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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 June 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 — 168,382,009 shares at June 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.

 

Effective January 1, 2009, the Company adopted the provisions of FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51,” which changed the presentation of noncontrolling interests in subsidiaries. The format of the Company’s condensed consolidated results of operations for the three and six months ended June 30, 2008, condensed consolidated cash flows for the six months ended June 30, 2008, and condensed consolidated balance sheets at June 30, 2008 and December 31, 2008 have been reclassified to conform to the new presentation under FAS No. 160 which is required to be applied retrospectively.

 

Effective January 1, 2009, the Company adopted the provisions of FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities,” which required the Company to allocate earnings to unvested restricted shares outstanding during the period. Earnings per share for the three and six months ended June 30, 2008 were restated in accordance with FSP No. EITF 03-6-1which is required to be applied retrospectively.

 

Effective for the second quarter of 2009, the Company adopted the provisions of FAS No. 165, “Subsequent Events”.  FAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.  Adoption of FAS No. 165 had no impact on the Company’s results of operations, financial position or cash flows.  The Company has evaluated all subsequent events through August 7, 2009, the date the financial statements were issued.

 

2



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)

 

 

 

Three months ended June 30,

 

 

 

2009

 

2008

 

Net sales

 

$

1,807.0

 

$

2,210.6

 

Manufacturing, shipping, and delivery expense

 

(1,399.6

)

(1,685.4

)

Gross profit

 

407.4

 

525.2

 

 

 

 

 

 

 

Selling and administrative expense

 

(122.4

)

(130.8

)

Research, development, and engineering expense

 

(14.1

)

(17.9

)

Interest expense

 

(57.9

)

(69.2

)

Interest income

 

6.5

 

10.0

 

Equity earnings

 

14.1

 

12.7

 

Royalties and net technical assistance

 

3.5

 

5.0

 

Other income

 

0.9

 

1.4

 

Other expense

 

(26.0

)

(15.8

)

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

212.0

 

320.6

 

Provision for income taxes

 

(49.5

)

(75.9

)

Earnings from continuing operations

 

162.5

 

244.7

 

Gain on sale of discontinued operations

 

 

 

3.8

 

Net earnings

 

162.5

 

248.5

 

Net earnings attributable to noncontrolling interests

 

(13.2

)

(17.2

)

Net earnings attributable to the Company

 

$

149.3

 

$

231.3

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

Earnings from continuing operations

 

$

149.3

 

$

227.5

 

Gain on sale of discontinued operations

 

 

 

3.8

 

Net earnings

 

$

149.3

 

$

231.3

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.89

 

$

1.37

 

Gain on sale of discontinued operations

 

 

 

0.02

 

Net earnings

 

$

0.89

 

$

1.39

 

Weighted average shares outstanding (thousands)

 

167,764

 

165,350

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.88

 

$

1.33

 

Gain on sale of discontinued operations

 

 

 

0.02

 

Net earnings

 

$

0.88

 

$

1.35

 

Weighted diluted average shares (thousands)

 

170,493

 

170,550

 

 

3



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)

 

 

 

Six months ended June 30,

 

 

 

2009

 

2008

 

Net sales

 

$

3,326.0

 

$

4,171.1

 

Manufacturing, shipping, and delivery expense

 

(2,621.8

)

(3,189.1

)

Gross profit

 

704.2

 

982.0

 

 

 

 

 

 

 

Selling and administrative expense

 

(240.9

)

(258.6

)

Research, development, and engineering expense

 

(28.0

)

(33.9

)

Interest expense

 

(106.0

)

(133.5

)

Interest income

 

15.0

 

18.7

 

Equity earnings

 

27.7

 

23.8

 

Royalties and net technical assistance

 

6.3

 

9.8

 

Other income

 

2.5

 

3.2

 

Other expense

 

(78.8

)

(35.8

)

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

302.0

 

575.7

 

Provision for income taxes

 

(80.7

)

(140.8

)

Earnings from continuing operations

 

221.3

 

434.9

 

Gain on sale of discontinued operations

 

 

 

7.9

 

Net earnings

 

221.3

 

442.8

 

Net earnings attributable to noncontrolling interests

 

(26.9

)

(33.4

)

Net earnings attributable to the Company

 

$

194.4

 

$

409.4

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

Earnings from continuing operations

 

$

194.4

 

$

401.5

 

Gain on sale of discontinued operations

 

 

 

7.9

 

Net earnings

 

$

194.4

 

$

409.4

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.16

 

$

2.43

 

Gain on sale of discontinued operations

 

 

 

0.05

 

Net earnings

 

$

1.16

 

$

2.48

 

Weighted average shares outstanding (thousands)

 

167,424

 

160,837

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.15

 

$

2.35

 

Gain on sale of discontinued operations

 

 

 

0.05

 

Net earnings

 

$

1.15

 

$

2.40

 

Weighted diluted average shares (thousands)

 

169,481

 

170,611

 

 

See accompanying notes.

 

4



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

 

 

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2009

 

2008

 

2008

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

677.2

 

$

379.5

 

$

366.0

 

Short-term investments, at cost which approximates market

 

4.8

 

25.0

 

23.6

 

Receivables, less allowances for losses and discounts ($37.0 at June 30, 2009, $39.7 at December 31, 2008, and $36.1 at June 30, 2008)

 

1,126.4

 

988.8

 

1,438.4

 

Inventories

 

1,039.0

 

999.5

 

1,234.7

 

Prepaid expenses

 

70.0

 

51.9

 

51.8

 

 

 

 

 

 

 

 

 

Total current assets

 

2,917.4

 

2,444.7

 

3,114.5

 

 

 

 

 

 

 

 

 

Investments and other assets:

 

 

 

 

 

 

 

Equity investments

 

115.7

 

101.7

 

95.2

 

Repair parts inventories

 

139.9

 

132.5

 

154.0

 

Prepaid pension

 

 

 

 

 

614.5

 

Deposits, receivables, and other assets

 

498.1

 

444.5

 

508.5

 

Goodwill

 

2,290.8

 

2,207.5

 

2,546.6

 

 

 

 

 

 

 

 

 

Total other assets

 

3,044.5

 

2,886.2

 

3,918.8

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, at cost

 

6,206.3

 

5,983.1

 

6,811.6

 

Less accumulated depreciation

 

3,554.0

 

3,337.5

 

3,807.9

 

 

 

 

 

 

 

 

 

Net property, plant, and equipment

 

2,652.3

 

2,645.6

 

3,003.7

 

 

 

 

 

 

 

 

 

Total assets

 

$

8,614.2

 

$

7,976.5

 

$

10,037.0

 

 

5



 

CONDENSED CONSOLIDATED BALANCE SHEETS — Continued

 

 

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2009

 

2008

 

2008

 

Liabilities and Share Owners’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

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

 

$

357.8

 

$

393.8

 

$

528.6

 

Current portion of asbestos-related liabilities

 

175.0

 

175.0

 

210.0

 

Accounts payable

 

802.5

 

838.2

 

1,002.1

 

Other liabilities

 

622.6

 

596.3

 

699.6

 

Total current liabilities

 

1,957.9

 

2,003.3

 

2,440.3

 

 

 

 

 

 

 

 

 

Long-term debt

 

3,284.4

 

2,940.3

 

3,260.8

 

Deferred taxes

 

154.2

 

77.6

 

130.7

 

Pension benefits

 

712.4

 

741.8

 

306.5

 

Nonpension postretirement benefits

 

239.0

 

239.7

 

279.1

 

Other liabilities

 

349.7

 

360.1

 

382.0

 

Asbestos-related liabilities

 

236.1

 

320.3

 

141.9

 

Commitments and contingencies

 

 

 

 

 

 

 

Share owners’ equity:

 

 

 

 

 

 

 

The Company’s share owners’ equity:

 

 

 

 

 

 

 

Common stock, par value $.01 per share 250,000,000 shares authorized, 179,791,262, 178,705,817, and 178,588,385 shares issued and outstanding, respectively

 

1.8

 

1.8

 

1.8

 

Capital in excess of par value

 

2,927.6

 

2,913.3

 

2,898.3

 

Treasury stock, at cost 11,409,253, 11,556,341, and 11,655,111 shares, respectively

 

(218.8

)

(221.5

)

(223.5

)

Retained earnings (deficit)

 

162.0

 

(32.4

)

118.7

 

Accumulated other comprehensive income (loss)

 

(1,424.4

)

(1,620.6

)

43.0

 

Total share owners’ equity of the Company

 

1,448.2

 

1,040.6

 

2,838.3

 

Noncontrolling interests

 

232.3

 

252.8

 

257.4

 

Total share owners’ equity

 

1,680.5

 

1,293.4

 

3,095.7

 

Total liabilities and share owners’ equity

 

$

8,614.2

 

$

7,976.5

 

$

10,037.0

 

 

See accompanying notes.

 

6



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

 

 

Six months ended June 30,

 

 

 

2009

 

2008

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

221.3

 

$

442.8

 

Net earnings attributable to noncontrolling interest

 

(26.9

)

(33.4

)

Gain on sale of discontinued operations

 

 

 

(7.9

)

Non-cash charges (credits):

 

 

 

 

 

Depreciation

 

182.2

 

229.2

 

Amortization of intangibles and other deferred items

 

9.3

 

14.3

 

Amortization of finance fees

 

4.0

 

4.0

 

Deferred tax benefit

 

(0.4

)

(3.0

)

Restructuring and asset impairment

 

55.6

 

21.1

 

Other

 

68.0

 

55.1

 

Asbestos-related payments

 

(84.2

)

(103.6

)

Cash paid for restructuring activities

 

(33.2

)

(16.6

)

Change in non-current operating assets

 

11.1

 

2.2

 

Change in non-current liabilities

 

(67.7

)

(56.9

)

Change in components of working capital

 

(155.9

)

(275.1

)

Cash provided by operating activities

 

183.2

 

272.2

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property, plant, and equipment

 

(124.1

)

(129.0

)

Advances to equity affiliate - net

 

1.6

 

(13.3

)

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

 

4.2

 

(16.6

)

Cash utilized in investing activities

 

(118.3

)

(158.9

)

Cash flows from financing activities:

 

 

 

 

 

Additions to long-term debt

 

1,070.4

 

636.8

 

Repayments of long-term debt

 

(745.8

)

(754.4

)

Increase (decrease) in short-term loans

 

(65.5

)

43.2

 

Net payments for hedging activity

 

29.1

 

(46.8

)

Payment of finance fees

 

(11.8

)

 

 

Convertible preferred stock dividends

 

 

 

(5.4

)

Dividends paid to noncontrolling interests

 

(55.4

)

(41.6

)

Issuance of common stock and other

 

4.3

 

13.9

 

Cash provided by (utilized in) financing activities

 

225.3

 

(154.3

)

Effect of exchange rate fluctuations on cash

 

7.5

 

19.3

 

Increase (decrease) in cash

 

297.7

 

(21.7

)

Cash at beginning of period

 

379.5

 

387.7

 

Cash at end of period

 

$

677.2

 

$

366.0

 

 

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,

 

 

 

2009

 

2008

 

Numerator:

 

 

 

 

 

Net earnings attributable to the Company

 

$

149.3

 

$

231.3

 

Net earnings attributable to participating securities

 

(0.5

)

(2.1

)

 

 

 

 

 

 

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

 

$

148.8

 

$

229.2

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

167,764,443

 

165,350,428

 

Effect of dilutive securities:

 

 

 

 

 

Stock options and other

 

2,728,813

 

5,199,220

 

 

 

 

 

 

 

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

 

170,493,256

 

170,549,648

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.89

 

$

1.37

 

Gain on sale of discontinued operations

 

 

 

0.02

 

 

 

 

 

 

 

Net earnings

 

$

0.89

 

$

1.39

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.88

 

$

1.33

 

Gain on sale of discontinued operations

 

 

 

0.02

 

 

 

 

 

 

 

Net earnings

 

$

0.88

 

$

1.35

 

 

Options to purchase 1,043,714 and 137,154 weighted average shares of common stock that were outstanding during the three months ended June 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:

 

 

 

Six months ended June 30,

 

 

 

2009

 

2008

 

Numerator:

 

 

 

 

 

Net earnings attributable to the Company

 

$

194.4

 

$

409.4

 

Convertible preferred stock dividends

 

 

 

(5.4

)

Net earnings attributable to participating securities

 

(0.6

)

(3.9

)

 

 

 

 

 

 

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

 

$

193.8

 

$

400.1

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

167,423,900

 

160,837,250

 

Effect of dilutive securities:

 

 

 

 

 

Convertible preferred stock

 

 

 

4,294,678

 

Stock options and other

 

2,057,253

 

5,478,834

 

 

 

 

 

 

 

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

 

169,481,153

 

170,610,762

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.16

 

$

2.43

 

Gain on sale of discontinued operations

 

 

 

0.05

 

 

 

 

 

 

 

Net earnings

 

$

1.16

 

$

2.48

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

1.15

 

$

2.35

 

Gain on sale of discontinued operations

 

 

 

0.05

 

 

 

 

 

 

 

Net earnings

 

$

1.15

 

$

2.40

 

 

The convertible preferred stock was included in the computation of diluted earnings per share for the six months ended June 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 1,594,799 and 68,577 weighted average shares of common stock that were outstanding during the six months ended June 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 FSP No. EITF 03-6-1, 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 described in FAS No. 128, “Earnings per Share.” FSP No. EITF 03-6-1 requires that unvested share-based payment awards that contain non-forfeitable rights to dividends be treated as participating securities in calculating earnings per share. In accordance with FSP No. EITF 03-6-1, the Company was required to allocate earnings to unvested restricted shares outstanding during the period. Basic earnings

 

9



 

per share for the three and six months ended June 30, 2008 were reduced by $0.01 and $0.03 per share, respectively, in accordance with FSP No. EITF 03-6-1 which requires retrospective application.  There was no impact on basic earnings per share for the three and six months ended June 30, 2009 or diluted earnings per share in any period.

 

2.  Debt

 

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

 

 

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2009

 

2008

 

2008

 

Secured Credit Agreement:

 

 

 

 

 

 

 

Revolving Credit Facility:

 

 

 

 

 

 

 

Revolving Loans

 

$

 

$

18.7

 

$

157.9

 

Term Loans:

 

 

 

 

 

 

 

Term Loan A (225.0 million AUD)

 

182.9

 

155.7

 

216.8

 

Term Loan B

 

191.5

 

191.5

 

191.5

 

Term Loan C (110.8 million CAD)

 

96.0

 

90.9

 

109.8

 

Term Loan D (€191.5 million)

 

270.5

 

269.6

 

302.4

 

Senior Notes:

 

 

 

 

 

 

 

8.25%, due 2013

 

462.0

 

470.0

 

446.2

 

6.75%, due 2014

 

400.0

 

400.0

 

400.0

 

6.75%, due 2014 (€225 million)

 

317.8

 

316.8

 

355.3

 

7.375%, due 2016

 

580.7

 

 

 

 

 

6.875%, due 2017 (€300 million)

 

423.7

 

422.4

 

473.8

 

Senior Debentures:

 

 

 

 

 

 

 

7.50%, due 2010

 

28.6

 

259.5

 

251.9

 

7.80%, due 2018

 

250.0

 

250.0

 

250.0

 

Other

 

124.0

 

113.4

 

117.7

 

Total long-term debt

 

3,327.7

 

2,958.5

 

3,273.3

 

Less amounts due within one year

 

43.3

 

18.2

 

12.5

 

Long-term debt

 

$

3,284.4

 

$

2,940.3

 

$

3,260.8

 

 

On June 14, 2006, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”).  At June 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 June 30, 2009 the Company’s subsidiary borrowers had unused credit of $799.4 million available under the Agreement.

 

The weighted average interest rate on borrowings outstanding under the Agreement at June 30, 2009 was 2.57%.

 

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 October 2009, respectively.

 

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

 

 

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2009

 

2008

 

2008

 

 

 

 

 

 

 

 

 

Balance (included in short-term loans)

 

$

289.5

 

$

293.7

 

$

437.9

 

 

 

 

 

 

 

 

 

Weighted average interest rate

 

2.18

%

5.31

%

5.72

%

 

Effective for the second quarter of 2009, the Company adopted the provisions of FASB Staff Position on Statement of Financial Accounting Standards No. 107 and Accounting Principles Board Opinion No. 28, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS No. 107-1and APB 28-1”).  FSP FAS No. 107-1 and APB 28-1 requires disclosure about fair value of financial instruments for interim reporting periods as well as in annual financial statements.

 

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 June 30, 2009, of the Company’s significant fixed rate debt obligations were as follows:

 

11



 

 

 

Principal Amount

 

Indicated

 

Fair Value

 

 

 

(millions of

 

Market

 

(millions of

 

 

 

dollars)

 

Price

 

dollars)

 

Senior Notes:

 

 

 

 

 

 

 

8.25%, due 2013

 

$

450.0

 

101.25

 

$

455.6

 

6.75%, due 2014

 

400.0

 

94.25

 

377.0

 

6.75%, due 2014 (€225 million)

 

317.8

 

90.63

 

288.0

 

7.375%, due 2016

 

600.0

 

96.13

 

576.8

 

6.875%, due 2017 (€300 million)

 

423.7

 

88.13

 

373.4

 

Senior Debentures:

 

 

 

 

 

 

 

7.50%, due 2010

 

28.1

 

100.80

 

28.3

 

7.80%, due 2018

 

250.0

 

94.50

 

236.3

 

 

3.  Supplemental Cash Flow Information

 

 

 

Six months ended June 30,

 

 

 

2009

 

2008

 

Interest paid in cash

 

$

95.7

 

$

132.8

 

 

 

 

 

 

 

Income taxes paid in cash

 

80.6

 

66.6

 

 

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 June 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 April 1, 2009

 

$

1,256.2

 

$

2,703.7

 

$

12.7

 

$

(1,700.4

)

$

240.2

 

Issuance of common stock

 

5.6

 

5.6

 

 

 

 

 

 

 

Reissuance of common stock

 

1.3

 

1.3

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

162.5

 

 

 

149.3

 

 

 

13.2

 

Foreign currency translation adjustments

 

268.2

 

 

 

 

 

250.9

 

17.3

 

Pension and other postretirement benefit adjustments

 

10.3

 

 

 

 

 

10.3

 

 

 

Change in fair value of derivative instruments, net of tax

 

14.8

 

 

 

 

 

14.8

 

 

 

Total comprehensive income

 

455.8

 

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(38.4

)

 

 

 

 

 

 

(38.4

)

Balance on June 30, 2009

 

$

1,680.5

 

$

2,710.6

 

$

162.0

 

$

(1,424.4

)

$

232.3

 

 

 

 

 

 

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
Income (Loss)

 

Non-
controlling
Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on April 1, 2008

 

$

2,747.2

 

$

2,665.5

 

$

(112.6

)

$

(54.1

)

$

248.4

 

Issuance of common stock

 

8.7

 

8.7

 

 

 

 

 

 

 

Reissuance of common stock

 

2.4

 

2.4

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

248.5

 

 

 

231.3

 

 

 

17.2

 

Foreign currency translation adjustments

 

72.9

 

 

 

 

 

69.7

 

3.2

 

Pension and other postretirement benefit adjustments

 

9.7

 

 

 

 

 

9.7

 

 

 

Change in fair value of derivative instruments, net of tax

 

17.7

 

 

 

 

 

17.7

 

 

 

Total comprehensive income

 

348.8

 

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(11.4

)

 

 

 

 

 

 

(11.4

)

Balance on June 30, 2008

 

$

3,095.7

 

$

2,676.6

 

$

118.7

 

$

43.0

 

$

257.4

 

 

13



 

The activity in share owners’ equity for the six months ended June 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

 

14.1

 

14.1

 

 

 

 

 

 

 

Reissuance of common stock

 

2.9

 

2.9

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

221.3

 

 

 

194.4

 

 

 

26.9

 

Foreign currency translation adjustments

 

179.7

 

 

 

 

 

171.7

 

8.0

 

Pension and other postretirement benefit adjustments

 

15.7

 

 

 

 

 

15.7

 

 

 

Change in fair value of derivative instruments, net of tax

 

8.8

 

 

 

 

 

8.8

 

 

 

Total comprehensive income

 

425.5

 

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(55.4

)

 

 

 

 

 

 

(55.4

)

Balance on June 30, 2009

 

$

1,680.5

 

$

2,710.6

 

$

162.0

 

$

(1,424.4

)

$

232.3

 

 

 

 

 

 

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
Income (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

 

476.5

 

476.5

 

 

 

 

 

 

 

Reissuance of common stock

 

3.0

 

3.0

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

442.8

 

 

 

409.4

 

 

 

33.4

 

Foreign currency translation adjustments

 

174.9

 

 

 

 

 

161.0

 

13.9

 

Pension and other postretirement benefit adjustments

 

18.0

 

 

 

 

 

18.0

 

 

 

Change in fair value of derivative instruments, net of tax

 

40.9

 

 

 

 

 

40.9

 

 

 

Total comprehensive income

 

676.6

 

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(41.6

)

 

 

 

 

 

 

(41.6

)

Dividends paid on convertible preferred stock

 

(5.4

)

 

 

(5.4

)

 

 

 

 

Balance on June 30, 2008

 

$

3,095.7

 

$

2,676.6

 

$

118.7

 

$

43.0

 

$

257.4

 

 

14



 

5.  Inventories

 

Major classes of inventory are as follows:

 

 

 

June 30,

 

Dec. 31,

 

June 30,

 

 

 

2009

 

2008

 

2008

 

Finished goods

 

$

860.3

 

$

831.7

 

$

1,058.0

 

Work in process

 

1.2

 

0.8

 

1.3

 

Raw materials

 

125.0

 

109.8

 

104.3

 

Operating supplies

 

52.5

 

57.2

 

71.1

 

 

 

$

 1,039.0

 

$

999.5

 

$

1,234.7

 

 

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 June 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 June 30, 2009 there are approximately 800 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 June 30, 2009, has disposed of the asbestos claims of approximately 373,000 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 $32.2 million at June 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.  In accordance with FAS No. 5, the Company records a liability for such matters when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated.  Recorded amounts are reviewed and adjusted to reflect changes in the factors upon which the estimates are based including additional information, negotiations, settlements, and other events.

 

The ultimate legal and financial liability of the Company with respect to the lawsuits and proceedings referred to above, in addition to other pending litigation, cannot be estimated with certainty.  The 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 June 30, 2009 and 2008 regarding the Company’s reportable segments is as follows:

 

 

 

2009

 

2008

 

Net sales:

 

 

 

 

 

Europe

 

$

793.9

 

$

1,045.7

 

North America

 

560.5

 

606.3

 

South America

 

249.9

 

294.1

 

Asia Pacific

 

192.7

 

242.3

 

Reportable segment totals

 

1,797.0

 

2,188.4

 

Other

 

10.0

 

22.2

 

Net sales

 

$

1,807.0

 

$

2,210.6

 

 

18



 

 

 

2009

 

2008

 

Segment Operating Profit:

 

 

 

 

 

Europe

 

$

120.4

 

$

195.8

 

North America

 

103.1

 

68.1

 

South America

 

57.0

 

85.5

 

Asia Pacific

 

11.4

 

40.7

 

Reportable segment totals

 

291.9

 

390.1

 

 

 

 

 

 

 

Items excluded from Segment Operating Profit:

 

 

 

 

 

Retained corporate costs and other

 

(23.3

)

(2.1

)

Restructuring and asset impairments

 

(5.2

)

(8.2

)

Interest income

 

6.5

 

10.0

 

Interest expense

 

(57.9

)

(69.2

)

Earnings from continuing operations before income taxes

 

$

212.0

 

$

320.6

 

 

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

 

 

 

2009

 

2008

 

Net sales: