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, 1994
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, 1995) of the voting stock beneficially held by non-affiliates
of Owens-Illinois, Inc. was approximately $862,420,000. 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, 1995, was 119,079,496.
The number of shares of Common Stock, $.01 par value, of Owens-Illinois,
Group, Inc. outstanding as of February 28, 1995, 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 10, 1995 ("Proxy
Statement").
(Cover page 2 of 2 pages)
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . 11
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . 12
EXECUTIVE OFFICERS OF THE REGISTRANTS. . . . . . . 13
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 5. MARKET FOR OWENS-ILLINOIS, INC.'S COMMON STOCK
AND RELATED SHARE OWNER MATTERS. . . . . . . . . . 16
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . 30
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.(a). . EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES. . . . . . . . . . . . . . . . . . 67
ITEM 14.(b). . REPORTS ON FORM 8-K. . . . . . . . . . . . . 72
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
PART I
ITEM 1. BUSINESS
General Development of Business
Owens-Illinois, Inc. (the "Company"), through its subsidiaries, is the
successor to a business established in 1903. The Company is one of the
world's leading and most diversified manufacturers of packaging products.
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
Glass, Inc. ("Kimble"). Over the last few years, the Company has made
acquisitions or investments strategic to its core businesses and has divested
operations not achieving market leadership or other operating and financial
objectives.
During 1994, the Company began implementation of its reengineering program.
The program is designed to reduce costs, improve manufacturing efficiency and
productivity, and enhance customer service. This effort is a key part of the
Company's strategy to maintain leadership in glass and plastic packaging and
to take advantage of growth opportunities around the world.
In March 1994, the Company acquired a customer's glass container manufacturing
facility located in Auburn, New York. In August 1994, the Company entered
into an agreement to manage and acquire a majority interest in one of the
leading glass container manufacturers in India. The acquisition of the
business, which has three manufacturing facilities strategically located
throughout India, was completed in January, 1995.
In December 1994, the Company concluded a settlement with certain reinsurers
representing approximately 19% of the coverage limits applicable to the
Company's asbestos-related personal injury claims. Pursuant to the settlement
agreement, the Company received payments in December 1994 and January 1995
totalling approximately $100 million, representing approximately 78.5% of
policy limits. As a result of the settlement agreement and certain other
considerations, the Company recorded a charge of $100 million in the fourth
quarter of 1994 to write down the insurance asset for asbestos-related costs.
The principal executive office of the Registrants is located at One SeaGate,
Toledo, Ohio 43666; the telephone number is (419) 247-5000.
1
Financial Information about Industry Segments
Information as to sales, operating profit, and identifiable assets by industry
segment is included on pages 61 - 63.
Narrative Description of Business
The Company has two industry segments: (1) Glass Containers and (2) Plastics
and Closures. Below is a description of these segments and information to the
extent material to understanding the Company's business taken as a whole.
The Company's former Specialized Glass segment consisted of Kimble which
manufactures both glass and plastic specialty packaging and laboratory ware.
As a result of the December 31, 1993 sale of 51% of Kimble, the Company began
to record its share of Kimble's results of operations on the equity basis
beginning in 1994.
Products and Services, Customers, Markets and Competitive Conditions, and
Methods of Distribution / Facilities and Production Processes
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 1994 U.S. glass container sales were substantially higher than the
sales of its nearest U.S. glass container competitor, Anchor Glass Container
Corporation ("Anchor"), a subsidiary of Vitro, Sociedad Anonima. Worldwide
glass container sales represented 67%, 64% and 67% of the Company's
consolidated net sales for the years ended December 31, 1994, 1993, and 1992,
respectively. The Company believes that its internally developed machines are
significantly more efficient and productive than those used by its
competitors, making it the low-cost manufacturer and a recognized
technological leader in the industry.
Products and Services
---------------------
Glass containers are produced in a wide range of sizes, shapes and colors for
beer, teas, fruit juices, liquor, wine, wine coolers, pharmaceuticals, food
and soft drinks. 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 new age beverage and prepackaged mixed drinks.
New product lines designed to increase the demand for glass containers include
product extensions related to single service packages for tea, juice and soft
drinks 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.
2
Customers
---------
Glass operations are benefiting from increased shipments for such products as
beer, iced tea, juice, salsas and baby food. Brewers and food producers,
which include juice and tea producers, comprise approximately 76% of industry
demand for glass containers. The Company has leading positions within 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 in the U.S. by customer group for the last three years:
Percent Unit Shipments
------------------------
Customer Group 1994 1993 1992
-------------- ---- ---- ----
Food producers, including
juices and teas. . . . . . . . 40% 38% 35%
Brewers. . . . . . . . . . . . . 37 29 28
Soft drink bottlers. . . . . . . 13 20 25
Liquor and wine products . . . . 5 8 8
Other. . . . . . . . . . . . . . 5 5 4
---- ---- ----
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 and Competitive Conditions
----------------------------------
The Company has the leading market share of the glass segment of United States
beer 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.
Within the United States rigid packaging market, glass container shipments
have remained relatively constant the past several years. The Company's share
of the glass container segment has also remained relatively constant during
this time. 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.
3
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. 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 90 salaried employees at
January 31, 1995. During 1994, the Company began to implement the "virtual
sales office" concept, in which field account managers and regional sales
managers will operate from their homes or a Company manufacturing facility.
As a result, 11 sales offices were closed during 1994. The virtual sales
office concept provides the sales and marketing staff with easy access to
information from anywhere at any time thereby decreasing administrative costs,
streamlining communications, and shortening customer response time. 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.
Methods of Distribution / 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 sand plant and two
machine shops which manufacture high-productivity glass-making machines. In
March, 1994 the Company purchased a customer's glass container manufacturing
facility in Auburn, New York. During the fourth quarter of 1994 the Company
closed an inefficient glass container facility in Pomona, California. The
Company's remaining domestic glass container facilities operated at rates in
excess of 90% of capacity in 1994 and the Company expects similar rates in
1995.
During 1994 computerized work stations were installed on every glass container
forming line. Machine operators now have the tools and training to focus on
continuous improvement of quality objectives. A press and blow process for
producing lightweight narrow neck bottles is also in operation at fourteen
locations. It provides the best combination of high speed production and
lighter weight for iced tea 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.
4
The Company's total systems approach to production technology and process
control improvements have contributed to significant annual productivity
gains. From 1992 to 1994, for example, the Company's machine productivity
increased by approximately 10% and labor productivity improved by
approximately 30%.
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
several years, the Company has recycled substantial tonnage of glass
containers. The recycled glass component of the Company's 1994 domestic glass
container output approximated 25%. The Company believes that the percentage
of recycled glass used could increase in the future as recycling becomes more
widespread. Glass recycling helps relieve the burden on the nation's
landfills, while significantly reducing the need for virgin materials.
Recycling also results in energy savings and reductions in air emissions. The
Company also believes that, eventually, as recycled glass becomes more
available, it may offer a cost advantage over producing new glass. The
Company has no technological barriers to using all of the recycled glass it
can reasonably expect to obtain from public/private collection programs as
long as such glass meets incoming material quality standards.
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. Spending for the Glass Containers segment in these areas increased
63% in 1994 compared to 1993. There were approximately 280 domestic employees
at January 31, 1995, 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 32 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.
5
International Glass Operations
------------------------------
The Company has significant ownership positions in twelve companies located in
nine 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 and glass tableware. 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. The increasing demand for quality packaging
products in developing countries continues to create growth opportunities.
Increased privatization of industry, greater openness to foreign investment,
and the lowering of trade barriers have resulted in healthier economies,
rising standards of living, and growing demand for consumer products and
quality packaging in developing countries. The Company is continuing to
pursue additional strategic alliances with international partners whose
markets are growing and whose manufacturing operations can be enhanced by the
Company's state-of-the-art technology and equipment. 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 volume.
The Company's significant ownership positions in international glass
affiliates are summarized below:
Owens-Illinois
Company/Country Ownership
--------------- --------------
United Glass Ltd., United Kingdom 100.0%
Centro Vidriero de Venezuela, C.A., Venezuela 100.0
Manufacturera de Vidrios Planos, 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 65.3
Cristaleria Peldar, S.A., Colombia 57.4
Owens-BILT Limited, India 51.0
Vidrios Industriales, S.A., Peru 50.3
Fabrica Boliviana de Vidrios, S. A., Bolivia 50.0
Huta Szkla Jaroslaw S.A., Poland 39.3
6
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 17%, 16% and 17% of the Company's consolidated net sales for the
years ended December 31, 1994, 1993, and 1992, respectively. The Company's
Plastics and Closures segment operates under the Owens-Brockway trade name and
is comprised of four business units.
Plastic Products. This unit, with 21 factories, manufactures rigid, semi-
rigid and multi-layer plastic packages for a wide variety of uses, including
household products, personal care products, health care products, chemicals
and automotive products and food.
Closure and Specialty Products. This unit, with 11 manufacturing facilities,
produces closures and develops closure systems which incorporate functional
features such as tamper evidence, child resistance and dispensing. In
addition, this unit's diverse product line includes 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 and Carrier Products. One label product of this unit is the patented
Plasti-Shield which can be heat shrunk around glass or plastic containers.
The unit also makes polyethylene labels for in mold labeling (IML) and
laminated labels for beverages. Two proprietary carrier lines are also
produced, both of which are predominantly used as six-pack and four-pack
carriers for iced teas and other fruit drinks -- 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 products, and food and beverage
industries.
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
7
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 and the Hi-Cone multi-pack carrier (produced under a
license agreement with the only other producer, Illinois Tool Works Inc.), and
the only producer of 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 distinctive packaging
to differentiate their products among a growing array of choices offered to
consumers. 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 believes its plastic container and closure businesses have a
competitive advantage as a result of one of the shortest new product
development cycles in the industry, enabling the Company to provide superior
service in the service-sensitive custom plastic container market. 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 the soft
drink closures segment from aluminum to plastic.
The Company believes that its plastic business may be affected by additional
recycling and recycling content legislation. 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.
The Company's Plastics and Closures segment currently has technical assistance
agreements with 20 companies in 11 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.
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.
8
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
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 $31.8 million, $23.1 million, and $22.9 million for 1994, 1993, and 1992,
respectively. Operating engineering expenditures were $22.8 million, $19.2
million, and $23.1 million for 1994, 1993, and 1992, 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
9
unit of production. No material amount of money was spent on customer-
sponsored research activities during 1994, 1993, or 1992.
Environment
The Company's operations, in common with those of the industry generally, are
subject to numerous existing and proposed laws and governmental regulations
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
1994.
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, 1995, there are nine states with
mandatory deposit laws in effect.
Plastic containers have also been the subject of legislation in three states.
The Company utilizes recycled plastic resin in its manufacturing processes.
During 1994 and 1993, many plastic containers for products other than food,
drugs, and cosmetics contained 25% 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 26,700 persons at December 31,
1994. 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 its 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 61 - 63.
Export sales, in the aggregate or by geographic area, were not material for
the years 1994, 1993, or 1992.
10
ITEM 2. PROPERTIES
The principal manufacturing facilities and other material important physical
properties of the continuing operations of the Company at December 31, 1994
are listed below and grouped by industry segment. All properties shown are
owned in fee except where otherwise noted.
Glass Containers Sand Plants
Glass Container Plants Ione, CA (2)
Atlanta, GA Devilla, United Kingdom
Auburn, NY
Brockway, PA Flat Glass Plant
Charlotte, MI La Victoria, Venezuela
Chicago Heights, IL (1)
Clarion, PA (1) Plastics and Closures
Crenshaw, PA Plastic Container Plants
Danville, VA Atlanta, GA
Lakeland, FL Baltimore, MD
Lapel, IN Belvidere, NJ
Los Angeles, CA Charlotte, MI
Muskogee, OK (1) Chicago, IL
Oakland, CA Cincinnati, OH (1)
Portland, OR Edison, NJ
Streator, IL Findlay, OH (1), (2)
Toano, VA Florence, KY (1)
Tracy, CA Greenville, SC
Volney, NY Harrisonburg, VA
Waco, TX Kansas City, MO (2)
Winston-Salem, NC La Mirada, CA (2)
Zanesville, OH Nashua, NH
Rio de Janeiro, Brazil Newburyport, MA
Sao Paulo, Brazil Rossville, GA (2)
Envigado, Colombia St. Louis, MO (2)
Zipaquira, Colombia Sullivan, IN
Guayaquil, Ecuador Vandalia, IL (1)
Callao, Peru Washington, NJ (2)
Vega Alta, Puerto Rico Mexico City, Mexico
St. Albans, United Kingdom
Alloa, United Kingdom Mold Shop
Harlow, United Kingdom Kansas City, MO (2)
Peasley, United Kingdom
Cagua, Venezuela Label and Carrier Products Plant
Caracas, Venezuela Bardstown, KY (1)
Valencia, Venezuela
Valera, Venezuela Closure and Specialty Products Plants
Bridgeport, CT
Brookville, PA
Machine Shops Chattanooga, TN
Brockway, PA Constantine, MI (1)
Godfrey, IL El Paso, TX (2)
Manaus, Brazil Erie, PA
11
Closure & Specialty Products Plants Corporate Facilities
-- (continued) World Headquarters Building
Hamlet, NC Toledo, OH (2)
Maumee, OH (2)
North Riverside, IL (2) Levis Development Park
Waterbury, CT Perrysburg, OH
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 54 - 60.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last quarter
of the fiscal year ended December 31, 1994.
12
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 (64) . . . . . 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 1997.
Lee A. Wesselmann (59) . . . . . 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 (46) . . . . . 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 (53) . . . . . 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 (51) . . . . . . 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.
13
Name and Age Position
------------ --------
Russell C. Berkoben (53) . . . . Vice President and General Manager of
Plastic Operations since 1991; Vice
President and Plastic Container Business
Unit Manager, 1985-1991.
Gary R. Clinard (56) . . . . . . Vice President and General Manager of
International Operations since 1990; Vice
President of International Operations and
Technical Assistance, 1987-1990.
Larry A. Griffith (49) . . . . . 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 (55). . . . . . . 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 (55) . . . . . . . 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 (46) . . . . Vice President and General Manager of
Closure and Specialty Products 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 (55). . . . . . . Vice President and General Counsel -
Corporate since 1988.
14
Name and Age Position
------------ --------
Ronald H. Pfenning (46). . . . . 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 (53) . . . . . Vice President of International
Operations since 1990; Vice President and
General Manager of Closure and Specialty
Products, 1987-1990.
Robert A. Smith (53) . . . . . . 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.
David G. Van Hooser (48) . . . . Vice President and General Manager of
Plastic Components Operations since 1994;
Vice President, Treasurer and
Comptroller, 1990-1994; Vice President
and Treasurer, 1988-1990.
15
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:
1994 1993
------------------ ------------------
High Low High Low
------ ------ ------ ------
First Quarter 13-5/8 10-5/8 12-1/4 10
Second Quarter 13-3/8 10-3/8 12 10
Third Quarter 12-3/4 10-3/8 11-5/8 9
Fourth Quarter 12-1/4 10-1/4 12-3/8 9-1/4
On December 31, 1994, there were 862 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.
16
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, 1994. 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 LLP, 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,
----------------------------------------------------
1994 1993 1992 (b) 1991 (c) 1990
-------- -------- -------- -------- --------
Consolidated Operating (Dollar amounts in millions)
Results (a):
Net sales. . . . . . $3,567.3 $3,535.0 $3,392.6 $3,284.3 $3,383.3
Other (d). . . . . . 85.6 127.1 81.6 83.3 84.4
-------- -------- -------- -------- --------
3,652.9 3,662.1 3,474.2 3,367.6 3,467.7
Costs and expenses:
Manufacturing, shipping
and delivery . . . 2,824.3 2,823.8 2,744.1 2,636.8 2,691.0
Research, engineering,
selling, administra-
tive and other (d) 379.1 842.8 260.3 223.6 315.1
-------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before interest
expense and items
below. . . . . . . 449.5 (4.5) 469.8 507.2 461.6
Interest expense . . 278.2 290.0 312.9 452.5 446.4
-------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before items
below. . . . . . . 171.3 (294.5) 156.9 54.7 15.2
Provision (credit)
for income taxes . 68.9 (113.1) 64.0 53.7 60.4
Minority share owners'
interests in
earnings of
subsidiaries . . . 24.1 19.4 14.6 11.8 8.6
-------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before extraordinary
items and cumulative
effect of accounting
changes. . . . . . 78.3 (200.8) 78.3 (10.8) (53.8)
Net earnings (loss)
of discontinued
operations . . . . 1.4 18.4 3.8 (2.4)
17
SELECTED FINANCIAL DATA -- continued
Year Ended December 31,
----------------------------------------------------
1994 1993 1992 (b) 1991 (c) 1990
-------- -------- -------- -------- --------
(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)
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). $ 78.3 $ 4.9 $ (134.2) $ (273.6) $ (56.2)
======== ======== ======== ======== ========
Earnings (loss) per
share of common
stock:
Earnings (loss)
from continuing
operations before
extraordinary
items and cumula-
tive effect of
accounting changes $ 0.64 $ (1.70) $ 0.66 $ (0.27) $ (1.46)
Net earnings (loss)
of discontinued
operations . . . 0.01 0.15 0.09 (0.06)
Gain (loss) on sales
of discontinued
operations . . . 1.82 (3.07)
Extraordinary charges (0.10) (0.26) (3.58)
Cumulative effect of
accounting
changes (b). . . (1.68)
-------- -------- -------- -------- --------
Net earnings (loss). $ 0.64 $ 0.03 $ (1.13) $ (6.83) $ (1.52)
======== ======== ======== ======== ========
18
SELECTED FINANCIAL DATA -- continued
Year Ended December 31,
----------------------------------------------------
1994 1993 1992 (b) 1991 (c) 1990
-------- -------- -------- -------- --------
Other Data: (Dollar amounts in millions)
The following are included in the
results from continuing operations:
Depreciation . . . $ 183.3 $ 180.0 $ 181.9 $ 154.0 $ 150.3
Amortization of
excess cost and
intangibles. . . 45.2 40.8 38.6 36.3 36.3
Amortization of
deferred finance
fees (included
in interest
expense) . . . . 5.1 11.5 12.0 13.6 13.7
-------- -------- -------- -------- --------
$ 233.6 $ 232.3 $ 232.5 $ 203.9 $ 200.3
======== ======== ======== ======== ========
Weighted average
shares outstanding
(in thousands) . . 119,005 118,978 118,980 40,089 36,940
Balance Sheet Data (at end of period):
Working capital. . $ 171 $ 234 $ 245 $ 195 $ 339
Total assets . . . 5,318 4,901 5,151 4,399 5,191
Total debt . . . . 2,690 2,487 3,107 2,932 4,005
Share owners' equity 376 295 299 415 (153)
(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.
(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. Assuming the recapitalization had occurred at the
beginning of 1991, pro forma earnings from continuing operations for 1991
would have been $78.7 million, or $0.65 per share of common stock.
(d) In the fourth quarter of 1994, the Company recorded a charge of $100.0
million ($61.7 million after taxes) to write down the insurance asset for
asbestos-related costs. Other revenues in 1993 includes gains of $46.1
19
million ($34.6 million after tax) from divestitures. In the fourth
quarter of 1993, the Company recorded charges totaling $578.2 million
($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 ($16.4
million after tax) from divestitures. In the fourth quarter of 1990, the
Company recorded a charge of $48.4 million ($31.0 million after tax) for
special separation and retirement benefits.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Comparison of 1994 with 1993
For the year ended December 31, 1994, the Company recorded net earnings from
continuing operations of $78.3 million compared with a loss of $200.8 million
in 1993. These results include an unusual fourth quarter charge in 1994 of
$61.7 million and several unusual fourth quarter charges and gains in 1993
aggregating $322.4 million, which are discussed below. Excluding the effects
of the unusual items in both years, the Company reported 1994 earnings from
continuing operations of $140.0 million representing an increase of $18.4
million, or 15.1%, over 1993 earnings of $121.6 million. All major operations
reported increased unit shipments, dollar sales, and operating profit in 1994.
Improved operating results, particularly in the Glass Containers segment, and
reduced interest expense more than offset the absence of operating results
from the Specialized Glass segment and an increase in other retained costs.
The former Specialized Glass segment consisted of the Kimble pharmaceutical
and laboratory glassware business. As a result of the December 31, 1993 sale
of 51% of the Kimble business, the Company is recording its share of Kimble's
results of operations on an equity basis beginning in 1994.
Net earnings for 1994 were $78.3 million compared to $4.9 million in 1993.
The 1993 results include a net gain from the sale of the Libbey glass
tableware business and earnings from the discontinued Libbey business of
$217.0 million and $1.4 million, respectively. Extraordinary charges from the
early extinguishment of debt amounted to $12.7 million in 1993.
21
Capsule segment results (in millions of dollars) for 1994 and 1993 are as
follows (a):
----------------------------------------------------------------------------
Net sales to unaffiliated customers 1994 1993
----------------------------------------------------------------------------
Glass Containers $2,590.1 $2,427.3
Plastics and Closures 976.1 908.6
Specialized Glass 197.9
Other 1.1 1.2
----------------------------------------------------------------------------
Consolidated total $3,567.3 $3,535.0
============================================================================
----------------------------------------------------------------------------
Operating profit 1994 1993 (c)
----------------------------------------------------------------------------
Glass Containers $ 393.0 $ 117.4
Plastics and Closures 140.4 123.3
Specialized Glass 18.9
Eliminations and other retained costs (b) (125.2) (305.0)
----------------------------------------------------------------------------
Consolidated total $ 408.2 $ (45.4)
============================================================================
(a) See Segment Information included on pages 61 - 63.
(b) Includes a charge of $100.0 million in 1994 to write down the insurance
asset for asbestos-related costs.
(c) Reflects the net reductions from unusual fourth quarter charges and gains
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.
Consolidated net sales for 1994 increased $230.2 million, or 6.9% over the
prior year, excluding the former Specialized Glass segment. Net sales of the
Glass Containers segment increased $162.8 million, or 6.7%, over 1993.
Domestic glass container unit shipments increased 4.8% compared to the prior
year. Increased sales of beer containers, partially due to the March 31, 1994
acquisition of a customer's glass container manufacturing facility, more than
offset lower soft drink container shipments. The Company believes the trend
of soft drink conversions from glass to plastic (polyethylene terephthalate or
PET) containers will continue; however, available capacity resulting from such
conversions will be used for the production of other containers experiencing
increased demand such as beer and iced tea. The Company's domestic glass
business also benefitted from increased shipments of iced tea and juice
containers compared to prior year. Reported U.S. dollar sales of the
Company's international affiliates were up 14.4% reflecting improved economic
conditions in Brazil and higher unit shipments by the Company's Colombian and
United Kingdom affiliates. The economic effects of exchange and price
controls instituted in Venezuela in late June 1994 contributed to lower 1994
unit shipments by the Venezuelan affiliates compared to 1993. In the Plastics
22
and Closures segment, sales increased $67.5 million, or 7.4%, over 1993.
Increased sales for all business units combined with additional sales reported
by the segment's Mexican affiliate, acquired near the end of the third quarter
of 1993, accounted for the increase. The plastic bottles and closures
businesses benefitted from strong demand by makers of personal care and health
care products.
Consolidated operating profit for 1994, excluding the unusual fourth quarter
items in both 1994 and 1993 discussed separately below, and excluding the
former Specialized Glass segment, increased $43.6 million, or 9.4%, to $508.2
million from $464.6 million in 1993. Consolidated operating profit, excluding
the unusual items and the former Specialized Glass segment was 14.2% of net
sales in 1994 compared to 13.9% in 1993. Consolidated operating expenses
(consisting of selling and administrative, engineering, and research and
development expenses) as a percentage of net sales increased to 7.0% in 1994
from 6.4% in 1993 as a result of higher spending in selected areas to
streamline operations and increased research and development expenditures.
Operating profit of the Glass Containers segment, exclusive of unusual items,
increased $61.6 million, or 18.6%. Approximately two-thirds of the increase
was attributable to the domestic glass business as increased shipments of
beer, iced tea, and juice containers combined with improvements in machine and
labor productivity more than offset continuing lower sales of soft drink
containers. Higher combined U.S. dollar operating profit of the segment's
international glass business resulted from generally increased unit shipments
and higher margins, particularly at the Brazilian and Colombian affiliates.
The economic effects of exchange and price controls instituted in Venezuela in
June 1994 negatively affected the 1994 operating profit. Similar programs and
controls instituted in prior years have had a temporary adverse effect on the
operating profit of the Company's affiliates; however, the Company is not able
to project the magnitude or duration of such effects on future operating
results. Operating profit of the Plastics and Closures segment, exclusive of
unusual items, increased slightly to $140.4 million in 1994 from $139.3
million in 1993. The benefit of increased unit shipments for both the plastic
bottles and closures businesses was offset by lower margins in the labels and
carriers business as a result of lower unit shipments of glass container soft
drink labels and carriers, and lower unit selling prices for some plastic
bottle product lines. The segment's operations in Mexico have been, and will
continue to be, adversely affected by the devaluation of the peso; however,
the amount is not expected to be material in relation to the segment operating
profit. Other retained costs, exclusive of the effects of the unusual items,
were $25.2 million in 1994 compared to $6.1 million in 1993 reflecting
expenses incurred in 1994 associated with the comprehensive reengineering
initiated by the Company in 1993 and changes in other retained costs,
principally as a result of previous divestitures.
In December 1994, the Company concluded a settlement with certain reinsurers
involved in the asbestos-related litigation representing approximately 19% of
coverage limits. Pursuant to the settlement agreement, the Company received
payments of approximately $80 million in 1994 and approximately $20 million in
the first quarter of 1995, representing approximately 78.5 percent of policy
limits. As a result of the settlement agreement and certain other
considerations, including continuing delays in the resolution of the Company's
23
claims for insurance coverage, the Company recorded a charge of $100 million
($61.7 million after tax) in the fourth quarter of 1994 to write down the
insurance asset for asbestos-related costs. The adjusted asbestos-related
insurance asset does not reflect the full value of all coverage. The Company
has, and intends to pursue vigorously, claims for insurance coverage and
reimbursement in excess of the asbestos-related insurance asset recorded in
the 1994 financial statements. For additional information, see Capital
Resources and Liquidity on page 28 and Contingencies on page 54.
In the fourth quarter of 1993, the Company recorded several unusual charges
and gains as part of continuing operations. Gains from the sales of the
Company's remaining interest in the television glass business and the sale of
a 51% interest in its Kimble laboratory and pharmaceutical glassware business
amounted to $46.1 million pretax ($34.6 million after tax). The Company also
recorded charges totalling $578.2 million pretax ($357.0 million after tax),
comprised of pretax charges of $325 million ($200.7 million after tax) for
estimated uninsured future asbestos-related costs and $253.2 million ($156.3
million after tax) principally for costs related to the Company's
restructuring program.
During 1994 the Company began implementing its comprehensive restructuring
program to reduce costs. Specific actions taken in 1994 include an
approximate 10% domestic work force reduction, the shutdown of a glass
manufacturing facility, and the shutdown of two plastic manufacturing plants.
The severance and early retirement costs of the work force reduction and
expected write down to realizable value of production and other factory
equipment to be eliminated as a result of restructuring initiatives were
estimated to be approximately $165 million and $30 million, respectively, at
December 31, 1993. As a result of modifications of the restructuring program
throughout 1994, the Company currently estimates that the aggregate severance
and early retirement costs will approximate $90 million, while the costs to
write down production and other factory equipment and to realign productive
capacity, mainly as a result of manufacturing efficiency and productivity
improvements experienced or expected to result from the restructuring program,
will approximate $105 million. Future annual cash expenditures related to the
restructuring program are not expected to be significant. While
implementation of the program will continue over the next several years, the
Company expects that actions taken in 1994 will begin to favorably affect
operating profit in 1995.
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.
24
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
============================================================================
----------------------------------------------------------------------------
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 61 - 63.
(b) Reflects the net reductions from unusual fourth quarter charges and gains
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.
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
available capacity resulting from such conversions is being used for the
25
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.
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 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 million 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.
26
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. 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
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. 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.
For additional information see Capital Resources and Liquidity on page 28
and Contingencies on page 54.
27
Capital Resources and Liquidity
The Company's total debt at December 31, 1994 was $2.69 billion compared to
$2.49 billion at December 31, 1993.
The Company has available credit totalling $1 billion under the Bank Credit
Agreement expiring in December 1998, of which $400.2 million had not been
utilized at December 31, 1994. At December 31, 1993, the Company had $558.6
million of credit which had not been utilized under the Agreement, after
giving consideration to the effect of borrowings on January 3, 1994 for the
redemption of the remaining $268.9 million of Senior Variable Rate Notes. The
increased utilization during 1994 resulted from acquisitions, capital
expenditures, and asbestos-related payments, partially offset by cash provided
by operations, including cash received for settlement of a portion of the
insurance asset for asbestos-related costs. Cash provided by operating
activities was $227.4 million in 1994 compared to $231.7 million in 1993.
Capital expenditures for property, plant and equipment were $286.0 million in
1994 and $266.2 million in 1993. Net cash proceeds from divestitures and
asset sales were not significant in 1994 and exceeded $725 million in 1993.
During the year ended December 31, 1994, cash expenditures related to the
fourth quarter 1993 restructuring charge were approximately $30 million.
In the twelve-month period commencing January 1, 1995, 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. The
Company faces additional demands upon its liquidity for asbestos-related
payments until the United Insurance litigation is fully resolved; the date of
the resolution is uncertain. As of December 31, 1994, the Company had made
such payments of $426 million of which $143 million was paid in 1994. In
addition, the Company has entered into group settlement agreements which
include settlement amounts payable in 1995 and later years. As of December
31, 1994, such deferred payment amounts were approximately $156 million.
Taken together these amounts represent the Company's pretax spending and
commitments to spend on disposed lawsuits and claims as of December 31, 1994
as follows (in millions of dollars):
--------------------------------------------------------
Amounts paid through December 31, 1994 $426
Amounts received through December 31, 1994,
under partial reinsurance settlement agreement (80)
--------------------------------------------------------
346
Payable under group settlement agreements 157
--------------------------------------------------------
Net spending and commitments at December 31, 1994 $503
========================================================
The Company expects a substantial portion of the net spending and commitments
to be reimbursed by insurance, including approximately $20 million received in
the first quarter of 1995. None of the foregoing amounts represented a
spending commitment with respect to lawsuits and claims pending against the
28
Company as of December 31, 1994. 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 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.
In December 1994, the Company concluded a settlement with certain reinsurers
involved in the asbestos-related litigation representing approximately 19% of
coverage limits. Pursuant to the settlement agreement, the Company received
payments of approximately $80 million in 1994 and approximately $20 million in
the first quarter of 1995, representing approximately 78.5 percent of policy
limits. No other settlement agreements were entered into prior to 1994.
Over the 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 including relatively modest
scheduled principal payments, 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.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
-----
Report of Independent Auditors 31
Consolidated Balance Sheets at December 31, 1994 and 1993 34-35
For the years ended December 31, 1994, 1993, and 1992:
Consolidated Results of Operations 32-33
Consolidated Share Owners' Equity 36
Consolidated Cash Flows 37-38
Statement of Significant Accounting Policies 39-40
Financial Review 41-63
Selected Quarterly Financial Data 64-65
30
-------------------------------------------------------------------------------
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, 1994 and 1993, 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, 1994. Our audits
also included the financial statement schedule listed in the Index at Item
14.(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule 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, 1994 and 1993 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in the Financial Review, in 1992 the Company changed its methods
of accounting for postretirement benefits other than pensions and income
taxes.
/s/ Ernst & Young LLP
----------------------
Ernst & Young LLP
Toledo, Ohio
February 3, 1995
31
---------------------------------------------------------------------------
CONSOLIDATED RESULTS OF OPERATIONS Owens-Illinois, Inc.
Millions of dollars, except per share amounts
Years ended December 31, 1994 1993 1992
---------------------------------------------------------------------------
Revenues:
Net sales $3,567.3 $3,535.0 $3,392.6
Royalties and net technical assistance 29.1 29.2 29.5
Equity earnings 22.3 25.3 23.2
Interest 19.0 15.6 13.8
Other 15.2 57.0 15.1
---------------------------------------------------------------------------
3,652.9 3,662.1 3,474.2
Costs and expenses:
Manufacturing, shipping, and delivery 2,824.3 2,823.8 2,744.1
Research and development 31.8 23.1 22.9
Engineering 22.8 19.2 23.1
Selling and administrative 193.5 182.9 178.2
Interest 278.2 290.0 312.9
Other 131.0 617.6 36.1
---------------------------------------------------------------------------
3,481.6 3,956.6 3,317.3
---------------------------------------------------------------------------
Earnings (loss) from continuing operations
before items below 171.3 (294.5) 156.9
Provision (credit) for income taxes 68.9 (113.1) 64.0
---------------------------------------------------------------------------
102.4 (181.4) 92.9
Minority share owners' interests
in earnings of subsidiaries 24.1 19.4 14.6
---------------------------------------------------------------------------
Earnings (loss) from continuing operations
before extraordinary items and cumulative
effect of accounting changes 78.3 (200.8) 78.3
Net earnings of discontinued
operations 1.4 18.4
Gain on sale of discontinued
operations, net of applicable income
taxes 217.0
---------------------------------------------------------------------------
Earnings before extraordinary items
and cumulative effect of accounting
changes 78.3 17.6 96.7
Extraordinary charges from early
extinguishment of debt, net of applicable
income taxes (12.7) (31.5)
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) $ 78.3 $ 4.9 $ (134.2)
===========================================================================
32
---------------------------------------------------------------------------
CONSOLIDATED RESULTS OF OPERATIONS Owens-Illinois, Inc. -- Continued
Millions of dollars, except per share amounts
Years ended December 31, 1994 1993 1992
---------------------------------------------------------------------------
Earnings (loss) per share of common stock:
Earnings (loss) from continuing
operations before extraordinary
items and cumulative effect of
accounting changes $ 0.64 $ (1.70) $ 0.66
Net earnings of discontinued
operations 0.01 0.15
Gain on sale of
discontinued operations 1.82
---------------------------------------------------------------------------
Earnings before extraordinary
items and cumulative effect of
accounting changes 0.64 0.13 0.81
Extraordinary charges (0.10) (0.26)
Cumulative effect of accounting changes (1.68)
---------------------------------------------------------------------------
Net earnings (loss) $ 0.64 $ 0.03 $ (1.13)
===========================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
33
-----------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc.
Millions of dollars, except share amounts
December 31, 1994 1993
-----------------------------------------------------------------------------
Assets
Current assets:
Cash, including time deposits of $56.8
($33.4 in 1993) $ 109.4 $ 67.1
Short-term investments, at cost which
approximates market 32.2 26.5
Receivables, less allowances of $38.7
($31.3 in 1993) for losses and discounts 415.5 340.0
Inventories 477.1 472.8
Prepaid expenses 64.9 53.6
-----------------------------------------------------------------------------
Total current assets 1,099.1 960.0
Investments and other assets:
Domestic investments and advances 26.7 20.6
Foreign investments and advances 65.2 81.9
Repair parts inventories 137.7 137.5
Deferred taxes 40.7
Prepaid pension 597.9 616.5
Insurance for asbestos-related costs 470.1 282.9
Deposits, receivables, and other assets 235.0 180.5
Excess of purchase cost over net assets
acquired, net of accumulated amortization
of $230.6 ($198.7 in 1993) 1,049.4 1,083.0
-----------------------------------------------------------------------------
Total investments and other assets 2,582.0 2,443.6
Property, plant, and equipment:
Land, at cost 103.4 102.6
Buildings and equipment, at cost:
Buildings and building equipment 459.2 443.2
Factory machinery and equipment 2,041.0 1,744.9
Transportation, office, and miscellaneous equipment 58.1 52.9
Construction in progress 156.7 142.3
-----------------------------------------------------------------------------
2,818.4 2,485.9
Less accumulated depreciation 1,181.9 988.1
-----------------------------------------------------------------------------
Net property, plant, and equipment 1,636.5 1,497.8
-----------------------------------------------------------------------------
Total assets $5,317.6 $4,901.4
=============================================================================
34
-----------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc. (continued)
Millions of dollars, except share amounts
December 31, 1994 1993
-----------------------------------------------------------------------------
Liabilities and Share Owners' Equity
Current liabilities:
Short-term loans $ 44.3 $ 49.2
Accounts payable 280.3 240.7
Salaries and wages 84.8 79.2
U. S. and foreign income taxes 20.8 18.9
Current portion of asbestos-related liabilities 145.0
Other accrued liabilities 332.1 319.7
Long-term debt due within one year 20.7 18.4
-----------------------------------------------------------------------------
Total current liabilities 928.0 726.1
Long-term debt 2,624.7 2,419.3
Deferred taxes 47.0 32.7
Nonpension postretirement benefits 405.4 415.3
Asbestos-related liabilities 404.4 325.0
Other liabilities 407.0 597.0
Commitments and contingencies
Minority share owners' interests 125.2 91.2
Share owners' equity:
Preferred stock 26.3 26.3
Common stock, par value $.01 per share, 250,000,000
shares authorized, 119,079,496 shares outstanding;
(118,978,327 in 1993) 1.2 1.2
Capital in excess of par value 1,034.6 1,033.9
Deficit (618.4) (696.7)
Cumulative foreign currency translation adjustment (67.8) (69.9)
-----------------------------------------------------------------------------
Total share owners' equity 375.9 294.8
-----------------------------------------------------------------------------
Total liabilities and share owners' equity $5,317.6 $4,901.4
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
35
-----------------------------------------------------------------------------
CONSOLIDATED SHARE OWNERS' EQUITY Owens-Illinois, Inc.
Millions of dollars
Years ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------
Preferred stock
Balance at beginning of year $ 26.3 $ 26.3
Issuance of preferred stock $ 26.3
-----------------------------------------------------------------------------
Balance at end of year 26.3 26.3 26.3
=============================================================================
Common stock
Balance at beginning of year 1.2 1.2 1.2
Issuance of common stock
-----------------------------------------------------------------------------
Balance at end of year 1.2 1.2 1.2
=============================================================================
Capital in excess of par value
Balance at beginning of year 1,033.9 1.034.0 1,034.0
Issuance of common stock .7
Purchase of common stock (.1)
-----------------------------------------------------------------------------
Balance at end of year 1,034.6 1,033.9 1,034.0
=============================================================================
Deficit
Balance at beginning of year (696.7) (701.6) (567.4)
Net earnings (loss) 78.3 4.9 (134.2)
-----------------------------------------------------------------------------
Balance at end of year (618.4) (696.7) (701.6)
=============================================================================
Cumulative foreign currency
translation adjustment
Balance at beginning of year (69.9) (61.3) (52.9)
Net change for the year 2.1 (8.6) (8.4)
-----------------------------------------------------------------------------
Balance at end of year (67.8) (69.9) (61.3)
=============================================================================
Total share owners' equity $ 375.9 $ 294.8 $ 298.6
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
36
-----------------------------------------------------------------------------
CONSOLIDATED CASH FLOWS Owens-Illinois, Inc.
Millions of dollars
Years ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------
Operating activities:
Earnings (loss) from continuing
operations before extraordinary
items and cumulative
effect of accounting changes $ 78.3 $ (200.8) $ 78.3
Non-cash charges (credits):
Depreciation 183.3 180.0 181.9
Amortization of deferred costs 50.3 52.3 50.6
Asbestos-related insurance 100.0
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) 30.2 (145.6) 44.2
Other (25.4) (8.1) (16.0)
Dividends from equity affiliates 4.4 5.6 5.4
Change in non-current operating assets (14.7) 25.7 21.8
Asbestos-related payments (142.7) (136.2) (90.6)
Asbestos-related insurance proceeds 79.9
Reduction of non-current liabilities (77.5) (55.1) (69.5)
Change in components of working capital (38.7) (10.9) (21.1)
-----------------------------------------------------------------------------
Cash provided by continuing operating
activities 227.4 239.0 185.0
Cash provided by (utilized in)
discontinued operating activities (7.3) 29.4
-----------------------------------------------------------------------------
Cash provided by operating activities 227.4 231.7 214.4
Investing activities:
Additions to property, plant and equipment (286.0) (266.2) (250.8)
Acquisitions (47.1) (34.0) (53.8)
Net cash proceeds from divestitures 13.4 727.3 17.6
Other (.3) 2.1 (1.8)
-----------------------------------------------------------------------------
Cash provided by (utilized in) investing
activities (320.0) 429.2 (288.8)
37
-----------------------------------------------------------------------------
CONSOLIDATED CASH FLOWS Owens-Illinois, Inc. (continued)
Millions of dollars
Years ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------
Financing activities:
Additions to long-term debt $ 513.7 $ 107.0 $1,102.5
Repayments of long-term debt (336.8) (712.1) (931.3)
Decrease in short-term loans (4.0) (13.7) (1.9)
Issuance of subsidiaries' stock 4.3
Payment of finance fees and debt retirement
costs (1.2) (14.9) (57.4)
Issuance of common stock .7
-----------------------------------------------------------------------------
Cash provided by (utilized in)
financing activities 176.7 (633.7) 111.9
Effect of exchange rate fluctuations on cash (41.8) (41.2) (23.8)
-----------------------------------------------------------------------------
Increase (decrease) in cash 42.3 (14.0) 13.7
Cash at beginning of year 67.1 81.1 67.4
-----------------------------------------------------------------------------
Cash at end of year $ 109.4 $ 67.1 $ 81.1
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
38
-------------------------------------------------------------------------------
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 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.
Asbestos-related Asset and Liability. In the first quarter of 1994, the
Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
("FIN 39"), which prohibits offsetting receivables and payables unless several
specific conditions are met, thereby establishing a valid right of setoff.
Accordingly, the Company increased the receivables under asbestos-related
insurance contracts to the total expected to be received, and increased the
liability for asbestos-related costs by an equal amount representing the
insured portion of anticipated future spending. This change did not impact
earnings and, as provided in FIN 39, statements for periods prior to 1994 have
not been restated.
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. The Company is not a party to any significant
derivative financial instruments.
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.
39
Excess of Purchase Cost over Net Assets Acquired. The excess of purchase cost
over net assets acquired is being amortized over 40 years. The Company
evaluates the recoverability of long-lived assets based on undiscounted
projected cash flows, excluding interest and taxes, when factors indicate that
an impairment may exist.
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, taxes are provided only on that amount of undistributed earnings
in excess of planned reinvestments.
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.
Certain of the Company's major affiliates which are located 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 statements of
Consolidated Results of Operations.
Earnings (Loss) Per Share of Common Stock. Earnings (loss) per share of
common stock is computed using weighted average shares of common stock
outstanding (119,004,785 shares for 1994, 118,978,327 shares for 1993, and
118,979,638 shares for 1992) 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.
40
-------------------------------------------------------------------------------
FINANCIAL REVIEW
Tabular data in millions of dollars, except share and per share amounts
-------------------------------------------------------------------------------
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:
----------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------
Decrease (increase) in current assets:
Short-term investments $ (1.5) $ (3.4) $ (1.3)
Receivables (71.3) (10.9) (10.8)
Inventories 6.9 (17.3) (39.9)
Prepaid expenses (6.0) 3.9 1.0
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities 26.7 5.0 57.0
Salaries and wages 4.8 1.2 (8.1)
U. S. and foreign income taxes 1.7 (6.0) (23.8)
----------------------------------------------------------------------------
$ (38.7) $ (27.5) $ (25.9)
============================================================================
Continuing operations $ (38.7) $ (10.9) $ (21.1)
Discontinued operations (16.6) (4.8)
----------------------------------------------------------------------------
$ (38.7) $ (27.5) $ (25.9)
============================================================================
Inventories. Major classes of inventory are as follows:
----------------------------------------------------------------------------
1994 1993
----------------------------------------------------------------------------
Finished goods $377.4 $370.4
Work in process 4.2 7.6
Raw materials 73.0 67.2
Operating supplies 22.5 27.6
----------------------------------------------------------------------------
$477.1 $472.8
============================================================================
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 $19.6 million and $10.4 million at December 31,
1994 and 1993, respectively.
Manufacturing inventories valued at the lower of standard costs (which
approximate average costs), average costs, or market at December 31, 1994 and
1993 were approximately $125.7 million and $116.2 million, respectively.
41
Investments. Domestic and foreign investments and advances relate principally
to equity associates. Summarized information pertaining to the Company's
equity associates follows:
----------------------------------------------------------------------------
1994 1993
----------------------------------------------------------------------------
At year-end:
Equity in undistributed earnings:
Foreign $ 50.8 $40.9
Domestic 10.8 2.8
----------------------------------------------------------------------------
Total $ 61.6 $43.7
============================================================================
Equity in cumulative translation adjustment $(14.1) $(8.6)
============================================================================
----------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------
For the year:
Equity in earnings before cumulative
effect of changes in methods of accounting:
Foreign $12.8 $15.8 $12.4
Domestic 9.5 9.5 10.8
----------------------------------------------------------------------------
Total $22.3 $25.3 $23.2
============================================================================
Dividends received:
Foreign $ 2.9 $ 4.8 $ 4.9
Domestic 1.5 .8 .5
----------------------------------------------------------------------------
Total $ 4.4 $ 5.6 $ 5.4
============================================================================
Summarized combined financial information for equity associates is as follows:
----------------------------------------------------------------------------
1994 1993
----------------------------------------------------------------------------
At end of year:
Current assets $ 378.8 $ 388.0
Non-current assets 427.2 351.4
----------------------------------------------------------------------------
Total assets 806.0 739.4
----------------------------------------------------------------------------
Current liabilities 192.3 167.8
Other liabilities and deferred items 316.6 329.5
----------------------------------------------------------------------------
Total liabilities and deferred items 508.9 497.3
----------------------------------------------------------------------------
Net assets $ 297.1 $ 242.1
============================================================================
42
----------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------
For the year:
Net sales $1,018.6 $1,003.5 $1,114.2
============================================================================
Gross profit $ 199.3 $ 201.3 $ 182.1
============================================================================
Net earnings $ 62.2 $ 67.8 $ 59.7
============================================================================
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 for 1994 and balance sheet
data at December 31, 1994 and 1993, are included above.
At December 31, 1994, the Company's equity in the undistributed earnings of
foreign subsidiaries for which income taxes had not been provided approximated
$129 million. It is not practicable to estimate the U.S. and foreign tax
which would be payable should these earnings be distributed.
Foreign Currency Translation. Aggregate foreign currency exchange gains
(losses) included in other costs and expenses were $(53.9) million in 1994,
$(16.1) million in 1993, and $18.4 million in 1992, and resulted principally
from translation of the balance sheets of certain of the Company's major
affiliates which are located in Brazil and Venezuela. Earnings on time
deposits and short-term investments in those countries typically include an
inflationary component, which has more than offset the exchange losses in both
1994 and 1993.
Changes in the cumulative foreign currency translation adjustment were as
follows:
----------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------
Balance at beginning of year $(69.9) $(61.3) $(52.9)
Net effect of exchange rate
fluctuations 1.6 (10.8) (9.0)
Previous adjustments eliminated
in divestitures (.3) (1.1)
Deferred income taxes .5 2.5 1.7
----------------------------------------------------------------------------
Balance at end of year $(67.8) $(69.9) $(61.3)
============================================================================
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.
Other Accrued Liabilities. At December 31, 1994 and 1993, other accrued
liabilities include accruals for interest, consisting principally of interest
accrued on domestic obligations of $39.6 million and $40.2 million,
43
respectively, and for employee health care benefits of $31.5 million and $36.0
million, respectively.
Short-Term Borrowings. At December 31, 1994 and 1993, the weighted average
interest rate on outstanding short-term borrowings was 20.7% and 35.7%,
respectively. The relatively high weighted average interest rates are
reflective of the generally higher short-term borrowing costs incurred by most
of the Company's Latin American affiliates.
Long-Term Debt. The following table summarizes the long-term debt of the
Company at December 31, 1994 and 1993:
-----------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------
Bank Credit Agreement:
Revolving Loans $ 450.3 $ 57.6
Bid Rate Loans 65.0
Senior Notes and Debentures:
Senior Debentures, 11%, due 1999 to 2003 1,000.0 1,000.0
Senior Variable Rate Notes 268.9
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 180.1 161.2
-----------------------------------------------------------------------------
2,645.4 2,437.7
Less amounts due within one year 20.7 18.4
-----------------------------------------------------------------------------
Long-term debt $2,624.7 $2,419.3
=============================================================================
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, 1994, the Company had unused credit available under the Bank
Credit Agreement of $400.2 million.
44
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
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, 1994, was 6.94%. 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 1999 are as
follows: 1995, $20.7 million; 1996, $35.3 million; 1997, $5.5 million; 1998,
$520.0 million; and 1999, $470.7 million.
Interest paid in cash aggregated $259.1 million for 1994, $284.2 million for
1993, and $304.8 million for 1992.
Fair values at December 31, 1994, of the Company's significant fixed rate debt
obligations are as follows:
-----------------------------------------------------------------------------
Indicated
Principal Market
Amount Price Fair Value
-----------------------------------------------------------------------------
11% Senior Debentures $1,000.0 103-3/4 $ 1,037.5
Senior Subordinated Notes:
10-1/4% 250.0 100-1/8 250.3
10-1/2% 150.0 97-3/4 146.6
10% 250.0 98 245.0
9-3/4% 200.0 94 188.0
9.95% 100.0 95-1/4 95.3
-----------------------------------------------------------------------------
45
Operating Leases. Rent expense attributable to all operating leases was $53.4
million in 1994, $54.2 million in 1993, and $59.4 million in 1992. Contingent
rental expense was not significant in any period presented. Minimum future
rentals under operating leases are as follows: 1995, $32.6 million; 1996,
$28.7 million; 1997, $27.8 million; 1998, $22.7 million; 1999, $19.9 million;
and 2000 and thereafter, $109.4 million.
Income Taxes. During the fourth quarter of 1992, the Company adopted SFAS No.
109, "Accounting for Income Taxes" effective January 1, 1992. The cumulative
effect of adopting SFAS No. 109 as of January 1, 1992, was to increase net
earnings by $97.0 million.
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, 1994 and
1993 are as follows:
-----------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------
Deferred tax assets:
Asbestos-related liabilities $192.3 $113.8
Other accrued liabilities 167.8 215.5
Accrued postretirement benefits 143.2 145.9
U. S. Federal tax loss carryovers 107.4 92.1
Other 55.5 57.1
-----------------------------------------------------------------------------
Total deferred tax assets 666.2 624.4
Deferred tax liabilities:
Prepaid pension costs 208.1 204.0
Property, plant and equipment 186.1 177.4
Insurance for asbestos-related costs 164.5 99.0
Inventory 45.6 45.5
Receivables and other assets 19.6 15.3
Other 37.8 27.6
-----------------------------------------------------------------------------
Total deferred tax liabilities 661.7 568.8
-----------------------------------------------------------------------------
Net deferred tax assets $ 4.5 $ 55.6
=============================================================================
Deferred taxes are included in the Consolidated Balance Sheets at December 31,
1994 and 1993 as follows:
-----------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------
Prepaid expenses $ 51.5 $ 47.6
Deferred tax assets 40.7
Deferred tax liabilities (47.0) (32.7)
-----------------------------------------------------------------------------
Net deferred tax assets $ 4.5 $ 55.6
=============================================================================
46
The provision for income taxes consists of the following:
-----------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------
Current:
State and local $ 2.9 $ 2.0 $ 3.7
Foreign 35.8 31.6 28.7
-----------------------------------------------------------------------------
38.7 33.6 32.4
-----------------------------------------------------------------------------
Deferred:
U. S. federal 22.7 (120.8) 42.1
State and local 1.1 (17.0) 3.9
Foreign 6.4 (7.8) (1.8)
-----------------------------------------------------------------------------
30.2 (145.6) 44.2
-----------------------------------------------------------------------------
Total:
U. S. federal 22.7 (120.8) 42.1
State and local 4.0 (15.0) 7.6
Foreign 42.2 23.8 26.9
-----------------------------------------------------------------------------
$ 68.9 $ (112.0) $ 76.6
=============================================================================
The provision for income taxes has been
allocated as follows:
Continuing operations $ 68.9 $ (113.1) $ 64.0
Discontinued operations 1.1 12.6
-----------------------------------------------------------------------------
$ 68.9 $ (112.0) $ 76.6
=============================================================================
The provision for income taxes was calculated based on the following
components of earnings (loss) before income taxes and extraordinary items:
-----------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------
Continuing operations:
Domestic $ 32.4 $ (411.6) $ 64.5
Foreign 138.9 117.1 92.4
Discontinued operations 2.5 31.0
-----------------------------------------------------------------------------
$171.3 $ (292.0) $187.9
=============================================================================
47
Income taxes paid (refunded) in cash were as follows:
-----------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------
Domestic $(6.5) $ 1.0 $14.1
Foreign 20.2 18.5 13.2
-----------------------------------------------------------------------------
$13.7 $19.5 $27.3
=============================================================================
A reconciliation of the provision for income taxes based on the statutory U.S.
federal tax rate of 35% (34% for 1992) to the consolidated provision for
income taxes is as follows:
-----------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------
Pretax earnings (loss) at statutory
U. S. Federal tax rate $ 60.0 $ (102.2) $63.9
Increase (decrease) in provision for
income taxes due to:
Effects of purchase price allocation
including amortization of excess cost 11.5 11.0 10.8
Effect of tax provision on equity
earnings (3.1) (2.6) (3.3)
State and local income taxes net
of related federal taxes 2.6 (9.7) 5.0
Effect of tax provision on
consolidated foreign earnings 2.5 (1.6) 2.2
Research and development credits (1.8)
Possessions tax credits (1.5) (0.9) (0.7)
Divestitures (8.3)
Adjustment for enacted change in tax
rate 2.4
Other items (1.3) (0.1) (1.3)
-----------------------------------------------------------------------------
Consolidated provision (credit) for
income taxes $ 68.9 $ (112.0) $76.6
=============================================================================
48
For U. S. Federal income tax purposes, approximately $307 million of net
operating loss is available as a carryover at December 31, 1994. Carryovers
of the net operating loss expire beginning in 2004. 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 have been
required on the gain on the sale of the Libbey business.
Additionally, alternative minimum tax credits and research and development
credits of approximately $16 million and $2 million, respectively, are
available to offset future U. S. federal income tax. The alternative minimum
tax credits do not expire while carryovers of the research and development
credits expire beginning in 2009.
The issuance of shares of common stock in conjunction with the Company's
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 may be limited pursuant to Section 382 and 383 of
the Internal Revenue Code.
Preferred Stock. Preferred shares, $.01 par value, $7.00 cumulative dividend,
issuable in series, at December 31, 1994, 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. Dividends accumulated and unpaid
were approximately $4.0 million and $2.1 million at December 31, 1994 and
1993, respectively.
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.
49
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 and the Stock Option Plan for
Directors of Owens-Illinois, Inc. effective May 12, 1994.
Stock option activity is as follows:
---------------------------------------------------------------------------
1994 1993
---------------------------------------------------------------------------
Shares under option:
Outstanding at beginning of year 4,912,696 4,522,594
Granted 571,673 442,255
Exercised (106,169) (5,853)
Canceled (63,800) (46,300)
---------------------------------------------------------------------------
Outstanding at end of year 5,314,400 4,912,696
===========================================================================
Price range of options granted $11.00 - $12.625 $11.50
===========================================================================
---------------------------------------------------------------------------
1994 1993
---------------------------------------------------------------------------
At end of year:
Shares reserved for option grants 2,062,340 2,540,613
===========================================================================
Share options exercisable 3,497,772 3,647,141
===========================================================================
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 $150 million at
December 31, 1994.
Pension Benefit Plans. Net credits to continuing operations for all of the
Company's pension plans and certain deferred compensation arrangements
amounted to $28.2 million in 1994, $26.7 million in 1993, and $29.6 million in
1992.
50
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.
The funded status at year-end was as follows:
----------------------------------------------------------------------------
1994 1993
----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $1,471.9 $1,621.9
Nonvested 88.5 109.9
----------------------------------------------------------------------------
Accumulated benefit obligation 1,560.4 1,731.8
Effect of assumed benefit increases 112.2 145.3
----------------------------------------------------------------------------
Projected benefit obligation 1,672.6 1,877.1
Plan assets at fair value 2,040.2 2,250.9
----------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation 367.6 373.8
Unrecognized prior service cost 37.4 44.0
Unrecognized net loss 192.9 198.7
----------------------------------------------------------------------------
Prepaid pension $ 597.9 $ 616.5
============================================================================
The components of the net pension credit for the year were as follows:
----------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------
Service cost - (benefits earned
during the period) $ 27.3 $ 30.8 $ 29.0
Interest cost on projected
benefit obligation 133.1 150.5 146.0
Actual return on plan assets 21.8 (356.6) (27.9)
Net amortization and deferral (223.6) 139.4 (186.0)
----------------------------------------------------------------------------
$ (41.4) $ (35.9) $ (38.9)
============================================================================
51
The actuarial present value of benefit obligations is based on a discount rate
of 8.50% for 1994 and 7.25% for 1993. 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 1994 and 1993. The expected long-term rate of return on
assets was 10% for 1994, 1993, and 1992. 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, 1994, included
19,099,637 shares of the Company's common stock, government and corporate debt
securities, real estate and commingled funds. During 1993 and 1992, the
Company transferred $30.0 million and $31.7 million, respectively, of pension
plans assets to a special trust for the purpose of funding qualified current
retiree health liabilities.
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. The cumulative effect as of January 1, 1992 of
adopting SFAS No. 106 was to decrease net earnings by $470.5 million, less
applicable imcome taxes of $174.1 million.
The components of the net postretirement benefit cost for the year were as
follows:
-----------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------
Service cost (benefits earned during
the period) $ 2.1 $ 5.1 $ 7.8
Interest cost on accumulated
post retirement benefit obligation 21.9 26.7 37.9
Amortization (13.3) (15.8)
-----------------------------------------------------------------------------
Net postretirement benefit cost $ 10.7 $ 16.0 $ 45.7
=============================================================================
52
The components of the accumulated postretirement benefit obligation and
amounts accrued at year-end were as follows:
----------------------------------------------------------------------------
1994 1993
----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Retirees and dependents $ 248.2 $ 259.8
Eligible active employees 12.8 19.0
Other active employees 28.0 41.8
----------------------------------------------------------------------------
289.0 320.6
Unamortized prior service credit 128.1 146.0
Unrecognized net loss (11.7) (51.3)
----------------------------------------------------------------------------
Nonpension postretirement benefits $ 405.4 $ 415.3
============================================================================
Assumed health care cost inflation was based on a rate of 9%, 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, 1994 by $11.5 million and increased the net postretirement
benefit cost for 1994 by $1.1 million. The assumed discount rates used in
determining the accumulated postretirement benefit obligation were 8.50% and
7.25% at December 31, 1994 and 1993, respectively.
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 $7.5 million in 1994, $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, 1994, includes $100 million to write down the insurance asset for
asbestos-related costs. Other costs and expenses for the year ended December
31, 1993, includes $325 million for estimated uninsured future asbestos-
related costs and charges totalling $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.
Extraordinary Charges. As a result of the repayment of certain debt
obligations prior to their scheduled maturities, the Company recorded
extraordinary charges of $20.3 million and $49.5 million for the write-off of
53
unamortized finance fees and redemption premiums, less applicable income taxes
of $7.6 million and $18.0 million in 1993 and 1992, respectively.
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 glass tableware 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.
Summary results of operations information for the Libbey business is as
follows:
Period ended
June 18, 1993 1992
----------------------------------------------------------------------------
Total revenues $118.1 $301.0
Costs and expenses 97.9 231.9
----------------------------------------------------------------------------
Earnings before interest and taxes 20.2 69.1
Interest expense 17.7 38.1
----------------------------------------------------------------------------
Earnings before income taxes 2.5 31.0
Provision for income taxes 1.1 12.6
----------------------------------------------------------------------------
Net earnings $ 1.4 $ 18.4
============================================================================
Interest expense allocated to discontinued operations is based on the
indebtedness expected to be repaid with the proceeds from the sale of the
Libbey business at applicable interest rates in effect during the periods.
Revenues for 1992 include a $17.8 million ($10.5 million after tax) gain from
the sale of Libbey's 50% interest in its Japanese glass tableware associate.
Contingencies. The Company was contingently liable at December 31, 1994,
under guarantees of loans and lease obligations related to certain divested
businesses, equity associates and other third parties in the principal amount
of $54.6 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.
54
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, 1994, the Company estimates that it is a
named defendant in asbestos bodily injury lawsuits and claims involving
approximately 34,000 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):
1994 1993 1992
------ ------ ------
Pending at beginning of year 41,000 53,000 74,000
Disposed 22,000 30,000 40,000
Filed 15,000 18,000 19,000
------ ------ ------
Pending at end of year 34,000 41,000 53,000
====== ====== ======
Since receiving its first asbestos bodily injury lawsuit, the Company, as of
December 31, 1994, has disposed of the lawsuits and claims of approximately
166,000 plaintiffs and claimants at an average indemnity payment per claim of
approximately $3,800. 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 25% of the claims filed in 1994 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.
Total indemnity, claim disposition and litigation payments and expenses in
asbestos bodily injury lawsuits and related proceedings may also be affected
by (i) settlement and judgment payments by other defendants (which may take
the form of a judgment credit for such settlements), (ii) claims or cross-
claims by other asbestos manufacturers or suppliers seeking indemnity or
contribution from the Company (including an arbitration claim by Owens-Corning
Fiberglas Corporation for partial indemnity under a clause in a 1958 contract
by which Owens-Corning Fiberglas Corporation acquired the Company's asbestos
insulation business), and (iii) the Company's claims or cross-claims for
contribution or indemnity from other asbestos manufacturers and suppliers
55
(including arbitration counterclaims by the Company against Owens-Corning
Fiberglas Corporation). Because the scope and extent of all such contribution
and indemnity claims vary considerably according to factual circumstances and
applicable law, the Company is unable to estimate the precise extent to which
such contribution or indemnity claims may affect the Company's total
indemnity, claim disposition and litigation payments and expenses, but the
Company nonetheless believes that the probable effect of all such claims
against the Company will not be material.
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, 1994, the Company was a named defendant in 19 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"). 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 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. In 1994, The District Court approved a $35 million
settlement fund intended to partially reimburse co-defendants, including the
Company, for verdicts and judgments entered against such companies from August
1992 to the date of the settlement. The amount to be received by the Company
from such fund 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
56
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
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.
Currently, Congress and numerous state legislatures have under active
consideration tort reform legislation that would apply to future asbestos
claims and suits. While the scope and prospects for passage of all such
legislation cannot be predicted at this time, passage of legislation which is
currently proposed in Congress and various states likely would positively
affect the Company's future asbestos claims litigation experience over the
long term, although the short-term effect may be to accelerate filings of
57
asbestos lawsuits in advance of the anticipated effective dates of such
legislation.
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), some of which claims were settled in December 1994 as described
further below. After deducting the settlements the total remaining coverage
sought in this litigation and, in the Company's opinion, applicable to both
bodily injury and property damage is approximately $500 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 or allocation of
liability.
In December, 1994, the New Jersey Supreme Court issued its decision upholding
the Company's position on the trigger issue, but reversing and remanding the
allocation issue for a determination by a special master of how the Company's
losses or "risk" of asbestos-related losses should be allocated among the
Company and the United Insurance Co. carriers according to the time on the
risk and degree of risk transferred (in the case of insured years) or retained
(in the case of self-insured years when insurance was available).
While the New Jersey Supreme Court's opinion on the allocation issue is unique
and somewhat unprecedented, the Company believes, following intensive review
of the decision and consultation with counsel, that its coverage claims in the
United Insurance case have not been fundamentally or materially impaired as a
result of the Supreme Court's ruling on the allocation issue.
Shortly before the issuance of the New Jersey Supreme Court decision, the
Company partially settled its coverage claim against its primary captive
insurer, Owens Insurance Ltd. ("OIL") to the extent of reinsurance provided to
58
OIL by certain reinsurance companies representing approximately 19% of total
United Insurance coverage limits. This settlement required payment of 78.5%
of applicable coverage limits within 60 days, which payments in the total
amount of approximately $100 million were received in December, 1994 and in
the first quarter of 1995.
The Company believes, based upon the rulings and decisions of the trial court,
the Appellate Division and the Supreme Court, as well as its understanding of
the facts and legal precedents, and upon 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 in addition to
that received pursuant to previous settlements. The date, however, of a final
resolution with respect to both coverage and damage recovery is uncertain.
The principal remaining issues in the litigation (namely, the issues remanded
for trial by the Appellate Division and the special master allocation
proceeding) have all been remanded for such resolution to the Middlesex County
Court, Chancery Division in New Jersey.
The coverage and any damage recovery obtained as a result of the United
Insurance litigation could be applied to reimburse the Company with respect to
its payments under the Aetna agreement, as well as other payments made by the
Company. The Company has made a claim against certain United Insurance Co.
insurers for all such payments to date. Such payments to date are included in
the total insurance asset reflected on the Company's balance sheet. At
December 31, 1994, the net amount receivable for unreimbursed payments was
$345.7 million, which amount reflects receipt during 1994 of approximately $80
million of the previously described settlements. 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 1995 and later. As of December 31,
1994, such deferred payment amounts were approximately $157 million. The
Company intends to add such deferred payment amounts to the currently
receivable portion of the insurance asset when they are paid by the Company
until that asset is exhausted.
The cumulative total of the unreimbursed payments and the deferred amounts as
of December 31, 1994 was $502.7 million, which represents the Company's net
pretax spending and commitments to spend on disposed lawsuits and claims as of
that date. The Company expects all or a substantial portion of 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, 1994.
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
59
monitored the trends of matters which may affect its ultimate liability and
continually analyzes 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 determined in 1993 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 recorded a charge of such amount against its Consolidated Results of
Operations for the fourth quarter of 1993. That determination was based on
the Company's $650 million insurance asset also recorded in the fourth quarter
of 1993, which asset amount was in turn principally based upon the Company's
expected recovery and reimbursement in the United Insurance case. In view of
the settlements described above and other relevant factors including the
possible litigation and collection delay caused by the reversal and remand
mandated by the recent decision of the New Jersey Supreme Court, the Company
has further determined that the $650 million insurance asset should be reduced
by $100 million (in addition to the approximately $100 million of insurance
proceeds received as a result of the settlements described above). As a
consequence, the Company recorded a further pretax charge of $100 million in
the fourth quarter of 1994 to reflect this lower insurance asset valuation,
which does not, however, reflect the full value of all coverage and other
claims the Company is asserting in the United Insurance litigation.
Based on all the factors and matters relating to the Company's asbestos-
related litigation and claims, 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
principally as a result of the United Insurance case and the amount of such
charges described in the preceding paragraph.
Other litigation is pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company and in
others presenting allegations that are nonroutine and involve compensatory,
punitive or treble damage claims as well as other types of relief. The
ultimate legal and financial liability of the Company in respect to the
lawsuits and proceedings 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.
60
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 in which a 51% interest was sold December 31, 1993. 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.
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.
Financial information regarding the Company's geographic segments is as
follows:
----------------------------------------------------------------------------
1994 1993 (a) 1992
----------------------------------------------------------------------------
Sales to unaffiliated customers:
United States $2,773.9 $2,865.3 $2,752.3
Other Western Hemisphere 510.0 413.6 355.5
Europe 283.4 256.1 284.8
----------------------------------------------------------------------------
Consolidated total $3,567.3 $3,535.0 $3,392.6
============================================================================
Operating profit:
United States $ 394.8 $ 137.3 $ 337.8
Other Western Hemisphere 114.0 98.4 80.0
Europe 26.0 23.9 27.3
Eliminations (.8)
----------------------------------------------------------------------------
Combined segment total $ 534.0 $ 259.6 $ 445.1
============================================================================
Identifiable assets:
United States $2,944.8 $2,893.0 $3,164.7
Other Western Hemisphere 590.6 428.1 350.9
Europe 306.2 256.0 263.1
Eliminations (1.3) (.1)
----------------------------------------------------------------------------
Consolidated total $3,840.3 $3,577.1 $3,778.6
============================================================================
(a) Operating profit for the United States geographic segment in 1993
includes charges totaling $233.2 million principally related to a
restructuring program.
61
Financial information regarding the Company's worldwide business segments is
as follows:
----------------------------------------------------------------------------
1994 (b) 1993 (c) 1992
----------------------------------------------------------------------------
Sales to unaffiliated customers (a):
Glass Containers $2,590.1 $2,427.3 $2,421.7
Plastics and Closures 976.1 908.6 781.0
Specialized Glass 197.9 188.4
Eliminations and other 1.1 1.2 1.5
----------------------------------------------------------------------------
Consolidated total $3,567.3 $3,535.0 $3,392.6
============================================================================
Operating profit:
Glass Containers $ 393.0 $ 117.4 $ 299.0
Plastics and Closures 140.4 123.3 133.4
Specialized Glass 18.9 12.7
Eliminations .6
Other retained costs (125.8) (305.0) (12.3)
----------------------------------------------------------------------------
Consolidated total 408.2 (45.4) 432.8
Equity earnings 22.3 25.3 23.2
Interest expense (net) (259.2) (274.4) (299.1)
----------------------------------------------------------------------------
171.3 (294.5) 156.9
Reconciliation to earnings (loss) from
continuing operations before
extraordinary items and cumulative
effect of accounting changes:
Credit (provision) for income taxes (68.9) 113.1 (64.0)
Minority share owners' interests (24.1) (19.4) (14.6)
----------------------------------------------------------------------------
Earnings (loss) from continuing
operations before extraordinary
items and cumulative effect of
accounting changes $ 78.3 $ (200.8) $ 78.3
============================================================================
(a) Sales of similar products which contributed 10% or more of consolidated
net sales for 1994, 1993, and 1992, and their percentage contribution in
each year, respectively, are glass containers with 67%, 64%, and 67%; and
plastic containers with 17%, 16%, and 17%.
(b) Other retained costs for 1994 includes a fourth quarter charge of $100
million to write down the insurance asset for asbestos-related costs.
(c) 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.
62
-----------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------
Identifiable Assets:
Glass Containers $2,628.1 $2,372.9 $2,395.2
Plastics and Closures 1,215.1 1,207.0 1,182.2
Specialized Glass 205.8
Eliminations (2.9) (2.8) (4.6)
-----------------------------------------------------------------------------
Combined segment total 3,840.3 3,577.1 3,778.6
Investments in and advances
to associates 91.9 102.5 164.1
Corporate and other
retained assets 1,385.4 1,221.8 978.5
Discontinued operations 229.9
-----------------------------------------------------------------------------
Total $5,317.6 $4,901.4 $5,151.1
=============================================================================
Property, plant and equipment
-- capital expenditures:
Glass Containers $ 174.6 $ 153.1 $ 141.1
Plastics and Closures 110.9 100.3 82.0
Specialized Glass 8.8 12.4
-----------------------------------------------------------------------------
Combined segment total 285.5 262.2 235.5
Corporate and other
retained assets .5 .7 1.9
Discontinued operations 3.3 13.4
-----------------------------------------------------------------------------
Total $ 286.0 $ 266.2 $ 250.8
=============================================================================
Property, plant and equipment
-- depreciation:
Glass Containers $ 117.9 $ 110.9 $ 117.8
Plastics and Closures 62.2 54.9 50.8
Specialized Glass 10.6 9.9
-----------------------------------------------------------------------------
Combined segment total 180.1 176.4 178.5
Corporate and other
retained assets 3.2 3.6 3.4
Discontinued operations 7.3 13.5
-----------------------------------------------------------------------------
Total $ 183.3 $ 187.3 $ 195.4
=============================================================================
63
Selected Quarterly Financial Data (unaudited). The following tables present
selected financial data by quarter for the years ended December 31, 1994 and
1993:
----------------------------------------------------------------------------
1994 (a)
----------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------------------------------------------------------------------------
Net sales $ 839.2 $ 915.4 $ 927.9 $ 884.8 $3,567.3
============================================================================
Gross profit $ 165.1 $ 202.2 $ 205.8 $ 169.9 $ 743.0
============================================================================
Net earnings (loss) $ 28.1 $ 51.4 $ 46.4 $ (47.6) $ 78.3
============================================================================
Net earnings (loss) per
share of common stock $ 0.23 $ 0.43 $ 0.39 $ (0.41) $ 0.64
============================================================================
(a) In the fourth quarter of 1994, the Company recorded a charge of $100
million to write down the insurance asset for asbestos-related costs.
The net aftertax amount of this charge was $61.7 million, or $0.52 per
share.
64
----------------------------------------------------------------------------
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 aftertax amount of all these items was
$322.4 million, or $2.71 per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
65
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
13 - 15.
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.
66
PART IV
ITEM 14.(a). EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Index of Financial Statements and Financial Statement Schedules Covered by
Report of Independent Auditors.
Page
-----
Report of Independent Auditors 31
Consolidated Balance Sheets at December 31, 1994 and 1993 34-35
For the years ended December 31, 1994, 1993 and 1992
Consolidated Results of Operations 32-33
Consolidated Share Owners' Equity 36
Consolidated Cash Flows 37-38
Statement of Significant Accounting Policies 39-40
Financial Review 41-63
Financial Statement Schedule Schedule Page
---------------------------- -------------
For the years ended December 31, 1994, 1993, and 1992:
II - Valuation and Qualifying Accounts (Consolidated) S-1
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.
67
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).
68
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 -- 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).
4.10 -- 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).
4.11 -- 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 as
Exhibit 4.11 to the Registrants' Annual Report on Form 10-K for
the year ended December 31, 1993, File nos. 1-9576 and 33-
13061, and incorporated herein by reference).
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 Retirement 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).
69
S-K Item 601
No. Document
------------ --------
10.3 * -- First Amendment to Owens-Illinois, Inc. Supplemental Retirement
Benefit Plan effective on December 31, 1993 (filed as Exhibit
10.19 to the Registrants' Annual Report on Form 10-K for the
year ended December 31, 1993, File nos. 1-9576 and 33-13061,
and incorporated herein by reference).
10.4 -- 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).
10.5 * -- 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).
10.6 * -- 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).
10.7 * -- 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).
10.8 * -- 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).
10.9 * -- 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).
10.10 * -- 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).
10.11 * -- 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).
10.12 * -- 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).
70
S-K Item 601
No. Document
------------ --------
10.13 -- 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).
10.14 * -- Amended and Restated Owens-Illinois, Inc. Senior Management
Incentive Plan effective on January 1, 1993 (filed as Exhibit
10.15 to the Registrants' Annual Report on Form 10-K for the
year ended December 31, 1993, File nos. 1-9576 and 33-13061,
and incorporated herein by reference).
10.15 * -- Amended and Restated Owens-Illinois, Inc. Performance Award
Plan effective on January 1, 1993 (filed as Exhibit 10.16 to
the Registrants' Annual Report on Form 10-K for the year ended
December 31, 1993, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
10.16 * -- Owens-Illinois, Inc. Corporate Officers Deferred Compensation
Plan effective on December 31, 1993 (filed as Exhibit 10.17 to
the Registrants' Annual Report on Form 10-K for the year ended
December 31, 1993, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
10.17 * -- Owens-Illinois, Inc. Executive Savings Plan effective on
December 31, 1993 (filed as Exhibit 10.18 to the Registrants'
Annual Report on Form 10-K for the year ended December 31,
1993, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
10.18 * -- Stock Option Plan for Directors of Owens-Illinois, Inc. (filed
as Exhibit 4.3 to Registrants' Form S-8, File no. 33-57141, and
incorporated herein by reference).
10.19 * -- Form of Stock Option Plan for Directors of Owens-Illinois, Inc.
(filed as Exhibit 4.4 to Registrants' Form S-8, File no. 33-
57141, and incorporated herein by reference).
10.20 * -- Second Amended and Restated Stock Option Plan for Key Employees
of Owens-Illinois, Inc. (filed herewith).
10.21 * -- Form of Non-Qualified Stock Option Agreement for Amended and
Restated Stock Option Plan for Key Employees of Owens-Illinois,
Inc. for use under the Plan (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).
71
S-K Item 601
No. Document
------------ --------
27 -- Financial Data Schedule (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
On December 22, 1994, the Registrants filed a Form 8-K with the Commission
with a press release dated December 22, 1994, announcing the decision of the
New Jersey Supreme Court regarding the Company's United Insurance litigation.
No other reports on Form 8-K were filed by the Registrants during the last
quarter of 1994.
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 30, 1995
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
--------- -----
Robert J. Dineen Director
Edward A. Gilhuly Director
James H. Greene, Jr. Director
Robert J. Lanigan Chairman Emeritus of the Board of Directors; Director
Joseph H. Lemieux Chairman of the Board of Directors and Chief Executive
Officer (Principal Executive Officer); Director
John J. McMackin, Jr. Director
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 30, 1995
74
INDEX TO FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule of Owens-Illinois, Inc. and Subsidiaries:
For the years ended December 31, 1994, 1993, and 1992:
PAGE
----
II -- Valuation and Qualifying Accounts (Consolidated) . . . . . . . S-1
OWENS-ILLINOIS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (CONSOLIDATED)
Years ended December 31, 1994, 1993, and 1992
(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
---------------------------------------------------------
1994 . . . . . . . $ 31.3 $ 32.4 $ 0.0 $ 25.0 $ 38.7
======= ======= ======= ======= =======
1993 . . . . . . . $ 31.4 $ 23.0 $ 0.0 $ 23.1 $ 31.3
======= ======= ======= ======= =======
1992 . . . . . . . $ 29.1 $ 13.5 $ 0.8 $ 12.0 $ 31.4
======= ======= ======= ======= =======
(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-1