David Johnson – Vice President, Investor Relations Al Stroucken – Chairman, President and Chief Executive Officer Steve Bramlage – Senior Vice President & Chief Financial Officer.

Scott Gaffner – Barclays Capital Chris Manuel – Wells Fargo Adam Josephson – Keybanc Debbie Jones – Deutsche Bank Philip Ng – Jefferies & Co Tyler Langton – JP Morgan.

Good morning. My name is Stephanie, and I will be your conference operator today. At this time I would like to welcome everyone to the Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator instructions) Thank you.

Dave Johnson, Vice President of Investor Relations, you may begin your conference..

Thank you, Stephanie. Good morning, and welcome everyone to O-I's Earnings Conference Call. Our discussion today will be led by Al Stroucken, our Chairman and CEO; and Steve Bramlage, our Chief Financial Officer.

Today we will discuss key business developments, review our financial results for the third quarter of 2014 and discuss trends affecting our business in 2014. Following our prepared remarks we'll host a question-and-answer session. Presentation materials for this earnings call are available on the company's website at o-i.com.

Please review the Safe Harbor comments and disclosure of our use of non-GAAP financial measures included in those materials. Unless otherwise noted, the financial results we are presenting today relate to adjusted earnings, which exclude certain items that management considers not representative of ongoing operation.

A reconciliation of GAAP to non-GAAP earnings can be found in our earnings press release and in the appendix to this presentation. Now I'd like to turn the call over to Al..

Thank you, Dave and good morning. Our third-quarter earnings were $0.75 per share in line with guidance we shared in mid-September. Globally shipments were down approximately 3%. While South America again delivered strong performance with double-digit volume growth, Europe and North America experienced moderate declines.

Asia-Pacific volumes were down significantly due to ongoing market weakness in Australia and the continued impact of our plant closures in China. In the latter part of the quarter, we saw a slowing in consumption across multiple categories in all of our regions, and we will address this shift in more detail later on.

South America delivered sound financial results due to a stronger operational performance overall and growth in the beer category across all markets. Despite a modest downtick in volume, Europe showed bottom line gains primarily the result of savings generated by the asset optimization program.

Profitability in North America was below previous years levels driven by volume declines and the lower productivity, and Asia-Pacific’s profit contraction reflected continued weak market demand in Australia.

Turning to Slide 3, earlier this month we announced our intent to form a 50:50 joint-venture with Constellation Brands in Mexico to support their growing beer business. The deal which we expect will close in the fourth quarter calls for the new joint-venture to purchase the glass plant located next to Constellation’s brewery in Nava Mexico.

This brewery exports a portfolio of popular Mexican beer brands to the United States, including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. We bring our expertise in glass manufacturing and plant operation to the joint venture, while Constellation brings the products and the market.

The Modelo and Corono brands have experienced growth in the mid-single digits and the United States significantly outperforming the US beer market. The brands’ sales momentum complemented by strong marketing and brand building activities is expected to continue outpacing US beer brands for the next several years.

To keep up with volume requirements, Constellation is expanding the Lava brewery and will have increasing glass supply needs as a result. The new glass plant currently has one furnace and after adding three furnaces over the next four years, the joint-venture will supply about half of the Nava brewery’s needs.

We will fill another portion of their needs for the North American plants under a separate long-term supply agreement between O-I and Constellation. Let us turn now to Slide 4 for a closer look at our business in Europe and North America. Volumes in Europe shifted significantly within the quarter.

After a strong July, shipments declined in August and only partially recovered in September. In mid-September we spoke about softer volumes in Europe. Since then it has become clear that the market weakness there extends beyond the glass industry. There is a sense of unease in Europe and consumers are reacting accordingly.

Beer demand was not particularly robust in the quarter. Several customers, for instance, extended their typical shutdowns in August in response to the decline in demand. The spirits market in the UK was also down mid-single digits largely due to weaker exports. In all, sales volumes were down 1% in the quarter, while production volume was flat.

Prices were also down 1% in the quarter similar to the decline experienced in the second quarter. On a positive note, our European asset optimization program continues to yield benefits adding approximately $5 million in cost savings over prior year third quarter.

All in all, improving European performance boosted profit margins by 150 basis points over prior year. Turning to North America, we were disappointed with the performance of the North American business where results were impacted by several external and internal factors.

Sales volumes were down approximately 3% largely driven by a mid-single digit decline in the mega beer brands.

While major domestic beer volume has been declining for several years we were not initially as strongly impacted by the slowdown because of the strength of our Craft beer sales and the introduction of our premium blue and black glass products. Volumes in other categories declined modestly except for food, which increased over the prior year quarter.

North America’s productivity suffered considerably in the quarter primarily due to operational challenges that included a furnace leak at one plant and product loss at another both of these specific issues have been addressed and steps have been taken to provide greater operational stability across the network.

Consistent with our expectations, operations were not impacted by supply chain issues from the first half of the year. The larger than expected decline in beer however has translated into North America, presently holding more inventory than needed for the coming quarters. And Steve will have to say more about this in the outlook for North America.

Let us move now to Slide 5. In South America, we are on track to achieve our 20% margin target. Volumes were up approximately 15% over the prior year and were strong across all categories, particularly beer. Volumes in Brazil were up mid-single digits with gains reported across most categories.

Sales in the Andean countries increased double digits continuing the positive trend that began last quarter. Higher volumes and strong connectivity led to a 45% increase in profitability over prior year’s third quarter. The year-on-year comparison also benefited from the non-recurrence of events that had impacted the third quarter of last year.

Andean volumes have recovered from the uncertainty caused in the region by the 2013 Colombian strike and now exceed comparable 2012 levels. By contrast, our performance in Asia-Pacific was below expectations due to lower sales and production volume.

Sales volume in China is about half that of the prior year in line with the retrenchment we began in earnest at the end of 2013. Australian volumes were down double digits driven by continued weakness in the domestic beer and wine export markets. We have a clear path forward to restore profit margins in the region.

We structurally reduced our production capacity serving the Australian wine markets to better align supply with demand and we are working to regain beer volume and have successfully negotiated a large contract which will begin filling in mid-2015. We are also working on a number of other opportunities to increase the top line.

Taken together, we expect to improve our profitability in the region next year. Now I will turn the call over to Steve to review our financial performance..

Thank you Al. Turning to Slide 6, I want to start with the table on the left, where third quarter 2014 segment sales were $1.7 billion, down 2% over the prior year. As Al previously mentioned, price in the quarter was up in every region except for Europe. Sales in tons decreased 3%.

Currency negatively impacted sales by 1% in the quarter as the US dollar strengthened steadily over the course of the quarter. Moving to the table on the right-hand side of the chart, segment operating profit in the quarter was $248 million, compared with $259 million in the prior year.

Within the operating cost line, cost inflation was a notable headwind of $24 million, which resulted in a modest price to cost gap.

Separately, the impact of lower production volumes along with the aforementioned operational challenges was more than offset however by gains from structural cost reductions, especially from our European asset optimization program. Let me move to Slide 7 to address the various pieces of our earnings bridge.

First, as just discussed, segment operating profit was lower than the prior year. Second, corporate expense was favorable to prior year primarily driven by reduced pension expense.

Thirdly, net interest expense was also moderately favorable to prior year, reflecting our ongoing deleveraging efforts and finally, our effective tax rate was slightly higher than prior year. As we have previously discussed, it was at the high end of our range during the third quarter due to timing in the changing geographic mix of our earnings.

In all, third-quarter earnings per share were 5% lower than prior year. Let me shift momentarily to GAAP earnings per share. The delta between our reported earnings and the adjusted earnings is due to an $84 million charge for restructuring.

Included in this amount are activities related to the current quarter’s furnace closure in Australia and previously discussed and previously executed asset optimization initiatives in Europe and retrenchment activities in China where the timing of the expense recognition is driven by the accounting rules.

Now let's turn to Slide 8 for our fourth quarter outlook. Beginning in Europe, we are expecting flat sales volumes, which reflects the demand uncertainty we began seeing during August. The asset optimization program is enabling improved productivity at the plants in which the investments have already been made.

We continue to expect the program will achieve a savings run rate of $60 million by the end of this year and it should generate an incremental $5 million of year-on-year benefit during the fourth quarter. This is consistent with our expectations for the program at this point in time during its life.

On balance then, we expect higher year-on-year profit for Europe in the fourth quarter. In North America, we are expecting continued mid-single digit declines in sales volume. Due to high inventory we are curtailing a significant amount of production through year end to help meet cash flow expectations for the region.

In all, we expect the year-on-year delta in fourth-quarter profitability to mirror that of the third quarter. Andres Lopez, our new leader in North America, is squarely focused on improving productivity and has begun to map out plans to restore the performance level to that of the previous several years.

We expect South America to continue its positive earnings momentum in the fourth quarter despite currency headwinds and demand uncertainty in Brazil due to the recent presidential election. We foresee that continued volume growth in the Andean countries will likely be offset by a slowdown in Brazil.

The sales mix though even with flat overall volumes should marginally add to the region’s bottom line. Continued strong productivity from our operations here will contribute to positive results. Finally, let us turn to Asia-Pacific where we anticipate lower year-on-year operating profit in the fourth quarter.

Volume is expected to be down double digits. China will continue to be a drag on the top line following the plant shutdowns earlier this year. Depressed Australian wine and beer markets will continue to weigh on results.

Spending reductions and fixed cost savings stemming from our wine capacity reduction in Australia will likely be dampened by currency headwinds. We expect that corporate costs in the fourth quarter will be lower than prior year due both to lower pension expense, as well as incentive compensation related adjustments.

Higher tax expense however is projected to offset the benefits of lower corporate expense in the quarter. As we mentioned in September, we expect a tax rate of approximately 23% for the entire year, which means the incremental tax rate in the fourth quarter will likely be 26% to 27%.

This rate implies an approximate $0.05 headwind to the prior year’s tax rate during the fourth quarter. Let me step away for a moment from the charts to provide some perspective on the adjustments that we have made and are making to our guidance. On our last earnings call in July, we [Indiscernible] to our 2014 and 2015 financial targets.

As we have long said, free cash flow is more easily achievable than earnings and that has not changed. By early September, it was clear that operational issues and lower demand were impacting our results to such an extent that we were not going to meet our initial third quarter expectation.

As you know and would expect, we communicated this to the broader investment community during a sell-side conference in September. Even then, we felt that our full-year targets were still achievable although they were becoming more of a stretch.

Since that mid-September communication, the continued strengthening of the US dollar and the now wide-spread macroeconomic gloom in Europe plus the more acute uncertainty in Brazil have led us to adjust our full-year outlook.

If foreign exchange rates remain stable since mid-year, our projected earnings in the fourth quarter will be comparable with the prior year despite the current market challenges and the higher tax rate.

However the recent slide in currency rate is an incremental $0.05 headwind which is driving our expectations for lower year-on-year earnings in the fourth quarter.

Let me summarize, currency volatility such as the recent Brazilian Real devaluation just this week and likely volume weakness due to macroeconomic conditions and general uncertainty suggests that our fourth quarter results will be in the lower half of our guidance range.

Moving to cash, those who follow the company closely will know that the majority of our free cash flow is generated in the fourth quarter due to the seasonality of our business. With three quarters of our business outside of the United States, our cash flow is largely generated in foreign currency.

As a result, the translation of our sizeable fourth-quarter foreign currency denominated cash flow back into US dollars is expected to be [Indiscernible] severely impacted by current foreign exchange rates. Note that we have not projected any meaningful change in cash flow generation in local currency.

However, the strength of the US dollar is now expected to provide at least $30 million headwind leading to a translated free cash flow generation of no more than approximately a $320 million number for the full year.

On the next slide, I would like to talk in more detail about how currency and other external factors are expected to impact next year’s earnings and cash flow.

Moving to Slide 9, in light of the international footprint plus our sizeable pension plans we do not believe that the current macroeconomic environment is going to allow us to achieve $3.50 per share of earnings next year. I have already discussed the strength of the U.S.

dollar, at this stage we would expect the foreign exchange impact on next year's earnings to be approximately $0.20 per share at today's exchange rates. There are also external factors which will negatively impact our non-cash pension expense.

With the ten-year treasury rate near 2%, discounts rate have not been far from all-time lows to second half of this year. Plus, we will revisit our actuarial assumptions around the life expectancy of pensioners in our U.S. pension plans further recent guidance that was issued by the relevant actuarial experts.

These two factors will result in a sizable increase in our reliability and therefore our non-cash pension expense. In this case quite likely a significant increase. We estimate that the combined impacts of foreign exchange and pension expense will take at least $0.50 off our $3.50 target, which is approximately 15%.

Adding to the financial headwinds is the softer demand in Europe, Australia and Brazil, all potentially creating more downside pressure on volumes and the price call spread next year. We will provide a more fulsome update on 2015 earnings guidance on the fourth quarter call which is consistent with our normal practice.

The impact from these headwinds will not be as pronounced on cash flow, however, because we don't see much change, if any, to our pension contributions in the near-term. Still the stronger U.S.

dollar is an expected to $30 million to $50 million headwind to 2015 cash flow previous expectations, for the same reason, i.e., translation that we discussed in the context of the fourth quarter.

Please keep in mind that the company's ability to generate cash, in local currency terms, is in line with our original expectations despite the earnings adjustments. Nevertheless, we have adjusted the bottom end of our free cash flow range to reflect the expected headwind from foreign-exchange translation.

Let's turn to the next slide, where I would like to discuss capital allocation. On slide ten, we continue to manage your cash in a way that balances allocation out among four major priorities. The first two relate to making investments that are aimed about maintaining and improving the underlying business that we have.

While the latter two relate to returning funds appropriately to our capital providers. Clearly, we need to continue investing in the assets that generate our solid operating profit margins. We invest principally through CapEx to maintain and rebuild our assets, as well as to enhance our productivity and improve our flexibility.

As we have increased our cash flow in recent years, we have enhanced our financial flexibility via deleveraging and enabled ourselves to pursue value-added strategic investments. Early last year, we started up a new furnace in Rio de Janeiro to support the growth of our customers in Brazil.

Several weeks ago and as Al already discussed, we announced our plans to grow with constellation brands in Mexico. The joint venture in the long-term supply agreement with CBI will be accretive to earnings by 2016 by at least $0.15 per share.

We expect the upper range of capital required for that transaction to be approximately $275 million, while the ongoing EBIDA attributable to our investment should exceed $50 million.

Of course, one of America's results will fully consolidate sales under its supply agreement, the corporate results will reflect only one half of the joint venture's net earnings, due to the fact we will not be consolidating joint venture.

There is no doubt, our new partnership with CBI is a great strategic expansion of our business in a new geography, at a very favorable multiple. While we continue to invest in the business, we have been allocating more cash flow to our capital providers.

In recent years, we have rigorously devoted approximately 90% of our free cash flow to debt repayment, and the remaining 10% to anti-dilutive share repurchases. In light of lower interest rates and the presence strength of our balance sheet, we are nearing a significant inflection point with respect to capital allocation.

Although, our board continues to actively and regularly assess the merits of initiating a dividend, we continue to prefer the flexibility of share repurchases at this point in time. In fact, our board just authorized a $500 million share repurchase program through 2017.

This action supports the management teams’ desire to distribute the benefits derived from the many strategic and operational actions that we have successfully undertaken and executed upon in recent years.

Note, however, we will continue our 90:10 capital allocation in the remainder of 2014, as we strive to meet our previously communicated commitments to our various stakeholders.

We will make a minimum of $100 million available for share repurchase early in 2015, while continuing our deleveraging program, albeit at a slightly slower pace later in the year. Let me now turn the call back over to Al to wrap up on the following slide..

Thanks Steve. Although, we did not achieve the kind of results, we would have liked in the quarter. We did not want to lose side of the progress we have made in pursuing our business objectives and the strategy outlined at our 2013 Investor Day.

Our global cost reduction efforts are on track, our European asset optimization program in particular is generating the financial and productivity improvements expected. We have invested in R&D and technology, our new combined innovation center in pilot plan is clearly bolstering our competitive profile.

And we are successfully strengthening the fundamentals in our manufacturing processes across the network. EBIT margin in South America is nearing 20%, European margins are expanding. Andres Lopez and the leadership team in North America are starting the region back on the successful path.

And in Asia Pacific, we are right sizing the manufacturing base to ensure that we continue to produce our expected returns on capital for that region. Thank you. And all I will ask Stephanie to open up the lines, for your questions..

(Operator Instructions) And our first question comes from Scott Gaffner from Barclays Capital, your line is open..

Good morning. Just wanted to go back your couple of comment you made on the North American business, I think you said, sales were down, wines are down, what was it 3% in the quarter and that historically overlap couple of years that the decline in craft beer, something with the craft beer market with math by your introduction in blue and black glass.

Can you just talk about that for a minute? Are you actually losing, is glass actually losing share within the craft beer market is that something that we have come to now or is there something else going on there?.

Let me put this in perspective, let me put overall volume in perspective. We clearly had a difference in what we were expecting in the first half of the year versus what we are expecting in the second half of the year and in fact our actual sales in the first of the year, particularly in beer across the world were pretty strong.

That has dropped off dramatically and is really dropped off through mega beer brands across the various regions. If I still look on a year-over-year basis, our overall volume around the world this year is not going to be significantly different from our volume last year, when I take out the retrenchment in China. It's fundamentally flat.

So, I don't see a big dramatic drop-off in demand for glass, across the regions or across the markets. In the United States, we have seen mega beer declining for a number of years and that has been made up by increased demand in the area of the microbrewers and that's continuing.

But clearly, what we saw in August and in September was dramatic drop offs in beer sales for mega beer brands in general in the retail sector. And that was something that than the growth in the microbrewers could not really overcome.

Now with regard to the red – or with the black and the blue business, as we entered into this year, there were several new product introductions that the mega brewers wanted to put into the markets to boost their sales.

And so we were supplying that preparation of the supply chain, which increased demand in the latter part of last year and then the first part of this year. And that demand did not realize as well as the brewers had expected.

And then what you saw in the second half of the year which you will see, in the second time of year is a correction of that demand. So, those are the factors that are really impacting the overall picture for supply, demand, as we are experiencing at this point in time.

With regard to the microbrewers and shift to cans, we have today, I think in a market we are about 10% of the volume in the microbrewer's cans.

And it's really driven by venue accessibility, to a large extend by the microbrewers because as people are getting used to the brands and getting attach to the brands, they want to have access to the brands also and venues.

Where glass is not allowed and that is, I think driving quite a bit of that growth that we see but still an overall relationship to the total demand for glass in that segment is still a fairly minor part of the overall demand..

Okay. And then just quickly on the inventory builds in quarter in North America.

How much of a cash drag with that on 3Q?.

I would say, if I look at what we saw as an impact in the third quarter, we had unusual events of about $10 million and so the other $10 million to $12 million was really impacted by reduction in volume and cutbacks in volume.

And again, as I had indicated, we were expecting a stronger year as we came into this year, so we had build up inventory to be ready for the big demand, which then did not materialize, and then as a result of the second quarter, of course our overall production is impacted by the reduction in inventory, which is cutting back our normal production rates..

Our next question from Chris Manuel with Wells Fargo. Your line is open..

Good morning gentlemen. To take a minute or two and kind of focus a little bit on 2015 and some of the updates you have given us there.

And with respect to cash flow and you kind of updated the earnings targets to an extent too; can you give us a sense as to what you embedded in there in those 2015 assumptions? It sounds like volumes are going to be softer in Europe, it sounds like price mix is going to be negative in Europe as well.

What are you seeing across some of the regions, or how do you thinking about volume overall in that equation for 2015.

And then the second element is, within the cash flow component, what are you embedding for further restructurings or CapEx?.

Yes, Chris, good morning. This is Steve, I will take a crack at that. Let me characterize, what we are not saying about 2015. We are not giving specific guidance, for expectations around 2015 at this point in time, we will do that later in the year or early next month.

We have a budget that's been approved by the Board of Directors, we are simply trying to walk people back from what has changed in the macroeconomic environment around a couple of key drivers relative to work what those drivers were when the $3.50 was at.

So, currency is clearly more unfavorable to us, vis-à-vis when that $3.50 was that in the end of 2012, early 2013 and the pension impact will be significantly different. At a very high level as Al mentioned earlier, X the Chinese restructuring volumes were roughly flat for the broad entity level.

There's no reason to expect, at this point in time that the entity level volumes will be much different than flat going into next year, based on what we see today. But we wouldn't want to be more specific as to regional splits at this point in time.

And to the second question related cash flow, we continue to expect, we will invest in the business akin to 100% of depreciation and amortization. That will be roughly $400 and plus million that will be a combination of both capital spending and restructuring.

Restructuring should be lower in 2015 than it was in 2014, given the schedule of the European asset optimization program. So, total investment dollars will be about the same 100% of DNA. But the composition will be more capital and less restructuring between those two..

Our next question comes from Adam Josephson from Keybanc, your line is open..

Hey, good morning everyone. Two questions. One on the share repowers of the dividend.

Why do the 500 million repurchase program through 2017 instead of initiative dividend would obviously speak to the covenants, you have in your free cash flow and the years to come and would likely send a very positive message to shareholders, I would think?.

Yes. I can assure you that of course, that's a constant discussion with the board and management on a regular basis. You’ve heard me talk in the past about the issue that we still have with Asbestos liabilities and that I would feel more comfortable to really shift to a dividend based approach.

If eventually, we have reduced that liability for Asbestos more significantly than where it is today. And you heard me say in the past, if we get below $100 million or so that would most probably the point where we would seriously consider this.

I think on the other hand, when we look at today and where we look at the earnings profile for the company, we feel confident that we will be able to generate cash to refund - to bring back some of that cash to our shareholders to a greater extent that we have done in the past.

And we have come to the conclusion that at this point in time, the buybacks is the more appropriate medium to do this.

Perhaps Steve has another additional comment that he would like to make?.

Yes, I would simply reiterate the flexibility that the buyback provides us certainly in light of our current share price levels which we would strongly believe we are very attractive, makes a lot more sense for us to pursue share repurchase at this point in time..

Thanks Steve and Al. And just one on your outlook for next year, just broadly so, you have obviously made significant progress on your two restructuring programs this year, but obviously some of those benefits have been offset by the weakness you have encountered in North America and Asia Pac, particularly.

Do you have reason to think that next year will be different in that regard that you won't experience the same sort of operational and demand headwinds that you had to deal with this year.

What's different next year?.

Well, I believe it really has a little bit to do on how we go into next year with regard to expectation or we certainly had a spring in our step, as we came out of 2013 based on what we were hearing from our customer base, of what we were expecting with regard to the impact from world soccer championship on demand and beer.

Demand in particular was still on a global basis is a significant portion of the majority of our business. And I believe the real disappointment this year is that the second half is significantly different than what we have projected. That does not indicate a trend of the overall business.

I think it just means that we were a bit too optimistic and what we believed was happening with recovery, from the overall economic malaise. The various countries around the world have been going through in the last couple of years. And I believe it behooves us to be a little bit more careful as we go into next year.

Because the fundamentals, the underlying fundamentals of demand in this industry, really are still relatively stable if I look at it over a period of three, four, five years..

Our question comes from Debbie Jones from Deutsche Bank. Your line is open. .

Hi, good morning. You guys mentioned weakness in Europe but it doesn't appear that they can't demand which is really that off that in the quarter.

And I know you mentioned spirit for a week but can you comment in the other specific weakness, was it broad-based across your footprint, across your customers, and then on Europe, you did say that pricing was negative in the quarter. And I am just wondering, what's driving this and how we should think about this going forward..

Okay. Let me talk about demand and I will talk about the first and then I will talk about pricing. Let me, let me give you a few data points with regard to demand. Nielson European beer sales and mass retail outlets, sell 7.1% from July to August. And alcohol free drinks, saw sales drop by 12%.

According to Assovetro, which is the beer glass association in Italy. Beer glass sales in Italy decreased by 7% in July, and 16% in August year-over-year. And I believe one of our – can competitors also reported that third quarter can beverage volumes were flat in Continental Europe.

So, clearly it's broader base than what we had expected when going into the year and the Large Brewers of course did report on Europe as well, whether it was Miller or Heineken. And all of them were seeing considerable declines.

In North America, equally beer shipments, again showed a considerable decline in August, all pack types, for instance, declined by 5% in August. So, clearly a very rapid and dramatic impact and that's why we felt compelled in September because we are seeing this to come out.

Perhaps it came out earlier than others, but it certainly was having quite a bit of impact. Now again, looking and reflecting on this, a lot of this may have been corrections of the over optimism that existed in the first several year.

With regard to Europe pricing, with these demand figures and overall inflation in Europe being at a fairly low level and in some countries we even have deflation. That of course creates pricing pressure in the marketplace at this point in time. I had expected, as I believe indicated in the conference call for the first half for the second quarter.

That eventually with the increased demand, those price pressures would correct themselves. But now with demand, still being slow, I would say that price pressure is most likely going to be with us for a couple of month longer..

Our next question comes from Philip Ng with Jefferies and CO. your line is open..

Hey good morning guys. I appreciate the color you provided in North America. And obviously you have some operating when you are gained business in Asia but what gives you confidence volumes are going to be flat because clearly just from your tone on Europe and Latin America, you sound a little more cautious.

Could you kind of help me understand, bridge the volume gap for next year?.

Yes. I would say, again, we will be more specific in the first conference call next year when we talk about the outlook for 2015. But again, when I look at what has been happening this year, we clearly had, as I said earlier, this location between the first half of the year and the second half of the year, which also led to the differing expectations.

I think if you look at the underlying trends, though, the market just appears to be very, very stable, flattish at this point in time.

In Asia-Pacific for instance, we will regain some volume next year in Australia because we have lost volume this year and last year because of the reduced demand, also due to some competitive activity, and we have secured business as we go into next year. So that will give us some additional bumps.

I believe also that in Latin America, clearly, demand trends overlong period of time have been mid- single digits, and I don't see a dramatic decline, there with the one uncertainty at this point in time, still with regard to Brazil, what's going to happen, following the elections, with promoting economic activity in Brazil.

So, we are guarded at this point in time, based on what we seen in the last three months, but we are certainly not pessimistic about that the market is going to see a broad-based decline around the world..

Okay, that's helpful.

And then I guess, as a partial offset, you obviously have your European cost take out initiative, is there that retaining to expand that and what are some of the other thing that we got to be cognitive as a positive, any list from the consolation tie up, potentially through more demand out of the Waco plan?.

Well, we will see how that is going to evolve that of course depends on how successful consolation is going to be and the continued competitive market share gain, that they have demonstrated over the last year or so in North America.

I believe the agreement that we’ve reached certainly puts us in a significant position in the driver seat with regard to whatever upside, there is and beer volume in the North American. North American market to take advantage of that. So I am very optimistic with regard to that perspective.

I believe across the world, with adjustments and readjusting our footprint that's been an ongoing process. So, we clearly raised Europe in the awareness level because of the total amount and the three-year period that we were going to make those investments. But along the way we made other adjustments as well.

And you just heard Steve talk about an adjustment that we made in Australia to make sure that our cost structures are appropriate for the demand profile that we are seeing..

Yes, Phil, maybe I would add that we still have the third year of the multiyear European program to go in 2015. So, we will be continuing to invest close to an incremental $70 million, $75 million in project related work above and beyond maintenance levels in Europe in 2015.

And then on the constellation point, I would remind you that we don't anticipate significant financial benefit of the visible from that until 2016. We do need to do some engineering work at our plants and Texas is going to be providing the incremental supply to the Mexican brewery and that will happen over the course of 2015..

Our next question comes from [Inaudible]. Your line is open..

Good morning, this is actually George sitting in for Mark.

I just wanted to see if you could talk a bit about the, I guess the sustainability of current– South American volume growth, especially given the big rebounding in the Andean region?.

Yes. I think clearly the growth that we are seeing in the Andean region is particularly high because last year we were seeing a dramatic drop in demand. So, I think beyond line over a number of years is still pretty much in line with what we have said before.

And these variations are very significantly driven by individual decisions that are made to replace floats in the returnable glass market, which of course is a very attractive business for us, even though, it has this variability to it because margins tend to be very, very positive.

Now with regard to the overall demand profile, we are going into next year, I believe Latin America will be again significantly influenced by what's going to happen in the largest market, which is going to be Brazil.

And at this point in time, what we’re hearing from our brewers is that they are going to put more emphasis on returnable glass containers to make sure that they hit the pricing points that are required and perhaps and even more challenging environment.

It's been very obvious that the largest brewer in the country has been very vocal in their various last quarter’s conference calls about their strategic focus on glass because it improves their profitability.

And I believe that goes well overall for - at least a trend line and underlying demand profile that may not be entirely in line with perhaps the economic activity in the long country or the other..

Great. Thank you and I guess just one follow-up, I mean, in recent queries you had some success, offsetting some of the FX headwinds in the region with price.

And I assume you expect that to continue overtime?.

Moreover of course a region is heavily influenced by imported products in ORI country by heavily influenced by imported product. Those adjustments will be made.

Where however, you do have a manufacturing base in the same country, in which the region is devaluing that's the more difficult argument to make, but even there, we sometimes see that the basic raw materials whether it's either for energy or whether it's for so-dash for instance which typically is imported into those countries.

There you can of course have a very valid argument and we use that very frequently to get them price adjustments to at least make sure that we recover that part of the inflation..

Our next question comes from Chip Dillon with Vertical Research Partners. Your line is open..

Hi, it's actually James [Inaudible] for Chip. Good morning. The first question is on the pension. You cited that expect pension cost to be about 35 million in 2015. How much is this, due to longer expected lives of U.S. retirees and how much is interest rates, after a different way. If rates ended up unchanged in 14 versus 13, what would be increased be.

And then lastly, what would the pension contributions with like in 15 and 16 versus 13?.

This is Steve, good morning. Related to the first piece. Roughly half of the number, say $20 million to $25 million or so, would be attributable to the increase in mortality assumptions. So we have approximately two and half billion dollar liability in the United States pension plans, the actuary of table adjustments only relates the U.S.

plans, not the international plans. And so if you have a roughly 7% in net liability, that's going to be a $175 million or $200 million of an immediate loss in the pension plan and then we will amortize that over some period at a time close to ten years or so.

So, you arrive at somewhere around $20 million of headwind for the mortality table and that will happen irrespective of where interest rates actually land. As it relates to the cash flow expectations around pension contributions, we have guided to somewhere in the neighborhood of $50 million of pension contributions this year.

All in the international plan, that number probably be a little bit lower than that number. I do not anticipate a significant change in our required contributions in 2015 or 2016. We do not have any required contributions of substance in the United States, and that should not change in the foreseeable future.

And the international plans are relatively stable in terms of their contribution. So, we should not have a significant change year-over-year in cash pension contributions..

Our next question comes from Tyler Langton with J P Morgan. Your line is open..

Yes. Good morning. Thanks. Just on the – I think you mentioned cost savings help probability in South America.

I just want if you just kind of quantify, what contribution that was in the third quarter sort of going forward how much was left with us before the fourth quarter and beyond?.

Yes, I think what we are trying to communicate is relates to south America so we had close $20 million year over year improvement and the south American segment results but the first $7 million or so of that relates to the non-repeat of one time item. So strikes in Columbia etc that were discrete negative last year didn’t repeat.

So we immediately picked up about $7 million of benefit from those and then we had roughly $30 million or so incremental sales that dropped through on marginal sales somewhere in the 33% to 40% range. That's another $10 million to $12 million of benefit.

So the combination of those two items drove most of the year-over-year improvement in south America as it relates to the fourth quarter we continue to get the strongest amount of efficiency and productivity out of our south American operations versus any region in the world and we certainly do expect that region to continue to have very strong productivity results coming forward..

Okay and then just within Asia-Pacific volumes next year, is it fair to assume that sort of the head wins from China should largely lapse and I just want to comment about I guess in Australia you are walking away from some business (inaudible) talk about sort of how that potentially impact volume?.

Yes, I don't as it relates to volume first from the Chinese standpoint, so China the retrenchment in China generally has the favorable impact on EBIT as we walk away from well low poor returning business there from a volume standpoint, we will continue to face unfavorable volume comps really through the second quarter of next year just given the timing of how we actually phase shut downs of several of those facilities.

So I think we will certainly still have -- will be diminished from what we have seen in the second half of this year we will still have negative volume comps in China through the first half of next year just as we map those.

From an Australian perspective, we will see some benefit as from the volume recovery that Al mentioned but that will not start until the later part of 2015 based on the timing so we will get some cost benefit from the restructuring activities that we have undertaken right now volume wise we really won't see the volume change until the second half of later part of the second half of next year in Australia..

We have time for one more question. Our final question comes from Alex Ovshey with Goldman Sachs, your line is open. Alex, your line is open. Our final question comes from Ghansham Panjabi from Robert W. Baird. Your line is open..

Hi good morning. It's actually (inaudible) sitting in for Ghansham.

How are you doing?.

Good morning..

For the FX headwind in 2015 that you highlighted what are your assumptions for the Euro, riyal and Australian dollar and also can you remind us the sensitivity to the various effects components?.

Yes, the assumption around rates are essentially using this week's closing rates so the rates of the couple of days ago so Euro is about 127 or so, Riyal is 250, or so and the Aussie is sub 90 cents. From the sensitivity standpoint, these are on a full year basis roughly 10% change in the U.S.

dollar, from an Euro standpoint is somewhere $0.10 to $0.12 on a full year basis for us in terms of earnings. The Riyal is similar to 10% change is going to be somewhere in the neighborhood of $0.08 to $0.10 per share and then Australia that same 10% change would be closer to $0.05 on a full year basis..

That is great and just the follow-up assuming that effects and tension stay at the current $0.

55 headwind 2015 and then you said volumes are pretty much going to be flat, is there a scenario where earnings are still up year-over-year in 2015?.

Yes this is Steve. Yes there is a scenario. There are multiple scenarios around where earnings may land and we will provide more clarity around that on the fourth quarter call..

Thank you everyone and that concludes our third quarter earnings conference call. Please note that our fourth quarter and full year 2014 conference call is currently scheduled for Tuesday February 3, 2015 at 8 Am Eastern Time. We appreciate your interest in OI and remember to choose glass, it's safe, it's pure and it's sustainable. Thank you..