UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark
one)
x
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Quarterly Report Pursuant to
Section 13 or 15(d) of the
Securities
Exchange Act of 1934
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For Quarter Ended March 31, 2009
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or
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o
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Transition Report Pursuant to
Section 13 or 15(d) of the
Securities
Exchange Act of 1934
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Owens-Illinois, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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1-9576
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22-2781933
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(State
or other
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(Commission
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(IRS
Employer
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jurisdiction
of
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File
No.)
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Identification
No.)
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incorporation
or
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organization)
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One Michael Owens Way, Perrysburg, Ohio
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43551-2999
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(Address
of principal executive offices)
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(Zip
Code)
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567-336-5000
(Registrants
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
x
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(do not check if a smaller reporting company)
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
o
No
x
Indicate the number of shares outstanding
of each of the issuers classes of common stock, as of the latest practicable
date.
Owens-Illinois, Inc. $.01 par value
common stock 168,286,341 shares at March 31, 2009.
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The Condensed Consolidated Financial Statements of Owens-Illinois, Inc.
(the Company) presented herein are unaudited but, in the opinion of
management, reflect all adjustments necessary to present fairly such
information for the periods and at the dates indicated. All adjustments are of
a normal recurring nature. Because 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 Consolidated Financial Statements and notes
thereto appearing in the Registrants Annual Report on Form 10-K for the
year ended December 31, 2008.
Effective January 1,
2009, the Company adopted the provisions of FAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51,
which changed the presentation of noncontrolling interests in subsidiaries. The
format of the
Companys
condensed consolidated results of operations and condensed consolidated cash
flows for the three months ended March 31, 2008 and condensed consolidated
balance sheets at March 31, 2008 and December 31, 2008 have been
reclassified to conform to the new presentation under FAS No. 160 which is
required to be applied retrospectively.
Effective January 1,
2009, the Company adopted the provisions of FSP No. EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities, which required the Company to allocate earnings to
unvested restricted shares outstanding during the period. Earnings per share
for the three months ended March 31, 2008 were restated in accordance with
FSP No. EITF 03-6-1
which
is required to be applied retrospectively.
2
OWENS-ILLINOIS,
INC.
CONDENSED
CONSOLIDATED RESULTS OF OPERATIONS
(Dollars in millions, except
per share amounts)
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Three months ended March 31,
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2009
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2008
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Net sales
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$
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1,519.0
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$
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1,960.5
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Manufacturing,
shipping, and delivery expense
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(1,222.2
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)
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(1,503.7
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)
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Gross profit
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296.8
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456.8
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Selling and
administrative expense
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(118.5
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)
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(127.8
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)
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Research,
development, and engineering expense
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(13.9
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)
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(16.0
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)
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Interest expense
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(48.1
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)
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(64.3
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)
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Interest income
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8.5
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8.7
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Equity earnings
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13.6
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11.1
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Royalties and
net technical assistance
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2.8
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4.8
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Other income
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1.6
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1.8
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Other expense
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(52.8
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)
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(20.0
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)
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Earnings from
continuing operations before income taxes
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90.0
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255.1
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Provision for
income taxes
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(31.2
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)
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(64.9
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)
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Earnings from
continuing operations
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58.8
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190.2
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Gain on sale of
discontinued operations
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4.1
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Net earnings
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58.8
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194.3
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Net earnings
attributable to noncontrolling interests
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(13.7
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)
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(16.2
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)
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Net earnings
attributable to the Company
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$
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45.1
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$
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178.1
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Amounts
attributable to the Company:
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Earnings from
continuing operations
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$
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45.1
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$
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174.0
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Gain on sale of
discontinued operations
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4.1
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Net earnings
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$
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45.1
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$
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178.1
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Basic earnings
per share:
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Earnings from
continuing operations
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$
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0.27
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$
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1.06
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Gain on sale of
discontinued operations
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0.03
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Net earnings
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$
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0.27
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$
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1.09
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Weighted average
shares outstanding (thousands)
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167,080
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156,324
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Diluted earnings
per share:
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Earnings from
continuing operations
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$
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0.27
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$
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1.02
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Gain on sale of
discontinued operations
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0.02
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Net earnings
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$
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0.27
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$
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1.04
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Weighted diluted
average shares (thousands)
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168,469
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170,517
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See accompanying
notes.
3
OWENS-ILLINOIS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars in millions,
except per share amounts)
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March 31,
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Dec. 31,
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March 31,
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2009
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2008
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2008
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Assets
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Current assets:
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Cash and cash
equivalents
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$
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362.3
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$
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379.5
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$
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483.0
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Short-term
investments, at cost which approximates market
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15.9
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25.0
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51.7
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Receivables,
less allowances for losses and discounts ($35.2 at March 31, 2009, $39.7
at December 31, 2008, and $35.5 at March 31, 2008)
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945.5
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988.8
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1,320.6
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Inventories
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1,044.8
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999.5
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1,222.4
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Prepaid expenses
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48.4
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51.9
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37.1
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Total current
assets
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2,416.9
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2,444.7
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3,114.8
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Investments and
other assets:
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Equity
investments
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105.3
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101.7
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87.4
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Repair parts
inventories
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134.5
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132.5
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157.0
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Prepaid pension
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591.4
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Deposits,
receivables, and other assets
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478.2
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444.5
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489.4
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Goodwill
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2,130.3
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2,207.5
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2,522.2
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Total other
assets
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2,848.3
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2,886.2
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3,847.4
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Property, plant,
and equipment, at cost
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5,711.0
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5,983.1
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6,707.0
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Less accumulated
depreciation
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3,224.6
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3,337.5
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3,711.8
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Net property,
plant, and equipment
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2,486.4
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2,645.6
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2,995.2
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Total assets
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$
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7,751.6
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$
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7,976.5
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$
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9,957.4
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4
CONDENSED CONSOLIDATED
BALANCE SHEETS Continued
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March 31,
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Dec. 31,
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March 31,
|
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2009
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2008
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2008
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Liabilities and
Share Owners Equity
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|
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Current
liabilities:
|
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Short-term loans
and long-term debt due within one year
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$
|
353.6
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$
|
393.8
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|
$
|
835.1
|
|
Current portion
of asbestos-related liabilities
|
|
175.0
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|
175.0
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210.0
|
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Accounts payable
|
|
754.4
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|
838.2
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|
978.5
|
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Other
liabilities
|
|
554.1
|
|
596.3
|
|
656.9
|
|
Total current
liabilities
|
|
1,837.1
|
|
2,003.3
|
|
2,680.5
|
|
|
|
|
|
|
|
|
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Long-term debt
|
|
2,972.0
|
|
2,940.3
|
|
3,192.5
|
|
Deferred taxes
|
|
138.6
|
|
77.6
|
|
128.8
|
|
Pension benefits
|
|
703.4
|
|
741.8
|
|
314.4
|
|
Nonpension
postretirement benefits
|
|
234.4
|
|
239.7
|
|
279.6
|
|
Other
liabilities
|
|
324.4
|
|
360.1
|
|
409.1
|
|
Asbestos-related
liabilities
|
|
285.5
|
|
320.3
|
|
205.3
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Share owners
equity:
|
|
|
|
|
|
|
|
The Companys
share owners equity:
|
|
|
|
|
|
|
|
Common stock,
par value $.01 per share 250,000,000 shares authorized, 179,754,178, 178,705,817,
and 178,413,409 shares issued and outstanding, respectively
|
|
1.8
|
|
1.8
|
|
1.8
|
|
Capital in
excess of par value
|
|
2,921.8
|
|
2,913.3
|
|
2,887.7
|
|
Treasury stock,
at cost 11,467,837, 11,556,341, and 11,684,080 shares, respectively
|
|
(219.9
|
)
|
(221.5
|
)
|
(224.0
|
)
|
Retained
earnings (deficit)
|
|
12.7
|
|
(32.4
|
)
|
(112.6
|
)
|
Accumulated
other comprehensive loss
|
|
(1,700.4
|
)
|
(1,620.6
|
)
|
(54.1
|
)
|
Total share
owners equity of the Company
|
|
1,016.0
|
|
1,040.6
|
|
2,498.8
|
|
Noncontrolling
interests
|
|
240.2
|
|
252.8
|
|
248.4
|
|
Total share
owners equity
|
|
1,256.2
|
|
1,293.4
|
|
2,747.2
|
|
Total
liabilities and share owners equity
|
|
$
|
7,751.6
|
|
$
|
7,976.5
|
|
$
|
9,957.4
|
|
See accompanying
notes.
5
OWENS-ILLINOIS,
INC.
CONDENSED CONSOLIDATED CASH FLOWS
(Dollars in millions)
|
|
Three months ended March 31,
|
|
|
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2009
|
|
2008
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net earnings
|
|
$
|
58.8
|
|
$
|
194.3
|
|
Net earnings
attributable to noncontrolling interest
|
|
(13.7
|
)
|
(16.2
|
)
|
Gain on sale of
discontinued operations
|
|
|
|
(4.1
|
)
|
Non-cash charges
(credits):
|
|
|
|
|
|
Depreciation
|
|
88.4
|
|
113.6
|
|
Amortization of
intangibles and other deferred items
|
|
4.3
|
|
7.6
|
|
Amortization of
finance fees
|
|
2.4
|
|
1.9
|
|
Deferred tax
provision (benefit)
|
|
10.5
|
|
(1.7
|
)
|
Restructuring
and asset impairment
|
|
50.4
|
|
12.9
|
|
Other
|
|
32.8
|
|
20.8
|
|
Asbestos-related
payments
|
|
(34.8
|
)
|
(40.2
|
)
|
Cash paid for
restructuring activities
|
|
(20.2
|
)
|
(4.1
|
)
|
Change in
non-current operating assets
|
|
(2.4
|
)
|
(0.8
|
)
|
Change in
non-current liabilities
|
|
(31.3
|
)
|
(18.0
|
)
|
Change in
components of working capital
|
|
(173.7
|
)
|
(215.1
|
)
|
Cash provided by
(utilized in) operating activities
|
|
(28.5
|
)
|
50.9
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
Additions to
property, plant, and equipment
|
|
(46.6
|
)
|
(45.4
|
)
|
Advances to
equity affiliate - net
|
|
1.6
|
|
(15.0
|
)
|
Net cash
proceeds (payments) related to divestitures and asset sales
|
|
0.1
|
|
(16.6
|
)
|
Cash utilized in
investing activities
|
|
(44.9
|
)
|
(77.0
|
)
|
Cash flows from
financing activities:
|
|
|
|
|
|
Additions to
long-term debt
|
|
274.9
|
|
309.2
|
|
Repayments of
long-term debt
|
|
(183.6
|
)
|
(222.6
|
)
|
Increase
(decrease) in short-term loans
|
|
(17.6
|
)
|
82.3
|
|
Net payments for
hedging activity
|
|
4.4
|
|
(33.9
|
)
|
Convertible
preferred stock dividends
|
|
|
|
(5.4
|
)
|
Dividends paid
to noncontrolling interests
|
|
(17.0
|
)
|
(30.2
|
)
|
Issuance of
common stock and other
|
|
4.0
|
|
9.8
|
|
Cash provided by
financing activities
|
|
65.1
|
|
109.2
|
|
Effect of exchange
rate fluctuations on cash
|
|
(8.9
|
)
|
12.2
|
|
Increase
(decrease) in cash
|
|
(17.2
|
)
|
95.3
|
|
Cash at
beginning of period
|
|
379.5
|
|
387.7
|
|
Cash at end of
period
|
|
$
|
362.3
|
|
$
|
483.0
|
|
See
accompanying notes.
6
OWENS-ILLINOIS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Tabular data
dollars in millions,
except share and
per share amounts
1.
Earnings Per Share
The following table sets
forth the computation of basic and diluted earnings per share:
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
Net earnings
attributable to the Company
|
|
$
|
45.1
|
|
$
|
178.1
|
|
Convertible
preferred stock dividends
|
|
|
|
(5.4
|
)
|
Net earnings
attributable to participating securities
|
|
(0.1
|
)
|
(1.8
|
)
|
|
|
|
|
|
|
Numerator for
basic earnings per share - income available to common share owners
|
|
$
|
45.0
|
|
$
|
170.9
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for
basic earnings per share - weighted average shares outstanding
|
|
167,079,573
|
|
156,324,072
|
|
|
|
|
|
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
|
8,589,355
|
|
Stock options
and other
|
|
1,388,952
|
|
5,603,451
|
|
|
|
|
|
|
|
Denominator for
diluted earnings per share - adjusted weighted average shares outstanding
|
|
168,468,525
|
|
170,516,878
|
|
|
|
|
|
|
|
Basic earnings
per share:
|
|
|
|
|
|
Earnings from
continuing operations
|
|
$
|
0.27
|
|
$
|
1.06
|
|
Gain on sale of
discontinued operations
|
|
|
|
0.03
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
0.27
|
|
$
|
1.09
|
|
|
|
|
|
|
|
Diluted earnings
per share:
|
|
|
|
|
|
Earnings from
continuing operations
|
|
$
|
0.27
|
|
$
|
1.02
|
|
Gain on sale of
discontinued operations
|
|
|
|
0.02
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
0.27
|
|
$
|
1.04
|
|
The
convertible preferred stock was included in the computation of diluted earnings
per share for the three months ended March 31, 2008 on an if converted
basis since the result was dilutive. For purposes of this computation, the
preferred stock dividends were not subtracted from the numerator. Options to
purchase 2,145,884 weighted average shares of common stock that were
outstanding during the three months ended March 31, 2009 were not included
in the computation of diluted earnings per share because the options exercise
price was greater than the average market price of the common shares.
Effective January 1, 2009, the Company adopted
the provisions of FSP No. EITF 03-6-1,
which addresses whether
instruments granted in share-based payment awards are participating
7
securities
prior to vesting and, therefore, must be included in the earnings allocation in
calculating earnings per share under the two-class method described in FAS No. 128,
Earnings per Share. FSP No. EITF 03-6-1 requires that unvested
share-based payment awards that contain non-forfeitable rights to dividends be
treated as participating securities in calculating earnings per share. In
accordance with
FSP No. EITF
03-6-1, the Company was required to
allocate earnings to unvested restricted shares outstanding during the period.
Basic earnings per share for the three months ended March 31, 2008 were
reduced by $0.02 per share in accordance with FSP No. EITF 03-6-1which
requires retrospective application.
There was no impact on basic earnings per share for the three months
ended March 31, 2009 or diluted earnings per share in either period.
2. Debt
The following table
summarizes the long-term debt of the Company:
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
2008
|
|
Secured Credit
Agreement:
|
|
|
|
|
|
|
|
Revolving Credit
Facility:
|
|
|
|
|
|
|
|
Revolving Loans
|
|
$
|
144.8
|
|
$
|
18.7
|
|
$
|
86.8
|
|
Term Loans:
|
|
|
|
|
|
|
|
Term Loan A
(225.0 million AUD)
|
|
154.2
|
|
155.7
|
|
206.1
|
|
Term Loan B
|
|
191.5
|
|
191.5
|
|
191.5
|
|
Term Loan C
(110.8 million CAD)
|
|
87.8
|
|
90.9
|
|
108.3
|
|
Term Loan D (191.5
million)
|
|
253.2
|
|
269.6
|
|
302.1
|
|
Senior Notes:
|
|
|
|
|
|
|
|
7.35%, due 2008
|
|
|
|
|
|
250.4
|
|
8.25%, due 2013
|
|
468.0
|
|
470.0
|
|
461.8
|
|
6.75%, due 2014
|
|
400.0
|
|
400.0
|
|
400.0
|
|
6.75%, due 2014
(225 million)
|
|
297.4
|
|
316.8
|
|
355.0
|
|
6.875%, due 2017
(300 million)
|
|
396.6
|
|
422.4
|
|
473.3
|
|
Senior
Debentures:
|
|
|
|
|
|
|
|
7.50%, due 2010
|
|
257.5
|
|
259.5
|
|
258.5
|
|
7.80%, due 2018
|
|
250.0
|
|
250.0
|
|
250.0
|
|
Other
|
|
87.9
|
|
113.4
|
|
122.1
|
|
Total long-term
debt
|
|
2,988.9
|
|
2,958.5
|
|
3,465.9
|
|
Less amounts due
within one year
|
|
16.9
|
|
18.2
|
|
273.4
|
|
Long-term debt
|
|
$
|
2,972.0
|
|
$
|
2,940.3
|
|
$
|
3,192.5
|
|
On June 14,
2006, the Companys subsidiary borrowers entered into the Secured Credit
Agreement (the Agreement). At March 31,
2009, the Agreement included a $900.0 million revolving credit facility, a
225.0 million Australian dollar term loan, and a 110.8 million Canadian dollar
term loan, each of which has a final maturity date of June 15, 2012. It also included a $191.5 million term loan
and a 191.5 million term loan, each of which has a final maturity date of June 14,
2013.
As a result of the
bankruptcy of Lehman Brothers Holdings Inc. and several of its subsidiaries,
the Company believes that the maximum amount available under the revolving
credit facility was reduced by $32.3 million.
After further deducting amounts attributable to letters of credit and
overdraft facilities that are supported by the revolving credit facility, at March 31,
2009 the Companys subsidiary borrowers had unused credit of $641.8 million
available under the Agreement.
8
The weighted average interest rate on borrowings outstanding under the
Agreement at March 31, 2009 was 2.66%.
During October 2006, the Company entered
into a
300 million European
accounts receivable securitization program.
The program extends through October 2011, subject to annual renewal
of backup credit lines. In addition, the
Company participates in a receivables financing program in the Asia Pacific
region with a revolving funding commitment of 100 million Australian dollars
and 25 million New Zealand dollars that extends through July 2009 and October 2009,
respectively.
Information
related to the Companys accounts receivable securitization program is as
follows:
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Balance
(included in short-term loans)
|
|
$
|
255.2
|
|
$
|
293.7
|
|
$
|
439.6
|
|
|
|
|
|
|
|
|
|
Weighted average
interest rate
|
|
3.72
|
%
|
5.31
|
%
|
6.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
3. Supplemental Cash Flow Information
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Interest paid in
cash
|
|
$
|
27.2
|
|
$
|
40.4
|
|
|
|
|
|
|
|
Income taxes
paid in cash
|
|
37.5
|
|
25.3
|
|
|
|
|
|
|
|
|
|
4. Share Owners Equity
The activity in
share owners equity for the three months ended March 31, 2009 and 2008 is
as follows:
9
|
|
|
|
Share Owners Equity of the Company
|
|
|
|
|
|
Total
Share
Owners
Equity
|
|
Common Stock,
Capital in
Excess of Par
Value, and
Treasury Stock
|
|
Retained
Earnings
(Deficit)
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Non-
controlling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on
January 1, 2009
|
|
$
|
1,293.4
|
|
$
|
2,693.6
|
|
$
|
(32.4
|
)
|
$
|
(1,620.6
|
)
|
$
|
252.8
|
|
Issuance of
common stock
|
|
8.5
|
|
8.5
|
|
|
|
|
|
|
|
Reissuance of
common stock
|
|
1.6
|
|
1.6
|
|
|
|
|
|
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
58.8
|
|
|
|
45.1
|
|
|
|
13.7
|
|
Foreign currency
translation adjustments
|
|
(88.5
|
)
|
|
|
|
|
(79.2
|
)
|
(9.3
|
)
|
Pension and
other postretirement benefit adjustments
|
|
5.4
|
|
|
|
|
|
5.4
|
|
|
|
Change in fair
value of derivative instruments, net of tax
|
|
(6.0
|
)
|
|
|
|
|
(6.0
|
)
|
|
|
Total
comprehensive loss
|
|
(30.3
|
)
|
|
|
|
|
|
|
|
|
Dividends paid
to noncontrolling interests on subsidiary common stock
|
|
(17.0
|
)
|
|
|
|
|
|
|
(17.0
|
)
|
Balance on
March 31, 2009
|
|
$
|
1,256.2
|
|
$
|
2,703.7
|
|
$
|
12.7
|
|
$
|
(1,700.4
|
)
|
$
|
240.2
|
|
|
|
|
|
Share Owners Equity of the Company
|
|
|
|
|
|
Total
Share
Owners
Equity
|
|
Common Stock,
Capital in
Excess of Par
Value, and
Treasury Stock
|
|
Retained
Earnings
(Deficit)
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Non-
controlling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on
January 1, 2008
|
|
$
|
1,986.6
|
|
$
|
2,197.1
|
|
$
|
(285.3
|
)
|
$
|
(176.9
|
)
|
$
|
251.7
|
|
Issuance of
common stock
|
|
467.8
|
|
467.8
|
|
|
|
|
|
|
|
Reissuance of
common stock
|
|
0.6
|
|
0.6
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
194.3
|
|
|
|
178.1
|
|
|
|
16.2
|
|
Foreign currency
translation adjustments
|
|
102.0
|
|
|
|
|
|
91.3
|
|
10.7
|
|
Pension and
other postretirement benefit adjustments
|
|
8.3
|
|
|
|
|
|
8.3
|
|
|
|
Change in fair
value of derivative instruments, net of tax
|
|
23.2
|
|
|
|
|
|
23.2
|
|
|
|
Total
comprehensive income
|
|
327.8
|
|
|
|
|
|
|
|
|
|
Dividends paid
to noncontrolling interests on subsidiary common stock
|
|
(30.2
|
)
|
|
|
|
|
|
|
(30.2
|
)
|
Dividends paid
on convertible preferred stock
|
|
(5.4
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
Balance on
March 31, 2008
|
|
$
|
2,747.2
|
|
$
|
2,665.5
|
|
$
|
(112.6
|
)
|
$
|
(54.1
|
)
|
$
|
248.4
|
|
5.
Inventories
Major classes of
inventory are as follows:
10
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
875.6
|
|
$
|
831.7
|
|
$
|
1,050.8
|
|
Work in process
|
|
0.7
|
|
0.8
|
|
1.9
|
|
Raw materials
|
|
116.2
|
|
109.8
|
|
100.4
|
|
Operating supplies
|
|
52.3
|
|
57.2
|
|
69.3
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,044.8
|
|
$
|
999.5
|
|
$
|
1,222.4
|
|
6. Contingencies
The
Company is one of a number of defendants in a substantial number of lawsuits
filed in numerous state and federal courts by persons alleging bodily injury
(including death) as a result of exposure to dust from asbestos fibers. From 1948 to 1958, one of the Companys
former business units commercially produced and sold approximately $40 million
of a high-temperature, calcium-silicate based pipe and block insulation
material containing asbestos. The
Company 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 in some cases,
punitive damages in various amounts (herein referred to as asbestos claims).
As
of March 31, 2009, the Company has determined that it is a named defendant
in asbestos lawsuits and claims involving approximately 9,000 plaintiffs and
claimants.
Based on an analysis of the
lawsuits pending as of December 31, 2008, approximately 84% of plaintiffs
either do not specify the monetary damages sought, or in the case of court
filings, claim an amount sufficient to invoke the jurisdictional minimum of the
trial court. Approximately 15% of
plaintiffs specifically plead damages of $15 million or less, and 0.4% of
plaintiffs specifically plead damages greater than $15 million but less than
$100 million. Fewer than 1% of
plaintiffs specifically plead damages $100 million or greater but less than
$122 million.
As
indicated by the foregoing summary, current pleading practice permits
considerable variation in the assertion of monetary damages. The Companys experience resolving hundreds
of thousands of asbestos claims and lawsuits over an extended period,
demonstrates that the monetary relief which may be alleged in a complaint bears
little relevance to a claims merits or disposition value. Rather, the amount potentially recoverable is
determined by such factors as the plaintiffs severity of disease, the product
identification evidence against specific defendants, the defenses available to
those defendants, the specific jurisdiction in which the claim is made, and the
plaintiffs history of smoking or exposure to other possible disease-causative
factors.
In
addition to the pending claims set forth above, the Company 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 the Companys
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. The Company believes that as of March 31,
2009 there are approximately 800 claims against other defendants which are
likely to be asserted some time in the future against the Company. These claims
are not included in the pending lawsuits and claims totals set forth above.
11
The
Company 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, the Company believes that these categories of lawsuits and
claims will not involve any material liability and they are not included in the
above description of pending matters or in the following description of
disposed matters.
Since
receiving its first asbestos claim, the Company as of March 31, 2009, has
disposed of the asbestos claims of approximately 370,000 plaintiffs and
claimants at an average indemnity payment per claim of approximately
$7,300. Certain of these dispositions
have included deferred amounts payable over a number of years. Deferred amounts payable totaled
approximately $33.1 million at March 31, 2009 ($34.0 million at December 31,
2008) and are included in the foregoing average indemnity payment per
claim. The Companys 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 the Companys objective is to achieve, where
possible, resolution of asbestos claims pursuant to claims-handling
agreements. Failure of claimants to meet
certain medical and product exposure criteria in the Companys administrative
claims handling agreements has generally reduced the number of marginal or
suspect claims that would otherwise have been received. This may have the
effect of increasing the Companys per-claim average indemnity payment over
time.
The
Company believes that its ultimate asbestos-related liability (i.e., its
indemnity payments or other claim disposition costs plus related legal fees)
cannot be estimated with certainty. Beginning with the initial liability of
$975 million established in 1993, the Company has accrued a total of
approximately $3.47 billion through 2008, before insurance recoveries, for its
asbestos-related liability. The Companys
ability reasonably to estimate its liability has been significantly affected by
the volatility of asbestos-related litigation in the United States, the
inherent uncertainty of future disease incidence and claiming patterns, the
expanding list of non-traditional defendants that have been sued in this
litigation and found liable for substantial damage awards, the use of mass
litigation screenings to generate new lawsuits, the large number of claims
asserted or filed by parties who claim prior exposure to asbestos materials but
have no present physical impairment as a result of such exposure, and the
significant number of co-defendants that have filed for bankruptcy.
The
Company 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 the
Company. The material components of the Companys accrued liability are based
on amounts estimated by the Company in connection with its annual comprehensive
review and consist of the following: (i) the reasonably probable
contingent liability for asbestos claims already asserted against the Company; (ii) the
contingent liability for preexisting but unasserted asbestos claims for prior
periods arising under its administrative claims-handling agreements with
various plaintiffs counsel; (iii) the contingent liability for asbestos
claims not yet asserted against the Company, but which the Company believes it
is reasonably probable will be asserted in the next several years, to the
degree that an estimation as to future claims is possible, and (iv) the
legal defense costs likely to be incurred in connection with the foregoing
types of claims.
The
significant assumptions underlying the material components of the Companys
accrual are:
a) the extent to which settlements are limited
to claimants who were exposed to the Companys asbestos-containing insulation
prior to its exit from that business in 1958;
12
b) the extent to which claims are resolved
under the Companys administrative claims agreements or on terms comparable to
those set forth in those agreements;
c) the extent to which the Companys
accelerated settlements in 2007 and 2008 impact the number and type of future
claims and lawsuits;
d) the extent of decrease or increase in the
incidence of serious disease cases and claiming patterns for such cases;
e) the extent to which the Company is able to
defend itself successfully at trial;
f) the extent to which courts and legislatures
eliminate, reduce or permit the diversion of financial resources for unimpaired
claimants and so-called forum shopping;
g) the extent to which additional defendants
with substantial resources and assets are required to participate significantly
in the resolution of future asbestos lawsuits and claims;
h) the number and timing of additional
co-defendant bankruptcies; and
i) the extent to which co-defendant bankruptcy
trusts direct resources to resolve claims that are also presented to the
Company and the timing of the payments made by the bankruptcy trusts.
As
noted above, the Company conducts a comprehensive review of its
asbestos-related liabilities and costs annually in connection with finalizing
and reporting its annual results of operations, unless significant changes in
trends or new developments warrant an earlier review. If the results of an annual comprehensive
review indicate that the existing amount of the accrued liability is
insufficient to cover its estimated future asbestos-related costs, then the
Company will record an appropriate charge to increase the accrued
liability. The Company believes that an
estimation of the reasonably probable amount of the contingent liability for
claims not yet asserted against the Company is not possible beyond a period of
several years. Therefore, while the
results of future annual comprehensive reviews cannot be determined, the
Company expects the addition of one year to the estimation period will result
in an annual charge.
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 non-routine and involve compensatory, punitive
or treble damage claims as well as other types of relief. In accordance with FAS No. 5, the
Company records a liability for such matters when it is both probable that the
liability has been incurred and the amount of the liability can be reasonably
estimated. Recorded amounts are reviewed
and adjusted to reflect changes in the factors upon which the estimates are
based including additional information, negotiations, settlements, and other
events.
The
ultimate legal and financial liability of the Company with respect to the
lawsuits and proceedings referred to above, in addition to other pending
litigation, cannot be estimated with certainty.
The Companys reported results of operations for 2008 were materially
affected by the $250.0 million ($248.8 million after tax) fourth quarter charge
for asbestos-related costs and asbestos-related payments continue to be
substantial. Any future additional
charge would likewise materially affect the Companys results of operations for
the period in which it is
13
recorded.
Also, the continued use of significant amounts of cash for asbestos-related
costs has affected and will continue to affect the Companys 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 pay its obligations for asbestos-related costs and to fund its
working capital and capital expenditure requirements on a short-term and
long-term basis.
7. Segment Information
The
Company has four reportable segments based on its four geographic
locations: (1) Europe; (2) North
America; (3) South America; (4) Asia Pacific. These four segments are aligned with the
Companys internal approach to managing, reporting, and evaluating performance
of its global glass operations. Certain
assets and activities not directly related to one of the regions or to glass
manufacturing are reported with Retained Corporate Costs and Other. These include licensing, equipment
manufacturing, global engineering, and non-glass equity investments. Retained Corporate Costs and Other also
includes certain headquarters administrative and facilities costs and certain
incentive compensation and other benefit plan costs that are global in nature
and are not allocable to the reportable segments.
The
Companys measure of profit for its reportable segments is Segment Operating
Profit, which consists of consolidated earnings from continuing operations
before interest income, interest expense, and provision for income taxes and excludes
amounts related to certain items that management considers not representative
of ongoing operations as well as certain retained corporate costs. The Companys management uses Segment
Operating Profit, in combination with selected cash flow information, to
evaluate performance and to allocate resources.
Segment
Operating Profit for reportable segments includes an allocation of some
corporate expenses based on both a percentage of sales and direct billings
based on the costs of specific services provided.
Financial
information for the three month periods ended March 31, 2009 and 2008
regarding the Companys reportable segments is as follows:
Net sales:
|
|
2009
|
|
2008
|
|
Europe
|
|
$
|
612.9
|
|
$
|
888.9
|
|
North America
|
|
494.3
|
|
530.9
|
|
South America
|
|
214.0
|
|
254.2
|
|
Asia Pacific
|
|
182.0
|
|
250.0
|
|
|
|
|
|
|
|
Reportable
segment totals
|
|
1,503.2
|
|
1,924.0
|
|
Other
|
|
15.8
|
|
36.5
|
|
Net sales
|
|
$
|
1,519.0
|
|
$
|
1,960.5
|
|
14
Segment Operating Profit:
|
|
2009
|
|
2008
|
|
Europe
|
|
$
|
44.2
|
|
$
|
147.6
|
|
North America
|
|
62.7
|
|
55.5
|
|
South America
|
|
60.0
|
|
73.6
|
|
Asia Pacific
|
|
25.0
|
|
45.4
|
|
Reportable
segment totals
|
|
191.9
|
|
322.1
|
|
|
|
|
|
|
|
Items excluded
from Segment Operating Profit:
|
|
|
|
|
|
Retained
corporate costs and other
|
|
(11.9
|
)
|
1.5
|
|
Restructuring
and asset impairments
|
|
(50.4
|
)
|
(12.9
|
)
|
Interest income
|
|
8.5
|
|
8.7
|
|
Interest expense
|
|
(48.1
|
)
|
(64.3
|
)
|
Earnings from
continuing operations before income taxes
|
|
$
|
90.0
|
|
$
|
255.1
|
|
Financial
information regarding the Companys total assets is as follows:
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
Total assets:
|
|
2009
|
|
2008
|
|
2008
|
|
Europe
|
|
$
|
3,487.6
|
|
$
|
3,758.4
|
|
$
|
4,425.3
|
|
North America
|
|
1,888.0
|
|
1,802.9
|
|
2,016.2
|
|
South America
|
|
925.9
|
|
976.2
|
|
974.5
|
|
Asia Pacific
|
|
1,245.1
|
|
1,239.6
|
|
1,617.5
|
|
|
|
|
|
|
|
|
|
Reportable
segment totals
|
|
7,546.6
|
|
7,777.1
|
|
9,033.5
|
|
Other
|
|
205.0
|
|
199.4
|
|
923.9
|
|
Consolidated
totals
|
|
$
|
7,751.6
|
|
$
|
7,976.5
|
|
$
|
9,957.4
|
|
8. Other Expense
During
the first quarter of 2009, the Company recorded charges totaling $50.4 million
($47.7 million after tax), for restructuring and asset impairment. The charges reflect the additional decisions
reached in the Companys ongoing strategic review of its global manufacturing
footprint. Charges for similar actions
during the first quarter of 2008 totaled $12.0 million ($9.7 million after
tax). See Note 9 for additional
information.
During
the first quarter of 2008, the Company also recorded an additional $0.9 million
(before and after tax), related to the impairment of the Companys equity
investment in the South American Segments 50%-owned Caribbean affiliate.
9.
Restructuring Accruals
Beginning
in 2007, the Company commenced a strategic review of its global profitability
and manufacturing footprint. The
combined 2007, 2008 and 2009 charges, amounting to $238.1 million ($198.0
million after tax and noncontrolling interests) reflect the decisions reached
through March 31, 2009 in the Companys ongoing strategic review of its
global manufacturing footprint. The curtailment of plant capacity and
realignment of selected operations will result in a reduction in the Companys
workforce of approximately 1,950 jobs.
Amounts recorded by the Company do not include any gains that may be
realized upon the ultimate sale or disposition of closed facilities.
As
a result of its strategic review, the Company decided to curtail selected
production capacity. Because the future
undiscounted cash flows of the related long-lived asset groups were not
15
sufficient
to recover their carrying amounts, certain assets were considered
impaired. As a result, those long-lived
assets were written down to the extent their carrying amounts exceeded fair
value less cost to sell. The Company
classified the significant assumptions used to determine the fair value of the
impaired assets, which was not material, as Level 3 in the fair value hierarchy
as set forth within FAS No. 157 Fair Value Measurements.
The
Company accrued certain employee separation costs to be paid under contractual
arrangements and other exit costs.
2007
During
the third and fourth quarters of 2007, the Company recorded charges totaling
$55.3 million ($40.2 million after tax), for restructuring and asset impairment
in Europe and North America. The
curtailment of plant capacity resulted in elimination of approximately 560 jobs
and a corresponding reduction in the Companys workforce.
2008
During
2008, the Company recorded charges totaling $132.4 million ($110.1 million
after tax and noncontrolling interests), for restructuring and asset impairment
across all segments as well as in Retained Corporate Costs and Other. The curtailment of plant capacity and
realignment of selected operations resulted in elimination of approximately
1,240 jobs and a corresponding reduction in the Companys workforce.
2009
During
the first quarter of 2009, the Company recorded charges totaling $50.4 million
($47.7 million after tax), for restructuring and asset impairment in
Europe. The curtailment of plant
capacity will result in elimination of approximately 250 jobs and a
corresponding reduction in the Companys workforce.
The
Company expects that the majority of the remaining estimated cash expenditures
related to the above charges will be paid out by the end of 2009.
Selected
information related to the restructuring accrual is as follows:
|
|
Employee
Costs
|
|
Asset
Impairment
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2007 Charges
|
|
$
|
26.1
|
|
$
|
22.3
|
|
$
|
6.9
|
|
$
|
55.3
|
|
Write-down of
assets to net realizable value
|
|
|
|
(22.3
|
)
|
(2.4
|
)
|
(24.7
|
)
|
Balance at
December 31, 2007
|
|
26.1
|
|
|
|
4.5
|
|
30.6
|
|
2008 charges
|
|
70.1
|
|
32.5
|
|
29.8
|
|
132.4
|
|
Write-down of
assets to net realizable value
|
|
|
|
(32.5
|
)
|
(4.7
|
)
|
(37.2
|
)
|
Net cash paid,
principally severance and related benefits
|
|
(35.6
|
)
|
|
|
(7.2
|
)
|
(42.8
|
)
|
Other,
principally foreign exchange translation
|
|
(13.0
|
)
|
|
|
(6.1
|
)
|
(19.1
|
)
|
Balance at
December 31, 2008
|
|
47.6
|
|
|
|
16.3
|
|
63.9
|
|
2009 charges
|
|
19.1
|
|
29.3
|
|
2.0
|
|
50.4
|
|
Write-down of
assets to net realizable value
|
|
|
|
(29.3
|
)
|
|
|
(29.3
|
)
|
Net cash paid,
principally severance and related benefits
|
|
(18.9
|
)
|
|
|
(1.3
|
)
|
(20.2
|
)
|
Other,
principally foreign exchange translation
|
|
(1.7
|
)
|
|
|
(0.5
|
)
|
(2.2
|
)
|
Balance at
March 31, 2009
|
|
$
|
46.1
|
|
$
|
|
|
$
|
16.5
|
|
$
|
62.6
|
|
16
10. Derivative Instruments
The
Company has certain derivative assets and liabilities which consist of interest
rate swaps, natural gas forwards, and foreign exchange option and forward
contracts. The Company records
derivative assets and liabilities at fair value and classifies them as Level 2
in the fair value hierarchy as set forth in FAS No. 157.
Interest Rate Swaps Designated as Fair
Value Hedges
In the fourth quarter of 2003 and the first quarter of
2004, the Company entered into a series of interest rate swap agreements with a
current total notional amount of $700 million that mature in 2010
and 2013. The swaps were executed in order to: (i) convert a portion
of the senior notes and senior debentures fixed-rate debt into floating-rate
debt; (ii) maintain a capital structure containing appropriate amounts of
fixed and floating-rate debt; and (iii) reduce net interest payments and
expense in the near-term.
The
Companys fixed-to-variable interest rate swaps are accounted for as fair value
hedges. Because the relevant terms of the swap agreements match the
corresponding terms of the notes, there is no hedge ineffectiveness.
Accordingly, the Company recorded the net of the fair market values of the
swaps as a long-term asset (liability) along with a corresponding net increase
(decrease) in the carrying value of the hedged debt.
Under
the swaps, the Company receives fixed rate interest amounts (equal to interest
on the corresponding hedged note) and pays interest at a six-month U.S. LIBOR
rate (set in arrears) plus a margin spread (see table below). The interest rate
differential on each swap is recognized as an adjustment of interest expense
during each six-month period over the term of the agreement.
The following selected information relates to fair value swaps at March 31,
2009:
|
|
Amount
|
|
Receive
|
|
Average
|
|
Asset
|
|
|
|
Hedged
|
|
Rate
|
|
Spread
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Debentures due 2010
|
|
$
|
250.0
|
|
7.50
|
%
|
3.2
|
%
|
$
|
7.4
|
|
Senior Notes due
2013
|
|
450.0
|
|
8.25
|
%
|
3.7
|
%
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
700.0
|
|
|
|
|
|
$
|
25.4
|
|
For derivative instruments that are designated and
qualify as fair value hedges, the change in the fair value of the derivative
instrument related to the future cash flows (gain or loss on the derivative) as
well as the offsetting change in the fair value of the hedged item attributable
to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the
hedged items (i.e. long-term debt) in the same line item (interest expense) as
the offsetting loss or gain on the related interest rate swaps. The effect of the interest rate swaps on the
results of operations for the three months ended March 31 is as follows:
17
|
|
Amount of Gain (Loss)
|
|
|
|
Recognized in Interest Expense
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
$
|
(4.0
|
)
|
$
|
17.4
|
|
Related
long-term debt
|
|
4.0
|
|
(17.4
|
)
|
|
|
|
|
|
|
Net impact on
interest expense
|
|
$
|
|
|
$
|
|
|
Commodity Futures Contracts Designated as Cash Flow Hedges
The Company enters into commodity futures contracts
related to forecasted natural gas requirements, the objectives of which are to
limit the effects of fluctuations in the future market price paid for natural
gas and the related volatility in cash flows. The Company continually evaluates
the natural gas market with respect to its forecasted usage requirements over
the next twelve to twenty-four months and periodically enters into commodity
futures contracts in order to hedge a portion of its usage requirements over
that period. At March 31, 2009, the Company had entered into commodity
futures contracts covering approximately 9,300,000 MM BTUs over that period.
The Company accounts for the above futures
contracts as cash flow hedges at March 31, 2009 and recognizes them 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 the Accumulated Other Comprehensive Income
component of share owners equity (OCI) and reclassified into earnings in the
same period or periods during which the underlying hedged item affects
earnings. At March 31, 2009, an unrecognized loss of $43.4 million (pretax
and after tax) related to the commodity futures contracts was included in
Accumulated OCI, and will be reclassified into earnings over the next twelve to
twenty-four months. Any material portion
of the change in the fair value of a derivative designated as a cash flow hedge
that is deemed to be ineffective is recognized in current earnings. The ineffectiveness related to these natural
gas hedges for the three months ended March 31, 2009 and 2008 was not
material.
The effect of the commodity futures contracts on
the results of operations for the three months ended March 31 is as
follows:
|
|
|
Amount of Gain (Loss)
|
|
|
|
|
Reclassified from
|
|
Amount of Gain (Loss)
|
|
Accumulated OCI into
|
|
Recognized in OCI on
|
|
Income (reported in
|
|
Commodity Futures Contracts
|
|
manufacturing, shipping, and
|
|
(Effective Portion)
|
|
delivery) (Effective Portion)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
$
|
(19.3
|
)
|
$
|
22.3
|
|
$
|
(13.3
|
)
|
$
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes Designated as Net Investment Hedge
During December 2004, a U.S. subsidiary of the
Company issued Senior Notes totaling 225 million. These notes were designated by the Companys
subsidiary as a hedge of a portion of
18
its net investment in a non-U.S. subsidiary with a
Euro functional currency. Because the
amount of the Senior Notes matches the hedged portion of the net investment,
there is no hedge ineffectiveness. Accordingly, the Company recorded the impact
of changes in the foreign currency exchange rate on the Euro-denominated notes
in OCI. The amount recorded in OCI will
be reclassified into earnings when the Company sells or liquidates its net
investment in the non-U.S. subsidiary.
The effect of the net investment hedge on the
results of operations for the three months ended March 31 is as follows:
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
Amount of Gain (Loss)
|
|
Location of Gain (Loss)
|
|
Reclassified from Accumulated
|
|
Recognized in OCI
|
|
Reclassified from Accumulated
|
|
OCI into Income
|
|
2009
|
|
2008
|
|
OCI into Income
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(19.4
|
)
|
$
|
(24.2
|
)
|
N/A
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Exchange Contracts not Designated as Hedging
Instruments
The Companys subsidiaries may enter into
short-term forward exchange or option agreements to purchase foreign currencies
at set rates in the future. These agreements are used to limit exposure to fluctuations
in foreign currency exchange rates for significant planned purchases of fixed
assets or commodities that are denominated in currencies other than the
subsidiaries functional currency. Subsidiaries may also use forward exchange
agreements to offset the foreign currency risk for receivables and payables,
including intercompany receivables and payables, not denominated in, or indexed
to, their functional currencies. The Company records these short-term forward
exchange agreements on the balance sheet at fair value and changes in the fair
value are recognized in current earnings.
At March 31, 2009, various subsidiaries of the
Company had outstanding forward exchange and option agreements denominated in
various currencies covering the equivalent of approximately $900 million
related primarily to intercompany transactions and loans.
The effect of the forward exchange contracts on the
results of operations for the three months ended March 31 is as follows:
|
|
Amount of Gain (Loss)
|
|
Location of Gain (Loss)
|
|
Recognized in Income on
|
|
Recognized in Income on
|
|
Forward Exchange Contracts
|
|
Forward Exchange Contracts
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Other expense
|
|
$
|
10.5
|
|
$
|
(31.1
|
)
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
The Company records the fair values of derivative
financial instruments on the balance sheet as follows: (1) receivables if
the instrument has a positive fair value and maturity within one year, (2) deposits,
receivables, and other assets if the instrument has a positive fair value and
maturity after one year, (3) accounts payable and other current
liabilities if the instrument has a
19
negative fair value and maturity within one year,
and (4) other liabilities if the instrument has a negative fair value and
maturity after one year. The following
table shows the amount and classification of the Companys derivatives as of March 31:
|
|
2009
|
|
2008
|
|
|
|
Balance Sheet
|
|
Fair
|
|
Balance Sheet
|
|
Fair
|
|
|
|
Location
|
|
Value
|
|
Location
|
|
Value
|
|
Asset
Derivatives:
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Interest rate
swaps
|
|
|
|
|
|
Receivables
|
|
$
|
0.4
|
|
Interest rate
swaps
|
|
Deposits, receivables, and other assets
|
|
$
|
25.4
|
|
Deposits, receivables, and other assets
|
|
20.3
|
|
Commodity
futures contracts
|
|
|
|
|
|
Receivables
|
|
1.6
|
|
Commodity
futures contracts
|
|
|
|
|
|
Deposits, receivables, and other assets
|
|
17.1
|
|
Total
derivatives designated as hedging instruments
|
|
|
|
25.4
|
|
|
|
39.4
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts
|
|
Receivables
|
|
25.5
|
|
Receivables
|
|
5.2
|
|
Foreign exchange
contracts
|
|
Deposits, receivables, and other assets
|
|
2.8
|
|
Other liabilities
|
|
1.5
|
|
Total
derivatives not designated as hedging instruments
|
|
|
|
28.3
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
Total asset
derivatives
|
|
|
|
$
|
53.7
|
|
|
|
$
|
46.1
|
|
|
|
|
|
|
|
|
|
|
|
Liability
Derivatives:
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Commodity
futures contracts
|
|
Other liabilities (current)
|
|
$
|
42.5
|
|
|
|
|
|
Commodity
futures contracts
|
|
Other liabilities
|
|
0.9
|
|
|
|
|
|
Total
derivatives designated as hedging instruments
|
|
|
|
43.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not
designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts
|
|
Receivables
|
|
0.2
|
|
|
|
|
|
Foreign exchange
contracts
|
|
Other liabilities (current)
|
|
3.7
|
|
|
|
|
|
Foreign exchange
contracts
|
|
Deposits, receivables, and other assets
|
|
2.8
|
|
Other liabilities
|
|
$
|
28.2
|
|
Total
derivatives not designated as hedging instruments
|
|
|
|
6.7
|
|
|
|
28.2
|
|
|
|
|
|
|
|
|
|
|
|
Total liability
derivatives
|
|
|
|
$
|
50.1
|
|
|
|
$
|
28.2
|
|
20
11. Pensions Benefit Plans and Other
Postretirement Benefits
The
components of the net periodic pension cost (income) for the three months ended
March 31, 2009 and 2008 were as follows:
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
9.9
|
|
$
|
12.1
|
|
Interest cost
|
|
51.5
|
|
55.1
|
|
Expected asset
return
|
|
(67.3
|
)
|
(81.1
|
)
|
|
|
|
|
|
|
Amortization:
|
|
|
|
|
|
Loss
|
|
10.9
|
|
7.7
|
|
Prior service
credit
|
|
(0.2
|
)
|
(0.2
|
)
|
Net amortization
|
|
10.7
|
|
7.5
|
|
Net periodic
pension (income) cost
|
|
$
|
4.8
|
|
$
|
(6.4
|
)
|
The components of the net
postretirement benefit cost for the three months ended March 31, 2009 and 2008
were as follows:
|
|
2009
|
|
2008
|
|
Service cost
|
|
$
|
0.4
|
|
$
|
0.6
|
|
Interest cost
|
|
4.0
|
|
4.3
|
|
|
|
|
|
|
|
Amortization:
|
|
|
|
|
|
Prior service
credit
|
|
(0.8
|
)
|
(0.8
|
)
|
Loss
|
|
1.0
|
|
1.6
|
|
Net amortization
|
|
0.2
|
|
0.8
|
|
Net
postretirement benefit cost
|
|
$
|
4.6
|
|
$
|
5.7
|
|
12.
Noncontrolling Interests
Effective January 1, 2009, the Company adopted
the provisions of FAS No. 160. FAS No. 160 establishes accounting and reporting
standards for the noncontrolling interests in a subsidiary and the
deconsolidation of a subsidiary. FAS No. 160
requires an entity to present consolidated net income attributable to the
parent and to the noncontrolling interests separately on the face of the
consolidated financial statements. FAS No. 160 clarifies that
noncontrolling interests in a subsidiary should be accounted for as a component
of equity separate from the parents equity, rather than in liabilities. The format of the
Companys condensed consolidated results of
operations and condensed consolidated cash flows for the three months ended March 31,
2008 and condensed consolidated balance sheets at March 31, 2008 and December 31,
2008 have been reclassified to conform to the new presentation under FAS No. 160
which is required to be applied retrospectively. The cash flow presentation was also revised
to reflect dividends paid to noncontrolling interests as a cash flow from
financing activities. Previously these
cash flows had been reported as an operating activity.
21
13.
New Accounting Standards
In
December 2008, the FASB issued a FASB Staff Position on Statement of
Financial Accounting Standards No. 132(R), Employers Disclosures about
Postretirement Benefit Plan Assets (FSP FAS No. 132(R)-1). FSP FAS No. 132(R)-1 requires additional
year-end disclosures about the fair value of postretirement benefit plan assets
to provide users of financial statements with useful, transparent and timely
information about the asset portfolios.
FSP FAS No. 132(R)-1 is effective for years ending after December 15,
2009. Adoption of FSP FAS No. 132(R)-1
will have no impact on the Companys results of operations, financial position
or cash flows.
In April 2009,
the FASB issued a FASB Staff Position on Statement of Financial Accounting
Standards No. 107 and Accounting Principles Board Opinion No. 28, Interim
Disclosures about Fair Value of Financial Instruments (FSP FAS No. 107-1and
APB 28-1). FSP FAS No. 107-1 and
APB 28-1 requires disclosure about fair value of financial instruments for
interim reporting periods as well as in annual financial statements. FSP FAS No. 107-1 and APB 28-1 is
effective for interim and annual periods ending after June 15, 2009. Adoption of FSP FAS No. 107-1 and APB
28-1 will have no impact on the Companys results of operations, financial
position or cash flows.
14.
Discontinued Operations
The gain on sale of discontinued operations of $4.1 million reported in
2008 relates to an adjustment of the 2007 gain on the sale of the plastics
packaging business mainly related to finalizing certain tax allocations and an
adjustment to the selling price in accordance with procedures set forth in the
final contract.
15. Convertible Preferred Stock
On
February 29, 2008, the Company announced that all outstanding shares of
convertible preferred stock would be redeemed on March 31, 2008, if not
converted by holders prior to that date.
All conversions and redemptions were completed by March 31, 2008
through the issuance of 8,584,479 shares of common stock. The conversions and
redemptions resulted in an increase in common stock and capital in excess of
par value.
16. Financial Information for Subsidiary
Guarantors and Non-Guarantors
The
following presents condensed consolidating financial information for the Company,
segregating: (1) Owens-Illinois, Inc.,
the issuer of two series of senior debentures (the Parent); (2) the two
subsidiaries which have guaranteed the senior debentures on a subordinated
basis (the Guarantor Subsidiaries); and (3) all other subsidiaries (the Non-Guarantor
Subsidiaries). The Guarantor
Subsidiaries are 100% owned direct and indirect subsidiaries of the Company and
their guarantees are full, unconditional and joint and several. They have no operations and function only as
intermediate holding companies.
100% owned
subsidiaries 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 intercompany balances
and transactions.
22
|
|
March 31, 2009
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Balance Sheet
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
|
|
$
|
|
|
$
|
945.5
|
|
$
|
|
|
$
|
945.5
|
|
Inventories
|
|
|
|
|
|
1,044.8
|
|
|
|
1,044.8
|
|
Other current
assets
|
|
|
|
|
|
426.6
|
|
|
|
426.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
|
|
2,416.9
|
|
|
|
2,416.9
|
|
Investments in
and advances to subsidiaries
|
|
2,216.7
|
|
1,716.7
|
|
|
|
(3,933.4
|
)
|
|
|
Goodwill
|
|
|
|
|
|
2,130.3
|
|
|
|
2,130.3
|
|
Other
non-current assets
|
|
|
|
|
|
718.0
|
|
|
|
718.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
assets
|
|
2,216.7
|
|
1,716.7
|
|
2,848.3
|
|
(3,933.4
|
)
|
2,848.3
|
|
Property, plant,
and equipment, net
|
|
|
|
|
|
2,486.4
|
|
|
|
2,486.4
|
|
Total assets
|
|
$
|
2,216.7
|
|
$
|
1,716.7
|
|
$
|
7,751.6
|
|
$
|
(3,933.4
|
)
|
$
|
7,751.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities :
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
$
|
|
|
$
|
|
|
$
|
1,308.5
|
|
$
|
|
|
$
|
1,308.5
|
|
Current portion
of asbestos liability
|
|
175.0
|
|
|
|
|
|
|
|
175.0
|
|
Short-term loans
and long-term debt due within one year
|
|
|
|
|
|
353.6
|
|
|
|
353.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
175.0
|
|
|
|
1,662.1
|
|
|
|
1,837.1
|
|
Long-term debt
|
|
508.0
|
|
|
|
2,964.0
|
|
(500.0
|
)
|
2,972.0
|
|
Asbestos-related
liabilities
|
|
285.5
|
|
|
|
|
|
|
|
285.5
|
|
Other
non-current liabilities
|
|
(8.0
|
)
|
|
|
1,408.8
|
|
|
|
1,400.8
|
|
Capital structure
|
|
1,256.2
|
|
1,716.7
|
|
1,716.7
|
|
(3,433.4
|
)
|
1,256.2
|
|
Total
liabilities and share owners equity
|
|
$
|
2,216.7
|
|
$
|
1,716.7
|
|
$
|
7,751.6
|
|
$
|
(3,933.4
|
)
|
$
|
7,751.6
|
|
23
|
|
December 31, 2008
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Balance Sheet
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
|
|
$
|
|
|
$
|
988.8
|
|
$
|
|
|
$
|
988.8
|
|
Inventories
|
|
|
|
|
|
999.5
|
|
|
|
999.5
|
|
Other current
assets
|
|
|
|
|
|
456.4
|
|
|
|
456.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
|
|
2,444.7
|
|
|
|
2,444.7
|
|
Investments in
and advances to subsidiaries
|
|
2,288.7
|
|
1,788.7
|
|
|
|
(4,077.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
2,207.5
|
|
|
|
2,207.5
|
|
Other
non-current assets
|
|
|
|
|
|
678.7
|
|
|
|
678.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
assets
|
|
2,288.7
|
|
1,788.7
|
|
2,886.2
|
|
(4,077.4
|
)
|
2,886.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant
and equipment, net
|
|
|
|
|
|
2,645.6
|
|
|
|
2,645.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,288.7
|
|
$
|
1,788.7
|
|
$
|
7,976.5
|
|
$
|
(4,077.4
|
)
|
$
|
7,976.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities :
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
$
|
|
|
$
|
|
|
$
|
1,434.5
|
|
$
|
|
|
$
|
1,434.5
|
|
Current portion
of asbestos liability
|
|
175.0
|
|
|
|
|
|
|
|
175.0
|
|
Short-term loans
and long-term debt due within one year
|
|
|
|
|
|
393.8
|
|
|
|
393.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
175.0
|
|
|
|
1,828.3
|
|
|
|
2,003.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
508.9
|
|
|
|
2,931.4
|
|
(500.0
|
)
|
2,940.3
|
|
Asbestos-related
liabilities
|
|
320.3
|
|
|
|
|
|
|
|
320.3
|
|
Other
non-current liabilities
|
|
(8.9
|
)
|
|
|
1,428.1
|
|
|
|
1,419.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
structure
|
|
1,293.4
|
|
1,788.7
|
|
1,788.7
|
|
(3,577.4
|
)
|
1,293.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and share owners equity
|
|
$
|
2,288.7
|
|
$
|
1,788.7
|
|
$
|
7,976.5
|
|
$
|
(4,077.4
|
)
|
$
|
7,976.5
|
|
24
|
|
March 31, 2008
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Balance Sheet
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
|
|
$
|
|
|
$
|
1,320.6
|
|
$
|
|
|
$
|
1,320.6
|
|
Inventories
|
|
|
|
|
|
1,222.4
|
|
|
|
1,222.4
|
|
Other current
assets
|
|
|
|
|
|
571.8
|
|
|
|
571.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
|
|
3,114.8
|
|
|
|
3,114.8
|
|
Investments in
and advances to subsidiaries
|
|
3,912.5
|
|
3,162.5
|
|
|
|
(7,075.0
|
)
|
|
|
Goodwill
|
|
|
|
|
|
2,522.2
|
|
|
|
2,522.2
|
|
Other
non-current assets
|
|
|
|
|
|
1,325.2
|
|
|
|
1,325.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
assets
|
|
3,912.5
|
|
3,162.5
|
|
3,847.4
|
|
(7,075.0
|
)
|
3,847.4
|
|
Property, plant,
and equipment, net
|
|
|
|
|
|
2,995.2
|
|
|
|
2,995.2
|
|
Total assets
|
|
$
|
3,912.5
|
|
$
|
3,162.5
|
|
$
|
9,957.4
|
|
$
|
(7,075.0
|
)
|
$
|
9,957.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities :
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
$
|
|
|
$
|
|
|
$
|
1,635.4
|
|
$
|
|
|
$
|
1,635.4
|
|
Current portion
of asbestos liability
|
|
210.0
|
|
|
|
|
|
|
|
210.0
|
|
Short-term loans
and long-term debt due within one year
|
|
250.0
|
|
|
|
835.1
|
|
(250.0
|
)
|
835.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
460.0
|
|
|
|
2,470.5
|
|
(250.0
|
)
|
2,680.5
|
|
Long-term debt
|
|
504.7
|
|
|
|
3,187.8
|
|
(500.0
|
)
|
3,192.5
|
|
Asbestos-related
liabilities
|
|
205.3
|
|
|
|
|
|
|
|
205.3
|
|
Other
non-current liabilities
|
|
(4.7
|
)
|
|
|
1,136.6
|
|
|
|
1,131.9
|
|
Capital
structure
|
|
2,747.2
|
|
3,162.5
|
|
3,162.5
|
|
(6,325.0
|
)
|
2,747.2
|
|
Total
liabilities and share owners equity
|
|
$
|
3,912.5
|
|
$
|
3,162.5
|
|
$
|
9,957.4
|
|
$
|
(7,075.0
|
)
|
$
|
9,957.4
|
|
25
|
|
Three months ended March 31, 2009
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Results of Operations
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
|
|
$
|
1,519.0
|
|
$
|
|
|
$
|
1,519.0
|
|
Manufacturing,
shipping, and delivery
|
|
|
|
|
|
(1,222.2
|
)
|
|
|
(1,222.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
296.8
|
|
|
|
296.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
engineering, selling, administrative, and other
|
|
|
|
|
|
(185.2
|
)
|
|
|
(185.2
|
)
|
External
interest expense
|
|
(9.7
|
)
|
|
|
(38.4
|
)
|
|
|
(48.1
|
)
|
Intercompany
interest expense
|
|
|
|
(9.7
|
)
|
(9.7
|
)
|
19.4
|
|
|
|
External
interest income
|
|
|
|
|
|
8.5
|
|
|
|
8.5
|
|
Intercompany
interest income
|
|
9.7
|
|
9.7
|
|
|
|
(19.4
|
)
|
|
|
Equity earnings
from subsidiaries
|
|
45.1
|
|
45.1
|
|
|
|
(90.2
|
)
|
|
|
Other equity earnings
|
|
|
|
|
|
13.6
|
|
|
|
13.6
|
|
Other revenue
|
|
|
|
|
|
4.4
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
45.1
|
|
45.1
|
|
90.0
|
|
(90.2
|
)
|
90.0
|
|
Provision for
income taxes
|
|
|
|
|
|
(31.2
|
)
|
|
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
45.1
|
|
45.1
|
|
58.8
|
|
(90.2
|
)
|
58.8
|
|
Net earnings
attributable to noncontrolling interests
|
|
|
|
|
|
(13.7
|
)
|
|
|
(13.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
attributable to the Company
|
|
$
|
45.1
|
|
$
|
45.1
|
|
$
|
45.1
|
|
$
|
(90.2
|
)
|
$
|
45.1
|
|
26
|
|
Three months ended March 31, 2008
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Results of Operations
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
|
|
$
|
1,960.5
|
|
$
|
|
|
$
|
1,960.5
|
|
Manufacturing,
shipping, and delivery
|
|
|
|
|
|
(1,503.7
|
)
|
|
|
(1,503.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
456.8
|
|
|
|
456.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research,
engineering, selling, administrative, and other
|
|
|
|
|
|
(163.8
|
)
|
|
|
(163.8
|
)
|
External
interest expense
|
|
(14.4
|
)
|
|
|
(49.9
|
)
|
|
|
(64.3
|
)
|
Intercompany
interest expense
|
|
|
|
(14.4
|
)
|
(14.4
|
)
|
28.8
|
|
|
|
External
interest income
|
|
|
|
|
|
8.7
|
|
|
|
8.7
|
|
Intercompany
interest income
|
|
14.4
|
|
14.4
|
|
|
|
(28.8
|
)
|
|
|
Equity earnings
from subsidiaries
|
|
174.0
|
|
174.0
|
|
|
|
(348.0
|
)
|
|
|
Other equity
earnings
|
|
|
|
|
|
11.1
|
|
|
|
11.1
|
|
Other revenue
|
|
|
|
|
|
6.6
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from
continuing operations before income taxes
|
|
174.0
|
|
174.0
|
|
255.1
|
|
(348.0
|
)
|
255.1
|
|
Provision for
income taxes
|
|
|
|
|
|
(64.9
|
)
|
|
|
(64.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from
continuing operations
|
|
174.0
|
|
174.0
|
|
190.2
|
|
(348.0
|
)
|
190.2
|
|
Gain on sale of
discontinued operations
|
|
4.1
|
|
4.1
|
|
4.1
|
|
(8.2
|
)
|
4.1
|
|
Net earnings
|
|
178.1
|
|
178.1
|
|
194.3
|
|
(356.2
|
)
|
194.3
|
|
Net earnings attributable
to noncontrolling interest
|
|
|
|
|
|
(16.2
|
)
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
attributable to the Company
|
|
$
|
178.1
|
|
$
|
178.1
|
|
$
|
178.1
|
|
$
|
(356.2
|
)
|
$
|
178.1
|
|
27
|
|
Three months ended March 31, 2009
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Cash Flows
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
(used in) operating activities
|
|
$
|
(34.8
|
)
|
$
|
|
|
$
|
6.3
|
|
$
|
|
|
$
|
(28.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in
investing activities
|
|
|
|
|
|
(44.9
|
)
|
|
|
(44.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
financing activities
|
|
34.8
|
|
|
|
30.3
|
|
|
|
65.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate change on cash
|
|
|
|
|
|
(8.9
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
cash
|
|
|
|
|
|
(17.2
|
)
|
|
|
(17.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at
beginning of period
|
|
|
|
|
|
379.5
|
|
|
|
379.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of
period
|
|
$
|
|
|
$
|
|
|
$
|
362.3
|
|
$
|
|
|
$
|
362.3
|
|
|
|
Three months ended March 31, 2008
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Cash Flows
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
(used in) operating activities
|
|
$
|
(40.2
|
)
|
$
|
|
|
$
|
91.1
|
|
$
|
|
|
$
|
50.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in
investing activities
|
|
|
|
|
|
(77.0
|
)
|
|
|
(77.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
financing activities
|
|
40.2
|
|
|
|
69.0
|
|
|
|
109.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate change on cash
|
|
|
|
|
|
12.2
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in
cash
|
|
|
|
|
|
95.3
|
|
|
|
95.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at
beginning of period
|
|
|
|
|
|
387.7
|
|
|
|
387.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of
period
|
|
$
|
|
|
$
|
|
|
$
|
483.0
|
|
$
|
|
|
$
|
483.0
|
|
28
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations.
Following
are the Companys net sales by segment and Segment Operating Profit for the
three months ended March 31, 2009 and 2008. The Companys measure of profit for its
reportable segments is Segment Operating Profit, which consists of consolidated
earnings from continuing operations before interest income, interest expense,
and provision for income taxes and excludes amounts related to certain items
that management considers not representative of ongoing operations as well as
certain retained corporate costs. The
segment data presented below is prepared in accordance with FAS No. 131. The line titled reportable segment totals,
however, is a non-GAAP measure when presented outside of the financial
statement footnotes. Management has
included reportable segment totals below to facilitate the discussion and
analysis of financial condition and results of operations. The Companys management uses Segment Operating
Profit, in combination with selected cash flow information, to evaluate
performance and to allocate resources.
|
|
Three months ended March
31,
|
|
Net Sales:
|
|
2009
|
|
2008
|
|
Europe
|
|
$
|
612.9
|
|
$
|
888.9
|
|
North America
|
|
494.3
|
|
530.9
|
|
South America
|
|
214.0
|
|
254.2
|
|
Asia Pacific
|
|
182.0
|
|
250.0
|
|
|
|
|
|
|
|
Reportable
segment totals
|
|
1,503.2
|
|
1,924.0
|
|
Other
|
|
15.8
|
|
36.5
|
|
Net Sales
|
|
$
|
1,519.0
|
|
$
|
1,960.5
|
|
29
|
|
Three months ended March
31,
|
|
Segment Operating Profit:
|
|
2009
|
|
2008
|
|
Europe
|
|
$
|
44.2
|
|
$
|
147.6
|
|
North America
|
|
62.7
|
|
55.5
|
|
South America
|
|
60.0
|
|
73.6
|
|
Asia Pacific
|
|
25.0
|
|
45.4
|
|
Reportable
segment totals
|
|
191.9
|
|
322.1
|
|
|
|
|
|
|
|
Items excluded
from Segment Operating Profit:
|
|
|
|
|
|
Retained
corporate costs and other
|
|
(11.9
|
)
|
1.5
|
|
Restructuring
and asset impairments
|
|
(50.4
|
)
|
(12.9
|
)
|
Interest income
|
|
8.5
|
|
8.7
|
|
Interest expense
|
|
(48.1
|
)
|
(64.3
|
)
|
Earnings from
continuing operations before income taxes
|
|
90.0
|
|
255.1
|
|
Provision for
income taxes
|
|
(31.2
|
)
|
(64.9
|
)
|
Earnings from
continuing operations
|
|
58.8
|
|
190.2
|
|
Gain on sale of
discontinued operations
|
|
|
|
4.1
|
|
Net earnings
|
|
58.8
|
|
194.3
|
|
Net earnings
attributable to noncontrolling interests
|
|
(13.7
|
)
|
(16.2
|
)
|
Net earnings
attributable to the Company
|
|
$
|
45.1
|
|
$
|
178.1
|
|
|
|
|
|
|
|
Net earnings
from continuing operations attributable to the Company
|
|
$
|
45.1
|
|
$
|
174.0
|
|
Note: All amounts excluded from reportable segment
totals are discussed in the following applicable sections.
Executive Overview
Quarters ended March 31, 2009 and 2008
Net sales were $441.5 million lower than the prior year principally
resulting from decreased shipments and the unfavorable effect of foreign
currency exchange rates, partially offset by higher selling prices.
Segment Operating Profit for reportable segments was $130.2 million
lower than the prior year. The decrease
was mainly attributable to lower sales volume and increased manufacturing and
delivery costs resulting from unabsorbed fixed costs of approximately $100
million from temporary shutdowns as well as inflationary cost increases.
Partially offsetting these costs were higher selling prices and savings from
permanent curtailment of plant capacity and realignment of selected operations.
Interest expense for the first quarter of 2009 was $48.1 million
compared with $64.3 million for the first quarter of 2008. The decrease is principally due to lower
variable interest rates under the Companys bank credit agreement and on long
term debt variable and swapped rates, lower overall debt levels, as well as
favorable foreign currency exchange rates.
Interest income for the first quarter of 2009 was $8.5 million compared
with $8.7 million for the first quarter of 2008.
30
Net earnings from continuing operations attributable to the Company for
2009 were $45.1 million, or $0.27 per share (diluted), compared with $174.0
million, or $1.02 per share (diluted) for 2008.
Earnings in both periods included items that management considered not
representative of ongoing operations.
These items decreased net earnings in 2009 by $47.7 million, or $0.28
per share, and decreased net earnings in 2008 by $9.7 million, or $0.06 per
share.
Cash payments for asbestos-related costs were $34.8 million for the
three months ended March 31, 2009 compared with $40.2 million for the
three months ended March 31, 2008.
Capital spending for property, plant and equipment for continuing
operations was $46.6 million for 2009 compared with $45.4 million for 2008.
Company Outlook
The
Company expects that the volume of glass shipments will decrease in the second
quarter of 2009 compared to the same period in 2008. However, glass shipments are expected to
improve in the second quarter of 2009 compared to the first quarter of 2009,
primarily due to seasonally stronger demand and the abatement of inventory
de-stocking.
Inflationary
cost increases, primarily for raw materials, accounted for approximately $66
million of the increase in manufacturing, shipping, and delivery expense in the
first quarter of 2009. The Company
expects that net inflation for the full year 2009 could range up to $150
million.
Results
of Operations First Quarter of 2009 compared with First Quarter of 2008
Net Sales
The
Companys net sales in the first quarter of 2009 were $1,519.0 million compared
with $1,960.5 million for the first quarter of 2008, a decrease of $441.5
million, or 22.5%. For further
information, see Segment Information included in Note 7 to the Condensed
Consolidated Financial Statements.
The change in net sales of reportable segments can be summarized as
follows (dollars in millions):
Net sales - 2008
|
|
|
|
$
|
1,924.0
|
|
Decreased sales
volume
|
|
$
|
(296.0
|
)
|
|
|
Net effect of
price and mix
|
|
121.0
|
|
|
|
Effects of
changing foreign currency rates
|
|
(245.8
|
)
|
|
|
|
|
|
|
|
|
Total effect on
net sales
|
|
|
|
(420.8
|
)
|
Net sales - 2009
|
|
|
|
$
|
1,503.2
|
|
|
|
|
|
|
|
|
|
Segment Operating Profit
Operating
Profit of the reportable segments includes an allocation of some corporate
expenses based on both a percentage of sales and direct billings based on the
costs of specific services provided.
Unallocated corporate expenses and certain other expenses not directly
related to the reportable segments operations are included in Retained
Corporate Costs and Other. For further
information, see Segment Information included in Note 7 to the Condensed
Consolidated Financial Statements.
Segment Operating Profit of reportable segments in the first quarter of
2009 was $191.9 million compared to $322.1 million for the first quarter of
2008, a decrease of $130.2 million, or 40.4%.
The change in Segment Operating Profit of reportable segments can be
summarized as follows (dollars in millions):
31
Segment
Operating Profit - 2008
|
|
|
|
$
|
322.1
|
|
Decreased sales
volume
|
|
$
|
(94.0
|
)
|
|
|
Net effect of
price and mix
|
|
121.0
|
|
|
|
Manufacturing
and delivery
|
|
(133.0
|
)
|
|
|
Operating
expenses
|
|
(3.0
|
)
|
|
|
Effects of
changing foreign currency rates
|
|
(29.0
|
)
|
|
|
Other
|
|
7.8
|
|
|
|
|
|
|
|
|
|
Total net effect
on Segment Operating Profit
|
|
|
|
(130.2
|
)
|
Segment
Operating Profit - 2009
|
|
|
|
$
|
191.9
|
|
|
|
|
|
|
|
|
|
Interest Expense
Interest expense for the first quarter of 2009 was $48.1 million
compared with $64.3 million for the first quarter of 2008. The decrease is principally due to lower
variable interest rates under the Companys bank credit agreement and on long
term debt variable and swapped rates, lower overall debt levels, as well as
favorable foreign currency exchange rates.
Interest Income
Interest income for the first quarter of 2009 was $8.5 million compared
with $8.7 million for the first quarter of 2008.
Net
Earnings Attributable to Noncontrolling Interests
Net
earnings attributable to noncontrolling interests in the first quarter of 2009
was $13.7 million compared with $16.2 million in the first quarter of 2008.
Provision
for Income Taxes
The
Companys effective tax rate for the three months ended March 31, 2009 was
24.1%, compared with 25.4% for the first three months of 2008. The Company
expects that the full year effective tax rate will be comparable to the 24.0%
effective tax rate for 2008 for continuing operations excluding the separately
taxed items.
Items Excluded from Reportable Segment Totals
Retained Corporate Costs and Other
Retained corporate costs and other in 2009 were $11.9 million compared
with $(1.5) million for 2008. The
increased expense is mainly attributable to in
creased employee benefit costs in 2009.
Restructuring and
Asset Impairments
During
the first quarter of 2009, the Company recorded charges totaling $50.4 million
($47.7 million after tax), for restructuring and asset impairment. The charges reflect the additional decisions
reached in the Companys ongoing strategic review of its global manufacturing
footprint. Charges for similar actions
during the first quarter of 2008 totaled $12.0 million ($9.7 million after
tax). See Note 9 to the Condensed Consolidated Financial Statements for additional information.
32
During
the first quarter of 2008, the Company also recorded an additional $0.9 million
(before and after tax), related to the impairment of the Companys equity
investment in the South American Segments 50%-owned Caribbean affiliate.
Discontinued
Operations
The gain on sale of discontinued operations of $4.1 million reported in
2008 relates to an adjustment of the 2007 gain on the sale of the plastics
packaging business mainly related to finalizing certain tax allocations and an
adjustment to the selling price in accordance with procedures set forth in the
final contract.
Capital
Resources and Liquidity
The
Companys total debt at March 31, 2009 was $3.33 billion, compared with
$3.33 billion at December 31, 2008 and $4.03 billion at March 31,
2008.
On June 14,
2006, the Companys subsidiary borrowers entered into the Secured Credit
Agreement (the Agreement). At March 31,
2009, the Agreement included a $900.0 million revolving credit facility, a
225.0 million Australian dollar term loan, and a 110.8 million Canadian dollar
term loan, each of which has a final maturity date of June 15, 2012. It also included a $191.5 million term loan
and a 191.5 million term loan, each of which has a final maturity date of June 14,
2013.
As a result of the
bankruptcy of Lehman Brothers Holdings Inc. and several of its subsidiaries,
the Company believes that the maximum amount available under the revolving
credit facility was reduced by $32.3 million.
After further deducting amounts attributable to letters of credit and
overdraft facilities that are supported by the revolving credit facility, at March 31,
2009 the Companys subsidiary borrowers had unused credit of $641.8 million
available under the Agreement.
The weighted average interest rate on borrowings outstanding under the
Agreement at March 31, 2009 was 2.66%.
During October 2006, the Company entered
into a
300 million European
accounts receivable securitization program.
The program extends through October 2011, subject to annual renewal
of backup credit lines. In addition, the
Company participates in a receivables financing program in the Asia Pacific
region with a revolving funding commitment of 100 million Australian dollars
and 25 million New Zealand dollars that extends through July 2009 and October 2009,
respectively.
33
Information
related to the Companys accounts receivable securitization program is as
follows:
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Balance
(included in short-term loans)
|
|
$
|
255.2
|
|
$
|
293.7
|
|
$
|
439.6
|
|
|
|
|
|
|
|
|
|
Weighted average
interest rate
|
|
3.72
|
%
|
5.31
|
%
|
6.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The
Company assesses its capital raising and refinancing needs on an ongoing basis
and may seek to issue debt securities in the domestic and international capital
markets from time to time if market conditions are favorable.
For
the three months ended March 31, 2009, cash utilized in operating
activities was $28.5 million compared with cash provided by operating
activities of $50.9 million for 2008.
The decrease is mainly attributable to lower net earnings and increased
payments for restructuring activities, partially offset by lower working
capital balances, lower interest payments, and lower payments for
asbestos-related costs. The Company
anticipates that operating activities will continue to utilize cash in the
second quarter. Cash flows from operating activities will continue to be
affected by payments for restructuring activities which the Company expects to
total up to $120 million for the full year 2009.
Asbestos-related payments for the three months ended March 31,
2009 decreased $5.4 million to $34.8 million, compared with $40.2 million for
the three months ended March 31, 2008.
Based
on exchange rates at March 31, 2009, the Company expects to contribute
approximately $75 million to $80 million to its non-U.S. defined benefit
pension plans in 2009, compared with $61.2 million in 2008. The Company is not required to make cash
contributions to the U.S. defined benefit pension plans during 2009. Contributions in 2010 are dependent on future
asset returns and discount rates which the Company is unable to predict. However, based on a reasonably wide range of
possible future asset returns and discount rates through the end of 2009, the
Company believes that contributions to its non-U.S. plans will be moderately
higher in 2010 and that it will not be required to make contributions to its
U.S. plans in 2010. Depending on a
number of factors, the Company may elect to contribute amounts in excess of
minimum required amounts in order to improve the funded status of certain
plans.
Capital spending for property, plant and equipment was $46.6 million
compared with $45.4 million in the prior year.
The Company capitalized $9.5 million in 2009 under capital lease
obligations with the related financing recorded as long-term debt. Total capital spending for 2008 was $361.7
million. Based on current exchange
rates, total capital spending for 2009 is expected to be in the range of
$380-$440 million depending on market conditions.
During
the current downturn in global financial markets, some companies may experience
difficulties accessing their cash equivalents, drawing on revolvers, issuing
debt, and raising capital generally, which could have a material adverse impact
on their liquidity. Notwithstanding these adverse market conditions, the
Company anticipates that cash flows from its operations and from utilization of
credit available under the Agreement will be sufficient to fund its operating
and seasonal working capital needs, debt service and other obligations on a
short-term (twelve-months) and long-term basis.
Based on the Companys expectations regarding future payments for
lawsuits and claims and also based on the Companys expected operating cash
flow, the Company believes that the payment of any deferred amounts of
previously settled or otherwise
34
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 Companys liquidity on a short-term or long-term basis.
Critical
Accounting Estimates
The Companys 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. Estimates and assumptions are based on
historical and other factors believed to be reasonable under the circumstances
at the time the financial statements are issued. The results of these estimates may form the
basis of the carrying value of certain assets and liabilities and may not be
readily apparent from other sources.
Actual results, under conditions and circumstances different from those
assumed, may differ from estimates.
The impact of, and any associated risks related to, estimates and
assumptions are discussed within Managements Discussion and Analysis of
Financial Condition and Results of Operations, as well as in the Notes to the
Condensed Consolidated Financial Statements, if applicable, where estimates and
assumptions affect the Companys reported and expected financial results.
The Company believes that accounting for property, plant and equipment,
impairment of long-lived assets, pension benefit plans, contingencies and
litigation, and income taxes involves the more significant judgments and
estimates used in the preparation of its consolidated financial statements.
Property, Plant and Equipment
The net carrying amount of
property, plant, and equipment (PP&E) at March 31, 2009 totaled
$2,486.4 million, representing 32% of total assets. Depreciation expense for the three months ended
March 31, 2009 totaled $88.4 million, representing approximately 6% of
total costs and expenses. Given the significance of PP&E and associated
depreciation to the Companys consolidated financial statements, the
determinations of an assets cost basis and its economic useful life are
considered to be critical accounting estimates.
Cost Basis
- PP&E is
recorded at cost, which is generally objectively quantifiable when assets are
purchased singly. However, when assets
are purchased in groups, or as part of a business, costs assigned to PP&E
are based on an estimate of fair value of each asset at the date of
acquisition. These estimates are based
on assumptions about asset condition, remaining useful life and market
conditions, among others. The Company
frequently employs expert appraisers to aid in allocating cost among assets
purchased as a group.
Included in the cost basis
of PP&E are those costs which substantially increase the useful lives or
capacity of existing PP&E.
Significant judgment is needed to determine which costs should be
capitalized under these criteria and which costs should be expensed as a repair
or maintenance expenditure. For example,
the Company frequently incurs various costs related to its existing glass
melting furnaces and forming machines and must make a determination of which
costs, if any, to capitalize. The
Company relies on the experience and expertise of its
35
operations and engineering
staff to make reasonable and consistent judgments regarding increases in useful
lives or capacity of PP&E.
Estimated Useful Life
PP&E is
generally depreciated using the straight-line method, which deducts equal
amounts of the cost of each asset from earnings each period over its estimated
economic useful life. Economic useful
life is the duration of time an asset is expected to be productively employed
by the Company, which may be less than its physical life. Managements
assumptions regarding the following factors, among others, affect the
determination of estimated economic useful life: wear and tear, product and
process obsolescence, technical standards, and changes in market demand.
The estimated economic
useful life of an asset is monitored to determine its appropriateness, especially
in light of changed business circumstances. For example, technological
advances, excessive wear and tear, or changes in customers requirements may
result in a shorter estimated useful life than originally anticipated. In these
cases, the Company depreciates the remaining net book value over the new
estimated remaining life, thereby increasing depreciation expense per year on a
prospective basis. Likewise, if the
estimated useful life is increased, the adjustment to the useful life decreases
depreciation expense per year on a prospective basis. Changes in economic useful life assumptions
did not have a material impact on the Companys reported results in 2009, 2008
or 2007.
Impairment of Long-Lived Assets
Property, Plant, and Equipment
As required
by FAS No. 144
Accounting for the Impairment or
Disposal of Long-Lived Assets,
the Company tests for
impairment of PP&E whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. PP&E held for use in the Companys
business is grouped for impairment testing at the lowest level for which cash
flows can reasonably be identified, typically a geographic region. The Company evaluates the recoverability of
property, plant, and equipment based on undiscounted projected cash flows,
excluding interest and taxes. If an asset group is considered impaired, the
impairment loss to be recognized is measured as the amount by which the asset
groups carrying amount exceeds its fair value.
PP&E held for sale is reported at the lower of carrying amount or
fair value less cost to sell.
Impairment testing requires
estimation of the fair value of PP&E based on the discounted value of
projected future cash flows generated by the asset group. The assumptions underlying cash flow
projections represent managements best estimates at the time of the impairment
review. Factors that management must
estimate include, among other things: industry and market conditions, sales
volume and prices, production costs and inflation. Changes in key assumptions or actual
conditions which differ from estimates could result in an impairment
charge. The Company uses reasonable and
supportable assumptions when performing impairment reviews and cannot predict
the occurrence of future events and circumstances that could result in
impairment charges.
In mid-2007, the Company
began a strategic review of its global manufacturing footprint. The review is ongoing into 2009. As an initial result of this review, during
2009, 2008, and 2007, the Company recorded charges that included impairments of
property, plant, and equipment across all segments including certain Retained
Corporate Costs and Other activities. It
is possible that the Company may conclude in the future that it will close or
temporarily idle additional selected facilities or production lines and reduce
headcount to increase operating performance and cash flows. As of March 31, 2009, no other decisions
had been made and no events had occurred
36
that would require an
additional evaluation of possible impairment in accordance with FAS No. 144. For additional information on charges
recorded in 2009, 2008 and 2007, see Note 9 to the Condensed Consolidated
Financial Statements.
Goodwill
Goodwill at March 31,
2009 totaled $2,130.3 million, representing 27% of total assets. As required by FAS No. 142,
Goodwill
and Other Intangible Assets,
the Company evaluates
goodwill annually (or more frequently if impairment indicators arise) for
impairment. The Company conducts its
evaluation as of October 1 of each year.
Goodwill impairment testing is performed using the business enterprise
value (BEV) of each reporting unit which is calculated as of a measurement
date by determining the present value of debt-free, after-tax projected future
cash flows, discounted at the weighted average cost of capital of a
hypothetical third party buyer. This BEV
is then compared to the book value of each reporting unit as of the measurement
date to assess whether an impairment of goodwill may exist.
During the fourth quarter of 2008, the Company completed its annual
testing and determined that no impairment of goodwill existed.
The testing performed as of October 1, 2008, indicated a
significant excess of BEV over book value for each unit. If the Companys projected future cash flows
were substantially lower, or if the assumed weighted average cost of capital
was substantially higher, the testing performed as of October 1, 2008,
might have indicated an impairment of one or more of the Companys reporting
units and, as a result, the related goodwill might also have been
impaired. However, less significant
changes in projected future cash flows or the assumed weighted average cost of
capital would not have indicated an impairment.
For example, if projected future cash flows had been decreased by 5%, or
if the weighted average cost of capital had been increased by 5%, or both, the
resulting lower BEVs would still have exceeded the book value of each reporting
unit by a significant margin.
The Company will monitor conditions throughout 2009 that might
significantly affect the projections and variables used in the impairment test
to determine if a review prior to October 1 may be appropriate. If the results of impairment testing confirm
that a write down of goodwill is necessary, then the Company will record a
charge in the fourth quarter of 2009, or earlier if appropriate. In the event the Company would be required to
record a significant write down of goodwill, the charge would have a material
adverse effect on reported results of operations and net worth.
Other
Long-Lived Assets
Other long-lived assets include, among others,
equity investments and repair parts inventories. The Companys equity investments are
non-publicly traded ventures with other companies in businesses related to
those of the Company. Equity investments
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the investment may not be
recoverable. In the event that a decline
in fair value of an investment occurs, and the decline in value is considered
to be other than temporary, an impairment loss is recognized. Summarized
financial information of equity affiliates is included in Note 5 to the 2008
Annual Report on Form 10-K.
The Company carries a significant amount of repair parts inventories in
order to provide a dependable supply of quality parts for servicing the Companys
PP&E, particularly its glass melting furnaces and forming machines. The Company evaluates the recoverability of
repair parts inventories based on undiscounted projected cash flows, excluding
interest and taxes, when factors indicate that impairment may exist. If impairment exists, the repair parts are
written down to fair value. The Company
continually monitors the carrying value of repair parts
37
for recoverability, especially in light of changing business
circumstances. For example,
technological advances related to, and changes in, the estimated future demand
for products produced on the equipment to which the repair parts relate may
make the repair parts obsolete. In these
circumstances, the Company writes down the repair parts to fair value.
Pension Benefit Plans
Significant
Estimates
- The determination of pension obligations and the
related pension expense or credits to operations involves significant
estimates. The most significant
estimates are the discount rate used to calculate the actuarial present value
of benefit obligations and the expected long-term rate of return on plan
assets. The Company uses discount rates
based on yields of high quality fixed rate debt securities at the end of the
year. At December 31, 2008, the
weighted average discount rate for all plans was 6.29%. The Company uses an expected long-term rate
of return on assets that is based on both past performance of the various plans
assets and estimated future performance of the assets. Due to the nature of the plans assets and
the volatility of debt and equity markets, actual returns may vary
significantly from year to year. The
Company refers to average historical returns over longer periods (up to 10
years) in determining its expected rates of return because short-term fluctuations
in market values do not reflect the rates of return the Company expects to
achieve based upon its long-term investing strategy. For purposes of determining pension charges
and credits in 2009, the Companys estimated weighted average expected
long-term rate of return on plan assets is 7.7% compared to 8.1% in 2008. The Company recorded pension expense (income)
of $4.8 million and $(6.4) million in 2009 and 2008, respectively, from its
principal defined benefit pension plans.
Depending on currency translation rates, the Company expects to record
approximately $20 million of pension expense for the full year of 2009.
Future
effects on reported results of operations depend on economic conditions and
investment performance. For example, a
one-half percentage point change in the actuarial assumption regarding the
expected return on assets would result in a change of approximately $18 million
in the pretax pension cost (income) for the full year 2009. In addition, changes in external factors, including
the fair values of plan assets and the discount rates used to calculate plan
liabilities, could have a significant effect on the recognition of funded
status as described below.
Recognition
of Funded Status
FAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, requires employers to adjust
the assets and liabilities related to defined benefit plans so that the amounts
reflected on the balance sheet represent the overfunded or underfunded status
of the plans. These funded status
amounts are measured as the difference between the fair value of plan assets
and actuarially calculated benefit obligations as of the balance sheet
date. At December 31, 2008, the
Accumulated Other Comprehensive Loss component of share owners equity was
increased by $1,080.1 million ($1,025.0 million after tax) to reflect a net
decrease in the funded status of the Companys plans at that date.
Contingencies
and Litigation
The
Company believes that its ultimate asbestos-related liability (i.e., its
indemnity payments or other claim disposition costs plus related legal fees)
cannot be estimated with certainty. The Companys ability reasonably to
estimate its liability has been significantly affected by the volatility of
asbestos-related litigation in the United States, the inherent uncertainty of
future disease incidence and claiming patterns, the expanding list of
non-traditional defendants that have been sued in this litigation and found
liable for substantial damage awards, the use of mass litigation screenings to
generate new lawsuits, the large number of claims asserted or filed
38
by
parties who claim prior exposure to asbestos materials but have no present
physical impairment as a result of such exposure, and the significant number of
co-defendants that have filed for bankruptcy.
The Company continues to monitor trends that may affect its ultimate
liability and continues to analyze the developments and variables affecting or
likely to affect the resolution of pending and future asbestos claims against
the Company.
The
Company conducts a comprehensive review of its asbestos-related liabilities and
costs annually in connection with finalizing and reporting its annual results
of operations, unless significant changes in trends or new developments warrant
an earlier review. If the results of an
annual comprehensive review indicate that the existing amount of the accrued
liability is insufficient to cover its estimated future asbestos-related costs,
then the Company will record an appropriate charge to increase the accrued
liability. The Company believes that an
estimation of the reasonably probable amount of the contingent liability for
claims not yet asserted against the Company is not possible beyond a period of
several years. Therefore, while the
results of future annual comprehensive reviews cannot be determined, the
Company expects the addition of one year to the estimation period will result
in an annual charge.
In
the fourth quarter of 2008, the Company recorded a charge of $250.0 million
($248.8 million after tax) to increase its accrued liability for
asbestos-related costs. This amount was higher than the 2007 charge of $115.0
million. The larger 2008 charge reflects
higher filing rates and average disposition costs for 2008 and the next several
years than previously estimated. The
factors and developments that particularly affected the determination of the
amount of this increase in the accrual included the following: (i) the
rates and average disposition costs of filings against the Company; (ii) the
continuing evidence of irregularities associated with mass litigation
screenings; (iii) the Companys
successful litigation record; (iv) legislative developments and court rulings
in several states; (v) the Companys strategy to accelerate settlements of
certain claims on favorable terms; and (vi) the impact these and other
factors had on the Companys valuation of existing and future claims.
The
Companys estimates are based on a number of factors as described further in
Note 6 to the Condensed Consolidated Financial Statements.
Income
Taxes
The Company accounts for
income taxes as required by the provisions of FAS No. 109, Accounting for
Income Taxes, under which deferred tax assets and liabilities are recognized
for the tax effects of temporary differences between the financial reporting
and tax bases of assets and liabilities measured using enacted tax rates.
Management judgment is
required in determining income tax expense and the related balance sheet
amounts. In addition, under FASB
Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48)
judgments are required concerning the ultimate outcome of uncertain income tax
positions. Actual income taxes paid may
vary from estimates, depending upon changes in income tax laws, actual results
of operations, and the final audit of tax returns by taxing authorities. Tax
assessments may arise several years after tax returns have been filed. During
2008, the Companys estimated unrecognized tax benefits increased by $44.0
million related to tax positions taken in prior years in non-U.S.
jurisdictions.
Deferred tax assets are also
recorded for operating losses and tax credit carryforwards. However, FAS No. 109
requires that a valuation allowance be recorded when it is more likely than not
that some portion or all of the deferred tax assets will not be realized. This assessment
39
is dependent upon projected
profitability including the effects of tax planning. Deferred tax assets and liabilities are
determined separately for each tax jurisdiction in which the Company conducts
its operations or otherwise incurs taxable income or losses. In the U.S., the Company has recorded
significant deferred tax assets, the largest of which relate to foreign and
other tax credits which amounted to $303.9 million at December 31, 2008,
the accrued liability for asbestos-related costs which amounted to $173.4
million at December 31, 2008 that are not deductible until paid and the
pension liability which amounted to $122.6 million at December 31,
2008. The deferred tax assets are
partially offset by deferred tax liabilities, the most significant of which
relate to accelerated depreciation. The
Company has recorded a valuation allowance for the portion of U.S. deferred tax
assets not offset by deferred tax liabilities.
Forward
Looking Statements
This document
contains 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 Companys current expectations
and projections about future events at the time, and thus involve uncertainty
and risk. It is possible the Companys future financial performance may differ
from expectations due to a variety of factors including, but not limited to the
following: (1) foreign currency fluctuations relative to the U.S. dollar, (2) changes
in capital availability or cost, including interest rate fluctuations, (3) the
general political, economic and competitive conditions in markets and countries
where the Company has its operations, including disruptions in capital markets,
disruptions in the supply chain, competitive pricing pressures, inflation or
deflation, and changes in tax rates and laws, (4) consumer preferences for
alternative forms of packaging, (5) fluctuations in raw material and labor
costs, (6) availability of raw materials, (7) costs and availability
of energy, (8) transportation costs, (9) the ability of the Company
to raise selling prices commensurate with energy and other cost increases, (10) consolidation
among competitors and customers, (11) the ability of the Company to integrate
operations of acquired businesses and achieve expected synergies, (12)
unanticipated expenditures with respect to environmental, safety and health
laws, (13) the performance by customers of their obligations under purchase
agreements, and (14) the timing and occurrence of events which are beyond the
control of 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 Companys results of operations and financial
condition, the Company does not assume any obligation to update or supplement
any particular forward looking statements contained in this document.
Item
3. Quantitative and Qualitative
Disclosure About Market Risk.
There have been no material changes in market risk at March 31,
2009 from those described in the Companys Annual Report on Form 10-K for
the year ended December 31, 2008.
Item 4. Controls and Procedures.
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Companys
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and
40
Exchange Commissions rules and forms and that such information is
accumulated and communicated to the Companys management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures. Also, the Company has
investments in certain unconsolidated entities.
As the Company does not control or manage these entities, its disclosure
controls and procedures with respect to such entities are necessarily
substantially more limited than those maintained with respect to its
consolidated subsidiaries.
As required by Rule 13a-15(b) of the Exchange Act, the
Company carried out an evaluation, under the supervision and with the
participation of management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of the end of the period
covered by this report. Based on the
foregoing, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective
at the reasonable assurance level as of March 31, 2009.
Management concluded that the Companys system of internal control over
financial reporting was effective as of December 31, 2008. There has
been no change in the Companys internal controls over financial reporting
during the Companys most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Companys internal controls
over financial reporting. The Company is undertaking the phased implementation
of a global Enterprise Resource Planning software system and believes it is
maintaining and monitoring appropriate internal controls during the
implementation period. The Company believes that the internal control
environment will be enhanced as a result of implementation.
41
PART II OTHER
INFORMATION
Item
1. Legal Proceedings.
For further information
on legal proceedings, see Note 6 to the Condensed Consolidated Financial
Statements, Contingencies, that is included in Part I of this Report and
is incorporated herein by reference.
Item
1A. Risk Factors.
There have been no material changes in risk factors at March 31,
2009 from those described in the Companys Annual Report on Form 10-K for
the year ended December 31, 2008.
Item
5. Other Information.
Increase in number of directors
At the annual meeting on April 23, 2009,
the Companys share owners approved the Second Restated Certificate of
Incorporation (the Restated Certificate) which provided for an increase in
the maximum authorized number of directors that may serve on the Board of
Directors from eleven to twelve. The
Restated Certificate is filed herewith as Exhibit 3.1.
On April 23, 2009, following the annual
meeting of share owners, the Companys Board of Directors
approved the
Third Amended and Restated Bylaws (the Amended Bylaws) of the Company to
increase the maximum authorized number of directors from eleven to twelve,
consistent with the Restated Certificate.
The Amended Bylaws were included as Exhibit 3.1 to the Companys Form 8-K
filed on April 27, 2009. The
provision to increase the number of directors was effective upon adoption and
not on the day following the date of the annual meeting as reported in the Form 8-K.
Following the approval of the Amended Bylaws,
the Companys Board of Directors appointed Jay L. Geldmacher to serve as a
member of the Board of Directors. The
announcement of Mr. Geldmachers appointment was included as Exhibit 99.1
to the Companys Form 8-K filed on April 27, 2009.
Amendment of incentive award plan
At the annual meeting on April 23, 2009,
the Companys share owners approved the Third Amended and Restated 2005
Incentive Award Plan (the Plan) which, among other things, increases the
number of shares available under the Plan by 9,000,000, extends the term of the
Plan until March 2019 and continues to allow grants under the Plan to
qualify as performance based under the Internal Revenue Code. The Plan is filed herewith as Exhibit 10.1.
Item 6. Exhibits.
Exhibit 3.1
|
Second Restated Certificate of Incorporation of
Owens-Illinois, Inc.
|
|
|
Exhibit 10.1
|
Amended and Restated Owens-Illinois, Inc. 2005 Incentive Award
Plan
|
|
|
Exhibit 12
|
Computation of Ratio of
Earnings to Fixed Charges and Earnings to Combined Fixed Charges and
Preferred Stock Dividends
|
42
Exhibit 31.1
|
Certification of
Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
Exhibit 31.2
|
Certification of
Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
Exhibit 32.1*
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
|
|
|
Exhibit 32.2*
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
|
*
This exhibit shall not be deemed filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and is not incorporated by reference into any filing of the Company,
whether made before or after the date hereof, regardless of any general
incorporation language in such filing.
43
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, INC.
|
|
|
|
|
|
|
Date
|
May 6, 2009
|
|
By
|
/s/ Edward C. White
|
|
|
|
Edward C. White
|
|
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
|
|
44
INDEX TO EXHIBITS
Exhibits
|
|
|
|
|
|
3.1
|
|
Second Restated
Certificate of Incorporation of Owens-Illinois, Inc.
|
|
|
|
10.1
|
|
Amended and Restated
Owens-Illinois, Inc. 2005 Incentive Award Plan
|
|
|
|
12
|
|
Computation of Ratio of
Earnings to Fixed Charges and Earnings to Combined Fixed Charges and
Preferred Stock Dividends
|
|
|
|
31.1
|
|
Certification of Principal
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification
of Principal Executive Officer as required by Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification of Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.1*
|
|
Certification of Principal
Executive Officer pursuant to 18 U.S.C. Section 1350
|
|
|
|
32.2*
|
|
Certification of Principal
Financial Officer pursuant to 18 U.S.C. Section 1350
|
*
This exhibit shall not be deemed filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, and is not incorporated by reference into any filing of the Company,
whether made before or after the date hereof, regardless of any general
incorporation language in such filing.
45
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