OWENS ILLINOIS GROUP INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

(Mark one)
ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2002
or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Owens-Illinois Group, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

333-85690
(Commission File No.)

34-1559348
(IRS Employer Identification No.)

One SeaGate, Toledo, Ohio
(Address of principal executive offices)

43666
(Zip Code)

419-247-5000
(Registrant's telephone number, including area code)

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

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

Owens-Illinois Group, Inc. $.01 par value common stock—100 shares at October 31, 2002.

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

The Condensed Consolidated Financial Statements presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Since the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Registrant's December 31, 2001 audited Consolidated Financial Statements and notes thereto, included in the Registration Statement on Form S-4 filed with the Securities and Exchange Commission on April 5, 2002, as amended.

OWENS-ILLINOIS GROUP, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Three months ended September 30, 2002 and 2001
(Dollars in millions)

		2002		2001
Revenues:
	Net sales	$	1,472.1	$	1,360.2
	Royalties and net technical assistance		5.4		6.1
	Equity earnings		7.6		4.8
	Interest		5.9		6.3
	Other		9.6		6.4

			1,500.6		1,383.8
Costs and expenses:
	Manufacturing, shipping, and delivery		1,137.7		1,036.9
	Research and development		10.0		11.1
	Engineering		11.6		6.8
	Selling and administrative		76.6		69.2
	Interest		106.9		105.1
	Other		6.9		31.1

			1,349.7		1,260.2

Earnings before items below			150.9		123.6
Provision for income taxes			47.7		47.6
Minority share owners' interests in earnings of subsidiaries			5.3		6.6

Net earnings		$	97.9	$	69.4

See accompanying notes.

OWENS-ILLINOIS GROUP, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Nine months ended September 30, 2002 and 2001
(Dollars in millions)

		2002			2001
Revenues:
	Net sales	$	4,280.3		$	4,056.1
	Royalties and net technical assistance		18.5			19.0
	Equity earnings		19.8			13.7
	Interest		17.8			21.2
	Other		25.5			531.6

			4,361.9			4,641.6
Costs and expenses:
	Manufacturing, shipping, and delivery		3,310.6			3,147.9
	Research and development		30.0			31.5
	Engineering		29.1			21.5
	Selling and administrative		241.3			249.1
	Interest		314.0			335.5
	Other		26.8			209.5

			3,951.8			3,995.0

Earnings before items below			410.1			646.6
Provision for income taxes			129.5			267.9
Minority share owners' interests in earnings of subsidiaries			15.6			12.8

Earnings before extraordinary items and cumulative effect of accounting change			265.0			365.9
Extraordinary charges from early extinguishment of debt, net of applicable income taxes			(6.7	)		(4.1	)
Cumulative effect of accounting change			(460.0	)

Net earnings (loss)		$	(201.7	)	$	361.8

OWENS-ILLINOIS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2002, December 31, 2001, and September 30, 2001
(Dollars in millions)

			Sept. 30, 2002			Dec. 31, 2001			Sept. 30, 2001
Assets
Current assets:
	Cash, including time deposits		$	177.1		$	155.6		$	174.3
	Short-term investments, at cost which approximates market			17.4			16.4			16.6
	Receivables, less allowances for losses and discounts ($60.6 at Sept. 30, 2002, $71.1 at December 31, 2001, and $54.1 at Sept. 30, 2001)			787.4			754.5			870.9
	Inventories			841.1			836.7			792.9
	Prepaid expenses			158.3			147.0			118.6

		Total current assets		1,981.3			1,910.2			1,973.3
Investments and other assets:
	Equity investments			177.7			166.1			177.6
	Repair parts inventories			183.3			199.2			204.8
	Prepaid pension			949.6			879.5			851.8
	Deposits, receivables, and other assets			611.0			582.4			584.2
	Goodwill			2,636.3			2,995.3			2,919.3

		Total other assets		4,557.9			4,822.5			4,737.7
Property, plant, and equipment, at cost				5,857.8			5,796.2			5,554.2
Less accumulated depreciation				2,645.8			2,536.3			2,464.5

	Net property, plant, and equipment			3,212.0			3,259.9			3,089.7

Total assets			$	9,751.2		$	9,992.6		$	9,800.7

Liabilities and Share Owner's Equity
Current liabilities:
	Short-term loans and long-term debt due within one year		$	64.9		$	71.2		$	108.6
	Accounts payable			437.1			457.4			427.9
	Other liabilities			558.7			482.9			477.9

		Total current liabilities		1,060.7			1,011.5			1,014.4
Long-term debt				5,321.1			5,329.7			5,203.9
Deferred taxes				507.6			479.8			479.5
Nonpension postretirement benefits				287.7			303.4			274.9
Other liabilities				439.1			386.9			352.1
Commitments and contingencies
Minority share owners' interests				130.2			159.3			151.3
Share owner's equity:
	Common stock, par value $.01 per share 1,000 shares authorized, 100 shares issued and outstanding			—			—			—
	Other contributed capital			1,632.0			1,735.1			1,766.0
	Retained earnings			961.6			1,163.2			1,168.4
	Accumulated other comprehensive income (loss)			(588.8	)		(576.3	)		(609.8	)

		Total share owner's equity		2,004.8			2,322.0			2,324.6

Total liabilities and share owner's equity			$	9,751.2		$	9,992.6		$	9,800.7

See accompanying notes.

OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED CASH FLOWS

Nine months ended September 30, 2002 and 2001
(Dollars in millions)

			2002			2001
Cash flows from operating activities:
	Net earnings before extraordinary items and cumulative effect of accounting change		$	265.0		$	365.9
	Non-cash charges:
		Depreciation		321.1			299.1
		Amortization of deferred costs		36.7			101.2
		Restructuring costs and write-offs of certain assets					122.0
		Deferred tax provision		69.2			210.3
		Gains on asset sales and divestitures					(470.3	)
		Other		(108.3	)		(86.2	)
	Change in non-current operating assets			19.9			4.8
	Reduction of non-current liabilities			(16.4	)		(12.9	)
	Change in components of working capital			(33.9	)		(233.5	)

		Cash provided by operating activities		553.3			300.4
Cash flows from investing activities:
	Additions to property, plant, and equipment			(343.2	)		(344.1	)
	Net cash proceeds from divestitures			25.7			594.9
	Acquisitions, net of cash acquired			(6.5	)		(31.6	)

		Cash provided by (utilized in) investing activities		(324.0	)		219.2
Cash flows from financing activities:
	Additions to long-term debt			1,245.9			3,726.0
	Repayments of long-term debt			(1,244.1	)		(1,301.5	)
	Distribution to parent			(154.2	)		(48.8	)
	Net change in payable to parent						(2,857.0	)
	Payment of finance fees			(18.0	)		(62.1	)
	Increase (decrease) in short-term loans			14.0			(2.6	)
	Collateral deposits for certain derivative instruments			(47.0	)

		Cash utilized in financing activities		(203.4	)		(546.0	)
Effect of exchange rate fluctuations on cash				(4.4	)		(29.0	)

Increase (decrease) in cash				21.5			(55.4	)
Cash at beginning of period				155.6			229.7

Cash at end of period			$	177.1		$	174.3

See accompanying notes.

OWENS-ILLINOIS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Tabular data in millions of dollars

1. Basis of Presentation

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

2. Inventories

Major classes of inventories are as follows:

	Sept. 30, 2002		Dec. 31, 2001		Sept. 30, 2001
Finished goods	$	643.5	$	641.8	$	596.4
Work in process		7.1		6.2		8.1
Raw materials		118.3		125.3		120.0
Operating supplies		72.2		63.4		68.4

	$	841.1	$	836.7	$	792.9

3. Long-Term Debt

The following table summarizes the Company's consolidated long-term debt:

			Sept. 30, 2002		Dec. 31, 2001		Sept. 30, 2001
Secured Credit Agreement:
	Revolving Credit Facility:
		Revolving Loans	$	2,414.9	$	2,410.4	$	2,288.8
	Term Loan			65.0		1,045.0		1,045.0
Senior Secured Notes:
	8.875%, due 2009			1,000.0
Payable to OI Inc.				1,700.0		1,700.0		1,700.0
Other				163.8		205.1		199.8

				5,343.7		5,360.5		5,233.6
	Less amounts due within one year			22.6		30.8		29.7

		Long-term debt	$	5,321.1	$	5,329.7	$	5,203.9

At September 30, 2002, the Company's subsidiary borrowers had unused credit of $479.1 million available under the Secured Credit Agreement.

The weighted average interest rate on borrowings outstanding under the Revolving Credit Facility at September 30, 2002 was 3.84%. Including the effects of cross-currency swap agreements related to Revolving Credit Facility borrowings by the Company's Australian, U.K., and Canadian subsidiaries, the weighted average interest rate was 5.10%.

The weighted average interest rate on borrowings outstanding under the Term Loan at September 30, 2002 was 4.34%.

During January 2002, a subsidiary of the Company, Owens-Brockway Glass Container Inc., completed a $1.0 billion private placement of senior secured notes and on August 5, 2002, completed its offer to exchange those notes for notes with the same terms and conditions that have been registered under the Securities Act of 1933. The notes bear interest at 8⁷/8% and are due February 15, 2009. The notes are guaranteed by substantially all of the Company's domestic subsidiaries. The assets of substantially all of the Company's domestic subsidiaries are pledged as security for the notes. The issuing subsidiary used the net cash proceeds from the notes to reduce the outstanding Term Loan under the Agreement by $980.0 million. As a result, the Company wrote off unamortized deferred financing fees in January 2002 related to the Term Loan and recorded an extraordinary charge of $10.9 million less applicable income taxes of $4.2 million. The indenture for the notes restricts, among other things, the ability of the Company's subsidiaries to borrow money, pay dividends on, or redeem or repurchase stock, make investments, create liens, enter into certain transactions with affiliates, and sell certain assets or merge with or into other companies.

During November 2002, a subsidiary of the Company completed a $450 million private placement of senior secured notes. The notes bear interest at 8³/4% and are due November 15, 2012. The notes are guaranteed by substantially all of the Company's domestic subsidiaries. The assets of substantially all of the Company's domestic subsidiaries are pledged as security for the notes. The issuing subsidiary used the net cash proceeds from the notes to repay the remaining $65 million of the outstanding term loan under the Agreement and the remaining $376 million was used to reduce the outstanding revolver under the Agreement. As such, the Company wrote off unamortized deferred financing fees in November 2002 related to the term loan and recorded an extraordinary charge of $3.2 million less applicable income taxes of $1.2 million. The indenture for the new notes has the same restrictions as the senior secured notes issued in January 2002.

4. Financial Information for Subsidiary Guarantors and Non-Guarantors

The following presents condensed consolidating financial information for the Company, segregating: (1) Owens-Illinois Group, Inc. (the "Parent"); (2) Owens-Brockway Glass Container Inc. (the "Issuer"); (3) those domestic subsidiaries which will guarantee the 8⁷/8% Senior Secured Notes of the Issuer (the "Guarantor Subsidiaries"); and (4) all other subsidiaries (the "Non-Guarantor Subsidiaries"). The Guarantor Subsidiaries are wholly-owned direct and indirect subsidiaries of the Parent and their guarantees are full, unconditional and joint and several. The Parent is also a guarantor, and its guarantee is full, unconditional and joint and several.

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

		September 30, 2002
		Parent		Issuer		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
	Accounts receivable	$	—	$	164.6	$	180.8		$	515.9	$	(73.9	)	$	787.4
	Inventories				153.8		202.6			485.4		(0.7	)		841.1
	Other current assets				2.3		162.3			186.2		2.0			352.8

Total current assets			—		320.7		545.7			1,187.5		(72.6	)		1,981.3
Investments in and advances to subsidiaries			3,704.8		2,108.2		(45.7	)				(5,767.3	)		—
Goodwill					547.9		1,038.7			1,049.7					2,636.3
Other non-current assets					245.8		1,097.5			586.5		(8.2	)		1,921.6

Total other assets			3,704.8		2,901.9		2,090.5			1,636.2		(5,775.5	)		4,557.9
Property, plant and equipment, net					598.7		1,100.2			1,513.1					3,212.0

Total assets		$	3,704.8	$	3,821.3	$	3,736.4		$	4,336.8	$	(5,848.1	)	$	9,751.2

Current liabilities:
	Accounts payable and accrued liabilities	$	—	$	218.4	$	299.3		$	517.9	$	(39.8	)	$	995.8
	Short-term loans and long-term debt due within one year						0.2			64.7					64.9

Total current liabilities			—		218.4		299.5			582.6		(39.8	)		1,060.7
Long-term debt			1,700.0		1,685.1		851.0			1,085.0					5,321.1
Other non-current liabilities and minority interests					74.9		724.0			557.7		8.0			1,364.6
Investments by and advances from parent					1,842.9		1,861.9			2,111.5		(5,816.3	)		—
Share owner's equity			2,004.8												2,004.8

Total liabilities and share owners' equity		$	3,704.8	$	3,821.3	$	3,736.4		$	4,336.8	$	(5,848.1	)	$	9,751.2

		December 31, 2001
		Parent		Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
	Accounts receivable	$	—	$	123.7	$	185.8	$	517.0	$	(72.0	)	$	754.5
	Inventories				162.9		212.1		462.5		(0.8	)		836.7
	Other current assets				1.1		155.2		162.5		0.2			319.0

Total current assets			—		287.7		553.1		1,142.0		(72.6	)		1,910.2
Investments in and advances to subsidiaries			4,022.0		1,967.5		57.1				(6,046.6	)		—
Goodwill					554.6		1,447.7		993.0					2,995.3
Other non-current assets					255.0		1,050.0		528.1		(5.9	)		1,827.2

Total other assets			4,022.0		2,777.1		2,554.8		1,521.1		(6,052.5	)		4,822.5
Property, plant and equipment, net					600.9		1,105.9		1,553.1					3,259.9

Total assets		$	4,022.0	$	3,665.7	$	4,213.8	$	4,216.2	$	(6,125.1	)	$	9,992.6

Current liabilities:
	Accounts payable and accrued liabilities	$	—	$	183.9	$	317.0	$	496.6	$	(57.2	)	$	940.3
	Short-term loans and long-term debt due within one year						4.8		66.4					71.2

Total current liabilities			—		183.9		321.8		563.0		(57.2	)		1,011.5
Long-term debt			1,700.0		1,661.3		851.3		1,117.1					5,329.7
Other non-current liabilities and minority interests					92.3		746.9		482.4		7.8			1,329.4
Investments by and advances from parent					1,728.2		2,293.8		2,053.7		(6,075.7	)		—
Share owner's equity			2,322.0											2,322.0

Total liabilities and share owners' equity		$	4,022.0	$	3,665.7	$	4,213.8	$	4,216.2	$	(6,125.1	)	$	9,992.6

		September 30, 2001
		Parent		Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Balance Sheet
Current assets:
	Accounts receivable	$	—	$	200.2	$	229.7	$	513.8	$	(72.8	)	$	870.9
	Inventories				166.1		208.0		418.7		0.1			792.9
	Other current assets				21.6		92.0		196.0		(0.1	)		309.5

Total current assets			—		387.9		529.7		1,128.5		(72.8	)		1,973.3
Investments in and advances to subsidiaries			4,024.6		1,863.9		30.2				(5,918.7	)		—
Goodwill					559.7		1,475.3		884.3					2,919.3
Other non-current assets					265.6		1,047.5		510.5		(5.2	)		1,818.4

Total other assets			4,024.6		2,689.2		2,553.0		1,394.8		(5,923.9	)		4,737.7
Property, plant and equipment, net					585.9		1,073.4		1,430.4					3,089.7

Total assets		$	4,024.6	$	3,663.0	$	4,156.1	$	3,953.7	$	(5,996.7	)	$	9,800.7

Current liabilities:
	Accounts payable and accrued liabilities	$	—	$	152.6	$	315.4	$	482.5	$	(44.7	)	$	905.8
	Short-term loans and long-term debt due within one year						4.6		104.0					108.6

Total current liabilities			—		152.6		320.0		586.5		(44.7	)		1,014.4
Long-term debt			1,700.0		1,590.0		852.3		1,061.6					5,203.9
Other non-current liabilities and minority interests					141.4		738.2		371.0		7.2			1,257.8
Investments by and advances from parent					1,779.0		2,245.6		1,934.6		(5,959.2	)		—
Share owner's equity			2,324.6											2,324.6

Total liabilities and share owners' equity		$	4,024.6	$	3,663.0	$	4,156.1	$	3,953.7	$	(5,996.7	)	$	9,800.7

			Three months ended September 30, 2002
			Parent			Issuer		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Results of Operations
Net sales			$	—		$	432.2	$	380.2		$	695.5	$	(35.8	)	$	1,472.1
Interest									0.4			5.5					5.9
Equity earnings from subsidiaries				97.9			46.7		2.8					(147.4	)		—
Other equity earnings							3.5		1.3			2.8					7.6
Other revenue							14.1		10.3			4.0		(13.4	)		15.0

		Total revenue		97.9			496.5		395.0			707.8		(196.6	)		1,500.6
Manufacturing, shipping, and delivery							322.4		294.2			561.9		(40.8	)		1,137.7
Research, engineering, selling, administrative, and other							20.7		43.5			40.8		0.1			105.1
Net intercompany interest				(33.1	)		17.2		14.3			1.6					—
Other interest expense				33.1			30.6		11.5			31.7					106.9

	Total costs and expense			—			390.9		363.5			636.0		(40.7	)		1,349.7
Earnings before items below				97.9			105.6		31.5			71.8		(155.9	)		150.9
Provision for income taxes							23.6		(1.7	)		17.6		8.2			47.7
Minority share owners' interests in earnings of subsidiaries												4.7		0.6			5.3

Net income			$	97.9		$	82.0	$	33.2		$	49.5	$	(164.7	)	$	97.9

		Three months ended September 30, 2001
		Parent			Issuer		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Results of Operations
Net sales		$	—		$	407.6	$	385.9		$	578.7	$	(12.0	)	$	1,360.2
Interest								0.9			5.4					6.3
Equity earnings from subsidiaries			69.4			33.0		(0.6	)				(101.8	)		—
Other equity earnings						2.5		1.8			0.5					4.8
Other revenue						10.5		2.9			4.9		(5.8	)		12.5

	Total revenue		69.4			453.6		390.9			589.5		(119.6	)		1,383.8
Manufacturing, shipping, and delivery						308.6		286.9			458.7		(17.3	)		1,036.9
Research, engineering, selling, administrative, and other						24.6		51.2			42.0		0.4			118.2
Net intercompany interest			(33.0	)		25.6		5.7			1.7					—
Other interest expense			33.0			27.3		15.6			29.2					105.1

	Total costs and expense		—			386.1		359.4			531.6		(16.9	)		1,260.2
Earnings before items below			69.4			67.5		31.5			57.9		(102.7	)		123.6
Provision for income taxes						18.3		10.4			19.2		(0.3	)		47.6
Minority share owners' interests in earnings of subsidiaries								0.1			6.3		0.2			6.6

Net income		$	69.4		$	49.2	$	21.0		$	32.4	$	(102.6	)	$	69.4

		Nine months ended September 30, 2002
		Parent			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Results of Operations
Net sales		$	—		$	1,257.2		$	1,150.8		$	1,950.1		$	(77.8	)	$	4,280.3
Interest									1.5			16.3						17.8
Equity earnings from subsidiaries			265.0			122.9			14.0						(401.9	)		—
Other equity earnings						10.6			3.0			6.2						19.8
Other revenue						36.7			16.4			16.3			(25.4	)		44.0

	Total revenue		265.0			1,427.4			1,185.7			1,988.9			(505.1	)		4,361.9
Manufacturing, shipping, and delivery						960.0			876.3			1,567.0			(92.7	)		3,310.6
Research, engineering, selling, administrative, and other						61.6			141.1			124.4			0.1			327.2
Net intercompany interest			(99.4	)		56.7			37.6			5.1						—
Other interest expense			99.4			91.4			34.8			88.4						314.0

	Total costs and expense		—			1,169.7			1,089.8			1,784.9			(92.6	)		3,951.8
Earnings before items below			265.0			257.7			95.9			204.0			(412.5	)		410.1
Provision for income taxes						52.9			16.5			52.4			7.7			129.5
Minority share owners' interests in earnings of subsidiaries												14.7			0.9			15.6

Earnings before extraordinary charge and cumulative effect of accounting change			265.0			204.8			79.4			136.9			(421.1	)		265.0
Extraordinary charge			(6.7	)		(6.7	)								6.7			(6.7	)
Cumulative effect of accounting change			(460.0	)		(47.0	)		(413.0	)		(57.1	)		517.1			(460.0	)

Net income (loss)		$	(201.7	)	$	151.1		$	(333.6	)	$	79.8		$	102.7		$	(201.7	)

		Nine months ended September 30, 2001
		Parent			Issuer		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Results of Operations
Net sales		$	—		$	1,281.7	$	1,179.1		$	1,666.5	$	(71.2	)	$	4,056.1
Interest						0.4		2.3			18.5					21.2
Equity earnings from subsidiaries			365.9			35.9		7.7					(409.5	)		—
Other equity earnings						7.8		3.8			2.1					13.7
Other revenue						24.6		511.9			30.3		(16.2	)		550.6

	Total revenue		365.9			1,350.4		1,704.8			1,717.4		(496.9	)		4,641.6
Manufacturing, shipping, and delivery						1,005.5		897.2			1,332.0		(86.8	)		3,147.9
Research, engineering, selling, administrative, and other						90.1		235.1			185.6		0.8			511.6
Net intercompany interest			(166.6	)		111.7		49.7			5.2					—
Other interest expense			166.6			47.3		31.0			90.6					335.5

	Total costs and expense		—			1,254.6		1,213.0			1,613.4		(86.0	)		3,995.0
Earnings before items below			365.9			95.8		491.8			104.0		(410.9	)		646.6
Provision for income taxes						29.7		194.9			43.7		(0.4	)		267.9
Minority share owners' interests in earnings of subsidiaries								0.1			16.7		(4.0	)		12.8

Earnings before extraordinary charge			365.9			66.1		296.8			43.6		(406.5	)		365.9
Extraordinary charge			(4.1	)				(4.1	)				4.1			(4.1	)

Net income		$	361.8		$	66.1	$	292.7		$	43.6	$	(402.4	)	$	361.8

	Nine months ended September 30, 2002
	Parent			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Cash Flows
Cash provided by operating activities	$	—		$	82.0		$	139.9		$	331.4		$	—	$	553.3
Investing Activities:
Additions to property, plant, and equipment					(58.0	)		(89.2	)		(196.0	)				(343.2	)
Acquisitions, net of cash acquired											(6.5	)				(6.5	)
Proceeds from sales					3.2			12.8			9.7					25.7

Cash used in investing activities		—			(54.8	)		(76.4	)		(192.8	)		—		(324.0	)
Financing Activities:
Net distribution to OI Inc.		(154.2	)													(154.2	)
Change in intercompany transactions		154.2			(33.0	)		(54.4	)		(66.8	)				—
Change in short term debt											14.0					14.0
Payments of long term debt					(1,056.1	)		(5.1	)		(182.9	)				(1,244.1	)
Borrowings of long term debt					1,079.9			0.1			165.9					1,245.9
Collateral deposits for certain derivatives											(47.0	)				(47.0	)
Payment of finance fees					(18.0	)										(18.0	)

Cash used in financing activities		—			(27.2	)		(59.4	)		(116.8	)		—		(203.4	)
Effect of exchange rate change on cash											(4.4	)				(4.4	)

Net change in cash		—			—			4.1			17.4			—		21.5
Cash at beginning of period					—			22.3			133.3					155.6

Cash at end of period	$	—		$	—		$	26.4		$	150.7		$	—	$	177.1

			Nine months ended September 30, 2001
			Parent			Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows
Cash provided by operating activities			$	—		$	50.3		$	95.5		$	172.0		$	(17.4	)	$	300.4
Investing Activities:
	Additions to property, plant, and equipment						(36.8	)		(91.2	)		(216.1	)					(344.1	)
	Acquisitions, net of cash acquired									(4.8	)		(26.8	)					(31.6	)
	Proceeds from sales						0.4			519.0			75.5						594.9

		Cash provided by (used in) investing activities		—			(36.4	)		423.0			(167.4	)		—			219.2
Financing Activities:
	Net change in payable to OI Inc.			(2,857.0	)														(2,857.0	)
	Net investment by OI Inc.			(48.8	)														(48.8	)
	Change in intercompany transactions			2,905.8			(1,581.4	)		(1,359.5	)		17.7			17.4			—
	Change in short term debt									(0.3	)		(2.3	)					(2.6	)
	Payments of long term debt						(48.0	)		(483.8	)		(769.7	)					(1,301.5	)
	Borrowings of long term debt						1,638.0			1,328.8			759.2						3,726.0
	Payment of finance fees						(22.5	)		(20.1	)		(19.5	)					(62.1	)

		Cash used in financing activities		—			(13.9	)		(534.9	)		(14.6	)		17.4			(546.0	)
Effect of exchange rate change on cash													(29.0	)					(29.0	)

Net change in cash				—			—			(16.4	)		(39.0	)		—			(55.4	)
Cash at beginning of period							—			28.7			201.0						229.7

Cash at end of period			$	—		$	—		$	12.3		$	162.0		$	—		$	174.3

5. Cash Flow Information

Interest paid in cash aggregated $264.7 million and $279.0 million for the nine months ended September 30, 2002 and 2001, respectively. Income taxes paid in cash totaled $25.2 million and $45.1 million for the nine months ended September 30, 2002 and 2001, respectively.

6. Comprehensive Income

The components of comprehensive income (loss) are: (a) net earnings (loss); (b) change in fair value of certain derivative adjustments; and, (c) foreign currency translation adjustments. Total comprehensive income for the three month periods ended September 30, 2002 and 2001 amounted to $44.5 million and $79.6 million, respectively. Total comprehensive income (loss) for the nine month periods ended September 30, 2002 and 2001 amounted to $(214.2) million and $258.4 million, respectively.

7. Contingencies

OI Inc. is one of a number of defendants (typically from 20 to 100 or more) in a substantial number of lawsuits filed in numerous state and federal courts by persons alleging bodily injury (including death) as a result of exposure to dust from asbestos fibers. OI Inc. relies primarily on distributions from its subsidiaries, including the Company, to fund its indemnity payments and legal fees related to these lawsuits.

From 1948 to 1958, one of OI Inc.'s former business units commercially produced and sold approximately $40 million of a high-temperature, calcium-silicate based pipe and block insulation material containing asbestos. OI Inc. exited the pipe and block insulation business in April 1958. The traditional asbestos personal injury lawsuits and claims relating to such production and sale of asbestos material typically allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and punitive damages in various amounts (herein referred to as "asbestos claims").

As of September 30, 2002, OI Inc. has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 23,000 plaintiffs and claimants. The total amount of relief sought by plaintiffs and claimants cannot be determined because the amount is often not required to be stated in an initial claim or lawsuit and because settlements are often reached before claims and lawsuits advance to the point where such amounts would be required to be specified.

Additionally, OI Inc. has claims-handling agreements in place with many plaintiffs' counsel throughout the country. These agreements require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by such agreements. The criteria for such claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by OI Inc.'s former business unit during its manufacturing period ending in 1958. Some plaintiffs' counsel have historically withheld claims under these agreements for later presentation while focusing their attention on active litigation in the tort system. OI Inc. believes that as of September 30, 2002 there are no more than 19,000 of such preexisting but presently unasserted claims against OI Inc. that are not included in the total of pending claims specified in the preceding paragraph. OI Inc. further believes that the bankruptcies of additional co-defendants, as discussed below, have resulted in an acceleration of the presentation and disposition of a number these previously withheld preexisting claims under such agreements, which claims would otherwise have been presented and disposed of over the next several years. This acceleration is reflected in an increased number of pending asbestos claims and, to the extent disposed, contributes to an increase in asbestos-related payments which is expected to continue in the near term.

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

Since receiving its first asbestos claim, OI Inc., as of September 30, 2002, has disposed of the asbestos claims of approximately 282,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $5,500. OI Inc.'s indemnity payments for these claims have varied on a per claim basis, and are expected to continue to vary considerably over time. As discussed above, a part of OI Inc.'s objective is to achieve, where possible, resolution of asbestos claims pursuant to claims-handling agreements. Under such agreements, qualification by meeting certain illness and exposure criteria has tended to reduce the number of claims presented to OI Inc. that would ultimately be dismissed or rejected due to the absence of impairment or product exposure evidence. OI Inc. expects that as a result, although aggregate spending may be lower, there may be an increase in the per claim average indemnity payment involved in such resolution. In this regard, although the average of such

payments has been somewhat higher following the implementation of the claims-handling agreements in the mid-1990s, the annual average amount has not varied materially from year to year in recent years.

OI Inc. believes that its ultimate asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related legal fees) cannot be estimated with certainty. In 1993, OI Inc. established a liability of $975 million to cover indemnity payments and legal fees associated with the resolution of outstanding and expected future asbestos lawsuits and claims. In 1998, an additional liability of $250 million was established. During the third quarter of 2000, OI Inc. established an additional liability of $550 million to cover OI Inc.'s estimated indemnity payments and legal fees arising from outstanding asbestos personal injury lawsuits and claims and asbestos personal injury lawsuits and claims expected to be filed in the ensuing several years. OI Inc.'s ability to reasonably estimate its liability has been significantly affected by the volatility of asbestos-related litigation in the United States, the expanding list of non-traditional defendants that have been sued in this litigation and found liable for substantial damage awards, the continued use of litigation screenings to generate new lawsuits, the large number of claims asserted or filed by parties who claim prior exposure to asbestos materials but have no present physical impairment as a result of such exposure, and the growing number of co-defendants that have filed for bankruptcy. Since the beginning of 2000, A. P. Green Industries, Inc., Armstrong World Industries, Babcock & Wilcox, Federal-Mogul Corporation, Fibreboard Corporation, G-I Holdings (GAF), Harbison-Walker Refractories Group, Kaiser Aluminum Corporation, North American Refractories Co., Owens Corning, Pittsburgh-Corning, Plibrico Company, Porter Hayden Company, USG Corporation, W. R. Grace & Co. and several other smaller companies have sought protection under Chapter 11 of the Bankruptcy Code.

OI Inc. has continued to monitor trends which may affect its ultimate liability and has continued to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against OI Inc. OI Inc. expects that the gross amount of total asbestos-related payments will be moderately lower in 2002 compared to 2001 and will continue to decline thereafter as the preexisting but presently unasserted claims withheld under the claims handling agreements are presented to OI Inc., and as the number of potential future claimants continues to decrease. However, the trend toward lower aggregate annual payments has not occurred as soon as had been anticipated when the additional liability was established in 2000. In addition, the number of claims and lawsuits filed against OI Inc. has exceeded the number anticipated at that time. In early March 2002, OI Inc. initiated a comprehensive review to determine whether further adjustment of asbestos-related liabilities was appropriate. At the conclusion of this review in April, OI Inc. determined that an additional charge of $475 million would be appropriate to adjust the reserve for estimated future asbestos-related costs. The material components of OI Inc.'s accrual, including this additional accrued amount, are the following: (i) OI Inc.'s estimate at that date of the reasonably probable contingent liability for asbestos claims already asserted against OI Inc., (ii) OI Inc.'s estimate at that date of the contingent liability for preexisting but unasserted asbestos claims for prior periods arising under its administrative claims-handling agreements with various plaintiffs' counsel, (iii) OI Inc.'s estimate at that time of the contingent liability for asbestos claims not yet asserted against OI Inc., but which OI Inc. believes it is reasonably probable will be asserted in the future, to the degree that such an estimation as to future claims is possible, and (iv) OI Inc.'s estimate of legal defense costs likely to be incurred in connection with the foregoing types of claims.

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

a): the extent to which settlements are limited to claimants who were exposed to OI Inc.'s asbestos-containing insulation prior to its exit from that business in 1958;
b): the extent to which claims are resolved under OI Inc.'s administrative claims agreements or on terms comparable to those set forth in those agreements;
c): the extent of reduction in the inventory of pending serious disease cases;

d): the extent to which OI Inc. is able to successfully defend itself at trial;
e): the extent of actions by courts to eliminate or reduce the diversion of financial resources for unimpaired claimants and so-called forum shopping;
f): the extent to which additional defendants with substantial resources and assets are required to participate significantly in the resolution of future asbestos cases and claims;
g): the number and timing of co-defendant bankruptcies; and
h): the extent to which the resolution of co-defendant bankruptcies divert resources to unimpaired claimants.

OI Inc. believes that any possible loss or range of loss in addition to the foregoing charge cannot be reasonably estimated. While OI Inc. cannot reasonably estimate the precise timing of payment, OI Inc. believes that its liabilities for the next several years will not exceed the amount accrued based on its expectation of moderate declines in annual spending for asbestos-related costs.

OI Inc. has previously pursued recovery of its losses from third parties, particularly its insurance carriers, and has largely resolved all of its significant coverage claims. OI Inc. expects some further recovery from deferred payment provisions of existing settlement agreements and from pursuing certain additional reimbursement claims. However, OI Inc. does not expect to recover additional material amounts in excess of the recorded receivable of $13.8 million at September 30, 2002.

Other litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that are nonroutine and involve compensatory, punitive or treble damage claims as well as other types of relief.

The ultimate amount of distributions which may be required to be made by the Company and other subsidiaries of OI Inc. to fund OI Inc.'s asbestos-related payments cannot be estimated with certainty. OI Inc.'s reported results of operations for 2002 have been materially affected by the $475 million first quarter charge and asbestos-related payments continue to be substantial. Any possible future additional accrual would likewise materially affect OI Inc.'s results of operations in the period in which it might be recorded. Also, the continued use of significant amounts of cash for asbestos-related costs has affected and will continue to affect the Company's cost of borrowing and its ability to pursue global or domestic acquisitions. However, the Company believes that its operating cash flows and other sources of liquidity will be sufficient to make distributions to OI Inc. for asbestos-related costs and to fund its working capital and capital expenditure requirements on a short-term and long-term basis.

8. Segment Information

The Company operates in the rigid packaging industry. The Company has two reportable product segments within the rigid packaging industry: (1) Glass Containers and (2) Plastics Packaging. The Plastics Packaging segment consists of two business units—consumer products (plastic containers and closures) and prescription products. The Other segment consisted of the Company's labels and carriers products business unit, substantially all of which was divested in early 2001.

The Company evaluates performance and allocates resources based on earnings before interest income, interest expense, provision for income taxes, minority share owners' interests in earnings of subsidiaries, and extraordinary charges, (collectively "EBIT") excluding unusual items. EBIT for product segments includes an allocation of corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided.

Financial information for the three-month periods ended September 30, 2002 and 2001 regarding the Company's product segments is as follows (certain amounts from prior year have been reclassified to conform to current year presentation based on changes in internal management reporting):

		Glass Containers		Plastics Packaging		Total Product Segments		Eliminations and Other Retained Items			Consoli- dated Totals
Net sales:
	September 30, 2002	$	1,019.8	$	452.3	$	1,472.1				$	1,472.1
	September 30, 2001		898.4		461.8		1,360.2					1,360.2

EBIT, excluding goodwill amortization (see Note 9):
	September 30, 2002	$	205.5	$	64.9	$	270.4	$	(18.5	)	$	251.9
	September 30, 2001		176.9		83.7		260.6		(15.2	)		245.4

The reconciliation of EBIT to earnings before income taxes and minority share owners' interests in earnings of subsidiaries for the three-month periods ended September 30, 2002 and 2001 is as follows:

	Sept. 30, 2002			Sept. 30, 2001
EBIT, excluding unusual items and goodwill amortization, for reportable segments	$	270.4		$	260.6
Eliminations and other retained items		(18.5	)		(15.2	)
Amortization of goodwill					(23.0	)
Net interest expense		(101.0	)		(98.8	)

Total	$	150.9		$	123.6

Financial information for the nine-month periods ended September 30, 2002 and 2001 regarding the Company's product segments is as follows (certain amounts from prior year have been reclassified to conform to current year presentation based on changes in internal management reporting):

			Glass Containers			Plastics Packaging			Other		Total Product Segments			Eliminations and Other Retained Items			Consolidated Totals
Net sales:
	September 30, 2002		$	2,916.2		$	1,364.1		$	—	$	4,280.3					$	4,280.3
	September 30, 2001			2,639.9			1,411.7			4.5		4,056.1						4,056.1

EBIT, excluding unusual items and goodwill amortization (see Note 9):
	September 30, 2002		$	549.5		$	217.9		$	—	$	767.4		$	(61.1	)	$	706.3
	September 30, 2001			473.9			242.1			0.2		716.2			(37.2	)		679.0

Unusual items:
	September 30, 2001
		Gain on the sale of a minerals business in Australia	$	10.3							$	10.3					$	10.3
		Gain on the sale of the Company's label business							$	2.8		2.8						2.8
		Gain on the sale of the Company's Harbor Capital business												$	457.3			457.3
		Restructuring and impairment charges		(64.3	)	$	(15.6	)				(79.9	)					(79.9	)
		Special employee benefit programs		(7.6	)		(3.5	)				(11.1	)		(19.8	)		(30.9	)
		Charges related to certain contingencies					(8.5	)				(8.5	)					(8.5	)

The reconciliation of EBIT to earnings before income taxes and minority share owners' interests in earnings of subsidiaries for the nine-month periods ended September 30, 2002 and 2001 is as follows:

	Sept. 30, 2002			Sept. 30, 2001
EBIT, excluding unusual items and goodwill amortization, for reportable segments	$	767.4		$	716.2
Unusual items excluded from reportable segment information					(86.4	)
Eliminations and other retained items		(61.1	)		(37.2	)
Unusual items excluded from eliminations and other retained items					437.5
Amortization of goodwill					(69.2	)
Net interest expense		(296.2	)		(314.3	)

Total	$	410.1		$	646.6

9. New Accounting Standards

FAS No.142. On January 1, 2002, the Company adopted Financial Accounting Standards ("FAS") No. 142, "Goodwill and Other Intangible Assets". As required by FAS No. 142, the Company is no longer amortizing goodwill, but will be reviewing goodwill annually (or more frequently if impairment indicators arise) for impairment.

During the first quarter of 2002, the Company completed an impairment test under FAS No. 142 using the business enterprise value ("BEV") of each reporting unit. BEV's were calculated as of the

measurement date, January 1, 2002, by determining the present value of debt-free, after-tax future cash flows, discounted at the weighted average cost of capital of a hypothetical third party buyer. The BEV of each reporting unit was then compared to the book value of each reporting unit as of the measurement date to assess whether an impairment existed under FAS No. 142. Based on this comparison, the Company determined that an impairment existed in its consumer products reporting unit of the Plastics Packaging segment. The consumer products reporting unit operates in a highly competitive and fragmented industry. Excess capacity in this industry had created downward pricing pressure. The Company lowered its earnings and cash flow projections for this unit for several years following the measurement date which resulted in a lower BEV. Following a review of the valuation of the assets of the consumer products reporting unit, the Company recorded an impairment charge of $460.0 million to reduce the reported value of its goodwill. As required by FAS No. 142, the transitional impairment loss has been recognized as the cumulative effect of a change in method of accounting.

The following earnings for 2001 have been presented on an adjusted basis to eliminate goodwill amortization of $23.0 and $69.2 million for the three and nine months ended September 30, 2001, respectively, as required by FAS No. 142. The earnings data for 2002 has been presented to provide comparative data to the 2001 adjusted earnings data.

	Three months ended September 30,
	2002		2001
	(Actual)		(Adjusted)
Net earnings	$	97.9	$	92.4

	Nine months ended September 30,
	2002			2001
	(Actual)			(Adjusted)
Earnings before extraordinary items and cumulative effect of accounting change	$	265.0		$	435.1
Net earnings (loss)	$	(201.7	)	$	431.0

FAS No. 143. In June 2001, the Financial Accounting Standards Board ("FASB") issued FAS No. 143, "Accounting for Asset Retirement Obligations". FAS 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. FAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 and will be adopted by the Company on January 1, 2003. The Company believes that the adoption of FAS No. 143 will not have an impact on the reported results of operations or financial position of the Company.

FAS No. 144. In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets". FAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. FAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and was adopted by the Company on January 1, 2002. The adoption of FAS No. 144 did not have an impact on the reported results of operations or financial position of the Company.

FAS No. 145. In April 2002, the FASB issued FAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". Among other things, FAS No. 145 requires gains and losses from early extinguishment of debt to be included in income from continuing operations instead of being classified as extraordinary items as previously required by generally accepted accounting principles. FAS No. 145 is effective for fiscal years beginning after May 15, 2002 and will be adopted by the Company on January 1, 2003. Any gain or loss on early

extinguishment of debt that was classified as an extraordinary item in periods prior to adoption must be reclassified into income from continuing operations. The adoption of FAS No. 145 will require the $6.7 million and $4.1 million of extraordinary charges for the nine months ended September 30, 2002 and 2001, respectively, to be reclassified to interest expense and the provision for income taxes.

FAS No. 146. In June 2002, the FASB issued FAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". FAS No. 146 requires that a liability for costs associated with exit or disposal activities be recognized when the liability is incurred. The statement further requires that fair value be used for initial measurement of the liability. FAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The Company believes that the adoption of FAS No. 146 will not have a material impact on the reported results of operations or financial position of the Company.

10. Restructuring Accruals

During the second quarter of 2001, the Company recorded charges of $79.9 million for a restructuring program and impairment at certain of the Company's international and domestic operations. The charge includes the impairment of assets at the Company's affiliate in Puerto Rico and the consolidation of manufacturing capacity and the closing of a facility in Venezuela. The program also includes consolidation of capacity at certain other international and domestic facilities in response to decisions about pricing and market strategy. The total planned reduction in workforce will involve approximately 400 employees. The Company expects its actions related to these restructuring and impairment charges to be completed during the next several quarters. During the fourth quarter of 2001, the Company recorded additional restructuring charges of $7.4 million, as well as reversing $5.2 million of second quarter charges. Also during the fourth quarter of 2001, the company recorded a charge of $7.9 million related to restructuring capacity in the medical devices business.

The Company also has remaining restructuring accruals related to a capacity realignment program initiated in 2000. The program principally involved the closing of three U.S. glass container plants. The Company expects that it will continue to make cash payments over the next several quarters for on-going costs related to the closing of these facilities.

Selected information relating to the above restructuring accruals follows:

Remaining accruals as of June 30, 2002	$	14.9
Write-down of assets to net realizable value		(2.4	)
Net cash paid		(2.7	)

Remaining accruals as of September 30, 2002	$	9.8

11. Derivative Instruments

Under the terms of the April 2001 Secured Credit Agreement, international affiliates are only permitted to borrow in U.S. dollars. In order to manage the international affiliates' exposure to fluctuating foreign exchange rates, the Company's affiliates in Australia and the United Kingdom have entered into currency swaps for the principal portion of their initial borrowings under the Agreement and for their interest payments due under the Agreement.

As of September 30, 2002, the Company's affiliate in Australia has swapped $650.0 million of borrowings into $1,275.0 million Australian dollars. This swap matures on March 31, 2003, with interest resets every 90 days. The interest reset terms of the swap approximate the terms of the U.S. dollar borrowings. This derivative instrument swaps both the interest and principal from U.S. dollars to Australian dollars and also swaps the interest rate from a U.S.-based rate to an Australian-based rate. The Company's affiliate in the United Kingdom has swapped $200.0 million of borrowings into

139.0 million British pounds. This swap also matures on March 31, 2003, with interest resets every 90 days. This derivative instrument swaps both the interest and principal from U.S. dollars to British pounds and also swaps the interest rate from a U.S.-based rate to a British-based rate.

On October 1, 2001, the Company completed the acquisition of the Canadian glass container assets of Consumers Packaging Inc. for a purchase price of approximately $150 million. The Company financed this purchase through borrowings under the Secured Credit Agreement, of which $100 million was transferred to Canada through intercompany loans in U.S. dollars with the remaining $50 million being transferred as equity. The Company's affiliate in Canada has entered into swap transactions to manage the affiliate's exposure to fluctuating foreign exchange rates by swapping the principal and interest portion of the intercompany loan. At September 30, 2002, the Canadian affiliate has swapped $90.0 million of borrowings into $142.0 million Canadian dollars. This swap matures on October 1, 2003. This derivative instrument swaps both the interest and principal from U.S. dollars to Canadian dollars and also swaps the interest rate from a U.S.-based rate to a Canadian-based rate. The affiliate has also entered in forward exchange contracts which effectively swap $10.0 million of borrowings into $16.0 million Canadian dollars. These hedges swap both the interest and principal from U.S. dollars to Canadian dollars and mature monthly.

The Company recognizes the above derivatives on the balance sheet at fair value. The Company accounts for the above swaps as fair value hedges. As such, the changes in the value of the swaps are included in other expense and are expected to substantially offset any exchange rate gains or losses on the related U.S. dollar borrowings. For the nine months ended September 30, 2002, the amount not offset was immaterial.

The Company also uses commodity futures contracts related to forecasted natural gas requirements. The objective of these futures contracts is to limit the fluctuations in prices paid and the potential volatility in earnings or cash flows from future market price movements. The Company has entered into commodity futures contracts for approximately 50% of its North American natural gas usage (approximately 960 million BTUs) through the first quarter of 2003.

The Company accounts for the above futures contracts on the balance sheet at fair value. The effective portion of changes in the fair value of a derivative that is designated as and meets the required criteria for a cash flow hedge is recorded in accumulated other comprehensive income ("OCI") and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. The ineffective portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings.

The above futures contracts are accounted for as cash flow hedges at September 30, 2002. Hedge accounting is only applied when the derivative is deemed to be highly effective at offsetting anticipated cash flows of the hedged transactions. For hedged forecasted transactions, hedge accounting will be discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses will be recorded to earnings immediately.

At September 30, 2002, an unrealized net gain of $1.8 million, after tax of $1.0 million, related to these commodity futures contracts was included in OCI. There was no ineffectiveness recognized during the nine months ended September 30, 2002.

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

Results of Operations—Third Quarter 2002 compared with Third Quarter 2001

The Company recorded net earnings of $97.9 million for the third quarter of 2002 compared to net earnings of $69.4 million for the third quarter of 2001. The Company's third quarter 2002 net earnings of $97.9 million increased $5.5 million, or 6.0% from 2001 third quarter earnings, excluding goodwill amortization, of $92.4 million. Consolidated EBIT for the third quarter of 2002 was $251.9 million, an increase of $6.5 million, or 2.6%, compared to third quarter 2001 EBIT, excluding goodwill amortization, of $245.4 million. The increase was principally due to higher EBIT for the Glass Containers segment, partially offset by lower EBIT for the Plastics Packaging segment and from lower EBIT from other retained items, as further discussed below. Interest expense, net of interest income, increased $2.2 million from the 2001 period. The effects of lower short-term variable interest rates were more than offset by the January 2002 issuance of $1.0 billion principal amount of 8⁷/8% Senior Secured Notes due 2009. Proceeds from the Senior Secured Notes were used to reduce a variable-rate term loan under the Secured Credit Agreement.

Capsule segment results (in millions of dollars) for the third quarter of 2002 and 2001 were as follows:

		Net sales (Unaffiliated customers)				EBIT (a)
		2002		2001		2002			2001 (b)
Glass Containers		$	1,019.8	$	898.4	$	205.5		$	176.9
Plastics Packaging			452.3		461.8		64.9			83.7

Segment totals			1,472.1		1,360.2		270.4			260.6
	Eliminations and other retained items						(18.5	)		(15.2	)

Consolidated EBIT before goodwill amortization							251.9			245.4
Amortization of goodwill										(23.0	)

Consolidated totals		$	1,472.1	$	1,360.2	$	251.9		$	222.4

(a): EBIT consists of consolidated earnings before interest income, interest expense, provision for income taxes, and minority share owners' interests in earnings of subsidiaries.
(b): In accordance with FAS No. 142, goodwill is no longer amortized beginning in 2002. In order to facilitate comparisons, goodwill amortization for 2001 has been reclassified out of the Glass Containers and Plastics Packaging segments and reported separately.

Consolidated net sales for the third quarter of 2002 increased $111.9 million, or 8.2%, over the prior year. Net sales of the Glass Containers segment increased $121.4 million, or 13.5%, over 2001. In North America, the additional sales from the October 2001 acquisition of the Canadian glass container operations and increased shipments of containers for liquor and wine were partially offset by decreased shipments of containers for food, teas, and juices. The combined U.S. dollar sales of the segment's other foreign affiliates increased from the prior year. Increased shipments throughout most of Europe and the Asia Pacific region and favorable currency translation rates throughout most of Europe and the Asia Pacific region were partially offset by unfavorable currency translation rates throughout most of South America and the absence of the glass container operations in India. The effect of changing foreign currency exchange rates increased U.S. dollar sales of the segment's foreign affiliates in Europe and the Asia Pacific region by approximately $31 million. The effect of changing foreign currency exchange rates decreased U.S. dollar sales of the segment's foreign affiliates in South America by approximately $18 million. Net sales of the Plastics Packaging segment decreased $9.5 million, or 2.1%,

from 2001. Increased shipments in the U.S. of plastic containers for food, bottled water, juices and health and personal care and closures for juice and other beverages were more than offset by lower unit pricing in some product lines and the absence of sales from several small businesses that were sold over the past twelve months.

Consolidated EBIT for the third quarter of 2002 increased $6.5 million, or 2.6%, to $251.9 million from the 2001 adjusted EBIT of $245.4 million, adjusted to exclude goodwill amortization. EBIT of the Glass Containers segment increased $28.6 million to $205.5 million, compared to adjusted EBIT of $176.9 million in 2001. The combined U.S. dollar EBIT of the segment's foreign affiliates increased from prior year. Increased shipments throughout most of Europe and the Asia Pacific region and moderately improved pricing in Europe were partially offset by lower shipments in Brazil and Colombia, unfavorable currency translation rates in South America and a special tax assessment on the equity value of the segment's Colombian affiliate. In North America, Glass Container EBIT increased over 2001 principally as a result of the addition of the Canadian glass container operations in the fourth quarter of 2001, moderately improved pricing, and the recognition of the remaining deferred income associated with the early termination of an energy supply agreement, partially offset by the conversion of certain food and beverage containers to plastic packaging. EBIT of the Plastics Packaging segment decreased $18.8 million, or 22.5%, to $64.9 million compared to adjusted EBIT of $83.7 million in 2001. Increased shipments of plastic containers for food, bottled water, juice and health and personal care and closures for juice and other beverages were more than offset by lower unit pricing in some product lines, a $4.1 million unfavorable accounting adjustment at one of the segment's foreign affiliates largely due to the write down of inventories to net realizable value, and discontinued production for a major customer in the advanced technology systems business as the customer moves production from the U.S. to the Far East. The Company is commissioning a new factory in the Far East to continue to supply this customer and expects this new factory to be fully operational early in 2003. The Plastics Packaging segment operates in a number of highly competitive markets and has incurred significant pricing pressure in some product lines which the Company expects to partially offset by increased unit volume, improved productivity, and reduced costs.

First Nine Months 2002 compared with First Nine Months 2001

The Company recorded earnings before extraordinary items and cumulative effect of accounting change of $265.0 million for the first nine months of 2002 compared to earnings before extraordinary items of $365.9 million for the first nine months of 2001. The net loss for the first nine months of 2002 of $201.7 million reflects $6.7 million of an extraordinary charge from the early extinguishment of debt and $460.0 million from the cumulative effect the change in accounting for goodwill. Net earnings of $361.8 million for 2001 reflect $4.1 million of an extraordinary charge from the early extinguishment of debt. Excluding the effects of the 2002 extraordinary item and cumulative effect of accounting change, the Company's first nine months 2002 net earnings of $265.0 million increased $28.9 million, or 12.2% from the first nine months 2001 earnings, excluding extraordinary and unusual items and goodwill amortization, of $236.1 million. Consolidated EBIT for the first nine months of 2002 was $706.3 million, an increase of $27.3 million, or 4.0%, compared to the first nine months 2001 EBIT, excluding unusual items and goodwill amortization, of $679.0 million. The increase is principally due to higher EBIT for the Glass Containers segment, partially offset by lower EBIT for the Plastics Packaging segment and lower EBIT from eliminations and other retained items, as further discussed below. Interest expense, net of interest income and the 2001 unusual interest expense of $4.0 million, decreased $14.1 million from the 2001 period. The effects of lower short-term variable interest rates were partially offset by the January 2002 issuance of $1.0 billion principal amount of 8⁷/8% Senior Secured Notes due 2009. Proceeds from the Senior Secured Notes were used to reduce a variable-rate term loan under the Secured Credit Agreement. The Company's estimated effective tax rate for the first nine months of 2002 was 31.6%. This compares with a rate of 31.3% for the first nine months of 2001, and 30.3% for the full year of 2001, adjusted to exclude the effects of goodwill amortization and

unusual items. The increase in the 2002 estimated rate compared to the full year of 2001 is primarily the result of decreased international and domestic tax benefits and credits and a shift in estimated international earnings toward countries with higher effective tax rates.

Capsule segment results (in millions of dollars) for the first nine months of 2002 and 2001 were as follows:

		Net sales (Unaffiliated customers)				EBIT (a)
		2002		2001		2002			2001 (b)(c)
Glass Containers		$	2,916.2	$	2,639.9	$	549.5		$	412.3
Plastics Packaging			1,364.1		1,411.7		217.9			214.5
Other					4.5					3.0

Segment totals			4,280.3		4,056.1		767.4			629.8
	Eliminations and other retained items						(61.1	)		400.3

Consolidated EBIT before goodwill amortization							706.3			1,030.1
Amortization of goodwill										(69.2	)

Consolidated totals		$	4,280.3	$	4,056.1	$	706.3		$	960.9

(a): EBIT consists of consolidated earnings before interest income, interest expense, provision for income taxes, minority share owners' interests in earnings of subsidiaries, extraordinary items and cumulative effect of accounting change.
(b): Amount for the nine months ended September 30, 2001 included a net gain of $351.1 million related to the following: (1) a gain of $457.3 million related to the sale of the Company's Harbor Capital business; (2) charges of $79.9 million related to restructuring and impairment charges at certain of the Company's international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (3) charges of $30.9 million related to special employee benefit programs; (4) a charge of $8.5 million for certain contingencies; (5) a gain of $10.3 million from the sale of a minerals business in Australia; and (6) a gain of $2.8 million from the sale of the Company's labels business.

Such charges (gains) are included as follows in consolidated EBIT for the nine months ended September 30, 2001:

Glass Containers		$	61.6
Plastics Packaging			27.6
Other			(2.8	)

	Total Product Segments		86.4
Eliminations and other retained items			(437.5	)

Consolidated Totals		$	(351.1	)

(c): In accordance with FAS No. 142, goodwill is no longer amortized beginning in 2002. In order to facilitate comparisons, goodwill amortization for 2001 has been reclassified out of the Glass Containers and Plastics Packaging segments and reported separately.

Consolidated net sales for the first nine months of 2002 increased $224.2 million, or 5.5%, over the prior year. Net sales of the Glass Containers segment increased $276.3 million, or 10.5%, over 2001. In North America, the additional sales from the October 2001 acquisition of the Canadian glass container operations and increased shipments of containers for liquor and wine and were partially offset by

decreased shipments of containers for food, teas and juices. The combined U.S. dollar sales of the segment's other foreign affiliates increased from the prior year. Increased shipments throughout most of Europe and the Asia Pacific region and favorable currency translation rates throughout most of Europe and the Asia Pacific region were partially offset by unfavorable currency translation rates throughout most of South America and the absence of the glass container operations in India. The effect of changing foreign currency exchange rates increased U.S. dollar sales of the segment's foreign affiliates in Europe and the Asia Pacific region by approximately $49 million. The effect of changing foreign currency exchange rates decreased U.S. dollar sales of the segment's foreign affiliates in South America by approximately $43 million. Net sales of the Plastics Packaging segment decreased $47.6 million, or 3.4%, from 2001. Increased shipments of plastic containers for food, bottled water, juice and health and personal care and closures for juice and other beverages, were more than offset by lower unit pricing in some product lines, and the effects of lower resin costs on pass-through arrangements with customers. The effects of lower resin cost pass-throughs decreased sales approximately $20 million compared to the first nine months of 2001.

Excluding the effects of the 2001 unusual items, consolidated EBIT for the first nine months of 2002 increased $27.3 million, or 4.0%, to $706.3 million from the 2001 adjusted EBIT of $679.0 million, adjusted to exclude goodwill amortization. EBIT of the Glass Containers segment increased $75.6 million to $549.5 million, compared to adjusted EBIT of $473.9 million in 2001. The combined U.S. dollar EBIT of the segment's foreign affiliates increased from prior year. Increased shipments throughout most of Europe and the Asia Pacific region and moderately improved pricing in some regions were partially offset by lower shipments in Brazil and Colombia and unfavorable currency translation rates throughout most of South America. In North America, Glass Container EBIT increased over 2001 principally as a result of the addition of the Canadian glass container operations in the fourth quarter of 2001, moderately improved pricing, increased shipments of containers for liquor and wine and the recognition of the remaining deferred income associated with the early termination of an energy supply agreement, partially offset by the conversion of certain food and beverage containers to plastic packaging. EBIT of the Plastics Packaging segment decreased $24.2 million, or 10.0%, to $217.9 million compared to adjusted EBIT of $242.1 million in 2001. Increased shipments of plastic containers for food, bottled water, juice and health and personal care and closures for juice and other beverages as well as improved manufacturing performance were more than offset by lower unit pricing in some product lines, a $4.1 million unfavorable accounting adjustment at one of the segment's foreign affiliates largely due to the write down of inventories to net realizable value, and discontinued production for a major customer in the advanced technology systems business as the customer moves production from the U.S. to the Far East as previously discussed. EBIT from eliminations and other retained items, excluding 2001 unusual items, decreased $23.9 million from 2001 reflecting lower net financial services income due to the sale of the Company's Harbor Capital Advisors business in the second quarter of 2001 as well as higher information systems spending and certain employee benefit costs.

Results for the first nine months of 2001 included the following unusual items: (1) a gain of $457.3 million ($284.4 million after tax) related to the sale of the Company's Harbor Capital Advisors business; (2) pretax gains totaling $13.1 million ($12.0 million after tax) related to the sale of the Company's label business and the sale of a minerals business in Australia; (3) charges of $79.9 million ($63.9 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain of the Company's international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (4) charges of $30.9 million ($19.4 million after tax) related to special employee benefit programs; (5) a charge of $8.5 million ($5.3 million after tax) for certain contingencies; (6) a $6.0 million charge to adjust tax liabilities in Italy as a result of recent legislation; and (7) a net interest charge of $4.0 million ($2.8 million after tax) related to interest on the resolution of the transfer of pension assets and liabilities for a previous acquisition and divestiture.

Restructuring and Impairment Charges

The first nine months of 2001 operating results included pretax charges of $79.9 million, principally related to a restructuring program and impairment at certain of the international and domestic operations. The charge included the impairment of assets at the Company's affiliate in Puerto Rico and the consolidation of manufacturing capacity and the closing of a facility in Venezuela. The program also included consolidation of capacity at certain other international and domestic facilities in response to decisions about pricing and market strategy. The Company expects its actions related to these restructuring and impairment charges to be completed during the next several quarters. The cost savings resulting from the 2001 restructuring are not expected to be material on an annual basis.

Capital Resources and Liquidity

The Company's total debt at September 30, 2002 was $5.39 billion, compared to $5.40 billion at December 31, 2001 and $5.31 billion at September 30, 2001.

During April 2001, the Company and certain of the Company's subsidiaries entered into the Secured Credit Agreement (the "Agreement") with a group of banks, which expires on March 31, 2004. The Agreement provides for a $3.0 billion revolving credit facility and a $65 million term loan (initially $1.5 billion). The borrowers under the term loan used the proceeds therefrom to repay intercompany amounts owed to OI Inc., which in turn used the proceeds from the repayment of such intercompany amounts to repay amounts outstanding under, and terminate, its existing credit agreement.

At September 30, 2002, the Company had available credit totaling $3.065 billion under the Agreement, of which $479.1 million had not been utilized. At September 30, 2001, the Company had $621.4 million of credit which had not been utilized under the Agreement. The decrease is due in large part to the $150 million purchase of the Canadian glass container assets of Consumers Packaging Inc. in October 2001. Cash provided by operating activities was $553.3 million for the first nine months 2002 compared to $300.4 million for the first nine months of 2001.

During January 2002, a subsidiary of the Company completed a $1.0 billion private placement of senior secured notes. The notes bear interest at 8⁷/8% and are due February 15, 2009. The notes are guaranteed by substantially all of the Company's domestic subsidiaries. The assets of substantially all of the Company's domestic subsidiaries are pledged as security for the notes. The issuing subsidiary used the net cash proceeds from the notes to reduce the outstanding term loan under the Agreement by $980 million. As such, the Company wrote off unamortized deferred financing fees in January 2002 related to the term loan and recorded an extraordinary charge totaling $10.9 million less applicable income taxes of $4.2 million. The indenture for the notes restricts, among other things, the ability of the Company's and its subsidiaries to borrow money, pay dividends on, or redeem or repurchase stock, make investments, create liens, enter into certain transactions with affiliates, and sell certain assets or merge with or into other companies.

OI Inc. has substantial obligations related to semiannual interest payments on $1.7 billion of outstanding public debt securities. In addition, OI Inc. pays aggregate annual dividends of $21.5 million on 9,050,000 share of its $2.375 convertible preferred stock. OI Inc. also makes, and expects in the future to make, substantial indemnity payments and payments for legal fees and expenses in connection with asbestos-related lawsuits and claims. OI Inc.'s asbestos-related payments for the nine months ended September 30, 2002 were $167.4 million down from $186.8 million for the first nine months of 2002. OI Inc. expects that the gross amount of total asbestos-related payments will be moderately lower in 2002 compared to 2001. OI Inc. relies primarily on distributions from the Company to meet these obligations. Based on OI Inc.'s expectations regarding future payments for lawsuits and claims, and also based on the Company's expected operating cash flow, the Company believes that the payments to OI Inc. for any deferred amounts of previously settled or otherwise determined lawsuits and claims, and the resolution of presently pending and anticipated future lawsuits and claims associated with asbestos, will not have a material adverse effect upon the Company's liquidity on a short-term or long-term basis.

The Company anticipates that cash flow from its operations and from utilization of credit available through March 2004 under the Agreement will be sufficient to fund its operating and seasonal working capital needs, debt service and other obligations including payments to OI Inc. described above.

Critical Accounting Estimates

The Company's analysis and discussion of its financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The Company evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to pension benefit plans and goodwill. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ from estimates. The impact and any associated risks related to estimates and assumptions are discussed within Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as in the Notes to Condensed Consolidated Financial Statements, if applicable, where estimates and assumptions affect the Company's reported and expected financial results.

The Company believes that accounting for pension benefit plans and goodwill involves the more significant judgments and estimates used in the preparation of its consolidated financial statements:

Pension Benefit Plans

Because of their historically well-funded status, the Company's principal pension benefit plans contributed pretax credits to earnings of approximately $62.8 million for the first nine months of 2002 and approximately $72.8 million for the first nine months of 2001. The Company expects that the amount of such credits for the full year 2002 will be approximately 15% lower than the full year of 2001. The 2002 decrease in pretax pension credits is attributed to lower expected return on assets and the addition of certain pension plans from the acquisition of the Canadian glass container assets of Consumers Packaging Inc.

Future effects on operating results depend on economic conditions and investment performance. For example, a one-half percentage point change in the actuarial assumption regarding the expected return on assets would result in a change of approximately $15 million in pretax pension credits for the

full year. In addition, changes in external factors, including the fair values of plan assets and the discount rate used to calculate plan liabilities, could result in balance sheet recognition of a minimum pension liability. If the plan's accumulated benefit obligations ("ABO") exceed the fair value of their assets at December 31, 2002, the Company will be required to write off most of its prepaid pension asset and record a liability equal to the excess of the ABO over the fair value of the assets. The noncash charge would result in a decrease in the Accumulated Other Comprehensive Income component of share owners' equity that would significantly reduce net worth.

Goodwill

Beginning in 2002, the Company will evaluate goodwill annually (or more frequently if impairment indicators arise) for impairment. Goodwill impairment testing is performed using the business enterprise value ("BEV") of each reporting unit which is calculated as of a measurement date, by determining the present value of debt-free, after tax future cash flows, discounted at the weighted average cost of capital of a hypothetical third party buyer. This BEV is then compared to the book value of each reporting unit as of the measurement date to assess whether an impairment exists. If certain assumptions change, thereby reducing the BEV, such as EBIT projections, cash flow projections, or risk adjusted cost of capital, goodwill may have to be written down. If the write down is significant, the charge would have a material adverse effect on reported results of operations and net worth.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

All borrowings under the April 2001 Secured Credit Agreement, including borrowings by foreign subsidiaries, are denominated in U.S. dollars. As described in Note 11 to the financial statements, certain amounts borrowed under the agreement by foreign subsidiaries have been swapped into the subsidiaries' functional currencies.

During January 2002, a subsidiary of the Company completed a $1.0 billion private placement of senior secured notes. The notes bear interest at 8⁷/8% and are due February 15, 2009. The issuing subsidiary used the net cash proceeds from the notes to reduce the outstanding term loan under the Secured Credit Agreement by $980 million. During November 2002, a subsidiary of the Company completed a $450 million private placement of senior secured notes. The notes bear interest at 8³/4% and are due November 15, 2012. The issuing subsidiary used the net cash proceeds from the notes to repay the remaining $65 million of the outstanding term loan under the Agreement and the remaining $376 million was used to reduce the outstanding revolver under the Agreement. As a result, the Company's exposure to variable interest rates has been reduced and the maturity of a significant portion of its debt has been extended.

Forward Looking Statements

This document may contain "forward looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Forward looking statements reflect the Company's current expectations and projections about future events at the time, and thus involve uncertainty and risk. It is possible the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to the following: (1) foreign currency fluctuations relative to the U.S. dollar, (2) change in capital availability or cost, including interest rate fluctuations, (3) the general political, economic and competitive conditions in markets and countries where the Company has operations, including competitive pricing pressures, inflation or deflation, and changes in tax rates, (4) consumer preferences for alternative forms of packaging, (5) fluctuations in raw material and labor costs, (6) availability of raw materials, (7) costs and availability of energy, (8) transportation costs, (9) consolidation among competitors and customers, (10) the ability of the Company to integrate operations of acquired businesses, (11) unanticipated expenditures with respect to environmental, safety and health laws, (12) the performance by customers

of their obligations under purchase agreements, and (13) the timing and occurrence of events which are beyond the control of the Company, including events related to asbestos-related claims. It is not possible to foresee or identify all such factors. Any forward looking statements in this document are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. Forward looking statements are not a guarantee of future performance and actual results or developments may differ materially from expectations. While the Company continually reviews trends and uncertainties affecting the Company's results of operations and financial condition, the Company does not intend to update any particular forward looking statements contained in this document.

Item 4. Controls and Procedures

(a): Evaluation of disclosure controls and procedures:

Based on their evaluations as of a date within 90 days of the filing date of this report, the principal executive officer and principal financial officer of the Company have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that the Company files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

(b): Changes in internal controls:

There were no significant changes in the Company's internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

Owens-Illinois Group, Inc. In August 1998, the Company received a Notice of Violation from the United States Environmental Protection Agency regarding alleged opacity violations at its Oakland, California glass container plant from the period of 1994 through 1997. Certain furnaces at the plant are equipped with monitors that continuously monitor opacity. During this period, these furnaces had occasional upset and breakdown conditions that caused opacity excursions that were reported to the local air quality management district. This action by the U.S. EPA involves the same incidents that were resolved with the local air quality management district. The Company has reached a settlement in principle with the U.S. EPA under which it will pay certain monetary penalties.

In September 2001, the Virginia Department of Environmental Quality issued a Notice of Violation to the Company's plant located in Toano, Virginia, alleging violations of certain regulations in connection with certain changes that were made to the furnaces during repairs. The Company has reached a settlement in principle with the Virginia Department of Environmental Quality under which it will voluntarily install abatement equipment, agree to certain production capacity limitations that are not expected to materially impact operations, and will also pay certain monetary penalties.

The monetary penalties for the Oakland matter and the Toano matter are not expected to exceed $550,000 in the aggregate.

Owens-Illinois, Inc. For further information on legal proceedings, see Note 7 to the Condensed Consolidated Financial Statements, "Contingencies," that is included in Part I of this Report and is incorporated herein by reference.

Item 6. Exhibits and Reports on Form 8-K.


(a)	Exhibits:
	Exhibit 4.1	Second Supplemental Indenture dated as of August 5, 2002 to the January 24, 2002 indenture between Owens-Brockway Glass Container Inc. and the trustee of the Senior Secured Notes due 2009
	Exhibit 4.2	Third Amendment to Secured Credit Agreement dated as of September 27, 2002
	Exhibit 12	Computation of Ratio of Earnings to Fixed Charges
(b)	Reports on Form 8-K:
	On August 9, 2002, the Registrant filed a Form 8-K which included its Chief Executive Officer and Chief Financial Officer certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

		OWENS-ILLINOIS GROUP, INC.
Date November 14, 2002		By:	/s/ EDWARD C. WHITE Edward C. White Controller and Chief Accounting Officer (Principal Accounting Officer)

CERTIFICATIONS

I, Joseph H. Lemieux, certify that:

1.

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

2.

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

3.

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

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date November 14, 2002

/s/ JOSEPH H. LEMIEUX

Joseph H. Lemieux
Chairman and Chief Executive Officer

CERTIFICATIONS

I, R. Scott Trumbull, certify that:

1.

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

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date November 14, 2002

/s/ R. SCOTT TRUMBULL

R. Scott Trumbull
Executive Vice President and Chief Financial Officer

INDEX TO EXHIBITS

Exhibits
4.1		Second Supplemental Indenture dated as of August 5, 2002 to the January 24, 2002 indenture between Owens-Brockway Glass Container Inc. and the trustee of the Senior Secured Notes due 2009
4.2		Third Amendment to Secured Credit Agreement dated as of September 27, 2002
12		Computation of Ratio of Earnings to Fixed Charges

QuickLinks

Part I—FINANCIAL INFORMATION
OWENS-ILLINOIS GROUP, INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS Three months ended September 30, 2002 and 2001 (Dollars in millions)
OWENS-ILLINOIS GROUP, INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS Nine months ended September 30, 2002 and 2001 (Dollars in millions)
OWENS-ILLINOIS GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2002, December 31, 2001, and September 30, 2001 (Dollars in millions)
OWENS-ILLINOIS GROUP, INC. CONDENSED CONSOLIDATED CASH FLOWS Nine months ended September 30, 2002 and 2001 (Dollars in millions)
OWENS-ILLINOIS GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Tabular data in millions of dollars
PART II—OTHER INFORMATION
SIGNATURES
CERTIFICATIONS
CERTIFICATIONS
INDEX TO EXHIBITS