Annual Reports

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  • 10-K (May 13, 2016)
  • 10-K (Feb 16, 2016)
  • 10-K (Feb 11, 2015)
  • 10-K (Feb 13, 2014)
  • 10-K (Feb 13, 2013)

 
Quarterly Reports

 
8-K

 
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Owens-Illinois 10-K 2016
oi_Current folio_10K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D. C. 20549


FORM 10‑K

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended
December 31, 2015

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission file number 1-9576

Picture 10

OWENS-ILLINOIS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

22‑2781933
(IRS Employer
Identification No.)

One Michael Owens Way, Perrysburg, Ohio
(Address of principal executive offices)

43551
(Zip Code)

Registrant’s telephone number, including area code:  (567) 336-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Name of each exchange on which registered

Common Stock, $.01 par value

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes    No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the


 

registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer or a smaller reporting company. See the definitions of “ large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non‑accelerated filer 
(Do not check if a
smaller reporting company)

Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes   No 

The aggregate market value (based on the consolidated tape closing price on June 30, 2015) of the voting and non-voting common equity held by non-affiliates of Owens-Illinois, Inc. was approximately $4,238,712,000.  For the sole purpose of making this calculation, the term “non-affiliate” has been interpreted to exclude directors and executive officers of the Company.  Such interpretation is not intended to be, and should not be construed to be, an admission by Owens-Illinois, Inc. or such directors or executive officers of the Company that such directors and executive officers of the Company are “affiliates” of Owens-Illinois, Inc., as that term is defined under the Securities Act of 1934.

The number of shares of common stock, $.01 par value of Owens-Illinois, Inc. outstanding as of January 31, 2016 was 160,982,234.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Owens-Illinois, Inc. Proxy Statement for The Annual Meeting of Share Owners To Be Held Thursday, May 12, 2016 (“Proxy Statement”) are incorporated by reference into Part III hereof.

TABLE OF GUARANTORS

Exact Name of Registrant As Specified In Its Charter

    

State/Country of
Incorporation
or Organization

    

Primary
Standard
Industrial
Classification
Code Number

    

I.R.S Employee
Identification
Number

 

Owens‑Illinois Group, Inc

 

Delaware

 

6719 

 

341559348 

 

Owens‑Brockway Packaging, Inc

 

Delaware

 

6719 

 

341559346 

 

The address, including zip code, and telephone number, of each additional registrant’s principal executive office is One Michael Owens Way, Perrysburg, Ohio 43551; (567) 336‑5000. These companies are listed as guarantors of the debt securities of the registrant. The consolidating condensed financial statements of the Company depicting separately its guarantor and nonguarantor subsidiaries are presented in the notes to the consolidated financial statements. All of the equity securities of each of the guarantors set forth in the table above are owned, either directly or indirectly, by OwensIllinois, Inc.

 

 

 


 

TABLE OF CONTENTS

PART I 

 

ITEM 1. 

BUSINESS

    

ITEM 1A. 

RISK FACTORS

 

ITEM 1B. 

UNRESOLVED STAFF COMMENTS

 

16 

ITEM 2. 

PROPERTIES

 

17 

ITEM 3. 

LEGAL PROCEEDINGS

 

19 

ITEM 4. 

MINE SAFETY DISCLOSURES

 

19 

PART II 

 

20 

ITEM 5. 

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHARE OWNER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

20 

ITEM 6. 

SELECTED FINANCIAL DATA

 

22 

ITEM 7. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

26 

ITEM 7A. 

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

 

46 

ITEM 8. 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

50 

ITEM 9. 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

103 

ITEM 9A. 

CONTROLS AND PROCEDURES

 

103 

ITEM 9B. 

OTHER INFORMATION

 

106 

PART III 

 

106 

ITEM 10. 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

106 

ITEM 11. 

EXECUTIVE COMPENSATION

 

106 

ITEM 12. 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

106 

ITEM 13. 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

107 

ITEM 14. 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

107 

PART IV 

 

108 

ITEM 15. 

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

108 

SIGNATURES 

 

192 

EXHIBITS 

 

 

 

 

 

 

 


 

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 80 glass manufacturing plants in 23 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 has manufacturing facilities.

Company Strategy

The Company’s strategy is to be the premier rigid packaging producer most admired for its people, performance, customer satisfaction, innovation and shareholder value creation.  To accomplish this strategy, the Company is focused on the following objectives:

·

Establish stability and drive improved performance by acting in line with market dynamics and market trends while unlocking the value in the Company’s operations and commercial activities;

·

Develop integrated solutions that deliver higher performance and grow our business by leveraging the capabilities of the manufacturing, commercial, and supply chain disciplines to reduce costs and inventory while providing solutions that help the Company’s customers build, develop and expand their markets;

·

Create breakthroughs that include truly innovative products for our customers, as well as step change improvements to our cost structure through focused research and development;  

·

Integrate the Vitro acquisition to capture the value generated in this business while preserving the high operating standards; and 

·

Operate as one enterprise, aligning our organization, processes and talent by creating the right structure, processes and capabilities to drive for performance and meet investor expectations. 

Reportable Segments

The Company has four reportable segments based on its geographic locations: Europe, North America, Latin America and Asia Pacific.  In connection with the Company’s acquisition (the “Vitro Acquisition”) of the food and beverage glass container business of Vitro S.A.B. de C.V. and its subsidiaries as conducted in the United States, Mexico and Bolivia (the “Vitro Business”) on September 1, 2015, the Company has renamed the former South America segment to the Latin America segment.  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

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of the leading global food and beverage manufacturers, including (in alphabetical order) Anheuser‑Busch InBev, Brown Forman, Carlsberg, 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.

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 their product needs, which enables the Company to schedule glass container production to maintain reasonable levels of inventory. 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, Latin America and Asia Pacific.

Europe.The Company has a leading share of the glass container segment of the rigid packaging market in the European countries in which it operates, with 35 glass container manufacturing plants located in the Czech Republic, Estonia, France, Germany, Hungary, Italy, the Netherlands, Poland, Spain and the United Kingdom. These plants primarily produce glass containers for the beer, wine, champagne, spirits and food markets in these countries. The Company also has interests in two joint ventures that manufacture glass containers in Italy. Throughout Europe, the Company competes directly with a variety of glass container manufacturers including Verallia, Ardagh Group, Vetropack and Vidrala.

North America.The Company has 19 glass container manufacturing plants and one distribution facility in the U.S. and Canada, and also has an interest 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 the Ardagh Group and Anchor Glass Container. Imports from China, Mexico, Taiwan and other countries also compete in U.S. glass container segments. Additionally, there are several major consumer packaged goods companies that self‑manufacture glass containers.

Latin America.The Company has 18 glass manufacturing plants in Latin America, located in Argentina, Bolivia, Brazil, Colombia, Ecuador, Mexico, and Peru. In 2015, the Company’s acquisition of the Vitro Business included six additional plants. In Latin 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 8 glass container manufacturing plants in the Asia Pacific region, located in Australia, China, Indonesia and New Zealand. It also has interests 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 Orora 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 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 Holdings Inc. The Company also competes with manufacturers of non‑rigid packaging alternatives, including flexible pouches, aseptic cartons and bag‑in‑box containers.

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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 Latin America are typically greater in the third and fourth quarters of the year.

Manufacturing

The Company has 80 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 also provides engineering support for its glass manufacturing operations through facilities located in the U.S., Australia, France, Poland, Colombia and Peru.

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 97% of the sales volume is represented by customer contracts that contain provisions that pass the commodity 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 forward contracts related to its forecasted requirements in North America. The objective of these forward 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 forward contracts.

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 one to three years. In Latin America, the Company primarily enters into fixed price contracts for its energy requirements in most of the countries in which it operates and the remaining energy requirements are subject to changing natural gas market prices. These fixed price contracts typically have terms of one to three years, and generally include annual price adjustments for inflation and for certain contracts price adjustments for foreign currency variation. 

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

3


 

manufacturing and engineering assistance. The worldwide licensee network provides a stream of revenue to help support the Company’s development activities. In the years 2015, 2014 and 2013, the Company earned $12 million, $13 million and $16 million, respectively, in royalties and net technical assistance revenue.

Research, Development and Engineering

Research, development and engineering constitute important parts of the Company’s technical activities. Expenditures for these activities were $64 million, $63 million and $62 million for 2015, 2014 and 2013, 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. During 2013, the Company completed the construction of a new research and development facility at this location. This new facility has enabled 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 (“CO2”) 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 invests in technology and training to improve safety, reduce energy use, decrease emissions and increase the amount of cullet, or recycled glass, used in the production 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 containing a high proportion of recycled glass. Using recycled glass in the manufacturing process reduces energy costs and impacts the operating life and efficiency 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 and extended producer responsibility regulations. As of December 31, 2015, there were a number of U.S. states, Canadian provinces and territories, European countries and Australian states with some form of incentive for consumer returns of glass bottles in their law. The structure and enforcement of such laws and regulations can

4


 

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 states and provinces have recently considered or are now considering laws and regulations to encourage curbside, deposit and on‑premise glass recycling. Although there is no clear trend in the direction of these state and provincial laws and proposals, the Company believes that states and 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 CO2 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 CO2 emissions, at the federal, state and provincial levels of government. 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 structure and scope of the EPA’s CO2 regulations are currently the subject of litigation and are expected to be the subject of federal legislative activity. The EPA regulations, if preserved as proposed, could have a significant long‑term impact on the Company’s U.S. operations. 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 in the U.S. and the province of Quebec in Canada adopted cap‑and‑trade legislation aimed at reducing greenhouse gas emissions starting in 2013.

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 2012, which required certain manufacturers to pay a tax based on their carbon‑equivalent emissions. In July 2014 the carbon pricing mechanism was repealed by the Australian government and replaced by the Emissions Reduction Fund (“ERF”) which comprises an element to credit emissions reductions, a fund to purchase emissions reductions and a safeguard mechanism. The ERF purchases the lowest cost abatement (in the form of Australian carbon credit units) from a wide range of sources, providing an incentive to businesses, households and landowners to proactively reduce their emissions, while the safeguard mechanism (which is effective from July 1, 2016)  ensures that emissions reductions paid for through the crediting and purchasing elements of the ERF are not displaced by significant increases in emissions above business-as-usual levels elsewhere in the economy. An emissions trading scheme has also been in effect in New Zealand since 2008.

In Latin America, the Brazilian government passed a law in 2009 requiring companies to reduce the level of greenhouse gas emissions by the year 2025. In the other Latin American countries, national and local governments are considering proposals that would impose regulations to reduce CO2 emissions.

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.

5


 

Employees

The Company’s worldwide operations employed approximately 27,000 persons as of December 31, 2015. Approximately 75% of North American employees are hourly workers covered by collective bargaining agreements. The principal collective bargaining agreement, which at December 31, 2015, covered approximately 76% of the Company’s union‑affiliated employees in North America, will expire on March 31, 2016. Approximately 85% of employees in Latin America 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 Latin 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 Audit, Compensation, Nominating/Corporate Governance and Risk Oversight 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.

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Executive Officers of the Registrant

In the following table we set forth certain information regarding those persons currently serving as executive officers of Owens-Illinois, Inc. as of February 16, 2016.

Name and Age

    

Position

Andres A. Lopez (53)

 

Chief Executive Officer since January 1, 2016;  President, Glass Containers and Chief Operating Officer 2015; Vice President and President of O‑I Americas 2014‑2015; Vice President and President of O‑I  South America 2009‑2014; Vice President of Global Manufacturing and Engineering 2006‑2009.

Albert P. L. Stroucken (68)

 

Executive Chairman of the Board since January 1, 2016; Chairman and Chief Executive Officer 2006 - 2015. 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.

Miguel Alvarez (51)

 

President, O-I Latin America since 2014; President, O-I Brazil 2010 – 2014. Previously held leadership positions in Chile, Argentina and Ecuador for Belcorp, a leading global beauty products company 2005 – 2010.

James W. Baehren (65)

 

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.

Jan A. Bertsch (59)

 

Chief Financial Officer and Senior Vice President since November 23, 2015. Previously Executive Vice President and Chief Financial Officer for Sigma-Aldrich, a life science and technology company, 2012 - 2015. Vice President, Controller and Principal Accounting Officer at BorgWarner 2011 – 2012; Vice President and Treasurer, 2009 - 2011.

Tim Connors (41)

 

President, O-I Asia Pacific since June 1, 2015; General Manager of O-I Australia 2013 – 2015; Vice President of Finance, Asia Pacific 2011 – 2013; Vice President of Strategic Planning and Business Development, North America 2010 2011.

Sergio B. O. Galindo (48)

 

President, O-I North America since June 1, 2015; Vice President and President of O‑I Asia Pacific 2012 - 2015; General Manager of O‑I Colombia 2009‑ 2012.

John A. Haudrich (48)

 

Senior Vice President and Chief Strategy and Integration Officer since November 20, 2015; Vice President and Acting Chief Financial Officer 2015; Vice President Finance and Corporate Controller 2011 – 2015; Vice President of Investor Relations 2009 – 2011.

Paul A. Jarrell (53)

 

Senior Vice President since 2011; Chief Administrative Officer since 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.

Vitaliano Torno (57)

 

President, O-I Europe since January 1, 2016; Managing Director, O-I Europe 2015; Vice President, European countries 2013 – 2015; Vice President, Marketing and sales, Europe 2010 - 2013.

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.

 

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ITEM 1A.RISK FACTORS

Asbestos‑Related Liability—The 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. 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 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 $4.6 billion through 2015, 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 inherent uncertainty of future disease incidence and claiming patterns against the Company, the significant expansion of the defendants that are now sued in this litigation, and the continuing changes in the extent to which these defendants participate in the resolution of cases in which the Company is also a defendant.

The Company conducted a comprehensive legal review of its asbestos‑related liabilities and costs in connection with finalizing and reporting its results of operations for the year ended December 31, 2015 and concluded that an increase in its accrual for future asbestos‑related costs in the amount of $225 million (pretax and after tax) was required.

The significant assumptions underlying the material components of the Company’s accrual are:

a)

settlements will continue to be limited almost exclusively to claimants who were exposed to the Company’s asbestos‑containing insulation prior to its exit from that business in 1958;

b)

claims will continue to be resolved primarily under the Company’s administrative claims agreements or on terms comparable to those set forth in those agreements;

c)

the incidence of serious asbestos‑related disease cases and claiming patterns against the Company for such cases do not change materially;

d)

the Company is substantially able to defend itself successfully at trial and on appeal;

e)

the number and timing of additional co‑defendant bankruptcies do not change significantly the assets available to participate in the resolution of cases in which the Company is a defendant; and

f)

co‑defendants with substantial resources and assets continue to participate significantly in the resolution of future asbestos lawsuits and claims.

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 2015 were materially affected by the $225 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, its ability to pursue global or domestic acquisitions, its ability to reinvest in its operations, and its ability to pay dividends.

8


 

Substantial Leverage—The Company’s indebtedness could adversely affect the Company’s financial health.

The Company has a significant amount of debt. As of December 31, 2015, the Company had approximately $5.6 billion of total debt outstanding, an increase from $3.4 billion at December 31, 2014, due to additional debt incurred as a result of the Vitro Acquisition.

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, share repurchases, development efforts and other general corporate purposes;

·

Limit 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 Debt—To service its indebtedness, the Company will require a significant amount of cash. The Company’s ability to generate cash and refinance certain indebtedness 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, 2015, the Company’s debt subject to variable interest rates represented approximately 46% 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 Restrictions—The 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

9


 

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 secured credit agreement, and the lenders could cause all of the outstanding debt obligations under such secured credit agreement to become due and payable, 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.

Foreign Currency Exchange Rates—The 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, Mexican peso and Australian dollar. In its consolidated financial statements, the Company remeasures transactions denominated in a currency other than the functional currency of the reporting entity (e.g. soda ash purchases) and 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.

International Operations—The Company is subject to risks associated with operating in foreign countries.

The Company operates manufacturing and other facilities throughout the world. Net sales from non‑U.S. operations totaled approximately $4.2 billion, representing approximately 69% of the Company’s net sales for the year ended December 31, 2015. As a result of its non‑U.S. 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;

10


 

·

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.

Competition—The 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.

Lower Demand Levels—Changes in consumer preferences may have a material adverse effect on the Company’s financial results.

Changes in consumer preferences for the food and beverages they consume can reduce demand for the Company’s products. Because many of the Company’s products are used to package consumer goods, the Company’s sales and profitability could be negatively impacted by changes in consumer preferences for those products. Examples of changes in consumer preferences include, but are not limited to, lower sales of major domestic beer brands and shifts from beer to wine or spirits that results in the use of fewer glass containers. In periods of lower demand, the Company’s sales and production levels may decrease causing a material adverse effect on the Company’s profitability.

High Energy Costs—Higher 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 Environment—The 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;

11


 

·

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.

Business Integration Risks—The Company may not be able to effectively integrate additional businesses it has acquired or will acquire in the future.

The Company’s ability to realize the anticipated benefits of the Vitro Acquisition will depend, to a large extent, on its ability to integrate the two businesses. The combination of two independent businesses is a complex, costly and time‑consuming process and there can be no assurance that the Company will be able to successfully integrate the Vitro Business into its business, or if such integration is successfully accomplished, that such integration will not be more costly or take longer than presently contemplated. Integration of the Vitro Acquisition may include various risks and uncertainties, including the factors discussed in the paragraph below. If the Company cannot successfully integrate and manage the Vitro Business within a reasonable time following the Vitro Acquisition, the Company may not be able to realize the potential and anticipated benefits of the Vitro Acquisition, which could have a material adverse effect on the Company’s share price, business, cash flows, results of operations and financial position.

The Company may also consider other 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.

12


 

Customer Consolidation—The 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. 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.

Operational Disruptions—Profitability could be affected by unanticipated operational disruptions.

The Company’s glass container manufacturing process is asset intensive and includes the use of large furnaces and machines. The Company periodically experiences unanticipated disruptions to its assets and these events can have an adverse effect on its business operations and profitability. The impacts of these operational disruptions include, but are not limited to, higher maintenance, production changeover and shipping costs, higher capital spending, as well as lower absorption of fixed costs during periods of extended downtime. The Company maintains insurance policies in amounts and with coverage and deductibles that are reasonable and in line with industry standards; however, this insurance coverage may not be adequate to protect the Company from all liabilities and expenses that may arise.

Seasonality—Profitability 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 Latin 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.

Raw Materials—Profitability 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 Risks—The 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

13


 

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.

Taxes—Potential 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, as well as ongoing audits by domestic and international authorities, 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 Relations—Some 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, 2015, covered approximately 75% of the Company’s employees in North America. The principal collective bargaining agreement, which at December 31, 2015 covered approximately 76% of the Company’s union‑affiliated employees in North America, will expire on March 31, 2016. Approximately 85% of employees in Latin America 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 Latin 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. In addition, 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 Retention—Failure 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 Ventures—Failure 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, Asia Pacific segments and in retained corporate costs and other. If the Company’s joint venture partners do not observe their obligations or are unable to commit additional capital to the joint ventures, it

14


 

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.

Cybersecurity and Information Technology—Security threats and the failure or disruption of the integrity of the Company’s information technology, or those of third parties with which it does business, could have a material adverse effect on its business and the results of operations.

The Company relies on information technology to operate its plants, to communicate with its employees, customers and suppliers, to store sensitive business information and intellectual property, 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. The Company’s disaster recovery programs and other preventative measures may be unable to prevent the failure or disruption of the Company’s information technology systems, which could result in transaction errors, loss of customers, business disruptions, or loss of or damage to intellectual property and could have a material adverse effect on operations.

As cyberattacks on various organizations have increased, the Company’s information technology systems may be subject to increased security issues. The Company has measures in place to prevent and detect global security threats, but may be unable to prevent certain security breaches. This may result in the loss of customers and business opportunities, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensatory costs, and additional compliance costs. Failure or disruption of these systems, or the back‑up systems, for any reason could disrupt the Company’s operations and negatively impact the Company’s cash flows or financial condition.

Accounting Estimates—The 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 due to certain information used in the preparation of the Company’s financial statements which 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. 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 Standards—The adoption of new accounting standards or interpretations could adversely impact the Company’s financial results.

New accounting standards or pronouncements could adversely affect the Company’s 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. 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.

Goodwill—A 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, 2015 totaled $2.5 billion. The Company evaluates goodwill annually (or more frequently if impairment indicators arise) for impairment using the required business valuation methods. These

15


 

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 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 Funding—An 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 $17 million, $28 million and $96 million to its defined benefit pension plans in 2015, 2014 and 2013, 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

On October 9, 2015, the Company received a comment letter from the staff of the SEC's Division of Corporation Finance as part of its review of the Company's Form 10-K for the year ended December 31, 2014 that commenced in June 2015. The staff requested additional information and provided comments relating to the Company’s process for determining the appropriate charge for estimated future asbestos-related costs. The Company responded to the October 9, 2015 letter on December 21, 2015 and believes that it has addressed the staff's comments. As of the date of this annual report, the Company has not received confirmation from the staff that its review process is complete. The Company intends to continue to work with the staff and respond to any remaining comments.

16


 

ITEM 2.PROPERTIES

The principal manufacturing facilities and other material important physical properties of the Company at December 31, 2015 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

Kalama, WA

 

Windsor, CO

Lapel, IN

 

Winston‑Salem, NC

Los Angeles, CA

 

Zanesville, OH

Muskogee, OK

 

 

 

 

 

Canada

 

 

Brampton, Ontario

 

Montreal, Quebec

 

 

 

Asia Pacific Operations

 

 

Australia

 

 

Adelaide

 

Melbourne

Brisbane

 

Sydney

 

 

 

China

 

 

Tianjin

 

Zhaoqing

 

 

 

Indonesia

 

 

Jakarta

 

 

 

 

 

New Zealand

 

 

Auckland

 

 

 

 

 

European Operations

 

 

Czech Republic

 

 

Dubi

 

Nove Sedlo

 

 

 

Estonia

 

 

Jarvakandi

 

 

 

 

 

France

 

 

Beziers

 

Vayres

Gironcourt

 

Veauche

Labegude

 

Vergeze

Puy‑Guillaume

 

Wingles

Reims

 

 

 

 

 

17


 

Germany

 

 

Bernsdorf

 

Rinteln

Holzminden

 

 

 

 

 

Hungary

 

 

Oroshaza

 

 

 

 

 

Italy

 

 

Asti

 

Origgio

Aprilia

 

Ottaviano

Bari

 

San Gemini

Marsala

 

San Polo

Mezzocorona

 

Villotta

 

 

 

The Netherlands

 

 

Leerdam

 

Schiedam

Maastricht

 

 

 

 

 

Poland

 

 

Jaroslaw

 

Poznan

 

 

 

Spain

 

 

Barcelona

 

Sevilla

 

 

 

United Kingdom

 

 

Alloa

 

Harlow

 

 

 

Latin American Operations

 

 

Argentina

 

 

Rosario

 

 

Bolivia

 

 

Cochabamba

 

 

 

 

 

Brazil

 

 

Recife

 

Vitoria de Santo Antao (glass container

Rio de Janeiro (glass container

 

and tableware)

and tableware)

 

 

Sao Paulo

 

 

 

 

 

Colombia

 

 

Buga (tableware)

 

Soacha

Envigado

 

Zipaquira

 

 

 

Ecuador

 

 

Guayaquil

 

 

 

 

 

18


 

Mexico

 

 

Guadalajara

 

Queretaro

Los Reyes

 

Toluca

Monterrey

 

 

 

 

 

Peru

 

 

Callao

 

Lurin(1)

 

 

 

Other Operations

 

 

Engineering Support Centers

 

 

Brockway, Pennsylvania

 

Lurin, Peru

Cali, Colombia

 

Perrysburg, Ohio

Hawthorn, Australia

 

Villeurbanne, France

   Jaroslaw, Poland

`

 

 

 

 

Shared Service Centers

 

 

Medellin, Colombia

 

Perrysburg, Ohio

Monterrey, Mexico

 

Poznan, Poland(1)

 

 

 

Distribution Center

 

 

 Laredo, TX(1)

 

 

 

 

 

Corporate Facilities

 

 

 

 

 

Hawthorn, Australia(1)

 

Perrysburg, Ohio(1)

Miami, Florida(1)

 

Vufflens‑la‑Ville, Switzerland(1)


(1)

This facility is leased in whole or in part.

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


 

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED SHARE OWNER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The price range for the Company’s common stock on the New York Stock Exchange, as reported by the Financial Industry Regulatory Authority, Inc., was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

2014

 

 

 

High

 

Low

 

High

 

Low

 

First Quarter

    

$

26.99

    

$

22.85

    

$

35.53

    

$

30.88

 

Second Quarter

 

 

25.98

 

 

22.94

 

 

34.73

 

 

31.17

 

Third Quarter

 

 

22.93

 

 

19.42

 

 

35.16

 

 

26.05

 

Fourth Quarter

 

 

23.83

 

 

16.94

 

 

27.29

 

 

23.53

 

The number of share owners of record on December 31,  2015 was 1,131. Approximately 99% of the outstanding shares were registered in the name of Depository Trust Company, or CEDE, which held such shares on behalf of a number of brokerage firms, banks, and other financial institutions. The shares attributed to these financial institutions, in turn, represented the interests of more than 25,597 unidentified beneficial owners. No dividends have been declared or paid since the Company’s initial public offering in December 1991 and the Company does not anticipate paying any dividends in the near future. For restrictions on payment of dividends on the Company’s common stock, see Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Current and Long‑Term Debt and Note 11 to the Consolidated Financial Statements.

Information with respect to securities authorized for issuance under equity compensation plans is included herein under Item 12.

The Company did not purchase any shares of its common stock for the three months ended December 31, 2015 (4.1 million shares purchased for the twelve months ended December 31, 2015). The Company has $380 million remaining for repurchases as of December 31, 2015 pursuant to authorization by its Board of Directors in October 2014 to purchase up to $500 million of the Company’s common stock until December 31, 2017.

 

 

20


 

PERFORMANCE GRAPH

COMPARISON OF CUMULATIVE TOTAL RETURN

AMONG OWENS‑ILLINOIS, INC., S&P 500, AND PACKAGING GROUP

Picture 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ending December 31,

 

 

 

2010

 

2011

 

2012

 

2013

 

2014

 

2015

 

Owens-Illinois, Inc.

    

$

100.00

    

$

63.13

    

$

69.28

    

$

116.55

    

$

87.92

    

$

56.74

 

S&P 500

 

 

100.00

 

 

102.11

 

 

118.45

 

 

156.82

 

 

178.28

 

 

180.75

 

Packaging Group

 

 

100.00

 

 

93.26

 

 

101.84

 

 

141.03

 

 

157.64

 

 

157.85

 

The above graph compares the performance of the Company’s Common Stock with that of a broad market index (the S&P 500 Composite Index) and a packaging group consisting of companies with lines of business or product end uses comparable to those of the Company for which market quotations are available.

The packaging group consists of: AptarGroup, Inc., Ball Corp., Bemis Company, Inc., Crown Holdings, Inc., Owens‑Illinois, Inc., Sealed Air Corp., Silgan Holdings Inc., and Sonoco Products Co.

The comparison of total return on investment for each period is based on the investment of $100 on December 31, 2010 and the change in market value of the stock, including additional shares assumed purchased through reinvestment of dividends, if any.

21


 

ITEM 6.SELECTED FINANCIAL DATA

The selected consolidated financial data presented below relates to each of the five years in the period ended December 31, 2015. The financial data for each of the five years in the period ended December 31, 2015 was derived from the audited consolidated financial statements of the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

 

2015

 

2014

 

2013

 

2012

 

2011

 

 

 

(Dollars in millions)

 

Consolidated operating results(a):

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net sales

 

$

6,156

 

$

6,784

 

$

6,967

 

$

7,000

 

$

7,358

 

Cost of goods sold(b)

 

 

(5,046)

 

 

(5,531)

 

 

(5,636)

 

 

(5,626)

 

 

(5,969)

 

Gross profit

 

 

1,110

 

 

1,253

 

 

1,331

 

 

1,374

 

 

1,389

 

Selling and administrative, research, development and engineering(b)

 

 

(540)

 

 

(586)

 

 

(568)

 

 

(617)

 

 

(627)

 

Other expense, net(b)

 

 

(260)

 

 

(219)

 

 

(199)

 

 

(190)

 

 

(855)

 

Earnings (loss) before interest expense and items below

 

 

310

 

 

448

 

 

564

 

 

567

 

 

(93)

 

Interest expense, net(b)

 

 

(251)

 

 

(230)

 

 

(229)

 

 

(239)

 

 

(303)

 

Earnings (loss) from continuing operations before income taxes

 

 

59

 

 

218

 

 

335

 

 

328

 

 

(396)

 

Provision for income taxes(b)

 

 

(106)

 

 

(92)

 

 

(120)

 

 

(108)

 

 

(85)

 

Earnings (loss) from continuing operations

 

 

(47)

 

 

126

 

 

215

 

 

220

 

 

(481)

 

Gain (loss) from discontinued operations

 

 

(4)

 

 

(23)

 

 

(18)

 

 

(2)

 

 

1

 

Net earnings (loss)

 

 

(51)

 

 

103

 

 

197

 

 

218

 

 

(480)

 

Net (earnings) attributable to noncontrolling interests

 

 

(23)

 

 

(28)

 

 

(13)

 

 

(34)

 

 

(20)

 

Net earnings (loss) attributable to the Company

 

$

(74)

 

$

75

 

$

184

 

$

184

 

$

(500)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

 

2015

 

2014

 

2013

 

2012

 

2011

 

Basic earnings (loss) per share of common stock:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Earnings (loss) from continuing operations

 

$

(0.44)

 

$

0.60

 

$

1.22

 

$

1.13

 

$

(3.06)

 

Gain (loss) on disposal of discontinued operations

 

 

(0.03)

 

 

(0.14)

 

 

(0.11)

 

 

(0.01)

 

 

0.01

 

Net earnings (loss)

 

$

(0.47)

 

$

0.46

 

$

1.11

 

$

1.12

 

$

(3.05)

 

Weighted average shares outstanding (in thousands)

 

 

161,169

 

 

164,720

 

 

164,425

 

 

164,474

 

 

163,691

 

Diluted earnings (loss) per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

$

(0.44)

 

$

0.59

 

$

1.22

 

$

1.12

 

$

(3.06)

 

Gain (loss) on disposal of discontinued operations

 

 

(0.03)

 

 

(0.14)

 

 

(0.11)

 

 

(0.01)

 

 

0.01

 

Net earnings (loss)

 

$

(0.47)

 

$

0.45

 

$

1.11

 

$

1.11

 

$

(3.05)

 

Diluted average shares (in thousands)

 

 

161,169

 

 

166,047

 

 

165,828

 

 

165,768

 

 

163,691

 

 

22


 

For the year ended December 31, 2015 and 2011, diluted earnings per share of common stock was equal to basic earnings per share of common stock due to the loss from continuing operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

 

2015

 

2014

 

2013

 

2012

 

2011

 

 

 

(Dollars in millions)

 

Other data:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

The following are included in earnings from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

$

323

 

$

335

 

$

350

 

$

378

 

$

405

 

Amortization of intangibles

 

 

86

 

 

83

 

 

47

 

 

34

 

 

17

 

Amortization of deferred finance fees (included in interest expense)

 

 

15

 

 

30

 

 

32

 

 

33

 

 

32

 

Balance sheet data (at end of period):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital (current assets less current liabilities)

 

$

212

 

$

43

 

$

296

 

$

486

 

$

498

 

Total assets

 

 

9,421

 

 

7,843

 

 

8,393

 

 

8,567

 

 

8,935

 

Total debt

 

 

5,573

 

 

3,445

 

 

3,541

 

 

3,742

 

 

3,993

 

Share owners’ equity

 

 

574

 

 

1,275

 

 

1,603

 

 

1,055

 

 

1,041

 

Free cash flow(c)

 

$

210

 

$

329

 

$

339

 

$

290

 

$

220

 

 


(a)

Amounts for 2011 have been adjusted to reflect the retrospective application of a change in the method of valuing U.S. inventories to average cost from last‑in, first‑out.

 

(b)

Note that the items below relate to items management considers not representative of ongoing operations.

 

23


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

 

 

2015

 

2014

 

2013

 

2012

 

2011

 

 

 

(Dollars in millions)

 

Cost of goods sold

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

Restructuring, asset impairment and related charges

 

$

 —

 

$

8

 

$

 —

 

$

 —

 

$

 —

 

Pension settlement charges

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

Acquisition-related fair value inventory adjustments

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative, research, development and engineering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension settlement charges

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

Other expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrual for estimated future asbestos-related costs

 

 

225

 

 

135

 

 

145

 

 

155

 

 

165

 

Restructuring, asset impairment and other charges

 

 

75

 

 

78

 

 

119

 

 

168

 

 

112

 

Non-income tax charge

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

 

Equity earnings related charges

 

 

5

 

 

5

 

 

 

 

 

 

 

 

 

 

Gain related to cash received from the Chinese government as compensation for land in China that the Company was required to return to the government

 

 

 

 

 

 

 

 

 

 

 

(61)

 

 

 

 

Write-down of goodwill in the Asia Pacific segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

641

 

Acquisition-related fair value intangible adjustments

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic transaction costs

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note repurchase premiums and additional interest charges for the write-off of unamortized deferred financing fees related to the early extinguishment of debt

 

 

42

 

 

20

 

 

11

 

 

 

 

 

25

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax expense (benefit) recorded for certain tax adjustments

 

 

8

 

 

(8)

 

 

 

 

 

(14)

 

 

(15)

 

Net tax (benefit) expense for income tax on items above

 

 

(15)

 

 

(34)

 

 

(14)

 

 

(8)

 

 

(18)

 

Net earnings attributable to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net impact of noncontrolling interests on items above

 

 

 

 

 

 

 

 

(13)

 

 

12

 

 

(5)

 

 

 

$

395

 

$

338

 

$

248

 

$

252

 

$

905

 

 

(c)

The Company defines free cash flow as cash provided by continuing operating activities less additions to property, plant and equipment from continuing operations. Free cash flow does not conform to U.S. GAAP and should not be construed as an alternative to the cash flow measures reported in accordance with

24


 

U.S. GAAP. The Company uses free cash flow for internal reporting, forecasting and budgeting and believes this information allows the board of directors, management, investors and analysts to better understand the Company’s financial performance. Free cash flow is calculated as follows (dollars in millions):

(d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31,

 

2015

 

2014

 

2013

 

2012

 

2011

 

Cash provided by continuing operating activities

    

$

612

    

$

698

    

$

700

    

$

580

    

$

505

 

Additions to property, plant and equipment

 

 

(402)

 

 

(369)

 

 

(361)

 

 

(290)

 

 

(285)

 

Free cash flow

 

$

210

 

$

329

 

$

339

 

$

290

 

$

220

 

 

 

 

 

25


 

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In connection with the Vitro Acquisition on September 1, 2015 (see Note 19 to the Consolidated Financial Statements), the Company has renamed the former South America segment to the Latin America segment.  This change in segment name was made to reflect the addition of the Mexican and Bolivian operations from the Vitro Acquisition into the former South America segment.  The acquired Vitro food and beverage glass container distribution business located in the United States is included in the North American operating segment. 

The Company’s measure of profit for its reportable segments is segment operating profit, which consists of consolidated earnings from continuing operations before interest income, interest expense, and provision for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations as well as certain retained corporate costs. The segment data presented below is prepared in accordance with general accounting principles for segment reporting. The line titled “reportable segment totals”, however, is a non‑GAAP measure when presented outside of the financial statement footnotes. Management has included reportable segment totals below to facilitate the discussion and analysis of financial condition and results of operations. The Company’s management uses segment operating profit, in combination with selected cash flow information, to evaluate performance and to allocate resources.

Financial information regarding the Company’s reportable segments is as follows (dollars in millions):

 

 

 

 

 

 

 

 

 

 

 

 

    

2015

    

2014

    

2013

 

Net Sales:

 

 

 

 

 

 

 

 

 

 

Europe

 

$

2,324

 

$

2,794

 

$

2,787

 

North America

 

 

2,039

 

 

2,003

 

 

2,002

 

Latin America

 

 

1,064

 

 

1,159

 

 

1,186

 

Asia Pacific

 

 

671

 

 

793

 

 

966

 

Reportable segment totals

 

 

6,098

 

 

6,749

 

 

6,941

 

Other

 

 

58

 

 

35

 

 

26

 

Net Sales

 

$

6,156

 

$

6,784

 

$

6,967

 

 

 

26