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Owens-Illinois 10-Q 2009

 

 

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 March 31, 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 o 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 — 168,286,341 shares at March 31, 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 and condensed consolidated cash flows for the three months ended March 31, 2008 and condensed consolidated balance sheets at March 31, 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 months ended March 31, 2008 were restated in accordance with FSP No. EITF 03-6-1which is required to be applied retrospectively.

 

2



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)

 

 

 

Three months ended March 31,

 

 

 

2009

 

2008

 

Net sales

 

$

1,519.0

 

$

1,960.5

 

Manufacturing, shipping, and delivery expense

 

(1,222.2

)

(1,503.7

)

Gross profit

 

296.8

 

456.8

 

 

 

 

 

 

 

Selling and administrative expense

 

(118.5

)

(127.8

)

Research, development, and engineering expense

 

(13.9

)

(16.0

)

Interest expense

 

(48.1

)

(64.3

)

Interest income

 

8.5

 

8.7

 

Equity earnings

 

13.6

 

11.1

 

Royalties and net technical assistance

 

2.8

 

4.8

 

Other income

 

1.6

 

1.8

 

Other expense

 

(52.8

)

(20.0

)

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

90.0

 

255.1

 

Provision for income taxes

 

(31.2

)

(64.9

)

Earnings from continuing operations

 

58.8

 

190.2

 

Gain on sale of discontinued operations

 

 

 

4.1

 

Net earnings

 

58.8

 

194.3

 

Net earnings attributable to noncontrolling interests

 

(13.7

)

(16.2

)

Net earnings attributable to the Company

 

$

45.1

 

$

178.1

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

Earnings from continuing operations

 

$

45.1

 

$

174.0

 

Gain on sale of discontinued operations

 

 

 

4.1

 

Net earnings

 

$

45.1

 

$

178.1

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.27

 

$

1.06

 

Gain on sale of discontinued operations

 

 

 

0.03

 

Net earnings

 

$

0.27

 

$

1.09

 

Weighted average shares outstanding (thousands)

 

167,080

 

156,324

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.27

 

$

1.02

 

Gain on sale of discontinued operations

 

 

 

0.02

 

Net earnings

 

$

0.27

 

$

1.04

 

Weighted diluted average shares (thousands)

 

168,469

 

170,517

 

 

See accompanying notes.

 

3



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

 

 

 

March 31,

 

Dec. 31,

 

March 31,

 

 

 

2009

 

2008

 

2008

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

362.3

 

$

379.5

 

$

483.0

 

Short-term investments, at cost which approximates market

 

15.9

 

25.0

 

51.7

 

Receivables, less allowances for losses and discounts ($35.2 at March 31, 2009, $39.7 at December 31, 2008, and $35.5 at March 31, 2008)

 

945.5

 

988.8

 

1,320.6

 

Inventories

 

1,044.8

 

999.5

 

1,222.4

 

Prepaid expenses

 

48.4

 

51.9

 

37.1

 

 

 

 

 

 

 

 

 

Total current assets

 

2,416.9

 

2,444.7

 

3,114.8

 

 

 

 

 

 

 

 

 

Investments and other assets:

 

 

 

 

 

 

 

Equity investments

 

105.3

 

101.7

 

87.4

 

Repair parts inventories

 

134.5

 

132.5

 

157.0

 

Prepaid pension

 

 

 

 

 

591.4

 

Deposits, receivables, and other assets

 

478.2

 

444.5

 

489.4

 

Goodwill

 

2,130.3

 

2,207.5

 

2,522.2

 

 

 

 

 

 

 

 

 

Total other assets

 

2,848.3

 

2,886.2

 

3,847.4

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, at cost

 

5,711.0

 

5,983.1

 

6,707.0

 

Less accumulated depreciation

 

3,224.6

 

3,337.5

 

3,711.8

 

 

 

 

 

 

 

 

 

Net property, plant, and equipment

 

2,486.4

 

2,645.6

 

2,995.2

 

 

 

 

 

 

 

 

 

Total assets

 

$

7,751.6

 

$

7,976.5

 

$

9,957.4

 

 

4



 

CONDENSED CONSOLIDATED BALANCE SHEETS — Continued

 

 

 

March 31,

 

Dec. 31,

 

March 31,

 

 

 

2009

 

2008

 

2008

 

Liabilities and Share Owners’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

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

 

$

353.6

 

$

393.8

 

$

835.1

 

Current portion of asbestos-related liabilities

 

175.0

 

175.0

 

210.0

 

Accounts payable

 

754.4

 

838.2

 

978.5

 

Other liabilities

 

554.1

 

596.3

 

656.9

 

Total current liabilities

 

1,837.1

 

2,003.3

 

2,680.5

 

 

 

 

 

 

 

 

 

Long-term debt

 

2,972.0

 

2,940.3

 

3,192.5

 

Deferred taxes

 

138.6

 

77.6

 

128.8

 

Pension benefits

 

703.4

 

741.8

 

314.4

 

Nonpension postretirement benefits

 

234.4

 

239.7

 

279.6

 

Other liabilities

 

324.4

 

360.1

 

409.1

 

Asbestos-related liabilities

 

285.5

 

320.3

 

205.3

 

Commitments and contingencies

 

 

 

 

 

 

 

Share owners’ equity:

 

 

 

 

 

 

 

The Company’s share owners’ equity:

 

 

 

 

 

 

 

Common stock, par value $.01 per share 250,000,000 shares authorized, 179,754,178, 178,705,817, and 178,413,409 shares issued and outstanding, respectively

 

1.8

 

1.8

 

1.8

 

Capital in excess of par value

 

2,921.8

 

2,913.3

 

2,887.7

 

Treasury stock, at cost 11,467,837, 11,556,341, and 11,684,080 shares, respectively

 

(219.9

)

(221.5

)

(224.0

)

Retained earnings (deficit)

 

12.7

 

(32.4

)

(112.6

)

Accumulated other comprehensive loss

 

(1,700.4

)

(1,620.6

)

(54.1

)

Total share owners’ equity of the Company

 

1,016.0

 

1,040.6

 

2,498.8

 

Noncontrolling interests

 

240.2

 

252.8

 

248.4

 

Total share owners’ equity

 

1,256.2

 

1,293.4

 

2,747.2

 

Total liabilities and share owners’ equity

 

$

7,751.6

 

$

7,976.5

 

$

9,957.4

 

 

See accompanying notes.

 

5



 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

 

 

Three months ended March 31,

 

 

 

2009

 

2008

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

58.8

 

$

194.3

 

Net earnings attributable to noncontrolling interest

 

(13.7

)

(16.2

)

Gain on sale of discontinued operations

 

 

 

(4.1

)

Non-cash charges (credits):

 

 

 

 

 

Depreciation

 

88.4

 

113.6

 

Amortization of intangibles and other deferred items

 

4.3

 

7.6

 

Amortization of finance fees

 

2.4

 

1.9

 

Deferred tax provision (benefit)

 

10.5

 

(1.7

)

Restructuring and asset impairment

 

50.4

 

12.9

 

Other

 

32.8

 

20.8

 

Asbestos-related payments

 

(34.8

)

(40.2

)

Cash paid for restructuring activities

 

(20.2

)

(4.1

)

Change in non-current operating assets

 

(2.4

)

(0.8

)

Change in non-current liabilities

 

(31.3

)

(18.0

)

Change in components of working capital

 

(173.7

)

(215.1

)

Cash provided by (utilized in) operating activities

 

(28.5

)

50.9

 

Cash flows from investing activities:

 

 

 

 

 

Additions to property, plant, and equipment

 

(46.6

)

(45.4

)

Advances to equity affiliate - net

 

1.6

 

(15.0

)

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

 

0.1

 

(16.6

)

Cash utilized in investing activities

 

(44.9

)

(77.0

)

Cash flows from financing activities:

 

 

 

 

 

Additions to long-term debt

 

274.9

 

309.2

 

Repayments of long-term debt

 

(183.6

)

(222.6

)

Increase (decrease) in short-term loans

 

(17.6

)

82.3

 

Net payments for hedging activity

 

4.4

 

(33.9

)

Convertible preferred stock dividends

 

 

 

(5.4

)

Dividends paid to noncontrolling interests

 

(17.0

)

(30.2

)

Issuance of common stock and other

 

4.0

 

9.8

 

Cash provided by financing activities

 

65.1

 

109.2

 

Effect of exchange rate fluctuations on cash

 

(8.9

)

12.2

 

Increase (decrease) in cash

 

(17.2

)

95.3

 

Cash at beginning of period

 

379.5

 

387.7

 

Cash at end of period

 

$

362.3

 

$

483.0

 

 

See accompanying notes.

 

6



 

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 March 31,

 

 

 

2009

 

2008

 

Numerator:

 

 

 

 

 

Net earnings attributable to the Company

 

$

45.1

 

$

178.1

 

Convertible preferred stock dividends

 

 

 

(5.4

)

Net earnings attributable to participating securities

 

(0.1

)

(1.8

)

 

 

 

 

 

 

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

 

$

45.0

 

$

170.9

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares outstanding

 

167,079,573

 

156,324,072

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

Convertible preferred stock

 

 

 

8,589,355

 

Stock options and other

 

1,388,952

 

5,603,451

 

 

 

 

 

 

 

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

 

168,468,525

 

170,516,878

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.27

 

$

1.06

 

Gain on sale of discontinued operations

 

 

 

0.03

 

 

 

 

 

 

 

Net earnings

 

$

0.27

 

$

1.09

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations

 

$

0.27

 

$

1.02

 

Gain on sale of discontinued operations

 

 

 

0.02

 

 

 

 

 

 

 

Net earnings

 

$

0.27

 

$

1.04

 

 

The convertible preferred stock was included in the computation of diluted earnings per share for the three months ended March 31, 2008 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. Options to purchase 2,145,884 weighted average shares of common stock that were outstanding during the three months ended March 31, 2009 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

 

7



 

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 per share for the three months ended March 31, 2008 were reduced by $0.02 per share in accordance with FSP No. EITF 03-6-1which requires retrospective application.  There was no impact on basic earnings per share for the three months ended March 31, 2009 or diluted earnings per share in either period.

 

2.  Debt

 

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

 

 

 

March 31,

 

Dec. 31,

 

March 31,

 

 

 

2009

 

2008

 

2008

 

Secured Credit Agreement:

 

 

 

 

 

 

 

Revolving Credit Facility:

 

 

 

 

 

 

 

Revolving Loans

 

$

144.8

 

$

18.7

 

$

86.8

 

Term Loans:

 

 

 

 

 

 

 

Term Loan A (225.0 million AUD)

 

154.2

 

155.7

 

206.1

 

Term Loan B

 

191.5

 

191.5

 

191.5

 

Term Loan C (110.8 million CAD)

 

87.8

 

90.9

 

108.3

 

Term Loan D (€191.5 million)

 

253.2

 

269.6

 

302.1

 

Senior Notes:

 

 

 

 

 

 

 

7.35%, due 2008

 

 

 

 

 

250.4

 

8.25%, due 2013

 

468.0

 

470.0

 

461.8

 

6.75%, due 2014

 

400.0

 

400.0

 

400.0

 

6.75%, due 2014 (€225 million)

 

297.4

 

316.8

 

355.0

 

6.875%, due 2017 (€300 million)

 

396.6

 

422.4

 

473.3

 

Senior Debentures:

 

 

 

 

 

 

 

7.50%, due 2010

 

257.5

 

259.5

 

258.5

 

7.80%, due 2018

 

250.0

 

250.0

 

250.0

 

Other

 

87.9

 

113.4

 

122.1

 

Total long-term debt

 

2,988.9

 

2,958.5

 

3,465.9

 

Less amounts due within one year

 

16.9

 

18.2

 

273.4

 

Long-term debt

 

$

2,972.0

 

$

2,940.3

 

$

3,192.5

 

 

On June 14, 2006, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”).  At March 31, 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 March 31, 2009 the Company’s subsidiary borrowers had unused credit of $641.8 million available under the Agreement.

 

8



 

The weighted average interest rate on borrowings outstanding under the Agreement at March 31, 2009 was 2.66%.

 

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 100 million Australian dollars and 25 million New Zealand dollars that extends through July 2009 and October 2009, respectively.

 

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

 

 

 

March 31,

 

Dec. 31,

 

March 31,

 

 

 

2009

 

2008

 

2008

 

 

 

 

 

 

 

 

 

Balance (included in short-term loans)

 

$

255.2

 

$

293.7

 

$

439.6

 

 

 

 

 

 

 

 

 

Weighted average interest rate

 

3.72

%

5.31

%

6.10

%

 

3.  Supplemental Cash Flow Information

 

 

 

Three months ended March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Interest paid in cash

 

$

27.2

 

$

40.4

 

 

 

 

 

 

 

Income taxes paid in cash

 

37.5

 

25.3

 

 

4.  Share Owners’ Equity

 

The activity in share owners’ equity for the three months ended March 31, 2009 and 2008 is as follows:

 

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, 2009

 

$

1,293.4

 

$

2,693.6

 

$

(32.4

)

$

(1,620.6

)

$

252.8

 

Issuance of common stock

 

8.5

 

8.5

 

 

 

 

 

 

 

Reissuance of common stock

 

1.6

 

1.6

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

58.8

 

 

 

45.1

 

 

 

13.7

 

Foreign currency translation adjustments

 

(88.5

)

 

 

 

 

(79.2

)

(9.3

)

Pension and other postretirement benefit adjustments

 

5.4

 

 

 

 

 

5.4

 

 

 

Change in fair value of derivative instruments, net of tax

 

(6.0

)

 

 

 

 

(6.0

)

 

 

Total comprehensive loss

 

(30.3

)

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(17.0

)

 

 

 

 

 

 

(17.0

)

Balance on March 31, 2009

 

$

1,256.2

 

$

2,703.7

 

$

12.7

 

$

(1,700.4

)

$

240.2

 

 

 

 

 

 

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

 

467.8

 

467.8

 

 

 

 

 

 

 

Reissuance of common stock

 

0.6

 

0.6

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

194.3

 

 

 

178.1

 

 

 

16.2

 

Foreign currency translation adjustments

 

102.0

 

 

 

 

 

91.3

 

10.7

 

Pension and other postretirement benefit adjustments

 

8.3

 

 

 

 

 

8.3

 

 

 

Change in fair value of derivative instruments, net of tax

 

23.2

 

 

 

 

 

23.2

 

 

 

Total comprehensive income

 

327.8

 

 

 

 

 

 

 

 

 

Dividends paid to noncontrolling interests on subsidiary common stock

 

(30.2

)

 

 

 

 

 

 

(30.2

)

Dividends paid on convertible preferred stock

 

(5.4

)

 

 

(5.4

)

 

 

 

 

Balance on March 31, 2008

 

$

2,747.2

 

$

2,665.5

 

$

(112.6

)

$

(54.1

)

$

248.4

 

 

5.  Inventories

 

Major classes of inventory are as follows:

 

10



 

 

 

March 31,

 

Dec. 31,

 

March 31,

 

 

 

2009

 

2008

 

2008

 

 

 

 

 

 

 

 

 

Finished goods

 

$

875.6

 

$

831.7

 

$

1,050.8

 

Work in process

 

0.7

 

0.8

 

1.9

 

Raw materials

 

116.2

 

109.8

 

100.4

 

Operating supplies

 

52.3

 

57.2

 

69.3

 

 

 

 

 

 

 

 

 

 

 

$

1,044.8

 

$

999.5

 

$

1,222.4

 

 

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 March 31, 2009, the Company has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 9,000 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 0.4% 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 believes that as of March 31, 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.

 

11



 

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 March 31, 2009, has disposed of the asbestos claims of approximately 370,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $7,300.  Certain of these dispositions have included deferred amounts payable over a number of years.  Deferred amounts payable totaled approximately $33.1 million at March 31, 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:

 

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;

 

12



 

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 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

 

13



 

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 March 31, 2009 and 2008 regarding the Company’s reportable segments is as follows:

 

Net sales:

 

2009

 

2008

 

Europe

 

$

612.9

 

$

888.9

 

North America

 

494.3

 

530.9

 

South America

 

214.0

 

254.2

 

Asia Pacific

 

182.0

 

250.0

 

 

 

 

 

 

 

Reportable segment totals

 

1,503.2

 

1,924.0

 

Other

 

15.8

 

36.5

 

Net sales

 

$

1,519.0

 

$

1,960.5

 

 

14



 

Segment Operating Profit:

 

2009

 

2008

 

Europe

 

$

44.2

 

$

147.6

 

North America

 

62.7

 

55.5

 

South America

 

60.0

 

73.6

 

Asia Pacific

 

25.0

 

45.4

 

Reportable segment totals

 

191.9

 

322.1

 

 

 

 

 

 

 

Items excluded from Segment Operating Profit:

 

 

 

 

 

Retained corporate costs and other

 

(11.9

)

1.5

 

Restructuring and asset impairments

 

(50.4

)

(12.9

)

Interest income

 

8.5

 

8.7

 

Interest expense

 

(48.1

)

(64.3

)

Earnings from continuing operations before income taxes

 

$

90.0

 

$

255.1

 

 

Financial information regarding the Company’s total assets is as follows:

 

 

 

March 31,

 

Dec. 31,

 

March 31,

 

Total assets:

 

2009

 

2008

 

2008

 

Europe

 

$

3,487.6

 

$

3,758.4

 

$

4,425.3

 

North America

 

1,888.0

 

1,802.9

 

2,016.2

 

South America

 

925.9

 

976.2

 

974.5

 

Asia Pacific

 

1,245.1

 

1,239.6

 

1,617.5

 

 

 

 

 

 

 

 

 

Reportable segment totals

 

7,546.6

 

7,777.1

 

9,033.5

 

Other

 

205.0

 

199.4

 

923.9

 

Consolidated totals

 

$

7,751.6

 

$

7,976.5

 

$

9,957.4

 

 

8. Other Expense

 

During the first quarter of 2009, the Company recorded charges totaling $50.4 million ($47.7 million after tax), for restructuring and asset impairment.  The charges reflect the additional decisions reached in the Company’s ongoing strategic review of its global manufacturing footprint.  Charges for similar actions during the first quarter of 2008 totaled $12.0 million ($9.7 million after tax).  See Note 9 for additional information.

 

During the first quarter of 2008, the Company also recorded an additional $0.9 million (before and after tax), related to the impairment of the Company’s equity investment in the South American Segment’s 50%-owned Caribbean affiliate.

 

9.  Restructuring Accruals

 

Beginning in 2007, the Company commenced a strategic review of its global profitability and manufacturing footprint.  The combined 2007, 2008 and 2009 charges, amounting to $238.1 million ($198.0 million after tax and noncontrolling interests) reflect the decisions reached through March 31, 2009 in the Company’s ongoing strategic review of its global manufacturing footprint. The curtailment of plant capacity and realignment of selected operations will result in a reduction in the Company’s workforce of approximately 1,950 jobs.  Amounts recorded by the Company do not include any gains that may be realized upon the ultimate sale or disposition of closed facilities.

 

As a result of its strategic review, the Company decided to curtail selected production capacity.  Because the future undiscounted cash flows of the related long-lived asset groups were not

 

15



 

sufficient to recover their carrying amounts, certain assets were considered impaired.  As a result, those long-lived assets were written down to the extent their carrying amounts exceeded fair value less cost to sell.  The Company classified the significant assumptions used to determine the fair value of the impaired assets, which was not material, as Level 3 in the fair value hierarchy as set forth within FAS No. 157 “Fair Value Measurements”.

 

The Company accrued certain employee separation costs to be paid under contractual arrangements and other exit costs.

 

2007

During the third and fourth quarters of 2007, the Company recorded charges totaling $55.3 million ($40.2 million after tax), for restructuring and asset impairment in Europe and North America.  The curtailment of plant capacity resulted in elimination of approximately 560 jobs and a corresponding reduction in the Company’s workforce.

 

2008

During 2008, the Company recorded charges totaling $132.4 million ($110.1 million after tax and noncontrolling interests), for restructuring and asset impairment across all segments as well as in Retained Corporate Costs and Other.  The curtailment of plant capacity and realignment of selected operations resulted in elimination of approximately 1,240 jobs and a corresponding reduction in the Company’s workforce.

 

2009

During the first quarter of 2009, the Company recorded charges totaling $50.4 million ($47.7 million after tax), for restructuring and asset impairment in Europe.  The curtailment of plant capacity will result in elimination of approximately 250 jobs and a corresponding reduction in the Company’s workforce.

 

The Company expects that the majority of the remaining estimated cash expenditures related to the above charges will be paid out by the end of 2009.

 

Selected information related to the restructuring accrual is as follows:

 

 

 

Employee
Costs

 

Asset
Impairment

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

2007 Charges

 

$

26.1

 

$

22.3

 

$

6.9

 

$

55.3

 

Write-down of assets to net realizable value

 

 

(22.3

)

(2.4

)

(24.7

)

Balance at December 31, 2007

 

26.1

 

 

4.5

 

30.6

 

2008 charges

 

70.1

 

32.5

 

29.8

 

132.4

 

Write-down of assets to net realizable value

 

 

 

(32.5

)

(4.7

)

(37.2

)

Net cash paid, principally severance and related benefits

 

(35.6

)

 

 

(7.2

)

(42.8

)

Other, principally foreign exchange translation

 

(13.0

)

 

 

(6.1

)

(19.1

)

Balance at December 31, 2008

 

47.6

 

 

16.3

 

63.9

 

2009 charges

 

19.1

 

29.3

 

2.0

 

50.4

 

Write-down of assets to net realizable value

 

 

 

(29.3

)

 

 

(29.3

)

Net cash paid, principally severance and related benefits

 

(18.9

)

 

 

(1.3

)

(20.2

)

Other, principally foreign exchange translation

 

(1.7

)

 

 

(0.5

)

(2.2

)

Balance at March 31, 2009

 

$

46.1

 

$

 

$

16.5

 

$

62.6

 

 

16



 

10. Derivative Instruments

 

The Company has certain derivative assets and liabilities which consist of interest rate swaps, natural gas forwards, and foreign exchange option and forward contracts.  The Company records derivative assets and liabilities at fair value and classifies them as Level 2 in the fair value hierarchy as set forth in FAS No. 157.

 

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 current total notional amount of $700 million that mature in 2010 and 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 asset (liability) along with a corresponding net increase (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 March 31, 2009:

 

 

 

Amount

 

Receive

 

Average

 

Asset

 

 

 

Hedged

 

Rate

 

Spread

 

Recorded

 

 

 

 

 

 

 

 

 

 

 

Senior Debentures due 2010

 

$

250.0

 

7.50

%

3.2

%

$

7.4

 

Senior Notes due 2013

 

450.0

 

8.25

%

3.7

%

18.0

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

700.0

 

 

 

 

 

$

25.4

 

 

For derivative instruments that are designated and qualify as fair value hedges, the change in the fair value of the derivative instrument related to the future cash flows (gain or loss on the derivative) as well as the offsetting change in the fair value of the hedged item attributable to the hedged risk are recognized in current earnings.  The Company includes the gain or loss on the hedged items (i.e. long-term debt) in the same line item (interest expense) as the offsetting loss or gain on the related interest rate swaps.  The effect of the interest rate swaps on the results of operations for the three months ended March 31 is as follows:

 

17



 

 

 

Amount of Gain (Loss)

 

 

 

Recognized in Interest Expense

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Interest rate swaps

 

$

(4.0

)

$

17.4

 

Related long-term debt

 

4.0

 

(17.4

)

 

 

 

 

 

 

Net impact on interest expense

 

$

 

$

 

 

Commodity Futures Contracts Designated as Cash Flow 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 March 31, 2009, the Company had entered into commodity futures contracts covering approximately 9,300,000 MM BTUs over that period.

 

The Company accounts for the above futures contracts as cash flow hedges at March 31, 2009 and recognizes them on the balance sheet at fair value. The effective portion of changes in the fair value of a derivative that is designated as, and meets the required criteria for, a cash flow hedge is recorded in the Accumulated Other Comprehensive Income component of share owners’ equity (“OCI”) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. At March 31, 2009, an unrecognized loss of $43.4 million (pretax and after tax) related to the commodity futures contracts was included in Accumulated OCI, and will be reclassified into earnings over the next twelve to twenty-four months.  Any material portion of the change in the fair value of a derivative designated as a cash flow hedge that is deemed to be ineffective is recognized in current earnings.  The ineffectiveness related to these natural gas hedges for the three months ended March 31, 2009 and 2008 was not material.

 

The effect of the commodity futures contracts on the results of operations for the three months ended March 31 is as follows:

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

Reclassified from

 

Amount of Gain (Loss)

 

Accumulated OCI into

 

Recognized in OCI on

 

Income (reported in

 

Commodity Futures Contracts

 

manufacturing, shipping, and

 

(Effective Portion)

 

delivery) (Effective Portion)

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

$

(19.3

)

$

 22.3

 

$

(13.3

)

$

(0.9

)

 

Senior Notes Designated as Net Investment Hedge

 

During December 2004, a U.S. subsidiary of the Company issued Senior Notes totaling €225 million.  These notes were designated by the Company’s subsidiary as a hedge of a portion of

 

18



 

its net investment in a non-U.S. subsidiary with a Euro functional currency.  Because the amount of the Senior Notes matches the hedged portion of the net investment, there is no hedge ineffectiveness. Accordingly, the Company recorded the impact of changes in the foreign currency exchange rate on the Euro-denominated notes in OCI.  The amount recorded in OCI will be reclassified into earnings when the Company sells or liquidates its net investment in the non-U.S. subsidiary.

 

The effect of the net investment hedge on the results of operations for the three months ended March 31 is as follows:

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

Amount of Gain (Loss)

 

Location of Gain (Loss)

 

Reclassified from Accumulated

 

Recognized in OCI

 

Reclassified from Accumulated

 

OCI into Income

 

2009

 

2008

 

OCI into Income

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

$

(19.4

)

$

(24.2

)

N/A

 

$

 

$

 

 

Forward Exchange Contracts not Designated as Hedging Instruments

 

The Company’s subsidiaries may enter into short-term forward exchange or option agreements to purchase foreign currencies at set rates in the future. These agreements are used to limit exposure to fluctuations in foreign currency exchange rates for significant planned purchases of fixed assets or commodities that are denominated in currencies other than the subsidiaries’ functional currency. Subsidiaries may also use forward exchange agreements to offset the foreign currency risk for receivables and payables, including intercompany receivables and payables, not denominated in, or indexed to, their functional currencies. The Company records these short-term forward exchange agreements on the balance sheet at fair value and changes in the fair value are recognized in current earnings.

 

At March 31, 2009, various subsidiaries of the Company had outstanding forward exchange and option agreements denominated in various currencies covering the equivalent of approximately $900 million related primarily to intercompany transactions and loans.

 

The effect of the forward exchange contracts on the results of operations for the three months ended March 31 is as follows:

 

 

 

Amount of Gain (Loss)

 

Location of Gain (Loss)

 

Recognized in Income on

 

Recognized in Income on

 

Forward Exchange Contracts

 

Forward Exchange Contracts

 

2009

 

2008

 

 

 

 

 

 

 

Other expense

 

$

10.5

 

$

(31.1

)

 

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 current liabilities if the instrument has a

 

19



 

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.  The following table shows the amount and classification of the Company’s derivatives as of March 31:

 

 

 

2009

 

2008

 

 

 

Balance Sheet

 

Fair

 

Balance Sheet

 

Fair

 

 

 

Location

 

Value

 

Location

 

Value

 

Asset Derivatives:

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

 

 

 

Receivables

 

$

0.4

 

Interest rate swaps

 

Deposits, receivables, and other assets

 

$

25.4

 

Deposits, receivables, and other assets

 

20.3

 

Commodity futures contracts

 

 

 

 

 

Receivables

 

1.6

 

Commodity futures contracts

 

 

 

 

 

Deposits, receivables, and other assets

 

17.1

 

Total derivatives designated as hedging instruments

 

 

 

25.4

 

 

 

39.4

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Receivables

 

25.5

 

Receivables

 

5.2

 

Foreign exchange contracts

 

Deposits, receivables, and other assets

 

2.8

 

Other liabilities

 

1.5

 

Total derivatives not designated as hedging instruments

 

 

 

28.3

 

 

 

6.7

 

 

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

$

53.7

 

 

 

$

46.1

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives:

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

Commodity futures contracts

 

Other liabilities (current)

 

$

42.5

 

 

 

 

 

Commodity futures contracts

 

Other liabilities

 

0.9

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

43.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Receivables

 

0.2

 

 

 

 

 

Foreign exchange contracts

 

Other liabilities (current)

 

3.7

 

 

 

 

 

Foreign exchange contracts

 

Deposits, receivables, and other assets

 

2.8

 

Other liabilities

 

$

28.2

 

Total derivatives not designated as hedging instruments

 

 

 

6.7

 

 

 

28.2

 

 

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

$

50.1

 

 

 

$

28.2

 

 

20



 

11.  Pensions Benefit Plans and Other Postretirement Benefits

 

The components of the net periodic pension cost (income) for the three months ended March 31, 2009 and 2008 were as follows:

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Service cost

 

$

9.9

 

$

12.1

 

Interest cost

 

51.5

 

55.1

 

Expected asset return

 

(67.3

)

(81.1

)

 

 

 

 

 

 

Amortization:

 

 

 

 

 

Loss

 

10.9

 

7.7

 

Prior service credit

 

(0.2

)

(0.2

)

Net amortization

 

10.7

 

7.5

 

Net periodic pension (income) cost

 

$

4.8

 

$

(6.4

)

 

The components of the net postretirement benefit cost for the three months ended March 31, 2009 and 2008 were as follows:

 

 

 

2009

 

2008

 

Service cost

 

$

0.4

 

$

0.6

 

Interest cost

 

4.0

 

4.3

 

 

 

 

 

 

 

Amortization:

 

 

 

 

 

Prior service credit

 

(0.8

)

(0.8

)

Loss

 

1.0

 

1.6

 

Net amortization

 

0.2

 

0.8

 

Net postretirement benefit cost

 

$

4.6

 

$

5.7

 

 

12. Noncontrolling Interests

 

Effective January 1, 2009, the Company adopted the provisions of FAS No. 160.  FAS No. 160  establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and the deconsolidation of a subsidiary.  FAS No. 160 requires an entity to present consolidated net income attributable to the parent and to the noncontrolling interests separately on the face of the consolidated financial statements. FAS No. 160 clarifies that noncontrolling interests in a subsidiary should be accounted for as a component of equity separate from the parent’s equity, rather than in liabilities.  The format of the Company’s condensed consolidated results of operations and condensed consolidated cash flows for the three months ended March 31, 2008 and condensed consolidated balance sheets at March 31, 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.  The cash flow presentation was also revised to reflect dividends paid to noncontrolling interests as a cash flow from financing activities.  Previously these cash flows had been reported as an operating activity.

 

21



 

13. New Accounting Standards

 

In December 2008, the FASB issued a FASB Staff Position on Statement of Financial Accounting Standards No. 132(R), “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS No. 132(R)-1”).  FSP FAS No. 132(R)-1 requires additional year-end disclosures about the fair value of postretirement benefit plan assets to provide users of financial statements with useful, transparent and timely information about the asset portfolios.  FSP FAS No. 132(R)-1 is effective for years ending after December 15, 2009.  Adoption of FSP FAS No. 132(R)-1 will have no impact on the Company’s results of operations, financial position or cash flows.

 

In April 2009, the FASB issued a 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.  FSP FAS No. 107-1 and APB 28-1 is effective for interim and annual periods ending after June 15, 2009.  Adoption of FSP FAS No. 107-1 and APB 28-1 will have no impact on the Company’s results of operations, financial position or cash flows.

 

14. Discontinued Operations

 

The gain on sale of discontinued operations of $4.1 million reported in 2008 relates to an adjustment of the 2007 gain on the sale of the plastics packaging business mainly related to finalizing certain tax allocations and an adjustment to the selling price in accordance with procedures set forth in the final contract.

 

15. Convertible Preferred Stock

 

On February 29, 2008, the Company announced that all outstanding shares of convertible preferred stock would be redeemed on March 31, 2008, if not converted by holders prior to that date.  All conversions and redemptions were completed by March 31, 2008 through the issuance of 8,584,479 shares of common stock. The conversions and redemptions resulted in an increase in common stock and capital in excess of par value.

 

16.  Financial Information for Subsidiary Guarantors and Non-Guarantors

 

The following presents condensed consolidating financial information for the Company, segregating:  (1) Owens-Illinois, Inc., the issuer of two series of senior debentures (the “Parent”); (2) the two subsidiaries which have guaranteed the senior debentures on a subordinated basis (the “Guarantor Subsidiaries”); and (3) all other subsidiaries (the “Non-Guarantor Subsidiaries”).  The Guarantor Subsidiaries are 100% owned direct and indirect subsidiaries of the Company and their guarantees are full, unconditional and joint and several.  They have no operations and function only as intermediate holding companies.

 

100% owned subsidiaries are presented on the equity basis of accounting.  Certain reclassifications have been made to conform all of the financial information to the financial presentation on a consolidated basis.  The principal eliminations relate to investments in subsidiaries and intercompany balances and transactions.

 

22



 

 

 

March 31, 2009

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor