbey employs a team of engineers whose responsibilities include efforts to improve and upgrade Libbey's 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 Libbey's product designs, sizes and shapes. Historically, raw materials used by Libbey, which are principally sand, lime, soda ash, clay, resins and colorants, 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 Libbey's operations in the future. Natural gas is a primary source of energy in Libbey's production processes, and variability in the price for natural gas can have an impact on its profitability. Historically, the Company has used natural gas hedging contracts to partially mitigate this impact. 4 SALES AND MARKETING Libbey has its own sales staff of over 100 Libbey sales professionals located in various metropolitan areas throughout the U.S., Canada and the Netherlands who call on customers and distributors. In addition, Libbey retains the services of manufacturing representatives' organizations to assist in selling its products. Libbey also maintains an export sales group covering other geographic markets. The vast majority of Libbey's tableware sales to foodservice end users are made through approximately 500 distributors, who serve a vital function in the distribution of Libbey's products and with whom Libbey works closely in connection with marketing and selling efforts. Most of Libbey's retail, industrial and premium market sales are made directly by Libbey's sales force. Libbey also has a marketing staff located at its corporate headquarters in Toledo, Ohio, engaged in developing strategies relating to product development, pricing, distribution, advertising and sales promotion. CUSTOMERS The customers for Libbey's tableware products include approximately 500 foodservice distributors. In addition, Libbey sells to mass merchants, department stores, retail distributors, national retail chains and specialty housewares stores, supermarkets and industrial companies and others who use Libbey's products for promotional and other private uses. No single customer accounts for 10% or more of Libbey's sales, although the loss of any of Libbey's major customers could have a meaningful effect on Libbey. Sales for premium applications, which totaled 1% of net sales in 2003, tend to be more unpredictable from year to year; and Libbey is less dependent on such business than it is on sales to foodservice, retail and industrial customers. COMPETITORS Libbey's business is highly competitive, with the principal competitive factors being customer service, brand name, product quality, new product development, delivery time and price. Competitors in glass tableware include among others Arc International, a private French company; Indiana Glass Company (a unit of Lancaster Colony Corporation); Oneida Ltd.; Anchor Hocking (a unit of Newell Rubbermaid Inc.) and Bormioli Rocco Group. Arc International distributes glass tableware to U.S. foodservice customers through its subsidiary, Cardinal International, Inc. Indiana Glass Company manufactures in the United States and sells glassware. Oneida Ltd. operates by sourcing glass tableware from foreign manufacturers, including Pasabahce (Turkey) and Schott (Germany). Anchor Hocking is primarily a supplier of glass beverageware and bakeware to retail and industrial markets in the U.S. Bormioli Rocco Group manufactures glass tableware in Europe and most of its sales are to retail and foodservice customers in Europe. In recent years, Libbey has experienced increasing competition from foreign glass tableware manufacturers, including Arc International (France), Kedaung (Indonesia), and Pasabahce (Turkey) as well as various factories from the People's Republic of China. In addition, other materials, such as plastics, also compete with glassware. Competitors in U.S. ceramic dinnerware include, among others, Homer Laughlin (a private U.S. company) and Rego China and Buffalo China (brands of Oneida Ltd.). Competitors in metal flatware are Oneida Ltd. and various importing companies. Competitors in plastic products are, among others, Cambro Manufacturing Company (a private U.S. company) and Carlisle Companies Incorporated. Some of Libbey's competitors have the ability to produce products at a lower cost and/or have substantially greater financial and other resources than Libbey. PATENTS, TRADEMARKS AND LICENSES Based upon market research and market surveys, Libbey believes its Libbey trade name as well as product shapes and styles enjoy a high degree of consumer recognition and are valuable assets. Libbey believes that the Libbey, Syracuse China, World Tableware, Royal Leerdam and Traex trade names are material to its business. Libbey has rights under a number of patents which relate to a variety of products and processes. Libbey does not consider that any patent or group of patents relating to a particular product or process is of material importance to its business as a whole. 5 SEASONALITY Due primarily to the impact of consumer buying patterns and production activity, Libbey's profits tend to be strongest in the third quarter and weakest in the first quarter of each year. As a consequence, profits historically range between 30% and 50% in the first half of each year and 50% to 70% in the second half of the year. ENVIRONMENTAL MATTERS Libbey's operations, in common with those of industry generally, are subject to numerous existing and proposed laws and governmental regulations designed to protect the environment, particularly regarding plant wastes and emissions and solid waste disposal. Libbey has shipped, and continues to ship, waste materials for off-site disposal. However, Libbey is 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 Libbey may also have shipped wastes and bears some responsibility. Owens-Illinois has agreed to defend and hold harmless the Company against any costs or liabilities it may incur in connection with any such matters identified and pending as of June 24, 1993 and to indemnify it for any liability which results from these matters in excess of $3 million. Libbey believes that if it is necessary to draw upon this indemnification, collection is probable. Pursuant to this indemnification agreement, Owens-Illinois is defending the Company with respect to the King Road landfill. In January 1999, a suit was instituted by the Board of Lucas County Ohio Commissioners against Owens-Illinois, the Company and numerous other defendants (59 companies named in the complaint as potentially responsible parties) in the United States District Court for the Northern District of Ohio seeking 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 complaint was dismissed without prejudice in October 2000 and at the time of the dismissal, it was anticipated the suit would be refiled at a future date when more information as to the appropriate environmental remedy becomes available. However, as of this date, refiling of the suit does not appear imminent. In view of the uncertainty as to refiling of the suit, the numerous defenses which 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, at the present time it is not possible to quantify any exposure the Company may have at King Road. Subsequent to June 24, 1993, Libbey has been named a potentially responsible party at four other sites, all of which have been settled for immaterial amounts. No further sums are expected to be paid with respect to these sites unless unusual and unanticipated contingencies occur. On October 10, 1995, Syracuse China Company, a wholly owned subsidiary of the Company, acquired from The Pfaltzgraff Co. and certain of its subsidiary corporations, the assets operated by them as Syracuse China. The Pfaltzgraff Co. entered into an Order on Consent effective November 1, 1994, with the New York State Department of Environmental Conservation (DEC) which 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. As part of the Asset Purchase Agreement, Syracuse China Company agreed to share a part of the remediation and related expense up to a maximum of 50% of such costs with a maximum limit for Syracuse China Company of $1,350,000 that has been paid. Notwithstanding the foregoing, Syracuse China Company is not a party to the decree. Construction of the approved remedy began in 2000 and was substantially completed in 2003. In addition, Syracuse China Company has been named as a potentially responsible party by reason of its potential ownership of certain property adjoining its plant, which has been designated a sub-site of a superfund site. Libbey believes that any contamination of such sub-site was caused by and will be remediated by other parties at no cost to Syracuse China. Such other parties have acquired ownership of the sub-site, which should end any responsibility of Syracuse China with respect to the sub-site. In any event, any expense with respect to such sub-site for which Syracuse China may be deemed responsible would likely be shared with Pfaltzgraff pursuant to the Asset Purchase Agreement. Libbey regularly reviews the facts and circumstances of the various environmental matters affecting the Company, including those which are covered by indemnification. Although not free of uncertainties, Libbey believes that its share 6 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 Libbey. There can be no assurance, however, that Libbey's future expenditures in such regard will not have a material adverse effect on Libbey's 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 Libbey on the exterior surface of its decorated products. Capital expenditures for property, plant and equipment for environmental control activities were not material during 2003. Libbey believes that it is in material compliance with all federal, state and local environmental laws, and Libbey is not aware of any regulatory initiatives that would be expected to have a material effect on Libbey's products or operations. NUMBER OF EMPLOYEES Libbey employed approximately 3,800 persons at December 31, 2003. A majority of the glass tableware employees are U.S.-based hourly workers covered by six collective bargaining agreements that were entered into in the fourth quarter of 2001 and expire at various times during the second half of 2004 at two manufacturing locations and the fourth quarter of 2006 at a third manufacturing location. In June 2003, the American Flint Glass Workers Union (AFGWU) merged with the United Steel Workers Union (USWA). As a result, of the Company's six collective bargaining agreements for the U.S.-based hourly glass tableware workers, four bargaining agreements are now members of the USWA. Substantially all Royal Leerdam employees are covered by a collective bargaining agreement expiring in July 2004. The ceramic dinnerware hourly employees are covered by a collective bargaining agreement that expires in March 2006. Libbey considers its employee relations to be good. PUBLIC FILINGS Copies of the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available for no charge through the Company's website at www.libbey.com. 7 ITEM 2. PROPERTIES The following information sets forth the location and size of the Company's principle manufacturing and warehousing facilities at December 31, 2003. The Company also operates warehousing facilities at or near each of its manufacturing facilities as well as at the warehousing centers set forth below:

Square Feet ----------- Location Owned Leased -------- ----- ------ Toledo, Ohio: Manufacturing 974,000 -- Warehousing 988,000 492,000 City of Industry, California: Manufacturing 288,000 -- Warehousing 60,000 307,000 Shreveport, Louisiana: Manufacturing 549,000 -- Warehousing 204,000 994,000 Syracuse, New York: Manufacturing 549,000 -- Warehousing 97,000 10,000 Dane, Wisconsin: Manufacturing 56,000 -- Warehousing 62,000 7,000 Leerdam, Netherlands: Manufacturing 162,000 Warehousing 184,000 255,000 Warehousing Centers Laredo, Texas 149,000 172,000 West Chicago, Illinois -- 125,000

The Company's headquarters (Toledo, Ohio), some warehouses (various locations), sales offices (various locations) and an outlet store (Toledo, Ohio) are located in leased space. All of the Company's manufacturing properties are currently being utilized for their intended purpose and are owned by the Company. The Company believes that its manufacturing facilities are well maintained and adequate for its planned production requirements at those facilities over the next three to five years. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various routine legal proceedings arising in the ordinary course of its business. No pending legal proceeding is deemed to be material to the Company. 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names and the ages, positions and offices held (as of the date hereof), and a brief account of the business experience of each executive officer of the Company.

NAME AGE POSITION ---- --- -------- John F. Meier 56 Chairman of the Board and Chief Executive Officer since June Chairman and Chief 1993; Executive Vice President and General Manager from December Executive Officer 1990 to June 1993. Richard I. Reynolds 57 Executive Vice President and Chief Operating Officer since Executive Vice President and Chief Operating November 1995; Vice President and Chief Financial Officer from Officer June 1993 to November 1995; Vice President and Director of Finance and Administration from January 1989 to June 1993. Arthur H. Smith 68 Vice President, General Counsel and Secretary since June 1993; Vice President, General Secretary of the Company since 1987 and Senior Counsel and Counsel and Secretary Assistant Secretary of Owens-Illinois, Inc. from 1987 to June 1993. Kenneth G. Wilkes 46 Vice President, General Manager International Operations since Vice President, General Manager International May 2003; Vice President and Chief Financial Officer from Operations November 1995 to May 2003; Vice President and Treasurer from August 1993 to November 1995. Scott M. Sellick 41 Vice President and Chief Financial Officer since May 2003. From Vice President and Chief Financial Officer May 2002 to May 2003, Director of Accounting and Taxation. From August 1997 to May 2002, Director of Taxation. Kenneth A. Boerger 45 Vice President and Treasurer since July 1999. From 1994 to July Vice President and Treasurer 1999, Corporate Controller and Assistant Treasurer. From 1980 to 1994 held various financial and accounting positions. John A. Zarb 52 Vice President and Chief Information Officer since April 1996. Vice President and Chief Information Officer Daniel P. Ibele 43 Vice President, General Sales Manager since March 2002; Vice Vice President, General Sales Manager President, Marketing and Specialty Operations from September 1997 to March 2002; Vice President and Director of Marketing from 1995 to 1997. From 1983 to 1995 held various marketing and sales positions. Timothy T. Paige 46 Vice President-Administration since December 2002; Vice President Vice President-Administration and Director of Human Resources from January 1997 to December 2002; Director of Human Resources from May 1995 to January 1997. Susan A. Kovach 44 Vice President, Associate General Counsel since December 2003. Vice President, Associate General Counsel From 2001 to 2003 was a partner in Dykema Gossett, PLC. From 1998 to 2000 was Vice President, General Counsel and Corporate Secretary at Omega Worldwide, Inc. From 1997 to 2001, held the same position at Omega Healthcare Investors, Inc.

9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Libbey Inc. common stock is listed for trading on the New York Stock Exchange under the symbol LBY. The price range for the Company's common stock on the New York Stock Exchange as reported by the New York Stock Exchange was as follows:

---------------------- ---------------------- 2003 2002 HIGH LOW High Low ------ ------ ------ ------ First Quarter $27.50 $22.08 $40.10 $31.35 Second Quarter $25.40 $20.30 $40.00 $32.88 Third Quarter $29.65 $22.70 $34.08 $26.80 Fourth Quarter $29.89 $26.23 $31.86 $23.72 ------ ------ ------ ------

On March 1, 2004, there were 965 registered common shareholders of record. The Company paid a regular quarterly cash dividend of $.075 per share beginning with the fourth quarter of 1993 through 2002. In January 2003, the Company increased its regular quarterly dividend from $.075 per share to $.10 per share. Therefore, in 2003, the Company paid $.10 per share per quarter, or an annual amount of $.40 per share, in dividends. The declaration of future dividends is within the discretion of the Board of Directors of the Company and will depend upon, among other things, business conditions, earnings and the financial condition of the Company. EQUITY COMPENSATION PLAN INFORMATION:

----------------------------------------------------------------------------------------------------------------------------- Number of securities to be issued upon exercise of Weighted average exercise Number of securities outstanding options, price of outstanding options, remaining available for Plan Category warrants and rights warrants and rights future issuance* ------------- -------------------------- ----------------------------- ----------------------- (a) (b) (c) -------------------------- ----------------------------- ----------------------- Equity compensation plans approved by security holders 1,410,176 $29.60 424,429 Equity compensation plans not approved by security holders 0 0 0 -------------------------- ----------------------------- ----------------------- Total 1,410,176 $29.60 424,429 ========================== ============================= =======================

*This total includes 395,565 securities available for future issuance under the Libbey Inc. 2002 Employee Stock Purchase Plan (ESPP) as of December 31, 2003. The amount of securities available for issue under this plan will increase each year by up to 100,000 common shares commencing January 1, 2004 and ending January 1, 2012 to an aggregate maximum of 1,350,000 common shares subject to issuance under the plan. As of December 31, 2003, there were no options, warrants or rights outstanding to purchase securities under this plan. 10 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data:

Dollars in thousands, except per-share amounts 2003(e) 2002 (d) 2001 2000 1999 ---------------------------------------------- -------- --------- --------- --------- -------- OPERATING RESULTS Net sales $513,632 $ 433,761 $ 419,594 $ 441,828 $460,592 Freight billed to customers 1,965 1,732 2,085 2,274 2,609 Total revenues 518,619 437,897 425,420 448,786 467,598 Cost of sales 407,391 327,565 307,255 306,003 324,242 Selling, general and administrative expenses 68,479 56,631 55,716 61,185 64,131 Capacity realignment charges -- -- -- -- 991 Income from operations 42,749 53,701 62,449 81,598 78,234 Equity earnings - pretax 4,429 6,379 6,384 12,016 8,857 Expenses related to abandoned acquisition -- (13,634) -- -- -- Other income (expenses) 462 (1,510) (241) (919) 13 Earnings before interest and income taxes (EBIT) 47,640 44,936 68,592 92,695 87,104 Interest expense -- net 13,436 8,263 9,360 12,216 12,501 Income before income taxes 34,204 36,673 59,232 80,479 74,603 Provision for income taxes 5,131 8,618 19,840 33,613 31,175 Net income (d) 29,073 28,055 39,392 46,866 43,428 Net cash provided by operating activities 28,366 54,205 51,308 36,898 68,956 PER-SHARE AMOUNTS Basic net income 2.12 1.84 2.58 3.07 2.69 Diluted net income 2.11 1.82 2.53 3.01 2.64 Dividends paid 0.40 0.30 0.30 0.30 0.30 OTHER INFORMATION EBIT 47,640 44,936 68,592 92,695 87,104 Depreciation 25,457 17,262 15,157 14,055 14,717 Amortization (d) 2,652 1,881 3,686 4,297 4,036 -------- --------- --------- --------- -------- EBITDA (f) 75,749 64,079 87,435 111,047 105,857 ======== ========= ========= ========= ======== Capital expenditures 24,874 16,739 35,241 18,096 9,428 Dividends paid 5,506 4,574 4,588 4,569 4,821 Employees (average) (c) 3,838 3,510 3,218 3,270 3,552 BALANCE SHEET DATA Total assets 551,116 524,527 468,082 446,707 434,395 Working capital (a) 108,062 83,260 83,421 95,177 77,794 Long-term debt (b) 230,207 188,403 2,517 151,404 170,000 Shareholders' equity 139,857 140,218 165,365 133,271 91,843

(a) Current assets less current liabilities excluding short-term debt. (b) At December 31, 2001, the company classified $143.0 million of debt outstanding under its bank facility as short term which was refinanced on a long-term basis in April 2002. (c) In 2003 and 2002, includes Traex and Royal Leerdam employees. (d) Effective January 1, 2002, the company adopted SFAS 142, "Goodwill and Other Intangible Assets." The detail of the impact of the adoption are disclosed in Note 2 to the Consolidated Financial Statements. (e) In 2003, includes full year impact of Traex and Royal Leerdam, both acquired in December 2002. (f) The Company believes that EBITDA (earnings before interest, taxes, depreciation and amortization), a non-GAAP financial measure, is a useful metric for evaluating its financial performance because of its focus on the Company's results from earnings before interest, taxes, depreciation and amortization. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HISTORICAL FINANCIAL DATA The following table presents certain results of operations data for Libbey for the periods indicated:

YEAR ENDED DECEMBER 31, (dollars in thousands) 2003 2002 2001 ---------------------- -------- -------- -------- Net sales $513,632 $433,761 $419,594 Gross profit $108,206 $107,928 $114,424 as a percent of sales 21.1% 24.9% 27.3% Income from operations $ 42,749 $ 53,701 $ 62,449 as a percent of sales 8.3% 12.4% 14.9% Earnings before interest and income taxes $ 47,640 $ 44,936 $ 68,592 as a percent of sales 9.3% 10.4% 16.3% Net income $ 29,073 $ 28,055 $ 39,392 as a percent of sales 5.7% 6.5% 9.4% -------- -------- --------

For an understanding of the significant factors that influenced the Company's performance during the past three fiscal years, the following should be read in conjunction with the audited Consolidated Financial Statements and Notes. Management is not aware of any events or uncertainties that are likely to have a material impact on the Company's prospective results of operations or financial condition; however, major slowdowns in the retail, travel, or entertainment industries could result from the impact of armed hostilities or any other international or national calamity, including any act of terrorism. Additional risk factors are discussed in Other Information in the section "Qualitative and Quantitative Disclosures about Market Risk." RESULTS OF OPERATIONS COMPARISON OF 2003 WITH 2002 Net sales for 2003 increased 18.4% to $513.6 million from $433.8 million in 2002. The increase in sales was attributable to the sales of Royal Leerdam and Traex, both acquired in December 2002. In addition, the Company had strong second half sales to glassware customers. 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 was 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 Canadian customers. GROSS PROFIT (defined as net sales plus freight billed to customers less cost of sales) increased slightly to $108.2 million compared to $107.9 million in the prior year. 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 (mostly non-cash) for pension and postretirement medical costs of $5.4 million. INCOME FROM OPERATIONS decreased to $42.7 million in 2003 from $53.7 million in 2002. The Company had higher selling, general and administrative expenses in 2003 of $11.8 million, of which $10.8 million was attributable to the acquisitions of Royal Leerdam and Traex. Selling, general and administrative expenses were 13.3% of net sales in 2003 as compared to 13.1% of net sales in the prior-year period EARNINGS BEFORE INTEREST AND INCOME TAXES (EBIT) were $47.6 million, compared to $44.9 million in the prior year, and as a percent of net sales were 9.3% as compared to 10.4% in the year-ago period. The prior period included $13.6 million of expenses related to an abandoned acquisition. Equity earnings from Vitrocrisa, the Company's joint venture in Mexico, were $4.4 million on a pretax basis as compared with $6.4 million pretax 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 12 expense of $1.5 million in the year-ago period. The 2002 expense was attributable to a write-down in value of an advance made to a supplier. NET INCOME was $29.1 million, or $2.11 per diluted share, compared with $28.1 million, or $1.82 per diluted share in the year-ago period. The weighted average diluted shares outstanding decreased approximately 1.7 million, primarily as a result of the Company's repurchase of 1.5 million shares in March of 2003. Interest expense increased $5.2 million primarily as the result of higher debt and the issuance of $100 million of privately placed senior notes, of which $80 million had an average interest rate of 4.65% and an initial average maturity of 8.4 years. The higher debt was the result of over $60 million in funding for acquisitions and $38.9 million in share repurchases. The effective tax rate declined to 15.0% from 23.5%. The 2003 effective tax rate of 15.0% was primarily attributable to a tax restructuring whereby the undistributed earnings of the Company's joint venture in Mexico will be permanently reinvested outside of the United States, which eliminated the need for previously established net deferred U.S. income tax liability on those undistributed earnings. The effective tax rate in 2002 of 23.5% is primarily attributable to lower Mexican tax, the elimination of non-deductible goodwill amortization and an adjustment to estimated U.S. income tax accruals. The reduction in Mexican tax is primarily attributable to deferred tax adjustments and reduced statutory tax rates in Mexico. As detailed in Table 1 below, net income per diluted share excluding tax adjustments was $1.71 for 2003, as compared with $1.57 per diluted share for 2002. The Company expects the effective tax rate for 2004 to be approximately 34%. In 2002, net income included expenses associated with an abandoned acquisition as further disclosed in Note 3 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 Table 2. 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. COMPARISON OF 2002 WITH 2001 Net sales for 2002 increased 3.4% to $433.8 million from $419.6 million in 2001. A 19% increase in sales to retail customers was a key contributor. This increase more than offset lower sales to industrial customers which are primarily candle companies. Foodservice sales were up slightly for the year and showed solid growth in the fourth quarter. Libbey's non-U.S. sales were $46.1 million, a decrease of 3.4% compared to 2001. GROSS PROFIT (defined as net sales plus freight billed to customers less cost of sales) declined 5.7% to $107.9 million, compared to $114.4 million in 2001 and, as a percent of net sales, was 24.9% in 2002 as compared to 27.3% in 2001. The decline in gross profit margin is primarily due to greater sales of products with lower profit margins, lower pension income, higher nonpension postretirement expense and higher manufacturing labor expenses. Lower pension income and higher nonpension postretirement expense reduced gross profit by $4.1 million in 2002 compared to the prior year. INCOME FROM OPERATIONS decreased to $53.7 million in 2002 from $62.4 million in 2001 and, as a percent of net sales, was 12.4% in 2002 compared to 14.9% in 2001. This reduction was the result of lower gross profit, higher lease cost of $1.2 million related to the Company's corporate offices in 2002 and higher general and administrative expenses. Lower pension income and an increase in nonpension postretirement expense were the primary factors in the increase in general and administrative expenses which reduced income from operations by $0.3 million. In 2002, the Company recorded lower expenses related to the amortization of intangibles pursuant to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142) of $1.1 million, which partially offset the higher general and administration expenses. EARNINGS BEFORE INTEREST AND INCOME TAXES (EBIT) were $44.9 million compared to $68.6 million in 2001 and, as a percent of net sales, were 10.4% as compared to 16.3% in the year-ago period. In addition to the lower income from operations, the most significant factor in the reduction was a $13.6 million pretax expense related to the legal, advisory and financing fees associated with the abandoned acquisition of Anchor Hocking as further disclosed in Note 3 to the Consolidated Financial Statements. The Company's earnings from equity affiliates remained flat at $6.4 million pretax compared to 2001. The Company's equity affiliates are primarily its investment in Vitrocrisa, the Company's joint venture in Mexico. Vitrocrisa's performance was impacted by a sluggish economy in Mexico and increased competition from foreign markets. Other expenses increased to $1.5 million from $0.2 million in the prior-year period, largely as a result of a write-down in the value of an advance made to a supplier. NET INCOME was $28.1 million, or $1.82 per share on a diluted basis, compared to $39.4 million or $2.53 per share on a diluted basis in the year-ago period. As a percent of net sales, net income was 6.5% in 2002 compared to 9.4% in 2001. Excluding the expenses related to the abandoned acquisition, net income and diluted earnings per share for 2002 would have been $36.6 million and $2.37, respectively as detailed in Table 2. Due to the unusual nature and magnitude of the 13 expenses related to the abandoned acquisition, management believes exclusion of these expenses is necessary for a more meaningful comparison of net income to 2001. The Company experienced lower interest expense and income taxes in 2002 compared to prior year. Interest expense was due to lower average debt levels and a decline in interest rates. The Company's effective tax rate declined to 23.5% in 2002 from 33.5% in 2001. The reduction 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 reduction in Mexican tax is primarily attributable to deferred tax adjustments and reduced statutory tax rates in Mexico. CAPITAL RESOURCES AND LIQUIDITY Operating cash flow continues to be the Company's primary source of funds to finance operating needs, capital expenditures and shareholder dividends. This is supplemented by additional borrowings to provide funds to finance the share repurchase program and for acquisitions. The Company continues to generate substantial cash flow. Net cash provided by operating activities was $28.4 million in 2003 compared to $54.2 million in 2002. Trade working capital, defined as inventories and accounts receivable less accounts payable, increased $14.6 million as compared to year-end 2002. Total inventories increased $16.1 million from year-end 2002 to $125.7 million, partially as a result of the need to build inventories prior to planned furnace and machine rebuilds occurring in the first quarter of 2004. However, the Company decreased inventories by $3.5 million during the fourth quarter of 2003. Capital expenditures were $24.9 million in 2003, compared with $16.7 million in 2002. Capital expenditures for 2004 are expected to be in the range of $35 to $40 million. The expenditures primarily relate to furnace and machine rebuild activity and investments in higher productivity and laborsaving machinery and equipment. The Company repurchased 1,500,000 shares of its common stock in 2003 for $38.9 million pursuant to the Company's modified Dutch Auction tender offer. Since mid-1998, the Company has repurchased 5,125,000 shares for $140.7 million. At year-end 2003, authorization from the Company's Board of Directors remained for the purchase of an additional 1,000,000 shares. Starting in 2003, the repurchased common stock is being used by the Company to fund the Employee Stock Purchase Plan (ESPP) and the Company match contributions for its employee 401(k) plans. Libbey had total debt of $230.9 million at December 31, 2003, compared with $191.2 million at December 31, 2002. The increase was primarily attributable to the repurchase of its common stock, as discussed above. In early 2003, the Company entered into an unsecured agreement for an Amended and Restated Revolving Credit Agreement (Revolving Credit Agreement or Agreement) as detailed in Note 9 to the Consolidated Financial Statements. The Agreement matures April 23, 2005, with the option to extend for two additional one-year periods. At December 31, 2003, Libbey had additional debt capacity of $117.4 million, including outstanding letters of credit of $4.6 million under its debt obligations, limited to the Company's performance against certain financial ratios. On March 31, 2003, the Company completed the issuance of $100 million of privately placed senior notes. Eighty million dollars of the notes have an average interest rate of 4.65% with an initial average maturity of 8.4 years and a remaining average maturity of 7.7 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. The Company is not aware of any trends, demands, commitments or uncertainties that will result or that are reasonably likely to result in a material change in Libbey's liquidity. The Company believes that its cash from operations and available borrowings under the Revolving Credit Agreement, private placement senior notes and other short-term lines of credit will be sufficient to fund its operating requirements, capital expenditures and all other obligations (including debt service and dividends) throughout the remaining term of the Revolving Credit Agreement. Libbey has entered into interest rate protection agreements with respect to $100 million of its debt. The average fixed rate of interest under these interest rate protection agreements is 5.8%, and the total interest rate, including applicable fees, is 7.6%. The average maturity of these interest rate protection agreements is 1.3 years at December 31, 2003. 14 Of Libbey's total outstanding indebtedness, $47.9 million is subject to fluctuating interest rates at December 31, 2003. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.5 million on an annual basis. In September 2001, the Company issued a $2.7 million promissory note in connection with the purchase of a warehouse facility. At December 31, 2003, the Company had $2.4 million outstanding on the promissory note. During 2004, $0.1 million of the principal is payable. The following table presents the Company's existing contractual obligations and commercial commitments:

--------------------------------------------------------------- Payments Due by Period --------------------------------------------------------------- Contractual 2 - 3 4 - 5 After 5 Obligations Total 1 Year Years Years Years ----------- ------ ------ ----- ----- ------- Debt $230.9 $0.7 $128.2 $25.3 $76.7 Long term operating leases 20.1 6.8 6.8 3.9 2.6 ------ ---- ------ ----- ----- Total obligations $251.0 $7.5 $135.0 $29.2 $79.3 ====== ==== ====== ===== =====

CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Libbey believes that of its significant accounting policies (see Note 2 to the Consolidated Financial Statements), the following may involve a higher degree of judgment and complexity. As part of the regular review of the financial reporting of the Company, senior management has reviewed the Critical Accounting Policies and Management's Discussion and Analysis of Financial Condition and Results of Operations with the Audit Committee of the Board of Directors. DERIVATIVES Libbey holds derivative financial instruments to hedge certain of its 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 transactions denominated in a currency other than the U.S. dollar. These derivatives have been designated as cash flow hedges and qualify for hedge accounting as discussed in detail in Notes 2, 9 and 11 to the Consolidated Financial Statements. As such, the fair value of these cash flow hedges are recorded on the balance sheet at fair value with a corresponding change in accumulated other comprehensive income (loss), net of related tax effects. The Company does not participate in speculative derivatives trading. While Libbey intends to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if the Company does not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in earnings. Information about fair values, notional amounts and contractual terms of these instruments can be found in Notes 2, 9 and 11 to the Consolidated Financial Statements and the section titled "Qualitative and Quantitative Disclosures About Market Risk." The Company does not believe it is 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. PENSION PLANS AND NONPENSION POSTRETIREMENT BENEFITS The Company accounts for its 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 cover the hourly and salary U.S.-based employees of the Company, including the SERP, which is an unfunded liability. The non-U.S. pension plans cover the employees of the Company's wholly owned subsidiaries, Royal Leerdam and Leerdam Crystal, both located in the Netherlands. 15 A significant element in determining the Company's pension expense (income) in accordance with SFAS No. 87 is the expected return on plan assets. The Company assumes that the expected long-term rate of return on plan assets for U.S. plans will be 9.0% and for non-U.S. plans 6.5%. Since the U.S. pension plans' inception in 1993, the Company's pension plan assets have earned an average annual return of 10.5%. A change of .50% in the expected long-term rate of return on plan assets will change total pension expense (income) by approximately $1.2 million based on year-end data. The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which 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). The U.S. pension plan assets have earned an actual rate of return in 2003 of 23.8%. Pension expense for the U.S. plans in 2004 is expected to be $4.4 million compared to $1.4 million in 2003 and income of $(3.7) million in 2002. For the non-U.S. pension plans, pension expense in 2004 is expected to be immaterial; the expense in 2003 was $0.2 million. This is a result of the lower return on plan assets, additional benefits granted to unionized employees during labor negotiations in 2001 and a change in the discount rate discussed below. At the end of each year, the Company determines the discount rate to be used to discount plan liabilities. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the current year. In estimating this rate, the Company reviews rates of return on high quality, fixed-income investments as a benchmark. At December 31, 2003, the Company determined this rate to be 6.25%, compared to 6.75% in 2002 for the U.S pension plans and 5.6% for the non-U.S. pension plans in 2003 and 2002. The effect of each .50% change in the discount rate would effect total pension expense by approximately $1.0 million. The Company has not made contributions to the U.S. pension plans since their inception in 1993. The Company contributed $1.3 million in 2003 to the non-U.S. pension plans. The Company anticipates making cash contributions for approximately $0.1 million for the U.S. pension plans and $1.4 million for the non-U.S. pension plans in 2004. 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. At December 31, 2003, the fair value of the Company's U.S. pension assets was $197.4 million compared to $172.8 million at the end of 2002. For the non-U.S. pension plans, the fair value of the Company's pension assets was $28.3 million at December 31, 2003. The Company also provides certain postretirement health care and life insurance benefits covering substantially all U.S. and Canadian salaried and hourly employees which 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 Company retirees who had retired as of June 24, 1993. The U.S. nonpension postretirement plans cover the hourly and salary U.S.-based employees of the Company. The non-U.S. nonpension postretirement plans cover the former retirees and active employees of the Company, located in Canada. The Company uses various actuarial assumptions, including the discount rate and the expected trend in health care costs, to estimate the costs and benefit obligations for its retiree health plan. In estimating the discount rate, the Company reviews rates of return on high quality, fixed-income investments as a benchmark. At December 31, 2003, the Company determined this rate to be 6.25% compared to 6.75% in 2002 for the U.S. plans. The non-U.S. plans were 6.00% in 2003 and 6.25% in 2002. The effect of a .50% change in the discount rate would effect total health care expense by $0.2 million. Assumed health care cost inflation is based on an initial rate of 10.0%, decreasing to an ultimate rate of 5.0% over five years for the U.S. nonpension postretirement plans. For the non-U.S. nonpension postretirement plans, the assumed health care cost inflation is based on an initial rate of 9.0%, decreasing to an ultimate rate of 5.0% over eight years. A one percent change in these rates would have changed the U.S. and non-U.S. nonpension postretirement expense by a total of $0.2 million. In 2003, the Company recorded total expense for nonpension postretirement benefit costs of $1.6 million, as compared to $0.9 million in 2002. The Company expects to record an expense of $1.9 million in 2004 for nonpension postretirement benefit costs. 16 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 incentives offered to customers. The Company estimates returns, discounts and incentives at the time of sale based on the terms of the agreements and historical experience. The Company continually evaluates the adequacy of these methods used to estimate returns, discounts and incentives. In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," shipping and handling costs billed customers are included in total revenues and the related costs are included in cost of sales in the Consolidated Statement of Income. SALES INCENTIVE PROGRAMS The Company offers various sales incentive programs to a broad base of customers. These programs typically offer incentives for purchase activities by customers that include growth objectives. The Company records accruals for these incentives as sales occur. Criteria for payment include customers achieving certain purchase targets and purchasing particular product types. Management regularly reviews the adequacy of the accruals based on current customer purchases, targeted purchases and payout levels. The majority of amounts paid to customers typically occur in the third quarter. 17 Table 1 In accordance with U.S. Securities and Exchange Commission (SEC) Regulation G, the following table provides non-GAAP measures used in the Management's Discussion and Analysis of Financial Condition and Results of Operations and the reconciliation to the most closely related Generally Accepted Accounting Principles (GAAP) measure. Management believes this provides investors with a more complete understanding of underlying results in the Company's core business. RECONCILIATION OF NON-GAAP MEASURES FOR INCOME TAXES (Dollars in thousands, except per-share amounts)

Twelve months ended December 31, 2003 2002 2001 ---- ---- ---- Reported net income $ 29,073 $ 28,055 $ 39,392 Tax adjustment 5,472 3,851 -- ---------- ---------- ---------- Net income excluding tax adjustment $ 23,601 $ 24,204 $ 39,392 ========== ========== ========== Basic earnings per share: Reported net income $ 2.12 $ 1.84 $ 2.58 Tax adjustment 0.40 0.25 -- ---------- ---------- ---------- Net income per share excluding tax adjustment $ 1.72 $ 1.59 $ 2.58 ========== ========== ========== Diluted earnings per share: Reported net income $ 2.11 $ 1.82 $ 2.53 Tax adjustment 0.40 0.25 -- ---------- ---------- ---------- Net income per diluted share excluding tax adjustment $ 1.71 $ 1.57 $ 2.53 ========== ========== ==========

Table 2 In accordance with U.S. Securities and Exchange Commission (SEC) Regulation G, the following table provides non-GAAP measures used in the Management's Discussion and Analysis of Financial Condition and Results of Operations and the reconciliation to the most closely related Generally Accepted Accounting Principles (GAAP) measure. Management believes this provides investors with a more complete understanding of underlying results in the Company's core business. RECONCILIATION OF NON-GAAP MEASURES FOR ABANDONED ACQUISITION EXPENSES (Dollars in thousands, except per-share amounts)

Twelve months ended December 31, 2003 2002 2001 ---- ---- ---- Reported net income $ 29,073 $ 28,055 $ 39,392 Expenses associated with abandoned acquisition -- 13,634 -- Less tax effect -- 5,126 -- ---------- ---------- ---------- Net income excluding expenses associated with abandoned acquisition $ 29,073 $ 36,563 $ 39,392 ========== ========== ========== Basic earnings per share: Reported net income $ 2.12 $ 1.84 $ 2.58 Expenses associated with abandoned acquisition, net of related tax effects -- 0.55 -- ---------- ---------- ---------- Net income per share excluding expenses associated with abandoned acquisition $ 2.12 $ 2.39 $ 2.58 ========== ========== ========== Diluted earnings per share: Reported net income $ 2.11 $ 1.82 $ 2.53 Expenses associated with abandoned acquisition, net of related tax effects -- 0.55 -- ---------- ---------- ---------- Net income per diluted share excluding expenses associated with abandoned acquisition $ 2.11 $ 2.37 $ 2.53 ========== ========== ==========

18 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks due to changes in currency values, although the majority of the Company's 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 the Company's products or that of Vitrocrisa compared to foreign competition; the effect of high inflation in Mexico and exchange rate changes to the value of the Mexican peso; and impact of those changes on the earnings and cash flow of Vitrocrisa, expressed under accounting principles generally accepted in the United States. The Company is exposed to market risk associated with changes in interest rates in the U.S. and has entered into Interest Rate Protection Agreements (Rate Agreements) with respect to $100 million of debt as a means to manage its exposure to fluctuating interest rates. The Rate Agreements effectively convert this portion of the Company's borrowings from variable rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future income. The average fixed rate of interest for the Company's borrowings related to the Rate Agreements at December 31, 2003, is 5.8% and the total interest rate, including applicable fees, is 7.6%. The average maturity of these Rate Agreements is 1.3 years at December 31, 2003. Total remaining debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 3.9% at December 31, 2003. The Company had $47.9 million of debt subject to fluctuating interest rates at December 31, 2003. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.5 million on an annual basis. If the counterparts to these Rate Agreements fail to perform, the Company would no longer be protected from interest rate fluctuations by these Rate Agreements. However, the Company does not anticipate nonperformance by the counterparts. The fair value of the Company's Rate Agreements is determined 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. The Company does not expect to cancel these agreements and expects them to expire as originally contracted. The fair market value for the Company's Rate Agreements at December 31, 2003, was $(5.5) million. In addition to the Rate Agreements, the Company has other derivatives as discussed above and in Notes 2, 9 and 11 to the Consolidated Financial Statements. The Company has designated these derivative instruments as cash flow hedges. As such, the changes in fair value of these derivative instruments are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged transaction or item affects earnings. At December 31, 2003, approximately $3.4 million of unrealized net loss was recorded in accumulated other comprehensive income (loss). OTHER INFORMATION This document and supporting schedules contain statements that are not historical facts and constitute projections, forecasts or forward-looking statements. Such statements only reflect the Company's best assessment at this time, and may be identified by the use of forward-looking 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. Important factors potentially affecting the Company's 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 the Company's borrowing costs; - significant increases in per-unit costs for natural gas, electricity, corrugated packaging and other purchased materials; - increases in expenses associated with higher medical costs, increased pension expense associated with lower returns on pension investments and increased pension obligations; - devaluations and other major currency fluctuations relative to the U.S. dollar, euro or Mexican peso that could reduce the cost competitiveness of the Company's or Vitrocrisa's products compared to foreign competition; 19 - the effect of high inflation in Mexico and exchange rate changes to the value of the Mexican peso and the earnings expressed under accounting principles generally accepted in the United States and cash flow of Vitrocrisa; - the inability to achieve savings and profit improvements at targeted levels at the Company 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 and Europe, including the impact of lower duties for imported products; - whether the Company completes any significant acquisitions and whether such acquisitions can operate profitably. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page ---- Report of Management 22 Report of Independent Auditors 23 Consolidated Balance Sheets at December 31, 2003 and 2002 24 For the years ended December 31, 2003, 2002 and 2001 Consolidated Statements of Income 26 Consolidated Statements of Shareholders' Equity 27 Consolidated Statements of Cash Flows 28 Notes to Consolidated Financial Statements 29 Selected Quarterly Financial Data 51

21 REPORT OF MANAGEMENT The management of Libbey Inc. (Libbey or the Company) is responsible for the contents of the financial statements, which are prepared in conformity with accounting principles generally accepted in the United States. The Consolidated Financial Statements necessarily include amounts based on judgments and estimates. Financial information elsewhere in the Form 10-K is consistent with that in the financial statements. Libbey maintains a comprehensive accounting system that includes controls designed to provide reasonable assurance as to the integrity and reliability of the financial records and the protection of assets. However, there are inherent limitations in the effectiveness of any system of internal controls, and, therefore, Libbey takes other steps to maintain an effective internal control structure. These steps include an organization with clearly defined lines of responsibility and delegation of authority and comprehensive systems and control procedures. The role of the independent auditors is to provide an objective review of the financial statements and the underlying transactions in accordance with auditing standards generally accepted in the United States. The Audit Committee of the Board of Directors, comprised solely of Directors who are "independent," as defined in Rule 10A-361 promulgated under the Securities Exchange Act of 1934, as amended, meets regularly with management and the independent auditors to ensure that their respective responsibilities are properly discharged. The independent auditors have full and free access to the Audit Committee. /s/ John F. Meier John F. Meier Chairman of the Board and Chief Executive Officer /s/ Scott M. Sellick Scott M. Sellick Vice President and Chief Financial Officer February 10, 2004 22 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND SHAREHOLDERS LIBBEY INC. We have audited the accompanying consolidated balance sheets of Libbey Inc. as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the index at Item 15(a). 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 consolidated and combined financial statements of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V. (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. We conducted our audits in accordance with auditing standards generally accepted in the 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, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with auditing standards generally accepted in the United States. As discussed in Note 2 to the financial statements, in 2002 Libbey Inc. changed its method of accounting for goodwill. /s/ ERNST & YOUNG LLP Toledo, Ohio January 30, 2004 23 LIBBEY INC. CONSOLIDATED BALANCE SHEETS

December 31, 2003 2002 -------- -------- Dollars in thousands ASSETS Current assets: Cash $ 2,750 $ 1,683 Accounts receivable: Trade, less allowances of $5,604 and $6,310 53,333 46,308 Other, less allowances of $1,556 and $1,482 3,789 3,636 -------- -------- 57,122 49,944 Inventories: Finished goods 116,408 100,405 Work in process 4,590 4,512 Raw materials 3,859 3,169 Operating supplies 839 1,548 -------- -------- 125,696 109,634 Prepaid expenses and deferred taxes 10,610 13,487 -------- -------- Total current assets 196,178 174,748 Other assets: Repair parts inventories 7,058 5,603 Intangibles, net of accumulated amortization of $4,956 and $3,380 28,346 26,375 Deferred software, net of accumulated amortization of $12,755 and $11,679 2,354 2,585 Other assets 2,987 4,453 Investments 87,574 87,847 Goodwill 53,133 59,795 -------- -------- 181,452 186,658 Property, plant and equipment at cost 327,741 300,690 Less accumulated depreciation 154,255 137,569 -------- -------- Net property, plant and equipment 173,486 163,121 -------- -------- Total assets $551,116 $524,527 ======== ========

See accompanying notes. 24 LIBBEY INC. CONSOLIDATED BALANCE SHEETS (continued)

December 31, 2003 2002 --------- --------- Dollars in thousands LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 611 $ 2,660 Accounts payable 40,280 31,633 Salaries and wages 14,096 14,670 Accrued liabilities 33,555 39,687 Income taxes 185 5,498 Long-term debt due within one year 115 115 --------- --------- Total current liabilities 88,842 94,263 Long-term debt 230,207 188,403 Deferred taxes 15,469 11,780 Pension liabilities 17,092 28,655 Other long-term liabilities 12,404 14,015 Nonpension postretirement benefits 47,245 47,193 --------- --------- Total liabilities 411,259 384,309 Shareholders' equity: Common stock, par value $.01 per share, 50,000,000 shares authorized, 18,660,960 shares issued (18,256,277 shares issued in 2002) 187 183 Capital in excess of par value 300,378 293,537 Treasury stock, at cost, 5,046,597 shares (3,625,000 in 2002) (139,449) (102,206) Retained earnings (deficit) 4,154 (19,413) Accumulated other comprehensive loss (25,413) (31,883) --------- --------- Total shareholders' equity 139,857 140,218 --------- --------- Total liabilities and shareholders' equity $ 551,116 $ 524,527 ========= =========

See accompanying notes. 25 LIBBEY INC. CONSOLIDATED STATEMENTS OF INCOME

December 31, 2003 2002 2001 --------- --------- --------- Dollars in thousands, except per-share amounts REVENUES Net sales $ 513,632 $ 433,761 $ 419,594 Freight billed to customers 1,965 1,732 2,085 Royalties and net technical assistance income 3,022 2,404 3,741 --------- --------- --------- Total revenues 518,619 437,897 425,420 Costs and expenses: Cost of sales 407,391 327,565 307,255 Selling, general and administrative expenses 68,479 56,631 55,716 --------- --------- --------- 475,870 384,196 362,971 --------- --------- --------- INCOME FROM OPERATIONS 42,749 53,701 62,449 Other income (expense): Equity earnings - pretax 4,429 6,379 6,384 Expenses related to abandoned acquisition -- (13,634) -- Other - net 462 (1,510) (241) --------- --------- --------- 4,891 (8,765) 6,143 --------- --------- --------- Earnings before interest and income taxes 47,640 44,936 68,592 Interest expense - net 13,436 8,263 9,360 --------- --------- --------- Income before income taxes 34,204 36,673 59,232 Provision for income taxes 5,131 8,618 19,840 --------- --------- --------- NET INCOME $ 29,073 $ 28,055 $ 39,392 ========= ========= ========= NET INCOME PER SHARE Basic $ 2.12 $ 1.84 $ 2.58 Diluted $ 2.11 $ 1.82 $ 2.53 ========= ========= =========

See accompanying notes 26 LIBBEY INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Accumulated Other Compre- Common Stock Capital in Treasury Stock Retained hensive ----------------- Excess of --------------------- Earnings Income Dollars in thousands, except share Shares Amount Par Value Shares Amount (Deficit) (Loss) Total amounts ---------- ------ ---------- --------- --------- --------- ------------ -------- Balance January 1, 2001 17,858,102 $179 $284,930 2,647,400 $ (74,140) $ (77,698) -- $133,271 Comprehensive income: Net income 39,392 39,392 Effect of derivatives, net of $2,292 tax effect $ (4,742) (4,742) Minimum pension liability, net of $137 tax effect (228) (228) -------- Total comprehensive income 34,422 Stock options exercised 167,741 1 2,344 2,345 Income tax benefit on stock options 1,144 1,144 Purchase of treasury shares 42,000 (1,229) (1,229) Dividends -- $0.30 per share (4,588) (4,588) ---------- ---- -------- --------- --------- --------- -------- -------- Balance December 31, 2001 18,025,843 180 288,418 2,689,400 (75,369) (42,894) (4,970) 165,365 Comprehensive income: Net income 28,055 28,055 Effect of derivatives, net of $297 tax effect (493) (493) Minimum pension liability, net of $15,919 tax effect (26,419) (26,419) Effect of exchange rate fluctuation (1) (1) -------- Total comprehensive income 1,142 Stock options exercised 230,434 3 3,298 3,301 Income tax benefit on stock options 1,821 1,821 Purchase of treasury shares 935,600 (26,837) (26,837) Dividends -- $0.30 per share (4,574) (4,574) ---------- ---- -------- --------- --------- --------- -------- -------- Balance December 31, 2002 18,256,277 183 293,537 3,625,000 (102,206) (19,413) (31,883) 140,218 Comprehensive income: Net income 29,073 29,073 Effect of derivatives, net of $1,128 tax effect 1,871 1,871 Minimum pension liability, net of $2,751 tax effect 4,567 4,567 Effect of exchange rate fluctuation 32 32 -------- Total comprehensive income 35,543 Stock options exercised 404,683 4 5,383 5,387 Income tax benefit on stock options 1,458 1,458 Purchase of treasury shares 1,500,000 (38,918) (38,918) Issued treasury shares (78,403) 1,675 1,675 Dividends -- $0.40 per share (5,506) (5,506) ---------- ---- -------- --------- --------- --------- -------- -------- BALANCE DECEMBER 31, 2003 18,660,960 $187 $300,378 5,046,597 $(139,449) $ 4,154 $(25,413) $139,857 ========== ==== ======== ========= ========= ========= ======== ========

See accompanying notes 27 LIBBEY INC. CONSOLIDATED STATEMENTS OF CASH FLOW

December 31, 2003 2002 2001 --------- -------- -------- Dollars in thousands OPERATING ACTIVITIES Net income $ 29,073 $ 28,055 $ 39,392 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 25,457 17,262 15,157 Amortization 2,652 1,881 3,686 Net equity earnings (4,420) (9,774) (2,665) Nonpension postretirement benefit cost in excess of payments 52 (938) (1,545) Loss (gain) on sale of land 148 (381) -- Deferred income taxes, less equity earnings portion (2,329) 4,040 7,394 Other (1,777) 354 (385) Changes in operating assets and liabilities: Accounts receivable (5,632) 3,495 7,673 Inventories (14,116) (91) 7,570 Prepaid expenses 531 (186) (469) Other assets (1,451) 5,330 (16,976) Accounts payable 8,088 (6,095) 3,264 Accrued liabilities (5,100) 5,886 (7,117) Other liabilities (2,810) 5,367 (3,671) --------- -------- -------- Net cash provided by operating activities 28,366 54,205 51,308 INVESTING ACTIVITIES Additions to property, plant and equipment (24,874) (16,739) (35,241) Dividends received from equity investments 4,900 4,659 4,918 Acquisitions (including acquisition-related costs, less cash acquired) (513) (62,046) -- Other 1,410 3,523 (1,563) --------- -------- -------- Net cash used in investing activities (19,077) (70,603) (31,886) FINANCING ACTIVITIES Net bank credit facility activity (66,254) 43,001 (8,404) Payment of finance fees (663) (815) -- Senior notes 100,000 -- -- Other net borrowings (2,275) 145 (4,968) Stock options exercised 5,387 3,301 2,345 Treasury shares purchased (38,918) (26,837) (1,229) Dividends (5,506) (4,574) (4,588) --------- -------- -------- Net cash (used in) provided by financing activities (8,229) 14,221 (16,844) Effect of exchange rate fluctuations on cash 7 -- -- --------- -------- -------- Increase (decrease) in cash 1,067 (2,177) 2,578 Cash at beginning of year 1,683 3,860 1,282 --------- -------- -------- CASH AT END OF YEAR $ 2,750 $ 1,683 $ 3,860 ========= ======== ========

See accompanying notes 28 LIBBEY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER-SHARE AMOUNTS) 1. BASIS OF PRESENTATION The Consolidated Financial Statements include the accounts of Libbey Inc. and all wholly owned subsidiaries (Libbey or the Company). The Company records its 49% interest in certain companies using the equity method. All material intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Company operates in one business segment, tableware products. The Company designs, manufactures and markets an extensive line of high-quality, machine-made glass beverageware, other glass tableware, ceramic dinnerware and plastic items to a broad group of customers in the foodservice, retail, industrial and premium areas. Most of the Company's sales are to customers in North America and Europe. The Company also imports and distributes various products and has a 49% interest in Vitrocrisa Holding, S. de R.L. de C.V and related Mexican companies (Vitrocrisa), a glass tableware manufacturer in Mexico. ACCOUNTS RECEIVABLE The Company records trade receivables when revenue is recorded in accordance with its revenue recognition policy and relieves 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. The Company evaluates the adequacy of the allowance for doubtful accounts on a periodic basis. The evaluation includes historical trends in collections and write-offs, management's judgement of the probability of collecting accounts and management's 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 The Company uses the last-in, first-out (LIFO) cost method of inventory valuation for 58.1% of its inventories in 2003 and 57.1% in 2002. If inventories valued on the LIFO method had been valued at standard or average costs, which approximate current costs, inventories would be higher than reported by $11,435 and $9,632 at December 31, 2003 and 2002, respectively. The remaining inventories are valued at either standard or average cost, which approximate current costs. GOODWILL AND INTANGIBLES Goodwill results from the excess of purchase cost over the fair value of net assets acquired. Goodwill resulting from business combinations completed prior to December 31, 2001, was being amortized over 40 years. Intangibles (excluding those discussed in Note 8) result from valuations assigned by independent appraisals for: future revenues from technical assistance agreements, trademarks and trade names acquired and other acquired intangibles. Effective January 1, 2002, the Company 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 indefinite-lived intangible assets to no longer be amortized but reviewed annually 29 for impairment, or more frequently, if impairment indicators arise. Accounting Principles Board (APB) Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" (APB 18), requires the Company's goodwill associated with equity method investees to be reviewed for impairment, if impairment indicators exist. Intangible assets with lives restricted by contractual, legal or other means will continue to be amortized over their useful lives. As required by SFAS No. 142, the Company determined that certain trademarks had an indefinite life and ceased amortization of these intangibles on January 1, 2002, and evaluated these indefinite-lived intangible assets as not being impaired. The Company also determined that certain technical assistance agreements should have their useful lives reduced to five years. At December 31, 2003, the carrying value and accumulated amortization of amortized intangible assets totaled $2,516 and $4,809, respectively, and the carrying value of indefinite-lived intangible assets totaled $5,876. The weighted average remaining life on the amortizable intangible assets is 3.1 years at December 31, 2003. Future estimated amortization expense of amortizable intangibles is as follows: 2004 -- $810; 2005 -- $810; 2006 -- $762; 2007 -- $51 and 2008 -- $6. Goodwill and other intangible assets are evaluated for impairment on an annual basis as of October 1st of each year. No impairment was indicated since the inception of SFAS No. 142. Goodwill decreased by $6,662 compared to December 31, 2002, as a result of the finalization of the purchase price allocations for the acquisitions that occurred in December 2002 and the change in exchange rates. The following table reflects the consolidated results adjusted as though the adoption of SFAS No. 142 occurred as of January 1, 2001:

Year ended December 31, 2003 2002 2001 ---------- ---------- ---------- Net Income: Reported net income $ 29,073 $ 28,055 $ 39,392 Goodwill amortization related to equity investments -- -- 1,698 Goodwill and trademark amortization -- -- 1,684 Change in amortization of technical assistance agreements -- -- (564) Tax effect -- -- (38) ---------- ---------- ---------- Adjusted net income $ 29,073 $ 28,055 $ 42,172 ========== ========== ========== Basic earnings per share: Reported basic earnings per share $ 2.12 $ 1.84 $ 2.58 Goodwill amortization related to equity investments -- -- 0.11 Goodwill and trademark amortization -- -- 0.11 Change in amortization of technical assistance agreements -- -- (0.04) Tax effect -- -- -- ---------- ---------- ---------- Adjusted basic earnings per share $ 2.12 $ 1.84 $ 2.76 ========== ========== ========== Diluted earnings per share: Reported diluted earnings per share $ 2.11 $ 1.82 $ 2.53 Goodwill amortization related to equity investments -- -- 0.11 Goodwill and trademark amortization -- -- 0.11 Change in amortization of technical assistance agreements -- -- (0.04) Tax effect -- -- -- ---------- ---------- ---------- Adjusted diluted earnings per share $ 2.11 $ 1.82 $ 2.71 ========== ========== ==========

30 DEFERRED SOFTWARE Deferred software represents the costs of internally developed and purchased software packages for internal use plus the costs associated with the installation of software. These costs are amortized over five years. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Major improvements are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is provided on 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. 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 based on individual case estimates and 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 a third party administrator of the plan. STOCK OPTIONS The Company has two stock option plans, which are described more fully in Note 10. The Company accounts for the plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related Interpretations. No stock option is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company 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, 2003 2002 2001 ---------- ---------- ---------- Net Income: Reported net income $ 29,073 $ 28,055 $ 39,392 Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 1,373 1,511 1,277 ---------- ---------- ---------- Pro forma net income $ 27,700 $ 26,544 $ 38,115 ========== ========== ========== Basic earnings per share: Reported basic earnings per share $ 2.12 $ 1.84 $ 2.58 Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 0.10 0.10 0.09 ---------- ---------- ---------- Adjusted basic earnings per share $ 2.02 $ 1.74 $ 2.49 ========== ========== ========== Diluted earnings per share: Reported diluted earnings per share $ 2.11 $ 1.82 $ 2.53 Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 0.10 0.10 0.08 ---------- ---------- ---------- Adjusted diluted earnings per share $ 2.01 $ 1.72 $ 2.45 ========== ========== ==========

31 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 carryforwards. 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. 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 incentives offered to customers. The Company estimates returns, discounts and incentives at the time of sale based on the terms of the agreements and historical experience. The Company continually evaluates 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 the Company monthly, quarterly or semi-annually in exchange for the Company's assistance with manufacturing and engineering and support in functions such as marketing, sales and administration. DERIVATIVES Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS Nos. 137 and 138. The Company holds derivative financial instruments to hedge certain of its 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 the Company has designated and documented contemporaneously the hedging relationships involving these derivative instruments. While the Company intends to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if the Company does 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 discussed in Notes 9 and 11. RESEARCH AND DEVELOPMENT Research and development expenses are fully charged to the Consolidated Statements of Income when incurred. Expenses for 2003, 2002 and 2001, respectively, were $2,051, $2,124, and $2,394. FOREIGN CURRENCY TRANSLATION Effective January 1, 2001, the remaining activities of the Company's wholly owned Canadian sales subsidiary are recorded with the U.S. dollar as the functional currency. The 49% investment in Vitrocrisa is accounted for using the equity method with the U.S. dollar as the functional currency. The Company's wholly owned foreign subsidiaries, B.V. Koninklijke Nederlandsche Glasfabriek Leerdam (Royal Leerdam), Leerdam Crystal B.V. (Leerdam Crystal) and Libbey Europe B.V., are translated at current exchange rates and any related translation adjustments are recorded directly in shareholders' equity with the euro being the functional currency. OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) for the Company includes fair value changes of derivatives (net of tax), a net minimum pension liability in connection with pension obligations (net of tax) and exchange rate fluctuation. Disclosure of comprehensive income (loss) is incorporated into the Consolidated Statements of Shareholders' Equity for all years presented. Accumulated other comprehensive loss includes $3,364 and $5,235 for derivatives, $22,080 and $26,647 for minimum pension liability and $(32) and $1 for exchange rate fluctuation as of December 31, 2003 and 2002, respectively. LONG-LIVED ASSETS Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144), which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and provides a single accounting model for long-lived assets which are to be disposed. The adoption of SFAS No. 144 had no effect on the Company's consolidated results of operations or financial position since inception. TREASURY STOCK Treasury stock purchases are recorded at cost. During 2003, 2002 and 2001, the Company purchased 1,500,000, 935,600, and 42,000 shares of stock at an average cost of $25.95, $28.68, and $29.26, respectively. The Company issued 78,403 shares from treasury stock in 2003 at an average cost of $21.36. 32 INCOME PER SHARE OF COMMON STOCK The following table sets forth the computation of basic and diluted earnings per share:

Year ended December 31, 2003 2002 2001 ----------- ----------- ----------- Numerator for earnings per share -- net income that is available to common shareholders $ 29,073 $ 28,055 $ 39,392 ----------- ----------- ----------- Denominator for basic earnings per share -- weighted-average shares outstanding 13,733,806 15,240,429 15,296,289 Effect of dilutive securities - employee stock options and employee stock purchase plan (ESPP) in 2002 and 2003 27,356 190,693 247,996 Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 13,761,162 15,431,122 15,544,285 ----------- ----------- ----------- Basic earnings per share $ 2.12 $ 1.84 $ 2.58 ----------- ----------- ----------- Diluted earnings per share $ 2.11 $ 1.82 $ 2.53 =========== =========== ===========

NEW ACCOUNTING STANDARDS In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, "Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This Interpretation will significantly change current practices in the accounting for and disclosure of guarantees. Guarantees meeting the characteristics described in the Interpretation are required to be initially recorded at fair value. The Interpretation's initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Interpretation also requires a guarantor 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. The Interpretation's disclosure requirements are effective for this year's financial statements in Note 14 to the Consolidated Financial Statements. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." The Interpretation addresses the requirements for business enterprises to consolidate related entities in which they are determined to be the primary beneficiary as a result of their variable economic interests. The Interpretation is intended to provide guidance in judging multiple economic interests in an entity and in determining the primary beneficiary. The Interpretation outlines disclosure requirements for variable interest entities in existence prior to January 31, 2003, and requires consolidation of variable interest entities created after January 31, 2003. In addition, the Interpretation requires consolidation of variable interest entities created prior to January 31, 2003, for fiscal periods beginning after December 15, 2003. This Interpretation had no impact on the Company's financial statements. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (SFAS No. 149). This standard amends and clarifies accounting for derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. This standard had no impact on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" (SFAS No. 150). This standard requires that certain financial instruments embodying obligations to transfer assets or issue equity securities be classified as liabilities. It is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective July 1, 2003. This standard had no impact on the Company's financial statements. 33 In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS No. 132-revised), which requires additional disclosures about the assets, obligations, cash flows and net periodic benefit costs of defined benefit pension plans and defined benefit other post retirement plans. The Company adopted the disclosure requirements of SFAS No. 132-revised as shown in Note 8. 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" (FAS 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). The Company has elected to defer accounting for the effects of the Act pending further consideration of the underlying accounting issues. 3. ACQUISITIONS Abandoned Anchor Hocking Acquisition In June of 2001, the Company entered into an agreement to acquire the Anchor Hocking operations of Newell Rubbermaid Inc. On June 10, 2002, the Company abandoned its 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, the Company expensed costs of $13,634 in 2002 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 and due to the unusual nature of this event have been classified in Other income (expense) in the 2002 Consolidated Statement of Income. Traex Acquisition On December 2, 2002, the Company acquired substantially all the assets of the Traex business (Traex) from Menasha Corporation for $16.8 million in cash. Traex manufactures and markets a wide-range 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 Statements of Income since the date of acquisition. Royal Leerdam Acquisition On December 31, 2002, the Company acquired the stock of Royal Leerdam for $44.1 million in cash from BSN Glasspack N.V. (BSN). Royal Leerdam manufactures and markets high-quality glass stemware. Royal Leerdam is located in Leerdam, the Netherlands. 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 2003. As part of the stock acquisition of Royal Leerdam, the Company obtained an option, for the price of one euro, to sell the stock of Leerdam Crystal (a wholly owned subsidiary of Royal Leerdam) back to BSN. Leerdam Crystal manufactures and markets various hand-made crystal items. In the fourth quarter of 2003, the Company entered into a Settlement and Amended Agreement with BSN where BSN converted (euro)1.6 million of outstanding indebtedness, owed by Leerdam Crystal to BSN, to equity. BSN then immediately sold the equity to Royal Leerdam for one euro. As a result, Royal Leerdam now owns 100% of the stock of Leerdam Crystal, and the results of operations for the entire year of 2003 relating to Leerdam Crystal are included in the Consolidated Statements of Income for 2003. 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 an independent appraisal, which was finalized during the fourth quarter of 2003. Due to the increases in assets, goodwill decreased by $7.9 million. 34 Following is a summary of the fair values of the assets acquired and liabilities assumed as of the date of acquisitions:

2002 ------- 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 =======

The pro forma unaudited results of operations for the years ended December 31, 2002 and 2001, assuming the acquisitions had been consummated as of January 1, 2001, are as follows:

Year ended December 31, 2002 2001 ----------- ----------- Total revenues $ 505,216 $ 490,072 Net Income 30,227 42,072 Net income per share: Basic $ 1.98 $ 2.75 Diluted $ 1.96 $ 2.71 =========== ===========

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, 2001 or of future operating results. 4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES The Company is a 49% equity owner in 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) and a 49% equity owner in Crisa Industrial, L.L.C., a domestic distributor of industrial glassware for Vitrocrisa in the U.S. and Canada. 35 Summarized combined financial information for the Company's investments, accounted for by the equity method under U.S. GAAP, is as follows:

December 31, 2003 2002 -------- -------- Current assets $ 82,060 $ 93,311 Non-current assets 101,722 115,054 -------- -------- Total assets 183,782 208,365 -------- -------- Current liabilities 117,941 78,547 Other liabilities 37,093 100,063 -------- -------- Total liabilities 155,034 178,610 -------- -------- Net assets $ 28,748 $ 29,755 ======== ========

Year ended December 31, 2003 2002 2001 --------- --------- --------- Total revenues $ 183,650 $ 196,459 $ 200,692 Cost of sales 150,939 158,801 157,011 --------- --------- --------- Gross profit 32,711 37,658 43,681 Operating expenses 20,626 21,108 21,250 --------- --------- --------- Income from operations 12,085 16,550 22,431 Other income (expense) (662) (435) 3,695 --------- --------- --------- Earnings before finance costs and taxes 11,423 16,115 26,126 Interest expense 5,036 6,127 7,855 Translation gain (loss) 2,652 3,030 (1,780) --------- --------- --------- Earnings before income taxes 9,039 13,018 16,491 Income taxes 18 (6,928) 7,588 --------- --------- --------- Net income $ 9,021 $ 19,946 $ 8,903 ========= ========= =========

The Company reports pretax equity earnings in the Consolidated Statements of Income with related Mexican taxes included in the provision for income taxes. The net equity earnings are 49% of the consolidated joint venture's earnings before income taxes less income taxes as follows:

Year ended December 31, 2003 2002 2001 ------ ------- ------ Pretax equity earnings $4,429 $ 6,379 $6,384 Mexican taxes 9 (3,395) 3,719 ------ ------- ------ Net equity earnings $4,420 $ 9,774 $2,665 ====== ======= ======

APB 18, "The Equity Method of Accounting for Investments in Common Stock" requires the Company's goodwill associated with equity method investees to be reviewed for impairment, if indicators of impairment exist. The Company has determined that the goodwill of $60.5 million at December 31, 2003, is not impaired. The difference between total earnings before income taxes in the combined information above and the Company's pretax equity earnings in 2001 is $1,698 due to amortization of goodwill related to these investments. 36 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:

December 31, 2003 2002 -------- -------- Land $ 17,199 $ 15,614 Buildings 51,485 47,578 Machinery and equipment 239,104 218,375 Furniture and fixtures 13,952 13,851 Construction in progress 6,001 5,272 -------- -------- 327,741 300,690 Less accumulated depreciation 154,255 137,569 -------- -------- Net property, plant and equipment $173,486 $163,121 ======== ========

6. ACCRUED LIABILITIES Accrued liabilities include accruals for employee medical and workers' compensation self-insurance of $4,887 and $5,652 and various customer incentive programs totaling $12,483 and $12,917 at December 31, 2003 and 2002, respectively. 7. INCOME TAXES The provision for income taxes was calculated based on the following components of earnings before income taxes:

Year ended December 31, 2003 2002 2001 ------- ------- ------- United States $27,049 $31,202 $51,139 Foreign 7,155 5,471 8,093 ------- ------- ------- Total earnings before tax $34,204 $36,673 $59,232 ======= ======= =======

The provision (credit) for income taxes consists of the following:

Year ended December 31, 2003 2002 2001 ------- -------- -------- Current: Federal $ 5,419 $ 7,146 $ 7,880 Foreign 1,105 740 679 State and local 540 645 560 ------- -------- -------- Total current tax provision 7,064 8,531 9,119 ------- -------- -------- Deferred: Federal (2,438) 3,439 8,228 Foreign 336 (3,854) 3,275 State and local 169 502 (782) ------- -------- -------- Total deferred tax provision (1,933) 87 10,721 ------- -------- -------- Total: Federal 2,981 10,585 16,108 Foreign 1,441 (3,114) 3,954 State and local 709 1,147 (222) ------- -------- -------- Total tax provision $ 5,131 $ 8,618 $ 19,840 ======= ======== ========

37 Significant components of the Company's deferred tax liabilities and assets are as follows:

December 31, 2003 2002 ------- ------- Deferred tax liabilities: Property, plant and equipment $32,660 $24,110 Inventories 5,860 6,151 Intangibles and other assets 8,395 16,711 ------- ------- Total deferred tax liabilities 46,915 46,972 ------- ------- Deferred tax assets: Accrued nonpension postretirement benefits 17,377 17,802 Other accrued liabilities 12,177 13,146 Pension 2,402 4,633 Receivables 2,628 2,791 Tax credits 4,459 6,176 ------- ------- Total deferred tax assets 39,043 44,548 ------- ------- Net deferred tax liability before valuation allowance 7,872 2,424 Valuation allowance 195 195 ------- ------- Net deferred tax liability $ 8,067 $ 2,619 ======= =======

The deferred tax credits above consist of the following:

December 31, 2003 2002 ------ ------ State tax credits $2,742 $2,623 Federal tax credits 1,717 3,553 ------ ------ Total deferred tax credits $4,459 $6,176 ====== ======

The valuation allowance of $195 recorded at December 31, 2003 and 2002, is related to state tax credits. The state tax credits will expire between 2006 and 2018. The federal tax credits are primarily attributable to foreign tax credits. The net deferred tax liability is included in the consolidated balance sheets as follows:

December 31, 2003 2002 -------- -------- Noncurrent deferred tax liability $ 15,469 $ 11,780 Prepaid expenses and deferred tax asset (7,402) (9,161) -------- -------- Net deferred tax liability $ 8,067 $ 2,619 ======== ========

38 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, 2003 2002 2001 ------ ------ ------ Statutory U.S. federal tax rate 35.0% 35.0% 35.0% Increase (decrease) in rate due to: Foreign tax differential (19.0) (10.5) 4.2 State and local income taxes, net of related federal taxes 1.3 2.0 (0.2) Amortization of goodwill -- -- 1.4 Federal credits (2.0) (1.5) (5.8) Other (0.3) (1.5) (1.1) ------ ------ ------ Consolidated effective tax rate 15.0% 23.5% 33.5% ====== ====== ======

The 2003 effective tax rate of 15.0% was primarily due to a tax restructuring whereby the undistributed earnings of the Company's joint venture in Mexico will be permanently reinvested outside of the United States, which eliminated the need for previously established net deferred U.S. income tax liability on those undistributed earnings. The effective tax rate in 2002 of 23.5% is primarily attributable to lower Mexican tax, the elimination of non-deductible goodwill amortization and an adjustment to estimated U.S. income tax accruals. The reduction in Mexican tax is primarily attributable to deferred tax adjustments and reduced statutory tax rates in Mexico. Income taxes paid in cash (net of refunds received) amounted to $8,996, $3,555 and $7,632 for the years ended December 31, 2003, 2002 and 2001, respectively. Income tax related to employee stock option transactions of $1,458, $1,821 and $1,144 for the years ended December 31, 2003, 2002 and 2001, respectively, were allocated to shareholders' equity. In addition, income tax related to minimum pension liability of $2,751, $15,919 and $137 for the years ended December 31, 2003, 2002 and 2001, respectively, and income tax related to derivatives of $1,128, $297 and $2,292 for the years ended December 31, 2003, 2002 and 2001, respectively, were allocated to shareholders' equity. 8. PENSION PLANS AND NONPENSION POSTRETIREMENT BENEFITS PENSION PLANS The Company has pension plans covering substantially all employees. Benefits generally are based on compensation for salaried employees and length of service for hourly employees. The Company's policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements. In addition, the Company has a supplemental employee retirement plan (SERP) covering certain employees. The U.S. pension plans cover the hourly and salary U.S.-based employees of the Company, including the SERP, which is an unfunded liability. The non-U.S. pension plans cover the employees of the Company's wholly owned subsidiaries, Royal Leerdam and Leerdam Crystal, both located in the Netherlands. 39 The changes in the projected benefit obligations and fair value of plan assets are as follows:

U.S. PLANS NON-U.S. PLANS ---------- -------------- December 31, 2003 2002 2003 2002 --------- --------- -------- ------- Change in projected benefit obligation: Projected benefit obligation, beginning of year $ 210,383 $ 190,562 $ -- Assumed liability -- -- 22,086 Service cost 5,439 4,819 1,320 Interest cost 14,361 14,373 1,274 Plan amendments -- 1,445 (2,303) Exchange rate fluctuations -- -- 4,381 Actuarial loss 14,711 12,803 -- Benefits paid (17,526) (13,619) (157) --------- --------- -------- Projected benefit obligation, end of year $ 227,368 $ 210,383 $ 26,601 ========= ========= ======== Change in fair value of plan assets: Fair value of plan assets, beginning of year $ 172,757 $ 198,392 $ -- Acquired asset -- -- 20,541 Actual return on plan assets 41,552 (12,016) 1,498 Exchange rate fluctuations -- -- 4,443 SERP payments 615 -- -- Employer contributions (includes employee contributions for non-U.S. plan) -- -- 2,002 Benefits paid (17,527) (13,619) (157) --------- --------- -------- Fair value of plan asset, end of year $ 197,397 $ 172,757 $ 28,327 ========= ========= ======== Reconciliation of prepaid (accrued) cost: Funded Status of the plans $ (29,971) $ (37,626) $ 1,726 Unrecognized net loss 44,890 51,816 -- Unrecognized prior year service cost 14,762 16,257 (2,379) Estimated accrued Royal Leerdam pension cost -- -- -- $(4,601) Adjustment to recognize additional minimum liability (51,078) (60,052) -- --------- --------- -------- ------- Accrued pension benefit cost $ (21,397) $ (29,605) $ (653) $(4,601) ========= ========= ======== =======

The pension plans are reflected in the consolidated balance sheets as follows:

December 31, 2003 2002 -------- -------- Pension liabilities $(17,092) $(28,655) Other long-term liabilities (SERP liability) (4,958) (5,551) -------- -------- Accrued pension benefit cost $(22,050) $(34,206) ======== ======== December 31, 2003 2002 -------- -------- Intangibles (intangible pension asset) $ 15,512 $ 17,168 ======== ========

The accumulated benefit obligation for the U.S. pension plans was $218,785 and $202,362 at December 31, 2003 and 2002, respectively. The accumulated benefit obligation for the non-U.S. pension plans was $20,261 and $17,969 at December 31, 2003 and 2002, respectively. The plan amendments in 2002 for the U.S. pension plans resulted from additional benefits granted to certain of the Company's unionized workforce in labor negotiations. 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. 40 The Company recorded a change in the additional minimum pension liability of $(8,974) and $59,223 for 2003 and 2002, respectively, representing the amount required to bring the Company's recorded pension liability to equal the excess of the accumulated benefit obligation over fair value of plan assets for the applicable plans. A change in the intangible pension asset of $(1,656) and $16,886 for 2003 and 2002, 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 accumulated other comprehensive income of $7,318 less income tax of $2,751 and $42,338 less income tax of $15,919 for the years ended December 31, 2003 and 2002, respectively. Expected contributions by the Company to the U.S. pension plans are $140 and for the non-U.S. pension plans are $1,400 for the year 2004. The actuarial present value of benefit obligations is based on the following:

U.S. PLANS NON-U.S. PLANS Year ended December 31, 2003 2002 2001 2003 ---- ---- ---- ---- Discount rate 6.25% 6.75% 7.50% 5.60% Salary growth rate 4.00% 4.00% 5.00% 2.00-2.50% ==== ==== ==== =========

The net pension expense (credit) is based on the following assumptions:

U.S. PLANS NON-U.S. PLANS Year ended December 31, 2003 2002 2001 2003 ---- ----- ----- --------- Discount rate 6.75% 7.50% 7.75% 5.60% Expected long-term rate of return on assets 9.00% 10.00% 10.00% 6.50% Salary growth rate 4.00% 5.00% 5.00% 2.00-2.50% ==== ===== ===== =========

Future benefits are assumed to increase in a manner consistent with past experience. Plan assets primarily include marketable equity securities and government and corporate debt securities. The components of the net pension expense (credit), including the SERP, are as follows:

U.S. PLANS Year ended December 31, 2003 2002 2001 -------- -------- -------- Service cost (benefits earned during the period) $ 5,439 $ 4,819 $ 3,969 Interest cost on projected benefit obligation 14,361 14,373 13,199 Expected return on plan assets (20,032) (23,158) (22,669) Prior service cost amortization 1,487 1,527 536 Actuarial gain (loss) recognized 117 (1,245) (2,120) -------- -------- -------- Net pension expense (credit) $ 1,372 $ (3,684) $ (7,085) ======== ======== ========

NON-U.S. PLANS Year ended December 31, 2003 ------- Service cost (benefits earned during the period) $ 584 Interest cost on projected benefit obligation 1,274 Expected return on plan assets (1,500) Prior service cost amortization (165) ------- Net pension expense 193 =======

In addition to the above plans, U.S. employees are eligible to contribute to a 401(k) plan. The Company matches a portion of these contributions. Contributions were $2,285, $2,138 and $2,024 in 2003, 2002 and 2001, respectively. Starting in 2003, the Company is using treasury stock to fund the Company match portions of the contributions. 41 The asset allocation for the Company's U.S. pension plans at the end of 2003 and 2002, and the target allocation for 2004, by asset category, are as follows.

U. S. PLANS TARGET ALLOCATION PERCENTAGE OF PLAN ASSETS AT YEAR END ----------- ----------------- ------------------------------------- ASSET CATEGORY 2004 2003 2002 -------------- ---- ---- ---- Equity securities 65% 64% 56% Debt securities 30% 30% 38% Real estate 5% 5% 5% Other 0% 1% 1% --- --- --- TOTAL 100% 100% 100% === === ===

The asset allocation for the Company's non-U.S. pension plans at the end of 2003 and the target allocation for 2004, by asset category, are as follows.

NON-U.S. PLANS TARGET ALLOCATION PERCENTAGE OF PLAN ASSETS AT YEAR END -------------- ----------------- ------------------------------------- ASSET CATEGORY 2004 2003 -------------- ---- ---- Equity securities 30% 43% Debt securities 50% 51% Real estate 10% 6% Hedge funds 7% 0% Other 3% 0% --- --- TOTAL 100% 100% === ===

The Company's 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. NONPENSION POSTRETIREMENT PLANS The Company also provides certain retiree health care and life insurance benefits covering substantially all 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 Company retirees who had retired as of June 24, 1993. The U.S. nonpension postretirement plans cover the hourly and salary U.S.-based employees of the Company. The non-U.S. nonpension postretirement plans cover the former retirees and active employees of the Company, located in Canada. 42 The components of the nonpension postretirement benefit obligation and amounts accrued are as follows:

U.S. PLANS NON-U.S. PLANS ----------------------- --------------------- December 31, 2003 2002 2003 2002 -------- -------- ------- ------- Change in accumulated nonpension postretirement benefit obligation: Benefit obligation, beginning of year $ 35,363 $ 24,113 $ 2,184 $ 2,580 Currency loss -- -- 509 27 Service cost 910 736 -- -- Interest cost 2,389 2,215 129 145 Plan participants' contributions 436 -- -- -- Actuarial loss (gain) 2,294 10,007 364 (342) Benefits paid (2,002) (1,708) (288) (226) -------- -------- ------- ------- Benefit obligation, end of year $ 39,390 $ 35,363 $ 2,898 $ 2,184 -------- -------- ------- ------- Reconciliation of funded status of plans: Funded Status $(39,390) $(35,363) $(2,898) $(2,184) Unrecognized actuarial loss (gain) 2,657 426 (32) (613) Unrecognized prior year service cost (7,543) (9,459) -- -- -------- -------- ------- ------- Accrued benefit cost $(44,276) $(44,396) $(2,930) $(2,797) ======== ======== ======= =======

The provision for net nonpension postretirement benefit expense (credit) consists of the following:

U.S. PLANS ----------------------------------- Year ended December 31, 2003 2002 2001 ------- ------- ------- Service cost (benefits earned during the period) $ 910 $ 736 $ 590 Interest cost on nonpension postretirement benefit obligation 2,389 2,214 1,724 Prior service cost amortization (1,916) (1,915) (1,916) Actuarial loss (gain) 63 (241) (627) ------- ------- ------- Net nonpension postretirement benefit expense (credit) $ 1,446 $ 794 $ (229) ======= ======= =======

NON-U.S. PLANS ----------------------------------- Year ended December 31, 2003 2002 2001 ------- ------- ------- Service cost (benefits earned during the period) $ -- $ -- $ -- Interest cost on nonpension postretirement benefit obligation 129 145 187 Actuarial gain (19) (5) -- ------- ------- ------- Net nonpension postretirement benefit expense $ 110 $ 140 $ 187 ======= ======= =======

For the U.S. nonpension postretirement plans, assumed health care cost inflation is based on an initial rate of 10.0%, decreasing to an ultimate rate of 5.0% over 5 years. For the non-U.S. nonpension postretirement plans, the assumed health care cost inflation is based on an initial rate of 9.0%, creasing to an ultimate rate of 5.0% over eight years. A 1% increase in these rates would have increased the nonpension postretirement expense by $89 and the benefit obligation by $931. A 1% decrease in these rates would have decreased the total nonpension postretirement expense by $108 and the benefit obligation by $950. The assumed discount rate used in determining the accumulated U.S. nonpension postretirement benefit obligation was 6.25%, 6.75% and 7.5%, at December 31, 2003, 2002, 2001, respectively. The assumed discount rate used in determining net nonpension retirement benefit expense was 6.75% for 2003, 7.5% for 2002 and 7.75% for 2001. The Company continues to fund these nonpension postretirement benefit obligations as claims are incurred. 43 The Company also provides 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 $559, $312 and $365 was charged to expense for the years ended December 31, 2003, 2002 and 2001, respectively. 9. LONG-TERM DEBT On February 10, 2003, the Company entered into an unsecured agreement for an Amended and Restated Revolving Credit Agreement (Revolving Credit Agreement or Agreement) among Libbey Glass Inc. and Libbey Europe B.V., as borrowers. This amended the previous Revolving Credit and Swing Line Facility naming Libbey Glass Inc. as borrower. The amendment was primarily for the Company to borrow euros. 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 April 23, 2005, with an option to extend for two additional one-year periods. Swing Line borrowings are limited to $25 million with interest calculated at the prime rate minus the facility fee percentage (Facility Fee Percentage) as defined in the Agreement. Revolving Credit Agreement U.S. dollar borrowings bear interest at the Company's option at either the prime rate minus the Facility Fee Percentage or a Eurodollar rate plus the Applicable Eurodollar Margin (Applicable Eurodollar Margin) as defined in the Agreement. The Facility Fee Percentage and Applicable Eurodollar Margin vary depending on the Company's performance against certain financial ratios. The Facility Fee Percentage and the Applicable Eurodollar Margin were 0.375% and 1.375%, respectively, at December 31, 2003. At December 31, 2002, the Facility Fee Percentage and the Applicable Eurodollar Margin were 0.25% and 0.75%, respectively. The Company may also elect to borrow under a Negotiated Rate Loan alternative of the Revolving Credit and Swing Line Facility at floating rates of interest, up to a maximum of $125 million. The Company had $128 million outstanding under the Facility at December 31, 2003, and $186 million outstanding at December 31, 2002. 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, 2003, the Company had $4.7 million in letters of credit outstanding under the Facility. Libbey Europe B.V. may have euro-denominated borrowings under the Revolving Credit Agreement in an amount not to exceed the Offshore Currency equivalent of $60 million. Offshore Currency Swing Line borrowings are currently limited to $10 million of the $25 million total Swing Line borrowing. Interest is calculated at the Offshore Currency Swing Line rate plus applicable Offshore Currency Swing Line Margin, as defined in the Agreement. Revolving Offshore Currency Borrowings bear interest at the Offshore Currency Rate plus applicable spread, as defined in the Agreement. In September 2001, the Company issued a $2.7 million promissory note in connection with the purchase of a warehouse facility. At December 31, 2003 and 2002, the Company had $2.4 million and $2.5 million outstanding on the promissory note, respectively. On March 31, 2003, the Company completed the issuance of $100 million of privately placed senior notes. Eighty million dollars of the notes have a fixed interest rate with $25 million at an interest rate of 3.69% due March 31, 2008, and the other $55 million at an interest rate of 5.08% due March 31, 2013. The remaining $20 million has a floating interest rate at a margin over the London Interbank Offer Rate (LIBOR) that is set quarterly. The interest rate at December 31, 2003, on the $20 million debt was 2.2%. The proceeds of the note issuance were used to retire debt outstanding under the Revolving Credit Agreement. Annual maturities for all of the Company's long-term debt are as follows: 2004 - $0.1 million; 2005 - $128.1 million; 2006 - $0.1 million; 2007 - $0.1 million; and 2008 - $25.2 million. The Company has Rate Agreements with respect to $100 million of debt as a means to manage its exposure to fluctuating interest rates. The Rate Agreements effectively convert this portion of the Company's borrowings from variable rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future income. The fixed interest rate for the Company's borrowings related to the Rate Agreements at December 31, 2003, is 5.8% and the total interest rate, including applicable fees, is 7.6%. The average maturity of these Rate Agreements is 1.3 years at December 31, 2003. Total remaining debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 3.9% at December 31, 2003. If the counterparts to these Rate Agreements fail to perform, the Company would no longer be protected from interest rate fluctuations by these Rate Agreements. However, the Company does not anticipate nonperformance by the counterparts. 44 The Company pays the Commitment Fee Percentage on the total credit provided under the Bank Credit Agreement. No compensating balances are required by the Agreement, which 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. At December 31, 2003, the carrying value of the Company's variable-rate debt approximates its fair value based on the Company's current incremental borrowing rates and term to the maturity of the Bank Credit Agreement. The fair market value for the Company's Rate Agreements at December 31, 2003, was $(5.5) million. The fair value of the Company's Rate Agreements is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. The Company does not expect to cancel these agreements and expects them to expire as originally contracted. Interest paid in cash amounted to $11,678, $8,115 and $10,785 for the years ended December 31, 2003, 2002 and 2001, respectively. 10. STOCK COMPENSATION The Company has two stock option plans for key employees: (1) the Libbey Inc. Amended and Restated Stock Option Plan for Key Employees and (2) the 1999 Equity Participation Plan of Libbey Inc. The plans provide for the granting of Incentive Stock Options and Nonqualified Options to purchase 2,800,000 shares of the Company's common stock at a price not less than the fair market value on the date the option is granted. Options become exercisable as determined at the date of the grant by the Compensation Committee of the Board of Directors. Unless an earlier expiration date is set at the time of the grant or results from termination of an optionee's employment or a merger, consolidation, acquisition, liquidation or dissolution of the Company, Incentive Stock Options expire ten years after the date of the grant and Nonqualified Options expire 10 years and a day after the grant. The Company has elected to follow APB No. 25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for employee stock options. The alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, no compensation expense is recognized because the exercise price of the Company's employee stock options equals the market price of the underlying stock at the date of grant. In the opinion of management, the existing fair value models do not provide a reliable measure of the value of employee stock options. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Company's employee stock options have characteristics significantly different from those of traded options. In addition, option valuation models require highly subjective assumptions including the expected stock price volatility. Changes in these assumptions can materially affect the fair value estimate. 45 Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994, under the fair-value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions by year:

Assumption 2003 2002 2001 ---------- ---- ---- ---- Risk-free interest rates 4.1% 3.7% 4.2% Dividend yield 1.8% 1.2% 0.9% Volatility .30 .31 .30 ---- ---- ----

The weighted average fair value of options granted in 2003, 2002 and 2001 was $10.07, $9.11 and $13.25, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:

Year ended December 31, 2003 2002 2001 ---------- ---------- ---------- Net income: Reported $ 29,073 $ 28,055 $ 39,392 Pro forma $ 27,700 $ 26,544 $ 38,115 Earnings per share: Basic: Reported $ 2.12 $ 1.84 $ 2.58 Pro forma $ 2.02 $ 1.74 $ 2.49 Diluted: Reported $ 2.11 $ 1.82 $ 2.53 Pro forma $ 2.01 $ 1.72 $ 2.45 ========== ========== ==========

46 Stock option activity is as follows:

Weighted-Average Number of Shares Exercise Price Price Range Per Share ---------------- -------------- --------------------- January 1, 2001 Outstanding 1,568,324 $22.35 $13.00-$38.44 Exercisable 1,219,882 19.25 Granted 230,450 30.56 Canceled 1,250 31.94 Exercised 167,741 13.97 --------- ------ ------------- December 31, 2001 Outstanding 1,629,783 $24.37 $13.00-$38.44 Exercisable 1,198,163 21.75 Granted 247,950 24.11 Canceled 200 32.31 Exercised 230,434 14.32 --------- ------ ------------- December 31, 2002 Outstanding 1,646,799 $25.73 $13.00-$38.44 Exercisable 1,158,489 24.95 Granted 173,410 28.33 Canceled 5,350 30.14 Exercised 404,683 13.31 --------- ------ ------------- DECEMBER 31, 2003 OUTSTANDING 1,410,176 $29.60 $16.38-$38.44 EXERCISABLE 968,167 30.49 ========= ====== =============

The following information is as of December 31, 2003:

Options with an Options with an Options with an Options with an exercise price of exercise price of exercise price of exercise price of $16.38-24.25 per $24.26-29.50 per $29.51-32.31 per $32.32-38.44 per share share share share ----------------- ----------------- ----------------- ----------------- Options outstanding 349,800 289,510 559,950 210,916 Weighted-average exercise price $23.25 $27.86 $31.33 $37.94 Remaining contractual life 6.69 7.23 6.66 4.17 Options exercisable 202,080 116,101 439,070 210,916 Weighted-average exercise price $22.75 $26.92 $31.41 $37.94 ----------------- ----------------- ----------------- -----------------

On May 10, 2001 the shareholders approved the 2002 Employee Stock Purchase Plan (ESPP) for a period of 10 years. The ESPP allows employees, through payroll withholdings, to purchase up to 350,000 shares of common stock at the lower of 85% of the market price at the beginning or the end of the option period. During the first year of the plan, June 1, 2002 to May 31, 2003, there were 54,435 shares of common stock issued with a market price of $21.50 per share and a discount price to participants of $18.28 per share. The second year of the plan is from June 1, 2003 to May 31, 2004, and the market price of stock at the beginning of the period was $21.50 per share. 11. DERIVATIVES The Company holds derivative financial instruments to hedge certain of its 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 the Company has designated and documented contemporaneously the hedging relationships involving these derivative instruments. While the Company intends to continue to meet the conditions for hedge accounting, if hedges do not qualify as highly effective or if the Company does 47 not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in earnings. The Company uses Interest Rate Protection Agreements (Rate Agreements) to manage its exposure to fluctuating interest rates, which effectively convert a portion of the Company's borrowings from variable rate debt to a fixed-rate basis, 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. The Company also uses commodity futures contracts related to forecasted future 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. The Company considers its forecasted natural gas requirements in determining the quantity of its natural gas to hedge. The Company combines the forecasts with historical observations to establish the percentage of its forecast eligible to be hedged, typically ranging from 40% to 60% of the anticipated requirements, generally two or more months in the future. In some cases, hedges are for requirements as long as eighteen months into the future. The fair values of these instruments are determined from market quotes. The Company's foreign currency exposures arise 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. The Company has not changed its 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. As of December 31, 2003, the Company has Rate Agreements for $100.0 million of its variable rate debt and commodity futures contracts for 2.2 million British Thermal Units (BTU's) of natural gas. The fair value of these derivatives are included on the balance sheet in accrued liabilities and other assets on the balance sheet for the Rate Agreements and commodity contracts, respectively. At December 31, 2002, the Company had Rate Agreements for $100.0 million of its variable rate debt, commodity futures contracts for 0.8 million BTU's of natural gas, and foreign currency forward contracts for 42.3 million euros. The Company does not believe it is 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. 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 accumulated 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 and for net investments in foreign operations in other income (expense). All of the Company's derivatives qualify and are designated as cash flow hedges at December 31, 2003. 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 2003 was not material. 48 The change in other comprehensive income (loss) for the Company is as follows:

Year ended December 31, 2003 2002 ------- ------- Change in fair value of derivative instruments $ 2,999 $ (790) Less: Income tax (expense) benefit (1,128) 297 ------- ------- Other comprehensive income (loss) related to derivatives $ 1,871 $ (493) ======= =======

The following table identifies the detail of cash flow hedges in other comprehensive income (loss) as of December 31:

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

12. SHAREHOLDERS' RIGHTS PLAN The Company has a Shareholders' Rights Plan designed to ensure that all of the Company's shareholders receive fair and equal treatment in the event of any proposal to acquire control of the Company. The Plan defines Existing Holder to mean Baron Capital Group, Inc. together with all of its Affiliates and Associates (including, without limitation, Ronald Baron, BAMCO, Inc., Baron Capital Management, Inc. and Baron Asset Fund). Under the Plan, the Company's Board of Directors would declare a distribution of one right for each outstanding common share of the Company. Each right will entitle shareholders to buy 1/100th of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $55 per right. The rights will not be exercisable until a person acquires beneficial ownership of 20% (or in the case of an Existing Holder, 25%) of the Company's common shares or makes a tender offer for at least 20% (or in the case of an Existing Holder, 25%) of its common shares. Percentage increases resulting from share repurchases by the Company or inadvertence do not cause the rights to become exercisable. After the time that a person acquires beneficial ownership of 20% (or in the case of an Existing Holder, 25%) of the Company's common shares, the holders of the rights may be permitted to exercise such rights to receive the Company's common shares having market value of twice the exercise price. The rights are redeemable at $0.001 per right at any time before the tenth day after a person has acquired 20% (or in the case of an Existing Holder, 25%) or more of the outstanding common shares. The redemption period may be extended under certain circumstances. If at any time after the rights become exercisable and not redeemed, the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving party, the rights will entitle a holder to buy a number of shares of common stock of the acquiring company having a market value of twice the exercise price of each right. 13. OPERATING LEASES Rental expense for all non-cancelable operating leases, primarily for warehouses, was $7,123; $6,637 and $5,235 for the years ended December 31, 2003, 2002 and 2001, respectively. Future minimum rentals under operating leases are as follows: 2004--$6,845; 2005--$4,136; 2006--$2,687; 2007--$2,245; 2008--$1,684; and 2009 and thereafter--$2,579. In 2002, the Company recorded a $1.2 million expense related to the non-cancelable operating lease for the Company's corporate offices. 49 14. GUARANTEES As part of Interpretation No. 45, "Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" the Company has the following guarantees. The debt of Libbey Glass Inc. and Libbey Europe B.V, pursuant to the Amended and Restated Revolving Credit Agreement and privately placed senior notes are guaranteed by Libbey Inc. and by certain subsidiaries of Libbey Glass Inc. Also, Libbey Glass Inc. guarantees a(euro)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 the Company. In addition, Libbey Inc. guarantees the payment of 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. 15. INDUSTRY SEGMENT INFORMATION The Company has one reportable segment, tableware products, from which the Company's revenues from external customers are derived. The Company does not have any customer who represents 10% or more of total sales. The Company's operations by geographic areas for 2003, 2002 and 2001 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 ------------- -------- ------------ ------------ 2003 Net sales: Customers $397,187 $116,458 -- $513,645 Intercompany 2,663 -- $(2,663) -- -------- -------- ------- -------- Total Net Sales $399,850 $116,458 $(2,663) $513,645 -------- -------- ------- -------- 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 ======== ======== ======= ======== 2001 Net sales: Customers $371,865 $ 47,729 -- $419,594 Intercompany -- -- -- -- -------- -------- ------- -------- Total Net Sales $371,865 $ 47,729 -- $419,594 -------- -------- ------- -------- Long-lived assets $172,924 $ 82,513 -- $255,437 ======== ======== ======= ========

50 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables present selected quarterly financial data for the years ended December 31, 2003 and 2002:

2003 Dollars in thousands, except per-share amounts First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- Net sales $111,903 $128,254 $129,126 $144,349 Freight billed to customers 434 529 477 525 Cost of sales 90,779 99,085 100,996 116,531 Gross profit 21,558 29,698 28,607 28,343 Earnings before interest and income taxes 5,518 15,031 15,014 12,077 Net income $ 2,001 $ 7,910 $ 12,018 $ 7,144 -------- -------- -------- -------- Net income per share Basic $ 0.14 $ 0.59 $ 0.89 $ 0.53 Diluted $ 0.14 $ 0.59 $ 0.88 $ 0.52 ======== ======== ======== ========

2002 Dollars in thousands, except per-share amounts First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- Net sales $ 98,669 $114,086 $103,607 $117,399 Freight billed to customers 418 434 344 536 Cost of sales 77,016 83,491 74,883 92,175 Gross profit 22,071 31,029 29,068 25,760 Earnings before interest and income taxes 8,058 9,346 14,142 13,390 Net income $ 3,952 $ 4,900 $ 10,780 $ 8,423 -------- -------- -------- -------- Net income per share Basic $ 0.26 $ 0.32 $ 0.70 $ 0.57 Diluted $ 0.25 $ 0.31 $ 0.69 $ 0.56 ======== ======== ======== ========

51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures: Based on their evaluation as of December 31, 2003, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act") are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to executive officers of the Company 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 the Company 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?". The Company's Code of Business Ethics and Conduct applicable to its Directors, Officers (including the Company's principal executive officer and principal financial & accounting officer) and employees, along with the Audit Committee Charter, Nominating and Governance Committee Charter, Compensation Committee Charter and Corporate Governance Guidelines will be posted to the Company's website at www.libbey.com no later than May 6, 2004. It will also be available in print no later than May 6, 2004, to any shareholder who submits a request in writing addressed to Arthur H. Smith, Vice President, General Counsel and Secretary, Libbey Inc., 300 Madison Avenue, P.O. Box 10060, Toledo, Ohio 43669-0060. In the event that the Company 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, the Company intends to disclose the subsequent information on the Company'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 52 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. PRINCIPLE 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 2003 and 2002?" in the Proxy Statement. 53 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 ---- Report of Management 22 Report of Independent Auditors 23 Consolidated Balance Sheets at December 31, 2003 and 2002 24 For the years ended December 31, 2003, 2002 and 2001: Consolidated Statements of Income 26 Consolidated Statements of Shareholders' Equity 27 Consolidated Statements of Cash Flows 28 Notes to Consolidated Financial Statements 29 Selected Quarterly Financial Data (Unaudited) 51 Financial statement schedule for the years ended December 31, 2003, 2002 and 2001: 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. b) A Form 8-K was filed during the fourth quarter, dated October 28, 2003, with respect to the press release announcing financial results for the quarter-ended September 30, 2003. 54 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 15, 2004 55 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 /s/ Scott M. Sellick Date: March 15, 2004 -------------------- Scott M. Sellick Vice President and Chief Financial Officer (Principal Accounting Officer) Date: March 15, 2004 56 INDEX TO FINANCIAL STATEMENT SCHEDULE

Page ---- Financial Statement Schedule of Libbey Inc. for the years ended December 31, 2003, 2002, and 2001 for Schedule II Valuation and Qualifying Accounts (Consolidated) S-1

57 LIBBEY INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (Consolidated) Years ended December 31, 2003, 2002 and 2001 (Dollars in thousands)

Additions Charged Balance at (Credited) to Beginning Costs and Other Deductions Balance at Of Year Expenses (Note 1) (Note 2) End of Year ------- -------- -------- -------- ----------- Allowances for Losses and Discounts on Receivables: 2003 $7,792 $ (72) $ 53 $ 613 $7,160 ====== ======== ===== ====== ====== 2002 $5,962 $ 2,728 $ 436 $1,334 $7,792 ====== ======= ===== ====== ====== 2001 $6,788 $ 279 $ 2 $1,107 $5,962 ====== ======= ===== ====== ======

(1) The amounts in "Other" represent recoveries of accounts previously charged off as uncollectible, and in 2002, amounts established through purchase accounting for the acquisitions of Traex and Royal Leerdam for Losses and Discounts on Receivables. (2) Deductions from allowances for losses and discounts on receivables represent uncollectible notes and accounts written off. EXHIBIT INDEX S-K 601No. Document ------ -------- 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 EXHIBIT INDEX S-K 601No. Document ------ -------- 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 -- Employment Agreements dated as of June 24, 1993 between Libbey Inc. and its then Executive Officers (filed as Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference). *10.6 -- Employment Agreement dated as of August 1, 1993 between Libbey Inc. and Kenneth G. Wilkes (filed as an Exhibit 10.6(a) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference). *10.7 -- 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). *10.8 -- 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). *10.9 -- 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). *10.10 -- 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). 10.11 -- 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). E-2 EXHIBIT INDEX S-K 601No. Document ------ -------- 10.12 -- 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). 10.13 -- 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). *10.14 -- Employment Agreement dated as of April 1, 1996 between Libbey Inc. and John A. Zarb (filed as Exhibit 10.21 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and incorporated herein by reference). *10.15 -- 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). *10.16 -- 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). *10.17 -- Employment Agreement dated as of January 1, 1997 between Libbey Inc. and Timothy T. Paige (filed as Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). 10.18 -- 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). 10.19 -- 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). 10.20 -- 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). E-3 EXHIBIT INDEX S-K 601No. Document ------ -------- 10.21 -- 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). 10.22 -- 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). 10.23 -- 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). 10.24 -- 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). 10.25 -- 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 Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference). *10.26 -- Employment Agreement dated as of September 1, 1997 between Libbey Inc. and Daniel P. Ibele (filed as Exhibit 10.34 to Registrant's Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference). *10.27 -- 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). *10.28 -- 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). *10.29 -- 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). *10.30 -- 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). *10.31 -- 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). *10.32 -- 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). E-4 EXHIBIT INDEX S-K 601No. Document ------ -------- *10.33 -- 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). *10.34 -- 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). *10.35 -- 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). *10.36 -- 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). *10.37 -- 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). *10.38 -- Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Arthur H. Smith (filed as Exhibit 10.50 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference). *10.39 -- 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). *10.40 -- 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). *10.41 -- 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). *10.42 -- 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). *10.43 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Arthur H. Smith (filed as Exhibit 10.50 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 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). E-5 EXHIBIT INDEX S-K 601No. Document ------ -------- *10.45 -- 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). *10.46 -- 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). *10.47 -- 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). *10.48 -- 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). *10.49 -- 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). *10.50 -- 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). *10.51 -- 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). *10.52 -- 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). *10.53 -- 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). *10.54 -- 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). E-6 EXHIBIT INDEX S-K 601No. Document ------ -------- *10.55 -- 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). *10.56 -- 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). *10.57 -- Employment Agreement dated as of August 1, 1999 between Libbey Inc. and Kenneth A. Boerger (filed as Exhibit 10.67 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference). *10.58 -- 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). *10.59 -- 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). *10.60 -- 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). *10.61 -- 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). 10.62 -- 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). 10.63 -- 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). 10.64 -- 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). E-7 EXHIBIT INDEX S-K 601No. Document ------ -------- 10.65 -- 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). *10.66 -- Employment Agreement dated as of May 1, 2003, between Libbey Inc. and Scott M. Sellick (filed as Exhibit 10.65 to Registrant's Quarterly Report on Form 10-Q for the quarter-ended June 30, 2003, and incorporated herein by reference). *10.67 -- 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). *10.68 -- Employee Agreement dated December 15, 2003, between Libbey Inc. and Susan A. Kovach (filed herein). *10.69 -- Change of Control Agreement dated as of December 15, 2003, between Susan A. Kovach (filed herein). 21 -- Subsidiaries of the Registrant (filed herein). 23 -- Consent of Independent Auditors (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