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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 March 31, 1995
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 (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
Owens-Illinois Group, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-13061 34-1559348
- --------------- ----------- --------------------
(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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(Registrants' telephone number, including area code)
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 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 - 119,079,496
shares at April 30, 1995.
Owens-Illinois Group, Inc. $.01 par value common stock - 100
shares at April 30, 1995.
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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 condensed unaudited financial statements have been
prepared in accordance with Article 10 of Regulation S-X, they do not contain
all information and footnotes normally contained in annual consolidated
financial statements; accordingly, they should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing in the
Registrants' Annual Report on Form 10-K for the year ended December 31, 1994.
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Three months ended March 31, 1995 and 1994
(Millions of dollars, except per-share amounts)
1995 1994
Revenues: ------ ------
Net sales $923.6 $839.2
Royalties and net technical assistance 6.8 7.0
Equity earnings 3.8 4.9
Interest 8.1 4.5
Other 11.6 6.4
------ ------
953.9 862.0
Costs and expenses:
Manufacturing, shipping, and delivery 731.9 674.1
Research and development 8.1 6.8
Engineering 6.3 6.0
Selling and administrative 47.6 48.5
Interest 73.1 67.6
Other 20.7 3.2
------ ------
887.7 806.2
------ ------
Earnings before items below 66.2 55.8
Provision for income taxes 26.1 24.0
Minority share owners' interests in earnings
of subsidiaries 6.8 3.7
------ ------
Net earnings $ 33.3 $ 28.1
====== ======
Net earnings per share of common stock $ 0.28 $ 0.23
====== ======
See accompanying notes.
3
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1995, December 31, 1994, and March 31, 1994
(Millions of dollars)
March 31, Dec. 31, March 31,
1995 1994 1994
--------- -------- ---------
Assets
Current assets:
Cash, including time deposits $ 97.1 $ 109.4 $ 59.0
Short-term investments, at cost which
approximates market 36.8 32.2 26.1
Receivables, less allowances for losses
and discounts ($35.0 at March 31, 1995,
$38.7 at December 31, 1994, and $29.9 at
March 31, 1994) 490.8 415.5 418.1
Inventories 495.4 477.1 473.1
Prepaid expenses 70.9 64.9 56.6
-------- -------- --------
Total current assets 1,191.0 1,099.1 1,032.9
Investments and other assets:
Domestic investments and advances 19.6 26.7 20.9
Foreign investments and advances 59.5 65.2 61.9
Repair parts inventories 148.9 137.7 145.7
Deferred taxes 26.1
Prepaid pension 609.6 597.9 626.0
Insurance for asbestos-related costs 443.0 470.1 650.0
Deposits, receivables, and other assets 234.3 235.0 215.8
Excess of purchase cost over net assets
acquired, net of accumulated
amortization ($238.5 at March 31,
1995, $230.6 at December 31, 1994,
and $206.6 at March 31, 1994) 1,046.6 1,049.4 1,069.8
-------- -------- --------
Total investments and other assets 2,561.5 2,582.0 2,816.2
Property, plant, and equipment, at cost 2,959.0 2,818.4 2,659.9
Less accumulated depreciation 1,245.6 1,181.9 1,085.1
-------- -------- --------
Total property, plant, and equipment 1,713.4 1,636.5 1,574.8
-------- -------- --------
Total assets $5,465.9 $5,317.6 $5,423.9
======== ======== ========
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CONDENSED CONSOLIDATED BALANCE SHEETS -- continued
March 31, Dec. 31, March 31,
1995 1994 1994
--------- -------- ---------
Liabilities and Share Owners' Equity
Current liabilities:
Short-term loans and long-term debt
due within one year $ 91.9 $ 65.0 $ 88.3
Current portion of asbestos-related
liabilities 145.0 145.0 140.0
Accounts payable and other liabilities 690.4 718.0 632.6
-------- -------- --------
Total current liabilities 927.3 928.0 860.9
Long-term debt 2,734.8 2,624.7 2,567.8
Deferred taxes 61.4 47.0 33.8
Nonpension postretirement benefits 398.4 405.4 412.7
Asbestos-related liabilities 372.7 404.4 513.0
Other liabilities 410.0 407.0 596.6
Commitments and contingencies
Minority share owners' interests 156.3 125.2 116.4
Share owners' equity:
Preferred stock 26.3 26.3 26.3
Common stock, par value $.01 per share
(119,079,496 shares outstanding at
March 31, 1995 and December 31, 1994;
118,978,327 at March 31, 1994) 1.2 1.2 1.2
Capital in excess of par value 1,034.6 1,034.6 1,033.9
Deficit (585.1) (618.4) (668.6)
Cumulative foreign currency translation
adjustment (72.0) (67.8) (70.1)
-------- -------- --------
Total share owners' equity 405.0 375.9 322.7
-------- -------- --------
Total liabilities and share owners' equity $5,465.9 $5,317.6 $5,423.9
======== ======== ========
See accompanying notes.
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED CASH FLOWS
Three months ended March 31, 1995 and 1994
(Millions of dollars)
1995 1994
-------- --------
Cash flows from operating activities:
Net earnings $ 33.3 $ 28.1
Non-cash charges (credits):
Depreciation 51.3 49.3
Amortization of deferred costs 12.2 11.3
Other (1.4) 16.6
Dividends from equity affiliates 1.8
Change in non-current operating assets (16.6) (11.3)
Asbestos-related payments (31.7) (39.1)
Asbestos-related insurance proceeds 27.1
Reduction of non-current liabilities (.1) (1.1)
Change in components of working capital (94.7) (94.4)
-------- --------
Cash utilized in operating activities (20.6) (38.8)
Cash flows from investing activities:
Additions to property, plant, and equipment (70.5) (54.0)
Acquisitions and other (17.9) (44.7)
Net cash proceeds from divestitures .3 .7
-------- --------
Cash utilized in investing activities (88.1) (98.0)
Cash flows from financing activities:
Additions to long-term debt 102.5 408.3
Repayments of long-term debt (14.2) (278.1)
Increase in short-term loans 8.2 14.5
-------- --------
Cash provided by financing activities 96.5 144.7
Effect of exchange rate fluctuations on cash (.1) (16.0)
-------- --------
Decrease in cash (12.3) (8.1)
Cash at beginning of period 109.4 67.1
-------- --------
Cash at end of period $ 97.1 $ 59.0
======== ========
See accompanying notes.
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OWENS-ILLINOIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Tabular data in millions of dollars
1. Inventories
Major classes of inventory were as follows:
March 31, Dec. 31, March 31,
1995 1994 1994
--------- -------- ---------
Finished goods $389.9 $377.4 $375.1
Work in process 4.0 4.2 5.5
Raw materials 70.1 73.0 66.3
Operating supplies 31.4 22.5 26.2
------ ------ ------
$495.4 $477.1 $473.1
====== ====== ======
2. Long-Term Debt
The following table summarizes the long-term debt of the Company:
- -----------------------------------------------------------------------------
March 31, Dec. 31, March 31,
1995 1994 1994
Bank Credit Agreement: --------- -------- ---------
Revolving Loans $ 467.2 $ 450.3 $ 266.3
Bid Rate Loans 148.0 65.0 195.0
Senior Debentures, 11%,
due 1999 to 2003 1,000.0 1,000.0 1,000.0
Senior Subordinated Notes:
10-1/4%, due 1999 250.0 250.0 250.0
10-1/2%, due 2002 150.0 150.0 150.0
10%, due 2002 250.0 250.0 250.0
9-3/4%, due 2004 200.0 200.0 200.0
9.95%, due 2004 100.0 100.0 100.0
Other 191.9 180.1 181.3
- -----------------------------------------------------------------------------
2,757.1 2,645.4 2,592.6
Less amounts due within one year 22.3 20.7 24.8
- -----------------------------------------------------------------------------
Long-term debt $2,734.8 $2,624.7 $2,567.8
=============================================================================
The Company has 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. 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
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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 March 31, 1995, the Company had unused credit available under the Bank
Credit Agreement of $315.2 million.
Revolving loans bear interest, at the Company's option, at the prime rate or a
Eurodollar deposit-based rate plus a margin linked to published ratings of the
Company's senior debt instruments. The margin is currently .875% and is
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 March 31, 1995, was 7.02%. 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 ratings.
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 the Company's wholly
owned subsidiary, Owens-Illinois Group, Inc. ("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.
3. Cash Flow Information
Interest paid in cash aggregated $39.8 million for the first quarter of 1995
and $34.8 million for the first quarter of 1994. Income taxes paid in cash
totaled $8.1 million for the first quarter of 1995 and $6.3 million for the
first quarter of 1994.
4. 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
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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 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 March 31, 1995, the Company
estimates that it is a named defendant in such asbestos bodily injury lawsuits
and claims involving approximately 26,000 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 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.
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
(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 these particular
claims or cross-claims against the Company will not be material.
The Company is also one of a number of defendants (typically over 90) in
separate bodily injury lawsuits involving approximately 7,000 plaintiffs who
allege that they are or were maritime workers. On March 31, 1995, a class
action against the Company was filed in Common Pleas Court in Cuyahoga County,
Ohio which purports to consist of all maritime claimants alleging exposure to
the Company's asbestos-containing insulation products. The class action has
been removed by the Company to federal court and the Company anticipates that
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the case may become part of the Multi-District Litigation proceeding in
Philadelphia described further below. These maritime plaintiffs, who are all
represented by the same attorney, primarily allege so-called "in-place"
exposure to asbestos-containing products while serving aboard merchant marine
vessels. Such cases as a group appear to involve significantly less serious
disease compared to traditional filings and the vast majority may not involve
any medical condition attributable to exposure to the Company's product.
Since 1988, approximately 8,000 such lawsuits filed by the same attorney have
been dismissed by various courts for procedural deficiencies. One thousand of
these cases dismissed were "with prejudice," and many of the other dismissals
involved the same claimants in duplicate or repetitive suit filings. In view
of these factors, the Company presently believes that the probable ultimate
disposition of these maritime claims will not involve any material additional
indemnity liability and no longer includes them in the total number of pending
claims and lawsuits set forth above.
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 March
31, 1995, the Company was a named defendant in 17 such pending property damage
lawsuits and claims, which are not included in the total number of pending
lawsuits and claims set forth in the first paragraph above.
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.
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In July, 1991, the Judicial Panel on Multidistrict Litigation consolidated in
the Eastern District of Pennsylvania virtually all of the approximately 30,000
federal cases for possible coordinated and aggregate disposition and other
processing techniques (the "MDL Case"). Included in the MDL Case is a case in
the Eastern District of Texas where a petition had been filed to certify a
nationwide litigation class action with respect to all asbestos-related bodily
injury claims pending in the United States both in federal and state court.
The Company believes that such a nationwide litigation class action is not
supported by the existing case law. The number of plaintiffs in the cases
pending in the MDL Case in which the Company is a defendant is included in the
reported pending plaintiffs and claimants. In 1992, the court entered an
order severing and retaining any claims for punitive damages in cases remanded
for trial of the compensatory damage claims. The court, through various
administrative orders, is giving priority to claims involving malignancies and
serious asbestosis both in terms of settlement activity and in terms of remand
for trial where a settlement with all defendants is not possible.
In addition, in January, 1993, in an action in which the Company was not a
party, a class action complaint, an answer and a stipulation of settlement of
such class action complaint were filed contemporaneously in the United States
District Court for the Eastern District of Pennsylvania. The lawsuit and
settlement are between a proposed class of persons occupationally or
secondarily exposed to asbestos but who did not have bodily injury suits
pending as of January 15, 1993, and a group of 20 companies who manufactured
or sold asbestos products and whose asbestos claims are managed by the Center
for Claims Resolution. The Company and a number of other former producers of
asbestos-containing products are not members of the Center for Claims
Resolution. The proposed settlement, negotiated between the member companies
and class counsel, seeks to create an administrative mechanism to process
future asbestos-related claims against such companies. Under the proposed
settlement, in order to receive compensation, claimants would be required to
satisfy objective medical and product exposure criteria. The class action and
proposed settlement raise a number of novel and complex issues, including the
potential impact of the proposed settlement on the Company's contribution and
settlement credit rights. In August, 1993, another of the Company's co-
defendants filed an action, which was thereafter provisionally certified as a
mandatory settlement class of all future asbestos-related claims. This action
was integrally related to separate settlements by this co-defendant of all of
its non-future asbestos claims and of its insurance coverage claims against
its insurers.
The precise impact on the Company of the Co-Defendant Bankruptcies and other
proceedings mentioned above is not determinable. These filings and
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.
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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
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
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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
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 March
31, 1995, the net amount receivable for unreimbursed payments was $350.3
million, which amount reflects receipt 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.
As a result of Chapter 11 filings, the recent class action filings, and the
continuing efforts in various federal and state courts to resolve asbestos
lawsuits and claims in nontraditional manners, as well as the continued
filings of new lawsuits and claims, the Company believes, as it always has,
that its ultimate asbestos-related contingent liability (i.e., its indemnity
or other claim disposition costs plus related litigation expenses) is
difficult to estimate with certainty. However, the Company has continually
monitored the trends of matters which may affect its ultimate liability 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
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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 December 1994 decision of the New Jersey Supreme Court, the
Company 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.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations - First Quarter 1995 compared with First Quarter 1994
The Company recorded net earnings of $33.3 million for the first quarter of
1995, an increase of 18.5% over first quarter 1994 net earnings of $28.1
million. Consolidated net sales for the first quarter of 1995 were $923.6
million, an increase of 10.1%, or $84.4 million, over the first quarter of
1994. Consolidated operating profit for the first quarter of 1995 was $127.4
million, an increase of $13.4 million, or 11.8%, compared to the same period
in 1994. Interest expense, net of interest income, was $65.0 million for the
first quarter of 1995, an increase of $1.9 million over 1994. The effective
tax rate for the first quarter of 1995 was 39.4%, compared to 43.0% for the
first quarter of 1994 and 40.2% for the full year 1994.
Capsule segment results (in millions of dollars) for the first quarter of 1995
and 1994 were as follows:
- ----------------------------------------------------------------------------
Net sales
(Unaffiliated customers) Operating Profit
- ----------------------------------------------------------------------------
1995 1994 1995 1994
-------- -------- -------- --------
Glass Containers $ 658.8 $ 601.0 $ 96.6 $ 83.3
Plastics and Closures 264.5 237.9 37.6 36.5
Eliminations and other
retained costs .3 .3 (6.8) (5.8)
- ----------------------------------------------------------------------------
Consolidated total $ 923.6 $ 839.2 $ 127.4 $114.0
============================================================================
Net sales of the Glass Containers segment increased $57.8 million, or 9.6%
over 1994. Domestic glass container sales and unit shipments approximately
equaled those of the prior year. Increased shipments of beer containers,
partially due to the March 31, 1994 acquisition of a customer's glass contain-
er manufacturing facility, more than offset lower soft drink container
volumes. The combined U.S. dollar sales of the segment's foreign affiliates
increased 38.9% reflecting increased unit shipments at most foreign affili-
ates, particularly in Brazil, reflecting improved economic conditions in that
country. Net sales for the first quarter of 1995 also reflect the consolida-
tion of recently acquired glass container operations in Poland and India. Net
sales of the Plastics and Closures segment increased $26.6 million, or 11.2%,
over the prior year. Higher unit shipments of trigger sprayers and plastic
containers for personal care and health care products contributed to the
increase. Higher prices due in part to the pass-through of higher resin costs
in the plastics and closures product lines also resulted in higher reported
sales.
The operating profit of the Glass Containers segment increased $13.3 million,
or 16.0%. Domestically, operating profit increased principally as a result of
cost reductions and productivity improvements achieved through restructuring
15
<PAGE>
programs. Internationally, higher combined U.S. dollar operating profit of
the segment's foreign affiliates 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 first quarter 1995 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. The operating profit of the Plastics and
Closures segment increased $1.1 million, or 3.0%, compared to the first three
months of 1994. Domestically, the plastic bottles and closures businesses
benefited from more favorable pricing and improved cost control along with
strong demand for trigger sprayers and plastic containers for personal care
and health care products. Higher raw material costs and a less favorable
sales mix in the labels and carriers business partially offset the improve-
ments in the plastic bottles and closures businesses. Also, the segment's
operations in Mexico continue to be adversely affected by weak economic
conditions and the devaluation of the peso. Other retained costs were
slightly higher principally due to expenses incurred associated with the
Company's reengineering programs.
Capital Resources and Liquidity
The Company's total debt at March 31, 1995 was $2.83 billion compared to $2.69
billion at December 31, 1994 and $2.66 billion at March 31, 1994.
At March 31, 1995, the Company had available credit totaling $1 billion under
the Bank Credit Agreement expiring in December 1998, of which $315.2 million
had not been utilized. At December 31, 1994, the Company had $400.2 million
of credit which had not been utilized under the Agreement. The increased
utilization during the first three months of 1995 resulted from capital
expenditures, acquisitions, asbestos-related payments, and normal seasonal
working capital requirements, partially offset by cash provided by operations,
including cash received for settlement of a portion of the insurance asset for
asbestos-related costs. Cash utilized in operating activities was $20.6
million for the first three months of 1995 compared to $38.8 million in 1994.
During the first three months of 1995, cash expenditures related to the fourth
quarter 1993 restructuring charge were approximately $10 million.
In the twelve-month period commencing April 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. 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
16
<PAGE>
pending and anticipated future lawsuits and claims associated with asbestos,
will not have a material adverse effect upon the Company's liquidity on a
short-term or long-term basis.
Over the 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.
17
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Contingencies. Note 4 to the Condensed Consolidated Financial
Statements, "Contingencies," that is included in Part I of this Report, is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 23 Consent of McCarter & English
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
On February 9, 1995, the Registrants filed a Form 8-K with the
Commission with a press release dated February 9, 1995,
announcing 1994 results and an unusual charge to write down the
insurance asset for asbestos-related costs in the fourth
quarter of 1994. No other reports on Form 8-K were filed by
the Registrants during the first quarter of 1995.
18
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date May 15, 1995 By /s/ Lee A. Wesselmann
-------------- --------------------------------------------
Lee A Wesselmann, Senior Vice President and
Chief Financial Officer (Principal Financial
Officer)
OWENS-ILLINOIS GROUP, INC.
Date May 15, 1995 By /s/ Lee A. Wesselmann
-------------- --------------------------------------------
Lee A Wesselmann, Senior Vice President and
Chief Financial Officer (Principal Financial
Officer)
19
<PAGE>
INDEX TO EXHIBITS
Exhibits
- --------
23 Consent of McCarter & English
27 Financial Data Schedule
20
<PAGE>
EXHIBIT 23
CONSENT OF MCCARTER & ENGLISH
May 11, 1995
Ladies and Gentlemen:
We consent to the incorporation by reference of the reference to our firm
in the "Contingencies" section of the Company's report on Form 10-Q for the
quarter ended March 31, 1995.
Very truly yours,
/s/ McCarter & English
----------------------
McCarter & English
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
March 31, 1995 condensed consolidated balance sheet, and the condensed
consolidated results of operations for the three-month period then ended
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 133,900,000
<SECURITIES> 0
<RECEIVABLES> 490,800,000
<ALLOWANCES> 35,000,000
<INVENTORY> 495,400,000
<CURRENT-ASSETS> 1,191,000,000
<PP&E> 2,959,000,000
<DEPRECIATION> 1,245,600,000
<TOTAL-ASSETS> 5,465,900,000
<CURRENT-LIABILITIES> 927,300,000
<BONDS> 2,757,100,000
<COMMON> 1,200,000
0
26,300,000
<OTHER-SE> 377,500,000
<TOTAL-LIABILITY-AND-EQUITY> 5,465,900,000
<SALES> 923,600,000
<TOTAL-REVENUES> 953,900,000
<CGS> 731,900,000
<TOTAL-COSTS> 731,900,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,100,000
<INCOME-PRETAX> 66,200,000
<INCOME-TAX> 26,100,000
<INCOME-CONTINUING> 33,300,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,300,000
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
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