10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.   20549

FORM 10-Q

(Mark One)
x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For Quarter Ended September 30, 2010

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Owens-Illinois Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-13061	34-1559348
(State or other	(Commission	(IRS Employer
jurisdiction of	File No.)	Identification No.)
incorporation or
organization)

One Michael Owens Way, Perrysburg, Ohio	43551-2999
(Address of principal executive offices)	(Zip Code)

567-336-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No x

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

Owens-Illinois Group, Inc. $.01 par value common stock — 100 shares at September 30, 2010.

Part I — FINANCIAL INFORMATION

Item 1.  Financial Statements.

The Condensed Consolidated Financial Statements of Owens-Illinois Group, Inc. (“the Company”) presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated.  All adjustments are of a normal recurring nature. Because the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009.

2

OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions)

	Three months ended September 30,
	2010			2009
Net sales	$	1,741.2		$	1,874.6
Manufacturing, shipping, and delivery expense	(1,364.1		)	(1,425.9		)
Gross profit	377.1			448.7
Selling and administrative expense	(125.4		)	(128.2		)
Research, development, and engineering expense	(14.2		)	(14.3		)
Interest expense	(61.0		)	(58.6		)
Interest income	2.5			6.1
Equity earnings	19.4			11.9
Royalties and net technical assistance	4.1			3.4
Other income	7.5			2.4
Other expense	(2.0		)	(78.6		)
Earnings from continuing operations before income taxes	208.0			192.8
Provision for income taxes	(57.3		)	(63.8		)
Net earnings	150.7			129.0
Net earnings attributable to noncontrolling interests	(12.0		)	(2.3		)
Net earnings attributable to the Company	$	138.7		$	126.7
Comprehensive income (loss):
Net earnings	$	150.7		$	129.0
Foreign currency translation adjustments	276.1			158.2
Pension and other postretirement benefit adjustments, net of tax	10.7			11.0
Change in fair value of derivative instruments, net of tax	(4.1		)	15.9
Total comprehensive income	433.4			314.1
Comprehensive income attributable to noncontrolling interests	(22.1		)	(13.5		)
Comprehensive income attributable to the Company	$	411.3		$	300.6

3

OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions)

	Nine months ended September 30,
	2010			2009
Net sales	$	5,034.6		$	5,200.6
Manufacturing, shipping, and delivery expense	(3,949.8		)	(4,047.7		)
Gross profit	1,084.8			1,152.9
Selling and administrative expense	(372.0		)	(369.1		)
Research, development, and engineering expense	(43.3		)	(42.3		)
Interest expense	(176.6		)	(164.6		)
Interest income	10.7			21.1
Equity earnings	45.5			39.6
Royalties and net technical assistance	12.1			9.7
Other income	10.1			4.9
Other expense	(25.1		)	(157.4		)
Earnings from continuing operations before income taxes	546.2			494.8
Provision for income taxes	(146.2		)	(144.5		)
Net earnings	400.0			350.3
Net earnings attributable to noncontrolling interests	(34.9		)	(29.2		)
Net earnings attributable to the Company	$	365.1		$	321.1
Comprehensive income (loss):
Net earnings	$	400.0		$	350.3
Foreign currency translation adjustments	84.1			338.4
Pension and other postretirement benefit adjustments, net of tax	68.1			26.2
Change in fair value of derivative instruments, net of tax	(5.2		)	24.7
Total comprehensive income	547.0			739.6
Comprehensive income attributable to noncontrolling interests	(43.1		)	(48.4		)
Comprehensive income attributable to the Company	$	503.9		$	691.2

See accompanying notes.

4

 OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

	September 30,		December 31,		September 30,
	2010		2009		2009
Assets
Current assets:
Cash and cash equivalents	$	700.2	$	811.7	$	1,017.1
Short-term investments, at cost which approximates market	0.7		0.9		0.9
Receivables, less allowances for losses and discounts ($43.2 at September 30, 2010, $36.5 at December 31, 2009, and $36.7 at September 30, 2009)	1,186.0		1,004.2		1,146.6
Inventories	1,012.1		900.3		1,035.4
Prepaid expenses	66.6		79.6		45.5
Total current assets	2,965.6		2,796.7		3,245.5
Investments and other assets:
Equity investments	286.8		114.3		124.0
Repair parts inventories	145.2		125.1		144.2
Prepaid pension	45.5		46.3
Deposits, receivables, and other assets	623.6		521.7		513.9
Goodwill	2,744.3		2,381.0		2,382.3
Total other assets	3,845.4		3,188.4		3,164.4
Property, plant, and equipment, at cost	7,042.4		6,618.9		6,559.2
Less accumulated depreciation	3,970.2		3,876.6		3,849.3
Net property, plant, and equipment	3,072.2		2,742.3		2,709.9
Total assets	$	9,883.2	$	8,727.4	$	9,119.8

5

CONDENSED CONSOLIDATED BALANCE SHEETS — Continued

	September 30,			December 31,			September 30,
	2010			2009			2009
Liabilities and Share Owners’ Equity
Current liabilities:
Short-term loans and long-term debt due within one year	$	339.3		$	352.0		$	377.6
Accounts payable	862.5			863.2			816.1
Other liabilities	779.1			644.1			730.8
Total current liabilities	1,980.9			1,859.3			1,924.5
Long-term debt	4,005.7			3,257.5			3,343.9
Deferred taxes	228.9			186.3			160.1
Pension benefits	547.0			577.6			706.9
Nonpension postretirement benefits	265.1			266.7			242.5
Other liabilities	328.0			358.5			368.9
Share owners’ equity:
Share owners’ equity of the Company:
Common stock, par value $.01 per share, 1000 shares authorized, 100 shares issued	—			—			—
Other contributed capital	565.3			782.8			843.0
Retained earnings	2,896.2			2,531.1			2,537.6
Accumulated other comprehensive loss	(1,151.8		)	(1,290.6		)	(1,250.5		)
Total share owners’ equity of the Company	2,309.7			2,023.3			2,130.1
Noncontrolling interests	217.9			198.2			242.9
Total share owners’ equity	2,527.6			2,221.5			2,373.0
Total liabilities and share owners’ equity	$	9,883.2		$	8,727.4		$	9,119.8

See accompanying notes.

6

OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

	Nine months ended September 30,
	2010			2009
Cash flows from operating activities:
Net earnings	$	400.0		$	350.3
Non-cash charges (credits):
Depreciation	270.5			274.3
Amortization of intangibles and other deferred items	17.6			18.0
Amortization of finance fees and debt discount	15.9			7.3
Deferred tax benefit	(7.1		)	11.8
Restructuring and asset impairment	8.0			113.1
Charge for acquisition-related fair value inventory adjustments	5.1
Other	78.9			55.0
Cash paid for restructuring activities	(49.0		)	(42.7		)
Change in non-current operating assets	(33.2		)	13.1
Change in non-current liabilities	(44.0		)	(96.8		)
Change in components of working capital	(144.1		)	(1.6		)
Cash provided by operating activities	518.6			701.8
Cash flows from investing activities:
Additions to property, plant, and equipment	(391.6		)	(193.7		)
Acquisitions, net of cash acquired	(754.3		)	(5.4		)
Advances to equity affiliate - net				1.6
Change in short-term investments	0.3
Net cash proceeds related to sale of assets	0.9			4.4
Cash utilized in investing activities	(1,144.7		)	(193.1		)
Cash flows from financing activities:
Additions to long-term debt	1,369.8			1,072.6
Repayments of long-term debt	(466.7		)	(528.1		)
Decrease in short-term loans	(29.4		)	(55.1		)
Net receipts for hedging activity	33.8			17.9
Payment of finance fees	(32.6		)	(13.9		)
Dividends paid to noncontrolling interests	(23.4		)	(58.3		)
Net change in payable to parent	(28.1		)	(221.9		)
Distributions to parent	(308.7		)	(116.3		)
Cash provided by (utilized in) financing activities	514.7			96.9
Effect of exchange rate fluctuations on cash	(0.1		)	32.0
Increase (decrease) in cash	(111.5		)	637.6
Cash at beginning of period	811.7			379.5
Cash at end of period	$	700.2		$	1,017.1

See accompanying notes.

7

OWENS-ILLINOIS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular data dollars in millions

1. Basis of Presentation

The Company is a 100%-owned subsidiary of Owens-Illinois, Inc. (“OI Inc.”).  Although OI Inc. does not conduct any operations, it has substantial obligations related to outstanding indebtedness and asbestos-related payments. OI Inc. relies primarily on distributions from its direct and indirect subsidiaries to meet these obligations.

2.  Debt

The following table summarizes the long-term debt of the Company:

	September 30,		December 31,		September 30,
	2010		2009		2009
Secured Credit Agreement:
Revolving Credit Facility:
Revolving Loans	$	—	$	—	$	—
Term Loans:
Term Loan A (160.0 million AUD at September 30, 2010)	154.8		143.9		197.9
Term Loan B	189.5		189.5		191.5
Term Loan C (110.8 million CAD at September 30, 2010)	107.3		105.4		102.5
Term Loan D (€189.5 million at September 30, 2010)	257.7		273.5		280.2
Senior Notes:
8.25%, due 2013			460.4		461.2
6.75%, due 2014	400.0		400.0		400.0
6.75%, due 2014 (€225 million)	306.0		324.7		329.2
3.00%, Exchangeable, due 2015	603.0
7.375%, due 2016	584.2		582.1		581.4
6.875%, due 2017 (€300 million)	408.0		432.9		438.9
6.75%, due 2020 (€500 million)	680.0
Payable to OI Inc.	250.0		278.3		278.4
Other	131.5		116.5		126.0
Total long-term debt	4,072.0		3,307.2		3,387.2
Less amounts due within one year	66.3		49.7		43.3
Long-term debt	$	4,005.7	$	3,257.5	$	3,343.9

On June 14, 2006, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”).  At September 30, 2010, the Agreement included a $900.0 million revolving credit facility, a 160.0 million Australian dollar term loan, and a 110.8 million Canadian dollar term loan, each of which has a final maturity date of June 15, 2012.  It also included a $189.5 million term loan and a €189.5 million term loan, each of which has a final maturity date of June 14, 2013.  At September 30, 2010, the Company’s subsidiary borrowers had unused credit of $724.0 million available under the Agreement.

The weighted average interest rate on borrowings outstanding under the Agreement at September 30, 2010 was 2.76%.

8

During May 2010, a subsidiary of the Company issued exchangeable senior notes with a face value of $690.0 million due June 1, 2015 (“2015 Exchangeable Notes”).  The 2015 Exchangeable Notes bear interest at 3.00% and are guaranteed by substantially all of the Company’s domestic subsidiaries.  The net proceeds, after deducting debt issuance costs, totaled approximately $672 million.

Upon exchange of the 2015 Exchangeable Notes, under the terms outlined below, the issuer of the 2015 Exchangeable Notes is required to settle the principal amount in cash and OI Inc. is required to settle the exchange premium in shares of the OI Inc.’s common stock. The exchange premium is calculated as the value of OI Inc.’s common stock in excess of the initial exchange price of approximately $47.47 per share, which is equivalent to an exchange rate of 21.0642 per $1,000 principal amount of the 2015 Exchangeable Notes.  The exchange rate may be adjusted upon the occurrence of certain events, such as certain distributions, dividends or issuances of cash, stock, options, warrants or other property or effecting a share split, or a significant change in the ownership or structure of the Company or OI Inc., such as a recapitalization or reclassification of OI Inc.’s common stock, a merger or consolidation involving the Company or the sale or conveyance to another person of all or substantially all of the property and assets of the Company and its subsidiaries substantially as an entirety.

Prior to March 1, 2015, the 2015 Exchangeable Notes may be exchanged only if (1) the price of OI Inc.’s common stock exceeds $61.71 (130% of the exchange price) for a specified period of time, (2) the trading price of the 2015 Exchangeable Notes falls below 98% of the average exchange value of the 2015 Exchangeable Notes for a specified period of time (trading price was 167% of exchange value at September 30, 2010), or (3) upon the occurrence of specified corporate transactions.  The 2015 Exchangeable Notes may be exchanged without restrictions on or after March 1, 2015.  As of September 30, 2010, the 2015 Exchangeable Notes are not exchangeable by the holders.

For accounting purposes, the 2015 Exchangeable Notes are considered to be non-exchangeable since OI Inc. is directly responsible for settling the exchange premium, if any.  The issuer’s obligation with respect to the instrument is limited to only the payment of interest and principal.  The value of OI Inc.’s obligation to holders of the 2015 Exchangeable Notes was computed using the Company’s non-exchangeable debt borrowing rate at the date of issuance of 6.15% and was accounted for as a debt discount and a corresponding capital contribution from OI Inc.  The carrying values of the liability and equity components at September 30, 2010 are as follows:

Principal amount of exchangeable notes	$	690.0
Unamortized discount on exchangeable notes	87.0
Net carrying amount of liability component	$	603.0
Carrying amount of equity component	$	93.4

9

The debt discount is being amortized over the life of the 2015 Exchangeable Notes.  The amount of interest expense recognized on the 2015 Exchangeable Notes for the three and nine months ended September 30, 2010 is as follows:

	Three months ended September 30, 2010		Nine months ended September 30, 2010
Contractual coupon interest	$	5.2	$	8.3
Amortization of discount on exchangeable notes	4.0		6.4
Total interest expense	$	9.2	$	14.7

During June 2010, a subsidiary of the Company redeemed all $450.0 million of the 8.25% senior notes due 2013.  During the second quarter of 2010, the Company recorded $9.0 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees.  In addition, the Company recorded a reduction of interest expense of $9.0 million during the second quarter of 2010 to recognize the unamortized proceeds from terminated interest rate swaps on these notes.

During September 2010, a subsidiary of the Company issued senior notes with a face value of €500.0 million due September 15, 2020.  The notes bear interest at 6.75% and are guaranteed by substantially all of the Company’s domestic subsidiaries.  The net proceeds, after deducting debt issuance costs, totaled approximately $625 million.

During October 2006, the Company entered into a €300 million European accounts receivable securitization program.  The program extends through October 2011, subject to annual renewal of backup credit lines.  In addition, the Company participated in a receivables financing program in the Asia Pacific region with a revolving funding commitment of 10 million New Zealand dollars.  This program expired in October 2010.

Information related to the Company’s accounts receivable securitization programs is as follows:

	September 30,			December 31,			September 30,
	2010			2009			2009
Balance (included in short-term loans)	$	243.0		$	289.0		$	289.4
Weighted average interest rate	2.49		%	2.52		%	1.70		%

10

The carrying amounts reported for the accounts receivable securitization programs, and certain long-term debt obligations subject to frequently redetermined interest rates, approximate fair value.  Fair values for the Company’s significant fixed rate debt obligations are generally based on published market quotations.

Fair values at September 30, 2010 of the Company’s significant fixed rate debt obligations are as follows:

	Principal Amount		Indicated	Fair Value
	(millions of		Market	(millions of
	dollars)		Price	dollars)
Senior Notes:
6.75%, due 2014	$	400.0	102.63	$	410.5
6.75%, due 2014 (€225 million)	306.0		102.95	315.0
3.00%, Exchangeable, due 2015	690.0		98.56	680.1
7.375%, due 2016	600.0		108.25	649.5
6.875%, due 2017 (€300 million)	408.0		104.28	425.5
6.75%, due 2020 (€500 million)	680.0		102.48	696.9

3.  Supplemental Cash Flow Information

	Nine months ended September 30,
	2010		2009
Interest paid in cash	$	163.2	$	131.7
Income taxes paid in cash	69.6		123.5

Cash interest for 2010 includes note repurchase premiums related to the June 2010 redemption of the Company’s 8.25% senior notes due 2013.  Cash interest for 2009 includes note repurchase premiums and the proceeds from the settlement of interest rate swaps related to the May 2009 tender of the Company’s 7.50% senior debentures due 2010.

11

4.  Share Owners’ Equity

The activity in share owners’ equity for the three months ended September 30, 2010 and 2009 is as follows:

	Share Owner’s Equity of the Company
	Other Contributed Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Share Owners’ Equity
Balance on July 1, 2010	$	613.2		$	2,757.5	$	(1,424.4	)	$	205.4		$	2,151.7
Net distribution to parent	(37.5		)									(37.5		)
Comprehensive income:
Net earnings				138.7					12.0			150.7
Foreign currency translation adjustments						266.0			10.1			276.1
Pension and other postretirement benefit adjustments, net of tax						10.7						10.7
Change in fair value of derivative instruments, net of tax						(4.1		)				(4.1		)
Acquisition of noncontrolling interest	(10.4		)						(7.9		)	(18.3		)
Dividends paid to noncontrolling interests on subsidiary common stock									(1.7		)	(1.7		)
Balance on September 30, 2010	$	565.3		$	2,896.2	$	(1,151.8	)	$	217.9		$	2,527.6

	Share Owner’s Equity of the Company
	Other Contributed Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Share Owners’ Equity
Balance on July 1, 2009	$	872.8		$	2,410.9	$	(1,424.4	)	$	232.3		$	2,091.6
Net distribution to parent	(29.8		)									(29.8		)
Comprehensive income:
Net earnings				126.7					2.3			129.0
Foreign currency translation adjustments						147.0			11.2			158.2
Pension and other postretirement benefit adjustments, net of tax						11.0						11.0
Change in fair value of derivative instruments, net of tax						15.9						15.9
Dividends paid to noncontrolling interests on subsidiary common stock									(2.9		)	(2.9		)
Balance on September 30, 2009	$	843.0		$	2,537.6	$	(1,250.5	)	$	242.9		$	2,373.0

12

The activity in share owners’ equity for the nine months ended September 30, 2010 and 2009 is as follows:

	Share Owner’s Equity of the Company
	Other Contributed Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Share Owners’ Equity
Balance on January 1, 2010	$	782.8		$	2,531.1	$	(1,290.6	)	$	198.2		$	2,221.5
Net distribution to parent	(298.1		)									(298.1		)
Capital contribution from OI Inc.	91.0											91.0
Comprehensive income:
Net earnings				365.1					34.9			400.0
Foreign currency translation adjustments						75.9			8.2			84.1
Pension and other postretirement benefit adjustments, net of tax						68.1						68.1
Change in fair value of derivative instruments, net of tax						(5.2		)				(5.2		)
Acquisition of noncontrolling interest	(10.4		)						(7.9		)	(18.3		)
Noncontrolling interests’ share of acquisition									7.9			7.9
Dividends paid to noncontrolling interests on subsidiary common stock									(23.4		)	(23.4		)
Balance on September 30, 2010	$	565.3		$	2,896.2	$	(1,151.8	)	$	217.9		$	2,527.6

	Share Owner’s Equity of the Company
	Other Contributed Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Share Owners’ Equity
Balance on January 1, 2009	$	940.0		$	2,216.5	$	(1,620.6	)	$	252.8		$	1,788.7
Net distribution to parent	(97.0		)									(97.0		)
Comprehensive income:
Net earnings				321.1					29.2			350.3
Foreign currency translation adjustments						319.2			19.2			338.4
Pension and other postretirement benefit adjustments, net of tax						26.2						26.2
Change in fair value of derivative instruments, net of tax						24.7						24.7
Dividends paid to noncontrolling interests on subsidiary common stock									(58.3		)	(58.3		)
Balance on September 30, 2009	$	843.0		$	2,537.6	$	(1,250.5	)	$	242.9		$	2,373.0

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5.  Inventories

Major classes of inventory are as follows:

	September 30,		December 31,		September 30,
	2010		2009		2009
Finished goods	$	834.1	$	741.5	$	862.5
Raw materials	120.5		107.4		118.0
Operating supplies	57.5		51.4		54.9
	$	1,012.1	$	900.3	$	1,035.4

6.  Contingencies

OI Inc. is one of a number of defendants in a substantial number of lawsuits filed in numerous state and federal courts by persons alleging bodily injury (including death) as a result of exposure to dust containing asbestos fibers.  From 1948 to 1958, one of OI Inc.’s former business units commercially produced and sold approximately $40 million of a high-temperature, calcium-silicate based pipe and block insulation material containing asbestos.  OI Inc. exited the pipe and block insulation business in April 1958.  The traditional asbestos personal injury lawsuits and claims relating to such production and sale of asbestos material typically allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and in some cases, punitive damages in various amounts (herein referred to as “asbestos claims”).

As of September 30, 2010, OI Inc. has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 6,500 plaintiffs and claimants.  Based on an analysis of the lawsuits pending as of December 31, 2009, approximately 79% of plaintiffs either do not specify the monetary damages sought, or in the case of court filings, claim an amount sufficient to invoke the jurisdictional minimum of the trial court.  Approximately 20% of plaintiffs specifically plead damages of $15 million or less, and fewer than 1% of plaintiffs specifically plead damages greater than $15 million but less than $100 million.  Fewer than 1% of plaintiffs specifically plead damages $100 million or greater but less than $122 million.

As indicated by the foregoing summary, current pleading practice permits considerable variation in the assertion of monetary damages.  OI Inc.’s experience resolving hundreds of thousands of asbestos claims and lawsuits over an extended period, demonstrates that the monetary relief which may be alleged in a complaint bears little relevance to a claim’s merits or disposition value.  Rather, the amount potentially recoverable is determined by such factors as the plaintiff’s severity of disease, the product identification evidence against specific defendants, the defenses available to those defendants, the specific jurisdiction in which the claim is made, and the plaintiff’s history of smoking or exposure to other possible disease-causative factors.

In addition to the pending claims set forth above, OI Inc. has claims-handling agreements in place with many plaintiffs’ counsel throughout the country.  These agreements require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by such agreements. The criteria for such claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by OI Inc.’s former business unit during its manufacturing period ending in 1958.  Some plaintiffs’ counsel have historically withheld claims under these agreements for later presentation while

14

focusing their attention on active litigation in the tort system.  OI Inc. believes that as of  September 30, 2010 there are approximately 800 claims against other defendants which are likely to be asserted some time in the future against OI Inc. These claims are not included in the pending “lawsuits and claims” totals set forth above.

OI Inc. is also a defendant in other asbestos-related lawsuits or claims involving maritime workers, medical monitoring claimants, co-defendants and property damage claimants.  Based upon its past experience, OI Inc. believes that these categories of lawsuits and claims will not involve any material liability and they are not included in the above description of pending matters or in the following description of disposed matters.

Since receiving its first asbestos claim, OI Inc. as of September 30, 2010, has disposed of the asbestos claims of approximately 381,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $7,700.  Certain of these dispositions have included deferred amounts payable over a number of years.  Deferred amounts payable totaled approximately $30.8 million at September 30, 2010 ($36.3 million at December 31, 2009) and are included in the foregoing average indemnity payment per claim.  OI Inc.’s indemnity payments for these claims have varied on a per claim basis, and are expected to continue to vary considerably over time.  As discussed above, a part of OI Inc.’s objective is to achieve, where possible, resolution of asbestos claims pursuant to claims-handling agreements.  Failure of claimants to meet certain medical and product exposure criteria in OI Inc.’s administrative claims handling agreements has generally reduced the number of marginal or suspect claims that would otherwise have been received. This may have the effect of increasing OI Inc.’s per-claim average indemnity payment over time.

15

OI Inc. believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot reasonably be estimated. Beginning with the initial liability of $975 million established in 1993, OI Inc. has accrued a total of approximately $3.65 billion through 2009, before insurance recoveries, for its asbestos-related liability.  OI Inc.’s ability to reasonably estimate its liability has been significantly affected by the volatility of asbestos-related litigation in the United States, the inherent uncertainty of future disease incidence and claiming patterns, the expanding list of non-traditional defendants that have been sued in this litigation and found liable for substantial damage awards, the use of mass litigation screenings to generate new lawsuits, the large number of claims asserted or filed by parties who claim prior exposure to asbestos materials but have no present physical impairment as a result of such exposure, and the significant number of co-defendants that have filed for bankruptcy.

OI Inc. has continued to monitor trends that may affect its ultimate liability and has continued to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against OI Inc. The material components of OI Inc.’s accrued liability are based on amounts determined by OI Inc. in connection with its annual comprehensive review and consist of the following estimates, to the extent it is probable that such liabilities have been incurred and can be reasonably estimated: (i) the liability for asbestos claims already asserted against OI Inc.; (ii) the liability for preexisting but unasserted asbestos claims for prior periods arising under its administrative claims-handling agreements with various plaintiffs’ counsel; (iii) the liability for asbestos claims not yet asserted against OI Inc., but which OI Inc. believes will be asserted in the next several years; and (iv) the legal defense costs likely to be incurred in connection with the foregoing types of claims.

16

The significant assumptions underlying the material components of OI Inc.’s accrual are:

a)  the extent to which settlements are limited to claimants who were exposed to OI Inc.’s asbestos-containing insulation prior to its exit from that business in 1958;

b)   the extent to which claims are resolved under OI Inc.’s administrative claims agreements or on terms comparable to those set forth in those agreements;

c)   the extent of decrease or increase in the incidence of serious disease cases and claiming patterns for such cases;

d)   the extent to which OI Inc. is able to defend itself successfully at trial;

e)   the extent to which courts and legislatures eliminate, reduce or permit the diversion of financial resources for unimpaired claimants and so-called forum shopping;

f)   the extent to which additional defendants with substantial resources and assets are required to participate significantly in the resolution of future asbestos lawsuits and claims;

g)   the number and timing of additional co-defendant bankruptcies; and

h)  the extent to which co-defendant bankruptcy trusts direct resources to resolve claims that are also presented to OI Inc. and the timing of the payments made by the bankruptcy trusts.

As noted above, OI Inc. conducts a comprehensive review of its asbestos-related liabilities and costs annually in connection with finalizing and reporting its annual results of operations, unless significant changes in trends or new developments warrant an earlier review.  If the results of an annual comprehensive review indicate that the existing amount of the accrued liability is insufficient to cover its estimated future asbestos-related costs, then OI Inc. will record an appropriate charge to increase the accrued liability.  OI Inc. believes that a reasonable estimation of the probable amount of the liability for claims not yet asserted against the OI Inc. is not possible beyond a period of several years.  Therefore, while the results of future annual comprehensive reviews cannot be determined, OI Inc. expects the addition of one year to the estimation period will result in an annual charge.

17

Other litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that are non-routine and involve compensatory, punitive or treble damage claims as well as other types of relief.  The Company records a liability for such matters when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated.  Recorded amounts are reviewed and adjusted to reflect changes in the factors upon which the estimates are based including additional information, negotiations, settlements, and other events.

The ultimate legal and financial liability of OI Inc. with respect to the lawsuits and proceedings referred to above, in addition to other pending litigation, cannot reasonably be estimated.  OI Inc.’s reported results of operations for 2009 were materially affected by the $180.0 million (pretax and after tax) fourth quarter charge for asbestos-related costs and asbestos-related payments continue to be substantial.  Any future additional charge would likewise materially affect OI Inc.’s results of operations for the period in which it is recorded. Also, the continued use of significant amounts of cash for asbestos-related costs has affected and will continue to affect the Company’s and OI Inc.’s cost of borrowing and the ability to pursue global or domestic acquisitions. However, the Company believes that its operating cash flows and other sources of liquidity will be sufficient to fund OI Inc.’s asbestos-related payments and to fund the Company’s working capital and capital expenditure requirements on a short-term and long-term basis.

7. Segment Information

The Company has four reportable segments based on its four geographic locations:  (1) Europe; (2) North America; (3) South America; (4) Asia Pacific.  These four segments are aligned with the Company’s internal approach to managing, reporting, and evaluating performance of its global glass operations.  Certain assets and activities not directly related to one of the regions or to glass manufacturing are reported with Retained Corporate Costs and Other.  These include licensing, equipment manufacturing, global engineering, and non-glass equity investments.  Retained Corporate Costs and Other also includes certain headquarters administrative and facilities costs and certain incentive compensation and other benefit plan costs that are global in nature and are not allocable to the reportable segments.

The Company’s measure of profit for its reportable segments is Segment Operating Profit, which consists of consolidated earnings from continuing operations before interest income, interest expense, and provision for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations as well as certain retained corporate costs.  The Company’s management uses Segment Operating Profit, in combination with net sales and selected cash flow information, to evaluate performance and to allocate resources.

Segment Operating Profit for reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided.

Financial information for the three-month periods ended September 30, 2010 and 2009 regarding the Company’s reportable segments is as follows:

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	2010		2009
Net sales:
Europe	$	702.4	$	785.9
North America	483.5		538.5
South America	296.0		290.5
Asia Pacific	249.9		252.1
Reportable segment totals	1,731.8		1,867.0
Other	9.4		7.6
Net sales	$	1,741.2	$	1,874.6

	2010			2009
Segment Operating Profit:
Europe	$	113.2		$	128.4
North America	71.1			82.9
South America	76.6			63.6
Asia Pacific	37.7			41.7
Reportable segment totals	298.6			316.6
Items excluded from Segment Operating Profit:
Retained corporate costs and other	(21.0		)	(13.8		)
Restructuring and asset impairments				(57.5		)
Acquisition-related fair value inventory adjustment	(5.1		)
Acquisition transaction costs	(6.0		)
Interest income	2.5			6.1
Interest expense	(61.0		)	(58.6		)
Earnings before income taxes	$	208.0		$	192.8

Financial information for the nine-month periods ended September 30, 2010 and 2009 regarding the Company’s reportable segments is as follows:

	2010		2009
Net sales:
Europe	$	2,086.0	$	2,192.7
North America	1,443.4		1,593.2
South America	754.5		754.4
Asia Pacific	723.5		626.9
Reportable segment totals	5,007.4		5,167.2
Other	27.2		33.4
Net sales	$	5,034.6	$	5,200.6

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	2010			2009
Segment Operating Profit:
Europe	$	274.1		$	293.0
North America	221.9			248.7
South America	182.6			180.6
Asia Pacific	105.3			78.1
Reportable segment totals	783.9			800.4
Items excluded from Segment Operating Profit:
Retained corporate costs and other	(52.7		)	(49.0		)
Restructuring and asset impairments	(8.0		)	(113.1		)
Acquisition-related fair value inventory adjustment	(5.1		)
Acquisition transaction costs	(6.0		)
Interest income	10.7			21.1
Interest expense	(176.6		)	(164.6		)
Earnings before income taxes	$	546.2		$	494.8

Financial information regarding the Company’s total assets is as follows:

	September 30,		December 31,		September 30,
	2010		2009		2009
Total assets:
Europe	$	3,658.8	$	3,852.3	$	4,046.5
North America	2,001.5		1,899.8		1,919.3
South America	1,768.5		855.9		1,086.1
Asia Pacific	1,898.2		1,683.0		1,658.9
Reportable segment totals	9,327.0		8,291.0		8,710.8
Other	556.2		436.4		409.0
Consolidated totals	$	9,883.2	$	8,727.4	$	9,119.8

8. Other Expense

During the third quarter of 2010, the Company recorded charges of $6.0 million (pretax and after tax) for acquisition transaction costs.  These charges represent legal, accounting and other outside consultants expenses directly related to acquisitions.

During the nine months ended September 30, 2010, the Company recorded charges totaling $8.0 million ($7.9 million after tax amount attributable to the Company), for restructuring and asset impairment related to the Company’s strategic review of its global manufacturing footprint.  See Note 9 for additional information.

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During the third quarter of 2009, the Company recorded charges totaling $57.5 million ($36.0 million after tax amount attributable to the Company), for restructuring and asset impairment related to the Company’s strategic review of its global manufacturing footprint.  The total of all such charges for the nine months ended September 30, 2009 was $113.1 million ($88.9 million after tax amount attributable to the Company).  See Note 9 for additional information.

During the third quarter of 2009, the Company entered into a series of parallel market transactions to exchange Venezuelan bolivars into U.S. dollars.  In the parallel market, bolivars were valued significantly lower than the official government rate, giving rise to exchange losses from such transactions.  As a result, the Company recognized foreign currency exchange losses of $14.7 million in the quarter.

9.  Restructuring Accruals

Beginning in 2007, the Company commenced a strategic review of its global profitability and manufacturing footprint.  The combined 2007, 2008, 2009 and 2010 charges, amounting to $409.3 million ($341.0 million after tax amount attributable to the Company), reflect the decisions reached by the Company in its strategic review of its global manufacturing footprint. The related curtailment of plant capacity and realignment of selected operations will result in an overall reduction in the Company’s workforce of approximately 3,250 jobs.  Amounts recorded by the Company do not include any gains that may be realized upon the ultimate sale or disposition of closed facilities.

The Company’s decisions to curtail selected production capacity have resulted in write downs of certain long-lived assets to the extent their carrying amounts exceeded fair value or fair value less cost to sell.  The Company classified the significant assumptions used to determine the fair value of the impaired assets, which was not material, as Level 3 in the fair value hierarchy as set forth in the general accounting principles for fair value measurements.

The Company also recorded liabilities for certain employee separation costs to be paid under contractual arrangements and other exit costs.

2007

During the third and fourth quarters of 2007, the Company recorded charges totaling $55.3 million ($40.2 million after tax) for restructuring and asset impairment in Europe and North America.  The curtailment of plant capacity resulted in elimination of approximately 560 jobs and a corresponding reduction in the Company’s workforce.

2008

During 2008, the Company recorded charges totaling $132.4 million ($110.1 million after tax amount attributable to the Company) for restructuring and asset impairment across all segments as well as in Retained Corporate Costs and Other.  The curtailment of plant capacity and realignment of selected operations resulted in elimination of approximately 1,240 jobs and a corresponding reduction in the Company’s workforce.

2009

During 2009, the Company recorded charges totaling $213.6 million ($182.8 million after tax amount attributable to the Company) for restructuring and asset impairment across all segments.  The curtailment of plant capacity will result in elimination of approximately 1,450 jobs and a corresponding reduction in the Company’s workforce.

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2010

As of December 31, 2009, the Company had concluded its global manufacturing footprint review.  During the nine months ended September 30, 2010, the Company recorded charges totaling $8.0 million ($7.9 million after tax amount attributable to the Company) for restructuring and asset impairment related to the completion of certain previously announced actions, primarily in North America.

The Company expects that the majority of the remaining estimated cash expenditures related to the above charges will be paid out during 2011.

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Selected information related to the restructuring accrual is as follows:

	Employee Costs			Asset Impairment			Other			Total
2007 Charges	$	26.1		$	22.3		$	6.9		$	55.3
Write-down of assets to net realizable value	—			(22.3		)	(2.4		)	(24.7		)
Balance at December 31, 2007	26.1			—			4.5			30.6
2008 charges	70.1			32.5			29.8			132.4
Write-down of assets to net realizable value				(32.5		)	(4.7		)	(37.2		)
Net cash paid, principally severance and related benefits	(35.6		)				(7.2		)	(42.8		)
Other, principally foreign exchange translation	(13.0		)				(6.1		)	(19.1		)
Balance at December 31, 2008	47.6			—			16.3			63.9
2009 charges	116.3			78.7			18.6			213.6
Write-down of assets to net realizable value				(78.7		)				(78.7		)
Net cash paid, principally severance and related benefits	(60.8		)				(7.5		)	(68.3		)
Other, principally foreign exchange translation	(8.8		)				(1.6		)	(10.4		)
Balance at December 31, 2009	94.3			—			25.8			120.1
Net cash paid, principally severance and related benefits	(17.9		)				(1.0		)	(18.9		)
Other, principally foreign exchange translation	(1.1		)							(1.1		)
Balance at March 31, 2010	75.3			—			24.8			100.1
Second quarter 2010 charges	(2.3		)	0.7			9.6			8.0
Write-down of assets to net realizable value				(0.7		)				(0.7		)
Net cash paid, principally severance and related benefits	(9.0		)				(3.3		)	(12.3		)
Other, principally foreign exchange translation	(3.4		)				(0.9		)	(4.3		)
Balance at June 30, 2010	60.6			—			30.2			90.8
Net cash paid, principally severance and related benefits	(12.3		)				(5.5		)	(17.8		)
Other, principally foreign exchange translation	1.9						0.7			2.6
Balance at September 30, 2010	$	50.2		$	—		$	25.4		$	75.6

10. Derivative Instruments

The Company has certain derivative assets and liabilities which consist of interest rate swaps, natural gas forwards, and foreign exchange option and forward contracts.  The Company uses an income approach to valuing these contracts.  Interest rate yield curves, natural gas forward rates, and foreign exchange rates are the significant inputs into the valuation models.  These inputs are observable in active markets over the terms of the instruments the Company holds, and accordingly, the Company classifies its derivative assets and liabilities as Level 2 in the hierarchy.  The Company also evaluates counterparty risk in determining fair values.

Interest Rate Swaps Designated as Fair Value Hedges

In the fourth quarter of 2003 and the first quarter of 2004, the Company entered into a series of interest rate swap agreements with a total notional amount of $700 million that were to mature in 2010 and 2013. The swaps were executed in order to: (i) convert a portion of the senior notes and senior debentures fixed-rate debt into floating-rate debt; (ii) maintain a capital structure containing appropriate amounts of fixed and floating-rate debt; and (iii) reduce net interest payments and expense in the near-term.

The Company’s fixed-to-floating interest rate swaps were accounted for as fair value hedges. Because the relevant terms of the swap agreements matched the corresponding terms of the notes, there was no hedge ineffectiveness. Accordingly, the Company recorded the net of the

23

fair market values of the swaps as a long-term asset (liability) along with a corresponding net increase (decrease) in the carrying value of the hedged debt.

For derivative instruments that are designated and qualify as fair value hedges, the change in the fair value of the derivative instrument related to the future cash flows (gain or loss on the derivative) as well as the offsetting change in the fair value of the hedged item attributable to the hedged risk are recognized in current earnings.  The Company includes the gain or loss on the hedged items (i.e. long-term debt) in the same line item (interest expense) as the offsetting loss or gain on the related interest rate swaps.

During the second quarter of 2009, the Company extinguished $221.9 million of its intercompany debt with OI Inc. and terminated the related interest rate swap agreements for proceeds of $5.0 million.  The Company recognized $4.4 million of the proceeds as a reduction to interest expense upon the termination of the interest rate swap agreements, while the remaining proceeds were recognized as a reduction to interest expense over the remaining life of the outstanding intercompany debt, which matured in May 2010.

During the second quarter of 2009, the Company’s interest rate swaps related to the $450 million senior notes due 2013 were terminated.  The Company received proceeds of $12.4 million which were recorded as an adjustment to debt and were to be recognized as a reduction to interest expense over the remaining life of the senior notes due 2013.  During the second quarter of 2010, a subsidiary of the Company redeemed the senior notes due 2013.  Accordingly, the remaining unamortized proceeds from the terminated interest rate swaps were recognized in the second quarter as a reduction to interest expense.  See Note 2 for additional information.

The effect of the interest rate swaps on the results of operations for the three and nine months ended September 30, 2010 and 2009 is as follows:

	Amount of Gain (Loss) Recognized in Interest Expense
	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Interest Rate Swaps							$	(11.0	)
Related long-term debt							11.0
Proceeds recognized and amortized for terminated interest rate swaps	$	—	$	0.9	$	10.6	5.7
Net impact on interest expense	$	—	$	0.9	$	10.6	$	5.7

Commodity Futures Contracts Designated as Cash Flow Hedges

The Company enters into commodity futures contracts related to forecasted natural gas requirements, the objectives of which are to limit the effects of fluctuations in the future market price paid for natural gas and the related volatility in cash flows. The Company continually evaluates the natural gas market with respect to its forecasted usage requirements over the next twelve to twenty-four months and periodically enters into commodity futures contracts in order to hedge a portion of its usage requirements over that period. At September 30, 2010, the Company had entered into commodity futures contracts covering approximately 8,100,000 MM BTUs over that period.  The volume of natural gas covered by commodity futures contracts is lower than prior periods because the renegotiation of several large customer contracts in North

24

America reduced the Company’s exposure to gas price volatility through provisions that pass the price of natural gas to the customer.

The Company accounts for the above futures contracts as cash flow hedges at September 30, 2010 and recognizes them on the balance sheet at fair value. The effective portion of changes in the fair value of a derivative that is designated as, and meets the required criteria for, a cash flow hedge is recorded in the Accumulated Other Comprehensive Income component of share owners’ equity (“OCI”) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. At September 30, 2010, an unrecognized loss of $6.5 million (pretax and after tax) related to the commodity futures contracts was included in Accumulated OCI, and will be reclassified into earnings over the next twelve to twenty-four months.  Any material portion of the change in the fair value of a derivative designated as a cash flow hedge that is deemed to be ineffective is recognized in current earnings.  The ineffectiveness related to these natural gas hedges for the three and nine months ended September 30, 2010 and 2009 was not material.

The effect of the commodity futures contracts on the results of operations for the three months ended September 30, 2010 and 2009 is as follows:

						Amount of Loss
						Reclassified from
Amount of Loss						Accumulated OCI into
Recognized in OCI on						Income (reported in
Commodity Futures Contracts						manufacturing, shipping, and
(Effective Portion)						delivery) (Effective Portion)
2010			2009			2010			2009
$	(5.9	)	$	(0.9	)	$	(1.8	)	$	(16.8	)

The effect of the commodity futures contracts on the results of operations for the nine months ended September 30, 2010 and 2009 is as follows:

						Amount of Loss
						Reclassified from
Amount of Loss						Accumulated OCI into
Recognized in OCI on						Income (reported in
Commodity Futures Contracts						manufacturing, shipping, and
(Effective Portion)						delivery) (Effective Portion)
2010			2009			2010			2009
$	(11.9	)	$	(21.9	)	$	(6.7	)	$	(46.6	)

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Senior Notes Designated as Net Investment Hedge

During December 2004, a U.S. subsidiary of the Company issued senior notes totaling €225 million.  These notes were designated by the Company’s subsidiary as a hedge of a portion of its net investment in a non-U.S. subsidiary with a Euro functional currency.  Because the amount of the senior notes matches the hedged portion of the net investment, there is no hedge ineffectiveness. Accordingly, the Company recorded the impact of changes in the foreign currency exchange rate on the Euro-denominated notes in OCI.  The amount recorded in OCI will be reclassified into earnings when the Company sells or liquidates its net investment in the non-U.S. subsidiary.

The effect of the net investment hedge on the results of operations for the three months ended September 30, 2010 and 2009 is as follows:

							Amount of Gain (Loss)
Amount of Loss						Location of Gain (Loss)	Reclassified from Accumulated
Recognized in OCI						Reclassified from Accumulated	OCI into Income
2010			2009			OCI into Income	2010		2009
$	(31.5	)	$	(11.7	)	N/A	$	—	$	—

The effect of the net investment hedge on the results of operations for the nine months ended September 30, 2010 and 2009 is as follows:

						Amount of Gain (Loss)
Amount of Gain (Loss)					Location of Gain (Loss)	Reclassified from Accumulated
Recognized in OCI					Reclassified from Accumulated	OCI into Income
2010		2009			OCI into Income	2010		2009
$	19.2	$	(13.0	)	N/A	$	—	$	—

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Forward Exchange Contracts not Designated as Hedging Instruments

The Company’s subsidiaries may enter into short-term forward exchange or option agreements to purchase foreign currencies at set rates in the future. These agreements are used to limit exposure to fluctuations in foreign currency exchange rates for significant planned purchases of fixed assets or commodities that are denominated in currencies other than the subsidiaries’ functional currency. Subsidiaries may also use forward exchange agreements to offset the foreign currency risk for receivables and payables, including intercompany receivables and payables, not denominated in, or indexed to, their functional currencies. The Company records these short-term forward exchange agreements on the balance sheet at fair value and changes in the fair value are recognized in current earnings.

At September 30, 2010, various subsidiaries of the Company had outstanding forward exchange and option agreements denominated in various currencies covering the equivalent of approximately $1.7 billion related primarily to intercompany transactions and loans.

The effect of the forward exchange contracts on the results of operations for the three months ended September 30, 2010 and 2009 is as follows:

	Amount of Gain (Loss)
Location of Gain (Loss)	Recognized in Income on
Recognized in Income on	Forward Exchange Contracts
Forward Exchange Contracts	2010		2009
Other expense	$	7.6	$	(9.1	)

The effect of the forward exchange contracts on the results of operations for the nine months ended September 30, 2010 and 2009 is as follows:

	Amount of Gain
Location of Gain (Loss)	Recognized in Income on
Recognized in Income on	Forward Exchange Contracts
Forward Exchange Contracts	2010		2009
Other expense	$	48.6	$	2.6

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Balance Sheet Classification

The Company records the fair values of derivative financial instruments on the balance sheet as follows: (a) receivables if the instrument has a positive fair value and maturity within one year, (b) deposits, receivables, and other assets if the instrument has a positive fair value and maturity after one year, (c) other accrued liabilities or other liabilities (current) if the instrument has a negative fair value and maturity within one year, and (d) other liabilities if the instrument has a negative fair value and maturity after one year.  The following table shows the amount and classification (as noted above) of the Company’s derivatives:

	Balance	Fair Value
	Sheet Location	September 30, 2010		December 31, 2009		September 30, 2009
Asset Derivatives:
Derivatives designated as hedging instruments:
Commodity futures contracts	a	$	—	$	0.4	$	—
Commodity futures contracts	b					0.3
Commodity futures contracts	c			0.1
Commodity futures contracts	d					0.6
Total derivatives designated as hedging instruments		—		0.5		0.9
Derivatives not designated as hedging instruments:
Foreign exchange contracts	a	31.9		6.0		6.9
Foreign exchange contracts	c	0.1		0.2
Total derivatives not designated as hedging instruments		32.0		6.2		6.9
Total asset derivatives		$	32.0	$	6.7	$	7.8
Liability Derivatives:
Derivatives designated as hedging instruments:
Commodity futures contracts	c	$	6.1	$	1.8	$	—
Commodity futures contracts	d	0.4				13.7
Total derivatives designated as hedging instruments		6.5		1.8		13.7
Derivatives not designated as hedging instruments:
Foreign exchange contracts	c	18.2		2.9		14.6
Foreign exchange contracts	d	5.3
Total derivatives not designated as hedging instruments		23.5		2.9		14.6
Total liability derivatives		$	30.0	$	4.7	$	28.3

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11.  Pensions Benefit Plans and Other Postretirement Benefits

The components of the net periodic pension cost for the three months ended September 30, 2010 and 2009 are as follows:

	U.S.						Non-U.S.
	2010			2009			2010			2009
Service cost	$	6.3		$	6.1		$	6.3		$	4.6
Interest cost	32.8			33.5			23.3			20.5
Expected asset return	(47.7		)	(49.5		)	(23.8		)	(20.4		)
Settlement cost										8.7
Amortization:
Prior service credit	(0.1		)	(0.1		)	(0.2		)	(0.2		)
Actuarial loss	17.5			9.6			6.2			1.5
Net amortization	17.4			9.5			6.0			1.3
Net periodic pension cost	$	8.8		$	(0.4	)	$	11.8		$	14.7

The components of the net periodic pension cost for the nine months ended September 30, 2010 and 2009 are as follows:

	U.S.						Non-U.S.
	2010			2009			2010			2009
Service cost	$	19.0		$	18.2		$	16.2		$	12.8
Interest cost	98.4			100.6			61.6			58.1
Expected asset return	(143.1		)	(148.3		)	(63.1		)	(57.9		)
Settlement cost										8.7
Amortization:
Prior service credit	(0.2		)	(0.2		)	(0.5		)	(0.5		)
Actuarial loss	52.6			28.8			16.3			4.1
Net amortization	52.4			28.6			15.8			3.6
Net periodic pension cost	$	26.7		$	(0.9	)	$	30.5		$	25.3

29

The components of the net postretirement benefit cost for the three months ended September 30, 2010 and 2009 are as follows:

	U.S.						Non-U.S.
	2010			2009			2010		2009
Service cost	$	0.3		$	0.2		$	0.3	$	0.2
Interest cost	2.7			2.9			1.3		1.2
Amortization:
Prior service credit	(0.8		)	(0.8		)
Actuarial loss	1.3			1.0
Net amortization	0.5			0.2			—		—
Net postretirement benefit cost	$	3.5		$	3.3		$	1.6	$	1.4

The components of the net postretirement benefit cost for the nine months ended September 30, 2010 and 2009 are as follows:

	U.S.						Non-U.S.
	2010			2009			2010		2009
Service cost	$	0.8		$	0.6		$	0.9	$	0.7
Interest cost	8.2			8.9			3.7		3.3
Amortization:
Prior service credit	(2.4		)	(2.4		)
Actuarial loss	4.0			3.0					(0.1		)
Net amortization	1.6			0.6			—		(0.1		)
Net postretirement benefit cost	$	10.6		$	10.1		$	4.6	$	3.9

In March 2010, the Patient Protection and Affordable Care Act and the Health Care Education and Affordability Reconciliation Act (the “Acts”) were signed into law.  The Acts contain provisions which could impact the Company’s accounting for retiree medical benefits in future periods.  However, the extent of that impact, if any, cannot be determined until additional interpretations of the Acts become available.  Based on the analysis to date, the impact of provisions in the Acts which are reasonably determinable is not expected to have a material impact on the Company’s other postretirement benefit plans.  Accordingly, a remeasurement of the Company’s postretirement benefit obligation is not required at this time.  The Company will continue to assess the provisions of the Acts and may consider plan amendments in future periods to better align these plans with the provisions of the Acts.

12.  Business Combinations

On September 1, 2010, the Company completed the acquisition of Brazilian glassmaker Companhia Industrial de Vidros (“CIV”) for total consideration of $603 million, consisting of cash of $581 million and acquired debt of $22 million.  CIV was the leading glass container manufacturer in northeastern Brazil, producing glass containers for the beverage, food and pharmaceutical industries, as well as tableware.  The acquisition includes two plants in the state of Pernambuco and one in the state of Ceará.  The acquisition was part of the Company’s overall strategy of expanding its presence in emerging markets and expands its Brazilian

30

footprint to align with unfolding consumer trends and customer growth plans.  The results of CIV’s operations have been included in the Company’s consolidated financial statements since September 1, 2010, and are included in the South American operating segment.

The total purchase price will be allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values.  The purchase agreement contains customary provisions for working capital adjustments, which the Company expects to resolve with the seller in the fourth quarter of 2010.  The purchase price allocation has not been finalized as of September 30, 2010, because the Company has not yet completed its review of the asset and liability valuations.  The following table summarizes the preliminary estimates of fair values of the assets and liabilities assumed on September 1, 2010:

Current assets	$	97
Goodwill	343
Other long-term assets	81
Net property, plant, and equipment	195
Total assets	716
Current liabilities	(56		)
Long-term liabilities	(79		)
Net assets acquired	$	581

The liabilities assumed include accruals for uncertain tax positions and other tax contingencies. The purchase agreement includes provisions that require the sellers to reimburse the Company for any cash paid related to the settlement of these contingencies. Accordingly, the Company has also recognized a receivable from the sellers related to these contingencies.

Goodwill largely consists of expected synergies resulting from the integration of the acquisition and anticipated growth opportunities with new and existing customers, and includes intangible assets not separately recognized, such as federal and state tax incentives for development in Brazil’s northeastern region.  Goodwill is not deductible for federal income tax purposes.

In the second quarter of 2010, the Company formed a joint venture with Berli Jucker Public Company Limited (“BJC”) of Thailand in order to expand the Company’s presence in China and Southeast Asia.  The joint venture entered into an agreement to purchase the operations of Malaya Glass from Fraser & Neave Holdings Bhd.  Malaya Glass produces glass containers for the beer, non-alcoholic beverage and food markets, with plants located in China, Thailand, Malaysia and Vietnam.  The Company’s share of the purchase price for Malaya Glass is $132.4 million.  The acquisition was completed on July 16, 2010.  The Company is recognizing its interest in the joint venture using the equity method of accounting.

On March 11, 2010, the Company acquired the majority share of Cristalerias Rosario, a one-plant glass container manufacturer located in Rosario, Argentina.  Cristalerias Rosario primarily produces wine and non-alcoholic beverage glass containers and employs approximately 230 people.

31

13.  Venezuelan Operations

Beginning January 1, 2010, Venezuela’s economy is considered to be highly inflationary for accounting purposes.  Accordingly, the Company has adopted the U.S. dollar as the functional currency for its Venezuelan operations.  All bolivar-denominated transactions, as well as monetary assets and liabilities, are remeasured at the end of each month into U.S. dollars using the current exchange rate at that date.

At the beginning of 2010, the Company elected to use the parallel market rate to remeasure its Venezuelan operations due to the continued restrictions on currency exchange in Venezuela at the official rates.  At March 31, 2010, the bolivar to U.S. dollar exchange rate in the parallel market was 6.9 bolivars to one U.S. dollar.  In May 2010, the Venezuelan government suspended trading in the parallel market and replaced it with a system called Transaction System for Foreign Currency Denominated Securities (“SITME”), under the control of the Central Bank of Venezuela.  The bolivar to U.S. dollar exchange rate under SITME was 5.3 bolivars to one U.S. dollar at June 30, 2010 and September 30, 2010.

The use of the parallel market and SITME rates for remeasurement in Venezuela in 2010 resulted in a reduction to the South American segment operating profit of approximately $12 million and $52 million compared to the three and nine months ended September 30, 2009, respectively, as bolivar-denominated revenues and costs of the Company’s Venezuelan operations were remeasured into fewer U.S. dollars compared to the 2.15 official rate used for translation in 2009.

On October 26, 2010, the Venezuelan government decreed the expropriation of the Company’s operations in that country.  The Company is working with the Venezuelan government to understand the situation and is seeking favorable resolutions to the current actions.  It is unclear what type or amount of compensation, if any, the Company may receive from the Venezuelan government.  The Company’s Venezuelan operations consist of two majority-owned glass plants with approximately $80 million of net assets attributable to the Company as of September 30, 2010, and represent approximately 3% of global sales volume and less than 5% of the Company’s segment operating profit.  The Company had recorded approximately $260 million of cumulative currency translation losses as a component of accumulated other comprehensive income related to its Venezuelan operations for the devaluation of the bolivar in prior years.

14.  Financial Information for Subsidiary Guarantors and Non-Guarantors

The following presents condensed consolidating financial information for the Company, segregating:  (1) Owens-Illinois Group, Inc. (the “Parent”); (2) Owens-Brockway Glass Container Inc. (the “Issuer”); (3) those domestic subsidiaries that guarantee the 6.75% senior notes, 6.75% Euro senior notes, 3.00% exchangeable notes and 7.375% senior notes of the Issuer (the “Guarantor Subsidiaries”); and (4) all other subsidiaries (the “Non-Guarantor Subsidiaries”).  The Guarantor Subsidiaries are 100% owned direct and indirect subsidiaries of the Parent and their guarantees are full, unconditional and joint and several.  The Parent is also a guarantor, and its guarantee is full, unconditional and joint and several.

100% owned subsidiaries of the Parent and of the Issuer are presented on the equity basis of accounting.  Certain reclassifications have been made to conform all of the financial information to the financial presentation on a consolidated basis.  The principal eliminations relate to investments in subsidiaries and intercompany balances and transactions.

32

	September 30, 2010
								Non-
					Guarantor			Guarantor
	Parent		Issuer		Subsidiaries			Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
Accounts receivable	$	—	$	104.1	$	26.5		$	1,055.4	$	—		$	1,186.0
Inventories			135.7		0.4			876.6		(0.6		)	1,012.1
Other current assets			47.2		338.1			382.0		0.2			767.5
Total current assets	—		287.0		365.0			2,314.0		(0.4		)	2,965.6
Investments in and advances to subsidiaries	2,559.7		3,644.1		(289.4		)			(5,914.4		)	—
Goodwill			560.8		9.5			2,174.0					2,744.3
Other non-current assets			151.7		103.8			843.0		2.6			1,101.1
Total other assets	2,559.7		4,356.6		(176.1		)	3,017.0		(5,911.8		)	3,845.4
Property, plant and equipment, net			660.6		41.9			2,369.7					3,072.2
Total assets	$	2,559.7	$	5,304.2	$	230.8		$	7,700.7	$	(5,912.2	)	$	9,883.2
Current liabilities :
Accounts payable and accrued liabilities	$	—	$	347.5	$	42.1		$	1,229.1	$	22.9		$	1,641.6
Short-term loans and long-term debt due within one year			0.1					339.2					339.3
Total current liabilities	—		347.6		42.1			1,568.3		22.9			1,980.9
Long-term debt	250.0		2,082.6		17.0			1,656.1					4,005.7
Other non-current liabilities			92.6		393.7			882.7					1,369.0
Investments by and advances from parent			2,781.4		(222.0		)	3,375.7		(5,935.1		)	—
Total share owner’s equity of the Company	2,309.7												2,309.7
Noncontrolling interests								217.9					217.9
Total liabilities and share owners’ equity	$	2,559.7	$	5,304.2	$	230.8		$	7,700.7	$	(5,912.2	)	$	9,883.2

33

	December 31, 2009
								Non-
					Guarantor			Guarantor
	Parent		Issuer		Subsidiaries			Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
Accounts receivable	$	—	$	73.1	$	(8.7	)	$	939.8	$	—		$	1,004.2
Inventories			141.0		0.5			759.3		(0.5		)	900.3
Other current assets			74.4		257.5			560.2		0.1			892.2
Total current assets	—		288.5		249.3			2,259.3		(0.4		)	2,796.7
Investments in and advances to subsidiaries	2,301.4		3,483.0		(19.5		)			(5,764.9		)	—
Goodwill			560.8		9.5			1,810.7					2,381.0
Other non-current assets			137.4		88.7			578.8		2.5			807.4
Total other assets	2,301.4		4,181.2		78.7			2,389.5		(5,762.4		)	3,188.4
Property, plant and equipment, net			606.2		40.6			2,095.5					2,742.3
Total assets	$	2,301.4	$	5,075.9	$	368.6		$	6,744.3	$	(5,762.8	)	$	8,727.4
Current liabilities :
Accounts payable and accrued liabilities	$	—	$	369.2	$	46.8		$	1,092.0	$	(0.7	)	$	1,507.3
Short-term loans and long-term debt due within one year	28.1		0.3					323.5		0.1			352.0
Total current liabilities	28.1		369.5		46.8			1,415.5		(0.6		)	1,859.3
Long-term debt	250.0		1,956.7		17.7			1,033.1					3,257.5
Other non-current liabilities			79.6		474.7			834.9		(0.1		)	1,389.1
Investments by and advances from parent			2,670.1		(170.6		)	3,262.6		(5,762.1		)	—
Total share owner’s equity of the Company	2,023.3												2,023.3
Noncontrolling interests								198.2					198.2
Total liabilities and share owners’ equity	$	2,301.4	$	5,075.9	$	368.6		$	6,744.3	$	(5,762.8	)	$	8,727.4

34

	September 30, 2009
								Non-
					Guarantor			Guarantor
	Parent		Issuer		Subsidiaries			Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
Accounts receivable	$	—	$	109.9	$	(11.3	)	$	1,048.0	$	—		$	1,146.6
Inventories			153.5		0.4			882.9		(1.4		)	1,035.4
Other current assets			3.3		230.3			829.3		0.6			1,063.5
Total current assets	—		266.7		219.4			2,760.2		(0.8		)	3,245.5
Investments in and advances to subsidiaries	2,408.2		3,714.9		(33.5		)			(6,089.6		)	—
Goodwill			560.8		9.4			1,812.1					2,382.3
Other non-current assets			135.3		85.9			558.4		2.5			782.1
Total other assets	2,408.2		4,411.0		61.8			2,370.5		(6,087.1		)	3,164.4
Property, plant and equipment, net			606.7		45.9			2,057.3					2,709.9
Total assets	$	2,408.2	$	5,284.4	$	327.1		$	7,188.0	$	(6,087.9	)	$	9,119.8
Current liabilities :
Accounts payable and accrued liabilities	$	—	$	348.3	$	45.9		$	1,146.4	$	6.3		$	1,546.9
Short-term loans and long-term debt due within one year	28.1		0.4					349.1					377.6
Total current liabilities	28.1		348.7		45.9			1,495.5		6.3			1,924.5
Long-term debt	250.0		1,963.2		18.0			1,112.7					3,343.9
Other non-current liabilities			48.9		535.6			893.9					1,478.4
Investments by and advances from parent			2,923.6		(272.4		)	3,443.0		(6,094.2		)	—
Total share owner’s equity of the Company	2,130.1												2,130.1
Noncontrolling interests								242.9					242.9
Total liabilities and share owners’ equity	$	2,408.2	$	5,284.4	$	327.1		$	7,188.0	$	(6,087.9	)	$	9,119.8

35

	Three months ended September 30, 2010
										Non-
							Guarantor			Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Results of Operations
Net sales	$	—		$	469.1		$	—		$	1,312.2		$	(40.1	)	$	1,741.2
Manufacturing, shipping, and delivery				(389.2		)	1.0			(1,028.8		)	52.9			(1,364.1		)
Gross profit	—			79.9			1.0			283.4			12.8			377.1
Research, engineering, selling, administrative, and other				(24.9		)	(31.6		)	(93.2		)				(149.7		)
Net intercompany interest	4.9			(2.8		)	0.1			(2.2		)				—
Other interest expense	(4.9		)	(35.7		)	(0.4		)	(20.0		)				(61.0		)
Interest income							0.1			2.4						2.5
Equity earnings from subsidiaries	138.7			135.2			(14.3		)				(259.6		)	—
Other equity earnings				4.7			5.8			8.9						19.4
Other revenue				16.9			13.5			2.1			(12.8		)	19.7
Earnings (loss) before income taxes	138.7			173.3			(25.8		)	181.4			(259.6		)	208.0
Provision for income taxes				(1.8		)	(7.1		)	(48.4		)				(57.3		)
Net earnings (loss)	138.7			171.5			(32.9		)	133.0			(259.6		)	150.7
Net earnings attributable to noncontrolling interest										(12.0		)				(12.0		)
Net earnings (loss) attributable to the Company	$	138.7		$	171.5		$	(32.9	)	$	121.0		$	(259.6	)	$	138.7

36

	Three months ended September 30, 2009
										Non-
							Guarantor			Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Results of Operations
Net sales	$	—		$	498.0		$	—		$	1,390.9		$	(14.3	)	$	1,874.6
Manufacturing, shipping, and delivery				(406.1		)	1.5			(1,049.6		)	28.3			(1,425.9		)
Gross profit	—			91.9			1.5			341.3			14.0			448.7
Research, engineering, selling, administrative, and other				(41.5		)	(21.0		)	(158.6		)				(221.1		)
Net intercompany interest	5.4			(13.0		)	9.3			(1.7		)				—
Other interest expense	(5.4		)	(34.6		)	(0.3		)	(18.3		)				(58.6		)
Interest income										6.1						6.1
Equity earnings from subsidiaries	126.7			138.2			(32.6		)				(232.3		)	—
Other equity earnings				2.8			6.1			3.0						11.9
Other revenue				17.2			0.3			2.3			(14.0		)	5.8
Earnings (loss) before income taxes	126.7			161.0			(36.7		)	174.1			(232.3		)	192.8
Provision for income taxes				(1.9		)	5.2			(67.1		)				(63.8		)
Net earnings (loss)	126.7			159.1			(31.5		)	107.0			(232.3		)	129.0
Net (earnings) loss attributable to noncontrolling interest							2.7			(1.5		)	(3.5		)	(2.3		)
Net earnings (loss) attributable to the Company	$	126.7		$	159.1		$	(28.8	)	$	105.5		$	(235.8	)	$	126.7

37

	Nine months ended September 30, 2010
										Non-
							Guarantor			Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Results of Operations
Net sales	$	—		$	1,374.3		$	—		$	3,757.0		$	(96.7	)	$	5,034.6
Manufacturing, shipping, and delivery				(1,122.9		)	3.5			(2,966.3		)	135.9			(3,949.8		)
Gross profit	—			251.4			3.5			790.7			39.2			1,084.8
Research, engineering, selling, administrative, and other				(104.7		)	(68.1		)	(275.7		)				(448.5		)
Net intercompany interest	15.6			(24.8		)	13.3			(4.1		)				—
Other interest expense	(15.6		)	(109.4		)	(1.0		)	(50.6		)				(176.6		)
Interest income							0.3			10.4						10.7
Equity earnings from subsidiaries	365.1			401.0			(74.0		)				(692.1		)	—
Other equity earnings				11.5			18.5			15.5						45.5
Other revenue				50.5			13.8			4.5			(38.5		)	30.3
Earnings (loss) before income taxes	365.1			475.5			(93.7		)	490.7			(691.4		)	546.2
Provision for income taxes				(2.2		)	(15.3		)	(128.7		)				(146.2		)
Net earnings (loss)	365.1			473.3			(109.0		)	362.0			(691.4		)	400.0
Net earnings attributable to noncontrolling interest										(34.9		)				(34.9		)
Net earnings (loss) attributable to the Company	$	365.1		$	473.3		$	(109.0	)	$	327.1		$	(691.4	)	$	365.1

38

	Nine months ended September 30, 2009
										Non-
							Guarantor			Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Results of Operations
Net sales	$	—		$	1,471.6		$	—		$	3,772.3		$	(43.3	)	$	5,200.6
Manufacturing, shipping, and delivery				(1,188.5		)	3.3			(2,947.3		)	84.8			(4,047.7		)
Gross profit	—			283.1			3.3			825.0			41.5			1,152.9
Research, engineering, selling, administrative, and other				(112.5		)	(68.6		)	(387.7		)				(568.8		)
Net intercompany interest	33.6			(52.9		)	24.4			(5.1		)				—
Other interest expense	(33.6		)	(73.5		)	(1.0		)	(56.5		)				(164.6		)
Interest income							0.1			21.0						21.1
Equity earnings from subsidiaries	321.1			321.9			(74.1		)				(568.9		)	—
Other equity earnings				10.4			19.9			9.3						39.6
Other revenue				49.7			0.6			4.8			(40.5		)	14.6
Earnings (loss) before income taxes	321.1			426.2			(95.4		)	410.8			(567.9		)	494.8
Provision for income taxes				(6.9		)	2.2			(139.8		)				(144.5		)
Net earnings (loss)	321.1			419.3			(93.2		)	271.0			(567.9		)	350.3
Net (earnings) loss attributable to noncontrolling interest							8.8			(23.4		)	(14.6		)	(29.2		)
Net earnings (loss) attributable to the Company	$	321.1		$	419.3		$	(84.4	)	$	247.6		$	(582.5	)	$	321.1

39

	Nine months ended September 30, 2010
										Non-
							Guarantor			Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash Flows
Cash provided by (utilized in) operating activities	$	—		$	107.6		$	(83.1	)	$	484.1		$	10.0		$	518.6
Investing Activities:
Additions to property, plant, and equipment -				(112.0		)	(3.1		)	(276.5		)				(391.6		)
Acquisitions, net of cash paid										(754.3		)				(754.3		)
Change in short-term investments										0.3						0.3
Proceeds from sales				0.3						0.6						0.9
Cash utilized in investing activities	—			(111.7		)	(3.1		)	(1,029.9		)	—			(1,144.7		)
Financing Activities:
Net distribution to OI Inc.	(336.8		)													(336.8		)
Change in intercompany transactions	336.8			(214.9		)	167.7			(279.7		)	(9.9		)	0.0
Additions to long term debt				690.0						679.8						1,369.8
Payments of long term debt				(450.0		)	(0.8		)	(15.9		)				(466.7		)
Change in short term debt										(29.4		)				(29.4		)
Net receipts for hedging activity										33.8						33.8
Payments of finance fees				(21.0		)				(11.6		)				(32.6		)
Dividends paid to noncontrolling interests										(23.4		)				(23.4		)
Cash provided by (utilized in) financing activities	—			4.1			166.9			353.6			(9.9		)	514.7
Effect of exchange rate change on cash										(0.1		)				(0.1		)
Net change in cash	—			0.0			80.7			(192.3		)	0.1			(111.5		)
Cash at beginning of period							283.3			528.4						811.7
Cash at end of period	$	—		$	0.0		$	364.0		$	336.1		$	0.1		$	700.2

40

	Nine months ended September 30, 2009
										Non-
							Guarantor			Guarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash Flows
Cash provided by (utilized in) operating activities	$	—		$	206.1		$	(18.3	)	$	517.0		$	(3.0	)	$	701.8
Investing Activities:
Additions to property, plant, and equipment -				(34.3		)	(3.9		)	(155.5		)				(193.7		)
Advance to equity affiliate							1.6									1.6
Acquisitions, net of cash acquired										(5.4		)				(5.4		)
Proceeds from sales				4.2						0.2						4.4
Cash utilized in investing activities	—			(30.1		)	(2.3		)	(160.7		)	—			(193.1		)
Financing Activities:
Net distribution to OI Inc.	(338.2		)													(338.2		)
Change in intercompany transactions	338.2			(723.8		)	240.4			143.4			1.8			—
Change in short term debt										(55.1		)				(55.1		)
Payments of long term debt				(448.3		)	(0.7		)	(79.1		)				(528.1		)
Additions to long term debt				1,010.0						62.6						1,072.6
Dividends paid to noncontrolling interests										(58.3		)				(58.3		)
Payment of finance fees				(13.9		)										(13.9		)
Net receipts for hedging activity										17.9						17.9
Cash provided by (utilized in) financing activities	—			(176.0		)	239.7			31.4			1.8			96.9
Effect of exchange rate change on cash										32.0						32.0
Net change in cash	—			—			219.1			419.7			(1.2		)	637.6
Cash at beginning of period							4.4			373.9			1.2			379.5
Cash at end of period	$	—		$	—		$	223.5		$	793.6		$	—		$	1,017.1

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

Following are the Company’s net sales by segment and Segment Operating Profit for the three and nine months ended September 30, 2010 and 2009 (dollars in millions).  The Company’s measure of profit for its reportable segments is Segment Operating Profit, which consists of consolidated earnings from continuing operations before interest income, interest expense, and provision for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations as well as certain retained corporate costs.  The segment data presented below is prepared in accordance with general accounting principles for segment reporting.  The line titled ‘reportable segment totals’, however, is a non-GAAP measure when presented outside of the financial statement footnotes.  Management has included ‘reportable segment totals’ below to facilitate the discussion and analysis of financial condition and results of operations.  The Company’s management uses Segment Operating Profit, in combination with net sales and selected cash flow information, to evaluate performance and to allocate resources.

	Three months ended				Nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
Net Sales:
Europe	$	702.4	$	785.9	$	2,086.0	$	2,192.7
North America	483.5		538.5		1,443.4		1,593.2
South America	296.0		290.5		754.5		754.4
Asia Pacific	249.9		252.1		723.5		626.9
Reportable segment totals	1,731.8		1,867.0		5,007.4		5,167.2
Other	9.4		7.6		27.2		33.4
Net Sales	$	1,741.2	$	1,874.6	$	5,034.6	$	5,200.6

42

	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
Segment Operating Profit:
Europe	$	113.2		$	128.4		$	274.1		$	293.0
North America	71.1			82.9			221.9			248.7
South America	76.6			63.6			182.6			180.6
Asia Pacific	37.7			41.7			105.3			78.1
Reportable segment totals	298.6			316.6			783.9			800.4
Items excluded from Segment Operating Profit:
Retained corporate costs and other	(21.0		)	(13.8		)	(52.7		)	(49.0		)
Restructuring and asset impairments				(57.5		)	(8.0		)	(113.1		)
Acquisition-related fair value inventory adjustment	(5.1		)				(5.1		)
Acquisition transaction costs	(6.0		)				(6.0		)
Interest income	2.5			6.1			10.7			21.1
Interest expense	(61.0		)	(58.6		)	(176.6		)	(164.6		)
Earnings before income taxes	208.0			192.8			546.2			494.8
Provision for income taxes	(57.3		)	(63.8		)	(146.2		)	(144.5		)
Net earnings	150.7			129.0			400.0			350.3
Net earnings attributable to noncontrolling interests	(12.0		)	(2.3		)	(34.9		)	(29.2		)
Net earnings attributable to the Company	$	138.7		$	126.7		$	365.1		$	321.1

Note:  All amounts excluded from reportable segment totals are discussed in the following applicable sections.

Executive Overview — Quarters ended September 30, 2010 and 2009

Net sales were $133.4 million lower than the prior year, principally resulting from the unfavorable effect of foreign currency exchange rates and lower sales volumes.  The stronger U.S. dollar in the third quarter of 2010 compared to the third quarter of 2009, primarily in relation to the Euro and Venezuelan bolivar, decreased net sales by approximately $90 million.  Glass container shipments were down in the third quarter of 2010 compared to the third quarter of 2009, resulting in lower net sales of approximately $40 million.

Segment Operating Profit for reportable segments was $18.0 million lower than the prior year, principally resulting from the unfavorable effect of foreign currency exchange rates and higher manufacturing and delivery costs.  The stronger U.S. dollar in the third quarter of 2010 compared to the third quarter of 2009, primarily in relation to the Euro and Venezuelan bolivar, decreased Segment Operating Profit by approximately $9 million. Manufacturing and delivery costs increased approximately $21 million, primarily due to $26 million of inflationary cost increases.  The Company also incurred start up costs related to newly constructed furnaces in South America and the restart of two plants in North America as the Company completed its realignment efforts in that region.  These increases in manufacturing costs were partly offset by savings related to the permanent curtailment of plant capacity and improved capacity utilization.

Interest expense for the third quarter of 2010 was $61.0 million compared with $58.6 million for the third quarter of 2009.  The increase is principally due to higher debt balances as a result of the Company’s debt issuances in May and September 2010.

43

Interest income for the third quarter of 2010 was $2.5 million compared with $6.1 million for the third quarter of 2009.  The decrease is principally due to lower interest rates on the Company’s cash and investments.

Net earnings attributable to the Company for the third quarter of 2010 was $138.7 million compared with $126.7 million for the third quarter of 2009.  Earnings in both periods included items that management considered not representative of ongoing operations.  These items decreased net earnings attributable to the Company in 2010 by $9.4 million and decreased net earnings attributable to the Company in 2009 by $36.0 million.

Capital spending for property, plant and equipment was $155.1 million for the third quarter of 2010 compared with $69.6 million for the third quarter of 2009.  The increase in 2010 is due to the intentional deferral of capital expenditures through the first nine months of 2009 until later in the year given the economic conditions in the market during 2009.

Executive Overview — Nine Months ended September 30, 2010 and 2009

Net sales were $166.0 million lower than the prior year, principally resulting from lower sales volumes, the impact of cost pass-through provisions on certain customer contracts, and unfavorable effects of foreign currency translation, partially offset by improved price and mix.  Glass container shipments were down in the first nine months of 2010 compared to 2009, resulting in lower net sales of approximately $68 million.  Partially offsetting the lower sales volumes was improved price and mix, primarily due to the Company’s price over volume strategy aimed at improving margins.  This strategy also contributed to the lower shipments in 2010.  The stronger U.S. dollar in 2010 compared to 2009, primarily in relation to the Euro and Venezuelan bolivar, decreased net sales by approximately $81 million.

Segment Operating Profit for reportable segments was $16.5 million lower than the prior year, principally resulting from the unfavorable effects of foreign currency translation and higher manufacturing and delivery costs.  The favorable effects of foreign currency exchange rates from the Company’s international operations excluding Venezuela increased Segment Operating Profit approximately $18 million, but were more than offset by an approximate $46 million unfavorable impact due to the translation of the Company’s Venezuelan operations at the parallel market and SITME rates in 2010.  Manufacturing and delivery costs increased approximately $26 million, primarily due to $44 million of inflationary cost increases and higher unabsorbed fixed costs from temporary production curtailments.  These increases in manufacturing costs were partly offset by savings related to the permanent curtailment of plant capacity and realignment of selected operations.  Partially offsetting these unfavorable effects was improved price and mix, which contributed approximately $33 million in 2010.

Interest expense for the first nine months of 2010 was $176.6 million compared with $164.6 million for the first nine months of 2009.  The 2009 amount includes $5.2 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees, net of a gain from the termination of the interest rate swap agreement following the May 2009 tender for the 7.50% Senior Debentures due May 2010.  Excluding these amounts, interest expense for the first nine months of 2010 increased $6.8 million from the first nine months of 2009.  The increase is principally due to higher debt balances as a result of the Company’s debt issuances in May 2009 and May and September 2010.

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Interest income for the first nine months of 2010 was $10.7 million compared with $21.1 million for the first nine months of 2009.  The decrease is principally due to lower interest rates on the Company’s cash and investments.

Net earnings attributable to the Company for 2010 were $365.1 million compared with $321.1 million for 2009.  Earnings in both periods included items that management considered not representative of ongoing operations.  These items decreased net earnings in 2010 by $17.3 million and decreased net earnings in 2009 by $94.1 million.

Capital spending for property, plant and equipment was $391.6 million for 2010 compared with $193.7 million for 2009.  The increase in 2010 is due to the intentional deferral of capital expenditures in the first nine months of 2009 until later in the year given the economic conditions in the market during 2009.

Results of Operations — Third Quarter of 2010 compared with Third Quarter of 2009

Net Sales

The Company’s net sales in the third quarter of 2010 were $1,741.2 million compared with $1,874.6 million for the third quarter of 2009, a decrease of $133.4 million, or 7.1%. For further information, see Segment Information included in Note 7 to the Condensed Consolidated Financial Statements.

The decline in net sales in the third quarter of 2010 was primarily due to the unfavorable effects of foreign currency translation and lower sales volumes.  Net sales decreased by approximately $90 million in the third quarter of 2010 as a result of foreign currency movements, primarily due to the stronger U.S. dollar in relation to the Euro and Venezuelan bolivar.  Approximately $68 million of the foreign currency impact was due to the translation of the Company’s Venezuelan operations at the SITME rate in 2010, compared to the 2.15 official rate in 2009 (see Note 13 to the Condensed Consolidated Financial Statements for more information).  Glass container shipments, in tonnes, were down 2.4% in the third quarter of 2010 compared to the prior year, primarily due to lower beer glass volumes in North America and Europe, partly offset by increased sales volumes in the food, wine, spirits and non-alcoholic beverage markets.  The Company’s beer markets remain weak in North America and Europe due to continued weakness in the economy and high unemployment levels.  In addition, North American beer volumes were impacted by the loss of certain beer contracts resulting from business renegotiated at the end of 2009 in order for the Company to achieve its margin objectives.  Sales volumes in the third quarter of 2010 also benefited from the acquisitions in Brazil and Argentina.  Price and product mix were consistent with the third quarter of 2009.

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The change in net sales of reportable segments can be summarized as follows (dollars in millions):

Net sales - 2009				$	1,867.0
Price
Net effect of price and mix	$	—
Cost pass-through provisions	(4.9		)
Sales volume	(40.2		)
Effects of changing foreign currency rates	(90.1		)
Total effect on net sales				(135.2		)
Net sales - 2010				$	1,731.8

Cost pass-through provisions include monthly or quarterly contractual provisions as well as the transfer of certain third-party costs, such as shipping, to customers, primarily in North America.

Segment Operating Profit

Operating Profit of the reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided.  Unallocated corporate expenses and certain other expenses not directly related to the reportable segments’ operations are included in Retained Corporate Costs and Other.  For further information, see Segment Information included in Note 7 to the Condensed Consolidated Financial Statements.

Segment Operating Profit of reportable segments in the third quarter of 2010 was $298.6 million compared to $316.6 million for the third quarter of 2009, a decrease of $18.0 million, or 5.7%.  Sales volume had a minimal impact on Segment Operating Profit in the third quarter of 2010 as the decrease in glass container shipments during the quarter was offset by favorable regional sales mix, primarily due to growth of higher margin business in South America.  Manufacturing and delivery costs increased approximately $21 million, primarily due to $26 million of inflationary cost increases.  The Company also incurred start up costs related to newly constructed furnaces in South America and the restart of two plants in North America as the Company completed its realignment efforts in that region.  These increases in manufacturing costs were partly offset by savings related to the permanent curtailment of plant capacity and improved capacity utilization.  Segment Operating Profit also decreased approximately $9 million due to changes in foreign currency exchange rates, primarily due to the unfavorable effect of a stronger U.S. dollar in relation to the Euro and Venezuelan bolivar, partially offset by the non-recurrence of the $14.7 million of foreign currency exchange losses recognized in the third quarter of 2009 related to cash remittances out of Venezuela.  Segment Operating Profit in the third quarter of 2010 also benefited from lower corporate cross charges.

On October 26, 2010, the Venezuelan government decreed the expropriation of the Company’s operations in that country.  The Company is working with the Venezuelan government to understand the situation and is seeking favorable resolutions to the current actions.  It is unclear what type or amount of compensation, if any, the Company may receive from the Venezuelan government.  The Company’s Venezuelan operations consist of two majority-owned glass plants with approximately $80 million of net assets attributable to the Company as of September 30, 2010, and represent approximately 3% of global sales volume and less than 5% of the Company’s segment operating profit.  The Company had recorded approximately $260 million of cumulative currency translation losses as a component of accumulated other comprehensive income related to its Venezuelan operations for the devaluation of the bolivar in prior years.

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The change in Segment Operating Profit of reportable segments can be summarized as follows (dollars in millions):

Segment Operating Profit - 2009				$	316.6
Net effect of price and mix	$	—
Sales volume	(2.5		)
Manufacturing and delivery	(21.3		)
Operating expenses and other	15.1
Effects of changing foreign currency rates	(9.3		)
Total net effect on Segment Operating Profit				(18.0		)
Segment Operating Profit - 2010				$	298.6

Interest Expense

Interest expense for the third quarter of 2010 was $61.0 million compared with $58.6 million for the third quarter of 2009.  The increase is principally due to higher debt balances as a result of the Company’s debt issuances in May and September 2010.

Interest Income

Interest income for the third quarter of 2010 was $2.5 million compared with $6.1 million for the third quarter of 2009.  The decrease is principally due to lower interest rates on the Company’s cash and investments.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to noncontrolling interests in the third quarter of 2010 were $12.0 million compared with $2.3 million in the third quarter of 2009.  The increase is primarily a result of higher segment operating profit in the Company’s South American segment in the third quarter of 2010.

Results of Operations — First nine months of 2010 compared with first nine months of 2009

Net Sales

The Company’s net sales in the first nine months of 2010 were $5,034.6 million compared with $5,200.6 million for the first nine months of 2009, a decrease of $166.0 million, or 3.2%. For further information, see Segment Information included in Note 7 to the Condensed Consolidated Financial Statements.

The decline in net sales in 2010 was due to lower sales volumes, the impact of cost pass-through provisions on certain customer contracts, and unfavorable effects of foreign currency translation, partially offset by improved price and mix.  Glass container shipments, in tonnes, were down 1.3% in 2010 compared to 2009, primarily due to lower beer glass volumes in North America and Europe, partly offset by increased sales volumes in the food, wine, spirits and non-alcoholic beverage markets.  The Company’s beer markets remain weak in North America and Europe due to continued weakness in the economy and high unemployment levels.  In addition, North American beer volumes were impacted by the loss of certain beer contracts resulting from business renegotiated at the end of 2009 in order for the Company to achieve its margin objectives.  Sales volumes in 2010 also benefited from the acquisitions in Brazil and Argentina. 

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Foreign currency exchange rate changes in the first nine months of 2010 compared to the first nine months of 2009 decreased net sales by approximately $81 million, primarily due to a stronger U.S. dollar in relation to the Euro and an approximate $186 million unfavorable impact due to the translation of the Company’s Venezuelan operations at the parallel market and SITME rates in 2010, compared to the 2.15 official rate in 2009 (see Note 13 to the Condensed Consolidated Financial Statements for more information), partly offset by a stronger Australian dollar.  Improved price and mix, primarily due to the Company’s strategy in 2009 of focusing on price over volume to improve margins, increased net sales in 2010 by approximately $17 million compared to 2009.

The change in net sales of reportable segments can be summarized as follows (dollars in millions):

Net sales - 2009				$	5,167.2
Price
Net effect of price and mix	$	17.0
Cost pass-through provisions	(27.6		)
Sales volume	(68.1		)
Effects of changing foreign currency rates	(81.1		)
Total effect on net sales				(159.8		)
Net sales - 2010				$	5,007.4

Cost pass-through provisions include monthly or quarterly contractual provisions as well as the transfer of certain third-party costs, such as shipping, to customers, primarily in North America.

Segment Operating Profit

Operating Profit of the reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided.  Unallocated corporate expenses and certain other expenses not directly related to the reportable segments’ operations are included in Retained Corporate Costs and Other.  For further information, see Segment Information included in Note 7 to the Condensed Consolidated Financial Statements.

Segment Operating Profit of reportable segments in the first nine months of 2010 was $783.9 million compared to $800.4 million for the first nine months of 2009, a decrease of $16.5 million, or 2.1%.  Improved price and mix contributed approximately $33 million in 2010 as a result of the Company’s price over volume strategy aimed at improving margins.  Sales volume had a minimal impact on Segment Operating Profit in 2010 as the decrease in glass container shipments during the first nine months was offset by favorable regional sales mix, primarily due to growth of higher margin business in South America.  Manufacturing and delivery costs increased approximately $26 million, primarily due to $44 million of inflationary cost increases and higher unabsorbed fixed costs from temporary production curtailments.  These increases in manufacturing costs were partly offset by savings related to the permanent curtailment of plant capacity and realignment of selected operations.  Segment Operating Profit also decreased approximately $29 million related to changes in foreign currency exchange rates, primarily due to the unfavorable effect of a stronger U.S. dollar in relation to the Euro and Venezuelan bolivar, partially offset by the non-recurrence of the $14.7 million of foreign currency exchange losses recognized in 2009 related to cash remittances out of Venezuela.

On October 26, 2010, the Venezuelan government decreed the expropriation of the Company’s operations in that country.  See Note 13 to the Condensed Consolidated Financial Statements for more information.

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The change in Segment Operating Profit of reportable segments can be summarized as follows (dollars in millions):

Segment Operating Profit - 2009				$	800.4
Net effect of price and mix	$	33.2
Sales volume	(2.2		)
Manufacturing and delivery	(26.3		)
Operating expenses and other	7.4
Effects of changing foreign currency rates	(28.6		)
Total net effect on Segment Operating Profit				(16.5		)
Segment Operating Profit - 2010				$	783.9

Interest Expense

Interest expense for the first nine months of 2010 was $176.6 million compared with $164.6 million for the first nine months of 2009.  The 2009 amount includes $5.2 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees, net of a gain from the termination of the interest rate swap agreement following the May 2009 tender for the 7.50% Senior Debentures due May 2010.  Excluding these amounts, interest expense for the first nine months of 2010 increased $6.8 million from the first nine months of 2009.  The increase is principally due to higher debt balances as a result of the Company’s debt issuances in May 2009 and May and September 2010.

Interest Income

Interest income for the first nine months of 2010 was $10.7 million compared with $21.1 million for the first nine months of 2009.  The decrease is principally due to lower interest rates on the Company’s cash and investments.

Provision for Income Taxes

The Company’s effective tax rate for the nine months ended September 30, 2010 was 26.8%, compared with 29.2% for the first nine months of 2009.  Excluding the effects of pretax items in both periods for which taxes are separately calculated and recorded, the Company expects that the full year effective tax rate for 2010 will approximate the 26.5% effective tax rate for 2009.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to noncontrolling interests in the first nine months of 2010 were $34.9 million compared with $29.2 million in the first nine months of 2009.  The increase is primarily a result of higher segment operating profit in the Company’s South American segment in 2010.

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Items Excluded from Reportable Segment Totals

Retained Corporate Costs and Other

Retained corporate costs and other for the third quarter of 2010 was $21.0 million compared with $13.8 million for the third quarter of 2009, and $52.7 million for the first nine months of 2010 compared with $49.0 million for the first nine months of 2009.  Retained corporate costs and other were impacted by the net of higher pension expense, a reduction of management incentive compensation expense and the favorable settlement of previously accrued liabilities.

Restructuring and Asset Impairments

During the nine months ended September 30, 2010, the Company recorded charges totaling $8.0 million ($7.9 million after tax amount attributable to the Company), for restructuring and asset impairment related to the Company’s strategic review of its global manufacturing footprint.  See Note 9 to the Condensed Consolidated Financial Statements for additional information.

Charges for similar actions during the third quarter of 2009 totaled $57.5 million ($36.0 million after tax amount attributable to the Company).  The total of all such charges for the nine months ended September 30, 2009 was $113.1 million ($88.9 million after tax amount attributable to the Company). See Note 9 to the Condensed Consolidated Financial Statements for additional information.

As of December 31, 2009, the Company had concluded this strategic review of its manufacturing footprint.  The charges recorded in 2010 relate to capacity curtailments announced in 2009.  On an ongoing basis, the Company will review its manufacturing operations, and it is possible that it will close selected facilities or production lines in the future.

Acquisition-related costs

During the third quarter of 2010, the Company recorded charges of $5.1 million ($3.4 million after tax amount attributable to the Company) for acquisition-related fair value inventory adjustments.  This charge was due to the accounting rules requiring inventory purchased in a business combination to be marked up to fair value, and then recorded as an increase to cost of goods sold as the inventory is sold.   The Company also recorded charges of $6.0 million (pretax and after tax) for acquisition transaction costs.  These charges represent legal, accounting and other outside consultants expenses directly related to acquisitions.

Capital Resources and Liquidity

The Company’s total debt at September 30, 2010 was $4.35 billion, compared with $3.61 billion at December 31, 2009 and $3.72 billion at September 30, 2009.

As of September 30, 2010, the Company had $700.2 million in cash and cash equivalents.  The decrease from the December 31, 2009 balance of $811.7 million largely represents $754.3 million paid for acquisitions in 2010, $450 million paid to redeem the Company’s senior notes due 2013, and capital spending of $391.6 million.  These cash payments were partially offset by the $518.6 million of operating cash flow and the net proceeds received from the issuance of the 2015 Exchangeable Notes in May and the Eurobond notes in September.  Most of the cash is held in mature, liquid markets where the Company has operations, such as North America, Europe and Australia and is readily available to fund global liquidity requirements. 

Approximately 6% of the cash at September 30, 2010, is held in Venezuela where, on October 26, 2010, the Venezuelan government decreed the expropriation of the Company’s operations in that country.  See Note 13 to the Condensed Consolidated Financial Statements for more information.

On June 14, 2006, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”).  At September 30, 2010, the Agreement included a $900.0 million revolving credit facility, a 160.0 million Australian dollar term loan, and a 110.8 million Canadian dollar term loan, each of which has a final maturity date of June 15, 2012.  It also included a $189.5 million term loan and a €189.5 million term loan, each of which has a final maturity date of June 14, 2013.  At September 30, 2010, the Company’s subsidiary borrowers had unused credit of $724.0 million available under the Agreement.

50

The weighted average interest rate on borrowings outstanding under the Agreement at September 30, 2010 was 2.76%.

During May 2010, a subsidiary of the Company issued exchangeable senior notes with a face value of $690.0 million due June 1, 2015 (“2015 Exchangeable Notes”).  The 2015 Exchangeable Notes bear interest at 3.00% and are guaranteed by substantially all of the Company’s domestic subsidiaries.  The net proceeds, after deducting debt issuance costs, totaled approximately $672 million.

Upon exchange of the 2015 Exchangeable Notes, under the terms outlined below, the issuer of the 2015 Exchangeable Notes is required to settle the principal amount in cash and the Company is required to settle the exchange premium in shares of OI Inc.’s common stock. The exchange premium is calculated as the value of OI Inc.’s common stock in excess of the initial exchange price of approximately $47.47 per share, which is equivalent to an exchange rate of 21.0642 per $1,000 principal amount of the 2015 Exchangeable Notes.  The exchange rate may be adjusted upon the occurrence of certain events, such as certain distributions, dividends or issuances of cash, stock, options, warrants or other property or effecting a share split, or a significant change in the ownership or structure of the Company or OI Inc., such as a recapitalization or reclassification of OI Inc.’s common stock, a merger or consolidation involving the Company or the sale or conveyance to another person of all or substantially all of the property and assets of the Company and its subsidiaries substantially as an entirety.

Prior to March 1, 2015, the 2015 Exchangeable Notes may be exchanged only if (1) the price of OI Inc.’s common stock exceeds $61.71 (130% of the exchange price) for a specified period of time, (2) the trading price of the 2015 Exchangeable Notes falls below 98% of the average exchange value of the 2015 Exchangeable Notes for a specified period of time (trading price was 167% of exchange value at September 30, 2010), or (3) upon the occurrence of specified corporate transactions.  The 2015 Exchangeable Notes may be exchanged without restrictions on or after March 1, 2015.  As of September 30, 2010, the 2015 Exchangeable Notes are not exchangeable by the holders.

During June 2010, a subsidiary of the Company redeemed all $450.0 million of the 8.25% senior notes due 2013.  During the second quarter of 2010, the Company recorded $9.0 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees.  In addition, the Company recorded a reduction of interest expense of $9.0 million during the second quarter of 2010 to recognize the unamortized proceeds from terminated interest rate swaps on these notes.

During September 2010, a subsidiary of the Company issued senior notes with a face value of €500.0 million due September 15, 2020.  The notes bear interest at 6.75% and are guaranteed by substantially all of the Company’s domestic subsidiaries.  The net proceeds, after deducting debt issuance costs, totaled approximately $625 million.

The Company assesses its capital raising and refinancing needs on an ongoing basis and may seek to issue equity and/or debt securities in the domestic and international capital markets if market conditions are favorable.

During October 2006, the Company entered into a €300 million European accounts receivable securitization program.  The program extends through October 2011, subject to annual renewal of backup credit lines.  In addition, the Company participated in a receivables financing program in the Asia Pacific region with a revolving funding commitment of 10 million New Zealand dollars.  This program expired in October 2010.

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Information related to the Company’s accounts receivable securitization programs is as follows:

	September 30,			December 31,			September 30,
	2010			2009			2009
Balance (included in short-term loans)	$	243.0		$	289.0		$	289.4
Weighted average interest rate	2.49		%	2.52		%	1.70		%

For the nine months ended September 30, 2010, cash provided by operating activities was $518.6 million compared with $701.8 million for the nine months ended September 30, 2009.  The decrease in cash flows from operating activities was primarily due to an increase in working capital of $144 million in 2010 compared to $2 million in 2009. The change in working capital during 2010 was mainly due to an increase in inventory.  The Company’s strategic review of its manufacturing footprint and other management initiatives resulted in inventory reductions in the first nine months of 2009, which accelerated during the fourth quarter of 2009.  Inventory levels at September 30, 2010 have recovered from the low levels at the end of the prior year and are consistent with the inventory levels at September 30, 2009.  The decrease in cash flows from operating activities was also due to increased interest payments of $32 million as a result of higher debt balances, partially offset by an increase in dividends received from equity investments of $27 million.

The Company contributed $123.1 million to its non-U.S. defined benefit pension plans in 2009, including $49.5 million of accelerated 2010 contributions.  Based on current exchange rates, the Company expects to contribute approximately $10 million to $15 million to its non-U.S. defined benefit pension plans in 2010.  The Company is not required to make cash contributions to the U.S. defined benefit pension plans during 2010.  Depending on a number of factors, the Company may elect to contribute amounts in excess of minimum required amounts in order to improve the funded status of certain plans.

Capital spending for property, plant and equipment during the nine months ended September 30, 2010 was $391.6 million compared with $193.7 million in the prior year.  In addition, the Company capitalized $20.9 million and $16.1 million in 2010 and 2009, respectively, under capital lease obligations with the related financing recorded as long-term debt.  Total capital spending for the full year 2009 was $427.6 million.  Total capital spending for 2010 is expected to be up to $500 million.

OI Inc. has substantial obligations related to semiannual interest payments on $250.0 million of outstanding public debt securities.  OI Inc. also makes, and expects in the future to make, substantial indemnity payments and payments for legal fees and expenses in connection with asbestos-related lawsuits and claims.  OI Inc.’s asbestos-related payments were $113.6 million and $122.4 million for the nine months ended September 30, 2010 and 2009, respectively.  OI Inc. relies primarily on distributions from the Company to meet these obligations.  Based on OI Inc.’s expectations regarding future payments for lawsuits and claims, and also based on the Company’s expected operating cash flow, the Company believes that the payments to OI Inc. for any deferred amounts of previously settled or otherwise determined lawsuits and claims, and

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the resolution of presently pending and anticipated future lawsuits and claims associated with asbestos, will not have a material adverse effect upon the Company’s liquidity on a short-term (twelve-months) or long-term basis.

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The Company anticipates that cash flows from its operations and from utilization of credit available under the Agreement will be sufficient to fund its operating and seasonal working capital needs, debt service and other obligations on a short-term (twelve-months) and long-term basis, including payments to OI Inc., described above.

Critical Accounting Estimates

The Company’s analysis and discussion of its financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).  The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.  The Company evaluates these estimates and assumptions on an ongoing basis.  Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances at the time the financial statements are issued.  The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources.  Actual results, under conditions and circumstances different from those assumed, may differ from estimates.

The impact of, and any associated risks related to, estimates and assumptions are discussed within Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as in the Notes to the Condensed Consolidated Financial Statements, if applicable, where estimates and assumptions affect the Company’s reported and expected financial results.

There have been no material changes in critical accounting estimates at September 30, 2010 from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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Forward Looking Statements

This document contains “forward looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Forward-looking statements reflect the Company’s current expectations and projections about future events at the time, and thus involve uncertainty and risk. It is possible the Company’s future financial performance may differ from expectations due to a variety of factors including, but not limited to the following: (1) foreign currency fluctuations relative to the U.S. dollar, (2) changes in capital availability or cost, including interest rate fluctuations, (3) the general political, economic and competitive conditions in markets and countries where the Company has its operations, including the announced expropriation of the Company’s operations in Venezuela, disruptions in capital markets, disruptions in the supply chain, competitive pricing pressures, inflation or deflation, and changes in tax rates and laws, (4) consumer preferences for alternative forms of packaging, (5) fluctuations in raw material and labor costs, (6) availability of raw materials, (7) costs and availability of energy, (8) transportation costs, (9) the ability of the Company to raise selling prices commensurate with energy and other cost increases, (10) consolidation among competitors and customers, (11) the ability of the Company to integrate operations of acquired businesses and achieve expected synergies, (12) unanticipated expenditures with respect to environmental, safety and health laws, (13) the performance by customers of their obligations under purchase agreements, and (14) the timing and occurrence of events which are beyond the control of the Company, including any expropriation of the Company’s Venezuelan operations and events related to OI Inc.’s asbestos-related claims.  Any forward looking statements in this document are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. Forward-looking statements are not a guarantee of future performance and actual results or developments may differ materially from expectations. While the Company continually reviews trends and uncertainties affecting the Company’s results of operations and financial condition, the Company does not assume any obligation to update or supplement any particular forward looking statements contained in this document.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk.

There have been no material changes in market risk at September 30, 2010 from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4.    Controls and Procedures.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Also, the Company has investments in certain unconsolidated entities.  As the Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those maintained with respect to its consolidated subsidiaries.

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As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report.  Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2010.

Management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2009.  There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting. The Company is undertaking the phased implementation of a global Enterprise Resource Planning software system and believes it is maintaining and monitoring appropriate internal controls during the implementation period.  The Company believes that the internal control environment will be enhanced as a result of implementation.

PART II — OTHER INFORMATION

Item 1.  Legal Proceedings.

For further information on legal proceedings, see Note 6 to the Condensed Consolidated Financial Statements, “Contingencies,” that is included in Part I of this Report and is incorporated herein by reference.

Item 1A.  Risk Factors.

There have been no material changes in risk factors at September 30, 2010 from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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Item 6.  Exhibits.

Exhibit 12	Computation of Ratio of Earnings to Fixed Charges
Exhibit 31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
Exhibit 32.2*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
Exhibit 101	Financial statements from the quarterly report on Form 10-Q of Owens-Illinois Group, Inc. for the quarter ended September 30, 2010, formatted in XBRL: (i) the Condensed Consolidated Results of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		OWENS-ILLINOIS GROUP, INC.
Date	October 28, 2010	By	/s/ Edward C. White
			Edward C. White
			President and Chief Financial Officer (Principal Financial Officer; Principal Accounting Officer)

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INDEX TO EXHIBITS

Exhibits
12	Computation of Ratio of Earnings to Fixed Charges
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
101	Financial statements from the quarterly report on Form 10-Q of Owens-Illinois Group, Inc. for the quarter ended September 30, 2010, formatted in XBRL: (i) the Condensed Consolidated Results of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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EX-12

Exhibit 12

OWENS-ILLINOIS GROUP, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Dollars in millions)

	Nine months ended September 30,
	2010			2009
Earnings from continuing operations before income taxes	$	546.2		$	494.8
Less: Equity earnings	(45.5		)	(39.6		)
Add: Total fixed charges deducted from earnings	181.3			169.0
Dividends received from equity investees	50.4			24.1
Earnings available for payment of fixed charges	$	732.4		$	648.3
Fixed charges
Interest expense	$	176.6		$	164.6
Portion of operating lease rental deemed to be interest	4.7			4.4
Total fixed charges deducted from earnings and fixed charges	$	181.3		$	169.0
Ratio of earnings to fixed charges	4.0			3.8

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Albert P.L. Stroucken, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Owens-Illinois Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

Date	October 28, 2010	/s/ Albert P.L. Stroucken
		Albert P.L. Stroucken
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

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EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Edward C. White, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Owens-Illinois Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

Date	October 28, 2010	/s/ Edward C. White
		Edward C. White
		President and Chief Financial Officer
		(Principal Financial Officer)

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EX-32.1

EXHIBIT 32.1

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Owens-Illinois Group, Inc. (the “Company”) hereby certifies that to such officer’s knowledge:

(i)            the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 28, 2010	/s/ Albert P.L. Stroucken
	Albert P.L. Stroucken
	Chairman and Chief Executive Officer
	Owens-Illinois Group, Inc.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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EX-32.2

EXHIBIT 32.2

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Owens-Illinois Group, Inc. (the “Company”) hereby certifies that to such officer’s knowledge:

(i)            the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 28, 2010	/s/ Edward C. White
	Edward C. White
	President
	Owens-Illinois Group, Inc.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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