UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

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

Commission file number 1-12084

Libbey Inc.

300 Madison Avenue, Toledo, Ohio 43604

419-325-2100

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).              Yes  (X)  No  (  )

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value – 13,786,314 shares at October 29, 2004.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying unaudited condensed consolidated financial statements of Libbey Inc. and all wholly owned subsidiaries (Libbey or the Company) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2004, are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

The balance sheet at December 31, 2003, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

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LIBBEY INC.

See accompanying notes

(1)		Net sales plus Freight billed to customers less Cost of sales
(2)		Gross profit plus Royalties and net technical assistance income less Selling, general and administrative expenses and Capacity realignment charge
(3)		Refer to Note 10 of the Notes to Condensed Consolidated Financial Statements

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LIBBEY INC.

See accompanying notes

(1)		Net sales plus Freight billed to customers less Cost of sales
(2)		Gross profit plus Royalties and net technical assistance income less Selling, general and administrative expenses and Capacity
realignment charge
(3)		Refer to Note 10 of the Notes to Condensed Consolidated Financial Statements

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LIBBEY INC.

See accompanying notes

5

LIBBEY INC.

See accompanying notes

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LIBBEY INC.

See accompanying notes

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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)

See accompanying notes

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LIBBEY INC.

1. Notes Payable and Long-Term Debt

Long-term debt consists of the following:

The Company was in compliance with the covenants of all debt agreements as of September 30, 2004 and December 31, 2003.

Revolving Credit Facility

On June 24, 2004, the Company entered into an unsecured agreement for a Revolving Credit Agreement (Revolving Credit Agreement or Agreement) with Libbey Glass Inc. and Libbey Europe B.V., as borrowers. The Agreement is with a group of banks that provides for a Revolving Credit and Swing Line Facility (Facility) permitting borrowings up to an aggregate total of $250 million, maturing June 24, 2009. Swing Line borrowings are limited to $25 million. Swing Line US dollar borrowings bear interest calculated at the prime rate plus the Applicable Rate for Base Rate Loans as defined in the Agreement. Revolving Credit Agreement U.S. dollar borrowings bear interest at the Company’s option at either the prime rate plus the Applicable Rate for Base Rate Loans or a Eurodollar rate plus the Applicable Rate for Eurodollar Loans as defined in the Agreement. The Applicable Rates for Base Rate Loans and Eurodollar Loans vary depending on the Company’s performance against certain financial ratios. The Applicable Rates for Base Rate Loans and Eurodollar Loans were 0.30% and 1.20%, respectively, at September 30, 2004. The weighted average interest rate on these borrowings at September 30, 2004, was 3.3%.

Libbey Europe B.V. may have euro-denominated swing line or revolving borrowings under the Revolving Credit Agreement in an aggregate amount not to exceed the Offshore Currency Equivalent as defined in the Revolving Credit Agreement of $100 million. Offshore Currency Swing Line borrowings are currently limited to $15 million of the $25 million total Swing Line borrowings. Interest is calculated at the Offshore Currency Swing Line rate plus the Applicable Rate for Swing Line Loans in euros as defined in the Agreement. Revolving Offshore Currency Borrowings bear interest at the Offshore Currency Rate plus the Applicable Rate for Offshore Currency Rate Loans as defined in the Agreement. The Applicable Rates for Swing Line Loans in euros and Offshore Currency Rate Loans vary depending on the Company’s performance against certain financial ratios. The Applicable Rates for Swing Line Loans in euros and Offshore Currency Rate Loans were 1.70% and 1.20%, respectively, at September 30, 2004.

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The Company may also elect to borrow under a Negotiated Rate Loan alternative of the Facility at negotiated rates of interest up to a maximum of $125 million. The Facility also provides for the issuance of $30 million of letters of credit, with such usage applied against the $250 million limit. At September 30, 2004, the Company had $5.3 million in letters of credit outstanding under the Facility.

The Company pays a Facility Fee as defined by the Agreement on the total credit provided under the Facility. The Facility Fee varies depending on the Company’s performance against certain financial ratios. The Facility Fee was 0.30% at September 30, 2004.

No compensating balances are required by the Agreement. The Agreement does require the maintenance of certain financial ratios, restricts the incurrence of indebtedness and other contingent financial obligations, and restricts certain types of business activities and investments.

Senior Notes

On March 31, 2003, the Company issued $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 6.9 years. Twenty million dollars of the senior notes have a floating interest rate at a margin over the London Interbank Offer Rate (LIBOR) that is set quarterly. The floating interest rate at September 30, 2004, on the $20 million debt was 2.64%.

Interest Rate Protection Agreements

The Company has Interest Rate Protection Agreements (Rate Agreements) with respect to $50 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 September 30, 2004, is 6.0% and the total interest rate, including applicable fees, is 7.5%. The average maturity of these Rate Agreements is 1.3 years at September 30, 2004. Total remaining debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 3.7% at September 30, 2004. 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.

2. Investments in Unconsolidated Affiliates

The Company is a 49% equity owner in Vitrocrisa Holding, S. de R.L. de C.V. and related Mexican companies (Vitrocrisa), which manufacture, market, and sell 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 distributor of industrial glassware for Vitrocrisa in the U.S. and Canada.

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Summarized combined financial information for the Company’s investments for 2004 and 2003, accounted for by the equity method under U.S. generally accepted accounting principles (U.S. GAAP), is as follows:

3. Cash Flow Information

Interest paid in cash was $1,805 and $2,552 for the third quarter of 2004 and 2003, respectively, and $8,848 and $7,270 for the first nine months of 2004 and 2003, respectively. Income taxes

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paid in cash were $118 and $2 for the third quarter of 2004 and 2003, respectively, and $1,428 and $5,385 for the first nine months of 2004 and 2003, respectively.

4. Net Income per Share of Common Stock

Basic net income per share of common stock is computed using the weighted average number of shares of common stock outstanding. Diluted net income per share of common stock is computed using the weighted average number of shares of common stock outstanding and includes common share equivalents.

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

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5. Comprehensive (Loss) Income

The Company’s components of comprehensive (loss) income are as follows:

Accumulated other comprehensive loss includes $433 and $3,364 for effect of derivatives, $(559) and $(31) for foreign exchange translation and $22,080 and $22,080 for minimum pension liability as of September 30, 2004, and December 31, 2003, respectively.

The change in other comprehensive income for derivative instruments for the Company is as follows:

6. Derivatives

As of September 30, 2004, the Company had Interest Rate Protection Agreements for $50.0 million of its variable rate debt and commodity contracts for 5,020,000 million British Thermal Units (MMBTUs) of natural gas accounted for under hedge accounting. The fair value of these derivatives is included in accrued liabilities and other assets on the balance sheet for the Rate Agreements and commodity contracts, respectively. At September 30, 2003, the Company had Rate Agreements for $100.0 million of its variable rate debt and commodity contracts for 2,570,000 MMBTUs of natural gas.

The Company does not believe it is exposed to more than a nominal amount of credit risk in its interest rate and natural gas hedges as the counterparts are established financial institutions.

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All of the Company’s derivatives qualify and are designated as cash flow hedges at September 30, 2004. Hedge accounting is only applied when the derivative is deemed to be highly effective at offsetting changes in anticipated cash flows of the hedged item or transaction. 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 the third quarter of 2004 and 2003 was not material.

7. New Accounting Standards

In December 2003, the FASB issued Statement of Financial Accounting Standards (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 9.

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” (the Act), 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 Act. The Company elected to defer accounting for the effects of the Act pending further consideration of the underlying accounting issues. In May 2004, the FASB issued FSP No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP 106-2). FSP 106-2 supersedes the Act. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004. FSP 106-2 provides authoritative guidance on the accounting for the Act and specifies the disclosure requirements for employers who have adopted FSP 106-2. The Company’s 2004 net postretirement benefit cost does not reflect the effects of the Act because it was not deemed to be a significant event for the plan. As regulations are finalized and marketplace factors emerge, the postretirement benefit cost could result in a change to the previously reported information.

8. Stock Options

The Company has two stock-based employee compensation plans. 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-based employee compensation cost is reflected in net income for stock options, 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. Libbey also has issued restricted shares under its stock option plan. Restricted shares are issued at no cost to the recipient of the award. The market value of the restricted shares is charged to income ratably over the period during which these awards vest. 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.

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9. Pension Plans and Nonpension Postretirement Benefits

Net pension expense / postretirement expense for the Company’s United States (U.S.) plans for the three months and nine months ended September 30, 2004 and 2003 includes the following components:

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During the third quarter of 2004, Libbey incurred $3,810 for a net pension and postretirement benefit curtailment charge as a result of the planned capacity realignment whereby the manufacturing facility in City of Industry, California, will cease operations in early 2005. As a result of the plant closure, approximately 140 employees will be terminated. In addition, due to the announcement of the closure of the City of Industry plant, the valuation of the U.S. pension and postretirement plans was revalued as of August 16, 2004. This resulted in additional net periodic benefit cost of $270 in the third quarter of 2004. This amount is included in the above table. The normal measurement date for the U.S. plans is December 31, 2003. The capacity realignment is explained in further detail in Note 10.

The Company made cash contributions of $80 to its U.S. pension plans through the third quarter of 2004 and does not expect to make any additional contributions through the remainder of the year.

Net pension expense (income) / postretirement expense for the Company’s non-United States plans for the three months and nine months ended September 30, 2004 and 2003 includes the following components:

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The Company expects to make cash contributions of $1,400 to its non-U.S. pension plans in 2004. Through the third quarter, $1,035 has been contributed.

Net pension expense / postretirement expense for both the Company’s United States and non-United States plans for the three months and nine months ended September 30, 2004 and 2003 includes the following components:

Libbey 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.

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. Starting in 2003, Libbey is using treasury stock to fund the Company match portions of the contributions.

10. Capacity Realignment

In August 2004, the Company announced that it is realigning its production capacity in order to improve its cost structure. The plan calls for the closure of its manufacturing facility in City of Industry, California, in early 2005 and the realignment of production among its other glass manufacturing facilities. During the third quarter of 2004, Libbey recorded pretax charges of $11,734 related to the closure of the City of Industry facility and realignment of its production capacity. Of the $11,734 charged during the third quarter, $5,986 is included in cost of sales in the Condensed Consolidated Statements of Operations. These cost of sales charges included pension and retiree welfare expenses and the write-down of inventories. The pension and retiree welfare charge is explained further in Note 9. As a result of the capacity realignment, Libbey will reduce its total glass manufacturing capacity. Therefore, Libbey will exit certain low-margin business. Inventories of these items were written down in the third quarter of 2004.

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The remaining $5,748 was recorded in the line item “capacity realignment charge”. These charges were primarily for employee termination costs and the write-down of fixed assets. Employee termination costs primarily include severance, medical benefits and outplacement services for the estimated 140 employees that will be terminated. The write-down of fixed assets is to write-down certain machinery and equipment to the estimated fair market value.

The following table summarizes the charge incurred through September 30, 2004, and the total estimated charge related to the capacity realignment that will be recognized through the first quarter of 2005.

Following is the capacity realignment reserve activity for the three months ended September 30, 2004:

11. Guarantees

The debt of Libbey Glass Inc. and Libbey Europe B.V. pursuant to the Revolving Credit Agreement and privately placed senior notes is guaranteed by Libbey Inc. and by certain subsidiaries of Libbey Glass Inc. Also, Libbey Glass Inc. guarantees a €10 million working capital facility of Libbey Europe B.V. and Royal Leerdam. All are related parties that are included in the Consolidated Financial Statements. See Note 1 for further disclosure on debt of the Company.

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In addition, Libbey Inc. guarantees the payment by Vitrocrisa Holding, S. de R.L. de C.V. (Vitrocrisa) of its obligation to purchase electricity. The guarantee is based on the provisions of a Power Purchase Agreement to which Vitrocrisa is a party. The guarantee is limited to 49% of any such obligation of Vitrocrisa and limited to an aggregate amount of $5.0 million. The guarantee was entered into in October 2000 and continues for 15 years from the initial date of electricity generation, which commenced on April 12, 2003.

In October 1995, Libbey Inc. guaranteed the obligations of Syracuse China Company and Libbey Canada Inc. under the Asset Purchase Agreement for the acquisition of Syracuse China. The guarantee is limited to $5.0 million expiring on the fifteenth anniversary of the Closing Date (October 10, 1995). The guarantee is in favor of The Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse China Company of Canada Ltd.

On April 2, 2004, Libbey Inc. and Libbey Glass Inc. guaranteed the obligations of Vitrocrisa Comercial, S. de R.L. de C.V. (Comercial) and Vitrocrisa under Tranche B loans pursuant to a certain Credit Agreement. Libbey’s portion of the guarantee is for 31% of the total indebtedness, up to a maximum amount of $23.0 million. The term of the Tranche B loans of the Credit Agreement is three years, expiring April 2007. Libbey would be obligated in the event of default by Comercial or Vitrocrisa, as outlined in the guarantee agreement. In exchange of the guarantee, Libbey receives a fee from Vitrocrisa. The guarantee was recorded during the second quarter of 2004 at the fair market value of $0.4 million in Libbey’s Consolidated Balance Sheet as an increase in Other long-term liabilities with an offset to Investments.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and in our Annual Report filed with the Securities and Exchange Commission. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ from those anticipated in these forward-looking statements as a result of many factors. These factors are discussed in Other Information in the section “Qualitative and Quantitative Disclosures About Market Risk.”

The Company believes that Earnings before interest and taxes (EBIT) and Earnings before interest, taxes, depreciation and amortization (EBITDA), non-GAAP financial measures, are useful metrics for evaluating its financial performance because they provide a more complete understanding of the underlying results of the Company’s core business. See Table 1 for a reconciliation of EBIT and EBITDA to income before income taxes.

Results of Operations – Third Quarter 2004 compared with Third Quarter 2003

For the quarter-ended September 30, 2004, sales increased 2.1 percent to $131.8 million from $129.1 million in the year-ago quarter. The increase in sales was partially attributable to growth in sales to customers in the retail channel of distribution and higher shipments to customers of glass tableware products from the United States to export markets. Shipments to foodservice glass customers were down slightly, while sales of Syracuse China dinnerware, World Tableware products, and Traex products were all higher than the year-ago period. Sales to retail customers

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increased over 9 percent as compared to the year-ago quarter. Shipments in the last half of the quarter were adversely impacted in the Southeastern United States as a result of weather conditions. Sales to customers located outside of the United States increased 9.5 percent to $32.1 million from $29.3 million in the year-ago period.

In August 2004, Libbey announced that it is realigning its production capacity in order to improve its cost structure. The plan calls for the closure of Libbey’s manufacturing facility in City of Industry, California, in early 2005 and the realignment of production among its other glass manufacturing facilities, further detailed in Note 10. During the third quarter of 2004, Libbey recorded a pretax charge of $11.7 million as detailed in Table 2. Of the $11.7 million capacity realignment charge in the third quarter of 2004, $6.0 million was recorded in costs of sales and the remaining $5.7 million was recorded in the line “capacity realignment charge” included as part of income from operations. The restructuring initiatives are expected to be complete in the first quarter of 2005. The capacity realignment is expected to allow Libbey to reduce its cost structure and improve profitability. The closure of the City of Industry plant is expected to add $11 to 13 million per annum of income from operations, starting in the second quarter of 2005.

Gross profit (defined as net sales plus freight billed to customers less cost of sales) was $20.3 million and as a percent of sales was 15.4 percent in the third quarter of 2004, compared to $28.6 million and 22.2 percent in the third quarter of 2003. Factors contributing to the decrease in gross profit were a charge of $6.0 million for pension and retiree welfare and inventory write-down related to the capacity realignment. In addition, gross profit was negatively affected by lower margin sales, higher distribution costs, increased packaging costs, higher medical expenses, increased pension expenses and slightly higher natural gas costs. Partially offsetting these increases were improved capacity utilization and efficiencies in the manufacturing operations.

Libbey recorded a loss from operations of $0.4 million in the third quarter of 2004, which included capacity realignment charges of $11.7 million, as detailed in Table 2. This compares to income from operations of $13.7 million in the year-ago period. In addition to the capacity realignment charge, contributing to the decrease in income from operations was the decrease in gross profit. Selling, general and administrative expenses were flat compared to the prior year period and were down 20 basis points to 12.0 percent of net sales, as compared to 12.2 percent of net sales during the third quarter of 2003.

Loss before interest and income taxes (EBIT) was $1.6 million compared to earnings of $15.0 million in the year-ago quarter. Pretax equity loss from Vitrocrisa (the Company’s 49% equity ownership in Crisa Industrial, L.L.C., Vitrocrisa Holding, S. de R.L. de C.V. and related Mexican companies), was a pretax loss of $0.9 million as compared with pretax earnings of $1.2 million in the third quarter of 2003. The loss occurred due to significantly higher natural gas costs and a $0.4 million translation loss as compared to a translation gain of $2.1 million in the third quarter of 2003. The translation variance was due to less devaluation of the Mexican peso in the current quarter compared to the prior year period.

Net loss for the third quarter of 2004 was $3.2 million, or a loss of 23 cents per diluted share, compared with net income of $12.0 million, or 88 cents per diluted share, in the year-ago period. Interest expense decreased $0.4 million compared with the year-ago period. The effective tax rate increased to 33.0 percent for the quarter from -5.4 percent in the year-ago quarter. During 2003, a tax restructuring occurred whereby the undistributed earnings of Libbey’s joint venture in Mexico were permanently reinvested outside of the United States, thus eliminating the need to record deferred U.S. income tax accruals. Diluted earnings per share for the quarter, as detailed

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in Table 3, excluding expenses associated with the planned shutdown of its City of Industry, California, plant in February 2005, were 34 cents per diluted share as compared with 88 cents in the prior year quarter which benefited from a -5.4 percent tax rate. As detailed in Table 4, net income per diluted share excluding tax adjustments in the third quarter of 2003 was 58 cents.

Libbey employed approximately 3,800 persons at September 30, 2004. The majority of Libbey’s glass tableware employees are U.S.-based hourly-paid employees covered by six collective bargaining agreements. In October 2004, new three-year agreements for all four collective bargaining agreements at the Toledo, Ohio, plant were ratified. In the fourth quarter of 2004, the Shreveport, Louisiana, plant’s collective bargaining agreement is scheduled to expire and will be renegotiated. Substantially all of Royal Leerdam employees are covered by a collective bargaining agreement originally scheduled to expire in July 2004. Currently, Libbey is in the process of renegotiating this contract. The ceramic dinnerware hourly employees are covered by a collective bargaining agreement that expires in March 2006. Libbey considers its labor relations environment to be good.

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Results of Operations – Nine Months 2004 compared with Nine Months 2003

For the nine months ended September 30, 2004, sales increased 5.8 percent to $390.7 million from $369.3 million in the year-ago period. The increase in sales was attributable to increased sales to foodservice and retail customers in addition to higher shipments to customers of glass tableware products from the United States to export markets. Sales to foodservice customers of Libbey glass products, Syracuse China dinnerware products, Traex plastic products and World Tableware products were all higher by at least 4 percent when compared with the first nine months of 2003. Sales to customers located outside of the United States increased 8.5 percent to $87.5 million from $80.6 million in the year-ago period.

Gross profit (defined as net sales plus freight billed to customers less cost of sales) was $75.6 million and, as a percent of sales, was 19.3 percent in the first nine months of 2004 compared to $79.9 million and 21.6 percent in the first nine months of 2003. Factors contributing to the decrease in gross profit were the charge of $6.0 million for pension and retiree welfare and inventory write-down related to the capacity realignment as further discussed above. In addition, higher expenses for distribution costs, packaging, medical benefits, pension and natural gas all negatively impacted gross profit in the first nine months of 2004. Partially offsetting these charges were increased capacity utilization and improved manufacturing efficiencies.

Income from operations was $21.8 million, compared to $32.0 million in the first nine months of last year, and as a percent of sales was 5.7 percent in the first nine months of 2004 compared to 8.7 percent in the year-ago period. The capacity realignment charge of $11.7 million, as detailed in Table 2, more than accounted for the $10.2 million change. Selling, general and administrative expenses increased slightly to $50.3 million in 2004 from $50.0 million in the first nine months of 2003. As a percent of sales, selling, general and administrative expenses

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decreased to 12.9 percent in the first nine months of 2004 from 13.6 percent in the prior year period.

Earnings before interest and income taxes (EBIT) were $20.3 million, compared to $35.6 million in the year-ago period. Pretax equity loss from Vitrocrisa (the Company’s 49% equity ownership in Crisa Industrial, L.L.C., Vitrocrisa Holding, S. de R.L. de C.V. and related Mexican companies), was a loss of $0.8 million as compared to pretax equity earnings of $3.0 million in the first nine months of 2003 as a result of higher natural gas costs, unfavorable sales mix, increased repair expenses and a translation loss.

Net income was $6.7 million, or 49 cents per diluted share compared with net income of $21.9 million, or $1.59 per diluted share in the year-ago period. Interest expense increased $0.5 million as the result of higher average debt during 2004. The effective tax rate increased to 33.0 percent during the first nine months of 2004 from 15 percent in 2003. During 2003, a tax restructuring occurred whereby the undistributed earnings of Libbey’s joint venture in Mexico were permanently reinvested outside of the United States, thus eliminating the need to record deferred U.S. income tax accruals. As detailed in Tables 3 and 4, net income per diluted share excluding capacity realignment charge was $1.07 for the first nine months of 2004, as compared to net income per diluted share excluding tax adjustments in the year-ago period of $1.29.

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Table 1

Reconciliation of EBIT and EBITDA to Income before income taxes
(Dollars in thousands)

In accordance with U.S. Securities and Exchange Commission (SEC) Regulation G, the following table provides non-GAAP measures used in 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.

Table 2

Summary of Capacity Realignment Charge
(Dollars in thousands)

In August 2004, Libbey announced that it is realigning its production capacity in order to improve its cost structure. The plan calls for the closure of Libbey’s manufacturing facility in City of Industry, California, in early 2005 and the realignment of production among its other glass manufacturing facilities. For further detail on the capacity realignment charge, see Note 10. During the third quarter of 2004, Libbey recorded a pretax charge of $11,734 as detailed below:

(1)

Includes non-cash charge of $11,717 and cash charge of $17.

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Table 3

Reconciliation of Non-GAAP Measures for Capacity Realignment Charge
(Dollars in thousands, except per-share amounts)

In accordance with U.S. Securities and Exchange Commission (SEC) Regulation G, the following table provides non-GAAP measures used in 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.