Annual Reports

 
Quarterly Reports

  • 10-Q (Oct 24, 2017)
  • 10-Q (Aug 1, 2017)
  • 10-Q (Apr 25, 2017)
  • 10-Q (Oct 26, 2016)
  • 10-Q (Jul 28, 2016)
  • 10-Q (May 13, 2016)

 
8-K

 
Other

Owens-Illinois 10-Q 2007

Documents found in this filing:

  1. 10-Q
  2. Ex-12
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.  20549

FORM 10-Q

(Mark one)

 

 

x

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For Quarter Ended June 30, 2007

 

 

 

 

 

or

 

 

 

o

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Owens-Illinois, Inc.

(Exact name of registrant as specified in its charter)

Delaware

 

1-9576

 

22-2781933

(State or other

 

(Commission

 

(IRS Employer

jurisdiction of

 

File No.)

 

Identification No.)

incorporation or

 

 

 

 

organization)

 

 

 

 

 

 

 

 

 

One Michael Owens Way, Perrysburg, Ohio

 

43551-2999

(Address of principal executive offices)

 

(Zip Code)

 

 

567-336-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x

 

No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x

 

Accelerated filer o

 

Non-accelerated filer o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o

 

No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Owens-Illinois, Inc. $.01 par value common stock – 155,628,651 shares at June 30, 2007.

 




Part I – FINANCIAL INFORMATION

Item 1.  Financial Statements.

The Condensed Consolidated Financial Statements presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated.  All adjustments are of a normal recurring nature. Because the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006.

Certain amounts included in the Condensed Consolidated Statement of Cash Flows for the three and six months ended June 30, 2006 have been reclassified to conform to the 2007 presentation.  These amounts, which relate to receipts from customers in payment of accounts receivable in the European accounts receivable securitization program at the date of its consolidation, have been reclassified from operating activities to investing activities.  See Note 2 for additional information.  While this reclassification had no effect on total cash flows, cash utilized in operating activities and cash provided by investing activities both increased by $4.5 million for the three months ended June 30, 2006, and $127.3 million for the six months ended June 30, 2006.  Net earnings and share owners’ equity were not affected by this reclassification.

On June 11, 2007, the Company announced that it had concluded the strategic review process of its plastics portfolio and entered into a definitive agreement with Rexam PLC to sell its plastics packaging business.   As required by Statement of Financial Accounting Standard (“FAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has presented the results of operations for the plastics packaging business, which comprised the Company’s former Plastic Packaging segment, in the Condensed Consolidated Results of Operations for the three and six month periods ended June 30, 2007 and 2006 as a discontinued operation.  As such, results for those periods have been reclassified to conform to this presentation.  At June 30, 2007 and 2006, and December 31, 2006, the assets and liabilities of the plastics packaging business were presented in the Condensed Consolidated Balance Sheet as the assets and liabilities of discontinued operations.

2




OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)

 

 

Three months ended June 30,

 

 

 

2007

 

2006

 

Revenues:

 

 

 

 

 

Net sales

 

$

1,997.0

 

$

1,744.8

 

Royalties and net technical assistance

 

4.8

 

3.6

 

Equity earnings

 

8.8

 

7.4

 

Interest

 

5.2

 

4.8

 

Other

 

1.3

 

3.3

 

 

 

2,017.1

 

1,763.9

 

Costs and expenses:

 

 

 

 

 

Manufacturing, shipping, and delivery

 

1,567.6

 

1,430.4

 

Research and development

 

1.4

 

2.7

 

Engineering

 

15.1

 

9.7

 

Selling and administrative

 

130.6

 

125.5

 

Interest

 

82.2

 

92.5

 

Other

 

13.6

 

4.2

 

 

 

1,810.5

 

1,665.0

 

Earnings from continuing operations before items below

 

206.6

 

98.9

 

 

 

 

 

 

 

Provision for income taxes

 

38.2

 

38.5

 

 

 

 

 

 

 

Minority share owners’ interests in earnings of subsidiaries

 

14.6

 

9.9

 

 

 

 

 

 

 

Earnings from continuing operations

 

153.8

 

50.5

 

 

 

 

 

 

 

Net losses of discontinued operations

 

(4.1

)

(7.9

)

 

 

 

 

 

 

Net earnings

 

$

149.7

 

$

42.6

 

 

 

 

 

 

 

Convertible preferred stock dividends

 

(5.4

)

(5.4

)

Earnings available to common share owners

 

$

144.3

 

$

37.2

 

 

 

 

 

 

 

Basic net earnings per share of common stock:

 

 

 

 

 

Earnings from continuing operations

 

$

0.97

 

$

0.30

 

Net losses of discontinued operations

 

(0.03

)

(0.05

)

Net earnings

 

$

0.94

 

$

0.25

 

Weighted average shares outstanding (thousands)

 

153,547

 

151,975

 

Diluted net earnings per share of common stock:

 

 

 

 

 

Earnings from continuing operations

 

$

0.92

 

$

0.29

 

Net losses of discontinued operations

 

(0.03

)

(0.05

)

Net earnings

 

$

0.89

 

$

0.24

 

Weighted diluted average shares (thousands)

 

167,218

 

153,960

 

 

3




 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)

 

 

Six months ended June 30,

 

 

 

2007

 

2006

 

Revenues:

 

 

 

 

 

Net sales

 

$

3,681.0

 

$

3,233.5

 

Royalties and net technical assistance

 

9.7

 

7.2

 

Equity earnings

 

13.9

 

13.0

 

Interest

 

8.6

 

9.7

 

Other

 

4.9

 

13.6

 

 

 

3,718.1

 

3,277.0

 

Costs and expenses:

 

 

 

 

 

Manufacturing, shipping, and delivery

 

2,923.8

 

2,659.9

 

Research and development

 

5.3

 

6.4

 

Engineering

 

25.9

 

18.4

 

Selling and administrative

 

257.8

 

246.7

 

Interest

 

163.2

 

176.0

 

Other

 

30.1

 

10.6

 

 

 

3,406.1

 

3,118.0

 

Earnings from continuing operations before items below

 

312.0

 

159.0

 

 

 

 

 

 

 

Provision for income taxes

 

76.8

 

61.9

 

 

 

 

 

 

 

Minority share owners’ interests in earnings of subsidiaries

 

26.1

 

19.0

 

 

 

 

 

 

 

Earnings from continuing operations

 

209.1

 

78.1

 

 

 

 

 

 

 

Net losses of discontinued operations

 

(6.2

)

(11.2

)

 

 

 

 

 

 

Net earnings

 

$

202.9

 

$

66.9

 

 

 

 

 

 

 

Convertible preferred stock dividends

 

(10.7

)

(10.7

)

Earnings available to common share owners

 

$

192.2

 

$

56.2

 

 

 

 

 

 

 

Basic net earnings per share of common stock:

 

 

 

 

 

Earnings from continuing operations

 

$

1.29

 

$

0.44

 

Net losses of discontinued operations

 

(0.04

)

(0.07

)

Net earnings

 

$

1.25

 

$

0.37

 

Weighted average shares outstanding (thousands)

 

153,243

 

151,828

 

Diluted net earnings per share of common stock:

 

 

 

 

 

Earnings from continuing operations

 

$

1.26

 

$

0.43

 

Net losses of discontinued operations

 

(0.04

)

(0.07

)

Net earnings

 

$

1.22

 

$

0.36

 

Weighted diluted average shares (thousands)

 

157,812

 

154,002

 

 

See accompanying notes.

4




 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

 

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2007

 

2006

 

2006

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash, including time deposits

 

$

348.4

 

$

222.7

 

$

244.7

 

Short-term investments, at cost which approximates market

 

52.8

 

32.7

 

71.1

 

Receivables, less allowances for losses and discounts ($42.1 at June 30, 2007, $28.7 at December 31, 2006, and $27.1 at June 30, 2006)

 

1,263.8

 

1,041.1

 

1,191.2

 

Inventories

 

1,001.0

 

992.1

 

968.0

 

Prepaid expenses

 

46.9

 

39.3

 

31.0

 

Assets of discontinued operations

 

124.4

 

104.8

 

122.5

 

 

 

 

 

 

 

 

 

Total current assets

 

2,837.3

 

2,432.7

 

2,628.5

 

 

 

 

 

 

 

 

 

Investments and other assets:

 

 

 

 

 

 

 

Equity investments

 

95.5

 

96.3

 

88.5

 

Repair parts inventories

 

136.5

 

135.3

 

158.1

 

Prepaid pension

 

523.2

 

488.5

 

990.8

 

Deposits, receivables, and other assets

 

467.7

 

466.5

 

419.4

 

Goodwill

 

2,324.3

 

2,255.2

 

2,223.3

 

Assets of discontinued operations

 

591.9

 

571.7

 

574.0

 

 

 

 

 

 

 

 

 

Total other assets

 

4,139.1

 

4,013.5

 

4,454.1

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, at cost

 

6,038.3

 

5,842.6

 

5,624.6

 

Less accumulated depreciation

 

3,180.9

 

2,968.1

 

2,816.8

 

 

 

 

 

 

 

 

 

Net property, plant, and equipment

 

2,857.4

 

2,874.5

 

2,807.8

 

 

 

 

 

 

 

 

 

Total assets

 

$

9,833.8

 

$

9,320.7

 

$

9,890.4

 

 

5




 

 

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2007

 

2006

 

2006

 

Liabilities and Share Owners’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Short-term loans and long-term debt due within one year

 

$

746.5

 

$

737.2

 

$

687.4

 

Current portion of asbestos-related liabilities

 

149.0

 

149.0

 

152.0

 

Accounts payable

 

845.4

 

890.2

 

809.2

 

Other liabilities

 

563.1

 

518.4

 

531.0

 

Liabilities of discontinued operations

 

77.5

 

70.9

 

81.9

 

Total current liabilities

 

2,381.5

 

2,365.7

 

2,261.5

 

 

 

 

 

 

 

 

 

Liabilities of discontinued operations

 

7.9

 

1.6

 

1.5

 

Long-term debt

 

4,878.8

 

4,719.4

 

4,888.4

 

Deferred taxes

 

105.8

 

111.1

 

191.7

 

Pension benefits

 

336.6

 

335.0

 

309.7

 

Nonpension postretirement benefits

 

295.3

 

293.1

 

282.6

 

Other liabilities

 

398.9

 

392.9

 

404.6

 

Asbestos-related liabilities

 

444.9

 

538.6

 

497.4

 

Commitments and contingencies

 

 

 

 

 

 

 

Minority share owners’ interests

 

221.8

 

206.6

 

186.5

 

Share owners’ equity:

 

 

 

 

 

 

 

Convertible preferred stock, par value $.01 per share, liquidation preference $50 per share, 9,050,000 shares authorized, issued and outstanding

 

452.5

 

452.5

 

452.5

 

Common stock, par value $.01 per share 250,000,000 shares authorized, 167,408,355 shares issued and outstanding, less 11,779,704 treasury shares at June 30, 2007 (166,143,479 issued and outstanding, less 11,908,400 treasury shares at December 31, 2006 and 165,617,053 issued and outstanding, less 12,116,424 treasury shares at June 30, 2006)

 

1.7

 

1.7

 

1.7

 

Capital in excess of par value

 

2,367.4

 

2,329.5

 

2,311.8

 

Treasury stock, at cost

 

(225.9

)

(228.4

)

(232.4

)

Retained earnings (deficit)

 

(1,412.2

)

(1,604.4

)

(1,499.2

)

Accumulated other comprehensive loss

 

(421.2

)

(594.2

)

(167.9

)

Total share owners’ equity

 

762.3

 

356.7

 

866.5

 

Total liabilities and share owners’ equity

 

$

9,833.8

 

$

9,320.7

 

$

9,890.4

 

 

See accompanying notes.

6




OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

 

Six months ended June 30,

 

 

 

2007

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

202.9

 

$

66.9

 

Net losses of discontinued operations

 

6.2

 

11.2

 

Non-cash charges (credits):

 

 

 

 

 

Depreciation

 

209.7

 

214.0

 

Amortization of intangibles and other deferred items

 

10.4

 

11.5

 

Amortization of finance fees

 

5.2

 

2.8

 

Deferred tax provision

 

22.8

 

2.4

 

Mark to market effect of natural gas hedge contracts

 

 

 

5.1

 

Other

 

7.9

 

12.9

 

Asbestos-related payments

 

(93.7

)

(80.7

)

Change in non-current operating assets

 

10.0

 

(15.3

)

Change in non-current liabilities

 

(24.9

)

(41.7

)

Change in components of working capital

 

(223.5

)

(432.0

)

Cash provided by (utilized in) continuing operating activities

 

133.0

 

(242.9

)

Cash provided by discontinued operating activities

 

2.8

 

19.9

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property, plant, and equipment - continuing

 

(102.1

)

(110.1

)

Additions to property, plant, and equipment - discontinued

 

(23.3

)

(14.2

)

Collections on receivables arising from consolidation of receivables securitization program

 

 

 

127.3

 

Acquisitions, net of cash acquired

 

(9.8

)

 

 

Net cash proceeds from divestitures and asset sales

 

7.5

 

7.6

 

Cash provided by (utilized in) investing activities

 

(127.7

)

10.6

 

Cash flows from financing activities:

 

 

 

 

 

Additions to long-term debt

 

403.6

 

916.2

 

Repayments of long-term debt

 

(366.9

)

(782.8

)

Increase in short-term loans

 

70.0

 

103.1

 

Net payments for hedging activity

 

(3.9

)

(11.6

)

Payment of finance fees

 

(6.6

)

(12.3

)

Convertible preferred stock dividends

 

(10.7

)

(10.7

)

Issuance of common stock and other

 

23.2

 

4.0

 

Cash provided by financing activities

 

108.7

 

205.9

 

Effect of exchange rate fluctuations on cash

 

8.9

 

4.6

 

Increase in cash

 

125.7

 

(1.9

)

Cash at beginning of period

 

222.7

 

246.6

 

Cash at end of period

 

$

348.4

 

$

244.7

 

 

See accompanying notes.

7




OWENS-ILLINOIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular data dollars in millions,

except share and per share amounts

1.              Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

 

 

Three months ended June 30,

 

 

 

2007

 

2006

 

Numerator:

 

 

 

 

 

Net earnings

 

$

149.7

 

$

42.6

 

Convertible preferred stock dividends

 

(5.4

)

(5.4

)

Numerator for basic earnings per share - income available to common share owners

 

$

144.3

 

$

37.2

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

153,547,095

 

151,974,818

 

Effect of dilutive securities:

 

 

 

 

 

Convertible preferred stock

 

8,589,355

 

 

 

Stock options and other

 

5,081,472

 

1,984,805

 

Denominator for diluted earnings per share - adjusted weighted average shares outstanding

 

167,217,922

 

153,959,623

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.97

 

$

0.30

 

Net losses of discontinued operations

 

(0.03

)

(0.05

)

Net earnings

 

$

0.94

 

$

0.25

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.92

 

$

0.29

 

Net losses of discontinued operations

 

(0.03

)

(0.05

)

Net earnings

 

$

0.89

 

$

0.24

 

 

The convertible preferred stock was included in the computation of diluted earnings per share for the three months ended June 30, 2007 on an “if converted” basis since the result was dilutive. For purposes of this computation, the preferred stock dividends were not subtracted from the numerator.  The convertible preferred stock was not included in the computation of diluted earnings per share for the three months ended June 30, 2006 since the result would have been antidilutive.  Options to purchase 825,117 and 4,106,938 weighted average shares of common stock that were outstanding during the three months ended June 30, 2007 and 2006, respectively, were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.

8




The following table sets forth the computation of basic and diluted earnings per share:

 

 

Six months ended June 30,

 

 

 

2007

 

2006

 

Numerator:

 

 

 

 

 

Net earnings

 

$

202.9

 

$

66.9

 

Convertible preferred stock dividends

 

(10.7

)

(10.7

)

Numerator for basic earnings per share - income available to common share owners

 

$

192.2

 

$

56.2

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

153,243,454

 

151,828,265

 

Effect of dilutive securities:

 

 

 

 

 

Stock options and other

 

4,569,053

 

2,173,376

 

Denominator for diluted earnings per share - adjusted weighted average shares outstanding

 

157,812,507

 

154,001,641

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.29

 

$

0.44

 

Net losses of discontinued operations

 

(0.04

)

(0.07

)

Net earnings

 

$

1.25

 

$

0.37

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.26

 

$

0.43

 

Net losses of discontinued operations

 

(0.04

)

(0.07

)

Net earnings

 

$

1.22

 

$

0.36

 

 

The convertible preferred stock was not included in the computation of diluted earnings per share for the six months ended June 30, 2007 and 2006 since the result would have been antidilutive.  Options to purchase 1,519,394 and 3,907,075 weighted average shares of common stock that were outstanding during the six months ended June 30, 2007 and 2006, respectively, were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.

9




2.  Debt

The following table summarizes the long-term debt of the Company:

 

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2007

 

2006

 

2006

 

Secured Credit Agreement:

 

 

 

 

 

 

 

Revolving Credit Facility:

 

 

 

 

 

 

 

Revolving Loans

 

$

 

$

45.2

 

$

251.6

 

Term Loans:

 

 

 

 

 

 

 

Term Loan A (292.5 million AUD at June 30, 2007)

 

248.2

 

231.5

 

222.4

 

Term Loan B

 

195.5

 

195.5

 

50.0

 

Term Loan C (134.6 million CAD at June 30, 2007)

 

127.1

 

115.9

 

124.4

 

Term Loan D (€195.5 million at June 30, 2007)

 

262.9

 

257.4

 

254.4

 

Accounts receivable securitization (included in short-term loans at June 30, 2007 and Dec. 31, 2006):

 

 

 

 

 

 

 

European program

 

 

 

 

 

181.9

 

Asia Pacific program

 

 

 

 

 

98.4

 

Senior Secured Notes:

 

 

 

 

 

 

 

8.875%, due 2009

 

850.0

 

850.0

 

1,000.0

 

7.75%, due 2011

 

450.0

 

450.0

 

450.0

 

8.75%, due 2012

 

625.0

 

625.0

 

625.0

 

Senior Notes:

 

 

 

 

 

 

 

8.10%, due 2007

 

 

 

298.2

 

294.6

 

7.35%, due 2008

 

246.7

 

245.7

 

241.9

 

8.25%, due 2013

 

425.5

 

433.5

 

418.1

 

6.75%, due 2014

 

400.0

 

400.0

 

400.0

 

6.75%, due 2014 (€225 million)

 

302.5

 

296.2

 

286.2

 

6.875%, due 2017 (€300 million)

 

403.4

 

 

 

 

 

Senior Debentures:

 

 

 

 

 

 

 

7.50%, due 2010

 

242.6

 

244.2

 

238.2

 

7.80%, due 2018

 

250.0

 

250.0

 

250.0

 

Senior Subordinated Notes:

 

 

 

 

 

 

 

9.25%, due 2009

 

 

 

 

 

0.5

 

Other

 

103.5

 

105.5

 

51.0

 

Total long-term debt

 

5,132.9

 

5,043.8

 

5,438.6

 

Less amounts due within one year

 

254.1

 

324.4

 

550.2

 

Long-term debt

 

$

4,878.8

 

$

4,719.4

 

$

4,888.4

 

 

On June 14, 2006, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”).  At June 30, 2007, the Agreement included a $900.0 million revolving credit facility, a 292.5 million Australian dollar term loan, and a 134.6 million Canadian dollar term loan, each of which has a final maturity date of June 15, 2012. It also included a $195.5 million term loan and a €195.5 million term loan, each of which has a final maturity date of June 14, 2013.

At June 30, 2007 the Company’s subsidiary borrowers had unused credit of $813.1 million available under the Agreement.

The weighted average interest rate on borrowings outstanding under the Agreement at June 30, 2007 was 6.63%.

During March 2007, a subsidiary of the Company issued Senior Notes totaling €300.0 million.  The notes bear interest at 6.875% and are due March 31, 2017.  The notes are guaranteed by substantially all of the Company’s domestic subsidiaries.  The proceeds were used to retire the

10




$300 million principal amount of 8.10% Senior Notes which matured in May 2007, and to reduce borrowings under the revolving credit facility.

On July 31, 2007, the Company completed the sale of its plastics packaging business to Rexam PLC for approximately $1.825 billion in cash.  In accordance with an amendment of the Agreement that became effective upon completion of the sale of the plastics business, the Company will use the net proceeds to repay secured debt.  In addition, the amendment provides for modification of certain covenants, including the elimination of the financial covenant requiring the Company to maintain a specified interest coverage ratio, and reduces the commitment fee on the revolver and interest margins on $350 million of term loans.

During the fourth quarter of 2005, the Company expanded the capacity of its European accounts receivable securitization program from €200 million to €320 million to include operations in Italy and the United Kingdom. The terms of this expansion resulted in changing from off-balance sheet to on-balance sheet accounting for the program by consolidating both the accounts receivable in the program and the secured indebtedness of the same amount. Cash inflows related to receipts from customers in payment of the accounts receivable consolidated at December 13, 2005 have been classified as investing cash inflows in the accompanying Consolidated Statement of Cash Flows.

Information related to the Company’s accounts receivable securitization program is as follows:

 

June 30,

 

Dec. 31,

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Balance (included in short-term loans):

 

 

 

 

 

European program

 

$

365.8

 

$

195.0

 

Asia Pacific program

 

81.7

 

84.4

 

 

 

 

 

 

 

Weighted average interest rate:

 

 

 

 

 

European program

 

4.90

%

4.81

%

Asia Pacific program

 

7.45

%

7.43

%

 

3.  Supplemental Cash Flow Information

 

 

Six months ended June 30,

 

 

 

2007

 

2006

 

Interest paid in cash

 

$

217.8

 

$

217.8

 

 

 

 

 

 

 

Income taxes paid in cash

 

65.4

 

61.8

 

 

11




 

4.  Comprehensive Income

The components of comprehensive income are: (a) net earnings; (b) change in fair value of certain derivative instruments; (c) pension and other postretirement benefit adjustments; and (d) foreign currency translation adjustments.  Total comprehensive income is as follows:

 

Three months ended

 

 

 

June 30,

 

 

 

2007

 

2006

 

Net earnings

 

$

149.7

 

$

42.6

 

Foreign currency translation adjustments

 

92.5

 

80.2

 

Pension and other postretirement benefit adjustments

 

11.8

 

 

 

Change in fair value of derivative instruments, net of tax

 

(4.1

)

(9.1

)

Total comprehensive income

 

$

249.9

 

$

113.7

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2007

 

2006

 

Net earnings

 

$

202.9

 

$

66.9

 

Foreign currency translation adjustments

 

128.8

 

110.5

 

Pension and other postretirement benefit adjustments

 

23.6

 

 

 

Change in fair value of derivative instruments, net of tax

 

20.6

 

(42.5

)

Total comprehensive income

 

$

375.9

 

$

134.9

 

 

For the six months ended June 30, 2007, foreign currency translation adjustments includes a loss of approximately $5.0 million related to a hedge of the Company’s net investment in a non-U.S. subsidiary.

5.  Inventories

Major classes of inventory are as follows:

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2007

 

2006

 

2006

 

Finished goods

 

$

838.2

 

$

824.3

 

$

817.2

 

Work in process

 

3.3

 

7.7

 

4.4

 

Raw materials

 

89.3

 

92.9

 

79.4

 

Operating supplies

 

70.2

 

67.2

 

67.0

 

 

 

$

1,001.0

 

$

992.1

 

$

968.0

 

 

6.  Contingencies

The Company is one of a number of defendants in a substantial number of lawsuits filed in numerous state and federal courts by persons alleging bodily injury (including death) as a result of exposure to dust from asbestos fibers.  From 1948 to 1958, one of the 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

12




Company exited the pipe and block insulation business in April 1958.  The traditional asbestos personal injury lawsuits and claims relating to such production and sale of asbestos material typically allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and in some cases, punitive damages in various amounts (herein referred to as “asbestos claims”).

As of June 30, 2007, the Company has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 19,000 plaintiffs and claimants.  Based on an analysis of the claims and lawsuits pending as of December 31, 2006, approximately 91% of plaintiffs and claimants either do not specify the monetary damages sought, or in the case of court filings, claim an amount sufficient to invoke the jurisdictional minimum of the trial court.  Approximately 8% of plaintiffs specifically plead damages of $15 million or less, and 1% of plaintiffs specifically plead damages greater than $15 million but less than $100 million.  Fewer than 1% of plaintiffs specifically plead damages $100 million or greater but less than $123 million.

As indicated by the foregoing summary, current pleading practice permits considerable variation in the assertion of monetary damages.  This variability, together with the actual experience discussed further below of litigating or resolving through settlement hundreds of thousands of asbestos claims and lawsuits over an extended period, demonstrates that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.  Rather, the amount potentially recoverable for a specific claimant is determined by other factors such as the claimant’s severity of disease, product identification evidence against specific defendants, the defenses available to those defendants, the specific jurisdiction in which the claim is made, the claimant’s history of smoking or exposure to other possible disease-causative factors, and the various other matters discussed further below.

In addition to the pending claims set forth above, the Company has claims-handling agreements in place with many plaintiffs’ counsel throughout the country.  These agreements require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by such agreements. The criteria for such claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by the Company’s former business unit during its manufacturing period ending in 1958.  Some plaintiffs’ counsel have historically withheld claims under these agreements for later presentation while focusing their attention on active litigation in the tort system.  The Company believes that as of June 30, 2007 there are approximately 16,000 claims against other defendants and which are likely to be asserted some time in the future against the Company. These claims are not included in the totals set forth above.  The Company further believes that the bankruptcies of additional co-defendants, as discussed below, resulted in an acceleration of the presentation and disposition of a number of these previously withheld preexisting claims under such agreements, which claims would otherwise have been presented and disposed of over the next several years.  This acceleration resulted in a significant increase in the dispositions and cash payments during the period 2001-2002; however, the resolution of the accumulated yet previously unpresented cases continues to affect the annual dispositions and cash payments.

The Company is also a defendant in other asbestos-related lawsuits or claims involving maritime workers, medical monitoring claimants, co-defendants and property damage claimants.  Based upon its past experience, the Company believes that these categories of lawsuits and claims will not involve any material liability and they are not included in the above description of pending matters or in the following description of disposed matters.

13




Since receiving its first asbestos claim, the Company as of June 30, 2007, has disposed of the asbestos claims of approximately 350,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $6,600.  Certain of these dispositions have included deferred amounts payable over a number of years.  Deferred amounts payable totaled approximately $75.7 million at June 30, 2007 ($82.6 million at December 31, 2006) and are included in the foregoing average indemnity payment per claim.  The Company’s indemnity payments for these claims have varied on a per claim basis, and are expected to continue to vary considerably over time.  As discussed above, a part of the Company’s objective is to achieve, where possible, resolution of asbestos claims pursuant to claims-handling agreements.  Under such agreements, qualification by meeting certain illness and exposure criteria has tended to reduce the number of claims presented to the Company that would ultimately be dismissed or rejected due to the absence of impairment or product exposure evidence.  The Company expects that as a result, although aggregate spending may be lower, there may be an increase in the per claim average indemnity payment involved in such resolution.

The Company believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot be estimated with certainty. Beginning with the initial liability of $975 million established in 1993, the Company has accrued a total of approximately $3.11 billion through 2006, before insurance recoveries, for its asbestos-related liability.  The Company’s ability to reasonably estimate its liability has been significantly affected by the volatility of asbestos-related litigation in the United States, the expanding list of non-traditional defendants that have been sued in this litigation and found liable for substantial damage awards, the continued use of litigation screenings to generate new lawsuits, the large number of claims asserted or filed by parties who claim prior exposure to asbestos materials but have no present physical impairment as a result of such exposure, and the growing number of co-defendants that have filed for bankruptcy.

The Company has continued to monitor trends which may affect its ultimate liability and has continued to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against the Company.  The material components of the Company’s accrued liability are based on amounts estimated by the Company in connection with its annual comprehensive review and consist of the following: (i) the reasonably probable contingent liability for asbestos claims already asserted against the Company, (ii) the contingent liability for preexisting but unasserted asbestos claims for prior periods arising under its administrative claims-handling agreements with various plaintiffs’ counsel, (iii) the contingent liability for asbestos claims not yet asserted against the Company, but which the Company believes it is reasonably probable will be asserted in the next several years, to the degree that an estimation as to future claims is possible, and (iv) the legal defense costs likely to be incurred in connection with the foregoing types of claims.

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

a)  the extent to which settlements are limited to claimants who were exposed to the Company’s asbestos-containing insulation prior to its exit from that business in 1958;

b)  the extent to which claims are resolved under the Company’s administrative claims agreements or on terms comparable to those set forth in those agreements;

c)  the extent of decrease or increase in the inventory of pending serious disease cases;

14




d)  the extent to which the Company is able to successfully defend itself at trial;

e)  the extent of actions by courts and legislatures to eliminate, reduce or permit the diversion of financial resources for unimpaired claimants and so-called forum shopping;

f)   the extent to which additional defendants with substantial resources and assets are required to participate significantly in the resolution of future asbestos lawsuits and claims;

g)  the number and timing of co-defendant bankruptcies; and

h)  the extent to which the resolution of co-defendant bankruptcies divert resources to unimpaired claimants.

The Company conducts a comprehensive review of its asbestos-related liabilities and costs annually in connection with finalizing and reporting its annual results of operations, unless significant changes in trends or new developments warrant an earlier review.  If the results of an annual comprehensive review indicate that the existing amount of the accrued liability is insufficient to cover its estimated future asbestos-related costs, then the Company will record an appropriate charge to increase the accrued liability.  The Company believes that an estimation of the reasonably probable amount of the contingent liability for claims not yet asserted against the Company is not possible beyond a period of several years.  Therefore, while the results of future annual comprehensive reviews cannot be determined, the Company expects the addition of one year to the estimation period will result in an annual charge.

Other litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that are nonroutine and involve compensatory, punitive or treble damage claims as well as other types of relief.  In accordance with Financial Accounting Standard No. 5, “Accounting for Contingencies” (“FAS No. 5”), the Company records a liability for such matters when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated.  Recorded amounts are reviewed and adjusted to reflect changes in the factors upon which the estimates are based including additional information, negotiations, settlements, and other events.

The ultimate legal and financial liability of the Company with respect to the lawsuits and proceedings referred to above, in addition to other pending litigation, cannot be estimated with certainty.  The Company’s reported results of operations for 2006 were materially affected by the $120.0 million fourth quarter charge for asbestos-related costs and asbestos-related payments continue to be substantial.  Any future additional charge would likewise materially affect the 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 will continue to affect the Company’s cost of borrowing and its ability to pursue global or domestic acquisitions. However, the Company believes that its operating cash flows and other sources of liquidity will be sufficient to pay its obligations for asbestos-related costs and to fund its working capital and capital expenditure requirements on a short-term and long-term basis.

7.  Segment Information

The Company operates in the rigid packaging industry.  The Company has one reportable product segment within the rigid packaging industry, Glass Containers.  The Glass Containers segment includes operations in Europe, the Americas, and the Asia Pacific region.

15




The Company’s measure of profit for its reportable segment is Segment Operating Profit, which consists of consolidated earnings from continuing operations before interest income, interest expense, provision for income taxes and minority share owners’ interests in earnings of subsidiaries and excludes amounts related to certain items that management considers not representative of ongoing operations.  The 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 the product segment 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.  For the Company’s U.S. pension plans, net periodic pension cost (credit) has been allocated to the product segment.  Unallocated corporate expenses and certain other expenses not directly related to the product segment’s operations are included in Other Retained Items.

Financial information for the three month periods ended June 30, 2007 and 2006 regarding the Company’s product segment is as follows:

 

 

 

Other

 

 

 

 

 

Glass

 

Retained

 

Consolidated

 

 

 

Containers

 

Items

 

Totals

 

Net sales:

 

 

 

 

 

 

 

2007

 

$

1,997.0

 

 

 

$

1,997.0

 

2006

 

1,744.8

 

 

 

1,744.8

 

Segment Operating Profit:

 

 

 

 

 

 

 

2007

 

$

316.3

 

$

(32.7

)

$

283.6

 

2006

 

220.2

 

(32.0

)

188.2

 

Items excluded from Segment Operating Profit:

 

 

 

 

 

 

 

June 30, 2006:

 

 

 

 

 

 

 

Mark to market loss on natural gas hedge contracts

 

$

(1.6

)

 

 

$

(1.6

)

 

The reconciliation of Segment Operating Profit to earnings before income taxes and minority share owners’ interests in earnings of subsidiaries for the three month periods ended June 30, 2007 and 2006 is as follows:

 

 

2007

 

2006

 

Segment Operating Profit for the reportable segment

 

$

316.3

 

$

220.2

 

Items excluded from Segment Operating Profit

 

 

 

(1.6

)

Other retained items

 

(32.7

)

(32.0

)

Interest expense

 

(82.2

)

(92.5

)

Interest income

 

5.2

 

4.8

 

Total

 

$

206.6

 

$

98.9

 

 

Financial information for the six month periods ended June 30, 2007 and 2006 regarding the Company’s product segment is as follows:

16




 

 

 

 

Other

 

 

 

 

 

Glass

 

Retained

 

Consolidated

 

 

 

Containers

 

Items

 

Totals

 

Net sales:

 

 

 

 

 

 

 

2007

 

$

3,681.0

 

 

 

$

3,681.0

 

2006

 

3,233.5

 

 

 

3,233.5

 

Segment Operating Profit:

 

 

 

 

 

 

 

2007

 

$

533.2

 

$

(66.6

)

$

466.6

 

2006

 

386.4

 

(56.0

)

330.4

 

 

 

 

 

 

 

 

 

Items excluded from Segment Operating Profit:

 

 

 

 

 

 

 

June 30, 2006:

 

 

 

 

 

 

 

Mark to market loss on natural gas hedge contracts

 

$

(5.1

)

 

 

$

(5.1

)

 

The reconciliation of Segment Operating Profit to earnings before income taxes and minority share owners’ interests in earnings of subsidiaries for the six month periods ended June 30, 2007 and 2006 is as follows:

 

2007

 

2006

 

Segment Operating Profit for the reportable segment

 

$

533.2

 

$

386.4

 

Items excluded from Segment Operating Profit

 

 

 

(5.1

)

Other retained items

 

(66.6

)

(56.0

)

Interest expense

 

(163.2

)

(176.0

)

Interest income

 

8.6

 

9.7

 

Total

 

$

312.0

 

$

159.0

 

 

Information regarding total assets by segment is as follows:

 

Glass
Containers

 

Other
Retained
Items

 

Consolidated
Totals

 

Total assets (1):

 

 

 

 

 

 

 

June 30, 2007

 

$

8,436.6

 

$

1,397.2

 

$

9,833.8

 

December 31, 2006

 

8,021.6

 

1,299.1

 

9,320.7

 

June 30, 2006

 

8,004.2

 

1,886.2

 

9,890.4

 

 


(1) Assets of discontinued operations are included in other retained items.

8. Derivative Instruments

At June 30, 2007, the Company had the following derivative instruments related to its various hedging programs:

17




Hedges of Debt

Certain of the Company’s subsidiaries have entered into short term forward exchange contracts which effectively swap intercompany loans to other subsidiaries that are denominated in the functional currency of the borrowers.  These contracts swap the principal amount of loans and in some cases they swap the related interest.

The Company recognizes the above derivatives on the balance sheet at fair value.  Accordingly, the changes in the value of the swaps are recognized in current earnings and are expected to substantially offset any exchange rate gains or losses on the related nonfunctional currency loans.  For the three and six months ended June 30, 2007, the amount not offset was not material.

Interest Rate Swaps Designated as Fair Value Hedges

In the fourth quarter of 2003 and the first quarter of 2004, the Company entered into a series of interest rate swap agreements with a total notional amount of $950 million that mature from 2008 through 2013.  The swaps were executed in order to: (i) convert a portion of the senior notes and senior debentures fixed-rate debt into floating-rate debt; (ii) maintain a capital structure containing appropriate amounts of fixed and floating-rate debt; and (iii) reduce net interest payments and expense in the near-term.

The Company’s fixed-to-variable interest rate swaps are accounted for as fair value hedges.  Because the relevant terms of the swap agreements match the corresponding terms of the notes, there is no hedge ineffectiveness. Accordingly, the Company recorded the net of the fair market values of the swaps as a long-term liability along with a corresponding net decrease in the carrying value of the hedged debt.

Under the swaps, the Company receives fixed rate interest amounts (equal to interest on the corresponding hedged note) and pays interest at a six-month U.S. LIBOR rate (set in arrears) plus a margin spread (see table below).  The interest rate differential on each swap is recognized as an adjustment of interest expense during each six-month period over the term of the agreement.

The following selected information relates to fair value swaps at June 30, 2007:

 

 

Amount

 

Receive

 

Average

 

Liability

 

 

 

Hedged

 

Rate

 

Spread

 

Recorded

 

Senior Notes due 2008

 

$

250.0

 

7.35

%

3.5

%

$

(3.3

)

Senior Debentures due 2010

 

250.0

 

7.50

%

3.2

%

(7.4

)

Senior Notes due 2013

 

450.0

 

8.25

%

3.7

%

(24.6

)

Total

 

$

950.0

 

 

 

 

 

$

(35.3

)

 

Commodity Hedges

The Company enters into commodity futures contracts related to forecasted natural gas requirements, the objectives of which are to limit the effects of fluctuations in the future market price paid for natural gas and the related volatility in cash flows.  The Company continually evaluates the natural gas market with respect to its forecasted usage requirements over the next twelve to twenty-four months and periodically enters into commodity futures contracts in order to hedge a portion of its usage requirements over that period.  At June 30, 2007, the

18




Company had entered into commodity futures contracts for approximately 60% (approximately 7,040,000 MM BTUs) of its estimated usage requirements for the remaining half of 2007 and approximately 19% (approximately 4,310,000 MM BTUs) for the full year of 2008.

The Company accounts for the above futures contracts on the balance sheet at fair value.  The effective portion of changes in the fair value of a derivative that is designated as, and meets the required criteria for, a cash flow hedge is recorded in the Accumulated Other Comprehensive Income component of share owners’ equity (“OCI”) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings.  Any material portion of the change in the fair value of a derivative designated as a cash flow hedge that is deemed to be ineffective is recognized in current earnings.

The above futures contracts are accounted for as cash flow hedges at June 30, 2007.

At June 30, 2007, an unrecognized loss of $14.3 million (pretax and after tax), related to the domestic commodity futures contracts, was included in OCI, which will be reclassified into earnings over the next twelve months.  The ineffectiveness related to these natural gas hedges for the three and six months ended June 30, 2007 was not material.

Other Hedges

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 not denominated in, or indexed to, their functional currencies.  The Company records these short-term forward exchange agreements on the balance sheet at fair value and changes in the fair value are recognized in current earnings.

Balance Sheet Classification

The Company records the fair values of derivative financial instruments on the balance sheet as follows: (1) receivables if the instrument has a positive fair value and maturity within one year, (2) deposits, receivables, and other assets if the instrument has a positive fair value and maturity after one year, (3) accounts payable and other accrued liabilities if the instrument has a negative fair value and maturity within one year, and (4) other liabilities if the instrument has a negative fair value and maturity after one year.

9.  Restructuring Accruals

In September 2006, the Company announced the permanent closing of its Godfrey, Illinois machine parts manufacturing operation. The facility was closed by the end of 2006. This closing is part of a broad initiative to reduce working capital and improve system costs.  The Company also closed a small recycling facility in Ohio.  As a result of these actions, the Company recorded a charge of $29.7 million ($27.7 million after tax) in other costs and expenses in the third quarter of 2006.

The closing of these facilities resulted in the elimination of approximately 260 jobs and a corresponding reduction in the Company’s workforce.  The Company anticipates that it will pay

19




out approximately $14.5 million in cash related to insurance, benefits, plant clean up, and other plant closing costs. The Company expects that the majority of these costs will be paid out by the end of 2008.

Selected information related to the plant closing accrual is as follows:

Plant closing charges

 

$

29.7

 

Write-down of assets to net realizable value

 

(11.7

)

Recognition of employee separation benefits

 

(7.1

)

Net cash paid

 

(2.2

)

Other

 

0.7

 

Remaining plant closing accrual as of December 31, 2006

 

9.4

 

 

 

 

 

Net cash paid

 

(2.4

)

Additional charge

 

3.0

 

Remaining plant closing accrual as of March 31, 2007

 

10.0

 

Net cash paid

 

(2.1

)

Remaining plant closing accrual as of June 30, 2007

 

$

7.9

 

 

During the second quarter of 2005, the Company concluded its evaluation of acquired capacity in connection with the acquisition of BSN Glasspack S.A. and announced the permanent closing of its Düsseldorf, Germany glass container factory, and the shutdown of a furnace at its Reims, France glass container facility, both in 2005.  These actions were part of the European integration strategy to optimally align the manufacturing capacities with the market and improve operational efficiencies.  As a result, the Company recorded an accrual of €47.1 million through an adjustment to goodwill.

These actions resulted in the elimination of approximately 400 jobs and a corresponding reduction in the Company’s workforce.  The Company anticipates that it will pay a total of approximately €110.9 million in cash related to severance, benefits, plant clean-up, and other plant closing costs related to restructuring accruals.  In addition, the Company expects to pay a total of approximately €65 million for other European reorganization and integration activities, approximately 60% of which will be expensed. Approximately 70% of these payments were made by the end of 2006 and the Company expects that most of the balance will be paid by the end of 2007.

The European restructuring accrual recorded in the second quarter of 2005 was in addition to the initial estimated accrual of €63.8 million recorded in 2004. Selected information related to the restructuring accrual is as follows, with 2007 activity translated from Euros into dollars at the June 30, 2007 exchange rate:

20




Total European restructuring accrual (€110.9 million)

 

$

134.1

 

Net cash paid, principally severance and related benefits

 

(41.0

)

Other, principally translation

 

(12.2

)

Remaining European restructuring accrual as of December 31, 2005

 

80.9

 

Net cash paid, principally severance and related benefits

 

(33.7

)

Partial reversal of accrual (goodwill adjustment)

 

(7.6

)

Other, principally translation

 

(1.5

)

Remaining European restructuring accrual as of December 31, 2006

 

38.1

 

Net cash paid, principally severance and related benefits

 

(7.9

)

Other, principally translation

 

0.5

 

Remaining European restructuring accrual as of March 31, 2007

 

30.7

 

Net cash paid, principally severance and related benefits

 

(2.7

)

Other, principally translation

 

0.6

 

Remaining European restructuring accrual as of June 30, 2007

 

$

28.6

 

 

10.  Pensions

The components of the net periodic pension (income) cost for the three months ended June 30, 2007 and 2006 were as follows:

 

2007

 

2006

 

Service cost

 

$

14.2

 

$

16.8

 

Interest cost

 

53.0

 

51.3

 

Expected asset return

 

(78.7

)

(74.5

)

 

 

 

 

 

 

Amortization:

 

 

 

 

 

Loss

 

11.5

 

15.1

 

Prior service credit

 

(0.2

)

 

 

Net amortization

 

11.3

 

15.1

 

Net periodic pension (income) cost

 

$

(0.2

)

$

8.7

 

Total for continuing operations

 

0.4

 

8.6

 

Total for discontinued operations

 

(0.6

)

0.1

 

 

 

$

(0.2

)

$

8.7

 

 

The components of the net periodic pension (income) cost for the six months ended June 30, 2007 and 2006 were as follows:

21




 

 

2007

 

2006

 

Service cost

 

$

28.1

 

$

33.2

 

Interest cost

 

105.3

 

101.8

 

Expected asset return

 

(156.7

)

(148.0

)

 

 

 

 

 

 

Amortization:

 

 

 

 

 

Loss

 

23.0

 

29.9

 

Prior service credit

 

(0.4

)

 

 

Net amortization

 

22.6

 

29.9

 

Net periodic pension (income) cost

 

$

(0.7

)

$

16.9

 

Total for continuing operations

 

0.6

 

16.6

 

Total for discontinued operations

 

(1.3

)

0.3

 

 

 

$

(0.7

)

$

16.9

 

 

11.  Postretirement Benefits Other Than Pensions

The components of the net postretirement benefit cost for the three months ended June 30, 2007 and 2006 were as follows:

 

2007

 

2006

 

Service cost

 

$

0.9

 

$

1.2

 

Interest cost

 

4.4

 

4.4

 

 

 

 

 

 

 

Amortization:

 

 

 

 

 

Prior service credit

 

(1.1

)

(1.0

)

Loss

 

1.6

 

1.2

 

Net amortization

 

0.5

 

0.2

 

Net postretirement benefit cost

 

$

5.8

 

$

5.8

 

Total for continuing operations

 

5.0

 

5.1

 

Total for discontinued operations

 

0.8

 

0.7

 

 

 

$

5.8

 

$

5.8

 

 

The components of the net postretirement benefit cost for the six months ended June 30, 2007 and 2006 were as follows:

22




 

 

2007

 

2006

 

Service cost

 

$

1.7

 

$

2.4

 

Interest cost

 

8.7

 

8.8

 

 

 

 

 

 

 

Amortization:

 

 

 

 

 

Prior service credit

 

(2.1

)

(2.1

)

Loss

 

3.2

 

2.4

 

Net amortization

 

1.1

 

0.3

 

Net postretirement benefit cost

 

$

11.5

 

$

11.5

 

Total for continuing operations

 

10.0

 

10.1

 

Total for discontinued operations

 

1.5

 

1.4

 

 

 

$

11.5

 

$

11.5

 

 

12. New Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards
No. 157 “Fair Value Measurements” (“FAS No. 157”).  FAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements.  FAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements.  The statement does not require any new fair value measurements.  The statement is effective for fiscal years beginning after November 15, 2007.   Adoption of FAS No. 157 is not expected to have a material impact on the Company’s results of operations or financial position.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“FAS No. 159”).  FAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  The statement is effective for fiscal years beginning after November 15, 2007.   Adoption of FAS No. 159 is not expected to have a material impact on the Company’s results of operations or financial position.

13. Adoption of FIN 48

The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes”, (“FIN 48”), as of January, 1, 2007.  This interpretation was issued to clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS No. 109, “Accounting for Income Taxes”.  FIN 48 defines criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and also includes requirements for measuring the amount of the benefit to be recognized in the financial statements. As a result of the implementation of FIN 48, the Company recognized no adjustment in the liability for unrecognized income tax benefits.  The Company reclassified $8.9 million of deferred tax assets related to United States general business credits that were previously offset by a full valuation allowance to the liability for unrecognized income tax benefits.  This balance sheet reclassification had no effect on share owners’ equity.

Information about the Company’s unrecognized income tax benefits is as follows:

23




 

 

Balance

 

2007

 

Balance

 

 

 

Dec. 31, 2006

 

Changes

 

June 30, 2007

 

Unrecognized income tax benefits that affect effective tax rate upon recognition

 

$

18.9

 

$

3.4

 

$

22.3

 

Unrecognized income tax benefits that do not affect tax rate or are offset by valuation allowances

 

25.0

 

 

25.0

 

Interest

 

3.1

 

1.8

 

4.9

 

Penalties

 

 

 

 

Total unrecognized income tax benefits

 

$

47.0

 

$

5.2

 

$

52.2

 

 

The $5.2 million increase recorded for the six month period ended June 30, 2007 is related to a number of changes in estimated unrecognized tax benefits in various tax jurisdictions none of which is individually material. In connection with adopting FIN 48, the Company is maintaining its historical method of accruing interest (net of related tax benefits) and penalties associated with unrecognized income tax benefits as a component of its income tax expense.

The Company files a US federal income tax return as well as income tax returns in multiple state and non-U.S. jurisdictions.  Tax years through 1999 have been settled with the U.S. Internal Revenue Service and there is no current IRS examination in progress. Due to the existence of tax attribute carryforwards (which are currently offset by full valuation allowances) in the U.S., the Company treats certain post-1999 tax positions as unsettled because of the taxing authorities’ ability to modify these attributes.  The 2000 tax year is the earliest open year for the Company’s other major tax jurisdictions.

No changes in settled tax years have occurred from December 31, 2006 to June 30, 2007.

The Company does not anticipate a significant change in the total amount of unrecognized income tax benefits within the next twelve months.

14. Discontinued Operations

On June 11, 2007, the Company announced that it had concluded the strategic review process of its plastics portfolio and entered into a definitive agreement with Rexam PLC to sell its plastics packaging business.  On July 31, 2007, the Company completed the sale for approximately $1.825 billion in cash.

Included in the sale were 19 plastics manufacturing plants in the U.S. (including Puerto Rico), Mexico, Brazil, Hungary, Singapore and Malaysia.  The plastics packaging business is comprised of HealthCare Packaging and Closure & Specialty Products which design, manufacture and sell plastic packaging solutions for companies in the pharmaceutical, healthcare, food and beverage, personal care, household and automotive industries.  The plastics packaging business comprised the Company’s former Plastics Packaging segment.

As required by FAS No. 144, the Company has presented the results of operations for the plastics packaging business in the Condensed Consolidated Results of Operations for the three and six month periods ended June 30, 2007 and 2006 as discontinued operations.  Interest expense was allocated to the discontinued operations based on debt that was required by an amendment to the Agreement to be repaid from the net proceeds.  Amounts for the prior periods

24




have been reclassified to conform to this presentation. At June 30, 2007 and 2006, and December 31, 2006, the assets and liabilities of the plastics packaging business were presented in the Condensed Consolidated Balance Sheet as the assets and liabilities of discontinued operations.

The following summarizes the revenues and expenses of the discontinued operations as reported in the condensed consolidated results of operations for the periods indicated:

 

 

Three months ended

 

Six months ended