Libbey Inc. Announces Details on Crisa Acquisition
Jun 27, 2006

Libbey Inc. (NYSE:LBY) announced additional details with respect to its acquisition on June 16, 2006, of the 51 percent of Vitrocrisa, S. de R.L. de C.V. and related entities (Crisa) that it did not already own and the refinancing of the existing indebtedness of Libbey and Crisa. Libbey also announced today its outlook for the second quarter of 2006 and for 2007.

Details with respect to Crisa acquisition

As previously announced, on June 16, 2006, we acquired the remaining 51 percent of Crisa for $80 million in cash. In addition, we assumed Crisa's approximately $70 million of indebtedness, of which we were responsible for 49 percent prior to the acquisition by virtue of our ownership of 49 percent of Crisa.

Rationale for the acquisition:

The acquisition of Crisa, which, with approximately $192 million in sales in 2005, is the largest glass tableware manufacturer in Latin America and has approximately 60 percent of the glass tableware market in Mexico, is consistent with our strategy to expand our sales base. We believe that we can increase the profitability of Crisa's sales in the Mexican market by reducing Crisa's costs through a rationalization, currently underway, of Crisa's operations, as well as through implementation of Libbey's proprietary technology in Crisa's manufacturing facilities. The rationalization will include the integration, over a period of three years, of Crisa's two manufacturing facilities into one. We anticipate that the attendant reduction in fixed costs will approximate $13 to $15 million on an annualized basis beginning in the second half of 2007. We expect to incur a total of approximately $20 million in capital expenditures during 2006 and 2007 in connection with this rationalization. In connection with the planned consolidation of Crisa's two principal manufacturing facilities, we expect to incur charges of approximately $16 million, primarily in the second quarter of 2006, for a write-down of property, plant and equipment, a write-off of inventory and an increase in cost of sales due to the step up of inventory resulting from step acquisition accounting. In addition, with average hourly labor rates that are approximately 16 percent of our average hourly labor rates in the United States, Crisa provides us with the ability to reduce our overall cost of manufacturing. We expect that these favorable labor rates, together with favorable duties that are eliminated altogether beginning in January 2008 on glass tableware imported from Mexico into the U.S., will permit us to recapture certain low margin business in the U.S. that we previously abdicated. Finally, we expect to improve Libbey's profitability through the elimination of a series of profit-sharing payments that we historically have made to Vitro under a distribution agreement that was terminated in connection with our acquisition of Vitro's 51 percent interest in Crisa. These payments totaled $3.6 million in 2005. We also anticipate that Crisa's profitability will improve as a result of the transfer by Crisa to Vitro of pension liabilities associated with Crisa employees who had retired as of the closing date. This would have resulted in savings of $3.8 million in 2005. The elimination of a corporate tax payable to Vitro, pursuant to an administrative services agreement that was terminated at closing, in an amount equal to approximately 1.5 percent of Crisa's net sales or $2.6 million in 2005. Reduced rent and other expenses would have resulted in additional savings of $1.2 million in 2005.

Summary terms of the acquisition:

Salient terms of the acquisition include the following:

-- We paid $80 million for the remaining 51 percent equity interest in Crisa, and Vitro deposited $8 million of the purchase price into a Mexican trust to secure Vitro's indemnification obligations.

-- We assumed $70 million of Crisa's existing debt, although we previously were liable for 49 percent of that amount as a result of our 49 percent ownership of Crisa.

-- In connection with the acquisition, Crisa transferred to Vitro the pension liability for Crisa employees who had retired as of the closing date. We estimate that, by doing so, Crisa transferred to Vitro a liability of approximately $17 million at March 31, 2006.

-- In connection with the acquisition, Crisa transferred to Vitro real estate (land and buildings) on which one of Crisa's two manufacturing facilities is located, but Crisa retained the right to occupy the facility transferred to Vitro for up to three years. Concurrently, Vitro transferred to Crisa ownership of the land on which a leased, state-of-the-art distribution center is located, along with racks and conveyors that Crisa leased from an affiliate of Vitro.

-- Vitro agreed to forgive $400 thousand of net intercompany payables owed by Crisa to Vitro for corporate services provided to Crisa during the term of the joint venture. Vitro agreed to defer receipt of approximately $8 million of intercompany payables until August 15, 2006 and approximately $19.9 million of intercompany payables until January 15, 2008.

-- Vitro agreed to provide transition services to Crisa for a period of three years and agreed to fix the charges for those services for the first two years at 2005 rates. In addition, Crisa is entitled to a credit against these charges in an amount equal to $625 thousand per year for the first two years.

-- Vitro waived its right to receive profit sharing payments of approximately $1.1 million from Libbey with sales of Crisa products made by Libbey in the U.S. and Canada from February 1, 2006 through June 15, 2006 under the now-terminated distribution agreement.

-- Vitro agreed not to compete with Crisa anywhere in the world (with limited exceptions) for five years.

About Libbey: Based in Toledo, Ohio, the Company operates glass tableware manufacturing plants in the United States in Louisiana and Ohio, as well as in Mexico, Portugal and the Netherlands. Its Crisa subsidiary, located in Monterrey, Mexico, is the leading producer of glass tableware in Mexico and Latin America. Its Royal Leerdam subsidiary, located in Leerdam, Netherlands, is among the world leaders in producing and selling glass stemware to retail, foodservice and industrial clients. Its Crisal subsidiary, located in Portugal, provides an expanded presence in Europe. Its Syracuse China subsidiary designs, manufactures and distributes an extensive line of high- quality ceramic dinnerware, principally for foodservice establishments in the United States. Its World Tableware subsidiary imports and sells a full-line of metal flatware and holloware and an assortment of ceramic dinnerware and other tabletop items principally for foodservice establishments in the United States. Its Traex subsidiary, located in Wisconsin, designs, manufactures and distributes an extensive line of plastic items for the foodservice industry. In 2005, Libbey Inc.'s net sales totaled $568.1 million.


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