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
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Securities
Exchange Act of 1934
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For Quarter Ended March 31, 2008
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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
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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.
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. (Check one):
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).
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 166,729,329 shares at March 31, 2008.
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The Condensed
Consolidated Financial Statements presented herein are unaudited but, in the
opinion of management, reflect all adjustments necessary to present fairly such
information for the periods and at the dates indicated. 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, 2007.
On
July 31, 2007, the Company completed the sale of its plastics packaging
business to Rexam PLC.
As required by Statement of Financial
Accounting Standards (FAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company has presented the results of
operations for the plastics packaging business in the Condensed Consolidated
Results of Operations for the three month period ended March 31, 2007 as a
discontinued operation. As such, results
for that period have been reclassified to conform to this presentation. At March 31, 2007, the assets and liabilities
of the plastics packaging business are presented in the Condensed Consolidated
Balance Sheet as the assets and liabilities of discontinued operations.
The format of the
Companys 2007 condensed consolidated income
statement has been reclassified to conform with the presentation used in the
current period.
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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2008
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2007
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Net sales
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$
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1,960.5
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$
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1,684.0
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Manufacturing,
shipping, and delivery
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(1,503.7
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)
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(1,356.2
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)
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Gross profit
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456.8
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327.8
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Selling and
administrative expense
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(127.8
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)
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(127.2
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)
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Research,
development, and engineering expense
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(16.0
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)
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(14.7
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)
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Interest expense
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(64.3
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)
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(81.0
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)
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Interest income
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8.7
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3.4
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Equity earnings
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11.1
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5.1
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Royalties and
net technical assistance
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4.8
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4.9
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Other income
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1.8
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3.6
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Other expense
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(20.0
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)
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(16.5
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)
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Earnings from
continuing operations before items below
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255.1
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105.4
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Provision for
income taxes
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(64.9
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)
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(38.6
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)
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Minority share
owners interests in earnings of subsidiaries
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(16.2
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)
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(11.5
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)
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Earnings from
continuing operations
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174.0
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55.3
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Net losses of
discontinued operations
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(2.1
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)
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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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178.1
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$
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53.2
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Convertible
preferred stock dividends
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(5.4
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)
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(5.4
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)
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Earnings
available to common share owners
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$
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172.7
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$
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47.8
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Basic net
earnings per share of common stock:
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Earnings from
continuing operations
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$
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1.08
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$
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0.32
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Net losses of
discontinued operations
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(0.01
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)
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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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1.11
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$
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0.31
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Weighted average
shares outstanding (thousands)
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156,324
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152,936
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Diluted net
earnings per share of common stock:
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Earnings from
continuing operations
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$
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1.02
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$
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0.31
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Net losses of
discontinued operations
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(0.01
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)
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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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1.04
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$
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0.30
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Weighted diluted
average shares (thousands)
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170,517
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156,993
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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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2008
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2007
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2007
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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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483.0
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$
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387.7
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$
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293.7
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Short-term
investments, at cost which approximates market
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51.7
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59.8
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49.8
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Receivables,
less allowances for losses and discounts ($35.5 at March 31, 2008, $36.0
at December 31, 2007, and $34.1 at March 31, 2007)
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1,320.6
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1,185.6
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1,130.9
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Inventories
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1,222.4
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1,020.8
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1,072.5
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Prepaid expenses
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37.1
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40.7
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34.7
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Assets of
discontinued operations
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122.7
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Total current
assets
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3,114.8
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2,694.6
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2,704.3
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Investments and
other assets:
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Equity
investments
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87.4
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81.0
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92.5
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Repair parts
inventories
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157.0
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155.8
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145.1
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Prepaid pension
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591.4
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566.4
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505.9
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Deposits,
receivables, and other assets
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489.4
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448.7
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459.3
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Goodwill
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2,522.2
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2,428.1
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2,276.0
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Assets of
discontinued operations
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582.2
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Total other
assets
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3,847.4
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3,680.0
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4,061.0
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Property, plant,
and equipment, at cost
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6,707.0
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6,423.1
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5,881.4
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Less accumulated
depreciation
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3,711.8
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3,473.1
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3,047.3
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Net property,
plant, and equipment
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2,995.2
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2,950.0
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2,834.1
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Total assets
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$
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9,957.4
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$
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9,324.6
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$
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9,599.4
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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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2008
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2007
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2007
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|
Liabilities and
Share Owners Equity
|
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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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$
|
835.1
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|
$
|
700.9
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|
$
|
550.4
|
|
Current portion
of asbestos-related liabilities
|
|
210.0
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|
210.0
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149.0
|
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Accounts payable
|
|
978.5
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|
957.5
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|
842.9
|
|
Other
liabilities
|
|
656.9
|
|
661.1
|
|
549.7
|
|
Liabilities of
discontinued operations
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|
|
|
|
|
75.0
|
|
Total current
liabilities
|
|
2,680.5
|
|
2,529.5
|
|
2,167.0
|
|
|
|
|
|
|
|
|
|
Liabilities of
discontinued operations
|
|
|
|
|
|
8.2
|
|
Long-term debt
|
|
3,192.5
|
|
3,013.5
|
|
5,103.4
|
|
Deferred taxes
|
|
128.8
|
|
109.4
|
|
122.8
|
|
Pension benefits
|
|
314.4
|
|
313.7
|
|
340.4
|
|
Nonpension
postretirement benefits
|
|
279.6
|
|
287.0
|
|
289.9
|
|
Other
liabilities
|
|
409.1
|
|
386.9
|
|
370.8
|
|
Asbestos-related
liabilities
|
|
205.3
|
|
245.5
|
|
497.7
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
Minority share
owners interests
|
|
248.4
|
|
251.7
|
|
209.8
|
|
Share owners
equity:
|
|
|
|
|
|
|
|
Convertible
preferred stock, par value
|
|
|
|
452.5
|
|
452.5
|
|
Common stock,
par value $.01 per share 250,000,000 shares authorized, 178,413,409 shares issued
and outstanding, less 11,684,080 treasury shares at March 31, 2008
(169,063,219 issued and outstanding, less 11,712,278 treasury shares at December 31,
2007 and 166,603,721 issued and outstanding, less 11,833,946 treasury shares at
March 31, 2007)
|
|
1.8
|
|
1.7
|
|
1.7
|
|
Capital in
excess of par value
|
|
2,887.7
|
|
2,420.0
|
|
2,340.1
|
|
Treasury stock,
at cost
|
|
(224.0
|
)
|
(224.6
|
)
|
(226.9
|
)
|
Retained
earnings (deficit)
|
|
(112.6
|
)
|
(285.3
|
)
|
(1,556.6
|
)
|
Accumulated other
comprehensive loss
|
|
(54.1
|
)
|
(176.9
|
)
|
(521.4
|
)
|
Total share
owners equity
|
|
2,498.8
|
|
2,187.4
|
|
489.4
|
|
Total
liabilities and share owners equity
|
|
$
|
9,957.4
|
|
$
|
9,324.6
|
|
$
|
9,599.4
|
|
See accompanying notes.
5
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED CASH FLOWS
(Dollars in millions)
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net earnings
|
|
$
|
178.1
|
|
$
|
53.2
|
|
Net loss of
discontinued operations
|
|
|
|
2.1
|
|
Gain on sale of
discontinued operations
|
|
(4.1
|
)
|
|
|
Non-cash charges
(credits):
|
|
|
|
|
|
Depreciation
|
|
113.6
|
|
100.1
|
|
Amortization of
intangibles and other deferred items
|
|
7.6
|
|
5.4
|
|
Amortization of
finance fees
|
|
1.9
|
|
1.9
|
|
Deferred tax
provision
|
|
(1.7
|
)
|
12.1
|
|
Restructuring
and asset impairment
|
|
12.9
|
|
|
|
Other
|
|
(9.4
|
)
|
12.1
|
|
Asbestos-related
payments
|
|
(40.2
|
)
|
(41.0
|
)
|
Change in
non-current operating assets
|
|
(0.8
|
)
|
9.2
|
|
Change in
non-current liabilities
|
|
(20.4
|
)
|
(22.8
|
)
|
Change in
components of working capital
|
|
(216.8
|
)
|
(172.5
|
)
|
Cash provided by
(utilized in) continuing operating activities
|
|
20.7
|
|
(40.2
|
)
|
Cash utilized in
discontinued operating activities
|
|
|
|
(3.9
|
)
|
Cash flows from
investing activities:
|
|
|
|
|
|
Additions to
property, plant, and equipment - continuing
|
|
(45.4
|
)
|
(32.6
|
)
|
Additions to
property, plant, and equipment - discontinued
|
|
|
|
(8.8
|
)
|
Advance to
equity affiliate
|
|
(15.0
|
)
|
|
|
Acquisitions,
net of cash acquired
|
|
|
|
(6.3
|
)
|
Net cash
proceeds (payments) related to divestitures and asset sales
|
|
(16.6
|
)
|
1.6
|
|
Cash utilized in
investing activities
|
|
(77.0
|
)
|
(46.1
|
)
|
Cash flows from
financing activities:
|
|
|
|
|
|
Additions to
long-term debt
|
|
309.2
|
|
401.7
|
|
Repayments of
long-term debt
|
|
(222.6
|
)
|
(63.3
|
)
|
Increase
(decrease) in short-term loans
|
|
82.3
|
|
(174.2
|
)
|
Net payments for
hedging activity
|
|
(33.9
|
)
|
(1.6
|
)
|
Payment of
finance fees
|
|
|
|
(6.3
|
)
|
Convertible
preferred stock dividends
|
|
(5.4
|
)
|
(5.4
|
)
|
Issuance of
common stock and other
|
|
9.8
|
|
6.3
|
|
Cash provided by
financing activities
|
|
139.4
|
|
157.2
|
|
Effect of
exchange rate fluctuations on cash
|
|
12.2
|
|
4.0
|
|
Increase in cash
|
|
95.3
|
|
71.0
|
|
Cash at
beginning of period
|
|
387.7
|
|
222.7
|
|
Cash at end of
period
|
|
$
|
483.0
|
|
$
|
293.7
|
|
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,
|
|
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
Net earnings
|
|
$
|
178.1
|
|
$
|
53.2
|
|
Convertible
preferred stock dividends
|
|
(5.4
|
)
|
(5.4
|
)
|
Numerator for
basic earnings per share - income available to common share owners
|
|
$
|
172.7
|
|
$
|
47.8
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for
basic earnings per share - weighted average shares outstanding
|
|
156,324,072
|
|
152,936,438
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
Convertible
preferred stock
|
|
8,589,355
|
|
|
|
Stock options
and other
|
|
5,603,451
|
|
4,056,634
|
|
Denominator for
diluted earnings per share - adjusted weighted average shares outstanding
|
|
170,516,878
|
|
156,993,072
|
|
|
|
|
|
|
|
Basic earnings
per share:
|
|
|
|
|
|
Earnings from
continuing operations
|
|
$
|
1.08
|
|
$
|
0.32
|
|
Net earnings of
discontinued operations
|
|
|
|
(0.01
|
)
|
Gain on sale of
discontinued operations
|
|
0.03
|
|
|
|
Net earnings
|
|
$
|
1.11
|
|
$
|
0.31
|
|
|
|
|
|
|
|
Diluted earnings
per share:
|
|
|
|
|
|
Earnings from
continuing operations
|
|
$
|
1.02
|
|
$
|
0.31
|
|
Net earnings of
discontinued operations
|
|
|
|
(0.01
|
)
|
Gain on sale of
discontinued operations
|
|
0.02
|
|
|
|
Net earnings
|
|
$
|
1.04
|
|
$
|
0.30
|
|
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. The convertible preferred stock was not
included in the computation of diluted earnings per share for the three months
ended March 31, 2007 since the result would have been antidilutive. Options to purchase 2,213,671 weighted
average shares of common stock that were outstanding during the three months
ended March 31, 2007 were not included in
7
the computation of diluted earnings per share
because the options exercise price was greater than the average market price
of the common shares.
2.
Debt
The following table
summarizes the long-term debt of the Company:
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
Secured Credit
Agreement:
|
|
|
|
|
|
|
|
Revolving Credit
Facility:
|
|
|
|
|
|
|
|
Revolving Loans
|
|
$
|
86.8
|
|
$
|
|
|
$
|
4.1
|
|
Term Loans:
|
|
|
|
|
|
|
|
Term Loan A
(225.0 million AUD at March 31, 2008)
|
|
206.1
|
|
198.1
|
|
236.3
|
|
Term Loan B
|
|
191.5
|
|
191.5
|
|
195.5
|
|
Term Loan C
(110.8 million CAD at March 31, 2008)
|
|
108.3
|
|
113.2
|
|
116.2
|
|
Term Loan D
(191.5 million at March 31, 2008)
|
|
302.1
|
|
281.8
|
|
260.9
|
|
Senior Secured
Notes:
|
|
|
|
|
|
|
|
8.875%, due 2009
|
|
|
|
|
|
850.0
|
|
7.75%, due 2011
|
|
|
|
|
|
450.0
|
|
8.75%, due 2012
|
|
|
|
|
|
625.0
|
|
Senior Notes:
|
|
|
|
|
|
|
|
8.10%, due 2007
|
|
|
|
|
|
299.4
|
|
7.35%, due 2008
|
|
250.4
|
|
249.8
|
|
246.8
|
|
8.25%, due 2013
|
|
461.8
|
|
450.6
|
|
435.8
|
|
6.75%, due 2014
|
|
400.0
|
|
400.0
|
|
400.0
|
|
6.75%, due 2014 (225
million)
|
|
355.0
|
|
331.1
|
|
300.3
|
|
6.875%, due 2017
(300 million)
|
|
473.3
|
|
441.5
|
|
400.4
|
|
Senior
Debentures:
|
|
|
|
|
|
|
|
7.50%, due 2010
|
|
258.5
|
|
253.0
|
|
245.5
|
|
7.80%, due 2018
|
|
250.0
|
|
250.0
|
|
250.0
|
|
Other
|
|
122.1
|
|
118.2
|
|
95.2
|
|
Total long-term debt
|
|
3,465.9
|
|
3,278.8
|
|
5,411.4
|
|
Less amounts due
within one year
|
|
273.4
|
|
265.3
|
|
308.0
|
|
Long-term debt
|
|
$
|
3,192.5
|
|
$
|
3,013.5
|
|
$
|
5,103.4
|
|
On June 14,
2006, the Companys subsidiary borrowers entered into the Secured Credit
Agreement (the Agreement). At March 31,
2008, 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.
At March 31,
2008 the Companys subsidiary borrowers had unused credit of $725.6 million
available under the Agreement.
The weighted average interest rate on borrowings outstanding under the
Agreement at March 31, 2008 was 6.08%.
During March 2007,
a subsidiary of the Company issued Senior Notes totaling 300.0 million. The notes bear interest at 6.875% and are due
March 31, 2017. The notes are
guaranteed by substantially all of the Companys domestic subsidiaries. The proceeds were used to retire the $300
million principal amount of 8.10% Senior Notes which matured in May 2007,
and to reduce borrowings under the revolving credit facility.
8
The $250 million
principal amount of the 7.35% senior notes will mature on May 15,
2008. The Company will utilize
borrowings under the revolving credit facility to fund the retirement of the notes.
Information
related to the Companys accounts receivable securitization program is as
follows:
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Balance
(included in short-term loans)
|
|
$
|
439.6
|
|
$
|
361.8
|
|
$
|
229.2
|
|
|
|
|
|
|
|
|
|
Weighted average
interest rate
|
|
6.10
|
%
|
5.48
|
%
|
5.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
3. Supplemental Cash Flow Information
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Interest paid in
cash
|
|
$
|
40.4
|
|
$
|
60.6
|
|
|
|
|
|
|
|
Income taxes
paid in cash
|
|
25.3
|
|
33.2
|
|
|
|
|
|
|
|
|
|
4. Comprehensive Income
The components of
comprehensive income are: (a) net earnings; (b) change in fair value
of certain derivative instruments; (c) pension and other postretirement
benefit adjustments; and (d) foreign currency translation
adjustments. Total comprehensive income
is as follows:
|
|
Three months ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
178.1
|
|
$
|
53.2
|
|
Foreign currency
translation adjustments
|
|
91.3
|
|
36.3
|
|
Pension and
other postretirement benefit adjustments
|
|
8.3
|
|
11.8
|
|
Change in fair
value of derivative instruments, net of tax
|
|
23.2
|
|
24.7
|
|
Total
comprehensive income
|
|
$
|
300.9
|
|
$
|
126.0
|
|
For the three months ended March 31,
2008, foreign currency translation adjustments includes a loss of approximately
$24.2 million related to a hedge of the Companys net investment in a non-U.S.
subsidiary.
5.
Inventories
Major classes of
inventory are as follows:
9
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
Finished goods
|
|
$
|
1,050.8
|
|
$
|
861.1
|
|
$
|
897.7
|
|
Work in process
|
|
1.9
|
|
1.4
|
|
3.5
|
|
Raw materials
|
|
100.4
|
|
90.5
|
|
105.2
|
|
Operating
supplies
|
|
69.3
|
|
67.8
|
|
66.1
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,222.4
|
|
$
|
1,020.8
|
|
$
|
1,072.5
|
|
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, 2008, the Company has determined that it is a named defendant
in asbestos lawsuits and claims involving approximately 14,000 plaintiffs and
claimants.
Based on an analysis of the lawsuits pending as
of December 31, 2007, approximately 89% 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 9% of plaintiffs specifically
plead damages of $15 million or less, and 1% 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 $123 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,
2008 there are approximately 1,100 claims against other
10
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.
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, 2008, has
disposed of the asbestos claims of approximately 361,000 plaintiffs and
claimants at an average indemnity payment per claim of approximately
$7,000. Certain of these dispositions
have included deferred amounts payable over a number of years. Deferred amounts payable totaled
approximately $31.8 million at March 31, 2008 ($34.0 million at December 31,
2007) 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
$3.22 billion through 2007, 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
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 concern:
11
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;
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 impact the number and type of future claims and
lawsuits;
d) the extent of decrease or increase in the
inventory of pending serious disease 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 co-defendant
bankruptcies; and
i)
the extent to which the resolution of
co-defendant bankruptcies direct resources to resolve claims that are also
presented to the Company.
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 2007 were materially
affected by the $115.0 million 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 recorded. Also, the
12
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 Companys former Plastics Packaging segment has been reclassified
to discontinued operations for 2007 as a result of the July 31, 2007 sale
of that business. Following the sale,
the Company redefined its reportable segments and divided the former Glass
Containers segment into four geographic segments: (1) North America; (2) Europe; (3) Asia
Pacific; (4) South America. These
four segments are aligned with the Companys internal approach to managing,
reporting, and evaluating performance of its global glass operations. In connection with this change, 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. Amounts for 2007 in the following tables are
presented on the redefined basis.
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, provision for income taxes and
minority share owners interests in earnings of subsidiaries and excludes
amounts related to certain items that management considers not representative
of ongoing operations. The Companys
management uses Segment Operating Profit, in combination with gross profit
percentage and 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. Beginning in 2008, the Company revised its
method of allocating corporate expenses.
The Company decreased slightly the percentage allocation based on sales
and significantly expanded the number of functions included in the allocation
based on cost of services.
It is not practicable to quantify the net
effect of these changes on periods prior to 2008. However, the effect for 2008
was to reduce the amount of retained corporate costs by approximately $8
million. The information below is presented on a
continuing operations basis, and therefore, the 2007 amounts exclude amounts
related to the discontinued operations.
See Note 14 for more information.
Financial
information for the three month periods ended March 31, 2008 and 2007
regarding the Companys reportable segments is as follows:
|
|
2008
|
|
2007
|
|
Net Sales:
|
|
|
|
|
|
Europe
|
|
$
|
888.9
|
|
$
|
728.4
|
|
North America
|
|
530.9
|
|
523.4
|
|
South America
|
|
254.2
|
|
203.2
|
|
Asia Pacific
|
|
250.0
|
|
212.5
|
|
Reportable
segment totals
|
|
1,924.0
|
|
1,667.5
|
|
Other
|
|
36.5
|
|
16.5
|
|
Consolidated
totals
|
|
$
|
1,960.5
|
|
$
|
1,684.0
|
|
13
|
|
2008
|
|
2007
|
|
Segment Operating Profit:
|
|
|
|
|
|
Europe
|
|
$
|
147.6
|
|
$
|
74.8
|
|
North America
|
|
55.5
|
|
62.5
|
|
South America
|
|
73.6
|
|
48.0
|
|
Asia Pacific
|
|
45.4
|
|
24.7
|
|
Reportable
segment totals
|
|
322.1
|
|
210.0
|
|
Retained
corporate costs and other
|
|
1.5
|
|
(27.0
|
)
|
Consolidated
totals
|
|
323.6
|
|
183.0
|
|
|
|
|
|
|
|
Reconciliation
to earnings from continuing operations before income taxes and minority share
owners interest in earnings of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
Items excluded
from Segment Operating Profit:
|
|
|
|
|
|
Restructuring
and asset impairment
|
|
(12.9
|
)
|
|
|
Interest income
|
|
8.7
|
|
3.4
|
|
Interest expense
|
|
(64.3
|
)
|
(81.0
|
)
|
Total
|
|
$
|
255.1
|
|
$
|
105.4
|
|
Financial
information regarding the Companys total assets is as follows:
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
Total assets (1):
|
|
|
|
|
|
|
|
Europe
|
|
$
|
4,425.3
|
|
$
|
4,124.1
|
|
$
|
3,911.1
|
|
North America
|
|
2,016.2
|
|
1,946.9
|
|
1,823.2
|
|
South America
|
|
974.5
|
|
965.7
|
|
800.3
|
|
Asia Pacific
|
|
1,617.5
|
|
1,558.1
|
|
1,483.5
|
|
Reportable
segment totals
|
|
9,033.5
|
|
8,594.8
|
|
8,018.1
|
|
Other
|
|
923.9
|
|
729.8
|
|
1,581.3
|
|
Consolidated
totals
|
|
$
|
9,957.4
|
|
$
|
9,324.6
|
|
$
|
9,599.4
|
|
(1) Retained Corporate Costs and Other includes assets of
discontinued operations.
8. Other Costs and Expenses
During
the first quarter of 2008, the Company recorded charges totaling $12.9 million
($9.7 million after tax), for additional restructuring and asset impairment in
the Caribbean, Asia Pacific, Europe, and North America. The charges reflect the additional results of
the Companys ongoing global profitability review. See Note 10 for additional information.
9. Derivative Instruments
At
March 31, 2008, the Company had the following derivative instruments
related to its various hedging programs:
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 $950 million that mature from 2008
through 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
14
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,
2008:
|
|
|
|
|
|
|
|
Asset
|
|
|
|
Amount
|
|
Receive
|
|
Average
|
|
(Liability)
|
|
|
|
Hedged
|
|
Rate
|
|
Spread
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes due
2008
|
|
$
|
250.0
|
|
7.35
|
%
|
3.5
|
%
|
$
|
0.4
|
|
Senior
Debentures due 2010
|
|
250.0
|
|
7.50
|
%
|
3.2
|
%
|
8.5
|
|
Senior Notes due
2013
|
|
450.0
|
|
8.25
|
%
|
3.7
|
%
|
11.8
|
|
Total
|
|
$
|
950.0
|
|
|
|
|
|
$
|
20.7
|
|
Commodity 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 eighteen months and
periodically enters into commodity futures contracts in order to hedge a
portion of its usage requirements over that period. At March 31, 2008, the Company had
entered into commodity futures contracts for approximately 48% (approximately
8,320,000 MM BTUs) of its estimated North American usage requirements for the
last three quarters of 2008 and approximately 8% (approximately 1,920,000 MM
BTUs) for the full year 2009.
The Company accounts for the above futures contracts on the balance
sheet at fair value. The effective
portion of changes in the fair value of a derivative that is designated as, and
meets the required criteria for, a cash flow hedge is recorded in 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.
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 above futures contracts are accounted for as cash flow hedges at March 31,
2008.
15
At March 31, 2008, an unrecognized gain of $18.7 million (pretax
and after tax), related to the domestic commodity futures contracts, was
included in OCI, which will be reclassified into earnings over the next twelve
months. The ineffectiveness related to
these natural gas hedges for the three months ended March 31, 2008 was not
material.
Other Hedges
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 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.
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 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.
10.
Restructuring Accruals
During
the third and fourth quarters of 2007, the Company recorded charges totaling
$100.3 million ($84.1 million after tax), for restructuring and asset
impairment in the Caribbean, Europe, and North America. The Company recorded
additional charges of $12.9 million ($9.7 million after tax) in the first
quarter of 2008 for restructuring and asset impairment in the Caribbean,
Asia-Pacific, Europe, and North America. These charges, amounting to $113.2
million, reflect the initial conclusions of the Companys global profitability
review commenced in mid-2007.
Equity
Investment
In
the Companys 50%-owned affiliate in the Caribbean, declining productivity and
cash flows resulted in impairment of the Companys equity investment,
establishment of valuation allowances against advances to the affiliate, and
accrual of certain contingent obligations for total charges of $45.0 million
recorded in 2007 with an additional $0.9 million recorded in the first quarter
of 2008.
Production
Capacity
In
Europe, North America, and Asia Pacific, the Company decided to curtail
selected production capacity. Because
the future undiscounted cash flows of the related asset groups were not
sufficient to recover their carrying amounts, the assets were considered
impaired. As a result the assets were
written down to the extent their carrying amounts exceeded fair value. The curtailment of plant capacity resulted in
elimination of approximately 560 jobs and a corresponding reduction in the
Companys workforce. The Company accrued
certain employee separation costs, plant clean up, and other exit costs. In total, impairments, accrued costs, and
other valuation adjustments amounted to $55.3 million in the third and fourth
quarters of 2007
16
with
an additional $12.0 million recorded in the first quarter of 2008. Probable future cash expenditures will amount
to $40.0 million. The Company expects that the majority of these costs will be
paid out by the end of 2008.
Selected
information related to the restructuring accrual is as follows, with 2008
activity translated into dollars at the March 31, 2008 exchange rate:
Total restructuring
accrual at December 31, 2007
|
|
$
|
55.3
|
|
Net cash paid,
principally severance and related benefits
|
|
(1.7
|
)
|
Additional
charges
|
|
12.0
|
|
Other,
principally foreign exchange translation
|
|
(0.8
|
)
|
Remaining
restructuring accrual as of March 31, 2008
|
|
$
|
64.8
|
|
During
the second quarter of 2005, the Company concluded its evaluation of acquired
capacity in connection with the acquisition of BSN Glasspack S.A. and announced
the permanent closing of its Düsseldorf, Germany glass container factory, and
the shutdown of a furnace at its Reims, France glass container facility, both
in 2005. These actions were part of the
European integration strategy to optimally align the manufacturing capacities
with the market and improve operational efficiencies. As a result, the Company recorded an accrual
of 47.1 million through an adjustment to goodwill.
These
actions resulted in the elimination of approximately 400 jobs and a
corresponding reduction in the Companys workforce. The Company anticipates that it will pay a
total of approximately 110.9 million in cash related to severance, benefits,
plant clean-up, and other plant closing costs related to restructuring
accruals.
The
European restructuring accrual recorded in the second quarter of 2005 was in
addition to the initial estimated accrual of 63.8 million recorded in 2004.
Selected information related to the restructuring accrual is as follows, with
2008 activity translated from Euros into dollars at the March 31, 2008
exchange rate:
Total European
restructuring accrual (110.9 million)
|
|
$
|
134.1
|
|
Net cash paid,
principally severance and related benefits
|
|
(41.0
|
)
|
Other,
principally foreign exchange translation
|
|
(12.2
|
)
|
Remaining
European restructuring accrual as of December 31, 2005
|
|
80.9
|
|
Net cash paid,
principally severance and related benefits
|
|
(33.7
|
)
|
Partial reversal
of accrual (goodwill adjustment)
|
|
(7.6
|
)
|
Other,
principally foreign exchange translation
|
|
(1.5
|
)
|
Remaining
European restructuring accrual as of December 31, 2006
|
|
38.1
|
|
Net cash paid,
principally severance and related benefits
|
|
(17.8
|
)
|
Other,
principally foreign exchange translation
|
|
7.4
|
|
Remaining
European restructuring accrual as of December 31, 2007
|
|
27.7
|
|
Net cash paid,
principally severance and related benefits
|
|
(2.4
|
)
|
Other,
principally foreign exchange translation
|
|
0.8
|
|
Remaining
European restructuring accrual as of March 31, 2008
|
|
$
|
26.1
|
|
17
11. Pensions
The
components of the net periodic pension (income) cost for the three months ended
March 31, 2008 and 2007 were as follows:
|
|
2008
|
|
2007
|
|
Service cost
|
|
$
|
12.1
|
|
$
|
13.9
|
|
Interest cost
|
|
55.1
|
|
52.3
|
|
Expected asset
return
|
|
(81.1
|
)
|
(78.0
|
)
|
|
|
|
|
|
|
Amortization:
|
|
|
|
|
|
Loss
|
|
7.7
|
|
11.5
|
|
Prior service
credit
|
|
(0.2
|
)
|
(0.2
|
)
|
Net amortization
|
|
7.5
|
|
11.3
|
|
Net periodic
pension (income) cost
|
|
$
|
(6.4
|
)
|
$
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
Total for
continuing operations
|
|
$
|
(6.4
|
)
|
$
|
0.1
|
|
Total for
discontinued operations
|
|
|
|
(0.6
|
)
|
|
|
$
|
(6.4
|
)
|
$
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
12.
Postretirement Benefits
Other Than Pensions
The
components of the net postretirement benefit cost for the three months ended March 31,
2008 and 2007 were as follows:
|
|
2008
|
|
2007
|
|
Service cost
|
|
$
|
0.6
|
|
$
|
0.8
|
|
Interest cost
|
|
4.3
|
|
4.3
|
|
|
|
|
|
|
|
Amortization:
|
|
|
|
|
|
Prior service
credit
|
|
(0.8
|
)
|
(1.0
|
)
|
Loss
|
|
1.6
|
|
1.6
|
|
Net amortization
|
|
0.8
|
|
0.6
|
|
Net
postretirement benefit cost
|
|
$
|
5.7
|
|
$
|
5.7
|
|
|
|
|
|
|
|
|
|
Total for
continuing operations
|
|
$
|
5.7
|
|
$
|
4.9
|
|
Total for
discontinued operations
|
|
|
|
0.8
|
|
|
|
$
|
5.7
|
|
$
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
13. New Accounting Standards
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141R, Business Combinations (FAS No. 141R). FAS No. 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree and recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain
purchase. FAS No. 141R also sets
forth the disclosures required to be made in the financial statements to
evaluate the nature and financial effects of the business
18
combination. SFAS No. 141R
applies prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008.
Accordingly, FAS No. 141R will be applied by the Company to
business combinations occurring on or after January 1, 2009.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (FAS No. 160). FAS No. 160 establishes accounting and
reporting standards for the non-controlling interest in a subsidiary and the
deconsolidation of a subsidiary. FAS No. 160
is effective for years beginning on or after December 15, 2008. Adoption of FAS No. 160 is not presently
expected to have a material impact on the Companys results of operations,
financial position or cash flows.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(FAS No. 161). FAS No. 161 is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entitys financial condition, financial performance, and cash
flows. FAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. Adoption of FAS No. 161 is not presently
expected to have a material impact on the Companys results of operations,
financial position or cash flows.
14.
Discontinued Operations
On
June 11, 2007, the Company announced that it had concluded the strategic
review process of its plastics portfolio and entered into a definitive
agreement with Rexam PLC to sell its plastics packaging business. On July 31, 2007, the Company completed
the sale for approximately $1.825 billion in cash.
Included
in the sale were 19 plastics manufacturing plants in the U.S. (including Puerto
Rico), Mexico, Brazil, Hungary, Singapore and Malaysia. The plastics packaging business is comprised
of HealthCare Packaging and Closure & Specialty Products which design,
manufacture and sell plastic packaging solutions for companies in the
pharmaceutical, healthcare, food and beverage, personal care, household and
automotive industries. The plastics
packaging business comprised the Companys former Plastics Packaging segment.
As
required by FAS No. 144, the Company has presented the results of
operations for the plastics packaging business in the Condensed Consolidated
Results of Operations for the three months ended March 31, 2007 as
discontinued operations. Interest
expense was allocated to the discontinued operations based on debt that was
required by an amendment to the Agreement to be repaid from the net
proceeds. At March 31, 2007, the
assets and liabilities of the plastics packaging business are presented in the
Condensed Consolidated Balance Sheet as the assets and liabilities of
discontinued operations.
The
following summarizes the revenues and expenses of the discontinued operations
as reported in the consolidated results of operations for the period indicated:
19
|
|
Three months
|
|
|
|
ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
Net sales
|
|
$
|
188.3
|
|
Manufacturing,
shipping, and delivery
|
|
(144.3
|
)
|
Gross profit
|
|
44.0
|
|
Selling and
administrative expense
|
|
(8.2
|
)
|
Research,
development, and engineering expense
|
|
(3.8
|
)
|
Interest expense
|
|
(33.9
|
)
|
Other expense
|
|
(0.4
|
)
|
Losses before
item below
|
|
(2.3
|
)
|
Credit for
income taxes
|
|
0.2
|
|
|
|
|
|
Net loss from discontinued
operations
|
|
$
|
(2.1
|
)
|
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
resolution of the selling price in accordance with the final contract.
The condensed consolidated balance sheet at March 31, 2007
included the following assets and liabilities related to the discontinued
operations:
|
|
Balance at
|
|
|
|
March 31,
|
|
|
|
2007
|
|
Assets:
|
|
|
|
Inventories
|
|
$
|
69.2
|
|
Accounts
receivable
|
|
52.5
|
|
Other current
assets
|
|
1.0
|
|
Total current
assets
|
|
122.7
|
|
Goodwill
|
|
215.5
|
|
Other long-term
assets
|
|
42.7
|
|
Net property,
plant, and equipment
|
|
324.0
|
|
Total assets
|
|
$
|
704.9
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
Accounts payable
and other current liabilities
|
|
$
|
75.0
|
|
Other long-term
liabilities
|
|
8.2
|
|
Total
liabilities
|
|
$
|
83.2
|
|
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 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 totaling approximately $450 million.
20
16. Fair Value Measurements
In
September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 Fair Value
Measurements (FAS No. 157)
which
defines fair value, establishes a framework for measuring fair value and
enhances disclosure about fair value measurements. On February 2, 2008, the FASB issued
FASB Staff Position No. 157-2 (FSP 157-2) which delays the effective date
of FAS No. 157 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the
financial statements on least an annual basis.
Where the measurement objective specifically requires the use of fair
value the Company has adopted the provisions of FAS No. 157 related to
financial assets and financial liabilities as of January 1, 2008. The adoption of FAS No. 157 had no
impact on the Company.
FAS
No. 157 clarifies that fair value is an exit price, representing the
amount that would be received to sell an asset or paid to transfer a liability
(exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants. FAS No. 157 establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value
as follows:
Level 1:
Observable
inputs such as quoted prices in active markets;
Level 2:
Inputs, other
than quoted prices in active markets, that are observable either directly or
indirectly; and
Level 3:
Unobservable
inputs for which there is little or no market data, which requires the Company
to develop assumptions.
The
Companys derivative assets and liabilities consist of interest rate swaps,
natural gas forwards, and foreign exchange option and forward contracts. The Company uses an income approach to
valuing these contracts. Interest rate
yield curves, natural gas forward rates, and foreign exchange rates are the significant
inputs into the valuation models. These
inputs are observable in active markets over the terms of the instruments the
Company holds, and accordingly, the Company classifies the $17.6 million net
derivative asset as Level 2 in the hierarchy.
The
Company adopted Statement of Financial Accounting Standards No. 159 The
Fair Value Option for Financial Assets and Financial Liabilities-Including an
Amendment of FASB Statement No. 115 (FAS No. 159) effective January 1,
2008. This standard permits entities to
choose to measure many financial instruments and certain other items at fair
value. While FAS No. 159 became
effective January 1, 2008, The Company did not elect the fair value
measurement option for any of our financial assets or liabilities.
17.
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 three series of senior notes and debentures (the Parent); (2) the
two subsidiaries which have guaranteed the senior notes and 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
21
presentation on a
consolidated basis. The principal
eliminations relate to investments in subsidiaries and intercompany balances
and transactions.
|
|
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
|
|
3,664.1
|
|
2,914.1
|
|
|
|
(6,578.2
|
)
|
|
|
Goodwill
|
|
|
|
|
|
2,522.2
|
|
|
|
2,522.2
|
|
Other
non-current assets
|
|
|
|
|
|
1,325.2
|
|
|
|
1,325.2
|
|
Total other
assets
|
|
3,664.1
|
|
2,914.1
|
|
3,847.4
|
|
(6,578.2
|
)
|
3,847.4
|
|
Property, plant,
and equipment, net
|
|
|
|
|
|
2,995.2
|
|
|
|
2,995.2
|
|
Total assets
|
|
$
|
3,664.1
|
|
$
|
2,914.1
|
|
$
|
9,957.4
|
|
$
|
(6,578.2
|
)
|
$
|
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 and minority interests
|
|
(4.7
|
)
|
|
|
1,385.0
|
|
|
|
1,380.3
|
|
Capital
structure
|
|
2,498.8
|
|
2,914.1
|
|
2,914.1
|
|
(5,828.2
|
)
|
2,498.8
|
|
Total
liabilities and share owners equity
|
|
$
|
3,664.1
|
|
$
|
2,914.1
|
|
$
|
9,957.4
|
|
$
|
(6,578.2
|
)
|
$
|
9,957.4
|
|
22
|
|
December 31, 2007
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Balance
Sheet
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
|
|
$
|
|
|
$
|
1,185.6
|
|
$
|
|
|
$
|
1,185.6
|
|
Inventories
|
|
|
|
|
|
1,020.8
|
|
|
|
1,020.8
|
|
Other current
assets
|
|
|
|
|
|
488.2
|
|
|
|
488.2
|
|
Total current
assets
|
|
|
|
|
|
2,694.6
|
|
|
|
2,694.6
|
|
Investments in
and advances to subsidiaries
|
|
3,392.9
|
|
2,642.9
|
|
|
|
(6,035.8
|
)
|
|
|
Goodwill
|
|
|
|
|
|
2,428.1
|
|
|
|
2,428.1
|
|
Other
non-current assets
|
|
|
|
|
|
1,251.9
|
|
|
|
1,251.9
|
|
Total other
assets
|
|
3,392.9
|
|
2,642.9
|
|
3,680.0
|
|
(6,035.8
|
)
|
3,680.0
|
|
Property, plant,
and equipment, net
|
|
|
|
|
|
2,950.0
|
|
|
|
2,950.0
|
|
Total assets
|
|
$
|
3,392.9
|
|
$
|
2,642.9
|
|
$
|
9,324.6
|
|
$
|
(6,035.8
|
)
|
$
|
9,324.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities :
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
$
|
|
|
$
|
|
|
$
|
1,618.6
|
|
$
|
|
|
$
|
1,618.6
|
|
Current portion
of asbestos liability
|
|
210.0
|
|
|
|
|
|
|
|
210.0
|
|
Short-term loans
and long-term debt due within one year
|
|
250.0
|
|
|
|
700.9
|
|
(250.0
|
)
|
700.9
|
|
Total current
liabilities
|
|
460.0
|
|
|
|
2,319.5
|
|
(250.0
|
)
|
2,529.5
|
|
Long-term debt
|
|
500.3
|
|
|
|
3,013.2
|
|
(500.0
|
)
|
3,013.5
|
|
Asbestos-related
liabilities
|
|
245.5
|
|
|
|
|
|
|
|
245.5
|
|
Other
non-current liabilities and minority interests
|
|
(0.3
|
)
|
|
|
1,349.0
|
|
|
|
1,348.7
|
|
Capital
structure
|
|
2,187.4
|
|
2,642.9
|
|
2,642.9
|
|
(5,285.8
|
)
|
2,187.4
|
|
Total
liabilities and share owners equity
|
|
$
|
3,392.9
|
|
$
|
2,642.9
|
|
$
|
9,324.6
|
|
$
|
(6,035.8
|
)
|
$
|
9,324.6
|
|
23
|
|
March 31, 2007
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Balance Sheet
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
|
|
$
|
|
|
$
|
1,130.9
|
|
$
|
|
|
$
|
1,130.9
|
|
Inventories
|
|
|
|
|
|
1,072.5
|
|
|
|
1,072.5
|
|
Other current
assets
|
|
|
|
|
|
378.2
|
|
|
|
378.2
|
|
Assets of
discontinued operations
|
|
|
|
|
|
122.7
|
|
|
|
122.7
|
|
Total current
assets
|
|
|
|
|
|
2,704.3
|
|
|
|
2,704.3
|
|
Investments in and
advances to subsidiaries
|
|
2,186.1
|
|
1,136.1
|
|
|
|
(3,322.2
|
)
|
|
|
Goodwill
|
|
|
|
|
|
2,276.0
|
|
|
|
2,276.0
|
|
Other
non-current assets
|
|
|
|
|
|
1,202.8
|
|
|
|
1,202.8
|
|
Assets of
discontinued operations
|
|
|
|
|
|
582.2
|
|
|
|
582.2
|
|
Total other
assets
|
|
2,186.1
|
|
1,136.1
|
|
4,061.0
|
|
(3,322.2
|
)
|
4,061.0
|
|
Property, plant,
and equipment, net
|
|
|
|
|
|
2,834.1
|
|
|
|
2,834.1
|
|
Total assets
|
|
$
|
2,186.1
|
|
$
|
1,136.1
|
|
$
|
9,599.4
|
|
$
|
(3,322.2
|
)
|
$
|
9,599.4
|
|
Current
liabilities :
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
|
$
|
|
|
$
|
|
|
$
|
1,392.6
|
|
$
|
|
|
$
|
1,392.6
|
|
Current portion
of asbestos liability
|
|
149.0
|
|
|
|
|
|
|
|
149.0
|
|
Short-term loans
and long-term debt due within one year
|
|
300.0
|
|
|
|
550.4
|
|
(300.0
|
)
|
550.4
|
|
Liabilities of
discontinued operations
|
|
|
|
|
|
75.0
|
|
|
|
75.0
|
|
Total current
liabilities
|
|
449.0
|
|
|
|
2,018.0
|
|
(300.0
|
)
|
2,167.0
|
|
Liabilities of
discontinued operations
|
|
|
|
|
|
8.2
|
|
|
|
8.2
|
|
Long-term debt
|
|
743.7
|
|
|
|
5,109.7
|
|
(750.0
|
)
|
5,103.4
|
|
Asbestos-related
liabilities
|
|
497.7
|
|
|
|
|
|
|
|
497.7
|
|
Other
non-current liabilities and minority interests
|
|
6.3
|
|
|
|
1,327.4
|
|
|
|
1,333.7
|
|
Capital
structure
|
|
489.4
|
|
1,136.1
|
|
1,136.1
|
|
(2,272.2
|
)
|
489.4
|
|
Total
liabilities and share owners equity
|
|
$
|
2,186.1
|
|
$
|
1,136.1
|
|
$
|
9,599.4
|
|
$
|
(3,322.2
|
)
|
$
|
9,599.4
|
|
24
|
|
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
items below
|
|
174.0
|
|
174.0
|
|
255.1
|
|
(348.0
|
)
|
255.1
|
|
Provision for
income taxes
|
|
|
|
|
|
(64.9
|
)
|
|
|
(64.9
|
)
|
Minority share
owners interests
in
earnings of subsidiaries
|
|
|
|
|
|
(16.2
|
)
|
|
|
(16.2
|
)
|
Earnings from
continuing operations
|
|
174.0
|
|
174.0
|
|
174.0
|
|
(348.0
|
)
|
174.0
|
|
Gain on sale of
discontinued
operations
|
|
4.1
|
|
4.1
|
|
4.1
|
|
(8.2
|
)
|
4.1
|
|
Net earnings
|
|
$
|
178.1
|
|
$
|
178.1
|
|
$
|
178.1
|
|
$
|
(356.2
|
)
|
$
|
178.1
|
|
25
|
|
Three months ended March 31, 2007
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Results of Operations
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
|
|
$
|
1,684.0
|
|
$
|
|
|
$
|
1,684.0
|
|
Manufacturing,
shipping,
and
delivery
|
|
|
|
|
|
(1,356.2
|
)
|
|
|
(1,356.2
|
)
|
Gross profit
|
|
|
|
|
|
327.8
|
|
|
|
327.8
|
|
Research,
engineering, selling,
administrative,
and other
|
|
|
|
|
|
(158.4
|
)
|
|
|
(158.4
|
)
|
External
interest expense
|
|
(20.6
|
)
|
|
|
(60.4
|
)
|
|
|
(81.0
|
)
|
Intercompany
interest expense
|
|
|
|
(20.6
|
)
|
(20.6
|
)
|
41.2
|
|
|
|
External
interest income
|
|
|
|
|
|
3.4
|
|
|
|
3.4
|
|
Intercompany
interest income
|
|
20.6
|
|
20.6
|
|
|
|
(41.2
|
)
|
|
|
Equity earnings
from subsidiaries
|
|
55.3
|
|
55.3
|
|
|
|
(110.6
|
)
|
|
|
Other equity
earnings
|
|
|
|
|
|
5.1
|
|
|
|
5.1
|
|
Other revenue
|
|
|
|
|
|
8.5
|
|
|
|
8.5
|
|
Earnings from
continuing operations
before
items below
|
|
55.3
|
|
55.3
|
|
105.4
|
|
(110.6
|
)
|
105.4
|
|
Provision for
income taxes
|
|
|
|
|
|
(38.6
|
)
|
|
|
(38.6
|
)
|
Minority share
owners interests
in
earnings of subsidiaries
|
|
|
|
|
|
(11.5
|
)
|
|
|
(11.5
|
)
|
Earnings from
continuing operations
|
|
55.3
|
|
55.3
|
|
55.3
|
|
(110.6
|
)
|
55.3
|
|
Net losses of
discontinued
operations
|
|
(2.1
|
)
|
(2.1
|
)
|
(2.1
|
)
|
4.2
|
|
(2.1
|
)
|
Net earnings
|
|
$
|
53.2
|
|
$
|
53.2
|
|
$
|
53.2
|
|
$
|
(106.4
|
)
|
$
|
53.2
|
|
26
|
|
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
|
)
|
$
|
|
|
$
|
60.9
|
|
$
|
|
|
$
|
20.7
|
|
Cash used in
investing activities
|
|
|
|
|
|
(77.0
|
)
|
|
|
(77.0
|
)
|
Cash provided by
financing activities
|
|
40.2
|
|
|
|
99.2
|
|
|
|
139.4
|
|
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
|
|
|
|
Three months ended March 31, 2007
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Guarantor
|
|
|
|
|
|
Cash Flows
|
|
Parent
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Cash used in operating activities
|
|
$
|
(41.0
|
)
|
$
|
|
|
$
|
(3.1
|
)
|
$
|
|
|
$
|
(44.1
|
)
|
Cash used in
investing activities
|
|
|
|
|
|
(46.1
|
)
|
|
|
(46.1
|
)
|
Cash provided by
financing activities
|
|
41.0
|
|
|
|
116.2
|
|
|
|
157.2
|
|
Effect of
exchange rate change on cash
|
|
|
|
|
|
4.0
|
|
|
|
4.0
|
|
Net change in
cash
|
|
|
|
|
|
71.0
|
|
|
|
71.0
|
|
Cash at
beginning
of
period
|
|
|
|
|
|
222.7
|
|
|
|
222.7
|
|
Cash at end
of period
|
|
$
|
|
|
$
|
|
|
$
|
293.7
|
|
$
|
|
|
$
|
293.7
|
|
27
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations.
Executive
Overview
Quarters ended March 31, 2008 and 2007
Net sales from
continuing operations were $276.5 million higher than the prior year
principally resulting from improved pricing, product mix, and favorable foreign
currency exchange rates, partially offset by decreased sales volume.
Segment Operating
Profit for reportable segments was $112.1 million higher than the prior
year. The benefits of product mix,
higher selling prices and favorable exchange rates were partially offset by
inflationary cost increases and decreased unit shipments.
Interest expense
for the first quarter of 2008 was $64.3 million compared to $81.0 million from
continuing operations for the first quarter of 2007. The decrease was due to
lower debt levels, lower variable interest rates under the Companys bank
credit agreement, and fixed to floating swaps.
Net earnings from
continuing operations for 2008 were $174.0 million, or $1.02 per share
(diluted), compared to $55.3 million, or $0.31 per share (diluted) for
2007. Earnings in 2008 included items
that management considered not representative of ongoing operations. These
items decreased net earnings in 2008 by $9.7 million, or $0.06 per share.
Cash payments for
asbestos-related costs were $40.2 million for 2008 compared to $41.0 million
for 2007.
Capital spending
for property, plant, and equipment for continuing operations was $45.4 million
for 2008 compared to $32.6 million for 2007.
Results
of Operations First Quarter of 2008 compared with First Quarter of 2007
Net Sales
The Companys net sales by segment for the first
quarter of 2008 and 2007 are presented in the following table. For further information, see Segment Information
included in Note 7 to the Condensed Consolidated Financial Statements.
|
|
2008
|
|
2007
|
|
|
|
(dollars in millions)
|
|
Europe
|
|
$
|
888.9
|
|
$
|
728.4
|
|
North America
|
|
530.9
|
|
523.4
|
|
South America
|
|
254.2
|
|
203.2
|
|
Asia Pacific
|
|
250.0
|
|
212.5
|
|
Reportable
segment totals
|
|
1,924.0
|
|
1,667.5
|
|
Other
|
|
36.5
|
|
16.5
|
|
Consolidated
totals
|
|
$
|
1,960.5
|
|
$
|
1,684.0
|
|
28
The
Companys net sales for the first quarter of 2008 increased $276.5 million, or
16.4%, over the first quarter of 2007.
The change in net sales for reportable segments can be summarized as
follows (dollars in millions):
Net sales - 2007
|
|
|
|
$
|
1,667.5
|
|
Effects of
changing foreign currency rates
|
|
$
|
187.0
|
|
|
|
Net effect of
price and mix
|
|
119.0
|
|
|
|
Decreased sales
volume
|
|
(49.5
|
)
|
|
|
Total effect on
net sales
|
|
|
|
256.5
|
|
Net sales - 2008
|
|
|
|
$
|
1,924.0
|
|
|
|
|
|
|
|
|
|
Segment Operating Profit
Operating
Profit for the reportable segments in the table below 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.
|
|
2008
|
|
2007
|
|
|
|
(dollars in millions)
|
|
Europe
|
|
$
|
147.6
|
|
$
|
74.8
|
|
North America
|
|
55.5
|
|
62.5
|
|
South America
|
|
73.6
|
|
48.0
|
|
Asia Pacific
|
|
45.4
|
|
24.7
|
|
Reportable
segment totals
|
|
322.1
|
|
210.0
|
|
Retained
corporate costs and other
|
|
1.5
|
|
(27.0
|
)
|
Consolidated
totals
|
|
$
|
323.6
|
|
$
|
183.0
|
|
Segment Operating Profit for reportable segments for the first quarter
of 2008 increased $112.1 million, or 53.4%, to $322.1 million, compared with
Segment Operating Profit of $210.0 million for the first quarter of 2007.
The change in Segment Operating Profit for reportable segments can be
summarized as follows (dollars in millions):
Segment
Operating Profit - 2007
|
|
|
|
$
|
210.0
|
|
Net effect of
price and mix
|
|
$
|
119.0
|
|
|
|
Effects of
changing foreign currency rates
|
|
35.0
|
|
|
|
Manufacturing
and delivery
|
|
(55.0
|
)
|
|
|
Decreased sales
volume
|
|
(12.0
|
)
|
|
|
Other
|
|
25.1
|
|
|
|
Total net effect
on Segment Operating Profit
|
|
|
|
112.1
|
|
Segment
Operating Profit - 2008
|
|
|
|
$
|
322.1
|
|
|
|
|
|
|
|
|
|
29
Retained corporate costs and other for 2008 was income of $1.5 million
compared with expense of $27.0 million for 2007.
Beginning
in 2008, the Company revised its method of allocating corporate expenses. The Company decreased slightly the percentage
allocation based on sales and significantly expanded the number of functions
included in the allocation based on cost of services. It is not practicable to quantify the net
effect of these changes on periods prior to 2008. However, the effect for 2008 was to reduce
the amount of retained corporate costs by approximately $8 million. Also contributing to the decrease was increased
pension income for 2008 and the absence of an accrual for self-insured risks
for property related losses from the first quarter of 2007.
Interest Expense
Interest expense
for the first quarter of 2008 was $64.3 million compared to $81.0 million from
continuing operations for the first quarter of 2007. The decrease was due to
lower debt levels, lower variable interest rates under the Companys bank
credit agreement, and fixed to floating swaps.
Minority
Share Owners Interest in Earnings of Subsidiaries
Minority
share owners interest in earnings of subsidiaries for the first quarter of
2008 was $16.2 million compared to $11.5 million for the first quarter of
2007. The increase is primarily
attributed to higher earnings from the Companys operations in South America.
Provision
for Income Taxes
The
Companys effective tax rate for the three months ended March 31, 2008 was
25.4%, compared with 36.6% for the first three months of 2007. The reduction is
principally due to: (1) a change in
mix of earnings to jurisdictions where the Company is subject to lower
effective rates, and (2) the effect of higher earnings and lower interest
costs in the U.S., where the Company has recognized a valuation allowance on
net deferred tax assets. Based upon the
current projection for the mix of earnings for 2008, the Company expects that
the full year effective tax rate will be slightly below the 24.4% effective tax
rate for 2007.
Restructuring and Impairment
Charges
During
the first quarter of 2008, the Company recorded charges totaling $12.9 million
($9.7 million after tax), for additional restructuring and asset impairment in
the Caribbean, Asia Pacific, Europe, and North America. The charges reflect the additional results of
the Companys ongoing global profitability review. See Note 10 for additional information.
Discontinued
Operations
On
June 11, 2007, the Company announced that it had concluded the strategic
review process of its plastics portfolio and entered into a definitive
agreement with Rexam PLC to sell its plastics packaging business. On July 31, 2007, the Company completed
the sale for approximately $1.825 billion in cash.
Included
in the sale were 19 plastics manufacturing plants in the U.S. (including Puerto
Rico), Mexico, Brazil, Hungary, Singapore and Malaysia. The plastics packaging business is comprised
of HealthCare Packaging and Closure & Specialty Products which design,
manufacture and sell plastic packaging solutions for companies in the
pharmaceutical,
30
healthcare,
food and beverage, personal care, household and automotive industries. The plastics packaging business comprised the
Companys former Plastics Packaging segment.
As
required by FAS No. 144, the Company has presented the results of
operations for the plastics packaging business in the Condensed Consolidated
Results of Operations for the three months ended March 31, 2007 as
discontinued operations. Interest
expense was allocated to the discontinued operations based on debt that was
required by an amendment to the Secured Credit Agreement to be repaid from the
net proceeds. At March 31, 2007,
the assets and liabilities of the plastics packaging business are presented in
the Condensed Consolidated Balance Sheet as the assets and liabilities of
discontinued operations.
The
following summarizes the revenues and expenses of the discontinued operations
as reported in the consolidated results of operations for the period indicated:
|
|
Three months
ended
March 31,
2007
|
|
Net sales
|
|
$
|
188.3
|
|
Manufacturing,
shipping, and delivery
|
|
(144.3
|
)
|
Gross profit
|
|
44.0
|
|
Selling and
administrative expense
|
|
(8.2
|
)
|
Research,
development, and engineering expense
|
|
(3.8
|
)
|
Interest expense
|
|
(33.9
|
)
|
Other expense
|
|
(0.4
|
)
|
Losses before
item below
|
|
(2.3
|
)
|
Credit for
income taxes
|
|
0.2
|
|
|
|
|
|
Net loss from discontinued
operations
|
|
$
|
(2.1
|
)
|
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 resolution of
the selling price in accordance with the final contract.
The condensed consolidated balance sheet at March 31,
2007 included the following assets and liabilities related to the discontinued
operations:
31
|
|
Balance at
|
|
|
|
March 31,
|
|
|
|
2007
|
|
Assets:
|
|
|
|
Inventories
|
|
$
|
69.2
|
|
Accounts
receivable
|
|
52.5
|
|
Other current
assets
|
|
1.0
|
|
Total current
assets
|
|
122.7
|
|
Goodwill
|
|
215.5
|
|
Other long-term
assets
|
|
42.7
|
|
Net property,
plant, and equipment
|
|
324.0
|
|
Total assets
|
|
$
|
704.9
|
|
|
|
|
|
Liabilities:
|
|
|
|
Accounts payable
and other current liabilities
|
|
$
|
75.0
|
|
Other long-term
liabilities
|
|
8.2
|
|
Total
liabilities
|
|
$
|
83.2
|
|
Capital
Resources and Liquidity
The Company's total debt
at March 31, 2008 was $4.03 billion, compared to $3.71 billion at December 31,
2007 and $5.65 billion at March 31, 2007.
On June 14, 2006, the
Companys subsidiary borrowers entered into the secured credit agreement (the
Agreement). At March 31, 2008, 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.
At March 31, 2008 the
Companys subsidiary borrowers had unused credit of $725.6 million available
under the Agreement.
The weighted average
interest rate on borrowings outstanding under the Agreement at March 31, 2008
was 6.08%.
During March 2007, a
subsidiary of the Company issued Senior Notes totaling 300.0 million. The notes bear interest at 6.875% and are due
March 31, 2017. The notes are guaranteed
by substantially all of the Companys domestic subsidiaries. The proceeds were used to retire the $300
million principal amount of 8.10% Senior Notes which matured in May 2007, and
to reduce borrowings under the revolving credit facility.
Information related to
the Companys accounts receivable securitization program is as follows:
32
|
|
March 31,
|
|
Dec. 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Balance
(included in short-term loans)
|
|
$
|
439.6
|
|
$
|
361.8
|
|
$
|
229.2
|
|
|
|
|
|
|
|
|
|
Weighted average
interest rate
|
|
6.10
|
%
|
5.48
|
%
|
5.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
continuing operating activities in the first three months of 2008 was $20.7
million compared with a use of $40.2 million in the prior year. The increase is
mainly attributable to improved earnings, partially offset by a larger seasonal
increase in working capital.
Capital spending
for property, plant, and equipment was $45.4 million in the first three months
of 2008 compared with $32.6 million (continuing operations) in the prior
year. In addition, during 2007, the
Company capitalized $4.1 million under capital lease obligations with the
related financing recorded as long term debt.
The
Company anticipates that cash flow 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 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 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
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
33
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, 2008 totaled
$2,995.2 million, representing 30% of total assets. Depreciation expense for the three months ended
March 31, 2008 totaled $113.6 million, representing over 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 individually. 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 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.
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 assesses recoverability by
comparing the carrying amount of the asset group to
34
the estimated undiscounted
future cash flows expected to be generated by the assets. 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 expected to be ongoing in 2008
and 2009. As an initial result of this
review, during the third and fourth quarters of 2007 and the first quarter of
2008, the Company recorded charges that included asset impairments in North
America, the Caribbean, Asia Pacific and Europe. 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,
2008, no other decisions had been made and no events had occurred that would
require an additional evaluation of possible impairment in accordance with FAS No. 144. For additional information on charges
recorded in 2008 and 2007, see Notes 8 and 10 to the Condensed Consolidated
Financial Statements.
Goodwill
Goodwill at March 31, 2008 totaled $2,522.2 million,
representing 25% of total assets. As
required by FAS No. 142, Goodwill and Other Intangibles, 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 2007, the Company completed its annual
testing and determined that no impairment of goodwill existed.
The testing performed as of October 1, 2007, indicated a
significant excess of BEV over book value for each unit. However, if the Companys projected future
cash flows are substantially lower, or if the assumed weighted average cost of
capital is substantially higher, future testing may indicate an impairment of
one or more of the Companys reporting units and, as a result, the related
goodwill will also be impaired.
The Company will monitor conditions throughout 2008 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 2008, or earlier if appropriate. In the event the Company would be required to
record a significant write down of
35
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 2007
Annual Report on Form 10-K. For
additional information on charges recorded in 2008 and 2007, see Notes 8 and 10
to the Condensed Consolidated Financial Statements.
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 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,
2007, the weighted average discount rate for all plans was 5.87%. 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 2008, the Companys estimated weighted average expected
long-term rate of return on plan assets is 8.1%, unchanged from 2007. The Company recorded pension income (expense)
from continuing operations of $6.4 million and $(0.1) million for the three
months ended March 31, 2008 and 2007, respectively, from its principal
defined benefit pension plans. Depending
on currency translation rates, the Company expects to record approximately $26
million of pension income for the full year of 2008. The expected improvement in 2008 is a result
of higher asset values, principally in the U.S. plans.
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 $20 million
in
36
the
pretax pension amount for the full year 2008.
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, 2007, the Accumulated
Other Comprehensive Loss component of share owners equity was decreased by
$79.1 million ($70.5 million after tax) to reflect a net increase in the funded
status of the Companys plans at that date.
Funding
and Credit Compliance
- The Company believes it will not be required to make cash contributions to
the U.S. plans for at least several years.
The Company expects to contribute approximately $62.8 million to its
non-U.S. defined benefit pension plans in 2008, compared with $63.9 million in
2007.
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 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 continues to monitor trends which 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. During 2007, the Company
accelerated the disposition and payment of certain claims, most of which had
been accounted for previously in establishing the accrual for its asbestos
liability, which acceleration resulted in a significant increase in reported
filings, dispositions and cash payments during the year. The Company expects that these accelerated
dispositions will likely continue in 2008, resulting in increased cash payments
during the first half of 2008 compared to the first half of 2007.
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.
37
In
the fourth quarter of 2007, the Company recorded a charge of $115.0 million
(pretax and after tax) to increase its accrued liability for asbestos-related
costs. This amount was reduced from the 2006 charge of $120.0 million. The factors and developments that
particularly affected the determination of the amount of this increase in the
accrual included the following: (i) the rates of filings against the
Company; (ii) the emerging evidence of irregularities associated with mass
litigation screenings; (iii) the
Companys successful litigation record during the year; (iv) the
legislative developments and court rulings in several states; (iv) the
Companys strategy to accelerate settlements of certain claims on favorable
terms, and (v) 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.
The
Company adopted FASB Interpretation 48, Accounting
for Uncertainty in Income Taxes, (FIN 48), as of January, 1,
2007. Management judgment is required in
determining income tax expense and the related balance sheet amounts. In addition, under 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. The
Company believes that its recorded tax liabilities adequately provide for the
probable outcome of these assessments.
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 is
largely dependent upon projected near-term 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 and the accrued liability for asbestos-related
costs that are not deductible until paid.
The deferred tax assets are partially offset by deferred tax
liabilities, the most significant of which relate to the prepaid pension asset
and accelerated depreciation. The
Company has recorded a valuation allowance for the portion of U.S. deferred tax
assets not offset by deferred tax liabilities.
During the third quarter of 2007 the Company sold its discontinued
plastics operations. For tax purposes,
the gain on the sale will be substantially offset by capital and net operating
loss carryforwards. The credit for the corresponding reduction in the valuation
allowance of $406.8 million was classified as a component of the gain on sale
of discontinued operations. In 2007 the
Company implemented a plan to restructure the ownership and intercompany obligations
of certain foreign subsidiaries. These
actions resulted in taxation of a significant portion of previously unremitted
foreign earnings and will transfer a portion of the Companys debt service
obligations to operations outside the U.S. in order to better balance operating
cash flows with financing costs on a global basis. The foreign earnings reported as taxable in
the U.S. were offset by net operating loss carryforwards and foreign tax
38
credits. Foreign tax credit carryforwards arising from
the restructuring were fully offset by an increase in the valuation allowance.
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 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 without the loss of customers or sales
volume, (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,
2008 from those described in the Companys Annual Report on Form 10-K for
the year ended December 31, 2007.
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 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
39
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, 2008.
Management concluded that the Companys system of internal control over
financial reporting was effective as of December 31, 2007. 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.
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,
2008 from those described in the Companys Annual Report on Form 10-K for
the year ended December 31, 2007.
Item
6. Exhibits.
Exhibit 12
Computation of Ratio of Earnings to Fixed
Charges
and Earnings to Combined
Fixed Charges and Preferred Stock Dividends
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
40
*
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.
41
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 9, 2008
|
|
By
|
/s/ Edward C. White
|
|
|
Edward C. White
|
|
|
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
|
|
|
|
|
|
42
INDEX TO EXHIBITS
Exhibits
|
|
|
|
|
|
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
|
|
|
|
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.
43
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