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Owens-Illinois 10-Q 2009

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 September 30, 2009

 

 

 

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 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 x     

 

     No o

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(do not check if a smaller reporting company)

 

 

 

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 — 168,510,354 shares at September 30, 2009.

 

 

 



 

Part I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

The Condensed Consolidated Financial Statements of Owens-Illinois, Inc. (“the Company”) presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated.  All adjustments are of a normal recurring nature. Because the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008. The Company has evaluated subsequent events through October 29, 2009, the date the financial statements were issued.

 

Effective January 1, 2009, the Company adopted the provisions of a new accounting standard which changed the presentation of noncontrolling interests in subsidiaries. The format of the Company’s condensed consolidated results of operations for the three and nine months ended September 30, 2008, condensed consolidated cash flows for the nine months ended September 30, 2008, and condensed consolidated balance sheets at September 30, 2008 and December 31, 2008 have been reclassified to conform to the new presentation which is required to be applied retrospectively.

 

Effective January 1, 2009, the Company adopted the provisions of a new accounting standard which required the Company to allocate earnings to unvested restricted shares outstanding during the period. Earnings per share for the three and nine months ended September 30, 2008 were restated in accordance with the new provisions which are required to be applied retrospectively.

 

2



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

 (Dollars in millions, except per share amounts)

 

 

 

Three months ended September 30,

 

 

 

2009

 

2008

 

Net sales

 

$

1,874.6

 

$

2,008.6

 

Manufacturing, shipping, and delivery expense

 

(1,425.9

)

(1,601.3

)

Gross profit

 

448.7

 

407.3

 

 

 

 

 

 

 

Selling and administrative expense

 

(128.2

)

(120.8

)

Research, development, and engineering expense

 

(14.3

)

(17.1

)

Interest expense

 

(58.6

)

(66.3

)

Interest income

 

6.1

 

10.4

 

Equity earnings

 

11.9

 

12.9

 

Royalties and net technical assistance

 

3.4

 

5.0

 

Other income

 

2.4

 

1.9

 

Other expense

 

(78.6

)

(94.5

)

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

192.8

 

138.8

 

Provision for income taxes

 

(63.8

)

(42.2

)

 

 

 

 

 

 

Net earnings

 

129.0

 

96.6

 

Net earnings attributable to noncontrolling interests

 

(2.3

)

(18.0

)

Net earnings attributable to the Company

 

$

126.7

 

$

78.6

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.75

 

$

0.47

 

 

 

 

 

 

 

Weighted average shares outstanding (thousands)

 

167,877

 

165,462

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.74

 

$

0.46

 

 

 

 

 

 

 

Weighted diluted average shares (thousands)

 

171,543

 

170,058

 

 

3



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

 (Dollars in millions, except per share amounts)

 

 

 

Nine months ended September 30,

 

 

 

2009

 

2008

 

Net sales

 

$

5,200.6

 

$

6,179.7

 

Manufacturing, shipping, and delivery expense

 

(4,047.7

)

(4,790.4

)

Gross profit

 

1,152.9

 

1,389.3

 

 

 

 

 

 

 

Selling and administrative expense

 

(369.1

)

(379.4

)

Research, development, and engineering expense

 

(42.3

)

(51.0

)

Interest expense

 

(164.6

)

(199.8

)

Interest income

 

21.1

 

29.1

 

Equity earnings

 

39.6

 

36.7

 

Royalties and net technical assistance

 

9.7

 

14.8

 

Other income

 

4.9

 

5.1

 

Other expense

 

(157.4

)

(130.3

)

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

494.8

 

714.5

 

Provision for income taxes

 

(144.5

)

(183.0

)

Earnings from continuing operations

 

350.3

 

531.5

 

Gain on sale of discontinued operations

 

 

 

7.9

 

Net earnings

 

350.3

 

539.4

 

Net earnings attributable to noncontrolling interests

 

(29.2

)

(51.4

)

Net earnings attributable to the Company

 

$

321.1

 

$

488.0

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

Earnings from continuing operations

 

$

321.1

 

$

480.1

 

Gain on sale of discontinued operations

 

 

 

7.9

 

Net earnings

 

$

321.1

 

$

488.0

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.91

 

$

2.89

 

Gain on sale of discontinued operations

 

 

 

0.05

 

Net earnings

 

$

1.91

 

$

2.94

 

Weighted average shares outstanding (thousands)

 

167,577

 

162,390

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.89

 

$

2.81

 

Gain on sale of discontinued operations

 

 

 

0.05

 

Net earnings

 

$

1.89

 

$

2.86

 

Weighted diluted average shares (thousands)

 

170,160

 

170,483

 

 

See accompanying notes.

 

4



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (Dollars in millions, except per share amounts)

 

 

 

Sept. 30,

 

Dec. 31,

 

Sept. 30,

 

 

 

2009

 

2008

 

2008

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,017.1

 

$

379.5

 

$

410.5

 

Short-term investments, at cost which approximates market

 

0.9

 

25.0

 

34.0

 

Receivables, less allowances for losses and discounts ($36.7 at September 30, 2009, $39.7 at December 31, 2008, and $37.5 at September 30, 2008)

 

1,146.6

 

988.8

 

1,194.1

 

Inventories

 

1,035.4

 

999.5

 

1,141.2

 

Prepaid expenses

 

45.5

 

51.9

 

57.3

 

 

 

 

 

 

 

 

 

Total current assets

 

3,245.5

 

2,444.7

 

2,837.1

 

 

 

 

 

 

 

 

 

Investments and other assets:

 

 

 

 

 

 

 

Equity investments

 

124.0

 

101.7

 

94.5

 

Repair parts inventories

 

144.2

 

132.5

 

136.3

 

Prepaid pension

 

 

 

 

 

624.9

 

Deposits, receivables, and other assets

 

513.9

 

444.5

 

462.4

 

Goodwill

 

2,382.3

 

2,207.5

 

2,333.3

 

 

 

 

 

 

 

 

 

Total other assets

 

3,164.4

 

2,886.2

 

3,651.4

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, at cost

 

6,559.2

 

5,983.1

 

6,345.9

 

Less accumulated depreciation

 

3,849.3

 

3,337.5

 

3,597.0

 

 

 

 

 

 

 

 

 

Net property, plant, and equipment

 

2,709.9

 

2,645.6

 

2,748.9

 

 

 

 

 

 

 

 

 

Total assets

 

$

9,119.8

 

$

7,976.5

 

$

9,237.4

 

 

5



 

CONDENSED CONSOLIDATED BALANCE SHEETS — Continued

 

 

 

Sept. 30,

 

Dec. 31,

 

Sept. 30,

 

 

 

2009

 

2008

 

2008

 

Liabilities and Share Owners’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

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

 

$

377.6

 

$

393.8

 

$

496.4

 

Current portion of asbestos-related liabilities

 

175.0

 

175.0

 

210.0

 

Accounts payable

 

816.1

 

838.2

 

901.5

 

Other liabilities

 

730.8

 

596.3

 

773.3

 

 

 

 

 

 

 

 

 

Total current liabilities

 

2,099.5

 

2,003.3

 

2,381.2

 

 

 

 

 

 

 

 

 

Long-term debt

 

3,343.9

 

2,940.3

 

2,961.1

 

Deferred taxes

 

160.1

 

77.6

 

72.1

 

Pension benefits

 

706.9

 

741.8

 

273.1

 

Nonpension postretirement benefits

 

242.5

 

239.7

 

273.5

 

Other liabilities

 

368.9

 

360.1

 

361.4

 

Asbestos-related liabilities

 

197.9

 

320.3

 

105.2

 

Commitments and contingencies

 

 

 

 

 

 

 

Share owners’ equity:

 

 

 

 

 

 

 

The Company’s share owners’ equity:

 

 

 

 

 

 

 

Common stock, par value $.01 per share 250,000,000 shares authorized, 179,877,088, 178,705,817, and 178,623,719 shares issued and outstanding, respectively

 

1.8

 

1.8

 

1.8

 

Capital in excess of par value

 

2,935.2

 

2,913.3

 

2,905.0

 

Treasury stock, at cost 11,366,734, 11,556,341, and 11,617,743 shares, respectively

 

(218.0

)

(221.5

)

(222.8

)

Retained earnings (deficit)

 

288.7

 

(32.4

)

197.3

 

Accumulated other comprehensive loss

 

(1,250.5

)

(1,620.6

)

(320.6

)

Total share owners’ equity of the Company

 

1,757.2

 

1,040.6

 

2,560.7

 

Noncontrolling interests

 

242.9

 

252.8

 

249.1

 

Total share owners’ equity

 

2,000.1

 

1,293.4

 

2,809.8

 

Total liabilities and share owners’ equity

 

$

9,119.8

 

$

7,976.5

 

$

9,237.4

 

 

See accompanying notes.

 

6



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

 

 

Nine months ended Sept. 30,

 

 

 

2009

 

2008

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

350.3

 

$

539.4

 

Net earnings attributable to noncontrolling interest

 

(29.2

)

(51.4

)

Gain on sale of discontinued operations

 

 

 

(7.9

)

Non-cash charges (credits):

 

 

 

 

 

Depreciation

 

274.3

 

339.3

 

Amortization of intangibles and other deferred items

 

18.0

 

21.5

 

Amortization of finance fees and debt discount

 

7.3

 

6.0

 

Deferred tax provision (benefit)

 

11.8

 

(43.1

)

Restructuring and asset impairment

 

113.1

 

111.7

 

Other

 

84.2

 

107.2

 

Asbestos-related payments

 

(122.4

)

(140.3

)

Cash paid for restructuring activities

 

(42.7

)

(28.0

)

Change in non-current operating assets

 

13.1

 

4.5

 

Change in non-current liabilities

 

(96.8

)

(73.8

)

Change in components of working capital

 

(1.6

)

(204.2

)

Cash provided by operating activities

 

579.4

 

580.9

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property, plant, and equipment

 

(193.7

)

(238.5

)

Advances to equity affiliate - net

 

1.6

 

(8.1

)

Acquisitions, net of cash acquired

 

(5.4

)

 

 

Net cash proceeds (payments) related to divestitures and asset sales

 

4.4

 

(16.0

)

Cash utilized in investing activities

 

(193.1

)

(262.6

)

Cash flows from financing activities:

 

 

 

 

 

Additions to long-term debt

 

1,072.6

 

636.8

 

Repayments of long-term debt

 

(750.0

)

(906.4

)

Increase (decrease) in short-term loans

 

(55.1

)

66.0

 

Net receipts (payments) for hedging activity

 

17.9

 

(47.1

)

Payment of finance fees

 

(13.9

)

 

 

Convertible preferred stock dividends

 

 

 

(5.4

)

Dividends paid to noncontrolling interests

 

(58.3

)

(46.1

)

Issuance of common stock and other

 

6.1

 

14.5

 

Cash provided by (utilized in) financing activities

 

219.3

 

(287.7

)

Effect of exchange rate fluctuations on cash

 

32.0

 

(7.8

)

Increase in cash

 

637.6

 

22.8

 

Cash at beginning of period

 

379.5

 

387.7

 

Cash at end of period

 

$

1,017.1

 

$

410.5

 

 

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 Sept. 30,

 

 

 

2009

 

2008

 

Numerator:

 

 

 

 

 

Net earnings attributable to the Company

 

$

126.7

 

$

78.6

 

Net earnings attributable to participating securities

 

(0.4

)

(0.7

)

 

 

 

 

 

 

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

 

$

126.3

 

$

77.9

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

167,877,352

 

165,461,841

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

Stock options and other

 

3,665,804

 

4,596,597

 

 

 

 

 

 

 

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

 

171,543,156

 

170,058,438

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.75

 

$

0.47

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.74

 

$

0.46

 

 

Options to purchase 400,182 and 422,331 weighted average shares of common stock that were outstanding during the three months ended September 30, 2009 and 2008, 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:

 

 

 

Nine months ended Sept. 30,

 

 

 

2009

 

2008

 

Numerator:

 

 

 

 

 

Net earnings attributable to the Company

 

$

321.1

 

$

488.0

 

Convertible preferred stock dividends

 

 

 

(5.4

)

Net earnings attributable to participating securities

 

(1.1

)

(4.6

)

 

 

 

 

 

 

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

 

$

320.0

 

$

478.0

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

167,576,712

 

162,390,032

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

Convertible preferred stock

 

 

 

2,863,118

 

Stock options and other

 

2,583,478

 

5,230,316

 

 

 

 

 

 

 

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

 

170,160,190

 

170,483,466

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.91

 

$

2.89

 

Gain on sale of discontinued operations

 

 

 

0.05

 

 

 

 

 

 

 

Net earnings

 

$

1.91

 

$

2.94

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.89

 

$

2.81

 

Gain on sale of discontinued operations

 

 

 

0.05

 

 

 

 

 

 

 

Net earnings

 

$

1.89

 

$

2.86

 

 

The convertible preferred stock was included in the computation of diluted earnings per share for the nine months ended September 30, 2008 on an “if converted” basis for the period prior to its actual conversion on March 31, 2008, since the result was dilutive. For purposes of this computation, the preferred stock dividends were not subtracted from the numerator. Options to purchase 1,196,593 and 186,495 weighted average shares of common stock that were outstanding during the nine months ended September 30, 2009 and 2008, 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.

 

Effective January 1, 2009, the Company adopted the provisions of a new accounting standard which addresses whether instruments granted in share-based payment awards are participating securities prior to vesting and, therefore, must be included in the earnings allocation in calculating earnings per share under the two-class method. The new provisions require that unvested share-based payment awards that contain non-forfeitable rights to dividends be treated as participating securities in calculating earnings per share. The Company was required to allocate earnings to unvested restricted shares outstanding during the period. Basic earnings per share for the nine months ended September 30, 2008 were reduced by $0.03 per share in

 

9



 

accordance with the new provisions which require retrospective application.  Basic earnings per share for the three months ended September 30, 2008 were not impacted.  There was no impact on basic earnings per share for the three and nine months ended September 30, 2009 or diluted earnings per share in any period.

 

2.  Debt

 

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

 

 

 

Sept. 30,

 

Dec. 31,

 

Sept. 30,

 

 

 

2009

 

2008

 

2008

 

Secured Credit Agreement:

 

 

 

 

 

 

 

Revolving Credit Facility:

 

 

 

 

 

 

 

Revolving Loans

 

$

 

$

18.7

 

$

 

Term Loans:

 

 

 

 

 

 

 

Term Loan A (225.0 million AUD)

 

197.9

 

155.7

 

180.2

 

Term Loan B

 

191.5

 

191.5

 

191.5

 

Term Loan C (110.8 million CAD)

 

102.5

 

90.9

 

105.5

 

Term Loan D (€191.5 million)

 

280.2

 

269.6

 

274.9

 

Senior Notes:

 

 

 

 

 

 

 

8.25%, due 2013

 

461.2

 

470.0

 

450.9

 

6.75%, due 2014

 

400.0

 

400.0

 

400.0

 

6.75%, due 2014 (€225 million)

 

329.2

 

316.8

 

323.0

 

7.375%, due 2016

 

581.4

 

 

 

 

 

6.875%, due 2017 (€300 million)

 

438.9

 

422.4

 

430.6

 

Senior Debentures:

 

 

 

 

 

 

 

7.50%, due 2010

 

28.4

 

259.5

 

253.6

 

7.80%, due 2018

 

250.0

 

250.0

 

250.0

 

Other

 

126.0

 

113.4

 

113.1

 

Total long-term debt

 

3,387.2

 

2,958.5

 

2,973.3

 

Less amounts due within one year

 

43.3

 

18.2

 

12.2

 

Long-term debt

 

$

3,343.9

 

$

2,940.3

 

$

2,961.1

 

 

On June 14, 2006, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”).  At September 30, 2009, the Agreement included a $900.0 million revolving credit facility, a 225.0 million Australian dollar term loan, and a 110.8 million Canadian dollar term loan, each of which has a final maturity date of June 15, 2012.  It also included a $191.5 million term loan and a €191.5 million term loan, each of which has a final maturity date of June 14, 2013.

 

As a result of the bankruptcy of Lehman Brothers Holdings Inc. and several of its subsidiaries, the Company believes that the maximum amount available under the revolving credit facility was reduced by $32.3 million.  After further deducting amounts attributable to letters of credit and overdraft facilities that are supported by the revolving credit facility, at September 30, 2009 the Company’s subsidiary borrowers had unused credit of $761.2 million available under the Agreement.

 

The weighted average interest rate on borrowings outstanding under the Agreement at September 30, 2009 was 2.40%.

 

During May 2009, a subsidiary of the Company issued senior notes with a face value of $600.0 million issued at 96.72% of face value for an effective interest rate of 8.00%.  The notes bear

 

10



 

interest at 7.375% and are due May 15, 2016.  The notes are guaranteed by substantially all of the Company’s domestic subsidiaries.  The net proceeds, after deducting commissions and expenses from the notes, approximated $568 million and were used to purchase in a tender offer $221.9 million of the $250 million principal amount of 7.50% Senior Debentures due May 2010 and to reduce borrowings under the revolving credit facility.  The balance of the proceeds increased cash.  As a part of the issuance of these notes and the related tender offer, the Company recorded in the second quarter of 2009 additional interest charges of $5.2 million for note repurchase premiums and the related write-off of unamortized finance fees, net of a gain from the termination of the interest rate swap agreement on the notes.

 

During October 2006, the Company entered into a €300 million European accounts receivable securitization program.  The program extends through October 2011, subject to annual renewal of backup credit lines.  In addition, the Company participates in a receivables financing program in the Asia Pacific region with a revolving funding commitment of 85 million Australian dollars and 25 million New Zealand dollars that expire January 2010 and November 2009, respectively.

 

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

 

 

 

Sept. 30,

 

Dec. 31,

 

Sept. 30,

 

 

 

2009

 

2008

 

2008

 

 

 

 

 

 

 

 

 

Balance (included in short-term loans)

 

$

289.4

 

$

293.7

 

$

390.5

 

 

 

 

 

 

 

 

 

Weighted average interest rate

 

1.70

%

5.31

%

6.00

%

 

The carrying amounts reported for the accounts receivable securitization programs, and certain long-term debt obligations subject to frequently redetermined interest rates, approximate fair value.  Fair values for the Company’s significant fixed rate debt obligations are generally based on published market quotations.

 

Fair values at September 30, 2009 of the Company’s significant fixed rate debt obligations are as follows:

 

 

 

Principal Amount

 

Indicated

 

Fair Value

 

 

 

(millions of

 

Market

 

(millions of

 

 

 

dollars)

 

Price

 

dollars)

 

 

 

 

 

 

 

 

 

Senior Notes:

 

 

 

 

 

 

 

8.25%, due 2013

 

$

450.0

 

102.65

 

$

461.9

 

6.75%, due 2014

 

400.0

 

99.13

 

396.5

 

6.75%, due 2014 (€225 million)

 

329.2

 

99.50

 

327.6

 

7.375%, due 2016

 

600.0

 

102.25

 

613.5

 

6.875%, due 2017 (€300 million)

 

438.9

 

98.33

 

431.6

 

Senior Debentures:

 

 

 

 

 

 

 

7.50%, due 2010

 

28.1

 

103.00

 

28.9

 

7.80%, due 2018

 

250.0

 

100.25

 

250.6

 

 

11



 

3.  Supplemental Cash Flow Information

 

 

 

Nine months ended September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Interest paid in cash

 

$

131.7

 

$

174.6

 

 

 

 

 

 

 

Income taxes paid in cash

 

123.5

 

106.6

 

 

Cash interest for 2009 includes note repurchase premiums and the proceeds from the settlement of interest rate swaps related to the May tender of the Company’s 7.50% Senior Debentures due May 2010.

 

4.  Share Owners’ Equity

 

The activity in share owners’ equity for the three months ended September 30, 2009 and 2008 is as follows:

 

12



 

 

 

 

 

Share Owners’ Equity of the Company

 

 

 

 

 

Total Share
Owners’
Equity

 

Common Stock,
Capital in
Excess of Par
Value, and
Treasury Stock

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Non-
controlling
Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on July 1, 2009

 

$

1,680.5

 

$

2,710.6

 

$

162.0

 

$

(1,424.4

)

$

232.3

 

Issuance of common stock

 

7.0

 

7.0

 

 

 

 

 

 

 

Reissuance of common stock

 

1.4

 

1.4

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

129.0

 

 

 

126.7

 

 

 

2.3

 

Foreign currency translation adjustments

 

158.4

 

 

 

 

 

147.2

 

11.2

 

Pension and other postretirement benefit adjustments, net of tax

 

10.8

 

 

 

 

 

10.8

 

 

 

Change in fair value of derivative instruments, net of tax

 

15.9

 

 

 

 

 

15.9

 

 

 

Total comprehensive income

 

314.1

 

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(2.9

)

 

 

 

 

 

 

(2.9

)

Balance on September 30, 2009

 

$

2,000.1

 

$

2,719.0

 

$

288.7

 

$

(1,250.5

)

$

242.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Owners’ Equity of the Company

 

 

 

 

 

Total Share
Owners’
Equity

 

Common Stock,
Capital in
Excess of Par
Value, and
Treasury Stock

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Non-
controlling
Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on July 1, 2008

 

$

3,095.7

 

$

2,676.6

 

$

118.7

 

$

43.0

 

$

257.4

 

Issuance of common stock

 

6.0

 

6.0

 

 

 

 

 

 

 

Reissuance of common stock

 

1.4

 

1.4

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

96.6

 

 

 

78.6

 

 

 

18.0

 

Foreign currency translation adjustments

 

(335.2

)

 

 

 

 

(313.4

)

(21.8

)

Pension and other postretirement benefit adjustments, net of tax

 

6.8

 

 

 

 

 

6.8

 

 

 

Change in fair value of derivative instruments, net of tax

 

(57.0

)

 

 

 

 

(57.0

)

 

 

Total comprehensive loss

 

(288.8

)

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(4.5

)

 

 

 

 

 

 

(4.5

)

Balance on September 30, 2008

 

$

2,809.8

 

$

2,684.0

 

$

197.3

 

$

(320.6

)

$

249.1

 

 

13



 

The activity in share owners’ equity for the nine months ended September 30, 2009 and 2008 is as follows:

 

 

 

 

 

Share Owners’ Equity of the Company

 

 

 

 

 

Total Share
Owners’
Equity

 

Common Stock,
Capital in
Excess of Par
Value, and
Treasury Stock

 

Retained
Earnings
(Deficit)

 

Accumulated
Other
Comprehensive
Loss

 

Non-
controlling
Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on January 1, 2009

 

$

1,293.4

 

$

2,693.6

 

$

(32.4

)

$

(1,620.6

)

$

252.8

 

Issuance of common stock

 

21.1

 

21.1

 

 

 

 

 

 

 

Reissuance of common stock

 

4.3

 

4.3

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

350.3

 

 

 

321.1

 

 

 

29.2

 

Foreign currency translation adjustments

 

338.1

 

 

 

 

 

318.9

 

19.2

 

Pension and other postretirement benefit adjustments, net of tax

 

26.5

 

 

 

 

 

26.5

 

 

 

Change in fair value of derivative instruments, net of tax

 

24.7

 

 

 

 

 

24.7

 

 

 

Total comprehensive income

 

739.6

 

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(58.3

)

 

 

 

 

 

 

(58.3

)

Balance on September 30, 2009

 

$

2,000.1

 

$

2,719.0

 

$

288.7

 

$

(1,250.5

)

$

242.9

 

 

 

 

 

 

Share Owners’ Equity of the Company

 

 

 

 

 

Total Share
Owners’
Equity

 

Common Stock,
Capital in
Excess of Par
Value, and
Treasury Stock

 

Retained
Earnings
(Deficit)

 

Accumulated
Other
Comprehensive

Loss

 

Non-
controlling
Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on January 1, 2008

 

$

1,986.6

 

$

2,197.1

 

$

(285.3

)

$

(176.9

)

$

251.7

 

Issuance of common stock

 

482.5

 

482.5

 

 

 

 

 

 

 

Reissuance of common stock

 

4.4

 

4.4

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

539.4

 

 

 

488.0

 

 

 

51.4

 

Foreign currency translation adjustments

 

(160.3

)

 

 

 

 

(152.4

)

(7.9

)

Pension and other postretirement benefit adjustments, net of tax

 

24.8

 

 

 

 

 

24.8

 

 

 

Change in fair value of derivative instruments, net of tax

 

(16.1

)

 

 

 

 

(16.1

)

 

 

Total comprehensive income

 

387.8

 

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(46.1

)

 

 

 

 

 

 

(46.1

)

Dividends paid on convertible preferred stock

 

(5.4

)

 

 

(5.4

)

 

 

 

 

Balance on September 30, 2008

 

$

2,809.8

 

$

2,684.0

 

$

197.3

 

$

(320.6

)

$

249.1

 

 

14



 

5.  Inventories

 

Major classes of inventory are as follows:

 

 

 

Sept. 30,

 

Dec. 31,

 

Sept. 30,

 

 

 

2009

 

2008

 

2008

 

Finished goods

 

$

862.5

 

$

831.7

 

$

974.0

 

Work in process

 

1.1

 

0.8

 

1.2

 

Raw materials

 

116.9

 

109.8

 

101.8

 

Operating supplies

 

54.9

 

57.2

 

64.2

 

 

 

$

 1,035.4

 

$

999.5

 

$

1,141.2

 

 

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 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 September 30, 2009, the Company has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 7,000 plaintiffs and claimants.  Based on an analysis of the lawsuits pending as of December 31, 2008, approximately 84% of plaintiffs either do not specify the monetary damages sought, or in the case of court filings, claim an amount sufficient to invoke the jurisdictional minimum of the trial court.  Approximately 15% of plaintiffs specifically plead damages of $15 million or less, and fewer than 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 $122 million.

 

As indicated by the foregoing summary, current pleading practice permits considerable variation in the assertion of monetary damages.  The Company’s experience resolving hundreds of thousands of asbestos claims and lawsuits over an extended period, demonstrates that the monetary relief which may be alleged in a complaint bears little relevance to a claim’s merits or disposition value.  Rather, the amount potentially recoverable is determined by such factors as the plaintiff’s severity of disease, the product identification evidence against specific defendants, the defenses available to those defendants, the specific jurisdiction in which the claim is made, and the plaintiff’s history of smoking or exposure to other possible disease-causative factors.

 

In addition to the pending claims set forth above, the Company has claims-handling agreements in place with many plaintiffs’ counsel throughout the country.  These agreements require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by such agreements. The criteria for such claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by the 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

 

15



 

believes that as of September 30, 2009 there are approximately 760 claims against other defendants which are likely to be asserted some time in the future against the Company. These claims are not included in the pending “lawsuits and claims” totals set forth above.

 

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

 

Since receiving its first asbestos claim, the Company as of September 30, 2009, has disposed of the asbestos claims of approximately 374,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $7,400.  Certain of these dispositions have included deferred amounts payable over a number of years.  Deferred amounts payable totaled approximately $33.2 million at September 30, 2009 ($34.0 million at December 31, 2008) 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.  Failure of claimants to meet certain medical and product exposure criteria in the Company’s administrative claims handling agreements has generally reduced the number of marginal or suspect claims that would otherwise have been received. This may have the effect of increasing the Company’s per-claim average indemnity payment over time.

 

The Company believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot be estimated with certainty. Beginning with the initial liability of $975 million established in 1993, the Company has accrued a total of approximately $3.47 billion through 2008, before insurance recoveries, for its asbestos-related liability.  The Company’s ability reasonably to estimate its liability has been significantly affected by the volatility of asbestos-related litigation in the United States, the inherent uncertainty of future disease incidence and claiming patterns, the expanding list of non-traditional defendants that have been sued in this litigation and found liable for substantial damage awards, the use of mass litigation screenings to generate new lawsuits, the large number of claims asserted or filed by parties who claim prior exposure to asbestos materials but have no present physical impairment as a result of such exposure, and the significant number of co-defendants that have filed for bankruptcy.

 

The Company has continued to monitor trends which may affect its ultimate liability and has continued to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against the Company. The material components of the 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:

 

16



 

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 to which the Company’s accelerated settlements in 2007 and 2008 impact the number and type of future claims and lawsuits;

 

d)   the extent of decrease or increase in the incidence of serious disease cases and claiming patterns for such cases;

 

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

 

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

 

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

 

h)   the number and timing of additional co-defendant bankruptcies; and

 

i)   the extent to which co-defendant bankruptcy trusts direct resources to resolve claims that are also presented to the Company and the timing of the payments made by the bankruptcy trusts.

 

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

 

Other litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that are non-routine and involve compensatory, punitive or treble damage claims as well as other types of relief.  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 2008 were materially affected by

 

17



 

the $250.0 million ($248.8 million after tax) fourth quarter charge for asbestos-related costs and asbestos-related payments continue to be substantial.  Any future additional charge would likewise materially affect the 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 has four reportable segments based on its four geographic locations:  (1) Europe; (2) North America; (3) South America; (4) Asia Pacific.  These four segments are aligned with the Company’s internal approach to managing, reporting, and evaluating performance of its global glass operations.  Certain assets and activities not directly related to one of the regions or to glass manufacturing are reported with Retained Corporate Costs and Other.  These include licensing, equipment manufacturing, global engineering, and non-glass equity investments.  Retained Corporate Costs and Other also includes certain headquarters administrative and facilities costs and certain incentive compensation and other benefit plan costs that are global in nature and are not allocable to the reportable segments.

 

The 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 Company’s management uses Segment Operating Profit, in combination with selected cash flow information, to evaluate performance and to allocate resources.

 

Segment Operating Profit for reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided.

 

Financial information for the three-month periods ended September 30, 2009 and 2008 regarding the Company’s reportable segments is as follows:

 

 

 

2009

 

2008

 

Net sales:

 

 

 

 

 

Europe

 

$

785.9

 

$

869.7

 

North America

 

538.5

 

580.6

 

South America

 

290.5

 

299.1

 

Asia Pacific

 

252.1

 

248.7

 

Reportable segment totals

 

1,867.0

 

1,998.1

 

Other

 

7.6

 

10.5

 

Net sales

 

$

1,874.6

 

$

2,008.6

 

 

18



 

 

 

2009

 

2008

 

Segment Operating Profit:

 

 

 

 

 

Europe

 

$

128.4

 

$

114.8

 

North America

 

82.9

 

41.7

 

South America

 

63.6

 

92.4

 

Asia Pacific

 

41.7

 

38.7

 

Reportable segment totals

 

316.6

 

287.6

 

 

 

 

 

 

 

Items excluded from Segment Operating Profit:

 

 

 

 

 

Retained corporate costs and other

 

(13.8

)

(2.3

)

Restructuring and asset impairments

 

(57.5

)

(90.6

)

Interest income

 

6.1

 

10.4

 

Interest expense

 

(58.6

)

(66.3

)

Earnings from continuing operations before income taxes

 

$

192.8

 

$

138.8

 

 

Financial information for the nine-month periods ended September 30, 2009 and 2008 regarding the Company’s reportable segments is as follows:

 

 

 

2009

 

2008

 

Net sales:

 

 

 

 

 

Europe

 

$

2,192.7

 

$

2,804.3

 

North America

 

1,593.2

 

1,717.8

 

South America

 

754.4

 

847.4

 

Asia Pacific

 

626.9

 

741.0

 

 

 

 

 

 

 

Reportable segment totals

 

5,167.2

 

6,110.5

 

Other

 

33.4

 

69.2

 

Net sales

 

$

5,200.6

 

$

6,179.7