424B3 1 a2193885z424b3.htm 424B3


Filed Pursuant to Rule 424(b)(3)
Registration No. 333-160226

PROSPECTUS

OWENS-BROCKWAY GLASS CONTAINER INC.
OFFER TO EXCHANGE

$600,000,000 aggregate principal amount of its
73/8% Senior Notes due 2016
which have been registered under the Securities Act,
for any and all of its outstanding 73/8% Senior Notes due 2016



    The exchange offer expires at 5:00 p.m., New York City time, on August 31, 2009, unless extended.


    We will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of a new series of notes which are registered under the Securities Act.


    The exchange offer is not subject to any conditions other than that it not violate applicable law or any applicable interpretation of the staff of the SEC.


    You may withdraw tenders of outstanding notes at any time before the exchange offer expires.


    The exchange of notes will not be a taxable event for U.S. federal income tax purposes.


    We will not receive any proceeds from the exchange offer.


    The terms of the new series of notes are substantially identical to the outstanding notes, except for transfer restrictions and registration rights relating to the outstanding notes.


    The notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by our indirect parent, Owens-Illinois Group, Inc., and by certain domestic subsidiaries of Owens-Illinois Group, Inc. so long as they continue to guarantee the secured credit agreement. If we cannot make payments on the notes when they are due, the guarantors must make them instead. Under certain circumstances the guarantees may be released without action by, or consent of, the holders of the notes.


    You may tender outstanding notes only in denominations of $2,000 and integral multiples of $1,000.


    Our affiliates may not participate in the exchange offer.


    Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities.

Please refer to "Risk Factors" beginning on page 17 of this prospectus for
a description of the risks you should consider when evaluating this investment.

        We are not making this exchange offer in any state where it is not permitted.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is August 3, 2009.


TABLE OF CONTENTS

 
  Page

Forward-Looking Statements

  iii

Summary

  1

Risk Factors

  17

The Exchange Offer

  28

Use Of Proceeds

  36

Capitalization Of Owens-Illinois Group, Inc. 

  37

Selected Consolidated Financial Data Of Owens-Illinois Group,  Inc. 

  39

Management's Discussion And Analysis Of Financial Condition And Results Of Operations Of Owens-Illinois Group, Inc. 

  42

Business

  64

Management

  77

Executive Compensation

  80

Security Ownership Of Certain Beneficial Owners And Management

  106

Description Of Certain Indebtedness

  109

Description Of Notes

  112

Material U.S. Federal Income Tax Considerations

  156

Plan Of Distribution

  162

Legal Matters

  162

Independent Registered Public Accounting Firm

  162

Where You Can Find More Information

  163

Index To Financial Statements

  F-1



        We have not authorized any dealer, salesperson or other person to give any information or to make any representations to you other than the information contained in this prospectus. You must not rely on any information or representations not contained in this prospectus as if we had authorized it. This prospectus does not offer to sell or solicit an offer to buy any securities other than the registered notes to which it relates, nor does it offer to buy any of these notes in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

        The information contained in this prospectus is current only as of the date on the cover page of this prospectus, and may change after that date.

i



Market segments, ranking and other data

        The data included in this prospectus regarding market segments and ranking, including the size of certain market segments and our position, the position of Owens-Illinois Group, Inc. and the position of our competitors and competitors of Owens-Illinois Group, Inc. within these market segments, are based on independent industry publications, reports of government agencies or other published industry sources and our estimates and those of Owens-Illinois Group, Inc. based on each of our management's knowledge and experience in the market segments in which we and Owens-Illinois Group, Inc. operate. Our estimates and those of Owens-Illinois Group, Inc. have been based on information obtained from customers, suppliers, trade and business organizations and other contacts in the market segments in which we and Owens-Illinois Group, Inc. operate. We and Owens-Illinois Group, Inc. believe these estimates to be accurate as of the date of this prospectus. However, this information may prove to be inaccurate because of the method by which we or Owens-Illinois Group, Inc. obtained some of the data for these estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in a survey of market segment size.

ii



Forward-looking statements

        This prospectus contains "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act. The safe harbor protections provided in Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act do not apply to statements made in connection with the offer to exchange the outstanding notes pursuant to the prospectus. Forward-looking statements reflect our current expectations and projections about future events at the time, and thus involve uncertainty and risk. It is possible Owens-Illinois Group, Inc.'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 Owens-Illinois Group, Inc. has its operations, including 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 Owens-Illinois Group, Inc. to raise selling prices commensurate with energy and other cost increases;

    (10)
    consolidation among competitors and customers;

    (11)
    the ability of Owens-Illinois Group, Inc. 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 Owens-Illinois Group, Inc., including events related to Owens- Illinois, Inc.'s asbestos-related claims. It is not possible to foresee or identify all such factors.

        Any forward-looking statements in this prospectus are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments, and other factors we believe 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 we continually review trends and uncertainties affecting Owens- Illinois Group, Inc.'s results of operations and financial condition, we do not assume any obligation to update or supplement any particular forward- looking statements contained in this prospectus.

iii



Summary

        This summary highlights the information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that may be important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus, including the risk factors, the consolidated financial statements, the description of our business and the description of the notes included herein. Unless otherwise specified or the context requires otherwise, in this prospectus:

    "Company," "we," "us" or "our" refers to Owens-Brockway Glass Container Inc., the issuer of the notes, and its direct and indirect subsidiaries on a consolidated basis;

    "OI Group" refers to Owens-Illinois Group, Inc., the indirect parent of Owens-Brockway Glass Container Inc., and its direct and indirect subsidiaries on a consolidated basis, including Owens-Brockway Glass Container Inc.; and

    "OI Inc." refers to Owens-Illinois, Inc., the parent company of OI Group.

        Investors should carefully consider the information set forth under "Risk factors." In addition, some statements in this prospectus include forward-looking information which involves additional risks and uncertainties.

Our Company

Owens-Brockway Glass Container Inc.

        We are an indirect, wholly-owned subsidiary of OI Group and the largest manufacturer of glass containers in the world. We are the leading glass container manufacturer in 17 of the 22 countries where we compete in the glass container segment of the rigid packaging market, including the U.S., and the sole manufacturer of glass containers in eight of these countries.

OI Group

        OI Group, through its subsidiaries, is the successor to a business established in 1903. OI Group, through its subsidiaries, including us, is the largest manufacturer of glass containers in the world, with leading positions in Europe, North America, South America and Asia Pacific. OI Group operates 80 glass manufacturing plants in 22 countries.

        OI Group reported net sales of approximately $1.5 billion and $7.9 billion for three months ended March 31, 2009 and the year ended December 31, 2008, respectively. OI Group's consolidated total assets were approximately $7.8 billion at March 31, 2009.

        OI Group is pursuing the following strategic priorities aimed at optimizing shareholder return:

    Marketing Glass—promote its value added benefits and communicate its earth-friendly attributes;

    Strategic & Profitable Growth—expand presence in growing markets and enter growing markets where we do not have a presence;

    Innovation & Technology—focus on product innovation that adds value for customers and develop technology that provides a sustainable advantage; and

    Operational Excellence—continuous productivity improvement, pricing strategy to improve margins, and disciplined use of cash.

        The principal executive office of OI Group and the Company is located at One Michael Owens Way, Perrysburg, Ohio 43551; the telephone number is (567) 336-5000.

1


Recent Developments—OI Group

OWENS-ILLINOIS GROUP, INC.

Condensed Consolidated Results of Operations(a)

(Dollars in millions)

 
  Three months ended
June 30,
  Six months ended
June 30,
 
 
  2009   2008   2009   2008  

Net sales

  $ 1,807.0   $ 2,210.6   $ 3,326.0   $ 4,171.1  

Manufacturing, shipping and delivery expense

    (1,399.6 )   (1,685.4 )   (2,621.8 )   (3,189.1 )
                   

Gross profit

    407.4     525.2     704.2     982.0  

Selling and administrative expense

    (122.4 )   (130.8 )   (240.9 )   (258.6 )

Research, development and engineering expense

    (14.1 )   (17.9 )   (28.0 )   (33.9 )

Interest expense(b)

    (57.9 )   (69.2 )   (106.0 )   (133.5 )

Interest income

    6.5     10.0     15.0     18.7  

Equity earnings

    14.1     12.7     27.7     23.8  

Royalties and net technical assistance

    3.5     5.0     6.3     9.8  

Other income

    0.9     1.4     2.5     3.2  

Other expense(c)

    (26.0 )   (15.8 )   (78.8 )   (35.8 )
                   

Earnings from continuing operations before income taxes

    212.0     320.6     302.0     575.7  

Provision for income taxes

    (49.5 )   (75.9 )   (80.7 )   (140.8 )
                   

Earnings from continuing operations

    162.5     244.7     221.3     434.9  

Gain on sale of discontinued operations

          3.8           7.9  
                   

Net earnings

    162.5     248.5     221.3     442.8  

Net earnings attributable to noncontrolling interests

    (13.2 )   (17.2 )   (26.9 )   (33.4 )
                   

Net earnings attributable to the Company

  $ 149.3   $ 231.3   $ 194.4   $ 409.4  
                   

Amounts attributable to the Company:

                         
 

Earnings from continuing operations

  $ 149.3   $ 227.5   $ 194.4   $ 401.5  
 

Gain on sale of discontinued operations

          3.8           7.9  
                   
 

Net earnings

  $ 149.3   $ 231.3   $ 194.4   $ 409.4  
                   

(a)
The Company adopted the provisions of FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," on January 1, 2009, which changed the presentation of noncontrolling interests in subsidiaries. The presentation provisions of FAS No. 160 were also required to be applied retrospectively to 2008.

(b)
Amount for the three and six months ended June 30, 2009, includes charges of $5.2 million (pretax and after tax) for note repurchase premiums and the write-off of finance fees related to debt that was repaid prior to its maturity.

(c)
Amount for the three months ended June 30, 2009, includes charges of $5.2 million (pretax and after tax) for restructuring and asset impairment.

    Amount for the six months ended June 30, 2009, includes charges of $55.6 million ($52.9 million after tax) for restructuring and asset impairment.

    Amount for the three months ended June 30, 2008, includes charges of $8.2 million ($4.2 million after tax amount attributable to OI Group) for restructuring and asset impairment.

    Amount for the six months ended June 30, 2008, includes charges of $21.1 million ($13.9 million after tax amount attributable to OI Group) for restructuring and asset impairment.

2



OWENS-ILLINOIS GROUP, INC.

Condensed Consolidated Balance Sheets

(Dollars in millions)

 
  June 30,
2009
  Dec. 31,
2008
  June 30,
2008
 

Assets

                   

Current assets:

                   
 

Cash and cash equivalents

  $ 677.2   $ 379.5   $ 366.0  
 

Short-term investments, at cost which approximates market

    4.8     25.0     23.6  
 

Receivables, less allowances for losses and discounts

    1,126.4     988.8     1,438.4  
 

Inventories

    1,039.0     999.5     1,234.7  
 

Prepaid expenses

    70.0     51.9     51.8  
               
       

Total current assets

    2,917.4     2,444.7     3,114.5  

Investments and other assets:

                   
 

Equity investments

    115.7     101.7     95.2  
 

Repair parts inventories

    139.9     132.5     154.0  
 

Prepaid pension

                614.5  
 

Deposits, receivables and other assets

    498.1     444.5     508.5  
 

Goodwill

    2,290.8     2,207.5     2,546.6  
               
       

Total other assets

    3,044.5     2,886.2     3,918.8  

Property, plant and equipment, at cost

    6,206.3     5,983.1     6,811.6  

Less accumulated depreciation

    3,554.0     3,337.5     3,807.9  
               
 

Net property, plant and equipment

    2,652.3     2,645.6     3,003.7  
               

Total assets

  $ 8,614.2   $ 7,976.5   $ 10,037.0  
               

Liabilities and Share Owners' Equity

                   

Current liabilities:

                   
 

Short-term loans and long-term debt due within one year

  $ 357.8   $ 393.8   $ 528.6  
 

Accounts payable

    802.5     838.2     1,002.1  
 

Other liabilities

    622.6     596.3     699.6  
               
   

Total current liabilities

    1,782.9     1,828.3     2,230.3  

Long-term debt

    3,284.4     2,931.4     3,262.5  

Deferred taxes

    154.2     77.6     130.7  

Pension benefits

    712.4     741.8     306.5  

Nonpension postretirement benefits

    239.0     239.7     279.1  

Other liabilities

    349.7     369.0     380.3  

Share owners' equity:

                   
 

The Company's share owner's equity:

                   
   

Other contributed capital

    872.8     940.0     1,028.4  
   

Retained earnings

    2,410.9     2,216.5     2,118.8  
   

Accumulated other comprehensive income (loss)

    (1,424.4 )   (1,620.6 )   43.0  
               
       

Total share owner's equity of the Company

    1,859.3     1,535.9     3,190.2  
 

Noncontrolling interests

    232.3     252.8     257.4  
               
     

Total share owners' equity

    2,091.6     1,788.7     3,447.6  

Total liabilities and share owners' equity

  $ 8,614.2   $ 7,976.5   $ 10,037.0  
               

3



OWENS-ILLINOIS GROUP, INC.

Condensed Consolidated Cash Flows

(Dollars in millions)

 
  Six months ended
June 30,
 
 
  2009   2008  

Cash flows from operating activities:

             
 

Net earnings

  $ 221.3   $ 442.8  
 

Net earnings attributable to noncontrolling interests

    (26.9 )   (33.4 )
 

Gain on sale of discontinued operations

          (7.9 )
 

Non-cash charges:

             
   

Depreciation

    182.2     229.2  
   

Amortization of intangibles and other deferred items

    9.3     14.3  
   

Amortization of finance fees

    4.0     4.0  
   

Restructuring and asset impairment

    55.6     21.1  
   

Other

    67.6     52.1  
 

Cash paid for restructuring activities

    (33.2 )   (16.6 )
 

Change in non-current operating assets

    11.1     2.2  
 

Change in non-current liabilities

    (67.7 )   (56.9 )
 

Change in components of working capital

    (155.9 )   (275.1 )
           
   

Cash provided by operating activities

    267.4     375.8  

Cash flows from investing activities:

             
 

Additions to property, plant and equipment

    (124.1 )   (129.0 )
 

Repayment from (advance to) equity affiliate

    1.6     (13.3 )
 

Net cash proceeds (payments) related to divestitures and asset sales

    4.2     (16.6 )
           
   

Cash utilized in investing activities

    (118.3 )   (158.9 )

Cash flows from financing activities:

             
 

Additions to long-term debt

    1,070.4     636.8  
 

Repayments of long-term debt

    (523.9 )   (504.4 )
 

Increase (decrease) in short-term loans

    (65.5 )   43.2  
 

Net (payments) receipts for hedging activity

    29.1     (46.8 )
 

Payment of finance fees

    (11.8 )      
 

Dividends paid to noncontrolling interests(a)

    (55.4 )   (41.6 )
 

Net change in payable to parent

    (221.9 )   (250.0 )
 

Distributions to parent

    (79.9 )   (95.1 )
           
   

Cash provided by (utilized in) financing activities

    141.1     (257.9 )

Effect of exchange rate fluctuations on cash

    7.5     19.3  
           

Increase (decrease) in cash

    297.7     (21.7 )

Cash at beginning of period

    379.5     387.7  
           

Cash at end of period

  $ 677.2   $ 366.0  
           

(a)
The Company adopted the provisions of FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," on January 1, 2009, which changed the presentation of noncontrolling interests in subsidiaries. The presentation provisions of FAS No. 160 were also required to be applied retrospectively to 2008.

4



OWENS-ILLINOIS GROUP, INC.

Consolidated Supplemental Financial Data

(Dollars in millions)

 
  Three months ended
June 30,
  Six months ended
June 30,
 
 
  2009   2008   2009   2008  

Net sales:

                         
 

Europe

  $ 793.9   $ 1,045.7   $ 1,406.8   $ 1,934.6  
 

North America

    560.5     606.3     1,054.7     1,137.2  
 

South America

    249.9     294.1     463.9     548.3  
 

Asia Pacific

    192.7     242.3     374.8     492.3  
                   

Reportable segment totals

    1,797.0     2,188.4     3,300.2     4,112.4  
 

Other

    10.0     22.2     25.8     58.7  
                   

Net sales

  $ 1,807.0   $ 2,210.6   $ 3,326.0   $ 4,171.1  
                   

 

 
  Three months ended
June 30,
  Six months ended
June 30,
 
 
  2009   2008   2009   2008  

Segment Operating Profit(a):

                         
 

Europe

  $ 120.4   $ 195.8   $ 164.6   $ 343.4  
 

North America

    103.1     68.1     165.8     123.5  
 

South America

    57.0     85.5     117.0     159.1  
 

Asia Pacific

    11.4     40.7     36.4     86.2  
                   

Reportable segment totals(b)

    291.9     390.1     483.8     712.2  

Items excluded from Segment Operating Profit:

                         
 

Retained corporate costs and other

    (23.3 )   (2.1 )   (35.2 )   (0.6 )
 

Restructuring and asset impairment

    (5.2 )   (8.2 )   (55.6 )   (21.1 )
 

Interest income

    6.5     10.0     15.0     18.7  
 

Interest expense

    (57.9 )   (69.2 )   (106.0 )   (133.5 )
                   

Earnings from continuing operations before income taxes

  $ 212.0   $ 320.6   $ 302.0   $ 575.7  
                   

(a)
Operating Profit consists of consolidated earnings from continuing operations before interest income, interest expense and provision for income taxes. Segment Operating Profit excludes amounts related to certain items that management considers not representative of ongoing operations as well as certain retained corporate costs.

    The Company presents information on "Operating Profit" because management believes that it provides investors with a measure of operating performance separate from the level of indebtedness or other related costs of capital. The most directly comparable GAAP financial measure to Operating Profit is net earnings. The Company presents Segment Operating Profit because management uses the measure, in combination with gross profit percentage and selected cash flow information, to evaluate performance and to allocate resources.

    A reconciliation from Segment Operating Profit to earnings from continuing operations before income taxes is included in the tables above.

(b)
Segment Operating Profit for the three months ended June 30, 2009, excludes charges of $5.2 million for restructuring and asset impairment.

5


    Segment Operating Profit for the six months ended June 30, 2009, excludes charges of $55.6 million for restructuring and asset impairment.

    Segment Operating Profit for the three months ended June 30, 2008, excludes charges of $8.2 million for restructuring and asset impairment.

    Segment Operating Profit for the six months ended June 30, 2008, excludes charges of $21.1 million for restructuring and asset impairment.

6


Corporate structure

GRAPHIC


(1)
OI Inc. is a public company listed on the New York Stock Exchange. As of March 31, 2009, OI Inc. had $500.0 million of outstanding public debt securities ("OI Inc. Senior Notes"), which are guaranteed on a subordinated basis by OI Group and Owens-Brockway Packaging, Inc. ("OI Packaging"). On June 11, 2009, OI Inc. purchased approximately $221.9 million of those notes pursuant to a tender offer.

(2)
As of March 31, 2009, we had outstanding $450 million 81/4% Senior Notes due 2013, $400 million 63/4% Senior Notes due 2014 and €225 million 63/4% Senior Notes due 2014.

(3)
The secured credit agreement includes a $900.0 million revolving credit facility ($144.8 million outstanding at March 31, 2009), a 225.0 million Australian dollar term loan ($154.2 million-equivalent outstanding as of March 31, 2009), and a 110.8 million Canadian dollar term loan ($87.8 million-equivalent outstanding as of March 31, 2009), each of which has a final maturity date of June 15, 2012. The secured credit agreement also includes a $191.5 million term loan ($191.5 million outstanding as of March 31, 2009) and a €191.5 million term loan ($253.2 million-equivalent outstanding as of March 31, 2009), each of which has a final maturity date of June 14, 2013. As a result of the bankruptcy of Lehman Brothers Holdings Inc. and several of its subsidiaries, OI Group believes that the maximum amount available under the revolving credit facility was reduced by $32.3 million. After deducting amounts attributable to letters of credit and overdraft facilities that are supported by the revolving credit facility, at March 31, 2009, the borrowers had unused credit of $641.8 million available under the secured credit agreement. For a more detailed description of the secured credit agreement, see "Description of certain indebtedness."

(4)
As of March 31, 2009, OI Group's foreign subsidiary, OI European Group B.V., had outstanding €300 million 67/8% Senior Notes due 2017, of which Owens-Brockway Glass Container Inc. is a guarantor.

7



The Exchange Offer

The Exchange Offer

  We are offering to exchange the exchange notes (the "exchange notes") for the outstanding private notes (the "private notes") that are properly tendered and accepted. You may tender outstanding private notes only in denominations of $2,000 and integral multiples of $1,000. We will issue the exchange notes on or promptly after the exchange offer expires. As of the date of this prospectus, $600,000,000 principal amount of private notes is outstanding.

Expiration Date

 

The exchange offer will expire at 5:00 p.m., New York City time, on August 31, 2009 (the 21st business day following commencement of the exchange offer), unless extended, in which case the expiration date will mean the latest date and time to which we extend the exchange offer.

Conditions to the Exchange Offer

 

The exchange offer is not subject to any condition other than that it not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission (the "SEC"). The exchange offer is not conditioned upon any minimum principal amount of private notes being tendered for exchange.

Procedures for Tendering Private Notes

 

If you wish to tender your private notes for exchange notes pursuant to the exchange offer and:

 

 

if you hold the private notes through The Depository Trust Company ("DTC"), you must comply with the Automated Tender Offer Program procedures of DTC, and the Exchange Agent (as defined below) must receive a timely confirmation of a book-entry transfer of the private notes into its account at DTC pursuant to the procedures for book-entry transfer described herein, along with a properly transmitted agent's message, before the expiration date; or

 

 

if you hold private notes through Euroclear Bank S.A./N.V. ("Euroclear") or Clearstream Banking, S.A. ("Clearstream"), you must comply with the procedures of Euroclear or Clearstream, as applicable, before the expiration date.

 

By tendering the private notes pursuant to the exchange offer, you will make the representations to us described under "The Exchange Offer—Procedures for Tendering."

Acceptance of the Private Notes and Delivery of the Exchange Notes

 

Subject to the satisfaction or waiver of the conditions to the exchange offer, we will accept for exchange any and all private notes which are validly tendered in the exchange offer and not withdrawn before 5:00 p.m., New York City time, on the expiration date.

8


Withdrawal Rights

 

You may withdraw the tender of your private notes at any time before 5:00 p.m., New York City time, on the expiration date, by complying with the procedures for withdrawal described in this prospectus under the heading "The Exchange Offer—Withdrawal of Tenders."

Material U.S. Federal Tax Considerations

 

The exchange of notes will not be a taxable event for United States federal income tax purposes. For a discussion of material federal tax consideration relating to the exchange of notes, see "Material U.S. federal income tax considerations."

Exchange Agent

 

U.S. Bank National Association, the registrar and Notes Paying Agent under the indenture governing the notes, is serving as the exchange agent for the notes (the "Exchange Agent").

Consequences of Failure to Exchange

 

If you do not exchange your private notes for exchange notes, you will continue to be subject to the restrictions on transfer provided in the private notes and in the indenture governing the private notes. In general, the private notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently plan to register the private notes under the Securities Act.

Registration Rights Agreement

 

You are entitled to exchange your private notes for exchange notes with substantially identical terms. This exchange offer satisfies this right. After the exchange offer is completed, you will no longer be entitled to any exchange or registration rights with respect to your private notes.

        We explain the exchange offer in greater detail beginning on page 28.


The Exchange Notes

        The summary below describes the principal terms of the exchange notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The "Description of Notes" section of this prospectus contains a more detailed description of the terms and conditions of the exchange notes.

        The form and terms of the exchange notes are the same as the form and terms of the private notes, except that the exchange notes will be registered under the Securities Act and, therefore, the exchange notes will not be subject to the transfer restrictions, registration rights and provisions providing for an increase in the interest rate applicable to the private notes. The exchange notes will evidence the same debt as the private notes, and both the private notes and the exchange notes are governed by the same indenture.

Issuer

  Owens-Brockway Glass Container Inc., a Delaware corporation.

Securities

 

$600,000,000 in principal amount of 73/8% Senior Notes due 2016.

Maturity

 

May 15, 2016

9


Interest payment dates

 

February 1 and August 1 of each year.

Guarantees

 

The notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by our indirect parent, OI Group, and by certain domestic subsidiaries of OI Group so long as they remain guarantors of the secured credit agreement. If we cannot make payments on the notes when they are due, the guarantors must make them instead.

 

Any guarantee by a guarantor of the notes may be released without action by, or consent of, the holders of the notes or the trustee under the indenture if such guarantor is no longer a guarantor of obligations:

 

 

under the secured credit agreement;

 

 

owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement; and

 

 

under interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement.

Ranking

 

The notes are senior obligations of Owens-Brockway Glass Container Inc. and:

 

 

rank senior in right of payment to any existing or future subordinated obligations of Owens-Brockway Glass Container Inc.;

 

 

rank pari passu in right of payment with all of the current and future senior debt of Owens-Brockway Glass Container Inc., including its obligations under the secured credit agreement, its $450 million of 81/4% Senior Notes due 2013, its $400 million of 63/4% Senior Notes due 2014 and its €225 million of 63/4% Senior Notes due 2014;

 

 

are effectively subordinated to obligations under the secured credit agreement (and to any indebtedness incurred to refinance borrowings thereunder) under which there was approximately $832 million outstanding as of March 31, 2009; and

 

 

are effectively subordinated to all existing and future indebtedness and other liabilities, including trade payables, of any non-guarantor subsidiaries, including obligations of the foreign subsidiary issuer (OI European Group B.V.) under its €300 million of 67/8% Senior Notes due 2017 and obligations of the foreign borrowers and foreign guarantors under the secured credit agreement.

 

The guarantees of the notes are senior obligations of the guarantors and:

 

 

rank senior in right of payment to all existing and future subordinated obligations of OI Group and the subsidiary guarantors, including the guarantees by OI Group and OI Packaging of the obligations of OI Inc. related to the $500 million of outstanding OI Inc. Senior Notes as of March 31, 2009;

10


 

 

rank pari passu in right of payment with all existing and future senior obligations of OI Group and the subsidiary guarantors, including their obligations under the secured credit agreement, the 81/4% Senior Notes due 2013, the 63/4% Senior Notes due 2014 and the foreign subsidiary issuer's (OI European Group B.V.) 67/8% Senior Notes due 2017 (of which Owens-Brockway Glass Container Inc. is also a guarantor);

 

 

are effectively subordinated to the obligations under the secured credit agreement (and to any indebtedness incurred to refinance borrowings thereunder); and

 

 

are effectively subordinated to all existing and future indebtedness and other liabilities, including trade payables, of any non-guarantor subsidiary, including obligations of the foreign subsidiary issuer (OI European Group B.V.) under its 67/8% Senior Notes due 2017 and obligations of the foreign borrowers and foreign guarantors under the secured credit agreement.

 

As of March 31, 2009, OI Group had approximately $3.3 billion of total consolidated indebtedness, which includes approximately $832 million of secured indebtedness under the secured credit agreement.

 

As of and for the three-month period ended March 31, 2009, the nonguarantor subsidiaries represented in the aggregate approximately 71% of OI Group's consolidated net sales from continuing operations and 77% of OI Group's consolidated total assets. As of March 31, 2009, the liabilities of the nonguarantor subsidiaries on a consolidated basis were approximately $3.1 billion.

 

In addition, the OI Inc. Senior Notes and the guarantees thereof are secured by a second priority lien on the capital stock owned by, and intercompany debt owed to, OI Packaging and OI Group. If the holders of OI Inc.'s Senior Notes were to foreclose on the intercompany debt owed to OI Packaging by Owens-Brockway Glass Container Inc. and/or owed to OI Packaging or OI Group by certain of the guarantors of the notes offered hereby, such holders would have a direct claim under the intercompany debt as a creditor of Owens-Brockway Glass Container Inc., the issuer of the

11


 

notes offered hereby, and/or such guarantors. However, the terms of the intercompany debt expressly subordinate the payment of that intercompany debt to the prior payment of all of the existing and future senior indebtedness of Owens-Brockway Glass Container Inc. and such guarantors, including the notes offered hereby and the guarantees thereof. Finally, if the holders of OI Inc.'s Senior Notes were to foreclose on the capital stock of Owens-Brockway Glass Container Inc. and/or such guarantors, such holders would not have a direct claim as a creditor of Owens-Brockway Glass Container Inc. or any such guarantor. Therefore, claims of the holders of the notes offered hereby against Owens-Brockway Glass Container Inc. and/or such guarantors will be effectively senior to the claims of the holders of OI Inc.'s Senior Notes.

Optional redemption

 

We may redeem some or all of the notes at any time prior to maturity at a redemption price equal to the make-whole amount described in this prospectus. Prior to May 15, 2012, we may use the net proceeds of certain equity offerings by OI Inc. to redeem up to 40% of the notes. See "Description of notes—Optional redemption."

Original issue discount

 

The private notes were issued with original issue discount for United States federal income tax purposes. Thus, in addition to the stated interest on the notes, U.S. holders (as defined in "Material U.S. federal income tax considerations") will be required to include amounts representing the original issue discount in gross income on a constant yield basis for United States federal income tax purposes in advance of the receipt of cash payments to which such income is attributable.

Change of control and asset sales

 

If we, OI Inc. or OI Group experience specific kinds of changes of control, we must offer to repurchase all of the notes at 101% of the aggregate principal amount of the notes repurchased plus accrued and unpaid interest and additional interest, if any, unless we have exercised our right to redeem the notes as described in the section entitled "Description of notes—Optional redemption."

 

Certain asset dispositions will be triggering events which may require us to use the proceeds from those asset dispositions to make an offer to purchase the notes at 100% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase if such proceeds are not otherwise used within 360 days as described in the section entitled "Description of notes—Repurchase at the option of holders—Asset sales."

Covenants

 

The indenture governing the notes contains covenants which, among other things, restrict the ability of OI Group and its restricted subsidiaries to:

 

 

borrow money;

12


 

 

pay dividends on, or redeem or repurchase, stock;

 

 

make investments;

 

 

create liens;

 

 

enter into certain transactions with affiliates; and

 

 

sell certain assets or merge with or into other companies.

 

On and after the first anniversary of the date of issuance of the private notes, we will be permitted to assign our obligations under the notes and the indenture to OI Inc., and we and each guarantor would thereafter be released from our obligations under the notes, the guarantees thereof and the indenture, provided that (1) OI Inc. assumes all of the obligations under those notes and the indenture and (2) the obligations of each domestic borrower under the secured credit agreement have been or will be concurrently assumed by OI Inc.

 

For more information, see the section entitled "Description of notes—Certain covenants."

        You should refer to the section entitled "Risk Factors" for an explanation of the material risks of investing in the notes.

13



Summary selected consolidated financial data
of Owens-Illinois Group, Inc.

        The summary selected consolidated financial data of OI Group presented below relates to each of the five years in the period ended December 31, 2008 and the three month periods ended March 31, 2009 and 2008, respectively. The financial data for each of the five years in the period ended December 31, 2008 were derived from OI Group's Audited Consolidated Financial Statements. The financial data for the three months ended March 31, 2009 and 2008 were derived from the Unaudited Condensed Consolidated Financial Statements of OI Group, which in the opinion of management, reflect all adjustments necessary consisting only of normal recurring adjustments, for a fair presentation of the interim period financial data. The results for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected for the full year. For more information, see the Audited Consolidated Financial Statements and the Unaudited Condensed Consolidated Financial Statements which are included elsewhere in this prospectus.

 
  Year ended December 31,   Three months
ended March 31,
 
(Dollars in millions)
  2008   2007   2006   2005   2004   2009   2008  
 
  (audited)
  (unaudited)
 

Consolidated operating results:(1)

                                           

Net sales

  $ 7,884.7   $ 7,566.7   $ 6,650.4   $ 6,266.9   $ 5,366.1   $ 1,519.0   $ 1,960.5  

Manufacturing, shipping and delivery(2)

    (6,208.1 )   (5,971.4 )   (5,481.1 )   (5,084.9 )   (4,329.6 )   (1,222.2 )   (1,503.7 )
                               

Gross profit

    1,676.6     1,595.3     1,169.3     1,182.0     1,036.5     296.8     456.8  

Selling, administrative, research, development, engineering expense

    (578.5 )   (586.4 )   (579.1 )   (506.1 )   (408.6 )   (132.4 )   (143.8 )

Interest expense(3)

    (253.0 )   (348.6 )   (349.0 )   (325.4 )   (329.0 )   (48.1 )   (64.3 )

Interest income

    38.6     42.3     19.2     16.5     15.2     8.5     8.7  

Equity earnings, royalties, technical assistance, and other income(4)

    78.9     70.2     79.4     86.7     119.0     18.0     17.7  

Other expense(5)

    (154.2 )   (151.2 )   (54.7 )   (525.8 )   (37.3 )   (52.8 )   (20.0 )
                               

Earnings from continuing operations before income taxes

    808.4     621.6     285.1     (72.1 )   395.8     90.0     255.1  

Provision for income taxes(6)

    (237.9 )   (147.8 )   (125.3 )   (428.9 )   (84.9 )   (31.2 )   (64.9 )
                               

Earnings from continuing operations

    570.5     473.8     159.8     (501.0 )   310.9     58.8     190.2  

Net earnings (loss) of discontinued operations(7)

        2.8     (23.7 )   63.1     42.4          

Gain on sale of discontinued operations

    6.8     1,038.5         1.2             4.1  
                               

Net earnings (loss)

    577.3     1,515.1     136.1     (436.7 )   353.3     58.8     194.3  

Net earnings attributable to noncontrolling interests(8)

    (70.2 )   (59.5 )   (43.6 )   (35.9 )   (32.9 )   (13.7 )   (16.2 )
                               

Net earnings (loss) attributable to OI Group

  $ 507.1   $ 1,455.6   $ 92.5   $ (472.6 ) $ 320.4   $ 45.1   $ 178.1  
                               

Amounts attributable to OI Group:

                                           

Earnings (loss) from continuing operations

  $ 500.3   $ 414.3   $ 116.2   $ (536.9 ) $ 278.0   $ 45.1   $ 174.0  

Discontinued operations

    6.8     1,041.3     (23.7 )   64.3     42.4         4.1  
                               

Net earnings (loss)

  $ 507.1   $ 1,455.6   $ 92.5   $ (472.6 ) $ 320.4   $ 45.1   $ 178.1  
                               

14


 
  Year ended December 31,   Three months
ended March 31,
 
(Dollars in millions)
  2008   2007   2006   2005   2004   2009   2008  
 
  (audited)
  (unaudited)
 

Other data:

                                           

Deficiency of earnings available to cover fixed charges(9)

                      72.7                    

Ratio of earnings to fixed charges(9)

    4.1     2.7     1.9           2.2     2.7     4.8  

The following are included in net earnings:

                                           

Depreciation

  $ 431.0   $ 423.4   $ 427.7   $ 436.1   $ 406.3   $ 88.4   $ 113.6  

Amortization of intangibles

    28.9     28.9     22.3     22.5     18.8     4.3     7.6  

Amortization of deferred finance fees (included in interest expense)

    7.9     8.6     5.7     6.7     6.0     2.4     1.9  

Balance sheet data (at end of period):

                                           

Working capital (current assets less current liabilities)

  $ 616   $ 375   $ 216   $ 618   $ 605   $ 755   $ 644  

Total assets

    7,977     9,325     9,321     9,521     10,550     7,752     9,957  

Total debt

    3,325     3,714     5,464     5,300     5,365     3,318     4,023  

OI Group share owner's equity

    1,536     2,643     1,044     1,198     2,040     1,477     2,914  

(1)
Amounts related to the Company's plastic packaging business have been reclassified to discontinued operations for 2004-2007 as a result of the sale of that business in 2007. Amounts related to the Company's plastic blow-molded container business have been reclassified to discontinued operations for 2004 as a result of the sale of that business in 2004. Amounts for the year ended December 31, 2004, and all subsequent periods, include the results of BSN from the date of acquisition on June 21, 2004.

(2)
Amount for 2006 includes a loss of $8.7 million ($8.4 million after tax) from the mark to market effect of natural gas hedge contracts.

Amount for 2005 includes a gain of $3.8 million ($2.3 million after tax) from the mark to market effect of natural gas hedge contracts.

Amount for 2004 includes a gain of $4.9 million ($3.2 million after tax) from the mark to market effect of natural gas hedge contracts.

(3)
Amount for 2007 includes charges of $7.9 million ($7.3 million after tax) for note repurchase premiums.

Amount for 2006 includes charges of $6.2 million (pretax and after tax) for note repurchase premiums.

Amount for 2004 includes charges of $28.0 million ($18.3 million after tax) for note repurchase premiums.

Includes additional interest charges for the write-off of unamortized deferred financing fees related to the early extinguishment of debt as follows: $1.6 million ($1.5 million after tax) for 2007; $11.3 million ($10.9 million after tax) for 2006; and $2.8 million ($1.8 million after tax) for 2004.

(4)
Amount for 2006 includes a gain of $15.9 million ($11.2 million after tax) for the curtailment of postretirement benefits in The Netherlands.

Amount for 2005 includes $28.1 million (pretax and after tax) from the sale of the Company's glass container facility in Corsico, Italy.

Amount for 2004 includes: (1) a gain of $20.6 million ($14.5 million after tax) for the sale of certain real property; and (2) a gain of $31.0 million ($13.1 million after tax) for a restructuring in the Italian Specialty Glass business.

(5)
Amount for 2008 includes charges of $133.3 million ($110.1 million after tax amount attributable to OI Group) for restructuring and asset impairments.

Amount for 2007 includes charges of $100.3 million ($84.1 million after tax) for restructuring and asset impairments.

15


    Amount for 2006 includes a charge of $20.8 million ($20.7 million after tax) for CEO transition costs and a charge of $29.7 million ($27.7 million after tax) for the closing of the Godfrey, Illinois machine parts manufacturing operation.

    Amount for 2005 includes a charge of $494.0 million (pretax and after tax) to write down goodwill in the Asia Pacific Glass unit.

    Amount for 2004 includes a charge of $6.4 million ($5.4 million after tax) for restructuring a life insurance program in order to comply with recent statutory and tax regulation changes.

    Amount for the three months ended March 31, 2009 includes charges of $50.4 million ($47.7 million after tax) for restructuring and asset impairments.

    Amount for the three months ended March 31, 2008 includes charges of $12.9 million ($9.7 million after tax amount attributable to OI Group) for restructuring and asset impairments.

(6)
Amount for 2008 includes a net tax expense of $33.3 million ($34.8 million attributable to OI Group) related to tax legislation, restructuring, and other.

Amount for 2007 includes a benefit of $13.5 million for the recognition of tax credits related to restructuring of investments in certain European operations.

Amount for 2006 includes a benefit of $5.7 million from the reversal of a non-U.S. deferred tax asset valuation allowance partially offset by charges related to international tax restructuring.

Amount for 2005 includes a charge of $300.0 million to record a valuation allowance related to accumulated deferred tax assets in the U.S. and a benefit of $5.3 million for the reversal of an accrual for potential tax liabilities related to a previous divestiture. The accrual is no longer required based on the Company's reassessment of potential liabilities.

Amount for 2004 includes a benefit of $33.1 million for a tax consolidation in the Australian glass business.

(7)
Amount for 2005 consists principally of a third quarter benefit from the reversal of an accrual for potential tax liabilities related to a previous divestiture. The accrual is no longer required based on the Company's reassessment of the potential liabilities.

(8)
Effective January 1, 2009, OI Group adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," ("FAS No. 160") which changed the presentation of noncontrolling interests in subsidiaries. The format of OI Group's condensed consolidated results of operations and condensed consolidated cash flows for the three months ended March 31, 2008 and the years ended December 31, 2008, 2007, 2006, 2005 and 2004 and condensed consolidated balance sheets at March 31, 2008 and December 31, 2008, 2007, 2006, 2005 and 2004 have been reclassified to conform to the new presentation under FAS No. 160 which is required to be applied retrospectively. These reclassifications did not affect previously reported earnings amounts or share owner's equity amounts attributable to OI Group. However, amounts previously reported for cash provided by operating activities have been increased to reflect the reclassification of dividends paid to noncontrolling interests as a cash flow from financing activities. Dividends paid to noncontrolling interests amounted to $49.6 million for the year ended December 31, 2008, $28.6 million for the year ended December 31, 2007, $27.1 million for the year ended December 31, 2006, $21.6 million for the year ended December 31, 2005, $18.6 million for the year ended December 31, 2004, and $30.2 million for the three months ended March 31, 2008.

(9)
For purposes of these computations, earnings consist of earnings from continuing operations before income taxes, noncontrolling interests in earnings of subsidiaries, plus fixed charges. Fixed charges consist primarily of interest on indebtedness, including amortization of deferred finance fees, plus that portion of lease rental expense representative of the interest factor. Pretax earnings and fixed charges also include the proportional share of 50%-owned investees.

16



Risk factors

        You should carefully consider the risks described below as well as other information and data included in this prospectus before making a decision to exchange your private notes for exchange notes in the exchange offer. If any of the events described in the risk factors below occur, OI Group's business, financial condition, operating results and prospects could be materially adversely affected, which in turn could adversely affect our ability to repay the notes. The risk factors set forth below are generally applicable to the private notes as well as the exchange notes.

Risks relating to the notes

Substantial leverage—Our substantial indebtedness and the substantial indebtedness of OI Group could adversely affect our financial health and prevent us from fulfilling our obligations under the notes.

        We and OI Group have, and will continue to have after the offering, a significant amount of debt. As of March 31, 2009, OI Group had approximately $3.3 billion of total consolidated debt outstanding, which included its obligations of approximately $832 million under the secured credit agreement, approximately $1,554 million of senior notes and approximately $500 million of outstanding OI Inc. Senior Notes. OI Group's ratios of earnings to fixed charges were 2.7x for the three months ended March 31, 2009 and 4.1x for the year ended December 31, 2008.

        This substantial indebtedness could have important consequences to you. For example, it could:

    make it difficult for us to satisfy our obligations with respect to the notes;

    increase our vulnerability to general adverse economic and industry conditions;

    increase our vulnerability to interest rate increases for the portion of the unhedged debt under the secured credit agreement;

    require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, development efforts and other general corporate purposes;

    limit our flexibility in planning for, or reacting to, changes in our business and the rigid packaging market;

    place us at a competitive disadvantage relative to our competitors that have less debt; and

    limit, along with the financial and other restrictive covenants in the documents governing our indebtedness, among other things, our ability to borrow additional funds.

Ability to service debt—To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

        Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund working capital, capital expenditures, acquisitions, development efforts and other general corporate purposes depends on our ability to generate cash in the future. Similarly, the ability of the guarantors of the notes to make payments on and refinance their indebtedness will depend on their ability to generate cash in the future. Neither we nor the guarantors can assure that any of us will generate sufficient cash flow from operations, or that future borrowings will be available under the secured credit agreement, in an amount sufficient to enable any of us to pay our indebtedness, including the notes, or to fund other liquidity needs. If short term interest rates increase, our debt service cost will increase because some of our debt is subject to short term variable interest rates. Based on the amount of variable rate debt outstanding during 2008, a 1% increase in variable interest rates for 2008 would have increased OI Group's annual pro forma interest expense by $20 million to $151 million. The notes are effectively subordinated to obligations under the secured credit agreement

17



to the extent of the value of the collateral securing such obligations, under which there was outstanding borrowings of approximately $832 million at March 31, 2009.

        Since you do not have a claim as a creditor against the subsidiaries that are not guarantors of the notes, the indebtedness and other liabilities of those subsidiaries is effectively senior to your claims against such nonguarantor subsidiaries. As of March 31, 2009, the total indebtedness on a consolidated basis (excluding any indebtedness under the secured credit agreement) of the nonguarantor subsidiaries was approximately $1.1 billion, and their total liabilities on a consolidated basis were approximately $3.1 billion.

        We and the guarantors may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. If either we or the guarantors are unable to generate sufficient cash flow and are unable to refinance or extend outstanding borrowings on commercially reasonable terms or at all, we and the guarantors may have to take one or more of the following actions:

    reduce or delay capital expenditures planned for replacements, improvements and expansions;

    sell assets;

    restructure debt; and/or

    obtain additional debt or equity financing.

        We cannot assure you that we or the guarantors could effect or implement any of these alternatives on satisfactory terms, if at all.

Cash used to satisfy other obligations—A portion of our cash flow will be used to make payments to OI Inc. to satisfy certain debt and litigation-related obligations, including settlement of asbestos-related claims.

        Although OI Inc. does not conduct any operations, it has substantial obligations to make payments on the OI Inc. Senior Notes, to satisfy claims of persons for exposure to asbestos-containing products and related expenses and to pay other ordinary-course obligations. OI Inc. relies primarily on distributions from its subsidiaries, including us and OI Group, to meet these obligations. OI Inc. makes semi-annual interest payments of $19.1 million on the OI Inc. Senior Notes. OI Inc.'s asbestos-related payments were $210.2 million, $347.1 million and $162.5 million for the years ended December 31, 2008, 2007 and 2006, respectively, and $34.8 million for the three-month period ended March 31, 2009. In the fourth quarter of 2008, OI Inc. recorded a charge of $250.0 million (in addition to previously recorded charges of $3.22 billion) to cover its estimated indemnity payments and legal fees arising from outstanding asbestos personal injury lawsuits and claims and asbestos personal injury lawsuits and claims expected to be filed in the next several years.

        As a result of the magnitude of OI Inc.'s obligations for asbestos-related lawsuits and its dependence on the cash flows of its subsidiaries, we expect that a substantial portion of our cash flow will be used to make payments to OI Inc. to enable it to satisfy these obligations. These payments will reduce the cash flow available to us and OI Group for other purposes, including making payments on the notes. For additional information regarding OI Inc.'s asbestos-related lawsuits, claims and payments, see Note 6 to the Audited Condensed Consolidated Financial Statements included elsewhere in this prospectus.

Debt restrictions—OI Group and its subsidiaries, including us, may not be able to finance future needs or adapt their business plans to changes because of restrictions placed on them by the secured credit agreement, the indenture and the instruments governing their other indebtedness.

        The secured credit agreement, the indentures governing the senior debentures and notes of OI Inc., OI European Group B.V. and us, and certain of the agreements governing other indebtedness contain affirmative and negative covenants that limit the ability of OI Group and its subsidiaries, including us, to take certain actions. For example, these indentures restrict, and the indenture

18



governing the notes offered hereby will restrict, among other things, the ability of OI Group and its restricted subsidiaries to borrow money, pay dividends on, or redeem or repurchase, stock, make investments, create liens, enter into certain transactions with affiliates and sell certain assets or merge with or into other companies. These restrictions could adversely affect OI Group's and our ability to operate our businesses and may limit OI Group's and our ability to take advantage of potential business opportunities as they arise.

        Failure to comply with these or other covenants and restrictions contained in the secured credit agreement, the indentures or agreements governing other indebtedness could result in a default under those agreements, and the debt under those agreements, together with accrued interest, could then be declared immediately due and payable. If a default occurs under the secured credit agreement, we could no longer request borrowings under the agreement, and the lenders could cause all of the outstanding debt obligations under such secured credit agreement to become due and payable, which would result in a default under a number of other outstanding debt securities and could lead to an acceleration of obligations related to the notes and such other debt securities. A default under the secured credit agreement, indentures or agreements governing other indebtedness could also lead to an acceleration of debt under other debt instruments that contain cross acceleration or cross-default provisions.

Additional borrowings available—Despite current indebtedness levels, OI Group and its subsidiaries may still be able to incur substantially more debt. This could further exacerbate certain risks described above.

        OI Group and its subsidiaries may be able to incur substantial additional debt in the future, including secured debt. In addition, if OI Group designates some of its restricted subsidiaries under the indenture as unrestricted subsidiaries, those unrestricted subsidiaries would be permitted to borrow beyond the limitations specified in the indenture and engage in other activities in which restricted subsidiaries may not engage. At March 31, 2009, the revolving loan portion of the secured credit agreement would have had unused borrowing capacity of $641.8 million. Adding new debt to current debt levels could make it difficult for us to satisfy our obligations with respect to the notes.

Notes effectively subordinated to all of our outstanding secured obligations.

        Our obligations under the secured credit agreement and certain related obligations owing to the secured credit agreement lenders and their affiliates are secured, on a pari passu basis, by:

    a security interest in substantially all the assets of OI Group and of substantially all the domestic subsidiaries of OI Group; and

    a pledge by OI Group of the stock of, and intercompany debt owing to OI Group by, all its direct subsidiaries (other than the stock of, and intercompany debt owing to OI Group by, OI General FTS Inc.).

        In addition, the obligations of the domestic borrowers and the domestic guarantors under the secured credit agreement are secured by certain additional collateral, and the obligations of the foreign borrowers and the foreign guarantors under the secured credit agreement are secured by certain foreign collateral.

        As of March 31, 2009, we had approximately $832 million of secured indebtedness outstanding under the secured credit agreement.

        In the event of a bankruptcy, liquidation, reorganization or other winding up of us or OI Group, the assets that secure our secured obligations will not be available to pay our obligations on the notes unless and until payment in full of our secured obligations. Likewise, if our secured lenders accelerate the obligations under our secured obligations, then those lenders would be entitled to exercise the remedies available to a secured lender under applicable law, and those lenders would have a claim on the assets that secure our secured obligations before any holder of the notes. You would participate

19



with respect to those assets ratably with all holders of other unsecured indebtedness that is deemed to be of the same class as the notes, and potentially with other general creditors.

        Similarly, the guarantees of the notes are effectively subordinated to the guarantees of our secured obligations to the extent of the value of the collateral securing such obligations.

        In the event of a foreclosure on the collateral that secures our secured obligations, there could be proceeds from the disposition of that collateral that would not have to be shared with holders of the notes. As a result, lenders under our secured obligations may recover a greater percentage of the amounts owed to them than holders of the notes.

Notes effectively subordinated to debt of nonguarantor subsidiaries—The notes are effectively subordinated to all indebtedness of our subsidiaries that are not guarantors of the notes.

        You do not have any claim as a creditor against the subsidiaries of OI Group that are not guarantors of the notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries is effectively senior to your claims against these nonguarantor subsidiaries. As of and for the three month period ended March 31, 2009, the nonguarantor subsidiaries accounted for in the aggregate approximately 71% of OI Group's consolidated net sales and 77% of OI Group's consolidated total assets. As of March 31, 2009, the liabilities of the nonguarantor subsidiaries on a consolidated basis were approximately $3.1 billion. The nonguarantor subsidiaries include the foreign borrowers and foreign guarantors under the secured credit agreement and the foreign subsidiary issuer (OI European Group B.V.) of the € 300 million of 67/8% Senior Notes due 2017. The notes are effectively subordinated to claims against these foreign subsidiaries under the secured credit agreement. In addition, the notes are effectively subordinated to the obligations of the foreign subsidiary issuer (OI European Group B.V.) under the 67/8% Senior Notes due 2017. In the event of a bankruptcy, liquidation, reorganization or other winding up of any of the nonguarantor subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us.

        In addition, under the indenture, nonguarantor subsidiaries are permitted to incur substantial amounts of additional debt and OI Group and its restricted subsidiaries are permitted to make an unlimited amount of investments in nonguarantor subsidiaries. Therefore, the notes would be effectively subordinated to this additional indebtedness that may be incurred by the nonguarantor subsidiaries. Furthermore, if OI Group or its restricted subsidiaries invest additional amounts in nonguarantor subsidiaries, in the event of a bankruptcy, liquidation, reorganization or other winding up of any of the nonguarantor subsidiaries, assets that otherwise could be used to satisfy our obligations under the notes will first be used to satisfy the obligations of the nonguarantor subsidiaries.

Release of guarantees—The lenders under the secured credit agreement will have the discretion to release the guarantees under the secured credit agreement in a variety of circumstances.

        Any guaranty of the notes may be released without action by, or consent of, any holder of the notes or the trustee under the indenture, at the discretion of the then obligor on the notes, if the guarantor is no longer a guarantor of obligations under the secured credit agreement, of obligations owing to lenders or their affiliates as lending facilities and of obligations under interest rate and currency agreements with lenders or their affiliates, each as permitted by the terms of the secured credit agreement. The lenders under the secured credit agreement will have the discretion to release the guarantees under the secured credit agreement in a variety of circumstances. In the case of the release of collateral consisting of a note guarantor's stock, that release would cause the guarantor's guarantee to be released if the release occurs in the context of an asset sale of such guarantor that is not prohibited by the secured credit agreement or the collateral documents. You will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior to your claims.

20


Covenant relief for investment grade rating—If the notes receive an investment grade rating, we will no longer be subject to most of the covenants in the indenture.

        If at any time the notes receive an "investment grade" rating from Standard & Poor's Ratings Services and Moody's Investors Service, Inc., subject to certain additional conditions, OI Group and its restricted subsidiaries will no longer be subject to most of the covenants set forth in the indenture. In the event of such release, the covenants will not be restored, even if the notes are later rated below investment grade by either or both of these rating agencies. See "Description of notes—Certain covenants—Fall-away event."

Assignment of the notes—Under certain circumstances, we are permitted to assign our obligations under the notes to OI Inc.

        On or after the first anniversary of the date of issuance of the notes, we will be permitted to assign our obligations under the notes and the indenture to OI Inc., and we and each guarantor would thereafter be released from our obligations under the notes, the guarantees thereof and the indenture, provided that (1) OI Inc. assumes all of the obligations under those notes and the indenture and (2) the obligations of each domestic borrower under the secured credit agreement have been or will be concurrently assumed by OI Inc. As a result, holders of the notes could look only to OI Inc. to satisfy the obligations on those notes. See "Description of notes—Certain covenants—Merger, consolidation or sale of assets."

United States fraudulent transfer considerations—U.S. federal and state laws permit a court to void the notes or the guarantees under certain circumstances.

        The issuance of the notes and the guarantees may be subject to review under U.S. federal or state fraudulent transfer laws. While the relevant laws may vary from state to state, under such laws, the payment of consideration or the issuance of a guarantee will be a fraudulent conveyance if a court finds that (1) we paid the consideration, or any guarantor issued guarantees, with the intent of hindering, delaying or defrauding creditors, or (2) we or any of the guarantors received less than reasonably equivalent value or fair consideration in return for paying the consideration or issuing their respective guarantees, and, in the case of (2) above only, one of the following is also true:

    we or any of the guarantors were insolvent, or became insolvent, when we or they paid the consideration;

    paying the consideration or issuing the guarantees left us or the applicable guarantor with an unreasonably small amount of capital; or

    we or the applicable guarantor, as the case may be, intended to, or believed at that time that we or it would, be unable to pay debts as they matured.

        If the payment of the consideration or the issuance of any guarantee was a fraudulent conveyance, a court could, among other things, void our obligations regarding the payment of the consideration or void any of the guarantors' obligations under their respective guarantees, as the case may be, and require the repayment of any amounts paid thereunder.

        Generally, an entity will be considered insolvent if:

    the sum of its debts is greater than the fair value of its property;

    the present fair value of its assets is less than the amount that it will be required to pay on its existing debts as they become due; or

    it cannot pay its debts as they become due.

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        We believe that immediately after the issuance of the notes and the guarantees, we and each of the guarantors will be solvent, will have sufficient capital to carry on our respective businesses and will be able to pay our respective debts as they mature. However, we cannot be sure as to what standard a court would apply in making these determinations or that a court would reach the same conclusions with regard to these issues.

Change of control—The secured credit agreement provides that certain change of control events constitute an event of default. In the event of a change of control, we may not be able to satisfy all of our obligations under the secured credit agreement, the notes or other indebtedness.

        If we, OI Group or OI Inc. experience specific kinds of changes of control, we will be required to offer to repurchase the notes offered hereby and our other outstanding senior notes. However, the secured credit agreement provides that certain change of control events constitute an event of default under the secured credit agreement. An event of default would entitle the lenders thereunder to, among other things, cause all outstanding debt obligations under the secured credit agreement to become due and payable and to proceed against their collateral. We cannot assure you that we would have sufficient assets or be able to obtain sufficient third-party financing on favorable terms to satisfy all of our obligations under the secured credit agreement, the notes offered hereby or other indebtedness.

        Any future credit agreements or other agreements relating to indebtedness to which we become a party may contain restrictions on our ability to offer to repurchase the notes in connection with a change of control. In the event a change of control occurs at a time when we are prohibited from offering to purchase the notes, we could seek consent to offer to purchase the notes or attempt to refinance the borrowings that contain such a prohibition. If we do not obtain the consent or refinance the borrowings, we would remain prohibited from offering to purchase the notes. In such case, our failure to offer to purchase the notes would constitute a default under the indenture, which, in turn, could result in amounts outstanding under any future credit agreement or other agreements relating to indebtedness being declared due and payable. Any such declaration could have adverse consequences to us and the holders of the notes.

        The provisions relating to a change of control included in the indenture may increase the difficulty for a potential acquirer to obtain control of us. In addition, some important corporate events, such as leveraged recapitalizations, that would increase the level of our indebtedness, would not constitute a "change of control" under the indenture.

Original issue discount—The private notes were issued with original issue discount for United States federal income tax purposes.

        The private notes were issued with original issue discount for United States federal income tax purposes. Thus, in addition to the stated interest on the notes, U.S. holders (as defined in "Material U.S. federal income tax considerations") will be required to include amounts representing the original issue discount in gross income on a constant yield basis for United States federal income tax purposes in advance of the receipt of cash payments to which such income is attributable. For more information, see "Material U.S. federal income tax considerations."

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Bankruptcy considerations related to the original issue discount—If a bankruptcy petition were filed by or against us, holders of the notes may receive a lesser amount for their claim than they would have been entitled to receive under the indenture governing the notes.

        If a bankruptcy petition were filed by or against us under the U.S. Bankruptcy Code after the issuance of the notes, the claim by any holder of the notes for the principal amount of the notes may be limited to an amount equal to the sum of:

    the original issue price for the notes; and

    that portion of the original issue discount that does not constitute "unmatured interest" for purposes of the U.S. Bankruptcy Code.

        Any original issue discount that was not amortized as of the date of the bankruptcy filing would constitute unmatured interest. Accordingly, holders of the notes under these circumstances may receive a lesser amount than they would be entitled to under the terms of the indenture governing the notes, even if sufficient funds are available.

Market for the notes—We cannot assure you that an active trading market will develop for the notes.

        The notes are a new issue of securities for which there is currently no trading market. We do not intend to apply for listing of the notes on any U.S. exchange. We have been informed by the initial purchasers of the notes that they intend to make a market in the notes. However, the initial purchasers may cease their market-making at any time. We have agreed to file a registration statement covering the exchange offer for the notes and the guarantees thereof. Consummation of the exchange offer will require SEC clearance. Even after the consummation of the exchange offer, we cannot assure you that an active trading market will develop for the notes or the exchange notes. In addition, the liquidity of the trading market in the notes, and the market price quoted for these notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or in the prospects for companies in our industry generally.

Risks relating to the business of OI Group

International operations—OI Group is subject to risks associated with operating in foreign countries.

        OI Group operates manufacturing and other facilities throughout the world. Net sales from international operations totaled approximately $6.0 billion, representing approximately 76% of OI Group's net sales for the year ended December 31, 2008. As a result of its international operations, OI Group is subject to risks associated with operating in foreign countries, including:

    Political, social and economic instability;

    War, civil disturbance or acts of terrorism;

    Taking of property by nationalization or expropriation without fair compensation;

    Changes in government policies and regulations;

    Devaluations and fluctuations in currency exchange rates;

    Imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries;

    Imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries;

    Hyperinflation in certain foreign countries; and

    Impositions or increase of investment and other restrictions or requirements by foreign governments.

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        The risks associated with operating in foreign countries may have a material adverse effect on operations.

Competition—OI Group faces intense competition from other glass container producers, as well as from makers of alternative forms of packaging. Competitive pressures could adversely affect OI Group's financial health.

        OI Group is subject to significant competition from other glass container producers, as well as from makers of alternative forms of packaging, such as aluminum cans and plastic containers. OI Group competes with each rigid packaging competitor on the basis of price, quality, service and the marketing attributes of the container. Advantages or disadvantages in any of these competitive factors may be sufficient to cause the customer to consider changing suppliers and/or using an alternative form of packaging. OI Group also competes with manufacturers of non-rigid packaging alternatives, including flexible pouches and aseptic cartons, in serving the packaging needs of certain end-use markets, including juice customers.

        Pressures from competitors and producers of alternative forms of packaging have resulted in excess capacity in certain countries in the past and have led to capacity adjustments and significant pricing pressures in the rigid packaging market.

High energy costs—Higher energy costs worldwide and interrupted power supplies may have a material adverse effect on operations.

        Electrical power, natural gas, and fuel oil are vital to OI Group's operations as it relies on a continuous power supply to conduct its business. Depending on the location and mix of energy sources, energy accounts for 15% to 25% of total production costs. Substantial increases and volatility in energy costs could cause OI Group to experience a significant increase in operating costs, which may have a material adverse effect on operations.

Economic environment—OI Group may be adversely affected by the current economic environment.

        As a result of severely weak credit market conditions (including uncertainties with respect to financial institutions, and severely diminished liquidity and credit availability), volatility in energy costs and other macro-economic challenges currently affecting many of the economies in which OI Group operates, customers or vendors may experience serious cash flow problems and as a result, may modify, delay, or curtail plans to purchase OI Group's products and vendors may significantly and quickly increase their prices or reduce their output. Additionally, if customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to OI Group. Any inability of current and/or potential customers to pay OI Group for its products may adversely affect OI Group's earnings and cash flow. If the economic conditions in OI Group's key markets deteriorate further, OI Group may experience material adverse impacts to its business and operating results.

Business integration risks—OI Group may not be able to effectively integrate additional businesses it acquires in the future.

        OI Group may consider strategic transactions, including acquisitions that will complement, strengthen and enhance growth in its worldwide glass operations. OI Group evaluates opportunities on a preliminary basis from time to time, but these transactions may not advance beyond the preliminary stages or be completed. Such acquisitions are subject to various risks and uncertainties, including:

    The inability to integrate effectively the operations, products, technologies and personnel of the acquired companies (some of which are located in diverse geographic regions) and achieve expected synergies;

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    The potential disruption of existing business and diversion of management's attention from day-to-day operations;

    The inability to maintain uniform standards, controls, procedures and policies;

    The need or obligation to divest portions of the acquired companies; and

    The potential impairment of relationships with customers.

        In addition, OI Group cannot make assurances that the integration and consolidation of newly acquired businesses will achieve any anticipated cost savings and operating synergies.

Customer consolidation—The continuing consolidation of OI Group's customer base may intensify pricing pressures and have a material adverse effect on operations.

        Beginning in the early 1990s, many of OI Group's largest customers have acquired companies with similar or complementary product lines. This consolidation has increased the concentration of OI Group's business with its largest customers. In many cases, such consolidation has been accompanied by pressure from customers for lower prices, reflecting the increase in the total volume of products purchased or the elimination of a price differential between the acquiring customer and the company acquired. Increased pricing pressures from OI Group's customers may have a material adverse effect on operations.

Seasonality and raw materials—Profitability could be affected by varied seasonal demands and the availability of raw materials.

        Due principally to the seasonal nature of the brewing, iced tea and other beverage industries, in which demand is stronger during the summer months, sales of OI Group's products have varied and are expected to vary by quarter. Shipments in the U.S. and Europe are typically greater in the second and third quarters of the year, while shipments in the Asia Pacific region are typically greater in the first and fourth quarters of the year, and shipments in South America are typically greater in the third and fourth quarters of the year. Unseasonably cool weather during peak demand periods can reduce demand for certain beverages packaged in OI Group's containers.

        The raw materials that OI Group uses have historically been available in adequate supply from multiple sources. For certain raw materials, however, there may be temporary shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays. These shortages, as well as material volatility in the cost of any of the principal raw materials that OI Group uses, may have a material adverse effect on operations.

Environmental risks—OI Group is subject to various environmental legal requirements and may be subject to new legal requirements in the future. These requirements may have a material adverse effect on operations.

        OI Group's operations and properties, both in the U.S. and abroad, are subject to extensive laws, ordinances, regulations and other legal requirements relating to environmental protection, including legal requirements governing investigation and clean-up of contaminated properties as well as water discharges, air emissions, waste management and workplace health and safety. Such legal requirements frequently change and vary among jurisdictions. OI Group's operations and properties, both in the U.S. and abroad, must comply with these legal requirements. These requirements may have a material adverse effect on operations.

        OI Group has incurred, and expects to incur, costs for its operations to comply with environmental legal requirements, and these costs could increase in the future. Many environmental legal requirements provide for substantial fines, orders (including orders to cease operations), and criminal sanctions for violations. These legal requirements may apply to conditions at properties that OI Group

25



presently or formerly owned or operated, as well as at other properties for which OI Group may be responsible, including those at which wastes attributable to OI Group were disposed. A significant order or judgment against OI Group, the loss of a significant permit or license or the imposition of a significant fine may have a material adverse effect on operations.

        A number of governmental authorities both in the U.S. and abroad have enacted, or are considering, legal requirements that would mandate certain rates of recycling, the use of recycled materials and/or limitations on certain kinds of packaging materials. In addition, some companies with packaging needs have responded to such developments and/or perceived environmental concerns of consumers by using containers made in whole or in part of recycled materials. Such developments may reduce the demand for some of OI Group's products and/or increase OI Group's costs, which may have a material adverse effect on operations.

Labor relations—Some of OI Group's employees are unionized or represented by workers' councils.

        OI Group is party to a number of collective bargaining agreements with labor unions which at December 31, 2008, covered approximately 96% of OI Group's hourly employees in North America. Approximately 56% of employees in South America are unionized, although according to the labor legislation on each country, 100% of employees are covered by collective bargaining agreements. The agreement covering substantially all of OI Group's union-affiliated employees in its U.S. glass container operations expires on March 31, 2011. Agreements in South America typically have an average term of approximately 2-3 years. Upon the expiration of any collective bargaining agreement, if OI Group is unable to negotiate acceptable contracts with labor unions, it could result in strikes by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. In addition, a large number of OI Group's employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws of the U.S. Such employment rights require OI Group to work collaboratively with the legal representatives of the employees to effect any changes to labor arrangements. For example, most of OI Group's employees in Europe are represented by workers' councils that must approve any changes in conditions of employment, including salaries and benefits and staff changes, and may impede efforts to restructure OI Group's workforce. Although OI Group believes that it has a good working relationship with its employees, if OI Group's employees were to engage in a strike or other work stoppage, OI Group could experience a significant disruption of operations and/or higher ongoing labor costs, which may have a material adverse effect on operations.

Accounting—OI Group's financial results are based upon estimates and assumptions that may differ from actual results.

        In preparing OI Group's consolidated financial statements in accordance with U.S. generally accepted accounting principles, several estimates and assumptions are made that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These estimates and assumptions must be made because certain information that is used in the preparation of OI Group's financial statements is dependent on future events, cannot be calculated with a high degree of precision from data available or is not capable of being readily calculated based on generally accepted methodologies. In some cases, these estimates are particularly difficult to determine and OI Group must exercise significant judgment. OI Group believes that accounting for long-lived assets, pension benefit plans, contingencies and litigation, and income taxes involves the more significant judgments and estimates used in the preparation of its consolidated financial statements. Actual results for all estimates could differ materially from the estimates and assumptions that OI Group uses, which could have a material adverse effect on OI Group's financial condition and results of operations.

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Accounting standards—The adoption of new accounting standards or interpretations could adversely impact OI Group's financial results.

        OI Group's implementation of and compliance with changes in accounting rules and interpretations could adversely affect its operating results or cause unanticipated fluctuations in its results in future periods. The accounting rules and regulations that OI Group must comply with are complex and continually changing. Recent actions and public comments from the SEC have focused on the integrity of financial reporting generally. The Financial Accounting Standards Board, or FASB, has recently introduced several new or proposed accounting standards, or is developing new proposed standards, which would represent a significant change from current industry practices. In addition, many companies' accounting policies are being subjected to heightened scrutiny by regulators and the public. While OI Group believes that its financial statements have been prepared in accordance with U.S. generally accepted accounting principles, OI Group cannot predict the impact of future changes to accounting principles or its accounting policies on its financial statements going forward.

Goodwill—A significant write down of goodwill would have a material adverse effect on OI Group's reported results of operations and net worth.

        As required by FAS No. 142, "Goodwill and Other Intangibles," OI Group evaluates goodwill annually (or more frequently if impairment indicators arise) for impairment using the required business valuation methods. Goodwill at March 31, 2009 totaled $2,130.3 million. These methods include the use of a weighted average cost of capital to calculate the present value of the expected future cash flows of OI Group's reporting units. Future changes in the cost of capital, expected cash flows, or other factors may cause OI Group's goodwill to be impaired, resulting in a non-cash charge against results of operations to write down goodwill for the amount of the impairment. If a significant write down is required, the charge would have a material adverse effect on OI Group's reported results of operations and net worth.

Pension funding—Declines in the fair value of the assets of the pension plans sponsored by OI Group could require increased funding.

        OI Group's defined benefit pension plans in the U.S. and several other countries are funded through qualified trusts that hold investments in a broad range of equity and debt securities. Recent deterioration in the value of such investments, or further reductions driven by a decline in securities markets or otherwise, could increase the underfunded status of OI Group's funded pension plans, thereby increasing its obligation to make contributions to the plans as required by the laws and regulations governing each plan. An obligation to make contributions to pension plans could reduce the cash available for working capital and other corporate uses, and may have an adverse impact on OI Group's operations, financial condition and liquidity.

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The Exchange Offer

Purpose of the Exchange Offer

        On May 12, 2009, we issued $600.0 million of the private notes to JP Morgan Securities Inc., Banc of America Securities LLC, Deutsche Bank Securities Inc., Barclays Capital Inc., BNP Paribas Securities Corp., Calyon Securities (USA) Inc., Citigroup Global Markets Inc., HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc., the initial purchasers, pursuant to a purchase agreement. The initial purchasers subsequently sold the private notes to "qualified institutional buyers," as defined in Rule 144A under the Securities Act, in reliance on Rule 144A, and outside the United States under Regulation S of the Securities Act. As a condition to the sale of the private notes, we entered into a registration rights agreement with the initial purchasers on May 12, 2009. Pursuant to the registration rights agreement, we agreed that we would:

    (1)
    use our best efforts to file an exchange offer registration statement with the SEC on or prior to November 9, 2009;

    (2)
    use our commercially reasonable efforts to have the exchange offer registration statement declared effective by the SEC on or prior to January 7, 2010;

    (3)
    keep the exchange offer open for a period of not less than the minimum period required under applicable law, but in no event for less than 20 business days;

    (4)
    use our commercially reasonable efforts to consummate the exchange offer within 90 days after the exchange offer registration statement is declared effective.

        Upon the effectiveness of the exchange offer registration statement, we will offer the exchange notes in exchange for the private notes. We filed a copy of the registration rights agreement as an exhibit to the registration statement.

Resale of the Exchange Notes

        Based upon an interpretation by the staff of the SEC contained in no-action letters issued to third parties, we believe that you may exchange private notes for exchange notes in the ordinary course of business. For further information on the SEC's position, see Exxon Capital Holdings Corporation, available May 13, 1988, Morgan Stanley & Co. Incorporated, available June 5, 1991 and Shearman & Sterling, available July 2, 1993, and other interpretive letters to similar effect. You will be allowed to resell exchange notes to the public without further registration under the Securities Act and without delivering to purchasers of the exchange notes a prospectus that satisfies the requirements of Section 10 of the Securities Act so long as you do not participate, do not intend to participate, and have no arrangement with any person to participate, in a distribution of the exchange notes. However, the foregoing does not apply to you if you are: a broker-dealer who purchased the exchange notes directly from us to resell pursuant to Rule 144A or any other available exemption under the Securities Act; or you are an "affiliate" of ours within the meaning of Rule 405 under the Securities Act.

        In addition, if you are a broker-dealer, or you acquire exchange notes in the exchange offer for the purpose of distributing or participating in the distribution of the exchange notes, you cannot rely on the position of the staff of the SEC contained in the no-action letters mentioned above or other interpretive letters to similar effect and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available.

        Each broker-dealer that receives exchange notes for its own account in exchange for private notes, which the broker-dealer acquired as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. By delivering a prospectus, a broker-dealer may be deemed to be an "underwriter" within the meaning of

28



the Securities Act. A broker-dealer may use this prospectus, as it may be amended or supplemented from time to time, in connection with resales of exchange notes received in exchange for private notes which the broker-dealer acquired as a result of market-making or other trading activities.

Terms of the Exchange Offer

        Upon the terms and subject to the conditions described in this prospectus, we will accept any and all private notes validly tendered and not withdrawn before the expiration date. We will issue $2,000 principal amount of exchange notes in exchange for each $2,000 principal amount of outstanding private notes surrendered pursuant to the exchange offer. You may tender private notes only in integral multiples of $1,000.

        The form and terms of the exchange notes are the same as the form and terms of the private notes except that:

    we will register the exchange notes under the Securities Act and, therefore, the exchange notes will not bear legends restricting their transfer; and

    holders of the exchange notes will not be entitled to any of the rights of holders of private notes under the registration rights agreement, which rights will terminate upon the completion of the exchange offer.

        The exchange notes will evidence the same debt as the private notes and will be issued under the same indenture, so the exchange notes and the private notes will be treated as a single class of debt securities under the indenture.

        As of the date of this prospectus, $600.0 million in aggregate principal amount of the private notes are outstanding and registered in the name of Cede & Co., as nominee for DTC. Only registered holders of the private notes, or their legal representative or attorney-in-fact, as reflected on the records of the trustee under the indenture, may participate in the exchange offer. We will not set a fixed record date for determining registered holders of the private notes entitled to participate in the exchange offer.

        You do not have any appraisal or dissenters' rights under the indenture in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement and the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of the SEC.

        We will be deemed to have accepted validly tendered private notes when, as and if we have given written notice of acceptance to the Exchange Agent. The Exchange Agent will act as your agent for the purposes of receiving the exchange notes from us.

        If you tender private notes in the exchange offer you will not be required to pay brokerage commissions or fees with respect to the exchange of private notes pursuant to the exchange offer. We will pay all charges and expenses, other than the applicable taxes described below, in connection with the exchange offer.

Expiration Date; Extensions; Amendments

        The term "expiration date" will mean 5:00 p.m., New York City time on August 31, 2009 (the 21st business day following commencement of the exchange offer), unless we, in our sole discretion, extend the exchange offer, in which case the term expiration date will mean the latest date and time to which we extend the exchange offer.

        To extend the exchange offer, we will notify the Exchange Agent and each registered holder of any extension in writing by a press release or other public announcement before 9:00 a.m., New York City

29



time, on the next business day after the previously scheduled expiration date. The notice of extension will disclose the aggregate principal amount of the private notes that have been tendered as of the date of such notice.

        We reserve the right, in our reasonable discretion:

    to delay accepting any private notes due to an extension of the exchange offer; or

    if any conditions listed below under "—Conditions" are not satisfied, to terminate the exchange offer

in each case by written notice of the delay, extension or termination to the Exchange Agent and by press release or other public announcement.

        We will follow any delay in acceptance, extension or termination as promptly as practicable by written notice to the registered holders by a press release or other public announcement. If we amend the exchange offer in a manner we determine constitutes a material change, we will promptly disclose the amendment in a prospectus supplement that we will distribute to the registered holders. We will also extend the exchange offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure, if the exchange offer would otherwise expire during the five to ten business day period.

Interest on the Exchange Notes

        The exchange notes will bear interest at the same rate and on the same terms as the private notes. Consequently, the exchange notes will bear interest at a rate equal to 73/8% per annum (calculated using a 360-day year). Interest will be payable on the exchange notes semi-annually on each February 1 and August 1.

        Interest on the exchange notes will accrue from the last interest payment date on which interest was paid on the private notes. We will deem the right to receive any interest accrued but unpaid on the private notes waived by you if we accept your private notes for exchange.

Procedures for Tendering

        If you are a DTC, Euroclear or Clearstream participant that has private notes which are credited to your DTC, Euroclear or Clearstream account by book-entry and which are held of record by DTC, Euroclear or Clearstream's nominee, as applicable, you may tender your private notes by book-entry transfer as if you were the record holder. Because of this, references herein to registered or record holders include DTC, Euroclear and Clearstream participants with private notes credited to their accounts. If you are not a DTC, Euroclear or Clearstream participant, you may tender your private notes by book-entry transfer by contacting your broker, dealer or other nominee or by opening an account with a DTC, Euroclear or Clearstream participant, as the case may be.

        To tender private notes in the exchange offer, you must:

    comply with DTC's Automated Tender Offer Program ("ATOP") procedures described below; and

    the Exchange Agent must receive a timely confirmation of a book-entry transfer of the private notes into its account at DTC through ATOP pursuant to the procedure for book-entry transfer described below, along with a properly transmitted agent's message, before the expiration date.

        Participants in DTC's ATOP program must electronically transmit their acceptance of the exchange by causing DTC to transfer the private notes to the Exchange Agent in accordance with DTC's ATOP procedures for transfer. DTC will then send an agent's message to the Exchange Agent. With respect

30


to the exchange of the private notes, the term "agent's message" means a message transmitted by DTC, received by the Exchange Agent and forming part of the book-entry confirmation, which states that:

    DTC has received an express acknowledgment from a participant in its ATOP that is tendering private notes that are the subject of the book-entry confirmation;

    the participant has received and agrees to be bound by the terms and subject to the conditions set forth in this prospectus; and

    the Company may enforce the agreement against such participant.

        Participants in Euroclear's or Clearstream's book-entry transfer facility system must electronically transmit their acceptance of the exchange to Euroclear or Clearstream. The receipt of such electronic acceptance instruction by Euroclear or Clearstream will be acknowledged in accordance with the standard practices of such book-entry transfer facility and will result in the blocking of such private notes in that book-entry transfer facility. By blocking such private notes in the relevant book-entry transfer facility, each holder of private notes will be deemed to consent to have the relevant book-entry transfer facility provide details concerning such holder's identity to the Exchange Agent. The receipt of an electronic instruction by Euroclear or Clearstream shall mean:

    Euroclear or Clearstream, as applicable, has received an express acknowledgment from a participant in Euroclear or Clearstream, as the case may be, that such participant is tendering private notes that are the subject of the book-entry confirmation;

    the participant has received and agrees to be bound by the terms and subject to the conditions set forth in this prospectus; and

    the Company may enforce the agreement against such participant.

        Your tender, if not withdrawn before the expiration date, will constitute an agreement between you and us in accordance with the terms and subject to the conditions described in this prospectus.

        DTC, Euroclear and Clearstream are collectively referred to herein as the "book-entry transfer facilities" and, individually as a "book-entry transfer facility."

        We will determine in our sole discretion all questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tendered private notes, which determination will be final and binding. We reserve the absolute right to reject any and all private notes not properly tendered or any private notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular private notes. Our interpretation of the terms and conditions of the exchange offer will be final and binding on all parties. Unless waived, you must cure any defects or irregularities in connection with tenders of private notes within the time we determine. Although we intend to notify you of defects or irregularities with respect to tenders of private notes, neither we, the Exchange Agent nor any other person will incur any liability for failure to give you that notification. Unless waived, we will not deem tenders of private notes to have been made until you cure the defects or irregularities.

        While we have no present plan to acquire any private notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any private notes that are not tendered in the exchange offer, we reserve the right in our sole discretion to purchase or make offers for any private notes that remain outstanding after the expiration date. We also reserve the right to terminate the exchange offer, as described below under "—Conditions," and, to the extent permitted by applicable law, purchase private notes in the open market, in privately negotiated transactions or otherwise. The terms of any of those purchases or offers could differ from the terms of the exchange offer.

31


        If you wish to tender private notes in exchange for exchange notes in the exchange offer, we will require you to represent that:

    the private notes are, at the time of acceptance, and will continue to be, until exchanged in this offer, held by you;

    you acknowledge that all authority conferred or agreed to be conferred pursuant to these representations, warranties and undertakings and every obligation of yours shall be binding upon your successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives and shall not be affected by, and shall survive, your death or incapacity (if an individual) or dissolution (if an entity);

    you will, upon request, execute and deliver any documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the exchange of the private notes that are the subject of the electronic acceptance instruction;

    you have full power and authority to tender, exchange, assign and transfer the private notes that are the subject of the electronic acceptance instruction and that when such notes are accepted for exchange by the Company, the notes will be transferred by you with full title guarantee free from all liens, restrictions, charges and encumbrances and not subject to any adverse claim or right, together with all rights attached thereto;

    you are not an affiliate of ours;

    you will acquire any exchange notes in the ordinary course of your business;

    you do not have an arrangement or understanding with any person to participate in the distribution of the exchange notes; and

    at the time of completion of the exchange offer, you are not engaged in, and do not intend to engage in, a distribution of the exchange notes.

        You will be deemed to make such representations by tendering private notes in the exchange offer. In addition, in connection with the resale of exchange notes, any participating broker-dealer who acquired the private notes for its own account as a result of market-making or other trading activities acknowledges that it must deliver a prospectus meeting the requirements of the Securities Act. The SEC has taken the position that participating broker-dealers may fulfill their prospectus delivery requirements with respect to the exchange notes, other than a resale of an unsold allotment from the original sale of the notes, with this prospectus.

Book-Entry Transfer

        The Exchange Agent will make a request to establish an account with respect to the private notes at DTC, as book-entry transfer facilities, for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in the book entry transfer facility's system may make book-entry delivery of private notes by causing the depositary to transfer the private notes into the Exchange Agent's account at the facility in accordance with the facility's procedures for such transfer.

        In all cases, we will issue exchange notes for private notes that we have accepted for exchange under the exchange offer only after the Exchange Agent timely receives:

    confirmation of book-entry transfer of your private notes into the Exchange Agent's account at DTC; and

    a properly transmitted agent's message.

32


        If we do not accept any tendered private notes for any reason set forth in the terms of the exchange offer, we will credit the non-exchanged private notes to your account maintained at the applicable book-entry transfer facility.

Withdrawal of Tenders

        You may withdraw your tender of private notes at any time before the expiration date.

        For a withdrawal to be effective, the holder must cause to be transmitted to the Exchange Agent an agent's message, which agent's message must be received by the Exchange Agent prior to 5:00 p.m., New York City time, on the expiration date. In addition, the Exchange Agent must receive a timely confirmation of book-entry transfer of the private notes out of the Exchange Agent's account at DTC, under the applicable procedure for book-entry transfers described herein, along with a properly transmitted agent's message, on or before the expiration date.

        We will determine in our sole discretion all questions as to the validity, form and eligibility of the notices, and our determination will be final and binding on all parties. We will not deem any properly withdrawn private notes to have been validly tendered for purposes of the exchange offer, and we will not issue exchange notes with respect to those private notes, unless you validly retender the withdrawn private notes. You may retender properly withdrawn private notes by following the procedures described above under "—Procedures for Tendering" at any time before the expiration date.

Conditions

        Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or exchange the exchange notes for, any private notes, and may terminate the exchange offer as provided in this prospectus before the expiration of the exchange offer, if, in our reasonable judgment, the exchange offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the SEC.

        If we determine in our reasonable discretion that any of these conditions are not satisfied, we may:

    refuse to accept any private notes and return all tendered private notes to you;

    extend the exchange offer and retain all private notes tendered before the exchange offer expires, subject, however, to your rights to withdraw the private notes; or

    waive the unsatisfied conditions with respect to the exchange offer and accept all properly tendered private notes that have not been withdrawn.

        If the waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that we will distribute to the registered holders of the private notes, and we will extend the exchange offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during the five to ten business day period.

Termination of Rights

        All of your rights under the registration rights agreement will terminate upon consummation of the exchange offer except with respect to our continuing obligations:

    to indemnify you and parties related to you against liabilities, including liabilities under the Securities Act; and

    to provide, upon your request, the information required by Rule 144A(d)(4) under the Securities Act to permit resales of the notes pursuant to Rule 144A.

33


Shelf Registration

        If:

    (1)
    we and the guarantors are not permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or SEC policy; or

    (2)
    any holder of transfer restricted securities notifies us prior to the 20th day following consummation of the exchange offer that:

    (a)
    it is prohibited by law or SEC policy from participating in the exchange offer; or

    (b)
    that it may not resell the exchange notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales; or

    (c)
    that it is a broker-dealer and owns private notes acquired directly from us or an affiliate of us,

we and the guarantors will file with the SEC a shelf registration statement to cover resales of the private notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement.

        For purposes of the preceding, "transfer restricted securities" means each private note until:

    (1)
    the date on which such note has been exchanged by a person other than a broker-dealer for an exchange note in the exchange offer;

    (2)
    following the exchange by a broker-dealer in the exchange offer of a private note for an exchange note, the date on which such exchange note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the exchange offer registration statement;

    (3)
    the date on which such private note has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement; or

    (4)
    the date on which such private note is distributed to the public pursuant to Rule 144 under the Securities Act.

Additional Interest

        If:

    (1)
    we and the guarantors fail to file any of the registration statements required by the registration rights agreement on or before the date specified for such filing; or

    (2)
    any of such registration statements is not declared effective by the SEC on or prior to the date specified for such effectiveness; or

    (3)
    we and the guarantors fail to consummate the exchange offer within 40 days after the exchange offer registration statement is declared effective; or

    (4)
    the shelf registration statement or the exchange offer registration statement is declared effective but thereafter ceases to be effective or usable in connection with resales or exchanges of transfer restricted securities during the periods specified in the registration rights agreement (each such event referred to in clauses (1) through (4) above, a "registration default");

then we and the guarantors will pay additional interest to each holder of outstanding notes ("additional interest") during the period of one or more registration defaults, with respect to the first 90-day period

34



immediately following the occurrence of the first registration default in an amount equal to 0.25% per annum (which amount will be increased by an additional 0.25% per annum for each subsequent 90-day period that any additional interest continue to accrue; provided that the amounts at which additional interest accrue may in no event exceed 1.0% per annum) in respect of the transfer restricted securities held by such holder until the applicable registration statement is filed, the exchange offer registration statement is declared effective and the exchange offer is consummated or the shelf registration statement is declared effective or again becomes effective, as the case may be.

Exchange Agent

        We have appointed U.S. Bank National Association as Exchange Agent for the exchange offer of notes.

        You should direct questions and requests for assistance and requests for additional copies of this prospectus to the Exchange Agent addressed as follows:

U.S. Bank National Association
60 Livingston Avenue
St. Paul, Minnesota 55107
Attention: Corporate Trust Department

Fees and Expenses

        We will bear the expenses of soliciting tenders. We have not retained any dealer manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We will, however, pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses.

        We will pay the cash expenses incurred in connection with the exchange offer which we estimate to be approximately $250,000. These expenses include registration fees, fees and expenses of the Exchange Agent and the trustee, accounting and legal fees and printing costs, among others.

        We will pay all transfer taxes, if any, applicable to the exchange of notes pursuant to the exchange offer. If, however, a transfer tax is imposed for any reason other than the exchange of the private notes pursuant to the exchange offer, then you must pay the amount of the transfer taxes.

Consequence of Failures to Exchange

        Participation in the exchange offer is voluntary. We urge you to consult your financial and tax advisors in making your decisions on what action to take. Private notes that are not exchanged for exchange notes pursuant to the exchange offer will remain restricted securities. Accordingly, those private notes may be resold only:

    to a person whom the seller reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A;

    in a transaction meeting the requirements of Rule 144 under the Securities Act;

    outside the United States to a foreign person in a transaction meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act;

    in accordance with another exemption from the registration requirements of the Securities Act and based upon an opinion of counsel if we so request;

    to us; or

    pursuant to an effective registration statement.

        In each case, the private notes may be resold only in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction.

35



Use of proceeds

        The exchange offer satisfies an obligation under the registration rights agreement. We will not receive any cash proceeds from the exchange offer.

        The net proceeds from the sale of the private notes after deducting discounts, commissions and offering expenses, were approximately $567.8 million. The net proceeds will be used to fund the repayment or repurchase of OI Inc.'s $250 million of 71/2% Senior Debentures due May 15, 2010, of which $221.9 million were repurchased on June 11, 2009 pursuant to a tender offer, and for general corporate purposes, including but not limited to, temporarily repaying borrowings under the secured credit agreement's revolving credit facility, funding OI Group's global footprint alignment initiative, and/or funding OI Group's strategic priorities.

36



Capitalization of Owens-Illinois Group, Inc.

        The following table presents, as of March 31, 2009, the (1) actual consolidated capitalization of OI Group and (2) consolidated capitalization of OI Group as adjusted to reflect the issuance of the notes and the use of proceeds therefrom. You should read this table in conjunction with the Audited Consolidated Financial Statements and notes thereto and the Unaudited Condensed Consolidated Financial Statements, which are included elsewhere in this prospectus. For more information, see also the section entitled "Selected consolidated financial data of Owens-Illinois Group, Inc."

 
  At March 31, 2009  
(Dollars in millions)
  Actual   As adjusted(1)  

Current debt:

             
 

Securitization program

  $ 255.2   $ 255.2  
 

Long-term debt due within one year

    16.9     16.9  
 

Other

    81.5     81.5  
           

Total current debt

  $ 353.6   $ 353.6  
           

Long-term debt:

             
 

Secured credit agreement:

             
 

Revolving credit facility(2)(3)

  $ 144.8   $  
 

Term Loans:

             
   

Term Loan A (225 million AUD)

    154.2     154.2  
   

Term Loan B

    191.5     191.5  
   

Term Loan C (110.8 million CAD)

    87.8     87.8  
   

Term Loan D (€191.5 million)

    253.2     253.2  
           

Total secured credit agreement

    831.5     686.7  
 

Senior notes:

             
 

81/4% Senior Notes due 2013 (face value $450 million)(4)

    460.0     460.0  
 

63/4% Senior Notes due 2014

    400.0     400.0  
 

63/4% Senior Notes due 2014 (€225 million)

    297.4     297.4  
 

67/8% Senior Notes due 2017 (€300 million)

    396.6     396.6  
 

73/8% Senior Notes due 2016

        580.3  
 

Payable to OI Inc.(3)(5)

    507.5     250.0  
 

Other

    71.0     71.0  
           

Total long-term debt

    2,964.0     3,142.0  
           

Share owners' equity:

             
 

Common stock, par value $.01 per share, 1,000 shares authorized, 100 shares issued and outstanding

         
 

Other contributed capital

    915.3     915.3  
 

Retained earnings(6)

    2,261.6     2,268.7  
 

Accumulated other comprehensive loss

    (1,700.4 )   (1,700.4 )
           
 

Total Owens-Illinois Group, Inc. share owner's equity

    1,476.5     1,483.6  
 

Noncontrolling interests

    240.2     240.2  
           

Total share owners' equity

    1,716.7     1,723.8  
           

Total capitalization

  $ 4,680.7   $ 4,865.8  
           

(1)
The exchange rate on March 31, 2009 was used to translate certain amounts to U.S. dollar amounts.

37


(2)
As a result of the bankruptcy of Lehman Brothers Holdings Inc. and several of its subsidiaries, OI Group believes that the maximum amount available under the revolving credit facility was reduced by $32.3 million. After deducting amounts attributable to letters of credit and overdraft facilities that are supported by the revolving credit facility, at March 31, 2009, the subsidiary borrowers had unused credit of $641.8 million available under the secured credit agreement.

(3)
The as adjusted amount of the 73/8% Senior Notes due 2016 consists of $600 million aggregate principal amount offered at a price of 96.724% of their face value. The $19.7 million discount will accrete and be included in interest expense until the notes mature.

(4)
OI Group has entered into a series of interest rate swap agreements in order to convert a portion of its fixed rate debt into floating rate debt. The swaps are accounted for at fair value and, accordingly, are recorded as assets along with a corresponding increase in the carrying value of the hedged debt.

(5)
Payable to OI Inc. is comprised of OI Inc.'s $250.0 million of 71/2% Senior Debentures due 2010 and $250.0 million of 74/5% Senior Debentures due 2018. The 71/2% Senior Debentures due 2010 are subject to the interest rate swaps referenced in footnote 4 above and are included in long-term debt at $257.5 million.

(6)
The as adjusted amount of retained earnings reflects a gain of $7.5 million on the interest rate swaps referenced in footnote 4 above partially offset by the elimination of unamortized finance fees of $0.4 million.

38



Selected consolidated financial data of
Owens-Illinois Group, Inc.

        The summary selected consolidated financial data of OI Group presented below relates to each of the five years in the period ended December 31, 2008 and the three month periods ended March 31, 2009 and 2008, respectively. The financial data for each of the five years in the period ended December 31, 2008 were derived from OI Group's Audited Consolidated Financial Statements. The financial data for the three months ended March 31, 2009 and 2008 were derived from the Unaudited Condensed Consolidated Financial Statements of OI Group, which in the opinion of management, reflect all adjustments necessary consisting only of normal recurring adjustments, for a fair presentation of the interim period financial data. The results for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected for the full year. For more information, see the Audited Consolidated Financial Statements and the Unaudited Condensed Consolidated Financial Statements which are included elsewhere in this prospectus.

 
  Year ended December 31,   Three months ended
March 31,
 
(Dollars in millions)
  2008   2007   2006   2005   2004   2009   2008  
 
  (audited)
  (unaudited)
 

Consolidated operating results:(1)

                                           

Net sales

  $ 7,884.7   $ 7,566.7   $ 6,650.4   $ 6,266.9   $ 5,366.1   $ 1,519.0   $ 1,960.5  

Manufacturing, shipping and delivery(2)

    (6,208.1 )   (5,971.4 )   (5,481.1 )   (5,084.9 )   (4,329.6 )   (1,222.2 )   (1,503.7 )
                               

Gross profit

    1,676.6     1,595.3     1,169.3     1,182.0     1,036.5     296.8     456.8  

Selling, administrative, research, development, engineering expense

    (578.5 )   (586.4 )   (579.1 )   (506.1 )   (408.6 )   (132.4 )   (143.8 )

Interest expense(3)

    (253.0 )   (348.6 )   (349.0 )   (325.4 )   (329.0 )   (48.1 )   (64.3 )

Interest income

    38.6     42.3     19.2     16.5     15.2     8.5     8.7  

Equity earnings, royalties, technical assistance, and other income(4)

    78.9     70.2     79.4     86.7     119.0     18.0     17.7  

Other expense(5)

    (154.2 )   (151.2 )   (54.7 )   (525.8 )   (37.3 )   (52.8 )   (20.0 )
                               

Earnings from continuing operations before income taxes

    808.4     621.6     285.1     (72.1 )   395.8     90.0     255.1  

Provision for income taxes(6)

    (237.9 )   (147.8 )   (125.3 )   (428.9 )   (84.9 )   (31.2 )   (64.9 )
                               

Earnings from continuing operations

    570.5     473.8     159.8     (501.0 )   310.9     58.8     190.2  

Net earnings (loss) of discontinued operations(7)

        2.8     (23.7 )   63.1     42.4          

Gain on sale of discontinued operations

    6.8     1,038.5         1.2             4.1  
                               

Net earnings (loss)

    577.3     1,515.1     136.1     (436.7 )   353.3     58.8     194.3  

Net earnings attributable to noncontrolling interests(8)

    (70.2 )   (59.5 )   (43.6 )   (35.9 )   (32.9 )   (13.7 )   (16.2 )
                               

Net earnings (loss) attributable to OI Group

  $ 507.1   $ 1,455.6   $ 92.5   $ (472.6 ) $ 320.4   $ 45.1   $ 178.1  
                               

Amounts attributable to OI Group:

                                           

Earnings (loss) from continuing operations

  $ 500.3   $ 414.3   $ 116.2   $ (536.9 ) $ 278.0   $ 45.1   $ 174.0  

Discontinued operations

    6.8     1,041.3     (23.7 )   64.3     42.4         4.1  
                               

Net earnings (loss)

  $ 507.1   $ 1,455.6   $ 92.5   $ (472.6 ) $ 320.4   $ 45.1   $ 178.1  
                               

39


 
  Year ended December 31,   Three months ended
March 31,
 
(Dollars in millions)
  2008   2007   2006   2005   2004   2009   2008  
 
  (audited)
  (unaudited)
 

Other data:

                                           

Deficiency of earnings available to cover fixed charges(9)

                      72.7                    

Ratio of earnings to fixed charges(9)

    4.1     2.7     1.9           2.2     2.7     4.8  

The following are included in net earnings:

                                           

Depreciation

  $ 431.0   $ 423.4   $ 427.7   $ 436.1   $ 406.3   $ 88.4   $ 113.6  

Amortization of intangibles

    28.9     28.9     22.3     22.5     18.8     4.3     7.6  

Amortization of deferred finance fees (included in interest expense)

    7.9     8.6     5.7     6.7     6.0     2.4     1.9  

Balance sheet data (at end of period):

                                           

Working capital (current assets less current liabilities)

  $ 616   $ 375   $ 216   $ 618   $ 605   $ 755   $ 644  

Total assets

    7,977     9,325     9,321     9,521     10,550     7,752     9,957  

Total debt

    3,325     3,714     5,464     5,300     5,365     3,318     4,023  

OI Group share owner's equity

    1,536     2,643     1,044     1,198     2,040     1,477     2,914  

(1)
Amounts related to the Company's plastic packaging business have been reclassified to discontinued operations for 2004-2007 as a result of the sale of that business in 2007. Amounts related to the Company's plastic blow-molded container business have been reclassified to discontinued operations for 2004 as a result of the sale of that business in 2004. Amounts for the year ended December 31, 2004, and all subsequent periods, include the results of BSN from the date of acquisition on June 21, 2004.

(2)
Amount for 2006 includes a loss of $8.7 million ($8.4 million after tax) from the mark to market effect of natural gas hedge contracts.

Amount for 2005 includes a gain of $3.8 million ($2.3 million after tax) from the mark to market effect of natural gas hedge contracts.

Amount for 2004 includes a gain of $4.9 million ($3.2 million after tax) from the mark to market effect of natural gas hedge contracts.

(3)
Amount for 2007 includes charges of $7.9 million ($7.3 million after tax) for note repurchase premiums.

Amount for 2006 includes charges of $6.2 million (pretax and after tax) for note repurchase premiums.

Amount for 2004 includes charges of $28.0 million ($18.3 million after tax) for note repurchase premiums.

Includes additional interest charges for the write-off of unamortized deferred financing fees related to the early extinguishment of debt as follows: $1.6 million ($1.5 million after tax) for 2007; $11.3 million ($10.9 million after tax) for 2006; and $2.8 million ($1.8 million after tax) for 2004.

(4)
Amount for 2006 includes a gain of $15.9 million ($11.2 million after tax) for the curtailment of postretirement benefits in The Netherlands.

Amount for 2005 includes $28.1 million (pretax and after tax) from the sale of the Company's glass container facility in Corsico, Italy.

Amount for 2004 includes: (1) a gain of $20.6 million ($14.5 million after tax) for the sale of certain real property; and (2) a gain of $31.0 million ($13.1 million after tax) for a restructuring in the Italian Specialty Glass business.

(5)
Amount for 2008 includes charges of $133.3 million ($110.1 million after tax attributable to OI Group) for restructuring and asset impairments.

Amount for 2007 includes charges of $100.3 million ($84.1 million after tax) for restructuring and asset impairments.

40


    Amount for 2006 includes a charge of $20.8 million ($20.7 million after tax) for CEO transition costs and a charge of $29.7 million ($27.7 million after tax) for the closing of the Godfrey, Illinois machine parts manufacturing operation.

    Amount for 2005 includes a charge of $494.0 million (pretax and after tax) to write down goodwill in the Asia Pacific Glass unit.

    Amount for 2004 includes a charge of $6.4 million ($5.4 million after tax) for restructuring a life insurance program in order to comply with recent statutory and tax regulation changes.

    Amount for the three months ended March 31, 2009 includes charges of $50.4 million ($47.7 million after tax) for restructuring and asset impairments.

    Amount for the three months ended March 31, 2008 includes charges of $12.9 million ($9.7 million after tax attributable to OI Group) for restructuring and asset impairments.

(6)
Amount for 2008 includes a net tax expense of $33.3 million ($34.8 million attributable to OI Group) related to tax legislation, restructuring, and other.

Amount for 2007 includes a benefit of $13.5 million for the recognition of tax credits related to restructuring of investments in certain European operations.

Amount for 2006 includes a benefit of $5.7 million from the reversal of a non-U.S. deferred tax asset valuation allowance partially offset by charges related to international tax restructuring.

Amount for 2005 includes a charge of $300.0 million to record a valuation allowance related to accumulated deferred tax assets in the U.S. and a benefit of $5.3 million for the reversal of an accrual for potential tax liabilities related to a previous divestiture. The accrual is no longer required based on the Company's reassessment of potential liabilities.

Amount for 2004 includes a benefit of $33.1 million for a tax consolidation in the Australian glass business.

(7)
Amount for 2005 consists principally of a third quarter benefit from the reversal of an accrual for potential tax liabilities related to a previous divestiture. The accrual is no longer required based on the Company's reassessment of the potential liabilities.

(8)
Effective January 1, 2009, OI Group adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51," ("FAS No. 160") which changed the presentation of noncontrolling interests in subsidiaries. The format of OI Group's condensed consolidated results of operations and condensed consolidated cash flows for the three months ended March 31, 2008 and the years ended December 31, 2008, 2007, 2006, 2005 and 2004 and condensed consolidated balance sheets at March 31, 2008 and December 31, 2008, 2007, 2006, 2005 and 2004 have been reclassified to conform to the new presentation under FAS No. 160 which is required to be applied retrospectively. These reclassifications did not affect previously reported earnings amounts or share owner's equity amounts attributable to OI Group. However, amounts previously reported for cash provided by operating activities have been increased to reflect the reclassification of dividends paid to noncontrolling interests as a cash flow from financing activities. Dividends paid to noncontrolling interests amounted to $49.6 million for the year ended December 31, 2008, $28.6 million for the year ended December 31, 2007, $27.1 million for the year ended December 31, 2006, $21.6 million for the year ended December 31, 2005, $18.6 million for the year ended December 31, 2004, and $30.2 million for the three months ended March 31, 2008.

(9)
For purposes of these computations, earnings consist of earnings from continuing operations before income taxes, noncontrolling interests in earnings of subsidiaries, plus fixed charges. Fixed charges consist primarily of interest on indebtedness, including amortization of deferred finance fees, plus that portion of lease rental expense representative of the interest factor. Pretax earnings and fixed charges also include the proportional share of 50%-owned investees.

41



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF OWENS-ILLINOIS GROUP, INC.

        Following are OI Group's net sales by segment and segment operating profit for the three months ended March 31, 2009 and 2008, and for the years ended December 31, 2008, 2007, and 2006. OI Group'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, provision for income taxes and noncontrolling interests 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 FAS No. 131. 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. OI Group's management uses Segment Operating Profit, in combination with selected cash flow information, to evaluate performance and to allocate resources.

 
  Year Ended December 31,   3 Months Ended
March 31,
 
Net Sales:
  2008   2007   2006   2009   2008  
 

Europe

  $ 3,497.8   $ 3,298.7   $ 2,846.6   $ 612.9   $ 888.9  
 

North America

    2,209.7     2,271.3     2,110.4     494.3     530.9  
 

South America

    1,135.9     970.7     796.5     214.0     254.2  
 

Asia Pacific

    964.1     934.3     804.9     182.0     250.0  
                       

Reportable segment totals

    7,807.5     7,475.0     6,558.4     1,503.2     1,924.0  
 

Other

    77.2     91.7     92.0     15.8     36.5  
                       

Net Sales

  $ 7,884.7   $ 7,566.7   $ 6,650.4   $ 1,519.0   $ 1,960.5  
                       

 

 
  Year Ended December 31,   3 Months Ended
March 31,
 
Segment Operating Profit:
  2008   2007   2006   2009   2008  
 

Europe

  $ 477.8   $ 433.0   $ 249.6   $ 44.2   $ 147.6  
 

North America

    185.2     265.1     187.3     62.7     55.5  
 

South America

    331.0     254.9     195.0     60.0     73.6  
 

Asia Pacific

    162.8     154.0     102.9     25.0     45.4  
                       

Reportable segment totals

    1,156.8     1,107.0     734.8     191.9     322.1  

Items excluded from Segment Operating Profit:

                               
 

Retained corporate costs and other

    (0.7 )   (78.8 )   (76.6 )   (11.9 )   1.5  
 

Restructuring and asset impairments

    (133.3 )   (100.3 )   (29.7 )   (50.4 )   (12.9 )
 

CEO and other transition charges

                (20.8 )            
 

Curtailment of postretirement benefits in The Netherlands

                15.9              
 

Mark to market effect of natural gas hedge contracts

                (8.7 )            
 

Interest income

    38.6     42.3     19.2     8.5     8.7  
 

Interest expense

    (253.0 )   (348.6 )   (349.0 )   (48.1 )   (64.3 )
                       

Earnings from continuing operations before income taxes

    808.4     621.6     285.1     90.0     255.1  

Provision for income taxes

    (237.9 )   (147.8 )   (125.3 )   (31.2 )   (64.9 )
                       

Earnings from continuing operations

    570.5     473.8     159.8     58.8     190.2  

Net earnings (loss) of discontinued operations

          2.8     (23.7 )            

Gain on sale of discontinued operations

    6.8     1,038.5                 4.1  
                       

42


 
  Year Ended December 31,   3 Months Ended
March 31,
 
Segment Operating Profit: (continued)
  2008   2007   2006   2009   2008  

Net earnings

    577.3     1,515.1     136.1     58.8     194.3  

Net earnings attributable to noncontrolling interests

    (70.2 )   (59.5 )   (43.6 )   (13.7 )   (16.2 )
                       

Net earnings attributable to OI Group

  $ 507.1   $ 1,455.6   $ 92.5   $ 45.1   $ 178.1  
                       

Net earnings from continuing operations attributable to OI Group

  $ 500.3   $ 414.3   $ 116.2   $ 45.1   $ 174.0  
                       

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

Executive Overview—Quarters ended March 31, 2009 and 2008

        Net sales were $441.5 million lower than the prior year principally resulting from decreased shipments and the unfavorable effect of foreign currency exchange rates, partially offset by higher selling prices.

        Segment Operating Profit for reportable segments was $130.2 million lower than the prior year. The decrease was mainly attributable to lower sales volume and increased manufacturing and delivery costs resulting from unabsorbed fixed costs of approximately $100 million from temporary shutdowns as well as inflationary cost increases. Partially offsetting these costs were higher selling prices and savings from permanent curtailment of plant capacity and realignment of selected operations.

        Interest expense for the first quarter of 2009 was $48.1 million compared with $64.3 million for the first quarter of 2008. The decrease is principally due to lower variable interest rates under OI Group's bank credit agreement and on long term debt variable and swapped rates, lower overall debt levels, as well as favorable foreign currency exchange rates.

        Interest income for the first quarter of 2009 was $8.5 million compared with $8.7 million for the first quarter of 2008.

        Net earnings from continuing operations attributable to OI Group for 2009 were $45.1 million compared with $174.0 million for 2008. Earnings in both periods included items that management considered not representative of ongoing operations. These items decreased net earnings in 2009 by $47.7 million and decreased net earnings in 2008 by $9.7 million.

        Capital spending for property, plant and equipment for continuing operations was $46.6 million for 2009 compared with $45.4 million for 2008.

OI Group Outlook

        OI Group expects that the volume of glass shipments will decrease in the second quarter of 2009 compared to the same period in 2008. However, glass shipments are expected to improve in the second quarter of 2009 compared to the first quarter of 2009, primarily due to seasonally stronger demand and the abatement of inventory de-stocking.

        Inflationary cost increases, primarily for raw materials, accounted for approximately $66 million of the increase in manufacturing, shipping, and delivery expense in the first quarter of 2009. OI Group expects that net inflation for the full year 2009 could range up to $150 million.

43


Results of Operations—First Quarter of 2009 compared with First Quarter of 2008

    Net Sales

        OI Group's net sales in the first quarter of 2009 were $1,519.0 million compared with $1,960.5 million for the first quarter of 2008, a decrease of $441.5 million, or 22.5%. For further information, see Segment Information included in Note 7 to the Unaudited Condensed Consolidated Financial Statements.

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

Net sales—2008

        $ 1,924.0  

Decreased sales volume

  $ (296.0 )      

Net effect of price and mix

    121.0        

Effects of changing foreign currency rates

    (245.8 )      
             

Total effect on net sales

          (420.8 )
             

Net sales—2009

        $ 1,503.2  
             

    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 Unaudited Condensed Consolidated Financial Statements.

        Segment Operating Profit of reportable segments in the first quarter of 2009 was $191.9 million compared to $322.1 million for the first quarter of 2008, a decrease of $130.2 million, or 40.4%.

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

Segment Operating Profit—2008

        $ 322.1  

Decreased sales volume

  $ (94.0 )      

Net effect of price and mix

    121.0        

Manufacturing and delivery

    (133.0 )      

Operating expenses

    (3.0 )      

Effects of changing foreign currency rates

    (29.0 )      

Other

    7.8        
             

Total net effect on Segment Operating Profit

          (130.2 )
             

Segment Operating Profit—2009

        $ 191.9  
             

    Interest Expense

        Interest expense for the first quarter of 2009 was $48.1 million compared with $64.3 million for the first quarter of 2008. The decrease is principally due to lower variable interest rates under OI Group's bank credit agreement and on long term debt variable and swapped rates, lower overall debt levels, as well as favorable foreign currency exchange rates.

44


    Interest Income

        Interest income for the first quarter of 2009 was $8.5 million compared with $8.7 million for the first quarter of 2008.

    Net Earnings Attributable to Noncontrolling Interests

        Net earnings attributable to noncontrolling interests in the first quarter of 2009 was $13.7 million compared with $16.2 million in the first quarter of 2008.

    Provision for Income Taxes

        OI Group's effective tax rate for the three months ended March 31, 2009 was 24.1%, compared with 25.4% for the first three months of 2008. OI Group expects that the full year effective tax rate will be comparable to the 24.0% effective tax rate for 2008 for continuing operations excluding the separately taxed items.

Executive Overview—Years ended December 2008 and 2007

        Net sales from continuing operations were $318.0 million higher than the prior year principally resulting from improved pricing and favorable product mix across all regions, as well as favorable foreign currency exchange rates, principally the Euro. Lower unit shipments partially offset these favorable increases.

        Segment Operating Profit for reportable segments was $49.8 million higher than the prior year. The benefits of higher selling prices, improved product mix, improvements in glass plant operating efficiencies, and favorable foreign currency exchange rates were partially offset by inflationary cost increases in manufacturing and delivery costs and lower sales volume.

        Interest expense in 2008 was $253.0 million compared with interest expense from continuing operations of $348.6 million in 2007. Included in the 2007 interest expense was $9.5 million for both note repurchase premiums and the write-off of unamortized finance fees related to the November 2007 repurchase of the $625.0 million 8.75% Senior Secured Notes. Exclusive of these items, interest expense decreased approximately $86.1 million. The decrease is principally due to lower variable interest rates under OI Group's bank credit agreement and on long term debt variable and swapped rates as well as lower overall debt levels, partially offset by an increase in foreign currency exchange rates. The decrease is also due to the non-recurrence of interest on debt that was repaid during the fourth quarter of 2007 with the proceeds from the plastics sale. This interest was previously allocated to discontinued operations until the date of the sale.

        Interest income for continuing operations for 2008 was $38.6 million compared to $42.3 million for 2007.

        Net earnings from continuing operations attributable to OI Group for 2008 were $500.3 million compared to earnings from continuing operations attributable to OI Group of $414.3 million for 2007. Earnings in both periods included items that management considered not representative of ongoing operations. These items decreased net earnings in 2008 by $144.9 million and decreased net earnings in 2007 by $79.4 million.

        Capital spending for property, plant and equipment for continuing operations was $361.7 million for 2008 compared to $292.5 million for 2007. The 2008 amount is in a range consistent with long term historical levels. The increase is also due to changes in foreign currency exchange rates.

45


Results of Operations—Comparison of 2008 with 2007

    Net Sales

        OI Group's net sales for 2008 were $7,884.7million compared with $7,566.7 million for 2007, an increase of $318.0 million, or 4.2%. For further information, see Segment Information included in Note 18 to the Audited Consolidated Financial Statements.

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

Net sales—2007

        $ 7,475.0  

Net effect of price and mix

  $ 572.0        

Effects of changing foreign currency rates

    274.5        

Decreased sales volume

    (514.0 )      
             

Total effect on net sales

          332.5  
             

Net sales—2008

        $ 7,807.5  
             

    Segment Operating Profit

        Operating Profit for 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 18 to the Audited Consolidated Financial Statements.

        Segment Operating Profit for reportable segments for 2008 increased $49.8 million, or 4.5%, to $1,156.8 million, compared with Segment Operating Profit of $1,107.0 million for 2007.

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

Segment Operating Profit—2007

        $ 1,107.0  

Net effect of price and mix

  $ 572.0        

Effects of changing foreign currency rates

    56.0        
 

Manufacturing and delivery costs

    (468.0 )      

Decreased sales volume

    (116.0 )      

Operating expense

    (28.0 )      

Other

    33.8        
             

Total net effect on Segment Operating Profit

          49.8  
             

Segment Operating Profit—2008

        $ 1,156.8  
             

    Interest Expense

        Interest expense in 2008 was $253.0 million compared with interest expense from continuing operations of $348.6 million in 2007. Included in the 2007 interest expense was $9.5 million for both note repurchase premiums and the write-off of unamortized finance fees related to the November 2007 repurchase of the $625.0 million 8.75% Senior Secured Notes. Exclusive of these items, interest expense decreased approximately $86.1 million. The decrease is principally due to lower variable interest rates under OI Group's bank credit agreement and on long term debt variable and swapped rates as well as lower overall debt levels, partially offset by an increase in foreign currency exchange rates. The decrease is also due to the non-recurrence of interest on debt that was repaid during the fourth quarter of 2007 with the proceeds from the plastics sale. This interest was previously allocated to discontinued operations until the date of the sale.

46


    Interest Income

        Interest income for continuing operations for 2008 was $38.6 million compared to $42.3 million for 2007.

    Provision for Income Taxes

        OI Group's effective tax rate from continuing operations for 2008 was 29.4%, compared with 23.8% for 2007. The provision for 2008 includes a net expense of $33.3 million related to tax legislation, restructuring, and other. The provision for 2007 includes a benefit of $13.5 million for the recognition of tax credits related to restructuring of investments in certain European operations. Excluding those items and the effects in both periods of pretax items for which taxes are separately calculated and recorded in the period, OI Group's effective tax rate from continuing operations for 2008 was 24.0% compared to 24.4% for 2007. OI Group expects that the effective tax rate will not change significantly in 2009.

    Net Earnings Attributable to Noncontrolling Interests

        Net earnings attributable to noncontrolling interests for 2008 was $70.2 million compared to $59.5 million for 2007. The increase is primarily attributed to higher earnings from OI Group's operations in South America.

    Earnings from Continuing Operations Attributable to OI Group

        For 2008, OI Group recorded earnings from continuing operations attributable to OI Group of $500.3 million compared to earnings from continuing operations attributable to OI Group of $414.3 million for 2007. The after tax effects of the items excluded from Segment Operating Profit, the 2008 and 2007 international net tax benefits, and the 2007 additional interest charges, increased or decreased earnings in 2008 and 2007 as set forth in the following table (dollars in millions).

 
  Net Earnings
Increase (Decrease)
 
Description
  2008   2007  

Net expense related to tax legislation, restructuring, and other

  $ (34.8 ) $  

Gain recognition from foreign tax credits

          13.5  

Restructuring and asset impairments

    (110.1 )   (84.1 )

Note repurchase premiums and write-off of finance fees

          (8.8 )
           

Total

  $ (144.9 ) $ (79.4 )
           

Executive Overview—Years ended December 2007 and 2006

        Net sales from continuing operations were $916.3 million higher than the prior year principally resulting from improved pricing, increased unit shipments, and favorable foreign currency exchange rates.

        Segment Operating Profit for reportable segments was $372.2 million higher than the prior year. The benefits of higher selling prices, improved productivity, increased unit shipments, and favorable exchange rates were partially offset by inflationary cost increases.

        Interest expense from continuing operations for 2007 was $348.6 million compared to $349.0 million for 2006. Included in the 2007 interest expense was $9.5 million for both note repurchase premiums and the write-off of unamortized finance fees related to the November 2007 repurchase of the $625.0 million 8.75% Senior Secured Notes. Included in the 2006 interest expense was $17.5 million for both note repurchase premiums and the write-off of unamortized finance fees related to the June

47



2006 refinancing of OI Group's previous credit agreement and the July 2006 repurchase of approximately $150 million principal amount of the 8.875% Senior Secured Notes due 2009. Exclusive of these items, interest expense increased approximately $7.6 million. A significant portion of the increase is interest on debt that was repaid during the fourth quarter of 2007 with the proceeds from the plastics sale. This interest was previously allocated to discontinued operations until the date of the sale.

        Interest income for continuing operations for 2007 was $42.3 million compared to $19.2 million for 2006. The increase of $23.1 million is primarily due to interest earned as a result of investing a portion of the proceeds from the plastics July 31, 2007 sale until the funds were used to repay senior secured debt in the fourth quarter of 2007.

        Net earnings from continuing operations attributable to OI Group for 2007 were $414.3 million compared to $116.2 million for 2006. Earnings in both periods included items that management considered not representative of ongoing operations. These items decreased net earnings in 2007 by $79.4 million and decreased net earnings in 2006 by $57.0 million.

        Capital spending for property, plant and equipment for continuing operations was $292.5 million for 2007 compared to $285.0 million for 2006.

Results of Operations—Comparison of 2007 with 2006

        OI Group's net sales for 2007 were $7,566.7million compared with $6,650.4 million for 2006, an increase of $916.3 million, or 13.8%. For further information, see Segment Information included in Note 18 to the Audited Consolidated Financial Statements.

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

Net sales—2006

        $ 6,650.4  

Net effect of price and mix

  $ 322.8        

Increased sales volume

    144.7        

Effects of changing foreign currency rates

    448.8        
             

Total effect on net sales

          916.3  
             

Net sales—2007

        $ 7,566.7  
             

        The increase in reported sales from the effects of changing foreign currency exchange rates resulted principally from the stronger Euro and Australian dollar.

    Segment Operating Profit

        Operating Profit for 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 18 to the Audited Consolidated Financial Statements.

        Segment Operating Profit for reportable segments for 2007 increased $372.2 million, or 50.7%, to $1,107.0 million, compared with Segment Operating Profit of $734.8 million for 2006.

48


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

Segment Operating Profit—2006

        $ 734.8  

Net effect of price and mix

  $ 323.0        

Productivity and production volume

    80.0        

Effects of changing foreign currency rates

    52.0        

Increased sales volume

    34.4        

Warehouse, delivery and other costs

    25.9        

Operating expense

    25.3        

Manufacturing inflation, net of cost savings

    (152.0 )      

Other

    (16.4 )      
             

Total net effect on Segment Operating Profit

          372.2  
             

Segment Operating Profit—2007

        $ 1,107.0  
             

    Interest Expense

        Interest expense from continuing operations for 2007 was $348.6 million compared to $349.0 million for 2006. Included in the 2007 interest expense was $9.5 million for both note repurchase premiums and the write-off of unamortized finance fees related to the November 2007 repurchase of the $625.0 million 8.75% Senior Secured Notes. Included in the 2006 interest expense was $17.5 million for both note repurchase premiums and the write-off of unamortized finance fees related to the June 2006 refinancing of OI Group's previous credit agreement and the July 2006 repurchase of approximately $150 million principal amount of the 8.875% Senior Secured Notes due 2009. Exclusive of these items, interest expense increased approximately $7.6 million. A significant portion of the increase is interest on debt that was repaid during the fourth quarter of 2007 with the proceeds from the plastics sale. This interest was previously allocated to discontinued operations until the date of the sale.

    Interest Income

        Interest income for continuing operations for 2007 was $42.3 million compared to $19.2 million for 2006. The increase of $23.1 million is primarily due to interest earned as a result of investing a portion of the proceeds from the July 31, 2007 plastics sale until the funds were used to repay senior secured debt in the fourth quarter of 2007.

    Provision for Income Taxes

        OI Group's effective tax rate from continuing operations for 2007 was 23.8%, compared with 43.9% for 2006. Excluding the effects of separately taxed items in both periods, OI Group's effective tax rate from continuing operations for 2007 was 24.4% compared with 40.3% for 2006. The reduction is principally due to: (1) a change in mix of earnings to jurisdictions where OI Group is subject to lower effective rates, and (2) the effect of higher earnings and lower interest costs in the U.S., where OI Group has recognized a valuation allowance on net deferred tax assets.

    Net Earnings Attributable to Noncontrolling Interests

        Net earnings attributable to noncontrolling interests for 2007 was $59.5 million compared to $43.6 million for 2006. The increase is primarily attributed to higher earnings from OI Group's operations in South America.

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    Earnings from Continuing Operations Attributable to OI Group

        For 2007, OI Group recorded earnings from continuing operations attributable to OI Group of $414.3 million compared to $116.2 million for 2006. The after tax effects of the items excluded from Segment Operating Profit, the 2007 and 2006 international net tax benefits, and the additional interest charges, increased or decreased earnings in 2007 and 2006 as set forth in the following table (dollars in millions).

 
  Net Earnings
Increase (Decrease)
 
Description
  2007   2006  

Gain recognition from foreign tax credits

  $ 13.5   $  

Curtailment of postretirement benefits in The Netherlands

          11.2  

Reversal of non-U.S. deferred tax asset valuation allowance partially offset by charges related to international tax restructuring

          5.7  

Restructuring and asset impairments

    (84.1 )   (27.7 )

CEO transition charge and other

          (20.7 )

Note repurchase premiums and write-off of finance fees

    (8.8 )   (17.1 )

Loss from the mark to market effect of natural gas hedge contracts

          (8.4 )
           

Total

  $ (79.4 ) $ (57.0 )
           

Items Excluded from Reportable Segment Totals

    Retained Corporate Costs and Other

        Retained corporate costs and other for the first quarter of 2009 were $11.9 million compared with $(1.5) million for the first quarter of 2008. The increased expense is mainly attributable to increased employee benefit costs in 2009.

        Retained corporate costs and other for 2008 was $0.7 million compared with $78.8 million for 2007. Beginning in 2008, OI Group revised its method of allocating corporate expenses. OI Group decreased slightly the percentage allocation based on sales and significantly expanded the number of functions included in the allocation based on cost of services. It is not practicable to quantify the net effect of these changes on periods prior to 2008. However, the effect for 2008 was to reduce the amount of retained corporate costs by approximately $38.0 million. Also contributing to the decrease were lower accruals for self insured risks and increased pension income in 2008.

        Retained corporate costs and other for 2007 was $78.8 million compared with $76.6 million for 2006.

    Restructuring and Asset Impairments

        During the first quarter of 2009, OI Group recorded charges totaling $50.4 million ($47.7 million after tax), for restructuring and asset impairment. The charges reflect the additional decisions reached in OI Group's ongoing strategic review of its global manufacturing footprint. Charges for similar actions during the first quarter of 2008 totaled $12.0 million ($9.7 million after tax). See Note 9 to the Unaudited Condensed Consolidated Financial Statements for additional information.

        During the first quarter of 2008, OI Group also recorded an additional $0.9 million (before and after tax), related to the impairment of OI Group's equity investment in the South American Segment's 50%-owned Caribbean affiliate.

        During 2008, OI Group recorded charges totaling $133.3 million ($110.1 million after tax amount attributable to OI Group), for additional restructuring and asset impairment principally in North

50



America and Europe, with additional charges across all segments as well as in Retained Corporate Costs and Other. The charges reflect the additional decisions reached in OI Group's ongoing strategic review of its global manufacturing footprint. See Note 15 Audited Consolidated Financial Statements for additional information.

        During the third and fourth quarters of 2007, OI Group recorded charges totaling $100.3 million ($84.1 million after tax), for restructuring and asset impairment in South America, Europe, and North America. The charges reflect the initial decisions of OI Group's global profitability review. See Note 15 to the Audited Consolidated Financial Statements for additional information.

        In September 2006, OI Group announced the permanent closing of its Godfrey, Illinois machine parts manufacturing operation. The facility was closed by the end of the year. This closing is part of a broad initiative to reduce working capital and improve system costs. OI Group also closed a small recycling facility in Ohio. As a result, OI Group recorded a charge of $29.7 million ($27.7 million after tax) in the third quarter of 2006. The closing of these facilities resulted in the elimination of approximately 260 jobs and a corresponding reduction in OI Group's workforce. OI Group anticipates that it will pay out approximately $11.5 million in cash related to insurance, benefits, plant clean up, and other plant closing costs. OI Group expects that the majority of these costs will be paid out by the end of 2009.

    CEO and Other Transition Charges

        OI Group recorded a 2006 charge of $20.8 million ($20.7 million after tax) associated with the separation agreement with its former CEO and with several members of the European management team. The charge also included costs related to the employment agreement with OI Group's new CEO.

    Curtailment of Postretirement Benefits in The Netherlands

        OI Group recorded a 2006 gain of $15.9 million ($11.2 million after tax) related to curtailment of certain postretirement benefits in The Netherlands as a result of certain improvements in retiree medical benefits offered by the government.

    Mark to Market Effect of Natural Gas Hedge Contracts

        During the fourth quarter of 2004, OI Group determined that the commodity futures contracts related to forecasted natural gas requirements did not meet all of the documentation requirements to qualify for special hedge accounting treatment and began to recognize all changes in fair value of these contracts in current earnings. OI Group completed the documentation and re-designation of its natural gas hedge contracts and began to apply special hedge accounting as of April 1, 2005. The total unrealized pretax loss recorded in 2006 was $8.7 million.

    Tax Benefits and Charges

        In 2008 OI Group recorded a net tax charge of $33.3 million ($34.8 million attributable to OI Group) related to tax legislation, restructuring, and other.

        In 2007 OI Group recorded a tax benefit of $13.5 million for recognition of tax credits related to restructuring of investments in certain European operations.

        In 2006 OI Group recorded a net tax benefit of $5.7 million from the reversal of a valuation allowance against certain non-U.S. deferred tax assets due to improving operations, partially offset by charges related to international tax restructuring.

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    Discontinued Operations

        On July 31, 2007, OI Group completed the sale of its plastics packaging business to Rexam PLC for approximately $1.825 billion in cash. As required by FAS No. 144,"Accounting for the Impairment or Disposal of Long-Lived Assets," OI Group has presented the results of operations for the plastics packaging business in the Consolidated Results of Operations for the years ended December 31, 2007 and 2006 as discontinued operations. Interest expense was allocated to the discontinued operations based on debt that was required by an amendment to the Secured Credit Agreement to be repaid from the net proceeds. Amounts for the prior periods have been reclassified to conform to this presentation.

        The following summarizes the revenues and expenses of the discontinued operations as reported in the consolidated results of operations for the periods indicated:

 
  Years ended December 31,  
 
  2007   2006  

Net sales

  $ 455.0   $ 771.6  

Manufacturing, shipping and delivery

    (343.5 )   (602.9 )
           

Gross profit

    111.5     168.7  

Selling and administrative

    (20.7 )   (34.4 )

Research, development and engineering

    (8.3 )   (15.1 )

Interest expense

    (80.6 )   (139.2 )

Other income

    (0.1 )   2.9  

Other expense

    (1.2 )   (5.4 )
           

Earnings (loss) before income taxes

    0.6     (22.5 )

(Provision) credit for income taxes

    2.4     (1.2 )
           

Earnings (loss) from discontinued operations

    3.0     (23.7 )

Gain on sale of discontinued operations

    1,038.5        
           

Net earnings (loss) from discontinued operations

  $ 1,041.5   $ (23.7 )

Net earnings attributable to noncontrolling interests

    (0.2 )      
           

Net earnings (loss) attributable to OI Group

  $ 1,041.3   $ (23.7 )
           

        The 2007 gain on the sale of discontinued operations of $1,038.5 million includes charges totaling $62.1 million for debt retirement costs, consisting principally of redemption premiums and write-off of unamortized fees, and a gain of $8.7 million for curtailment and settlement of pension and other postretirement benefits. The gain also includes a net provision for income taxes of $38.2 million, consisting of taxes on the gain of $445.0 million that are substantially offset by a credit of $406.8 million for the reversal of valuation allowances against existing tax loss carryforwards. The sale agreement provides for an adjustment of the selling price based on working capital levels and certain other factors.

        The gain on sale of discontinued operations of $6.8 million reported in 2008, of which $4.1 million was reported in first quarter, relates to an adjustment of the 2007 gain on the sale of the plastics packaging business mainly related to finalizing certain tax allocations and an adjustment to the selling price in accordance with procedures set forth in the final contract.

Capital Resources and Liquidity

    Current and Long-Term Debt

        OI Group's total debt at March 31, 2009 was $3.32 billion, compared to $3.33 billion at December 31, 2008 and $4.02 billion at March 31, 2008. OI Group's total debt at December 31, 2008 was $3.33 billion, compared to $3.71 billion at December 31, 2007.

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        On June 14, 2006, OI Group and certain subsidiary borrowers entered into the Secured Credit Agreement (the "Agreement"). At March 31, 2009, the Agreement included a $900.0 million revolving credit facility, a 225.0 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 $191.5 million term loan and a €191.5 million term loan, each of which has a final maturity date of June 14, 2013.

        As a result of the bankruptcy of Lehman Brothers Holdings Inc. and several of its subsidiaries, OI Group believes that the maximum amount available under the revolving credit facility was reduced by $32.3 million. After further deducting amounts attributable to letters of credit and overdraft facilities that are supported by the revolving credit facility, at March 31, 2009 OI Group's subsidiary borrowers had unused credit of $641.8 million available under the Agreement.

        The weighted average interest rate on borrowings outstanding under the Agreement at March 31, 2009 was 2.66%.

        The Agreement contains various covenants that restrict, among other things and subject to certain exceptions, the ability of OI Group to incur certain liens, make certain investments and acquisitions, become liable under contingent obligations in certain defined instances only, make restricted junior payments, make certain asset sales within guidelines and limits, make capital expenditures beyond a certain threshold, engage in material transactions with shareholders and affiliates, participate in sale and leaseback financing arrangements, alter its fundamental business, amend certain outstanding debt obligations, and prepay certain outstanding debt obligations.

        The Agreement also contains one financial maintenance covenant, a Leverage Ratio, that requires OI Group not to exceed a ratio calculated by dividing consolidated total debt for OI Inc. and its subsidiaries, less cash and cash equivalents, by Consolidated Adjusted EBITDA, as defined in the Agreement. The Leverage Ratio could restrict the ability of OI Group to undertake additional financing to the extent that such financing would cause the Leverage Ratio to exceed the specified maximum.

        Failure to comply with these covenants and restrictions could result in an event of default under the Agreement. In such an event, the subsidiary borrowers could not request borrowings under the revolving facility, and all amounts outstanding under the Agreement, together with accrued interest, could then be declared immediately due and payable. If an event of default occurs under the Agreement and the lenders cause all of the outstanding debt obligations under the Agreement to become due and payable, this would result in a default under a number of other outstanding debt securities and could lead to an acceleration of obligations related to these debt securities. A default or event of default under the Agreement, indentures or agreements governing other indebtedness could also lead to an acceleration of debt under other debt instruments that contain cross acceleration or cross-default provisions.

        The Leverage Ratio also determines pricing under the Agreement. The interest rate on borrowings under the Agreement is, at OI Group's option, the Base Rate or the Eurocurrency Rate, as defined in the Agreement. These rates include a margin linked to the Leverage Ratio and the borrowers' senior secured debt rating. The margins range from 0.875% to 1.75% for Eurocurrency Rate loans and from -0.125% to 0.75% for Base Rate loans. In addition, a facility fee is payable on the revolving credit facility commitments ranging from 0.20% to 0.50% per annum linked to the Leverage Ratio. The weighted average interest rate on borrowings outstanding under the Agreement at December 31, 2008 was 4.07%. As of December 31, 2008, OI Group was in compliance with all covenants and restrictions in the Agreement. In addition, OI Group believes that it will remain in compliance and that its ability to borrow funds under the Agreement will not be adversely affected by the covenants and restrictions.

53


        During the second quarter of 2008, OI Group used cash from operations and borrowings under the Agreement to retire $250 million principal amount of 7.35% Senior Notes which matured in May 2008.

        During March 2007, a subsidiary of OI Group issued Senior Notes totaling €300.0 million. The notes bear interest at 6.875% and are due March 31, 2017. The notes are guaranteed by substantially all of OI Group's domestic subsidiaries. The proceeds were used to retire the $300 million principal amount of 8.10% Senior Notes which matured in May 2007, and to reduce borrowings under the revolving credit facility.

        On July 31, 2007, OI Group completed the sale of its plastics packaging business to Rexam PLC for approximately $1.825 billion in cash. In accordance with an amendment of the Agreement that became effective upon completion of the sale of the plastics business, OI Group was required to use the net proceeds (as defined in the Agreement) to repay senior secured debt. In addition, the amendment provided for modification of certain covenants, including the elimination of the financial covenant requiring OI Group to maintain a specified interest coverage ratio. OI Group used a portion of the net proceeds in the third quarter of 2007 to redeem all $450.0 million of the 7.75% Senior Secured Notes and repurchase $283.1 million of the 8.875% Senior Secured Notes. The remaining $566.9 million of the 8.875% Senior Secured Notes were repurchased or discharged in accordance with the indenture in October 2007. The remaining net proceeds, along with funds from operations and/or additional borrowings under the revolving credit facility, were used to redeem all $625.0 million of the 8.75% Senior Secured Notes on November 15, 2007. OI Group recorded $9.5 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees.

        During October 2006, OI Group 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, OI Group participates in a receivables financing program in the Asia Pacific region with a revolving funding commitment of 100 million Australian dollars and 25 million New Zealand dollars that extends through July 2009 and October 2009, respectively.

        Information related to OI Group's accounts receivable securitization program is as follows:

 
  March 31, 2009   Dec. 31, 2008   Dec. 31, 2007  

Balance (included in short-term loans)

  $ 255.2   $ 293.7   $ 361.8  

Weighted average interest rate

    3.72 %   5.31 %   5.48 %

        OI Group assesses its capital raising and refinancing needs on an ongoing basis and may seek to issue debt securities in the domestic and international capital markets from time to time if market conditions are favorable.

    Cash Flows

        Cash provided by operating activities in the first three months of 2009 was $6.3 million compared with $91.1 million in the prior year. The decrease is mainly attributable to lower net earnings and increased payments for restructuring activities, partially offset by lower working capital balances and lower interest payments. OI Group anticipates that operating activities will continue to utilize cash in the second quarter. Cash flows from operating activities will continue to be affected by payments for restructuring activities which OI Group expects to total up to $120 million for the full year 2009.

        For the year ended December 31, 2008, cash provided by continuing operating activities was $916.6 million compared with $972.2 million for 2007. The increase is mainly attributable to improved profit margins and lower interest, partially offset by higher working capital balances.

        Based on exchange rates at March 31, 2009, OI Group expects to contribute approximately $75 million to $80 million to its non-U.S. defined benefit pension plans in 2009, compared with

54



$61.2 million in 2008. OI Group is not required to make cash contributions to the U.S. defined benefit pension plans during 2009. Contributions in 2010 are dependent on future asset returns and discount rates which OI Group is unable to predict. However, based on a reasonably wide range of possible future asset returns and discount rates through the end of 2009, OI Group believes that contributions to its non-U.S. plans will be moderately higher in 2010 and that it will not be required to make contributions to its U.S. plans in 2010. Depending on a number of factors, OI Group 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 was $46.6 million for the first three months of 2009 compared with $45.4 million in the prior year. OI Group capitalized $9.5 million in 2009 under capital lease obligations with the related financing recorded as long-term debt. Based on current exchange rates, total capital spending for 2009 is expected to be in the range of $380-$440 million depending on market conditions.

        Capital spending for property, plant and equipment (continuing operations) was $361.7 million for the year ended December 31, 2008 compared with $292.5 million in the prior year. OI Group capitalized $25.6 million and $27.0 million in 2008 and 2007, respectively, under capital lease obligations with the related financing recorded as long-term debt. The 2008 amount is in a range consistent with long term historical levels. The increase is also due to changes in foreign currency exchange rates.

        OI Inc. has substantial obligations related to semiannual interest payments on its 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 $34.8 million and $40.2 million for the three months ended March 31, 2009 and 2008, respectively, and $210.2 million and $347.1 million for the years ended December 31, 2008 and 2007, respectively. OI Inc. relies primarily on distributions from OI Group to meet these obligations. Based on OI Inc.'s expectations regarding future payments for lawsuits and claims, and also based on OI Group's expected operating cash flow, OI Group believes that the payments to OI Inc. for any deferred amounts of previously settled or otherwise determined lawsuits and claims, and the resolution of presently pending and anticipated future lawsuits and claims associated with asbestos, will not have a material adverse effect upon OI Group's liquidity on a short-term (twelve-months) or long-term basis.

        During the current downturn in global financial markets, some companies may experience difficulties accessing their cash equivalents, drawing on revolvers, issuing debt, and raising capital generally, which could have a material adverse impact on their liquidity. Notwithstanding these adverse market conditions, OI Group anticipates that cash flow 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 and long-term basis including payments to OI Inc., described above.

55


    Contractual Obligations and Off-Balance Sheet Arrangements

        The following information summarizes OI Group's significant contractual cash obligations at December 31, 2008 (dollars in millions).

 
  Payments due by period  
 
  Total   Less than
one year
  1-3 years   3-5 years   More than
5 years
 

Contractual cash obligations:

                               
 

Long-term debt

  $ 2,874.3   $ 8.9   $ 412.1   $ 1,064.0   $ 1,389.3  
 

Capital lease obligations

    75.3     9.3     27.5     21.6     16.9  
 

Operating leases

    141.0     50.3     61.2     22.1     7.4  
 

Interest(1)

    1,216.9     207.7     361.2     316.6     331.4  
 

Purchase obligations(2)

    820.0     512.0     268.0     35.0     5.0  
 

Pension benefit plan contributions

    75.0     75.0                    
 

Postretirement benefit plan

                             
   

benefit payments(1)

    260.3     22.3     43.8     42.7     151.5  
                       
   

Total contractual cash obligations

  $ 5,462.8   $ 885.5   $ 1,173.8   $ 1,502.0   $ 1,901.5  
                       

 

 
  Amount of commitment expiration per period  
 
  Total   Less than
one year
  1-3 years   3-5 years   More than
5 years
 

Other commercial commitments:

                               
 

Standby letters of credit

  $ 81.3   $ 81.3                    
                       
   

Total commercial commitments

  $ 81.3   $ 81.3                    
                       

(1)
Amounts based on rates and assumptions at December 31, 2008.

(2)
OI Group's purchase obligations included contracted amounts for energy and molds. OI Group did not include ordinary course of business purchase orders in this amount as the majority of such purchase orders may be canceled. In cases where variable prices are involved, current market prices have been used. OI Group does not believe such purchase orders will adversely affect our liquidity position.

        OI Group is unable to make a reasonably reliable estimate as to when cash settlement with taxing authorities may occur for our unrecognized tax benefits. Therefore, our liability for unrecognized tax benefits is not included in the table above. See Note 10 to the Audited Consolidated Financial Statements for additional information.

        OI Group has no off-balance sheet arrangements.

Critical Accounting Estimates

        OI Group'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. OI Group 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

56



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 Audited Consolidated Financial Statements, if applicable, where estimates and assumptions affect OI Group's reported and expected financial results.

        OI Group believes that accounting for property, plant and equipment, impairment of long-lived assets, pension benefit plans, and income taxes involves the more significant judgments and estimates used in the preparation of its consolidated financial statements.

    Property, Plant and Equipment

        The net carrying amount of property, plant, and equipment ("PP&E") at March 31, 2009 totaled $2,486.4 million, representing 32% of total assets, and at December 31, 2008 totaled $2,645.6 million, representing 33% of total assets. Depreciation expense for the three months ended March 31, 2009 totaled $88.4 million, representing approximately 6% of total costs and expenses, and during the year ended December 31, 2008 totaled $431.0 million, representing approximately 5% of total costs and expenses. Given the significance of PP&E and associated depreciation to OI Group's consolidated financial statements, the determinations of an asset's cost basis and its economic useful life are considered to be critical accounting estimates.

        Cost Basis—PP&E is recorded at cost, which is generally objectively quantifiable when assets are purchased singly. However, when assets are purchased in groups, or as part of a business, costs assigned to PP&E are based on an estimate of fair value of each asset at the date of acquisition. These estimates are based on assumptions about asset condition, remaining useful life and market conditions, among others. OI Group frequently employs expert appraisers to aid in allocating cost among assets purchased as a group.

        Included in the cost basis of PP&E are those costs which substantially increase the useful lives or capacity of existing PP&E. Significant judgment is needed to determine which costs should be capitalized under these criteria and which costs should be expensed as a repair or maintenance expenditure. For example, OI Group frequently incurs various costs related to its existing glass melting furnaces and forming machines and must make a determination of which costs, if any, to capitalize. OI Group relies on the experience and expertise of its operations and engineering staff to make reasonable and consistent judgments regarding increases in useful lives or capacity of PP&E.

        Estimated Useful Life—PP&E is generally depreciated using the straight-line method, which deducts equal amounts of the cost of each asset from earnings each period over its estimated economic useful life. Economic useful life is the duration of time an asset is expected to be productively employed by OI Group, which may be less than its physical life. Management's assumptions regarding the following factors, among others, affect the determination of estimated economic useful life: wear and tear, product and process obsolescence, technical standards, and changes in market demand.

        The estimated economic useful life of an asset is monitored to determine its appropriateness, especially in light of changed business circumstances. For example, technological advances, excessive wear and tear, or changes in customers' requirements may result in a shorter estimated useful life than originally anticipated. In these cases, OI Group depreciates the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a prospective basis. Changes in economic useful life assumptions did not have a material impact on OI Group's reported results in 2009, 2008, 2007 or 2006.

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    Impairment of Long-Lived Assets

        Property, Plant, and Equipment—As required by FAS No. 144, OI Group tests for impairment of PP&E whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. PP&E held for use in OI Group's business is grouped for impairment testing at the lowest level for which cash flows can reasonably be identified, typically a geographic region. OI Group evaluates the recoverability of property, plant, and equipment based on undiscounted projected cash flows, excluding interest and taxes. If an asset group is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset group's carrying amount exceeds its fair value. PP&E held for sale is reported at the lower of carrying amount or fair value less cost to sell.

        Impairment testing requires estimation of the fair value of PP&E based on the discounted value of projected future cash flows generated by the asset group. The assumptions underlying cash flow projections represent management's best estimates at the time of the impairment review. Factors that management must estimate include, among other things: industry and market conditions, sales volume and prices, production costs and inflation. Changes in key assumptions or actual conditions which differ from estimates could result in an impairment charge. OI Group uses reasonable and supportable assumptions when performing impairment reviews and cannot predict the occurrence of future events and circumstances that could result in impairment charges.

        In mid-2007, OI Group began a strategic review of its global manufacturing footprint. The review is ongoing into 2009. As an initial result of this review, during 2007 and 2008, OI Group recorded charges that included impairments of property, plant, and equipment across all segments including certain Retained Corporate Costs and Other activities. It is possible that OI Group may conclude in the future that it will close or temporarily idle additional selected facilities or production lines and reduce headcount to increase operating performance and cash flows. As of March 31, 2009, no other decisions had been made and no events had occurred that would require an additional evaluation of possible impairment in accordance with FAS No. 144. For additional information on charges recorded in 2008, 2007 and 2006, see Note 15 to the Audited Consolidated Financial Statements and for additional information on charges recorded in the first three months of 2009 and 2008, see Note 9 to the Unaudited Condensed Consolidated Financial Statements.

        Goodwill—Goodwill at March 31, 2009 totaled $2,130.3 million, representing 27% of total assets, and at December 31, 2008 totaled $2,207.5 million, representing 27% of total assets. As required by FAS No. 142, OI Group evaluates goodwill annually (or more frequently if impairment indicators arise) for impairment. OI Group conducts its evaluation as of October 1 of each year. Goodwill impairment testing is performed using the business enterprise value ("BEV") of each reporting unit which is calculated as of a measurement date by determining the present value of debt-free, after-tax projected future cash flows, discounted at the weighted average cost of capital of a hypothetical third party buyer. This BEV is then compared to the book value of each reporting unit as of the measurement date to assess whether an impairment of goodwill may exist.

        During the fourth quarter of 2008, OI Group completed its annual testing and determined that no impairment of goodwill existed.

        The testing performed as of October 1, 2008, indicated a significant excess of BEV over book value for each unit. If OI Group's projected future cash flows were substantially lower, or if the assumed weighted average cost of capital was substantially higher, the testing performed as of October 1, 2008, may have indicated an impairment of one or more of OI Group's reporting units and, as a result, the related goodwill may also have been impaired. However, less significant changes in projected future cash flows or the assumed weighted average cost of capital would not have indicated an impairment. For example, if projected future cash flows had been decreased by 5%, or if the weighted average cost of capital had been increased by 5%, or both, the resulting lower BEV's would still have exceeded the book value of each reporting unit by a significant margin.

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        OI Group will monitor conditions throughout 2009 that might significantly affect the projections and variables used in the impairment test to determine if a review prior to October 1 may be appropriate. If the results of impairment testing confirm that a write down of goodwill is necessary, then OI Group will record a charge in the fourth quarter of 2009, or earlier if appropriate. In the event OI Group would be required to record a significant write down of goodwill, the charge would have a material adverse effect on reported results of operations and net worth.

        Other Long-Lived Assets—Other long-lived assets include, among others, equity investments and repair parts inventories. OI Group's equity investments are non-publicly traded ventures with other companies in businesses related to those of OI Group. Equity investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. In the event that a decline in fair value of an investment occurs, and the decline in value is considered to be other than temporary, an impairment loss is recognized. Summarized financial information of equity affiliates is included in Note 4 to the Audited Consolidated Financial Statements. During 2007 and 2008, OI Group recorded charges that included impairments of an equity investment. For additional information on these charges, see Note 14 to the Audited Consolidated Financial Statements.

        OI Group carries a significant amount of repair parts inventories in order to provide a dependable supply of quality parts for servicing OI Group's PP&E, particularly its glass melting furnaces and forming machines. OI Group evaluates the recoverability of repair parts inventories based on undiscounted projected cash flows, excluding interest and taxes, when factors indicate that impairment may exist. If impairment exists, the repair parts are written down to fair value. OI Group continually monitors the carrying value of repair parts for recoverability, especially in light of changing business circumstances. For example, technological advances related to, and changes in, the estimated future demand for products produced on the equipment to which the repair parts relate may make the repair parts obsolete. In these circumstances, OI Group writes down the repair parts to fair value. For additional information on a charge recorded in 2006, see Note 14 to the Audited Consolidated Financial Statements.

    Pension Benefit Plans

        Significant Estimates—The determination of pension obligations and the related pension expense or credits to operations involves significant estimates. The most significant estimates are the discount rate used to calculate the actuarial present value of benefit obligations and the expected long-term rate of return on plan assets. OI Group uses discount rates based on yields of high quality fixed rate debt securities at the end of the year. At December 31, 2008, the weighted average discount rate for all plans was 6.29%. OI Group uses an expected long-term rate of return on assets that is based on both past performance of the various plans' assets and estimated future performance of the assets. Due to the nature of the plans' assets and the volatility of debt and equity markets, actual returns may vary significantly from year to year. OI Group refers to average historical returns over longer periods (up to 10 years) in determining its expected rates of return because short-term fluctuations in market values do not reflect the rates of return OI Group expects to achieve based upon its long-term investing strategy. For purposes of determining pension charges and credits in 2009, OI Group's estimated weighted average expected long-term rate of return on plan assets is 7.7% compared to 8.1% in 2008. OI Group recorded pension expense (income) from continuing operations of $36.2 million, $3.4 million, and $(24.3) million in 2006, 2007, and 2008, respectively, and $4.8 million and $(6.4) million in the first three months of 2009 and 2008, respectively, from its principal defined benefit pension plans. The improvement in 2008 is principally a result of higher asset values in the U.S. plans at the beginning of 2008. Depending on currency translation rates, OI Group expects to record approximately $20 million of pension expense for the full year of 2009.

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        Future effects on reported results of operations depend on economic conditions and investment performance. For example, a one-half percentage point change in the actuarial assumption regarding the expected return on assets would result in a change of approximately $18 million in the pretax pension amount for the full year 2009. In addition, changes in external factors, including the fair values of plan assets and the discount rates used to calculate plan liabilities, could have a significant effect on the recognition of funded status as described below.

        Recognition of Funded Status—FAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", requires employers to adjust the assets and liabilities related to defined benefit plans so that the amounts reflected on the balance sheet represent the overfunded or underfunded status of the plans. These funded status amounts are measured as the difference between the fair value of plan assets and actuarially calculated benefit obligations as of the balance sheet date. At December 31, 2008, the Accumulated Other Comprehensive Loss component of share owners' equity was increased by $1,080.1 million ($1,025.0 million after tax) to reflect a net decrease in the funded status of OI Group's plans at that date.

        Funding—Based on exchange rates at the end of 2008, OI Group expects to contribute approximately $70 million to $75 million to its non-U.S. defined benefit pension plans in 2009, compared with $61.2 million in 2008. Depending on a number of factors, OI Group may elect to contribute amounts in excess of minimum required amounts in order to improve the funded status of certain plans. OI Group presently estimates it will not be required to make cash contributions to the U.S. plans during 2009.

    Income Taxes

        OI Group accounts for income taxes as required by the provisions of FAS No. 109, "Accounting for Income Taxes," under which deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities measured using enacted tax rates.

        Management judgment is required in determining income tax expense and the related balance sheet amounts. In addition, under FASB Interpretation 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48") judgments are required concerning the ultimate outcome of uncertain income tax positions. Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. During 2008, OI Group's estimated unrecognized tax benefits increased by $44.0 million related to tax positions taken in prior years in non-U.S. jurisdictions.

        Deferred tax assets are also recorded for operating losses and tax credit carryforwards. However, FAS No. 109 requires that a valuation allowance be recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. This assessment is dependent upon projected profitability including the effects of tax planning. Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which OI Group conducts its operations or otherwise incurs taxable income or losses. In the U.S., OI Group has recorded significant deferred tax assets, the largest of which relate to foreign and other tax credits which amounted to $303.9 million at December 31, 2008, the accrued liability for OI Inc.'s asbestos-related costs which amounted to $173.4 million at December 31, 2008 that are not deductible until paid and the pension liability which amounted to $122.6 million at December 31, 2008. The deferred tax assets are partially offset by deferred tax liabilities, the most significant of which relate to accelerated depreciation. OI Group has recorded a valuation allowance for the portion of U.S. deferred tax assets not offset by deferred tax liabilities. During the third quarter of 2007 OI Group sold its discontinued plastics operations. For tax purposes, the gain on the sale was substantially offset by capital and net operating loss carryforwards.

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The credit for the corresponding reduction in the valuation allowance of $406.8 million was classified as a component of the gain on sale of discontinued operations. In 2007 OI Group implemented a plan to restructure the ownership and intercompany obligations of certain foreign subsidiaries. These actions resulted in taxation of a significant portion of previously unremitted foreign earnings and will transfer a portion of OI Group's debt service obligations to operations outside the U.S. in order to better balance operating cash flows with financing costs on a global basis. The foreign earnings reported as taxable in the U.S. were fully offset by net operating loss carryforwards and foreign tax credits. Foreign tax credit carryforwards arising from the restructuring were fully offset by an increase in the valuation allowance.


CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.


QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

        Market risks relating to OI Group's operations result primarily from fluctuations in foreign currency exchange rates, changes in interest rates, and changes in commodity prices, principally energy and soda ash. OI Group uses certain derivative instruments to mitigate a portion of the risk associated with changing foreign currency exchange rates and fluctuating energy prices. In addition, OI Group uses interest rate swap agreements to manage a portion of fixed rate debt and interest expense. These instruments carry varying degrees of counterparty credit risk. To mitigate this risk, OI Group has established limits on the exposure with individual counterparties and OI Group regularly monitors these exposures. Substantially all of these exposures are with counterparties that are rated single-A or above.

Foreign Currency Exchange Rate Risk

    Earnings of operations outside the United States

        A substantial portion of OI Group's operations are conducted by subsidiaries outside the U.S. The primary international markets served by OI Group's subsidiaries are in Canada, Australia, South America (principally Colombia, Brazil and Venezuela), and Europe (principally Italy, France, The Netherlands, Germany, the United Kingdom, and Poland). In general, revenues earned and costs incurred by OI Group's major international operations are denominated in their respective local currencies. Consequently, OI Group's reported financial results could be affected by factors such as changes in foreign currency exchange rates or highly inflationary economic conditions in the international markets in which OI Group's subsidiaries operate. When the U.S. dollar strengthens against foreign currencies, the reported dollar value of local currency earnings generally decreases; when the U.S. dollar weakens against foreign currencies, the reported U.S. dollar value of local currency earnings generally increases. OI Group does not have any significant foreign subsidiaries whose functional currency is the U.S. dollar, however, if economic conditions in Venezuela were to decline, OI Group may be required to adopt the U.S. dollar as the functional currency for its subsidiaries in that country. OI Group does not hedge the foreign currency exchange rate risk related to earnings of operations outside the United States.

    Borrowings not denominated in the functional currency

        Because OI Group's subsidiaries operate within their local economic environment, OI Group believes it is appropriate to finance those operations with borrowings denominated in the local currency to the extent practicable where debt financing is desirable or necessary. Considerations which influence the amount of such borrowings include long- and short-term business plans, tax implications, and the availability of borrowings with acceptable interest rates and terms. In those countries where the local

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currency is the designated functional currency, this strategy mitigates the risk of reported losses or gains in the event the foreign currency strengthens or weakens against the U.S. dollar. In those countries where the U.S. dollar is the designated functional currency, however, local currency borrowings expose OI Group to reported losses or gains in the event the foreign currency strengthens or weakens against the U.S. dollar.

        Available excess funds of a subsidiary may be redeployed through intercompany loans to other subsidiaries for debt repayment, capital investment, or other cash requirements. Generally, each intercompany loan is denominated in the lender's local currency giving rise to foreign currency exchange rate risk for the borrower. To mitigate this risk, the borrower generally enters into a forward exchange contract which effectively swaps the intercompany loan and related interest to its local currency.

        OI Group believes the near term exposure to foreign currency exchange rate risk of its foreign currency risk sensitive instruments was not material at December 31, 2008 and 2007.

Interest Rate Risk

        OI Group's interest expense is most sensitive to changes in the general level of U.S. interest rates applicable to its U.S. dollar indebtedness.

        OI Group has entered into a series of interest rate swap agreements with a total notional amount of $700 million that 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.

        OI Group's fixed-to-variable interest rate swaps are accounted for as fair value hedges. Because the relevant terms of the swap agreements match the corresponding terms of the notes, there is no hedge ineffectiveness. Accordingly, OI Group recorded the net of the fair market values of the swaps as a long-term asset along with a corresponding net increase in the carrying value of the hedged debt.

        Under the swaps, OI Group receives fixed rate interest amounts (equal to interest on the corresponding hedged note) and pays interest at a six-month U.S. LIBOR rate (set in arrears) plus a margin spread. The interest rate differential on each swap is recognized as an adjustment of interest expense during each six-month period over the term of the agreement.

        The following table provides information about OI Group's interest rate sensitivity related to its significant debt obligations and interest rate swaps at December 31, 2008. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity date. For interest rate swaps, the table presents notional amounts and weighted-average interest rates

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by contract maturity date. Notional amounts are used to calculate the contractual cash flows to be exchanged under the swap contracts.

(dollars in millions)
  2009   2010   2011   2012   2013   Thereafter   Total   Value at
12/31/2008
 

Long-term debt at variable rate:

                                                 
 

Principal by expected maturity

  $ 18.2   $ 20.1   $ 160.1   $ 153.6   $ 462.0   $ 25.9   $ 839.9   $ 839.9  
 

Avg. principal outstanding

    830.8     811.7     721.6     564.7     256.9     12.9              
 

Avg. interest rate

    4.07 %   4.07 %   4.07 %   4.07 %   4.07 %   4.07 %            

Long-term debt at fixed rate:

                                                 
 

Principal by expected maturity

        $ 250.0               $ 450.0   $ 1,389.2   $ 2,089.2   $ 1,824.5  
 

Avg. principal outstanding

  $ 2,089.2   $ 1,933.0   $ 1,839.2   $ 1,839.2   $ 1,558.0   $ 1,389.2              
 

Avg. interest rate

    7.31 %   7.30 %   7.29 %   7.29 %   7.11 %   6.98 %            

Interest rate swaps (pay variable/receive fixed):

                                                 
 

Notional by expected maturity

        $ 250.0               $ 450.0         $ 700.0   $ (29.4 )
 

Avg. notional outstanding

  $ 700.0   $ 543.8   $ 450.0   $ 450.0   $ 450.0                    
 

Avg. pay rate margin over U.S. LIBOR

    3.52 %   3.61 %   3.70 %   3.70 %   3.70 %                  
 

Avg. fixed receive rate

    7.98 %   8.12 %   8.25 %   8.25 %   8.25 %                  

        OI Group believes the near term exposure to interest rate risk of its debt obligations and interest rate swaps has not changed materially since December 31, 2007.

Commodity Price Risk

        OI Group has exposure to commodity price risk, principally related to energy. OI Group believes it can mitigate a portion of this risk by passing commodity cost changes through to customers. In addition, OI Group 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. OI Group 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. Significant transactions related to commodity price risk are as follows:

    At March 31, 2009, OI Group had entered into commodity futures contracts covering approximately 9,300,000 MM BTUs over that period.

        OI Group believes the near term exposure to commodity price risk of its commodity futures contracts was not material at December 31, 2008.

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BUSINESS

General Development of Business

        OI Group, through its subsidiaries, is the successor to a business established in 1903. OI Group is the largest manufacturer of glass containers in the world, with leading positions in Europe, North America, Asia Pacific and South America.

Strategic Priorities and Competitive Strengths

        OI Group is pursuing the following strategic priorities aimed at optimizing shareholder return:

    Marketing Glass—promote its value added benefits and communicate its earth-friendly attributes

    Strategic & Profitable Growth—expand presence in growing markets and enter growing markets where we do not have a presence

    Innovation & Technology—focus on product innovation that adds value for customers and develop technology that provides a sustainable advantage

    Operational Excellence—continuous productivity improvement, pricing strategy to improve margins, and disciplined use of cash

        Beginning in 2007, OI Group commenced a strategic review of its global profitability and manufacturing footprint. Since undertaking this review, OI Group has announced the idling of capacity or closing of facilities involving 11 furnaces and approximately 1,800 job eliminations. OI Group expects to conclude the current global review in 2009. OI Group believes these actions, combined with its pricing initiatives, will contribute to optimizing shareholder return.

        OI Group has 80 glass manufacturing plants in 22 countries.

Technology Leader

        OI Group believes it is a technological leader in the worldwide glass container segment of the rigid packaging market in which it competes. During the five years ended December 31, 2008, on a continuing operations basis, OI Group invested more than $1.5 billion in capital expenditures (excluding acquisitions) and more than $264 million in research, development and engineering to, among other things, improve labor and machine productivity, increase capacity in growing markets and commercialize technology into new products.

Worldwide Corporate Headquarters

        The principal executive office of OI Group is located at One Michael Owens Way, Perrysburg, Ohio 43551; the telephone number is (567) 336-5000. OI Group is a wholly owned subsidiary of OI Inc. OI Group does not have a web site; however, certain general information about OI Group's operations is available from OI Inc.'s web site at www.o-i.com. OI Group's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available from the SEC's web site at www.sec.gov. Copies of OI Group's SEC filings may be obtained free of charge by writing to OI Group, Attention: Investor Relations.

Financial Information about Reportable Segments

        Information as to sales, earnings from continuing operations before interest income, interest expense, provision for income taxes and noncontrolling interests in earnings of subsidiaries and excluding amounts related to certain items that management considers not representative of ongoing

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operations ("Segment Operating Profit"), and total assets by reportable segment is included in Note 18 to the Audited Consolidated Financial Statements.

Narrative Description of Business

        Below is a description of the business and information to the extent material to understanding OI Group's business taken as a whole.

Products and Services, Customers, Markets and Competitive Conditions, and Methods of Distribution

        OI Group is the largest manufacturer of glass containers in the world. OI Group is the leading glass container manufacturer in 17 of the 22 countries where it competes in the glass container segment of the rigid packaging market, including the U.S., and the sole manufacturer of glass containers in 8 of these countries.

Products and Services

        OI Group produces glass containers for beer, ready-to-drink low alcohol refreshers, spirits, wine, food, tea, juice and pharmaceuticals. OI Group also produces glass containers for soft drinks and other non-alcoholic beverages, principally outside the U.S. OI Group manufactures these products in a wide range of sizes, shapes and colors. OI Group is active in new product development and glass container innovation.

Customers

        In most of the countries where OI Group competes, it has the leading position in the glass container segment of the rigid packaging market based on sales revenue. The largest customers include many of the leading manufacturers and marketers of glass packaged products in the world. In the U.S., the majority of customers for glass containers are brewers, wine vintners, distillers and food producers. OI Group also produces glass containers for soft drinks and other non-alcoholic beverages, principally outside the U.S. The largest U.S. glass container customers include (in alphabetical order) Anheuser-Busch InBev, Brown Forman, Diageo, Miller/Coors, Pepsico, and Saxco-Demptos, Inc. The largest glass container customers outside the U.S. include (in alphabetical order) Anheuser-Busch InBev, Carlsberg, Diageo, Foster's, Heineken, Lion Nathan, Molson/Coors, and SABMiller. OI Group is a major glass container supplier to all of these customers.

        OI Group sells most of its glass container products directly to customers under annual or multi-year supply agreements. Multi-year contracts typically provide for price adjustments based on cost changes with annual limitations. OI Group also sells some of its products through distributors. Glass container production is typically scheduled to maintain reasonable levels of inventory.

Markets and Competitive Conditions

        The principal markets for glass container products made by OI Group are in Europe, North America, Asia Pacific, and South America. OI Group believes it is a low-cost producer in the glass container segment of the rigid packaging market in many of the countries in which it competes. Much of this cost advantage is due to proprietary equipment and process technology used by OI Group. OI Group's machine development activities and systematic upgrading of production equipment begun in the 1990's and early 2000's support its low-cost leadership position in the glass container segment in many of the countries in which it competes, a key strength to competing successfully in the rigid packaging market.

        OI Group has the leading share of the glass container segment of the U.S. rigid packaging market based on sales revenue by domestic producers in the U.S. The principal glass container competitors in

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the U.S. are Saint-Gobain Containers, Inc., a wholly-owned subsidiary of Compagnie de Saint-Gobain, and Anchor Glass Container Corporation. In addition, imports from Mexico and other countries compete in U.S. glass container segments. Additionally, a few major consumer packaged goods companies also self-manufacture glass containers.

        In supplying glass containers outside of the U.S., OI Group competes directly with Compagnie de Saint-Gobain in Europe and Brazil, Ardagh plc in the U.K., Germany, and Poland, Vetropak in the Czech Republic and Amcor Limited in Australia. In other locations in Europe, OI Group competes indirectly with a variety of glass container firms including Compagnie de Saint-Gobain, Vetropak and Ardagh plc. Except as mentioned above, OI Group does not compete with any large, multi-national glass container manufacturers in South America or the Asia Pacific region.

        In addition to competing with other large, well-established manufacturers in the glass container segment, OI Group competes with manufacturers of other forms of rigid packaging, principally aluminum cans and plastic containers, on the basis of quality, price, service and the marketing attributes of the container. The principal competitors producing metal containers are Amcor, Ball Corporation, Crown Holdings, Inc., Rexam plc, and Silgan Holdings Inc. The principal competitors producing plastic containers are Consolidated Container Holdings, LLC, Graham Packaging Company, Plastipak Packaging, Inc. and Silgan Holdings Inc. OI Group also competes with manufacturers of non-rigid packaging alternatives, including flexible pouches and aseptic cartons.

        OI Group's unit shipments of glass containers in countries outside of the U.S. have grown substantially from levels in earlier years. OI Group has added to its international operations by acquiring glass container companies, many of which have leading positions in growing or established markets, increasing capacity at select foreign subsidiaries, and having a global network of glass container companies that license its technology. In many developing countries, OI Group's international glass operations have benefited in the last ten years from increased consumer spending power, a trend toward the privatization of industry, a favorable climate for foreign investment, lowering of trade barriers and global expansion programs by multi-national consumer companies.

        Europe.    OI Group's European glass container business, headquartered in Switzerland, has consolidated manufacturing operations in 11 countries and is the largest in Europe. OI Group is a leading producer of wine and champagne bottles in France. In Italy, OI Group is the leading manufacturer of glass containers. In Germany, OI Group's key customers include Jägermeister, Unilever, and Nestle Europe. In The Netherlands, OI Group is one of the leading suppliers of glass containers to Heineken. OI Group is a leading manufacturer of glass containers for the U.K. spirits business. In Spain, OI Group serves the market for olives in the Sevilla area and the market for wine bottles in the Barcelona and southern France area. In Poland, OI Group is the leading glass container manufacturer and operates two plants. OI Group is the leading glass container manufacturer in the Czech Republic. In Hungary, OI Group is the sole glass container manufacturer and serves the Hungarian food industry. In Finland and the Baltic country of Estonia, OI Group is the only manufacturer of glass containers. OI Group coordinates production activities between Finland and Estonia in order to efficiently serve the Finnish, Baltic and Russian markets. In recent years, Western European brewers have been establishing beer production facilities in Central Europe and the Russian Republic. Because these new beer plants use high-speed filling lines, they require high quality glass containers in order to operate properly. OI Group believes it is well positioned to meet this demand.

        North America.    In addition to the glass container operations in the U.S., OI Group's subsidiary in Canada is the sole manufacturer of glass containers in that country.

        South America.    OI Group is the sole manufacturer of glass containers in Colombia, Ecuador and Peru. In both Brazil and Venezuela, OI Group is the leading manufacturer of glass containers. In South America, there is a large infrastructure for returnable/refillable glass containers. However, over the last

66



several years, unit sales of non-returnable glass containers increased across countries in which OI Group operates.

        Asia Pacific.    OI Group has glass operations in four countries in the Asia Pacific region: Australia, New Zealand, Indonesia and China. In this region, OI Group is the leading manufacturer of glass containers in most of the countries in which it competes. In Australia, OI Group's subsidiary operates four glass container plants including a plant focused on serving the needs of the growing Australian wine industry. In New Zealand, OI Group is the sole glass container manufacturer. In Indonesia, OI Group supplies the Indonesian market and exports glass containers to a number of countries. In China, the glass container segments of the packaging market are regional and highly fragmented with a number of local competitors. OI Group has four glass container plants in China, manufacturing containers to serve a wide range of customers both domestically and abroad.

        OI Group continues to focus on serving the needs of leading multi-national consumer companies as they pursue international growth opportunities. OI Group believes that it is often the glass container partner of choice for such multi-national consumer companies due to its leadership in glass technology and its status as a high quality producer in most of the markets it serves.

Manufacturing

        OI Group believes it is a low-cost producer in the North American rigid packaging market, as well as a low-cost producer in many of the international glass segments in which it competes. Much of this cost advantage is due to OI Group's proprietary equipment and process technology. OI Group believes its proprietary high volume glass forming machines, developed and refined by its engineering group, are significantly more efficient and productive than those used by competitors. OI Group's machine development activities and systematic upgrading of production equipment have given it a low-cost leadership position in the glass container segment in most of the countries in which it competes, a key strength to competing successfully in the rigid packaging market.

        OI Group operates two machine shops that assemble and repair high-productivity glass-forming machines as well as several mold shops that manufacture molds and related equipment.

Methods of Distribution

        Due to the significance of transportation costs and the importance of timely delivery, glass container manufacturing facilities are generally located close to customers. In the U.S., most of OI Group's glass container products are shipped by common carrier to customers within a 250-mile radius of a given production site. In addition, OI Group's glass container operations outside the U.S. export some products to customers beyond their national boundaries, which may include transportation by rail and ocean delivery in combination with common carriers.

Suppliers and Raw Materials

        The primary raw materials used in OI Group's glass container operations are sand, soda ash, limestone and recycled glass. Each of these materials, as well as the other raw materials used to manufacture glass containers, has historically been available in adequate supply from multiple sources. One of the sources is a soda ash mining operation in Wyoming in which OI Group has a 25% interest. For certain raw materials, however, there may be temporary shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays.

Energy

        OI Group's glass container operations require a continuous supply of significant amounts of energy, principally natural gas, fuel oil, and electrical power. Adequate supplies of energy are generally

67



available to OI Group at all of its manufacturing locations. Energy costs typically account for 15-25% of OI Group's total manufacturing costs, depending on the cost of energy, the factory location, and its particular energy requirements. The percentage of total cost related to energy can vary significantly because of volatility in market prices, particularly for natural gas and fuel oil in volatile markets such as North America and Europe. In order to limit the effects of fluctuations in market prices for natural gas, OI Group uses commodity futures contracts related to its forecasted requirements in North America. The objective of these futures contracts is to reduce the potential volatility in cash flows and expense due to changing market prices. OI Group continually evaluates the energy markets with respect to its forecasted energy requirements in order to optimize its use of commodity futures contracts. If energy costs increase substantially in the future, OI Group could experience a corresponding increase in operating costs, which may not be fully recoverable through increased selling prices.

Glass Recycling

        OI Group is an important contributor to the recycling effort in the U.S. and abroad and continues to melt substantial recycled glass tonnage in its glass furnaces. OI Group is the largest user of recycled glass containers. If sufficient high-quality recycled glass were available on a consistent basis, OI Group has the technology to operate using up to 90% recycled glass. Using recycled glass in the manufacturing process reduces energy costs and prolongs the operating life of the glass melting furnaces.


ADDITIONAL INFORMATION

Technical Assistance License Agreements

        OI Group has agreements to license its proprietary glass container technology and provide technical assistance to 19 companies in 19 countries. These agreements cover areas related to manufacturing and engineering assistance. The worldwide licensee network provides a stream of revenue to support OI Group's development activities and gives it the opportunity to participate in the rigid packaging market in countries where it does not already have a direct presence. In addition, OI Group's technical agreements enable it to apply "best practices" developed by its worldwide licensee network. In the years 2008, 2007 and 2006, OI Group earned $18.6 million, $19.7 million and $16.5 million, respectively, in royalties and net technical assistance revenue on a continuing operations basis.

Research and Development

        OI Group believes it is a technological leader in the worldwide glass container segment of the rigid packaging market. Research, development, and engineering constitute important parts of OI Group's technical activities. On a continuing operations basis, research, development, and engineering expenditures were $66.6 million, $65.8 million, and $48.7 million for 2008, 2007, and 2006, respectively. OI Group's research, development and engineering activities include new products, manufacturing process control, automatic inspection and further automation of manufacturing activities.

Environmental and Other Governmental Regulation

        OI Group's worldwide operations, in common with those of the industry generally, are subject to extensive laws, ordinances, regulations and other legal requirements relating to environmental protection, including legal requirements governing investigation and clean-up of contaminated properties as well as water discharges, air emissions, waste management and workplace health and safety.

        In the U.S., Canada, Europe and elsewhere, a number of government authorities have adopted or are considering legal requirements that would mandate certain rates of recycling, the use of recycled

68



materials, or limitations on or preferences for certain types of packaging. OI Group believes that governments worldwide will continue to develop and enact legal requirements seeking to, or having the effect of, guiding customer and end-consumer packaging choices.

        In North America, sales of beverage containers are affected by governmental regulation of packaging, including deposit return laws. As of January 1, 2009, there were 11 U.S. states with bottle deposit laws in effect, requiring consumer deposits of between 4 and 15 cents, USD, depending on the size of the container. In Canada, there are 8 provinces with consumer deposits between 5 and 20 cents Canadian, depending on the size of the container. In Europe a number of countries have some form of consumer deposit law in effect, including Austria, Belgium, Denmark, Finland, Germany, The Netherlands, Norway, Sweden and Switzerland. The structure and enforcement of such laws and regulations can impact the sales of beverage containers in a given jurisdiction. Such laws and regulations also impact the availability of post-consumer recycled glass for OI Group to use in container production.

        A number of U.S. states and Canadian provinces have recently considered or are now considering laws and regulations to encourage curbside, deposit return, and on-premise recycling. Although there is no clear trend in the direction of these state and provincial laws and regulations, OI Group believes that U.S. states and Canadian provinces, as well as municipalities within those jurisdictions, will continue to adopt recycling laws which will affect supplies of post-consumer recycled glass. As a large user of post-consumer recycled glass for bottle-to-bottle production, OI Group has an interest in laws and regulations impacting supplies of such material in its markets.

        The European Union Emissions Trading Scheme ("EUETS") commenced January 1, 2005. The EU has committed to Kyoto Protocol emissions reduction targets and the EUETS is intended to facilitate such reduction. OI Group's manufacturing installations which operate in EU countries will need to restrict the volume of their CO2 emissions to the level of their individually allocated Emissions Allowances as set by country regulators. If the actual level of emissions for any installation exceeds its allocated allowance, additional allowances can be bought on the market to cover deficits; conversely, if the actual level of emissions for such installation is less than its allocation, the excess allowances can be sold on the same market. No material effect is anticipated as a result of the EUETS.

        In Asia Pacific, Australia's ratification of the Kyoto Protocol came into effect in March 2008. In July 2008, the Australian Federal Government issued the Carbon Pollution Reduction Scheme (CPRS) Green Paper aimed to help reduce the country's carbon emissions. The CPRS recommends an emissions trading scheme (ETS) be established in Australia in 2010. In New Zealand, parliament passed ETS legislation in September 2008 and a cap-and-trade system is also likely to be in effect by 2010. Also in Australia, the National Greenhouse and Energy Reporting Act 2007 commenced on July 1, 2008. The Act establishes a mandatory reporting system for corporate greenhouse gas emissions and energy production and consumption. Key features of the Act include the following: (1) reporting of greenhouse gas emissions, energy consumption and production by large corporations, subject to independent audit; (2) public disclosure of corporate level greenhouse gas emissions and energy information; and (3) consistent and comparable data available for government, in particular, the development and administration of the Carbon Pollution Reduction Scheme.

        OI Group is unable to predict what environmental legal requirements may be adopted in the future. However, OI Group continually monitors its operations in relation to environmental impacts and invests in environmentally friendly and emissions reducing projects. As such, OI Group has made significant expenditures for environmental improvements at certain of its factories over the last several years; however, these expenditures did not have a material adverse affect on OI Group's results of operations or cash flows. While not expected to be material, the compliance costs associated with legal environmental requirements are expected to continue.

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Intellectual Property Rights

        OI Group has a large number of patents which relate to a wide variety of products and processes, has a substantial number of patent applications pending, and is licensed under several patents of others. While in the aggregate OI Group's patents are of material importance to its businesses, OI Group does not consider that any patent or group of patents relating to a particular product or process is of material importance when judged from the standpoint of any segment or its businesses as a whole.

        OI Group has a number of intellectual property rights, comprised of both patented and proprietary technology, that OI Group believes makes its glass forming machines more efficient and productive than those used by its competitors. In addition, the efficiency of OI Group's glass forming machines is enhanced by OI Group's overall approach to cost efficient manufacturing technology, which extends from the raw materials batch house to the finished goods warehouse. This technology is proprietary to OI Group through a combination of issued patents, pending applications, copyrights, trade secrets and proprietary know-how.

        Upstream of the glass forming machines, there is technology to deliver molten glass to the forming machine at high rates of flow and fully conditioned to be homogeneous in consistency, viscosity and temperature for efficient forming into glass containers. OI Group has proprietary know-how in (a) the batch house, where raw materials are stored, measured and mixed, (b) the furnace control system and furnace combustion, and (c) the forehearth and feeding system to deliver such homogeneous glass to the forming machines.

        In OI Group's glass container manufacturing processes, computer controls and electro-mechanical mechanisms are commonly used for a wide variety of applications in the forming machines and auxiliary processes. Various patents held by OI Group are directed to the electro-mechanical mechanisms and related technologies used to control sections of the machines. Additional U.S. patents held by OI Group and various pending applications are directed to the technology used by OI Group for the systems that control the operation of the forming machines and many of the component mechanisms that are embodied in the machine systems.

        Downstream of the glass forming machines, there is patented and unpatented technology for ware handling, annealing, coating and inspection, which further enhances the overall efficiency of the manufacturing process.

        While the above patents and intellectual property rights are representative of the technology used in OI Group's glass manufacturing operations, there are numerous other pending patent applications, trade secrets and other proprietary know-how and technology, as supplemented by administrative and operational best practices, which contribute to OI Group's competitive advantage. As noted above, however, OI Group does not consider that any patent or group of patents relating to a particular product or process is of material importance when judged from the standpoint of any segment or its businesses as a whole.

Seasonality

        Sales of particular glass container products such as beer are seasonal. Shipments in the U.S. and Europe are typically greater in the second and third quarters of the year, while shipments in the Asia Pacific region are typically greater in the first and fourth quarters of the year, and shipments in South America are typically greater in the third and fourth quarters of the year.

Employees

        OI Group's worldwide operations employed approximately 23,000 persons as of December 31, 2008. Approximately 96% of North American hourly employees are covered by collective bargaining

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agreements. The principal collective bargaining agreement, which at December 31, 2008, covered approximately 78% of OI Group's union-affiliated employees in North America, will expire on March 31, 2011. Approximately 56% of employees in South America are unionized, although according to the labor legislation in each country, 100% of employees are covered by collective bargaining agreements. The average length of these agreements is approximately 2-3 years. In addition, a large number of OI Group's employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws of the U.S. Such employment rights require OI Group to work collaboratively with the legal representatives of the employees to effect any changes to labor arrangements. OI Group considers its employee relations to be good and does not anticipate any material work stoppages in the near term.

Financial Information about Foreign and Domestic Operations

        Information as to net sales, Segment Operating Profit, and assets of OI Group's reportable segments is included in Note 18 to the Audited Consolidated Financial Statements.

PROPERTIES

        The principal manufacturing facilities and other material important physical properties of OI Group at December 31, 2008 are listed below. All properties shown are owned in fee except where otherwise noted.

North American Operations    
    United States    
        Glass Container Plants    
            Atlanta, GA   Oakland, CA
            Auburn, NY   Portland, OR
            Brockway, PA   Streator, IL
            Charlotte, MI   Toano, VA
            Clarion, PA   Tracy, CA
            Crenshaw, PA   Waco, TX
            Danville, VA   Windsor, CO
            Lapel, IN   Winston-Salem, NC
            Los Angeles, CA   Zanesville, OH
            Muskogee, OK    

 

 

Canada

 

 
        Glass Container Plants    
            Brampton, Ontario   Montreal, Quebec

Asia Pacific Operations

 

 
    Australia    
        Glass Container Plants    
            Adelaide   Melbourne
            Brisbane   Sydney

 

 

China

 

 
        Glass Container Plants    
            Guangzhou   Tianjin
            Shanghai   Wuhan

 

 

 

 

Mold Shop

 

 
            Tianjin    

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Indonesia

 

 
        Glass Container Plant    
            Jakarta    

 

 

New Zealand

 

 
        Glass Container Plant    
            Auckland    

European Operations

 

 
    Czech Republic    
        Glass Container Plants    
            Sokolov   Teplice

 

 

Estonia

 

 
        Glass Container Plant    
            Jarvakandi    

 

 

Finland

 

 
        Glass Container Plant    
            Karhula    

 

 

France

 

 
        Glass Container Plants    
            Beziers   Reims (2 plants)
            Gironcourt   Vayres
            Labegude   Veauche
            Puy-Guillaume   Wingles

 

 

Germany

 

 
        Glass Container Plants    
            Achern   Holzminden
            Bernsdorf   Rinteln

 

 

Hungary

 

 
        Glass Container Plant    
            Oroshaza    

 

 

Italy

 

 
        Glass Container Plants    
            Asti   Pordenone
            Bari (2 plants)   Terni
            Latina   Trento
            Trapani   Treviso
            Napoli   Varese

 

 

The Netherlands

 

 
        Glass Container Plants    
            Leerdam   Schiedam
            Maastricht    

 

 

Poland

 

 
        Glass Container Plants    
            Antoninek   Jaroslaw

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Spain

 

 
        Glass Container Plants    
            Alcala   Barcelona

 

 

United Kingdom

 

 
        Glass Container Plants    
            Alloa   Harlow

South American Operations

 

 
    Brazil    
        Glass Container Plants    
            Rio de Janeiro   Sao Paulo
            (glass container and tableware)    

 

 

 

 

Mold Shop

 

 
            Manaus    

 

 

Colombia

 

 
        Glass Container Plants    
            Envigado   Zipaquira (glass container and flat glass)
            Soacha    

 

 

 

 

Tableware Plant

 

 
            Buga    

 

 

Ecuador

 

 
        Glass Container Plant    
            Guayaquil    

 

 

Peru

 

 
        Glass Container Plant    
            Callao   Lurin(1)

 

 

Venezuela

 

 
        Glass Container Plants    
            Valencia   Valera

Other Operations

 

 
        Machine Shops    
            Birmingham, United Kingdom(1)   Brockway, Pennsylvania
            Cali, Colombia    

Corporate Facilities

 

 
    Perrysburg, OH(1)    

(1)
This facility is leased in whole or in part.

        The Company believes that its facilities are well maintained and currently adequate for its planned production requirements over the next three to five years.

LEGAL PROCEEDINGS

        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 from 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

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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").

        The following table shows the approximate number of plaintiffs and claimants who had asbestos claims pending against OI Inc. at the beginning of each listed year, the number of claims disposed of during that year, the year's filings and the claims pending at the end of each listed year (eliminating duplicate filings):

 
  2008   2007   2006  

Pending at beginning of year

    14,000     18,000     32,000  

Disposed

    8,000     13,000     21,000  

Filed

    5,000     9,000     7,000  
               

Pending at end of year

    11,000     14,000     18,000  
               

        Based on an analysis of the lawsuits pending as of December 31, 2008, approximately 84% 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 15% of plaintiffs specifically plead damages of $15 million or less, and 0.4% 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 focusing their attention on active litigation in the tort system. OI Inc. believes that as of December 31, 2008 there are approximately 1,000 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 December 31, 2008, has disposed of the asbestos claims of approximately 367,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $7,300. Certain of these dispositions have included deferred amounts payable over a number of years. Deferred amounts payable totaled approximately $34.0 million at

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December 31, 2008 ($34.0 million at December 31, 2007) 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.

        OI Inc. believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot be estimated with certainty. Beginning with the initial liability of $975 million established in 1993, OI Inc. has accrued a total of approximately $3.47 billion through 2008, before insurance recoveries, for its asbestos-related liability. OI Inc.'s ability reasonably to 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 which 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 estimated by OI Inc. in connection with its annual comprehensive review and consist of the following: (i) the reasonably probable contingent liability for asbestos claims already asserted against OI Inc.; (ii) the contingent liability for preexisting but unasserted asbestos claims for prior periods arising under its administrative claims-handling agreements with various plaintiffs' counsel; (iii) the contingent liability for asbestos claims not yet asserted against OI Inc., but which OI Inc. believes it is reasonably probable will be asserted in the next several years, to the degree that an estimation as to future claims is possible, and (iv) the legal defense costs likely to be incurred in connection with the foregoing types of claims.

        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 to which OI Inc.'s accelerated settlements in 2007 and 2008 impact the number and type of future claims and lawsuits;

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

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

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

            g)     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;

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

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            i)     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 an estimation of the reasonably probable amount of the contingent liability for claims not yet asserted against 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.

        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 be estimated with certainty. OI Inc.'s reported results of operations for 2008 were materially affected by the $250.0 million 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 OI Group's and OI Inc.'s cost of borrowing and the ability to pursue global or domestic acquisitions. However, OI Group 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 OI Group's working capital and capital expenditure requirements on a short-term and long-term basis.

        Other litigation is pending against OI Group, in many cases involving ordinary and routine claims incidental to the business of OI Group and in others presenting allegations that are nonroutine and involve compensatory, punitive or treble damage claims as well as other types of relief. In accordance with FAS No. 5, OI Group 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 Group with respect to the lawsuits and proceedings referred to above, in addition to other pending litigation, cannot be estimated with certainty. However, OI Group believes, based on its examination and review of such matters and experience to date, that such ultimate liability will not have a material adverse effect on its results of operations, cash flows or financial condition.

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MANAGEMENT

Executive Officers and Directors

        We are an indirect, wholly-owned subsidiary of OI Inc. All of our executive officers and directors hold the same position with OI Inc. and receive no separate compensation from the Company. The following table sets forth certain information with respect to the executive officers and directors of OI Inc. as of June 1, 2009.

Name and Age
  Position
Executive Officers    

Albert P. L. Stroucken (61)

 

Chairman and Chief Executive Officer since December 2006. Previously Chief Executive Officer of HB Fuller Company, a manufacturer of adhesives, sealants, coatings, paints and other specialty chemical products 1998-2006, and Chairman of HB Fuller Company from 1999-2006.

Edward C. White (61)

 

Chief Financial Officer since 2005; Senior Vice President and Director of Sales and Marketing for O-I Europe 2004-2005; Senior Vice President since 2003; Senior Vice President of Finance and Administration 2003-2004; Controller 1999-2004; Vice President 2002-2003.

James W. Baehren (58)

 

Senior Vice President Strategic Planning since 2006; Chief Administrative Officer 2004-2006; Senior Vice President and General Counsel since 2003; Corporate Secretary since 1998; Vice President and Director of Finance 2001-2003.

L. Richard Crawford (48)

 

President, Global Glass Operations since 2006; President, Latin America Glass 2005-2006; Vice President, Director of Operations and Technology for O-I Europe 2004-2005; Vice President of Global Glass Technology 2002-2004; Vice President, Manufacturing Manager of Domestic Glass Container 2000-2002.

Directors

 

 

Gary F. Colter (63)

 

Director since 2002. President of CRS Inc., a corporate restructuring and strategy management consulting company, since 2002, and, prior thereto, Vice Chairman of KPMG Canada (2000-2002), Global Managing Partner, Financial Advisory Services, of KPMG International (1998-2000) and Vice Chairman of KPMG Canada (1989-1998). Mr. Colter is a director of CIBC and Core-Mark Holding Company, Inc. He is chair of the Audit Committee and a member of the Nominating/Corporate Governance Committee.

Peter S. Hellman (59)

 

Director since 2007. Retired President and Chief Financial and Administrative Officer of Nordson Corporation (2004-2008) and director (2001-2008), and prior thereto, Executive Vice President and Chief Financial and Administrative Officer of Nordson Corporation (2000-2004), and prior thereto, TRW Inc. (1989-1999) in various positions, the most recent of which were President and Chief Operating Officer. Mr. Hellman is a director of Baxter International,  Inc. and Qwest Communications International Inc. He is a member of the Audit Committee and the Compensation Committee.

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Name and Age
  Position
David H. Y. Ho (49)   Director since 2008. Retired Chairman of the Greater China Region for Nokia Siemens Network, a joint venture between Finland-based Nokia Corporation, a multinational telecommunications company, and Germany-based Siemens AG (2007-2008), and prior thereto, President of Nokia China Investment Limited, the Chinese operating subsidiary of Nokia Corporation (2004-2007) and President of Nokia China Investment Limited, the Chinese operating subsidiary of Finland-based Nokia Corporation (2004-2007), and prior thereto, Senior Vice President, Networks—Greater China, Nokia China Investment Limited (2002-2004). Mr. Ho is a director of 3COM Corporation, Pentair Inc. and Sinosteel Corp. He is a member of the Risk Management Committee.

Anastasia D. Kelly (59)

 

Director since 2002. Vice Chairman-Legal, Human Resources, Corporate Communication and Corporate Affairs of American International Group, Inc. since 2006, and, prior thereto, Executive Vice President and General Counsel of MCI (2003-2006), Senior Vice President and General Counsel of Sears, Roebuck and Co. (1999-2003) and Senior Vice President (1996-1999) and General Counsel and Secretary (1995-1999) of Fannie Mae, a financial services company. She is chair of the Compensation Committee.

John J. McMackin, Jr. (57)

 

Director since 1994. Principal of the law firm of Williams & Jensen for more than five years. He is a member of the Risk Management Committee.

Corbin A. McNeill, Jr. (69)

 

Director since 2005. Retired Chairman and Co-Chief Executive Officer (2000-2002) of Exelon Corporation, a natural gas and electric utility company (formed in the October 2000 merger of Peco Energy Company and Unicom Corporation), and, prior thereto Chairman, President and Chief Executive Officer (1997-1999), Director, President and Chief Executive Officer (1990-1995) and Executive Vice President—Nuclear (1988-1990) of Peco Energy Company. Mr. McNeill is a director of Ontario Power Generation, Associated Electric & Gas Insurance Services Ltd., Silver Spring Network, and is Non-Executive Chairman of the Board of Directors of Portland General Electric. Mr. McNeill serves as the Company's lead director. He is chair of the Nominating/Corporate Governance Committee and a member of the compensation committee.

Hugh H. Roberts (57)

 

Director since 2007. Retired President, Kraft Foods International Commercial (2004-2007), where he previously also served as President, Kraft Foods International Asia Pacific Region (2001-2003), and, prior thereto, President, KFI Central & Eastern Europe Middle East & Africa Region (1996-2001). He is a member of the Compensation Committee.

Albert P. L. Stroucken (61)

 

Director since 2005. President, Chairman of the Board and Chief Executive Officer of the Company since December 2006, and, prior thereto, Chairman of the Board of H.B. Fuller Company (1999-2006) and President and Chief Executive Officer of H.B. Fuller (1998-2006), and prior thereto, General Manager, Inorganics Division of Bayer AG (1997-1998), Executive Vice President and President of Industrial Chemicals Division, Bayer Corporation (1992-1997). Mr. Stroucken is a director of Baxter International, Inc. He is a member of the Risk Management Committee.

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Name and Age
  Position
Helge H. Wehmeier (66)   Director since 2005. Retired Vice-Chairman of Bayer Corporation (2002-2004), and, prior thereto, President and Chief Executive Officer of Bayer Corporation (1991-2002). Mr. Wehmeier is a director of PNC Financial Services Group, Inc. and Terex Corporation. He is a member of the Nominating/Corporate Governance Committee and the Risk Management Committee.

Dennis K. Williams (63)

 

Director since 2005. Retired Chairman of the Board of IDEX Corporation (2000-2006), where he previously also served as President and Chief Executive Officer (2000-2005), and, prior thereto, President and Chief Executive Officer of GE Power Systems Industrial Products (1998-2000). Mr. Williams is a director of AMETEK, Inc. and Actuant Corporation. He is a member of the Audit Committee and the Compensation Committee.

Thomas L. Young (65)

 

Director since 1998. President, Titus Holdings Ltd., a private investment company, and, prior thereto, Executive Vice President and Chief Financial Officer of the Company, positions he held since 2004 and 2003, respectively, Co-Chief Executive Officer (2004) and Executive Vice President, Administration and General Counsel (1998-2004). Mr. Young is a director of Franklin Electric Co., Inc. and Robeco General Partners Private Equity Fund III. He is chair of the Risk Management Committee.

Jay L. Geldmacher (53)

 

Executive Vice President and President, Network Power and Embedded Computing and Power Group of Emerson Electric Company, since 2007, where he previously also served as Group Vice President and President, Network Power Embedded Computing and Power Group (2006-2007), President, Astec Power Solutions (1998-2006), and President, Astec Standard Power Worldwide (1996-1998). He is a member of the Audit Committee.

Compensation Committee Interlocks and Insider Participation

        Until July 2008, the following directors served on the Compensation Committee of the Board: Anastasia D. Kelly (Chair), Corbin A. McNeill, Jr., Hugh H. Roberts and Dennis K. Williams. Beginning July 2008, the following directors served on the Compensation Committee of the Board: Anastasia D. Kelly (Chair), Peter S. Hellman, Corbin A. McNeill, Jr., Hugh H. Roberts and Dennis K. Williams. No member of the Committee has any relationship with the Company requiring disclosure under Item 404 or Item 407(e)(4)(iii) of SEC Regulation S-K. No executive officer of the Company served on any board of directors or compensation committee of any other board for which any of the Company's directors served as an executive officer at any time during 2008.

Director Independence

        A majority of the members of the Board are "independent" in accordance with the New York Stock Exchange listing standards. The Board has affirmatively determined that each of the following directors is an independent director of the Company under the listing standards of the New York Stock Exchange: Gary F. Colter, Jay L. Geldmacher, Peter S. Hellman, David H. Y. Ho, Anastasia D. Kelly, Corbin A. McNeill, Jr., Hugh H. Roberts, Helge H. Wehmeier and Dennis K. Williams. In making this determination, the Board has determined that none of these directors has any relationships with the Company other than their roles as directors.

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EXECUTIVE COMPENSATION

Director Compensation

        All of the Company's directors are also directors of OI Inc. Each non-management Director of OI Inc. receives an annual retainer of $60,000, payable quarterly. Each non-management Director also receives $2,000 for each board meeting of OI Inc. in which such Director participates. The Chair of the Audit Committee of OI Inc. receives an additional annual retainer of $20,000, the Chair of the Compensation Committee receives an additional retainer of $15,000, and each non-management Director who serves as a chair of any other Committee of OI Inc. receives an additional annual retainer of $10,000. The lead director receives an annual retainer of $20,000 in addition to the annual retainer for service as chair of a Committee. Each non-management Director who serves as a member of a committee of the Board of OI Inc. (including as chair) receives $2,000 for each committee meeting in which such Director participates. In addition, each non-management director will receive each year on the date immediately following the date of annual meeting of share owners, a grant of restricted stock units ("RSUs") under the 2004 Equity Incentive Plan for Directors of Owens-Illinois, Inc. with respect to a number of shares of Common Stock having a fair market value on the date of grant equal to $85,000, rounded up or down to nearest whole share of Common Stock. RSUs will be 100% vested on the first anniversary of date of grant ("Normal Vesting Date"), or earlier upon a director's termination of membership by reason of director's death, disability or retirement. In addition, upon a Director's termination of membership for any reason other than death, disability, retirement or for cause, RSUs will vest pro rata on a daily basis based on number of days of service in 12 month period from date of grant to normal vesting date. Any unvested RSUs are forfeited at termination of membership on the Board. Upon a director's termination of membership for cause all RSUs are immediately forfeited. Vested RSUs will be paid in shares of Common Stock, on a one for one basis, within 30 days after normal vesting date, or if earlier, within 30 days after termination of membership which constitutes a separation from service under IRC Section 409A. Each director is reimbursed for expenses associated with meetings of the Board or its committees.

        The Deferred Compensation Plan for Directors of Owens-Illinois, Inc. provides an opportunity for non-management directors to defer payment of their directors' fees. Under the plan, a non-management director may defer receipt of all or any portion of the cash portion of the compensation described above. Deferrals may be credited into a cash account or into a Company stock unit account. Funds held in a cash account accrue interest at a rate equal from time to time to the average annual yield on domestic corporate bonds of Moody's A-rated companies, plus one percent. Distributions from the plan are made in cash.

Compensation Discussion and Analysis

Executive Summary

        The Compensation Committee of the Board (the "Committee") discharges the Board's responsibilities relating to compensation of the Company's executives and directors. In order to maximize overall Company performance, the Committee believes it is essential to successfully attract, retain and reward senior management. Those objectives are furthered by offering market competitive compensation in a manner that emphasizes performance-based pay. The Committee annually evaluates the senior management compensation program structure and pay levels, with emphasis on base salary, and annual and long-term incentives as they comprise the largest portion of total compensation. Approximately 65% of total compensation opportunity is variable and based on Company, business unit and individual performance. Total pay opportunity and each pay element is targeted at the 50th percentile of the established market; actual compensation earned is a function of performance and may be substantially more or less than the target opportunity.

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        To assess the alignment of historical pay and performance, the Committee requested that Watson Wyatt, the Committee's executive compensation consultant, prepare an analysis of historical pay and Company performance for the period 2005-2007 against the pay and performance of our comparator group (see below for list of peer companies). Historical realizable pay is the amount of compensation (base salary, annual incentive and long-term incentives) the top five executives have realized (or potentially could realize). Historical performance is evaluated on several key financial metrics. Three metrics were used to complete this study over the three year period 2005 to 2007—total shareholder return ("TSR"), average return on invested capital ("ROIC"), and earnings per share ("EPS") growth. These metrics were chosen as they strike a balance between growth and return measures, offer an external investor perspective (i.e., TSR), and describe the Company's bottom-line business performance and capital efficiency. In addition, ROIC and EPS are measures used in our performance share plan during the 2005-2007 time period. Overall, the Watson Wyatt study indicates that realizable pay over this time period was at the 58th percentile while overall performance was at the 68th percentile. This study demonstrated that the Company's pay levels are correlated with performance and that the compensation program is operating as intended.

        In considering adjustments to base salary, the Committee annually reviews competitive market data and makes individual assessments of each named executive officer's performance and experience to determine appropriate merit and/or market adjustments. In 2008, our named-executive officers had merit increases that averaged 4.3% which does not include any market adjustments. Salaries for this group are positioned at or slightly below the market median.

        O-I's annual incentives largely focus on Company profitability. In 2008, we did not meet our annual incentive plan target performance levels for EBIT growth, gross profit margin and working capital as a percent of sales which resulted in a below target payout for our named executive officers, despite setting record performance on EPS and EBIT.

        O-I's long-term incentive program is entirely equity-based and consists of three components: non-qualified stock options (40% of award value), performance shares (40% of award value) tied to achievement of 3-year financial goals, and restricted stock (20% of award value). The Committee believes this long-term incentive mix optimally achieves the compensation objectives of performance-based rewards linked to shareholder value and retention. All results significantly exceeded the established goals for the performance shares, resulting in a maximum payout for the 2006-2008 cycle.

        The Committee believes that, overall, the Company's compensation programs are well aligned to both share owner interests and the competitive market and are designed to reward overall Company and individual performance. The Committee will regularly review the current compensation programs in light of market conditions in 2009.

Compensation Programs

        In determining total compensation levels for its executive officers, the Committee reviews tally sheets and market pay. Tally sheets allow the Committee to understand total historical pay opportunity, realizable pay, current unvested compensation, accumulated wealth, perquisites, benefits, and amounts payable upon separation from service under various events. The Committee examines two sources of market data—data from a comparator group of companies and published survey data.

        The comparator group of companies is a selected mix of companies in the packaging and manufacturing sectors with an emphasis on companies with similar characteristics such as size, global presence, asset intensity, and other relevant factors. Watson Wyatt, the Committee's executive compensation consultant, reviews available data from public companies and, based on its knowledge of our industry and the Committee's preferences, recommends companies for possible inclusion in the comparator group. The chief executive officer and senior vice president & chief human resources officer review the list prior to presenting it to the Committee, and may make recommendations of

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other companies to consider, or to exclude based on their knowledge of the Company's industry. The Committee determines the final list of companies to be included.

        The Committee reviews the list of comparator companies on an annual basis. The intent is to maintain stability in the comparator group over time, although changes may be made based on comparator company performance, mergers/acquisitions, and other relevant factors. Watson Wyatt performs an independent review of the peer group for potential changes, if any. The goal is to stay consistent with the peer size range and business economics, such as the Industrials and Materials industry. Due to it's acquisition by Ingersoll-Rand, Trane Inc. was deleted and ITT Corp. was added.

        The comparator group of companies used for determining compensation in 2008 were:

Ball Corp.

  Owens Corning

Bemis Co. Inc.

  Pactiv Corp.

Borgwarner Inc.

  Parker-Hannifin Corp.

Crown Holdings Inc.

  PPG Industries, Inc.

Cummins Inc.

  Praxair Inc.

Dana

  Rohm and Haas Co.

Dover Corp.

  Sealed Air Corp.

Eastman Chemical Co.

  Silgan Holdings Inc.

Eaton Corp.

  Smurfit-Stone Container Corp.

Illinois Tool Works

  Sonoco Products Co.

Ingersoll-Rand Co. Ltd.

  Temple-Inland Inc.

ITT Corp.

  Timken Co.

Meadwestvaco Corp.

  TRW Automotive Holdings Corp

        The comparator group of companies had a 2007 median revenue of $7.4 billion, and median market cap of $5.0 billion compared to O-I's revenue of $7.6 billion and market cap of $7.8 billion.

        In addition to examining the compensation data published by these companies in their proxies, the Committee also considers data published in general executive compensation surveys. Although there is a priority placed on data from other manufacturing companies, the view may be broadened to allow for a wider comparison, in particular for certain positions below the named executive officers which may not be separately reported by the comparator group. The following surveys were used to conduct our published survey analysis:

    Watson Wyatt Data Services—2008/09 Top Management Survey

    William M Mercer—2008 Executive Compensation Survey

    Towers Perrin—2008 Executive Compensation Database

    Hewitt—2008 Executive Total Compensation Measurement Survey

        We collected data from the general industry as well as the durable goods manufacturing industry. All survey data have been adjusted (whenever possible) through regression analysis to reflect the Company's or applicable business unit revenues.

        Data on base pay, short-term incentives and long-term incentives are viewed individually and in aggregate when reviewing total compensation levels.

Total Direct Compensation

        Total direct compensation is the combination of base pay, annual incentive and long-term incentives. The Company's compensation structure (base salary midpoint, target annual incentive and target long-term incentive) is positioned at or near the 50th percentile of the market. An executive

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officer's actual total direct compensation may be higher or lower than the market 50th percentile based on individual performance, experience, past leadership roles, and Company performance. In making compensation decisions, the Committee considers each component individually and the executive officer's total direct compensation to assure overall alignment with the Company's compensation philosophy and principles.

Base Pay

        The base pay program is designed to ensure the ability to attract and retain key executives. Base salary market values are positioned at approximately the 50th percentile of the market. Individual salaries may be higher or lower depending upon a number of factors, including performance, experience, leadership and past assignments.

        The Committee reviews executive officer salaries at least once per year, and may adjust salaries according to current market conditions, individual performance, and the results of benchmarking against survey data.

        The Committee reviewed executive officer base pay levels on April 1, 2008. Executive officers received increases ranging from 3% to 6% of base salary.

Annual Incentive

        The annual incentive is designed to motivate the achievement of overall financial results as well as motivate individual performance. Annual incentive target values are generally positioned at the 50th percentile of the market. Each year the Committee reviews the performance measures to ensure they are providing appropriate incentives for the achievement of goals that are important to the Company for that year. The Committee may change the measures used, the weightings, and how the targets are set in determining the plan for the upcoming year.

        In 2008, the program measured the achievement of EBIT, gross profit margin, and working capital as a percent of sales (the latter based on a five point average, measured at December 31, 2007, March 31, 2008, June 30, 2008, September 30, 2008, and December 31, 2008). All three measures are the same as those used in 2007. We believe that the balance of these three goals are important to driving shareholder value and motivating the right leadership behaviors. EBIT linked with gross profit margin encourages profitable growth and provides a meaningful indicator of management's performance in managing our base business. Working capital focuses management on cash generation and provides a meaningful link to our balance sheet.

        An incentive pool is created by exceeding performance thresholds against established targets for EBIT and gross profit margin, each weighted at 50%. Each measure stands alone and may result in bonus pool funding. If an incentive pool is created, the amount payable is then determined based on exceeding performance thresholds against established targets for EBIT, gross profit margin and working capital, weighted according to region-specific goals. For the Company overall, the weighting for 2008 is EBIT at 40%, gross profit margin at 40%, and working capital at 20%. For the business units, the weightings for these measures range between—EBIT (35%-42.5%), gross profit margin (35%-42.5%), and working capital (15%-30%).

        Once the pool is created, 80% of the individual award is based strictly on overall financial results, with the remaining 20% being discretionary to reward individual performance and results, and overall leadership contribution to the Company. In 2008, the awards to named executive officers were determined either at the Company level, where 100% of the financial results is based on total Company results (Messrs. Stroucken, White, Baehren and Crawford); or at a business unit level, where 50% of the financial results is based on business unit results, with the remaining 50% being based on total Company results (Mr. Ridder).

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        The Committee reviews and approves the measures and financial targets set for each plan year. In this process, they consider the overall Company budget (as approved by the Board of Directors), the state of the industry and other external economic factors. In setting the goals for 2008, each measure required year-over-year improvement to earn a payout. Over the past five years, payouts ranging from zero to 200% of target have been earned at the Company level, which is indicative of the variability of bonus payouts in years when financial performance is higher or lower.

        For 2008, the Company and two of the four business units achieved less than target performance overall, while the remaining two business units achieved greater than target performance. Specific performance is shown below:

 
  Weight   Target   Actual  

EBIT

    40 % $ 1,202.0MM   $ 1,152.8MM  

Gross Profit Margin

    40 %   21.5 %   21.0 %

Working Capital

    20 %   18.3 %   18.1 %

        Target awards are set for each executive. For 2008, the targets and payouts (both as a percentage of base pay) earned were:

Name
  Target   Actual
Payout
 

Albert P. L. Stroucken

    150 %   56.7 %

Edward C. White

    80 %   30.2 %

James W. Baehren

    65 %   24.6 %

L. Richard Crawford

    80 %   30.2 %

Gregory W. J. Ridder

    60 %   37.5 %

        Upon review of the market data, effective January 1, 2008, the Committee approved raising Messrs. White and Crawford's targets from 70% to 80%. In deciding the 2008 payouts, the Committee determined that each individual earned the full 20% of the discretionary component based on his overall performance and contribution to Company results.

Long-Term Incentives

        Long-term incentive compensation is delivered solely in the form of equity. Delivering this component of executive compensation as equity further aligns the executive officers' interests with share owner interests. This component of the executive compensation package rewards each executive officer's current contributions to the Company and provides motivation to achieve overall Company goals and drive share owner value over time.

        Three types of equity are awarded: stock options; restricted stock; and performance shares. The awards are expressed as a dollar amount and split as follows at the executive officer level:

    40% of the award value is made in non-qualified stock options

    20% of the award value is made in restricted stock

    40% of the award value is made as performance shares

        Individual equity awards are determined based on a review of data from the comparator group, as well as published survey data. Awards are targeted at the 50th percentile of the market. Individual awards may vary based on performance, leadership, potential and other relevant factors. When making grant decisions, the Committee focuses on the dollar value of the award and, in the case of the performance shares, on the achievement of certain goals over a three year performance period.

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        Stock options and performance shares, which equate to 80% of the opportunity of the long-term incentive award, have a strong pay for performance orientation. They are a significant enough portion of total compensation to have a meaningful impact to our executive's total compensation if goals are not achieved or if the Company shares do not appreciate over the long term. Restricted stock is intended to strengthen retention. The use and overall weighting of performance shares (40% of total long-term incentive opportunity) focus management on fundamental long-term financial goals in addition to stock price performance. The combination of 100% of long-term incentive awards being granted in the form of equity along with our stock ownership guidelines (described below) promotes significant alignment with share owner interests. For 2008, the executive officers received grants with the following target values:

Name
  Target  

Albert P. L. Stroucken

  $ 4,000,000  

Edward C. White

  $ 450,000  

James W. Baehren

  $ 450,000  

L. Richard Crawford

  $ 500,000  

Gregory W. J. Ridder

  $ 275,000  

        The actual amount earned under this plan is a function of the performance of the Common Stock (for stock options and restricted shares); and additionally for the performance shares, Company performance against pre-established three year goals.

        The Committee reviews the mix of long-term incentive awards annually, and may make changes based on relevance to desired business objectives and market practices. In 2008, the Committee did not change the mix of long-term incentive awards from 2007.

Stock Options

        The value of options is based on the Black-Scholes value of Common Stock on the grant date, using the same assumptions used for financial accounting purposes. To determine the number of options awarded, 40% of the total long-term incentive award is divided by the Black-Scholes value of the Common Stock on the date of the grant to determine the number of options granted. For instance, assuming an overall long term incentive award equal to $100,000, Common Stock price of $15.00, and Black-Scholes value of $6.15, the number of options granted would be calculated as follows:

$100,000 × 40% = $40,000/$6.15 = 6,504 options

        Beginning in 2005, the stock options granted under long-term incentive program vest 25% on each of the four anniversaries following the grant date. The options have a term of seven years.

Restricted Stock

        To determine the number of shares awarded, 20% of the total value of the approved equity award is divided by the Common Stock price to arrive at the number of restricted shares granted. For instance, assuming an overall total long term incentive award equal to $100,000, and Common Stock price of $15.00, the number of shares granted would be calculated as follows:

$100,000 × 20% = $20,000/$15.00 = 1,333 shares

        Restricted shares vest 25% on each of the four anniversaries following the grant date.

Performance Shares

        The third form of equity granted is performance shares. First granted in 2005, performance shares are meant to reward financial performance over a three year cycle. Grants made in 2006 had a

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performance cycle of January 1, 2006-December 31, 2008, and paid out a maximum award of 150% of the award granted; 2007 grants have a performance cycle of January 1, 2007-December 31, 2009; 2008 grants have a performance cycle of January 1, 2008-December 31, 2010.

        Subject to certain exceptions, performance shares do not vest until the end of the related performance period. The performance criteria are approved by the Committee at the grant date. The performance shares granted for 2006, 2007 and 2008 measure the Company's performance over a three year period in return on invested capital (calculated as segment operating profit, times one minus the Company's tax rate, divided by the sum of total debt, noncontrolling interest and total share owners' equity) ("ROIC"), and an EPS growth rate (defined as earnings per share from continuing operations before asbestos-related charges and items that are not representative of ongoing operations). ROIC and EPS growth rate are equally weighted. If performance against both targets is below the threshold level relative to the targets established by the Committee for the three year period, no award is earned. To the extent that performance against either or both of the targets meets or exceeds the threshold level relative to the established targets for the three year period, named executive officers can earn from 50% to 150% of the award granted. The Committee reviews audited financial results prior to determining the amount of any award earned under this plan, and there is no discretion applied to individual payout amounts.

        The value of the performance shares is equal to 80% of the Common Stock price on the date of grant. On behalf of the Compensation Committee, Watson Wyatt conducted an analytical review of the degree of difficulty of the performance goals based on probability testing using historical financial results and predicted volatility. Based on the analysis, we determined that 20% is an appropriate discount rate for determining the number of shares to award. To determine the number of performance shares granted, 40% of the total value of the approved equity award is divided by 80% of the Common Stock price on the grant date. For instance, assuming an overall long term incentive award equal to $100,000 and Common Stock price of $15.00, the number of performance shares granted would be calculated as follows:

$100,000 × 40% = $40,000/($15.00*80%) = 3,333 units

        If a payout is earned at the end of the performance period, performance shares are paid out in shares of Common Stock.

        The Committee has discretion to make changes based on certain one-time events, accounting/tax rule changes, changes to capital structure, and/or extraordinary items that do not accurately represent the Company's operating performance.

        For the 2006-2008 performance cycle, a payout at 150% of target was earned against the noted goals:

 
  Three
Year Target
  Actual  

ROIC

    8.17 %   13.98 %

EPS Growth Rate

    10.0 %   76.6 %

        At the October 17, 2007 meeting of the Committee, the Company proposed, and the Committee agreed to, re-setting the performance measures due to the divestiture of the Plastics business. The effect of this was simply to modify the measures used over the cycles already in progress (2005-2007, 2006-2008, 2007-2009) to accurately reflect the business as it exists post-sale of Plastics.

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Equity Granting Practices

        The Committee has established a formal process to govern equity grants. The same process is used for all employees receiving equity grants, including the named executive officers. Each December, the Committee is asked to determine the overall amount (dollar value) of equity available for awards during the upcoming year's grant cycle. In making a proposal to the Committee, the Company reviews prior year grants, current competitive market data, run rate and overhang data, and each executive officer's overall compensation package in relation to the market. Once the overall amount of equity available is determined, the chief executive officer makes individual award recommendations for each senior executive. These recommendations are presented to the Committee for review and approval. The Committee works with Watson Wyatt to determine CEO grant value using the same general criteria. The option strike price is determined on the date the awards are approved by the Committee and is set at the closing price of the Common Stock on the date of approval (or the last business day prior to the grant date if the grant date falls on a non-business day). In order to streamline administrative processes, a grant date of March 7 has been adopted by the Committee. That date falls outside of the quarterly blackout periods prescribed under the Addendum to Insider Trading Policy applicable to all named executive officers.

        All equity grants to officers of the Company must be approved by the Committee. The Committee did, however, delegate authority to the chief executive officer to grant a certain number of awards, not to exceed 100,000 shares, (whether options, restricted stock, or performance shares) for events such as the hiring or promotion of key personnel, provided the recipient is not an officer subject to Section 16b of the Securities Exchange Act, which would require Committee approval.

Stock Ownership Guidelines

        In 2005, the Committee implemented stock ownership guidelines for all executive officers. The guidelines are as follows:

    Chairman & CEO—five times base salary

    Senior Business/Function Leader—2.5 times base salary

    Other Key Leaders (as designated by CEO)—1.5 times base salary

        The guidelines state that the targeted level of ownership must be achieved within five years of the time the individual becomes subject to the guideline. In addition, the Committee has also implemented share retention guidelines. These guidelines state that, until the stock ownership guidelines are met, executive officers are required to retain 75% of the "net profit shares" acquired from option exercises, restricted stock or performance shares. "Net profit shares" are those shares remaining after payment of tax obligations and, if applicable, option exercise costs.

        The Committee reviews ownership levels for executive officers on an annual basis. Failure to comply with the stock ownership and retention guidelines may result in delays of promotions and/or future compensation increases.

        Ownership achievement against the guidelines is measured at June 30 each calendar year, based on a 200 day moving average of the stock price. For 2008, the named executives have achieved the following toward their ownership guidelines:

Albert P. L. Stroucken

    446 %

Edward C. White

    551 %

James W. Baehren

    581 %

L. Richard Crawford

    455 %

Gregory W. J. Ridder

    211 %

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Tax Deductibility under 162(m)

        Under U.S. federal income tax law, the Company cannot take a tax deduction for certain compensation paid in excess of $1,000,000 to named U.S. based executive officers. However, performance-based compensation, as defined in the tax law, is fully deductible if the programs are approved by share owners and meet other requirements. The Company's policy is to qualify its incentive compensation programs for full corporate deductibility, to the extent feasible and consistent with its overall compensation goals. The Company has taken steps to qualify its annual incentives, as well as stock options and performance share awards under its equity plan, for full deductibility as "performance-based compensation." The Company may make payments that are not fully deductible if, in its judgment, such payments are necessary to achieve the Company's compensation objectives and to protect share owner interests.

Health and Welfare and Retirement Benefits

        The Company maintains a comprehensive health and welfare benefits plan for all its U.S. based employees. The benefits offered to U.S. executive officers under this plan are essentially the same as those offered to all salaried employees of the Company. Named officers residing outside the U.S. generally participate in health and welfare benefit plans offered to salaried employees in their home location.

        The Company also maintains life insurance benefits for its named executive officers who were officers prior to 2006. Upon retirement, the paid-up policy is distributed to the executive officer. The retiring executive officer also receives a tax reimbursement for the value of the policy. In 2006, the Company closed this plan to new entrants. U.S. executive officers hired after December 31, 2005 are covered by a term-life policy. The term life policy may be converted, at the participant's expense, to an individual policy upon termination or retirement, subject to the terms and conditions of the insurance company.

        The Salary Retirement Plan (a defined benefit pension plan), was closed to new entrants after December 31, 2004. Also effective December 31, 2004, the Company changed the way that benefits can be paid. Benefits accrued at December 31, 2004 are eligible to be paid in a lump sum. Benefits accrued post-December 31, 2004, however, are only eligible to be paid on an annuity basis. As a qualified plan, benefits are limited by IRS regulations.

        For those employees who earn compensation in excess of these limits, the Company maintains an unfunded Supplemental Retirement Benefit Plan ("SRBP"). This plan allows for benefits in excess of the IRS limits to be accrued and paid to participants upon retirement. As a non-qualified plan, all payments are made in a lump sum out of the general assets of the Company. Mr. Stroucken accrues a benefit under this plan pursuant to the terms of his employment agreement.

        The Company maintains a superannuation plan for the benefit of employees in Australia. Similar to a cash balance plan in the United States, this plan provides a defined benefit to the employee at retirement based on the employee's level of contribution to the plan during his/her career with the Company. The plan requires a minimum Company contribution for each employee and provides for a higher level of Company contribution if the employee also elects to contribute. The plan complies with local regulations governing superannuation benefits in Australia.

        The Stock Purchase and Savings Plan ("SPASP") is a defined contribution plan, provided under section 401(k) of the Internal Revenue Code. Contributions to the plan are subject to annual limits established by the IRS. While employees may direct their own contributions into a number of provided investments, the Company match is made in Common Stock. The match is immediately vested, and participants can move the match out of Common Stock, and into any of the other investments, at any time subject to blackout periods and other trading window restrictions. For participants hired January 1, 2005 and later, who are not eligible to participate in the Salary Retirement Plan, the

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Company also makes a base contribution to the SPASP each payroll period, which is invested in the same investment options selected by the participants for their own contributions.

Other Benefits

        Watson Wyatt performed a comprehensive analysis of the Company's perquisites in terms of both value and prevalence. The perquisites were compared using a variety of perspectives: the Company's peer group, the S&P 100 and the Fortune 500. Overall the Company's perquisites are competitive with the peer group median. Under board policy, for security reasons, the Company's chief executive officer generally uses the Company aircraft for both business and personal travel. Per the terms of his employment agreement, Mr. Stroucken's personal use of the Company aircraft is limited to 50 hours per year. Personal travel by any other officers requires the approval of the chief executive officer.

O-I Benefits & Perquisites
  Value Provided by O-I   Stroucken   White   Baehren   Crawford   Ridder

Health & Welfare—US Executives

                       
 

Health, Dental, Vision, Short- & Long-Term Disability

  Comprehensive coverage   X   X   X   X    
 

Retiree Medical

          X   X   X    
 

Supplemental Whole Life (hired prior to 2006)

  3x Base Salary       X   X   X    
 

Supplemental Term Life (hired after 2006)

  3x Base Salary   X                

Health & Welfare—Non-US Executives

                       
 

Supplemental Whole Life (hired prior to 2006)

  $400,000                   X

Retirement—Qualified

                       
 

Salary Retirement Plan (DB(1))

  1.212% × Pay(4) × Service       X   X   X