UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993
or
[ ] 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 jurisdiction of (Commission (IRS Employer
incorporation or organization) file number) Identification No.)
OWENS-ILLINOIS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-13061 34-1559348
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) file number) Identification No.)
One SeaGate, Toledo, Ohio 43666
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (419) 247-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
11% Senior Debentures due December 1, 2003 New York Stock Exchange
10-1/4% Senior Subordinated Notes due 1999 New York Stock Exchange
10-1/2% Senior Subordinated Notes due 2002 New York Stock Exchange
10% Senior Subordinated Notes due 2002 New York Stock Exchange
9-3/4% Senior subordinated Notes due 2004 New York Stock Exchange
9.95% Senior Subordinated Notes due 2004 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Cover page 1 of 2 pages)
Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports) and (2) have been subject
to such filing requirements for the past 90 days.
Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value (based on the consolidated tape closing price
on February 28, 1994) of the voting stock beneficially held by non-affiliates
of Owens-Illinois, Inc. was approximately $1,036,200,000. For the sole
purpose of making this calculation, the term "non-affiliate" has been
interpreted to exclude directors and executive officers of the Company. Such
interpretation is not intended to be, and should not be construed to be, an
admission by Owens-Illinois, Inc. or such directors or executive officers of
the Company that such directors and executive officers of the Company are
"affiliates" of Owens-Illinois, Inc., as that term is defined under the
Securities Act of 1934.
The number of shares of Common Stock, $.01 par value, of Owens-Illinois,
Inc. outstanding as of February 28, 1994, was 118,978,327.
The number of shares of Common Stock, $.01 par value, of Owens-Illinois,
Group, Inc. outstanding as of February 28, 1994, was 100, all of which were
owned by Owens-Illinois, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Owens-Illinois, Inc. Proxy Statement for The Annual Meeting of
Share Owners To Be Held Wednesday, May 11, 1994 ("Proxy
Statement").
(Cover page 2 of 2 pages)
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . 12
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . 13
EXECUTIVE OFFICERS OF THE REGISTRANTS. . . . . . . 14
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 5. MARKET FOR OWENS-ILLINOIS, INC.'S COMMON STOCK
AND RELATED SHARE OWNER MATTERS. . . . . . . . . . 17
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . 65
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANTS. . . . . . . . . . . . . . . . . . . . 66
ITEMS 11. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS
and 13. AND RELATED TRANSACTIONS . . . . . . . . . . . . . 66
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . 66
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . 67
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
1
PART I
ITEM 1. BUSINESS
General Development of Business
Owens-Illinois, Inc. (the "Company") is one of the world's leading and most
diversified manufacturers of packaging products and is considered to be the
world's leading producer of glass containers. Approximately one of every two
glass containers made worldwide is made by the Company, its affiliates or
licensees. In addition to being the largest manufacturer of glass bottles and
containers in the United States, the Company is a leading manufacturer of
plastic containers, plastic closures, plastic and glass prescription
containers, labels, and multipack plastic carriers for beverage containers.
Other products include pharmaceutical packaging and scientific and laboratory
ware through the Company's 49% ownership of Kimble.
During 1993, the Company expanded its South American glass container
operations by acquiring controlling interest in a Peruvian glass company and
increasing its investment in its Bolivian affiliate. The Company also
acquired control of a leading producer of plastic bottles and closures in
Mexico. In December 1993, the Company completed its first investment in
Eastern Europe by acquiring an equity interest in the largest glass container
manufacturer in Poland.
In June 1993, the Company completed the sale of all the issued and outstanding
shares of its Libbey subsidiary through an underwritten public offering.
Libbey operated the table glassware business of the Company. The Company sold
its remaining 50% interest in the television glass business in October 1993,
concluding a joint venture established in mid-1988. In addition, on December
31, 1993, the Company sold a 51% interest in its Kimble subsidiary to
Gerresheimer Glas, AG.
In the fourth quarter of 1993, the Company completed a comprehensive
reengineering study initiated in response to management's commitment to
enhance customer service, improve manufacturing efficiency and productivity,
and reduce costs. The resulting restructuring program, when fully
implemented, is expected to yield increases in operating profit of $75 million
or more on an annual basis. The Company recorded charges in the fourth
quarter of 1993 of $250 million, principally for the restructuring program,
and $325 million for the estimated uninsured future cost of claims related to
an asbestos-containing insulation material produced by one of the Company's
former business units, which was sold in 1958.
During 1993, the Company redeemed $272.3 million of its Senior Notes and on
January 3, 1994, redeemed the remaining $268.9 million of the Senior Notes.
The Company also retired all outstanding 9.35% and 7-5/8% debentures totaling
$67.2 million. In December, the Company entered into a new credit agreement
with a group of banks which provides revolving loan commitments under which
the Company may borrow up to $1 billion through December 1998.
2
The principal executive office of the Registrants is located at One SeaGate,
Toledo, Ohio 43666; the telephone number is (419) 247-5000.
Financial Information about Industry Segments
Information as to sales, operating profit, and identifiable assets by industry
segment is included on pages 60-63.
Narrative Description of Business
The Company has three industry segments: Glass Containers, Plastics and
Closures, and Specialized Glass. Below is a description of each of these
segments and information to the extent material to understanding the Company's
business taken as a whole.
Products and Services, Markets, Methods of Distribution, and Competitive
Conditions
GLASS CONTAINERS
The Company is the world's leading manufacturer of glass containers with an
approximate 40% share of the glass container segment of the U. S. rigid
packaging market. Marketing under the trade name Owens-Brockway, the
Company's 1993 glass container sales were substantially higher than the sales
of its nearest glass container competitor, Anchor Glass Container Corporation
("Anchor"), a subsidiary of Vitro, Sociedad Anonima. Glass container sales
represented 64%, 67% and 68% of the Company's consolidated net sales for the
years ended December 31, 1993, 1992, and 1991, respectively. The Company
believes that its internally developed machines are significantly more
productive than those used by its competitors and have helped to make it the
low-cost manufacturer and a recognized technological leader in the industry.
Products
- --------
Glass containers are produced in a wide range of sizes, shapes and colors for
soft drinks, beer, liquor, wine, wine coolers, pharmaceuticals, and food and
for export. The Company has been a leader in product innovation, introducing
products including: long neck nonreturnable beer bottles; containers for wine
coolers; Plasti-Shield labeled containers for juice, soft drinks and seltzer
water and prepackaged mixed drinks.
New product lines designed to increase the demand for glass containers include
product extensions related to single service packages for soft drinks, wine,
tea, and juice and innovative secondary packaging systems such as labels,
carriers and closures that complement glass containers. The Company's product
development efforts in glass containers are aimed at providing value added
packaging systems to customers and consumers. For example, the Company
continued development of the Micro-Serve line of food containers designed
for use in microwave ovens. The Company has expanded the new pressure
3
sensitive label system to replace applied ceramic labeling on glass. Plasti-
Shield labeling innovations have opened markets for clear labels as well as
new uses for standard Plasti-Shield labeling. The Company has been
particularly successful in applying these product developments to the New Age
beverage markets such as bottled waters, juices, and tea-based beverages.
Customers
- ---------
Brewers, soft drink bottlers, and food producers comprise approximately 90% of
industry demand for glass containers. The Company has leading positions
within all three of these customer groups, as well as strong positions in
smaller customer groups. The Company believes its position gives it the
ability to take advantage of new opportunities and areas of growth within each
customer group.
The following table sets forth the distribution of the Company's unit
shipments by customer group for the last three years:
Percent Unit Shipments
------------------------
Customer Group 1993 1992 1991
-------------- ---- ---- ----
Food producers . . . . . . . . . 38% 35% 34%
Brewers. . . . . . . . . . . . . 29 28 28
Soft drink bottlers. . . . . . . 20 25 26
Liquor and wine products . . . . 8 8 7
Other. . . . . . . . . . . . . . 5 4 5
---- ---- ----
100% 100% 100%
==== ==== ====
Most glass production is sold to customers under arrangements which specify
estimated quantities to be shipped as a percentage of the customers' total
annual requirements. Containers are typically scheduled for production in
response to customers' orders for their quarterly requirements.
Markets
- -------
The Company has the leading market share of the glass segment of both United
States beer and soft drink packaging. Excluding E & J Gallo Winery Inc.,
which manufactures its own containers, the Company is also the leading
supplier of glass for wine and wine coolers. The Company believes it is the
leading supplier of glass food containers and the second largest supplier of
glass liquor containers. The Company's principal competitor in the glass
liquor containers segment is Anchor. The Company is also the second largest
supplier of glass containers for drug and chemical companies. Overall, the
Company's sales represent approximately 40% of the glass container segment of
the United States rigid packaging market.
Although glass containers' share of the United States rigid packaging market
declined from 1980 through 1985 due to the conversion to plastic containers,
principally in 32-ounce and large soft drink containers, United States glass
container shipments stabilized and remained relatively constant overall from
1986 through 1993. The Company's share (including Brockway's operations for
4
all periods) of the glass container segment has remained relatively constant
during 1986 through 1993. Overall, the Company expects glass containers'
share of the United States rigid packaging market to remain relatively stable
and that the Company will maintain its share of the glass container segment
due in part to the Company's ongoing improvement in operating efficiencies.
The Company's glass products compete on the basis of quality, service and
price with other forms of rigid packaging, principally aluminum and steel cans
and plastic bottles, as well as glass containers produced by other large,
well-established manufacturers. Aluminum cans have a larger share of 12-ounce
containers for the beer and soft drink industries, and plastic containers
dominate 32-ounce and larger soft drink containers. Plastic containers also
have made significant inroads in the 16-ounce and 20-ounce soft drinks
container market. The principal competitors producing glass containers are
Anchor, Ball Corporation, and Foster-Forbes Glass Company (an affiliate of
Pechiney S. A.). The principal competitors producing metal containers are
American National Can Company (an affiliate of Pechiney S. A.,), Crown Cork &
Seal Company, Inc., Reynolds Metals Company, and Ball Corporation. In the
metal container market, no one competitor is dominant. The principal
competitors supplying plastic containers are Crown Cork & Seal Company, Inc.,
and Johnson Controls, Inc. In the plastic containers market, no one
competitor is dominant.
The Company markets its glass container products throughout the United States,
with a sales and marketing staff of approximately 150 salaried employees at
January 31, 1994, operating out of 25 sales offices. Glass container sales
employees are generally eligible for bonuses based on sales and the Company's
overall performance. The Company's glass container sales personnel are not
subject to minimum sales quota requirements.
Facilities and Production Processes
- -----------------------------------
Due to the significance of transportation costs and the importance of timely
delivery, manufacturing facilities are located close to customers. Most of
the Company's product is shipped by common carrier to customers within a 250-
mile radius of a given production site. In addition to 21 domestic glass
container manufacturing facilities, the Company operates a limestone plant,
two machine shops which manufacture high-productivity glass-making machines,
and a sand plant. The Company closed one of its less efficient glass
container facilities in Huntington, West Virginia, during 1993. The Company's
remaining domestic glass container facilities operated at rates in excess of
90% of capacity in 1993 and the Company expects similar rates in 1994.
A press and blow process for producing lightweight narrow neck bottles is also
in operation at ten locations. It provides the best combination of high speed
production and lighter weight for soft drink and beer bottles. This process
can reduce container weight 8% to 15%, providing savings in raw materials and
energy. Under development is the application of technology which allows for
similar weight and productivity gains for other segments of the glass
container market.
5
The Company's total systems approach to production technology and process
control improvements have contributed to significant annual productivity gains
experienced since the mid-1970's. From 1980 to 1993, for example, the
Company's machine productivity increased by approximately 60% and labor
productivity improved by approximately 55%. During the same period, the
Company's process efficiency (as measured by tons of glass packed as a percent
of tons of glass melted) has improved by almost 7 percentage points. From
1988 through 1993, the Company invested over $415 million in capital
expenditures for its domestic glass container business.
The trend in the United States towards greater recycling of used containers
has also changed the Company's glass container business. In each of the last
three years, the Company has recycled substantial tonnage of glass containers.
During 1993 and 1992, glass industry demands for recycled glass grew at higher
than historical rates and generally exceeded the availability of furnace-ready
cullet. The following table sets forth the approximate recycled glass
component of the Company's domestic glass container output for the last three
years:
1993 1992 1991
------ ------ ------
36-39% 39-41% 40-43%
The Company believes that the percentage of recycled glass used could increase
in the future as recycling becomes more widespread. The Company also believes
that, eventually, as recycled glass becomes more available, it may offer a
cost advantage over producing new glass.
The Company's cost reduction and product improvement programs are supported
through continued investment in research and development and capital
equipment. The Company has maintained a leadership role in the engineering
and research function through substantial investments in capital equipment,
processes and engineering to increase machine output, process quality and cost
control. There were approximately 260 domestic employees at January 31, 1994,
involved in research, development and engineering for the Glass Containers
segment. The Company believes its investment in technology and capital has
enabled it to remain the technological leader and low-cost producer in the
domestic glass container industry. In addition, as the industry's
technological leader, the Company licenses technology to foreign and domestic
affiliates and licensees.
The Company currently has technical assistance agreements with 33 different
companies in 33 countries. These agreements, which cover areas ranging from
manufacturing and engineering assistance to support in functions such as
marketing, sales, and administration, allow the Company to participate in the
worldwide growth of the glass container industry. The Company believes these
associations and its technical expertise will afford it opportunities to
participate in the glass business in regions of the world where the Company
does not currently have a presence.
6
International Glass Operations
- ------------------------------
The Company has significant ownership positions in eleven companies located in
eight foreign countries and Puerto Rico. Most of the Company's international
glass affiliates are the leading container manufacturers in their respective
countries, producing a full line of containers for the soft drink, beer, wine,
liquor, food, drug and chemical industries. Some of these companies also
produce molds, mold parts, sand and feldspar, limestone, machines and machine
parts, rolled glass, sheet glass, closures and labels. The Company's
principal international glass affiliates are in Latin America and the United
Kingdom.
Outside of the United States, unit shipments of glass containers have grown
substantially in recent years. In Colombia and Venezuela, unit shipments of
the Company's affiliates increased by over 6% on a compound annual basis
during the period 1985 - 1993. Sales growth in countries where the Company
does not have a direct ownership position, such as Japan and Germany, may
provide a benefit to the Company in the form of technical assistance royalties
tied to sales volumes.
In the United Kingdom, the Company is a leader in glass container
manufacturing through its 100% ownership of United Glass. United Glass'
principal competitors in the glass container segment of the rigid packaging
product market include Rockware Group PLC and Redfern (PLM). The Company has
increased the plant efficiency and productivity of United Glass over the last
several years and believes that further gains are possible.
The Company's significant ownership positions in international glass
affiliates are summarized below:
Owens-Illinois
Company/Country Ownership
- --------------- --------------
Manufacturera de Vidrios Planos, C.A., Venezuela 100.0%
United Glass Ltd., United Kingdom 100.0
Centro Vidriero de Venezuela, C.A., Venezuela 100.0
Owens-Illinois de Venezuela, C.A., Venezuela 92.2
Owens-Illinois de Puerto Rico, Puerto Rico 80.0
Companhia Industrial Sao Paulo e Rio, Brazil 79.4
Cristaleria del Ecuador, S.A., Ecuador 58.6
Cristaleria Peldar, S.A., Colombia 57.4
Vidrios Industriales, S.A., Peru 50.3
Fabrica Boliviana de Vidrios, S. A., Bolivia 50.0
Huta Szkla Jaroslaw S.A., Poland 36.0
PLASTICS AND CLOSURES
The Company is a leading plastic container manufacturer in the United States.
The Company is the market leader in all plastic segments in which it competes
except for Hi-Cone, in which it is second. Plastic container sales
represented 19%, 17% and 18% of the Company's consolidated net sales for the
years ended December 31, 1993, 1992, and 1991, respectively. The Company's
7
Plastics and Closures segment operates under the Owens-Brockway trade name and
is comprised of five business units.
Plastic Products. This unit, with 22 factories, manufactures rigid, semi-rigid
and multi-layer plastic packages for a wide variety of uses, including
household products, personal care products, chemicals and automotive products,
health care and food.
Closure Products. This unit produces closures and develops closure systems
which incorporate functional features such as tamper evidence, child resistance
and dispensing. The recent acquisition of Specialty Packaging Products, Inc.,
has extended the unit's product line to include trigger sprayers, finger pumps,
and lotion pumps, as well as metal closures and finger pumps for the fragrance
and cosmetic industry. In the United States, the Company has a sole license
for Alcoa's technology for compression molded, tamper evident, thermoplastic
closures. This unit also manufactures custom injection molded containers,
such as deodorant packages and pump dispensers.
Prescription Products. The Company's Prescription Products unit manufactures
prescription containers. These products are sold primarily to drug
wholesalers, major drug chains and the government. Containers for
prescriptions include plastic and glass ovals, vials, rounds, squares and
ointment jars. The only other major producer of such prescription containers
is Kerr Group, Inc.
Label Products. The main product of this unit is the patented Plasti-Shield
label that can be heat shrunk around glass or plastic containers. The
following table shows Plasti-Shield labels sales as an approximate percentage
of total Label Products sales for the last three years:
1993 1992 1991
---- ---- ----
59% 67% 75%
Multi-Pack Carriers. This unit currently produces two proprietary product
lines, both of which are predominantly used as six-pack carriers -- Hi-Cone (a
registered trademark of Illinois Tool Works Inc.) plastic carriers for cans
and Contour-Pak plastic carriers for bottles. The combination of the
Contour-Pak carrier used in connection with the Plasti-Shield label provides
the bottler with a highly cost-effective multi-pack system.
Markets. Major markets for these units include the household products,
personal care products, health care, food and beverage industries.
Labels are sold internally and to other glass container manufacturers. The
following table shows the approximate percentage of labels manufactured by the
Company which were sold to other units of the Company, principally the
Company's glass container operations, for the last three years:
1993 1992 1991
---- ---- ----
47% 51% 55%
8
The plastic segment of the rigid packaging market is highly competitive and
fragmented due to generally available technology, low costs of entry and
customer emphasis on low package cost. A large number of competitors exists
on both a national and regional basis. The Company competes by emphasizing
total package supply, proprietary technology, new package development, and
packaging innovation. The Company is one of two producers of each of the
Plasti-Shield label, the Hi-Cone multi-pack carrier (produced under a license
agreement with the only other producer, Illinois Tool Works Inc.) and the
Contour-Pak carrier. The market for closures is divided into various
categories in which several suppliers compete for business on the basis of
price and product design.
The Company's strategy has been to compete in the higher growth segments of
the plastic bottle category where customers seek to use brand-specific
packaging to differentiate their products. The Company believes it is a
leader in technology and development of custom products and has a leading
market position for such products. The Company's product innovations in
plastic containers and closures include in-mold labeling for custom molded
bottles, Contour-Pak carriers for 4, 6 and 8-pack applications, printed
Contour-Pak carriers, multilayer structured bottles containing post consumer
recycled resin, Flex-Band and PlasTop tamper-evident closures, Clic Loc
child-resistant closures and Pharmacy Mate reversible prescription container
closures. The Company believes that unit sales of closure products have
benefitted from the conversion of over 50% of the soft drink closures segment
from aluminum to plastic since 1987.
The Company believes that its plastic business may be increasingly affected by
recycling and recycling content legislation as they become more widespread.
Content legislation, recently enacted in several states requires that a
certain specified minimum percentage of recycled plastic be included in new
plastic products. The Company believes that it is well positioned to meet
such legislated standards in part due to its material and multilayer process
technology. Due in part to some of the process and product changes which will
be required if recycling content legislation becomes more widespread, the
Company also believes that certain consumer products companies which currently
produce their own plastic containers may choose to exit the production of
containers, which should enable the Company to increase its sales to such
companies.
The Company's Plastics and Closures segment currently has technical assistance
agreements with 17 companies in 12 countries. These agreements, which cover
areas ranging from manufacturing and engineering assistance to support in
functions such as marketing, sales, and administration, allow the Company to
participate in the worldwide growth of the plastic packaging industry.
SPECIALIZED GLASS
The Company's Specialized Glass segment consisted of Kimble Glass Inc.
("Kimble"), which manufactures both glass and plastic specialty packaging and
laboratory ware; and a 50% equity interest in OI-NEG TV Products, Inc. ("OI-
NEG TV Products"). Amounts related to the Company's former table glassware
business have been reclassified from the Specialized Glass segment to
9
discontinued operations as a result of the June 1993 sale of Libbey. The
Company sold its remaining interest in OI-NEG TV Products in October 1993. In
addition, as a result of the December 31, 1993 sale of 51% of Kimble, the
Company will record its share of Kimble's operations on an equity basis
beginning in 1994.
Kimble is a producer of glass packaging for pharmaceutical and diagnostic uses
and laboratory ware for clinical and research applications. Products for
pharmaceutical and diagnostic uses include ampuls, vials, syringe barrels and
syringe cartridges which are sold through Kimble's direct sales force. In
addition, some consumer and industrial products are sold through the same
direct sales force, including glass tubing, coffee carafes, cosmetic packages
and miscellaneous blown and cut industrial parts.
Kimble is also a major producer of reusable and disposable glass and plastic
laboratory apparatus and supplies, producing over 4,000 different products
including traditional reusable laboratory glassware (beakers, pipets, burets
and flasks) as well as disposable products (glass culture tubes, pipets and
scintillation vials) used in clinical laboratory applications. The Kontes
Glass Company, a Kimble subsidiary, manufactures specialty glassware,
including filtration, distillation and environmental products.
Generally, pharmaceutical and personal care packaging products are sold
directly to customers, while scientific products are primarily marketed
through laboratory distributors.
The market for Kimble's products is worldwide. Competition in Kimble's
principal product lines is based primarily on quality, service and price.
Major competitors include Wheaton Glass Company, The West Company,
Incorporated, Corning Glass Works, and a number of other domestic and foreign
manufacturers. No one competitor is dominant.
Kimble's sales personnel are salaried employees who are generally eligible for
bonuses based on the Company's overall performance. The Kimble sales
personnel are not subject to minimum sales quota requirements.
ADDITIONAL INFORMATION
New Products
New products and numerous refinements of existing products are developed and
introduced in each segment every year. No single new product or refinement,
or group of new products and refinements, have been recently introduced or are
scheduled for introduction which required the investment of a material amount
of the Company's assets or which otherwise would be considered material.
Sources and Availability of Raw Materials
All of the raw materials the company uses have historically been available in
adequate supply from multiple sources. However, for certain raw materials,
there may be temporary shortages due to weather or other factors, including
disruptions in supply caused by raw material transportation or production
10
delays; such shortages are not expected to have a material effect on the
Company's operations.
Patents and Licenses
The Company has a large number of patents which relate to a wide variety of
products and processes, has pending a substantial number of patent
applications, and is licensed under several patents of others. While in the
aggregate its patents are of material importance to its business, the Company
does not consider that any patent or group of patents relating to a particular
product or process is of material importance when judged from the standpoint
of any segment or its business as a whole.
Seasonality
Sales of particular products of the Glass Containers and Plastics and Closures
business segments such as beer, soft drink, and certain food containers are
seasonal, with shipments typically greater in the second and third quarters of
the year.
Working Capital
In general, the working capital practices followed by the Company are typical
of the businesses in which it operates. During the first and second quarters
of the year the accumulation of inventories of certain products in advance of
expected shipments reflects the seasonal nature of those businesses and may
require periodic borrowings.
Customers
Major customers exist for each of the Company's industry segments, and in each
industry segment the loss of a few of these customers might have a material
adverse effect on the segment. No single customer accounts for 10% or more of
the consolidated net sales of the Company.
Research and Development
Research and development constitutes an important part of the Company's
activities. Research and development expenditures for continuing operations
were $23.1 million, $22.9 million, and $20.4 million for 1993, 1992, and 1991,
respectively. Operating engineering expenditures were $19.2 million, $23.1
million, and $21.9 million for 1993, 1992, and 1991, respectively. In
addition to new product development, substantial portions of the technical
effort are devoted to increased process control, automatic inspection, and
automation. Also, there is continued emphasis on reduction in energy use per
unit of production. No material amount of money was spent on customer-
sponsored research activities during 1993, 1992, or 1991.
Environment
The Company's operations in common with those of the industry generally, are
subject to numerous existing and proposed laws and governmental regulations
11
designed to protect the environment, particularly regarding plant wastes and
emissions and solid waste disposal. Capital expenditures for property, plant,
and equipment for environmental control activities were not material during
1993.
In addition, sales of non-refillable glass beverage bottles and other
convenience packages are affected by mandatory deposit laws and other types of
restrictive legislation. As of January 31, 1994, there are nine states with
mandatory deposit laws in effect.
Plastic containers have also been the subject of legislation in two states.
In anticipation of this legislation and through coordination with certain
customers, the Company has initiated procedures to utilize recycled plastic
resin in its manufacturing processes. During 1993, many plastic containers
for products other than food, drugs, and cosmetics converted to 25% of post
consumer resin. The Company believes it is the industry leader in such
technology.
A number of states are considering legislation to promote curbside recycling
and recycled content legislation as alternatives to mandatory deposit laws.
Although such legislation is not uniformly developed, the Company believes
that curbside recycling and recycling content legislation could become more
significant during the next five years.
Although the Company is unable to predict what legislation or regulations may
be adopted in the future with respect to environmental protection and waste
disposal, compliance with existing legislation and regulations has not had,
and is not expected to have, a material adverse effect on its capital
expenditures, results of operations, or competitive position.
Number of Employees
The Company's operations employed approximately 28,900 persons at December 31,
1993. A majority of these employees are hourly workers covered by collective
bargaining agreements, the principal one of which was renewed early in 1993
for three years. The Company considers it employee relations to be good. The
Company has not had any material labor disputes in the last five years, and
does not anticipate any material work stoppages in the near term.
Financial Information about Foreign and Domestic Operations and Export Sales
Information as to net sales, operating profit, and identifiable assets of the
Company's operating and geographic segments is included on pages 60-63.
Export sales, in the aggregate or by geographic area, were not material for
the years 1993, 1992, or 1991.
12
ITEM 2. PROPERTIES
The principal manufacturing facilities and other material important physical
properties of the continuing operations of the Company at December 31, 1993
are listed below and grouped by industry segment. All properties shown are
owned in fee except where otherwise noted.
Limestone Plant
Glass Containers Volcano, CA (2)
Glass Container Plants
Atlanta, GA Sand Plants
Brockway, PA Ione, CA (2)
Charlotte, MI Devilla, United Kingdom
Chicago Heights, IL (1)
Clarion, PA (1) Flat Glass Plants
Crenshaw, PA La Victoria, Venezuela
Danville, VA
Lakeland, FL Plastics and Closures
Lapel, IN Plastic Container Plants
Los Angeles, CA Atlanta, GA
Muskogee, OK (1) Baltimore, MD
Oakland, CA Belvidere, NJ
Pomona, CA (1) Charlotte, NC
Portland, OR Chicago, IL
Streator, IL Cincinnati, OH (1)
Toano, VA Dallas, TX
Tracy, CA Edison, NJ
Volney, NY Fairfield, CA
Waco, TX Findlay, OH (1), (2)
Winston-Salem, NC Florence, KY (1)
Zanesville, OH Greenville, SC
Rio de Janeiro, Brazil Harrisonburg, VA
Sao Paulo, Brazil Kansas City, MO (2)
Envigado, Colombia La Mirada, CA (2)
Zipaquira, Colombia Nashua, NH
Guayaquil, Ecuador Newburyport, MA
Callao, Peru Rossville, GA (2)
Vega Alta, Puerto Rico St. Louis, MO (2)
St. Albans, United Kingdom Sullivan, IN
Alloa, United Kingdom Vandalia, IL (1)
Harlow, United Kingdom Washington, NJ (2)
Peasley, United Kingdom
Cagua, Venezuela Mold Shop
Caracas, Venezuela Kansas City, MO (2)
Valencia, Venezuela
Valera, Venezuela Label Products Plant
Bardstown, KY (1)
Machine Shops Closure & Specialty Products Plants
Brockway, PA Bridgeport, CT
Godfrey, IL Brookville, PA
Manaus, Brazil Chattonooga, TN
Constantine, MI (1)
13
El Paso, TX (2) Corporate Facilities
Erie, PA World Headquarters Building
Hamlet, NC Toledo, OH (2)
Maumee, OH (2)
North Riverside, IL (2) Levis Development Park
Waterbury, CT Perrysburg, OH
Mexico City, Mexico
Las Piedras, Puerto Rico
Prescription Products Plant
Berlin, OH (1)
__________________
(1) This facility is financed in whole or in part under tax-exempt financing
agreements.
(2) This facility is leased in whole or in part.
The Company believes that its facilities are well maintained and currently
adequate for its planned production requirements over the next three to five
years.
ITEM 3. LEGAL PROCEEDINGS
See the second through last paragraphs of the section entitled "Contingencies"
on pages 55 - 60.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
EXECUTIVE OFFICERS OF THE REGISTRANTS
Set forth below are the names and the ages, positions, and offices held (as of
the date hereof), and a brief account of the business experience of each
executive officer. Each officer listed below holds the same position or
positions with Owens-Illinois Group, Inc. as he does with the Company.
Officers serve at the discretion of the Board of Directors.
Name and Age Position
- ------------ --------
Joseph H. Lemieux (63) . . . . . Chairman since 1991; Chief Executive
Officer since 1990; President and Chief
Operating Officer, 1986-1990; Director
since 1984. Member of Class III of the
Board of Directors of the Company, with a
term expiring in 1994.
Lee A. Wesselmann (58) . . . . . Senior Vice President and Chief Financial
Officer since 1988; Secretary, 1988-1990;
Vice President - Finance, 1988; Director
since 1988. Member of Class I of the
Board of Directors of the Company, with a
term expiring in 1995.
R. Scott Trumbull (45) . . . . . Executive Vice President, International
Operations since 1993; Vice President and
Director of Corporate Planning 1992-1993;
Vice President and General Manager of
Plastics and Closure Operations, 1986 -
1992.
Terry L. Wilkison (52) . . . . . Executive Vice President, Domestic
Packaging Operations since 1993; Vice
President and General Manager of
Plastics, Closures, and Prescription
Products 1992-1993; Vice President and
General Manager of Specialty Glass
Operations 1987-1992.
Thomas L. Young (50) . . . . . . Executive Vice President, Administration,
General Counsel and Secretary since 1993;
Vice President, General Counsel, General
Manager - Operations Administration and
Secretary 1992-1993; Vice President,
General Counsel and Secretary, 1990-1992;
Vice President and General Counsel -
Operations, 1988-1990.
15
Name and Age Position
- ------------ --------
Russell C. Berkoben (52) . . . . Vice President and General Manager of
Plastic Operations since 1991; Vice
President and Plastic Container Business
Unit Manager, 1985-1991.
Gary R. Clinard (55) . . . . . . Vice President and General Manager of
International Operations since 1990; Vice
President of International Operations and
Technical Assistance, 1987-1990.
Larry A. Griffith (48) . . . . . Vice President and General Manager of
Kimble since 1992; Vice President, 1990-
1992; Vice President of Corporate Staff
and Director of Corporate Planning, 1988-
1990;
John L. Hodges (54). . . . . . . Vice President and General Manager of
Glass Container Operations since 1993;
Vice President of Glass Container Sales
and Marketing, 1991-1993; Vice President
and General Manager of Glass Container
Manufacturing, 1984-1991.
Dale W. Leidy (54) . . . . . . . Vice President and Technical Director -
Glass Container since 1993; Vice
President and General Manager of Glass
Container Manufacturing 1991-1993; Vice
President and Technical Director -
Packaging, 1990-1991; Vice President and
Director of Manufacturing and Engineering
of Plastic Products, 1989-1990; Vice
President and Director of Manufacturing
of Plastic Products, 1986-1989.
Michael D. McDaniel (45) . . . . Vice President and General Manager of
Closure Operations since 1991; Vice
President and Director of Manufacturing
and Engineering of Closure Operations,
1990-1991; Vice President and
Manufacturing Manager of Closure
Operations, 1985-1990.
Philip McWeeny (54). . . . . . . Vice President and General Counsel -
Corporate since 1988.
16
Name and Age Position
- ------------ --------
Ronald H. Pfenning (45). . . . . Vice President of Glass Container Sales
and Marketing since 1993; Glass Container
Vice President and Industry Manager,
Food, 1992-1993; Glass Container Vice
President and Industry Manager, Brewing &
Liquor, 1989-1991.
B. Calvin Philips (52) . . . . . Vice President since 1990; Vice President
and General Manager of Closure and
Specialty Products, 1987-1990.
Robert A. Smith (52) . . . . . . Vice President and General Manager of
Glass Container Manufacturing since 1993;
Vice President and General Manager, West
Coast, 1990-1993; Vice President and Area
Manufacturing Manager, 1986-1990.
Larry C. Tollstam (51) . . . . . Vice President and General Manager of
Prescription Products Operations since
1988.
David G. Van Hooser (47) . . . . Vice President, Treasurer and Comptroller
since 1990; Vice President and Treasurer,
1988-1990.
17
PART II
ITEM 5. MARKET FOR OWENS-ILLINOIS, INC.'S COMMON STOCK
AND RELATED SHARE OWNER MATTERS
The price range for the Company's Common Stock on the New York Stock Exchange,
as reported by National Association of Securities Dealers, was as follows:
1993 1992
------------------ ----------------
High Low High Low
------ ------ ------ ------
First Quarter 12-1/4 10 14-1/2 11-1/2
Second Quarter 12 10 14 11-1/4
Third Quarter 11-5/8 9 12-1/8 8-1/4
Fourth Quarter 12-3/8 9-1/4 10-1/2 7-7/8
On February 28, 1994, there were 797 common share owners of record. No
dividends have been declared or paid since the Company's initial public
offering in December 1991. For restrictions on payment of dividends on Common
Stock, see Restriction on Retained Earnings included on page 50.
18
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below relates to each of
the five years in the period ended December 31, 1993. Such data was derived
from the Consolidated Financial Statements, of which the most recent three
years are included elsewhere in this document, and were audited by Ernst &
Young, independent auditors, whose report with respect to the financial
statements appears elsewhere in this document. See Consolidated Financial
Statements -- Statement of Significant Accounting Policies -- and Financial
Review.
Year Ended December 31,
----------------------------------------------------
1993 1992 (b) 1991 (c) 1990 1989
-------- -------- -------- -------- --------
Consolidated Operating (Dollar amounts in millions)
Results (a):
Net sales. . . . . . $3,535.0 $3,392.6 $3,284.3 $3,383.3 $3,053.8
Other (d). . . . . . 127.1 81.6 83.3 84.4 83.4
-------- -------- -------- -------- --------
3,662.1 3,474.2 3,367.6 3,467.7 3,137.2
Costs and expenses:
Manufacturing, shipping
and delivery . . . 2,823.8 2,744.1 2,636.8 2,691.0 2,496.6
Research, engineering,
selling, administra-
tive and other (d) 842.8 260.3 223.6 315.1 230.5
Earnings (loss) from -------- -------- -------- -------- --------
continuing operations
before interest
expense and items
below. . . . . . . (4.5) 469.8 507.2 461.6 410.1
Interest expense . . 290.0 312.9 452.5 446.4 417.5
-------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before items
below. . . . . . . (294.5) 156.9 54.7 15.2 (7.4)
Provision (credit)
for income taxes . (113.1) 64.0 53.7 60.4 42.1
Minority share owners'
interests in
earnings of
subsidiaries . . . 19.4 14.6 11.8 8.6 7.9
Earnings (loss) from -------- -------- -------- -------- -------
continuing operations
before extraordinary
items and cumulative
effect of accounting
changes. . . . . . (200.8) 78.3 (10.8) (53.8) (57.4)
Net earnings (loss)
of discontinued
operations . . . . 1.4 18.4 3.8 (2.4) (10.2)
19
SELECTED FINANCIAL DATA -- continued
Year Ended December 31,
---------------------------------------------------
1993 1992 (b) 1991 (c) 1990 1989
------ --------- --------- ------- ------
(Dollar amounts in millions, except per share data)
Gain (loss) on sales of
discontinued operations,
net of applicable
income taxes . . . 217.0 (123.1)
Extraordinary charges
from early
extinguishment of
debt, net of
applicable income
taxes. . . . . . . (12.7) (31.5) (143.5) (40.5)
Cumulative effect on
prior years of
changes in methods
of accounting for
income taxes and
postretirement
benefits, net
of applicable
income taxes (b) . (199.4)
-------- -------- -------- -------- --------
Net earnings (loss). $ 4.9 $ (134.2) $ (273.6) $ (56.2) $ (108.1)
======== ======== ======== ======== ========
Earnings (loss) per
share of common
stock:
Earnings (loss)
from continuing
operations before
extraordinary
items and cumula-
tive effect of
accounting changes $ (1.70) $ 0.66 $ (0.27) $ (1.46) $ (1.55)
Net earnings (loss)
of discontinued
operations . . . 0.01 0.15 0.09 (0.06) (0.28)
Gain (loss) on sales
of discontinued
operations . . . 1.82 (3.07)
Extraordinary charges (0.10) (0.26) (3.58) (1.10)
Cumulative effect of
accounting
changes (b). . . (1.68)
-------- -------- -------- -------- --------
Net earnings (loss). $ 0.03 $ (1.13) $ (6.83) $ (1.52) $ (2.93)
======== ======== ======== ======== ========
20
SELECTED FINANCIAL DATA -- continued
Year Ended December 31,
----------------------------------------------------
1993 1992 (b) 1991 (c) 1990 1989
-------- -------- -------- -------- --------
Other Data: (Dollar amounts in millions)
The following are included in the
results from continuing operations:
Depreciation . . . $ 180.0 $ 181.9 $ 154.0 $ 150.3 $ 135.6
Amortization of
excess cost and
intangibles. . . 40.8 38.6 36.3 36.3 34.8
Amortization of
deferred finance
fees (included
in interest
expense) . . . . 11.5 12.0 13.6 13.7 14.3
-------- -------- -------- -------- --------
$ 232.3 $ 232.5 $ 203.9 $ 200.3 $ 184.7
======== ======== ======== ======== ========
Weighted average
shares outstanding
(in thousands) . . 118,978 118,980 40,089 36,940 36,890
Balance Sheet Data (at end of period):
Working capital. . $ 234 $ 245 $ 195 $ 339 $ 315
Total assets . . . 4,901 5,151 4,399 5,191 5,098
Total debt . . . . 2,487 3,107 2,932 4,005 3,904
Share owners' equity 295 299 415 (153) (98)
(a) Results of operations have been restated to reflect the effects of the
sale of the Libbey business, which was consummated on June 24, 1993, and
of the Health Care segment, which was consummated on October 24, 1991, as
discontinued operations.
(b) In the fourth quarter of 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," each as of January 1, 1992. The impact of the changes on
1992 earnings from continuing operations consists of an additional $39.2
million of non-cash expenses partially offset by additional deferred tax
credits of $26.3 million. See Statement of Significant Accounting
Policies on page 37, Income Taxes on page 45, and Postretirement Benefits
Other Than Pensions on page 52 for explanations of these changes.
(c) The Company completed a recapitalization in the fourth quarter of 1991,
the effects of which are included in the Balance Sheet Data as of
December 31, 1991. For a discussion of the pro forma effects on the full
year 1991 results of operations, see Recapitalization on page 39.
(d) Other revenues in 1993 includes gains of $46.1 million (approximately
$34.6 million after tax) from divestitures. In the fourth quarter of
21
1993, the Company recorded charges totaling $578.2 million (approximately
$357.0 million after tax) principally for estimated uninsured future
asbestos-related costs and costs associated with its restructuring
program. Other revenues in 1990 includes gains of $29.6 million
(approximately $16.4 million after tax) from divestitures. In the fourth
quarter of 1990, the Company recorded a charge of $48.4 million
(approximately $31.0 million after tax) for special separation and
retirement benefits. See Other Revenues and Other Costs and Expenses on
page 53.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Comparison of 1993 with 1992
The Company had a loss from continuing operations for 1993 of $200.8 million,
reflecting the $322.4 million net after tax effect of several unusual fourth
quarter charges and gains, which are discussed below. Excluding these unusual
fourth quarter items, the Company had earnings from continuing operations of
$121.6 million representing an increase of $43.3 million, or 55.3%, over 1992
earnings of $78.3 million. Results of operations for 1992 have been restated
to reflect the Libbey business, which was sold in June 1993, as a discontinued
operation. Generally improved operating results, particularly in the Glass
Containers segment, along with reduced interest expense, were principally
responsible for the increase.
Net earnings for 1993 were $4.9 million compared to a net loss of $134.2
million in 1992. The 1993 results include the net gain of $217.0 million from
the sale of the Libbey business while the 1992 loss includes a charge for the
cumulative effect of accounting changes of $199.4 million. Earnings of the
discontinued Libbey business were $1.4 million in 1993 and $18.4 million in
1992, including an after tax gain of $10.5 million on an asset sale.
Extraordinary charges from the early extinguishment of debt amounted to $12.7
million in 1993 and $31.5 million in 1992. For additional information see
Extraordinary Charges on page 53 and Discontinued Operations on page 54.
Capsule segment results (in millions of dollars) for 1993 and 1992 are as
follows (a):
- ------------------------------------------------------------------------------
Net sales to unaffiliated customers 1993 1992
- ------------------------------------------------------------------------------
Glass Containers $2,427.3 $2,421.7
Plastics and Closures 908.6 781.0
Specialized Glass 197.9 188.4
Other 1.2 1.5
- ------------------------------------------------------------------------------
Consolidated total $3,535.0 $3,392.6
==============================================================================
22
- ------------------------------------------------------------------------------
Operating profit 1993 (b) 1992
- ------------------------------------------------------------------------------
Glass Containers $ 117.4 $ 299.0
Plastics and Closures 123.3 133.4
Specialized Glass 18.9 12.7
Eliminations and other retained costs (305.0) (12.3)
- ------------------------------------------------------------------------------
Consolidated total $ (45.4) $ 432.8
==============================================================================
(a) See Segment Information included on pages 60 - 63.
(b) Reflects the net reductions from unusual fourth quarter charges and gains
as follows: Glass Container, $214.0 million; Plastics and Closures,
$16.0 million; Specialized Glass, $3.2 million; and other retained costs,
$298.9 million.
Consolidated net sales for 1993 increased $142.4 million, or 4.2% over the
prior year. In the Glass Containers segment, reported dollar sales of the
Company's international affiliates were up 4.7%, reflecting improved economic
conditions in Brazil and higher unit shipments by most Latin American
affiliates. These improved results were largely offset by the unfavorable
impact of foreign currency exchange rate changes on the reported sales of the
Company's United Kingdom affiliate, despite an increase in its unit shipments.
Domestic glass container shipments were down in 1993 by 0.6%, with reported
sales down 1.5%. These reductions reflect the continuing conversion of soft
drinks from glass to plastic (polyethylene terephthalate or PET) containers.
The Company believes this trend will continue, but to a lesser extent. The
capacity resulting from such conversions is being used for the production of
containers for products experiencing increased demand, such as iced tea and
other beverages. In the Plastics and Closures segment, sales increased $127.6
million, with over 60% of the increase resulting from the acquisition of
Specialty Packaging Products in the fourth quarter of 1992. Shipments in the
base closure and plastic bottle businesses were higher in 1993, further
contributing to the higher sales. Partially offsetting these favorable
comparisons was reduced unit volume in the labels and carriers business,
attributable in large part to the continuing conversion of soft drinks from
glass to PET containers. Net sales of the Specialized Glass segment increased
$9.5 million or 5.0% principally due to improved sales mix and higher unit
volume. The Specialized Glass segment, as restated for the sale of Libbey,
consists only of the Kimble laboratory and pharmaceutical glassware business.
In addition, on December 31, 1993, the Company completed the sale of a 51%
interest in the Kimble business to Gerresheimer Glas, AG. As a result, Kimble
will be accounted for on the equity basis beginning in 1994.
Consolidated operating profit for 1993, excluding the unusual fourth quarter
items discussed separately below, increased $53.9 million or 12.5% to $486.7
million from $432.8 million reported in 1992. Consolidated operating profit,
excluding the unusual items, was 13.8% of net sales in 1993 compared to 12.8%
in 1992. Lower benefit costs, which generally affected all segments,
accounted for the majority of this percentage improvement. Consolidated
operating expenses (consisting of selling and administrative, engineering, and
23
research and development expenses) as a percentage of net sales decreased to
6.4% in 1993 from 6.6% in 1992. Operating profit of the Glass Containers
segment, exclusive of the unusual items, increased $32.4 million or 10.8%.
Approximately one-half of the increase was attributable to the international
glass business, principally in Brazil as a result of increased shipments and
improved economic conditions. Increased operating profit in the domestic
glass business resulted from lower manufacturing costs and increased labor
productivity, along with the benefit of a mid-year price increase amounting to
approximately 1.5% on an annualized basis. Operating profit of the Plastics
and Closures segment, exclusive of the unusual items, increased 4.4% from
$133.4 million in 1992 to $139.3 million in 1993. The favorable effects of
increased unit shipments in most product lines and the full-year results of
the Specialty Packaging Products acquisition were significantly offset by
lower profit in the labels and carriers business as unit shipments of soft
drink labels and Hi-Cone carriers declined. Other retained costs, exclusive
of the unusual items, were $6.1 million in 1993 compared to $12.3 million in
1992, principally as a result of lower benefit costs.
During the fourth quarter of 1993, the Company recorded several unusual
charges and gains as part of continuing operations. Consistent with its focus
on core packaging businesses, the Company sold its remaining 50% interest in
the television glass business in October, concluding a joint venture
established in mid-1988. In addition, on December 31, 1993, the Company sold
a 51% interest in its Kimble laboratory and pharmaceutical glassware business.
Gains from these sales amounted to $46.1 million pretax ($34.6 after tax).
The Company's fourth quarter 1993 results include charges totalling $250
million, principally for costs related to its restructuring program. The
program is the result of a comprehensive reengineering study initiated by the
Company in mid-1993 in response to management's commitment to enhance customer
service, improve manufacturing efficiency and productivity, and reduce costs.
The results of the study, completed in the fourth quarter, indicated that
opportunities for improvement are available through a combination of changes
in the manufacturing and quality control processes, simplification of plant
management organizations, and consolidation of administrative
responsibilities. During its implementation over the next several years, the
program is expected to result in a 10% reduction of the Company's domestic
work force and ultimately, over the next three to four years, increases in
operating profit of $75 million or more on an annual basis. The severance and
early retirement costs of the work force reduction are estimated to be $165
million, with about one-half expected to require cash expenditures and one-
half representing non-cash pension costs. Another significant component,
estimated at $30 million, represents the expected write-down to realizable
value of production and other factory equipment which will be eliminated as a
result of implementing the improvements in manufacturing, quality control, and
customer service processes. Additional cash expenditures of approximately $5
million consist of fourth quarter 1993 fees related to the reengineering study
and expected costs of exiting a number of sales offices and warehouses. Other
items included in the $250 million, not directly related to the restructuring
program, totaled approximately $50 million and included costs related to a
December 1993 plant shutdown and an increase in estimated future fees and
indemnification costs related to various environmental and legal matters. In
24
addition to the $250 million charge, the Company recorded a $3.2 million
charge for relocating several manufacturing departments in the Kimble
business. The net after tax amount for all these charges was $156.3 million.
Also included in the fourth quarter of 1993 is a charge of $325 million
($200.7 million after tax) for estimated uninsured future asbestos-related
costs. The Company recorded the charge based on recent trends and
developments and their effect on the Company's ability to estimate probable
costs of pending and likely future asbestos-related claims. Among other
things, the Company has disposed of 70,000 claims in 1992 and 1993,
representing almost one-half of all the cases disposed since the initial cases
were resolved in 1979; certain of these claims were disposed in 1993 at higher
than expected costs. These recent claim dispositions have expanded the
Company's data base. The Company has also had increasing success in
establishing administrative procedures to process claims in an administrative
framework outside the tort litigation system. In addition, the Company has
experienced a reduction in the number of new filings claiming significant
exposure to its asbestos-containing insulation products, apparently due at
least in part to the time which has elapsed since its 1958 exit from the
business. The Company's estimate was affected by a number of other
developments that have occurred recently with respect to asbestos-related
litigation, not only against Owens-Illinois but against other companies,
including the generally lower percentage of legitimate claims of serious
illness or impairment among newly filed cases. The estimate includes the
expectation of a substantial amount of insurance coverage, principally from
insurance policies from various companies for the years 1977 through 1983. In
the event any portion of this coverage is not available, an additional charge
may be required. For additional information see Capital Resources and
Liquidity on page 26 and Contingencies on page 55.
Comparison of 1992 with 1991
For the year ended December 31, 1992, the Company recorded earnings from
continuing operations of $78.3 million compared with a loss of $10.8 million
in 1991. The improvement in earnings was due primarily to reduced interest
expense resulting from the Company's December 1991 recapitalization and
generally improved operating results in most of the Company's businesses. The
adoption of Statement of Financial Accounting Standards (SFAS) Nos. 109 and
106 had adverse impacts of $1.0 million and $11.9 million, respectively, on
1992 earnings from continuing operations. The net loss for 1992 was $134.2
million and included charges of $31.5 million from the early extinguishment of
debt and $199.4 million for the cumulative effect of accounting changes as of
the beginning of the year. The net loss for 1991 was $273.6 million which
included a $123.1 million loss on disposal of the discontinued Health Care
segment and an extraordinary charge of $143.5 million related to early
extinguishment of debt in connection with the Recapitalization. For
additional information, see Recapitalization on page 39 and Discontinued
Operations on page 54.
25
Capsule segment results (in millions of dollars) for 1992 and 1991 are as
follows (a):
- ------------------------------------------------------------------------------
Net sales to unaffiliated customers 1992 1991
- ------------------------------------------------------------------------------
Glass Containers $2,421.7 $2,369.4
Plastics and Closures 781.0 729.6
Specialized Glass 188.4 183.7
Other 1.5 1.6
- ------------------------------------------------------------------------------
Consolidated total $3,392.6 $3,284.3
==============================================================================
- ------------------------------------------------------------------------------
Operating profit 1992 (b) 1991
- ------------------------------------------------------------------------------
Glass Containers $ 299.0 $ 315.4
Plastics and Closures 133.4 139.2
Specialized Glass 12.7 27.0
Eliminations and other retained costs (12.3) (1.6)
- ------------------------------------------------------------------------------
Consolidated total $ 432.8 $ 480.0
==============================================================================
(a) See Segment Information included on pages 60 - 63.
(b) Reflects additional non-cash expenses of $40.9 million from the adoption
of SFAS Nos. 109 and 106 as follows: Glass Containers, $17.9 million;
Plastics and Closures, $11.5 million; Specialized Glass, $6.7 million;
and other retained costs, $4.8 million.
Consolidated net sales for 1992 increased 3.3% over the net sales reported in
1991. In the Glass Containers segment, net sales increased $52.3 million.
Combined unit sales of glass containers by the Company's Venezuelan and
Colombian affiliates increased 14.3%, accounting for most of the increased
sales. Net sales for the domestic glass container business approximated 1991.
In the Plastics and Closures segment, net sales increased $51.4 million due to
increased unit sales volume, including the effect of the fourth quarter 1992
acquisition of Specialty Packaging Products, Inc. The increases were
partially offset by the unit sales price reductions in the plastic containers
business as a result of passing through lower resin costs. Net sales of the
Specialized Glass segment increased 2.6% primarily due to higher unit sales
volume.
Consolidated operating profit for 1992 of $432.8 million reflects a reduction
from the prior year of $6.3 million along with the additional non-cash
expenses of $40.9 million for the current year effects of adopting two new
accounting standards. Results for 1991 were not restated for the accounting
changes. Consolidated operating profit was 14.0% of net sales in 1992 (before
the additional expenses from the accounting changes) and 14.6% in 1991.
Consolidated operating expenses as a percentage of net sales increased to 6.6%
in 1992 from 5.9% in 1991 principally as a result of additional expenses from
the accounting changes. The 1991 results included a gain of $11.0 million
from the receipt of an insurance settlement related to the costs of a 1988
furnace spill at the Oakland, California glass container plant.
26
The $16.4 million lower operating profit of the Glass Containers segment was
primarily due to the additional 1992 expenses of $17.9 million resulting from
the accounting changes. Lower U. S. dollar earnings of consolidated foreign
affiliates were primarily due to the impact of unfavorable economic conditions
in Brazil on the reported earnings of the segment's Brazilian affiliate. The
operating profit of the domestic glass container business increased 9.3%,
excluding both the one-time impact of the 1991 insurance settlement and the
1992 charges for accounting changes. The increase was principally due to
improved capacity utilization, improved machine and labor productivity, and
generally lower manufacturing costs. The Plastics and Closures segment
operating profit for 1992 reflects a 4.1% increase from operations compared to
the prior year which was more than offset by additional expenses of $11.5
million related to the accounting changes. The operating improvements were
due primarily to higher unit sales volume and better manufacturing performance
in its plastic products and closures businesses. The 1992 operating profit of
the Specialized Glass segment declined mainly due to costs in the
pharmaceutical packaging and laboratory ware businesses associated with higher
furnace rebuild and repair activity in 1992 compared to 1991, combined with
increased manufacturing costs not offset by unit sales price increases. Other
retained costs for 1992 include additional expenses of $4.8 million from the
accounting changes.
The Company's effective tax rate for 1992 of 40.8% exceeds statutory rates
primarily as a result of non-cash charges for the amortization of the excess
purchase cost for which no tax benefit is available. The effective tax rate
in 1991, adjusted for the pro forma effects of the Recapitalization, was
53.5%. The decrease in the rate was due in large part to the change in method
of accounting for income taxes. Assets and liabilities, which had been
recorded net-of-tax as previously required in accounting for acquisitions,
were adjusted to their pretax amounts and corresponding deferred taxes were
recorded. The resulting increased depreciation and amortization, combined
with offsetting reductions of the provision for taxes, reduced the effective
rate. In addition, the foreign taxes on earnings of consolidated foreign
subsidiaries were generally lower in 1992 compared to 1991.
Pro Forma Results of Operations for 1991
Assuming the Recapitalization had occurred at the beginning of 1991, pro forma
earnings from continuing operations for 1991 would have been $78.7 million.
The Company's pro forma results of operations for 1991 reflect an increase in
earnings from continuing operations of $89.5 million when compared to its
historical results of operations. The increase results from lower interest
expense net of applicable income taxes as a result of debt repurchases
financed with the proceeds of the various components of the Recapitalization.
Capital Resources and Liquidity
The Company's total debt at December 31, 1993, was $2.49 billion compared to
$3.11 billion at December 31, 1992.
27
At December 31, 1993, the Company had available credit of $1 billion under its
recently completed Bank Credit Agreement. After giving effect to borrowings
on January 3, 1994 to redeem the remaining $268.9 million of Senior Variable
Rate Notes outstanding, the amount available under the Agreement was $558.6
million. At December 31, 1992, total commitments under the Company's previous
credit facility were $725.0 million of which $288.2 million was available.
Cash provided by operating activities was $231.7 million in 1993 compared to
$214.4 million in 1992. Capital expenditures for property, plant and
equipment were $266.2 million in 1993 and $250.8 million in 1992. Net cash
proceeds from divestitures and asset sales exceeded $725 million in 1993 and
were not significant in 1992.
In December 1993, the Company entered into a new Bank Credit Agreement which
provides commitments for borrowings up to $1 billion through December 1998.
This Agreement replaces the prior credit facility which had been scheduled to
expire in September 1994. The interest rates on borrowings under the new
Agreement are favorable to the previous agreement by approximately .375% and
would become slightly more or less favorable should the Company's publicly-
traded Senior Debentures be assigned higher or lower ratings by major rating
agencies. In addition, there are no required principal payments or reductions
of available capacity during the term of the new Agreement. Therefore, on a
consolidated basis at December 31, 1993, the Company had in excess of $550
millon of borrowing capacity and relatively modest scheduled principal
payments for a five-year period through December 1998.
In the twelve-month period commencing January 1, 1994, the Company anticipates
that cash flow from its operations and from utilization of available credit
under the Bank Credit Agreement will be sufficient to fund its operating and
seasonal working capital needs, debt service and other obligations, including
cash payments required in connection with the restructuring program undertaken
in 1993. The Company's insurance coverage under agreements with Aetna,
relating to amounts payable by the Company with respect to asbestos-related
lawsuits and claims, was exhausted during the second quarter of 1992. As a
result thereof, the Company faces additional demands upon its liquidity for
such payment until the United Insurance litigation is resolved; the date of
the resolution is uncertain. As of December 31, 1993, the Company had made
such payments of $283 million of which $136 million was paid in 1993. In
addition, the Company has entered into group settlement agreements which
include settlement amounts payable in 1994 and later years. As of December
31, 1993, such deferred payment amounts were approximately $168 million. The
cumulative total of the receivable and the deferred amounts as of December 31,
1993, was $451 million, which represents the Company's pretax spending and
commitments to spend on disposed lawsuits and claims as of that date for which
the Company expects to be reimbursed by insurance. None of the foregoing
amounts represented a spending commitment with respect to lawsuits and claims
pending against the Company as of December 31, 1993. Based on the Company's
expectations regarding favorable trends which should lower its aggregate
payments for lawsuits and claims and its expectation of substantial insurance
coverage and reimbursement for such lawsuits and claims as a result of the
United Insurance litigation and also based on the Company's expected operating
cash flow, the Company believes that the payment of any deferred amounts of
previously settled or otherwise determined lawsuits and claims, and the
28
resolution of presently pending and anticipated future lawsuits and claims
associated with asbestos, will not have a material adverse effect upon the
Company's liquidity on a short-term or long-term basis.
Over the five-year term of the Bank Credit Agreement ending in December 1998,
the Company expects that the utilization of available credit thereunder,
combined with cash flows from operations, will be sufficient to fund its
operating and seasonal working capital needs, debt service, and other
obligations. Beyond that, based upon current levels of operations and
anticipated growth, the Company anticipates that it will have to refinance
existing indebtedness, sell assets and/or otherwise raise funds in either the
private or public markets to make all of the principal payments when due under
its outstanding debt securities, beginning with principal payments due in 1999
under the 10-1/4% Senior Subordinated Notes. There can be no assurance that
the Company will be able to refinance existing indebtedness or otherwise raise
funds in a timely manner or that the proceeds therefrom will be sufficient to
make all such principal payments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
-----
Report of Independent Auditors 29
Consolidated Balance Sheets at December 31, 1993 and 1992 32-33
For the years ended December 31, 1993, 1992, and 1991:
Consolidated Results of Operations 30-31
Consolidated Share Owners' Equity 34
Consolidated Cash Flows 35-36
Statement of Significant Accounting Policies 37-38
Financial Review 39-63
Selected Quarterly Financial Data 64-65
29
===============================================================================
REPORT OF INDEPENDENT AUDITORS
===============================================================================
The Board of Directors and Share Owners
Owens-Illinois, Inc.
We have audited the accompanying consolidated balance sheets of Owens-
Illinois, Inc. as of December 31, 1993 and 1992, and the related consolidated
statements of results of operations, share owners' equity, and cash flows for
each of the three years in the period ended December 31, 1993. Our audits
also included the financial statement schedules listed in the Index at Item
14.(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Owens-Illinois,
Inc. at December 31, 1993 and 1992 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
As discussed in the Statement of Significant Accounting Policies and Financial
Review, in 1992 the Company changed its methods of accounting for
postretirement benefits other than pensions and income taxes.
Ernst & Young
Toledo, Ohio
February 4, 1994
30
===========================================================================
CONSOLIDATED RESULTS OF OPERATIONS Owens-Illinois, Inc.
Millions of dollars, except per share amounts
Years ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------------
Revenues:
Net sales $3,535.0 $3,392.6 $3,284.3
Royalties and net technical assistance 29.2 29.5 32.2
Equity earnings 25.3 23.2 11.7
Interest 15.6 13.8 15.5
Other 57.0 15.1 23.9
- ---------------------------------------------------------------------------
3,662.1 3,474.2 3,367.6
Costs and expenses:
Manufacturing, shipping, and delivery 2,823.8 2,744.1 2,636.8
Research and development 23.1 22.9 20.4
Engineering 19.2 23.1 21.9
Selling and administrative 182.9 178.2 152.4
Interest 290.0 312.9 452.5
Other 617.6 36.1 28.9
- ---------------------------------------------------------------------------
3,956.6 3,317.3 3,312.9
- ---------------------------------------------------------------------------
Earnings (loss) from continuing operations
before items below (294.5) 156.9 54.7
Provision (credit) for income taxes (113.1) 64.0 53.7
- ---------------------------------------------------------------------------
(181.4) 92.9 1.0
- ---------------------------------------------------------------------------
Minority share owners' interests
in earnings of subsidiaries 19.4 14.6 11.8
- ---------------------------------------------------------------------------
Earnings (loss) from continuing operations
before extraordinary items and cumulative
effect of accounting changes (200.8) 78.3 (10.8)
Net earnings of discontinued
operations 1.4 18.4 3.8
Gain (loss) on sales of discontinued
operations, net of applicable income
taxes 217.0 (123.1)
- ---------------------------------------------------------------------------
Earnings (loss) before extraordinary items
and cumulative effect of accounting
changes 17.6 96.7 (130.1)
Extraordinary charges from early
extinguishment of debt, net of applicable
income taxes (12.7) (31.5) (143.5)
Cumulative effect on prior years of changes
in methods of accounting for income taxes
and postretirement benefits, net of
applicable income taxes (199.4)
- ---------------------------------------------------------------------------
Net earnings (loss) $ 4.9 $ (134.2) $ (273.6)
===========================================================================
31
===========================================================================
CONSOLIDATED RESULTS OF OPERATIONS Owens-Illinois, Inc. -- Continued
Millions of dollars, except per share amounts
Years ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------------
Earnings (loss) per share of common stock:
Earnings (loss) from continuing
operations before extraordinary
items and cumulative effect of
accounting changes $ (1.70) $ 0.66 $ (0.27)
Net earnings of discontinued
operations 0.01 0.15 0.09
Gain (loss) on sales of
discontinued operations 1.82 (3.07)
- ---------------------------------------------------------------------------
Earnings (loss) before extraordinary
items and cumulative effect of
accounting changes 0.13 0.81 (3.25)
Extraordinary charges (0.10) (0.26) (3.58)
Cumulative effect of accounting changes (1.68)
- ---------------------------------------------------------------------------
Net earnings (loss) $ 0.03 $ (1.13) $ (6.83)
===========================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
32
=============================================================================
CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc.
Millions of dollars, except share amounts
December 31, 1993 1992
- -----------------------------------------------------------------------------
Assets
Current assets:
Cash, including time deposits of $33.4
($38.9 in 1992) $ 67.1 $ 81.1
Short-term investments, at cost which
approximates market 26.5 24.9
Receivables, less allowances of $31.3
($31.4 in 1992) for losses and discounts 340.0 365.1
Inventories 472.8 565.6
Prepaid expenses 53.6 22.4
- -----------------------------------------------------------------------------
Total current assets 960.0 1,059.1
Investments and other assets:
Domestic investments and advances 20.6 82.4
Foreign investments and advances 81.9 81.7
Repair parts inventories 137.5 142.0
Deferred taxes 40.7
Prepaid pension 616.5 658.5
Deposits, receivables, and other assets 463.4 375.1
Excess of purchase cost over net assets
acquired, net of accumulated amortization
of $198.7 ($180.6 in 1992) 1,083.0 1,171.0
- -----------------------------------------------------------------------------
Total investments and other assets 2,443.6 2,510.7
Property, plant, and equipment:
Land, at cost 102.6 115.4
Buildings and equipment, at cost:
Buildings and building equipment 443.2 480.2
Factory machinery and equipment 1,744.9 1,747.8
Transportation, office, and miscellaneous equipment 52.9 54.8
Construction in progress 142.3 140.5
- -----------------------------------------------------------------------------
2,485.9 2,538.7
Less accumulated depreciation 988.1 957.4
- -----------------------------------------------------------------------------
Net property, plant, and equipment 1,497.8 1,581.3
- -----------------------------------------------------------------------------
Total assets $4,901.4 $5,151.1
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
33
=============================================================================
CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc. (continued)
Millions of dollars, except share amounts
December 31, 1993 1992
- -----------------------------------------------------------------------------
Liabilities and Share Owners' Equity
Current liabilities:
Short-term loans $ 49.2 $ 56.7
Accounts payable 240.7 256.3
Salaries and wages 79.2 90.5
U. S. and foreign income taxes 18.9 25.1
Other accrued liabilities 319.7 317.3
Long-term debt due within one year 18.4 68.0
- -----------------------------------------------------------------------------
Total current liabilities 726.1 813.9
Long-term debt 2,419.3 2,982.6
Deferred taxes 32.7 99.3
Nonpension postretirement benefits 415.3 496.0
Other liabilities 922.0 403.6
Commitments and contingencies
Minority share owners' interests 91.2 57.1
Share owners' equity:
Preferred stock 26.3 26.3
Common stock, par value $.01 per share, 250,000,000
shares authorized, 118,978,327 shares outstanding 1.2 1.2
Capital in excess of par value 1,033.9 1,034.0
Deficit (696.7) (701.6)
Cumulative foreign currency translation adjustment (69.9) (61.3)
- -----------------------------------------------------------------------------
Total share owners' equity 294.8 298.6
- -----------------------------------------------------------------------------
Total liabilities and share owners' equity $4,901.4 $5,151.1
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
33
=============================================================================
CONSOLIDATED SHARE OWNERS' EQUITY Owens-Illinois, Inc.
Millions of dollars
Years ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
Preferred stock
Balance at beginning of year $ 26.3
Issuance of preferred stock $ 26.3
- -----------------------------------------------------------------------------
Balance at end of year 26.3 26.3
=============================================================================
Common stock
Balance at beginning of year 1.2 1.2 $ .4
Issuance of common stock .8
- -----------------------------------------------------------------------------
Balance at end of year 1.2 1.2 1.2
=============================================================================
Capital in excess of par value
Balance at beginning of year 1.034.0 1,034.0 184.3
Issuance of common stock 849.7
Purchase of common stock (.1)
- -----------------------------------------------------------------------------
Balance at end of year 1,033.9 1,034.0 1,034.0
=============================================================================
Deficit
Balance at beginning of year (701.6) (567.4) (293.8)
Net earnings (loss) 4.9 (134.2) (273.6)
- -----------------------------------------------------------------------------
Balance at end of year (696.7) (701.6) (567.4)
=============================================================================
Cumulative foreign currency
translation adjustment
Balance at beginning of year (61.3) (52.9) (43.8)
Net change for the year (8.6) (8.4) (9.1)
- -----------------------------------------------------------------------------
Balance at end of year (69.9) (61.3) (52.9)
=============================================================================
Total share owners' equity $ 294.8 $ 298.6 $ 414.9
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
35
=============================================================================
CONSOLIDATED CASH FLOWS Owens-Illinois, Inc.
Millions of dollars
Years ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
Operating activities:
Earnings (loss) from continuing
operations before extraordinary
items and cumulative
effect of accounting changes $ (200.8) $ 78.3 $ (10.8)
Non-cash charges (credits):
Depreciation 180.0 181.9 154.0
Amortization of deferred costs 52.3 50.6 49.9
Uninsured asbestos-related costs 325.0
Restructuring and other costs 253.2
Gains on sales of interests in Kimble
and television glass businesses (46.1)
Deferred tax provision (credit) (145.6) 44.2 21.7
Issuance of debentures and accretion
of debt in lieu of cash interest 3.9 115.4
Other (8.1) (19.9) (30.8)
Dividends from equity affiliates 5.6 5.4 4.6
Reduction of non-current liabilities (55.1) (69.5) (43.6)
Change in non-current operating assets (110.5) (68.8) (7.4)
Change in components of working capital (10.9) (21.1) (22.5)
- -----------------------------------------------------------------------------
Cash provided by continuing operating
activities 239.0 185.0 230.5
Cash provided by (utilized in)
discontinued operating activities (7.3) 29.4 53.8
- -----------------------------------------------------------------------------
Cash provided by operating activities 231.7 214.4 284.3
Investing activities:
Additions to property, plant and equipment (266.2) (250.8) (216.2)
Acquisitions (34.0) (53.8)
Net proceeds from divestitures 727.3 17.6 375.3
Other 2.1 (1.8)
- -----------------------------------------------------------------------------
Cash provided by (utilized in) investing
activities 429.2 (288.8) 159.1
36
=============================================================================
CONSOLIDATED CASH FLOWS Owens-Illinois, Inc. (continued)
Millions of dollars
Years ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
Financing activities:
Additions to long-term debt $ 107.0 $1,102.5 $1,019.4
Issuance of Common Stock 850.5
Repayments of long-term debt (712.1) (931.3) (2,192.4)
Payment of debt issuance and repurchase
fees and premiums (14.9) (57.4) (135.6)
Increase (decrease) in short-term loans (13.7) (1.9) 1.2
- -----------------------------------------------------------------------------
Cash provided by (utilized in)
financing activities (633.7) 111.9 (456.9)
Effect of exchange rate fluctuations on cash (41.2) (23.8) (12.7)
- -----------------------------------------------------------------------------
Increase (decrease) in cash (14.0) 13.7 (26.2)
Cash at beginning of year 81.1 67.4 93.6
- -----------------------------------------------------------------------------
Cash at end of year $ 67.1 $ 81.1 $ 67.4
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
37
=============================================================================
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
=============================================================================
Basis of Consolidated Statements. The consolidated financial statements of
Owens-Illinois, Inc. ("Company") include the accounts of its wholly-owned
direct subsidiary, Owens-Illinois Group, Inc. ("Group"), and all other major
subsidiaries. Substantially all the assets of the Company are represented by
its investment in and receivables from Group.
The consolidated financial statements have been reclassified to reflect the
Libbey business and the Health Care segment as discontinued operations. See
Discontinued Operations.
Newly acquired subsidiaries have been included in the consolidated financial
statements from dates of acquisition.
Consolidated foreign subsidiaries are principally reported on the basis of
fiscal years ending November 30.
The Company uses the equity method of accounting for investments in which it
has a significant ownership interest, generally 20% to 50%. Other investments
are accounted for at cost.
Changes in Methods of Accounting. In the fourth quarter of 1992, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," ("SFAS No. 109") effective January 1, 1992. As
permitted by the Statement, financial statements for years prior to 1992 have
not been restated. Previous accounting rules required that assets acquired in
a business combination be recorded at their net-of-tax value. SFAS No. 109
requires that such acquired assets be recorded at their full assigned value
with offsetting deferred taxes. It further requires that assets acquired in
previous business combinations be restated.
Under the liability method required by the Statement, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Prior to the adoption of SFAS No. 109, income tax expense was
determined using the deferred method. Deferred tax expense was based on items
of income and expense that were reported in different years in the financial
statements and tax returns and were measured at the tax rate in effect in the
year the difference originated.
Also in the fourth quarter of 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," ("SFAS No. 106") effective
January 1, 1992. The Statement requires that the expected cost of providing
postretirement health and life insurance benefits must be accrued, for each
employee, during the years the employee renders the necessary service.
38
Previously, the Company had accounted for these benefits on the pay-as-you-go
(cash) basis.
Cash. The Company defines "cash" as cash and time deposits with maturities of
three months or less when purchased.
Fair Values of Financial Instruments. The carrying amounts reported for cash,
short-term investments and short-term loans approximate fair value. In
addition, carrying amounts approximate fair value for certain long-term debt
obligations subject to frequently redetermined interest rates. Fair values
for the Company's significant fixed rate debt obligations are generally based
on published market quotations.
Inventory Valuation. The Company uses the last-in, first-out (LIFO) cost
method of inventory valuation for most domestic manufacturing inventories.
Other manufacturing inventories are valued at the lower of standard costs
(which approximate average costs), average costs, or market.
Excess of Purchase Cost over Net Assets Acquired. The excess of purchase cost
over net assets acquired is being amortized over 40 years.
Property, Plant, and Equipment. In general, depreciation is computed using
the straight-line method.
Income Taxes on Undistributed Earnings. In general, the Company plans to
continue to invest in the business the undistributed earnings of foreign
subsidiaries and corporate joint ventures accounted for by the equity method.
Accordingly, no provision is made currently for taxes which would be payable
if such earnings were distributed.
Foreign Currency Translation. The assets and liabilities of certain
affiliates and associates are translated at current exchange rates and any
related translation adjustments are recorded directly in share owners' equity.
The Company's major affiliates in Brazil and Venezuela, as well as certain
associates accounted for by the equity method, operate in "highly
inflationary" economies. In such cases, certain assets of these affiliates
and associates are translated at historical exchange rates and all translation
adjustments are reflected in the statement of Consolidated Results of
Operations.
Income (Loss) Per Share of Common Stock. Income (loss) per share of common
stock is computed using weighted average shares of common stock outstanding
(118,978,327 shares for 1993, 118,979,638 shares for 1992, and 40,089,317
shares for 1991) after deducting dividend requirements for preferred stock.
Incremental shares applicable to outstanding stock options and exchangeable
preferred stock are not included in the calculation as they would not
materially affect the reported amounts.
39
=============================================================================
FINANCIAL REVIEW
Tabular data in millions of dollars, except share and per share amounts
- -----------------------------------------------------------------------------
Recapitalization
Late in 1991, the Company completed a Recapitalization designed to increase
equity, reduce indebtedness and interest expense, and improve operating and
financial flexibility. The Recapitalization included the sale of more than 82
million shares of Common Stock for approximately $855 million, issuance of $1
billion of 11% Senior Debentures, sale of the Company's Health Care business
for $369 million, and repurchase or refinancing of approximately $2.1 billion
of indebtedness. Assuming the Recapitalization had occurred at the beginning
of 1991, pro forma earnings from continuing operations for the year ended
December 31, 1991 would have been $78.7 million or $0.65 per share of Common
Stock, reflecting an increase of $89.5 million when compared to historical
results of operations. This increase results from pro forma adjustments
reducing interest expense by a total of $139.9 million, partially offset by a
$50.4 million adjustment to increase the provision for income taxes.
Changes in Components of Working Capital Related to Operations. Changes in
the components of working capital related to operations (net of the effects
related to acquisitions and divestitures and changes in methods of accounting)
were as follows:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Decrease (increase) in current assets:
Short-term investments $ (3.4) $ (1.3) $ (1.0)
Receivables (10.9) (10.8) 31.5
Inventories (17.3) (39.9) 6.2
Prepaid expenses 3.9 1.0 .5
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities 5.0 57.0 (52.2)
U. S. and foreign income taxes (6.0) (23.8) 1.7
Salaries and wages 1.2 (8.1) 9.8
- ----------------------------------------------------------------------------
$(27.5) $(25.9) $ (3.5)
============================================================================
Discontinued operations $(16.6) $ (4.8) $ 19.0
Continuing operations (10.9) (21.1) (22.5)
- ----------------------------------------------------------------------------
$(27.5) $(25.9) $ (3.5)
============================================================================
40
Inventories. Major classes of inventory are as follows:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Finished goods $370.4 $436.4
Work in process 7.6 24.5
Raw materials 67.2 72.7
Operating supplies 27.6 32.0
- ----------------------------------------------------------------------------
$472.8 $565.6
============================================================================
If inventories valued on the LIFO method had been valued at standard or
average costs, which approximate current costs, consolidated inventories would
be higher than reported by $10.4 million and $22.9 million at December 31,
1993 and 1992, respectively.
Manufacturing inventories valued at the lower of standard costs (which
approximate average costs), average costs, or market at December 31, 1993 and
1992 were approximately $116.2 million and $114.2 million, respectively.
Investments. Domestic and foreign investments and advances relate principally
to equity associates. Summarized information pertaining to the Company's
equity associates follows:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
At year-end:
Equity in undistributed earnings:
Foreign $40.9 $32.1
Domestic 2.8 1.9
- ----------------------------------------------------------------------------
Total $43.7 $34.0
============================================================================
Equity in cumulative translation adjustment $(8.6) $(4.9)
============================================================================
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
For the year:
Equity in earnings before cumulative
effect of changes in methods of accounting:
Foreign $15.8 $12.4 $ 9.4
Domestic 9.5 10.8 2.3
- ----------------------------------------------------------------------------
Total $25.3 $23.2 $11.7
============================================================================
Dividends received:
Foreign $ 4.8 $ 4.9 $ 4.0
Domestic .8 .5 .6
- ----------------------------------------------------------------------------
Total $ 5.6 $ 5.4 $ 4.6
============================================================================
41
Summarized combined financial information for equity associates is as follows:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
At end of year:
Current assets $ 388.0 $ 480.5
Non-current assets 351.4 537.2
- ----------------------------------------------------------------------------
Total assets 739.4 1,017.7
- ----------------------------------------------------------------------------
Current liabilities 167.8 232.1
Other liabilities and deferred items 329.5 427.2
- ----------------------------------------------------------------------------
Total liabilities and deferred items 497.3 659.3
- ----------------------------------------------------------------------------
Net assets $ 242.1 $ 358.4
============================================================================
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
For the year:
Net sales $1,003.5 $1,114.2 $1,126.9
============================================================================
Gross profit $ 201.3 $ 182.1 $ 170.5
============================================================================
Net earnings $ 67.8 $ 59.7 $ 55.6
============================================================================
During the fourth quarter of 1993, the Company sold the remaining 50% interest
in the television glass business, the results of which are included above
through the date of sale. On December 31, 1993, the Company sold 51% of its
Kimble business. Results of the Kimble business were consolidated to that
date; however, balance sheet data at December 31, 1993, is included above.
At December 31, 1993, the Company's equity in the undistributed earnings of
foreign subsidiaries, for which income taxes had not been provided,
approximated $115 million. It is not practicable to estimate the U.S. and
foreign tax which would be payable should these earnings be distributed. In
general, no provision for deferred tax has been recorded as the Company plans
to continue to invest these earnings in the business of the affiliates.
Foreign Currency Translation. Aggregate foreign currency exchange gains
(losses) included in other costs and expenses were $(16.1) million in 1993,
$18.4 million in 1992, and $9.2 million in 1991, and resulted principally from
translation of the balance sheets of the Company's major affiliates in Brazil
and Venezuela.
42
Changes in the cumulative foreign currency translation adjustment were as
follows:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Balance at beginning of year $ (61.3) $(52.9) $(43.8)
Net effect of exchange rate
fluctuations (10.8) (9.0) (7.9)
Previous adjustments eliminated
in divestitures (.3) (1.1)
Deferred income taxes 2.5 1.7 (1.2)
- ----------------------------------------------------------------------------
Balance at end of year $ (69.9) $(61.3) $(52.9)
============================================================================
The net effect of exchange rate fluctuations generally reflects changes in the
relative strength of the U.S. dollar against major foreign currencies between
the beginning and end of the year.
Operating Leases. Rent expense attributable to all operating leases was $54.2
million in 1993, $59.4 million in 1992, and $59.6 million in 1991. Contingent
rental expense was not significant in any period presented. Minimum future
rentals under operating leases are as follows: 1994, $32.2 million; 1995,
$27.3 million; 1996, $23.2 million; 1997, $22.1 million, 1998, $19.3 million;
and 1999 and thereafter, $121.0 million.
Other Accrued Liabilities. At December 31, 1993 and 1992, other accrued
liabilities include accruals for interest, consisting principally of interest
accrued on domestic obligations of $40.2 million and $49.4 million,
respectively, and for employee health care benefits of $36.0 million and $40.6
million, respectively.
43
Long-Term Debt
The following table summarizes the long-term debt of the Company at December
31, 1993 and 1992:
- -----------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------
Bank Credit Agreements:
Revolving Loans $ 57.6 $ 125.0
Working Capital and Swing Line Loans 141.0
Bid Rate Loans 35.0
Senior Notes and Debentures:
Senior Debentures, 11%, due 1999 to 2003 1,000.0 1,000.0
Series A Senior Reset Notes 41.2
Senior Variable Rate Notes 268.9 370.0
12-1/2% Senior Notes 130.0
Senior Subordinated Notes:
10-1/4%, due 1999 250.0 250.0
10-1/2%, due 2002 150.0 150.0
10%, due 2002 250.0 250.0
9-3/4%, due 2004 200.0 200.0
9.95%, due 2004 100.0 100.0
Other 161.2 258.4
- -----------------------------------------------------------------------------
2,437.7 3,050.6
Less amounts due within one year 18.4 68.0
- -----------------------------------------------------------------------------
Long-term debt $2,419.3 $2,982.6
=============================================================================
In December 1993, the Company entered into an agreement with a group of banks
("Bank Credit Agreement" or "Agreement") which provides Revolving Loan
Commitments under which the Company may borrow up to $1 billion through
December 1998. Amounts outstanding under the Company's previous credit
agreement were repaid. The Agreement includes Swing Line and Overdraft
Account facilities providing for aggregate borrowings up to $50 million which
reduce the amount available for borrowing under the Revolving Loan
Commitments. In addition, the terms of the Bank Credit Agreement permit the
Company to request Bid Rate Loans from banks participating in the Agreement
and to issue Commercial Paper notes to other purchasers. Borrowings
outstanding under Bid Rate Loans and Commercial paper notes are limited to
$450 million in the aggregate and reduce the amount available for borrowing
under the Revolving Loan Commitments. The Revolving Loan Commitments also
provide for the issuance of letters of credit totaling up to $300 million.
At December 31, 1993, the Company had unused credit available under the Bank
Credit Agreement of $827.5 million. However, on January 3, 1994, the Company
completed the redemption of its Senior Variable Rate Notes by borrowing $268.9
million under the Agreement, thereby reducing available credit to $558.6
million.
Revolving loans bear interest, at the Company's option, at the prime rate or a
Eurodollar deposit-based rate plus a margin linked to published ratings of the
Company's senior debt instruments. The margin is currently .875% and is
44
limited to a range of .625% to 1%. Swing Line and Overdraft Account loans
bear interest at the prime rate minus the commitment fee percentage, defined
below. The weighted average interest rate on borrowings outstanding under the
Bank Credit Agreement at December 31, 1993, was 4.17%. While no compensating
balances are required by the Agreement, the Company must pay a commitment fee
on the excess of the Revolving Loan Commitments over the aggregate amount of
Revolving Loans outstanding. The commitment fee, currently .375%, is subject
to reduction to .25%, also based on changes in published rates.
The capital stock and intercompany debt obligations of most of the Company's
domestic subsidiaries are pledged as collateral for borrowings under the
Agreement and certain other obligations. While these pledges do not directly
encumber the operating assets owned by these subsidiaries, the Agreement
restricts the creation of liens on them. The Agreement also requires the
maintenance of certain financial ratios, restricts the incurrence of
indebtedness and other contingent financial obligations, and restricts certain
types of business activities and investments.
The Senior Debentures rank pari passu with the obligations of the Company under
the Bank Credit Agreement and other senior indebtedness, and senior in right
of payment to all existing and future subordinated debt of the Company. The
Senior Debentures are guaranteed on a senior basis by Group and most of the
Company's domestic subsidiaries and secured by a pledge of the capital stock
of, and intercompany indebtedness of, Group and such subsidiaries.
Annual maturities for all of the Company's long-term debt through 1998 are as
follows: 1994, $18.4 million; 1995, $16.6 million; 1996, $17.3 million; 1997,
$3.5 million; and 1998, $335.3 million.
Interest paid in cash aggregated $284.2 million for 1993, $304.8 million for
1992, and $403.0 million for 1991.
Fair values at December 31, 1993, of the Company's significant fixed rate debt
obligations are as follows:
- -----------------------------------------------------------------------------
Indicated
Principal Market
Amount Price Fair Value
- -----------------------------------------------------------------------------
11% Senior Debentures $1,000.0 113 $ 1,130.0
Senior Subordinated Notes:
10-1/4% 250.0 106-1/2 266.3
10-1/2% 150.0 108-1/2 162.8
10% 250.0 106-1/2 266.3
9-3/4% 200.0 106-5/8 213.3
9.95% 100.0 107-7/8 107.9
- -----------------------------------------------------------------------------
45
Income Taxes. During the fourth quarter of 1992, the Company adopted SFAS No.
109, "Accounting for Income Taxes" effective January 1, 1992. The Statement
requires the use of the asset and liability approach for financial accounting
and reporting for income taxes. Financial statements for prior years have not
been restated.
The cumulative effect of adopting SFAS No. 109 as of January 1, 1992, was to
increase net earnings by $97.0 million. For the year ended December 31, 1992,
application of the new income tax rules decreased pretax earnings by $23.7
million principally because of increased depreciation and amortization as a
result of SFAS No. 109's requirement to report assets acquired in prior
business combinations at their pretax amounts. The provision for income taxes
decreased by $22.7 million as a result of the change. The net decrease in
1992 earnings from continuing operations was $1 million, or $.01 per share.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at December 31, 1993 and
1992 are as follows:
- -----------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------
Deferred tax assets:
Other accrued liabilities $215.5 $143.2
Accrued postretirement benefits 145.9 168.8
Uninsured future asbestos-related costs 113.8
U. S. Federal tax loss carryovers 92.1 159.6
Other 57.1 88.1
- -----------------------------------------------------------------------------
Total deferred tax assets 624.4 559.7
Less valuation reserve (23.6)
- -----------------------------------------------------------------------------
Net deferred tax assets 624.4 536.1
Deferred tax liabilities:
Prepaid pension costs 204.0 219.4
Property, plant and equipment 177.4 215.8
Receivables and other assets 114.3 72.8
Inventory 45.5 53.3
Other 27.6 61.1
- -----------------------------------------------------------------------------
Total deferred tax liabilities 568.8 622.4
- -----------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 55.6 $(86.3)
=============================================================================
46
Deferred taxes are included in the Consolidated Balance Sheets at December 31,
1993 and 1992 as follows:
- -----------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------
Prepaid expenses $ 47.6 $ 13.0
Deferred tax assets 40.7
Deferred tax liabilities (32.7) (99.3)
- -----------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 55.6 $(86.3)
=============================================================================
The provision for income taxes consists of the following:
- -----------------------------------------------------------------------------
Deferred
Liability Method Method
1993 1992 1991
- -----------------------------------------------------------------------------
Current:
State and local $ 2.0 $ 3.7 $ 5.0
Foreign 31.6 28.7 32.9
- -----------------------------------------------------------------------------
33.6 32.4 37.9
- -----------------------------------------------------------------------------
Deferred:
U. S. federal (120.8) 42.1 24.3
State and local (17.0) 3.9 (.1)
Foreign (7.8) (1.8) (2.5)
- -----------------------------------------------------------------------------
(145.6) 44.2 21.7
- -----------------------------------------------------------------------------
Total:
U. S. federal (120.8) 42.1 24.3
State and local (15.0) 7.6 4.9
Foreign 23.8 26.9 30.4
- -----------------------------------------------------------------------------
$ (112.0) $ 76.6 $ 59.6
=============================================================================
The provision for income taxes has been
allocated as follows:
Continuing operations $ (113.1) $ 64.0 $ 53.7
Discontinued operations 1.1 12.6 5.9
- -----------------------------------------------------------------------------
$ (112.0) $ 76.6 $ 59.6
=============================================================================
47
The 1991 provision for deferred taxes as calculated under the deferred method
of accounting consists of the following:
- -----------------------------------------------------------------------------
1991
- -----------------------------------------------------------------------------
Charges (credits) related to:
Reduction of deferred tax credits from tax net operating loss
carryforwards, exclusive of acquisition effects $(1.8)
Receivables 18.0
Alternative minimum tax credit carryforwards 6.0
Foreign dividends 2.8
Compensation 2.0
Postretirement benefits 1.2
Property, plant, and equipment .4
Inventory (1.0)
Deferred costs (1.3)
Foreign currency (1.6)
Other items (3.0)
- ----------------------------------------------------------------------------
$21.7
============================================================================
The provision for income taxes was calculated based on the following
components of earnings (loss) before income taxes and extraordinary items:
- ------------------------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------------------------
Continuing operations:
Domestic $(411.6) $64.5 $(31.6)
Foreign 117.1 92.4 86.3
Discontinued operations 2.5 31.0 9.7
- ------------------------------------------------------------------------------
$(292.0) $187.9 $ 64.4
==============================================================================
Income taxes paid in cash were as follows:
- -----------------------------------------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------------------
Domestic $ 1.0 $14.1 $ 4.4
Foreign 18.5 13.2 15.0
- -----------------------------------------------------------------------------
$19.5 $27.3 $19.4
=============================================================================
48
A reconciliation of the provision for income taxes based on the statutory U.S.
federal tax rate of 35% (34% for 1992 and 1991) to the consolidated provision
for income taxes is as follows:
- -----------------------------------------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------------------
Pretax earnings (loss) at statutory
U. S. Federal tax rate $(102.2) $63.9 $21.9
Increase (decrease) in provision for
income taxes due to:
Effects of purchase price allocation
including amortization of excess cost 11.0 10.8 26.7
Divestitures (8.3)
Adjustment for enacted change in tax
rate 2.4
Effect of tax provision on
consolidated foreign earnings (1.6) 2.2 8.1
Effect of tax provision on equity
earnings (2.6) (3.3) (.1)
State and local income taxes net
of related federal taxes (9.7) 5.0 2.9
Other items (1.0) (2.0) .1
- -----------------------------------------------------------------------------
Consolidated provision (credit) for
income taxes $(112.0) $76.6 $59.6
=============================================================================
For U. S. Federal income tax purposes, approximately $263 million of net
operating loss is available as a carryover at December 31, 1993. Carryovers
of the net operating loss expire beginning in 2004. Capital loss carryovers
were fully utilized in 1993 by capital gains. For financial reporting
purposes, a valuation reserve was established as of January 1, 1992 for $70
million of the capital loss carryover. The valuation reserve was eliminated
in 1993, thereby reducing the tax provision that otherwise would be required
on the gain on the sale of the Libbey business.
Additionally, credits for alternative minimum tax paid of approximately $16
million are available to offset future U. S. federal income tax. These
credits do not expire.
The issuance of shares of common stock in conjunction with the
recapitalization in 1991 resulted in a change of ownership for U. S. Federal
income tax purposes. The Company's use of net operating loss, capital loss
and tax credit carryovers is limited pursuant to Section 382 and 383 of the
Internal Revenue Code.
49
Preferred Stock. Preferred shares, $.01 par value, $7.00 cumulative dividend,
issuable in series, at December 31, 1993, were as follows:
Number of Shares
Series A Exchangeable ----------------
Authorized 75,000
Issued and outstanding 65,625
Series B Exchangeable
Authorized 75,000
Issued and outstanding 65,625
Series C Exchangeable
Authorized 150,000
Issued and outstanding 131,250
The preferred shares are exchangeable into a number of common shares
determined by multiplying the total number of exchangeable shares being
exchanged by the sum of $100 plus all dividends accumulated and unpaid on each
share being exchanged and dividing such amount by the last reported sales
price of common shares on the New York Stock Exchange at the close of business
on the business day next preceding the day of exchange. The shares are
exchangeable at the option of the owners as follows: Series A, from and after
the third anniversary of the date of issuance; Series B, from and after the
fifth anniversary of the date of issuance; and Series C, from and after the
sixth anniversary of the date of issuance.
Holders of the preferred shares have no voting rights, except on actions which
would affect their rights to exchange shares for common shares, or on actions
to increase the authorized number of exchangeable shares.
Stock Options. Nonqualified options to purchase shares of common stock of the
Company are outstanding under the Stock Option Plan for Key Employees as
amended and restated effective December 18, 1991.
Stock option activity is as follows:
- ---------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------
Shares under option:
Outstanding at beginning of year 4,522,594 3,608,644
Granted 442,255 933,250
Exercised (5,853)
Canceled (46,300) (19,300)
- ---------------------------------------------------------------------------
Outstanding at end of year 4,912,696 4,522,594
===========================================================================
Price range of options granted $11.50 $8.875-$12.50
===========================================================================
50
- ---------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------
At end of year:
Shares reserved for option grants 2,540,613 2,966,168
===========================================================================
Share options exercisable 3,647,141 3,595,244
===========================================================================
Price range of options exercisable $5.00-$12.50 $5.00-$12.50
===========================================================================
Restriction on Retained Earnings. Under the terms of the Bank Credit
Agreement and the various Indentures related to the Company's senior and
subordinated notes and debentures (see Long-Term Debt), the Company may not
pay dividends with respect to its Preferred or Common Stock and is restricted
in the number of shares of its Common Stock which can be redeemed.
Restrictions on Transfer of Assets. The governments and national banking
systems of certain countries in which the Company has consolidated foreign
affiliates impose various restrictions on the payment of dividends and
transfer of funds out of those countries. Additionally, provisions of credit
agreements entered into by certain foreign affiliates presently restrict the
payment of dividends. The estimated U.S. dollar value of the foreign net
assets included in the Consolidated Balance Sheets that are restricted in some
manner as to transfer to the Company was approximately $153 million at
December 31, 1993.
Pension Benefit Plans. Net credits to continuing operations for all of the
Company's pension plans and certain deferred compensation arrangements
amounted to $26.7 million in 1993, $29.6 million in 1992, and $33.0 million in
1991.
The Company has pension plans covering substantially all domestic employees.
Benefits generally are based on compensation for salaried employees and on
length of service for hourly employees. The Company's policy is to fund
domestic pension plans such that sufficient assets will be available to meet
future benefit requirements.
The following tables relate to the Company's principal domestic pension plans.
51
The funded status at year-end was as follows:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $1,621.9 $1,556.7
Nonvested 109.9 99.0
- ----------------------------------------------------------------------------
Accumulated benefit obligation 1,731.8 1,655.7
Effect of assumed benefit increases 145.3 265.1
- ----------------------------------------------------------------------------
Projected benefit obligation 1,877.1 1,920.8
Plan assets at fair value 2,250.9 2,269.6
- ----------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation 373.8 348.8
Unrecognized prior service cost 44.0 67.2
Unrecognized net loss 198.7 242.5
- ----------------------------------------------------------------------------
Prepaid pension $ 616.5 $ 658.5
============================================================================
The components of the net pension credit for the year were as follows:
- -----------------------------------------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------------------
Service cost - (benefits earned
during the period) $ 30.8 $ 29.0 $ 27.7
Interest cost on projected
benefit obligation 150.5 146.0 144.8
Actual return on plan assets (356.6) (27.9) (510.9)
Net amortization and deferral 139.4 (186.0) 298.5
- ----------------------------------------------------------------------------
$ (35.9) $ (38.9) $ (39.9)
============================================================================
The actuarial present value of benefit obligations is based on a discount rate
of 7.25% for 1993 and 8% for 1992. Future benefits are assumed to increase in
a manner consistent with past experience of the plans, which, to the extent
benefits are based on compensation, includes assumed salary increases on a
scale of 5% for 1993 and 6.5% for 1992. The expected long-term rate of return
on assets was 10% for 1993, 1992, and 1991. Amortization included in net
pension credits is based on the average remaining service of employees. Plan
assets include marketable equity securities which, at December 31, 1993,
included 19,099,637 shares of the Company's Common Stock, government and
corporate debt securities, real estate and commingled funds. During 1993,
1992, and 1991,the Company transferred $30.0 million, $31.7 million, and $42.9
million, respectively, of pension plans assets to a special trust for the
purpose of funding qualified current retiree health liabilities.
52
Postretirement Benefits Other Than Pensions. The Company provides certain
retiree health care and life insurance benefits covering substantially all
U.S. salaried and certain hourly employees. Employees are generally eligible
for benefits upon retirement and completion of a specified number of years of
creditable service.
In the fourth quarter of 1992, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
for its postretirement benefit plans, effective January 1, 1992 on the
immediate recognition basis. Previously, the Company has expensed the cost of
such benefits on the pay-as-you-go (cash) basis, amounting to $16.8 million in
1991. The cumulative effect as of January 1, 1992 of adopting SFAS No. 106
was to decrease net earnings by $470.5 million, less applicable income taxes
of $174.1 million. The change resulted in a decrease in 1992 earnings from
continuing operations of $11.9 million, or $0.09 per share.
The components of the net postretirement benefit cost for 1993 and 1992 were
as follows:
- -----------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------
Service cost (benefits earned during the period) $ 5.1 $ 7.8
Interest cost on accumulated postretirement benefit
obligation 26.7 37.9
Amortization (15.8)
- -----------------------------------------------------------------------------
Net postretirement benefit cost $ 16.0 $ 45.7
=============================================================================
The components of the accumulated postretirement benefit obligation and
amounts accrued at year-end were as follows:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Retirees and dependents $ 259.8 $ 245.0
Eligible active employees 19.0 25.8
Other active employees 41.8 69.6
- ----------------------------------------------------------------------------
320.6 340.4
Unamortized prior service credit 146.0 173.8
Unrecognized net loss (51.3) (18.2)
- ----------------------------------------------------------------------------
Nonpension postretirement benefits $ 415.3 $ 496.0
============================================================================
Assumed health care cost inflation was based on a rate of 9.5%, declining
ratably to an ultimate rate of 6%. A one percentage point increase in these
rates would have increased the accumulated postretirement benefit obligation
at December 31, 1993 by $16.3 million and increased the net postretirement
benefit cost for 1993 by $2.5 million. The assumed discount rates used in
determining the accumulated postretirement benefit obligation were 7.25% and
8% at December 31, 1993 and 1992, respectively.
53
Benefits provided by the Company for certain of the hourly retirees are
determined by collective bargaining. Most other domestic hourly retirees
receive health and life insurance benefits from a multiemployer trust
established by collective bargaining. Payments to the trust as required by
the bargaining agreements are based upon specified amounts per hour worked and
were $7.3 million in 1993 and $7.9 million in 1992. Postretirement health and
life benefits for retirees of foreign affiliates are generally provided
through the national health care programs of the countries in which the
affiliates are located.
Other Revenues. Other revenues for the year ended December 31, 1993, includes
gains totaling $46.1 million (approximately $34.6 million after tax) from the
fourth quarter sales of the remaining 50% interest in the television glass
business and of 51% of the Kimble business.
Other Costs and Expenses. Other costs and expenses for the year ended
December 31, 1993, includes $325 million for estimated uninsured future
asbestos-related costs and charges totaling $253.2 million, principally for
costs related to a restructuring program and including approximately $50
million for costs related to a December 1993 plant shutdown and an increase in
estimated future fees and indemnification costs related to various
environmental and legal matters. Substantially all of the amounts accrued are
included in other liabilities at December 31, 1993.
Extraordinary Charges. During 1993, the Company redeemed the entire $130
million principal amount of its 12-1/2% Senior Notes, $41.2 million principal
amount of its Series A Senior Reset Notes, and $67.2 million of its 9.35% and
7-5/8% debentures outstanding. In addition, the Company repurchased $101.1
million of its Senior Variable Rate Notes and called the balance of $268.9
million for redemption on January 3, 1994. During the fourth quarter, the
Company entered into a new Bank Credit Agreement and repaid all amounts
outstanding under its previous agreement. As a result of the repayment of
these obligations prior to their scheduled maturities, the Company recorded
extraordinary charges of $20.3 million for the write-off of unamortized
finance fees and redemption premiums, less applicable income taxes of $7.6
million.
During 1992, the Company used the proceeds from the issuance of $250 million
of 10-1/4% Senior Subordinated Notes, $150 million of 10-1/2% Senior
Subordinated Notes, $250 million of 10% Senior Subordinated Notes, and $200
million of 9-3/4% Senior Subordinated Notes to redeem $425 million aggregate
principal amount of 12.25% Senior Subordinated Notes at 103.5% of the
principal amount, the remaining $42.7 million (accreted value) of Junior
Subordinated Discount Debentures at 102.458% of accreted value, and to redeem
all of the $325 million aggregate principal amount of 12.75% Subordinated
Debentures at 106.375% of the principal amount. As a result of the repayment
of these obligations prior to their scheduled maturities, the Company recorded
extraordinary charges of $49.5 million for the write-off of unamortized
finance fees and redemption premiums, less applicable income taxes of $18.0
million.
54
As part of the Company's Recapitalization in the fourth quarter of 1991,
approximately $2.1 billion of indebtedness was redeemed or repurchased. As a
result of the repayment of these obligations prior to their scheduled
maturities, the Company recorded an extraordinary charge of $144.7 million
less a $1.2 million state and local tax benefit. No federal income tax
benefit was allocated based on the Company's accounting for its net operating
loss position prior to the adoption of SFAS No. 109 in 1992. The charge
includes the consent fees and tender offer premiums, the write-off of related
unamortized finance fees, and certain other expenses associated with the debt
repayment.
Discontinued Operations. On June 24, 1993, the Company and Group completed
the sale of all the issued and outstanding shares of stock of Group's wholly
owned subsidiary, Libbey Inc. ("Libbey"), through an underwritten initial
public offering. Libbey operated the table glassware business of the Company,
which is presented as a discontinued operation in the accompanying financial
statements. Proceeds from the sale amounted to approximately $445 million.
The gain on the sale of the Libbey business amounted to $270.5 million, less
applicable income taxes of $53.5 million. Applicable income taxes have been
reduced by the previously unrecognized benefit of a capital loss carryover.
The Company's former Health Care business was sold on October 24, 1991
pursuant to an agreement entered into on August 30, 1991. The Company
recorded a loss on the sale of $123.1 million. No tax benefit was provided on
the loss due to the Company's accounting for its net operating loss and
capital loss carryover positions prior to the adoption of SFAS No. 109.
Summary results of operations information for the discontinued Libbey and
Health Care operations, through June 18, 1993, and August 30, 1991,
respectively, is as follows:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Total revenues $118.1 $301.0 $497.5
Costs and expenses 97.9 231.9 425.0
- ----------------------------------------------------------------------------
Earnings before interest and taxes 20.2 69.1 72.5
Interest expense 17.7 38.1 62.8
- ----------------------------------------------------------------------------
Earnings before income taxes 2.5 31.0 9.7
Provision for income taxes 1.1 12.6 5.9
- ----------------------------------------------------------------------------
Net earnings $ 1.4 $ 18.4 $ 3.8
============================================================================
Interest expense allocated to discontinued operations is based on the
indebtedness expected to be repaid with the sale proceeds including specific
obligations of the business, at applicable interest rates in effect during the
periods. Revenues for 1992 include a $17.8 million ($10.5 million after tax)
55
gain from the sale of Libbey's 50% interest in its Japanese glass tableware
associate.
Summary balance sheet information for the discontinued portions of Libbey
business at December 31, 1992 is as follows:
--------------------------------------------------
Current assets $ 72.2
Current liabilities (32.8)
--------------------------------------------------
Net current assets 39.4
Property, plant and equipment (net) 95.7
Other non-current assets 54.9
Non-current liabilities (52.1)
--------------------------------------------------
Net assets $137.9
==================================================
Contingencies. The Company was contingently liable at December 31, 1993,
under guarantees of loans and lease obligations related to certain divested
businesses in the principal amount of $65.2 million.
The Company is one of a number of defendants (typically 10 to 20) 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 a high-temperature, clay-based
insulating material containing asbestos. The insulation material was used in
limited industrial applications such as shipyards, power plants and chemical
plants. During its ten years in the high-temperature insulation business, the
Company's aggregate sales of insulation material containing asbestos were less
than $40 million. The Company exited the insulation business in April 1958.
The lawsuits 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 punitive damages in
various amounts. As of December 31, 1993, the Company estimates that it is a
named defendant in asbestos bodily injury lawsuits and claims involving
approximately 43,000 plaintiffs and claimants.
The following table shows the approximate number of plaintiffs and claimants
involved in asbestos bodily injury lawsuits and claims pending at the
beginning of, disposed of and filed during, and pending at the end of, each of
the years listed (eliminating duplicate filings):
1993 1992 1991
------ ------ ------
Pending at beginning of year 54,000 76,000 82,000
Disposed 31,000 39,000 25,000
Filed 20,000 17,000 19,000
------ ------ ------
Pending at end of year 43,000 54,000 76,000
====== ====== ======
56
Since receiving its first asbestos bodily injury lawsuit, the Company, as of
December 31, 1993, has disposed of the lawsuits and claims of approximately
143,000 plaintiffs and claimants at an average indemnity payment per claim of
approximately $3,700. Certain of these dispositions have included deferred
payment amounts payable over periods ranging from one to seven years; such
amounts are included in the foregoing average indemnity payment per claim.
The Company's indemnity payments per claim have varied, and are expected to
continue to vary considerably over time. They are affected by a multitude of
factors, including the type and severity of the disease sustained by the
claimant; the occupation of the claimant; the extent of the claimant's
exposure to asbestos-containing insulation products manufactured or sold by
the Company; the extent of the claimant's exposure to asbestos-containing
products manufactured or sold by other producers; the number and financial
resources of other producer defendants; the jurisdiction of suit; the presence
or absence of other possible causes of the claimant's illness; the
availability of legal defenses such as the statute of limitations or state of
the art; and whether the claim was resolved on an individual basis or as part
of a group settlement. Approximately 30% of the claims filed in 1993 were
from claimants who claim so called "in place" exposure to asbestos containing
products. These cases appear to involve significantly less serious disease
and less exposure to the Company's product compared to traditional filings.
Indemnity payments in bodily injury lawsuits and the property damage lawsuits
referred to below may also be affected by settlement and judgment payments by
other defendants, which may take the form of a judgment credit for such
settlements. Because the scope and extent of such third party contribution
vary considerably according to applicable state law, the Company is unable to
estimate the extent to which such contribution may affect indemnity payments.
The Company is also one of a number of defendants (typically 15 to 30) in a
number of lawsuits and claims, some of which are class actions, brought by or
on behalf of public or private property owners, alleging damages as a result
of the presence of asbestos-containing insulation in various properties.
These lawsuits typically assert multiple theories of liability, including
negligence, breach of warranty and strict liability, and seek various forms of
monetary and equitable relief, including compensatory and punitive monetary
damages, restitution and removal of asbestos-containing material. As of
December 31, 1993, the Company was a named defendant in 22 such pending
property damage lawsuits and claims.
The damage claims, including both compensatory and punitive damage claims,
against the Company and the other defendants in the asbestos bodily injury and
property damage lawsuits and claims referred to above exceed several billion
dollars in the aggregate. Additionally, since 1982 a number of former
producers and/or miners of asbestos or asbestos-containing products which were
or would be co-defendants with the Company in the bodily injury lawsuits and
claims and/or in the property damage lawsuits and claims have filed for
reorganization under Chapter 11 of the United States Bankruptcy Code ("Co-
Defendant Bankruptcies") including, most recently, Keene Corporation, which
filed in 1993. Pending lawsuits have been stayed as to all but one of these
entities, but continue against the Company and the other defendants. Also,
the trust created by the Manville Chapter 11 Reorganization Plan and charged
57
with the responsibility for resolving asbestos bodily injury claims against
Manville was found to be a limited fund by the United States District Court
for the Eastern District of New York and virtually all proceedings against the
trust have been stayed. A mandatory settlement class was certified against
the trust resolving all claims by both plaintiffs and co-defendants; however,
the United States Court of Appeals for the Second Circuit reversed the
decision approving the settlement and remanded the case for further
proceedings. The outcome of this matter is uncertain at this time.
In July, 1991, the Judicial Panel on Multidistrict Litigation consolidated in
the Eastern District of Pennsylvania virtually all of the approximately 30,000
federal cases for possible coordinated and aggregate disposition and other
processing techniques (the "MDL Case"). Included in the MDL Case is a case in
the Eastern District of Texas where a petition had been filed to certify a
nationwide litigation class action with respect to all asbestos-related bodily
injury claims pending in the United States both in federal and state court.
The Company believes that such a nationwide litigation class action is not
supported by the existing case law. The number of plaintiffs in the cases
pending in the MDL case in which the Company is a defendant is included in the
reported pending plaintiffs and claimants. In 1992, the court entered an
order severing and retaining any claims for punitive damages in cases remanded
for trial of the compensatory damage claims. The court, through various
administrative orders, is giving priority to claims involving malignancies and
serious asbestosis both in terms of settlement activity and in terms of remand
for trial where a settlement with all defendants is not possible.
In addition, in January, 1993, in an action in which the Company was not a
party, a class action complaint, an answer and a stipulation of settlement of
such class action complaint were filed contemporaneously in the United States
District Court for the Eastern District of Pennsylvania. The lawsuit and
settlement are between a proposed class of persons occupationally or
secondarily exposed to asbestos but who did not have bodily injury suits
pending as of January 15, 1993, and a group of 20 companies who manufactured
or sold asbestos products and whose asbestos claims are managed by the Center
for Claims Resolution. The Company and a number of other former producers of
asbestos-containing products are not members of the Center for Claims
Resolution. The proposed settlement, negotiated between the member companies
and class counsel, seeks to create an administrative mechanism to process
future asbestos-related claims against such companies. Under the proposed
settlement, in order to receive compensation, claimants would be required to
satisfy objective medical and product exposure criteria. The class action and
proposed settlement raise a number of novel and complex issues, including the
potential impact of the proposed settlement on the Company's contribution and
settlement credit rights. In August, 1993, another of the Company's co-
defendants filed an action, which was thereafter provisionally certified as a
mandatory settlement class of all future asbestos-related claims. This action
was integrally related to separate settlements by this co-defendant of all of
its non-future asbestos claims and of its insurance coverage claims against
its insurers.
The precise impact on the Company of the Co-Defendant Bankruptcies and other
proceedings mentioned above is not determinable. These filings and
58
proceedings have created a substantial number of unprecedented and complex
issues. However, the Company believes the Co-Defendant Bankruptcies probably
have adversely affected the Company's share of the total liability to
plaintiffs in previously settled or otherwise determined lawsuits and claims
and also may adversely affect the Company's share of the total liability to
plaintiffs in the future. Additionally, the Company believes that the
dissemination of the required class notice in the Center for Claims Resolution
class action described above may increase the number of claims and lawsuits
against the Company.
In April, 1986, the Company and Aetna Life & Casualty Company ("Aetna") agreed
to a final settlement fully resolving litigation between them (which followed
the entry of partial summary judgment in favor of the Company in such
litigation). Under its agreement with Aetna, in 1990 the Company began paying
along with Aetna the costs incurred in connection with asbestos bodily injury
lawsuits and claims; these payments by the Company also reduced the policy
limits. The Company has processed claims, or identified claims to be
processed, which has effectively exhausted its coverage under the Aetna
agreement. The Company presently has similar litigation pending in New Jersey
against the Company's insurers, agents and related parties for the years 1977
through 1985 in which the Company seeks damages and a declaration of coverage
for both asbestos bodily injury and property damage claims under insurance
policies in effect during those years (Owens-Illinois, Inc. v. United
Insurance Co., et al, Superior Court of New Jersey, Middlesex County, November
30, 1984.) The total coverage sought in this litigation and, in the Company's
opinion, applicable to both bodily injury and property damage is in excess of
$600 million. The annual self-insurance applicable to such coverage is $1.0
million. The Company is also seeking additional coverage applicable solely to
property damage claims. In April 1990, the Company obtained summary judgment
for the coverage sought in this litigation and one of the defendant insurers,
in turn, obtained summary judgment under certain reinsurance contracts. The
defendants appealed the summary judgment granted to the Company and in April,
1993, the New Jersey Superior Court, Appellate Division affirmed the trial
court on all policy interpretation issues but remanded for trial certain other
issues. All parties petitioned the New Jersey Supreme Court for review. In
January, 1994, the New Jersey Supreme Court granted certification on two
policy interpretation issues, namely, the application of the continuous
trigger theory of coverage and the consequent apportionment of liability
(joint and several versus prorated liability). The Company believes that the
New Jersey Supreme Court will decide these issues sometime in 1994 and that
its decision will be favorable to the Company. Following such decision, the
trial of the issues remanded by the Appellate Division will take place and
will likely be concluded sometime in 1995.
The Company believes, based upon the rulings of the trial court and Appellate
Division as well as its understanding of the facts and legal precedents and
advice of counsel, McCarter & English, that it is probable this litigation
ultimately will be resolved in such a manner as to confirm a substantial
amount of coverage. The date, however, of a final resolution with respect to
both coverage and damage recovery is uncertain. The coverage and any damage
recovery obtained as a result of this litigation could be applied to reimburse
the Company with respect to its payments under the Aetna agreement, as well as
59
other payments made by the Company. The Company has made a claim against
certain United Insurance Co. insurers for all such payments to date. The
Company has also established a receivable for certain of such payments; at
December 31, 1993, the receivable amounted to $283 million. Accordingly, the
amounts of such payments covered by this receivable have not been and are not
expected to be reflected in the Company's Consolidated Results of Operations.
In addition, the Company has entered into group settlement agreements which
included settlement amounts payable in 1994 and later. As of December 31,
1993, such deferred payment amounts were approximately $168 million. Such
deferred payment amounts have not been accrued or otherwise reflected in the
Company's Consolidated Results of Operations; however, the Company intends to
add such deferred payment amounts to the receivable when they are paid by the
Company.
The cumulative total of the receivable and the deferred amounts as of December
31, 1993 was $451 million, which represents the Company's pretax spending and
commitments to spend on disposed lawsuits and claims as of that date. The
Company expects this total amount to be covered by the United Insurance Co.
policies involved in the litigation described above. None of the foregoing
total amount represented a spending commitment with respect to lawsuits and
claims pending against the Company as of December 31, 1993.
As a result of Chapter 11 filings, the recent class action filings, and the
continuing efforts in various federal and state courts to resolve asbestos
lawsuits and claims in nontraditional manners, as well as the continued
filings of new lawsuits and claims, the Company believes, as it always has,
that its ultimate asbestos-related contingent liability (i.e., its indemnity
or other claim disposition costs plus related litigation expenses) is
difficult to estimate with certainty. However, the Company has continually
monitored the trends of matters which may affect its ultimate liability.
Furthermore, as previously reported, in the fourth quarter of 1993 the Company
completed a detailed analysis of the trends, developments and variables
affecting or likely to affect the resolution of pending and future asbestos
claims against the Company.
Based on the trends and developments and their effect on the Company's ability
to estimate probable costs of pending and likely future asbestos-related
claims, the higher than expected costs of disposing of claims in certain
jurisdictions, and taking into account the reimbursement it expects to receive
in the future principally as a result of the United Insurance case, the
Company has determined that it will likely have probable asbestos-related
liabilities and costs which exceed its probable asbestos-related insurance
reimbursement in the approximate amount of $325 million. Accordingly, the
Company has recorded a charge of such amount against its Consolidated Results
of Operations for the fourth quarter of 1993. The Company believes that its
asbestos-related costs and liabilities will not exceed by a material amount
the sum of the available insurance reimbursement the Company believes it has
and will have as a result of the United Insurance case and the amount of such
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
60
others presenting allegations that are nonroutine and involve compensatory,
punitive or treble damage claims as well as other types of relief. The
ultimate legal and financial liability of the Company in respect to the
lawsuits, proceedings, and investigations referred to above, in addition to
other pending litigation, cannot be estimated with certainty. However, the
Company believes, based on its examination of such matters and experience to
date and discussions with counsel, that such ultimate liability will not be
material in relation to the Company's Consolidated Financial Statements.
Segment Information.
The Company had three industry segments: Glass Containers, Plastics and
Closures, and Specialized Glass. As reported herein, the Specialized Glass
segment consists only of the Kimble laboratory and pharmaceutical glassware
business. Amounts related to the Company's glass tableware business have been
reclassified from the Specialized Glass segment to discontinued operations as
a result of the June 1993 sale of Libbey. In addition, as a result of the
December 31, 1993 sale of 51% of the Kimble business, the Company will record
its share of Kimble's operations on an equity basis beginning in 1994.
Operating profit includes an allocation of corporate expenses based on both a
percentage of sales and direct billings based on the costs of specific
services provided.
Transfers between segments and geographic areas are not significant. In
arriving at the consolidated totals for segments and geographic areas,
eliminations are made as follows: as to sales and transfers, intersegment and
intergeographic sales and transfers are eliminated; as to operating profit and
identifiable assets, eliminations primarily relate to unrealized profit in
inventory.
61
Financial information regarding the Company's geographic segments is as
follows:
- ----------------------------------------------------------------------------
1993 (a) 1992 (b) 1991
- ----------------------------------------------------------------------------
Sales to unaffiliated customers:
United States $2,865.3 $2,752.3 $2,693.8
Other Western Hemisphere 413.6 355.5 310.0
Europe 256.1 284.8 280.5
- ----------------------------------------------------------------------------
Consolidated total $3,535.0 $3,392.6 $3,284.3
============================================================================
Operating profit:
United States $ 137.3 $ 337.8 $ 372.6
Other Western Hemisphere 98.4 80.0 82.0
Europe 23.9 27.3 27.0
- ----------------------------------------------------------------------------
Consolidated total $ 259.6 $ 445.1 $ 481.6
============================================================================
Identifiable assets:
United States $2,893.0 $3,164.7 $2,833.3
Other Western Hemisphere 428.1 350.9 272.9
Europe 256.0 263.1 294.5
Eliminations (.1) (.1)
- ----------------------------------------------------------------------------
Consolidated total $3,577.1 $3,778.6 $3,400.6
============================================================================
(a) Operating profit for the United States geographic segment in 1993
includes charges totaling $233.2 million principally related to a
restructuring program.
(b) The adoption of SFAS Nos. 109 and 106 resulted in decreased operating
profit for the United States geographic segment in 1992 compared to 1991
due to additional non-cash expenses of $36.1 million.
62
Financial information regarding the Company's worldwide business segments is
as follows:
- ----------------------------------------------------------------------------
1993 (b) 1992 (c) 1991
- ----------------------------------------------------------------------------
Sales to unaffiliated customers (a):
Glass Containers $2,427.3 $2,421.7 $2,369.4
Plastics and Closures 908.6 781.0 729.6
Specialized Glass 197.9 188.4 183.7
Eliminations and other 1.2 1.5 1.6
- ----------------------------------------------------------------------------
Consolidated total $3,535.0 $3,392.6 $3,284.3
============================================================================
Operating profit:
Glass Containers $ 117.4 $ 299.0 $ 315.4
Plastics and Closures 123.3 133.4 139.2
Specialized Glass 18.9 12.7 27.0
Eliminations and other retained costs (305.0) (12.3) (1.6)
- ----------------------------------------------------------------------------
Consolidated total (45.4) 432.8 480.0
Equity earnings 25.3 23.2 11.7
Interest expense (net) (274.4) (299.1) (437.0)
- ----------------------------------------------------------------------------
(294.5) 156.9 54.7
Reconciliation to earnings (loss) from
continuing operations before
extraordinary items and cumulative
effect of accounting changes:
Credit (provision) for income taxes 113.1 (64.0) (53.7)
Minority share owners' interests (19.4) (14.6) (11.8)
- ----------------------------------------------------------------------------
Earnings (loss) from continuing
operations before extraordinary
items and cumulative effect of
accounting changes $ (200.8) $ 78.3 $ (10.8)
============================================================================
(a) Sales of similar products which contributed 10% or more of consolidated
net sales for 1993, 1992, and 1991, and their percentage contribution in
each year, respectively, are glass containers with 64%, 67%, and 68%; and
plastic containers with 19%, 17%, and 18%.
(b) Operating profit for 1993 includes charges of $325 million for estimated
uninsured future asbestos-related costs, charges totaling $253.2 million
principally related to a restructuring program, and gains totaling $46.1
million from the sale of the remaining 50% interest in the television
glass business and 51% of the Kimble business. These items decreased
operating profit as follows: Glass Containers, $214.0 million, Plastics
and Closures, $16.0 million, Specialized Glass, $3.2 million, and other
retained costs, $298.9 million.
63
(c) The adoption of SFAS Nos. 109 and 106 resulted in decreased operating
profit in 1992 compared to 1991 due to additional non-cash expenses as
follows: Glass Containers, $17.9 million; Plastics and Closures, $11.5
million; Specialized Glass, $6.7 million; and other retained costs, $4.8
million.
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Identifiable Assets:
Glass Containers $2,372.9 $2,395.2 $2,247.2
Plastics and Closures 1,207.0 1,182.2 978.1
Specialized Glass 205.8 179.9
Eliminations (2.8) (4.6) (4.6)
- ----------------------------------------------------------------------------
Combined segment total 3,577.1 3,778.6 3,400.6
Investments in and advances
to associates 102.5 164.1 156.7
Corporate and other
retained assets 1,221.8 978.5 663.7
Discontinued operations 229.9 178.1
- ----------------------------------------------------------------------------
Total $4,901.4 $5,151.1 $4,399.1
============================================================================
Property, plant and equipment
- -- capital expenditures:
Glass Containers $ 153.1 $ 141.1 $ 142.6
Plastics and Closures 100.3 82.0 49.6
Specialized Glass 8.8 12.4 16.3
- ----------------------------------------------------------------------------
Combined segment total 262.2 235.5 208.5
Corporate and other
retained assets .7 1.9 .6
Discontinued operations 3.3 13.4 7.1
- ----------------------------------------------------------------------------
Total $ 266.2 $ 250.8 $ 216.2
============================================================================
Property, plant and equipment
- -- depreciation:
Glass Containers $ 110.9 $ 117.8 $ 101.0
Plastics and Closures 54.9 50.8 39.8
Specialized Glass 10.6 9.9 7.9
- ----------------------------------------------------------------------------
Combined segment total 176.4 178.5 148.7
Corporate and other
retained assets 3.6 3.4 5.3
Discontinued operations 7.3 13.5 24.3
- ----------------------------------------------------------------------------
Total $ 187.3 $ 195.4 $ 178.3
============================================================================
64
Selected Quarterly Financial Data (unaudited). The following tables present
selected financial data by quarter for the years ended December 31, 1993 and
1992:
- ----------------------------------------------------------------------------
1993 (a)
- ----------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ----------------------------------------------------------------------------
Net sales $ 832.1 $ 915.0 $ 914.6 $ 873.3 $3,535.0
============================================================================
Gross profit $ 168.5 $ 200.3 $ 195.7 $ 146.7 $ 711.2
============================================================================
Earnings (loss):
Continuing operations $ 22.7 $ 47.1 $ 42.9 $(313.5) $ (200.8)
Discontinued
operations (.9) 2.3 1.4
Gain on sale of
discontinued
business, net of
applicable income
taxes 217.0 217.0
Extraordinary charges
from early extin-
guishment of debt,
net of applicable
income taxes (7.4) (1.0) (4.3) (12.7)
- ----------------------------------------------------------------------------
Net earnings (loss) $ 21.8 $ 259.0 $ 41.9 $(317.8) $ 4.9
============================================================================
Earnings (loss) per share
of common stock:
Continuing operations $ 0.19 $ 0.39 $ 0.36 $ (2.64) $ (1.70)
Discontinued
operations (0.01) 0.02 0.01
Gain on sale of
discontinued
business, net of
applicable income
taxes 1.82 1.82
Extraordinary charges (0.06) (0.01) (0.03) (0.10)
- ----------------------------------------------------------------------------
Net earnings (loss) $ 0.18 $ 2.17 $ 0.35 $ (2.67) $ 0.03
============================================================================
(a) In the fourth quarter of 1993, the Company recorded charges of $325
million for estimated uninsured future asbestos costs, charges totaling $253.2
million principally related to a restructuring program, and gains on asset
sales totaling $46.1 million. The net after tax amount of all these items was
approximately $322.4 million, or $2.71 per share.
65
- ----------------------------------------------------------------------------
1992
- ----------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ----------------------------------------------------------------------------
Net sales $ 792.5 $ 879.6 $ 877.4 $ 843.1 $3,392.6
============================================================================
Gross profit $ 153.8 $ 184.3 $ 177.3 $ 133.1 $ 648.5
============================================================================
Earnings (loss):
Continuing operations $ 12.4 $ 34.4 $ 31.4 $ 0.1 $ 78.3
Discontinued
operations 9.2 1.8 4.6 2.8 18.4
Extraordinary charges
from early extin-
guishment of debt,
net of applicable
income taxes (8.2) (23.3) (31.5)
Cumulative effect on
prior years of
changes in methods
of accounting (b) (199.4) (199.4)
- ----------------------------------------------------------------------------
Net earnings (loss) $(177.8) $ 28.0 $ 12.7 $ 2.9 $ (134.2)
============================================================================
Earnings (loss) per share
of common stock:
Continuing operations $ 0.11 $ 0.29 $ 0.26 $ 0.00 $ 0.66
Discontinued
operations 0.07 0.02 0.04 0.02 0.15
Extraordinary charges (0.07) (0.19) (0.26)
Cumulative effect of
accounting changes (1.68) (1.68)
- ----------------------------------------------------------------------------
Net earnings (loss) $ (1.50) $ 0.24 $ 0.11 $ 0.02 $ (1.13)
============================================================================
(b) In the fourth quarter of 1992, the Company adopted SFAS No. 109
"Accounting for Income Taxes" and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective January 1, 1992, as
described more fully in the Statement of Significant Accounting Policies.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
66
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Information with respect to non-officer directors is included in the Proxy
Statement in the section entitled "Election of Directors" and such information
is incorporated herein by reference.
Information with respect to executive officers is included herein on pages 14 -
16.
ITEMS 11. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS AND RELATED
and 13. TRANSACTIONS
The section entitled "Director and Executive Compensation and Other
Information," exclusive of the subsections entitled "Board Compensation
Committee Report on Executive Compensation" and "Performance Graph," which is
included in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" which is included in the Proxy Statement is incorporated herein by
reference.
67
PART IV
ITEM 14.(a). EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
Index of Financial Statements and Financial Statement Schedules Covered by
Report of Independent Auditors.
Page
----
Report of Independent Auditors 29
Consolidated Balance Sheets at December 31, 1993 and 1992 32-33
For the years ended December 31, 1993, 1992 and 1991
Consolidated Results of Operations 30-31
Consolidated Share Owners' Equity 34
Consolidated Cash Flows 35-36
Statement of Significant Accounting Policies 37-38
Financial Review 39-63
Financial Statement Schedules Schedule Page
----------------------------- -------------
For the years ended December 31, 1993, 1992, and 1991:
V - Property, Plant and Equipment (Consolidated) S-1
VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment (Consolidated) S-3
VIII - Valuation and Qualifying Accounts (Consolidated) S-5
IX - Short-Term Borrowings (Consolidated) S-6
X - Supplementary Income Statement Information
(Consolidated) S-7
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements or the accompanying Financial Review.
68
EXHIBIT INDEX
S-K Item 601
No. Document
- ------------ --------
3.1 -- Restated Certificate of Incorporation of Owens-Illinois, Inc.
(filed as Exhibit 3.1 to the Registrants' Registration
Statement, File No. 33-43224, and incorporated herein by
reference).
3.2 -- By-laws of Owens-Illinois, Inc., as amended (filed as Exhibit
3.2 to the Registrants' Registration Statement, File No. 33-
43224, and incorporated herein by reference).
3.3 -- Certificate of Incorporation of Owens-Illinois Group, Inc., as
amended (filed as Exhibit 3.4 to the Registrants' Registration
Statement, File No. 33-13061, and incorporated herein by refer-
ence).
3.4 -- By-laws of Owens-Illinois Group, Inc. (filed as Exhibit 3.5 to
the Registrants' Registration Statement, File No. 33-13061, and
incorporated herein by reference).
3.5 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred
Stock and Qualifications, Limitations and Restrictions Thereof
of Series A Exchangeable Preferred Stock, Series B Exchangeable
Preferred Stock and Series C Exchangeable Preferred Stock of
Owens-Illinois, Inc., dated October 30, 1992 (filed as Exhibit
3.5 to the Registrants' Annual Report on Form 10-K for the year
ended December 31, 1992, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
4.1 -- Note, dated March 17, 1987, to OII Holdings Corporation issued
by OII Group, Inc., as amended (filed as Exhibit 4.44 to the
Registration Statement, File No. 33-43224, of Owens-Illinois,
Inc., and incorporated herein by reference).
4.2 -- Indenture, dated as of December 15, 1991, among Owens-Illinois,
Inc., Owens-Illinois Group, Inc., and The Bank of New York
related to Senior Debentures of Owens-Illinois, Inc. (filed as
Exhibit 4.32 to the Registrants' Registration Statement, File
No. 33-34825, and incorporated herein by reference).
4.3 -- Group Exchange Guaranty, dated as of July 10, 1992, by Owens-
Illinois Group, Inc., in favor of the Trustee (filed as Exhibit
4.1 to the Registrants' Current Report on Form 8-K dated as of
July 15, 1992, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
4.4 -- Subsidiary Guaranty, dated as of July 10, 1992, by the
Subsidiaries in favor of the Trustee (filed as Exhibit 4.2 to
the Registrants' Current Report on Form 8-K dated as of July
15, 1992, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
4.5 -- Contribution Agreement, dated as of July 10, 1992, by and among
the Company, Owens-Illinois Group, Inc., and the Subsidiaries
(filed as Exhibit 4.3 to the Registrants' Current Report on
Form 8-K dated as of July 15, 1992, File nos. 1-9576 and 33-
13061, and incorporated herein by reference).
69
S-K Item 601
No. Document
- ------------ --------
4.6 -- Acknowledgment Regarding Additional Secured Debt, dated as of
July 10, 1992, by the Pledgors (filed as Exhibit 4.4 to the
Registrants' Current Report on Form 8-K dated as of July 15,
1992, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
4.7 -- Acknowledgment to Intercreditor Agreement, dated as of July 9,
1992, by the Trustee and the Pledgors (filed as Exhibit 4.5 to
the Registrants' Current Report on Form 8-K dated as of July
15, 1992, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
4.8 -- Indenture, dated as of April 1, 1992, between the Company and
Harris Trust and Savings Bank under which the Company has
issued its 10-1/4% Senior Subordinated Notes due April 1, 1999;
10% Senior Subordinated Notes due August 1, 2002; 10-1/2%
Senior Subordinated Notes due June 15, 2002; and 9-3/4% Senior
Subordinated Notes due August 15, 2004 (filed as Exhibit 4(a)
to the Registrants' Current Report on Form 8-K dated as of
March 27, 1992, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
4.9 -- Form of Indenture dated September 28, 1992, Shelf Registration
for up to $200 million of Senior Subordinated Debt Securities
between the Company and Harris Trust and Savings Bank, under
which the Company has issued its 9.95% Senior Subordinated
Notes due October 15, 2004 (filed as Exhibit 4.2 to the
Registrants' Registration Statement, File no. 33-51982, and
incorporated herein by reference).
4.10 -- First Supplemental Indenture, dated as of September 28, 1992,
between the Company and Harris Trust and Savings Bank (filed as
Exhibit 4(a) to the Registrants' Current Report on Form 8-K
dated as of October 1, 1992, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
4.11 -- Refinancing Credit Agreement, dated as of December 15, 1993,
among Owens-Illinois, Inc., the lenders listed therein,
including those named as lead managers and co-agents and
Bankers Trust Company including exhibits thereto (filed
herewith).
10.1 -- Lease Agreement, dated as of May 21, 1980, between Owens-
Illinois, Inc. and Leyden Associates Limited Partnership (filed
as Exhibit 5 to the Registrants' Registration Statement, File
No. 2-68022, and incorporated herein by reference).
10.2 -- Owens-Illinois Supplemental Benefit Plan, dated as of October
1, 1991 (filed as Exhibit 3.5 to the Registrants' Annual Report
on Form 10-K for the year ended December 31, 1992, File nos. 1-
9576 and 33-13061, and incorporated herein by reference).
10.3 -- Sixth Amended and Restated Owens-Illinois Salary Retirement
Plan (filed as Exhibit 3.5 to the Registrants' Annual Report on
Form 10-K for the year ended December 31, 1992, File nos. 1-
9576 and 33-13061, and incorporated herein by reference).
70
S-K Item 601
No. Document
- ------------ --------
10.4 * -- Written description of the Owens-Illinois Senior Executive Life
Insurance Plan (filed as Exhibit 3.5 to the Registrants' Annual
Report on Form 10-K for the year ended December 31, 1992, File
nos. 1-9576 and 33-13061, and incorporated herein by
reference).
10.5 * -- Form of Employment Agreement between Owens-Illinois, Inc. and
various Employees (filed as Exhibit 10(m) to the Registrants'
Annual Report on Form 10-K for the fiscal year ended December
31, 1987, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
10.6 * -- Form of Non-Qualified Stock Option Agreement between Owens-
Illinois, Inc. and various Employees for use under the Plan
(filed as Exhibit 10.25 to the Registration Statement, File no.
33-43224, of Owens-Illinois, Inc. and incorporated herein by
reference).
10.7 * -- The Amended and Restated Stock Option Plan for Key Employees of
Owens-Illinois, Inc. (filed as Exhibit 10.24 to the
Registration Statement, File no. 33-43224, of Owens-Illinois,
Inc., and incorporated herein by reference).
10.8 * -- Form of Non-Qualified Stock Option Agreement between Owens-
Illinois, Inc. and various Employees (filed as Exhibit 10(1) to
the Registrants' Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
10.9 * -- Form of Subscription Agreement between Owens-Illinois, Inc. and
various Purchasers (filed as Exhibit 10(k) to the Registrants'
Annual Report on Form 10-K for the fiscal year ended December
31, 1987, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
10.10 * -- Form of Consulting Agreement between Owens-Illinois, Inc. and
Robert J. Lanigan (filed as Exhibit 10.17 to the Registrants'
Annual Report on Form 10-K for the fiscal year ended December
31, 1990, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
10.11 * -- Form of Non-Qualified Stock Option Agreement between Owens-
Illinois, Inc., and Robert J. Lanigan (filed as Exhibit 10.21
to the Registrants' Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, File nos. 1-9576 and 33-13061,
and incorporated herein by reference).
10.12 * -- Form of First Amendment to Non-Qualified Stock Option Agreement
between Owens-Illinois, Inc. and Robert J. Lanigan (filed as
Exhibit 10.20 to the Registrants' Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, File nos. 1-9576
and 33-13061, and incorporated herein by reference).
10.13 * -- Form of First Amendment to Subscription Agreement between
Owens-Illinois, Inc. and Robert J. Lanigan (filed as Exhibit
10.19 to the Registrants' Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, File nos. 1-9576 and 33-
13061, and incorporated herein by reference).
71
S-K Item 601
No. Document
- ------------ --------
10.14 -- Fourth Amended and Restated Owens-Illinois, Inc. Stock Purchase
and Savings Program (filed as Exhibit 4.1 to Registrants' Form
S-8, File nos. 1-9576 and 33-43559, and incorporated herein by
reference).
10.15 * -- Amended and Restated Owens-Illinois, Inc. Senior Management
Incentive Plan effective on January 1, 1993 (filed herewith).
10.16 * -- Amended and Restated Owens-Illinois, Inc. Performance Award Plan
effective on January 1, 1993 (filed herewith).
10.17 * -- Owens-Illinois, Inc. Corporate Officers Deferred Compensation
Plan effective on December 31, 1993 (filed herewith).
10.18 * -- Owens-Illinois, Inc. Executive Savings Plan effective on
December 31, 1993 (filed herewith).
10.19 * -- First Amendment to Owens-Illinois, Inc. Supplemental Retirement
Plan effective on December 31, 1993 (filed herewith).
21 -- Subsidiaries of the Registrants (filed herewith).
23.1 -- Consent of Independent Auditors (filed herewith).
23.2 -- Consent of McCarter & English (filed herewith).
24 -- Owens-Illinois, Inc. and Owens-Illinois Group, Inc. Power of
Attorney (filed herewith).
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to Item 14(c).
_______________
ITEM 14.(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrants during the last quarter
of 1993.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on
their behalf by the undersigned thereunto duly authorized.
OWENS-ILLINOIS, INC.
OWENS-ILLINOIS GROUP, INC.
(Registrants)
By/s/ Thomas L. Young
-------------------------------
Thomas L. Young
Executive Vice President,
Administration, General Counsel
and Secretary
Date: March 29, 1994
73
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Owens-
Illinois, Inc. and Owens-Illinois Group, Inc. and in the capacities and on the
dates indicated.
Signature Title
--------- -----
Edward A. Gilhuly Director
James H. Greene, Jr. Director
Joseph H. Lemieux Chairman of the Board of Directors; President and
Chief Executive Officer (Principal Executive Officer)
Michael W. Michelson Director
George R. Roberts Director
David G. Van Hooser Vice President, Treasurer and Comptroller
(Principal Accounting Officer)
Lee A. Wesselmann Senior Vice President and Chief Financial Officer
(Principal Financial Officer); Director
By/s/ Thomas L. Young
--------------------------
Thomas L. Young
Attorney-in-fact
Date: March 29, 1994
INDEX TO FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules of Owens-Illinois, Inc. and Subsidiaries:
For the years ended December 31, 1993, 1992, and 1991:
Page
----
V -- Property, Plant and Equipment (Consolidated) . . . . . . . . S-1
VI -- Accumulated Depreciation and Amortization of Property, Plant
and Equipment (Consolidated). . . . . . . . . . . . . . . . S-3
VIII -- Valuation and Qualifying Accounts (Consolidated) . . . . . . S-5
IX -- Short-Term Borrowings (Consolidated) . . . . . . . . . . . . S-6
X -- Supplementary Income Statement Information (Consolidated). . S-7
S-1
OWENS-ILLINOIS, INC.
SCHEDULE V -- PROPERTY, PLANT, AND EQUIPMENT (CONSOLIDATED)
Years ended December 31, 1993, 1992, and 1991
(Millions of Dollars)
Acquisi-
tions (di-
vesti- Other
Balance tures) of changes- Balance
at begin- subsid- Retire- add at
ning of iaries Additions ments or (deduct) end of
1993: period (Note 1) at cost sales (Note 2) period
- ----- -------- -------- -------- -------- -------- --------
Land, at cost. . $ 115.4 $ (12.6) $ 0.0 $ 0.0 $ (0.2) $ 102.6
Buildings and
building
equipment. . . 480.2 (48.6) 13.9 1.6 (0.7) 443.2
Factory machinery
and equipment. 1,747.8 (206.8) 235.3 23.8 (7.6) 1,744.9
Transportation,
office and
miscellaneous
equipment. . . 54.8 (7.2) 7.9 2.3 (0.3) 52.9
Construction in
progress . . . 140.5 (7.1) 9.1 (0.2) 142.3
-------- -------- -------- -------- -------- --------
$2,538.7 $ (282.3) $ 266.2 $ 27.7 $ (9.0) $2,485.9
1992: ======== ======== ======== ======== ======== ========
- -----
Land, at cost. . $ 88.9 $ 1.1 $ 0.0 $ 0.9 $ 26.3 $ 115.4
Buildings and
building
equipment. . . 426.9 5.1 7.4 7.0 47.8 480.2
Factory machinery
and equipment. 1,418.9 32.3 198.3 63.7 162.0 1,747.8
Transportation,
office and
miscellaneous
equipment. . . 48.3 .9 3.5 1.3 3.4 54.8
Construction in
progress . . . 94.8 4.4 41.6 (0.3) 140.5
-------- -------- -------- -------- -------- --------
$2,077.8 $ 43.8 $ 250.8 $ 72.9 $ 239.2 $2,538.7
======== ======== ======== ======== ======== ========
S-2
Acquisi-
tions (di-
vesti- Other
Balance tures) of changes- Balance
at begin- subsid- Retire- add at
ning of iaries Additions ments or (deduct) end of
1991: period (Note 1) at cost sales (Note 2) period
- ----- -------- -------- -------- -------- -------- --------
Land, at cost. . $ 109.2 $ (16.4) $ 0.1 $ 2.9 $ (1.1) $ 88.9
Buildings and
building
equipment. . . 749.5 (338.0) 22.6 4.5 (2.7) 426.9
Factory machinery
and equipment. 1,351.1 (54.9) 183.2 45.9 (14.6) 1,418.9
Transportation,
office and
miscellaneous
equipment. . . 45.5 (.5) 4.4 1.0 (0.1) 48.3
Construction in
progress . . . 90.0 (0.9) 5.9 (0.2) 94.8
-------- -------- -------- -------- -------- --------
$2,345.3 $ (410.7) $ 216.2 $ 54.3 $ (18.7) $2,077.8
======== ======== ======== ======== ======== ========
(1) Includes amounts related to the divestiture of Libbey and Kimble opera-
tions in 1993 and the Health Care segment in 1991 and to businesses
acquired in 1993 and 1992.
(2) The amounts in "Other changes - add (deduct)" represent the current year
effects of foreign currency translation adjustments amounting to $(9.0),
($34.9), and $(18.7) in 1993, 1992, and 1991, respectively; a 1992
adjustment for adoption of SFAS No. 109 of $273.9.
S-3
OWENS-ILLINOIS, INC.
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
PLANT, AND EQUIPMENT (CONSOLIDATED) (Note 1)
Years ended December 31, 1993, 1992, and 1991
(Millions of Dollars)
Acquisi-
tions (di- Additions
vesti- charged Other
Balance tures) of to costs changes- Balance
at begin- subsid- and Retire- add at
ning of iaries expenses ments or (deduct) end of
1993: period (Note 2) (Note 3) sales (Note 4) period
- ----- -------- -------- -------- -------- -------- --------
Buildings and
building
equipment. . . $ 126.5 $ (17.8) $ 20.2 $ 1.0 $ (0.3) $ 127.6
Factory
machinery and
equipment. . . 793.1 (106.0) 162.5 20.8 (3.3) 825.5
Transportation,
office, and
miscellaneous
equipment. . . 37.8 (6.3) 4.6 1.1 35.0
-------- -------- -------- -------- -------- --------
$ 957.4 $ (130.1) $ 187.3 $ 22.9 $ (3.6) $ 988.1
======== ======== ======== ======== ======== ========
1992:
- -----
Buildings and
building
equipment. . . $ 98.1 $ $ 20.8 $ 5.1 $ 12.7 $ 126.5
Factory
machinery and
equipment. . . 607.7 170.0 56.7 72.1 793.1
Transportation,
office, and
miscellaneous
equipment. . . 31.0 4.6 1.1 3.3 37.8
-------- -------- -------- -------- -------- --------
$ 736.8 $ $ 195.4 $ 62.9 $ 88.1 $ 957.4
======== ======== ======== ======== ======== ========
S-4
Acquisi-
tions (di- Additions
vesti- charged Other
Balance tures) of to costs changes-
at begin- subsid- and Retire- add Balance
ning of iaries expenses ments or (deduct) at end of
1991: period (Note 2) (Note 3) sales (Note 4) period
- ----- -------- -------- -------- -------- -------- --------
Buildings and
building
equipment. . . $ 111.7 $ (38.1) $ 25.3 $ 0.3 $ (0.5) $ 98.1
Factory
machinery and
equipment. . . 520.8 (27.4) 147.3 30.3 (2.7) 607.7
Transportation,
office, and
miscellaneous
equipment. . . 26.4 (0.5) 5.7 0.8 0.2 31.0
-------- -------- -------- -------- -------- --------
$ 658.9 $ (66.0) $ 178.3 $ 31.4 $ (3.0) $ 736.8
======== ======== ======== ======== ======== ========
(1) In general, depreciation is computed using the straight-line method.
(2) The amounts in "Acquisitions (divestitures) of subsidiaries" for 1993
includes the divestiture of the Company's Libbey and Kimble operations
and in 1991 includes the divestiture of the Company's Health Care
segment.
(3) The amounts in "Additions charged to costs and expenses" include amounts
of the Company's Libbey and Kimble operations of $7.3 and $10.6, respec-
tively, for the year ended December 31, 1993 and of the Company's
discontinued Health Care segment of $13.1 for the year ended December 31,
1991.
(4) The amounts in "Other changes - add (deduct)" represent the current year
effects of foreign currency translation adjustments amounting to $(3.6),
$(11.0), and $(3.0) in 1993, 1992, and 1991, respectively; and for 1992,
$99.1 to adjust for adoption of SFAS No. 109.
S-5
OWENS-ILLINOIS, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS (CONSOLIDATED)
Years ended December 31, 1993, 1992, and 1991
(Millions of Dollars)
Reserves deducted from assets in the balance sheets:
Allowances for losses and discounts on receivables
- --------------------------------------------------
Additions
------------------
Balance at Charged to Balance
beginning costs and Other Deductions at end of
of period expenses (Note 1) (Note 2) period
--------- --------- -------- --------- ---------
1993 . . . . . . . $ 31.4 $ 23.0 $ 0.0 $ 23.1 $ 31.3
======= ======= ======= ======= =======
1992 . . . . . . . $ 29.1 $ 13.5 $ 0.8 $ 12.0 $ 31.4
======= ======= ======= ======= =======
1991 . . . . . . . $ 35.3 $ 7.9 $ 0.0 $ 14.1 $ 29.1
======= ======= ======= ======= =======
(1) The amounts in "Other" represent recoveries of accounts previously
charged off as uncollectible.
(2) Deductions from allowances for losses and discounts on receivables
represent uncollectible notes and accounts written off.
S-6
OWENS-ILLINOIS, INC.
SCHEDULE IX -- SHORT-TERM BORROWINGS (CONSOLIDATED)
Years ended December 31, 1993, 1992, and 1991
(Millions of Dollars)
Weighted Weighted
average Maximum Average average
interest amount amount interest
Balance rate outstanding outstanding rate
at end of (Notes 1 during during (Notes 1,
period and 3) period period 2 and 3)
-------- ------- ----------- ----------- --------
1993 . . . . . . $ 49.2 35.7% $ 89.8 $ 64.2 35.7%
======== ======= =========== =========== ========
1992 . . . . . . $ 56.7 28.5% $ 77.6 $ 65.6 30.7%
======== ======= =========== =========== ========
1991 . . . . . . $ 58.8 29.7% $ 86.3 $ 72.4 30.3%
======== ======= =========== =========== ========
(1) Monetary correction of local currency debt at the Company's major
affiliate in Brazil has been excluded from interest expense in arriving
at the weighted average interest rates shown above.
(2) Actual interest expense divided by average short-term borrowings during
the period.
(3) The relatively high weighted average interest rates at end of period and
for the three years ended December 31, 1993 are reflective of the
generally higher short-term borrowing costs incurred by most of the
Company's South American affiliates.
S-7
OWENS-ILLINOIS, INC.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION (CONSOLIDATED)
Years ended December 31, 1993, 1992, and 1991
(Millions of Dollars)
1993 1992 1991
-------- -------- --------
Maintenance and Repairs. . . . . . $ 300.6 $ 307.5 $ 311.3
======== ======== ========