On February 5, 2009, the Company announced that in order to preserve the necessary cash to continue its operations and consistent with the Senior Notes interest payments to bondholders announcement, it elected not to make a scheduled payment of $150 million pesos, plus accrued interest, due February 5, 2009 on its Certificados Bursatiles issued in 2003 ("CEBURES 03"). Although the documents governing the CEBURES 03 grant the Company a 3-day grace period, the Company did not make the payment in such term; instead Vitro is holding discussions with the holders of the CEBURES 03 in an effort to reach a mutually acceptable agreement to restructure this financial obligation along with the rest of the financial creditors. Vitro also announced that it was informed that Credit Suisse International (CSIN) has filed a lawsuit against one of its subsidiaries in the Supreme Court of the State of New York demanding payment of approximately US$85 million. This complaint arises out of a derivative financial instrument (this amount is part of the US$293 million previously announced) and therefore the Company is analyzing alternatives. Additionally, the Company informed that an accounts receivable credit facility with The Royal Bank of Scotland, which provided funds to one of Vitro's subsidiaries, with a balance of approximately US$19 million, which was scheduled to end April, 2009, was concluded.

Vitro is continuing its discussions with the counterparties of the derivative financial instruments ("Counterparties"), its bondholders and its creditors to achieve an organized financial restructuring to improve its balance sheet. There can be no assurance that the Company's discussions with the Counterparties, its bondholders, and other creditors will be successful. Vitro will provide updates on these discussions, from time to time, as appropriate. Vitro is committed to providing the quality products and services its broadly diversified customers need. Vitro intends to maintain its operations and continue its business relationships with its customers and suppliers as it seeks to achieve a restructuring of its indebtedness. Vitro, which is commemorating its first century in 2009, has a strong foundation in place with solid business operations, strong franchise and market positions and superior quality products.

On January 29, 2009, the Company announced that four of the Counterparties (the "Counterparties") with whom the Company and/or its subsidiaries entered into derivative financial instruments had provided notice to the Company, invoking the agreements governing the derivative financial instruments (the "DFI Agreements"), stating that the failure of the Company to pay an aggregate of approximately US$293 million (including approximately US$80 million held as cash collateral by such Counterparties) constitutes events of default under the DFI Agreements, and have effectively demanded payment of such amounts. As of December 31st 2008, the Company had a net loss of approximately US$358 million according to the claims by its derivative counterparties (not including accrued interest), including a loss of approximately US$33 million related to the only open derivative financial instruments covering natural gas contracts from 2009-2011 with Pemex.

The events of default under the DFI Agreements result in an event of default under the indentures governing the Senior Notes, as described below and the 11.75 percent Senior Notes due 2013 (the "2013 Notes"), enabling the trustees of such Notes, or with respect to each of the 2012 Notes, the 2017 Notes, and the 2013 Notes, the holders of 25 percent or more in principal amount of such Notes, to declare the US$300 million principal amount (and accrued interest) of the 2012 Notes, the US$700 million principal amount (and accrued interest) of the 2017 Notes, respectively and the US$216 million principal outstanding amount (and accrued interest) of the 2013 Notes, to be immediately due and payable.

The failure of the Company to make the payments due under the DFI Agreements also results in events of default under various other financing agreements of the Company and its subsidiaries, aggregating approximately US$81 million and permitting lenders under such facilities to declare borrowings under these agreements to be immediately due and payable. In addition, the Company and its subsidiaries are also in default under loan agreements of approximately US$17 million, and the Lenders may declare such debt to immediately due and payable. As of December 31, 2008, the Counterparties held an aggregate of approximately US$85 million (not including accrued interest), as cash collateral for the obligations of the Company and/or its subsidiaries under the DFI Agreements. In light of these four Counterparties notices and in order to preserve the necessary cash to continue operations, the Company does not intend to make scheduled payments due February 2, 2009 of interest of US$12.9 million on its 8.625 percent Senior Notes due 2012 (the "2012 Notes") and US$31.9 million on its 9.125 percent Senior Notes due 2017 (the "2017 Notes", and together with the 2012 Notes, the "Senior Notes"). The failure of the Company to make the interest payments within 30 days after the scheduled payment date would constitute a separate event of default under the indentures governing the 2012 Notes and the 2017 Notes. Vitro intends to maintain its operations and continue its business relationships with its customers and suppliers as it seeks to achieve a restructuring of its indebtedness. As of December 31, 2008, the Company had unrestricted cash on hand and cash equivalents of approximately US$103 million, for operating costs and expenses. As previously disclosed, Vitro has initiated discussions with the Counterparties, its bondholders and its creditors to achieve an organized financial restructuring to improve its balance sheet and it continues to analyze its alternatives in regard with the DFI Agreements. There can be no assurance that the Company's discussions with the Counterparties, its bondholders, and other creditors will be successful. Vitro will provide information, from time to time, as appropriate, about developments of these discussions with the Counterparties, its bondholders, and its creditors.

The Company has adopted a significant and focused cost reduction plan, which includes reducing the Company's workforce, canceling airplane leasing contracts, divesture of non productive assets and eliminating the outsourcing of non-strategic services, as part of the measures that have been adopted by the Company to improve its Balance Sheet. It is estimated that these initiatives, as well as those aimed at reducing operating costs, drastically reducing corporate expenses and improve efficiency, will represent annual savings between $80 and US$120 million. Vitro is confident that it is taking the right steps to position the Company for the future. Vitro, with almost 100 years of existence, has a strong foundation in place with solid business operations, strong franchise and market positions and superior quality products. Vitro sees this as a temporary measure to allow the necessary time to negotiate with all parties involved while ensuring it will be able to continue providing the quality products and services its broadly diversified customers need, and also provide it with the wherewithal to pay for the materials and services it needs to manufacture such products. For many of our customers and suppliers these are trying times as well and Vitro will be there to help them get through with its continuous operation and production of quality products and services as it has done in the past.

On November 5, 2008, the Company informed the financial community that in order to improve its liquidity to normal operating levels, it contributed non-productive real estate assets ("the assets") to a Trust and received an initial payment of US$100 million from a Development Bank. This structure allowed the Company to make the assets immediately liquid; restoring its cash position while allowing enough time to maximize the amount the Company can receive for the assets to be sold.

On November 3, 2008, the Company received for the fifth occasion the Ibero-American Award for Quality due to its superior competitive level of quality for its operation of Clinica Vitro. On this occasion the Company received the Silver Award for its outstanding quality standards after having competed with the most important companies, organizations and institutions from all of the Spanish speaking countries from the Americas as well as Spain and Portugal. Since the mid-nineties Vitro has received: 5 Ibero-American Quality Awards, 6 National Quality Awards and 12 State Quality Awards.

Second Collegiate Court confirms decision of first instance and appeal courts denying Pilkington's opposition to the merger of Vitro Plan into Vimexico

On February 23, 2009, the Company announced that its subsidiary Vimexico, S.A. de C.V. ("Vimexico"), was notified of the final non appealable decision issued by the Second Collegiate Court for Civil Affairs of the Fourth Circuit, ratifying the decision issued by the First Instance and Appeal Courts denying Pilkington Group Limited's ("Pilkington") opposition to the resolutions adopted at the Extraordinary Shareholders Meeting held on December 11, 2006, when the merger of Vitro Plan, S.A. de C.V. ("Vitro Plan") into Vimexico was approved. As a result of this decision of the Second Collegiate Court for Civil Affairs of the Fourth Circuit, in accordance with article 200 of the Mexican General Law of Corporations, it was ratified that all of the above mentioned resolutions are valid and binding for all shareholders, including those who voted against such resolutions. In addition, the Collegiate Court confirmed the dismissal of all claims demanded by Pilkington in its original complaint and confirmed the validity of the merger of Vitro Plan into Vimexico approved at the Extraordinary Shareholders Meeting of the now extinct Vitro Plan. The company was represented by the Mexican law firm Rivera Gaxiola y Asociados, S.C.

The Collegiate Court confirmed the decision to condemn Pilkington to pay Vimexico attorneys fees and expenses including those incurred during the appeals proceedings. Vimexico will timely file an incidental complaint to liquidate such fees and expenses. The original opinion of counsel to Vimexico that the company shall also prevail in the separate lawsuit that Pilkington initiated in October 2007, claiming that the same Extraordinary Shareholders Meeting was null and void, was likewise reinforced by this final and non appealable decision.

  On February 9, 2009, the Company's Issuer Default Ratings ("IDRs") were downgraded to 'D' from 'C', while the national scale long-term rating and the Certificados Bursatiles issuances were downgraded to 'D(mex)' from 'C(mex)' by  Fitch Ratings ("Fitch"). In addition, Fitch has affirmed the following ratings:

• US$300 million senior notes due 2012 at 'CC/RR4';

• US$225 million senior notes due 2013 at 'CC/RR4';

• US$700 million senior notes due 2017 at 'CC/RR4'.

According to Fitch, the rating downgrades followed Vitro's announcement that it was not going to make the payment of the Certificados Bursatiles 'VITRO 03' for approximately $150 million pesos plus accrued interest. The 'CC/RR4' rating on Vitro's Sr. notes reflects average recovery prospects given default.

On February 2, 2009, the Company's global scale ratings, including the long-term corporate credit rating, were downgraded to 'D' from 'CC' by Standard & Poor's ("S&P"). At the same time, S&P lowered the Company's long-term Mexican national scale (CaVal) rating to 'mxD' from 'mxCCC'. The recovery rating on the notes remains at '3'. According to S&P, the downgrade is based on Vitro's failure to pay its coupon payments due Feb. 2. Although the notes allow a 30-day grace period, the Company has indicated that it does not intend to make scheduled payments of interest of US$12.9 million on its 8.625 percent senior notes due 2012 and US$31.9 million on its 9.125 percent senior notes due 2017. Vitro is Mexico's leading producer of glass containers and has a significant share of the Mexican flat-glass market. Vitro's export activities and international operations contribute to about 58 percent of total revenues.

On January 26, 2009,  the Company's unsecured debt and corporate family ratings  were downgraded to Ca from Caa1 by Moody's Investors Service ("Moody's"). This rating action concludes the rating review initiated on October 30, 2008. The ratings outlook is negative. The downgrade reflects Moody's belief that Vitro's liquidity has continued to weaken in the past several weeks as economic conditions in the company's key markets have deteriorated further, increasing the likelihood that it may not be able to meet its upcoming near term financial obligations. The latter include a US$45 million coupon payment on February 1, 2009 under its 2012 and 2017 notes and an estimated US$20 million in long term debt maturities during 1Q09. The company also has a contractual commitment to pay about US$29 million in remaining ten monthly installments during 2009, related to the put option exercised by its Spanish joint venture partner in 2008.

On November 18, 2008, the Company announced the new executive team reporting to Hugo Lara, Vitro's CEO. Roberto Rubio, who was the President of Diverse Industries and Central Technology, was designated as President of the Flat Glass business unit, formerly in charge of Hugo Lara. Roberto's previous experience as head of such business unit will be a key issue for its future performance. The Technology function will be integrated to Vitro's Flat Glass and Glass Containers businesses units. Enrique Osorio, former Chief Financial Officer, decided to retire from the Company. The Finance and Administrative areas were merged and are in charge of Claudio Del Valle. David Gonzalez continues as Glass Containers President and Alejandro Sanchez Mujica as President Legal and General Counsel.

The Board of Directors designated Hugo Lara as Vitro's Chief Executive Officer

On November 14, 2008, the Company announced that it was taking the necessary measures in order to embrace the current worldwide financial situation and with this purpose, the Board of Directors decided to provide a professional approach to the Company's management by integrating an independent executive, designating Hugo Lara as the new CEO of Vitro. Federico Sada, former CEO will continue as a member of the Board of Directors.

On January 9, 2009, the Company announced that its subsidiary Vimexico, S.A. de C.V. in conjunction with the Prado Family members and Invergar Participaciones Inmobiliarias, S.L., the joint venture partners in its Spanish subsidiary Vitro Cristalglass, S.L. ("Vitro Cristalglass"), agreed to extend the distribution of payment for the purchase by Vimexico of its joint venture partners' 40 percent stake in Vitro Cristalglass through the remainder of 2009. During the third quarter of 2008, Vimexico made a partial payment to its joint venture partners of approximately 4 million Euros. The agreement to extend the payment period for its joint venture partners' interest in Vitro Cristalglass is consistent with a number of actions Vitro has undertaken to strengthen its balance sheet and enhance liquidity.

Vitro receives notice of fewer glass containers orders from Grupo Modelo

On December 18, 2008, the Company announced that Grupo Modelo ("Modelo"), one of its key customers in the Glass Container business unit, notified Vitro that, due to the current world market contraction, it reduced its beer bottles requirements. Both companies continue conversations in order to find common solutions that minimize the impact of this volume decrease. Several alternatives are being analyzed including giving Vitro the priority on Modelo's new product developments as well as anticipating 2009 shipments to ensure Vitro's production programs continuity. Vitro and Modelo have worked together for over 40 years in a mutually beneficial business relationship that has allowed both companies to achieve a significant growth in sales and profits. The volume reduction impact in Vitro's annual consolidated sales figures for 2009, will be of approximately 6.9 percent of 2008 estimated sales. In anticipation of this volume reduction, the Glass Container business unit will optimize its production capacity in order to maximize utilization and efficiencies of its manufacturing facilities to support its existing business base as well as taking advantage of new business opportunities.

Vitro strengthens its growing glass containers business in Central America and the Caribbean Markets

On December 10, 2008, the Company announced that together with its two Central American partners, they decided to share the control of the daily operations of Panama-based Empresas Comegua, S.A. ("Comegua"). This decision is intended to further drive glass containers business growth in the Central American and Caribbean markets. Vitro will maintain its 49.7 percent interest in Comegua, whose operations will continue to be benefited with the indubitable contributions and knowledge of all of its partners in glass containers manufacturing and market penetration. As a result of this decision, Vitro now accounts its 49.7 percent participation in Comegua under the equity method, therefore, majority stockholders' equity and majority net income are not affected. Vitro and its partners London Overseas, Inc. and Golden Beer, Inc. have participated in the Comegua joint venture since 1964. Comegua is by far the most important glass containers manufacturer in the region, and maintains a strong market presence in Central America and the Caribbean. Comegua last twelve months 3Q'08 sales and EBITDA were approximately US$216 MM and US$32 MM, respectively.

Vitro launches in Europe its new line of self cleaning glass ECOPURE

On January 23, 2009, the Company announced the launching of its new product line ECOPURE, its new self cleaning glass, through its European affiliate Vitro Cristalglass. ECOPURE is a glass called hydrophobic that is very resistant and colorless which substantially improves visibility during and after it rains. Its exclusive coating destroys organic contaminants on its surface and increases the sliding action of the water over the glass thus allowing for easy elimination of dirt and reduces considerably the frequency of manual window washing. ECOPURE is a glass that can be combined with other products from the product selection of Vitro Cristalglass as the treatment is applied on just one face of the glass surface.

Inauguration of Telefonica's new City of Communications, the largest corporate project in Europe

On October 8, 2008, the new corporate home of Telefonica, District C, was officially inaugurated. Telefonica's new City of Communications, with its 140,000 square meters of glazed surfaces in the facades, is now the largest urban development in terms of glass ever carried out in Spain and in Europe. For this project, Vitro Cristalglass specifically designed SUPERDUAL-T, a product that enables substantial energy savings due to its optimal solar factor. In addition, Vitro Cristalglass supplied MULTIPACT over extra-clear glass and SOLARLUX Supernatural 70/40.

(53 percent of 2008 Consolidated Sales)

Sales

Sales for the quarter decreased 18.5 percent YoY to US$275 million from US$337 million.

The main drivers behind the 16.9 percent YoY decrease in domestic sales were a 28.2 percent depreciation of the Mexican peso during the quarter coupled with lower volumes across all segments due to the effect of the complicated economic environment on demand. 

Export sales decreased 14.1 percent due to lower volumes in almost every segment which were partially offset by an improved price mix in the soft drinks, food and wine & liquor markets.

Sales from Glass Containers' foreign subsidiaries decreased 30.7 percent YoY due to the deconsolidation of Comegua, our subsidiary in Central and South America, starting December 1 ^st 2008.   

EBIT and EBITDA

EBIT for the quarter decreased 61.0 percent YoY to US$25 million from US$65 million in 4Q'07. EBITDA for the same period decreased 34.1 percent to US$50 million from US$76 million. On a comparable basis, excluding Comegua which was deconsolidated since December 2008, EBITDA would have decreased 30.6 percent YoY.

During this quarter, EBIT and EBITDA were affected by lower volumes (lower fixed-cost absorption) which were partially offset by better efficiencies in the new CFT plant in Toluca, Vitro Cosmos ("Cosmos"), and cost-reduction projects.

(45 percent of 2008 Consolidated Sales)

Flat Glass sales for the quarter decreased 17.0 percent YoY to US$259 million from US$312 million.

Domestic sales decreased 3.9 percent YoY mainly as result of lower volumes in the automotive business line and in the float glass market coupled with the effect on prices of the Mexican peso depreciation during the quarter.

Export sales decreased 40.2 percent YoY due to lower volumes in the automotive business line. This situation was partially offset by higher float glass volumes sold to South and Central American markets.

Automotive sales declined 23 percent YoY driven by lower sales in the OEM business line, the exchange rate effect on the prices of the domestic Auto Glass Replacement ("AGR") market, and lower export AGR sales as we continue to focus on the domestic replacement market. These factors were partially offset by a 5 percent volume increase YoY in the domestic AGR market during 4Q'08.

EBIT for the quarter decreased YoY to negative US$5 million from US$20 million while EBITDA decreased 75.9 percent YoY to US$7 million from US$30 million. During the same period, EBIT and EBITDA margins decreased 8.4 and 6.9 percentage points respectively. 

On a YoY comparison, lower volumes (with the consequent lower fixed-cost absorption) derived from sluggish construction and automotive markets had a negative impact on EBIT and EBITDA.