PART I
ITEM 1. BUSINESS
General Development of Business
Owens-Illinois, Inc. (the "Company"), through its subsidiaries, is the successor to a business established in 1903. The Company
is the largest manufacturer of glass containers in the world with 79 glass manufacturing plants in 21 countries. It competes in the glass container segment of the rigid packaging market and is the
leading glass container manufacturer in most of the countries where it is located.
Company Strategy
The Company's ambition is to be the world's leading maker of brand-building glass containers, delivering unmatched quality, innovation
and service to its customers; generating strong financial results for its investors; and providing a safe, motivating and engaging work environment for its employees. To accomplish this ambition, the
Company is focusing on the following objectives:
-
-
Reduce structural costs
through specific programs such as permanent
footprint adjustments, asset optimization and global cost-cutting initiatives;
-
-
Grow selectively
by taking advantage of the Company's position in emerging
markets around the world and strengthening the Company's position in Europe and North America;
-
-
Deliver brand-building product innovation
to the Company's customers to
help them build, develop and expand their brands; and
-
-
Invest strategically in technology and research and development
to reduce
manufacturing costs and to improve efficiency, flexibility, reliability and innovation.
Reportable Segments
The Company has four reportable segments based on its geographic locations: Europe, North America, South America, and Asia Pacific.
Information as to sales, earnings from continuing operations before interest income, interest expense, and provision for income taxes and excluding amounts related to certain items that management
considers not representative of ongoing operations ("segment operating profit"), and total assets by reportable segment is included in Note 2 to the Consolidated Financial Statements.
Products and Services
The Company produces glass containers for alcoholic beverages, including beer, flavored malt beverages, spirits and wine. The Company
also produces glass packaging for a variety of food items, soft drinks, teas, juices and pharmaceuticals. The Company manufactures glass containers in a wide range of sizes, shapes and colors and is
active in new product development and glass container innovation.
Customers
In most of the countries where the Company competes, it has the leading position in the glass container segment of the rigid packaging
market based on sales revenue. The Company's largest customers consist mainly of the leading food and beverage manufacturers in the world, including (in alphabetical order) Anheuser-Busch InBev, Brown
Forman, Carlsberg, Coca-Cola, Constellation, Diageo, Heineken, Kirin, MillerCoors, Nestle, PepsiCo, Pernod Ricard, SABMiller, and Saxco International. No customer represents more than 10%
of the Company's consolidated net sales.
1
Table of Contents
The
Company sells most of its glass container products directly to customers under annual or multi-year supply agreements. Multi-year contracts typically provide
for price adjustments based on cost changes. The Company also sells some of its products through distributors. Many customers provide the Company with regular estimates of its product needs, which
enables the Company to schedule glass container production to maintain reasonable levels of inventory. Due to the significance of transportation costs and the importance of timely delivery, glass
container manufacturing facilities are generally located in close proximity to customers.
Markets and Competitive Conditions
The Company's principal markets for glass container products are in Europe, North America, South America and Asia Pacific.
Europe.
The Company has a leading share of the glass container segment of the rigid packaging market in Europe, with 36 glass container
manufacturing
plants located in the Czech Republic, Estonia, France, Germany, Hungary, Italy, the Netherlands, Poland, Spain and the United Kingdom. The Company is also involved in a joint venture that manufactures
glass containers in Italy. These plants primarily produce glass containers for the beer, wine, champagne, spirits and food markets in these countries. Throughout Europe, the Company competes directly
with a variety of glass container manufacturers including Verallia, Ardagh Group, Vetropak and Vidrala.
North America.
The Company has 19 glass container manufacturing plants in the U.S. and Canada, and is also involved in a joint venture
that
manufactures glass containers in the U.S. The Company has the leading share of the glass container segment of the U.S. rigid packaging market, based on sales revenue by domestic producers. The
principal glass container competitors in the U.S. are Verallia North America and Ardagh Group. Imports from Mexico, China and other countries also compete in U.S. glass container segments.
Additionally, a few major consumer packaged goods companies self-manufacture glass containers.
South America.
The Company has 13 glass manufacturing plants in South America, located in Argentina, Brazil, Colombia, Ecuador and
Peru. In South
America, the Company maintains a diversified portfolio serving several markets, including beer, non-alcoholic beverages, spirits, flavored malt beverages, wine, food and pharmaceuticals.
The region also has a large infrastructure for returnable/refillable glass containers. The Company competes directly with Verallia in Brazil and Argentina, and does not believe that it competes with
any other large, multinational glass container manufacturers in the rest of the region.
Asia Pacific.
The Company has 11 glass container manufacturing plants in the Asia Pacific region, located in Australia, China,
Indonesia and New
Zealand. It is also involved in joint venture operations in China, Malaysia and Vietnam. In Asia Pacific, the Company primarily produces glass containers for the beer, wine, food and
non-alcoholic beverage markets. The Company competes directly with Amcor Limited in Australia, and does not believe that it competes with any other large, multinational glass container
manufacturers in the rest of the region. In China, the glass container segments of the packaging market are regional and highly fragmented with a large number of local competitors.
In
addition to competing with other large and well-established manufacturers in the glass container segment, the Company competes in all regions with manufacturers of other
forms of rigid packaging, principally aluminum cans and plastic containers. Competition is based on quality, price, service, innovation and the marketing attributes of the container. The principal
competitors producing metal containers include Amcor, Ball Corporation, Crown Holdings, Inc., Rexam plc, and Silgan Holdings Inc. The principal competitors producing plastic
containers include Amcor, Consolidated Container Holdings, LLC, Reynolds Group Holdings Limited, Plastipak Packaging, Inc. and Silgan
2
Table of Contents
Holdings Inc.
The Company also competes with manufacturers of non-rigid packaging alternatives, including flexible pouches, aseptic cartons and bag-in-box
containers.
The
Company seeks to provide products and services to customers ranging from large multinationals to small local breweries and wineries in a way that creates a competitive advantage for
the Company. The Company believes that it is often the glass container partner of choice because of its innovation and branding capabilities, its global footprint and its expertise in manufacturing
know-how and process technology.
Seasonality
Sales of many glass container products such as beer, beverages and food are seasonal. Shipments in the U.S. and Europe are typically
greater in the second and third quarters
of the year, while shipments in the Asia Pacific region are typically greater in the first and fourth quarters of the year, and shipments in South America are typically greater in the third and fourth
quarters of the year.
Manufacturing
The Company has 79 glass manufacturing plants. It constantly seeks to improve the productivity of these operations through the
systematic upgrading of production capabilities, sharing of best practices among plants and effective training of employees.
The
Company operates machine shops that assemble, rebuild and repair high-productivity glass forming machines, as well as mold shops that manufacture molds and related
equipment. The Company also provides engineering support for its glass manufacturing operations through facilities located in the U.S., Australia, Poland, Peru and China.
Suppliers and Raw Materials
The primary raw materials used in the Company's glass container operations are sand, soda ash, limestone and recycled glass. Each of
these materials, as well as the other raw materials used to manufacture glass containers, has historically been available in adequate supply from multiple sources. One of the sources is a soda ash
mining operation in Wyoming in which the Company has a 25% interest.
Energy
The Company's glass container operations require a continuous supply of significant amounts of energy, principally natural gas, fuel
oil and electrical power. Adequate supplies of energy are generally available at all of the Company's manufacturing locations. Energy costs typically account for 10-25% of the Company's
total manufacturing costs, depending on the cost of energy, the type of energy available, the factory location and the particular energy requirements. The percentage of total cost related to energy
can vary significantly because of volatility in market prices, particularly for natural gas and fuel oil in volatile markets such as North America and Europe.
In
North America, approximately 90% of the sales volume is tied to customer contracts that contain provisions that pass the price of natural gas to the customer, effectively reducing the
North America segment's exposure to changing natural gas market prices. Also, in order to limit the effects of fluctuations in market prices for natural gas, the Company uses commodity futures
contracts related to its forecasted requirements in North America. The objective of these futures contracts is to reduce potential volatility in cash flows and expense due to changing market prices.
The Company continually evaluates the energy markets with respect to its forecasted energy requirements to optimize its use of commodity futures contracts.
3
Table of Contents
In
Europe and Asia Pacific, the Company enters into fixed price contracts for a significant amount of its energy requirements. These contracts typically have terms of 12 months or
less in Europe and one to three years in Asia Pacific. In South America, the Company enters into fixed price contracts for its energy requirements. These contracts typically have terms of two years,
with annual price adjustments for inflation.
Technical Assistance License Agreements
The Company has agreements to license its proprietary glass container technology and to provide technical assistance to a limited
number of companies around the world. These agreements cover areas related to manufacturing and engineering assistance. The worldwide licensee network provides a stream of revenue to help support the
Company's development activities. In the years 2012, 2011 and 2010, the Company earned $17 million, $16 million and $16 million, respectively, in royalties and net technical
assistance revenue on a continuing operations basis.
Research, Development and Engineering
Research, development and engineering constitute important parts of the Company's technical activities. Expenditures for these
activities were $62 million, $71 million and $62 million for 2012, 2011 and 2010, respectively. The Company primarily focuses on advancements in the areas of product innovation,
manufacturing process control, melting technology, automatic inspection, light-weighting and further automation of manufacturing activities. The Company's research and development activities are
conducted at its corporate facilities in Perrysburg, Ohio. The Company
is currently building a new research and development facility at this location that is expected to be completed in the second half of 2013. This new facility will enable the Company to expand its
research and development capabilities.
The
Company holds a large number of patents related to a wide variety of products and processes and has a substantial number of patent applications pending. While the aggregate of the
Company's patents are of material importance to its businesses, the Company does not consider that any patent or group of patents relating to a particular product or process is of material importance
when judged from the standpoint of any individual segment or its businesses as a whole.
Sustainability and the Environment
The Company is committed to reducing the impact its products and operations have on the environment. As part of this commitment, the
Company has set targets for increasing the use of recycled glass in its manufacturing process, while reducing energy consumption and carbon dioxide equivalent ("CO
2
") emissions. Specific
actions taken by the Company include working with governments and other organizations to establish and financially support recycling initiatives, partnering with other entities throughout the supply
chain to improve the effectiveness of recycling efforts, reducing the weight of glass packaging and investing in research and development to reduce energy consumption in its manufacturing process.
The
Company's worldwide operations, in addition to other companies within the industry, are subject to extensive laws, ordinances, regulations and other legal requirements relating to
environmental protection, including legal requirements governing investigation and clean-up of contaminated properties as well as water discharges, air emissions, waste management and
workplace health and safety. The Company strives to abide by and uphold such laws and regulations.
Glass Recycling and Bottle Deposits
The Company is an important contributor to recycling efforts worldwide and is among the largest users of recycled glass containers. If
sufficient high-quality recycled glass were available on a consistent basis, the Company has the technology to make glass containers using 100% recycled glass. Using
4
Table of Contents
recycled
glass in the manufacturing process reduces energy costs and prolongs the operating life of the glass melting furnaces.
In
the U.S., Canada, Europe and elsewhere, government authorities have adopted or are considering legal requirements that would mandate certain recycling rates, the use of recycled
materials, or limitations on or preferences for certain types of packaging. The Company believes that governments worldwide will continue to develop and enact legal requirements around guiding
customer and end-consumer packaging choices.
Sales
of beverage containers are affected by governmental regulation of packaging, including deposit laws. As of December 31, 2012, there were a number of U.S. states, Canadian
provinces and territories, European countries and Australian states with some form of consumer bottle deposit laws in effect. The structure and enforcement of such laws and regulations can impact the
sales of beverage containers in a given jurisdiction. Such laws and regulations also impact the availability of post-consumer recycled glass for the Company to use in container production.
A
number of U.S. states and Canadian provinces have recently considered or are now considering laws and regulations to encourage curbside, deposit and on-premise recycling.
Although there is no clear trend in the direction of these state and provincial laws and regulations, the Company believes that U.S. states and Canadian provinces, as well as municipalities within
those jurisdictions, will continue to adopt recycling laws, which will impact supplies of recycled glass. As a large user of recycled glass for making new glass containers, the Company has an interest
in laws and regulations impacting supplies of such material in its markets.
Air Emissions
In Europe, the European Union Emissions Trading Scheme ("EUETS") is in effect to facilitate emissions reduction. The Company's
manufacturing facilities which operate in EU countries must restrict the volume of their CO
2
emissions to the level of their individually allocated emissions allowances as set by country
regulators. If the actual level of emissions for any facility exceeds its allocated allowance, additional allowances can be bought to cover deficits; conversely, if the actual level of emissions for
any facility is less than its allocation, the excess allowances can be sold. The EUETS has not had a material effect on the Company's results to date. However, should the regulators significantly
restrict the number of emissions allowances available, it could have a material effect in the future.
In
North America, the U.S. and Canada are engaged in significant legislative and regulatory activity relating to CO
2
emissions, at the federal, state and provincial levels of
government. There are numerous proposals pending before the U.S. Congress which would create a cap-and-trade emissions trading scheme for CO
2
, but no legislation
has been adopted into law. Other proposals would adopt a national carbon tax or would create restrictions on CO
2
emissions without utilizing a cap-and-trade system.
The U.S. Environmental Protection Agency ("EPA") regulates emissions of hazardous air pollutants under the Clean Air Act, which grants the EPA authority to establish limits for certain air pollutants
and to require compliance, levy penalties and bring civil judicial action against violators. The EPA also implemented the Cross-State Air Pollution Rule, which set stringent emissions limits in many
states starting in 2012. The state of California adopted cap-and-trade legislation aimed at reducing greenhouse gas emissions starting in 2013. These rules may result in higher
energy prices and other costs to the Company.
In
Asia Pacific, the
National Greenhouse and Energy Reporting Act 2007
commenced on July 1, 2008 in Australia. This act established
a mandatory reporting system for corporate greenhouse gas emissions and energy production and consumption. In 2011, the Australian government adopted a carbon pricing mechanism that took effect in
July 2012, which requires certain manufacturers to pay a tax based on their carbon-equivalent emissions. In New Zealand, the government made a number of amendments to
5
Table of Contents
the
emissions trading scheme passed into law in September 2008. One of the changes introduced a transition phase to the scheme between July 1, 2010 and December 31, 2012. During this
period, participants were able to buy emission units from the government.
In
South America, the Brazilian government passed a law in 2009 requiring companies to reduce the level of greenhouse gas emissions by the year 2020. Implementation of this law is
expected in 2013 once the mechanics are more fully defined. In the other South American countries, national and local governments are considering proposals that would impose regulations to reduce
CO
2
emissions, but no legislation has been implemented to date.
The
Company is unable to predict what environmental legal requirements may be adopted in the future. However, the Company continually monitors its operations in relation to environmental
impacts and invests in environmentally friendly and emissions-reducing projects. As such, the Company has made significant expenditures for environmental improvements at certain of its facilities over
the last several years; however, these expenditures did not have a material adverse effect on the Company's results of operations or cash flows. The Company is unable to predict the impact of future
environmental legal requirements on its results of operations or cash flows.
Employees
The Company's worldwide operations employed approximately 22,500 persons as of December 31, 2012. Approximately 79% of North
American employees are hourly workers covered by collective bargaining agreements. The principal collective bargaining agreement, which at December 31, 2012, covered approximately 91% of the
Company's union-affiliated employees in North America, will expire on March 31, 2013. Approximately 65% of employees in South America are unionized, although according to the labor legislation
in each country, 100% of employees are covered by collective bargaining agreements. The majority of the hourly workers in Australia and New Zealand are also covered by collective bargaining
agreements. The collective bargaining agreements in South America, Australia and New Zealand have varying terms and expiration dates. In Europe, a large number of the Company's employees are employed
in countries in which employment laws provide greater bargaining or other rights to employees than the laws of the U.S. Such employment rights require the Company to work collaboratively with the
legal representatives of the employees to effect any changes to labor arrangements. The Company considers its employee relations to be good and does not anticipate any material work stoppages in the
near term.
Available Information
The Company's website is www.o-i.com. The Company's annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 can be obtained from this site at no cost. The Company's SEC filings are also available for reading and copying at the SEC's Public Reference Room at 100 F Street, NE, Washington,
D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at
www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The
Company's Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the Compensation, Nominating/Corporate Governance and Audit Committees are also
available on the Investor Relations section of the Company's website. Copies of these documents are available in print to share owners upon request, addressed to the Corporate Secretary at the address
above.
6
Table of Contents
Executive Officers of the Registrant
|
|
|
Name and Age
|
|
Position
|
Albert P. L. Stroucken (65)
|
|
Chairman and Chief Executive Officer since 2006. Previously Chief Executive Officer of HB Fuller Company, a manufacturer of adhesives, sealants, coatings, paints and other specialty chemical products
1998-2006; Chairman of HB Fuller Company 1999-2006.
|
Stephen P. Bramlage, Jr. (42)
|
|
Chief Financial Officer and Senior Vice President since 2012; President of O-I Asia Pacific 2011-2012; General Manager of O-I New Zealand 2010-2011; Vice President of Finance 2008-2010; Vice President
and Chief Financial Officer of O-I Europe 2008; Vice President and Treasurer 2006-2008.
|
James W. Baehren (62)
|
|
Senior Vice President and General Counsel since 2003; Senior Vice President Strategic Planning 2006-2012; Chief Administrative Officer 2004-2006; Corporate Secretary 1998-2010; Vice President and
Director of Finance 2001-2003.
|
Paul A. Jarrell (50)
|
|
Senior Vice President since 2011; Chief Administrative Officer beginning in 2013; Chief Human Resources Officer 2011-2012. Previously Executive Vice President and Chief Human Resources Officer for DSM,
a life sciences and materials company based in The Netherlands 2009-2011; Vice President and Director of Human Resources for ITT, a fluid technologies and engineered products company 2006-2009.
|
Erik C. M. Bouts (51)
|
|
Vice President and President of O-I Europe beginning in 2013. Previously Chief Executive Officer of the Glidden Company, part of AkzoNobel Architectural Paints Division in the U.S. 2007-2012; President
and Chief Executive Officer of Philips Lighting Company North America, a division of Philips Electronics 2002-2006.
|
Arnaud N. J. M. de Weert (49)
|
|
Vice President and President of O-I North America since 2012. Previously Chief Operating Officer of Constellium, a manufacturer of aluminum products based in France 2011-2012; Operating Partner/Senior
Advisor at Apollo Management, a U.S. private equity company 2009-2011; President Europe for Novelis AG, a manufacturer of rolled aluminum products 2006-2009.
|
Andres A. Lopez (50)
|
|
Vice President and President of O-I South America since 2009; Vice President of global manufacturing and engineering 2006-2009.
|
Financial Information about Foreign and Domestic Operations
Information as to net sales, segment operating profit, and assets of the Company's reportable segments is included in Note 2 to
the Consolidated Financial Statements.
7
Table of Contents
ITEM 1A. RISK FACTORS
Asbestos-Related LiabilityThe Company has made, and will continue to make, substantial payments to resolve claims of persons alleging exposure to
asbestos-containing products and may need to record additional charges in the future for estimated asbestos-related costs. These substantial payments have affected and may continue to affect the
Company's cost of borrowing and the ability to pursue acquisitions.
The Company is a defendant in numerous lawsuits alleging bodily injury and death as a result of exposure to asbestos dust. From 1948 to
1958, one of the Company's former business units commercially produced and sold approximately $40 million of a high-temperature, calcium-silicate based pipe and block insulation
material containing asbestos. The Company exited the pipe and block insulation business in April 1958. The typical
asbestos personal injury lawsuit alleges various theories of liability, including negligence, gross negligence and strict liability and seeks compensatory, and in some cases, punitive damages, in
various amounts (herein referred to as "asbestos claims").
The
Company believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot reasonably be
estimated. Beginning with the initial liability of $975 million established in 1993, the Company has accrued a total of approximately $4.3 billion through 2012, before insurance
recoveries, for its asbestos-related liability. The Company's ability to reasonably estimate its liability has been significantly affected by, among other factors, the volatility of asbestos-related
litigation in the United States, the significant number of co-defendants that have filed for bankruptcy, the magnitude and timing of co-defendant bankruptcy trust payments, the
inherent uncertainty of future disease incidence and claiming patterns, the expanding list of non-traditional defendants that have been sued in this litigation, and the use of mass
litigation screenings to generate large numbers of claims by parties who allege exposure to asbestos dust but have no present physical asbestos impairment.
The
Company conducted a comprehensive review of its asbestos-related liabilities and costs in connection with finalizing and reporting its results of operations for the year ended
December 31, 2012 and concluded that an increase in its accrual for future asbestos-related costs in the amount of $155 million (pretax and after tax) was required.
The
ultimate amount of distributions that may be required to fund the Company's asbestos-related payments cannot reasonably be estimated. The Company's reported results of operations for
2012 were materially affected by the $155 million (pretax and after tax) fourth quarter charge and asbestos-related payments continue to be substantial. Any future additional charge may
likewise materially affect the Company's results of operations for the period in which it is recorded. Also, the continued use of significant amounts of cash for asbestos-related costs has affected
and may continue to affect the Company's cost of borrowing and its ability to pursue global or domestic acquisitions.
Substantial LeverageThe Company's indebtedness could adversely affect the Company's financial health.
The Company has a significant amount of debt. As of December 31, 2012, the Company had approximately $3.8 billion of
total debt outstanding, a decrease from $4.0 billion at December 31, 2011.
The
Company's indebtedness could result in the following consequences:
-
-
Increased vulnerability to general adverse economic and industry conditions;
-
-
Increased vulnerability to interest rate increases for the portion of the debt under the secured credit agreement;
-
-
Require the Company to dedicate a substantial portion of cash flow from operations to payments on indebtedness, thereby
reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions, development efforts and other general corporate purposes;
8
Table of Contents
-
-
Limited flexibility in planning for, or reacting to, changes in the Company's business and the rigid packaging market;
-
-
Place the Company at a competitive disadvantage relative to its competitors that have less debt; and
-
-
Limit, along with the financial and other restrictive covenants in the documents governing indebtedness, among other
things, the Company's ability to borrow additional funds.
Ability to Service DebtTo service its indebtedness, the Company will require a significant amount of cash. The Company's ability to generate cash depends on
many factors beyond its control.
The Company's ability to make payments on and to refinance its indebtedness and to fund working capital, capital expenditures,
acquisitions, development efforts and other general corporate purposes depends on its ability to generate cash in the future. The Company has no assurance that it will generate sufficient cash flow
from operations, or that future borrowings will be available under the secured credit agreement, in an amount sufficient to enable the Company to pay its indebtedness, or to fund other liquidity
needs. If short term interest rates increase, the Company's debt service cost will increase because some of its debt is subject to short term variable interest rates. At December 31, 2012, the
Company's debt subject to variable interest rates represented approximately 33% of total debt.
The
Company may need to refinance all or a portion of its indebtedness on or before maturity. If the Company is unable to generate sufficient cash flow and is unable to refinance or
extend outstanding borrowings on commercially reasonable terms or at all, it may have to take one or more of the following actions:
-
-
Reduce or delay capital expenditures planned for replacements, improvements and expansions;
-
-
Sell assets;
-
-
Restructure debt; and/or
-
-
Obtain additional debt or equity financing.
The
Company can provide no assurance that it could affect or implement any of these alternatives on satisfactory terms, if at all.
Debt RestrictionsThe Company may not be able to finance future needs or adapt its business plans to changes because of restrictions placed on it by the secured
credit agreement and the indentures and instruments governing other indebtedness.
The secured credit agreement, the indentures governing the senior debentures and notes, and certain of the agreements governing other
indebtedness contain affirmative and negative covenants that limit the ability of the Company to take certain actions. For example, these indentures restrict, among other things, the ability of the
Company and its restricted subsidiaries to borrow money, pay dividends on, or redeem or repurchase its stock, make investments, create liens, enter into certain transactions with affiliates and sell
certain assets or merge with or into other companies. These restrictions could adversely affect the Company's ability to operate its businesses and may limit its ability to take advantage of potential
business opportunities as they arise.
Failure
to comply with these or other covenants and restrictions contained in the secured credit agreement, the indentures or agreements governing other indebtedness could result in a
default under those agreements, and the debt under those agreements, together with accrued interest, could then be declared immediately due and payable. If a default occurs under the secured credit
agreement, the Company could no longer request borrowings under the agreement, and the lenders could cause all of the outstanding debt obligations under such secured credit agreement to become due and
payable,
9
Table of Contents
which
would result in a default under a number of other outstanding debt securities and could lead to an acceleration of obligations related to these debt securities. A default under the secured
credit agreement, indentures or agreements governing other indebtedness could also lead to an acceleration of debt under other debt instruments that contain cross acceleration or cross-default
provisions.
International OperationsThe Company is subject to risks associated with operating in foreign countries.
The Company operates manufacturing and other facilities throughout the world. Net sales from international operations totaled
approximately $5.2 billion, representing approximately 75% of the Company's net sales for the year ended December 31, 2012. As a result of its international operations, the Company is
subject to risks associated with operating in foreign countries, including:
-
-
Political, social and economic instability;
-
-
War, civil disturbance or acts of terrorism;
-
-
Taking of property by nationalization or expropriation without fair compensation;
-
-
Changes in governmental policies and regulations;
-
-
Devaluations and fluctuations in currency exchange rates;
-
-
Imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments
by foreign subsidiaries;
-
-
Imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries;
-
-
Hyperinflation in certain foreign countries;
-
-
Impositions or increase of investment and other restrictions or requirements by foreign governments;
-
-
Loss or non-renewal of treaties or other agreements with foreign tax authorities;
-
-
Changes in tax laws, or the interpretation thereof, affecting foreign tax credits or tax deductions relating to our
non-U.S. earnings or operations; and
-
-
Complying with the U.S. Foreign Corrupt Practices Act, which prohibits companies and their intermediaries from engaging in
bribery or other prohibited payments to foreign officials for the purposes of obtaining or retaining business or gaining an unfair business advantage and requires companies to maintain accurate books
and records and internal controls.
The
risks associated with operating in foreign countries may have a material adverse effect on operations.
Foreign Currency Exchange RatesThe Company is subject to the effects of fluctuations in foreign currency exchange rates, which could adversely impact the
Company's financial results.
The Company's reporting currency is the U.S. dollar. A significant portion of the Company's net sales, costs, assets and liabilities
are denominated in currencies other than the U.S. dollar, primarily the Euro, Brazilian real, Colombian peso and Australian dollar. In its consolidated financial statements, the Company translates
local currency financial results into U.S. dollars based on the exchange rates prevailing during the reporting period. During times of a strengthening U.S. dollar, the reported revenues and earnings
of the Company's international operations will be reduced because the local currencies will translate into fewer U.S. dollars. This could have a material adverse effect on the Company's financial
condition, results of operations and cash flows.
10
Table of Contents
CompetitionThe Company faces intense competition from other glass container producers, as well as from makers of alternative forms of packaging. Competitive
pressures could adversely affect the Company's financial health.
The Company is subject to significant competition from other glass container producers, as well as from makers of alternative forms of
packaging, such as aluminum cans and plastic containers. The Company also competes with manufacturers of non-rigid packaging alternatives, including flexible pouches and aseptic cartons,
in serving the packaging needs of certain end-use markets, including juice customers. The Company competes with each rigid packaging competitor on the basis of price, quality, service and
the marketing and functional attributes of the container. Advantages or disadvantages in any of these competitive factors may be sufficient to cause the customer to consider changing suppliers and/or
using an alternative form of packaging. The adverse effects of consumer purchasing decisions may be more significant in periods of economic downturn and may lead to longer term reductions in consumer
spending on glass packaged products.
Pressures
from competitors and producers of alternative forms of packaging have resulted in excess capacity in certain countries in the past and have led to capacity adjustments and
significant pricing pressures in the rigid packaging market.
High Energy CostsHigher energy costs worldwide and interrupted power supplies may have a material adverse effect on operations.
Electrical power, natural gas, and fuel oil are vital to the Company's operations as it relies on a continuous energy supply to conduct
its business. Depending on the location and mix of energy sources, energy accounts for 10% to 25% of total production costs. Substantial increases and volatility in energy costs could cause the
Company to experience a significant increase in operating costs, which may have a material adverse effect on operations.
Global Economic EnvironmentThe global credit, financial and economic environment could have a material adverse effect on operations and financial condition.
The global credit, financial and economic environment could have a material adverse effect on operations, including the
following:
-
-
Downturns in the business or financial condition of any of the Company's customers or suppliers could result in a loss of
revenues or a disruption in the supply of raw materials;
-
-
Tightening of credit in financial markets could reduce the Company's ability, as well as the ability of the Company's
customers and suppliers, to obtain future financing;
-
-
Volatile market performance could affect the fair value of the Company's pension assets and liabilities, potentially
requiring the Company to make significant additional contributions to its pension plans to maintain prescribed funding levels;
-
-
The deterioration of any of the lending parties under the Company's revolving credit facility or the creditworthiness of
the counterparties to the Company's derivative transactions could result in such parties' failure to satisfy their obligations under their arrangements with the Company; and
-
-
A significant weakening of the Company's financial position or results of operations could result in noncompliance with
the covenants under the Company's indebtedness.
11
Table of Contents
Business Integration RisksThe Company may not be able to effectively integrate additional businesses it acquires in the future.
The Company may consider strategic transactions, including acquisitions that will complement, strengthen and enhance growth in its
worldwide glass operations. The Company evaluates opportunities on a preliminary basis from time to time, but these transactions may not
advance beyond the preliminary stages or be completed. Such acquisitions are subject to various risks and uncertainties, including:
-
-
The inability to integrate effectively the operations, products, technologies and personnel of the acquired companies
(some of which are located in diverse geographic regions) and achieve expected synergies;
-
-
The potential disruption of existing business and diversion of management's attention from
day-to-day operations;
-
-
The inability to maintain uniform standards, controls, procedures and policies;
-
-
The need or obligation to divest portions of the acquired companies;
-
-
The potential impairment of relationships with customers;
-
-
The potential failure to identify material problems and liabilities during due diligence review of acquisition targets;
-
-
The potential failure to obtain sufficient indemnification rights to fully offset possible liabilities associated with
acquired businesses; and
-
-
The challenges associated with operating in new geographic regions.
In
addition, the Company cannot make assurances that the integration and consolidation of newly acquired businesses will achieve any anticipated cost savings and operating synergies.
Customer ConsolidationThe continuing consolidation of the Company's customer base may intensify pricing pressures and have a material adverse effect on
operations.
Many of the Company's largest customers have acquired companies with similar or complementary product lines. This consolidation has
increased the concentration of the Company's business with its largest customers, the loss of which could have a material adverse effect on operations. In many cases, such consolidation has been
accompanied by pressure from customers for lower prices, reflecting the increase in the total volume of products purchased or the elimination of a price differential between the acquiring customer and
the company acquired. Increased pricing pressures from the Company's customers may have a material adverse effect on operations.
SeasonalityProfitability could be affected by varied seasonal demands.
Due principally to the seasonal nature of the consumption of beer and other beverages, for which demand is stronger during the summer
months, sales of the Company's products have varied and are expected to vary by quarter. Shipments in the U.S. and Europe are typically greater in the second and third quarters of the year, while
shipments in the Asia Pacific region are typically greater in the first and fourth quarters of the year, and shipments in South America are typically greater in the third and fourth quarters of the
year. Unseasonably cool weather during peak demand periods can reduce demand for certain beverages packaged in the Company's containers.
12
Table of Contents
Raw MaterialsProfitability could be affected by the availability of raw materials.
The raw materials that the Company uses have historically been available in adequate supply from multiple sources. For certain raw
materials, however, there may be temporary
shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays. These shortages, as well as material volatility in the cost of
any of the principal raw materials that the Company uses, may have a material adverse effect on operations.
Environmental RisksThe Company is subject to various environmental legal requirements and may be subject to new legal requirements in the future. These
requirements may have a material adverse effect on operations.
The Company's operations and properties are subject to extensive laws, ordinances, regulations and other legal requirements relating to
environmental protection, including legal requirements governing investigation and clean-up of contaminated properties as well as water discharges, air emissions, waste management and
workplace health and safety. Such legal requirements frequently change and vary among jurisdictions. The Company's operations and properties must comply with these legal requirements. These
requirements may have a material adverse effect on operations.
The
Company has incurred, and expects to incur, costs for its operations to comply with environmental legal requirements, and these costs could increase in the future. Many environmental
legal requirements provide for substantial fines, orders (including orders to cease operations), and criminal sanctions for violations. These legal requirements may apply to conditions at properties
that the Company presently or formerly owned or operated, as well as at other properties for which the Company may be responsible, including those at which wastes attributable to the Company were
disposed. A significant order or judgment against the Company, the loss of a significant permit or license or the imposition of a significant fine may have a material adverse effect on operations.
A
number of governmental authorities have enacted, or are considering enacting, legal requirements that would mandate certain rates of recycling, the use of recycled materials and/or
limitations on certain kinds of packaging materials. In addition, some companies with packaging needs have responded to such developments and/or perceived environmental concerns of consumers by using
containers made in whole or in part of recycled materials. Such developments may reduce the demand for some of the Company's products and/or increase the Company's costs, which may have a material
adverse effect on operations.
TaxesPotential tax law changes could adversely affect net income and cash flow.
The Company is subject to income tax in the numerous jurisdictions in which it operates. Increases in income tax rates or other tax law
changes could reduce the Company's net income and cash flow from affected jurisdictions. In particular, potential tax law changes in the U.S. regarding the treatment of the Company's unrepatriated
non-U.S. earnings could
have a material adverse effect on net income and cash flow. In addition, the Company's products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions in which
it operates. Increases in these indirect taxes could affect the affordability of the Company's products and, therefore, reduce demand.
Labor RelationsSome of the Company's employees are unionized or represented by workers' councils.
The Company is party to a number of collective bargaining agreements with labor unions which at December 31, 2012, covered
approximately 79% of the Company's employees in North America. Approximately 65% of employees in South America are unionized, although according to the labor legislation of each country, 100% of
employees are covered by collective bargaining agreements. The agreement covering substantially all of the Company's union-affiliated employees in its U.S. glass container operations expires on
March 31, 2013. The majority of the hourly workers in Australia and
13
Table of Contents
New
Zealand are also covered by collective bargaining agreements. The collective bargaining agreements in South America, Australia and New Zealand have varying terms and expiration dates. Upon the
expiration of any collective bargaining agreement, if the Company is unable to negotiate acceptable contracts with labor unions, it could result in strikes by the affected workers and increased
operating costs as a result of higher wages or benefits paid to union members. In Europe, a large number of the Company's employees are employed in countries in which employment laws provide greater
bargaining or other rights to employees than the laws of the U.S. Such employment rights require the Company to work collaboratively with the legal representatives of the employees to effect any
changes to labor arrangements. For example, most of the Company's employees in Europe are represented by workers' councils that must approve any changes in conditions of employment, including salaries
and benefits and staff changes, and may impede efforts to restructure the Company's workforce. Although the Company believes that it has a good working relationship with its employees, if the
Company's employees were to engage in a strike or other work stoppage, the Company could experience a significant disruption of operations and/or higher ongoing labor costs, which may have a material
adverse effect on operations.
Key Management and Personnel RetentionFailure to retain key management and personnel could have a material adverse effect on operations.
The Company believes that its future success depends, in part, on its experienced management team and certain key personnel. The loss
of certain key management and personnel could limit the Company's ability to implement its business plans and meet its objectives.
Joint VenturesFailure by joint venture partners to observe their obligations could have a material adverse effect on operations.
A portion of the Company's operations is conducted through joint ventures, including joint ventures in the Europe, North America and
Asia Pacific segments. If the Company's joint venture partners do not observe their obligations or are unable to commit additional capital to the joint ventures, it is possible that the affected joint
venture would not be able to operate in accordance with its business plans, which could have a material adverse effect on the Company's financial condition and results of operations.
Information TechnologyFailure or disruption of information technology could disrupt operations and adversely affect operations.
The Company relies on information technology to operate its plants, to communicate with its employees, customers and suppliers, and to
report financial and operating results. As with all large systems, the Company's information technology systems could fail on their own accord or may be vulnerable to a variety of interruptions due to
events, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers or other security issues. While the Company has disaster recovery
programs in place, failure or disruption of the Company's information technology systems could result in transaction errors, loss of customers, business disruptions, or loss of or damage to
intellectual property, which could have a material adverse effect on operations.
The
Company continues to undertake the phased implementation of an Enterprise Resource Planning ("ERP") software system. The implementation of a new ERP system poses several challenges
related to, among other things, training of personnel, communication of new rules and procedures, migration of data and the potential instability of the system. While the Company has taken steps to
mitigate these challenges, the unsuccessful implementation of the ERP system could have a material adverse effect on the Company's operations.
14
Table of Contents
Intellectual PropertyThe loss of the Company's intellectual property rights may negatively impact its ability to compete.
If the Company is unable to maintain the proprietary nature of its technologies, its competitors may use its technologies to compete
with it. The Company has a number of patents. The Company's patents may not withstand challenge in litigation, and patents do not ensure that competitors will not develop competing products or
infringe upon the Company's patents. Additionally, the Company markets its products internationally and the patent laws of foreign countries may offer less protection than the patent laws in the U.S.
The Company also relies on trade secrets, know-how and other unpatented technology, and others may independently develop the same or similar technology or otherwise obtain access to the
Company's unpatented technology.
AccountingThe Company's financial results are based upon estimates and assumptions that may differ from actual results.
In preparing the Company's consolidated financial statements in accordance with U.S. generally accepted accounting principles, several
estimates and assumptions are made that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These estimates and assumptions must be made because certain
information that is used in the preparation of the Company's financial statements is dependent on future events, cannot be calculated with a high degree of precision from data available or is not
capable of being readily calculated based on generally accepted methodologies. In some cases, these estimates are particularly difficult to determine and the Company must exercise significant
judgment. The Company believes that accounting for long-lived assets, pension benefit plans, contingencies and litigation, and income taxes involves the more significant judgments and
estimates used in the preparation of its consolidated financial statements. Actual results for all estimates could differ materially from the estimates and assumptions that the Company uses, which
could have a material adverse effect on the Company's financial condition and results of operations.
Accounting StandardsThe adoption of new accounting standards or interpretations could adversely impact the Company's financial results.
The Company's implementation of and compliance with changes in accounting rules and interpretations could adversely affect its
operating results or cause unanticipated fluctuations in its results in future periods. The accounting rules and regulations that the Company must comply with are complex and continually changing.
Recent actions and public comments from the SEC have focused on the integrity of financial reporting generally. The Financial Accounting Standards Board has recently introduced several new or proposed
accounting standards, or is developing new proposed standards, which would represent a significant change from current industry practices. In addition, many companies' accounting policies are being
subjected to heightened scrutiny by regulators and the public. While the Company believes that its financial statements have been prepared in accordance with U.S. generally accepted accounting
principles, the Company cannot predict the impact of future changes to accounting principles or its accounting policies on its financial statements going forward.
GoodwillA significant write down of goodwill would have a material adverse effect on the Company's reported results of operations and net worth.
Goodwill at December 31, 2012 totaled $2.1 billion. The Company evaluates goodwill annually (or more frequently if
impairment indicators arise) for impairment using the required business valuation methods. These methods include the use of a weighted average cost of capital to calculate the present value of the
expected future cash flows of the Company's reporting units. Future changes in the cost of capital, expected cash flows, or other factors may cause the Company's goodwill to be impaired, resulting in
a non-cash charge against results of operations to write down goodwill for the amount of
15
Table of Contents
the
impairment. If a significant write down is required, the charge would have a material adverse effect on the Company's reported results of operations and net worth.
Pension FundingAn increase in the underfunded status of the Company's pension plans could adversely impact the Company's operations, financial condition and
liquidity.
The Company contributed $219 million, $59 million and $23 million to its defined benefit pension plans in 2012,
2011 and 2010, respectively. The amount the Company is required to contribute to these plans is determined by the laws and regulations governing each plan, and is generally related to the funded
status of the plans. A deterioration in the value of the plans' investments or a decrease in the discount rate used to calculate plan liabilities generally would increase the underfunded status of the
plans. An increase in the underfunded status of the plans could result in an increase in the Company's obligation to make contributions to the plans, thereby reducing the cash available for working
capital and other corporate uses, and may have an adverse impact on the Company's operations, financial condition and liquidity.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
16
Table of Contents
ITEM 2. PROPERTIES
The principal manufacturing facilities and other material important physical properties of the Company at December 31, 2012 are
listed below. All properties are glass container plants and are owned in fee, except where otherwise noted.
|
|
|
North American Operations
|
|
|
United States
|
|
|
Atlanta, GA
|
|
Portland, OR
|
Auburn, NY
|
|
Streator, IL
|
Brockway, PA
|
|
Toano, VA
|
Crenshaw, PA
|
|
Tracy, CA
|
Danville, VA
|
|
Waco, TX
|
Lapel, IN
|
|
Windsor, CO
|
Los Angeles, CA
|
|
Winston-Salem, NC
|
Muskogee, OK
|
|
Zanesville, OH
|
Oakland, CA
|
|
|
Canada
|
|
|
Brampton, Ontario
|
|
Montreal, Quebec
|
Asia Pacific Operations
|
|
|
Australia
|
|
|
Adelaide
|
|
Melbourne
|
Brisbane
|
|
Sydney
|
China
|
|
|
Shanghai
|
|
Wuhan
|
Tianjin
|
|
Xianxian
|
Tianjin (mold shop)
|
|
Zhaoqing
|
Indonesia
|
|
|
Jakarta
|
|
|
New Zealand
|
|
|
Auckland
|
|
|
European Operations
|
|
|
Czech Republic
|
|
|
Sokolov
|
|
Teplice
|
Estonia
|
|
|
Jarvakandi
|
|
|
France
|
|
|
Beziers
|
|
Vayres
|
Gironcourt
|
|
Veauche
|
Labegude
|
|
Vergeze
|
Puy-Guillaume
|
|
Wingles
|
Reims
|
|
|
Germany
|
|
|
Holzminden
|
|
Bernsdorf
|
Rinteln
|
|
|
17
Table of Contents
|
|
|
Hungary
|
|
|
Oroshaza
|
|
|
Italy
|
|
|
Asti
|
|
Pordenone
|
Bari (2 plants)
|
|
Terni
|
Latina
|
|
Trento
|
Trapani
|
|
Treviso
|
Napoli
|
|
Varese
|
The Netherlands
|
|
|
Leerdam
|
|
Schiedam
|
Maastricht
|
|
|
Poland
|
|
|
Antoninek
|
|
Jaroslaw
|
Spain
|
|
|
Alcala
|
|
Barcelona
|
United Kingdom
|
|
|
Alloa
|
|
Harlow
|
South American Operations
|
|
|
Argentina
|
|
|
Rosario
|
|
|
Brazil
|
|
|
Fortaleza
|
|
Sao Paulo
|
Recife
|
|
Vitoria de Santo Antao (glass container
|
Rio de Janeiro (glass container and tableware)
|
|
and tableware)
|
Colombia
|
|
|
Buga (tableware)
|
|
Soacha
|
Envigado
|
|
Zipaquira (glass container and flat glass)
|
Ecuador
|
|
|
Guayaquil
|
|
|
Peru
|
|
|
Callao
|
|
Lurin(1)
|
Other Operations
|
|
|
Machine Shops and Engineering Support Center
|
Brockway, Pennsylvania
|
|
Lurin, Peru
|
Cali, Colombia
|
|
Perrysburg, Ohio
|
Clayton, Australia
|
|
Shanghai, China
|
Jaroslaw, Poland
|
|
|
Corporate Facilities
|
|
|
Hawthorn, Australia(1)
|
|
Bussigny-Lausanne, Switzerland(1)
|
Perrysburg, Ohio(1)
|
|
|
-
(1)
-
This
facility is leased in whole or in part.
18
Table of Contents
The
Company believes that its facilities are well maintained and currently adequate for its planned production requirements over the next three to five years.
ITEM 3. LEGAL PROCEEDINGS
For further information on legal proceedings, see Note 12 to the Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
19
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
2. Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
North
America
|
|
South
America
|
|
Asia
Pacific
|
|
Reportable
Segment
Totals
|
|
Other
|
|
Consolidated
Totals
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
3,362
|
|
$
|
1,986
|
|
$
|
1,655
|
|
$
|
1,349
|
|
$
|
8,352
|
|
$
|
106
|
|
$
|
8,458
|
|
2011
|
|
|
3,588
|
|
|
2,013
|
|
|
1,682
|
|
|
1,379
|
|
|
8,662
|
|
|
157
|
|
|
8,819
|
|
2010
|
|
|
3,618
|
|
|
1,990
|
|
|
1,680
|
|
|
2,047
|
|
|
9,335
|
|
|
121
|
|
|
9,456
|
|
Equity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
63
|
|
$
|
25
|
|
$
|
|
|
$
|
165
|
|
$
|
253
|
|
$
|
41
|
|
$
|
294
|
|
2011
|
|
|
59
|
|
|
27
|
|
|
|
|
|
181
|
|
|
267
|
|
|
48
|
|
|
315
|
|
2010
|
|
|
53
|
|
|
17
|
|
|
5
|
|
|
179
|
|
|
254
|
|
|
45
|
|
|
299
|
|
Equity earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
15
|
|
$
|
16
|
|
$
|
|
|
$
|
5
|
|
$
|
36
|
|
$
|
28
|
|
$
|
64
|
|
2011
|
|
|
21
|
|
|
9
|
|
|
|
|
|
3
|
|
|
33
|
|
|
33
|
|
|
66
|
|
2010
|
|
|
19
|
|
|
15
|
|
|
|
|
|
1
|
|
|
35
|
|
|
24
|
|
|
59
|
|
Capital expenditures(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
87
|
|
$
|
68
|
|
$
|
75
|
|
$
|
49
|
|
$
|
279
|
|
$
|
11
|
|
$
|
290
|
|
2011
|
|
|
127
|
|
|
60
|
|
|
50
|
|
|
37
|
|
|
274
|
|
|
6
|
|
|
280
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
151
|
|
|
156
|
|
|
96
|
|
|
85
|
|
|
488
|
|
|
8
|
|
|
496
|
|
Discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
150
|
|
$
|
107
|
|
$
|
70
|
|
$
|
70
|
|
$
|
397
|
|
$
|
4
|
|
$
|
401
|
|
2011
|
|
|
164
|
|
|
96
|
|
|
73
|
|
|
80
|
|
|
413
|
|
|
2
|
|
|
415
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
169
|
|
|
92
|
|
|
50
|
|
|
69
|
|
|
380
|
|
|
3
|
|
|
383
|
|
Discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
-
(1)
-
Excludes
property, plant and equipment acquired through acquisitions.
The
Company's net property, plant and equipment by geographic segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
2012
|
|
$
|
624
|
|
$
|
2,106
|
|
$
|
2,730
|
|
2011
|
|
|
626
|
|
|
2,210
|
|
|
2,836
|
|
2010
|
|
|
662
|
|
|
2,404
|
|
|
3,066
|
|
The
Company's net sales by geographic segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
2012
|
|
$
|
1,780
|
|
$
|
5,220
|
|
$
|
7,000
|
|
2011
|
|
|
1,776
|
|
|
5,582
|
|
|
7,358
|
|
2010
|
|
|
1,676
|
|
|
4,957
|
|
|
6,633
|
|
139
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
2. Segment Information (Continued)
Operations in individual countries outside the U.S. that accounted for more than 10% of consolidated net sales from continuing operations were in France (201211%,
201113%, 201013%), Australia (201210%, 201110%, 201011%) and Italy (20129%, 201110%, 201011%).
3. Inventories
Major classes of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Finished goods
|
|
$
|
957
|
|
$
|
891
|
|
Raw materials
|
|
|
137
|
|
|
123
|
|
Operating supplies
|
|
|
45
|
|
|
47
|
|
|
|
|
|
|
|
|
|
$
|
1,139
|
|
$
|
1,061
|
|
|
|
|
|
|
|
4. Equity Investments
Summarized information pertaining to the Company's equity associates follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
For the year:
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings:
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
$
|
20
|
|
$
|
24
|
|
$
|
20
|
|
U.S.
|
|
|
44
|
|
|
42
|
|
|
39
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64
|
|
$
|
66
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
Dividends received
|
|
$
|
50
|
|
$
|
50
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
Summarized
combined financial information for equity associates is as follows (unaudited):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
At end of year:
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
327
|
|
$
|
309
|
|
Non-current assets
|
|
|
496
|
|
|
413
|
|
|
|
|
|
|
|
Total assets
|
|
|
823
|
|
|
722
|
|
Current liabilities
|
|
|
195
|
|
|
186
|
|
Other liabilities and deferred items
|
|
|
158
|
|
|
129
|
|
|
|
|
|
|
|
Total liabilities and deferred items
|
|
|
353
|
|
|
315
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
470
|
|
$
|
407
|
|
|
|
|
|
|
|
140
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
4. Equity Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
For the year:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
658
|
|
$
|
689
|
|
$
|
731
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
191
|
|
$
|
215
|
|
$
|
227
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
143
|
|
$
|
174
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
The
Company's significant equity method investments include: (1) 50% of the common shares of Vetri Speciali SpA, a specialty glass manufacturer; (2) a 25% partnership
interest in Tata Chemical (Soda Ash) Partners, a soda ash supplier; (3) a 50% partnership interest in Rocky Mountain Bottle Company, a glass container manufacturer; and (4) a 50%
partnership interest in BJC O-I Glass Pte. Ltd., a glass container manufacturer.
There
is a difference of approximately $13 million as of December 31, 2012 for certain of the investments between the amount at which the investment is carried and the
amount of underlying equity in net assets. The portion of the difference related to inventory or amortizable assets is amortized as a reduction of the equity earnings. The remaining difference is
considered goodwill.
5. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2012, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
Europe
|
|
Asia
Pacific
|
|
South
America
|
|
Other
|
|
Total
|
|
Balance as of January 1, 2010
|
|
$
|
736
|
|
$
|
1,081
|
|
$
|
559
|
|
$
|
|
|
$
|
5
|
|
$
|
2,381
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
53
|
|
|
376
|
|
|
|
|
|
429
|
|
Translation effects
|
|
|
7
|
|
|
(72
|
)
|
|
65
|
|
|
11
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
743
|
|
|
1,009
|
|
|
677
|
|
|
387
|
|
|
5
|
|
|
2,821
|
|
Acquisitions
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Impairment charge
|
|
|
|
|
|
|
|
|
(641
|
)
|
|
|
|
|
|
|
|
(641
|
)
|
Translation effects
|
|
|
(3
|
)
|
|
(34
|
)
|
|
(36
|
)
|
|
(33
|
)
|
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
|
|
740
|
|
|
983
|
|
|
|
|
|
354
|
|
|
5
|
|
|
2,082
|
|
Translation effects
|
|
|
3
|
|
|
23
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
$
|
743
|
|
$
|
1,006
|
|
$
|
|
|
$
|
325
|
|
$
|
5
|
|
$
|
2,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
for the Asia Pacific segment is net of accumulated impairment losses of $1,135 million, $1,135 million and $494 million as of December 31, 2012, 2011
and 2010, respectively.
Goodwill
is tested for impairment annually as of October 1 (or more frequently if impairment indicators arise) using a two-step process. Step 1 compares the business
enterprise value ("BEV") of each reporting unit with its carrying value. The BEV is computed based on estimated future cash flows, discounted at the weighted average cost of capital of a hypothetical
third-party buyer. If the BEV is less than the carrying value for any reporting unit, then Step 2 must be performed. Step 2 compares
141
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
5. Goodwill (Continued)
the
implied fair value of goodwill with the carrying amount of goodwill. Any excess of the carrying value of the goodwill over the implied fair value will be recorded as an impairment loss. The
calculations of the BEV in Step 1 and the implied fair value of goodwill in Step 2 are based on significant unobservable inputs, such as price trends, customer demand, material costs, discount rates
and asset replacement costs, and are classified as Level 3 in the fair value hierarchy.
During
the fourth quarter of 2012, the Company completed its annual impairment testing and determined that no impairment existed. During the fourth quarter of 2011, the Company completed
its annual impairment testing and determined that impairment existed in the goodwill of its Asia Pacific segment. Lower projected cash flows, principally in the segment's Australian operations, caused
the decline in the business enterprise value. The strong Australian dollar in 2011 resulted in many wine producers in the country exporting their wine in bulk shipments and bottling the wine closer to
their end markets. This decreased the demand for wine bottles in Australia, which was a significant portion of the Company's sales in that country, and the Company expects this decreased demand to
continue into the foreseeable future. Following a review of the valuation of the segment's identifiable assets, the Company recorded an impairment charge of $641 million to reduce the reported
value of its goodwill.
6. Other Assets
Other assets consisted of the following at December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Deferred tax asset
|
|
$
|
282
|
|
$
|
296
|
|
Intangibles
|
|
|
28
|
|
|
33
|
|
Capitalized software
|
|
|
40
|
|
|
32
|
|
Deferred finance fees
|
|
|
39
|
|
|
49
|
|
Deferred returnable packaging costs
|
|
|
96
|
|
|
80
|
|
Other
|
|
|
99
|
|
|
109
|
|
|
|
|
|
|
|
|
|
$
|
584
|
|
$
|
599
|
|
|
|
|
|
|
|
7. Derivative Instruments
The Company has certain derivative assets and liabilities which consist of natural gas forwards and foreign exchange option and forward contracts. The Company uses an income approach to
value these contracts. 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 its derivative assets and liabilities as Level 2 in the hierarchy. The Company also evaluates counterparty risk in
determining fair values.
Commodity Futures Contracts Designated as Cash Flow Hedges
In North America, 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 and
related price risk and periodically enters into commodity futures
142
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
7. Derivative Instruments (Continued)
contracts
in order to hedge a portion of its usage requirements. The majority of the sales volume in North America is tied to customer contracts that contain provisions that pass the price of natural
gas to the customer. In certain of these contracts, the customer has the option of fixing the natural gas price component for a specified period of time. At December 31, 2012 and 2011, the
Company had entered into commodity futures contracts covering approximately 7,000,000 MM BTUs and 5,100,000 MM BTUs, respectively, primarily related to customer requests to lock the price of natural
gas.
The
Company accounts for the above futures contracts as cash flow hedges at December 31, 2012 and recognizes them on the balance sheet at fair value. The effective portion of
changes in the fair value of a derivative that is designated as, and meets the required criteria for, a cash flow hedge is recorded in the Accumulated Other Comprehensive Income component of share
owners' equity ("OCI") and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. At December 31, 2012 and 2011, an unrecognized loss
of $1 million and $6 million, respectively, related to the commodity futures contracts was included in Accumulated OCI, and will be reclassified into earnings over the next twelve to
twenty-four months. Any material portion of the change in the fair value of a derivative designated as a cash flow hedge that is deemed to be ineffective is recognized in current earnings.
The ineffectiveness related to these natural gas hedges for the year ended December 31, 2012 and 2011 was not material.
The
effect of the commodity futures contracts on the results of operations for the years ended December 31, 2012, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Recognized in
OCI on Commodity Futures
Contracts (Effective Portion)
|
|
Amount of Loss Reclassified
from Accumulated OCI into
Income (reported in
manufacturing, shipping, and
delivery) (Effective Portion)
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
|
$
|
(3
|
)
|
$
|
(10
|
)
|
$
|
(11
|
)
|
$
|
(8
|
)
|
$
|
(7
|
)
|
$
|
(9
|
)
|
Senior Notes Designated as Net Investment Hedge
During December 2004, a U.S. subsidiary of the Company issued senior notes totaling €225 million. These notes
were designated by the Company's subsidiary as a hedge of a portion of its net investment in a non-U.S. subsidiary with a Euro functional currency. Because the amount of the senior notes
matched the hedged portion of the net investment, there was no hedge ineffectiveness. Accordingly, the Company recorded the impact of changes in the foreign currency exchange rate on the
Euro-denominated notes in OCI. The amount of the gain (loss) recognized in OCI related to this net investment hedge for the years ended December 31, 2011 and 2010 was $(25) million
and $24 million, respectively. During the second quarter of 2011, the senior notes designated as the net investment hedge were redeemed by a subsidiary of the Company. The amount recorded in
OCI related to this net investment hedge will be
reclassified into earnings when the Company sells or liquidates its net investment in the non-U.S. subsidiary.
143
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
7. Derivative Instruments (Continued)
Forward Exchange Contracts not Designated as Hedging Instruments
The Company's subsidiaries may enter into short-term forward exchange or option agreements to purchase foreign currencies
at set rates in the future. These agreements are used to limit exposure to fluctuations in foreign currency exchange rates for significant planned purchases of fixed assets or commodities that are
denominated in currencies other than the subsidiaries' functional currency. Subsidiaries may also use forward exchange agreements to offset the foreign currency risk for receivables and payables,
including intercompany receivables and payables, not denominated in, or indexed to, their functional currencies. The Company records these short-term forward exchange agreements on the
balance sheet at fair value and changes in the fair value are recognized in current earnings.
At
December 31, 2012 and 2011, various subsidiaries of the Company had outstanding forward exchange and option agreements denominated in various currencies covering the equivalent
of approximately $750 million and $550 million, respectively, related primarily to intercompany transactions and loans.
The
effect of the forward exchange contracts on the results of operations for the years ended December 31, 2012, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
(Loss) Recognized in
Income on Forward
Exchange Contracts
|
|
Location of Gain (Loss)
Recognized in Income on
Forward Exchange Contracts
|
|
|
2012
|
|
2011
|
|
2010
|
|
Other expense
|
|
$
|
6
|
|
$
|
(11
|
)
|
$
|
18
|
|
Balance Sheet Classification
The Company records the fair values of derivative financial instruments on the balance sheet as follows: (a) receivables if the
instrument has a positive fair value and maturity within one year, (b) deposits, receivables, and other assets if the instrument has a positive fair value and maturity after one year, and
(c) other accrued liabilities or other liabilities (current) if the instrument has a negative
144
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
7. Derivative Instruments (Continued)
fair
value and maturity within one year. The following table shows the amount and classification (as noted above) of the Company's derivatives as of December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Balance
Sheet
Location
|
|
2012
|
|
2011
|
|
Asset Derivatives:
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
a
|
|
$
|
4
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
|
|
$
|
4
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Commodity futures contracts
|
|
c
|
|
$
|
1
|
|
$
|
6
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
c
|
|
|
9
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
|
|
$
|
10
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
8. Restructuring Accruals, Asset Impairments and Other Costs Related to Closed Facilities
The Company continually reviews its manufacturing footprint and operating cost structure and may decide to close operations or reduce headcount to gain efficiencies, integrate acquired
operations and reduce future expenses. The Company incurs costs associated with these actions including employee severance and benefits, other exit costs such as those related to contract
terminations, and asset impairment charges. The Company also may incur other costs related to closed facilities including environmental remediation, clean up, dismantling and preparation for sale or
other disposition.
The
Company accounts for restructuring and other costs under applicable provisions of generally accepted accounting principles. Charges for employee severance and related benefits are
generally accrued based on contractual arrangements with employees or their representatives. Other exit costs are accrued based on the estimated cost to settle related contractual arrangements.
Estimated environmental remediation costs are accrued when specific claims have been received or are probable of being received.
The
Company's decisions to curtail selected production capacity have resulted in write downs of certain long-lived assets to the extent their carrying amounts exceeded fair
value or fair value less cost to sell. The Company classified the significant assumptions used to determine the fair value of the impaired assets as Level 3 in the fair value hierarchy as set
forth in the general accounting principles for fair value measurements.
145
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
8. Restructuring Accruals, Asset Impairments and Other Costs Related to Closed Facilities (Continued)
When a decision is made to take these actions, the Company manages and accounts for them programmatically apart from the on-going operations of the business. Information
related to major programs (as in the case of the European Asset Optimization and Asia Pacific Restructuring programs below) are presented separately. Minor initiatives are presented on a combined
basis as Other Restructuring Actions. When charges related to major programs are completed, remaining accrual balances are classified with Other Restructuring Actions.
European Asset Optimization
In 2011, the Company implemented the European Asset Optimization program to increase the efficiency and capability of its European
operations and to better align its European manufacturing footprint with market and customer needs. This program involves making additional investments in certain facilities and addressing assets with
higher cost structures. As part of this program, the Company recorded charges of $86 million in 2012 and $24 million in 2011 for employee costs, asset impairments and environmental remediation
related to decisions to close furnaces and manufacturing facilities in Europe. The Company expects to execute further actions under this program in phases over the next several years.
Asia Pacific Restructuring
In 2011, the Company implemented a restructuring plan in its Asia Pacific segment, primarily related to aligning its supply base with
lower demand in the region. As part of this plan, the Company recorded charges of $47 million and $46 million in 2012 and 2011, respectively, for employee costs and asset impairments related to
furnace closures and additional restructuring activities.
Other Restructuring Actions
The Company took certain other restructuring actions and recorded charges in 2012 of $9 million for employee costs and asset
impairments related to a decision to close a machine manufacturing facility in the U.S., $7 million for employee costs and asset impairments related to a decision to close a mold shop in South America
and $10 million for miscellaneous other costs. In 2011, the Company recorded charges of $12 million related to headcount reductions, primarily in Europe and South America, and $12 million for an asset
impairment related to a previously closed facility in Europe.
The
Company acquired VDL in 2011 (see Note 18). As part of this acquisition, the Company assumed the severance liability of VDL related to a headcount reduction program initiated
prior to the acquisition.
The
beginning accrual balance for other restructuring actions as of January 1, 2011 primarily relates to the Company's strategic review of its global manufacturing footprint
completed in 2010.
146
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
8. Restructuring Accruals, Asset Impairments and Other Costs Related to Closed Facilities (Continued)
The
following table presents information related to restructuring, asset impairment and other costs related to closed facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
Asset
Optimization
|
|
Asia Pacific
Restructuring
|
|
Other
Restructuring
Actions
|
|
Total
Restructuring
|
|
Balance at January 1, 2011
|
|
$
|
|
|
$
|
|
|
$
|
79
|
|
$
|
79
|
|
2011 charges
|
|
|
24
|
|
|
46
|
|
|
24
|
|
|
94
|
|
Write-down of assets to net realizable value
|
|
|
(11
|
)
|
|
(8
|
)
|
|
(21
|
)
|
|
(40
|
)
|
Net cash paid, principally severance and related benefits
|
|
|
(1
|
)
|
|
(21
|
)
|
|
(17
|
)
|
|
(39
|
)
|
Acquisition
|
|
|
|
|
|
|
|
|
11
|
|
|
11
|
|
Other, including foreign exchange translation
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
12
|
|
|
17
|
|
|
73
|
|
|
102
|
|
2012 charges
|
|
|
86
|
|
|
47
|
|
|
26
|
|
|
159
|
|
Write-down of assets to net realizable value
|
|
|
(30
|
)
|
|
(22
|
)
|
|
(14
|
)
|
|
(66
|
)
|
Net cash paid, principally severance and related benefits
|
|
|
(16
|
)
|
|
(25
|
)
|
|
(24
|
)
|
|
(65
|
)
|
Pension charges transferred to other accounts
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
Other, including foreign exchange translation
|
|
|
1
|
|
|
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
53
|
|
$
|
6
|
|
$
|
62
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
The
restructuring accrual balance represents the Company's estimates of the remaining future cash amounts to be paid related to the actions noted above. As of December 31, 2012,
the Company's estimates include approximately $75 million for severance and related benefits costs, $34 million for environmental remediation costs, and $12 million for other exit costs. The 2012
charges include approximately $14 million related to environmental remediation costs at a closed facility in Europe.
9. Pension Benefit Plans and Other Postretirement Benefits
Pension Benefit Plans
The Company participates in OI Inc.'s defined benefit pension plans for substantially all employees located in the United
States. Benefits generally are based on compensation for salaried employees and on length of service for hourly employees. OI Inc.'s policy is to fund pension plans such that sufficient assets
will be available to meet future benefit requirements. Independent actuaries determine pension costs for each subsidiary of OI Inc. included in the plans; however, accumulated benefit
obligation information and plan assets pertaining to each subsidiary have not been
separately determined. As such, the accumulated benefit obligation and the plan assets related to the pension plans for domestic employees have been retained by another subsidiary of OI Inc.
Net expense to results of operations for the Company's allocated portion of the domestic pension costs amounted to $20 million in 2012, $37 million in 2011 and $30 million in 2010.
147
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
OI Inc.
also sponsors several defined contribution plans for all salaried and hourly U.S. employees of the Company. Participation is voluntary and participants' contributions are
based on their compensation. OI Inc. matches contributions of participants, up to various limits, in substantially all plans. OI Inc. charges the Company for its share of the match. The
Company's share of the contributions to these plans amounted to $6 million in 2012, $7 million in 2011 and $6 million in 2010.
The
Company has defined benefit pension plans covering a substantial number of employees located in the United Kingdom, the Netherlands, Canada and Australia, as well as many employees
in Germany, France and Switzerland. Benefits generally are based on compensation for salaried employees and on length of service for hourly employees. The Company's policy is to fund pension plans
such that sufficient assets will be available to meet future benefit requirements. The Company's defined benefit pension plans use a December 31 measurement date.
The
changes in the non-U.S. pension plans benefit obligations for the year were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Obligations at beginning of year
|
|
$
|
1,553
|
|
$
|
1,567
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Service cost
|
|
|
26
|
|
|
24
|
|
Interest cost
|
|
|
77
|
|
|
83
|
|
Actuarial (gain) loss, including the effect of change in discount rates
|
|
|
293
|
|
|
(37
|
)
|
Participant contributions
|
|
|
7
|
|
|
8
|
|
Benefit payments
|
|
|
(101
|
)
|
|
(87
|
)
|
Other
|
|
|
|
|
|
19
|
|
Foreign currency translation
|
|
|
56
|
|
|
(24
|
)
|
|
|
|
|
|
|
Net change in benefit obligations
|
|
|
358
|
|
|
(14
|
)
|
|
|
|
|
|
|
Obligations at end of year
|
|
$
|
1,911
|
|
$
|
1,553
|
|
|
|
|
|
|
|
The
changes in the fair value of the non-U.S. pension plans' assets for the year were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Fair value at beginning of year
|
|
$
|
1,325
|
|
$
|
1,279
|
|
Change in fair value:
|
|
|
|
|
|
|
|
Actual gain on plan assets
|
|
|
118
|
|
|
80
|
|
Benefit payments
|
|
|
(101
|
)
|
|
(87
|
)
|
Employer contributions
|
|
|
110
|
|
|
58
|
|
Participant contributions
|
|
|
7
|
|
|
8
|
|
Foreign currency translation
|
|
|
43
|
|
|
(25
|
)
|
Other
|
|
|
25
|
|
|
12
|
|
|
|
|
|
|
|
Net change in fair value of assets
|
|
|
202
|
|
|
46
|
|
|
|
|
|
|
|
Fair value at end of year
|
|
$
|
1,527
|
|
$
|
1,325
|
|
|
|
|
|
|
|
148
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The
funded status of the non-U.S. pension plans at year end was as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Plan assets at fair value
|
|
$
|
1,527
|
|
$
|
1,325
|
|
Projected benefit obligations
|
|
|
1,911
|
|
|
1,553
|
|
|
|
|
|
|
|
Plan assets less than projected benefit obligations
|
|
|
(384
|
)
|
|
(228
|
)
|
Items not yet recognized in pension expense:
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
534
|
|
|
312
|
|
Prior service credit
|
|
|
(9
|
)
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
525
|
|
|
302
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
141
|
|
$
|
74
|
|
|
|
|
|
|
|
The
net amount recognized is included in the Consolidated Balance Sheets at December 31, 2012 and 2011 as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Pension assets
|
|
$
|
|
|
$
|
116
|
|
Current pension liability, included with Other accrued liabilities
|
|
|
(7
|
)
|
|
(6
|
)
|
Pension benefits
|
|
|
(377
|
)
|
|
(338
|
)
|
Accumulated other comprehensive loss
|
|
|
525
|
|
|
302
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
141
|
|
$
|
74
|
|
|
|
|
|
|
|
The
following changes in plan assets and benefit obligations were recognized in accumulated other comprehensive income at December 31, 2012 and 2011 as follows (amounts are
pretax):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Current year actuarial (gain) loss
|
|
$
|
239
|
|
$
|
(28
|
)
|
Amortization of actuarial loss
|
|
|
(22
|
)
|
|
(24
|
)
|
Amortization of prior service credit
|
|
|
|
|
|
1
|
|
Loss due to settlement
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
|
(51
|
)
|
Translation
|
|
|
17
|
|
|
5
|
|
|
|
|
|
|
|
|
|
$
|
223
|
|
$
|
(46
|
)
|
|
|
|
|
|
|
The
accumulated benefit obligation for all defined benefit pension plans was $1,729 million and $1,402 million at December 31, 2012 and 2011, respectively.
149
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The
components of the non-U.S. pension plans' net pension expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Service cost
|
|
$
|
26
|
|
$
|
24
|
|
$
|
21
|
|
Interest cost
|
|
|
77
|
|
|
83
|
|
|
79
|
|
Expected asset return
|
|
|
(87
|
)
|
|
(86
|
)
|
|
(80
|
)
|
Curtailment (gain) loss
|
|
|
|
|
|
|
|
|
(1
|
)
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
22
|
|
|
24
|
|
|
19
|
|
Prior service credit
|
|
|
|
|
|
(1
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Net amortization
|
|
|
22
|
|
|
23
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Net expense
|
|
$
|
38
|
|
$
|
44
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
The
non-U.S. pension expense excludes $11 million of pension settlement costs that were recorded in restructuring expense in 2012.
Amounts
that will be amortized from accumulated other comprehensive income into net pension expense during 2013:
|
|
|
|
|
Amortization:
|
|
|
|
|
Actuarial loss
|
|
$
|
32
|
|
Prior service cost
|
|
|
(1
|
)
|
|
|
|
|
Net amortization
|
|
$
|
31
|
|
|
|
|
|
The
following information is for plans with projected and accumulated benefit obligations in excess of the fair value of plan assets at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit
Obligation Exceeds
Fair Value of
Plan Assets
|
|
Accumulated Benefit
Obligation Exceeds
Fair Value of
Plan Assets
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
Projected benefit obligations
|
|
$
|
1,911
|
|
$
|
1,157
|
|
$
|
1,172
|
|
$
|
1,157
|
|
Fair value of plan assets
|
|
|
1,527
|
|
|
837
|
|
|
858
|
|
|
837
|
|
Accumulated benefit obligation
|
|
|
1,729
|
|
|
1,065
|
|
|
1,090
|
|
|
1,065
|
|
The
weighted average assumptions used to determine benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Discount rate
|
|
|
3.89
|
%
|
|
4.75
|
%
|
Rate of compensation increase
|
|
|
3.08
|
%
|
|
3.23
|
%
|
150
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The weighted average assumptions used to determine net periodic pension costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Discount rate
|
|
|
4.75
|
%
|
|
5.28
|
%
|
|
5.64
|
%
|
Rate of compensation increase
|
|
|
3.23
|
%
|
|
3.49
|
%
|
|
3.54
|
%
|
Expected long-term rate of return on assets
|
|
|
6.24
|
%
|
|
6.44
|
%
|
|
6.78
|
%
|
Future
benefits are assumed to increase in a manner consistent with past experience of the plans, which, to the extent benefits are based on compensation, includes assumed salary
increases as presented above. Amortization included in net pension expense is based on the average remaining service of employees.
For
2012, the Company's weighted average expected long-term rate of return on assets was 6.24% . In developing this assumption, the Company evaluated input from its third
party pension plan asset managers, including their review of asset class return expectations and long-term inflation assumptions. The Company also considered its historical
10-year average return (through December 31, 2011), which was in line with the expected long-term rate of return assumption for 2012.
It
is the Company's policy to invest pension plan assets in a diversified portfolio consisting of an array of asset classes within established target asset allocation ranges. The
investment risk of the assets is limited by appropriate diversification both within and between asset classes. The assets of the Company's non-U.S. plans are primarily invested in a broad
mix of domestic and international equities, domestic and international bonds, and real estate, subject to the target asset
allocation ranges. The assets are managed with a view to ensuring that sufficient liquidity will be available to meet expected cash flow requirements.
The
investment valuation policy of the Company is to value investments at fair value. All investments are valued at their respective net asset values. Equity securities for which market
quotations are readily available are valued at the last reported sales price on their principal exchange on valuation date or official close for certain markets. Fixed income investments are valued by
an independent pricing service. Investments in registered investment companies or collective pooled funds are valued at their respective net asset values. Short-term investments are stated
at amortized cost, which approximates fair value. The fair value of real estate is determined by periodic appraisals.
The
following table sets forth by level, within the fair value hierarchy, the Company's pension plan assets at fair value as of December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
|
Target
Allocation
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
36
|
|
$
|
20
|
|
$
|
|
|
$
|
21
|
|
$
|
5
|
|
$
|
|
|
|
|
|
Equity securities
|
|
|
367
|
|
|
173
|
|
|
|
|
|
340
|
|
|
146
|
|
|
|
|
|
45 - 55
|
%
|
Debt securities
|
|
|
714
|
|
|
113
|
|
|
3
|
|
|
645
|
|
|
101
|
|
|
5
|
|
|
40 - 50
|
%
|
Real estate
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
11
|
|
|
0 - 10
|
%
|
Other
|
|
|
18
|
|
|
68
|
|
|
|
|
|
15
|
|
|
36
|
|
|
|
|
|
0 - 10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
1,135
|
|
$
|
374
|
|
$
|
18
|
|
$
|
1,021
|
|
$
|
288
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The
following is a reconciliation of the Company's pension plan assets recorded at fair value using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Beginning balance
|
|
$
|
16
|
|
$
|
19
|
|
Net increase (decrease)
|
|
|
2
|
|
|
(3
|
)
|
|
|
|
|
|
|
Ending balance
|
|
$
|
18
|
|
$
|
16
|
|
|
|
|
|
|
|
The
net increase (decrease) in the fair value of the Company's Level 3 pension plan assets is primarily due to purchases and sales of unlisted real estate funds. The change in the
fair value of Level 3 pension plan assets due to actual return on those assets was immaterial in 2012.
In
order to maintain minimum funding requirements, the Company is required to make contributions to its non-U.S. defined benefit pension plans of approximately
$27 million in 2013.
The
following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:
|
|
|
|
|
Year(s)
|
|
|
|
2013
|
|
$
|
84
|
|
2014
|
|
|
86
|
|
2015
|
|
|
90
|
|
2016
|
|
|
91
|
|
2017
|
|
|
91
|
|
2018 - 2022
|
|
|
460
|
|
Postretirement Benefits Other Than Pensions
OI Inc. provides certain retiree health care and life insurance benefits covering substantially all U.S. salaried and certain
hourly employees and substantially all employees in Canada. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service.
Independent actuaries determine postretirement benefit costs for each subsidiary of OI Inc.; however, accumulated postretirement benefit obligation information pertaining to each subsidiary has
not been separately determined. As such, the accumulated postretirement benefit obligation has been retained by another subsidiary of OI Inc.
The
Company's net periodic postretirement benefit cost, as allocated by OI Inc., for domestic employees was $6 million, $6 million, and $7 million at
December 31, 2012, 2011, and 2010, respectively.
The
Company's subsidiaries in Canada also have postretirement benefit plans covering substantially all employees. The following tables relate to the Company's postretirement benefit
plans in Canada.
152
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The
changes in the postretirement benefit obligations for the year were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Obligations at beginning of year
|
|
$
|
95
|
|
$
|
85
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Service cost
|
|
|
1
|
|
|
1
|
|
Interest cost
|
|
|
4
|
|
|
4
|
|
Actuarial loss, including the effect of changing discount rates
|
|
|
3
|
|
|
11
|
|
Benefit payments
|
|
|
(3
|
)
|
|
(4
|
)
|
Foreign currency translation
|
|
|
2
|
|
|
(2
|
)
|
|
|
|
|
|
|
Net change in benefit obligations
|
|
|
7
|
|
|
10
|
|
|
|
|
|
|
|
Obligations at end of year
|
|
$
|
102
|
|
$
|
95
|
|
|
|
|
|
|
|
The
funded status of the postretirement benefit plans at year end was as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Postretirement benefit obligations
|
|
$
|
(102
|
)
|
$
|
(95
|
)
|
Items not yet recognized in net postretirement benefit cost:
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
5
|
|
|
2
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(97
|
)
|
$
|
(93
|
)
|
|
|
|
|
|
|
The
net amount recognized is included in the Consolidated Balance Sheets at December 31, 2012 and 2011 as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Current nonpension postretirement benefit, included with Other accrued liabilities
|
|
$
|
(4
|
)
|
$
|
(4
|
)
|
Nonpension postretirement benefits
|
|
|
(98
|
)
|
|
(91
|
)
|
Accumulated other comprehensive loss
|
|
|
5
|
|
|
2
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(97
|
)
|
$
|
(93
|
)
|
|
|
|
|
|
|
The
following changes in benefit obligations were recognized in accumulated other comprehensive income at December 31, 2012 and 2011 as follows (amounts are pretax):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Current year actuarial loss
|
|
$
|
3
|
|
$
|
12
|
|
153
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The
components of the net postretirement benefit cost for the year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Service cost
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
Interest cost
|
|
|
4
|
|
|
4
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Net postretirement benefit cost
|
|
$
|
5
|
|
$
|
5
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
The
weighted average discount rates used to determine the accumulated postretirement benefit obligation and net postretirement benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Accumulated post retirement benefit obligation
|
|
|
3.89
|
%
|
|
4.13
|
%
|
|
5.02
|
%
|
Net postretirement benefit cost
|
|
|
4.13
|
%
|
|
5.02
|
%
|
|
5.60
|
%
|
The
weighted average assumed health care cost trend rates at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Health care cost trend rate assumed for next year
|
|
|
6.00
|
%
|
|
7.00
|
%
|
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
|
|
|
5.00
|
%
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2014
|
|
|
2014
|
|
Assumed
health care cost trend rates affect the amounts reported for the postretirement benefit plans. A one-percentage-point change in assumed health care cost trend rates
would have the following effects:
|
|
|
|
|
|
|
|
|
|
1-Percentage-Point
|
|
|
|
Increase
|
|
Decrease
|
|
Effect on total of service and interest cost
|
|
$
|
1
|
|
$
|
(1
|
)
|
Effect on accumulated postretirement benefit obligations
|
|
|
16
|
|
|
(13
|
)
|
Amortization
included in net postretirement benefit cost is based on the average remaining service of employees.
The
following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:
|
|
|
|
|
Year(s)
|
|
|
|
2013
|
|
$
|
4
|
|
2014
|
|
|
4
|
|
2015
|
|
|
5
|
|
2016
|
|
|
5
|
|
2017
|
|
|
5
|
|
2018 - 2022
|
|
|
26
|
|
154
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
Benefits provided by OI Inc. for certain hourly retirees of the Company are determined by collective bargaining. Most other domestic hourly retirees receive health and life
insurance benefits from a multi-employer trust established by collective bargaining. Payments to the trust as required by the bargaining agreements are based upon specified amounts per hour worked and
were $6 million in 2012, $6 million in 2011, and $6 million in 2010. Postretirement health and life benefits for retirees of foreign subsidiaries are generally provided through
the national health care programs of the countries in which the subsidiaries are located.
10. Income Taxes
The provision (benefit) for income taxes was calculated based on the following components of earnings (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
297
|
|
$
|
282
|
|
$
|
192
|
|
Non-U.S.
|
|
|
296
|
|
|
(419
|
)
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
$
|
593
|
|
$
|
(137
|
)
|
$
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Non-U.S.
|
|
|
(5
|
)
|
|
(2
|
)
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
(5
|
)
|
$
|
(2
|
)
|
$
|
(296
|
)
|
|
|
|
|
|
|
|
|
155
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
10. Income Taxes (Continued)
The
provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
|
|
$
|
(8
|
)
|
$
|
|
|
Non-U.S.
|
|
|
117
|
|
|
139
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
131
|
|
|
141
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
10
|
|
|
9
|
|
|
(4
|
)
|
Non-U.S.
|
|
|
(13
|
)
|
|
(53
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
(44
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
10
|
|
|
1
|
|
|
(4
|
)
|
Non-U.S.
|
|
|
104
|
|
|
86
|
|
|
139
|
|
|
|
|
|
|
|
|
|
Total for continuing operations
|
|
|
114
|
|
|
87
|
|
|
135
|
|
Total for discontinued operations
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
$
|
114
|
|
$
|
87
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the provision for income taxes based on the statutory U.S. Federal tax rate of 35% to the provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Tax provision on pretax earnings (loss) from continuing operations at statutory U.S. Federal tax rate
|
|
$
|
208
|
|
$
|
(48
|
)
|
$
|
256
|
|
Increase (decrease) in provision for income taxes due to:
|
|
|
|
|
|
|
|
|
|
|
Differences in income taxes on foreign earnings, losses and remittances
|
|
|
|
|
|
(13
|
)
|
|
(46
|
)
|
Goodwill impairment
|
|
|
|
|
|
224
|
|
|
|
|
U.S. tax consolidation benefit
|
|
|
(54
|
)
|
|
(58
|
)
|
|
(60
|
)
|
Changes in valuation allowance
|
|
|
(46
|
)
|
|
(18
|
)
|
|
(37
|
)
|
Tax audits and settlements
|
|
|
(1
|
)
|
|
3
|
|
|
21
|
|
Other items
|
|
|
7
|
|
|
(3
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
114
|
|
$
|
87
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes reflect: (1) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes; and (2) carryovers and credits for income tax purposes.
156
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
10. Income Taxes (Continued)
Significant
components of the Company's deferred tax assets and liabilities at December 31, 2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accrued postretirement benefits
|
|
$
|
27
|
|
$
|
24
|
|
Foreign tax credit
|
|
|
354
|
|
|
338
|
|
Operating and capital loss carryovers
|
|
|
373
|
|
|
320
|
|
Other credit carryovers
|
|
|
29
|
|
|
31
|
|
Accrued liabilities
|
|
|
72
|
|
|
90
|
|
Pension liability
|
|
|
74
|
|
|
38
|
|
Other
|
|
|
66
|
|
|
50
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
995
|
|
|
891
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
113
|
|
|
114
|
|
Exchangeable notes
|
|
|
19
|
|
|
23
|
|
Intangibles
|
|
|
12
|
|
|
1
|
|
Other
|
|
|
84
|
|
|
50
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
228
|
|
|
188
|
|
Valuation allowance
|
|
|
(610
|
)
|
|
(577
|
)
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
157
|
|
$
|
126
|
|
|
|
|
|
|
|
Deferred
taxes are included in the Consolidated Balance Sheets at December 31, 2012 and 2011 as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Prepaid expenses
|
|
$
|
62
|
|
$
|
44
|
|
Other assets
|
|
|
282
|
|
|
296
|
|
U.S. and foreign income taxes
|
|
|
(5
|
)
|
|
(2
|
)
|
Deferred taxes
|
|
|
(182
|
)
|
|
(212
|
)
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
157
|
|
$
|
126
|
|
|
|
|
|
|
|
The
Company reviews the likelihood that it will realize the benefit of its deferred tax assets and therefore the need for valuation allowances on a quarterly basis, or whenever events
indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net
deferred tax asset is considered, along with other positive and negative evidence.
At
December 31, 2012, before valuation allowance, the Company had unused foreign tax credits of $354 million expiring in 2017 through 2022, research tax credit of
$19 million expiring from 2013 to 2032, and alternative minimum tax credits of $9 million which do not expire and which will be available to offset future U.S. Federal income tax.
Approximately $188 million of the deferred tax assets related
157
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
10. Income Taxes (Continued)
to
operating and capital loss carryforwards can be carried over indefinitely, with the remaining $185 million expiring between 2013 and 2032.
At
December 31, 2012, the Company's equity in the undistributed earnings of foreign subsidiaries for which income taxes had not been provided approximated $2.5 billion. The
Company intends to reinvest these earnings indefinitely in the non-U.S. operations and has not distributed any of these earnings to the U.S. in 2012, 2011 or 2010. It is not practicable to
estimate the U.S. and foreign tax which would be payable should these earnings be distributed. Deferred taxes are provided for earnings of non-U.S. jurisdictions when the Company plans to
remit those earnings.
The
Company is included in OI Inc.'s consolidated tax returns for U.S. federal and certain state income tax purposes. The consolidated group has net operating losses, capital
losses, alternative minimum tax credits, foreign tax credits and research and development credits available to offset future U.S. Federal income tax. Income taxes are allocated to the Company on a
basis consistent with separate returns.
The
Company has recognized tax benefits as a result of incentives in certain non-U.S. jurisdictions which expire between 2012 and 2016.
The
Company records a liability for unrecognized tax benefits related to uncertain tax positions. The Company accrues interest and penalties associated with unrecognized tax benefits as
a component of its income tax expense. The following is a reconciliation of the Company's total gross unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Balance at January 1
|
|
$
|
125
|
|
$
|
143
|
|
$
|
120
|
|
Additions and reductions for tax positions of prior years
|
|
|
8
|
|
|
(15
|
)
|
|
26
|
|
Additions based on tax positions related to the current year
|
|
|
7
|
|
|
30
|
|
|
5
|
|
Additions for tax positions of prior years on acquisitions
|
|
|
|
|
|
|
|
|
12
|
|
Reductions due to the lapse of the applicable statute of limitations
|
|
|
(21
|
)
|
|
(8
|
)
|
|
(1
|
)
|
Reductions due to settlements
|
|
|
(26
|
)
|
|
(18
|
)
|
|
(13
|
)
|
Foreign currency translation
|
|
|
4
|
|
|
(7
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
97
|
|
$
|
125
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, which if recognized, would impact the Company's effective income tax rate
|
|
$
|
89
|
|
$
|
114
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
Accrued interest and penalties at December 31
|
|
$
|
33
|
|
$
|
49
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
Interest and penalties included in tax expense for the years ended December 31
|
|
$
|
(6
|
)
|
$
|
18
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
Based
upon the outcome of tax examinations, judicial proceedings, or expiration of statute of limitations, it is reasonably possible that the ultimate resolution of these unrecognized
tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. The Company believes that unrecognized tax benefits will not change significantly
within the next twelve months.
158
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
10. Income Taxes (Continued)
The Company is currently under examination in various tax jurisdictions in which it operates, including Czech Republic, Ecuador, Germany, Italy, Poland, Spain and the UK. The years under
examination range from 2005 through 2011. The Company believes that there are no jurisdictions in which the outcome of unresolved issues or claims is likely to be material to the Company's results of
operations, financial position or cash flows. The Company further believes that adequate provisions for all income tax uncertainties have been made. During 2012, the Company concluded audits in
several jurisdictions, including Australia, Hungary, Italy, France, Germany and Switzerland.
11. External Debt
The following table summarizes the external long-term debt of the Company at December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Secured Credit Agreement:
|
|
|
|
|
|
|
|
Revolving Credit Facility:
|
|
|
|
|
|
|
|
Revolving Loans
|
|
$
|
|
|
$
|
|
|
Term Loans:
|
|
|
|
|
|
|
|
Term Loan A (51 million AUD at December 31, 2012)
|
|
|
53
|
|
|
173
|
|
Term Loan B
|
|
|
525
|
|
|
600
|
|
Term Loan C (102 million CAD at December 31, 2012)
|
|
|
102
|
|
|
114
|
|
Term Loan D (€123 million at December 31, 2012)
|
|
|
163
|
|
|
182
|
|
Senior Notes:
|
|
|
|
|
|
|
|
3.00%, Exchangeable, due 2015
|
|
|
642
|
|
|
624
|
|
7.375%, due 2016
|
|
|
591
|
|
|
588
|
|
6.875%, due 2017 (€300 million)
|
|
|
396
|
|
|
388
|
|
6.75%, due 2020 (€500 million)
|
|
|
660
|
|
|
647
|
|
Other
|
|
|
80
|
|
|
121
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
3,212
|
|
|
3,437
|
|
Less amounts due within one year
|
|
|
22
|
|
|
75
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
3,190
|
|
$
|
3,362
|
|
|
|
|
|
|
|
On
May 19, 2011, the Company's subsidiary borrowers entered into the Secured Credit Agreement (the "Agreement"). At December 31, 2012, the Agreement included a
$900 million revolving credit facility, a 51 million Australian dollar term loan, a $525 million term loan, a 102 million Canadian dollar term loan, and a
€123 million term loan, each of which has a final maturity date of May 19, 2016. During 2012, the Company's subsidiary borrowers repaid 119 million Australian
dollars, $75 million, 14 million Canadian dollars, and €18 million of term loans under the Agreement. At December 31, 2012, the Company's subsidiary
borrowers had unused credit of $796 million available under the Agreement.
The
Agreement contains various covenants that restrict, among other things and subject to certain exceptions, the ability of the Company to incur certain liens, make certain investments,
become liable
159
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
11. External Debt (Continued)
under
contingent obligations in certain defined instances only, make restricted junior payments, make certain asset sales within guidelines and limits, make capital expenditures beyond a certain
threshold, engage in material transactions with shareholders and affiliates, participate in sale and leaseback financing arrangements, alter its fundamental business, and amend certain outstanding
debt obligations.
The
Agreement also contains one financial maintenance covenant, a Leverage Ratio, that requires the Company not to exceed a ratio calculated by dividing consolidated total debt, less
cash and cash equivalents, by Consolidated Adjusted EBITDA, as defined in the Agreement. The Leverage Ratio could restrict the ability of the Company to undertake additional financing or acquisitions
to the extent that such financing or acquisitions would cause the Leverage Ratio to exceed the specified maximum.
Failure
to comply with these covenants and restrictions could result in an event of default under the Agreement. In such an event, the Company could not request borrowings under the
revolving facility, and all amounts outstanding under the Agreement, together with accrued interest, could then be declared immediately due and payable. If an event of default occurs under the
Agreement and the lenders cause all of the outstanding debt obligations under the Agreement to become due and payable, this would result in a default under a number of other outstanding debt
securities and could lead to an acceleration of obligations related to these debt securities. A default or event of default under the Agreement, indentures or agreements governing other indebtedness
could also lead to an acceleration of debt under other debt instruments that contain cross acceleration or cross-default provisions.
The
Leverage Ratio also determines pricing under the Agreement. The interest rate on borrowings under the Agreement is, at the Company's option, the Base Rate or the Eurocurrency Rate,
as defined in the Agreement. These rates include a margin linked to the Leverage Ratio. The margins range from 1.25% to 2.00% for Eurocurrency Rate loans and from 0.25% to 1.00% for Base Rate loans.
In addition, a facility fee is payable on the revolving credit facility commitments ranging from 0.25% to 0.50% per annum linked to the Leverage Ratio. The weighted average interest rate on borrowings
outstanding under the Agreement at December 31, 2012 was 2.33%. As of December 31, 2012, the Company was in compliance with all covenants and restrictions in the Agreement. In addition,
the Company believes that it will remain in compliance and that its ability to borrow funds under the Agreement will not be adversely affected by the covenants and restrictions.
Borrowings
under the Agreement are secured by substantially all of the assets, excluding real estate, of the Company's domestic subsidiaries and certain foreign subsidiaries. Borrowings
are also secured by a pledge of intercompany debt and equity in most of the Company's domestic subsidiaries and stock of certain foreign subsidiaries. All borrowings under the agreement are guaranteed
by substantially all domestic subsidiaries of the Company for the term of the Agreement.
During
May 2010, a subsidiary of the Company issued exchangeable senior notes with a face value of $690 million due June 1, 2015 ("2015 Exchangeable Notes"). The 2015
Exchangeable Notes bear interest at 3.00% and are guaranteed by substantially all of the Company's domestic subsidiaries.
Upon
exchange of the 2015 Exchangeable Notes, under the terms outlined below, the issuer of the 2015 Exchangeable Notes is required to settle the principal amount in cash and
OI Inc. is required to settle the exchange premium in shares of OI Inc.'s common stock. The exchange premium is calculated as the value of OI Inc.'s common stock in excess of the
initial exchange price of approximately $47.47 per share, which is equivalent to an exchange rate of 21.0642 per $1,000 principal amount of the 2015
160
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
11. External Debt (Continued)
Exchangeable
Notes. The exchange rate may be adjusted upon the occurrence of certain events, such as certain distributions, dividends or issuances of cash, stock, options, warrants or other property
or effecting a share split, or a significant change in the ownership or structure of the Company or OI Inc., such as a recapitalization or reclassification of OI Inc.'s common stock, a
merger or consolidation involving the Company or the sale or conveyance to another person of all or substantially all of the property and assets of the Company and its subsidiaries substantially as an
entirety.
Prior
to March 1, 2015, the 2015 Exchangeable Notes may be exchanged only if (1) the price of OI Inc.'s common stock exceeds $61.71 (130% of the exchange price) for
a specified period of time, (2) the trading price of the 2015 Exchangeable Notes falls below 98% of the average exchange value of the 2015 Exchangeable Notes for a specified period of time
(trading price was 222% of exchange value at December 31, 2012), or (3) upon the occurrence of specified corporate transactions. The 2015 Exchangeable Notes may be exchanged without
restrictions on or after March 1, 2015. As of December 31, 2012, the 2015 Exchangeable Notes are not exchangeable by the holders.
For
accounting purposes, the 2015 Exchangeable Notes are considered to be non-exchangeable since OI Inc. is directly responsible for settling the exchange premium, if
any. The issuer's obligation with respect to the instrument is limited to only the payment of interest and principal. The value of OI Inc.'s obligation to holders of the 2015 Exchangeable Notes
was computed using the Company's non-exchangeable debt borrowing rate at the date of issuance of 6.15% and was accounted for as a debt discount and a corresponding capital contribution.
The carrying values of the liability and equity components at December 31, 2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Principal amount of exchangeable notes
|
|
$
|
690
|
|
$
|
690
|
|
Unamortized discount on exchangeable notes
|
|
|
48
|
|
|
66
|
|
|
|
|
|
|
|
Net carrying amount of liability component
|
|
$
|
642
|
|
$
|
624
|
|
|
|
|
|
|
|
Carrying amount of equity component
|
|
$
|
93
|
|
$
|
93
|
|
|
|
|
|
|
|
The
debt discount is being amortized over the life of the 2015 Exchangeable Notes. The amount of interest expense recognized on the 2015 Exchangeable Notes for the years ended
December 31, 2012 and 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Contractual coupon interest
|
|
$
|
21
|
|
$
|
21
|
|
Amortization of discount on exchangeable notes
|
|
|
18
|
|
|
17
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
39
|
|
$
|
38
|
|
|
|
|
|
|
|
The
Company has a €240 million European accounts receivable securitization program, which extends through September 2016, subject to annual renewal of backup
credit lines. Information related
161
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
11. External Debt (Continued)
to
the Company's accounts receivable securitization program as of December 31, 2012 and 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Balance (included in short-term loans)
|
|
$
|
264
|
|
$
|
281
|
|
Weighted average interest rate
|
|
|
1.33
|
%
|
|
2.41
|
%
|
The
Company capitalized $1 million in 2011 under capital lease obligations with the related financing recorded as long-term debt. There were no new capital lease
obligations recorded in 2012. This amount is included in other in the long-term debt table above.
Annual
maturities for all of the Company's long-term debt through 2017 are as follows: 2013, $22 million; 2014, $177 million; 2015, $1,067 million; 2016,
$931 million; and 2017 $400 million.
Fair
values at December 31, 2012, of the Company's significant fixed rate debt obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount
|
|
Indicated
Market Price
|
|
Fair
Value
|
|
Senior Notes:
|
|
|
|
|
|
|
|
|
|
|
3.00%, Exchangeable, due 2015
|
|
$
|
690
|
|
|
99.34
|
|
$
|
685
|
|
7.375%, due 2016
|
|
|
600
|
|
|
114.50
|
|
|
687
|
|
6.875%, due 2017 (€300 million)
|
|
|
396
|
|
|
103.86
|
|
|
411
|
|
6.75%, due 2020 (€500 million)
|
|
|
660
|
|
|
114.01
|
|
|
752
|
|
12. Contingencies
Certain litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that
are nonroutine and involve compensatory, punitive or treble damage claims as well as other types of relief. The 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 in respect to this pending litigation cannot reasonably be estimated.
However, the Company believes, based on its examination and review of such matters and experience to date, that such ultimate liability will not have a material adverse effect on its results of
operations or financial condition.
The
Company is conducting an internal investigation into conduct in certain of its overseas operations that may have violated the anti-bribery provisions of the United States
Foreign Corrupt Practices Act (the "FCPA"), the FCPA's books and records and internal controls provisions, the Company's own internal policies, and various local laws. In October 2012, the Company
voluntarily disclosed these matters to the U.S. Department of Justice (the "DOJ") and the Securities and Exchange Commission (the "SEC"). The Company intends to cooperate with any investigation by the
DOJ and the SEC.
162
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
12. Contingencies (Continued)
The
Company is presently unable to predict the duration, scope or result of its internal investigation, of any investigations by the DOJ or the SEC or whether either agency will commence
any legal action. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not limited to, injunctive relief, disgorgement,
fines, penalties, and modifications to business practices. The Company also could be subject to investigation and sanctions
outside the United States. While the Company is currently unable to quantify the impact of any potential sanctions or remedial measures, it does not expect such actions will have a material adverse
effect on the Company's liquidity, results of operations or financial condition.
In
2012, the Company reached a settlement with the U.S. Environmental Protection Agency to resolve alleged Clean Air Act violations at certain of its glass manufacturing facilities. As
part of the settlement, the Company agreed to pay a penalty of $1 million and install pollution control equipment at these facilities. The pollution control equipment is estimated to cost
approximately $38 million, of which the Company has already spent approximately $17 million. The remaining equipment will be purchased and installed during 2013.
13. Accumulated Other 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. The net effect of exchange rate fluctuations generally reflects changes in the relative strength of the U.S. dollar
against major foreign currencies between the beginning and end of the year.
The
following table lists the beginning balance, yearly activity and ending balance of each component of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Effect of
Exchange Rate
Fluctuations
|
|
Deferred Tax
Effect for
Translation
|
|
Change in
Certain
Derivative
Instruments
|
|
Employee
Benefit
Plans
|
|
Total
Accumulated
Comprehensive
Income
|
|
Balance on January 1, 2010
|
|
$
|
290
|
|
$
|
13
|
|
$
|
(1
|
)
|
$
|
(255
|
)
|
$
|
47
|
|
2010 Change
|
|
|
382
|
|
|
|
|
|
(2
|
)
|
|
17
|
|
|
397
|
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
(1
|
)
|
Tax effect
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2010
|
|
|
672
|
|
|
13
|
|
|
(3
|
)
|
|
(243
|
)
|
|
439
|
|
2011 Change
|
|
|
(187
|
)
|
|
|
|
|
(3
|
)
|
|
32
|
|
|
(158
|
)
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
Tax effect
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
(8
|
)
|
Acquisition of noncontrolling interest
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2011
|
|
|
476
|
|
|
13
|
|
|
(6
|
)
|
|
(218
|
)
|
|
265
|
|
2012 Change
|
|
|
(34
|
)
|
|
|
|
|
5
|
|
|
(228
|
)
|
|
(257
|
)
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
(9
|
)
|
Tax effect
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2012
|
|
$
|
442
|
|
$
|
13
|
|
$
|
(1
|
)
|
$
|
(402
|
)
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
13. Accumulated Other Comprehensive Income (Continued)
Exchange
rate fluctuations in 2010 included the write-off of cumulative currency translation losses related to the disposal of the Venezuelan operations. See Note 19
to the Consolidated Financial Statements for further information.
14. Other Expense
Other expense for the year ended December 31, 2012 included the following:
-
-
The Company recorded charges totaling $159 million for restructuring, asset impairment and related charges. See
Note 8 for additional information.
-
-
During the fourth quarter of 2012, the Company recorded a gain of $61 million related to cash received from the
Chinese government as compensation for land in China that the Company was required to return to the government.
-
-
Aggregate foreign currency exchange losses included in other expense were $8 million in 2012.
Other
expense for the year ended December 31, 2011 included the following:
-
-
The Company recorded charges totaling $94 million for restructuring, asset impairment and related charges. See
Note 8 for additional information.
-
-
The Company recorded charges totaling $17 million for asset impairment, primarily due to the write down of asset
values related to a 2010 acquisition in China as a result of integration challenges. The Company wrote down the value of these assets to the extent their carrying amounts exceeded fair value. The
Company classified the significant assumptions used to determine the fair value of the impaired assets, which was not material, as Level 3 in the fair value hierarchy.
-
-
The Company recorded a goodwill impairment charge of $641 million related to its Asia Pacific segment. See
Note 5 for additional information.
-
-
Aggregate foreign currency exchange losses included in other expense were $6 million in 2011.
Other
expense for the year ended December 31, 2010 included the following:
-
-
The Company recorded charges totaling $13 million for restructuring, asset impairment and related charges. See
Note 8 for additional information.
-
-
The Company recorded charges of $12 million for acquisition-related fair value inventory adjustments. This charge
was due to the accounting rules requiring inventory purchased in a business combination to be marked up to fair value, and then recorded as an increase to cost of goods sold as the inventory is sold.
The Company also recorded charges of $20 million for acquisition-related restructuring, transaction and financing costs.
-
-
Aggregate foreign currency exchange losses included in other expense were $3 million in 2010.
15. Operating Leases
Rent expense attributable to all warehouse, office buildings, and equipment operating leases was $69 million in 2012, $84 million in 2011, and $109 million in 2010.
Minimum future rentals under
164
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
15. Operating Leases (Continued)
operating
leases are as follows: 2013, $49 million; 2014, $39 million; 2015, $30 million; 2016, $23 million; 2017, $16 million; and 2018 and thereafter,
$26 million.
16. Additional Interest Charges from Early Extinguishment of Debt
During 2011, the Company recorded additional interest charges of $25 million for note repurchase premiums and the related write-off of unamortized finance fees. During
2010, the Company recorded additional interest charges of $9 million for note repurchase premiums and the related write-off of unamortized finance fees. In addition, the Company
recorded a reduction of interest expense of $9 million in 2010 to recognize the unamortized proceeds from terminated interest rate swaps on these notes.
17. Supplemental Cash Flow Information
Changes in the components of working capital related to operations (net of the effects related to acquisitions and divestitures) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Decrease (increase) in current assets:
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
206
|
|
$
|
(138
|
)
|
$
|
(61
|
)
|
Inventories
|
|
|
(74
|
)
|
|
(100
|
)
|
|
(31
|
)
|
Prepaid expenses
|
|
|
(1
|
)
|
|
(30
|
)
|
|
32
|
|
Increase (decrease) in current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(83
|
)
|
|
185
|
|
|
69
|
|
Salaries and wages
|
|
|
19
|
|
|
2
|
|
|
(9
|
)
|
U.S. and foreign income taxes
|
|
|
(76
|
)
|
|
7
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
(9
|
)
|
$
|
(74
|
)
|
$
|
(46
|
)
|
|
|
|
|
|
|
|
|
Interest
paid in cash, including note repurchase premiums, aggregated $223 million for 2012, $253 million for 2011, and $228 million for 2010.
Income
taxes paid in cash were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
U.S.continuing
|
|
$
|
|
|
$
|
1
|
|
$
|
5
|
|
Non-U.S.continuing
|
|
|
132
|
|
|
111
|
|
|
123
|
|
Non-U.S.discontinued operations
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132
|
|
$
|
112
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
18. Business Combinations
On August 1, 2011, the Company completed the acquisition of Verrerie du Languedoc SAS ("VDL"), a single-furnace glass container plant in Vergeze, France. The
Vergeze plant is located near
165
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
18. Business Combinations (Continued)
the
Nestle Waters' Perrier bottling facility and has a long-standing supply relationship with Nestle Waters.
On
May 31, 2011, the Company acquired the noncontrolling interest in its southern Brazil operations for approximately $140 million.
On
September 1, 2010, the Company completed the acquisition of Brazilian glassmaker Companhia Industrial de Vidros ("CIV") for total consideration of $594 million,
consisting of cash of $572 million and acquired debt of $22 million. CIV was the leading glass container manufacturer in northeastern Brazil, producing glass containers for the beverage,
food and pharmaceutical industries, as well as tableware. The acquisition includes two plants in the state of Pernambuco and one in the state of Ceará. The acquisition was part of the
Company's overall strategy of expanding its presence in emerging markets and expands its Brazilian footprint to align with unfolding consumer trends and customer growth plans. The results of CIV's
operations have been included in the Company's consolidated financial statements since September 1, 2010, and are included in the South American operating segment.
The
total purchase price was allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values. The following table summarizes the fair
values of the assets and liabilities assumed on September 1, 2010:
|
|
|
|
|
Current assets
|
|
$
|
83
|
|
Goodwill
|
|
|
343
|
|
Other long-term assets
|
|
|
82
|
|
Net property, plant, and equipment
|
|
|
200
|
|
|
|
|
|
Total assets
|
|
|
708
|
|
Current liabilities
|
|
|
(57
|
)
|
Long-term liabilities
|
|
|
(79
|
)
|
|
|
|
|
Net assets acquired
|
|
$
|
572
|
|
|
|
|
|
The
liabilities assumed include accruals for uncertain tax positions and other tax contingencies. The purchase agreement includes provisions that require the sellers to reimburse the
Company for any cash
paid related to the settlement of these contingencies. Accordingly, the Company recognized a receivable from the sellers related to these contingencies.
Goodwill
largely consisted of expected synergies resulting from the integration of the acquisition and anticipated growth opportunities with new and existing customers, and included
intangible assets not separately recognized, such as federal and state tax incentives for development in Brazil's northeastern region. Goodwill is not deductible for federal income tax purposes.
On
December 23, 2010, the Company acquired Hebei Rixin Glass Group Co., Ltd. The acquisition, located in Hebei Province of northern China, manufactures glass
containers predominantly for China's domestic beer market.
166
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
18. Business Combinations (Continued)
On
December 7, 2010, the Company acquired the majority share of Zhaoqing Jiaxin Glasswork Co., LTD, a glass container manufacturer located in the Pearl River Delta
region of Guangdong Province in China. Zhaoqing Jiaxin Glasswork Co., LTD produces glass packaging for the beer, food and non-alcoholic beverage markets.
On
March 11, 2010, the Company acquired the majority share of Cristalerias Rosario, a glass container manufacturer located in Rosario, Argentina. Cristalerias Rosario primarily
produces wine and non-alcoholic beverage glass containers.
In
the second quarter of 2010, the Company formed a joint venture with Berli Jucker Public Company Limited ("BJC") of Thailand in order to expand the Company's presence in China and
Southeast Asia. The joint venture entered into an agreement to purchase the operations of Malaya Glass from Fraser & Neave Holdings Bhd. Malaya Glass produces glass containers for the beer,
non-alcoholic beverage and food markets, with plants located in China, Thailand, Malaysia and Vietnam. The acquisition was completed on July 16, 2010. The Company is recognizing its
interest in the joint venture using the equity method of accounting.
The
acquisitions, individually and in the aggregate, did not meet the thresholds for a significant acquisition and therefore no pro forma financial information is presented.
19. Discontinued Operations
On October 26, 2010, the Venezuelan government, through Presidential Decree No. 7.751, expropriated the assets of Owens-Illinois de Venezuela and Fabrica de Vidrios Los
Andes, C.A., two of the Company's subsidiaries in that country, which in effect constituted a taking of the going concerns of those companies. Shortly after the issuance of the decree, the Venezuelan
government installed temporary administrative boards to control the expropriated assets.
Since
the issuance of the decree, the Company has cooperated with the Venezuelan government, as it is compelled to do under Venezuelan law, to provide for an orderly transition while
ensuring the safety and well-being of the employees and the integrity of the production facilities. The Company has been engaged in negotiations with the Venezuelan government in relation
to certain aspects of the expropriation, including the compensation payable by the government as a result of its expropriation. On September 26, 2011, the Company, having been unable to reach
an agreement with the Venezuelan government regarding fair compensation, commenced an arbitration against Venezuela through the World Bank's International Centre for Settlement of Investment Disputes.
The Company is unable at this stage to predict the amount, or timing of receipt, of compensation it will ultimately receive.
The
Company considered the disposal of these assets to be complete as of December 31, 2010. As a result, and in accordance with generally accepted accounting principles, the
Company has presented the results of operations for its Venezuelan subsidiaries in the Consolidated Results of Operations for all years presented as discontinued operations.
167
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
19. Discontinued Operations (Continued)
The following summarizes the revenues and expenses of the Venezuelan operations reported as discontinued operations in the Consolidated Results of Operations for the year ended
December 31, 2010:
|
|
|
|
|
Net sales
|
|
$
|
129
|
|
Manufacturing, shipping, and delivery
|
|
|
(86
|
)
|
|
|
|
|
Gross profit
|
|
|
43
|
|
Selling and administrative expense
|
|
|
(5
|
)
|
Other expense
|
|
|
3
|
|
|
|
|
|
Earnings from discontinued operations before income taxes
|
|
|
41
|
|
Provision for income taxes
|
|
|
(10
|
)
|
|
|
|
|
Earnings from discontinued operations
|
|
|
31
|
|
Loss on disposal of discontinued operations
|
|
|
(337
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(306
|
)
|
Net earnings from discontinued operations attributable to noncontrolling interests
|
|
|
(5
|
)
|
|
|
|
|
Net loss from discontinued operations attributable to the Company
|
|
$
|
(311
|
)
|
|
|
|
|
The
loss on disposal of discontinued operations of $337 million for the year ended December 31, 2010 included charges totaling $77 million and $260 million to
write-off the net assets and cumulative currency translation losses, respectively, of the Company's Venezuelan operations. The net assets were written-off as a result of the
deconsolidation of the subsidiaries due to the loss of control. The type or amount of compensation the Company may receive from the Venezuelan government is uncertain and thus, will be recorded as a
gain from discontinued operations when received. The cumulative currency translation losses relate to the devaluation of the Venezuelan bolivar in prior years and were written-off because
the expropriation was a substantially complete liquidation of the Company's operations in Venezuela.
20. Guarantees of Debt
OI Group and the Company guarantee OI Inc.'s senior debentures on a subordinated basis. The fair value of the OI Inc. debt being guaranteed was $281 at December 31,
2012.
21. Related Party Transactions
Charges for administrative services are allocated to the Company by OI Inc. based on an annual utilization level. Such services include compensation and benefits administration,
payroll processing, use of certain general accounting systems, auditing, income tax planning and compliance, and treasury services.
Allocated
costs also include charges associated with OI Inc.'s equity compensation plans. A substantial number of the options, restricted share units and performance vested
restricted share units granted under these plans have been granted to key employees of another subsidiary of OI Inc., some
168
Table of Contents
Owens-Brockway Packaging, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
21. Related Party Transactions (Continued)
of
whose compensation costs, including stock-based compensation, are included in an allocation of costs to all operating subsidiaries of OI Inc., including the Company.
Management
believes that such transactions are on terms no less favorable to the Company than those that could be obtained from unaffiliated third parties.
The
following information summarizes the Company's significant related party transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Sales to affiliated companies
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Administrative services
|
|
$
|
3
|
|
$
|
5
|
|
$
|
14
|
|
Corporate management fee
|
|
|
115
|
|
|
104
|
|
|
88
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
118
|
|
$
|
109
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
The
above expenses are recorded in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Cost of sales
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
Selling, general and adminstrative expenses
|
|
|
117
|
|
|
108
|
|
|
101
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
118
|
|
$
|
109
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
169
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Share Owner of
Owens-Brockway Glass Container Inc.
We
have audited the accompanying consolidated balance sheets of Owens-Brockway Glass Container Inc. as of December 31, 2012 and 2011, and the related consolidated
statements of results of operations, comprehensive income, share owners' equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Owens-Brockway Glass Container Inc. at
December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with
U.S. generally accepted accounting principles.
As
discussed in Note 1 to the consolidated financial statements, the Company has elected to change its method of valuing its U.S. inventories from the last-in,
first-out method to the average cost method, effective January 1, 2012.
Toledo,
Ohio
February 13, 2013
170
Table of Contents
Owens-Brockway Glass Container Inc.
CONSOLIDATED RESULTS OF OPERATIONS
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
Net sales
|
|
$
|
7,000
|
|
$
|
7,358
|
|
$
|
6,633
|
|
Manufacturing, shipping and delivery
|
|
|
(5,615
|
)
|
|
(5,972
|
)
|
|
(5,283
|
)
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,385
|
|
|
1,386
|
|
|
1,350
|
|
Selling and administrative expense
|
|
|
(482
|
)
|
|
(484
|
)
|
|
(422
|
)
|
Research, development and engineering expense
|
|
|
(62
|
)
|
|
(71
|
)
|
|
(62
|
)
|
Equity earnings
|
|
|
64
|
|
|
66
|
|
|
59
|
|
Interest income
|
|
|
9
|
|
|
11
|
|
|
31
|
|
Interest expense
|
|
|
(228
|
)
|
|
(294
|
)
|
|
(215
|
)
|
Other expense
|
|
|
(123
|
)
|
|
(777
|
)
|
|
(31
|
)
|
Other income
|
|
|
30
|
|
|
26
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes
|
|
|
593
|
|
|
(137
|
)
|
|
733
|
|
Provision for income taxes
|
|
|
(114
|
)
|
|
(87
|
)
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
479
|
|
|
(224
|
)
|
|
598
|
|
Earnings from discontinued operations
|
|
|
|
|
|
|
|
|
31
|
|
Loss on disposal of discontinued operations
|
|
|
(5
|
)
|
|
(2
|
)
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
474
|
|
|
(226
|
)
|
|
292
|
|
Net earnings attributable to noncontrolling interests
|
|
|
(34
|
)
|
|
(20
|
)
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to the Company
|
|
$
|
440
|
|
$
|
(246
|
)
|
$
|
250
|
|
|
|
|
|
|
|
|
|
Amounts attributable to the Company:
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
445
|
|
$
|
(244
|
)
|
$
|
561
|
|
Earnings from discontinued operations
|
|
|
|
|
|
|
|
|
24
|
|
Loss on disposal of discontinued operations
|
|
|
(5
|
)
|
|
(2
|
)
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
440
|
|
$
|
(246
|
)
|
$
|
250
|
|
|
|
|
|
|
|
|
|
Amounts attributable to noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
$
|
34
|
|
$
|
20
|
|
$
|
37
|
|
Earnings from discontinued operations
|
|
|
|
|
|
|
|
|
7
|
|
Loss on disposal of discontinued operations
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
34
|
|
$
|
20
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Consolidated Financial Statements.
171
Table of Contents
Owens-Brockway Glass Container Inc.
CONSOLIDATED COMPREHENSIVE INCOME
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
Net earnings (loss)
|
|
$
|
474
|
|
$
|
(226
|
)
|
$
|
292
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(26
|
)
|
|
(187
|
)
|
|
388
|
|
Pension and other postretirement benefit adjustments
|
|
|
(184
|
)
|
|
25
|
|
|
12
|
|
Change in fair value of derivative instruments
|
|
|
5
|
|
|
(3
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(205
|
)
|
|
(165
|
)
|
|
398
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
269
|
|
|
(391
|
)
|
|
690
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
(42
|
)
|
|
(20
|
)
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to the Company
|
|
$
|
227
|
|
$
|
(411
|
)
|
$
|
642
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Consolidated Financial Statements.
172
Table of Contents
Owens-Brockway Glass Container Inc.
CONSOLIDATED BALANCE SHEETS
Dollars in millions
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash, including time deposits of $90 ($114 in 2011)
|
|
$
|
420
|
|
$
|
378
|
|
Receivables including amount from related parties of $5 ($5 in 2011), less allowances of $40 ($37 in 2011) for losses and discounts
|
|
|
976
|
|
|
1,165
|
|
Inventories
|
|
|
1,139
|
|
|
1,061
|
|
Prepaid expenses
|
|
|
103
|
|
|
112
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,638
|
|
|
2,716
|
|
Other assets:
|
|
|
|
|
|
|
|
Equity investments
|
|
|
294
|
|
|
315
|
|
Repair parts inventories
|
|
|
133
|
|
|
155
|
|
Pension assets
|
|
|
|
|
|
116
|
|
Other assets
|
|
|
584
|
|
|
599
|
|
Goodwill
|
|
|
2,079
|
|
|
2,082
|
|
|
|
|
|
|
|
Total other assets
|
|
|
3,090
|
|
|
3,267
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
Land, at cost
|
|
|
256
|
|
|
264
|
|
Buildings and equipment, at cost:
|
|
|
|
|
|
|
|
Buildings and building equipment
|
|
|
1,178
|
|
|
1,183
|
|
Factory machinery and equipment
|
|
|
4,856
|
|
|
5,089
|
|
Transportation, office and miscellaneous equipment
|
|
|
113
|
|
|
113
|
|
Construction in progress
|
|
|
187
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
6,590
|
|
|
6,820
|
|
Less accumulated depreciation
|
|
|
3,860
|
|
|
3,984
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
2,730
|
|
|
2,836
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,458
|
|
$
|
8,819
|
|
|
|
|
|
|
|
See accompanying Notes to the Consolidated Financial Statements.
173
Table of Contents
Owens-Brockway Glass Container Inc.
CONSOLIDATED BALANCE SHEETS (Continued)
Dollars in millions
|
|
|
|
|
|
|
|
December 31,
|
|
2012
|
|
2011
|
|
Liabilities and Share Owners' Equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Short-term loans
|
|
$
|
296
|
|
$
|
330
|
|
Accounts payable including amount to related parties of $13 ($15 in 2011)
|
|
|
1,030
|
|
|
1,024
|
|
Salaries and wages
|
|
|
161
|
|
|
149
|
|
U.S. and foreign income taxes
|
|
|
45
|
|
|
106
|
|
Other accrued liabilities
|
|
|
390
|
|
|
395
|
|
Long-term debt due within one year
|
|
|
22
|
|
|
75
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,944
|
|
|
2,079
|
|
External long-term debt
|
|
|
3,190
|
|
|
3,362
|
|
Deferred taxes
|
|
|
182
|
|
|
212
|
|
Pension benefits
|
|
|
377
|
|
|
338
|
|
Nonpension postretirement benefits
|
|
|
98
|
|
|
91
|
|
Other liabilities
|
|
|
299
|
|
|
362
|
|
Share owners' equity:
|
|
|
|
|
|
|
|
Investment by and advances from Parent
|
|
|
2,142
|
|
|
1,957
|
|
Accumulated other comprehensive income
|
|
|
52
|
|
|
265
|
|
|
|
|
|
|
|
Total share owner's equity of the Company
|
|
|
2,194
|
|
|
2,222
|
|
Noncontrolling interests
|
|
|
174
|
|
|
153
|
|
|
|
|
|
|
|
Total share owners' equity
|
|
|
2,368
|
|
|
2,375
|
|
|
|
|
|
|
|
Total liabilities and share owners' equity
|
|
$
|
8,458
|
|
$
|
8,819
|
|
|
|
|
|
|
|
See accompanying Notes to the Consolidated Financial Statements.
174
Table of Contents
Owens-Brockway Glass Container Inc.
CONSOLIDATED SHARE OWNERS' EQUITY
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Owner's Equity
of the Company
|
|
|
|
|
|
|
|
Investment by and
Advances from
Parent
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Non-controlling
Interests
|
|
Total Share
Owners'
Equity
|
|
Balance on January 1, 2010
|
|
$
|
2,462
|
|
$
|
47
|
|
$
|
198
|
|
$
|
2,707
|
|
Net intercompany transactions
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
(538
|
)
|
Capital contribution from parent
|
|
|
91
|
|
|
|
|
|
|
|
|
91
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
250
|
|
|
|
|
|
42
|
|
|
292
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
382
|
|
|
6
|
|
|
388
|
|
Pension and other postretirement benefit adjustments, net of tax
|
|
|
|
|
|
12
|
|
|
|
|
|
12
|
|
Change in fair value of derivative instruments, net of tax
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
(2
|
)
|
Noncontrolling interests' share of acquisition
|
|
|
|
|
|
|
|
|
12
|
|
|
12
|
|
Acquisition of noncontrolling interests
|
|
|
(10
|
)
|
|
|
|
|
(8
|
)
|
|
(18
|
)
|
Dividends paid to noncontrolling interests on subsidiary common stock
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
(25
|
)
|
Disposal of Venezuelan operations
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2010
|
|
|
2,255
|
|
|
439
|
|
|
211
|
|
|
2,905
|
|
Net intercompany transactions
|
|
|
3
|
|
|
|
|
|
|
|
|
3
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
(246
|
)
|
|
|
|
|
20
|
|
|
(226
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
(187
|
)
|
|
|
|
|
(187
|
)
|
Pension and other postretirement benefit adjustments, net of tax
|
|
|
|
|
|
25
|
|
|
|
|
|
25
|
|
Change in fair value of derivative instruments, net of tax
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
(3
|
)
|
Acquisition of noncontrolling interests
|
|
|
(55
|
)
|
|
(9
|
)
|
|
(43
|
)
|
|
(107
|
)
|
Dividends paid to noncontrolling interests on subsidiary common stock
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2011
|
|
|
1,957
|
|
|
265
|
|
|
153
|
|
|
2,375
|
|
Net intercompany transactions
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
(255
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
440
|
|
|
|
|
|
34
|
|
|
474
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
(34
|
)
|
|
8
|
|
|
(26
|
)
|
Pension and other postretirement benefit adjustments, net of tax
|
|
|
|
|
|
(184
|
)
|
|
|
|
|
(184
|
)
|
Change in fair value of derivative instruments, net of tax
|
|
|
|
|
|
5
|
|
|
|
|
|
5
|
|
Contribution from noncontrolling interests
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
Dividends paid to noncontrolling interests on subsidiary common stock
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2012
|
|
$
|
2,142
|
|
$
|
52
|
|
$
|
174
|
|
$
|
2,368
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Consolidated Financial Statements.
175
Table of Contents
Owens-Brockway Glass Container Inc.
CONSOLIDATED CASH FLOWS
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
474
|
|
$
|
(226
|
)
|
$
|
292
|
|
Earnings from discontinued operations
|
|
|
|
|
|
|
|
|
(31
|
)
|
Loss on disposal of discontinued operations
|
|
|
5
|
|
|
2
|
|
|
337
|
|
Non-cash charges (credits):
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
374
|
|
|
401
|
|
|
366
|
|
Amortization of intangibles and other deferred items
|
|
|
27
|
|
|
14
|
|
|
17
|
|
Amortization of finance fees and debt discount
|
|
|
33
|
|
|
32
|
|
|
20
|
|
Deferred tax benefit
|
|
|
(3
|
)
|
|
(44
|
)
|
|
(6
|
)
|
Restructuring, asset impairment and related charges
|
|
|
159
|
|
|
111
|
|
|
13
|
|
Gain on China land compensation
|
|
|
(61
|
)
|
|
|
|
|
|
|
Charge for acquisition-related costs
|
|
|
|
|
|
|
|
|
26
|
|
Charge for goodwill impairment
|
|
|
|
|
|
641
|
|
|
|
|
Other
|
|
|
(58
|
)
|
|
(11
|
)
|
|
101
|
|
Cash paid for restructuring activities
|
|
|
(65
|
)
|
|
(39
|
)
|
|
(61
|
)
|
Change in non-current assets and liabilities
|
|
|
(54
|
)
|
|
(96
|
)
|
|
(32
|
)
|
Change in components of working capital
|
|
|
(9
|
)
|
|
(74
|
)
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
Cash provided by continuing operating activities
|
|
|
822
|
|
|
711
|
|
|
996
|
|
Cash utilized in discontinued operating activities
|
|
|
(5
|
)
|
|
(2
|
)
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
Total cash provided by operating activities
|
|
|
817
|
|
|
709
|
|
|
988
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipmentcontinuing
|
|
|
(290
|
)
|
|
(280
|
)
|
|
(496
|
)
|
Additions to property, plant and equipmentdiscontinued
|
|
|
|
|
|
|
|
|
(3
|
)
|
Acquisitions, net of cash acquired
|
|
|
(5
|
)
|
|
(144
|
)
|
|
(817
|
)
|
Net cash proceeds related to sale of assets and other
|
|
|
95
|
|
|
3
|
|
|
6
|
|
Net payments to fund minority partner loan
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash utilized in investing activities
|
|
|
(221
|
)
|
|
(421
|
)
|
|
(1,310
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Additions to long-term debt
|
|
|
119
|
|
|
1,465
|
|
|
1,392
|
|
Repayments of long-term debt
|
|
|
(401
|
)
|
|
(1,796
|
)
|
|
(545
|
)
|
Increase (decrease) in short-term loanscontinuing
|
|
|
(38
|
)
|
|
80
|
|
|
(39
|
)
|
Decrease in short-term loansdiscontinued
|
|
|
|
|
|
|
|
|
(2
|
)
|
Net receipts from (distribution to) parent
|
|
|
(255
|
)
|
|
1
|
|
|
(567
|
)
|
Net receipts (payments) for hedging activity
|
|
|
27
|
|
|
(22
|
)
|
|
19
|
|
Payment of finance fees
|
|
|
(1
|
)
|
|
(19
|
)
|
|
(33
|
)
|
Contribution from noncontrolling interests
|
|
|
3
|
|
|
|
|
|
|
|
Dividends paid to noncontrolling interests
|
|
|
(24
|
)
|
|
(35
|
)
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
Cash provided by (utilized in) financing activities
|
|
|
(570
|
)
|
|
(326
|
)
|
|
200
|
|
Effect of exchange rate fluctuations on cash
|
|
|
16
|
|
|
6
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
42
|
|
|
(32
|
)
|
|
(119
|
)
|
Cash at beginning of year
|
|
|
378
|
|
|
410
|
|
|
529
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
420
|
|
$
|
378
|
|
$
|
410
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Consolidated Financial Statements.
176
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular data dollars in millions
1. Significant Accounting Policies
Basis of Consolidated Statements
The consolidated financial statements of Owens-Brockway Glass Container Inc. (the "Company")
include the
accounts of its subsidiaries. Newly acquired subsidiaries have been included in the consolidated financial statements from dates of acquisition. Results of operations for the Company's Venezuelan
subsidiaries expropriated in 2010 have been presented as a discontinued operation.
The
Company uses the equity method of accounting for investments in which it has a significant ownership interest, generally 20% to 50%. Other investments are accounted for at cost. The
Company monitors other than temporary declines in fair value and records reductions in carrying values when appropriate.
Relationship with Owens-Brockway Packaging, Inc., Owens-Illinois Group, Inc. and Owens-Illinois, Inc.
The Company is a
100%-owned subsidiary of Owens-Brockway Packaging, Inc. ("OB Packaging"), and an indirect subsidiary of Owens-Illinois Group, Inc. ("OI Group") and Owens-Illinois, Inc.
("OI Inc."). Although OI Inc. does not conduct any operations, it has substantial obligations related to outstanding indebtedness and asbestos-related payments. OI Inc. relies
primarily on distributions from its direct and indirect subsidiaries to meet these obligations.
For
federal and certain state income tax purposes, the taxable income of the Company is included in the consolidated tax returns of OI Inc. and income taxes are allocated to the
Company on a basis consistent with separate returns.
Nature of Operations
The Company is a leading manufacturer of glass container products. The Company's principal product lines are glass
containers
for the food and beverage industries. The Company has glass container operations located in 21 countries. The principal markets and operations for the Company's products are in Europe, North America,
South America and Asia Pacific.
Change in Accounting Method
Effective January 1, 2012, the Company elected to change the method of valuing U.S. inventories to the
lower of
the average cost method or market, while in prior years these inventories were valued using the lower of the last-in, first-out ("LIFO") method or market. The Company believes
the average cost method is preferable as it conforms the inventory costing methods globally, improves comparability with industry peers and better reflects the current value of inventory on the
consolidated balance sheets. All prior periods presented have been adjusted to apply the new method retrospectively.
177
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
1. Significant Accounting Policies (Continued)
The
effect of the change on the Consolidated Results of Operations for the years ended December 31, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
As originally
reported under
LIFO
|
|
Effect of
Change
|
|
As
Adjusted
|
|
Manufacturing, shipping and delivery expense
|
|
$
|
(5,982
|
)
|
$
|
10
|
|
$
|
(5,972
|
)
|
Loss from continuing operations attributable to the Company
|
|
|
(254
|
)
|
|
10
|
|
|
(244
|
)
|
2010
|
|
|
|
|
|
|
|
|
|
|
Manufacturing, shipping and delivery expense
|
|
$
|
(5,285
|
)
|
$
|
2
|
|
$
|
(5,283
|
)
|
Earnings from continuing operations attributable to the Company
|
|
|
559
|
|
|
2
|
|
|
561
|
|
The
effect of the change on the Consolidated Balance Sheet as of December 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As originally
reported under
LIFO
|
|
Effect of
Change
|
|
As
Adjusted
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
1,012
|
|
$
|
49
|
|
$
|
1,061
|
|
Share owners' equity:
|
|
|
|
|
|
|
|
|
|
|
Investment by and advances from Parent
|
|
|
1,908
|
|
|
49
|
|
|
1,957
|
|
The
effect of the change on the consolidated share owners' equity as of January 1, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As originally
reported under
LIFO
|
|
Effect of
Change
|
|
As
Adjusted
|
|
Investment by and advances from Parent
|
|
$
|
2,425
|
|
$
|
37
|
|
$
|
2,462
|
|
The
effect of the change on the Consolidated Statement of Cash Flows for the years ended December 31, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
As originally
reported under
LIFO
|
|
Effect of
Change
|
|
As
Adjusted
|
|
Net earnings/(loss)
|
|
$
|
(236
|
)
|
$
|
10
|
|
$
|
(226
|
)
|
Change in components of working capital
|
|
|
(64
|
)
|
|
(10
|
)
|
|
(74
|
)
|
2010
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
290
|
|
$
|
2
|
|
$
|
292
|
|
Change in components of working capital
|
|
|
(44
|
)
|
|
(2
|
)
|
|
(46
|
)
|
Had
the Company not made this change in accounting method, manufacturing, shipping and delivery expense for the year ended December 31, 2012 would have been lower by
$4 million and net
178
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
1. Significant Accounting Policies (Continued)
earnings
attributable to the Company would have been higher by $4 million than reported in the Consolidated Results of Operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States requires
management of the Company to make estimates and assumptions that affect certain amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates, at
which time the Company would revise its estimates accordingly.
Foreign Currency Translation
The assets and liabilities of non-U.S. subsidiaries are translated into U.S. dollars at year-end
exchange rates. Any related translation adjustments are recorded in accumulated other comprehensive income in share owners' equity.
Revenue Recognition
The Company recognizes sales, net of estimated discounts and allowances, when the title to the products and risk of
loss are
transferred to customers. Provisions for rebates to customers are provided in the same period that the related sales are recorded.
Shipping and Handling Costs
Shipping and handling costs are included with manufacturing, shipping and delivery costs in the
Consolidated Results of
Operations.
Cash
The Company defines "cash" as cash and time deposits with maturities of three months or less when purchased. Outstanding checks in
excess of
funds on deposit are included in accounts payable.
Accounts Receivable
Receivables are stated at amounts estimated by management to be the net
realizable value. The Company charges off accounts receivable when it becomes apparent based upon age or customer circumstances that amounts will not be collected.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is established through charges to the provision for bad debts. The
Company
evaluates the adequacy of the allowance for doubtful accounts on a periodic basis. The evaluation includes historical trends in collections and write-offs, management's judgment of the
probability of collecting accounts and management's evaluation of business risk.
Inventory Valuation
Inventories are valued at the lower of average costs or market.
Goodwill
Goodwill represents the excess of cost over fair value of net assets of businesses acquired. Goodwill is evaluated annually, as
of
October 1, for impairment or more frequently if an impairment indicator exists.
Intangible Assets and Other Long-Lived Assets
Intangible assets are amortized over the expected useful life of the asset. Amortization
expense directly attributed to the manufacturing of the Company's products is included in manufacturing, shipping, and delivery. Amortization expense related to non-manufacturing
activities is included in selling and administrative and other. The Company evaluates the recoverability of intangible assets and other long-lived assets based on undiscounted projected
cash flows, excluding interest and taxes, when factors indicate that impairment may exist. If impairment exists, the asset is written down to fair value.
179
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
1. Significant Accounting Policies (Continued)
Property, Plant and Equipment
Property, plant and equipment ("PP&E") is carried at cost and includes expenditures for new
facilities and equipment
and those costs which substantially increase the useful lives or capacity of existing PP&E. In general, depreciation is computed using the straight-line method and recorded over the
estimated useful life of the asset. Factory
machinery and equipment is depreciated over periods ranging from 5 to 25 years with the majority of such assets (principally glass-melting furnaces and forming machines) depreciated over 7 to
15 years. Buildings and building equipment are depreciated over periods ranging from 10 to 50 years. Depreciation expense directly attributed to the manufacturing of the Company's
products is included in manufacturing, shipping, and delivery. Depreciation expense related to non-manufacturing activities is included in selling and administrative. Depreciation expense
includes the amortization of assets recorded under capital leases. Maintenance and repairs are expensed as incurred. Costs assigned to PP&E of acquired businesses are based on estimated fair values at
the date of acquisition. The Company evaluates the recoverability of property, plant, and equipment based on undiscounted projected cash flows, excluding interest and taxes, when factors indicate that
impairment may exist. If impairment exists, the asset is written down to fair value.
Derivative Instruments
The Company uses forward exchange contracts, options, and commodity futures contracts to manage risks generally
associated
with foreign exchange rate and commodity market volatility. Derivative financial instruments are included on the balance sheet at fair value. When appropriate, derivative instruments are designated as
and are effective as hedges, in accordance with accounting principles generally accepted in the United States. If the underlying hedged transaction ceases to exist, all changes in fair value of the
related derivatives that have not been settled are recognized in current earnings. The Company does not enter into derivative financial instruments for trading purposes and is not a party to leveraged
derivatives. Cash flows from fair value hedges of debt and short-term forward exchange contracts are classified as a financing activity. Cash flows of commodity futures contracts are
classified as operating activities.
Fair Value Measurements
Fair value is defined as 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. Generally accepted accounting principles defined 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
carrying amounts reported for cash, short-term investments and short-term loans approximate fair value. In addition, carrying amounts approximate fair value
for certain long-term debt obligations subject to frequently redetermined interest rates. Fair values for the Company's significant fixed rate debt obligations are generally based on
published market quotations.
180
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
1. Significant Accounting Policies (Continued)
The
Company's derivative assets and liabilities consist of natural gas forwards and foreign exchange option and forward contracts. The Company uses an income approach to valuing these
contracts. 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 its derivative assets and liabilities as Level 2 in the hierarchy. The Company also evaluates counterparty risk in determining fair
values.
Participation in OI Inc. Stock Option Plans and Other Stock Based Compensation
The Company participates in the equity compensation
plans of
OI Inc. under which employees of the Company may be granted options to purchase common shares of OI Inc., restricted common shares of OI Inc., or restricted share units of
OI Inc.
Stock Options
For options granted prior to March 22, 2005, no options may be exercised in whole or in part during the first year after the
date granted. In general, subject to accelerated exercisability provisions related to the performance of OI Inc.'s common stock or change of control, 50% of the options became exercisable on
the fifth anniversary of the date of the option grant, with the remaining 50% becoming exercisable on the sixth anniversary date of the option grant. In general, options expire following termination
of employment or the day after the tenth anniversary date of the option grant.
For
options granted after March 21, 2005, no options may be exercised in whole or in part during the first year after the date granted. In general, subject to change in control,
these options become exercisable 25% per year beginning on the first anniversary. In general, options expire following termination of employment or the seventh anniversary of the option grant.
The
fair value of options granted before March 22, 2005, was amortized ratably over five years or a shorter period if the grant became subject to accelerated exercisability
provisions related to the performance of OI Inc.'s common stock. The fair value of options granted after March 21, 2005, is amortized over the vesting periods which range from one to
four years.
Restricted Shares and Restricted Share Units
Shares granted to employees prior to March 22, 2005, generally vest after three years or upon retirement, whichever is later.
Shares granted after March 21, 2005 and prior to 2011, vest 25% per year beginning on the first anniversary and unvested shares are forfeited upon termination of employment. Restricted share
units granted to employees after 2010 vest 25% per year beginning on the first anniversary. Holders of vested restricted share units receive one share of OI Inc.'s common stock for each unit.
Granted but unvested restricted share units are forfeited upon termination, unless certain retirement criteria are met. Shares granted to directors prior to 2008 were immediately vested but may not be
sold until the third anniversary of the share grant or the end of the director's then current term on the board, whichever is later. Shares granted to directors after 2007 vest after one year.
The
fair value of the restricted shares and restricted share units is equal to the market price of OI Inc.'s common stock on the date of the grant. The fair value of restricted
shares granted before March 22, 2005, is amortized ratably over the vesting period. The fair value of restricted shares and restricted share units granted after March 21, 2005, is
amortized over the vesting periods which range from one to four years.
181
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
1. Significant Accounting Policies (Continued)
Performance Vested Restricted Share Units
Performance vested restricted share units vest on January 1 of the third year following the year in which they are granted.
Holders of vested units may receive up to 2 shares of OI Inc.'s common stock for each unit, depending upon the attainment of consolidated performance goals established by the Compensation
Committee of OI Inc.'s Board of Directors. If minimum goals are not met, no shares will be issued. Granted but unvested restricted share units are forfeited upon termination of employment,
unless certain retirement criteria are met.
The
fair value of each performance vested restricted share unit is equal to the product of the fair value of OI Inc.'s common stock on the date of grant and the estimated number
of shares into which the performance vested restricted share unit will be converted. The fair value of performance vested restricted share units is amortized ratably over the vesting period. Should
the estimated number of shares into which the performance vested restricted share unit will be converted change, an adjustment will be recorded to recognize the accumulated difference in amortization
between the revised and previous estimates.
As
discussed in Note 20, costs incurred under these plans by OI Inc. related to stock-based compensation awards granted directly to the Company's employees are included in
the allocable costs charged to the Company and other operating subsidiaries of OI Inc. on an intercompany basis.
2. Segment Information
The Company has four reportable segments based on its four geographic locations: Europe, North America, South America and Asia Pacific. These four segments are aligned with the Company's
internal approach to managing, reporting, and evaluating performance of its global glass operations. Certain assets and activities not directly related to one of the regions or to glass manufacturing
are reported with Other. These include licensing, equipment manufacturing, global engineering, and non-glass equity investments.
The
Company's measure of profit for its reportable segments is segment operating profit, which consists of consolidated earnings before interest income, interest expense, and provision
for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations. The Company's management uses segment operating profit, in
combination with selected cash flow information, to evaluate performance and to allocate resources. Segment operating profit for reportable segments includes an allocation of some corporate expenses
based on both a percentage of sales and direct billings based on the costs of specific services provided.
In
prior periods, pension expense was recorded in each segment related to the pension plans in place in that segment, with the exception of the U.S. pension plans which were recorded in
Other. Effective January 1, 2012, the Company changed the allocation of pension expense to its reportable segments such that pension expense recorded in each segment relates only to the service
cost component of the plans in that segment. The other components of pension expense, including interest cost, expected asset returns and amortization of actuarial losses, are recorded in Other. This
change in allocation has been applied retrospectively to all periods. Also effective January 1, 2012, the Company elected to change the method of valuing U.S. inventories (see Note 1 for
additional information).
182
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
2. Segment Information (Continued)
The
impact of the changes in pension expense allocation and accounting method for inventory on segment operating profit for the year ended December 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Orginally
Reported
|
|
Change in
Pension
Allocation
|
|
Change in
Accounting
Method for
Inventory
|
|
As Adjusted
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
325
|
|
$
|
20
|
|
$
|
|
|
$
|
345
|
|
North America
|
|
|
236
|
|
|
(24
|
)
|
|
10
|
|
|
222
|
|
South America
|
|
|
250
|
|
|
|
|
|
|
|
|
250
|
|
Asia Pacific
|
|
|
83
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment totals
|
|
|
894
|
|
|
(4
|
)
|
|
10
|
|
|
900
|
|
Other
|
|
|
(6
|
)
|
|
4
|
|
|
|
|
|
(2
|
)
|
The
impact of the changes in pension expense allocation and accounting method for inventory on segment operating profit for the year ended December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Orginally
Reported
|
|
Change in
Pension
Allocation
|
|
Change in
Accounting
Method for
Inventory
|
|
As Adjusted
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
324
|
|
$
|
16
|
|
$
|
|
|
$
|
340
|
|
North America
|
|
|
275
|
|
|
(24
|
)
|
|
2
|
|
|
253
|
|
South America
|
|
|
224
|
|
|
|
|
|
|
|
|
224
|
|
Asia Pacific
|
|
|
141
|
|
|
3
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segment totals
|
|
|
964
|
|
|
(5
|
)
|
|
2
|
|
|
961
|
|
Other
|
|
|
(16
|
)
|
|
5
|
|
|
|
|
|
(11
|
)
|
Financial
information regarding the Company's reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
2,717
|
|
$
|
3,052
|
|
$
|
2,746
|
|
North America
|
|
|
1,966
|
|
|
1,929
|
|
|
1,879
|
|
South America
|
|
|
1,252
|
|
|
1,226
|
|
|
975
|
|
Asia Pacific
|
|
|
1,028
|
|
|
1,059
|
|
|
996
|
|
|
|
|
|
|
|
|
|
Reportable segment totals
|
|
|
6,963
|
|
|
7,266
|
|
|
6,596
|
|
Other
|
|
|
37
|
|
|
92
|
|
|
37
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
7,000
|
|
$
|
7,358
|
|
$
|
6,633
|
|
|
|
|
|
|
|
|
|
183
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
2. Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
307
|
|
$
|
345
|
|
$
|
340
|
|
North America
|
|
|
288
|
|
|
222
|
|
|
253
|
|
South America
|
|
|
227
|
|
|
250
|
|
|
224
|
|
Asia Pacific
|
|
|
113
|
|
|
83
|
|
|
144
|
|
|
|
|
|
|
|
|
|
Reportable segment totals
|
|
|
935
|
|
|
900
|
|
|
961
|
|
Items excluded from segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(25
|
)
|
|
(2
|
)
|
|
(11
|
)
|
Restructuring, asset impairment and related charges
|
|
|
(159
|
)
|
|
(111
|
)
|
|
(13
|
)
|
Gain on China land compensation
|
|
|
61
|
|
|
|
|
|
|
|
Acquisition-related costs
|
|
|
|
|
|
|
|
|
(20
|
)
|
Charge for goodwill impairment
|
|
|
|
|
|
(641
|
)
|
|
|
|
Interest income
|
|
|
9
|
|
|
11
|
|
|
31
|
|
Interest expense
|
|
|
(228
|
)
|
|
(294
|
)
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes
|
|
$
|
593
|
|
$
|
(137
|
)
|
$
|
733
|
|
|
|
|
|
|
|
|
|
184
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
2. Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
North
America
|
|
South
America
|
|
Asia
Pacific
|
|
Reportable
Segment
Totals
|
|
Other
|
|
Consolidated
Totals
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
3,362
|
|
$
|
1,986
|
|
$
|
1,655
|
|
$
|
1,349
|
|
$
|
8,352
|
|
$
|
106
|
|
$
|
8,458
|
|
2011
|
|
|
3,588
|
|
|
2,013
|
|
|
1,682
|
|
|
1,379
|
|
|
8,662
|
|
|
157
|
|
|
8,819
|
|
2010
|
|
|
3,618
|
|
|
1,990
|
|
|
1,680
|
|
|
2,047
|
|
|
9,335
|
|
|
121
|
|
|
9,456
|
|
Equity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
63
|
|
$
|
25
|
|
$
|
|
|
$
|
165
|
|
$
|
253
|
|
$
|
41
|
|
$
|
294
|
|
2011
|
|
|
59
|
|
|
27
|
|
|
|
|
|
181
|
|
|
267
|
|
|
48
|
|
|
315
|
|
2010
|
|
|
53
|
|
|
17
|
|
|
5
|
|
|
179
|
|
|
254
|
|
|
45
|
|
|
299
|
|
Equity earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
15
|
|
$
|
16
|
|
$
|
|
|
$
|
5
|
|
$
|
36
|
|
$
|
28
|
|
$
|
64
|
|
2011
|
|
|
21
|
|
|
9
|
|
|
|
|
|
3
|
|
|
33
|
|
|
33
|
|
|
66
|
|
2010
|
|
|
19
|
|
|
15
|
|
|
|
|
|
1
|
|
|
35
|
|
|
24
|
|
|
59
|
|
Capital expenditures(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
87
|
|
$
|
68
|
|
$
|
75
|
|
$
|
49
|
|
$
|
279
|
|
$
|
11
|
|
$
|
290
|
|
2011
|
|
|
127
|
|
|
60
|
|
|
50
|
|
|
37
|
|
|
274
|
|
|
6
|
|
|
280
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
151
|
|
|
156
|
|
|
96
|
|
|
85
|
|
|
488
|
|
|
8
|
|
|
496
|
|
Discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
150
|
|
$
|
107
|
|
$
|
70
|
|
$
|
70
|
|
$
|
397
|
|
$
|
4
|
|
$
|
401
|
|
2011
|
|
|
164
|
|
|
96
|
|
|
73
|
|
|
80
|
|
|
413
|
|
|
2
|
|
|
415
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
169
|
|
|
92
|
|
|
50
|
|
|
69
|
|
|
380
|
|
|
3
|
|
|
383
|
|
Discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
|
|
|
-
(1)
-
Excludes
property, plant and equipment acquired through acquisitions.
The
Company's net property, plant and equipment by geographic segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
2012
|
|
$
|
624
|
|
$
|
2,106
|
|
$
|
2,730
|
|
2011
|
|
|
626
|
|
|
2,210
|
|
|
2,836
|
|
2010
|
|
|
662
|
|
|
2,404
|
|
|
3,066
|
|
The
Company's net sales by geographic segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
Total
|
|
2012
|
|
$
|
1,780
|
|
$
|
5,220
|
|
$
|
7,000
|
|
2011
|
|
|
1,776
|
|
|
5,582
|
|
|
7,358
|
|
2010
|
|
|
1,676
|
|
|
4,957
|
|
|
6,633
|
|
Operations
in individual countries outside the U.S. that accounted for more than 10% of consolidated net sales from continuing operations were in France
(201211%, 201113%, 201013%), Australia (201210%, 201110%, 201011%) and Italy (20129%, 201110%,
201011%).
185
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
3. Inventories
Major classes of inventory are as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Finished goods
|
|
$
|
957
|
|
$
|
891
|
|
Raw materials
|
|
|
137
|
|
|
123
|
|
Operating supplies
|
|
|
45
|
|
|
47
|
|
|
|
|
|
|
|
|
|
$
|
1,139
|
|
$
|
1,061
|
|
|
|
|
|
|
|
4. Equity Investments
Summarized information pertaining to the Company's equity associates follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
For the year:
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings:
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
|
$
|
20
|
|
$
|
24
|
|
$
|
20
|
|
U.S.
|
|
|
44
|
|
|
42
|
|
|
39
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64
|
|
$
|
66
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
Dividends received
|
|
$
|
50
|
|
$
|
50
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
Summarized
combined financial information for equity associates is as follows (unaudited):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
At end of year:
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
327
|
|
$
|
309
|
|
Non-current assets
|
|
|
496
|
|
|
413
|
|
|
|
|
|
|
|
Total assets
|
|
|
823
|
|
|
722
|
|
Current liabilities
|
|
|
195
|
|
|
186
|
|
Other liabilities and deferred items
|
|
|
158
|
|
|
129
|
|
|
|
|
|
|
|
Total liabilities and deferred items
|
|
|
353
|
|
|
315
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
470
|
|
$
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
For the year:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
658
|
|
$
|
689
|
|
$
|
731
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
191
|
|
$
|
215
|
|
$
|
227
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
143
|
|
$
|
174
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
The
Company's significant equity method investments include: (1) 50% of the common shares of Vetri Speciali SpA, a specialty glass manufacturer; (2) a 25% partnership
interest in Tata Chemical
186
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
4. Equity Investments (Continued)
(Soda
Ash) Partners, a soda ash supplier; (3) a 50% partnership interest in Rocky Mountain Bottle Company, a glass container manufacturer; and (4) a 50% partnership interest in BJC
O-I Glass Pte. Ltd., a glass container manufacturer.
There
is a difference of approximately $13 million as of December 31, 2012 for certain of the investments between the amount at which the investment is carried and the
amount of underlying
equity in net assets. The portion of the difference related to inventory or amortizable assets is amortized as a reduction of the equity earnings. The remaining difference is considered goodwill.
5. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2012, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
Europe
|
|
Asia
Pacific
|
|
South
America
|
|
Other
|
|
Total
|
|
Balance as of January 1, 2010
|
|
$
|
736
|
|
$
|
1,081
|
|
$
|
559
|
|
$
|
|
|
$
|
5
|
|
$
|
2,381
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
53
|
|
|
376
|
|
|
|
|
|
429
|
|
Translation effects
|
|
|
7
|
|
|
(72
|
)
|
|
65
|
|
|
11
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
743
|
|
|
1,009
|
|
|
677
|
|
|
387
|
|
|
5
|
|
|
2,821
|
|
Acquisitions
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Impairment charge
|
|
|
|
|
|
|
|
|
(641
|
)
|
|
|
|
|
|
|
|
(641
|
)
|
Translation effects
|
|
|
(3
|
)
|
|
(34
|
)
|
|
(36
|
)
|
|
(33
|
)
|
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2011
|
|
|
740
|
|
|
983
|
|
|
|
|
|
354
|
|
|
5
|
|
|
2,082
|
|
Translation effects
|
|
|
3
|
|
|
23
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
$
|
743
|
|
$
|
1,006
|
|
$
|
|
|
$
|
325
|
|
$
|
5
|
|
$
|
2,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
for the Asia Pacific segment is net of accumulated impairment losses of $1,135 million, $1,135 million and $494 million as of December 31, 2012, 2011
and 2010, respectively.
Goodwill
is tested for impairment annually as of October 1 (or more frequently if impairment indicators arise) using a two-step process. Step 1 compares the business
enterprise value ("BEV") of each reporting unit with its carrying value. The BEV is computed based on estimated future cash flows, discounted at the weighted average cost of capital of a hypothetical
third-party buyer. If the BEV is less than the carrying value for any reporting unit, then Step 2 must be performed. Step 2 compares the implied fair value of goodwill with the carrying amount of
goodwill. Any excess of the carrying value of the goodwill over the implied fair value will be recorded as an impairment loss. The calculations of the BEV in Step 1 and the implied fair value of
goodwill in Step 2 are based on significant unobservable inputs, such as price trends, customer demand, material costs, discount rates and asset replacement costs, and are classified as Level 3
in the fair value hierarchy.
During
the fourth quarter of 2012, the Company completed its annual impairment testing and determined that no impairment existed. During the fourth quarter of 2011, the Company completed
its annual impairment testing and determined that impairment existed in the goodwill of its Asia Pacific segment. Lower projected cash flows, principally in the segment's Australian operations, caused
the
187
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
5. Goodwill (Continued)
decline
in the business enterprise value. The strong Australian dollar in 2011 resulted in many wine producers in the country exporting their wine in bulk shipments and bottling the wine closer to
their end markets. This decreased the demand for wine bottles in Australia, which was a significant portion of the Company's sales in that country, and the Company expects this decreased demand to
continue into the foreseeable future. Following a review of the valuation of the segment's identifiable assets, the Company recorded an impairment charge of $641 million to reduce the reported
value of its goodwill.
6. Other Assets
Other assets consisted of the following at December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Deferred tax asset
|
|
$
|
282
|
|
$
|
296
|
|
Intangibles
|
|
|
28
|
|
|
33
|
|
Capitalized software
|
|
|
40
|
|
|
32
|
|
Deferred finance fees
|
|
|
39
|
|
|
49
|
|
Deferred returnable packaging costs
|
|
|
96
|
|
|
80
|
|
Other
|
|
|
99
|
|
|
109
|
|
|
|
|
|
|
|
|
|
$
|
584
|
|
$
|
599
|
|
|
|
|
|
|
|
7. Derivative Instruments
The Company has certain derivative assets and liabilities which consist of natural gas forwards and foreign exchange option and forward contracts. The Company uses an income approach to
value these contracts. 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 its derivative assets and liabilities as Level 2 in the hierarchy. The Company also evaluates counterparty risk in
determining fair values.
Commodity Futures Contracts Designated as Cash Flow Hedges
In North America, 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 and
related price risk and periodically enters into commodity futures contracts in order to hedge a portion of its usage requirements. The majority of the sales volume in North America is tied to customer
contracts that contain provisions that pass the price of natural gas to the customer. In certain of these contracts, the customer has the option of fixing the natural gas price component for a
specified period of time. At December 31, 2012 and 2011, the Company had entered into commodity futures contracts covering approximately 7,000,000 MM BTUs and 5,100,000 MM BTUs, respectively,
primarily related to customer requests to lock the price of natural gas.
The
Company accounts for the above futures contracts as cash flow hedges at December 31, 2012 and recognizes them on the balance sheet at fair value. The effective portion of
changes in the fair value of a derivative that is designated as, and meets the required criteria for, a cash flow hedge is
188
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
7. Derivative Instruments (Continued)
recorded
in the Accumulated Other Comprehensive Income component of share owners' equity ("OCI") and reclassified into earnings in the same period or periods during which the underlying hedged item
affects earnings. At December 31, 2012 and 2011, an unrecognized loss of $1 million and $6 million, respectively, related to the commodity futures contracts was included in
Accumulated OCI, and will be reclassified into earnings over the next twelve to twenty-four months. Any material portion of the change in the fair value of a derivative designated as a
cash flow hedge that is deemed to be ineffective is recognized in current earnings. The ineffectiveness related to these natural gas hedges for the year ended December 31, 2012 and 2011 was not
material.
The
effect of the commodity futures contracts on the results of operations for the years ended December 31, 2012, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Recognized in OCI
on Commodity Futures Contracts
(Effective Portion)
|
|
Amount of Loss Reclassified from
Accumulated OCI into Income
(reported in manufacturing,
shipping, and delivery)
(Effective Portion)
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
|
|
$(3
|
)
|
$
|
(10
|
)
|
$
|
(11
|
)
|
$
|
(8
|
)
|
$
|
(7
|
)
|
$
|
(9
|
)
|
Senior Notes Designated as Net Investment Hedge
During December 2004, the Company issued senior notes totaling €225 million. These notes were designated by the
Company as a hedge of a portion of its net investment in a non-U.S. subsidiary with a Euro functional currency. Because the amount of the senior notes matched the hedged portion of the net
investment, there was no hedge ineffectiveness. Accordingly, the Company recorded the impact of changes in the foreign currency exchange rate on the Euro-denominated notes in OCI. The
amount of the gain (loss) recognized in OCI related to this net investment hedge for the years ended December 31, 2011 and 2010 was $(25) million and $24 million, respectively. During
the second quarter of 2011, the senior notes designated as the net investment hedge were redeemed by the Company. The amount recorded in OCI related to this net investment hedge will be reclassified
into earnings when the Company sells or liquidates its net investment in the non-U.S. subsidiary.
Forward Exchange Contracts not Designated as Hedging Instruments
The Company's subsidiaries may enter into short-term forward exchange or option agreements to purchase foreign currencies
at set rates in the future. These agreements are used to limit exposure to fluctuations in foreign currency exchange rates for significant planned purchases of fixed assets or commodities that are
denominated in currencies other than the subsidiaries' functional currency. Subsidiaries may also use forward exchange agreements to offset the foreign currency risk for receivables and payables,
including intercompany receivables and payables, not denominated in, or indexed to, their functional currencies. The Company records these short-term forward exchange agreements on the
balance sheet at fair value and changes in the fair value are recognized in current earnings.
At
December 31, 2012 and 2011, various subsidiaries of the Company had outstanding forward exchange and option agreements denominated in various currencies covering the equivalent
of
189
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
7. Derivative Instruments (Continued)
approximately
$750 million and $550 million, respectively, related primarily to intercompany transactions and loans.
The
effect of the forward exchange contracts on the results of operations for the years ended December 31, 2012, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
(Loss) Recognized in
Income on Forward
Exchange Contracts
|
|
Location of Gain (Loss) Recognized in
Income on Forward Exchange Contracts
|
|
2012
|
|
2011
|
|
2010
|
|
Other expense
|
|
$
|
6
|
|
$
|
(11
|
)
|
$
|
18
|
|
Balance Sheet Classification
The Company records the fair values of derivative financial instruments on the balance sheet as follows: (a) receivables if the
instrument has a positive fair value and maturity within one year, (b) deposits, receivables, and other assets if the instrument has a positive fair value and maturity after one year, and
(c) other accrued liabilities or other liabilities (current) if the instrument has a negative fair value and maturity within one year. The following table shows the amount and classification
(as noted above) of the Company's derivatives as of December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Balance
Sheet
Location
|
|
2012
|
|
2011
|
|
Asset Derivatives:
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
a
|
|
$
|
4
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
|
|
$
|
4
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
Liability Derivatives:
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Commodity futures contracts
|
|
c
|
|
$
|
1
|
|
$
|
6
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
c
|
|
|
9
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
|
|
$
|
10
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
190
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
8. Restructuring Accruals, Asset Impairments and Other Costs Related to Closed Facilities
The Company continually reviews its manufacturing footprint and operating cost structure and may decide to close operations or reduce headcount to gain efficiencies, integrate acquired
operations and reduce future expenses. The Company incurs costs associated with these actions including employee severance and benefits, other exit costs such as those related to contract
terminations, and asset impairment charges. The Company also may incur other costs related to closed facilities including environmental remediation, clean up, dismantling and preparation for sale or
other disposition.
The
Company accounts for restructuring and other costs under applicable provisions of generally accepted accounting principles. Charges for employee severance and related benefits are
generally accrued based on contractual arrangements with employees or their representatives. Other exit costs are accrued based on the estimated cost to settle related contractual arrangements.
Estimated environmental remediation costs are accrued when specific claims have been received or are probable of being received.
The
Company's decisions to curtail selected production capacity have resulted in write downs of certain long-lived assets to the extent their carrying amounts exceeded fair value or fair
value less cost to sell. The Company classified the significant assumptions used to determine the fair value of the impaired assets as Level 3 in the fair value hierarchy as set forth in the
general accounting principles for fair value measurements.
When
a decision is made to take these actions, the Company manages and accounts for them programmatically apart from the on-going operations of the business. Information
related to major programs (as in the case of the European Asset Optimization and Asia Pacific Restructuring programs below) are presented separately. Minor initiatives are presented on a combined
basis as Other Restructuring Actions. When charges related to major programs are completed, remaining accrual balances are classified with Other Restructuring Actions.
European Asset Optimization
In 2011, the Company implemented the European Asset Optimization program to increase the efficiency and capability of its European
operations and to better align its European manufacturing footprint with market and customer needs. This program involves making additional investments in certain facilities and addressing assets with
higher cost structures. As part of this program, the Company recorded charges of $86 million in 2012 and $24 million in 2011 for employee costs, asset impairments and environmental remediation related
to decisions to close furnaces and manufacturing facilities in Europe. The Company expects to execute further actions under this program in phases over the next several years.
Asia Pacific Restructuring
In 2011, the Company implemented a restructuring plan in its Asia Pacific segment, primarily related to aligning its supply base with
lower demand in the region. As part of this plan, the Company recorded charges of $47 million and $46 million in 2012 and 2011, respectively, for employee costs and asset impairments related to
furnace closures and additional restructuring activities.
191
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
8. Restructuring Accruals, Asset Impairments and Other Costs Related to Closed Facilities (Continued)
Other Restructuring Actions
The Company took certain other restructuring actions and recorded charges in 2012 of $9 million for employee costs and asset
impairments related to a decision to close a machine manufacturing facility in the U.S., $7 million for employee costs and asset impairments related to a decision to close a mold shop in South America
and $10 million for miscellaneous other costs. In 2011, the Company recorded charges of $12 million related to headcount reductions, primarily in Europe and South America, and $12 million for an asset
impairment related to a previously closed facility in Europe.
The
Company acquired VDL in 2011 (see Note 18). As part of this acquisition, the Company assumed the severance liability of VDL related to a headcount reduction program initiated
prior to the acquisition.
The
beginning accrual balance for other restructuring actions as of January 1, 2011 primarily relates to the Company's strategic review of its global manufacturing footprint
completed in 2010.
The
following table presents information related to restructuring, asset impairment and other costs related to closed facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
Asset
Optimization
|
|
Asia
Pacific
Restructuring
|
|
Other
Restructuring
Actions
|
|
Total
Restructuring
|
|
Balance at January 1, 2011
|
|
$
|
|
|
$
|
|
|
$
|
79
|
|
$
|
79
|
|
2011 charges
|
|
|
24
|
|
|
46
|
|
|
24
|
|
|
94
|
|
Write-down of assets to net realizable value
|
|
|
(11
|
)
|
|
(8
|
)
|
|
(21
|
)
|
|
(40
|
)
|
Net cash paid, principally severance and related benefits
|
|
|
(1
|
)
|
|
(21
|
)
|
|
(17
|
)
|
|
(39
|
)
|
Acquisition
|
|
|
|
|
|
|
|
|
11
|
|
|
11
|
|
Other, including foreign exchange translation
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
12
|
|
|
17
|
|
|
73
|
|
|
102
|
|
2012 charges
|
|
|
86
|
|
|
47
|
|
|
26
|
|
|
159
|
|
Write-down of assets to net realizable value
|
|
|
(30
|
)
|
|
(22
|
)
|
|
(14
|
)
|
|
(66
|
)
|
Net cash paid, principally severance and related benefits
|
|
|
(16
|
)
|
|
(25
|
)
|
|
(24
|
)
|
|
(65
|
)
|
Pension charges transferred to other accounts
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
Other, including foreign exchange translation
|
|
|
1
|
|
|
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
53
|
|
$
|
6
|
|
$
|
62
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
The
restructuring accrual balance represents the Company's estimates of the remaining future cash amounts to be paid related to the actions noted above. As of December 31, 2012,
the Company's estimates include approximately $75 million for severance and related benefits costs, $34 million for environmental remediation costs, and $12 million for other exit costs. The 2012
charges include approximately $14 million related to environmental remediation costs at a closed facility in Europe.
192
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits
Pension Benefit Plans
The Company participates in OI Inc.'s defined benefit pension plans for substantially all employees located in the United
States. Benefits generally are based on compensation for salaried employees and on length of service for hourly employees. OI Inc.'s policy is to fund pension
plans such that sufficient assets will be available to meet future benefit requirements. Independent actuaries determine pension costs for each subsidiary of OI Inc. included in the plans;
however, accumulated benefit obligation information and plan assets pertaining to each subsidiary have not been separately determined. As such, the accumulated benefit obligation and the plan assets
related to the pension plans for domestic employees have been retained by another subsidiary of OI Inc. Net expense to results of operations for the Company's allocated portion of the domestic
pension costs amounted to $20 million in 2012, $37 million in 2011 and $30 million in 2010.
OI Inc.
also sponsors several defined contribution plans for all salaried and hourly U.S. employees of the Company. Participation is voluntary and participants' contributions are
based on their compensation. OI Inc. matches contributions of participants, up to various limits, in substantially all plans. OI Inc. charges the Company for its share of the match. The
Company's share of the contributions to these plans amounted to $6 million in 2012, $7 million in 2011 and $6 million in 2010.
The
Company has defined benefit pension plans covering a substantial number of employees located in the United Kingdom, the Netherlands, Canada and Australia, as well as many employees
in Germany, France and Switzerland. Benefits generally are based on compensation for salaried employees and on length of service for hourly employees. The Company's policy is to fund pension plans
such that sufficient assets will be available to meet future benefit requirements. The Company's defined benefit pension plans use a December 31 measurement date.
The
changes in the non-U.S. pension plans benefit obligations for the year were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Obligations at beginning of year
|
|
$
|
1,553
|
|
$
|
1,567
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Service cost
|
|
|
26
|
|
|
24
|
|
Interest cost
|
|
|
77
|
|
|
83
|
|
Actuarial (gain) loss, including the effect of change in discount rates
|
|
|
293
|
|
|
(37
|
)
|
Participant contributions
|
|
|
7
|
|
|
8
|
|
Benefit payments
|
|
|
(101
|
)
|
|
(87
|
)
|
Other
|
|
|
|
|
|
19
|
|
Foreign currency translation
|
|
|
56
|
|
|
(24
|
)
|
|
|
|
|
|
|
Net change in benefit obligations
|
|
|
358
|
|
|
(14
|
)
|
|
|
|
|
|
|
Obligations at end of year
|
|
$
|
1,911
|
|
$
|
1,553
|
|
|
|
|
|
|
|
193
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The
changes in the fair value of the non-U.S. pension plans' assets for the year were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Fair value at beginning of year
|
|
$
|
1,325
|
|
$
|
1,279
|
|
Change in fair value:
|
|
|
|
|
|
|
|
Actual gain on plan assets
|
|
|
118
|
|
|
80
|
|
Benefit payments
|
|
|
(101
|
)
|
|
(87
|
)
|
Employer contributions
|
|
|
110
|
|
|
58
|
|
Participant contributions
|
|
|
7
|
|
|
8
|
|
Foreign currency translation
|
|
|
43
|
|
|
(25
|
)
|
Other
|
|
|
25
|
|
|
12
|
|
|
|
|
|
|
|
Net change in fair value of assets
|
|
|
202
|
|
|
46
|
|
|
|
|
|
|
|
Fair value at end of year
|
|
$
|
1,527
|
|
$
|
1,325
|
|
|
|
|
|
|
|
The
funded status of the non-U.S. pension plans at year end was as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Plan assets at fair value
|
|
$
|
1,527
|
|
$
|
1,325
|
|
Projected benefit obligations
|
|
|
1,911
|
|
|
1,553
|
|
|
|
|
|
|
|
Plan assets less than projected benefit obligations
|
|
|
(384
|
)
|
|
(228
|
)
|
Items not yet recognized in pension expense:
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
534
|
|
|
312
|
|
Prior service credit
|
|
|
(9
|
)
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
525
|
|
|
302
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
141
|
|
$
|
74
|
|
|
|
|
|
|
|
The
net amount recognized is included in the Consolidated Balance Sheets at December 31, 2012 and 2011 as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Pension assets
|
|
$
|
|
|
$
|
116
|
|
Current pension liability, included with Other accrued liabilities
|
|
|
(7
|
)
|
|
(6
|
)
|
Pension benefits
|
|
|
(377
|
)
|
|
(338
|
)
|
Accumulated other comprehensive loss
|
|
|
525
|
|
|
302
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
141
|
|
$
|
74
|
|
|
|
|
|
|
|
194
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The
following changes in plan assets and benefit obligations were recognized in accumulated other comprehensive income at December 31, 2012 and 2011 as follows (amounts are
pretax):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Current year actuarial (gain) loss
|
|
$
|
239
|
|
$
|
(28
|
)
|
Amortization of actuarial loss
|
|
|
(22
|
)
|
|
(24
|
)
|
Amortization of prior service credit
|
|
|
|
|
|
1
|
|
Loss due to settlement
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
|
(51
|
)
|
Translation
|
|
|
17
|
|
|
5
|
|
|
|
|
|
|
|
|
|
$
|
223
|
|
$
|
(46
|
)
|
|
|
|
|
|
|
The
accumulated benefit obligation for all defined benefit pension plans was $1,729 million and $1,402 million at December 31, 2012 and 2011, respectively.
The
components of the non-U.S. pension plans' net pension expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Service cost
|
|
$
|
26
|
|
$
|
24
|
|
$
|
21
|
|
Interest cost
|
|
|
77
|
|
|
83
|
|
|
79
|
|
Expected asset return
|
|
|
(87
|
)
|
|
(86
|
)
|
|
(80
|
)
|
Curtailment (gain) loss
|
|
|
|
|
|
|
|
|
(1
|
)
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
22
|
|
|
24
|
|
|
19
|
|
Prior service credit
|
|
|
|
|
|
(1
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Net amortization
|
|
|
22
|
|
|
23
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Net expense
|
|
$
|
38
|
|
$
|
44
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
The
non-U.S. pension expense excludes $11 million of pension settlement costs that were recorded in restructuring expense in 2012
Amounts
that will be amortized from accumulated other comprehensive income into net pension expense during 2013:
|
|
|
|
|
Amortization:
|
|
|
|
|
Actuarial loss
|
|
$
|
32
|
|
Prior service cost
|
|
|
(1
|
)
|
|
|
|
|
Net amortization
|
|
$
|
31
|
|
|
|
|
|
195
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The following information is for plans with projected and accumulated benefit obligations in excess of the fair value of plan assets at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit
Obligation Exceeds
Fair Value of
Plan Assets
|
|
Accumulated Benefit
Obligation Exceeds
Fair Value of
Plan Assets
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
Projected benefit obligations
|
|
$
|
1,911
|
|
$
|
1,157
|
|
$
|
1,172
|
|
$
|
1,157
|
|
Fair value of plan assets
|
|
|
1,527
|
|
|
837
|
|
|
858
|
|
|
837
|
|
Accumulated benefit obligation
|
|
|
1,729
|
|
|
1,065
|
|
|
1,090
|
|
|
1,065
|
|
The
weighted average assumptions used to determine benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Discount rate
|
|
|
3.89
|
%
|
|
4.75
|
%
|
Rate of compensation increase
|
|
|
3.08
|
%
|
|
3.23
|
%
|
The
weighted average assumptions used to determine net periodic pension costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Discount rate
|
|
|
4.75
|
%
|
|
5.28
|
%
|
|
5.64
|
%
|
Rate of compensation increase
|
|
|
3.23
|
%
|
|
3.49
|
%
|
|
3.54
|
%
|
Expected long-term rate of return on assets
|
|
|
6.24
|
%
|
|
6.44
|
%
|
|
6.78
|
%
|
Future
benefits are assumed to increase in a manner consistent with past experience of the plans, which, to the extent benefits are based on compensation, includes assumed salary
increases as presented above. Amortization included in net pension expense is based on the average remaining service of employees.
For
2012, the Company's weighted average expected long-term rate of return on assets was 6.24%. In developing this assumption, the Company evaluated input from its third
party pension plan asset managers, including their review of asset class return expectations and long-term inflation assumptions. The Company also considered its historical
10-year average return (through December 31, 2011), which was in line with the expected long-term rate of return assumption for 2012.
It
is the Company's policy to invest pension plan assets in a diversified portfolio consisting of an array of asset classes within established target asset allocation ranges. The
investment risk of the assets is limited by appropriate diversification both within and between asset classes. The assets of the Company's non-U.S. plans are primarily invested in a broad
mix of domestic and international equities, domestic and international bonds, and real estate, subject to the target asset
allocation ranges. The assets are managed with a view to ensuring that sufficient liquidity will be available to meet expected cash flow requirements.
The
investment valuation policy of the Company is to value investments at fair value. All investments are valued at their respective net asset values. Equity securities for which market
quotations are readily available are valued at the last reported sales price on their principal exchange
196
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
on
valuation date or official close for certain markets. Fixed income investments are valued by an independent pricing service. Investments in registered investment companies or collective pooled
funds are valued at their respective net asset values. Short-term investments are stated at amortized cost, which approximates fair value. The fair value of real estate is determined by
periodic appraisals.
The
following table sets forth by level, within the fair value hierarchy, the Company's pension plan assets at fair value as of December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
Target
Allocation
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash and cash equivalents
|
|
$
|
36
|
|
$
|
20
|
|
$
|
|
|
$
|
21
|
|
$
|
5
|
|
$
|
|
|
|
Equity securities
|
|
|
367
|
|
|
173
|
|
|
|
|
|
340
|
|
|
146
|
|
|
|
|
45 - 55%
|
Debt securities
|
|
|
714
|
|
|
113
|
|
|
3
|
|
|
645
|
|
|
101
|
|
|
5
|
|
40 - 50%
|
Real estate
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
11
|
|
0 - 10%
|
Other
|
|
|
18
|
|
|
68
|
|
|
|
|
|
15
|
|
|
36
|
|
|
|
|
0 - 10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
1,135
|
|
$
|
374
|
|
$
|
18
|
|
$
|
1,021
|
|
$
|
288
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is a reconciliation of the Company's pension plan assets recorded at fair value using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Beginning balance
|
|
$
|
16
|
|
$
|
19
|
|
Net increase (decrease)
|
|
|
2
|
|
|
(3
|
)
|
|
|
|
|
|
|
Ending balance
|
|
$
|
18
|
|
$
|
16
|
|
|
|
|
|
|
|
The
net increase (decrease) in the fair value of the Company's Level 3 pension plan assets is primarily due to purchases and sales of unlisted real estate funds. The change in the
fair value of Level 3 pension plan assets due to actual return on those assets was immaterial in 2012.
In
order to maintain minimum funding requirements, the Company is required to make contributions to its non-U.S. defined benefit pension plans of approximately
$27 million in 2013.
The
following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:
|
|
|
|
|
Year(s)
|
|
|
|
2013
|
|
$
|
84
|
|
2014
|
|
|
86
|
|
2015
|
|
|
90
|
|
2016
|
|
|
91
|
|
2017
|
|
|
91
|
|
2018 - 2022
|
|
|
460
|
|
197
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
Postretirement Benefits Other Than Pensions
OI Inc. provides certain retiree health care and life insurance benefits covering substantially all U.S. salaried and certain
hourly employees and substantially all employees in Canada. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service.
Independent actuaries determine postretirement benefit costs for each subsidiary of OI Inc.; however, accumulated postretirement benefit obligation information pertaining to each subsidiary has
not been separately determined. As such, the accumulated postretirement benefit obligation has been retained by another subsidiary of OI Inc.
The
Company's net periodic postretirement benefit cost, as allocated by OI Inc., for domestic employees was $6 million, $6 million, and $7 million at
December 31, 2012, 2011, and 2010, respectively.
The
Company's subsidiaries in Canada also have postretirement benefit plans covering substantially all employees. The following tables relate to the Company's postretirement benefit
plans in Canada.
The
changes in the postretirement benefit obligations for the year were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Obligations at beginning of year
|
|
$
|
95
|
|
$
|
85
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Service cost
|
|
|
1
|
|
|
1
|
|
Interest cost
|
|
|
4
|
|
|
4
|
|
Actuarial loss, including the effect of changing discount rates
|
|
|
3
|
|
|
11
|
|
Benefit payments
|
|
|
(3
|
)
|
|
(4
|
)
|
Foreign currency translation
|
|
|
2
|
|
|
(2
|
)
|
|
|
|
|
|
|
Net change in benefit obligations
|
|
|
7
|
|
|
10
|
|
|
|
|
|
|
|
Obligations at end of year
|
|
$
|
102
|
|
$
|
95
|
|
|
|
|
|
|
|
The
funded status of the postretirement benefit plans at year end was as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Postretirement benefit obligations
|
|
$
|
(102
|
)
|
$
|
(95
|
)
|
Items not yet recognized in net postretirement benefit cost:
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
5
|
|
|
2
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(97
|
)
|
$
|
(93
|
)
|
|
|
|
|
|
|
198
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
The
net amount recognized is included in the Consolidated Balance Sheets at December 31, 2012 and 2011 as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Current nonpension postretirement benefit, included with Other accrued liabilities
|
|
$
|
(4
|
)
|
$
|
(4
|
)
|
Nonpension postretirement benefits
|
|
|
(98
|
)
|
|
(91
|
)
|
Accumulated other comprehensive loss
|
|
|
5
|
|
|
2
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(97
|
)
|
$
|
(93
|
)
|
|
|
|
|
|
|
The
following changes in benefit obligations were recognized in accumulated other comprehensive income at December 31, 2012 and 2011 as follows (amounts are pretax):
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Current year actuarial loss
|
|
$
|
3
|
|
$
|
12
|
|
The
components of the net postretirement benefit cost for the year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Service cost
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
Interest cost
|
|
|
4
|
|
|
4
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Net postretirement benefit cost
|
|
$
|
5
|
|
$
|
5
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
The
weighted average discount rates used to determine the accumulated postretirement benefit obligation and net postretirement benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Accumulated post retirement benefit obligation
|
|
|
3.89
|
%
|
|
4.13
|
%
|
|
5.02
|
%
|
Net postretirement benefit cost
|
|
|
4.13
|
%
|
|
5.02
|
%
|
|
5.60
|
%
|
The
weighted average assumed health care cost trend rates at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Health care cost trend rate assumed for next year
|
|
|
6.00
|
%
|
|
7.00
|
%
|
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
|
|
|
5.00
|
%
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2014
|
|
|
2014
|
|
199
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
9. Pension Benefit Plans and Other Postretirement Benefits (Continued)
Assumed health care cost trend rates affect the amounts reported for the postretirement benefit plans. A one-percentage-point change in assumed health care cost trend rates
would have the following effects:
|
|
|
|
|
|
|
|
|
|
1-Percentage-Point
|
|
|
|
Increase
|
|
Decrease
|
|
Effect on total of service and interest cost
|
|
$
|
1
|
|
$
|
(1
|
)
|
Effect on accumulated postretirement benefit obligations
|
|
|
16
|
|
|
(13
|
)
|
Amortization
included in net postretirement benefit cost is based on the average remaining service of employees.
The
following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:
|
|
|
|
|
Year(s)
|
|
|
|
2013
|
|
$
|
4
|
|
2014
|
|
|
4
|
|
2015
|
|
|
5
|
|
2016
|
|
|
5
|
|
2017
|
|
|
5
|
|
2018 - 2022
|
|
|
26
|
|
Benefits
provided by OI Inc. for certain hourly retirees of the Company are determined by collective bargaining. Most other domestic hourly retirees receive health and life
insurance benefits from a multi-employer trust established by collective bargaining. Payments to the trust as required by the bargaining agreements are based upon specified amounts per hour worked and
were $6 million in 2012, $6 million in 2011, and $6 million in 2010. Postretirement health and life benefits for retirees of foreign subsidiaries are generally provided through
the national health care programs of the countries in which the subsidiaries are located.
200
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
10. Income Taxes
The provision (benefit) for income taxes was calculated based on the following components of earnings (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
297
|
|
$
|
282
|
|
$
|
192
|
|
Non-U.S.
|
|
|
296
|
|
|
(419
|
)
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
$
|
593
|
|
$
|
(137
|
)
|
$
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Non-U.S.
|
|
|
(5
|
)
|
|
(2
|
)
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
(5
|
)
|
$
|
(2
|
)
|
$
|
(296
|
)
|
|
|
|
|
|
|
|
|
The
provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
|
|
$
|
(8
|
)
|
$
|
|
|
Non-U.S.
|
|
|
117
|
|
|
139
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
131
|
|
|
141
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
10
|
|
|
9
|
|
|
(4
|
)
|
Non-U.S.
|
|
|
(13
|
)
|
|
(53
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
(44
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
10
|
|
|
1
|
|
|
(4
|
)
|
Non-U.S.
|
|
|
104
|
|
|
86
|
|
|
139
|
|
|
|
|
|
|
|
|
|
Total for continuing operations
|
|
|
114
|
|
|
87
|
|
|
135
|
|
Total for discontinued operations
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
$
|
114
|
|
$
|
87
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
201
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
10. Income Taxes (Continued)
A
reconciliation of the provision for income taxes based on the statutory U.S. Federal tax rate of 35% to the provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Tax provision on pretax earnings (loss) from continuing operations at statutory U.S. Federal tax rate
|
|
$
|
208
|
|
$
|
(48
|
)
|
$
|
256
|
|
Increase (decrease) in provision for income taxes due to:
|
|
|
|
|
|
|
|
|
|
|
Differences in income taxes on foreign earnings, losses and remittances
|
|
|
|
|
|
(13
|
)
|
|
(46
|
)
|
Goodwill impairment
|
|
|
|
|
|
224
|
|
|
|
|
U.S. tax consolidation benefit
|
|
|
(54
|
)
|
|
(58
|
)
|
|
(60
|
)
|
Changes in valuation allowance
|
|
|
(46
|
)
|
|
(18
|
)
|
|
(37
|
)
|
Tax audits and settlements
|
|
|
(1
|
)
|
|
3
|
|
|
21
|
|
Other items
|
|
|
7
|
|
|
(3
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
114
|
|
$
|
87
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes reflect: (1) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes; and (2) carryovers and credits for income tax purposes.
Significant
components of the Company's deferred tax assets and liabilities at December 31, 2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accrued postretirement benefits
|
|
$
|
27
|
|
$
|
24
|
|
Foreign tax credit
|
|
|
354
|
|
|
338
|
|
Operating and capital loss carryovers
|
|
|
373
|
|
|
320
|
|
Other credit carryovers
|
|
|
29
|
|
|
31
|
|
Accrued liabilities
|
|
|
72
|
|
|
90
|
|
Pension liability
|
|
|
74
|
|
|
38
|
|
Other
|
|
|
66
|
|
|
50
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
995
|
|
|
891
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
113
|
|
|
114
|
|
Exchangeable notes
|
|
|
19
|
|
|
23
|
|
Intangibles
|
|
|
12
|
|
|
1
|
|
Other
|
|
|
84
|
|
|
50
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
228
|
|
|
188
|
|
Valuation allowance
|
|
|
(610
|
)
|
|
(577
|
)
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
157
|
|
$
|
126
|
|
|
|
|
|
|
|
202
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
10. Income Taxes (Continued)
Deferred
taxes are included in the Consolidated Balance Sheets at December 31, 2012 and 2011 as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Prepaid expenses
|
|
$
|
62
|
|
$
|
44
|
|
Other assets
|
|
|
282
|
|
|
296
|
|
U.S. and foreign income taxes
|
|
|
(5
|
)
|
|
(2
|
)
|
Deferred taxes
|
|
|
(182
|
)
|
|
(212
|
)
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
157
|
|
$
|
126
|
|
|
|
|
|
|
|
The
Company reviews the likelihood that it will realize the benefit of its deferred tax assets and therefore the need for valuation allowances on a quarterly basis, or whenever events
indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net
deferred tax asset is considered, along with other positive and negative evidence.
At
December 31, 2012, before valuation allowance, the Company had unused foreign tax credits of $354 million expiring in 2017 through 2022, research tax credit of
$19 million expiring from 2013 to 2032, and alternative minimum tax credits of $9 million which do not expire and which will be available to
offset future U.S. Federal income tax. Approximately $188 million of the deferred tax assets related to operating and capital loss carryforwards can be carried over indefinitely, with the
remaining $185 million expiring between 2013 and 2032.
At
December 31, 2012, the Company's equity in the undistributed earnings of foreign subsidiaries for which income taxes had not been provided approximated $2.5 billion. The
Company intends to reinvest these earnings indefinitely in the non-U.S. operations and has not distributed any of these earnings to the U.S. in 2012, 2011 or 2010. It is not practicable to
estimate the U.S. and foreign tax which would be payable should these earnings be distributed. Deferred taxes are provided for earnings of non-U.S. jurisdictions when the Company plans to
remit those earnings.
The
Company is included in OI Inc.'s consolidated tax returns for U.S. federal and certain state income tax purposes. The consolidated group has net operating losses, capital
losses, alternative minimum tax credits, foreign tax credits and research and development credits available to offset future U.S. Federal income tax. Income taxes are allocated to the Company on a
basis consistent with separate returns.
The
Company has recognized tax benefits as a result of incentives in certain non-U.S. jurisdictions which expire between 2012 and 2016.
203
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
10. Income Taxes (Continued)
The Company records a liability for unrecognized tax benefits related to uncertain tax positions. The Company accrues interest and penalties associated with unrecognized tax benefits as
a component of its income tax expense. The following is a reconciliation of the Company's total gross unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Balance at January 1
|
|
$
|
125
|
|
$
|
143
|
|
$
|
120
|
|
Additions and reductions for tax positions of prior years
|
|
|
8
|
|
|
(15
|
)
|
|
26
|
|
Additions based on tax positions related to the current year
|
|
|
7
|
|
|
30
|
|
|
5
|
|
Additions for tax positions of prior years on acquisitions
|
|
|
|
|
|
|
|
|
12
|
|
Reductions due to the lapse of the applicable statute of limitations
|
|
|
(21
|
)
|
|
(8
|
)
|
|
(1
|
)
|
Reductions due to settlements
|
|
|
(26
|
)
|
|
(18
|
)
|
|
(13
|
)
|
Foreign currency translation
|
|
|
4
|
|
|
(7
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
97
|
|
$
|
125
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, which if recognized, would impact the Company's effective income tax rate
|
|
$
|
89
|
|
$
|
114
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
Accrued interest and penalties at December 31
|
|
$
|
33
|
|
$
|
49
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
Interest and penalties included in tax expense for the years ended December 31
|
|
$
|
(6
|
)
|
$
|
18
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
Based
upon the outcome of tax examinations, judicial proceedings, or expiration of statute of limitations, it is reasonably possible that the ultimate resolution of these unrecognized
tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. The Company believes that unrecognized tax benefits will not change significantly
within the next twelve months.
The
Company is currently under examination in various tax jurisdictions in which it operates, including Czech Republic, Ecuador, Germany, Italy, Poland, Spain and the UK. The years under
examination range from 2005 through 2011. The Company believes that there are no jurisdictions in which the outcome of unresolved issues or claims is likely to be material to the Company's results of
operations, financial position or cash flows. The Company further believes that adequate provisions for all income tax uncertainties have been made. During 2012, the Company concluded audits in
several jurisdictions, including Australia, Hungary, Italy, France, Germany and Switzerland.
204
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
11. External Debt
The following table summarizes the external long-term debt of the Company at December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Secured Credit Agreement:
|
|
|
|
|
|
|
|
Revolving Credit Facility:
|
|
|
|
|
|
|
|
Revolving Loans
|
|
$
|
|
|
$
|
|
|
Term Loans:
|
|
|
|
|
|
|
|
Term Loan A (51 million AUD at December 31, 2012)
|
|
|
53
|
|
|
173
|
|
Term Loan B
|
|
|
525
|
|
|
600
|
|
Term Loan C (102 million CAD at December 31, 2012)
|
|
|
102
|
|
|
114
|
|
Term Loan D (€123 million at December 31, 2012)
|
|
|
163
|
|
|
182
|
|
Senior Notes:
|
|
|
|
|
|
|
|
3.00%, Exchangeable, due 2015
|
|
|
642
|
|
|
624
|
|
7.375%, due 2016
|
|
|
591
|
|
|
588
|
|
6.875%, due 2017 (€300 million)
|
|
|
396
|
|
|
388
|
|
6.75%, due 2020 (€500 million)
|
|
|
660
|
|
|
647
|
|
Other
|
|
|
80
|
|
|
121
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
3,212
|
|
|
3,437
|
|
Less amounts due within one year
|
|
|
22
|
|
|
75
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
3,190
|
|
$
|
3,362
|
|
|
|
|
|
|
|
On
May 19, 2011, the Company and its subsidiary borrowers entered into the Secured Credit Agreement (the "Agreement"). At December 31, 2012, the Agreement included a $900
million revolving credit facility, a 51 million Australian dollar term loan, a $525 million term loan, a 102 million Canadian dollar term loan, and a €123 million term loan, each of
which has a final maturity date of May 19, 2016. During 2012, the Company's subsidiary borrowers repaid 119 million Australian dollars, $75 million, 14 million Canadian dollars, and
€18 million of term loans under the Agreement. At December 31, 2012, the Company and its subsidiary borrowers had unused credit of $796 million available under the Agreement.
The
Agreement contains various covenants that restrict, among other things and subject to certain exceptions, the ability of the Company to incur certain liens, make certain investments,
become liable under contingent obligations in certain defined instances only, make restricted junior payments, make certain asset sales within guidelines and limits, make capital expenditures beyond a
certain threshold, engage in material transactions with shareholders and affiliates, participate in sale and leaseback financing arrangements, alter its fundamental business, and amend certain
outstanding debt obligations.
The
Agreement also contains one financial maintenance covenant, a Leverage Ratio, that requires the Company not to exceed a ratio calculated by dividing consolidated total debt, less
cash and cash equivalents, by Consolidated Adjusted EBITDA, as defined in the Agreement. The Leverage Ratio
could restrict the ability of the Company to undertake additional financing or acquisitions to the extent that such financing or acquisitions would cause the Leverage Ratio to exceed the specified
maximum.
205
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
11. External Debt (Continued)
Failure
to comply with these covenants and restrictions could result in an event of default under the Agreement. In such an event, the Company could not request borrowings under the
revolving facility, and all amounts outstanding under the Agreement, together with accrued interest, could then be declared immediately due and payable. If an event of default occurs under the
Agreement and the lenders cause all of the outstanding debt obligations under the Agreement to become due and payable, this would result in a default under a number of other outstanding debt
securities and could lead to an acceleration of obligations related to these debt securities. A default or event of default under the Agreement, indentures or agreements governing other indebtedness
could also lead to an acceleration of debt under other debt instruments that contain cross acceleration or cross-default provisions.
The
Leverage Ratio also determines pricing under the Agreement. The interest rate on borrowings under the Agreement is, at the Company's option, the Base Rate or the Eurocurrency Rate,
as defined in the Agreement. These rates include a margin linked to the Leverage Ratio. The margins range from 1.25% to 2.00% for Eurocurrency Rate loans and from 0.25% to 1.00% for Base Rate loans.
In addition, a facility fee is payable on the revolving credit facility commitments ranging from 0.25% to 0.50% per annum linked to the Leverage Ratio. The weighted average interest rate on borrowings
outstanding under the Agreement at December 31, 2012 was 2.33%. As of December 31, 2012, the Company was in compliance with all covenants and restrictions in the Agreement. In addition,
the Company believes that it will remain in compliance and that its ability to borrow funds under the Agreement will not be adversely affected by the covenants and restrictions.
Borrowings
under the Agreement are secured by substantially all of the assets, excluding real estate, of the Company's domestic subsidiaries and certain foreign subsidiaries. Borrowings
are also secured by a pledge of intercompany debt and equity in most of the Company's domestic subsidiaries and stock of certain foreign subsidiaries. All borrowings under the agreement are guaranteed
by substantially all domestic subsidiaries of the Company for the term of the Agreement.
During
May 2010, the Company issued exchangeable senior notes with a face value of $690 million due June 1, 2015 ("2015 Exchangeable Notes"). The 2015 Exchangeable Notes bear
interest at 3.00% and are guaranteed by substantially all of the Company's domestic subsidiaries.
Upon
exchange of the 2015 Exchangeable Notes, under the terms outlined below, the Company is required to settle the principal amount in cash and OI Inc. is required to settle the
exchange premium in shares of OI Inc.'s common stock. The exchange premium is calculated as the value of OI Inc.'s
common stock in excess of the initial exchange price of approximately $47.47 per share, which is equivalent to an exchange rate of 21.0642 per $1,000 principal amount of the 2015 Exchangeable Notes.
The exchange rate may be adjusted upon the occurrence of certain events, such as certain distributions, dividends or issuances of cash, stock, options, warrants or other property or effecting a share
split, or a significant change in the ownership or structure of the Company or OI Inc., such as a recapitalization or reclassification of OI Inc.'s common stock, a merger or
consolidation involving the Company or the sale or conveyance to another person of all or substantially all of the property and assets of the Company and its subsidiaries substantially as an entirety.
Prior
to March 1, 2015, the 2015 Exchangeable Notes may be exchanged only if (1) the price of OI Inc.'s common stock exceeds $61.71 (130% of the exchange price) for
a specified period of time, (2) the trading price of the 2015 Exchangeable Notes falls below 98% of the average exchange value of
206
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
11. External Debt (Continued)
the
2015 Exchangeable Notes for a specified period of time (trading price was 222% of exchange value at December 31, 2012), or (3) upon the occurrence of specified corporate
transactions. The 2015 Exchangeable Notes may be exchanged without restrictions on or after March 1, 2015. As of December 31, 2012, the 2015 Exchangeable Notes are not exchangeable by
the holders.
For
accounting purposes, the 2015 Exchangeable Notes are considered to be non-exchangeable since OI Inc. is directly responsible for settling the exchange premium, if
any. The Company's obligation with respect to the instrument is limited to only the payment of interest and principal. The value of OI Inc.'s obligation to holders of the 2015 Exchangeable
Notes was computed using the Company's non-exchangeable debt borrowing rate at the date of issuance of 6.15% and was accounted for as a debt discount and a corresponding capital
contribution. The carrying values of the liability and equity components at December 31, 2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Principal amount of exchangeable notes
|
|
$
|
690
|
|
$
|
690
|
|
Unamortized discount on exchangeable notes
|
|
|
48
|
|
|
66
|
|
|
|
|
|
|
|
Net carrying amount of liability component
|
|
$
|
642
|
|
$
|
624
|
|
|
|
|
|
|
|
Carrying amount of equity component
|
|
$
|
93
|
|
$
|
93
|
|
|
|
|
|
|
|
The
debt discount is being amortized over the life of the 2015 Exchangeable Notes. The amount of interest expense recognized on the 2015 Exchangeable Notes for the years ended
December 31, 2012 and 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Contractual coupon interest
|
|
$
|
21
|
|
$
|
21
|
|
Amortization of discount on exchangeable notes
|
|
|
18
|
|
|
17
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
39
|
|
$
|
38
|
|
|
|
|
|
|
|
The
Company has a €240 million European accounts receivable securitization program, which extends through September 2016, subject to annual renewal of backup credit
lines. Information related to the Company's accounts receivable securitization program as of December 31, 2012 and 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Balance (included in short-term loans)
|
|
$
|
264
|
|
$
|
281
|
|
Weighted average interest rate
|
|
|
1.33
|
%
|
|
2.41
|
%
|
The
Company capitalized $1 million in 2011 under capital lease obligations with the related financing recorded as long-term debt. There were no new capital
lease obligations recorded in 2012. This amount is included in other in the long-term debt table above.
Annual
maturities for all of the Company's long-term debt through 2017 are as follows: 2013, $22 million; 2014, $177 million; 2015, $1,067 million; 2016, $931 million; and
2017 $400 million.
207
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
11. External Debt (Continued)
Fair values at December 31, 2012, of the Company's significant fixed rate debt obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Amount
|
|
Indicated
Market
Price
|
|
Fair Value
|
|
Senior Notes:
|
|
|
|
|
|
|
|
|
|
|
3.00%, Exchangeable, due 2015
|
|
$
|
690
|
|
|
99.34
|
|
$
|
685
|
|
7.375%, due 2016
|
|
|
600
|
|
|
114.50
|
|
|
687
|
|
6.875%, due 2017 (€300 million)
|
|
|
396
|
|
|
103.86
|
|
|
411
|
|
6.75%, due 2020 (€500 million)
|
|
|
660
|
|
|
114.01
|
|
|
752
|
|
12. Contingencies
Certain litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that
are nonroutine and involve compensatory, punitive or treble damage claims as well as other types of relief. The 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 in respect to this pending litigation cannot reasonably be estimated.
However, the Company believes, based on its examination and review of such matters and experience to date, that such ultimate liability will not have a material adverse effect on its results of
operations or financial condition.
The
Company is conducting an internal investigation into conduct in certain of its overseas operations that may have violated the anti-bribery provisions of the United States
Foreign Corrupt Practices Act (the "FCPA"), the FCPA's books and records and internal controls provisions, the Company's own internal policies, and various local laws. In October 2012, the Company
voluntarily disclosed these matters to the U.S. Department of Justice (the "DOJ") and the Securities and Exchange Commission (the "SEC"). The Company intends to cooperate with any investigation by the
DOJ and the SEC.
The
Company is presently unable to predict the duration, scope or result of its internal investigation, of any investigations by the DOJ or the SEC or whether either agency will commence
any legal action. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not limited to, injunctive relief, disgorgement,
fines, penalties, and modifications to business practices. The Company also could be subject to investigation and sanctions outside the United States. While the Company is currently unable to quantify
the impact of any potential sanctions or remedial measures, it does not expect such actions will have a material adverse effect on the Company's liquidity, results of operations or financial
condition.
In
2012, the Company reached a settlement with the U.S. Environmental Protection Agency to resolve alleged Clean Air Act violations at certain of its glass manufacturing facilities. As
part of the settlement, the Company agreed to pay a penalty of $1 million and install pollution control equipment at these facilities. The pollution control equipment is estimated to cost
approximately $38 million, of
208
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
12. Contingencies (Continued)
which
the Company has already spent approximately $17 million. The remaining equipment will be purchased and installed during 2013.
13. Accumulated Other 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. The net effect of exchange rate fluctuations generally reflects changes in the relative strength of the U.S. dollar
against major foreign currencies between the beginning and end of the year.
The
following table lists the beginning balance, yearly activity and ending balance of each component of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Effect of
Exchange Rate
Fluctuations
|
|
Deferred Tax
Effect for
Translation
|
|
Change in
Certain
Derivative
Instruments
|
|
Employee
Benefit
Plans
|
|
Total
Accumulated
Comprehensive
Income
|
|
Balance on January 31, 2010
|
|
$
|
290
|
|
$
|
13
|
|
$
|
(1
|
)
|
$
|
(255
|
)
|
$
|
47
|
|
2010 Change
|
|
|
382
|
|
|
|
|
|
(2
|
)
|
|
17
|
|
|
397
|
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
(1
|
)
|
Tax effect
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2010
|
|
|
672
|
|
|
13
|
|
|
(3
|
)
|
|
(243
|
)
|
|
439
|
|
2011 Change
|
|
|
(187
|
)
|
|
|
|
|
(3
|
)
|
|
32
|
|
|
(158
|
)
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
1
|
|
Tax effect
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
(8
|
)
|
Acquisition of noncontrolling interest
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2011
|
|
|
476
|
|
|
13
|
|
|
(6
|
)
|
|
(218
|
)
|
|
265
|
|
2012 Change
|
|
|
(34
|
)
|
|
|
|
|
5
|
|
|
(228
|
)
|
|
(257
|
)
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
(9
|
)
|
Tax effect
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance on December 31, 2012
|
|
$
|
442
|
|
$
|
13
|
|
$
|
(1
|
)
|
$
|
(402
|
)
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
rate fluctuations in 2010 included the write-off of cumulative currency translation losses related to the disposal of the Venezuelan operations. See Note 19
to the Consolidated Financial Statements for further information.
14. Other Expense
Other expense for the year ended December 31, 2012 included the following:
-
-
The Company recorded charges totaling $159 million for restructuring, asset impairment and related charges. See
Note 8 for additional information.
209
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
14. Other Expense (Continued)
-
-
During the fourth quarter of 2012, the Company recorded a gain of $61 million related to cash received from the Chinese
government as compensation for land in China that the Company was required to return to the government.
-
-
Aggregate foreign currency exchange losses included in other expense were $8 million in 2012.
Other
expense for the year ended December 31, 2011 included the following:
-
-
The Company recorded charges totaling $94 million for restructuring, asset impairment and related charges. See
Note 8 for additional information.
-
-
The Company recorded charges totaling $17 million for asset impairment, primarily due to the write down of asset values
related to a 2010 acquisition in China as a result of integration challenges. The Company wrote down the value of these assets to the extent their carrying amounts exceeded fair value. The Company
classified the significant assumptions used to determine the fair value of the impaired assets, which was not material, as Level 3 in the fair value hierarchy.
-
-
The Company recorded a goodwill impairment charge of $641 million related to its Asia Pacific segment. See Note 5
for additional information.
-
-
Aggregate foreign currency exchange losses included in other expense were $6 million in 2011.
Other
expense for the year ended December 31, 2010 included the following:
-
-
The Company recorded charges totaling $13 million for restructuring, asset impairment and related charges. See
Note 8 for additional information.
-
-
The Company recorded charges of $12 million for acquisition-related fair value inventory adjustments. This charge was due
to the accounting rules requiring inventory purchased in a business combination to be marked up to fair value, and then recorded as an increase to cost of goods sold as the inventory is sold. The
Company also recorded charges of $20 million for acquisition-related restructuring, transaction and financing costs.
-
-
Aggregate foreign currency exchange losses included in other expense were $3 million in 2010.
15. Operating Leases
Rent expense attributable to all warehouse, office buildings, and equipment operating leases was $69 million in 2012, $84 million in 2011, and $109 million in 2010. Minimum future
rentals under operating leases are as follows: 2013, $49 million; 2014, $39 million; 2015, $30 million; 2016, $23 million; 2017, $16 million; and 2018 and thereafter, $26 million.
16. Additional Interest Charges from Early Extinguishment of Debt
During 2011, the Company recorded additional interest charges of $25 million for note repurchase premiums and the related write-off of unamortized finance fees. During 2010,
the Company recorded additional interest charges of $9 million for note repurchase premiums and the related write-off of unamortized finance fees. In addition, the Company recorded a
reduction of interest expense of $9
210
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
16. Additional Interest Charges from Early Extinguishment of Debt (Continued)
million
in 2010 to recognize the unamortized proceeds from terminated interest rate swaps on these notes.
17. Supplemental Cash Flow Information
Changes in the components of working capital related to operations (net of the effects related to acquisitions and divestitures) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Decrease (increase) in current assets:
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
206
|
|
$
|
(138
|
)
|
$
|
(61
|
)
|
Inventories
|
|
|
(74
|
)
|
|
(100
|
)
|
|
(31
|
)
|
Prepaid expenses
|
|
|
(1
|
)
|
|
(30
|
)
|
|
32
|
|
Increase (decrease) in current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(83
|
)
|
|
185
|
|
|
69
|
|
Salaries and wages
|
|
|
19
|
|
|
2
|
|
|
(9
|
)
|
U.S. and foreign income taxes
|
|
|
(76
|
)
|
|
7
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
(9
|
)
|
$
|
(74
|
)
|
$
|
(46
|
)
|
|
|
|
|
|
|
|
|
Interest
paid in cash, including note repurchase premiums, aggregated $223 million for 2012, $253 million for 2011, and $228 million for 2010.
Income
taxes paid in cash were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
U.S.continuing
|
|
$
|
|
|
$
|
1
|
|
$
|
5
|
|
Non-U.S.continuing
|
|
|
132
|
|
|
111
|
|
|
123
|
|
Non-U.S.discontinued operations
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132
|
|
$
|
112
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
18. Business Combinations
On August 1, 2011, the Company completed the acquisition of Verrerie du Languedoc SAS ("VDL"), a single-furnace glass container plant in Vergeze, France. The
Vergeze plant is located near the Nestle Waters' Perrier bottling facility and has a long-standing supply relationship with Nestle Waters.
On
May 31, 2011, the Company acquired the noncontrolling interest in its southern Brazil operations for approximately $140 million.
On
September 1, 2010, the Company completed the acquisition of Brazilian glassmaker Companhia Industrial de Vidros ("CIV") for total consideration of $594 million, consisting of
cash of $572 million and acquired debt of $22 million. CIV was the leading glass container manufacturer in northeastern Brazil, producing glass containers for the beverage, food and pharmaceutical
industries, as well as tableware. The acquisition includes two plants in the state of Pernambuco and one in the state
211
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
18. Business Combinations (Continued)
of
Ceará. The acquisition was part of the Company's overall strategy of expanding its presence in emerging markets and expands its Brazilian footprint to align with unfolding consumer
trends and customer growth plans. The results of CIV's operations have been included in the Company's consolidated financial statements since September 1, 2010, and are included in the South
American operating segment.
The
total purchase price was allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values. The following table summarizes the fair
values of the assets and liabilities assumed on September 1, 2010:
|
|
|
|
|
Current assets
|
|
$
|
83
|
|
Goodwill
|
|
|
343
|
|
Other long-term assets
|
|
|
82
|
|
Net property, plant, and equipment
|
|
|
200
|
|
|
|
|
|
Total assets
|
|
|
708
|
|
Current liabilities
|
|
|
(57
|
)
|
Long-term liabilities
|
|
|
(79
|
)
|
|
|
|
|
Net assets acquired
|
|
$
|
572
|
|
|
|
|
|
The
liabilities assumed include accruals for uncertain tax positions and other tax contingencies. The purchase agreement includes provisions that require the sellers to reimburse the
Company for any cash
paid related to the settlement of these contingencies. Accordingly, the Company recognized a receivable from the sellers related to these contingencies.
Goodwill
largely consisted of expected synergies resulting from the integration of the acquisition and anticipated growth opportunities with new and existing customers, and included
intangible assets not separately recognized, such as federal and state tax incentives for development in Brazil's northeastern region. Goodwill is not deductible for federal income tax purposes.
On
December 23, 2010, the Company acquired Hebei Rixin Glass Group Co., Ltd. The acquisition, located in Hebei Province of northern China, manufactures glass
containers predominantly for China's domestic beer market.
On
December 7, 2010, the Company acquired the majority share of Zhaoqing Jiaxin Glasswork Co., LTD, a glass container manufacturer located in the Pearl River Delta
region of Guangdong Province in China. Zhaoqing Jiaxin Glasswork Co., LTD produces glass packaging for the beer, food and non-alcoholic beverage markets.
On
March 11, 2010, the Company acquired the majority share of Cristalerias Rosario, a glass container manufacturer located in Rosario, Argentina. Cristalerias Rosario primarily
produces wine and non-alcoholic beverage glass containers.
In
the second quarter of 2010, the Company formed a joint venture with Berli Jucker Public Company Limited ("BJC") of Thailand in order to expand the Company's presence in China and
Southeast Asia. The joint venture entered into an agreement to purchase the operations of Malaya
212
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
18. Business Combinations (Continued)
Glass
from Fraser & Neave Holdings Bhd. Malaya Glass produces glass containers for the beer, non-alcoholic beverage and food markets, with plants located in China, Thailand,
Malaysia and Vietnam. The acquisition was completed on July 16, 2010. The Company is recognizing its interest in the joint venture using the equity method of accounting.
The
acquisitions, individually and in the aggregate, did not meet the thresholds for a significant acquisition and therefore no pro forma financial information is presented.
19. Discontinued Operations
On October 26, 2010, the Venezuelan government, through Presidential Decree No. 7.751, expropriated the assets of Owens-Illinois de Venezuela and Fabrica de Vidrios Los
Andes, C.A., two of the Company's subsidiaries in that country, which in effect constituted a taking of the going concerns of those companies. Shortly after the issuance of the decree, the Venezuelan
government installed temporary administrative boards to control the expropriated assets.
Since
the issuance of the decree, the Company has cooperated with the Venezuelan government, as it is compelled to do under Venezuelan law, to provide for an orderly transition while
ensuring the safety and well-being of the employees and the integrity of the production facilities. The Company has been engaged in negotiations with the Venezuelan government in relation
to certain aspects of the expropriation, including the compensation payable by the government as a result of its expropriation. On September 26, 2011, the Company, having been unable to reach
an agreement with the Venezuelan government regarding fair compensation, commenced an arbitration against Venezuela through the World Bank's International Centre for Settlement of Investment Disputes.
The Company is unable at this stage to predict the amount, or timing of receipt, of compensation it will ultimately receive.
The
Company considered the disposal of these assets to be complete as of December 31, 2010. As a result, and in accordance with generally accepted accounting principles, the
Company has presented the results of operations for its Venezuelan subsidiaries in the Consolidated Results of Operations for all years presented as discontinued operations.
213
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
19. Discontinued Operations (Continued)
The
following summarizes the revenues and expenses of the Venezuelan operations reported as discontinued operations in the Consolidated Results of Operations for the year ended
December 31, 2010:
|
|
|
|
|
Net sales
|
|
$
|
129
|
|
Manufacturing, shipping, and delivery
|
|
|
(86
|
)
|
|
|
|
|
Gross profit
|
|
|
43
|
|
Selling and administrative expense
|
|
|
(5
|
)
|
Other expense
|
|
|
3
|
|
|
|
|
|
Earnings from discontinued operations before income taxes
|
|
|
41
|
|
Provision for income taxes
|
|
|
(10
|
)
|
|
|
|
|
Earnings from discontinued operations
|
|
|
31
|
|
Loss on disposal of discontinued operations
|
|
|
(337
|
)
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(306
|
)
|
Net earnings from discontinued operations attributable to noncontrolling interests
|
|
|
(5
|
)
|
|
|
|
|
Net loss from discontinued operations attributable to the Company
|
|
$
|
(311
|
)
|
|
|
|
|
The
loss on disposal of discontinued operations of $337 million for the year ended December 31, 2010 included charges totaling $77 million and $260 million to write-off the net
assets and cumulative currency translation losses, respectively, of the Company's Venezuelan operations. The net assets were written-off as a result of the deconsolidation of the subsidiaries due to
the loss of control. The type or amount of compensation the Company may receive from the Venezuelan government is uncertain and thus, will be recorded as a gain from discontinued operations when
received. The cumulative currency translation losses relate to the devaluation of the Venezuelan bolivar in prior years and were written-off because the expropriation was a substantially
complete liquidation of the Company's operations in Venezuela.
20. Related Party Transactions
Charges for administrative services are allocated to the Company by OI Inc. based on an annual utilization level. Such services include compensation and benefits administration,
payroll processing, use of certain general accounting systems, auditing, income tax planning and compliance, and treasury services.
Allocated
costs also include charges associated with OI Inc.'s equity compensation plans. A substantial number of the options, restricted share units and performance vested
restricted share units granted under these plans have been granted to key employees of another subsidiary of OI Inc., some of whose compensation costs, including stock-based compensation, are
included in an allocation of costs to all operating subsidiaries of OI Inc., including the Company.
Management
believes that such transactions are on terms no less favorable to the Company than those that could be obtained from unaffiliated third parties.
214
Table of Contents
Owens-Brockway Glass Container Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions
20. Related Party Transactions (Continued)
The
following information summarizes the Company's significant related party transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Sales to affiliated companies
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Administrative services
|
|
$
|
3
|
|
$
|
5
|
|
$
|
14
|
|
Corporate management fee
|
|
|
115
|
|
|
104
|
|
|
88
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
118
|
|
$
|
109
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
The
above expenses are recorded in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Cost of sales
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
Selling, general and adminstrative expenses
|
|
|
117
|
|
|
108
|
|
|
101
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
118
|
|
$
|
109
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
215
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
(Registrant)
|
|
|
By:
|
|
/s/ JAMES W. BAEHREN
James W. Baehren
Attorney-in-fact
|
Date:
February 13, 2013
216
Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of Owens-Illinois, Inc. and in the capacities and on the dates indicated.
|
|
|
Signatures
|
|
Title
|
|
|
|
Albert P. L. Stroucken
|
|
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer); Director
|
Stephen P. Bramlage, Jr.
|
|
Senior Vice President and Chief Financial Officer (Principal Financial Officer; Principal Accounting Officer)
|
Gary F. Colter
|
|
Director
|
Jay L. Geldmacher
|
|
Director
|
Peter S. Hellman
|
|
Director
|
Anastasia D. Kelly
|
|
Director
|
John J. McMackin, Jr.
|
|
Director
|
Corbin A. McNeill, Jr.
|
|
Director
|
Hugh H. Roberts
|
|
Director
|
Helge H. Wehmeier
|
|
Director
|
Dennis K. Williams
|
|
Director
|
Thomas L. Young
|
|
Director
|
|
|
|
|
|
|
|
By:
|
|
/s/ JAMES W. BAEHREN
James W. Baehren
Attorney-in-fact
|
Date:
February 13, 2013
217
Table of Contents
INDEX TO FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule of Owens-Illinois, Inc. and Subsidiaries:
For the years ended December 31, 2012, 2011, and 2010:
Table of Contents
OWENS-ILLINOIS, INC.
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS (CONSOLIDATED)
Years ended December 31, 2012, 2011, and 2010
(Millions of Dollars)
Reserves deducted from assets in the balance sheets:
Allowances for losses and discounts on receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
Balance at
beginning
of period
|
|
Charged to
costs and
expenses
|
|
Other
|
|
Deductions
(Note 1)
|
|
Balance
at end of
period
|
|
2012
|
|
$
|
38
|
|
$
|
17
|
|
$
|
(5
|
)
|
$
|
(9
|
)
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
40
|
|
$
|
8
|
|
$
|
(6
|
)
|
$
|
(4
|
)
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
37
|
|
$
|
|
|
$
|
5
|
|
$
|
(2
|
)
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Deductions
from allowances for losses and discounts on receivables represent uncollectible notes and accounts written off.
Valuation allowance on net deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning
of period
|
|
Charged to
income
|
|
Charged to other
comprehensive
income
|
|
Foreign currency
translation
|
|
Other
|
|
Balance
at end of
period
|
|
2012
|
|
$
|
1,176
|
|
$
|
(7
|
)
|
$
|
(10
|
)
|
$
|
3
|
|
$
|
9
|
|
$
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
1,077
|
|
$
|
15
|
|
$
|
89
|
|
$
|
(1
|
)
|
$
|
(4
|
)
|
$
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
1,095
|
|
$
|
11
|
|
$
|
(47
|
)
|
$
|
(5
|
)
|
$
|
23
|
|
$
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-1
OI Glass (NYSE:OI)
Historical Stock Chart
From Jun 2024 to Jul 2024
OI Glass (NYSE:OI)
Historical Stock Chart
From Jul 2023 to Jul 2024