UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number 1-12084

LIBBEY INC.

(419) 325-2100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes þ     Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

     Yes þ     Noo

The aggregate market value (based on the consolidated tape closing price on June 30, 2004) of the voting stock beneficially held by non-affiliates of the registrant was approximately $376,414,566. For the sole purpose of making this calculation, the term “non-affiliate” has been interpreted to exclude directors and executive officers of the registrant. Such interpretation is not intended to be, and should not be construed to be, an admission by the registrant or such directors or executive officers that any such persons are “affiliates” of the registrant, as that term is defined under the Securities Act of 1934.

The number of shares of common stock, $.01 par value, of the registrant outstanding as of February 28, 2005 was 13,828,323.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Items 9, 10, 11, 12, 13 and 14 of Form 10-K is incorporated by reference into Part III hereof from the registrant’s Proxy Statement for The Annual Meeting of Shareholders to be held May 5, 2005 (“Proxy Statement”).

Certain information required by Part II of this Form 10-K is incorporated by reference from registrant’s 2004 Annual Report to Shareholders where indicated.

TABLE OF CONTENTS

This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management. Words such as “expect,” “anticipate,” “target,” “believe,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

PART I

ITEM 1. BUSINESS

General

Libbey Inc. (Libbey or the Company) is a leading supplier of tableware products in the U.S. and Canada, in addition to supplying to other key export markets. We were established in 1818 and are the largest manufacturing, distribution and service network among North American glass tableware manufacturers. We design and market, under our LIBBEY^®, Royal Leerdam^®, World Tableware, Syracuse^® China and Traex^® brand names, an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, holloware and serveware, and plastic items for sale primarily in the foodservice, retail and industrial markets. Through our subsidiary B.V. Koninklijke Nederlandsche Glasfabriek Leerdam (Royal Leerdam), we manufacture and market high-quality glass stemware under the Royal Leerdam^® brand name. Through our newly acquired subsidiary, Crisal-Cristalaria Automática S.A. (Crisal), we manufacture and market glass tableware in Portugal. We also manufacture and market ceramic dinnerware under the Syracuse^® China brand name through our subsidiary Syracuse China. Through our World Tableware subsidiary, we import and sell metal flatware, holloware and serveware and ceramic dinnerware. We design, manufacture and distribute an extensive line of plastic items for the foodservice industry under the Traex^® brand name through our subsidiary Traex Company. We are a joint venture partner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Vitrocrisa), the largest glass tableware manufacturer in Latin America. In addition, through this joint venture, we have reciprocal distribution agreements, giving us exclusive distribution rights for Vitrocrisa’s glass tableware products in the U.S. and Canada, and Vitrocrisa the exclusive distribution rights for our glass tableware products in Latin America.

Our website can be found at www.libbey.com. We make available, free of charge, at this website all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our Current Reports on Form 8-K, as well as amendments to those reports. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.

Growth Strategy

Our vision is to be “World Class, Second to None.” To achieve this vision, we have a growth strategy that emphasizes internal growth as well as growth through acquired businesses.

Internal Growth

We continue to focus on our strong brand recognition and identity. We understand that our customers are key to our success. Therefore, we continue to assist our customers by providing new product development and improved service and support. In 2004, we introduced more than 500 new stock-keeping units. These initiatives allow us to grow our existing tableware business.

Acquisitions

An important part of our strategy is to grow sales and profits through acquisitions. This strategy is primarily focused on two fronts:

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

Recent acquisition activity includes the following:

	•	In late 2004, we obtained a business license in the People’s Republic of China to manufacture glass tableware, and in early 2005 we procured land use rights in the People’s Republic of China with respect to property on which we plan to build a new glass tableware facility. This facility will be a wholly-owned factory aimed at the growing Chinese and Asia-Pacific markets and other key export markets. Currently, production of glass tableware is planned to begin in early 2007.
	•	In January 2005, we acquired 95 percent of the shares of Crisal located in Marinha Grande, Portugal. Crisal manufactures and markets glass tableware, mainly tumblers, stemware and glassware accessories. Crisal’s products complement those of our subsidiary, Royal Leerdam, located in the Netherlands. Royal Leerdam, acquired in 2002, and Crisal are important additions to our growth strategy to be a supplier of high-quality, machine-made glass tableware products to key markets worldwide.

Products

Our tableware products consist of glass tableware, ceramic dinnerware, metal flatware, holloware and serveware, and plastic items. Our glass tableware includes tumblers, stemware (including wine glasses), mugs, bowls, ashtrays, bud vases, salt and pepper shakers, shot glasses, canisters, candle holders and various other items. Our subsidiary Royal Leerdam sells high-quality stemware. Crisal sells glass tableware, mainly tumblers, stemware and glassware accessories. Through our Syracuse China and World Tableware subsidiaries, we sell a wide range of ceramic dinnerware products. These include plates, bowls, platters, cups, saucers and other tableware accessories. Our World Tableware subsidiary provides an extensive selection of metal flatware. These include knives, forks, spoons and serving utensils. In addition, World Tableware sells metal holloware, including serving trays, chafing dishes, pitchers and other metal tableware accessories. Through our Traex subsidiary, we sell a wide range of plastic products. These include ware washing and storage racks, trays, dispensers and organizers for the foodservice industry.

Vitrocrisa’s glass tableware product assortment includes the product types produced by us as well as glass bakeware and handmade glass tableware. In addition, Vitrocrisa products include glass coffee pots, blender jars, meter covers and other industrial glassware sold principally to original equipment manufacturers.

We also have an agreement to be the exclusive distributor of Luigi Bormioli glassware in the U.S. and Canada to foodservice users. Luigi Bormioli, based in Italy, is a highly regarded supplier of high-end glassware used in the finest eating and drinking establishments.

Customers

The customers for our tableware products include approximately 500 foodservice distributors. In the retail market, we sell to mass merchants, department stores, retail distributors, national retail chains and specialty houseware stores. In addition, our industrial market primarily includes customers that use candle and floral applications, craft stores and gourmet food packaging companies. We also have other customers who use our products for promotional or other private uses. No single customer accounts for 10% or more of our sales, although the loss of any of our major customers could have a meaningful effect on us.

Sales, Marketing and Distribution

Approximately 77% of our sales are to customers located in the United States and 23% of our sales are to customers located outside of the United States (for industry segment information for the last three fiscal years, see note 20 to the Consolidated Financial Statements). We export our products to over 90 countries around the world, competing in the tableware markets of Latin America, Asia and Europe.

We have our own sales staff of over 100 sales professionals who call on customers and distributors. In addition, we retain the services of manufacturing representative organizations to assist in selling our products. The vast majority of our tableware sales to foodservice end users are made through foodservice distributors, who serve a vital function in

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the distribution of our products and with whom we work closely in connection with marketing and selling efforts. Most of our retail and industrial market sales are made directly by our sales force.

We also have a marketing staff that is located at our corporate headquarters in Toledo, Ohio and in the Netherlands. They engage in developing strategies relating to product development, pricing, distribution, advertising and sales promotion.

We operate distribution centers located at or near each of our manufacturing facilities (see Properties section). In addition, we operate distribution centers for our Vitrocrisa-supplied products in Laredo, Texas; World Tableware and Traex products in West Chicago, Illinois; and glass tableware products in Mira Loma, California. The glass tableware manufacturing and distribution centers are strategically located (geographically) to enable us to supply significant quantities of our product to virtually all of our customers on a timely basis.

The majority of our sales are in the foodservice, retail and industrial markets, which are further detailed below:

Foodservice

We have, according to our estimates, the leading market share in glass tableware sales in the U.S. foodservice markets. Syracuse China, World Tableware and Traex are also recognized as long-established suppliers of high-quality ceramic dinnerware, metal flatware, holloware and serveware, and plastic items, respectively. They are among the leading suppliers of their respective product categories to foodservice end users. The majority of our tableware sales to foodservice end users are made through a network of foodservice distributors. The distributors, in turn, sell to a wide variety of foodservice establishments, including national and regional hotel chains, national and regional restaurant chains, independently owned bars, restaurants and casinos.

Retail

Our primary customers in retail are national and international discount retailers. In recent years, we have been able to increase our retail sales by increasing our sales to specialty houseware stores. Royal Leerdam sells to similar retail clients in Europe, while Crisal is increasingly positioned with retailers on the Iberian Peninsula. In addition to glassware, we sell imported ceramic dinnerware to retailers in the United States and Canada under the LIBBEY^® brand name. With this expanded retail representation, we are better positioned to successfully introduce profitable new products. We also operate outlet stores located at or near the majority of our manufacturing locations. In addition, we sell selected items on the internet at www.libbey.com.

Industrial

We are a major supplier of glassware for industrial markets in the U.S. Industrial uses primarily include candle and floral applications. The craft industries and gourmet food packing companies are also industrial consumers of glassware. We have expanded our sales to industrial users by offering ceramic and metal ware items.

Seasonality

Primarily due to the impact of consumer buying patterns and production activity, our net income tends to be stronger in the second and third quarters and weaker in the first and fourth quarters of each year. Profits historically range between 30% and 55% in the first half of each year and 45% to 70% in the second half of the year. In 2004, we incurred a pretax charge of $11.7 million in the third quarter and $2.8 million in the fourth quarter in connection with the realignment of our glass tableware production capacity, which resulted in lower profits in these quarters. For our net income in 2004, excluding the capacity realignment charge, see the section “Reconciliation of Non-GAAP Financial Measures” in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Backlog

Our backlog as of December 31, 2004 was approximately $13.2 million, compared to approximately $16.5 million at December 31, 2003. Backlog includes orders confirmed with a purchase order for products scheduled to be shipped to customers during the year 2005. Because orders may be changed and/or cancelled, we do not believe that our backlog is necessarily indicative of actual sales for any future period.

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Manufacturing and Sourcing

We currently own and operate two glass tableware manufacturing plants in the United States located in Toledo, Ohio, and Shreveport, Louisiana, a glass tableware manufacturing plant in Leerdam, the Netherlands, and a glass tableware manufacturing plant in Marinha Grande, Portugal. We own and operate a ceramic dinnerware plant in Syracuse, New York, and a plastics plant in Dane, Wisconsin.

In August 2004, we announced that we were realigning our glass tableware production capacity in order to improve our cost structure. In mid-February 2005, we ceased operations at our glass tableware manufacturing facility in City of Industry, California, and realigned production among our other domestic glass tableware manufacturing facilities. The closure of the City of Industry facility and realignment of production will allow us to reduce our overall fixed costs and improve future operational performance.

As mentioned in the Growth Strategy section, we acquired Crisal (a glass manufacturing facility in Portugal) in January 2005. In addition, in late 2004, we obtained a business license in the People’s Republic of China to manufacture glass tableware. In early 2005, we procured land use rights in China in order to begin construction on a new glass tableware facility, which is expected to begin glass tableware production in early 2007.

The manufacture of our tableware products involves the use of automated processes and technologies. Much of our glass tableware production machinery was designed by us and has evolved and been continuously refined to incorporate technology advancements. We believe that our production machinery and equipment continue to be adequate for our needs in the foreseeable future, but continue to invest in equipment to further improve our production efficiency and reduce our cost profile.

Our glass tableware products generally are produced using one of two manufacturing methods or, in the case of certain stemware, a combination of such methods. Most of our tumblers, stemware and certain other glass tableware products are produced by forming molten glass in molds with the use of compressed air. These products are known as “blown” glass products. Our other glass tableware products and the stems of certain of our stemware are “pressware” products, which are produced by pressing molten glass into the desired product shape. In addition, we source glass tableware, primarily from our joint venture, Vitrocrisa, located in Mexico.

Ceramic dinnerware is also produced through the forming of raw materials into the desired product shape and is either manufactured at our Syracuse, New York, production facility or imported primarily from China and Bangladesh. All metal flatware and metal holloware are sourced by our World Tableware subsidiary, primarily from China. Plastic products are also produced through the molding of raw materials into the desired shape and are manufactured at our Dane, Wisconsin, production facility or imported primarily from Taiwan and China.

To assist in the manufacturing process, we employ a team of engineers whose responsibilities include efforts to improve and upgrade our manufacturing facilities, equipment and processes. In addition, they provide engineering required to manufacture new products and implement the large number of innovative changes continuously being made to our product designs, sizes and shapes (see Research and Development section).

Raw Materials

Our primary raw materials are sand, lime, soda ash, clay, resins and colorants. Historically, these raw materials have been available in adequate supply from multiple sources. However, for certain raw materials, there may be temporary shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays. Such shortages have not previously had, and are not expected to have, a material adverse effect on our operations in the future. However, in 2004 our supplier of aragonite (a glass colorant) ceased to operate as a business. We adjusted our glass-making formula accordingly, and we continue to explore alternative glass formulations in order to achieve the best glass color possible. Natural gas is a primary source of energy in most of our production processes, and variability in the price for natural gas has and could continue to have an impact on our profitability. Historically, we have used natural gas hedging contracts to partially mitigate this impact. In addition, resins are a primary source of raw materials for our subsidiary Traex Company, and, historically, the price for resins has fluctuated, directly impacting our profitability. We also experience fluctuations in the cost to deliver raw materials to our facilities, and such changes affect our earnings.

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Research and Development

Our core competencies include our engineering excellence and world-class manufacturing techniques. Our focus is to increase the quality of our products and enhance the profitability of our business through research and development. We will continue to invest in strategic research and development projects that will further enhance our ability to compete in our core business.

We employ a team of engineers, in addition to external consultants, to conduct this research and development. During the last three years, our expenditures on research and development activities related to new and/or improved products and processes were $2.2 million in 2004, $2.1 million in 2003, and $2.1 million in 2002. These costs were expensed as incurred.

Patents, Trademarks and Licenses

Based upon market research and surveys, we believe our trade names and trademarks as well as our product shapes and styles enjoy a high degree of consumer recognition and are valuable assets. We believe that the Libbey, Syracuse China, World Tableware, Royal Leerdam, Crisal and Traex trade names and trademarks are material to our business.

We have rights under a number of patents that relate to a variety of products and processes. However, we do not consider that any patent or group of patents relating to a particular product or process is of material importance to our business as a whole.

Competitors

Our business is highly competitive, with the principal competitive factors being customer service, brand name, product quality, new product development, delivery time and price.

Glass tableware

In recent years, we have experienced increased competition from foreign glass tableware manufacturers, particularly from France, Indonesia, Turkey and the People’s Republic of China. In addition, other materials, such as plastics, also compete with glassware. Competitors in glass tableware include among others:

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

Ceramic dinnerware

Competitors in U.S. ceramic dinnerware include, among others:

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

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Metalware

Competitors in metalware include, among others:

	•	Oneida Ltd.
	•	Walco, Inc.
	•	Other sourcing companies

Plastic products

Competitors in plastic products are, among others:

	•	Cambro Manufacturing Company
	•	Carlisle Companies Incorporated

Environmental Matters

Our operations, in common with those of industry generally, are subject to numerous existing laws and governmental regulations designed to protect the environment, particularly regarding plant wastes and emissions and solid waste disposal. We also may be subject to proposed laws and governmental regulations as they become finalized. We have shipped, and continue to ship, waste materials for off-site disposal. However, we are not named as a potentially responsible party with respect to any waste disposal site matters pending prior to June 24, 1993, the date of Libbey’s initial public offering and separation from Owens-Illinois, Inc. (Owens-Illinois). Owens-Illinois has been named as a potentially responsible party or other participant in connection with certain waste disposal sites to which we also may have shipped wastes prior to June 24, 1993. We may bear some responsibility in connection with those shipments. Pursuant to an indemnification agreement between Owens-Illinois and Libbey, Owens-Illinois has agreed to defend and hold us harmless against any costs or liabilities we may incur in connection with any such matters identified and pending as of June 24, 1993, and to indemnify us for any liability that results from these matters in excess of $3 million. We believe that if it is necessary to draw upon this indemnification, collection is probable.

Pursuant to the indemnification agreement referred to above, Owens-Illinois is defending us with respect to the King Road landfill. In January 1999, the Board of Commissioners of Lucas County, Ohio instituted a lawsuit against Owens-Illinois, Libbey and numerous other defendants. (Fifty-nine companies were named in the complaint as potentially responsible parties.) In the lawsuit, which was filed in the United States District Court for the Northern District of Ohio, the Board of Commissioners sought to recover contribution for past and future costs incurred by the County in response to the release or threatened release of hazardous substances at the King Road landfill formerly operated and closed by the County. The Board of Commissioners dismissed the lawsuit without prejudice in October 2000. At the time of the dismissal, the parties to the lawsuit anticipated that the Board of Commissioners would refile the lawsuit after obtaining more information as to the appropriate environmental remedy. As of this date, it does not appear that refiling of the lawsuit is imminent. In view of the uncertainty as to refiling of the suit, the numerous defenses that may be available against the County on the merits of its claim for contribution, the uncertainty as to the environmental remedy, and the uncertainty as to the number of potentially responsible parties, it currently is not possible to quantify any exposure that Libbey may have with respect to the King Road landfill.

Subsequent to June 24, 1993, we have been named a potentially responsible party at four other sites. In each case, the claims have been settled for immaterial amounts. We do not anticipate that we will be required to pay any further sums with respect to these sites unless unusual and unanticipated contingencies occur.

On October 10, 1995, Syracuse China Company, our wholly owned subsidiary, acquired from The Pfaltzgraff Co. and certain of its subsidiary corporations, the assets operated by them as Syracuse China. The Pfaltzgraff Co. and the New York State Department of Environmental Conservation (DEC) entered into an Order on Consent effective November 1, 1994, that requires Pfaltzgraff to prepare a Remedial Investigation and Feasibility Study (RI/FS) to develop a remedial action plan for the site (which includes among other items a landfill and wastewater and sludge ponds and adjacent wetlands located on the property purchased by Syracuse China Company) and to remediate the site. Although Syracuse China Company was not a party to the Order on Consent, as part of the Asset Purchase Agreement Syracuse China Company agreed to share a part of the remediation and related expense up to the lesser of 50% of such costs or $1,350,000. Construction of the approved remedy began in 2000 and was substantially completed in 2003. Accordingly, Syracuse China Company’s obligation with respect to the associated costs has been satisfied.

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In addition, Syracuse China Company has been named as a potentially responsible party by reason of its potential ownership of certain property that adjoins its plant and has been designated a sub-site of a superfund site. We believe that any contamination of the sub-site was caused by and will be remediated by other parties at no cost to Syracuse China Company. Those other parties have acquired ownership of the sub-site, and their acquisition of the sub-site should end any responsibility of Syracuse China with respect to the sub-site. We believe that, even if Syracuse China Company were deemed to be responsible for any expense in connection with the contamination of the sub-site, it is likely the expense will be shared with Pfaltzgraff pursuant to the Asset Purchase Agreement.

In connection with the closure of our City of Industry, California, glassware manufacturing facility, on December 30, 2004, we sold the property on which the facility is located to an entity affiliated with Sares-Regis Group, a large real estate development and investment firm. Pursuant to the purchase agreement, the buyer has leased the property back to us in order to enable us to cease operations, to relocate equipment to our other glassware manufacturing facilities, to demolish the improvements on the property and to remediate certain environmental conditions affecting the property. Prior to entering into the purchase agreement, Libbey and the buyer performed a significant amount of environmental testing, the results of which indicated that site remediation may need to occur for purposes of satisfying the contract. During the course of demolition, additional environmental testing will be performed, and we will be required to remediate any additional environmental contamination discovered during the process. We anticipate that all demolition and required remediation will be completed on or before December 31, 2005. We have agreed to indemnify the buyer for hazardous substances located on, in or under, or migrating from, the property prior to the date on which we complete the demolition and remediation and turn the property over to the buyer for redevelopment.

We regularly review the facts and circumstances of the various environmental matters affecting us, including those covered by indemnification. Although not free of uncertainties, we believe that our share of the remediation costs at the various sites, based upon the number of parties involved at the sites and the estimated cost of undisputed work necessary for remediation based upon known technology and the experience of others, will not be material to us. There can be no assurance; however, that our future expenditures in such regard will not have a material adverse effect on our financial position or results of operations.

In addition, occasionally the federal government and various state authorities have investigated possible health issues that may arise from the use of lead or other ingredients in enamels such as those used by us on the exterior surface of our decorated products. In that connection, Libbey Glass Inc. and numerous other glass tableware manufacturers, distributors and importers entered into a consent judgment on August 31, 2004 in connection with an action, Leeman v. Arc International North America, Inc. et al, Case No. CGC-003-418025 (Superior Court of California, San Francisco County), brought under California’s so-called “Proposition 65.” Proposition 65 requires businesses with ten or more employees to give a “clear and reasonable warning” prior to exposing any person to a detectable amount of a chemical listed by the state as covered by this statute. Lead is one of the chemicals covered by that statute. Pursuant to the consent judgment, Libbey Glass Inc. and the other defendants (including Anchor Hocking and Arc International North America, Inc.) agreed, over a period of time, to reformulate the enamels used to decorate the external surface of certain glass tableware items to reduce the lead content of those enamels.

Capital expenditures for property, plant and equipment for environmental control activities were not material during 2004. We believe that we are in material compliance with all federal, state and local environmental laws, and we are not aware of any regulatory initiatives that are expected to have a material effect on our products or operations.

Employees

Our employees are vital to our success and our vision to be “World Class, Second to None.” We strive to achieve this through our values of teamwork, change, performance, respect and development.

We employed approximately 3,800 persons at December 31, 2004. The majority of our glass tableware employees are U.S.-based hourly-paid employees covered by six collective bargaining agreements. In October 2004, new three-year agreements for the Toledo, Ohio, plant were ratified. In December 2004, the Shreveport, Louisiana, plant’s collective bargaining agreement was ratified for a four-year term.

Substantially all of our Royal Leerdam employees are covered by a collective bargaining agreement, which is scheduled to expire in July 2005. We are currently in the process of negotiating a new contract. Our ceramic dinnerware hourly employees are covered by a collective bargaining agreement that expires in March 2006. Most of our Crisal employees are covered by a labor agreement. In connection with the enactment of a new labor law in

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Portugal, we are in the process of negotiating a new labor agreement for those employees. We consider all of our labor relations to be good.

ITEM 2. PROPERTIES

The following information sets forth the location and size of our principle facilities at December 31, 2004.

In addition to the above, our headquarters (Toledo, Ohio), some warehouses (various locations), sales offices (various locations) and an outlet store (Toledo, Ohio) are located in leased space. We also utilize various warehouses as needed on a month-to-month basis.

All of our properties are currently being utilized for their intended purpose. We believe that all of our facilities are well maintained and adequate for our planned operational requirements.

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ITEM 3. LEGAL PROCEEDINGS

We are involved in various routine legal proceedings arising in the ordinary course of our business. No pending legal proceeding is deemed to be material.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers have a wealth of business knowledge, experience and commitment to Libbey. In 2005, Mr. Meier, Chairman of the Board and Chief Executive Officer, and Mr. Reynolds, Executive Vice President and Chief Operating Officer, are both celebrating 35 years of service with Libbey. In addition, the average years of service of all of our executive officers is 17 years.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Stock and Dividends

Libbey Inc. common stock is listed for trading on the New York Stock Exchange under the symbol LBY. The price range and dividends declared for our common stock was as follows:

On March 1, 2005, there were 945 registered common shareholders of record. We have paid a regular quarterly cash dividend since our Initial Public Offering in 1993. However, the declaration of future dividends is within the discretion of the Board of Directors of Libbey and will depend upon, among other things, business conditions, earnings and the financial condition of Libbey.

Equity Compensation Plan Information

Following are the number of securities and weighted average exercise price thereof under our compensation plans approved and not approved by security holders as of December 31, 2004:

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Issuer Purchases of Equity Securities

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

ITEM 6. SELECTED FINANCIAL DATA

Information with respect to Selected Financial Data is incorporated by reference to page 17 of our 2004 Annual Report to Shareholders.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

This document and supporting schedules contain statements that are not historical facts and constitute projections, forecasts or forward-looking statements. These forward-looking statements reflect only our best assessment at this time, and may be identified by the use of words or phrases such as “anticipate,” “believe,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” “would” or similar phrases. Such forward-looking statements involve risks and uncertainty; actual results may differ materially from such statements, and undue reliance should not be placed on such statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason. Important factors potentially affecting our performance include, but are not limited to:

	•	major slowdowns in the retail, travel, restaurant and bar or entertainment industries, including the impact of armed hostilities or any other international or national calamity, including any act of terrorism, on the retail, travel, restaurant and bar or entertainment industries;
	•	significant increases in interest rates that increase our borrowing costs;
	•	significant increases in per-unit costs for natural gas, electricity, corrugated packaging, aragonite, resins and other purchased materials;
	•	increases in expenses associated with higher medical costs, increased pension expense associated with lower returns on pension investments and lower interest rates on pension obligations;
	•	currency fluctuations relative to the U.S. dollar, euro or Mexican peso that could reduce the cost competitiveness of our or Vitrocrisa’s products compared to foreign competition;
	•	the effect of high inflation in Mexico on the operating results and cash flows of Vitrocrisa;
	•	the impact of exchange rate changes in the Mexican peso relative to the U.S. dollar on the earnings of Vitrocrisa expressed under accounting principles generally accepted in the United States;
	•	the inability to achieve savings and profit improvements at targeted levels at Libbey and Vitrocrisa from capacity realignment, re-engineering and operational restructuring programs or within the intended time periods;
	•	protracted work stoppages related to collective bargaining agreements;
	•	increased competition from foreign suppliers endeavoring to sell glass tableware in the United States, Mexico, Europe and other key markets worldwide, including the impact of lower duties for imported products; and
	•	whether we complete any significant acquisitions and whether such acquisitions can operate profitably.

For an understanding of the significant factors that influenced our performance during the past three years, the following should be read in conjunction with the audited Consolidated Financial Statements and Notes.

OVERVIEW

Libbey is the leading supplier of tableware products in the U.S. and Canada, in addition to supplying to other key export markets. Established in 1818, we are the largest manufacturing, distribution and service network among North American glass tableware manufacturers. We design and market an extensive line of high-quality glass tableware, ceramic dinnerware, metal flatware, holloware and serveware, and plastic items. We are a joint venture partner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Vitrocrisa), the largest glass tableware manufacturer in Latin America.

2004 was a challenging year from a consolidated net income standpoint; however, we undertook several key strategic projects that will enhance our long-term financial performance. These key initiatives were as follows:

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

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

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RESULTS OF OPERATIONS

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

Discussion of 2004 vs. 2003 Results of Operations

Net sales

We design, market and sell our products under the Libbey, Syracuse China, World Tableware, Royal Leerdam, and Traex brands which are sold primarily in the foodservice, retail and industrial markets. In 2004, our net sales were $544.8 million, an increase of 6.1%, or $31.1 million, compared to 2003. The increase in sales was attributable to increased sales to foodservice, retail and non-U.S. customers. Sales to foodservice customers of Libbey glass tableware products, Syracuse China dinnerware products, Traex plastic products and World Tableware products were all higher by at least 6 percent when compared with the full year 2003. Retail sales grew over 3 percent as compared to the prior year.

Total sales outside of the U.S. increased 7.7% to $125.4 million in 2004, compared to $116.5 million in 2003. Royal Leerdam glass tableware sales in U.S. dollars increased compared to prior year due to the exchange rate between the euro and U.S. dollar. However, in euros, sales were down slightly compared to 2003.

The increase in net sales mentioned above was offset by decreased sales in the glass tableware industrial markets. In addition, in 2004, we elected to exit certain low-margin business as a result of our glass tableware capacity realignment.

Gross profit

Gross profit decreased in 2004 by $7.7 million, or 7.2%, compared to 2003, and gross profit as a percent of net sales declined to 18.4% in 2004, as compared to 21.1% in 2003. The reduction was attributable to increased costs for distribution, packaging, medical benefits, pension and natural gas in addition to the capacity realignment charge discussed below.

During 2004, we incurred a pretax charge of $14.5 million for the realignment of our glass tableware production capacity. This plan called for the closure of our glass tableware manufacturing facility in City of Industry, California, and the realignment of production among our other domestic glass tableware manufacturing facilities. The charge is outlined in further detail below and in note 10 to the Consolidated Financial Statements. Of the $14.5 million charge,

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$6.5 million was recorded in cost of sales, and the remaining $8.0 million was recorded in the line item “capacity realignment charge” included as part of income from operations. The capacity realignment is expected to add $11 to $13 million to annual income from operations, starting in the second quarter of 2005. The closure of our City of Industry facility occurred in mid-February 2005.

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

Income from operations

Income from operations decreased by $15.8 million, or 39.9%, in 2004, compared to 2003. Income from operations as a percentage of net sales was 4.4% in 2004, compared to 7.7% in 2003. The reduction in income from operations was the result of the decrease in gross profit and the charge of $8.0 million for the capacity realignment as discussed above. This $8.0 million charge, which is attributable primarily to employee termination cost and the write-down of fixed assets, is in addition to the charge of $6.5 million included in gross profit. Selling, general and administrative expenses increased by less than $0.1 million in 2004 compared to 2003; and as a percentage of net sales they decreased to 12.6% in 2004, compared to 13.3% in 2003.

Earnings before interest and income taxes (EBIT)

Earnings before interest and income taxes decreased by $22.8 million, or 47.9%, in 2004, compared to 2003. As a percentage of net sales, EBIT was 4.6% in 2004, compared to 9.3% in 2003. EBIT decreased due to the reduction in income from operations in addition to the pretax equity loss from Vitrocrisa of $1.4 million, as compared to pretax equity earnings of $4.4 million in 2003. The Vitrocrisa equity loss was the result of higher natural gas costs, an unfavorable sales mix and a remeasurement loss. Also contributing to the lower EBIT in 2004 were slightly lower royalties and net technical assistance income and other expense of $0.5 million compared to other income of $0.5 million in 2003. The reduction in other income was primarily the result of foreign currency losses. For a reconciliation of EBIT to income before income taxes, see “Reconciliation of Non-GAAP Financial Measures” below.

It is important to note that royalties and net technical assistance income have been reclassified and are now reported below income from operations. Historically, royalties and net technical assistance income were included in total revenues.

Earnings before interest, taxes, depreciation and amortization (EBITDA)

EBITDA decreased by $21.4 million, or 28.3%, in 2004, compared to 2003. As a percentage of net sales, EBITDA was 10.0% in 2004, compared to 14.7% in 2003. The reduction in EBITDA was primarily driven by the lower EBIT that was partially offset by slightly higher depreciation and amortization in 2004 compared to 2003. For a reconciliation of EBITDA to income before income taxes, see “Reconciliation of Non-GAAP Financial Measures” below.

Net income and diluted earnings per share

Net income was $8.3 million in 2004, or $0.60 per diluted share, compared to $29.1 million, or $2.11 per diluted share in 2003. Net income as a percentage of net sales was 1.5% in 2004, compared to 5.7% in 2003. Net income decreased in 2004 as the result of lower EBIT offset by lower interest and income tax expense (on lower earnings) in 2004 compared to 2003. Interest expense decreased in 2004 by $0.4 million compared to 2003 as a result of lower interest rates during 2004. The effective tax rate increased to 30% during 2004 from 15% in 2003. The lower effective

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tax rate in 2003 was primarily due to a tax restructuring of our foreign operations. As detailed in “Reconciliation of Non-GAAP Financial Measures” below, net income per diluted share, excluding the capacity realignment charge, was $1.34 in 2004, compared to net income per diluted share, excluding tax adjustments, of $1.71 in 2003.

Discussion of 2003 vs. 2002 Results of Operations

Net sales

Net sales for 2003 was $513.6 million, an increase of 18.4%, or $79.9 million, compared to 2002. The increase in sales was mainly attributable to the sales of Royal Leerdam and Traex, both acquired in December 2002. In addition, we had strong sales in the second half of 2003 of glassware products. For 2003, despite a sluggish first half, sales excluding these acquisitions were within 0.3% of the prior year. Sales outside of the United States were $116.5 million in 2003, compared to $46.1 million in 2002. Over $60 million of net sales were due to the acquisition of Royal Leerdam, whose sales are mainly to customers located outside of the United States. Excluding Royal Leerdam sales, export sales increased to $53.6 million, or 16%, as compared to the prior-year period, primarily as the result of increased sales to our Canadian customers.

Gross profit

Gross profit increased slightly in 2003 to $108.2 million compared to the prior year period of $107.9 million. As a percent of net sales, gross profit in 2003 was 21.1% compared to 24.9% in 2002. The decline in gross profit margin is primarily due to greater sales of products with lower profit margins in addition to higher natural gas costs of over $6.2 million and additional costs for pension and postretirement medical costs of $5.4 million in 2003 compared to 2002.

Income from operations

Income from operations decreased by $11.6 million, or 22.6%, in 2003 compared to 2002. As a percentage of net sales, income from operations was 7.7% in 2003, compared to 11.8% in 2002. The decrease in income from operations was primarily the result of the higher selling, general and administrative expenses in 2003 offset by the slight increase in gross profit. Selling, general and administrative expenses increased in 2003, compared to 2002, by $11.8 million, of which $10.8 million was attributable to the acquisitions of Royal Leerdam and Traex. As a percentage of net sales, selling, general and administrative expenses were relatively flat at 13.3% of net sales in 2003, compared to 13.1% in 2002.

Earnings before interest and income taxes (EBIT)

Earnings before interest and income taxes were $47.6 million in 2003, an increase of $2.7 million, or 6.0%, compared to 2002. As a percentage of net sales, EBIT was 9.3% in 2003, compared to 10.4% in 2002. In 2002, EBIT included $13.6 million of expenses related to an abandoned acquisition. For further details on the abandoned acquisition charge, see note 4 to the Consolidated Financial Statements. Equity earnings from Vitrocrisa in 2003 were $4.4 million on a pretax basis, as compared with $6.4 million in the year-ago period, primarily as the result of higher natural gas costs and lower activity levels. Other income in 2003 was $0.5 million, as compared to expense of $1.5 million in the year-ago period. The 2002 lower income was primarily attributable to a write-down in value of an advance made to a supplier. Royalties and net technical assistance income was $3.0 million in 2003, compared to $2.4 million in 2002. For a reconciliation of EBIT to income before income taxes, see “Reconciliation of Non-GAAP Financial Measures” below.

Earnings before interest, taxes, depreciation and amortization (EBITDA)

EBITDA increased to $75.7 million in 2003, an increase of $11.7 million, or 18.2%, compared to 2002. While $2.7 million of this increase was the result of increased EBIT, the primary driver was the increase in depreciation and amortization expense in 2003 attributable to the acquisitions of Royal Leerdam and Traex, both of which we acquired in late 2002. For a reconciliation of EBIT to EBITDA, “Reconciliation of Non-GAAP Financial Measures” below.

Net income and diluted earnings per share

Net income in 2003 was $29.1 million, or $2.11 per diluted share, compared to $28.1 million, or $1.82 per diluted share in 2002. Net income as a percentage of net sales was 5.7% in 2003 compared to 6.5% in 2002. Interest expense increased $5.2 million in 2003, primarily as the result of higher debt. The higher debt was the result of over $60 million

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in funding for acquisitions of Royal Leerdam and Traex (see note 4 to the Consolidated Financial Statements for further disclosure on acquisitions), both acquired in late 2002, and $38.9 million in share repurchases (see Capital Resources and Liquidity Section for further detail on our share repurchase program).

The effective tax rate in 2003 was 15.0%, compared to 23.5% in 2002. The 2003 reduction in effective tax rate was primarily attributable to a tax restructuring whereby the undistributed earnings of our joint venture in Mexico will be permanently reinvested outside of the United States, eliminating the need for a previously established net deferred U.S. income tax liability on those undistributed earnings. The effective tax rate in 2002 of 23.5% was primarily attributable to lower Mexican tax, the elimination of non-deductible goodwill amortization and an adjustment to estimated U.S. income tax accruals.

The weighted average diluted shares outstanding as of December 31, 2003 decreased approximately 1.7 million, primarily as a result of our repurchase of 1.5 million shares in March of 2003.

As detailed below “Reconciliation of Non-GAAP Financial Measures,” net income per diluted share, excluding tax adjustment, was $1.71 for 2003, as compared with $1.82 per diluted share for 2002. In 2002, net income included expenses associated with an abandoned acquisition as further disclosed in note 4 to the Consolidated Financial Statements. These expenses totaled $13.6 million, less a tax effect of $5.1 million, or an after-tax impact of $8.5 million, or $0.55 per diluted share as noted in “Reconciliation of Non-GAAP Financial Measures” below. Due to the unusual nature and magnitude of the tax adjustment and expenses related to the abandoned acquisition, management believes exclusion of these expenses is necessary for a more meaningful comparison of net income.

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CAPITAL RESOURCES AND LIQUIDITY

Cash Flow

The following table presents key drivers to free cash flow for 2004, 2003 and 2002:

Our net cash provided by operating activities was $42.8 million in 2004 compared to $29.2 million in 2003. Our trade working capital increased by $8.5 million in 2004 compared to an increase of $14.6 million in 2003. This lower increase in trade working capital in 2004 compared to 2003 was partially attributable to our increase in net cash provided by operating activities. In 2004, we spent $40.5 million in capital expenditures, compared to $25.7 million in 2003. This $14.8 million increase in capital expenditures is the result of our increased furnace rebuild activity and execution of the initial phase of “cold end” improvements focused primarily on inspection techniques and enhanced robotic applications in our glass factories. Our free cash flow was $19.9 million in 2004 compared to $9.3 million in 2003. The $10.6 million increase was driven by increased cash provided by operating activities and proceeds from asset sales, offset by increased capital expenditures and lower dividends from Vitrocrisa in 2004 compared to 2003. The net cash proceeds from asset sales in 2004 of $16.6 million related to the sale of land in City of Industry, California. For a reconciliation of net cash provided by operating activities to free cash flow, see “Reconciliation of Non-GAAP Financial Measures” below.

In 2003, we had free cash flow of $9.3 million compared to cash used of $16.4 million in 2002. In 2002, we used cash of $62.0 million for the acquisitions of Royal Leerdam and Traex (see note 4 to the Consolidated Financial Statements for further disclosure on acquisitions). In addition, net cash provided by operating activities was $25.8 million lower in 2003 compared to 2002.

Trade Working Capital

The following table presents trade working capital items for 2004 and 2003:

Trade working capital, defined as accounts receivable plus inventories less accounts payable, increased by $8.5 million in 2004 compared to 2003. However, as a percentage of net sales, trade working capital decreased slightly to 27.7% in 2004, compared to 27.8% in 2003. The increase in trade working capital in 2004 was mainly attributable to the

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

Debt

The following table presents our total debt for 2004 and 2003:

We had total debt of $225.4 million at December 31, 2004, compared with $230.9 million at December 31, 2003. The $5.6 million reduction in debt was primarily attributable to the net proceeds received from the City of Industry, California, land sale.

In June 2004, we entered into an unsecured agreement for an Amended and Restated Revolving Credit Agreement (Revolving Credit Agreement or Agreement) for $250 million for a five-year term. The Agreement will allow us to continue to finance our operational and acquisition funding requirements. At December 31, 2004, we had additional debt capacity of $131.0 million, including outstanding letters of credit of $5.3 million under our debt obligations, limited by our performance against certain financial ratios. Note 9 to the Consolidated Financial Statements provides additional information regarding the Agreement.

On March 31, 2003, we issued $100 million of privately placed senior notes (Note Purchase Agreement). Eighty million dollars of the notes have an average interest rate of 4.65% per year, with an initial average maturity of 8.4 years and a remaining average maturity of 6.7 years. The additional $20 million has a floating interest rate at a margin over the London Interbank Offer Rate (LIBOR). The proceeds of the note issuance were used to retire debt outstanding under the Revolving Credit Agreement.

In December 2004, we amended the Revolving Credit Agreement and Note Purchase Agreement to allow for the purchase of Crisal. The material terms of the amendment for the Revolving Credit Agreement, as defined in the Agreement, were (1) the Offshore Currency sublimit was increased from $100 million to $125 million; and (2) the leverage ratio for the quarters ending December 31, 2004, and March 31, 2005, was increased from a maximum of 3.50 to 1.00 to a maximum of 3.75 to 1.00, respectively. The amendment for the Note Purchase Agreement allows for a short-term increase in the consolidated leverage ratio for the quarters ending December 31, 2004, and March 31, 2005, from a maximum of 3.50 to 1.00 to a maximum of 3.75 to 1.00, respectively.

Our weighted average annual interest rate at December 31, 2004, for our total debt was 4.9%. We have entered into interest rate protection agreements with respect to $50 million of debt as a way to manage our exposure to fluctuating

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interest rates. The average fixed rate of interest under these interest rate protection agreements, excluding applicable fees, is 6.0% per year, and the total interest rate, including applicable fees, is 7.8% per year. The average maturity of these interest rate protection agreements is 1.0 year at December 31, 2004. Of our total outstanding indebtedness, $93.1 million is subject to fluctuating interest rates at December 31, 2004. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.9 million on an annual basis.

In September 2001, we issued a $2.7 million promissory note in connection with the purchase of a warehouse facility. At December 31, 2004, we had $2.3 million outstanding on the promissory note. During 2005, $0.1 million of the principal is payable.

Share Repurchase Program

Since mid-1998, we have repurchased 5,125,000 shares for $140.7 million, as authorized by our Board of Directors. As of December 31, 2004, authorization remains for the purchase of an additional 1,000,000 shares. During 2004, we did not purchase any treasury shares. In 2003, 1,500,000 shares of our common stock were purchased for $38.9 million.

Contractual Obligations

The following table presents our existing contractual obligations at December 31, 2004 and related future cash requirements:

In addition to the above, we have commercial commitments for letters of credit and guarantees. Our letters of credit outstanding at December 31, 2004, totaled $5.3 million. For further detail with respect to our guarantees, see note 19 to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We are a joint venture partner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Vitrocrisa), the largest glass tableware manufacturer in Latin America. We record our 49% interest in Vitrocrisa using the equity method of accounting. From this joint venture, we receive equity earnings (loss), dividends and certain technical assistance income. We also have a reciprocal distribution agreement with our joint venture partner, giving us exclusive distribution rights for Vitrocrisa’s glass tableware products in the U.S. and Canada, and giving Vitrocrisa the exclusive distribution rights for our glass tableware products in Latin America. In addition, we guarantee a portion of Vitrocrisa’s bank debt (see note 19 to the Consolidated Financial Statements). We have evaluated this investment and related arrangements in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (FIN 46R) and determined that Vitrocrisa is a Variable Interest Entity (VIE), as defined by FIN 46R, but is not considered the primary beneficiary, as we do not absorb the majority of expected losses or receive the majority of expected residual returns. Therefore, Vitrocrisa is not consolidated in our Consolidated Financial Statements.

Liquidity and Capital Resource Requirements

Based on past performance and current expectations, we believe that our free cash flow and available borrowings under the Revolving Credit Agreement, private placement senior notes and other short-term lines of credit will be

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

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Reconciliation of Non-GAAP Financial Measures

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

Reconciliation of Income before income taxes to EBIT and EBITDA

Net Income excluding capacity realignment charge

Net Income excluding tax adjustment

Net Income excluding abandoned acquisition

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

Reconciliation of trade working capital

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CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The areas described below are affected by critical accounting estimates and are impacted significantly by judgments and assumptions in the preparation of the Consolidated Financial Statements. Actual results could differ materially from the amounts reported based on these critical accounting estimates.

Allowance for Doubtful Accounts

Our accounts receivable balance, net of allowances for doubtful accounts, was $67.5 million in 2004, compared to $57.1 million in 2003. The allowance for doubtful accounts was $7.7 million in 2004, compared to $7.2 million in 2003. The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment as to the probability of collecting accounts and our evaluation of business risk. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance.

Allowance for Slow-Moving and Obsolete Inventory

We identify slow-moving or obsolete inventories and estimate appropriate allowance provisions accordingly. We provide inventory allowances based upon excess and obsolete inventories driven primarily from future demand forecasts. Historically, these loss provisions have not been significant, as the majority of our inventories are valued using the last-in, first-out (LIFO) method. At December 31, 2004, our inventories were $126.6 million, with loss provisions of $2.8 million, compared to inventories of $125.7 million and loss provisions of $1.1 million at December 31, 2003. The allowance increase in 2004 compared to 2003 is mainly attributable to the allowance that we established for inventories related to the low-margin business that we elected to exit due to the realignment of our glass tableware manufacturing capacity.

Asset Impairment

Investments

We review our investment in Vitrocrisa if indicators of impairment arise. To the extent that the analysis is performed, the analysis is based upon the discounted cash flow method to determine the fair value of our investment. The fair value is then compared to the carrying amount of our investment. To the extent the fair value exceeds the carrying value, no impairment exists. For all periods presented, no impairment existed.

Fixed Assets

We review fixed assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether impairment has occurred typically requires various estimates and assumptions. Due to the closure of our facility in City of Industry, California, we wrote down the values of certain assets based upon appraisals performed by an independent third party. These write-downs occurred in 2004 and are further disclosed in note 10 to the Consolidated Financial Statements.

Goodwill and Indefinite Life Intangible Assets

Goodwill impairment tests are completed for each reporting unit on an annual basis, or more frequently in certain circumstances where impairment indicators arise. When performing our test for impairment, we use the discounted cash flow method to compute the fair value of each reporting unit. The fair value is then compared to the carrying value. To the extent that fair value exceeds the carrying value, no impairment exists. This was done as of October 1^st for each year presented, and there was no goodwill impairment indicated.

Individual indefinite life intangible assets are also evaluated for impairment on an annual basis, or more frequently in certain circumstances where impairment indicators arise. When performing our test for impairment, we use the discounted cash flow method to compute the fair value, which is then compared to the carrying value of the indefinite life intangible asset. To the extent that fair value exceeds the carrying value, no impairment exists. This was done as of October 1^st for each year presented, and there was no impairment indicated.

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Revenue Recognition

Revenue is recognized when products are shipped and title and risk of loss has passed to the customer. Revenue is recorded net of returns, discounts and sales incentive programs offered to customers. Our various incentive programs are offered to a broad base of customers and we record accruals for these as sales occur. These programs typically offer incentives for purchase activities by customers that include growth objectives. Criteria for payment include the achievement by customers of certain purchase targets and the purchase by customers of particular product types. Management regularly reviews the adequacy of the accruals based on current customer purchases, targeted purchases and payout levels.

Self-Insurance Reserves

We use self-insurance mechanisms to provide for potential liabilities related to workers’ compensation and employee health care benefits that are not covered by third-party insurance. Workers’ compensation accruals are recorded at the estimated ultimate payout amounts received from our third party administrator based on individual case estimates. In addition, we record estimates of incurred-but-not-reported losses developed from past experience. Group health accruals include estimates of incurred-but-not-reported estimates received from our third party administrator of the plan.

Pension Assumptions

The following are the assumptions used to determine the benefit obligations and pretax income effect for our pension plan benefits for 2004, 2003 and 2002:

We account for our defined benefit pension plans on an expense basis that reflects actuarial funding methods. Two critical assumptions, discount rate and expected long-term rate of return on plan assets, are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions on our annual measurement date of December 31st. Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors.

The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. We use the yield on high-quality fixed income investments at our December 31^st measurement date. The discount rate at December 31^st is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. A lower discount rate increases the present value of benefit obligations and increases pension expense. To reflect market interest rate conditions, we reduced our discount rate 0.50% for our U.S. Plans and 0.90% for our non-U.S. plans at December 31, 2004.

To determine the expected long-term rate of return on plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We reduced our expected long-term rate of return 0.25% for our U.S. Plans at December 31, 2004. We made no change to the expected long-term rate of return for our non-U.S. Plans at December 31, 2004. The expected long-term rate of return on plan assets at December 31^st is used to measure the earnings effects for the subsequent year. The assumed long-term rate of return on assets is applied to a calculated value of plan assets that recognizes gains and losses in the fair value of plan assets compared to expected returns over the next five years. This produces the expected return on plan assets that is included in pension expense (income). The difference between the expected return and the actual return on plan assets is deferred and amortized over five years. The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension expense (income).

Sensitivity to changes in key assumptions is as follows:

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

Nonpension Postretirement Assumptions

We use various actuarial assumptions, including the discount rate and the expected trend in health care costs, to estimate the costs and benefit obligations for our retiree health plan. We use the yield on high-quality fixed income investments at our December 31^st measurement date to establish the discount rate. The discount rate at December 31^st is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. The following are the actuarial assumptions used to determine the benefit obligations and pretax income effect for our nonpension postretirement benefits:

Sensitivity to changes in key assumptions is as follows:

	•	A change of .50% in the discount rate would change nonpension postretirement expense by $0.1 million.
	•	A change of .50% in health care trend rates would not have a material impact upon the nonpension postretirement expense.

Income Taxes

We are subject to income taxes in both the U.S. and certain foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes and interest will be due. These reserves are established when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and may not be sustained on review by tax authorities. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit and the expiration of a statute of limitation.

American Jobs Creation Act of 2004

In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Act creates a temporary incentive for U.S. corporations to repatriate earnings from foreign subsidiaries by providing an 85% dividends received deduction for certain dividends from controller foreign corporations to the extent the dividends exceed a base amount and are invested in the United States pursuant to a domestic reinvestment plan. This temporary incentive is available to the Company in 2005.

The deduction is subject to a number of limitations and uncertainty remains as to the interpretation of numerous provisions in the Act. The U.S. Treasury Department is in the process of providing clarifying guidance on key elements of the repatriation provision, and Congress may reintroduce legislation that provides for certain technical corrections to the Act. We have not completed our evaluation of the repatriation provision due to the uncertainty associated with the interpretation of the provision, as well as numerous tax, legal, treasury and business considerations. We expect to complete our evaluation of the potential dividends we may pursue, if any, and the related tax ramifications after additional guidance is issued.

New Accounting Standards

In January 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP No. 106-1), which permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug,

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Improvement and Modernization Act of 2003 (the Act). We have elected to defer accounting for the effects of the Act pending clarification of the Act on our nonpension postretirement plans. In May 2004, the FASB issued FSP No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP 106-2). FSP 106-2 supersedes FAS No. 106-1. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004. FSP 106-2 provides authoritative guidance on the accounting for the Act and specifies the disclosure requirements for employers who have adopted FSP 106-2. Our 2004 net postretirement benefit costs do not reflect the effects of the Act because it is currently not expected to be a significant event for the plan. As regulations are clarified and marketplace factors emerge, the postretirement benefit cost could result in a change in the future.

In December 2004, the FASB issued Statement of Financial Accounting Statements(SFAS) No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123 revised). This is an amendment to SFAS No. 123, “Accounting for Stock-Based Compensation.” This new standard eliminates the ability to account for share-based compensation transactions using Accounting Principles Board (APB) No. 25, “Accounting for Stock Issued to Employees” (APB 25) and requires such transactions to be accounted for using a fair-value-based method and the resulting cost recognized in our financial statements. This new standard is effective for interim and annual periods beginning after June 15, 2005. We are currently evaluating SFAS No. 123 revised and intend to implement it in the third quarter of 2005 and do not presently have an estimate of its effect on our financial statements.

The FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” This statement clarifies the requirement that abnormal inventory-related costs be recognized as current-period charges and requires that the allocation of fixed production overheads to inventory conversion costs be based on the normal capacity of the production facilities. The provisions of this statement are to be applied prospectively to inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the effects of adoption to be significant.

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ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Currency

We are exposed to market risks due to changes in currency values, although the majority of our revenues and expenses are denominated in the U.S. dollar. The currency market risks include devaluations and other major currency fluctuations relative to the U.S. dollar, euro or Mexican peso that could reduce the cost competitiveness of our products or those of Vitrocrisa compared to foreign competition and the impact of exchange rate changes in the Mexican peso relative to the U.S. dollar on the earnings of Vitrocrisa expressed under accounting principles generally accepted in the United States.

Interest Rates

We are exposed to market risk associated with changes in interest rates in the U.S. and have entered into Interest Rate Protection Agreements (Rate Agreements) with respect to $50 million of debt as a means to manage our exposure to fluctuating interest rates. The Rate Agreements effectively convert a portion of our long-term borrowings from variable rate debt to fixed-rate debt, thus reducing the impact of interest rate changes on future income. The average fixed rate of interest for our borrowings related to the Rate Agreements at December 31, 2004, excluding applicable fees, is 6.0% per year, and the total interest rate, including applicable fees, is 7.8% per year. The average maturity of these Rate Agreements is 1.0 year at December 31, 2004. Debt not covered by the Rate Agreements has fluctuating interest rates with a weighted average rate of 3.5% per year at December 31, 2004. We had $93.1 million of debt subject to fluctuating interest rates at December 31, 2004. A change of one percentage point in such rates would result in a change in interest expense of approximately $0.9 million on an annual basis. If the counterparties to these Rate Agreements were to fail to perform, we would no longer be protected from interest rate fluctuations by these Rate Agreements. However, we do not anticipate nonperformance by the counterparts.

Natural Gas

We are also exposed to market risks associated with changes in the price of natural gas. We use commodity futures contracts related to forecasted future natural gas requirements of our domestic manufacturing operations. The objective of these futures contracts is to limit the fluctuations in prices paid and potential losses in earnings or cash flows from adverse price movements in the underlying natural gas commodity. We consider our forecasted natural gas requirements of our domestic manufacturing operations in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from 40% to 60% of our anticipated requirements, generally twelve to eighteen months in the future. For our natural gas requirements that are not hedged, we are subject to changes in the price of natural gas, which affects our earnings.

Pension

We are exposed to market risks associated with changes in the various capital markets. Changes in long-term interest rates affect the discount rate that is used to measure our pension benefit obligations and related pension expense. Changes in the equity and debt securities markets affect the performance of our pension plan asset performance and related pension expense. Sensitivity to these key market risks factors is as follows:

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

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

31

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Libbey Inc.

We have audited the accompanying consolidated balance sheets of Libbey Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule for the three years in the period ended December 31, 2004, included in Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the combined financial statements of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A de C.V. (collectively the “Vitrocrisa Companies”) (corporations in which Libbey Inc. has a 49% equity interest). These statements were audited by other auditors whose reports have been furnished to us; and, insofar as our opinion on the consolidated financial statements relates to the amounts included for these companies, it is based solely on the report of other auditors, except as noted below. In the consolidated financial statements, the Company’s investment in Vitrocrisa Companies is stated at $10,305,000 and $12,541,000, respectively, at December 31, 2004 and 2003, and the Company’s equity in the net (loss) income of Vitrocrisa Companies is stated at $(1,449,000), $3,376,000 and $3,589,000 for the three years in the period ended December 31, 2004.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Libbey Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the three years in the period ended December 31, 2004, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

Our audits were conducted for the purpose of forming an opinion on Libbey Inc.’s consolidated financial statements taken as a whole. The other auditors issued a 2002 auditors report in accordance with accounting principles generally accepted in Mexico. The conversion of the Vitrocrisa Companies’ combined financial statements from accounting principles generally accepted in Mexico to U.S. generally accepted accounting principles is the responsibility of the Libbey Inc.’s management. Such conversion for 2002 has been subjected to the auditing procedures applied in our audits of Libbey Inc.’s consolidated financial statements.

As discussed in Note 2 to the financial statements, in 2002 Libbey Inc. changed its method of accounting for goodwill.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Libbey Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Toledo, Ohio
March 16, 2005

32

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Libbey Inc.

We have audited management’s assessment, included in the accompanying Report of Management, that Libbey Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Libbey Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Libbey Inc. maintained effective internal control over financial reporting as of December 31, 2004 is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Libbey Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Libbey Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004 of Libbey Inc. and our report dated March 16, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Toledo, Ohio
March 16, 2005

33

Report of Independent Registered Public Accounting Firm

To the stockholders of
Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V.
Monterrey, N.L.

We have audited the combined balance sheets of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V. (the “Companies”) as of December 31, 2004 and 2003, and the related combined statements of operations, changes in stockholders’ equity and cash flows for the years then ended (not presented separately herein). These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Companies are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying combined financial statements have been remeasured in accordance with the standards set forth in Statement of Financial Accounting Standards No. 52 from Mexican peso (the currency of the country in which the Companies are incorporated and in which they operate) amounts (after elimination of monetary adjustments) into U.S. dollars (the functional currency of the Companies) for purpose of the application of the equity method of accounting in the financial statements of Libbey Inc. (49% investor).

In our opinion, for the purpose of the application of the equity method of accounting in the financial statements of Libbey Inc. (49% investor), the remeasured combined financial statements present fairly, in all material respects, the combined financial position of the Companies as of December 31, 2004 and 2003, and the combined results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu

/s/ C.P.C. Ernesto Cruz Velázquez de León
March 11, 2005

34

Report of Independent Registered Public Accounting Firm

To the stockholders of
Vitrocrisa Holding, S. de R.L. de C.V. and Subsidiaries and Crisa Libbey, S.A. de C.V.
Monterrey, N.L.

We have audited the combined balance sheet of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V. (the “Companies”) as of December 31, 2002, and the related combined statements of operations, changes in stockholders’ equity and changes in financial position for the year ended December 31, 2002, all expressed in thousands of constant Mexican pesos as of December 31, 2002 (not presented separately herein). These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they are prepared in accordance with accounting principles generally accepted in Mexico. The Companies are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Vitrocrisa Holding, S. de R.L. de C.V. and subsidiaries and Crisa Libbey, S.A. de C.V. as of December 31, 2002, and the combined results of their operations, changes in their stockholders’ equity and changes in their financial position for the year ended December 31, 2002, in conformity with accounting principles generally accepted in Mexico.

The financial statements (not presented separately herein) and the report of independent registered public accounting firm have been translated into English for the convenience of readers.

Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu

/s/ C.P.C. Jorge Alberto Villarreal G.

February 7, 2003

35

Libbey Inc. Consolidated Balance Sheets

See accompanying notes

36

Libbey Inc. Consolidated Statements of Income

See accompanying notes

37

Libbey Inc. Consolidated Statements of Shareholders’ Equity