Document/Exhibit Description Pages Size
1: 10-Q June 30, 1998 Form 10Q 31 116K
2: EX-10.1 Supplemental Retirement Benefit Plan 6 26K
3: EX-10.2 Amendment to Deferred Compensation Plan 2 10K
4: EX-23 Consent of McCarter & English, LLP 1 5K
5: EX-27 Financial Data Schedule 1 7K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark one) FORM 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 30, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Owens-Illinois, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-9576 22-2781933
---------------- ----------- ------------------------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
One SeaGate, Toledo, Ohio 43666
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(Address of principal executive offices) (Zip Code)
419-247-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Owens-Illinois, Inc. $.01 par value common stock - 155,346,462
shares at July 31, 1998.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Condensed Consolidated Financial Statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to
present fairly such information for the periods and at the dates indicated.
Since the following unaudited condensed consolidated financial statements have
been prepared in accordance with Article 10 of Regulation S-X, they do not
contain all information and footnotes normally contained in annual
consolidated financial statements; accordingly, they should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.
3
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Three months ended June 30, 1998 and 1997
(Millions of dollars, except share and per share amounts)
1998 1997
Revenues: -------- --------
Net sales $1,385.0 $1,224.5
Royalties and net technical assistance 7.1 5.3
Equity earnings 4.5 .5
Interest 8.6 6.8
Other 27.1 20.6
-------- --------
1,432.3 1,257.7
Costs and expenses:
Manufacturing, shipping, and delivery 1,031.6 929.7
Research and development 8.9 6.9
Engineering 8.4 7.8
Selling and administrative 64.7 59.4
Interest 99.1 81.4
Other 35.1 23.9
-------- --------
1,247.8 1,109.1
-------- --------
Earnings before items below 184.5 148.6
Provision for income taxes 62.0 50.8
Minority share owners' interests in earnings
of subsidiaries 7.5 10.9
-------- --------
Earnings before extraordinary items 115.0 86.9
Extraordinary charges from early extinguishment
of debt, net of applicable income taxes (14.1) (84.5)
-------- --------
Net earnings $ 100.9 $ 2.4
======== ========
Basic earnings per share of common stock:
Earnings before extraordinary items $ 0.76 $ 0.66
Extraordinary charges (0.10) (0.64)
-------- --------
Net earnings $ 0.66 $ 0.02
======== ========
Weighted average shares outstanding (thousands) 148,278 131,483
======= =======
Diluted earnings per share of common stock:
Earnings before extraordinary items $ 0.75 $ 0.65
Extraordinary charges (0.09) (0.63)
-------- --------
Net earnings $ 0.66 $ 0.02
======== ========
Weighted diluted average shares (thousands) 153,942 133,504
======= =======
See accompanying notes.
4
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Six months ended June 30, 1998 and 1997
(Millions of dollars, except share and per share amounts)
1998 1997
Revenues: -------- --------
Net sales $2,483.5 $2,280.8
Royalties and net technical assistance 13.2 11.7
Equity earnings 9.2 9.3
Interest 14.5 14.6
Other 70.1 57.5
-------- --------
2,590.5 2,373.9
Costs and expenses:
Manufacturing, shipping, and delivery 1,892.7 1,774.6
Research and development 16.6 14.7
Engineering 16.4 15.2
Selling and administrative 127.1 110.4
Interest 164.3 167.3
Other 71.8 58.7
-------- --------
2,288.9 2,140.9
-------- --------
Earnings before items below 301.6 233.0
Provision for income taxes 90.8 74.2
Minority share owners' interests in earnings
of subsidiaries 15.4 17.3
-------- --------
Earnings before extraordinary items 195.4 141.5
Extraordinary charges from early extinguishment
of debt, net of applicable income taxes (14.1) (84.5)
-------- --------
Net earnings $ 181.3 $ 57.0
======== ========
Basic earnings per share of common stock:
Earnings before extraordinary items $ 1.33 $ 1.11
Extraordinary charges (0.10) (0.67)
-------- --------
Net earnings $ 1.23 $ 0.44
======== ========
Weighted average shares outstanding (thousands) 144,470 126,674
======= =======
Diluted earnings per share of common stock:
Earnings before extraordinary items $ 1.32 $ 1.10
Extraordinary charges (0.10) (0.66)
-------- --------
Net earnings $ 1.22 $ 0.44
======== ========
Weighted diluted average shares (thousands) 148,195 129,013
======= =======
See accompanying notes.
5
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1998, December 31, 1997, and June 30, 1997
(Millions of dollars)
June 30, Dec. 31, June 30,
1998 1997 1997
Assets -------- -------- --------
Current assets:
Cash, including time deposits $ 322.5 $ 218.2 $ 239.2
Short-term investments, at cost which
approximates market 23.0 16.1 66.6
Receivables, less allowances for losses
and discounts ($44.0 at June 30, 1998,
$52.9 at December 31, 1997, and
$36.6 at June 30, 1997) 878.3 681.6 727.8
Inventories 815.6 592.4 621.6
Prepaid expenses 165.2 140.0 126.0
--------- -------- --------
Total current assets 2,204.6 1,648.3 1,781.2
Investments and other assets:
Investments and advances 142.0 87.7 128.2
Repair parts inventories 254.2 227.2 224.9
Prepaid pension 666.9 635.3 653.6
Insurance for asbestos-related costs 222.6 239.3 255.3
Deposits, receivables, and other assets 364.6 307.0 269.9
Net assets held for sale 535.0
Excess of purchase cost over net assets
acquired, net of accumulated
amortization ($348.0 at June 30,
1998, $328.3 at December 31, 1997,
and $312.7 at June 30, 1997) 3,148.2 1,294.9 1,318.5
--------- -------- --------
Total investments and other assets 5,333.5 2,791.4 2,850.4
Property, plant, and equipment, at cost 5,168.4 4,105.1 3,797.6
Less accumulated depreciation 1,807.1 1,699.7 1,603.5
--------- -------- --------
Net property, plant, and equipment 3,361.3 2,405.4 2,194.1
--------- -------- --------
Total assets $10,899.4 $6,845.1 $6,825.7
========= ======== ========
6
CONDENSED CONSOLIDATED BALANCE SHEETS -- continued
June 30, Dec. 31, June 30,
1998 1997 1997
--------- -------- --------
Liabilities and Share Owners' Equity
Current liabilities:
Short-term loans and long-term debt
due within one year $ 238.4 $ 176.9 $ 188.2
Current portion of asbestos-related
liabilities 70.0 85.0 110.0
Accounts payable and other liabilities 944.6 781.9 783.7
--------- -------- --------
Total current liabilities 1,253.0 1,043.8 1,081.9
Long-term debt 5,694.1 3,146.7 3,107.5
Deferred taxes 305.9 229.2 203.1
Nonpension postretirement benefits 343.5 354.8 360.2
Other liabilities 464.1 482.2 606.4
Commitments and contingencies
Minority share owners' interests 288.4 246.5 236.8
Share owners' equity:
Convertible preferred stock 452.5
Exchangeable preferred stock 20.1 20.4 21.4
Common stock, par value $.01 per share
(155,317,512 shares outstanding
at June 30, 1998; 140,526,195 at
December 31, 1997, and
140,188,376 at June 30, 1997) 1.5 1.4 1.4
Capital in excess of par value 2,180.2 1,558.4 1,547.2
Retained earnings (deficit) 91.0 (90.3) (201.2)
Accumulated other comprehensive income (194.9) (148.0) (139.0)
--------- -------- --------
Total share owners' equity 2,550.4 1,341.9 1,229.8
--------- -------- --------
Total liabilities and share owners' equity $10,899.4 $6,845.1 $6,825.7
========= ======== ========
See accompanying notes.
7
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED CASH FLOWS
Six months ended June 30, 1998 and 1997
(Millions of dollars)
1998 1997
--------- --------
Cash flows from operating activities:
Earnings before extraordinary items $ 195.4 $ 141.5
Non-cash charges (credits):
Depreciation 166.5 134.8
Amortization of deferred costs 41.5 29.8
Other (29.0) 5.2
Change in non-current operating assets (12.0) (36.7)
Asbestos-related payments (42.0) (48.8)
Asbestos-related insurance proceeds 16.7 16.1
Reduction of non-current liabilities (2.7) (2.7)
Change in components of working capital (159.5) (122.4)
--------- --------
Cash provided by operating activities 174.9 116.8
Cash flows from investing activities:
Additions to property, plant, and equipment (242.4) (157.7)
Acquisitions, net of cash acquired (3,523.1) (104.7)
Net cash proceeds from divestitures 37.7 49.7
--------- --------
Cash utilized in investing activities (3,727.8) (212.7)
Cash flows from financing activities:
Additions to long-term debt 5,154.0 1,127.6
Repayments of long-term debt (2,561.5) (1,332.7)
Payment of finance fees and debt retirement costs (61.5) (137.8)
Increase in short-term loans 52.5 25.2
Issuance of common stock 639.7 498.6
Issuance of convertible preferred stock 439.6
--------- --------
Cash provided by financing activities 3,662.8 180.9
Effect of exchange rate fluctuations on cash (5.6) (6.7)
--------- --------
Increase in cash 104.3 78.3
Cash at beginning of period 218.2 160.9
--------- --------
Cash at end of period $ 322.5 $ 239.2
========= ========
See accompanying notes.
8
OWENS-ILLINOIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Tabular data in millions of dollars,
except share and per share amounts
1. Acquisition of Worldwide Packaging Businesses of BTR plc
On April 30, 1998, the Company completed the acquisition of the worldwide
glass and plastics packaging businesses of BTR plc in an all cash transaction
valued at approximately $3.6 billion (the "Acquisition"). In the Acquisition,
the Company acquired BTR's glass container operations in the Asia-Pacific
region (i.e. Australia, New Zealand, China and Indonesia) and its plastics
packaging operations in the United States, South America, Australia, Europe
and Asia ("BTR Packaging"), as well as BTR's United Kingdom glass container
manufacturer ("Rockware Glass"). Pursuant to an agreement with the Commission
of the European Communities, the Company has committed to sell Rockware Glass
(the "Rockware Sale"). The Acquisition was initially financed through
additional borrowings under the Company's Second Amended and Restated Credit
Agreement (see Note 6), which was amended on April 30, 1998, to provide, among
other things, additional borrowing capacity for the Acquisition. On May 20,
1998, the $2.2 billion of proceeds received from the offerings of the
Company's common stock, preferred stock, and debt securities were used to
repay a portion of the Term Loan outstanding under the Second Amended and
Restated Credit Agreement (see Note 6).
The acquisition is being accounted for under the purchase method of
accounting. The total purchase cost of approximately $3.6 billion will be
allocated to the tangible and identifiable intangible assets and liabilities
based upon their respective fair values. Such allocations will be based upon
valuations which have not been finalized. Accordingly, the allocation of the
purchase consideration included in the accompanying Condensed Consolidated
Balance Sheet at June 30, 1998, is preliminary. The accompanying Condensed
Consolidated Results of Operations for the three and six month periods ended
June 30, 1998, include two months of BTR Packaging operations.
The aggregate purchase cost and its preliminary allocation to the historical
assets and liabilities of BTR Packaging and Rockware Glass are as follows (in
millions of dollars):
Net working capital acquired $ 249
Property, plant and equipment 937
Net assets held for sale 535
Other non-current assets 104
Excess of purchase cost over net assets acquired 1,897
------
3,722
Long-term liabilities (122)
------
Aggregate purchase cost $3,600
======
9
2. Pro Forma Information - Acquisition of BTR Packaging
Had the acquisition of BTR Packaging described in Note 1 and the related
financing, including the public offerings, described in Note 6 occurred on
January 1, 1998 and 1997, unaudited pro forma consolidated net sales, net
earnings, and net earnings per share of common stock would have been as
follows:
Six Months ended June 30, 1998
----------------------------------------------------
As BTR Packaging Financing Pro Forma
Reported Adjustments Adjustments As Adjusted
-------- ------------- ----------- -----------
Net sales $2,483.5 $384.1 $2,867.6
======== ========
Net earnings $195.4 $ 32.8 $(31.1) $197.1
====== ======
Basic net earnings per
share of common stock $1.33 $1.20
===== =====
Basic weighted average
shares outstanding
(thousands) 144,470 155,190
Diluted net earnings per
share of common stock $1.32 $1.19
===== =====
Diluted weighted average
shares (thousands) 148,195 165,569
Six Months ended June 30, 1997
----------------------------------------------------
As BTR Packaging Financing Pro Forma
Reported Adjustments Adjustments As Adjusted
-------- ------------- ----------- -----------
Net sales $2,280.8 $627.1 $2,907.9
======== ========
Net earnings $141.5 $ 77.1 $(49.3) $169.3
======== ========
Basic net earnings per
share of common stock $1.11 $1.12
===== =====
Basic weighted average
shares outstanding
(thousands) 126,674 141,154
Diluted net earnings per
share of common stock $1.10 $1.11
===== =====
Diluted weighted average
shares (thousands) 129,013 152,082
10
Certain of the glass container and plastics packaging products produced by BTR
Packaging are subject to seasonal demand. Shipments of glass container
products have typically been greater in the fourth and first quarters of the
year compared to the second and third quarters. Shipments of plastics
packaging products have typically been greater in the second and third
quarters of the year compared to the first and fourth quarters. Net sales of
BTR Packaging for the full year 1997 were approximately $1.2 billion.
The pro forma data does not purport to represent what the results of
operations would actually have been if the Acquisition and the related
financing had in fact occurred on the dates indicated, or to project results
of operations for any future period.
3. Net Assets Held For Sale
In connection with the Acquisition discussed in Note 1, the Company has
committed to sell Rockware Glass. The Company is in the process of
negotiating the sale of Rockware Glass. The accompanying Condensed
Consolidated Results of Operations for the three and six month periods ended
June 30, 1998, exclude Rockware Glass and related financing costs. Proceeds
from the sale will be used to reduce amounts outstanding under the Second
Amended and Restated Credit Agreement, including repayment of the remainder of
the Term Loan.
11
4. Earnings Per Share
The following table sets forth the computations of basic and diluted earnings
per share:
-----------------------------------------------------------------------------
Three months ended
June 30,
--------------------------
1998 1997
Numerator: ----------- -----------
Earnings before extraordinary items $115.0 $86.9
Preferred stock dividends:
Convertible (2.4)
Exchangeable (.3) (.3)
-----------------------------------------------------------------------------
(2.7) (.3)
Numerator for basic earnings per
share - income available to common
share owners 112.3 86.6
Effect of dilutive securities -
preferred stock dividends 2.7 .3
-----------------------------------------------------------------------------
Numerator for diluted earnings per
share - income available to common
share owners after assumed
exchanges and conversions
of preferred stock $115.0 $86.9
=============================================================================
Denominator:
Denominator for basic earnings per
share - weighted average
shares 148,278,037 131,482,610
Effect of dilutive securities:
Stock options 1,147,374 1,046,590
Exchangeable preferred stock 646,958 974,829
Convertible preferred stock 3,869,929
-----------------------------------------------------------------------------
Dilutive potential common shares 5,664,261 2,021,419
-----------------------------------------------------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
exchanges and conversions
of preferred stock 153,942,298 133,504,029
=============================================================================
Basic earnings per share $0.76 $0.66
=============================================================================
Diluted earnings per share $0.75 $0.65
=============================================================================
12
-----------------------------------------------------------------------------
Six months ended
June 30,
--------------------------
1998 1997
Numerator: ----------- -----------
Earnings before extraordinary items $195.4 $141.5
Preferred stock dividends:
Convertible (2.4)
Exchangeable (.7) (.7)
-----------------------------------------------------------------------------
(3.1) (.7)
Numerator for basic earnings per
share - income available to common
share owners 192.3 140.8
Effect of dilutive securities -
preferred stock dividends 3.1 .7
-----------------------------------------------------------------------------
Numerator for diluted earnings per
share - income available to common
share owners after assumed
exchanges and conversions
of preferred stock $195.4 $141.5
=============================================================================
Denominator:
Denominator for basic earnings per
share - weighted average
shares 144,470,231 126,674,425
Effect of dilutive securities:
Stock options 1,114,612 1,277,328
Exchangeable preferred stock 674,954 1,061,583
Convertible preferred stock 1,934,965
-----------------------------------------------------------------------------
Dilutive potential common shares 3,724,531 2,338,911
-----------------------------------------------------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
exchanges and conversions
of preferred stock 148,194,762 129,013,336
=============================================================================
Basic earnings per share $1.33 $1.11
=============================================================================
Diluted earnings per share $1.32 $1.10
=============================================================================
Earnings per share are computed independently for each period presented. Due
primarily to the issuance of 14,479,522 shares and 16,936,100 shares of common
stock in the second quarters of 1998 and 1997, respectively, and the resultant
effect on average shares outstanding, per share amounts calculated on a year-
to-date basis may not equal the sums of such amounts calculated separately for
each quarter.
13
5. Inventories
Major classes of inventory are as follows:
June 30, Dec. 31, June 30,
1998 1997 1997
-------- -------- --------
Finished goods $591.9 $447.3 $470.1
Work in process 35.7 9.4 8.1
Raw materials 119.4 92.5 84.8
Operating supplies 68.6 43.2 58.6
------ ------ ------
$815.6 $592.4 $621.6
====== ====== ======
6. Long-Term Debt
The following table summarizes the long-term debt of the Company:
---------------------------------------------------------------------------
June 30, Dec. 31, June 30,
1998 1997 1997
Bank Credit Agreement: -------- -------- --------
Revolving Credit Facility:
Revolving Loans $1,820.0 $2,125.0 $1,510.0
Offshore Loans:
1.39 billion Australian dollars 902.7
333 million British pounds 556.1
194 billion Italian lira 110.6
Term Loan 342.0
Bid Rate Loans 60.0 50.0 150.0
Senior Notes:
7.85%, due 2004 300.0 300.0 300.0
7.15%, due 2005 350.0
8.10%, due 2007 300.0 300.0 300.0
7.35%, due 2008 250.0
Senior Debentures:
7.50%, due 2010 250.0
7.80%, due 2018 250.0
Senior Subordinated Notes:
10%, due 2002 250.0
9-3/4%, due 2004 200.0
9.95%, due 2004 100.0
Other 285.2 441.8 351.0
---------------------------------------------------------------------------
5,776.6 3,216.8 3,161.0
Less amounts due within one year 82.5 70.1 53.5
---------------------------------------------------------------------------
Long-term debt $5,694.1 $3,146.7 $3,107.5
===========================================================================
On April 30, 1998, in connection with the Acquisition, the Company amended its
former bank credit agreement by entering into a Second Amended and Restated
Credit Agreement (the "Bank Credit Agreement" or "Agreement") with a group of
banks which expires on December 31, 2001. The Agreement provides up to $7.0
billion in credit facilities and consists of (i) a $2.5 billion term loan to
14
the Company (the "Term Loan") due on October 30, 1999 and (ii) a $4.5 billion
revolving credit facility (the "Revolving Credit Facility") available to the
Company, which includes a $1.75 billion fronted offshore loan revolving
facility (the "Offshore Facility") available, subject to certain sublimits, to
certain of the Company's foreign subsidiaries and denominated in certain
foreign currencies. The Agreement includes an Overdraft Account facility
providing for aggregate borrowings up to $100 million which reduce the amount
available for borrowing under the Revolving Credit Facility. In addition, the
terms of the Bank Credit Agreement permit the Company to request Bid Rate
Loans from banks participating in the Agreement. Borrowings outstanding under
Bid Rate Loans are limited to $750 million and reduce the amount available for
borrowing under the Revolving Credit Facility. The Agreement also provides
for the issuance of letters of credit totaling up to $500 million, which also
reduce the amount available for borrowing under the Revolving Credit Facility.
At June 30, 1998, the Company had unused credit available under the Bank
Credit Agreement of $972.0 million.
Borrowings under the Revolving Loans commitment and the Term Loan bear
interest, at the Company's option, at the prime rate or a reserve adjusted
Eurodollar rate. Loans under the Offshore Facility bear interest, at the
applicable borrower's option, at the applicable Offshore Base Rate (as defined
in the Bank Credit Agreement). Borrowings under the Revolving Credit Facility
and Term Loan also bear a margin linked to the Company's Consolidated Leverage
Ratio, as defined in the Agreement. The margin is currently .500% and is
limited to a range of .275% to 1.000%. Overdraft Account loans bear interest
at the prime rate minus the facility fee percentage, defined below. The
weighted average interest rate on borrowings outstanding under the Revolving
Loans commitment and Term Loan at June 30, 1998, was 6.17%. The weighted
average interest rate on borrowings outstanding under the Offshore Facility at
June 30, 1998, was 6.38%. While no compensating balances are required by the
Agreement, the Company must pay a facility fee on the Revolving Credit
Facility and Term Loan commitments. The facility fee, currently .250%, is
limited to a range of .125% and .500%, based on changes in the Company's
Consolidated Leverage Ratio.
Borrowings outstanding under the Bank Credit Agreement are currently
unsecured. Guarantee and pledge provisions under the Bank Credit Agreement
are linked to the Company's Consolidated Leverage Ratio. Such provisions will
not be executed provided the Company maintains a specified Consolidated
Leverage Ratio through June 30, 1999. All of the obligations of the Company's
foreign subsidiaries under the Offshore Facility are guaranteed by the
Company. The Company's Senior Notes and Senior Debentures rank pari passu
with the obligations of the Company under the Bank Credit Agreement. The Bank
Credit Agreement, Senior Notes, and Senior Debentures are senior in right of
payment to all existing and future subordinated debt of the Company.
Under the terms of the Bank Credit Agreement, dividend payments with respect
to the Company's Preferred or Common Stock and payments for redemption of
shares of its Common Stock are subject to certain limitations. The Agreement
also requires, among other things, the maintenance of certain financial
ratios, and restricts the creation of liens and certain types of business
activities and investments.
15
On March 6, 1998, the Company filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Securities and Exchange Commission
registering an aggregate of $4.0 billion of debt and equity securities. The
Registration Statement was declared effective by the Securities and Exchange
Commission on April 20, 1998. On May 20, 1998, pursuant to the Registration
Statement, the Company completed the public offerings of: (1) 15,690,000
shares of common stock at a public offering price of $41.8125 per share; (2)
9,050,000 shares of $2.375 convertible preferred stock at a public offering
price of $50.00 per share; (3) $350 million aggregate principal amount of
7.15% Senior Notes due May 15, 2005; (4) $250 million aggregate principal
amount of 7.35% Senior Notes due May 15, 2008; (5) $250 million aggregate
principal amount of 7.50% Senior Debentures due May 15, 2010; and (6) $250
million aggregate principal amount of 7.80% Senior Debentures due May 15, 2018
(collectively the "Offerings"). The Company repaid $2.2 billion of the Term
Loan on May 20, 1998, with proceeds received from the Offerings. The Company
intends to repay the remainder of the Term Loan with a portion of the proceeds
from the Rockware Sale (see Note 3).
7. Extraordinary Charges from Early Extinguishment of Debt
During the second quarter of 1998, the Company used proceeds from the
Offerings to repay a portion of the Term Loan due October 30, 1999. As a
result, the Company recorded extraordinary charges for the write-off of
unamortized deferred finance fees totaling $22.8 million, net of applicable
income taxes of $8.7 million.
During the second quarter of 1997, the Company used proceeds from the May 1997
sale of shares of common stock and the issuance of debt securities pursuant to
public offerings to retire approximately $1.4 billion of higher cost debt. As
a result, the Company recorded extraordinary charges for the write-off of
unamortized deferred finance fees and redemption premiums totaling $136.9
million, net of applicable income taxes of $52.4 million.
8. Convertible Preferred Stock
In conjunction with the Offerings, on May 20, 1998, the Company issued
9,050,000 shares of convertible preferred stock at a public offering price of
$50.00 per share (see Note 6). Annual cumulative dividends of $2.375 per
share accruing from the date of issuance are payable in cash quarterly
commencing August 15, 1998. The convertible preferred stock is convertible at
the option of the holder at any time, unless previously redeemed, into shares
of common stock of the Company at an initial conversion rate of 0.9491 shares
of common stock for each share of convertible stock, subject to adjustment in
certain events. The convertible preferred stock may not be redeemed prior to
May 15, 2001. At any time on or after such date, the convertible preferred
stock may be redeemed only in shares of common stock of the Company at the
option of the Company at predetermined redemption prices plus accrued and
unpaid dividends, if any, to the redemption date.
Holders of the convertible preferred stock have no voting rights, except as
required by applicable law and except that among other things, whenever
accrued and unpaid dividends on the convertible preferred stock are equal to
16
or exceed the equivalent of six quarterly dividends payable on the convertible
preferred stock such holders will be entitled to elect two directors to the
Company's board of directors until the dividend arrearage has been paid or
amounts have been set apart for such payment. In addition, certain changes
that would be materially adverse to the rights of holders of the convertible
preferred stock cannot be made without the vote of holders of two-thirds of
the outstanding convertible preferred stock. The convertible preferred stock
is senior to the common stock and the exchangeable preferred stock with
respect to dividends and liquidation events.
9. Cash Flow Information
Interest paid in cash aggregated $149.6 million and $163.1 million for the six
months ended June 30, 1998 and June 30, 1997, respectively. Income taxes paid
in cash totaled $19.4 million and $43.7 million for the six months ended
June 30, 1998 and June 30, 1997, respectively.
10. Contingencies
The Company is one of a number of defendants (typically 10 to 20) in a
substantial number of lawsuits filed in numerous state and federal courts by
persons alleging bodily injury (including death) as a result of exposure to
dust from asbestos fibers. From 1948 to 1958, one of the Company's former
business units commercially produced and sold a high-temperature, clay-based
insulating material containing asbestos. The insulation material was used in
limited industrial applications such as shipyards, power plants and chemical
plants. During its ten years in the high-temperature insulation business, the
Company's aggregate sales of insulation material containing asbestos were less
than $40 million. The Company exited the insulation business in April 1958.
The traditional asbestos personal injury lawsuits and claims relating to such
production and sale of asbestos material typically allege various theories of
liability, including negligence, gross negligence and strict liability and
seek compensatory and punitive damages in various amounts (herein referred to
as "asbestos claims"). As of June 30, 1998 the Company estimates that it is a
named defendant in asbestos claims involving approximately 14,000 plaintiffs
and claimants.
The Company's indemnity payments for these claims have varied on a per claim
basis, and are expected to continue to vary considerably over time. 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 defendants and the nature and extent
of indemnity or contribution claims that may be asserted by or against such
other 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.
17
The Company's indemnity payments may also be affected by co-defendant
bankruptcy and class action filings. Since 1982 a number of former producers
of asbestos-containing products have filed for reorganization under Chapter 11
of the United States Bankruptcy Code ("Co-Defendant Bankruptcies"). Pending
lawsuits are generally stayed as to these entities, but continue against the
Company and other defendants. The precise impact on the Company of these
Co-Defendant Bankruptcies is not determinable. However, the Company believes
that the Co-Defendant Bankruptcies probably have adversely affected, and may
adversely affect in the future, the Company's share of the total liability to
plaintiffs in previously settled or otherwise determined lawsuits and claims.
The Company is also one of a number of defendants in (i) bodily injury
lawsuits involving plaintiffs who allege that they are or were maritime
workers ("Maritime Claims"), (ii) a lawsuit on behalf of individuals in
Pennsylvania who have no asbestos-related impairment, but nevertheless seek
the costs of future medical monitoring ("Medical Monitoring Claims"), (iii)
defendants' claims for contribution ("Contribution Claims") and (iv) lawsuits
brought by public or private property owners alleging damages to their various
properties ("Property Damage Claims"). Certain of these Maritime Claims,
Medical Monitoring Claims and Property Damage Claims seek class action
treatment. Based on its past experience, the Company presently believes that
the probable ultimate disposition of these Maritime Claims, Medical Monitoring
Claims, Contribution Claims and Property Damage Claims will not involve any
material additional liability and does not include them in the description
herein of asbestos claims or in the total number of pending asbestos claims
above.
In April 1986, the Company and Aetna Life & Casualty Company ("Aetna") agreed
to a final settlement fully resolving asbestos bodily injury and property
damage insurance coverage litigation between them (which followed the entry of
partial summary judgment in favor of the Company in such litigation). The
Company has processed claims which have effectively exhausted its coverage
under the Aetna agreement. In 1984, the Company initiated similar litigation
in New Jersey against the Company's insurers, including its wholly-owned
captive insurer Owens Insurance Limited ("OIL"), and certain other parties for
the years 1977 through 1985 in which the Company sought 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).
In December 1994, the Company partially settled for approximately $100 million
its coverage claim against OIL to the extent of reinsurance provided to OIL by
certain reinsurance companies representing approximately 19% of total United
Insurance coverage limits. Subsequently, the Company reached separate
settlements for approximately $140 million with various other reinsurers, and
with OIL to the extent of reinsurance provided by such settling reinsurance
companies. These settlements also included all of the reinsurers who had
participated actively as litigating parties in the United Insurance case.
Following the settlements described above, a settlement agreement (the "OIL
Settlement") was reached with OIL. The OIL Settlement, which was endorsed by
18
three mediators and approved by OIL's independent directors, called for the
payment of remaining non-settled reinsurance at 78.5% of applicable
reinsurance limits, increasing to 81% on approximately March 1, 1996 and
accruing interest thereafter at 10% per annum.
In December 1995, the presiding judge in the United Insurance case entered a
Consent Judgment settling the United Insurance case as to all remaining issues
and all parties with the single exception of a broker malpractice claim
asserted by the Company, which remains pending. In the Consent Judgment
Order, the presiding judge specifically found that the OIL Settlement was a
good faith and non-collusive settlement and that it was fair and reasonable as
to OIL and all of OIL's non-settling reinsurers.
In November 1995, before all the settlements described above were finalized, a
reinsurer of OIL during the years affected by the United Insurance case
brought a separate suit against OIL seeking a declaratory judgment that it had
no reinsurance obligation to OIL due to alleged OIL fraud and also to OIL
not having joined non-party reinsurers as parties in the United Insurance case
as alleged to be required under New Jersey's "entire controversy" doctrine
(Employer's Mutual vs Owens-Insurance Limited, Superior Court of New Jersey,
Morris County, December 1995). The Company was not a named party to this
cause of action but was subsequently joined in it as a necessary party
defendant.
Subsequent to the entry of the Consent Judgment Order in the United Insurance
case described above, OIL gave notice of the OIL Settlement to all nonsettling
reinsurers affected by the United Insurance case, informing all such
reinsurers of the terms of the OIL Settlement and demanding timely payment
from such reinsurers pursuant to such terms.
Since the date of the OIL settlement, 17 previously nonsettling reinsurers
have made the payments called for under the OIL Settlement or otherwise
settled their obligations thereunder. Other nonsettling solvent reinsurers,
all of which are parties to the Employers Mutual case described above, have
not, however, made the payments called for under the OIL Settlement.
In June 1996, the Superior Court of New Jersey, Morris County granted OIL
summary judgment on the "entire controversy" doctrine claim in the Employers
Mutual case. A petition for interlocutory appeal of this summary judgment by
certain nonsettling OIL reinsurers was rejected first by the Appellate
Division of the New Jersey Superior Court and thereafter by the New Jersey
Supreme Court.
In January 1998, this same court granted OIL partial summary judgment barring
the nonsettling OIL reinsurers' fraud claims. The nonsettling OIL reinsurers
have petitioned for interlocutory appeal of this grant of partial summary
judgment, but this petition has been rejected by the Appellate Division.
As a result of payments and commitments that have been made by reinsurers
pursuant to the OIL Settlement and the earlier settlement agreements described
above in the United Insurance case and certain other available insurance, the
Company has to date confirmed coverage for its asbestos-related costs of
19
approximately $308.9 million. Of the total amount confirmed to date, $287.4
million had been received through June 30, 1998; and the balance of
approximately $21.5 million will be received throughout 1998 and the next
several years. The remainder of the insurance asset of approximately $201.1
million relates principally to the reinsurers who have not yet paid, and
continue to contest, their reinsurance obligations under the OIL Settlement.
This $201.1 million asset valuation at June 30, 1998 also reflects 1994 and
1995 reductions of $100 million and $40 million, respectively, in the
insurance asset valuation of $650 million established in 1993, which had been
made to reflect settlement activity and litigation developments in the United
Insurance case.
The Company believes, based on the rulings of the trial court, the Appellate
Division and the New Jersey Supreme Court in the United Insurance case, as
well as its understanding of the facts and legal precedents (including
specifically the legal precedent requiring that reinsurers "follow the
fortunes" of and adhere to any good faith, fair and reasonable settlement
entered into by the primary carrier which such reinsurers had agreed to
reinsure) and based on advice of counsel, McCarter & English, that it is
probable substantial additional payments will be received to cover the
Company's asbestos-related claim losses, in addition to the amounts already
received or to be received as a result of the settlements described above.
As a result of the Co-Defendant Bankruptcies 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 that its ultimate asbestos-related contingent
liability (i.e., its indemnity or other claim disposition costs plus related
litigation expenses) is difficult to estimate with certainty. However, the
Company has continually monitored the trends of matters which may affect its
ultimate liability 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 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 OIL Settlement,
as described above, and the amount of previous charges for asbestos-related
costs.
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 and review of such matters and experience
to date, that such ultimate liability will not be material in relation to the
Company's Consolidated Financial Statements.
20
11. New Accounting Standards
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS No. 130"). FAS No.
130 establishes new rules for the reporting and display of comprehensive
income and its components. The Company's components of comprehensive income
are net earnings and foreign currency translation adjustments. Total
comprehensive income (loss) for the three month periods ended June 30, 1998
and 1997 amounted to $101.2 million and $(.5) million, respectively. Total
comprehensive income for the six month periods ended June 30, 1998 and 1997
amounted to $134.4 million and $.3 million, respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS No. 131"), which is effective for
financial statements for periods beginning after December 15, 1997. FAS No.
131 need not, however, be applied to interim financial statements in the
initial year of its application. FAS No. 131 establishes revised standards
for determining an entity's operating segments and the type and level of
financial information to be presented related to such operating segments. The
impact of FAS No. 131 on the Company's disclosures of operating segment
information has not been determined.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("FAS No. 132"), which is effective for
financial statements for fiscal years beginning after December 15, 1997. FAS
No. 132 establishes revised standards for disclosures about pensions and other
postretirement benefits. The impact of FAS No. 132 on the Company's
disclosures of pension and other postretirement benefits has not been
determined.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS No. 133"), which is effective for financial
statements for all fiscal quarters of fiscal years beginning after June 15,
1999. FAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that all
derivative instruments be recognized as either assets or liabilities in the
statement of financial position and that such instruments be measured at fair
value. The impact of FAS No. 133 on the Company's reporting and disclosure of
derivative instruments has not been determined.
21
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations - Second Quarter 1998 compared with Second Quarter 1997
The Company recorded earnings before extraordinary items of $115.0 million for
the second quarter of 1998 compared to $86.9 million for the second quarter of
1997, an increase of $28.1 million, or 32.3%. The second quarter of 1998
includes amounts relating to the April 30, 1998, acquisition of the glass and
plastics packaging businesses of BTR plc (see Note 1 to the financial state-
ments). Consolidated segment operating profit for the second quarter of 1998
was $270.5 million, an increase of $47.8 million, or 21.5%, compared to the
same period in 1997. The increase is principally attributable to higher
operating profit for both the Glass Containers segment and the Plastics
Packaging segment. Interest expense, net of interest income, increased $15.9
million from the 1997 period due in part to the financings related to the
acquisition of the BTR glass and plastics packaging businesses. The increase
in interest expense resulting from the acquisition was partially offset by
lower borrowing costs resulting from the 1997 refinancing of higher cost debt,
which began in May 1997. Net earnings of $100.9 million and $2.4 million for
the second quarters of 1998 and 1997, respectively, reflect $14.1 million and
$84.5 million, respectively, of extraordinary charges from the early extin-
guishment of debt.
Capsule segment results (in millions of dollars) for the second quarter of
1998 and 1997 were as follows:
----------------------------------------------------------------------------
Net sales
(Unaffiliated customers) Operating Profit
----------------------------------------------------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
Glass Containers $ 976.7 $ 931.1 $ 189.1 $ 165.0
Plastics Packaging 408.0 293.0 79.6 57.5
Eliminations and other
retained costs .3 .4 1.8 .2
----------------------------------------------------------------------------
Consolidated total $1,385.0 $1,224.5 $ 270.5 $ 222.7
============================================================================
Consolidated net sales for the second quarter of 1998 increased $160.5
million, or 13.1%, over the prior year. Net sales of the Glass Containers
segment increased $45.6 million, or 4.9%, from 1997. The combined U.S. dollar
sales of the segment's foreign affiliates increased over the prior year,
reflecting the Asia-Pacific glass container businesses recently acquired from
BTR (which contributed approximately $88 million to second quarter 1998 U.S.
dollar sales), and increased unit shipments in Poland and Venezuela, which
were partially offset by soft market conditions in Brazil and Colombia.
Domestically, glass container unit volume nearly equaled prior year, reflect-
ing increased shipments of iced tea and juice bottles, offset by lower
shipments of beer and certain food containers. Net sales of the Plastics
Packaging segment increased $115.0 million, or 39.2%, over 1997, reflecting
the plastics businesses recently acquired from BTR (which contributed
22
approximately $115 million to second quarter 1998 U.S. dollar sales), and
increased unit shipments of closures. The Plastics Packaging segment net
sales comparison to prior year was adversely affected by the first quarter
1998 termination of a license agreement under which the Company had produced
plastic multipack carriers for beverage cans and the effects of lower resin
costs on pass-through arrangements with customers.
Consolidated operating profit for the second quarter of 1998 increased $47.8
million, or 21.5%, to $270.5 million from second quarter 1997 operating profit
of $222.7 million. The operating profit of the Glass Containers segment
increased $24.1 million to $189.1 million, compared to $165.0 million in the
second quarter of 1997. The combined U.S. dollar operating profit of the
segment's foreign affiliates increased from the second quarter of 1997. The
Asia-Pacific glass container businesses recently acquired from BTR contributed
approximately $16 million to second quarter 1998 U.S. dollar operating profit.
Improved results at the segment's affiliates in Italy, Venezuela, and the
United Kingdom were offset by soft market conditions in Brazil and Colombia.
Domestically, operating profit of the Glass Containers segment increased from
the second quarter of 1997 due to an improved cost structure. The operating
profit of the Plastics Packaging segment increased $22.1 million, or 38.4%,
compared to the second quarter of 1997. The plastics businesses recently
acquired from BTR contributed approximately $22 million to second quarter 1998
operating profit. Higher shipments of closures were offset by lower shipments
of labels and carriers, including the plastic multipack carriers for beverage
cans. Other retained costs for the second quarter of 1998 were lower
principally due to higher net financial services income.
First Six Months 1998 compared with First Six Months 1997
For the first six months of 1998, the Company recorded earnings before
extraordinary items of $195.4 million compared to $141.5 million for the first
six months of 1997. Excluding the effects of the unusual items for both 1998
and 1997 discussed below, the Company's first six months of 1998 earnings
before extraordinary items of $179.0 million increased $45.1 million, or
33.7%, over first six months of 1997 earnings before extraordinary items of
$133.9 million. The first six months of 1998 includes amounts relating to the
April 30, 1998, acquisition of the glass and plastics packaging businesses of
BTR plc (see Note 1 to the financial statements). Consolidated segment
operating profit, excluding both the 1998 and 1997 unusual items, was $440.0
million for the first six months of 1998, an increase of $65.8 million, or
17.6%, compared to $374.2 for the same 1997 period. The increase is attribut-
able to higher operating profit for both the Glass Containers segment and the
Plastics Packaging segment, along with lower retained costs. The Company's
estimated effective tax rate for the first six months of 1998, excluding the
effects of the adjustment to Italy's net deferred tax liabilities discussed
below, was 35.1%. This compares with 34.1% for the full year 1997, excluding
the effect of the gain on the 1997 sale of the remaining 49% interest in
Kimble Glass discussed below. Net earnings of $181.3 million and $57.0
million for the first six months of 1998 and 1997, respectively, reflect $14.1
million and $84.5 million, respectively, of extraordinary charges from the
early extinguishment of debt.
23
Capsule segment results (in millions of dollars) for the first six months of
1998 and 1997 were as follows:
----------------------------------------------------------------------------
Net sales
(Unaffiliated customers) Operating Profit
----------------------------------------------------------------------------
1998 1997 1998 (a) 1997
-------- -------- -------- --------
Glass Containers $1,789.1 $1,706.7 $ 300.6 $ 266.1
Plastics Packaging 693.7 573.4 146.9 109.2
Eliminations and other
retained costs (b) .7 .7 (5.3) 1.1
----------------------------------------------------------------------------
Consolidated total $2,483.5 $2,280.8 $ 442.2 $ 376.4
============================================================================
(a) Operating profit for 1998 includes: (1) a net gain of $18.5 million
related to the termination of a licensing agreement, including charges
for related equipment writeoffs and capacity adjustments, and (2) charges
totaling $16.3 million for the settlement of certain environmental
litigation and severance costs at certain international affiliates.
These items increased (decreased) operating profit as follows: Glass
Containers, $(7.8) million; Plastics Packaging, $18.5 million; and other
retained costs, $(8.5) million. These items were recorded in the first
quarter of 1998.
(b) Operating profit for 1997 includes: (1) a gain of $16.3 million on the
sale of the remaining 49% interest in Kimble Glass, and (2) charges of
$14.1 million principally for the estimated cost of guaranteed lease
obligations of a previously divested business. These items were recorded
in the first quarter of 1997.
Consolidated net sales for the first six months of 1998 increased $202.7
million, or 8.9%, over the prior year. Net sales of the Glass Containers
segment increased $82.4 million, or 4.8%, over 1997. The combined U.S. dollar
sales of the segment's foreign affiliates increased over the prior year,
reflecting the Asia-Pacific glass container businesses recently acquired from
BTR (which contributed approximately $88 million to first six months 1998 U.S.
dollar sales), the February 1997 acquisition of AVIR S.p.A., the largest
manufacturer of glass containers in Italy, and increased unit shipments in
Poland and Venezuela, all of which were partially offset by soft market
conditions in Brazil and Colombia. Domestically, glass container unit
shipments of containers for the beer, tea and juice, and liquor and wine
industries more than offset lower shipments of certain food containers in
comparison to the prior year period. Net sales of the Plastics Packaging
segment increased $120.3 million, or 21.0%, over 1997, reflecting the plastics
businesses recently acquired from BTR (which contributed approximately $115
million to first six months 1998 U.S. dollar sales), and increased unit
shipments of closures. The Plastics Packaging segment net sales comparison to
prior year was adversely affected by the first quarter 1998 termination of a
license agreement under which the Company had produced plastic multipack
carriers for beverage cans and the effects of lower resin costs on pass-
through arrangements with customers.
24
Consolidated operating profit for the first six months of 1998, excluding the
1998 and 1997 unusual items, increased $65.8 million, or 17.6%, to $440.0
million from first six months 1997 operating profit of $374.2 million. The
operating profit of the Glass Containers segment, excluding the 1998 unusual
items, increased $42.3 million to $308.4 million, compared to $266.1 million
in the first six months of 1997. The Asia-Pacific glass container businesses
recently acquired from BTR contributed approximately $16 million to first six
months 1998 U.S. dollar operating profit. Improved results at the segment's
affiliates in Italy and Venezuela were partially offset by soft market
conditions in Brazil and Colombia, which adversely affected results of
affiliates located in those countries. Domestically, operating profit
increased from the first six months of 1997 as a result of increased unit
shipments and an improved cost structure. The operating profit of the
Plastics Packaging segment, excluding the 1998 unusual items, increased $19.2
million, or 17.6%, compared to the first six months of 1997. The plastics
businesses recently acquired from BTR contributed approximately $22 million to
first six months 1998 operating profit. Higher shipments of closures and
improved manufacturing performance were offset by lower shipments of labels
and carriers, including the plastic multipack carriers for beverage cans.
Other retained costs, excluding the 1998 and 1997 unusual items discussed
below, were $3.2 million income for the first six months of 1998 compared to
$1.1 million expense for the first six months of 1997, reflecting higher net
financial services income.
The first six months 1998 results include the following unusual items recorded
in the first quarter of 1998: (1) a tax benefit of $15.1 million to adjust
net deferred income tax liabilities as a result of a reduction in Italy's
statutory income tax rate; (2) a net gain of $18.5 million ($11.4 million
aftertax) related to the termination of a license agreement, including charges
for related equipment writeoffs and capacity adjustments, under which the
Company had produced plastic multipack carriers for beverage cans; and (3)
charges of $16.3 million ($10.1 million aftertax) for the settlement of
certain environmental litigation and for severance costs at certain interna-
tional affiliates. The first six months 1997 results include the following
unusual items recorded in the first quarter of 1997: (1) a gain of $16.3
million ($16.3 million aftertax) on the sale of the Company's remaining 49%
interest in Kimble Glass, and (2) charges of $14.1 million ($8.7 million
aftertax) principally for guarantees of certain lease obligations of a
previously divested business.
Capital Resources and Liquidity
The Company's total debt at June 30, 1998 was $5.93 billion, compared to $3.32
billion at December 31, 1997 and $3.30 billion at June 30, 1997.
At June 30, 1998, the Company had available credit totaling $4.8 billion under
its recently amended agreement with a group of banks ("Bank Credit Agreement")
expiring in December 2001, of which $972.0 million had not been utilized. At
December 31, 1997, total commitments under the Company's previous credit
facility were $3.0 billion of which $741.0 million had not been utilized. The
increased commitment, utilization and corresponding higher debt balances at
June 30, 1998, resulted in large part from borrowings for the acquisition of
25
the worldwide glass and plastics packaging businesses of BTR plc. Utilization
was also higher as a result of borrowings for capital expenditures, partially
offset by cash provided by operations. Cash provided by operating activities
was $174.9 million for the first six months of 1998 compared to $116.8 million
for the first six months of 1997.
The Company anticipates that cash flow from its operations and from utiliza-
tion of credit available through December 2001 under the Bank Credit Agreement
will be sufficient to fund its operating and seasonal working capital needs,
debt service and other obligations. As discussed in Note 3, the Company plans
to use the proceeds received from the sale of Rockware Glass to reduce amounts
outstanding under the Bank Credit Agreement, including repayment of the
remaining $342.0 million Term Loan, which is due on October 30, 1999. The
Company faces additional demands upon its liquidity for asbestos-related
payments. Based on the Company's expectations regarding favorable trends
which should lower its aggregate payments for lawsuits and claims and its
expectation of the collection of its insurance coverage and reimbursement for
such lawsuits and claims, 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
In connection with the April 30, 1998, acquisition of the worldwide glass and
plastics packaging businesses of BTR, the Bank Credit Agreement was amended to
provide, among other things, a $1.75 billion offshore loan revolving facility
which is available to certain of the Company's foreign subsidiaries and
denominated in certain foreign currencies. For further information about the
facility and related foreign currency loan amounts outstanding at June 30,
1998, see Note 6 to the financial statements.
26
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Contingencies. Note 10 to the Condensed Consolidated Financial
Statements, "Contingencies," that is included in Part I of this Report, is
incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Owens-Illinois' share owners was held on May 13, 1998.
Each of the four nominees for a three-year term on the Company's Board of
Directors was elected by vote of the share owners as follows:
Broker
Name For Withheld Abstention Non-Votes
----------------------- ----------- --------- ---------- ---------
Robert J. Dineen 122,804,370 993,713 - -
James H. Greene, Jr. 115,211,986 8,586,097 - -
George R. Roberts 122,495,536 1,302,547 - -
Thomas L. Young 122,682,931 1,115,152 - -
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.1 Amended and Restated Owens-Illinois Supplemental
Retirement Benefit Plan.
Exhibit 10.2 Second Amendment to Owens-Illinois, Inc. Corporate
Officers Deferred Compensation Plan.
Exhibit 23 Consent of McCarter & English, LLP.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K:
(1) On April 16, 1998, the Registrant filed a Form 8-K which
included the information required under Items 7(a), 7(b) and
7(c) with regard to financial statements and exhibits of the
worldwide glass and plastics packaging businesses of BTR
plc.
(2) On April 23, 1998, the Registrant filed a Form 8-K which
included a press release dated April 23, 1998 announcing
first quarter 1998 results.
(3) On May 7, 1998, the Registrant filed a Form 8-K which
included a press release dated April 30, 1998 announcing the
completion of the acquisition of the worldwide glass and
plastics packaging businesses of BTR plc.
27
(4) On May 26, 1998, the Registrant filed a Form 8-K which
included the following documents:
(a) Underwriting Agreement, dated as of May 14, 1998, among
Owens-Illinois, Inc., Morgan Stanley & Co.
Incorporated, Credit Suisse First Boston Corporation,
First Chicago Capital Markets, Inc., Goldman, Sachs &
Co., Lehman Brothers Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Salomon Brothers Inc and
Scotia Capital Markets (USA) Inc.
(b) Underwriting Agreement, dated as of May 14, 1998, among
Owens-Illinois, Inc., Morgan Stanley & Co.
Incorporated, BancAmerica Robertson Stephens, Credit
Suisse First Boston Corporation, Goldman, Sachs & Co.,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Salomon Brothers Inc and Scotia
Capital Markets (USA) Inc.
(c) Underwriting Agreement, dated as of May 14, 1998, among
Owens-Illinois, Inc., Morgan Stanley & Co.
Incorporated, BancAmerica Robertson Stephens, Credit
Suisse First Boston Corporation, Goldman, Sachs & Co.,
Lehman Brothers Inc., Nationsbanc Montgomery Securities
LLC and Salomon Brothers Inc.
(d) Underwriting Agreement, dated as of May 14, 1998, among
Owens-Illinois, Inc., Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Credit
Suisse First Boston Corporation, Goldman, Sachs & Co.,
Lehman Brothers Inc., Nationsbanc Montgomery Securities
LLC and Salomon Brothers Inc.
(e) Underwriting Agreement, dated as of May 14, 1998, among
Owens-Illinois, Inc., Smith Barney Inc., BT Alex. Brown
Incorporated, Credit Suisse First Boston Corporation,
Goldman, Sachs & Co., Lehman Brothers Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Morgan
Stanley & Co. Incorporated.
(f) Underwriting Agreement, dated as of May 14, 1998, among
Owens-Illinois, Inc., Smith Barney Inc., BT Alex. Brown
Incorporated, Goldman, Sachs & Co. and Lehman Brothers
Inc.
(g) Indenture, dated as of May 20, 1998, between Owens-
Illinois, Inc. and The Bank of New York, as Trustee.
(h) Officers' Certificate, dated May 20, 1998, establishing
the terms of the 7.15% Senior Notes due 2005.
28
(i) Officers' Certificate, dated May 20, 1998, establishing
the terms of the 7.35% Senior Notes due 2008.
(j) Officers' Certificate, dated May 20, 1998, establishing
the terms of the 7.50% Senior Notes due 2010.
(k) Officers' Certificate, dated May 20, 1998, establishing
the terms of the 7.80% Senior Notes due 2018.
(l) Form of 7.15% Senior Note due 2005.
(m) Form of 7.35% Senior Note due 2008.
(n) Form of 7.50% Senior Note due 2010.
(o) Form of 7.80% Senior Note due 2018.
(p) Certificate of Designation of Convertible Preferred
Stock.
(q) Form of Convertible Preferred Stock Certificate.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OWENS-ILLINOIS, INC.
Date August 14, 1998 By /s/ David G. Van Hooser
--------------- ----------------------------------------------
David G. Van Hooser, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
30
INDEX TO EXHIBITS
10.1 Amended and Restated Owens-Illinois Supplemental Retirement Benefit
Plan.
10.2 Second Amendment to Owens-Illinois, Inc. Corporate Officers Deferred
Compensation Plan.
23 Consent of McCarter & English, LLP.
27 Financial Data Schedule.
31
Dates Referenced Herein and Documents Incorporated by Reference
4 Subsequent Filings that Reference this Filing
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