**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D. C.   20549**

 

**FORM 10-Q**

 

**(Markone)**

 

| **x**** ** | **Quarterly Report Pursuant to  Section 13 or 15(d) of the********Securities  Exchange Act of 1934**  | ** ** |
|-----------------|-----------------------------------------------------------------------------------------------------------------|------------|
| ** **      | ** **                                                                                                      | ** ** |
| ** **      | **For Quarter Ended March 31, 2009**                                                                       | ** ** |
| ** **      | ** **                                                                                                      | ** ** |
| ** **      | **or**                                                                                                          | ** ** |
| ** **      | ** **                                                                                                      | ** ** |
| **o**           | **Transition Report Pursuant to  Section 13 or 15(d) of the********Securities  Exchange Act of 1934** | ** ** |

 

**Owens-Illinois, Inc.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                | ** ** | **1-9576**     | ** ** | **22-2781933**       |
|---------------------------------------------|------------|----------------|------------|----------------------|
| (State  or other                            |       | (Commission    |       | (IRS  Employer       |
| jurisdiction  of                            |       | File  No.)     |       | Identification  No.) |
| incorporation  or                           |       |           |       |                 |
| organization)                               |       |           |       |                 |
|                                        |       |           |       |                 |
| **One Michael Owens Way, Perrysburg, Ohio** |       | **43551-2999** |
| (Address  of principal executive offices)   |       | (Zip  Code)    |

 

**567-336-5000**

(Registrant’stelephone number, including area code)

 

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

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

Indicate the number of shares outstandingof each of the issuer’s classes of common stock, as of the latest practicabledate.

 

Owens-Illinois, Inc. $.01 par valuecommon stock — 168,286,341 shares at March 31, 2009.

 

 

 

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Part I— FINANCIAL INFORMATION

 

**Item 1. Financial Statements.**

 

The Condensed Consolidated Financial Statements of Owens-Illinois, Inc.(“the Company”) presented herein are unaudited but, in the opinion ofmanagement, reflect all adjustments necessary to present fairly suchinformation for the periods and at the dates indicated. All adjustments are ofa normal recurring nature. Because the following unaudited condensedconsolidated financial statements have been prepared in accordance with Article 10of Regulation S-X, they do not contain all information and footnotes normallycontained in annual consolidated financial statements; accordingly, they shouldbe read in conjunction with the Consolidated Financial Statements and notesthereto appearing in the Registrant’s Annual Report on Form 10-K for theyear ended December 31, 2008.

 

Effective January 1,2009, the Company adopted the provisions of FAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements, an amendment of ARB No. 51,”which changed the presentation of noncontrolling interests in subsidiaries. Theformat of the Company’scondensed consolidated results of operations and condensed consolidated cashflows for the three months ended March 31, 2008 and condensed consolidatedbalance sheets at March 31, 2008 and December 31, 2008 have beenreclassified to conform to the new presentation under FAS No. 160 which isrequired to be applied retrospectively.

 

Effective January 1,2009, the Company adopted the provisions of FSP No. EITF 03-6-1, “DeterminingWhether Instruments Granted in Share-Based Payment Transactions areParticipating Securities,” which required the Company to allocate earnings tounvested restricted shares outstanding during the period. Earnings per sharefor the three months ended March 31, 2008 were restated in accordance withFSP No. EITF 03-6-1whichis required to be applied retrospectively.

 

2

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OWENS-ILLINOIS,INC.

CONDENSEDCONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, exceptper share amounts)

 
| ** **                                               | ** ** | **Three months ended March 31,** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                               | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| Net sales                                                |       | $                                                    | 1,519.0    |   | $ | 1,960.5 |   |
| Manufacturing,  shipping, and delivery expense           |       | (1,222.2                                             | )          | (1,503.7 | ) |
| Gross profit                                             |       | 296.8                                                |       | 456.8 |   |
|                                                     |       |                                                 |       |   |   |
| Selling and  administrative expense                      |       | (118.5                                               | )          | (127.8 | ) |
| Research,  development, and engineering expense          |       | (13.9                                                | )          | (16.0 | ) |
| Interest expense                                         |       | (48.1                                                | )          | (64.3 | ) |
| Interest income                                          |       | 8.5                                                  |       | 8.7 |   |
| Equity earnings                                          |       | 13.6                                                 |       | 11.1 |   |
| Royalties and  net technical assistance                  |       | 2.8                                                  |       | 4.8 |   |
| Other income                                             |       | 1.6                                                  |       | 1.8 |   |
| Other expense                                            |       | (52.8                                                | )          | (20.0 | ) |
|                                                     |       |                                                 |       |   |   |
| Earnings from  continuing operations before income taxes |       | 90.0                                                 |       | 255.1 |   |
| Provision for  income taxes                              |       | (31.2                                                | )          | (64.9 | ) |
| Earnings from  continuing operations                     |       | 58.8                                                 |       | 190.2 |   |
| Gain on sale of  discontinued operations                 |       |                                                 |       | 4.1 |   |
| Net earnings                                             |       | 58.8                                                 |       | 194.3 |   |
| Net earnings  attributable to noncontrolling interests   |       | (13.7                                                | )          | (16.2 | ) |
| Net earnings  attributable to the Company                |       | $                                                    | 45.1       |   | $ | 178.1 |   |
|                                                     |       |                                                 |       |   |   |
| Amounts  attributable to the Company:                    |       |                                                 |       |   |   |
| Earnings from  continuing operations                     |       | $                                                    | 45.1       |   | $ | 174.0 |   |
| Gain on sale of  discontinued operations                 |       |                                                 |       | 4.1 |   |
| Net earnings                                             |       | $                                                    | 45.1       |   | $ | 178.1 |   |
|                                                     |       |                                                 |       |   |   |
| Basic earnings  per share:                               |       |                                                 |       |   |   |
| Earnings from  continuing operations                     |       | $                                                    | 0.27       |   | $ | 1.06 |   |
| Gain on sale of  discontinued operations                 |       |                                                 |       | 0.03 |   |
| Net earnings                                             |       | $                                                    | 0.27       |   | $ | 1.09 |   |
| Weighted average  shares outstanding (thousands)         |       | 167,080                                              |       | 156,324 |   |
|                                                     |       |                                                 |       |   |   |
| Diluted earnings  per share:                             |       |                                                 |       |   |   |
| Earnings from  continuing operations                     |       | $                                                    | 0.27       |   | $ | 1.02 |   |
| Gain on sale of  discontinued operations                 |       |                                                 |       | 0.02 |   |
| Net earnings                                             |       | $                                                    | 0.27       |   | $ | 1.04 |   |
| Weighted diluted  average shares (thousands)             |       | 168,469                                              |       | 170,517 |   |

 

See accompanyingnotes.

 

3

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OWENS-ILLINOIS, INC.

CONDENSEDCONSOLIDATED BALANCE SHEETS

(Dollars in millions,except per share amounts)

 
| ** **                                                                                                                                                | ** ** | **March 31,** | ** ** | **Dec. 31,** | ** ** | **March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
| ** **                                                                                                                                                | ** ** | **2009**           | ** ** | **2008**          | ** ** | **2008**           | ** ** |
| Assets                                                                                                                                                    |       |               |       |              |       |               |       |
| Current assets:                                                                                                                                           |       |               |       |              |       |               |       |
| Cash and cash  equivalents                                                                                                                                |       | $                  | 362.3      |              | $          | 379.5              |       | $ | 483.0 |   |
| Short-term  investments, at cost which approximates market                                                                                                |       | 15.9               |       | 25.0              |       | 51.7               |       |
| Receivables,  less allowances for losses and discounts ($35.2 at March 31, 2009, $39.7  at December 31, 2008, and $35.5 at March 31, 2008) |       | 945.5              |       | 988.8             |       | 1,320.6            |       |
| Inventories                                                                                                                                               |       | 1,044.8            |       | 999.5             |       | 1,222.4            |       |
| Prepaid expenses                                                                                                                                          |       | 48.4               |       | 51.9              |       | 37.1               |       |
|                                                                                                                                                      |       |               |       |              |       |               |       |
| Total current  assets                                                                                                                                     |       | 2,416.9            |       | 2,444.7           |       | 3,114.8            |       |
|                                                                                                                                                      |       |               |       |              |       |               |       |
| Investments and  other assets:                                                                                                                            |       |               |       |              |       |               |       |
| Equity  investments                                                                                                                                       |       | 105.3              |       | 101.7             |       | 87.4               |       |
| Repair parts  inventories                                                                                                                                 |       | 134.5              |       | 132.5             |       | 157.0              |       |
| Prepaid pension                                                                                                                                           |       |               |       |              |       | 591.4              |       |
| Deposits,  receivables, and other assets                                                                                                                  |       | 478.2              |       | 444.5             |       | 489.4              |       |
| Goodwill                                                                                                                                                  |       | 2,130.3            |       | 2,207.5           |       | 2,522.2            |       |
|                                                                                                                                                      |       |               |       |              |       |               |       |
| Total other  assets                                                                                                                                       |       | 2,848.3            |       | 2,886.2           |       | 3,847.4            |       |
|                                                                                                                                                      |       |               |       |              |       |               |       |
| Property, plant,  and equipment, at cost                                                                                                                  |       | 5,711.0            |       | 5,983.1           |       | 6,707.0            |       |
| Less accumulated  depreciation                                                                                                                            |       | 3,224.6            |       | 3,337.5           |       | 3,711.8            |       |
|                                                                                                                                                      |       |               |       |              |       |               |       |
| Net property,  plant, and equipment                                                                                                                       |       | 2,486.4            |       | 2,645.6           |       | 2,995.2            |       |
|                                                                                                                                                      |       |               |       |              |       |               |       |
| Total assets                                                                                                                                              |       | $                  | 7,751.6    |              | $          | 7,976.5            |       | $ | 9,957.4 |   |

 

4

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CONDENSED CONSOLIDATEDBALANCE SHEETS — Continued

 
| ** **                                                                                                                                                    | ** ** | **March 31,** | ** ** | **Dec. 31,** | ** ** | **March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
| ** **                                                                                                                                                    | ** ** | **2009**           | ** ** | **2008**          | ** ** | **2008**           | ** ** |
| Liabilities and  Share Owners’ Equity                                                                                                                    |       |               |       |              |       |               |       |
| Current  liabilities:                                                                                                                                         |       |               |       |              |       |               |       |
| Short-term loans  and long-term debt due within one year                                                                                                      |       | $                  | 353.6      |              | $          | 393.8              |       | $ | 835.1 |   |
| Current portion  of asbestos-related liabilities                                                                                                              |       | 175.0              |       | 175.0             |       | 210.0              |       |
| Accounts payable                                                                                                                                              |       | 754.4              |       | 838.2             |       | 978.5              |       |
| Other  liabilities                                                                                                                                            |       | 554.1              |       | 596.3             |       | 656.9              |       |
| Total current  liabilities                                                                                                                                    |       | 1,837.1            |       | 2,003.3           |       | 2,680.5            |       |
|                                                                                                                                                          |       |               |       |              |       |               |       |
| Long-term debt                                                                                                                                                |       | 2,972.0            |       | 2,940.3           |       | 3,192.5            |       |
| Deferred taxes                                                                                                                                                |       | 138.6              |       | 77.6              |       | 128.8              |       |
| Pension benefits                                                                                                                                              |       | 703.4              |       | 741.8             |       | 314.4              |       |
| Nonpension  postretirement benefits                                                                                                                           |       | 234.4              |       | 239.7             |       | 279.6              |       |
| Other  liabilities                                                                                                                                            |       | 324.4              |       | 360.1             |       | 409.1              |       |
| Asbestos-related  liabilities                                                                                                                                 |       | 285.5              |       | 320.3             |       | 205.3              |       |
| Commitments and  contingencies                                                                                                                                |       |               |       |              |       |               |       |
| Share owners’  equity:                                                                                                                                   |       |               |       |              |       |               |       |
| The Company’s  share owners’ equity:                                                                                                                |       |               |       |              |       |               |       |
| Common stock,  par value $.01 per share 250,000,000 shares authorized, 179,754,178, 178,705,817,  and 178,413,409 shares issued and outstanding, respectively |       | 1.8                |       | 1.8               |       | 1.8                |       |
| Capital in  excess of par value                                                                                                                               |       | 2,921.8            |       | 2,913.3           |       | 2,887.7            |       |
| Treasury stock,  at cost 11,467,837, 11,556,341, and 11,684,080 shares, respectively                                                                          |       | (219.9             | )          | (221.5            | )          | (224.0             | )          |
| Retained  earnings (deficit)                                                                                                                                  |       | 12.7               |       | (32.4             | )          | (112.6             | )          |
| Accumulated  other comprehensive loss                                                                                                                         |       | (1,700.4           | )          | (1,620.6          | )          | (54.1              | )          |
| Total share  owners’ equity of the Company                                                                                                               |       | 1,016.0            |       | 1,040.6           |       | 2,498.8            |       |
| Noncontrolling  interests                                                                                                                                     |       | 240.2              |       | 252.8             |       | 248.4              |       |
| Total share  owners’ equity                                                                                                                              |       | 1,256.2            |       | 1,293.4           |       | 2,747.2            |       |
| Total  liabilities and share owners’ equity                                                                                                              |       | $                  | 7,751.6    |              | $          | 7,976.5            |       | $ | 9,957.4 |   |

 

See accompanyingnotes.

 

5

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OWENS-ILLINOIS,INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

 
| ** **                                                            | ** ** | **Three months ended March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
|                                                                  | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| Cash flows from operating activities:             |       |                                                 |       |   |   |
| Net earnings                                                          |       | $                                                    | 58.8       |   | $ | 194.3 |   |
| Net earnings  attributable to noncontrolling interest                 |       | (13.7                                                | )          | (16.2 | ) |
| Gain on sale of  discontinued operations                              |       |                                                 |       | (4.1 | ) |
| Non-cash charges  (credits):                                          |       |                                                 |       |   |   |
| Depreciation                                                          |       | 88.4                                                 |       | 113.6 |   |
| Amortization of  intangibles and other deferred items                 |       | 4.3                                                  |       | 7.6 |   |
| Amortization of  finance fees                                         |       | 2.4                                                  |       | 1.9 |   |
| Deferred tax  provision (benefit)                                     |       | 10.5                                                 |       | (1.7 | ) |
| Restructuring  and asset impairment                                   |       | 50.4                                                 |       | 12.9 |   |
| Other                                                                 |       | 32.8                                                 |       | 20.8 |   |
| Asbestos-related  payments                                            |       | (34.8                                                | )          | (40.2 | ) |
| Cash paid for  restructuring activities                               |       | (20.2                                                | )          | (4.1 | ) |
| Change in  non-current operating assets                               |       | (2.4                                                 | )          | (0.8 | ) |
| Change in  non-current liabilities                                    |       | (31.3                                                | )          | (18.0 | ) |
| Change in  components of working capital                              |       | (173.7                                               | )          | (215.1 | ) |
| Cash provided by  (utilized in) operating activities                  |       | (28.5                                                | )          | 50.9 |   |
| Cash flows from  investing activities:                                |       |                                                 |       |   |   |
| Additions to  property, plant, and equipment                          |       | (46.6                                                | )          | (45.4 | ) |
| Advances to  equity affiliate - net                                   |       | 1.6                                                  |       | (15.0 | ) |
| Net cash  proceeds (payments) related to divestitures and asset sales |       | 0.1                                                  |       | (16.6 | ) |
| Cash utilized in  investing activities                                |       | (44.9                                                | )          | (77.0 | ) |
| Cash flows from  financing activities:                                |       |                                                 |       |   |   |
| Additions to  long-term debt                                          |       | 274.9                                                |       | 309.2 |   |
| Repayments of  long-term debt                                         |       | (183.6                                               | )          | (222.6 | ) |
| Increase  (decrease) in short-term loans                              |       | (17.6                                                | )          | 82.3 |   |
| Net payments for  hedging activity                                    |       | 4.4                                                  |       | (33.9 | ) |
| Convertible  preferred stock dividends                                |       |                                                 |       | (5.4 | ) |
| Dividends paid  to noncontrolling interests                           |       | (17.0                                                | )          | (30.2 | ) |
| Issuance of  common stock and other                                   |       | 4.0                                                  |       | 9.8 |   |
| Cash provided by  financing activities                                |       | 65.1                                                 |       | 109.2 |   |
| Effect of exchange  rate fluctuations on cash                         |       | (8.9                                                 | )          | 12.2 |   |
| Increase  (decrease) in cash                                          |       | (17.2                                                | )          | 95.3 |   |
| Cash at  beginning of period                                          |       | 379.5                                                |       | 387.7 |   |
| Cash at end of  period                                                |       | $                                                    | 362.3      |   | $ | 483.0 |   |

 

Seeaccompanying notes.

 

6

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OWENS-ILLINOIS,INC.

NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular datadollars in millions,

except share andper share amounts

 

**1.****             ****Earnings Per Share**

 

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

 
| ** **                                                                                 | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| Numerator:                                                                                 |       |                                                 |       |   |   |
| Net earnings  attributable to the Company                                                  |       | $                                                    | 45.1       |   | $ | 178.1 |   |
| Convertible  preferred stock dividends                                                     |       |                                                 |       | (5.4 | ) |
| Net earnings  attributable to participating securities                                     |       | (0.1                                                 | )          | (1.8 | ) |
|                                                                                       |       |                                                 |       |   |   |
| Numerator for  basic earnings per share - income available to common share owners          |       | $                                                    | 45.0       |   | $ | 170.9 |   |
|                                                                                       |       |                                                 |       |   |   |
| Denominator:                                                                               |       |                                                 |       |   |   |
| Denominator for  basic earnings per share - weighted average shares outstanding            |       | 167,079,573                                          |       | 156,324,072 |   |
|                                                                                       |       |                                                 |       |   |   |
| Effect of  dilutive securities:                                                            |       |                                                 |       |   |   |
| Convertible  preferred stock                                                               |       |                                                 |       | 8,589,355 |   |
| Stock options  and other                                                                   |       | 1,388,952                                            |       | 5,603,451 |   |
|                                                                                       |       |                                                 |       |   |   |
| Denominator for  diluted earnings per share - adjusted weighted average shares outstanding |       | 168,468,525                                          |       | 170,516,878 |   |
|                                                                                       |       |                                                 |       |   |   |
| Basic earnings  per share:                                                                 |       |                                                 |       |   |   |
| Earnings from  continuing operations                                                       |       | $                                                    | 0.27       |   | $ | 1.06 |   |
| Gain on sale of  discontinued operations                                                   |       |                                                 |       | 0.03 |   |
|                                                                                       |       |                                                 |       |   |   |
| Net earnings                                                                               |       | $                                                    | 0.27       |   | $ | 1.09 |   |
|                                                                                       |       |                                                 |       |   |   |
| Diluted earnings  per share:                                                               |       |                                                 |       |   |   |
| Earnings from  continuing operations                                                       |       | $                                                    | 0.27       |   | $ | 1.02 |   |
| Gain on sale of  discontinued operations                                                   |       |                                                 |       | 0.02 |   |
|                                                                                       |       |                                                 |       |   |   |
| Net earnings                                                                               |       | $                                                    | 0.27       |   | $ | 1.04 |   |

 

Theconvertible preferred stock was included in the computation of diluted earningsper share for the three months ended March 31, 2008 on an “if converted”basis since the result was dilutive. For purposes of this computation, thepreferred stock dividends were not subtracted from the numerator. Options topurchase 2,145,884 weighted average shares of common stock that wereoutstanding during the three months ended March 31, 2009 were not includedin the computation of diluted earnings per share because the options’ exerciseprice was greater than the average market price of the common shares.

 

Effective January 1, 2009, the Company adoptedthe provisions of FSP No. EITF 03-6-1, which addresses whetherinstruments granted in share-based payment awards are participating 

 

7

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securitiesprior to vesting and, therefore, must be included in the earnings allocation incalculating earnings per share under the two-class method described in FAS No. 128,“Earnings per Share.” FSP No. EITF 03-6-1 requires that unvestedshare-based payment awards that contain non-forfeitable rights to dividends betreated as participating securities in calculating earnings per share. Inaccordance withFSP No. EITF03-6-1, the Company was required toallocate earnings to unvested restricted shares outstanding during the period.Basic earnings per share for the three months ended March 31, 2008 werereduced by $0.02 per share in accordance with FSP No. EITF 03-6-1whichrequires retrospective application. There was no impact on basic earnings per share for the three monthsended March 31, 2009 or diluted earnings per share in either period.

 

**2.  Debt**

 

The following tablesummarizes the long-term debt of the Company:

 
| ** **                            | ** ** | **March 31,** | ** ** | **Dec. 31,** | ** ** | **March 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
| ** **                            | ** ** | **2009**           | ** ** | **2008**          | ** ** | **2008**           | ** ** |
| Secured Credit  Agreement:            |       |               |       |              |       |               |       |
| Revolving Credit  Facility:           |       |               |       |              |       |               |       |
| Revolving Loans                       |       | $                  | 144.8      |              | $          | 18.7               |       | $ | 86.8 |   |
| Term Loans:                           |       |               |       |              |       |               |       |
| Term Loan A  (225.0 million AUD)      |       | 154.2              |       | 155.7             |       | 206.1              |       |
| Term Loan B                           |       | 191.5              |       | 191.5             |       | 191.5              |       |
| Term Loan C  (110.8 million CAD)      |       | 87.8               |       | 90.9              |       | 108.3              |       |
| Term Loan D (€191.5  million)    |       | 253.2              |       | 269.6             |       | 302.1              |       |
| Senior Notes:                         |       |               |       |              |       |               |       |
| 7.35%, due 2008                       |       |               |       |              |       | 250.4              |       |
| 8.25%, due 2013                       |       | 468.0              |       | 470.0             |       | 461.8              |       |
| 6.75%, due 2014                       |       | 400.0              |       | 400.0             |       | 400.0              |       |
| 6.75%, due 2014  (€225 million)  |       | 297.4              |       | 316.8             |       | 355.0              |       |
| 6.875%, due 2017  (€300 million) |       | 396.6              |       | 422.4             |       | 473.3              |       |
| Senior  Debentures:                   |       |               |       |              |       |               |       |
| 7.50%, due 2010                       |       | 257.5              |       | 259.5             |       | 258.5              |       |
| 7.80%, due 2018                       |       | 250.0              |       | 250.0             |       | 250.0              |       |
| Other                                 |       | 87.9               |       | 113.4             |       | 122.1              |       |
| Total long-term  debt                 |       | 2,988.9            |       | 2,958.5           |       | 3,465.9            |       |
| Less amounts due  within one year     |       | 16.9               |       | 18.2              |       | 273.4              |       |
| Long-term debt                        |       | $                  | 2,972.0    |              | $          | 2,940.3            |       | $ | 3,192.5 |   |

 

On June 14,2006, the Company’s subsidiary borrowers entered into the Secured CreditAgreement (the “Agreement”).  At March 31,2009, the Agreement included a $900.0 million revolving credit facility, a225.0 million Australian dollar term loan, and a 110.8 million Canadian dollarterm loan, each of which has a final maturity date of June 15, 2012.  It also included a $191.5 million term loanand a €191.5 million term loan, each of which has a final maturity date of June 14,2013.

 

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

 

8

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

 

During October 2006, the Company enteredinto a €300 million Europeanaccounts receivable securitization program. The program extends through October 2011, subject to annual renewalof backup credit lines.  In addition, theCompany participates in a receivables financing program in the Asia Pacificregion with a revolving funding commitment of 100 million Australian dollarsand 25 million New Zealand dollars that extends through July 2009 and October 2009,respectively.

 

Informationrelated to the Company’s accounts receivable securitization program is asfollows:

 
| ** **                              | ** ** | **March 31,** | ** ** | **Dec. 31,** | ** ** | **March 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
| ** **                              | ** ** | **2009**           | ** ** | **2008**          | ** ** | **2008**           | ** ** |
|                                    |       |               |       |              |       |               |       |
| Balance  (included in short-term loans) |       | $                  | 255.2      |              | $          | 293.7              |       | $ | 439.6 |   |
|                                    |       |               |       |              |       |               |       |
| Weighted average  interest rate         |       | 3.72               | %          | 5.31              | %          | 6.10               | %          |
|                                         |            |                    |            |                   |            |                    |            |  |  |  |

 

**3.  Supplemental Cash Flow Information**

** **
| ** **                 | ** ** | **Three months ended March 31,** | ** ** |
|----------------------------|------------|------------------------------------------------------|------------|
| ** **                 | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
|                       |       |                                                 |       |   |   |
| Interest paid in  cash     |       | $                                                    | 27.2       |   | $ | 40.4 |   |
|                       |       |                                                 |       |   |   |
| Income taxes  paid in cash |       | 37.5                                                 |       | 25.3 |   |
|                            |            |                                                      |            |  |  |  |  |

 

**4.  Share Owners’ Equity**

 

The activity inshare owners’ equity for the three months ended March 31, 2009 and 2008 isas follows:

 

9

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| ** **                                                             | ** ** | ** **                             | ** ** | **Share Owners’ Equity of the Company**                                  | ** ** | ** **                        | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                             | ** ** | **Total  Share  Owners’  Equity** | ** ** | **Common Stock,  Capital in  Excess of Par  Value, and  Treasury Stock** | ** ** | **Retained  Earnings  (Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Non-  controlling  Interests** | ** ** |
|                                                                   |       |                                   |       |                                                                                                   |       |                              |       |   |   |   |   |
| Balance on  January 1, 2009                                       |       | $                                      | 1,293.4    |                                                                                                   | $          | 2,693.6                           |       | $ | (32.4 | ) | $ | (1,620.6 | ) | $ | 252.8 |   |
| Issuance of  common stock                                              |       | 8.5                                    |       | 8.5                                                                                                    |       |                              |       |   |   |   |   |
| Reissuance of  common stock                                            |       | 1.6                                    |       | 1.6                                                                                                    |       |                              |       |   |   |   |   |
| Comprehensive  income (loss):                                          |       |                                   |       |                                                                                                   |       |                              |       |   |   |   |   |
| Net earnings                                                           |       | 58.8                                   |       |                                                                                                   |       | 45.1                              |       |   |   | 13.7 |   |
| Foreign currency  translation adjustments                              |       | (88.5                                  | )          |                                                                                                   |       |                              |       | (79.2 | ) | (9.3 | ) |
| Pension and  other postretirement benefit adjustments                  |       | 5.4                                    |       |                                                                                                   |       |                              |       | 5.4 |   |   |   |
| Change in fair  value of derivative instruments, net of tax            |       | (6.0                                   | )          |                                                                                                   |       |                              |       | (6.0 | ) |   |   |
| Total  comprehensive loss                                              |       | (30.3                                  | )          |                                                                                                   |       |                              |       |   |   |   |   |
| Dividends paid  to noncontrolling interests on subsidiary common stock |       | (17.0                                  | )          |                                                                                                   |       |                              |       |   |   | (17.0 | ) |
| Balance on  March 31, 2009                                        |       | $                                      | 1,256.2    |                                                                                                   | $          | 2,703.7                           |       | $ | 12.7 |   | $ | (1,700.4 | ) | $ | 240.2 |   |

 
| ** **                                                             | ** ** | ** **                             | ** ** | **Share Owners’ Equity of the Company**                                  | ** ** | ** **                        | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                             | ** ** | **Total  Share  Owners’  Equity** | ** ** | **Common Stock,  Capital in  Excess of Par  Value, and  Treasury Stock** | ** ** | **Retained  Earnings  (Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Non-  controlling  Interests** | ** ** |
|                                                                   |       |                                   |       |                                                                                                   |       |                              |       |   |   |   |   |
| Balance on  January 1, 2008                                       |       | $                                      | 1,986.6    |                                                                                                   | $          | 2,197.1                           |       | $ | (285.3 | ) | $ | (176.9 | ) | $ | 251.7 |   |
| Issuance of  common stock                                              |       | 467.8                                  |       | 467.8                                                                                                  |       |                              |       |   |   |   |   |
| Reissuance of  common stock                                            |       | 0.6                                    |       | 0.6                                                                                                    |       |                              |       |   |   |   |   |
| Comprehensive  income:                                                 |       |                                   |       |                                                                                                   |       |                              |       |   |   |   |   |
| Net earnings                                                           |       | 194.3                                  |       |                                                                                                   |       | 178.1                             |       |   |   | 16.2 |   |
| Foreign currency  translation adjustments                              |       | 102.0                                  |       |                                                                                                   |       |                              |       | 91.3 |   | 10.7 |   |
| Pension and  other postretirement benefit adjustments                  |       | 8.3                                    |       |                                                                                                   |       |                              |       | 8.3 |   |   |   |
| Change in fair  value of derivative instruments, net of tax            |       | 23.2                                   |       |                                                                                                   |       |                              |       | 23.2 |   |   |   |
| Total  comprehensive income                                            |       | 327.8                                  |       |                                                                                                   |       |                              |       |   |   |   |   |
| Dividends paid  to noncontrolling interests on subsidiary common stock |       | (30.2                                  | )          |                                                                                                   |       |                              |       |   |   | (30.2 | ) |
| Dividends paid  on convertible preferred stock                         |       | (5.4                                   | )          |                                                                                                   |       | (5.4                              | )          |   |   |   |   |
| Balance on  March 31, 2008                                        |       | $                                      | 2,747.2    |                                                                                                   | $          | 2,665.5                           |       | $ | (112.6 | ) | $ | (54.1 | ) | $ | 248.4 |   |

 

**5. ****Inventories**

 

Major classes ofinventory are as follows:

 

10

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| ** **         | ** ** | **March 31,** | ** ** | **Dec. 31,** | ** ** | **March 31,** | ** ** |
|--------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
| ** **         | ** ** | **2009**           | ** ** | **2008**          | ** ** | **2008**           | ** ** |
|               |       |               |       |              |       |               |       |
| Finished goods     |       | $                  | 875.6      |              | $          | 831.7              |       | $ | 1,050.8 |   |
| Work in process    |       | 0.7                |       | 0.8               |       | 1.9                |       |
| Raw materials      |       | 116.2              |       | 109.8             |       | 100.4              |       |
| Operating supplies |       | 52.3               |       | 57.2              |       | 69.3               |       |
|               |       |               |       |              |       |               |       |
|               |       | $                  | 1,044.8    |              | $          | 999.5              |       | $ | 1,222.4 |   |

 

**6.  Contingencies**

 

TheCompany is one of a number of defendants in a substantial number of lawsuitsfiled 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 the Company’sformer business units commercially produced and sold approximately $40 millionof a high-temperature, calcium-silicate based pipe and block insulationmaterial containing asbestos.  TheCompany exited the pipe and block insulation business in April 1958.  The traditional asbestos personal injurylawsuits and claims relating to such production and sale of asbestos materialtypically allege various theories of liability, including negligence, grossnegligence and strict liability and seek compensatory and in some cases,punitive damages in various amounts (herein referred to as “asbestos claims”).

 

Asof March 31, 2009, the Company has determined that it is a named defendantin asbestos lawsuits and claims involving approximately 9,000 plaintiffs andclaimants.  Based on an analysis of thelawsuits pending as of December 31, 2008, approximately 84% of plaintiffseither do not specify the monetary damages sought, or in the case of courtfilings, claim an amount sufficient to invoke the jurisdictional minimum of thetrial court.  Approximately 15% ofplaintiffs specifically plead damages of $15 million or less, and 0.4% ofplaintiffs specifically plead damages greater than $15 million but less than$100 million.  Fewer than 1% ofplaintiffs specifically plead damages $100 million or greater but less than$122 million.

 

Asindicated by the foregoing summary, current pleading practice permitsconsiderable variation in the assertion of monetary damages.  The Company’s experience resolving hundredsof thousands of asbestos claims and lawsuits over an extended period,demonstrates that the monetary relief which may be alleged in a complaint bearslittle relevance to a claim’s merits or disposition value.  Rather, the amount potentially recoverable isdetermined by such factors as the plaintiff’s severity of disease, the productidentification evidence against specific defendants, the defenses available tothose defendants, the specific jurisdiction in which the claim is made, and theplaintiff’s history of smoking or exposure to other possible disease-causativefactors.

 

Inaddition to the pending claims set forth above, the Company has claims-handlingagreements in place with many plaintiffs’counsel throughout the country.  Theseagreements require evaluation and negotiation regarding whether particularclaimants qualify under the criteria established by such agreements. Thecriteria for such claims include verification of a compensable illness and areasonable probability of exposure to a product manufactured by the Company’sformer business unit during its manufacturing period ending in 1958.  Some plaintiffs’ counsel have historicallywithheld claims under these agreements for later presentation while focusingtheir attention on active litigation in the tort system.  The Company believes that as of March 31,2009 there are approximately 800 claims against other defendants which arelikely to be asserted some time in the future against the Company. These claimsare not included in the pending “lawsuits and claims” totals set forth above.

 

11

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TheCompany is also a defendant in other asbestos-related lawsuits or claimsinvolving maritime workers, medical monitoring claimants, co-defendants andproperty damage claimants.  Based uponits past experience, the Company believes that these categories of lawsuits andclaims will not involve any material liability and they are not included in theabove description of pending matters or in the following description ofdisposed matters.

 

Sincereceiving its first asbestos claim, the Company as of March 31, 2009, hasdisposed of the asbestos claims of approximately 370,000 plaintiffs andclaimants at an average indemnity payment per claim of approximately$7,300.  Certain of these dispositionshave included deferred amounts payable over a number of years.  Deferred amounts payable totaledapproximately $33.1 million at March 31, 2009 ($34.0 million at December 31,2008) and are included in the foregoing average indemnity payment perclaim.  The Company’s indemnity paymentsfor these claims have varied on a per claim basis, and are expected to continueto vary considerably over time.  Asdiscussed above, a part of the Company’s objective is to achieve, wherepossible, resolution of asbestos claims pursuant to claims-handlingagreements.  Failure of claimants to meetcertain medical and product exposure criteria in the Company’s administrativeclaims handling agreements has generally reduced the number of marginal orsuspect claims that would otherwise have been received. This may have theeffect of increasing the Company’s per-claim average indemnity payment overtime.

 

TheCompany believes that its ultimate asbestos-related liability (i.e., itsindemnity 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, the Company has accrued a total ofapproximately $3.47 billion through 2008, before insurance recoveries, for itsasbestos-related liability.  The Company’sability reasonably to estimate its liability has been significantly affected bythe volatility of asbestos-related litigation in the United States, theinherent uncertainty of future disease incidence and claiming patterns, theexpanding list of non-traditional defendants that have been sued in thislitigation and found liable for substantial damage awards, the use of masslitigation screenings to generate new lawsuits, the large number of claimsasserted or filed by parties who claim prior exposure to asbestos materials buthave no present physical impairment as a result of such exposure, and thesignificant number of co-defendants that have filed for bankruptcy.

 

TheCompany has continued to monitor trends which may affect its ultimate liabilityand has continued to analyze the developments and variables affecting or likelyto affect the resolution of pending and future asbestos claims against theCompany. The material components of the Company’s accrued liability are basedon amounts estimated by the Company in connection with its annual comprehensivereview and consist of the following: (i) the reasonably probablecontingent liability for asbestos claims already asserted against the Company; (ii) thecontingent liability for preexisting but unasserted asbestos claims for priorperiods arising under its administrative claims-handling agreements withvarious plaintiffs’ counsel; (iii) the contingent liability for asbestosclaims not yet asserted against the Company, but which the Company believes itis reasonably probable will be asserted in the next several years, to thedegree that an estimation as to future claims is possible, and (iv) thelegal defense costs likely to be incurred in connection with the foregoingtypes of claims.

 

Thesignificant assumptions underlying the material components of the Company’saccrual are:

 

a)  the extent to which settlements are limitedto claimants who were exposed to the Company’s asbestos-containing insulationprior to its exit from that business in 1958;

 

12

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b)   the extent to which claims are resolvedunder the Company’s administrative claims agreements or on terms comparable tothose set forth in those agreements;

 

c)   the extent to which the Company’saccelerated settlements in 2007 and 2008 impact the number and type of futureclaims and lawsuits;

 

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

 

e)   the extent to which the Company is able todefend itself successfully at trial;

 

f)   the extent to which courts and legislatureseliminate, reduce or permit the diversion of financial resources for unimpairedclaimants and so-called forum shopping;

 

g)   the extent to which additional defendantswith substantial resources and assets are required to participate significantlyin the resolution of future asbestos lawsuits and claims;

 

h)  the number and timing of additionalco-defendant bankruptcies; and

 

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

 

Asnoted above, the Company conducts a comprehensive review of itsasbestos-related liabilities and costs annually in connection with finalizingand reporting its annual results of operations, unless significant changes intrends or new developments warrant an earlier review.  If the results of an annual comprehensivereview indicate that the existing amount of the accrued liability isinsufficient to cover its estimated future asbestos-related costs, then theCompany will record an appropriate charge to increase the accruedliability.  The Company believes that anestimation of the reasonably probable amount of the contingent liability forclaims not yet asserted against the Company is not possible beyond a period ofseveral years.  Therefore, while theresults of future annual comprehensive reviews cannot be determined, theCompany expects the addition of one year to the estimation period will resultin an annual charge.

 

Otherlitigation is pending against the Company, in many cases involving ordinary androutine claims incidental to the business of the Company and in otherspresenting allegations that are non-routine and involve compensatory, punitiveor treble damage claims as well as other types of relief.  In accordance with FAS No. 5, theCompany records a liability for such matters when it is both probable that theliability has been incurred and the amount of the liability can be reasonablyestimated.  Recorded amounts are reviewedand adjusted to reflect changes in the factors upon which the estimates arebased including additional information, negotiations, settlements, and otherevents.

 

Theultimate legal and financial liability of the Company with respect to thelawsuits and proceedings referred to above, in addition to other pendinglitigation, cannot be estimated with certainty. The Company’s reported results of operations for 2008 were materiallyaffected by the $250.0 million ($248.8 million after tax) fourth quarter chargefor asbestos-related costs and asbestos-related payments continue to besubstantial.  Any future additionalcharge would likewise materially affect the Company’s results of operations forthe period in which it is 

 

13

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recorded.Also, the continued use of significant amounts of cash for asbestos-relatedcosts has affected and will continue to affect the Company’s cost of borrowingand its ability to pursue global or domestic acquisitions. However, the Companybelieves that its operating cash flows and other sources of liquidity will besufficient to pay its obligations for asbestos-related costs and to fund itsworking capital and capital expenditure requirements on a short-term andlong-term basis.

 

**7. Segment Information**

 

TheCompany has four reportable segments based on its four geographiclocations:  (1) Europe; (2) NorthAmerica; (3) South America; (4) Asia Pacific.  These four segments are aligned with theCompany’s internal approach to managing, reporting, and evaluating performanceof its global glass operations.  Certainassets and activities not directly related to one of the regions or to glassmanufacturing are reported with Retained Corporate Costs and Other.  These include licensing, equipmentmanufacturing, global engineering, and non-glass equity investments.  Retained Corporate Costs and Other alsoincludes certain headquarters administrative and facilities costs and certainincentive compensation and other benefit plan costs that are global in natureand are not allocable to the reportable segments.

 

TheCompany’s measure of profit for its reportable segments is Segment OperatingProfit, which consists of consolidated earnings from continuing operationsbefore interest income, interest expense, and provision for income taxes and excludesamounts related to certain items that management considers not representativeof ongoing operations as well as certain retained corporate costs.  The Company’s management uses SegmentOperating Profit, in combination with selected cash flow information, toevaluate performance and to allocate resources.

 

SegmentOperating Profit for reportable segments includes an allocation of somecorporate expenses based on both a percentage of sales and direct billingsbased on the costs of specific services provided.

 

Financialinformation for the three month periods ended March 31, 2009 and 2008regarding the Company’s reportable segments is as follows:

 
| **Net sales:**        | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Europe                     |       | $        | 612.9      |     | $          | 888.9 |   |
| North America              |       | 494.3    |       | 530.9    |       |
| South America              |       | 214.0    |       | 254.2    |       |
| Asia Pacific               |       | 182.0    |       | 250.0    |       |
|                       |       |     |       |     |       |
| Reportable  segment totals |       | 1,503.2  |       | 1,924.0  |       |
| Other                      |       | 15.8     |       | 36.5     |       |
| Net sales                  |       | $        | 1,519.0    |     | $          | 1,960.5 |   |

 

14

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| **Segment Operating Profit:**                  | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|
| Europe                                                   |       | $        | 44.2       |     | $          | 147.6 |   |
| North America                                            |       | 62.7     |       | 55.5     |       |
| South America                                            |       | 60.0     |       | 73.6     |       |
| Asia Pacific                                             |       | 25.0     |       | 45.4     |       |
| Reportable  segment totals                               |       | 191.9    |       | 322.1    |       |
|                                                     |       |     |       |     |       |
| Items excluded  from Segment Operating Profit:           |       |     |       |     |       |
| Retained  corporate costs and other                      |       | (11.9    | )          | 1.5      |       |
| Restructuring  and asset impairments                     |       | (50.4    | )          | (12.9    | )          |
| Interest income                                          |       | 8.5      |       | 8.7      |       |
| Interest expense                                         |       | (48.1    | )          | (64.3    | )          |
| Earnings from  continuing operations before income taxes |       | $        | 90.0       |     | $          | 255.1 |   |

 

Financialinformation regarding the Company’s total assets is as follows:

 
| ** **                 | ** ** | **March 31,** | ** ** | **Dec. 31,** | ** ** | **March 31,** | ** ** |
|----------------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
| **Total assets:**     | ** ** | **2009**           | ** ** | **2008**          | ** ** | **2008**           | ** ** |
| Europe                     |       | $                  | 3,487.6    |              | $          | 3,758.4            |       | $ | 4,425.3 |   |
| North America              |       | 1,888.0            |       | 1,802.9           |       | 2,016.2            |       |
| South America              |       | 925.9              |       | 976.2             |       | 974.5              |       |
| Asia Pacific               |       | 1,245.1            |       | 1,239.6           |       | 1,617.5            |       |
|                       |       |               |       |              |       |               |       |
| Reportable  segment totals |       | 7,546.6            |       | 7,777.1           |       | 9,033.5            |       |
| Other                      |       | 205.0              |       | 199.4             |       | 923.9              |       |
| Consolidated  totals       |       | $                  | 7,751.6    |              | $          | 7,976.5            |       | $ | 9,957.4 |   |

 

**8. Other Expense**

 

Duringthe first quarter of 2009, the Company recorded charges totaling $50.4 million($47.7 million after tax), for restructuring and asset impairment.  The charges reflect the additional decisionsreached in the Company’s ongoing strategic review of its global manufacturingfootprint.  Charges for similar actionsduring the first quarter of 2008 totaled $12.0 million ($9.7 million aftertax).  See Note 9 for additionalinformation.

 

Duringthe first quarter of 2008, the Company also recorded an additional $0.9 million(before and after tax), related to the impairment of the Company’s equityinvestment in the South American Segment’s 50%-owned Caribbean affiliate.

### ** **

### **9.**  Restructuring Accruals

### ** **

Beginningin 2007, the Company commenced a strategic review of its global profitabilityand manufacturing footprint.  Thecombined 2007, 2008 and 2009 charges, amounting to $238.1 million ($198.0million after tax and noncontrolling interests) reflect the decisions reachedthrough March 31, 2009 in the Company’s ongoing strategic review of itsglobal manufacturing footprint. The curtailment of plant capacity andrealignment of selected operations will result in a reduction in the Company’sworkforce of approximately 1,950 jobs. Amounts recorded by the Company do not include any gains that may berealized upon the ultimate sale or disposition of closed facilities.

 

Asa result of its strategic review, the Company decided to curtail selectedproduction capacity.  Because the futureundiscounted cash flows of the related long-lived asset groups were not 

 

15

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sufficientto recover their carrying amounts, certain assets were consideredimpaired.  As a result, those long-livedassets were written down to the extent their carrying amounts exceeded fairvalue less cost to sell.  The Companyclassified the significant assumptions used to determine the fair value of theimpaired assets, which was not material, as Level 3 in the fair value hierarchyas set forth within FAS No. 157 “Fair Value Measurements”.

 

TheCompany accrued certain employee separation costs to be paid under contractualarrangements and other exit costs.

 

2007

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

 

2008

During2008, the Company recorded charges totaling $132.4 million ($110.1 millionafter tax and noncontrolling interests), for restructuring and asset impairmentacross all segments as well as in Retained Corporate Costs and Other.  The curtailment of plant capacity andrealignment of selected operations resulted in elimination of approximately1,240 jobs and a corresponding reduction in the Company’s workforce.

 

2009

Duringthe first quarter of 2009, the Company recorded charges totaling $50.4 million($47.7 million after tax), for restructuring and asset impairment inEurope.  The curtailment of plantcapacity will result in elimination of approximately 250 jobs and acorresponding reduction in the Company’s workforce.

 

TheCompany expects that the majority of the remaining estimated cash expendituresrelated to the above charges will be paid out by the end of 2009.

 

Selectedinformation related to the restructuring accrual is as follows:

 
| ** **                                                 | ** ** | **Employee  Costs** | ** ** | **Asset  Impairment** | ** ** | **Other** | ** ** | **Total** | ** ** |
|------------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|-----------|------------|-----------|------------|
|                                                       |       |                |       |                  |       |      |       |      |       |
| 2007 Charges                                               |       | $                   | 26.1       |                  | $          | 22.3      |       | $         | 6.9        |   | $ | 55.3 |   |
| Write-down of  assets to net realizable value              |       | —              |       | (22.3                 | )          | (2.4      | )          | (24.7     | )          |
| Balance at  December 31, 2007                         |       | 26.1                |       | —                |       | 4.5       |       | 30.6      |       |
| 2008 charges                                               |       | 70.1                |       | 32.5                  |       | 29.8      |       | 132.4     |       |
| Write-down of  assets to net realizable value              |       |                |       | (32.5                 | )          | (4.7      | )          | (37.2     | )          |
| Net cash paid,  principally severance and related benefits |       | (35.6               | )          |                  |       | (7.2      | )          | (42.8     | )          |
| Other,  principally foreign exchange translation           |       | (13.0               | )          |                  |       | (6.1      | )          | (19.1     | )          |
| Balance at  December 31, 2008                         |       | 47.6                |       | —                |       | 16.3      |       | 63.9      |       |
| 2009 charges                                               |       | 19.1                |       | 29.3                  |       | 2.0       |       | 50.4      |       |
| Write-down of  assets to net realizable value              |       |                |       | (29.3                 | )          |      |       | (29.3     | )          |
| Net cash paid,  principally severance and related benefits |       | (18.9               | )          |                  |       | (1.3      | )          | (20.2     | )          |
| Other,  principally foreign exchange translation           |       | (1.7                | )          |                  |       | (0.5      | )          | (2.2      | )          |
| Balance at  March 31, 2009                            |       | $                   | 46.1       |                  | $          | —    |       | $         | 16.5       |   | $ | 62.6 |   |

 

16

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**10. Derivative Instruments**

 

TheCompany has certain derivative assets and liabilities which consist of interestrate swaps, natural gas forwards, and foreign exchange option and forwardcontracts.  The Company recordsderivative assets and liabilities at fair value and classifies them as Level 2in the fair value hierarchy as set forth in FAS No. 157.

 

### ***Interest Rate Swaps Designated as FairValue Hedges***

### ** **

### **In the fourth quarter of 2003 and the first quarter of2004, the Company entered into a series of interest rate swap agreements with acurrent total notional amount of $700 million that mature in 2010and 2013. The swaps were executed in order to: (i) convert a portionof the senior notes and senior debentures fixed-rate debt into floating-ratedebt; (ii) maintain a capital structure containing appropriate amounts offixed and floating-rate debt; and (iii) reduce net interest payments andexpense in the near-term.**

### ** **

TheCompany’s fixed-to-variable interest rate swaps are accounted for as fair valuehedges. Because the relevant terms of the swap agreements match thecorresponding terms of the notes, there is no hedge ineffectiveness.Accordingly, the Company recorded the net of the fair market values of theswaps as a long-term asset (liability) along with a corresponding net increase(decrease) in the carrying value of the hedged debt.

 

Underthe swaps, the Company receives fixed rate interest amounts (equal to intereston the corresponding hedged note) and pays interest at a six-month U.S. LIBORrate (set in arrears) plus a margin spread (see table below). The interest ratedifferential on each swap is recognized as an adjustment of interest expenseduring each six-month period over the term of the agreement.

 

### **The following selected information relates to fair value swaps at March 31,2009:**

### *** ***

| ** **                  | ** ** | **Amount** | ** ** | **Receive** | ** ** | **Average** | ** ** | **Asset**    | ** ** |
|-----------------------------|------------|------------|------------|-------------|------------|-------------|------------|--------------|------------|
| ** **                  | ** ** | **Hedged** | ** ** | **Rate**    | ** ** | **Spread**  | ** ** | **Recorded** | ** ** |
|                        |       |       |       |        |       |        |       |         |       |
| Senior  Debentures due 2010 |       | $          | 250.0      |        | 7.50       | %           | 3.2        | %            | $          | 7.4 |   |
| Senior Notes due  2013      |       | 450.0      |       | 8.25        | %          | 3.7         | %          | 18.0         |       |
|                        |       |       |       |        |       |        |       |         |       |
| Total                       |       | $          | 700.0      |        |       |        |       |         | $          | 25.4 |   |

### ** **

For derivative instruments that are designated andqualify as fair value hedges, the change in the fair value of the derivativeinstrument related to the future cash flows (gain or loss on the derivative) aswell as the offsetting change in the fair value of the hedged item attributableto the hedged risk are recognized in current earnings.  The Company includes the gain or loss on thehedged items (i.e. long-term debt) in the same line item (interest expense) asthe offsetting loss or gain on the related interest rate swaps.  The effect of the interest rate swaps on theresults of operations for the three months ended March 31 is as follows:

 

17

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| ** **                      | ** ** | **Amount of Gain (Loss)**          | ** ** |
|---------------------------------|------------|---------------------------------------------------|------------|
| ** **                      | ** ** | **Recognized in Interest Expense** | ** ** |
| ** **                      | ** ** | **2009**                                          | ** ** | **2008** | ** ** |
|                            |       |                                              |       |   |   |
| Interest rate  swaps            |       | $                                                 | (4.0       | ) | $ | 17.4 |   |
| Related  long-term debt         |       | 4.0                                               |       | (17.4 | ) |
|                            |       |                                              |       |   |   |
| Net impact on  interest expense |       | $                                                 | —     |   | $ | — |   |

 

*Commodity Futures Contracts Designated as Cash Flow Hedges*

 

The Company enters into commodity futures contractsrelated to forecasted natural gas requirements, the objectives of which are tolimit the effects of fluctuations in the future market price paid for naturalgas and the related volatility in cash flows. The Company continually evaluatesthe natural gas market with respect to its forecasted usage requirements overthe next twelve to twenty-four months and periodically enters into commodityfutures contracts in order to hedge a portion of its usage requirements overthat period. At March 31, 2009, the Company had entered into commodityfutures contracts covering approximately 9,300,000 MM BTUs over that period.

 

The Company accounts for the above futurescontracts as cash flow hedges at March 31, 2009 and recognizes them on thebalance sheet at fair value. The effective portion of changes in the fair valueof a derivative that is designated as, and meets the required criteria for, acash flow hedge is recorded in the Accumulated Other Comprehensive Incomecomponent of share owners’ equity (“OCI”) and reclassified into earnings in thesame period or periods during which the underlying hedged item affectsearnings. At March 31, 2009, an unrecognized loss of $43.4 million (pretaxand after tax) related to the commodity futures contracts was included inAccumulated OCI, and will be reclassified into earnings over the next twelve totwenty-four months.  Any material portionof the change in the fair value of a derivative designated as a cash flow hedgethat is deemed to be ineffective is recognized in current earnings.  The ineffectiveness related to these naturalgas hedges for the three months ended March 31, 2009 and 2008 was notmaterial.

 

The effect of the commodity futures contracts onthe results of operations for the three months ended March 31 is asfollows:

 
| ** **                                | ** ** | ** **                                  | **Amount of Gain (Loss)** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------------------------------------|------------|
| ** **                                | ** ** | ** **                                  | **Reclassified from**               | ** ** |
| **Amount of Gain (Loss)**  | ** ** | **Accumulated OCI into**          | ** **                               |
| **Recognized in OCI on**   | ** ** | **Income (reported in**           | ** **                               |
| **Commodity Futures Contracts** | ** ** | **manufacturing, shipping, and**  | ** **                               |
| **(Effective Portion)**              | ** ** | **delivery) (Effective Portion)** | ** **                               |
| **2009**                                  | ** ** | **2008**                                    | ** **                               | **2009**   | ** ** | **2008** | ** ** |
|                                      |       |                                        |                                     |       |   |   |   |
| $                                         | (19.3      | )                                           | $                                        |  22.3 |   | $ | (13.3 | ) | $ | (0.9 | ) |
|                                           |            |                                             |                                          |            |  |  |  |  |  |  |  |

 

*Senior Notes Designated as Net Investment Hedge*

 

During December 2004, a U.S. subsidiary of theCompany issued Senior Notes totaling €225 million.  These notes were designated by the Company’ssubsidiary as a hedge of a portion of

 

18

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its net investment in a non-U.S. subsidiary with aEuro functional currency.  Because theamount of the Senior Notes matches the hedged portion of the net investment,there is no hedge ineffectiveness. Accordingly, the Company recorded the impactof changes in the foreign currency exchange rate on the Euro-denominated notesin OCI.  The amount recorded in OCI willbe reclassified into earnings when the Company sells or liquidates its netinvestment in the non-U.S. subsidiary.

 

The effect of the net investment hedge on theresults of operations for the three months ended March 31 is as follows:

 
| ** **                               | ** ** | ** **                                  | ** ** | ** **                                  | ** ** | **Amount of Gain (Loss)** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|------------------------------------------|------------|
| **Amount of Gain (Loss)** | ** ** | **Location of Gain (Loss)**  | ** ** | **Reclassified from Accumulated** | ** ** |
| **Recognized in OCI**          | ** ** | **Reclassified from Accumulated** | ** ** | **OCI into Income**               | ** ** |
| **2009**                                 | ** ** | **2008**                                    | ** ** | **OCI into Income**               | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
|                                     |       |                                        |       |                                        |       |                                     |       |   |   |
| $                                        | (19.4      | )                                           | $          | (24.2                                       | )          | N/A                                      |       | $ | — |   | $ | — |   |
|                                          |            |                                             |            |                                             |            |                                          |            |  |  |  |  |  |  |

 

*Forward Exchange Contracts not Designated as HedgingInstruments*

 

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

 

At March 31, 2009, various subsidiaries of theCompany had outstanding forward exchange and option agreements denominated invarious currencies covering the equivalent of approximately $900 millionrelated primarily to intercompany transactions and loans.

 

The effect of the forward exchange contracts on theresults of operations for the three months ended March 31 is as follows:

 
| ** **                                 | ** ** | **Amount of Gain (Loss)**   | ** ** |
|--------------------------------------------|------------|--------------------------------------------|------------|
| **Location of Gain (Loss)** | ** ** | **Recognized in Income on** | ** ** |
| **Recognized in Income on** | ** ** | **Forward Exchange Contracts**   | ** ** |
| **Forward Exchange Contracts**   | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
|                                       |       |                                       |       |   |   |
| Other expense                              |       | $                                          | 10.5       |   | $ | (31.1 | ) |
|                                            |            |                                            |            |  |  |  |  |

 

*Balance Sheet Classification*

 

The Company records the fair values of derivativefinancial instruments on the balance sheet as follows: (1) receivables ifthe instrument has a positive fair value and maturity within one year, (2) deposits,receivables, and other assets if the instrument has a positive fair value andmaturity after one year, (3) accounts payable and other currentliabilities if the instrument has a

 

19

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negative fair value and maturity within one year,and (4) other liabilities if the instrument has a negative fair value andmaturity after one year.  The followingtable shows the amount and classification of the Company’s derivatives as of March 31:

 
| ** **                                               | ** ** | **2009**                                | ** ** | **2008**  | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| ** **                                               | ** ** | **Balance Sheet**                  | ** ** | **Fair**  | ** ** | **Balance Sheet** | ** ** | **Fair** | ** ** |
| ** **                                               | ** ** | **Location**                            | ** ** | **Value** | ** ** | **Location** | ** ** | **Value** | ** ** |
| Asset  Derivatives:                                      |       |                                    |       |      |       |   |   | ** ** |   |
| Derivatives  designated as hedging instruments           |       |                                    |       |      |       |   |   |   |   |
| Interest rate  swaps                                     |       |                                    |       |      |       | Receivables |   | $ | 0.4 |   |
| Interest rate  swaps                                     |       | Deposits, receivables, and other assets |       | $         | 25.4       |   | Deposits, receivables, and other assets |   | 20.3 |   |
| Commodity  futures contracts                             |       |                                    |       |      |       | Receivables |   | 1.6 |   |
| Commodity  futures contracts                             |       |                                    |       |      |       | Deposits, receivables, and other assets |   | 17.1 |   |
| Total  derivatives designated as hedging instruments     |       |                                    |       | 25.4      |       |   |   | 39.4 |   |
|                                                     |       |                                    |       |      |       |   |   |   |   |
| Derivatives  not designated as hedging instruments       |       |                                    |       |      |       |   |   |   |   |
| Foreign exchange  contracts                              |       | Receivables                             |       | 25.5      |       | Receivables |   | 5.2 |   |
| Foreign exchange  contracts                              |       | Deposits, receivables, and other assets |       | 2.8       |       | Other liabilities |   | 1.5 |   |
| Total  derivatives not designated as hedging instruments |       |                                    |       | 28.3      |       |   |   | 6.7 |   |
|                                                     |       |                                    |       |      |       |   |   |   |   |
| Total asset  derivatives                                 |       |                                    |       | $         | 53.7       |   |   |   | $ | 46.1 |   |
|                                                     |       |                                    |       |      |       |   |   |   |   |
| Liability  Derivatives:                                  |       |                                    |       |      |       |   |   |   |   |
| Derivatives  designated as hedging instruments           |       |                                    |       |      |       |   |   |   |   |
| Commodity  futures contracts                             |       | Other liabilities (current)             |       | $         | 42.5       |   |   |   |   |   |
| Commodity  futures contracts                             |       | Other liabilities                       |       | 0.9       |       |   |   |   |   |
| Total  derivatives designated as hedging instruments     |       |                                    |       | 43.4      |       |   |   |   |   |
|                                                     |       |                                    |       |      |       |   |   |   |   |
| Derivatives not  designated as hedging instruments       |       |                                    |       |      |       |   |   |   |   |
| Foreign exchange  contracts                              |       | Receivables                             |       | 0.2       |       |   |   |   |   |
| Foreign exchange  contracts                              |       | Other liabilities (current)             |       | 3.7       |       |   |   |   |   |
| Foreign exchange  contracts                              |       | Deposits, receivables, and other assets |       | 2.8       |       | Other liabilities |   | $ | 28.2 |   |
| Total  derivatives not designated as hedging instruments |       |                                    |       | 6.7       |       |   |   | 28.2 |   |
|                                                     |       |                                    |       |      |       |   |   |   |   |
| Total liability  derivatives                             |       |                                    |       | $         | 50.1       |   |   |   | $ | 28.2 |   |

 

20

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**11.  Pensions Benefit Plans and OtherPostretirement Benefits**

 

Thecomponents of the net periodic pension cost (income) for the three months endedMarch 31, 2009 and 2008 were as follows:

 
| ** **                          | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
|                                |       |     |       |     |       |
| Service cost                        |       | $        | 9.9        |     | $          | 12.1 |   |
| Interest cost                       |       | 51.5     |       | 55.1     |       |
| Expected asset  return              |       | (67.3    | )          | (81.1    | )          |
|                                |       |     |       |     |       |
| Amortization:                       |       |     |       |     |       |
| Loss                                |       | 10.9     |       | 7.7      |       |
| Prior service  credit               |       | (0.2     | )          | (0.2     | )          |
| Net amortization                    |       | 10.7     |       | 7.5      |       |
| Net periodic  pension (income) cost |       | $        | 4.8        |     | $          | (6.4 | ) |

 

The components of the netpostretirement benefit cost for the three months ended March 31, 2009 and 2008were as follows:

 
| ** **                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Service cost                     |       | $        | 0.4        |     | $          | 0.6 |   |
| Interest cost                    |       | 4.0      |       | 4.3      |       |
|                             |       |     |       |     |       |
| Amortization:                    |       |     |       |     |       |
| Prior service  credit            |       | (0.8     | )          | (0.8     | )          |
| Loss                             |       | 1.0      |       | 1.6      |       |
| Net amortization                 |       | 0.2      |       | 0.8      |       |
| Net  postretirement benefit cost |       | $        | 4.6        |     | $          | 5.7 |   |

 

**12.****Noncontrolling Interests**

 

Effective January 1, 2009, the Company adoptedthe provisions of FAS No. 160.  FAS No. 160  establishes accounting and reportingstandards for the noncontrolling interests in a subsidiary and thedeconsolidation of a subsidiary.  FAS No. 160requires an entity to present consolidated net income attributable to theparent and to the noncontrolling interests separately on the face of theconsolidated financial statements. FAS No. 160 clarifies thatnoncontrolling interests in a subsidiary should be accounted for as a componentof equity separate from the parent’s equity, rather than in liabilities.  The format of the Company’s condensed consolidated results ofoperations and condensed consolidated cash flows for the three months ended March 31,2008 and condensed consolidated balance sheets at March 31, 2008 and December 31,2008 have been reclassified to conform to the new presentation under FAS No. 160which is required to be applied retrospectively.  The cash flow presentation was also revisedto reflect dividends paid to noncontrolling interests as a cash flow fromfinancing activities.  Previously thesecash flows had been reported as an operating activity.

 

21

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### **13.New Accounting Standards**

### ** **

InDecember 2008, the FASB issued a FASB Staff Position on Statement ofFinancial Accounting Standards No. 132(R), “Employers’ Disclosures aboutPostretirement Benefit Plan Assets” (“FSP FAS No. 132(R)-1”).  FSP FAS No. 132(R)-1 requires additionalyear-end disclosures about the fair value of postretirement benefit plan assetsto provide users of financial statements with useful, transparent and timelyinformation about the asset portfolios. FSP FAS No. 132(R)-1 is effective for years ending after December 15,2009.  Adoption of FSP FAS No. 132(R)-1will have no impact on the Company’s results of operations, financial positionor cash flows.

 

### **In April 2009,the FASB issued a FASB Staff Position on Statement of Financial AccountingStandards No. 107 and Accounting Principles Board Opinion No. 28, “InterimDisclosures about Fair Value of Financial Instruments” (“FSP FAS No. 107-1andAPB 28-1”).  FSP FAS No. 107-1 andAPB 28-1 requires disclosure about fair value of financial instruments forinterim reporting periods as well as in annual financial statements.  FSP FAS No. 107-1 and APB 28-1 iseffective for interim and annual periods ending after June 15, 2009.  Adoption of FSP FAS No. 107-1 and APB28-1 will have no impact on the Company’s results of operations, financialposition or cash flows.**

### ** **

**14.Discontinued Operations**

 

### **The gain on sale of discontinued operations of $4.1 million reported in2008 relates to an adjustment of the 2007 gain on the sale of the plasticspackaging business mainly related to finalizing certain tax allocations and anadjustment to the selling price in accordance with procedures set forth in thefinal contract.**

### ** **

**15. Convertible Preferred Stock**

 

OnFebruary 29, 2008, the Company announced that all outstanding shares ofconvertible preferred stock would be redeemed on March 31, 2008, if notconverted by holders prior to that date. All conversions and redemptions were completed by March 31, 2008through the issuance of 8,584,479 shares of common stock. The conversions andredemptions resulted in an increase in common stock and capital in excess ofpar value.

 

### **16.  Financial Information for SubsidiaryGuarantors and Non-Guarantors**

### ** **

Thefollowing presents condensed consolidating financial information for the Company,segregating:  (1) Owens-Illinois, Inc.,the issuer of two series of senior debentures (the “Parent”); (2) the twosubsidiaries which have guaranteed the senior debentures on a subordinatedbasis (the “Guarantor Subsidiaries”); and (3) all other subsidiaries (the “Non-GuarantorSubsidiaries”).  The GuarantorSubsidiaries are 100% owned direct and indirect subsidiaries of the Company andtheir guarantees are full, unconditional and joint and several.  They have no operations and function only asintermediate holding companies.

 

100% ownedsubsidiaries are presented on the equity basis of accounting.  Certain reclassifications have been made toconform all of the financial information to the financial presentation on aconsolidated basis.  The principaleliminations relate to investments in subsidiaries and intercompany balancesand transactions.

 

22

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| ** **                                               | ** ** | **March 31, 2009** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|
| ** **                                               | ** ** | ** **                   | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | ** **                   | ** ** | **Guarantor** | ** ** | **Guarantor** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance Sheet**                                   | ** ** | **Parent**                   | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Current assets:                                          |       |                         |       |   |   |   |   |   |   |   |   |
| Accounts  receivable                                     |       | $                            | —     |   | $ | — |   | $ | 945.5 |   | $ | — |   | $ | 945.5 |   |
| Inventories                                              |       |                         |       |   |   | 1,044.8 |   |   |   | 1,044.8 |   |
| Other current  assets                                    |       |                         |       |   |   | 426.6 |   |   |   | 426.6 |   |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Total current  assets                                    |       | —                       |       | — |   | 2,416.9 |   | — |   | 2,416.9 |   |
| Investments in  and advances to subsidiaries             |       | 2,216.7                      |       | 1,716.7 |   |   |   | (3,933.4 | ) | — |   |
| Goodwill                                                 |       |                         |       |   |   | 2,130.3 |   |   |   | 2,130.3 |   |
| Other  non-current assets                                |       |                         |       |   |   | 718.0 |   |   |   | 718.0 |   |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Total other  assets                                      |       | 2,216.7                      |       | 1,716.7 |   | 2,848.3 |   | (3,933.4 | ) | 2,848.3 |   |
| Property, plant,  and equipment, net                     |       |                         |       |   |   | 2,486.4 |   |   |   | 2,486.4 |   |
| Total assets                                             |       | $                            | 2,216.7    |   | $ | 1,716.7 |   | $ | 7,751.6 |   | $ | (3,933.4 | ) | $ | 7,751.6 |   |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Current  liabilities :                                   |       |                         |       |   |   |   |   |   |   |   |   |
| Accounts payable  and accrued liabilities                |       | $                            | —     |   | $ | — |   | $ | 1,308.5 |   | $ | — |   | $ | 1,308.5 |   |
| Current portion  of asbestos liability                   |       | 175.0                        |       |   |   |   |   |   |   | 175.0 |   |
| Short-term loans  and long-term debt due within one year |       |                         |       |   |   | 353.6 |   |   |   | 353.6 |   |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Total current  liabilities                               |       | 175.0                        |       | — |   | 1,662.1 |   | — |   | 1,837.1 |   |
| Long-term debt                                           |       | 508.0                        |       |   |   | 2,964.0 |   | (500.0 | ) | 2,972.0 |   |
| Asbestos-related  liabilities                            |       | 285.5                        |       |   |   |   |   |   |   | 285.5 |   |
| Other  non-current liabilities                           |       | (8.0                         | )          |   |   | 1,408.8 |   |   |   | 1,400.8 |   |
| Capital structure                                        |       | 1,256.2                      |       | 1,716.7 |   | 1,716.7 |   | (3,433.4 | ) | 1,256.2 |   |
| Total  liabilities and share owners’ equity         |       | $                            | 2,216.7    |   | $ | 1,716.7 |   | $ | 7,751.6 |   | $ | (3,933.4 | ) | $ | 7,751.6 |   |

 

23

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| ** **                                               | ** ** | **December 31, 2008** | ** ** |
|----------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                               | ** ** | ** **                      | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | ** **                      | ** ** | **Guarantor** | ** ** | **Guarantor** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance Sheet**                                   | ** ** | **Parent**                      | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Current assets:                                          |       |                            |       |   |   |   |   |   |   |   |   |
| Accounts  receivable                                     |       | $                               | —     |   | $ | — |   | $ | 988.8 |   | $ | — |   | $ | 988.8 |   |
| Inventories                                              |       |                            |       |   |   | 999.5 |   |   |   | 999.5 |   |
| Other current  assets                                    |       |                            |       |   |   | 456.4 |   |   |   | 456.4 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Total current  assets                                    |       | —                          |       | — |   | 2,444.7 |   | — |   | 2,444.7 |   |
| Investments in  and advances to subsidiaries             |       | 2,288.7                         |       | 1,788.7 |   |   |   | (4,077.4 | ) | — |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Goodwill                                                 |       |                            |       |   |   | 2,207.5 |   |   |   | 2,207.5 |   |
| Other  non-current assets                                |       |                            |       |   |   | 678.7 |   |   |   | 678.7 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Total other  assets                                      |       | 2,288.7                         |       | 1,788.7 |   | 2,886.2 |   | (4,077.4 | ) | 2,886.2 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Property, plant  and equipment, net                      |       |                            |       |   |   | 2,645.6 |   |   |   | 2,645.6 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Total assets                                             |       | $                               | 2,288.7    |   | $ | 1,788.7 |   | $ | 7,976.5 |   | $ | (4,077.4 | ) | $ | 7,976.5 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Current  liabilities :                                   |       |                            |       |   |   |   |   |   |   |   |   |
| Accounts payable  and accrued liabilities                |       | $                               | —     |   | $ | — |   | $ | 1,434.5 |   | $ | — |   | $ | 1,434.5 |   |
| Current portion  of asbestos liability                   |       | 175.0                           |       |   |   |   |   |   |   | 175.0 |   |
| Short-term loans  and long-term debt due within one year |       |                            |       |   |   | 393.8 |   |   |   | 393.8 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Total current  liabilities                               |       | 175.0                           |       | — |   | 1,828.3 |   | — |   | 2,003.3 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Long-term debt                                           |       | 508.9                           |       |   |   | 2,931.4 |   | (500.0 | ) | 2,940.3 |   |
| Asbestos-related  liabilities                            |       | 320.3                           |       |   |   |   |   |   |   | 320.3 |   |
| Other  non-current liabilities                           |       | (8.9                            | )          |   |   | 1,428.1 |   |   |   | 1,419.2 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Capital  structure                                       |       | 1,293.4                         |       | 1,788.7 |   | 1,788.7 |   | (3,577.4 | ) | 1,293.4 |   |
|                                                     |       |                            |       |   |   |   |   |   |   |   |   |
| Total liabilities  and share owners’ equity         |       | $                               | 2,288.7    |   | $ | 1,788.7 |   | $ | 7,976.5 |   | $ | (4,077.4 | ) | $ | 7,976.5 |   |

 

24

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| ** **                                               | ** ** | **March 31, 2008** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|
| ** **                                               | ** ** | ** **                   | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | ** **                   | ** ** | **Guarantor** | ** ** | **Guarantor** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance Sheet**                                   | ** ** | **Parent**                   | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Current assets:                                          |       |                         |       |   |   |   |   |   |   |   |   |
| Accounts  receivable                                     |       | $                            | —     |   | $ | — |   | $ | 1,320.6 |   | $ | — |   | $ | 1,320.6 |   |
| Inventories                                              |       |                         |       |   |   | 1,222.4 |   |   |   | 1,222.4 |   |
| Other current  assets                                    |       |                         |       |   |   | 571.8 |   |   |   | 571.8 |   |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Total current  assets                                    |       | —                       |       | — |   | 3,114.8 |   | — |   | 3,114.8 |   |
| Investments in  and advances to subsidiaries             |       | 3,912.5                      |       | 3,162.5 |   |   |   | (7,075.0 | ) | — |   |
| Goodwill                                                 |       |                         |       |   |   | 2,522.2 |   |   |   | 2,522.2 |   |
| Other  non-current assets                                |       |                         |       |   |   | 1,325.2 |   |   |   | 1,325.2 |   |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Total other  assets                                      |       | 3,912.5                      |       | 3,162.5 |   | 3,847.4 |   | (7,075.0 | ) | 3,847.4 |   |
| Property, plant,  and equipment, net                     |       |                         |       |   |   | 2,995.2 |   |   |   | 2,995.2 |   |
| Total assets                                             |       | $                            | 3,912.5    |   | $ | 3,162.5 |   | $ | 9,957.4 |   | $ | (7,075.0 | ) | $ | 9,957.4 |   |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Current  liabilities :                                   |       |                         |       |   |   |   |   |   |   |   |   |
| Accounts payable  and accrued liabilities                |       | $                            | —     |   | $ | — |   | $ | 1,635.4 |   | $ | — |   | $ | 1,635.4 |   |
| Current portion  of asbestos liability                   |       | 210.0                        |       |   |   |   |   |   |   | 210.0 |   |
| Short-term loans  and long-term debt due within one year |       | 250.0                        |       |   |   | 835.1 |   | (250.0 | ) | 835.1 |   |
|                                                     |       |                         |       |   |   |   |   |   |   |   |   |
| Total current  liabilities                               |       | 460.0                        |       | — |   | 2,470.5 |   | (250.0 | ) | 2,680.5 |   |
| Long-term debt                                           |       | 504.7                        |       |   |   | 3,187.8 |   | (500.0 | ) | 3,192.5 |   |
| Asbestos-related  liabilities                            |       | 205.3                        |       |   |   |   |   |   |   | 205.3 |   |
| Other  non-current liabilities                           |       | (4.7                         | )          |   |   | 1,136.6 |   |   |   | 1,131.9 |   |
| Capital  structure                                       |       | 2,747.2                      |       | 3,162.5 |   | 3,162.5 |   | (6,325.0 | ) | 2,747.2 |   |
| Total  liabilities and share owners’ equity         |       | $                            | 3,912.5    |   | $ | 3,162.5 |   | $ | 9,957.4 |   | $ | (7,075.0 | ) | $ | 9,957.4 |   |

 

25

----

 
| ** **                                                 | ** ** | **Three months ended March 31, 2009** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                 | ** ** | ** **                                                     | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | ** **                                                     | ** ** | **Guarantor** | ** ** | **Guarantor** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Results of Operations**                        | ** ** | **Parent**                                                     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net sales                                                  |       | $                                                              | —     |   | $ | — |   | $ | 1,519.0 |   | $ | — |   | $ | 1,519.0 |   |
| Manufacturing,  shipping, and delivery                     |       |                                                           |       |   |   | (1,222.2 | ) |   |   | (1,222.2 | ) |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Gross profit                                               |       | —                                                         |       | — |   | 296.8 |   | — |   | 296.8 |   |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Research,  engineering, selling, administrative, and other |       |                                                           |       |   |   | (185.2 | ) |   |   | (185.2 | ) |
| External  interest expense                                 |       | (9.7                                                           | )          |   |   | (38.4 | ) |   |   | (48.1 | ) |
| Intercompany  interest expense                             |       |                                                           |       | (9.7 | ) | (9.7 | ) | 19.4 |   | — |   |
| External  interest income                                  |       |                                                           |       |   |   | 8.5 |   |   |   | 8.5 |   |
| Intercompany  interest income                              |       | 9.7                                                            |       | 9.7 |   |   |   | (19.4 | ) | — |   |
| Equity earnings  from subsidiaries                         |       | 45.1                                                           |       | 45.1 |   |   |   | (90.2 | ) | — |   |
| Other equity earnings                                      |       |                                                           |       |   |   | 13.6 |   |   |   | 13.6 |   |
| Other revenue                                              |       |                                                           |       |   |   | 4.4 |   |   |   | 4.4 |   |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Earnings before  income taxes                              |       | 45.1                                                           |       | 45.1 |   | 90.0 |   | (90.2 | ) | 90.0 |   |
| Provision for  income taxes                                |       |                                                           |       |   |   | (31.2 | ) |   |   | (31.2 | ) |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net earnings                                               |       | 45.1                                                           |       | 45.1 |   | 58.8 |   | (90.2 | ) | 58.8 |   |
| Net earnings  attributable to noncontrolling interests     |       |                                                           |       |   |   | (13.7 | ) |   |   | (13.7 | ) |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net earnings  attributable to the Company                  |       | $                                                              | 45.1       |   | $ | 45.1 |   | $ | 45.1 |   | $ | (90.2 | ) | $ | 45.1 |   |

 

26

----

 
| ** **                                                 | ** ** | **Three months ended March 31, 2008** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                 | ** ** | ** **                                                     | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | ** **                                                     | ** ** | **Guarantor** | ** ** | **Guarantor** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Results of Operations**                        | ** ** | **Parent**                                                     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net sales                                                  |       | $                                                              | —     |   | $ | — |   | $ | 1,960.5 |   | $ | — |   | $ | 1,960.5 |   |
| Manufacturing,  shipping, and delivery                     |       |                                                           |       |   |   | (1,503.7 | ) |   |   | (1,503.7 | ) |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Gross profit                                               |       | —                                                         |       | — |   | 456.8 |   | — |   | 456.8 |   |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Research,  engineering, selling, administrative, and other |       |                                                           |       |   |   | (163.8 | ) |   |   | (163.8 | ) |
| External  interest expense                                 |       | (14.4                                                          | )          |   |   | (49.9 | ) |   |   | (64.3 | ) |
| Intercompany  interest expense                             |       |                                                           |       | (14.4 | ) | (14.4 | ) | 28.8 |   | — |   |
| External  interest income                                  |       |                                                           |       |   |   | 8.7 |   |   |   | 8.7 |   |
| Intercompany  interest income                              |       | 14.4                                                           |       | 14.4 |   |   |   | (28.8 | ) | — |   |
| Equity earnings  from subsidiaries                         |       | 174.0                                                          |       | 174.0 |   |   |   | (348.0 | ) | — |   |
| Other equity  earnings                                     |       |                                                           |       |   |   | 11.1 |   |   |   | 11.1 |   |
| Other revenue                                              |       |                                                           |       |   |   | 6.6 |   |   |   | 6.6 |   |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Earnings from  continuing operations before income taxes   |       | 174.0                                                          |       | 174.0 |   | 255.1 |   | (348.0 | ) | 255.1 |   |
| Provision for  income taxes                                |       |                                                           |       |   |   | (64.9 | ) |   |   | (64.9 | ) |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Earnings from  continuing operations                       |       | 174.0                                                          |       | 174.0 |   | 190.2 |   | (348.0 | ) | 190.2 |   |
| Gain on sale of  discontinued operations                   |       | 4.1                                                            |       | 4.1 |   | 4.1 |   | (8.2 | ) | 4.1 |   |
| Net earnings                                               |       | 178.1                                                          |       | 178.1 |   | 194.3 |   | (356.2 | ) | 194.3 |   |
| Net earnings attributable  to noncontrolling interest      |       |                                                           |       |   |   | (16.2 | ) |   |   | (16.2 | ) |
|                                                       |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net earnings  attributable to the Company                  |       | $                                                              | 178.1      |   | $ | 178.1 |   | $ | 178.1 |   | $ | (356.2 | ) | $ | 178.1 |   |

 

27

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| ** **                                       | ** ** | **Three months ended March 31, 2009** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                       | ** ** | ** **                                                     | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** **                                                     | ** ** | **Guarantor** | ** ** | **Guarantor** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash Flows**                              | ** ** | **Parent**                                                     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                       | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash provided by  (used in) operating activities |       | $                                                              | (34.8      | ) | $ | — |   | $ | 6.3 |   | $ | — |   | $ | (28.5 | ) |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Cash used in  investing activities               |       |                                                           |       |   |   | (44.9 | ) |   |   | (44.9 | ) |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Cash provided by  financing activities           |       | 34.8                                                           |       |   |   | 30.3 |   |   |   | 65.1 |   |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Effect of  exchange rate change on cash          |       |                                                           |       |   |   | (8.9 | ) |   |   | (8.9 | ) |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net change in  cash                              |       | —                                                         |       | — |   | (17.2 | ) | — |   | (17.2 | ) |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Cash at  beginning of period                     |       |                                                           |       |   |   | 379.5 |   |   |   | 379.5 |   |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Cash at end of  period                           |       | $                                                              | —     |   | $ | — |   | $ | 362.3 |   | $ | — |   | $ | 362.3 |   |

 
| ** **                                       | ** ** | **Three months ended March 31, 2008** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                       | ** ** | ** **                                                     | ** ** | ** ** | ** ** | **Non-** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** **                                                     | ** ** | **Guarantor** | ** ** | **Guarantor** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash Flows**                              | ** ** | **Parent**                                                     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                       | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash provided by  (used in) operating activities |       | $                                                              | (40.2      | ) | $ | — |   | $ | 91.1 |   | $ | — |   | $ | 50.9 |   |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Cash used in  investing activities               |       |                                                           |       |   |   | (77.0 | ) |   |   | (77.0 | ) |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Cash provided by  financing activities           |       | 40.2                                                           |       |   |   | 69.0 |   |   |   | 109.2 |   |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Effect of  exchange rate change on cash          |       |                                                           |       |   |   | 12.2 |   |   |   | 12.2 |   |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Net change in  cash                              |       | —                                                         |       | — |   | 95.3 |   | — |   | 95.3 |   |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Cash at  beginning of period                     |       |                                                           |       |   |   | 387.7 |   |   |   | 387.7 |   |
|                                             |       |                                                           |       |   |   |   |   |   |   |   |   |
| Cash at end of  period                           |       | $                                                              | —     |   | $ | — |   | $ | 483.0 |   | $ | — |   | $ | 483.0 |   |

 

28

----

 

**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

 

Followingare the Company’s net sales by segment and Segment Operating Profit for thethree months ended March 31, 2009 and 2008.  The Company’s measure of profit for itsreportable segments is Segment Operating Profit, which consists of consolidatedearnings from continuing operations before interest income, interest expense,and provision for income taxes and excludes amounts related to certain itemsthat management considers not representative of ongoing operations as well ascertain retained corporate costs.  Thesegment 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 financialstatement footnotes.  Management hasincluded ‘reportable segment totals’ below to facilitate the discussion andanalysis of financial condition and results of operations.  The Company’s management uses Segment OperatingProfit, in combination with selected cash flow information, to evaluateperformance and to allocate resources.

 
| ** **                 | ** ** | **Three months ended March  31,** | ** ** |
|----------------------------|------------|--------------------------------------------------|------------|
| **Net Sales:**        | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| Europe                     |       | $                                                | 612.9      |   | $ | 888.9 |   |
| North America              |       | 494.3                                            |       | 530.9 |   |
| South America              |       | 214.0                                            |       | 254.2 |   |
| Asia Pacific               |       | 182.0                                            |       | 250.0 |   |
|                       |       |                                             |       |   |   |
| Reportable  segment totals |       | 1,503.2                                          |       | 1,924.0 |   |
| Other                      |       | 15.8                                             |       | 36.5 |   |
| Net Sales                  |       | $                                                | 1,519.0    |   | $ | 1,960.5 |   |

 

29

----

 
| ** **                                                           | ** ** | **Three months ended March  31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **Segment Operating Profit:**                              | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| Europe                                                               |       | $                                                | 44.2       |   | $ | 147.6 |   |
| North America                                                        |       | 62.7                                             |       | 55.5 |   |
| South America                                                        |       | 60.0                                             |       | 73.6 |   |
| Asia Pacific                                                         |       | 25.0                                             |       | 45.4 |   |
| Reportable  segment totals                                           |       | 191.9                                            |       | 322.1 |   |
|                                                                 |       |                                             |       |   |   |
| Items excluded  from Segment Operating Profit:                       |       |                                             |       |   |   |
| Retained  corporate costs and other                                  |       | (11.9                                            | )          | 1.5 |   |
| Restructuring  and asset impairments                                 |       | (50.4                                            | )          | (12.9 | ) |
| Interest income                                                      |       | 8.5                                              |       | 8.7 |   |
| Interest expense                                                     |       | (48.1                                            | )          | (64.3 | ) |
| Earnings from  continuing operations before income taxes             |       | 90.0                                             |       | 255.1 |   |
| Provision for  income taxes                                          |       | (31.2                                            | )          | (64.9 | ) |
| Earnings from  continuing operations                                 |       | 58.8                                             |       | 190.2 |   |
| Gain on sale of  discontinued operations                             |       |                                             |       | 4.1 |   |
| Net earnings                                                         |       | 58.8                                             |       | 194.3 |   |
| Net earnings  attributable to noncontrolling interests               |       | (13.7                                            | )          | (16.2 | ) |
| Net earnings  attributable to the Company                            |       | $                                                | 45.1       |   | $ | 178.1 |   |
|                                                                 |       |                                             |       |   |   |
| Net earnings  from continuing operations attributable to the Company |       | $                                                | 45.1       |   | $ | 174.0 |   |

 

***Note:  All amounts excluded from reportable segmenttotals 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 principallyresulting from decreased shipments and the unfavorable effect of foreigncurrency exchange rates, partially offset by higher selling prices.

 

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

 

Interest expense for the first quarter of 2009 was $48.1 millioncompared with $64.3 million for the first quarter of 2008.  The decrease is principally due to lowervariable interest rates under the Company’s bank credit agreement and on longterm debt variable and swapped rates, lower overall debt levels, as well asfavorable foreign currency exchange rates.

 

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

 

30

----

 

Net earnings from continuing operations attributable to the Company for2009 were $45.1 million, or $0.27 per share (diluted), compared with $174.0million, or $1.02 per share (diluted) for 2008. Earnings in both periods included items that management considered notrepresentative of ongoing operations. These items decreased net earnings in 2009 by $47.7 million, or $0.28per share, and decreased net earnings in 2008 by $9.7 million, or $0.06 pershare.

 

Cash payments for asbestos-related costs were $34.8 million for thethree months ended March 31, 2009 compared with $40.2 million for thethree months ended March 31, 2008.

 

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

 

### ***Company Outlook***

### ** **

TheCompany expects that the volume of glass shipments will decrease in the secondquarter of 2009 compared to the same period in 2008.  However, glass shipments are expected toimprove in the second quarter of 2009 compared to the first quarter of 2009,primarily due to seasonally stronger demand and the abatement of inventoryde-stocking.

 

Inflationarycost increases, primarily for raw materials, accounted for approximately $66million of the increase in manufacturing, shipping, and delivery expense in thefirst quarter of 2009.  The Companyexpects that net inflation for the full year 2009 could range up to $150million.

 

**Resultsof Operations — First Quarter of 2009 compared with First Quarter of 2008**

 

*Net Sales*

 

TheCompany’s net sales in the first quarter of 2009 were $1,519.0 million comparedwith $1,960.5 million for the first quarter of 2008, a decrease of $441.5million, or 22.5%. For furtherinformation, see Segment Information included in Note 7 to the CondensedConsolidated Financial Statements.

 

The change in net sales of reportable segments can be summarized asfollows (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*

 

OperatingProfit of the reportable segments includes an allocation of some corporateexpenses based on both a percentage of sales and direct billings based on thecosts of specific services provided. Unallocated corporate expenses and certain other expenses not directlyrelated to the reportable segments’ operations are included in RetainedCorporate Costs and Other.  For furtherinformation, see Segment Information included in Note 7 to the CondensedConsolidated Financial Statements.

 

Segment Operating Profit of reportable segments in the first quarter of2009 was $191.9 million compared to $322.1 million for the first quarter of2008, a decrease of $130.2 million, or 40.4%.

 

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

 

31

----

 
| 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 millioncompared with $64.3 million for the first quarter of 2008.  The decrease is principally due to lowervariable interest rates under the Company’s bank credit agreement and on longterm debt variable and swapped rates, lower overall debt levels, as well asfavorable foreign currency exchange rates.

 

*Interest Income*

 

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

 

*NetEarnings Attributable to Noncontrolling Interests*

 

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

 

*Provisionfor Income Taxes*

 

TheCompany’s effective tax rate for the three months ended March 31, 2009 was24.1%, compared with 25.4% for the first three months of 2008. The Companyexpects that the full year effective tax rate will be comparable to the 24.0%effective tax rate for 2008 for continuing operations excluding the separatelytaxed items.

 

***Items Excluded from Reportable Segment Totals***

 

Retained Corporate Costs and Other

 

Retained corporate costs and other in 2009 were $11.9 million comparedwith $(1.5) million for 2008.  Theincreased expense is mainly attributable to increased employee benefit costs in 2009.

 

Restructuring andAsset Impairments

 

Duringthe first quarter of 2009, the Company recorded charges totaling $50.4 million($47.7 million after tax), for restructuring and asset impairment.  The charges reflect the additional decisionsreached in the Company’s ongoing strategic review of its global manufacturingfootprint.  Charges for similar actionsduring the first quarter of 2008 totaled $12.0 million ($9.7 million aftertax).  See Note 9 to the Condensed Consolidated Financial Statements for additional information.

 

32

----

 

Duringthe first quarter of 2008, the Company also recorded an additional $0.9 million(before and after tax), related to the impairment of the Company’s equityinvestment in the South American Segment’s 50%-owned Caribbean affiliate.

 

**DiscontinuedOperations**

** **

### **The gain on sale of discontinued operations of $4.1 million reported in2008 relates to an adjustment of the 2007 gain on the sale of the plasticspackaging business mainly related to finalizing certain tax allocations and anadjustment to the selling price in accordance with procedures set forth in thefinal contract.**

### ** **

**CapitalResources and Liquidity**

 

TheCompany’s total debt at March 31, 2009 was $3.33 billion, compared with$3.33 billion at December 31, 2008 and $4.03 billion at March 31,2008.

 

On June 14,2006, the Company’s subsidiary borrowers entered into the Secured CreditAgreement (the “Agreement”).  At March 31,2009, the Agreement included a $900.0 million revolving credit facility, a225.0 million Australian dollar term loan, and a 110.8 million Canadian dollarterm loan, each of which has a final maturity date of June 15, 2012.  It also included a $191.5 million term loanand a €191.5 million term loan, each of which has a final maturity date of June 14,2013.

 

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

 

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

 

During October 2006, the Company enteredinto a €300 million Europeanaccounts receivable securitization program. The program extends through October 2011, subject to annual renewalof backup credit lines.  In addition, theCompany participates in a receivables financing program in the Asia Pacificregion with a revolving funding commitment of 100 million Australian dollarsand 25 million New Zealand dollars that extends through July 2009 and October 2009,respectively.

 

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Informationrelated to the Company’s accounts receivable securitization program is asfollows:

 
| ** **                              | ** ** | **March 31,** | ** ** | **Dec. 31,** | ** ** | **March 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-------------------|------------|--------------------|------------|
| ** **                              | ** ** | **2009**           | ** ** | **2008**          | ** ** | **2008**           | ** ** |
|                                    |       |               |       |              |       |               |       |
| Balance  (included in short-term loans) |       | $                  | 255.2      |              | $          | 293.7              |       | $ | 439.6 |   |
|                                    |       |               |       |              |       |               |       |
| Weighted average  interest rate         |       | 3.72               | %          | 5.31              | %          | 6.10               | %          |
|                                         |            |                    |            |                   |            |                    |            |  |  |  |

 

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

 

Forthe three months ended March 31, 2009, cash utilized in operatingactivities was $28.5 million compared with cash provided by operatingactivities of $50.9 million for 2008. The decrease is mainly attributable to lower net earnings and increasedpayments for restructuring activities, partially offset by lower workingcapital balances, lower interest payments, and lower payments forasbestos-related costs.  The Companyanticipates that operating activities will continue to utilize cash in thesecond quarter. Cash flows from operating activities will continue to beaffected by payments for restructuring activities which the Company expects tototal up to $120 million for the full year 2009.

 

Asbestos-related payments for the three months ended March 31,2009 decreased $5.4 million to $34.8 million, compared with $40.2 million forthe three months ended March 31, 2008.

 

Basedon exchange rates at March 31, 2009, the Company expects to contributeapproximately $75 million to $80 million to its non-U.S. defined benefitpension plans in 2009, compared with $61.2 million in 2008.  The Company is not required to make cashcontributions to the U.S. defined benefit pension plans during 2009.  Contributions in 2010 are dependent on futureasset returns and discount rates which the Company is unable to predict.  However, based on a reasonably wide range ofpossible future asset returns and discount rates through the end of 2009, theCompany believes that contributions to its non-U.S. plans will be moderatelyhigher in 2010 and that it will not be required to make contributions to itsU.S. plans in 2010.  Depending on anumber of factors, the Company may elect to contribute amounts in excess ofminimum required amounts in order to improve the funded status of certainplans.

 

Capital spending for property, plant and equipment was $46.6 millioncompared with $45.4 million in the prior year. The Company capitalized $9.5 million in 2009 under capital leaseobligations with the related financing recorded as long-term debt.  Total capital spending for 2008 was $361.7million.  Based on current exchangerates, total capital spending for 2009 is expected to be in the range of$380-$440 million depending on market conditions.

 

Duringthe current downturn in global financial markets, some companies may experiencedifficulties accessing their cash equivalents, drawing on revolvers, issuingdebt, and raising capital generally, which could have a material adverse impacton their liquidity. Notwithstanding these adverse market conditions, theCompany anticipates that cash flows from its operations and from utilization ofcredit available under the Agreement will be sufficient to fund its operatingand seasonal working capital needs, debt service and other obligations on ashort-term (twelve-months) and long-term basis. Based on the Company’s expectations regarding future payments forlawsuits and claims and also based on the Company’s expected operating cashflow, the Company believes that the payment of any deferred amounts ofpreviously settled or otherwise

 

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determinedlawsuits and claims, and the resolution of presently pending and anticipatedfuture lawsuits and claims associated with asbestos, will not have a materialadverse effect upon the Company’s liquidity on a short-term or long-term basis.

 

**CriticalAccounting Estimates**

 

The Company’s analysis and discussion of its financial condition andresults of operations are based upon its consolidated financial statements thathave been prepared in accordance with accounting principles generally acceptedin the United States (“U.S. GAAP”).  Thepreparation of financial statements in conformity with U.S. GAAP requiresmanagement to make estimates and assumptions that affect the reported amountsof assets, liabilities, revenues and expenses, and the disclosure of contingentassets and liabilities.  The Companyevaluates these estimates and assumptions on an ongoing basis.  Estimates and assumptions are based onhistorical and other factors believed to be reasonable under the circumstancesat the time the financial statements are issued.  The results of these estimates may form thebasis of the carrying value of certain assets and liabilities and may not bereadily apparent from other sources. Actual results, under conditions and circumstances different from thoseassumed, may differ from estimates.

 

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

 

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

 

*Property, Plant and Equipment*

 

The net carrying amount ofproperty, plant, and equipment (“PP&E”) at March 31, 2009 totaled$2,486.4 million, representing 32% of total assets.  Depreciation expense for the three months endedMarch 31, 2009 totaled $88.4 million, representing approximately 6% oftotal costs and expenses. Given the significance of PP&E and associateddepreciation to the Company’s consolidated financial statements, thedeterminations of an asset’s cost basis and its economic useful life areconsidered to be critical accounting estimates.

 

**Cost Basis** - PP&E isrecorded at cost, which is generally objectively quantifiable when assets arepurchased singly.   However, when assetsare purchased in groups, or as part of a business, costs assigned to PP&Eare based on an estimate of fair value of each asset at the date ofacquisition.  These estimates are basedon assumptions about asset condition, remaining useful life and marketconditions, among others.  The Companyfrequently employs expert appraisers to aid in allocating cost among assetspurchased as a group.

 

Included in the cost basisof PP&E are those costs which substantially increase the useful lives orcapacity of existing PP&E. Significant judgment is needed to determine which costs should becapitalized under these criteria and which costs should be expensed as a repairor maintenance expenditure.  For example,the Company frequently incurs various costs related to its existing glassmelting furnaces and forming machines and must make a determination of whichcosts, if any, to capitalize.  TheCompany relies on the experience and expertise of its

 

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operations and engineeringstaff to make reasonable and consistent judgments regarding increases in usefullives or capacity of PP&E.

 

**Estimated Useful Life** — PP&E isgenerally depreciated using the straight-line method, which deducts equalamounts of the cost of each asset from earnings each period over its estimatedeconomic useful life.  Economic usefullife is the duration of time an asset is expected to be productively employedby the Company, which may be less than its physical life. Management’sassumptions regarding the following factors, among others, affect thedetermination of estimated economic useful life: wear and tear, product andprocess obsolescence, technical standards, and changes in market demand.

 

The estimated economicuseful life of an asset is monitored to determine its appropriateness, especiallyin light of changed business circumstances. For example, technologicaladvances, excessive wear and tear, or changes in customers’ requirements mayresult in a shorter estimated useful life than originally anticipated. In thesecases, the Company depreciates the remaining net book value over the newestimated remaining life, thereby increasing depreciation expense per year on aprospective basis.  Likewise, if theestimated useful life is increased, the adjustment to the useful life decreasesdepreciation expense per year on a prospective basis.  Changes in economic useful life assumptionsdid not have a material impact on the Company’s reported results in 2009, 2008or 2007.

 

*Impairment of Long-Lived Assets*

 

**Property, Plant, and Equipment** —As requiredby FAS No. 144**** “**Accounting for the Impairment orDisposal of Long-Lived Assets,”** the Company tests forimpairment of PP&E whenever events or changes in circumstances indicatethat the carrying amount of the assets may not be recoverable.  PP&E held for use in the Company’sbusiness is grouped for impairment testing at the lowest level for which cashflows can reasonably be identified, typically a geographic region.  The Company evaluates the recoverability ofproperty, plant, and equipment based on undiscounted projected cash flows,excluding interest and taxes. If an asset group is considered impaired, theimpairment loss to be recognized is measured as the amount by which the assetgroup’s carrying amount exceeds its fair value. PP&E held for sale is reported at the lower of carrying amount orfair value less cost to sell.

 

Impairment testing requiresestimation of the fair value of PP&E based on the discounted value ofprojected future cash flows generated by the asset group.  The assumptions underlying cash flowprojections represent management’s best estimates at the time of the impairmentreview.  Factors that management mustestimate include, among other things: industry and market conditions, salesvolume and prices, production costs and inflation.  Changes in key assumptions or actualconditions which differ from estimates could result in an impairmentcharge.  The Company uses reasonable andsupportable assumptions when performing impairment reviews and cannot predictthe occurrence of future events and circumstances that could result inimpairment charges.

 

In mid-2007, the Companybegan a strategic review of its global manufacturing footprint.  The review is ongoing into 2009.  As an initial result of this review, during2009, 2008, and 2007, the Company recorded charges that included impairments ofproperty, plant, and equipment across all segments including certain RetainedCorporate Costs and Other activities.  Itis possible that the Company may conclude in the future that it will close ortemporarily idle additional selected facilities or production lines and reduceheadcount to increase operating performance and cash flows.  As of March 31, 2009, no other decisionshad been made and no events had occurred

 

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that would require anadditional evaluation of possible impairment in accordance with FAS No. 144.  For additional information on chargesrecorded in 2009, 2008 and 2007, see Note 9 to the Condensed ConsolidatedFinancial Statements.

 

**Goodwill** — Goodwill at March 31,2009 totaled $2,130.3 million, representing 27% of total assets.  As required by FAS No. 142, “**Goodwilland Other Intangible Assets,”** the Company evaluatesgoodwill annually (or more frequently if impairment indicators arise) forimpairment.  The Company conducts itsevaluation as of October 1 of each year. Goodwill impairment testing is performed using the business enterprisevalue (“BEV”) of each reporting unit which is calculated as of a measurementdate by determining the present value of debt-free, after-tax projected futurecash flows, discounted at the weighted average cost of capital of ahypothetical third party buyer.  This BEVis then compared to the book value of each reporting unit as of the measurementdate to assess whether an impairment of goodwill may exist.

 

During the fourth quarter of 2008, the Company completed its annualtesting and determined that no impairment of goodwill existed.

 

The testing performed as of October 1, 2008, indicated asignificant excess of BEV over book value for each unit.  If the Company’s projected future cash flowswere substantially lower, or if the assumed weighted average cost of capitalwas substantially higher, the testing performed as of October 1, 2008,might have indicated an impairment of one or more of the Company’s reportingunits and, as a result, the related goodwill might also have beenimpaired.  However, less significantchanges in projected future cash flows or the assumed weighted average cost ofcapital would not have indicated an impairment. For example, if projected future cash flows had been decreased by 5%, orif the weighted average cost of capital had been increased by 5%, or both, theresulting lower BEV’s would still have exceeded the book value of each reportingunit by a significant margin.

 

The Company will monitor conditions throughout 2009 that mightsignificantly affect the projections and variables used in the impairment testto determine if a review prior to October 1 may be appropriate.  If the results of impairment testing confirmthat a write down of goodwill is necessary, then the Company will record acharge in the fourth quarter of 2009, or earlier if appropriate.  In the event the Company would be required torecord a significant write down of goodwill, the charge would have a materialadverse effect on reported results of operations and net worth.

 

**OtherLong-Lived Assets** — Other long-lived assets include, among others,equity investments and repair parts inventories.  The Company’s equity investments arenon-publicly traded ventures with other companies in businesses related tothose of the Company.  Equity investmentsare reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of the investment may not berecoverable.  In the event that a declinein fair value of an investment occurs, and the decline in value is consideredto be other than temporary, an impairment loss is recognized. Summarizedfinancial information of equity affiliates is included in Note 5 to the 2008Annual Report on Form 10-K.

 

The Company carries a significant amount of repair parts inventories inorder to provide a dependable supply of quality parts for servicing the Company’sPP&E, particularly its glass melting furnaces and forming machines.  The Company evaluates the recoverability ofrepair parts inventories based on undiscounted projected cash flows, excludinginterest and taxes, when factors indicate that impairment may exist.  If impairment exists, the repair parts arewritten down to fair value.  The Companycontinually monitors the carrying value of repair parts

 

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for recoverability, especially in light of changing businesscircumstances.  For example,technological advances related to, and changes in, the estimated future demandfor products produced on the equipment to which the repair parts relate maymake the repair parts obsolete.  In thesecircumstances, the Company writes down the repair parts to fair value.

 

*Pension Benefit Plans*

 

SignificantEstimates - The determination of pension obligations and therelated pension expense or credits to operations involves significantestimates.  The most significantestimates are the discount rate used to calculate the actuarial present valueof benefit obligations and the expected long-term rate of return on planassets.  The Company uses discount ratesbased on yields of high quality fixed rate debt securities at the end of theyear.  At December 31, 2008, theweighted average discount rate for all plans was 6.29%.  The Company uses an expected long-term rateof 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 andthe volatility of debt and equity markets, actual returns may varysignificantly from year to year.  TheCompany refers to average historical returns over longer periods (up to 10years) in determining its expected rates of return because short-term fluctuationsin market values do not reflect the rates of return the Company expects toachieve based upon its long-term investing strategy.  For purposes of determining pension chargesand credits in 2009, the Company’s estimated weighted average expectedlong-term rate of return on plan assets is 7.7% compared to 8.1% in 2008.  The Company recorded pension expense (income)of $4.8 million and $(6.4) million in 2009 and 2008, respectively, from itsprincipal defined benefit pension plans. Depending on currency translation rates, the Company expects to recordapproximately $20 million of pension expense for the full year of 2009.

 

Futureeffects on reported results of operations depend on economic conditions andinvestment performance.  For example, aone-half percentage point change in the actuarial assumption regarding theexpected return on assets would result in a change of approximately $18 millionin the pretax pension cost (income) for the full year 2009.  In addition, changes in external factors, includingthe fair values of plan assets and the discount rates used to calculate planliabilities, could have a significant effect on the recognition of fundedstatus as described below.

 

Recognitionof Funded Status —FAS No. 158, “Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans,” requires employers to adjustthe assets and liabilities related to defined benefit plans so that the amountsreflected on the balance sheet represent the overfunded or underfunded statusof the plans.  These funded statusamounts are measured as the difference between the fair value of plan assetsand actuarially calculated benefit obligations as of the balance sheetdate.  At December 31, 2008, theAccumulated Other Comprehensive Loss component of share owners’ equity wasincreased by $1,080.1 million ($1,025.0 million after tax) to reflect a netdecrease in the funded status of the Company’s plans at that date.

 

*Contingenciesand Litigation*

 

TheCompany believes that its ultimate asbestos-related liability (i.e., itsindemnity payments or other claim disposition costs plus related legal fees)cannot be estimated with certainty. The Company’s ability reasonably toestimate its liability has been significantly affected by the volatility ofasbestos-related litigation in the United States, the inherent uncertainty offuture disease incidence and claiming patterns, the expanding list ofnon-traditional defendants that have been sued in this litigation and foundliable for substantial damage awards, the use of mass litigation screenings togenerate new lawsuits, the large number of claims asserted or filed

 

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byparties who claim prior exposure to asbestos materials but have no presentphysical impairment as a result of such exposure, and the significant number ofco-defendants that have filed for bankruptcy. The Company continues to monitor trends that may affect its ultimateliability and continues to analyze the developments and variables affecting orlikely to affect the resolution of pending and future asbestos claims againstthe Company.

 

TheCompany conducts a comprehensive review of its asbestos-related liabilities andcosts annually in connection with finalizing and reporting its annual resultsof operations, unless significant changes in trends or new developments warrantan earlier review.  If the results of anannual comprehensive review indicate that the existing amount of the accruedliability is insufficient to cover its estimated future asbestos-related costs,then the Company will record an appropriate charge to increase the accruedliability.  The Company believes that anestimation of the reasonably probable amount of the contingent liability forclaims not yet asserted against the Company is not possible beyond a period ofseveral years.  Therefore, while theresults of future annual comprehensive reviews cannot be determined, theCompany expects the addition of one year to the estimation period will resultin an annual charge.

 

Inthe fourth quarter of 2008, the Company recorded a charge of $250.0 million($248.8 million after tax) to increase its accrued liability forasbestos-related costs. This amount was higher than the 2007 charge of $115.0million.  The larger 2008 charge reflectshigher filing rates and average disposition costs for 2008 and the next severalyears than previously estimated.  Thefactors and developments that particularly affected the determination of theamount of this increase in the accrual included the following: (i) therates and average disposition costs of filings against the Company; (ii) thecontinuing evidence of irregularities associated with mass litigationscreenings;  (iii) the Company’ssuccessful litigation record; (iv) legislative developments and court rulingsin several states; (v) the Company’s strategy to accelerate settlements ofcertain claims on favorable terms; and (vi) the impact these and otherfactors had on the Company’s valuation of existing and future claims.

 

TheCompany’s estimates are based on a number of factors as described further inNote 6 to the Condensed Consolidated Financial Statements.

 

*IncomeTaxes*

 

The Company accounts forincome taxes as required by the provisions of FAS No. 109, “Accounting forIncome Taxes,” under which deferred tax assets and liabilities are recognizedfor the tax effects of temporary differences between the financial reportingand tax bases of assets and liabilities measured using enacted tax rates.

 

Management judgment isrequired in determining income tax expense and the related balance sheetamounts.  In addition, under FASBInterpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”)judgments are required concerning the ultimate outcome of uncertain income taxpositions.  Actual income taxes paid mayvary from estimates, depending upon changes in income tax laws, actual resultsof operations, and the final audit of tax returns by taxing authorities. Taxassessments may arise several years after tax returns have been filed. During2008, the Company’s estimated unrecognized tax benefits increased by $44.0million related to tax positions taken in prior years in non-U.S.jurisdictions.

 

Deferred tax assets are alsorecorded for operating losses and tax credit carryforwards. However, FAS No. 109requires that a valuation allowance be recorded when it is more likely than notthat some portion or all of the deferred tax assets will not be realized.  This assessment

 

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is dependent upon projectedprofitability including the effects of tax planning.  Deferred tax assets and liabilities aredetermined separately for each tax jurisdiction in which the Company conductsits operations or otherwise incurs taxable income or losses.  In the U.S., the Company has recordedsignificant deferred tax assets, the largest of which relate to foreign andother tax credits which amounted to $303.9 million at December 31, 2008,the accrued liability for asbestos-related costs which amounted to $173.4million at December 31, 2008 that are not deductible until paid and thepension liability which amounted to $122.6 million at December 31,2008.   The deferred tax assets arepartially offset by deferred tax liabilities, the most significant of whichrelate to accelerated depreciation.  TheCompany has recorded a valuation allowance for the portion of U.S. deferred taxassets not offset by deferred tax liabilities.

 

**ForwardLooking Statements**

 

This documentcontains “forward looking” statements within the meaning of Section 21E ofthe Securities Exchange Act of 1934 and Section 27A of the Securities Actof 1933. Forward-looking statements reflect the Company’s current expectationsand projections about future events at the time, and thus involve uncertaintyand risk. It is possible the Company’s future financial performance may differfrom expectations due to a variety of factors including, but not limited to thefollowing: (1) foreign currency fluctuations relative to the U.S. dollar, (2) changesin capital availability or cost, including interest rate fluctuations, (3) thegeneral political, economic and competitive conditions in markets and countrieswhere the Company has its operations, including disruptions in capital markets,disruptions in the supply chain, competitive pricing pressures, inflation ordeflation, and changes in tax rates and laws, (4) consumer preferences foralternative forms of packaging, (5) fluctuations in raw material and laborcosts, (6) availability of raw materials, (7) costs and availabilityof energy, (8) transportation costs, (9) the ability of the Companyto raise selling prices commensurate with energy and other cost increases, (10) consolidationamong competitors and customers, (11) the ability of the Company to integrateoperations of acquired businesses and achieve expected synergies, (12)unanticipated expenditures with respect to environmental, safety and healthlaws, (13) the performance by customers of their obligations under purchaseagreements, and (14) the timing and occurrence of events which are beyond thecontrol of the Company, including events related to asbestos-related claims. Itis not possible to foresee or identify all such factors. Any forward lookingstatements in this document are based on certain assumptions and analyses made bythe Company in light of its experience and perception of historical trends,current conditions, expected future developments, and other factors it believesare appropriate in the circumstances. Forward-looking statements are not aguarantee of future performance and actual results or developments may differmaterially from expectations. While the Company continually reviews trends anduncertainties affecting the Company’s results of operations and financialcondition, the Company does not assume any obligation to update or supplementany particular forward looking statements contained in this document.

 

**Item3.  Quantitative and QualitativeDisclosure About Market Risk.**

 

There have been no material changes in market risk at March 31,2009 from those described in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2008.

 

## **Item 4.  Controls and Procedures.**

##  

The Company maintains disclosure controls and procedures that aredesigned to ensure that information required to be disclosed in the Company’sExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the Securities and

 

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Exchange Commission’s rules and forms and that such information isaccumulated and communicated to the Company’s management, including its ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives, and management is required to apply its judgment inevaluating the cost-benefit relationship of possible controls andprocedures.  Also, the Company hasinvestments in certain unconsolidated entities. As the Company does not control or manage these entities, its disclosurecontrols and procedures with respect to such entities are necessarilysubstantially more limited than those maintained with respect to itsconsolidated subsidiaries.

 

As required by Rule 13a-15(b) of the Exchange Act, theCompany carried out an evaluation, under the supervision and with theparticipation of management, including its Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures as of the end of the periodcovered by this report.  Based on theforegoing, the Company’s Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures were effectiveat the reasonable assurance level as of March 31, 2009.

 

Management concluded that the Company’s system of internal control overfinancial reporting was effective as of December 31, 2008.  There hasbeen no change in the Company’s internal controls over financial reportingduring the Company’s most recent fiscal quarter that has materially affected,or is reasonably likely to materially affect, the Company’s internal controlsover financial reporting. The Company is undertaking the phased implementationof a global Enterprise Resource Planning software system and believes it ismaintaining and monitoring appropriate internal controls during theimplementation period.  The Company believes that the internal controlenvironment will be enhanced as a result of implementation.

 

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PART II — OTHERINFORMATION

 

**Item1.  Legal Proceedings.**

 

For further informationon legal proceedings, see Note 6 to the Condensed Consolidated FinancialStatements, “Contingencies,” that is included in Part I of this Report andis incorporated herein by reference.

 

**Item1A.  Risk Factors.**

 

There have been no material changes in risk factors at March 31,2009 from those described in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2008.

 

**Item5.  Other Information.**

 

Increase in number of directors

 

At the annual meeting on April 23, 2009,the Company’s share owners approved the Second Restated Certificate ofIncorporation (the “Restated Certificate”) which provided for an increase inthe maximum authorized number of directors that may serve on the Board ofDirectors from eleven to twelve.  TheRestated Certificate is filed herewith as Exhibit 3.1.

 

On April 23, 2009, following the annualmeeting of share owners, the Company’s Board of Directors approved theThird Amended and Restated Bylaws (the “Amended Bylaws”) of the Company toincrease the maximum authorized number of directors from eleven to twelve,consistent with the Restated Certificate. The Amended Bylaws were included as Exhibit 3.1 to the Company’s Form 8-Kfiled on April 27, 2009.  Theprovision to increase the number of directors was effective upon adoption andnot on the day following the date of the annual meeting as reported in the Form 8-K.

 

Following the approval of the Amended Bylaws,the Company’s Board of Directors appointed Jay L. Geldmacher to serve as amember of the Board of Directors.  Theannouncement of Mr. Geldmacher’s appointment was included as Exhibit 99.1to the Company’s Form 8-K filed on April 27, 2009.

 

Amendment of incentive award plan

 

At the annual meeting on April 23, 2009,the Company’s share owners approved the Third Amended and Restated 2005Incentive Award Plan (the “Plan”) which, among other things, increases thenumber of shares available under the Plan by 9,000,000, extends the term of thePlan until March 2019 and continues to allow grants under the Plan toqualify as performance based under the Internal Revenue Code.  The Plan is filed herewith as Exhibit 10.1.

 

**Item 6.  Exhibits.**

 
| Exhibit 3.1  | Second Restated Certificate of Incorporation of  Owens-Illinois, Inc.                                               |
|-------------------|--------------------------------------------------------------------------------------------------------------------------|
|              |                                                                                                                     |
| Exhibit 10.1 | Amended and Restated Owens-Illinois, Inc. 2005 Incentive Award  Plan                                                |
|              |                                                                                                                     |
| Exhibit 12   | Computation of Ratio of  Earnings to Fixed Charges and Earnings to Combined Fixed Charges and  Preferred Stock Dividends |

 

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| Exhibit 31.1  | Certification of  Principal Executive Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |
|--------------------|---------------------------------------------------------------------------------------------------------------|
|               |                                                                                                          |
| Exhibit 31.2  | Certification of  Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
|               |                                                                                                          |
| Exhibit 32.1* | Certification  of Principal Executive Officer pursuant to 18 U.S.C. Section 1350                         |
|               |                                                                                                          |
| Exhibit 32.2* | Certification  of Principal Financial Officer pursuant to 18 U.S.C. Section 1350                         |

 

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

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |             | OWENS-ILLINOIS, INC. |
|--------|------------------|----------------------|
|   |             |                 |
|   |             |                 |
| Date   | May 6, 2009 |                 | By | /s/ Edward C. White |
|   |             |                 | Edward C. White |
|   |             |                 | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
|        |                  |                      |  |  |

 

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INDEX TO EXHIBITS

 
| **Exhibits** | ** ** | ** **                                                                                                                                                                                                                    |
|--------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                          |
| 3.1          |       | Second Restated  Certificate of Incorporation of Owens-Illinois, Inc.                                                                                                                                                    |
|         |       |                                                                                                                                                                                                                          |
| 10.1         |       | Amended and Restated  Owens-Illinois, Inc. 2005 Incentive Award Plan                                                                                                                                                     |
|         |       |                                                                                                                                                                                                                          |
| 12           |       | Computation of Ratio of  Earnings to Fixed Charges and Earnings to Combined Fixed Charges and  Preferred Stock Dividends                                                                                                      |
|         |       |                                                                                                                                                                                                                          |
| 31.1         |       | Certification of Principal  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002Certification  of Principal Executive Officer as required by Section 302 of the  Sarbanes-Oxley Act of 2002 |
|         |       |                                                                                                                                                                                                                          |
| 31.2         |       | Certification of Principal  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                 |
|         |       |                                                                                                                                                                                                                          |
| 32.1*        |       | Certification of Principal  Executive Officer pursuant to 18 U.S.C. Section 1350                                                                                                                                         |
|         |       |                                                                                                                                                                                                                          |
| 32.2*        |       | Certification of Principal  Financial Officer pursuant to 18 U.S.C. Section 1350                                                                                                                                         |

 

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

 

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