<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-25175
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 18, 1997)
$600,000,000
OWENS-ILLINOIS, INC.
[LOGO]
$300,000,000 7.85% SENIOR NOTES DUE 2004
$300,000,000 8.10% SENIOR NOTES DUE 2007
-----------------
INTEREST PAYABLE MAY 15 AND NOVEMBER 15
---------------------
NEITHER THE SENIOR NOTES DUE 2004 NOR THE SENIOR NOTES DUE 2007 WILL BE
REDEEMABLE PRIOR TO MATURITY NOR WILL THEY BE ENTITLED TO ANY SINKING FUND. THE
NOTES WILL BE REPRESENTED BY REGISTERED GLOBAL SECURITIES REGISTERED IN THE
NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR ITS NOMINEE.
BENEFICIAL INTERESTS IN THE REGISTERED GLOBAL SECURITIES WILL BE SHOWN ON,
AND TRANSFERS WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY THE
DEPOSITORY OR ITS PARTICIPANTS. SEE "DESCRIPTION OF THE NOTES."
THE NOTES WILL BE SENIOR UNSECURED OBLIGATIONS OF THE COMPANY AND WILL RANK PARI
PASSU WITH ALL OTHER SENIOR UNSECURED OBLIGATIONS OF THE COMPANY, INCLUDING
ITS OBLIGATIONS UNDER THE AMENDED CREDIT FACILITY, AND SENIOR IN RIGHT OF
PAYMENT TO ALL EXISTING AND FUTURE SUBORDINATED DEBT OF THE COMPANY.
SUBSTANTIALLY ALL OF THE OPERATIONS OF THE COMPANY ARE CONDUCTED
THROUGH ITS SUBSIDIARIES. THEREFORE, THE NOTES WILL BE EFFECTIVELY
SUBORDINATED TO THE CLAIMS OF CREDITORS OF SUCH SUBSIDIARIES. AT
MARCH 31, 1997, ON A PRO FORMA BASIS AFTER GIVING EFFECT TO THE
REFINANCING AND THE AVIR ACQUISITION, THE COMPANY, EXCLUDING ITS
SUBSIDIARIES, WOULD HAVE HAD APPROXIMATELY $3.0 BILLION OF
INDEBTEDNESS OUTSTANDING AND THE COMPANY'S SUBSIDIARIES WOULD
HAVE HAD APPROXIMATELY $2.4 BILLION OF LIABILITIES. SEE
"RISK FACTORS" AND "DESCRIPTION OF THE NOTES."
THE SENIOR NOTE OFFERINGS ARE BEING MADE CONCURRENTLY WITH THE COMPANY'S EQUITY
OFFERINGS. CONSUMMATION OF THE SENIOR NOTE OFFERINGS IS CONDITIONED UPON THE
CONSUMMATION OF THE EQUITY OFFERINGS AND THE RELEASE OF THE COLLATERAL
SECURING, AND GUARANTEES OF, THE COMPANY'S EXISTING CREDIT FACILITY AND ITS
OUTSTANDING SENIOR DEBENTURES. ON APRIL 25, 1997, THE COMPANY COMMENCED A
TENDER OFFER FOR ITS OUTSTANDING SENIOR DEBENTURES, THE CONSUMMATION OF
WHICH WILL BE SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS. AS OF
MAY 9, 1997, THE HOLDERS OF APPROXIMATELY $953.5 MILLION AGGREGATE
PRINCIPAL AMOUNT OF OUTSTANDING SENIOR DEBENTURES HAD VALIDLY AND,
EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES, IRREVOCABLY TENDERED
THEIR OUTSTANDING SENIOR DEBENTURES FOR PAYMENT IN THE TENDER
OFFER. THE TENDER OFFER IS SCHEDULED TO EXPIRE AT MIDNIGHT, MAY
22, 1997. SEE "THE PROPOSED REFINANCING."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
SENIOR NOTES DUE 2004 - PRICE 99.878% AND ACCRUED INTEREST
SENIOR NOTES DUE 2007 - PRICE 99.865% AND ACCRUED INTEREST
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
---------------- ---------------- ----------------
<S> <C> <C> <C>
PER 7.85% SENIOR NOTE DUE 2004............................ 99.878% 1.125% 98.753%
TOTAL................................................... $299,634,000 $3,375,000 $296,259,000
PER 8.10% SENIOR NOTE DUE 2007............................ 99.865% 1.375% 98.490%
TOTAL................................................... $299,595,000 $4,125,000 $295,470,000
</TABLE>
- -------------
(1) PLUS ACCRUED INTEREST FROM MAY 15, 1997.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE SEVERAL UNDERWRITERS AGAINST
CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SEE "UNDERWRITERS."
<PAGE>
(3) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $2.3
MILLION.
------------------------
THE NOTES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO
AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO APPROVAL OF CERTAIN LEGAL
MATTERS BY SIMPSON THACHER & BARTLETT, COUNSEL FOR THE UNDERWRITERS. IT IS
EXPECTED THAT DELIVERY OF THE NOTES WILL BE MADE ON OR ABOUT MAY 16, 1997
THROUGH THE BOOK-ENTRY FACILITIES OF THE DEPOSITORY, AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
---------------------
MORGAN STANLEY & CO.
INCORPORATED
BT SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
NATIONSBANC CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
MAY 13, 1997.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IS IT UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Supplement Summary.............................................................................. S-3
Risk Factors............................................................................................... S-10
The Company................................................................................................ S-12
The Proposed Refinancing................................................................................... S-14
Use of Proceeds............................................................................................ S-16
Consolidated Capitalization................................................................................ S-17
Unaudited Pro Forma Consolidated Financial Information..................................................... S-18
Selected Consolidated Financial Data....................................................................... S-26
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... S-29
Business................................................................................................... S-35
Description of the Notes................................................................................... S-40
Underwriters............................................................................................... S-46
Legal Matters.............................................................................................. S-47
PROSPECTUS
Available Information...................................................................................... 2
Incorporation of Certain Documents By Reference............................................................ 2
The Company................................................................................................ 3
Use of Proceeds............................................................................................ 4
Ratio of Earnings to Fixed Charges......................................................................... 4
Description of Debt Securities............................................................................. 5
Section 203 of the DGCL.................................................................................... 12
Plan of Distribution....................................................................................... 13
Legal Matters.............................................................................................. 14
Experts.................................................................................................... 14
</TABLE>
------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, THE NOTES
THERETO AND THE OTHER FINANCIAL DATA CONTAINED ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED BY REFERENCE THEREIN.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH HEREIN
UNDER THE CAPTION "RISK FACTORS" AND ARE URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. CONCURRENTLY WITH THE OFFERINGS OF THE SENIOR NOTES (THE "SENIOR NOTE
OFFERINGS"), THE COMPANY IS OFFERING 14,750,000 SHARES OF COMMON STOCK (THE
"EQUITY OFFERINGS" AND, TOGETHER WITH THE SENIOR NOTE OFFERINGS, THE
"OFFERINGS"). UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IN THE EQUITY OFFERINGS. THIS PROSPECTUS
SUPPLEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). SUCH STATEMENTS ARE INDICATED BY WORDS OR PHRASES
SUCH AS "ANTICIPATE," "ESTIMATE," "PROJECT," "MANAGEMENT BELIEVES," "THE COMPANY
BELIEVES" AND SIMILAR WORDS OR PHRASES. SUCH STATEMENTS ARE BASED ON CURRENT
EXPECTATIONS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM
THOSE ANTICIPATED, ESTIMATED OR PROJECTED. ALL REFERENCES TO THE "COMPANY" SHALL
MEAN OWENS-ILLINOIS, INC. AND ITS CONSOLIDATED SUBSIDIARIES, UNLESS THE CONTEXT
INDICATES OTHERWISE.
THE COMPANY
The Company is one of the world's leading manufacturers of packaging
products and is the largest manufacturer of glass containers in the United
States, North America, South America and India, and, with the Company's recent
acquisition of AVIR S.p.A. ("AVIR"), the second largest manufacturer of glass
containers in Europe. Approximately one of every two glass containers made
worldwide is made by the Company, its affiliates or licensees. In 1992, the
first full year following the Company's initial public offering of its Common
Stock, the Company reported earnings from continuing operations of $78.3
million, or $.66 per share. In 1996, reported earnings from continuing
operations were $191.1 million, or $1.58 per share.
In 1996, on a pro forma basis after giving effect to the AVIR Acquisition
(as defined herein), the Company's international glass container operations
contributed over $1.7 billion, or approximately 39%, of net sales, and its
domestic glass container operations contributed approximately 37% of net sales.
In the United States, the Company has more than a 40% share of the U.S. glass
container segment of the rigid packaging market. The Company also manufactures
plastic containers, plastic closures, plastic prescription containers, labels,
and multipack plastic carriers for beverage containers. The Company's plastics
and closures businesses contributed approximately $1.1 billion, or 24%, of the
Company's net sales in 1996, on a pro forma basis after giving effect to the
AVIR Acquisition. The Company is the market leader in the plastic container and
closures segments of the rigid packaging market. The Company competes in these
segments by emphasizing total package supply (i.e. bottle, label, and closure
system), diversified market positions, proprietary technology and products, new
package development, and packaging innovation.
The Company believes it is the technological leader and low-cost producer in
the worldwide glass container segment of the rigid packaging market and in most
other segments of such market in which it participates. Over the past five
years, the Company has invested more than $250 million in research, development
and engineering and nearly $1.5 billion in capital expenditures to translate its
technology into new products and improved productivity. Through its investments
in capital equipment, processes and engineering, the Company strives to increase
machine productivity, improve process quality and control costs. By utilizing a
total-system approach to production technology and process control improvements,
the Company has been able to achieve significant annual machine and labor
productivity gains. As a result, the Company believes it is able to maintain a
service and cost competitive advantage over its major competitors in most market
segments in which it participates. The Company's technical leadership also
provides
S-3
<PAGE>
significant licensing opportunities in the growing international glass market
and, on a selected basis, in the international plastics market.
The Company's business strategy is to (i) expand its international glass
container operations; (ii) grow its plastics and closures businesses both
domestically and internationally; and (iii) continue to improve domestic glass
container margins. See "The Company."
THE PROPOSED REFINANCING
The Company intends to implement a refinancing plan designed to reduce
interest expense, reduce the amount and extend the maturities of the Company's
outstanding long-term debt, improve financial flexibility and increase share
owners' equity. The refinancing contemplates that the Company will use the
proceeds from the Equity Offerings and the Senior Note Offerings and borrowings
under its bank credit facility (the "Existing Credit Facility"), which the
Company expects to amend prior to the closing of the Offerings to, among other
things, increase the borrowing capacity thereunder from $1.8 billion to $3.0
billion (the "Amended Credit Facility"), to (a) repurchase the $1.0 billion
aggregate principal amount of the Company's currently outstanding 11% Senior
Debentures due 2003 (the "Outstanding Senior Debentures") pursuant to the terms
of a tender offer (the "Tender Offer") occurring concurrently with the Offerings
and (b) redeem $950.0 million aggregate principal amount of the Company's Senior
Subordinated Notes (the "Senior Subordinated Notes"), $250.0 million aggregate
principal amount of which are redeemable at the option of the Company as of the
date hereof and the remaining $700.0 million aggregate principal amount of which
become redeemable at the option of the Company at various times in 1997
beginning on June 15, 1997 (the transactions described above being referred to
herein, collectively, as the "Refinancing"). Consummation of the Senior Note
Offerings is conditioned upon (i) the consummation of the Equity Offerings, (ii)
the release of the collateral securing, and the guarantees of, the Company's
obligations under the Existing Credit Facility and the Outstanding Senior
Debentures prior to or concurrently with the consummation of the Senior Note
Offerings and (iii) the consent of the requisite lenders under the Existing
Credit Facility to the issuance of the Notes in the Senior Note Offerings.
Consummation of the Equity Offerings is not subject to any of such conditions.
The Company intends to use the net proceeds from the Offerings to consummate
the Tender Offer. If the Company does not enter into the Amended Credit
Facility, upon consummation of the Offerings the Company will have sufficient
funds to consummate the Tender Offer only. The Company expects to redeem the
Senior Subordinated Notes with borrowings under the Amended Credit Facility. The
redemption of the Senior Subordinated Notes will be made at the discretion of
the Company, depending on prevailing market and economic conditions, when and as
the Senior Subordinated Notes become redeemable. Although the Company
anticipates that the Amended Credit Facility will be effective prior to, or
concurrently with, the consummation of the Offerings and that the additional
borrowing capacity will be available to the Company at such time, there can be
no assurance that such will be the case or that, without funds available under
the Amended Credit Facility, the Company will have adequate funds available to
consummate the Tender Offer or redeem the Senior Subordinated Notes as they
become redeemable. See "The Proposed Refinancing" and "Use of Proceeds."
For recent developments relating to the Tender Offer and the Amended Credit
Facility, see "--Recent Developments--Outstanding Senior Debenture Tender Offer"
and "--Recent Developments--Amended Credit Facility."
S-4
<PAGE>
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
In February 1997, the Company acquired a controlling interest of
approximately 79% in AVIR, the largest manufacturer of glass containers in Italy
and the Czech Republic, and the fourth largest in Spain. The Company believes
the addition of AVIR, combined with existing manufacturing operations located
throughout Europe, will position the Company to better serve the growing market
for glass containers in Western, Eastern and Central Europe. The Company has
initiated a tender offer for the remaining 21% of the AVIR shares that are
publicly held. The tender offer is scheduled to expire on May 22, 1997, and
there can be no assurance that the Company will acquire all of the remaining
outstanding AVIR shares. Based upon current exchange rates, the Company expects
that the total consideration to be paid by the Company for 100% of the AVIR
shares (the "AVIR Acquisition") will be approximately $571.1 million.
In February 1997, the Company acquired certain assets from Anchor Glass
Container Corporation (the "Anchor Assets") as part of the Anchor bankruptcy
proceedings. The Anchor Assets include both manufacturing assets and contractual
agreements with a major U.S. brewer, including a partnership interest in a glass
manufacturing facility. The Company acquired the Anchor Assets for approximately
$125.0 million plus the assumption of certain liabilities.
OUTSTANDING SENIOR DEBENTURE TENDER OFFER
On April 25, 1997, the Company commenced the Tender Offer and, in
conjunction therewith, solicited the consents of the holders of the Outstanding
Senior Debentures to the Proposed Indenture Amendments (as herein defined). As
of May 9, 1997, the holders of approximately $953.5 million aggregate principal
amount of Outstanding Senior Debentures had validly and, except under certain
limited circumstances, irrevocably tendered their Outstanding Senior Notes
pursuant to the Tender Offer and had consented to the Proposed Indenture
Amendments. As a result, the Minimum Tender Condition (as hereinafter defined)
to the Tender Offer has been satisfied. Consummation of the Tender Offer remains
subject to a number of other conditions, including receipt by the Company of net
proceeds from the Offerings that, when combined with amounts available for
borrowing under the Existing Credit Facility or the Amended Credit Facility, are
equal to or greater than the amount required to be paid to holders of the
Outstanding Senior Debentures pursuant to the Tender Offer. See "The Proposed
Refinancing--Outstanding Senior Debenture Tender Offer."
AMENDED CREDIT FACILITY
On May 9, 1997, the Company received commitments from existing and new
lenders to provide an additional $1.2 billion of borrowing capacity under the
Amended Credit Facility. In connection therewith, the Company also received the
consent of the requisite lenders participating in the Existing Credit Facility
(i) to release the collateral securing, and guarantees of, the Company's
obligations under its Existing Credit Facility, (ii) to release the collateral
securing the Outstanding Senior Debentures and (iii) to issue the Notes in the
Senior Note Offerings. This consent will be effective upon the satisfaction of a
number of conditions, including the prior or concurrent release of all
obligations of the Company's subsidiaries under guarantees of the Outstanding
Senior Debentures and the receipt of at least $300.0 million in net proceeds
from the consummation of the Equity Offerings. See "The Proposed
Refinancing--Amended Credit Facility."
S-5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... $300,000,000 aggregate principal amount of
Senior Notes due 2004 (the "7-Year Notes")
and $300,000,000 aggregate principal amount
of Senior Notes due 2007 (the "10-Year
Notes," and together with the 7-Year Notes,
the "Notes").
Maturity Dates............................... The 7-Year Notes will mature on May 15, 2004,
and the 10-Year Notes will mature on May 15,
2007.
Interest Payment Dates....................... May 15 and November 15, commencing Novem-
ber 15, 1997.
Optional Redemption.......................... The Notes are not subject to redemption prior
to maturity.
Ranking...................................... The Notes will be senior unsecured
obligations of the Company and will rank PARI
PASSU with all other senior unsecured
obligations of the Company, including the
Company's obligations under its Amended
Credit Facility, and senior in right of
payment to all existing and future
subordinated debt of the Company.
Substantially all of the operations of the
Company are conducted through its
subsidiaries. Therefore, the Notes will be
effectively subordinated to the claims of
creditors of such subsidiaries. At March 31,
1997, on a pro forma basis after giving
effect to the Refinancing and the AVIR
Acquisition, the Company, excluding its
subsidiaries, would have had approximately
$3.0 billion of indebtedness outstanding and
the Company's subsidiaries would have had
approximately $2.4 billion of liabilities.
Covenants.................................... The Indenture governing the Notes will
contain covenants that, among other things,
(i) limit transactions by the Company and its
subsidiaries with affiliates, (ii) limit the
ability of the Company and its subsidiaries
to create certain liens, (iii) limit
investments in Unrestricted Subsidiaries (as
herein defined) and (iv) limit the ability of
the Company to consolidate or merge with or
into or transfer all or substantially all of
its assets to another person. The foregoing
restrictions are subject to a number of
significant exceptions. See "Description of
the Notes."
Use of Proceeds.............................. The net proceeds from the Senior Note
Offerings, together with the net proceeds
from the Equity Offerings and additional bank
borrowings, will be used to repurchase the
Outstanding Senior Debentures and redeem the
Senior Subordinated Notes in connection with
the Refinancing. See "The Proposed Financing"
and "Use of Proceeds."
</TABLE>
S-6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The actual historical consolidated financial data presented below relate to
the three months ended March 31, 1997 and 1996 and each of the three years in
the period ended December 31, 1996. The summary consolidated financial data for
the three months ended March 31, 1997 and 1996 were derived from the unaudited
consolidated financial statements of the Company, which in the opinion of
management, reflect all adjustments necessary, which consist only of normal
recurring adjustments, for a fair presentation of the interim period financial
data. The results of the three months are not necessarily indicative of the
results to be expected for the full year. The data related to each of the three
years in the period ended December 31, 1996 have been derived from the Company's
Consolidated Financial Statements which were audited by Ernst & Young LLP,
independent auditors. The data set forth are qualified in their entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements, notes thereto and other financial and statistical
information included or incorporated by reference herein.
The unaudited pro forma information presented below was derived from the
unaudited pro forma consolidated condensed financial statements and notes
thereto (the "Pro Forma Statements") included in this Prospectus Supplement
under "Unaudited Pro Forma Consolidated Financial Information." See "Risk
Factors--Potential Variations in Refinancing," "The Proposed Refinancing" and
"Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------
PRO FORMA
1997 PRO FORMA 1996
------------- ----------------------------
AS AS FURTHER AS
ADJUSTED ADJUSTED ADJUSTED
FOR THE 1997 FOR THE FOR THE AVIR 1996
REFINANCING(A) ACTUAL REFINANCING(A) ACQUISITION(B) ACTUAL
------------- --------- ------------- ------------- ----------
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING RESULTS:
Revenues:
Net sales.............................................. $ 1,056.3 $ 1,056.3 $ 1,027.0 $ 1,027.0 $ 905.8
Other(c)............................................... 59.9 59.9 35.6 35.6 31.0
------------- --------- ------------- ------------- ----------
1,116.2 1,116.2 1,062.6 1,062.6 936.8
Costs and expenses:
Manufacturing, shipping and delivery................... 844.9 844.9 804.5 804.5 708.9
Research, engineering, selling, administrative and
other(d)............................................. 101.0 101.0 90.8 90.8 80.0
------------- --------- ------------- ------------- ----------
Earnings before interest expense, income taxes and
minority share owners' interest...................... 170.3 170.3 167.3 167.3 147.9
Interest expense....................................... 66.5 85.9 65.3 84.7 73.5
------------- --------- ------------- ------------- ----------
Earnings before income taxes and minority share owners'
interest............................................. 103.8 84.4 102.0 82.6 74.4
Provision for income taxes............................. 30.8 23.4 40.2 32.8 25.9
Minority share owners' interests in earnings of
subsidiaries......................................... 6.4 6.4 10.3 10.3 8.9
------------- --------- ------------- ------------- ----------
Net earnings........................................... $ 66.6 $ 54.6 $ 51.5 $ 39.5 $ 39.6
------------- --------- ------------- ------------- ----------
------------- --------- ------------- ------------- ----------
Net earnings per share of common stock................. $ 0.48 $ 0.44 $ 0.38 $ 0.33 $ 0.33
OTHER DATA:
EBITDA(e).............................................. $ 243.2 $ 243.2 $ 231.6 $ 231.6 $ 205.8
Adjusted EBITDA(f)..................................... 241.0 241.0 231.6 231.6 205.8
Depreciation........................................... 67.7 67.7 60.1 60.1 52.8
Amortization of excess cost and intangibles............ 13.0 13.0 13.7 13.7 11.6
Additions to property, plant and equipment............. 76.6 76.6 93.4 93.4 77.1
Ratio of earnings to fixed charges..................... 2.3x 1.8x 2.4x 1.8x 1.9x
Ratio of Adjusted EBITDA to interest expense........... 3.6x 2.8x 3.5x 2.7x 2.8x
Weighted average shares outstanding (000's)............ 136,563 121,813 134,810 120,060 120,060
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................................ $ 650 $ 650 $ 334
Total assets........................................... 6,690 6,695 5,452
Total debt............................................. 3,447(b) 3,570 2,852
Share owners' equity................................... 1,052 757 570
</TABLE>
(FOOTNOTES ON PAGE S-9)
S-7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA -- CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
PRO FORMA 1996
--------------------------------
AS FURTHER
ADJUSTED FOR AS ADJUSTED ACTUAL
THE FOR THE AVIR -------------------------------
REFINANCING(A) ACQUISITION(B) 1996 1995 1994
----------------- ------------- --------- --------- ---------
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING RESULTS:
Revenues:
Net sales..................................... $ 4,440.1 $ 4,440.1 $ 3,845.7 $ 3,763.2 $ 3,567.3
Other......................................... 168.5 168.5 130.5 117.8 85.6
-------- ------------- --------- --------- ---------
4,608.6 4,608.6 3,976.2 3,881.0 3,652.9
Costs and expenses:
Manufacturing, shipping and delivery.......... 3,481.1 3,481.1 3,025.6 2,948.5 2,824.3
Research, engineering, selling, administrative
and other (d)............................... 394.8 394.8 323.9 322.9 379.1
-------- ------------- --------- --------- ---------
Earnings before interest expense, income taxes
and minority share owners' interest......... 732.7 732.7 626.7 609.6 449.5
Interest expense.............................. 273.5 351.3 302.6 299.6 278.2
-------- ------------- --------- --------- ---------
Earnings before income taxes and minority
share owners' interest...................... 459.2 381.4 324.1 310.0 171.3
Provision for income taxes.................... 170.6 140.9 104.9 100.8 68.9
Minority share owners' interests in earnings
of subsidiaries............................. 34.1 34.1 28.1 40.1 24.1
-------- ------------- --------- --------- ---------
Net earnings.................................. $ 254.5 $ 206.4 $ 191.1 $ 169.1 $ 78.3
-------- ------------- --------- --------- ---------
-------- ------------- --------- --------- ---------
Net earnings per share of common stock........ $ 1.87 $ 1.70 $ 1.58 $ 1.40 $ 0.64
OTHER DATA:
EBITDA (e).................................... $ 1,017.0 $ 1,017.0 $ 871.0 $ 813.0 $ 659.0
Adjusted EBITDA (f)........................... 1,017.0 1,017.0 871.0 813.0 759.0
Depreciation.................................. 264.5 264.5 219.8 188.3 183.3
Amortization of excess cost and intangibles... 56.9 56.9 46.8 44.8 45.2
Additions to property, plant and equipment.... 479.6 479.6 388.4 283.6 286.0
Ratio of earnings to fixed charges............ 2.5x 2.0x 2.0x 1.9x 1.5x
Ratio of Adjusted EBITDA to interest
expense..................................... 3.7x 2.9x 2.9x 2.7x 2.7x
Ratio of total debt to Adjusted EBITDA........ 3.9x 3.5x 3.5x
Weighted average shares outstanding (000's)... 135,026 120,276 120,276 119,343 119,005
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................... $ 380 $ 328 $ 171
Total assets.................................. 6,105 5,439 5,318
Total debt.................................... 3,395 2,833 2,690
Share owners' equity.......................... 730 532 376
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
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(FOOTNOTES FROM PREVIOUS PAGES)
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(a) Reflects the completion of all the transactions contemplated by the
Refinancing.
(b) Reflects the completion of the AVIR Acquisition.
(c) Other revenues includes a $16.3 million ($16.3 million after tax) gain from
a divestiture in the three months ended March 31, 1997.
(d) In the first quarter of 1997, the Company recorded a charge of $14.1 million
($8.7 million after tax) principally for the estimated cost of guaranteed
lease obligations of a previously divested business. In the fourth quarter
of 1995, the Company recorded a charge of $40.0 million ($24.7 million after
tax) to write down the asbestos insurance asset and a net credit of $40.0
million ($24.7 million after tax) primarily from the reduction of previously
established restructuring reserves. In the fourth quarter of 1994, the
Company recorded a charge of $100.0 million ($61.7 million after tax) to
write down the asbestos insurance asset.
(e) EBITDA is comprised of earnings from continuing operations before interest
expense, income taxes, minority share owners' interests, extraordinary items
and cumulative effect of accounting changes and excludes depreciation,
amortization of excess cost and intangibles and interest income of $7.8
million and $6.5 million ($9.5 million on a pro forma basis) in the three
month periods ended March 31, 1997 and 1996, respectively, and $22.3 million
($37.1 million on a pro forma basis), $29.7 million and $19.0 million for
1996, 1995 and 1994, respectively. EBITDA is a measure of the Company's
ability to service its debt. It is not an alternative to net income as a
measure of the Company's results of operations (as interest income, interest
expense, taxes, depreciation, amortization and minority share owners'
interests are included in the determination of net income) or to cash flows
as a measure of liquidity (as cash flows include the cash effects of all
operating, financing and investing activities). Rather, it is included
herein because EBITDA is a widely accepted financial indicator used by
certain investors and financial analysts to assess and compare companies on
the basis of operating performance. EBITDA, as computed, may not be
comparable to similarly-titled measures of other companies.
(f) Adjusted EBITDA excludes unusual charges of $14.1 million in the three
months ended March 31, 1997 and $100.0 million in the year ended December
31, 1994, and a $16.3 million gain from a divestiture in the three months
ended March 31, 1997 (see Notes (c) and (d)).
S-9
<PAGE>
RISK FACTORS
Purchasers of the Notes offered hereby should consider the specific factors
set forth below as well as the other information set forth in this Prospectus
Supplement and the accompanying Prospectus.
LEVERAGE AND DEBT SERVICE
At March 31, 1997, the Company had $3.6 billion of outstanding indebtedness.
Although the Refinancing is expected to reduce indebtedness and interest
expense, the Company will continue to have indebtedness that is substantial in
relation to its share owners' equity. At March 31, 1997, on a pro forma basis
after giving effect to the Refinancing and the AVIR Acquisition, the Company
would have had a ratio of total debt to share owners' equity of 3.3 to 1.0. See
"The Proposed Refinancing," "Consolidated Capitalization" and "Unaudited Pro
Forma Consolidated Financial Information." The completion of the Refinancing is
subject to a number of factors, some of which are beyond the control of the
Company. See "--Potential Variations in Refinancing" and "The Proposed
Refinancing."
The Company's Existing Credit Facility contains, and the Company expects
that the Amended Credit Facility will continue to contain, certain restrictions
on the ability of the Company to incur additional indebtedness, pay dividends,
make distributions or other payments and create liens, and limitations on the
Company's subsidiaries' abilities to make certain payments and create liens.
Under the Amended Credit Facility, the Company will also be required to maintain
compliance with certain financial ratios and tests. Furthermore, as long as the
Senior Subordinated Notes remain outstanding, the Company will be subject to
certain limitations on its ability to, among other things, incur additional
indebtedness, pay dividends, make distributions or other payments, engage in
transactions with affiliates, create liens, engage in mergers and consolidations
and make investments in unrestricted subsidiaries. These restrictions, combined
with the leveraged nature of the Company, could limit the ability of the Company
to effect future financings or otherwise may restrict corporate activities.
However, the Company does not believe that existing levels of debt have had a
material adverse effect on its ability to compete with its competitors.
Any failure by the Company to comply with the covenants and restrictions
contained in the Existing Credit Facility or the Amended Credit Facility or any
of the indentures relating to its outstanding debt could result in a default
thereunder, which in turn could cause such indebtedness (and by reason of cross-
default provisions, other indebtedness) to be declared immediately due and
payable. The ability of the Company to comply with these provisions may be
affected by events beyond its control.
POTENTIAL VARIATIONS IN REFINANCING
Consummation of the Tender Offer is subject to the satisfaction of certain
conditions, including (i) receipt by the Company of net proceeds from the
Offerings that, when combined with amounts available for borrowing under the
Existing Credit Facility or the Amended Credit Facility, are equal to or greater
than the amount required to be paid to holders of the Outstanding Senior
Debentures pursuant to the Tender Offer, and (ii) the valid tender of and
receipt of Consents (as herein defined) from at least a majority in aggregate
principal amount of the Outstanding Senior Debentures (the "Minimum Tender
Condition"). Although the Minimum Tender Condition has been satisfied, there can
be no assurance that the remaining conditions to closing the Tender Offer will
be satisfied or that the Tender Offer will be consummated, and, if the Tender
Offer is consummated, there can be no assurance the remaining approximately
$46.5 million aggregate principal amount of Outstanding Senior Debentures will
be tendered prior to the Expiration Date. If the Tender Offer is not
consummated, the Proposed Indenture Amendments (as herein defined) will not
become operative. The restrictions in the indenture relating to the Outstanding
Senior Debentures would, therefore, remain in full force and effect. Such
restrictions will affect, and in certain circumstances limit, the ability of the
Company to, among other things, incur additional indebtedness, pay dividends,
make distributions or other payments, issue preferred stock of certain
subsidiaries, engage in transactions with subsidiaries and affiliates, create
liens, engage in mergers and consolidations and make investments in unrestricted
subsidiaries. See "The Proposed Refinancing-- Outstanding Senior Debenture
Tender Offer."
Although the Company expects to increase its borrowing capacity from $1.8
billion to $3.0 billion pursuant to the terms of the Amended Credit Facility and
that such additional borrowing capacity will be available to the Company at the
closing of the Offerings, there can be no assurance that this will be the case.
Regardless of whether such borrowings are available, because the Company is
under no obligation to redeem the Senior Subordinated Notes prior to their
respective stated maturity dates, there can be no
S-10
<PAGE>
assurance that the Company will redeem all or any portion of the Senior
Subordinated Notes when they become redeemable. The Company's decision to redeem
any of such Senior Subordinated Notes will be made at the time each such series
of Senior Subordinated Notes becomes redeemable by the Company and shall be
based on, among other things, prevailing market and economic conditions at such
time. Accordingly, the Company is unable to predict whether the refinancing of
its long-term indebtedness as actually consummated will conform to the
Refinancing as described herein. See "Unaudited Pro Forma Consolidated Financial
Information."
HOLDING COMPANY STRUCTURE
The operations of the Company are conducted principally through its
indirectly owned operating subsidiaries, and therefore the Company is dependent
on the cash flow of its subsidiaries to meet its debt obligations, including its
obligations under the Notes. The claims of holders of the Notes will be
effectively subordinated to the prior claims of creditors, including trade
creditors, of the operating subsidiaries. At March 31, 1997, on a pro forma
basis after giving effect to the Refinancing and the AVIR Acquisition, the total
current and other liabilities and long-term debt of the operating subsidiaries
included in the Company's consolidated liabilities would have had approximately
$2.4 billion. The amount of the direct liabilities of the operating subsidiaries
may fluctuate significantly depending on a number of factors, including the
amount of subsidiary borrowings and other liabilities. Although the Company
expects that the Amended Credit Facility will contain certain restrictions on
the incurrence of indebtedness by the Company's subsidiaries the Indenture does
not contain any such restrictions. See "Description of the Notes--Covenants."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company operates manufacturing and other facilities on four continents
and sells its products in over 25 countries. On a pro forma basis after giving
effect to the AVIR Acquisition, net sales of the Company's products outside the
United States in 1996 totalled approximately $1.7 billion, representing
approximately 39% of the Company's net sales. As a result of its international
operations, the Company is subject to risks associated with operating in foreign
countries, including devaluations and fluctuations in currency exchange rates,
imposition of limitations on conversions of foreign currencies into dollars or
remittance of dividends and other payments by foreign subsidiaries, imposition
or increase of withholding and other taxes on remittances and other payments by
foreign subsidiaries, hyperinflation in certain foreign countries and imposition
or increase of investment and other restrictions or requirements by foreign
governments. Although such risks have not had a material adverse effect on the
Company in the past, no assurance can be given that such risks will not have a
material adverse effect on the Company in the future. See "Business."
SIGNIFICANT KKR EQUITY INVESTMENT
After giving effect to the Equity Offerings, and based on shares of Common
Stock outstanding as of May 12, 1997, approximately 26.1% (25.7% if the
Underwriters' over-allotment option is exercised in full) of the outstanding
shares of Common Stock of the Company will be held by three limited partnerships
(the "KKR Partnerships"), the general partner of each of which is KKR
Associates, L.P. ("KKR Associates"), an affiliate of Kohlberg Kravis Roberts &
Co., L.P. ("KKR"). KKR Associates has sole voting and investment power with
respect to such shares. Consequently, KKR Associates and its general partners
will be able to exercise significant influence over the business of the Company
by virtue of their existing majority representation on the Board of Directors of
the Company and their voting power with respect to the election of directors and
actions requiring stockholder approval. In addition, KKR renders consulting and
financial services to the Company and its subsidiaries and receives quarterly
management fees.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
Each series of the Notes will be new securities for which there currently is
no market. Although the Underwriters have informed the Company that they
currently intend to make a market in the Notes, they are not obligated to do so,
and any such market making may be discontinued at any time without notice. If
the Underwriters cease to act as market makers for the Notes for any reason,
there can be no assurance that another firm or person will make a market in the
Notes. There can be no assurance that an active market for the Notes will
develop or, if a market does develop, at what price the Notes will trade. The
Company does not intend to apply for listing of the Notes on any securities
exchange or for quotation through the Nasdaq National market.
S-11
<PAGE>
THE COMPANY
The Company is one of the world's leading manufacturers of packaging
products and is the largest manufacturer of glass containers in the United
States, North America, South America and India, and, with the Company's recent
acquisition of AVIR, the second largest manufacturer of glass containers in
Europe. Approximately one of every two glass containers made worldwide is made
by the Company, its affiliates or licensees. In 1992, the first full year
following the Company's initial public offering of its Common Stock, the Company
reported earnings from continuing operations of $78.3 million, or $.66 per
share. In 1996, reported earnings from continuing operations were $191.1
million, or $1.58 per share.
In 1996, on a pro forma basis after giving effect to the AVIR Acquisition,
the Company's international glass container operations contributed over $1.7
billion, or approximately 39%, of net sales, and its domestic glass container
operations contributed approximately 37% of net sales. In the United States, the
Company has more than a 40% share of the U.S. glass container segment of the
rigid packaging market. The Company also manufactures plastic containers,
plastic closures, plastic prescription containers, labels, and multipack plastic
carriers for beverage containers. The Company's plastics and closures businesses
contributed approximately $1.1 billion, or 24%, of the Company's net sales in
1996, on a pro forma basis after giving effect to the AVIR Acquisition. The
Company is the market leader in the plastic container and closures segments of
the rigid packaging market. The Company competes in these segments by
emphasizing total package supply (i.e., bottle, label, and closure system),
diversified market positions, proprietary technology and products, new package
development, and packaging innovation.
The Company believes it is the technological leader and low-cost producer in
the worldwide glass container segment of the rigid packaging market and in most
other segments of such market in which it participates. Over the past five
years, the Company has invested more than $250 million in research, development
and engineering and nearly $1.5 billion in capital expenditures to translate its
technology into new products and improved productivity. Through its investments
in capital equipment, processes and engineering, the Company strives to increase
machine productivity, improve process quality and control costs. By utilizing a
total-system approach to production technology and process control improvements,
the Company has been able to achieve significant annual machine and labor
productivity gains. As a result, the Company believes it is able to maintain a
service and cost competitive advantage over its major competitors in most market
segments in which it participates. The Company's technical leadership also
provides significant licensing opportunities in the growing international glass
market and, on a selected basis, in the international plastics market.
BUSINESS STRATEGY
The Company's business strategy is to:
EXPAND INTERNATIONAL GLASS CONTAINER OPERATIONS
The Company has expanded and intends to continue to expand its international
glass container operations by selectively acquiring companies with leading
positions in growing markets, increasing the capacity of selected foreign
affiliates, and expanding the global network of glass container companies that
license the Company's technology. The Company has significant ownership
positions in 19 companies located in 16 foreign countries and Puerto Rico, and
sells its products in over 25 countries. International glass net sales in 1996
were larger than domestic glass net sales for the first time in the Company's
history, having grown from $640 million in 1992 to over $1.7 billion pro forma
in 1996 after giving effect to the AVIR Acquisition. The Company believes that
demographic and economic trends in certain developing regions of the world,
particularly portions of Latin America, Eastern Europe, India and China, where
per capita glass container consumption is relatively low, but growing, will lead
to an increase in the demand for glass containers in these markets. These trends
include rising disposable incomes, increasing processed food and beverage
consumption, additional investments in such regions by multi-national food and
beverage companies, some of which are existing customers of the Company, and a
trend from the use of returnable containers to the purchase of one-way
recyclable containers. In addition, the Company's international glass
manufacturing operations generally benefit from lower production costs than its
domestic manufacturing operations. Since 1991, the Company has made 10
international glass container acquisitions, including in 1995 and 1996, the
acquisitions of manufacturing operations in India, Hungary, Finland, Estonia and
China. In February 1997, the Company completed the acquisition of a 79% interest
in AVIR, the largest manufacturer of glass containers in Italy and the Czech
Republic, and the fourth largest in Spain. The Company believes the addition of
AVIR, combined with existing manufacturing operations
S-12
<PAGE>
located throughout Europe, will position the Company to better serve the growing
market for glass containers in Western, Eastern and Central Europe. The Company
also participates in regions of the world where it does not have an existing
manufacturing presence by entering into technical assistance agreements with
glass container manufacturers in such regions. The Company currently has such
technical assistance agreements with 35 different companies in 37 countries
covering areas ranging from manufacturing and engineering assistance to support
functions such as marketing, sales and administration.
GROW PLASTICS AND CLOSURES BUSINESSES BOTH DOMESTICALLY AND INTERNATIONALLY
The Company intends to grow its existing plastics and closures businesses
both domestically and internationally by continuing to focus on those segments
of the plastic packaging market where customers seek to use distinctive
packaging to differentiate their products. The Company believes it is the
largest producer of primary rigid plastics packaging in North America, excluding
the plastic soft drink segment in which the Company has chosen not to
participate. The Company believes its plastic container (blow molding)
operations have the leading share of this segment of the rigid packaging market,
excluding plastic soft drink bottles, with leading positions in household,
personal care and health care products, and significant positions in food and
automotive products. The Company believes it is the largest producer of
injection molded plastics packaging in North America, with leading positions in
child resistant closures, tamper evident closures, dispensing packaging
components and prescription vials. The Company also believes it is a leading
producer of plastic in-mold labels for the plastic container industry. The
Company also has plastic packaging operations in Europe, Mexico and South
America. The Company believes it is a leader in technology and development of
custom molded plastic packaging products and has a competitive advantage as a
result of one of the shortest new product development cycles in the industry,
enabling the Company to provide superior service in the service-sensitive custom
plastic packaging market. The Company has completed six small acquisitions since
1993 and expects to continue to supplement internal growth with selected
acquisitions.
IMPROVE DOMESTIC GLASS CONTAINER MARGINS
The Company's domestic glass container strategy is focused on continuing to
improve margins through greater machine and labor productivity. The Company
believes that its internally developed machines are significantly more efficient
and productive than those used by its competitors, making it the low-cost
manufacturer and the recognized technological leader in the glass container
manufacturing industry.
The Company's glass container market strategy is to focus on growing or
stable segments of the domestic glass container segment of the rigid packaging
market, particularly those which can benefit from the Company's high
productivity machines and strategic plant locations. The Company believes that
glass containers are a preferred packaging alternative for many customers
marketing premium products with a high quality image. Customers marketing
premium beer, wine, liquor, juices and teas, baby food and many other food
products choose glass containers as their package material of choice to help
convey the high quality, purity and premium characteristics of their products.
The recent example of a customer selecting a glass container, instead of the
more traditional metal container, as the package for a high quality soup
illustrates how glass is used to market the premium attributes of a product. The
Company believes it is the leading producer of glass containers for the beer,
juices and teas, baby food and many other food markets. Unit shipments in the
U.S. to brewers and food producers, including producers of juices and teas,
approximated 90%, 87% and 77% of the Company's total U.S. glass container unit
shipments for 1996, 1995 and 1994, respectively.
The Company also manufactures glass container forming machinery and related
spare parts which it uses internally and sells to affiliates and licensees. The
Company believes it is one of the world's leading suppliers of glass container
forming machinery.
The principal executive office of the Company is located at One SeaGate,
Toledo, Ohio 43666; the telephone number is (419) 247-5000.
S-13
<PAGE>
THE PROPOSED REFINANCING
The Offerings are part of the Refinancing, the other principal elements of
which are described below. The Refinancing will reduce interest expense, reduce
the amount and extend the maturities of the Company's outstanding long-term
debt, improve financial flexibility and increase share owners' equity.
THE EQUITY OFFERINGS AND THE SENIOR NOTE OFFERINGS
The Company anticipates receiving estimated net proceeds of approximately
$405.2 million from the Equity Offerings, and estimated net proceeds of
approximately $591.7 million from the Senior Note Offerings, all of which will
be used, in each case, to repurchase Outstanding Senior Debentures in the Tender
Offer. Consummation of the Senior Note Offerings will be conditioned upon (i)
the consummation of the Equity Offerings, (ii) the release of the collateral
securing, and guarantees of, the Company's obligations under the Existing Credit
Facility and the Outstanding Senior Debentures prior to or concurrently with the
consummation of the Senior Note Offerings and (iii) the consent of the requisite
lenders under the Existing Credit Facility to the issuance of the Notes.
Consummation of the Equity Offerings is not subject to any of such conditions.
On May 9, 1997, the requisite lenders under the Existing Credit Facility (i)
agreed to release the collateral securing the Company's obligations under the
Existing Credit Facility and the Outstanding Senior Debentures and the
guarantees of the Company's obligations under the Existing Credit Facility and
(ii) consented to the issuance of the Notes in the Senior Note Offerings. This
consent will be effective upon the satisfaction of a number of conditions,
including the prior or concurrent release of all obligations of the Company's
subsidiaries under guarantees of the Outstanding Senior Debentures and the
receipt of at least $300.0 million in net proceeds from the consummation of the
Equity Offerings. The Company has the ability to cause the guarantees of the
Company's obligations under the Outstanding Senior Debentures to be released
pursuant to the terms of the agreements governing such guarantees and will do so
prior to the consummation of the Senior Note Offerings.
AMENDED CREDIT FACILITY
In addition to obtaining the release of the collateral securing, and
guarantees of, the Company's obligations under the Existing Credit Facility, the
Company expects to amend the Existing Credit Facility to provide up to $3.0
billion of unsecured borrowings prior to or concurrently with the consummation
of the Offerings. As of May 9, 1997, the Company had received sufficient
commitments from existing and new lenders to provide such additional borrowing
capacity. It is expected that the Amended Credit Facility will expire on
December 31, 2001, and will bear interest at the Company's option at the base
rate (as defined therein) or a reserve adjusted eurodollar rate plus a margin
linked to the Company's leverage ratio. It is further expected that the Company
will be permitted to request bid rate loans from banks participating in the
Amended Credit Facility. It is expected that the Amended Credit Facility will
continue to contain restrictions on the Company's ability to incur indebtedness,
create liens, pay dividends, sell assets, make investments, make distributions
or other payments, and limitations on certain of the Company's subsidiaries'
abilities to enter into any agreement that would restrict such subsidiaries'
ability to make certain payments and create liens, and will require that the
Company maintain compliance with certain specified ratios and tests. Compliance
with these restrictions and covenants could limit the ability of the Company to
effect future financings or otherwise restrict corporate activities. There can
be no assurance that the Company will enter into the Amended Credit Facility, or
that if it does, that the Company will use the borrowings thereunder in the
manner contemplated by the Refinancing.
OUTSTANDING SENIOR DEBENTURE TENDER OFFER
Concurrently with the Offerings, the Company is offering to purchase for
cash (the "Tender Offer") all $1.0 billion aggregate principal amount of the
Company's Outstanding Senior Debentures at a purchase price based on a fixed
spread above a referenced treasury security (the "Tender Offer Consideration").
The Tender Offer will expire at midnight, New York City time, on May 22, 1997
(the "Expiration Date"). In conjunction with the Tender Offer, the Company
solicited consents (the "Consents") of the holders of the Outstanding Senior
Debentures to certain proposed amendments (the "Proposed Indenture Amendments")
to the Indenture, dated as of December 15, 1991 (the "Senior Debenture
Indenture"), by and
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<PAGE>
among the Company, Owens-Illinois Group, Inc., as guarantor, and The Bank of New
York, as trustee, pursuant to which the Outstanding Senior Debentures were
issued. The termination date for the consent solicitation was May 9, 1997 (the
"Consent Date"). Each holder of an Outstanding Senior Debenture who validly
consented to the Proposed Indenture Amendments on or prior to the Consent Date
will be paid $20.00 for each $1,000 in principal amount of the Outstanding
Senior Debentures for which Consents had been validly delivered and not validly
revoked as of the Consent Date (the "Consent Payment"), with such payment to be
made on the payment date specified in the Tender Offer (the "Payment Date"). As
of May 9, 1997, holders of approximately $953.5 million in principal amount of
Outstanding Senior Debentures had validly and, except under certain limited
circumstances, irrevocably tendered Senior Outstanding Debentures pursuant to
the Tender Offer and, in connection therewith, consented to the Proposed
Indenture Amendments. Any holder of Outstanding Senior Debentures who validly
tenders such debentures subsequent to 5:00 p.m. New York City time on the
Consent Date will receive the Tender Offer Consideration, but will not receive
the Consent Payment. The Supplemental Indenture effecting the Proposed Indenture
Amendments has been executed by the Company and the trustee under the Senior
Debenture Indenture, but the Proposed Indenture Amendments will not be operative
unless and until the Company accepts the Outstanding Senior Debentures in the
Tender Offer.
Consummation of the Tender Offer is subject to the satisfaction of certain
conditions, including (i) receipt by the Company of net proceeds from the
Offerings that, when combined with amounts available for borrowing under the
Existing Credit Facility or the Amended Credit Facility, are equal to or greater
than the amount required to be paid to holders of the Outstanding Senior
Debentures pursuant to the Tender Offer, and (ii) the valid tender of and
receipt of Consents from at least a majority in aggregate principal amount of
the Outstanding Senior Debentures (the "Minimum Tender Condition"). Although the
Minimum Tender Condition has been satisfied, there can be no assurance that the
remaining conditions to closing the Tender Offer will be satisfied or that the
Tender Offer will be consummated, and, if the Tender Offer is consummated, there
can be no assurance the remaining approximately $46.5 million aggregate
principal amount of Outstanding Senior Debentures will be tendered prior to the
Expiration Date. If the Tender Offer is not consummated, the Proposed Indenture
Amendments will not become operative. The restrictions in the Senior Debenture
Indenture relating to the Outstanding Senior Debentures would, therefore, remain
in full force and effect. Such restrictions will affect, and in certain
circumstances limit, the ability of the Company to, among other things, incur
additional indebtedness, pay dividends, make distributions or other payments,
issue preferred stock of certain subsidiaries, engage in transactions with
subsidiaries and affiliates, create liens, engage in mergers and consolidations
and make investments in unrestricted subsidiaries. See "Risk Factors--Potential
Variations in the Refinancing."
REDEMPTION OF OUTSTANDING SENIOR SUBORDINATED NOTES
The Company's $950.0 million aggregate principal amount of Senior
Subordinated Notes are redeemable at the option of the Company as follows: (i)
$250.0 million aggregate principal amount of the Company's 10 1/4% Senior
Subordinated Notes due 1999 are redeemable at 100.0% of principal amount on and
after April 1, 1997; (ii) $150.0 million aggregate principal amount of the
Company's 10 1/2% Senior Subordinated Notes due 2002 are redeemable at 105.25%
of principal amount on and after June 15, 1997; (iii) $250.0 million aggregate
principal amount of the Company's 10% Senior Subordinated Notes due 2002 are
redeemable at 105.0% of principal amount on and after August 1, 1997; (iv)
$200.0 million aggregate principal amount of the Company's 9 3/4% Senior
Subordinated Notes due 2004 are redeemable at 104.875% of principal amount on
and after August 15, 1997; and (v) $100.0 million aggregate principal amount of
the Company's 9.95% Senior Subordinated Notes due 2004 are redeemable at
104.975% of principal amount on and after October 15, 1997. Although the Company
currently intends to redeem all of the Senior Subordinated Notes as part of the
Refinancing subject to the availability of funds under the Amended Credit
Facility, on or shortly following the date on which they are first redeemable,
the Company is under no obligation to call for redemption any of the Senior
Subordinated Notes at any time. The Company's decision to redeem any of such
Senior Subordinated Notes will be made at the time each such series of Senior
Subordinated Notes becomes redeemable by the Company and will be based on, among
other things, prevailing market and economic conditions.
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<PAGE>
USE OF PROCEEDS
The Refinancing contemplates that the net proceeds from the Offerings,
currently estimated to be approximately $996.9 million in total, as well as
approximately $1,116.9 million of borrowings under the Amended Credit Facility,
which the Company intends to enter into prior to or concurrently with the
closing of the Offerings, will be used by the Company to (a) repurchase the
Outstanding Senior Debentures pursuant to the terms of the Tender Offer and (b)
redeem, at the Company's option, up to $950.0 million aggregate principal amount
of the Senior Subordinated Notes, $250.0 million of which are redeemable at the
option of the Company as of the date hereof and the remaining $700.0 million of
which become redeemable at the option of the Company at various times in 1997
beginning June 15, 1997. The consummation of the Tender Offer and the
availability of borrowings under the Existing Credit Facility or the Amended
Credit Facility are not conditions to the closing of the Offerings. Consummation
of the Senior Note Offerings is not a condition to the consummation of the
Equity Offerings, but consummation of the Equity Offerings is a condition to the
consummation of the Senior Note Offerings. The Company currently contemplates
that the net proceeds from the Offerings will be used to repurchase the
Outstanding Senior Debentures pursuant to the Tender Offer. Pending application
of such net proceeds, the Company intends to reduce temporarily amounts
outstanding under the Existing Credit Facillity or Amended Credit Facility, as
the case may be. It is expected that borrowings under the Existing Credit
Facility or the Amended Credit Facility, if consummated, will be used to
consummate the Tender Offer and, if the Company so elects, to redeem all or a
portion of the Senior Subordinated Notes.
The Company cannot predict whether the consummation of the Refinancing will
conform to the assumptions used in the preparation of the Pro Forma Statements
as set forth under "Unaudited Pro Forma Consolidated Financial Information." In
analyzing the Pro Forma Statements and other information contained in this
Prospectus Supplement, an investor should consider that the Refinancing as
actually consummated could differ from the assumptions described herein relating
thereto. See "Risk Factors-- Potential Variations in Refinancing," "The Proposed
Refinancing" and "Unaudited Pro Forma Consolidated Financial Information."
The following table sets forth a summary of the expected sources and uses of
funds in the Refinancing (in millions of dollars):
<TABLE>
<CAPTION>
SOURCES OF FUNDS
- --------------------------------------------------------------------------------------------------
<S> <C>
Equity Offerings.................................................................................. $ 420.4
Senior Note Offerings............................................................................. 599.2
Borrowings under Amended Credit Facility.......................................................... 1,116.9
--------------
Total sources of funds.......................................................................... $ 2,136.5
--------------
--------------
<CAPTION>
USES OF FUNDS
- --------------------------------------------------------------------------------------------------
<S> <C>
Tender for 11% Senior Debentures due 2003 (including Consent Payments)............................ $ 1,114.8
Redemption of 10 1/4% Senior Subordinated Notes due 1999.......................................... 250.0
Redemption of 10 1/2% Senior Subordinated Notes due 2002.......................................... 157.9
Redemption of 10% Senior Subordinated Notes due 2002.............................................. 262.5
Redemption of 9 3/4% Senior Subordinated Notes due 2004........................................... 209.8
Redemption of 9.95% Senior Subordinated Notes due 2004............................................ 105.0
Estimated fees and expenses (including underwriters' discounts)................................... 36.5
--------------
Total uses of funds............................................................................. $ 2,136.5
--------------
--------------
</TABLE>
S-16
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1997 and as adjusted to give effect to the Refinancing,
assuming 100% of the Outstanding Senior Debentures are accepted for payment
pursuant to the Tender Offer, and, as more fully described below, gives effect
to additional borrowings to complete the tender offer for the remaining 21% of
AVIR. The table should be read in conjunction with the Consolidated Financial
Statements of the Company, the notes thereto and the other financial data
contained elsewhere or incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus. See "The Proposed Refinancing," "Unaudited Pro
Forma Consolidated Financial Information" and "Selected Consolidated Financial
Data."
<TABLE>
<CAPTION>
AT MARCH 31, 1997
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(MILLIONS OF DOLLARS,
EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
Current debt:
Short-term loans........................................................................ $ 111.2 $ 111.2
Long-term debt due within one year...................................................... 50.7 50.7
--------- -----------
Total current debt.................................................................... $ 161.9 $ 161.9
--------- -----------
--------- -----------
Long-term debt:
Bank Credit Facility:
Revolving Loans....................................................................... $ 1,110.0 $ 2,337.0(a)
Bid Rate Loans........................................................................ 90.0 90.0
--------- -----------
Total bank credit agreement......................................................... 1,200.0 2,427.0
Outstanding Senior Debentures (due 2003)................................................ 1,000.0
Senior Notes due 2004................................................................... 300.0
Senior Notes due 2007................................................................... 300.0
Senior Subordinated Notes............................................................... 950.0
--------- -----------
Total notes and debentures.......................................................... 1,950.0 600.0
Other................................................................................... 257.7 257.7
--------- -----------
Total long-term debt.................................................................... 3,407.7 3,284.7
Share owners' equity:
Preferred stock......................................................................... 21.4 21.4
Common stock, par value $.01 per share, 122,673,393 shares outstanding,
137,423,393 shares outstanding as adjusted (b)........................................ 1.2 1.4
Capital in excess of par value.......................................................... 1,074.4 1,477.3
Deficit................................................................................. (203.6) (311.7)(c)
Cumulative foreign currency translation adjustment.................................... (136.1) (136.1)
--------- -----------
Total share owners' equity.......................................................... 757.3 1,052.3
--------- -----------
Total capitalization...................................................................... $ 4,165.0 $ 4,337.0
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(a) Includes $1,116.9 million additional borrowings under the Amended Credit
Facility in connection with the Refinancing and $110.1 million additional
bank borrowings for the estimated cost of completing the tender offer for
the remaining 21% of AVIR which is publicly held.
(b) Excludes 2,281,326 shares of Common Stock issuable pursuant to immediately
exercisable stock options outstanding as of March 31, 1997.
(c) The deficit has been increased by $108.1 million for the write-off of
unamortized deferred finance fees, consent fees, and tender offer premiums
associated with the Amended Credit Facility, the repurchase of the
Outstanding Senior Debentures, and the redemption of the Senior Subordinated
Notes, after deducting estimated tax benefits, in each case, calculated at
March 31, 1997.
S-17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated statements of operations
contained in this Prospectus Supplement give effect to the following
transactions and events as if they had occurred at the beginning of the periods
presented: (i) the acquisition of a 79% interest in AVIR; (ii) the completion of
the tender offer to purchase the remaining 21% of AVIR; (iii) the sale and
issuance of 14,750,000 shares of Common Stock in the Equity Offerings at an
offering price of $28.50 per share; (iv) the sale and issuance of an aggregate
$600.0 million principal amount of Notes in the Senior Note Offerings; (v) the
purchase of all of the Outstanding Senior Debentures in the Tender Offer; (vi)
the redemption of all of the Company's Senior Subordinated Notes, aggregating
$950.0 million principal amount, plus applicable redemption premiums; and (vii)
the availability of increased borrowing capacity under the Amended Credit
Facility to redeem the Senior Subordinated Notes and to pay certain other fees
and expenses in connection with the Refinancing. For further information on the
acquisition of AVIR, see "The Company." For a discussion of the elements of the
Refinancing, see "The Proposed Refinancing" and "Use of Proceeds."
The unaudited pro forma condensed consolidated balance sheet contained in
this Prospectus Supplement gives effect to the foregoing transactions and events
as if they had occurred on March 31, 1997.
As of May 9, 1997, approximately $953.5 million aggregate principal amount
of Outstanding Senior Debentures had been validly and, except under certain
limited circumstances, irrevocably tendered pursuant to the Tender Offer. The
Company is unable to predict the exact aggregate principal amount of the
Company's Outstanding Senior Debentures that will ultimately be tendered and
accepted for payment in the Tender Offer. To the extent that the aggregate
principal amount of Outstanding Senior Debentures tendered and accepted is less
than 100% of the total, the Company will decrease its borrowings under the
Amended Credit Facility by such amount of principal and the related tender and
consent fees. In addition, if the Company is unable to obtain sufficient
increased borrowing capacity under the Amended Credit Facility, the Company may
be limited in the amount of Senior Subordinated Notes which can be redeemed or
may elect not to redeem some or all of the Senior Subordinated Notes prior to
their scheduled maturities. See "--Alternative Pro Forma Assumptions" and "Risk
Factors--Potential Variations in Refinancing."
Notwithstanding the foregoing, the Company believes that the assumptions
made with respect to such events provide a reasonable basis on which to present
the pro forma financial data. THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED TO BE INDICATIVE OF THE COMPANY'S CONSOLIDATED FINANCIAL POSITION OR
RESULTS OF OPERATIONS HAD SUCH EVENTS BEEN CONSUMMATED ON THE DATES ASSUMED. THE
COMPANY'S ACTUAL CONSOLIDATED FINANCIAL POSITION AND RESULTS OF OPERATIONS IN
FUTURE PERIODS WILL BE AFFECTED BY VARIOUS FACTORS, MANY OF WHICH ARE BEYOND THE
COMPANY'S CONTROL, INCLUDING FLUCTUATIONS IN THE COMPANY'S EARNINGS, INCREASES
IN THE NUMBER OF OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK, THE PERIOD OF
TIME OVER WHICH THE SENIOR SUBORDINATED NOTES ARE REDEEMED AND THE IMPACT OF
EXTRAORDINARY CHARGES FOR THE WRITE-OFF OF FEES, EXPENSES AND PREMIUMS
ASSOCIATED WITH THE REFINANCING. THE PRO FORMA STATEMENTS DO NOT, THEREFORE,
PROJECT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE
DATE OR PERIOD.
The unaudited pro forma condensed consolidated financial information and
accompanying notes should be read in conjunction with the Consolidated Financial
Statements and accompanying notes incorporated herein by reference.
S-18
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
AS ADJUSTED
REFINANCING FOR THE
ACTUAL ADJUSTMENTS REFINANCING(C)
--------- ------------- -----------
<S> <C> <C> <C>
(MILLIONS OF DOLLARS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
Revenues:
Net sales............................................................... $ 1,056.3 $ 1,056.3
Other................................................................... 59.9 59.9
--------- -----------
1,116.2 1,116.2
Costs and expenses:
Manufacturing, shipping and delivery.................................... 844.9 844.9
Research, engineering, selling,
administrative and other.............................................. 101.0 101.0
--------- -----------
945.9 945.9
--------- -----------
Earnings before interest expense, income taxes and minority share owners'
interests............................................................... 170.3 170.3
Interest expense.......................................................... 85.9 $ (19.4)(a) 66.5
--------- ------ -----------
Earnings before income taxes and minority
share owners' interests................................................. 84.4 19.4 103.8
Provision for income taxes................................................ 23.4 7.4(b) 30.8
Minority share owners' interests in earnings of subsidiaries.............. 6.4 6.4
--------- ------ -----------
Net earnings.............................................................. $ 54.6 $ 12.0 $ 66.6
--------- ------ -----------
--------- ------ -----------
Net earnings per share of common stock.................................... $ 0.44 $ 0.48
--------- -----------
--------- -----------
Weighted average shares outstanding (000's)............................... 121,813 136,563
Ratio of earnings to fixed charges........................................ 1.8x 2.3x
</TABLE>
S-19
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
AS AS FURTHER
ADJUSTED ADJUSTED
FOR THE AVIR REFINANCING FOR THE
ACTUAL ACQUISITION(D) ADJUSTMENTS REFINANCING(C)
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
Revenues:
Net sales.............................................. $ 905.8 $ 1,027.0 $ 1,027.0
Other.................................................. 31.0 35.6 35.6
---------- ------------- -------------
936.8 1,062.6 1,062.6
Costs and expenses:
Manufacturing, shipping and delivery................... 708.9 804.5 804.5
Research, engineering, selling
administrative and other............................. 80.0 90.8 90.8
---------- ------------- -------------
788.9 895.3 895.3
---------- ------------- -------------
Earnings before interest expense, income taxes and
minority share owners' interests....................... 147.9 167.3 167.3
$ (19.4)
Interest expense......................................... 73.5 84.7 (a) 65.3
---------- ------------- ------ -------------
Earnings before income taxes and minority
share owners' interests................................ 74.4 82.6 19.4 102.0
Provision for income taxes............................... 25.9 32.8 7.4(b) 40.2
Minority share owners' interests in earnings of
subsidiaries........................................... 8.9 10.3 10.3
---------- ------------- ------ -------------
Net earnings............................................. $ 39.6 $ 39.5 $ 12.0 $ 51.5
---------- ------------- ------ -------------
---------- ------------- ------ -------------
Net earnings per share of common stock................... $ 0.33 $ 0.33 $ 0.38
---------- ------------- -------------
---------- ------------- -------------
Weighted average shares outstanding (000's).............. 120,060 120,060 134,810
Ratio of earnings to fixed charges....................... 1.9x 1.8x 2.4x
</TABLE>
S-20
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AS AS FURTHER
ADJUSTED ADJUSTED
FOR THE AVIR REFINANCING FOR THE
ACTUAL ACQUISITION(D) ADJUSTMENTS REFINANCING(C)
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
Revenues:
Net sales.............................................. $ 3,845.7 $ 4,440.1 $ 4,440.1
Other.................................................. 130.5 168.5 168.5
---------- ------------- -------------
3,976.2 4,608.6 4,608.6
Costs and expenses:
Manufacturing, shipping and delivery................... 3,025.6 3,481.1 3,481.1
Research, engineering, selling, administrative and
other................................................ 323.9 394.8 394.8
---------- ------------- -------------
3,349.5 3,875.9 3,875.9
---------- ------------- -------------
Earnings before interest expense, income taxes and
minority share owners' interest........................ 626.7 732.7 732.7
Interest expense......................................... 302.6 351.3 $ (77.8)(a) 273.5
---------- ------------- ----------- -------------
Earnings before income taxes and minority share owners'
interest............................................... 324.1 381.4 77.8 459.2
Provision for income taxes............................... 104.9 140.9 29.7(b) 170.6
Minority share owners' interests in earnings of
subsidiaries........................................... 28.1 34.1 34.1
---------- ------------- ----------- -------------
Net earnings............................................. $ 191.1 $ 206.4 $ 48.1 $ 254.5
---------- ------------- ----------- -------------
---------- ------------- ----------- -------------
Net earnings per share of common stock................... $ 1.58 $ 1.70 $ 1.87
---------- ------------- -------------
---------- ------------- -------------
Weighted average shares outstanding (000's).............. 120,276 120,276 135,026
Ratio of earnings to fixed charges....................... 2.0x 2.0x 2.5x
</TABLE>
S-21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(a) Assumes that the estimated proceeds of $996.9 million from the
Offerings, combined with estimated additional borrowings of $1,116.9 million
under the Amended Credit Facility in excess of amounts outstanding under the
Existing Credit Facility, will be used to redeem the Senior Subordinated Notes,
to repurchase the Outstanding Senior Debentures, and to pay tender offer
premiums, consent payments, redemption premiums, and other expenses of the
Refinancing. The resulting pro forma adjustments to interest expense consist of
the following (in millions of dollars):
<TABLE>
<CAPTION>
THREE MONTHS YEAR
ENDED MARCH 31, ENDED
-------------------- DECEMBER 31,
1997 1996 1996
--------- --------- ------------
<S> <C> <C> <C>
(1) Elimination of interest related to:
Outstanding Senior Debentures................................................ $ (27.5) $ (27.5) $ (110.0)
10 1/4% Senior Subordinated Notes............................................ (6.4) (6.4) (25.6)
10 1/2% Senior Subordinated Notes............................................ (3.9) (3.9) (15.7)
10% Senior Subordinated Notes................................................ (6.3) (6.3) (25.0)
9 3/4% Senior Subordinated Notes............................................. (4.9) (4.9) (19.5)
9.95% Senior Subordinated Notes.............................................. (2.5) (2.5) (10.0)
(2) Elimination of deferred finance fee amortization related to:
Outstanding Senior Debentures................................................ (.5) (.5) (2.2)
Senior Subordinated Notes.................................................... (.4) (.4) (1.8)
Existing Credit Facility..................................................... (.3) (.3) (1.1)
(3) Interest on the Notes:
7.85% Senior Notes due 2004.................................................. 5.9 5.9 23.6
8.10% Senior Notes due 2007.................................................. 6.1 6.1 24.3
(4) Interest on borrowings under the Amended Credit Facility in excess of amounts
outstanding under the Existing Credit Facility (using an assumed rate of
7.375%)...................................................................... 20.6 20.6 82.4
(5) Amortization of estimated deferred finance fees related to:
Senior Notes................................................................. .3 .3 1.2
Amended Credit Facility...................................................... .4 .4 1.6
--------- --------- ------------
$ (19.4) $ (19.4) $ (77.8)
--------- --------- ------------
--------- --------- ------------
</TABLE>
(b) The provision for income taxes has been adjusted to reflect the
reduction in interest expense at the estimated statutory rate.
(c) The unaudited pro forma condensed consolidated statement of operations
does not include charges aggregating $175.1 million ($108.1 million after
deducting estimated tax benefits) for the write-off of unamortized deferred
finance fees, consent fees, and tender offer premiums associated with the
Amended Credit Facility, the repurchase of the Outstanding Senior Debentures and
the redemption of the Senior Subordinated Notes, calculated at March 31, 1997.
(d) For purposes of the pro forma condensed consolidated statements of
operations, funding of the total estimated purchase consideration of $571.1
million for the AVIR Acquisition is assumed to be under the Company's Existing
Credit Facility, which was amended in November 1996 to provide additional
borrowing capacity for the AVIR Acquisition. Interest was calculated at average
rates in effect under the Existing Credit Facility during the period, and a tax
benefit was provided on such interest at the estimated statutory rate. The
Company believes that a portion of the $241.5 million unallocated excess of
purchase cost over net assets acquired in the AVIR Acquisition will ultimately
be allocated to property, plant, and equipment and certain identifiable
intangible assets. The detailed allocation of such excess has not been
finalized; however, the Company believes that the composite average lives of the
AVIR assets, including the remaining unallocated excess of purchase cost over
net assets acquired, will range from 25 to 35 years. The pro forma net earnings
reflect amortization over 30 years, the average of this range. Amortization over
25 years would decrease net earnings by $1.6 million. Amortization over 35 years
would increase net earnings by $1.2 million. These amounts are preliminary
estimates and are subject to further refinement upon final determination of the
detailed allocation of the AVIR Acquisition purchase consideration.
S-22
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1997
<TABLE>
<CAPTION>
AS ADJUSTED AS FURTHER
FOR THE ADJUSTED
AVIR REFINANCING FOR THE
ACTUAL ACQUISITION ADJUSTMENTS REFINANCING
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
ASSETS
Current assets:
Cash................................................. $ 211.3 $ 211.3 $ 211.3
Short-term investments............................... 78.5 78.5 78.5
Receivables.......................................... 659.0 659.0 659.0
Inventories.......................................... 626.8 626.8 626.8
Prepaid expenses..................................... 125.5 125.5 125.5
--------- ----------- -----------
Total current assets............................... 1,701.1 1,701.1 1,701.1
Investments and other assets:
Investments and advances............................. 126.5 126.5 126.5
Repair parts inventories............................. 209.3 209.3 209.3
Prepaid pension...................................... 639.1 639.1 639.1
Insurance for asbestos-related costs................. 255.3 255.3 255.3
Deposits, receivables and other assets............... 266.7 266.7 $ (5.1)(b) 261.6
Excess of purchase cost over net assets.............. 1,313.2 1,313.2 1,313.2
--------- ----------- ----------- -----------
Total investments and other assets................. 2,810.1 2,810.1 (5.1) 2,805.0
Property, plant and equipment, at cost................. 3,732.3 3,732.3 3,732.3
Less accumulated depreciation.......................... 1,548.4 1,548.4 1,548.4
--------- ----------- -----------
Net property, plant and equipment.................... 2,183.9 2,183.9 2,183.9
--------- ----------- ----------- -----------
Total assets........................................... $ 6,695.1 $ 6,695.1 $ (5.1) $ 6,690.0
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
LIABILITIES AND SHARE OWNERS' EQUITY
Current liabilities:
Short-term loans and long-term debt due within one
year............................................... $ 161.9 $ 161.9 $ 161.9
Current portion of asbestos-related liabilities...... 110.0 110.0 110.0
Accounts payable and other liabilities............... 779.7 779.7 779.7
--------- ----------- -----------
Total current liabilities.......................... 1,051.6 1,051.6 1,051.6
Long-term debt......................................... 3,407.7 3,517.8(a) $ (233.1)(c) 3,284.7
Deferred taxes......................................... 231.4 231.4 (67.0)(d) 164.4
Nonpension postretirement benefits..................... 366.2 366.2 366.2
Asbestos-related liabilities........................... 118.4 118.4 118.4
Other liabilities...................................... 528.1 418.0(a) 418.0
Commitments and contingencies
Minority share owners' interests....................... 234.4 234.4 234.4
Share owners' equity:
Preferred stock...................................... 21.4 21.4 21.4
Common stock, par value $.01 per share, 122,673,393
shares outstanding, 137,423,393 shares outstanding
as adjusted(g)..................................... 1.2 1.2 0.2(e) 1.4
Capital in excess of par value....................... 1,074.4 1,074.4 402.9(e) 1,477.3
Deficit.............................................. (203.6) (203.6) (108.1) f) (311.7)
Cumulative foreign currency translation adjustment... (136.1) (136.1) (136.1)
--------- ----------- ----------- -----------
Total share owners' equity......................... 757.3 757.3 295.0 1,052.3
--------- ----------- ----------- -----------
Total liabilities and share owners' equity............. $ 6,695.1 $ 6,695.1 $ (5.1) $ 6,690.0
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
S-23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) On February 3, 1997, the Company completed the acquisition of 79% of
AVIR, the assets and liabilities of which are included in the condensed
consolidated balance sheet at March 31, 1997. In addition to purchasing this
controlling interest pursuant to an acquisition agreement, the Company has
initiated a tender offer for the 21% of the shares of AVIR that are publicly
held. Based upon current exchange rates, the amount required to purchase all of
such remaining publicly held shares is approximately $110.1 million, which is
included in other liabilities in the condensed consolidated balance sheet at
March 31, 1997. For purposes of the unaudited pro forma condensed consolidated
balance sheet, this liability has been eliminated and long-term debt has been
increased to reflect the borrowing of funds required to pay for all of the
shares of AVIR that are publicly held.
(b) Reflects the impact of recording additional deferred finance fees of
$10.5 million and $7.4 million related to the Senior Note Offerings and the
Amended Credit Facility, respectively, and the write-off of unamortized deferred
finance fees of $8.1 million, $10.2 million, and $4.7 million related to the
Senior Subordinated Notes, the Outstanding Senior Debentures and the Existing
Credit Facility, respectively.
(c) Reflects the issuance of $600.0 million aggregate principal amount of
Senior Notes, a net increase in borrowings under the Amended Credit Facility of
$1,116.9 million, and the repurchase of $1.0 billion aggregate principal amount
of the Outstanding Senior Debentures and the redemption of $950.0 million
aggregate principal amount of the Senior Subordinated Notes.
(d) Reflects the tax benefit, at estimated statutory rates, of the write-off
of unamortized deferred finance fees, tender offer premiums and consent fees.
(e) Reflects the estimated net proceeds from the Equity Offerings of $405.2
million, less estimated expenses of $2.1 million.
(f) Represents charges aggregating $175.1 million ($108.1 million after
deducting estimated tax benefits) for the write-off of unamortized deferred
finance fees, consent fees, and tender offer premiums associated with Amended
Credit Facility, the repurchase of the Outstanding Senior Debentures, and the
redemption of the Senior Subordinated Notes, in each case, calculated at March
31, 1997.
(g) Excludes 2,281,326 shares of Common Stock issuable pursuant to
immediately exercisable stock options at March 31, 1997.
S-24
<PAGE>
ALTERNATIVE PRO FORMA ASSUMPTIONS
TENDER OFFER. As of May 9, 1997, the holders of approximately $953.5
aggregate principal amount of Outstanding Senior Debentures had validly and,
except under certain limited circumstances, irrevocably tendered their
Outstanding Senior Debentures for payment in the Tender Offer. To the extent
that the aggregate principal amount of Outstanding Senior Debentures tendered
and accepted by the expiration of the Tender Offer is less than 100% of the
total, the Company expects to decrease its borrowings under the Amended Credit
Facility by such amount of principal and the related tender and consent fees. If
all of the remaining approximately $46.5 million aggregate principal amount of
Outstanding Senior Debentures are not tendered and accepted for payment prior to
the Expiration of the Tender Offer, interest expense on an annualized basis will
be approximately $1.8 million higher than reflected in the pro forma
adjustments.
AMENDED CREDIT FACILITY. For pro forma purposes, the assumed interest rate
on additional borrowings under the Amended Credit Facility is 7.375% (which rate
includes the estimated cost of a variable to fixed interest rate swap). The
actual interest rate will be determined based upon market conditions at the time
such additional amounts are borrowed. Each one-half percentage point change in
the rate will impact interest expense by $5.6 million on an annualized basis.
SENIOR SUBORDINATED NOTES REDEMPTION. As of May 9, 1997, the Company had
sufficient commitments from existing and new lenders required to provide the
additional $1.2 billion of borrowing capacity under the Amended Credit Facility.
Nevertheless, effectiveness of the Amended Credit Facility and the availability
of the $1.2 billion of additional borrowing capacity thereunder, remains subject
to a number of conditions. While it is the Company's current intention to redeem
all of the Senior Subordinated Notes at the earliest practicable date in 1997 as
each such series becomes redeemable, it is not obligated to do so. For pro forma
purposes, to the extent Senior Subordinated Notes are not redeemed for any of
the above reasons, assumed borrowings under the Amended Credit Facility will be
reduced accordingly. If none of the Senior Subordinated Notes are redeemed,
interest expense for the year ended December 31, 1996, on a pro forma basis,
would have been approximately $25.0 million ($15.4 million after tax) higher
than that reflected in the pro forma adjustments resulting in earnings per share
which is lower by $0.11. Charges for the write-off of unamortized deferred
finance fees, consent fees and tender offer premiums, calculated at March 31,
1997, would be lower by $43.3 million ($26.7 million after tax).
S-25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
five years in the period ended December 31, 1996 have been derived from the
Company's Consolidated Financial Statements which were audited by Ernst & Young
LLP, independent auditors. The selected consolidated financial data for the
three months ended March 31, 1997 and 1996 were derived from the unaudited
consolidated financial statements of the Company, which in the opinion of
management, reflect all adjustments necessary, which consist only of normal
recurring adjustments, for a fair presentation of the interim period financial
data. The results for the three months are not necessarily indicative of the
results to be expected for the full year. The data set forth are qualified in
their entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements, notes thereto and other
financial and statistical information incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING RESULTS:
Revenues:
Net sales..................................... $ 1,056.3 $ 905.8 $ 3,845.7 $ 3,763.2 $ 3,567.3 $ 3,535.0 $ 3,392.6
Other(a)...................................... 59.9 31.0 130.5 117.8 85.6 127.1 81.6
--------- --------- --------- --------- --------- --------- ---------
1,116.2 936.8 3,976.2 3,881.0 3,652.9 3,662.1 3,474.2
Costs and expenses:
Manufacturing, shipping and delivery.......... 844.9 708.9 3,025.6 2,948.5 2,824.3 2,823.8 2,744.1
Research, engineering, selling, administrative
and other (b)............................... 101.0 80.0 323.9 322.9 379.1 842.8 260.3
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from continuing operations
before interest expense and items below..... 170.3 147.9 626.7 609.6 449.5 (4.5) 469.8
Interest expense.............................. 85.9 73.5 302.6 299.6 278.2 290.0 312.9
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from continuing operations
before items below.......................... 84.4 74.4 324.1 310.0 171.3 (294.5) 156.9
Provision (credit) for income taxes........... 23.4 25.9 104.9 100.8 68.9 (113.1) 64.0
Minority share owners' interests in earnings
of subsidiaries............................. 6.4 8.9 28.1 40.1 24.1 19.4 14.6
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from continuing operations
before extraordinary items and cumulative
effect of accounting changes................ 54.6 39.6 191.1 169.1 78.3 (200.8) 78.3
Net earnings of discontinued operations....... 1.4 18.4
Gain on sale of discontinued operations, net
of applicable income taxes.................. 217.0
Extraordinary charges from early
extinguishment of debt, net of applicable
income taxes................................ (12.7) (31.5)
Cumulative effect on prior years of changes in
methods of accounting for income taxes and
post retirement benefits, net of applicable
income taxes (c)............................ (199.4)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)........................... $ 54.6 $ 39.6 $ 191.1 $ 169.1 $ 78.3 $ 4.9 $ (134.2)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
S-26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA--CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per share of common stock:
Earnings (loss) from continuing operations
before extraordinary items and cumulative
effect of accounting changes.............. $ 0.44 $ 0.33 $ 1.58 $ 1.40 $ 0.64 $ (1.70) $ 0.66
Net earnings of discontinued operations..... 0.01 0.15
Gain on sale of discontinued operations..... 1.82
Extraordinary charges....................... (0.10) (0.26)
Cumulative effect of accounting changes
(c)....................................... (1.68)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)......................... $ 0.44 $ 0.33 $ 1.58 $ 1.40 $ 0.64 $ 0.03 $ (1.13)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA(d)..................................... $ 243.2 $ 205.8 $ 871.0 $ 813.0 $ 659.0 $ 200.7 $ 676.5
Adjusted EBITDA(e)............................ 241.0 205.8 871.0 813.0 759.0 732.8 676.5
Depreciation.................................. 67.7 52.8 219.8 188.3 183.3 180.0 181.9
Amortization of excess cost and intangibles... 13.0 11.6 46.8 44.8 45.2 40.8 38.6
Additions to property, plant and equipment.... 76.6 77.1 388.4 283.6 286.0 266.2 250.8
Ratio of earnings to fixed charges............ 1.8x 1.9x 2.0x 1.9x 1.5x (f) 1.5x
Ratio of Adjusted EBITDA to interest
expense..................................... 2.8x 2.8x 2.9x 2.7x 2.7x 2.5x 2.2x
Ratio of total debt to Adjusted EBITDA........ 3.9x 3.5x 3.5x 3.4x 4.6x
Weighted average shares outstanding (in
thousands).................................. 121,813 120,060 120,276 119,343 119,005 118,978 118,980
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................... $ 650 $ 334 $ 380 $ 328 $ 171 $ 234 $ 245
Total assets.................................. 6,695 5,452 6,105 5,439 5,318 4,901 5,151
Total debt.................................... 3,570 2,852 3,395 2,833 2,690 2,487 3,107
Share owners' equity.......................... 757 570 730 532 376 295 299
</TABLE>
- --------------------------
(a) Other revenues includes gains from divestitures of $16.3 million ($16.3
million after tax) in the three months ended March 31, 1997, and $46.1
million ($34.6 million after tax) in the year ended December 31, 1993.
(b) In the first quarter of 1997, the Company recorded a charge of $14.1 million
($8.7 million after tax) principally for the estimated cost of guaranteed
lease obligations of a previously divested business. In the fourth quarter
of 1995, the Company recorded a charge of $40.0 million ($24.7 million after
tax) to write down the asbestos insurance asset and a net credit of $40.0
million ($24.7 million after tax) primarily from the reduction of previously
established restructuring reserves. In the fourth quarter of 1994, the
Company recorded a charge of $100.0 million ($61.7 million after tax) to
write down the asbestos insurance asset. In the fourth quarter of 1993, the
Company recorded charges totaling $578.2 million ($357.0 million after tax)
principally for estimated uninsured future asbestos-related costs and costs
associated with its restructuring program.
(c) In the fourth quarter of 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," each as of January 1, 1992.
(d) EBITDA is comprised of earnings from continuing operations before interest
expense, income taxes, minority share owners interests, extraordinary items
and cumulative effect of accounting changes and excludes depreciation,
amortization of excess cost and intangibles and interest income of $7.8
million and $6.5 million for the three months ended March 31, 1997 and 1996,
respectively, and $22.3 million, $29.7 million, $19.0 million, $15.6
million, and $13.8 million for the years ended December 31, 1996, 1995,
S-27
<PAGE>
1994, 1993 and 1992, respectively. EBITDA is a measure of the Company's
ability to service its debt. It is not an alternative to net income as a
measure of the Company's results of operations (as interest income, interest
expense, taxes, depreciation, amortization and minority share owners'
interests are included in the determination of net income) or to cash flows
as a measure of liquidity (as cash flows include the cash effects of all
operating, financing and investing activities). Rather, it is included
herein because EBITDA is a widely accepted financial indicator used by
certain investors and financial analysts to assess and compare companies on
the basis of operating performance. EBITDA as computed may not be comparable
to similarly-titled measures of other companies.
(e) Adjusted EBITDA excludes unusual charges of $14.1 million for the three
months ended March 31, 1997 and $100.0 million and $578.2 million for the
years ended December 31, 1994 and 1993, respectively, and gains from
divestitures of $16.3 million for the three months ended March 31, 1997 and
$46.1 million for the year ended December 31, 1993 (see Notes (a) and (b)).
(f) Earnings of the Company were insufficient to cover fixed charges for the
year ended December 31, 1993 in the amount of $292.0 million due to a $253.2
million charge in the fourth quarter of 1993 principally related to the
Company's restructuring program and a $325.0 million charge in the fourth
quarter of 1993 for estimated uninsured future asbestos-related costs.
S-28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF FIRST QUARTER 1997 WITH FIRST QUARTER 1996
The Company recorded net earnings of $54.6 million for the first quarter of
1997 compared to $39.6 million for the first quarter of 1996. The first quarter
of 1997 includes amounts relating to: (1) the AVIR Acquisition and (2) the
Anchor Assets. Excluding the effects of the 1997 unusual items discussed below,
the Company's first quarter 1997 net earnings of $47.0 million increased $7.4
million, or 18.7%, over first quarter 1996 net earnings of $39.6 million.
Consolidated segment operating profit, excluding the 1997 unusual items, was
$151.5 million for the first quarter of 1997, an increase of $15.4 million, or
11.3%, compared to the same 1996 period. The increase is attributable to higher
operating profit for both the Glass Containers segment and the Plastics and
Closures segment, along with lower other retained costs. Interest expense, net
of interest income, increased $11.1 million due in part to debt incurred or
assumed in connection with acquisitions. The Company's estimated effective tax
rate, excluding the effect of the Kimble Glass gain discussed below, was 34.4%
in the first quarter of 1997, compared to 34.8% estimated for the first quarter
of 1996 and the actual rate of 32.4% for the full year 1996.
Capsule segment results (in millions of dollars) for the first quarter of
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
NET SALES
(UNAFFILIATED
CUSTOMERS) OPERATING PROFIT
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Glass Containers......................................................... $ 775.6 $ 641.8 $ 101.1 $ 98.7
Plastics and Closures.................................................... 280.4 263.6 51.7 43.8
Eliminations and other retained costs (a)................................ .3 .4 .9 (6.4)
--------- --------- --------- ---------
Consolidated total....................................................... $ 1,056.3 $ 905.8 $ 153.7 $ 136.1
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(a) 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.
Consolidated net sales for the first quarter of 1997 increased $150.5
million, or 16.6%, over the prior year. Net sales of the Glass Containers
segment increased $133.8 million, or 20.8%, over 1996. The combined U.S. dollar
sales of the segment's foreign affiliates increased over the prior year,
reflecting the recent acquisition of AVIR (which contributed approximately $85
million to first quarter 1997 U.S. dollar sales) and increased unit shipments in
Colombia and the United Kingdom. Domestically, the increase in glass container
unit shipments to U.S. brewers more than offset lower shipments of food
containers. Excluding the additional business gained through the acquisition of
the Anchor Assets, domestic unit shipments increased slightly from the pervious
year. Net sales of the Plastics and Closures segment increased $16.8 million, or
6.4%, over the prior year. Higher shipments of plastic containers for personal
care items such as shampoos, lotions, and liquid shower soaps along with
increased demand for prescription containers contributed to the increase.
Consolidated operating profit for the first quarter of 1997, excluding the
1997 unusual items, increased $15.4 million, or 11.3%, to $151.5 million from
first quarter 1996 operating profit of $136.1 million. The operating profit of
the Glass Containers segment increased $2.4 million to $101.1 million, compared
to $98.7 million in the first quarter of 1996. The combined U.S. dollar
operating profit of the segment's foreign affiliates increased slightly from the
first quarter of 1996. AVIR contributed approximately $11 million to first
quarter 1997 U.S. dollar operating profit. Improved results at the segment's
affiliates in Poland and Venezuela partially offset the effects of continuing
soft market conditions in Brazil,
S-29
<PAGE>
and reduced export shipments from Hungary, which adversely affected results of
affiliates located in those countries. Domestically, operating profit increased
slightly from the first quarter of 1996. The operating profit of the Plastics
and Closures segment increased $7.9 million, or 18.0%, compared to the first
quarter of 1996. The increase resulted from improved manufacturing performance
and higher unit shipments of plastic containers and prescription containers.
Other retained costs, excluding the 1997 unusual items discussed below, were
$1.3 million for the first quarter of 1997 compared to $6.4 million for the
first quarter of 1996, reflecting lower employee benefit costs and higher net
financial services income.
The first quarter 1997 results include the following unusual items: (1) a
gain of $16.3 million ($16.3 million after tax) on the sale of the Company's
remaining 49% interest in Kimble Glass, and (2) charges of $14.1 million ($8.7
million after tax) principally for the estimated cost of guaranteed lease
obligations of a previously divested business.
COMPARISON OF 1996 WITH 1995
For the year ended December 31, 1996, the Company recorded net earnings of
$191.1 million, an increase of $22.0 million, or 13.0%, over 1995 net earnings
of $169.1 million. Consolidated segment operating profit was $589.2 million in
1996 compared to $565.5 million in 1995. Excluding the effects of the 1995
unusual items described below, the increase was attributable to the Company's
domestic glass and plastics and closures operations, which more than offset
lower operating profit for the Company's international glass operations.
Interest expense, net of interest income, increased $10.4 million due in part to
lower interest income as a result of reduced levels of cash available for
temporary investment. The decrease in foreign net earnings, particularly for the
Brazilian and Venezuelan subsidiaries, also resulted in a decrease in minority
share owners' interests in earnings of subsidiaries.
Capsule segment results (in millions of dollars) for 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
NET SALES TO UNAFFILIATED CUSTOMERS 1996 1995
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Glass Containers....................................................... $ 2,783.3 $ 2,744.0
Plastics and Closures.................................................. 1,060.7 1,017.7
Other.................................................................. 1.7 1.5
--------- ---------
Consolidated total................................................... $ 3,845.7 $ 3,763.2
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT 1996 1995(A)
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Glass Containers....................................................... $ 424.5 $ 482.7
Plastics and Closures.................................................. 172.1 137.4
Eliminations and other retained costs.................................. (7.4) (54.6)
--------- ---------
Consolidated total................................................... $ 589.2 $ 565.5
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Includes a charge of $40.0 million to write down the asbestos insurance
asset and a net credit of $40.0 million primarily from the reduction of
previously established restructuring reserves. These items increased
(decreased) operating profit as follows: Glass Containers, $45.1 million;
Plastics and Closures $(5.1) million; and other retained costs $(40.0)
million.
Consolidated net sales for 1996 increased $82.5 million, or 2.2%, over the
prior year. Net sales of the Glass Containers segment increased $39.3 million,
or 1.4%, over 1995. The combined U.S. dollar sales of the segment's foreign
affiliates increased over the prior year, reflecting higher unit shipments by
several of the foreign affiliates. The inclusion of recently acquired glass
container operations in Hungary, Finland, and Estonia more than offset lower
unit shipments in Brazil, Venezuela and India and the effects of devaluations of
the Venezuelan currency in late 1995 and early 1996. Domestically, glass
container unit shipments were slightly below prior year levels due in part to
the absence in 1996 of sales of soft drink
S-30
<PAGE>
bottles as a result of the conversion from glass to plastic containers. For the
Company, this conversion is completed but has affected 1996 comparisons to prior
year periods. As a result of obtaining additional business and increased
consumer demand for premium and specialty beers, the increase in shipments to
U.S. brewers more than offset the lower shipments of food containers, including
iced tea and juice bottles. In the Plastics and Closures segment, sales
increased by $43.0 million, or 4.2%, over 1995. Higher unit shipments of
compression-molded and dispensing closures, plastic containers, especially
containers used for personal care and health care products, along with the
reported sales of the recently acquired plastic container operations in Finland
contributed to the increase. Partially offsetting were the effects of lower
resin prices on pass-through arrangements with customers.
Consolidated operating profit for 1996 increased $23.7 million, or 4.2%, to
$589.2 million from 1995 operating profit of $565.5 million. Consolidated
operating profit was 15.3% of net sales in 1996 compared to 15.0% in 1995.
Consolidated operating expenses (consisting of selling and administrative,
engineering, and research and development expenses) as a percentage of net sales
was 6.4% in both 1996 and 1995. Operating profit of the Glass Containers segment
was $424.5 million, a decrease of $13.1 million, or 3.0%, from 1995, excluding
the 1995 unusual item discussed below. Domestically, operating profit increased
over 1995 as a result of an improved cost structure, which more than offset the
effects of inflation and slightly lower unit pricing in some product lines.
Internationally, record results were achieved in the United Kingdom and Poland,
and positive contributions were reported from the recently acquired glass
container operations in Hungary, Finland and Estonia. Despite this, however,
U.S. dollar operating profit for the international operations was lower in 1996
compared to 1995 due to soft market conditions in Brazil and Venezuela and
currency devaluations in Venezuela in late 1995 and early 1996. Operating profit
of the Plastics and Closures segment was $172.1 million, an increase of $29.6
million, or 20.8%, from 1995, excluding the 1995 unusual item discussed below.
The majority of the increase resulted from higher unit shipments in most
businesses. Additionally, improved manufacturing performance, the restructuring
of the labels and carriers business, and a consolidation of manufacturing
capacity in the specialty products business contributed to the increase. Other
retained costs were $7.4 million in 1996 compared to $14.6 million in 1995,
excluding the 1995 unusual item discussed below, reflecting higher net financial
services income. In December 1995, the Company reached settlements involving all
remaining insurance coverage limits (81% of original limits) in the
asbestos-related litigation. As a result of the settlement agreements, the
Company recorded a charge of $40.0 million ($24.7 million after tax) in the
fourth quarter of 1995 to write down the asbestos insurance asset to the
approximate coverage amounts expected to be received. For additional
information, see "--Capital Resources and Liquidity." In the fourth quarter of
1995, the Company also recorded an unusual net credit of $40.0 million ($24.7
million after tax), related primarily to the reduction of previously established
restructuring reserves. Included in the net credit of $40.0 million is a charge
of $5.1 million for the restructuring of the Company's labels and carriers
business.
In connection with the Refinancing, the Company will incur approximately
$108.1 million of after tax charges relating to the write-off of unamortized
deferred finance fees, consent fees and tender offer premiums, calculated at
March 31, 1997. This charge will be reflected as an extraordinary item and will
reduce net earnings for 1997.
COMPARISON OF 1995 WITH 1994
For the year ended December 31, 1995, the Company recorded net earnings of
$169.1 million compared to $78.3 million in 1994. Excluding the effects of the
1994 unusual item discussed below, the Company's 1995 net earnings of $169.1
million increased $29.1 million, or 20.8%, over 1994 earnings of $140.0 million.
Consolidated segment operating profit was $565.5 million in 1995 compared to
$508.2 million in 1994, excluding the unusual charge. The increase was largely
attributable to the Company's international glass business which reported
significantly increased unit shipments, dollar sales, and operating profit in
1995. Interest expense, net of interest income, increased $10.7 million due in
part to debt assumed in connection with acquisitions. The Company's annual
effective tax rate for 1995 was 32.5%
S-31
<PAGE>
compared to 39.5% for 1994 as adjusted for unusual items. The lower 1995 rate is
primarily the result of a higher mix of foreign earnings, which benefited from
lower effective tax rates in 1995. The increased foreign net earnings also
resulted in an increase in minority share owners' interests in earnings of
subsidiaries, principally in Brazil, Colombia, and Poland.
Capsule segment results (in millions of dollars) for 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
NET SALES TO UNAFFILIATED CUSTOMERS 1995 1994
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Glass Containers....................................................... $ 2,744.0 $ 2,590.1
Plastics and Closures.................................................. 1,017.7 976.1
Other.................................................................. 1.5 1.1
--------- ---------
Consolidated total................................................... $ 3,763.2 $ 3,567.3
--------- ---------
--------- ---------
<CAPTION>
OPERATING PROFIT 1995 (A) 1994
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Glass Containers....................................................... $ 482.7 $ 393.0
Plastics and Closures.................................................. 137.4 140.4
Eliminations and other retained costs (b).............................. (54.6) (125.2)
--------- ---------
Consolidated total................................................... $ 565.5 $ 408.2
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Includes a charge of $40.0 million to write down the asbestos insurance
asset and a net credit of $40.0 million primarily from the reduction of
previously established restructuring reserves. These items increased
(decreased) operating profit as follows: Glass Containers, $45.1 million;
Plastics and Closures $(5.1) million; and other retained costs $(40.0)
million.
(b) Includes a charge of $100.0 million in 1994 to write down the asbestos
insurance asset.
Consolidated net sales for 1995 increased $195.9 million, or 5.5%, over the
prior year. Net sales of the Glass Containers segment increased $153.9 million,
or 5.9%, over 1994. Higher glass container unit shipments by foreign affiliates
and recently acquired glass container operations in Poland and India accounted
for the increase. Consistent with domestic glass industry trends, the Company's
1995 domestic glass container unit shipments were approximately 6% below 1994.
These shipments declined throughout 1995 as a result of the continuing
conversion of soft drink containers from glass to plastic. This conversion will
also affect comparisons to prior year periods throughout 1996. Higher shipments
of glass containers to U.S. brewers as a result of increased consumer demand for
premium and specialty beers more than offset lower demand for food containers,
including iced tea and juice bottles. In the Plastics and Closures segment,
sales increased $41.6 million, or 4.3%, over 1994. Higher unit pricing caused by
higher resin costs and increased volumes in the closure and prescription
products businesses resulted in higher reported sales. Higher unit shipments of
closures and prescription containers were offset by lower shipments of plastic
containers, especially bottles used for personal care and household products,
due in part to the closing of two plastic bottle manufacturing facilities in
late 1994.
Consolidated operating profit for 1995 increased $57.3 million, or 11.3%, to
$565.5 million from 1994 operating profit of $508.2 million, excluding the
unusual 1994 fourth quarter charge. Consolidated operating profit was 15.0% of
net sales in 1995 compared to 14.2% in 1994, excluding the 1994 unusual item.
Consolidated operating expenses as a percentage of net sales decreased to 6.4%
in 1995 from 7.0% in 1994. Operating profit of the Glass Containers segment,
exclusive of the 1995 unusual item discussed below, was $437.6 million, an
increase of $44.6 million, or 11.3%, over 1994. Increased unit shipments at most
foreign affiliates, improved market conditions for the segment's Venezuelan
operations, and higher margins at the Colombian and United Kingdom operations
resulted in higher U.S. dollar operating profits. The economic effects of
exchange and price controls instituted in Venezuela in June 1994 and the
December 1995 devaluation of the bolivar negatively affected the 1995 operating
profit. Similar programs
S-32
<PAGE>
and controls instituted in prior years have had a temporary adverse effect on
the operating profit of the Company's foreign affiliates; the Company is not
able to project the magnitude or duration of such effects on future operating
results. The domestic glass container operations were adversely affected in 1995
by the significantly higher cost of corrugated boxes, which are used extensively
in packaging and shipping many of the Company's finished products. Also,
domestic glass container unit shipments were lower in 1995 due to the continuing
conversion of soft drink containers from glass to plastic, which resulted in
excess capacity in the industry and increased price competition. Cost reductions
and productivity improvements achieved throughout the Glass Containers segment
partially offset these effects. Operating profit of the Plastics and Closures
segment, exclusive of the 1995 unusual item discussed below, increased slightly
to $142.5 million in 1995 from $140.4 million in 1994. The 1995 results
benefited from increased unit shipments in both the closures and prescription
containers businesses along with productivity improvements achieved in the
plastic bottles business. These benefits were partially offset by the effects of
lower shipments and margins in the segment's labels and carriers business as a
result of higher raw material costs, the soft drink conversion from glass to
plastic, and the increasing utilization by customers of other forms of carriers,
such as fiberboard cartons and shrink wrap packaging. Excluding the labels and
carriers business, the segment's operating profit was up approximately 11% over
1994. Other retained costs, exclusive of the effects of unusual fourth quarter
items in both years as discussed below, were $14.6 million in 1995 compared to
$25.2 million in 1994 reflecting lower employee benefit costs and higher net
financial services income.
In December 1995, the Company reached settlements involving all remaining
insurance coverage limits (81% of original limits) in the asbestos-related
litigation. As a result of the settlement agreements, the Company recorded a
charge of $40.0 million ($24.7 million after tax) in the fourth quarter of 1995
to write down the asbestos insurance asset to the approximate coverage amounts
expected to be received. For additional information, see "--Capital Resources
and Liquidity."
In the fourth quarter of 1995, the Company also recorded an unusual net
credit of $40.0 million ($24.7 million after tax), related primarily to the
Company's restructuring program, the cost of which was originally estimated and
recorded in the fourth quarter of 1993. During 1994 and 1995, the Company
completed a number of the initiatives contemplated in the program. Some costs
were lower than originally estimated. Additionally, in response to changing
business conditions and obtaining additional business, some of the planned
actions were modified, eliminated, or are no longer anticipated. As a result of
these developments, the reserve was reduced by $45.1 million. Included in the
net credit of $40.0 million is a charge of $5.1 million for the restructuring of
the Company's labels and carriers business resulting from the conversion of soft
drinks from glass to plastic containers. This charge represents the estimated
severance and early retirement costs related to workforce reductions and write
downs of equipment and inventory.
In December 1994, the Company concluded a settlement with certain reinsurers
involved in the asbestos-related litigation representing approximately 19% of
coverage limits. As a result of the settlement agreement and certain other
considerations, including continuing delays in the resolution of the Company's
claims for insurance coverage, the Company recorded a charge of $100.0 million
($61.7 million after tax) in the fourth quarter of 1994 to write down the
asbestos insurance asset.
S-33
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The Company's total debt at March 31, 1997 was $3.57 billion, compared to
$3.39 billion at December 31, 1996 and $2.85 billion at March 31, 1996.
At March 31, 1997, the Company had available credit totaling $1.8 billion
under the Existing Credit Facility expiring in December 2001, of which $408.2
million had not been utilized. At December 31, 1996, the Company had $628.7
million of credit which had not been utilized under the Existing Credit
Facility. The increased utilization and corresponding higher debt balances at
March 31, 1997 resulted in large part from the requirement to commit available
credit sufficient to pay for the remaining 21% of AVIR shares upon the closing
of the Company's tender offer for such shares and expenditures related to the
acquisition of the Anchor Assets. Utilization was also higher as a result of
borrowings for capital expenditures and asbestos-related payments, partially
offset by proceeds received from the sale of the Company's remaining 49% in
Kimble Glass and cash provided by operations, including cash received for
settlement of a portion of the insurance asset for asbestos-related costs. Cash
provided by operating activities was $52.0 million for the first three months of
1997 compared to $55.0 million for the first three months of 1996. Cash provided
by operating activities was $317.8 million and $252.6 million for the years
ended December 31, 1996 and 1995, respectively.
In the twelve-month period commencing April 1, 1997, the Company anticipates
that cash flow from its operations and from utilization of available credit
under the Existing Credit Facility or the Amended Credit Facility 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. 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 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.
Assuming consummation of the Refinancing as currently contemplated, the
Company expects that the utilization of available credit under the Amended
Credit Facility, 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, completion of the AVIR
Acquisition and other obligations through 2001 (the term of the Amended Credit
Facility). If the Refinancing is not consummated as currently contemplated and
additional borrowing capacity is not available under the Amended Credit
Facility, cash flows from operations may not be sufficient to repay the
Company's Senior Subordinated Notes as they become due and payable commencing
early 1999. 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 repay such indebtedness.
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BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The Company, through its subsidiaries, is the successor to a business
established in 1903. The Company is one of the world's leading manufacturers of
packaging products. Approximately one of every two glass containers made
worldwide is made by the Company, its affiliates or licensees. In addition to
being the largest manufacturer of glass containers in the United States, North
America, South America and India, and the second largest in Europe with the
acquisition of AVIR described below, the Company is a leading manufacturer in
the United States of plastic containers, plastic closures, plastic prescription
containers, labels, and multipack plastic carriers for beverage containers. Over
the last few years, through acquisitions and investments strategic to its core
businesses, the Company has furthered its market leadership position in the
geographic areas in which it competes. Over the past five years, the Company has
invested nearly $1.5 billion in capital expenditures alone (excluding
acquisition expenditures) to improve productivity and increase capacity in key
locations.
In 1996, one of the Company's major competitors in the U.S. glass container
segment of the rigid packaging industry, Anchor Glass Container Corporation
("Anchor"), filed for protection under Chapter 11 of the United States
Bankruptcy Code. As part of the bankruptcy proceedings, in December 1996, the
Company announced that an agreement had been reached whereby the Company would
acquire two of Anchor's glass manufacturing facilities and assume contractual
agreements with a major U. S. brewer, including a partnership interest in a
glass manufacturing facility ("Anchor Assets"). This agreement is part of a
joint bid by Consumers Packaging, Inc. ("Consumers") and the Company, under
which Consumers would purchase the majority of Anchor's assets and assume
certain liabilities. Under the agreement, which was completed in February 1997,
the Company acquired the Anchor Assets for approximately $125 million plus the
assumption of certain liabilities.
In December 1996, the Company announced that it completed a definitive
agreement to purchase a controlling interest of approximately 79% in AVIR, the
largest manufacturer of glass containers in Italy and the Czech Republic, and
the fourth largest in Spain. The acquisition was completed in February 1997. In
March 1997, the Company initiated a tender offer for the 21% of the AVIR shares
that are publicly held. Total consideration for 100% of the AVIR shares is
expected to be approximately $582 million. AVIR is the largest foreign
acquisition the Company has ever made, and is the second largest overall
acquisition in the history of the Company.
In addition to AVIR, the Company has expanded its international glass
container operations over the past two years with acquisitions in India,
Hungary, Finland, Estonia and China. These acquisition efforts are a key part of
the Company's strategy to maintain leadership in glass and plastic packaging and
to take advantage of revenue and earnings growth opportunities around the world.
GLASS CONTAINERS INDUSTRY SEGMENT
The Company is a leading manufacturer of glass containers throughout the
world. In addition to being the largest maker of glass containers in the United
States, North America, South America and India, the Company also is a leading
manufacturer of glass packaging in Europe. Worldwide glass container sales
represented 66%, 66% and 67% of the Company's consolidated net sales for the
years ended December 31, 1996, 1995, and 1994, respectively. The Company
believes that its internally developed machines are significantly more efficient
and productive than those used by its competitors, making it the low-cost
manufacturer and a recognized technological leader in the industry.
The Company currently has technical assistance agreements with 35 different
companies in 37 countries. These agreements, which cover areas ranging from
manufacturing and engineering assistance to support in functions such as
marketing, sales, and administration, allow the Company to participate in the
worldwide growth of the glass container industry. The Company believes these
associations and its
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technical expertise will afford it opportunities to participate in the glass
business in regions of the world where the Company does not currently have a
presence.
PRODUCTS AND SERVICES
Glass containers are produced in a wide range of sizes, shapes and colors
for beer, food, tea, fruit juice, soft drinks, liquor, wine, wine coolers and
pharmaceuticals. The Company has been a leader in product innovation,
introducing products including long neck nonreturnable beer bottles, and in
developing containers for teas, juices, food, soft drinks and wine coolers.
The Company's product development efforts in glass containers are aimed at
providing value added packaging systems to customers and consumers. Product
lines designed to complement glass containers include product extensions related
to single service packages for teas, juices and soft drinks and innovative
secondary packaging systems such as closures, carriers and labeled containers.
CUSTOMERS
Beer, food (which include juices and teas), liquor (i.e. distilled spirits)
and wine producers comprise the majority of industry demand for U.S. glass
containers. In addition to the just previously mentioned producers,
international glass container customers include soft drink bottlers. In the
regions where the Company has operations, it has leading positions within these
customer groups, as well as strong positions in smaller customer groups. The
Company believes its position gives it the ability to sustain market share and
take advantage of new opportunities and areas of growth within each customer
group.
Most glass production is sold to customers under arrangements with terms
varying from several months to several years which specify estimated quantities
to be shipped as a percentage of the customers' total annual shipment
requirements. Containers are typically scheduled for production in response to
customers' orders for their quarterly requirements.
MARKETS AND COMPETITIVE CONDITIONS
Including the AVIR Acquisition completed in 1997, the Company has glass
container operations located in seventeen countries and Puerto Rico. The
principal markets for the Company's glass products are in the United States,
Latin America and Europe. The Company has the leading market share of the glass
segment of United States beer and food (including juices and teas) packaging.
Excluding E & J Gallo Winery Inc., which manufactures its own containers, the
Company believes it is a leading supplier of glass for wine and wine coolers.
Internationally, the Company is the leading producer of glass containers in most
of the geographic markets in which it is located.
The Company's glass products compete on the basis of quality, service and
price with other forms of rigid packaging, principally aluminum and steel cans
and plastic bottles, as well as glass containers produced by other large, well-
established manufacturers. The principal competitors producing glass containers
within the U.S. market are Ball-Foster Glass Container Co., L.L.C., a wholly-
owned subsidiary of Paris-based Saint-Gobain ("Ball-Foster"), and Anchor Glass
Container Corporation, most of the assets of which were purchased by Canadian-
based Consumers Packaging, Inc. in early 1997. The principal competitor
producing glass containers outside the U.S. market is Saint-Gobain. The
principal competitors producing metal containers are American National Can
Company, Ball Corporation, Crown Cork & Seal Company, Inc., Reynolds Metals
Company, and Silgan Corporation. In the metal container market, no one
competitor is dominant. The principal competitors supplying plastic containers
are Continental Plastics Containers, Inc. (a subsidiary of Continental Can
Company, Inc.), Graham Packaging Co., Plastipak Packaging, Inc., and Silgan
Corporation. In the plastic containers market, no one competitor is dominant.
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METHODS OF DISTRIBUTION
Due to the significance of transportation costs and the importance of timely
delivery, manufacturing facilities are located close to customers. Most of the
Company's glass container products are shipped by common carrier to customers
within a 250-mile radius of a given production site. In addition to glass
container manufacturing facilities, the Company operates two sand plants and
three machine shops which manufacture high-productivity glass-making machines.
DOMESTIC GLASS OPERATIONS
The Company has more than a 40% share of the glass container category of the
U.S. rigid packaging market. Domestically, including the 1997 acquisition of the
Anchor Assets, the Company operates 22 glass container manufacturing facilities,
a sand plant and two machine shops which manufacture high-productivity
glass-making machines. Marketing under the trade name Owens- Brockway, the
Company's 1996 U.S. glass container sales were significantly higher than the
sales of its nearest U.S. glass container competitor, Ball- Foster.
Unit shipments in the U.S. to brewers and food producers, including
producers of juices and teas, approximated 90%, 87% and 77% of the Company's
total U.S. glass container unit shipments for 1996, 1995 and 1994, respectively.
During 1996, total glass container industry shipments within the United
States rigid packaging market were slightly below 1995 shipment levels.
Shipments declined in 1996 as a result of the continuing conversion of soft
drink containers from glass to plastic and lower demand for food containers,
including tea and juice bottles. The Company's share of the United States glass
container market has remained relatively constant during this time.
Industry capacity in North America is expected to be aligned more closely
with demand. During the first three months of 1997, closings of three U.S. glass
container plants and one in Canada, along with furnace shutdowns have been
announced by companies operating in the U.S. glass container industry. Overall,
the Company expects glass containers' share of the United States rigid packaging
market to remain relatively stable compared to 1996 levels and that the Company
will maintain its share of the glass container segment due in part to the
Company's ongoing improvement in operating efficiencies and its technological
leadership.
The glass container industry in the United States continues to recycle used
glass containers into new glass containers. The Company is an important part of
this effort and continues to melt substantial tonnage of recycled glass in its
glass furnaces. The infrastructure for recycling glass also supplies recycled
glass containers to producers other than those in the glass container industry
for use in the manufacture of secondary products (i.e., fiberglass and roadway
materials). Glass recycling helps relieve the burden on the nation's landfills,
while significantly reducing the need for virgin materials. Recycling also
results in energy savings and reductions in air emissions. The Company has no
technological barriers to using all of the recycled glass it can reasonably
expect to obtain from public/private collection programs as long as such glass
meets incoming material quality standards.
INTERNATIONAL GLASS OPERATIONS
The Company has added to its international operations by acquiring glass
container companies with leading positions in growing markets, increasing the
capacity of selected foreign affiliates, and expanding the global network of
glass container companies that license the Company's technical assistance.
Including the AVIR acquisition, the Company has significant ownership positions
in nineteen companies located in sixteen foreign countries and Puerto Rico. Most
of the Company's international glass affiliates are the leading container
manufacturers in their respective countries, producing a full line of containers
for the soft drink, beer, wine, liquor, food, drug and chemical industries. Some
of these companies also produce
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molds, mold parts, sand and feldspar, limestone, machines and machine parts,
rolled glass, sheet glass and glass tableware. The Company's principal
international glass affiliates are located in Latin America and Europe.
Outside of the United States, unit shipments of glass containers have grown
substantially in recent years. International glass operations are benefiting
from increased consumer spending power, increased privatization of industry, a
favorable climate for foreign investment, and global expansion programs by major
customers. The lowering of trade barriers has resulted in healthier economies,
rising standards of living, and growing demand for consumer products and quality
packaging in developing countries. The increasing demand for quality packaging
products in developing countries, where per capita glass container consumption
is low, but rising, continues to create growth opportunities. This is reinforced
by the fact that in many developing countries glass has a significant cost
advantage over plastic and metal containers. Technologies which have produced
productivity improvements in the Company's United States Glass Container
operations are also being applied to the operations of foreign affiliates. The
Company is continuing to pursue additional strategic alliances with
international partners whose markets are growing and whose manufacturing
operations can be enhanced by the Company's state-of-the-art technology and
equipment, which enables such operations to improve quality, increase
productivity, reduce bottle weights, and decrease energy consumption. Sales
growth in countries where the Company does not have a direct ownership position
may also provide a benefit to the Company in the form of royalties tied to sales
volume of the Company's technical assistance licensees. As discussed in the
section "General Development of Business", in February 1997, the Company
completed the acquisition of a 79% controlling interest in AVIR. The addition of
AVIR combined with existing affiliates located throughout Europe will position
the Company to serve the large and steadily growing market for glass containers
in Western Europe, as well as to meet the growing demand in Eastern and Central
Europe.
PLASTICS AND CLOSURES INDUSTRY SEGMENT
The Company is a leading plastic container manufacturer in the United
States. The Company is the market leader in all plastic container and closures
segments of the rigid packaging market. Plastic container sales represented 17%,
16% and 17% of the Company's consolidated net sales for the years ended December
31, 1996, 1995, and 1994, respectively. The Company's Plastics and Closures
segment operates under the Owens-Brockway trade name and is comprised of four
business units.
PLASTIC PRODUCTS
This unit, with 22 factories, manufactures rigid, semi-rigid, flexible and
multi-layer plastic containers for a wide variety of uses, including household
products, personal care products, health care products, chemicals and automotive
products and food.
CLOSURE AND SPECIALTY PRODUCTS
This unit, with 10 manufacturing facilities, develops and produces closures
and closure systems which incorporate functional features such as tamper
evidence, child resistance and dispensing. In addition, this unit's diverse
product line includes trigger sprayers, finger pumps, and lotion pumps, as well
as metal closures and finger pumps for the fragrance and cosmetic industry. In
the United States, the Company has a sole license for Alcoa's technology for
compression molded, tamper evident, thermoplastic closures. This unit also
manufactures custom injection molded products, such as deodorant canisters and
toothpaste dispensers.
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PRESCRIPTION PRODUCTS
The Company's Prescription Products unit manufactures prescription
containers. These products are sold primarily to drug wholesalers, major drug
chains and the government. Containers for prescriptions include plastic and
glass ovals, vials, rounds, squares and ointment jars. The only other major
producer in the plastic containers segment of prescription drug packaging is
Kerr Group, Inc.
LABEL AND CARRIER PRODUCTS
The broad line of labels produced by this unit includes polyethylene labels
for in-mold labeling (IML) and laminated labels for beverage containers. Two
proprietary carrier lines are also produced by this unit, both of which are
predominantly used as six-pack and four-pack carriers for iced teas and other
fruit drinks--Hi-Cone (a registered trademark of Illinois Tool Works Inc.)
plastic carriers for cans and Contour-Pak-Registered Trademark- plastic carriers
for bottles.
MARKETS
Major markets for these units include the household products, personal care
products, health care products, and food and beverage industries.
The plastic segment of the rigid packaging market is competitive and
fragmented due to generally available technology, low costs of entry and
customer emphasis on low package cost. A large number of competitors exists on
both a national and regional basis. The Company competes by emphasizing total
package supply (i.e. bottle, label, and closure system), diversified market
positions, proprietary technology and products, new package development, and
packaging innovation. The Company is one of two producers of the Hi-Cone
multi-pack carrier (produced under a license agreement with the only other
producer, Illinois Tool Works Inc.), and the only producer of the Contour-Pak
carrier. The market for closures is divided into various categories in which
several suppliers compete for business on the basis of price and product design.
The Company's strategy has been to compete in the segments of the plastic
packaging market where customers seek to use distinctive packaging to
differentiate their products among a growing array of choices offered to
consumers. The Company believes it is a leader in technology and development of
custom products and has a leading market position for such products. The Company
believes its plastic container and closure businesses have a competitive
advantage as a result of one of the shortest new product development cycles in
the industry, enabling the Company to provide superior service in the service-
sensitive custom plastic container market. The Company's product innovations in
plastic containers and closures include in-mold labeling for custom molded
bottles, Contour-Pak carriers for 4, 6 and 8-pack applications, printed
Contour-Pak carriers, multilayer structured bottles containing post consumer
recycled resin, Flex-Band-Registered Trademark- and
PlasTop-Registered Trademark- tamper-evident closures, Clic
Loc-Registered Trademark- child- resistant closures and Pharmacy
Mate-Registered Trademark- reversible prescription container closures.
Recycling content legislation, which has been enacted in several states,
requires that a certain specified minimum percentage of recycled plastic be
included in new plastic products. The Company has met such legislated standards
in part due to its material and multilayer process technology.
The Company's Plastics and Closures segment currently has technical
assistance agreements with 20 companies in 13 countries. These agreements, which
cover areas ranging from manufacturing and engineering assistance to support in
functions such as marketing, sales, and administration, allow the Company to
participate in the worldwide growth of the plastic packaging industry.
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DESCRIPTION OF THE NOTES
The following description of the particular terms of the 7-Year Notes and
the 10-Year Notes (referred to in the accompanying Prospectus as the "Debt
Securities") supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set forth
in the accompanying Prospectus, to which description reference is hereby made.
The Notes are to be issued under an Indenture, to be dated as of the Closing
Date (the "Indenture"), between the Company, as issuer, and The Bank of New
York, as Trustee ("the Trustee"), and will constitute two different series of
Debt Securities described in the accompanying Prospectus. The following summary
of certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Indenture, including the definitions of certain terms therein and those
terms made a part thereof by reference to the Trust Indenture Act of 1939, as
amended. Whenever particular defined terms of the Indenture not otherwise
defined herein are referred to, such defined terms are incorporated herein by
reference. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions."
GENERAL
The 7-Year Notes will be senior unsecured obligations of the Company,
limited to $300.0 million aggregate principal amount, and will mature on May 15,
2004.
The 10-Year Notes will be senior unsecured obligations of the Company,
limited to $300.0 million aggregate principal amount, and will mature on May 15,
2007.
The 7-Year Notes and the 10-Year Notes will bear interest at the respective
rates shown on the front cover of this Prospectus Supplement from May 15, 1997
or from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually (to Holders of record at the close of
business on the May 1 or November 1 immediately preceding the corresponding
Interest Payment Date) on May 15 and November 15 of each year, commencing
November 15, 1997.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York (which initially will
be the corporate trust office of the Trustee located in New York, New York);
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the
Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
No service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
The Notes will be issued in the form of one or more Global Securities as
described under "Description of Debt Securities---Global Debt Securities" in the
accompanying Prospectus which will be registered in the name of The Depository
Trust Company or its nominee.
OPTIONAL REDEMPTION
Neither the 7-Year Notes nor the 10-Year Notes will be redeemable prior to
maturity.
RANKING
The Notes will be senior unsecured indebtedness of the Company, and will
rank PARI PASSU in right of payment with all existing and future senior
unsecured indebtedness of the Company, and senior in right of payment to all
subordinated indebtedness of the Company. The Notes will be effectively
subordinated to all liabilities of the Company's subsidiaries, including trade
payables. At March 31, 1997, on a pro forma basis after giving effect to the
Refinancing and the AVIR Acquisition, the Company (excluding its subsidiaries)
would have had approximately $3.0 billion of indebtedness outstanding, and the
Company's
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subsidiaries would have had approximately $2.4 billion of liabilities. See "Risk
Factors--Leverage; Restrictive Debt Covenants," "--Holding Company Structure,"
and "Consolidated Capitalization."
SINKING FUND
The Notes will not be subject to the operation of any sinking fund.
COVENANTS
The Indenture will contain, among others, the following covenants, which
will be applicable to both series of Notes.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, make any loan, advance,
guaranty or capital contribution to, or for the benefit of, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or for the
benefit of, or purchase or lease any property or assets from, or enter into or
amend any contract, agreement, or understanding with, or for the benefit of, any
Affiliate of the Company (each an "Affiliate Transaction") involving aggregate
consideration in excess of $5.0 million for any one transaction, except on terms
that are no less favorable to the Company or the relevant Subsidiary, as the
case may be, than those that could have been obtained in a comparable
transaction on an arm's length basis from a person that is not such an
Affiliate.
The foregoing limitation does not limit, and shall not apply to, (i)
transactions (x) in respect of which the Company or such Subsidiary delivers to
the Trustee a written opinion of a nationally recognized investment banking,
accounting, appraisal or consulting firm stating that the transaction is fair to
the Company or such Subsidiary from a financial point of view or (y) approved by
a majority of the disinterested members of the Board of Directors of the Company
or, if there are no such directors, a majority of the directors of the Company,
(ii) the payment of reasonable and customary regular fees paid to, and indemnity
provided on behalf of, officers, directors, employees and consultants to the
Company or its Subsidiaries, (iii) payments or loans to officers, directors and
employees of the Company for business or personal purposes and other loans and
advances to such officers, directors and employees for travel, entertainment,
moving and other relocation expenses made in the ordinary course of business of
the Company and its Subsidiaries, (iv) the payment by the Company or any of its
Subsidiaries to KKR and its Affiliates of (1) fees for any financial, advisory,
financing, underwriting or placement services or in respect of other investment
banking activities, including without limitation, in connection with
acquisitions or divestitures, which payments are approved by a majority of the
Board of Directors of the Company, and (2) annual management, consulting and
advisory fees and related expenses, (v) any agreement in effect as of the
Closing Date or any amendment thereto (so long as such amendment is not
disadvantageous to the Holders in any material respect) or any transaction
contemplated thereby, (vi) transactions with customers, clients, suppliers or
purchasers or sellers of goods or services, in each case in the ordinary course
of business which are fair to the Company or its Subsidiaries, in the reasonable
determination of the Board of Directors of the Company or the senior management
thereof and (vii) transactions between or among any of the Company and its
Subsidiaries.
LIMITATION ON LIENS
The Indenture will provide that the Company will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien on any of
its assets or properties of any character, or any shares of Capital Stock or
Indebtedness of any Subsidiary held by the Company or any Subsidiary in order to
secure any Indebtedness of the Company, without making effective provision for
all of the Notes and all other amounts due under the Indenture relating to the
Notes to be directly secured equally and ratably with (or, if the Indebtedness
to be secured by such Lien is subordinated in right of payment to the Notes,
prior to)
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the Indebtedness secured by such Lien until such time as such Indebtedness is no
longer secured by any such Liens.
The foregoing limitation does not apply to (i) Liens existing on the Closing
Date; (ii) Liens granted after the Closing Date on any assets or properties of
the Company or its Subsidiaries, or any shares of Capital Stock or Indebtedness
of any Subsidiary held by the Company or any Subsidiary, securing Indebtedness
of the Company created in favor of the Holders; (iii) Liens securing
Indebtedness which is incurred to refinance Indebtedness which is secured by
Liens permitted to be incurred under the Indenture; provided that such Liens do
not extend to or cover any property or assets of the Company or any Subsidiary
other than the property or assets securing the Indebtedness being refinanced; or
(iv) Permitted Liens.
INVESTMENTS IN UNRESTRICTED SUBSIDIARIES
The Indenture will provide that the Company will not make, and will not
permit any Subsidiary to make, any Investments in Unrestricted Subsidiaries if,
at the time thereof, the aggregate amount of such Investments would exceed the
sum of $150,000,000.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture will provide that the Company may not consolidate with or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its property or assets to any person in
one or more related transactions unless (a) the Company is the surviving
corporation or the entity or the person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia; (b) the person formed by
or surviving any such consolidation or merger (if other than the Company) or the
person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (if other than the Company) assumes all the
obligations of the Company under the Notes and the Indenture; and (c)
immediately prior to and after giving effect to the transaction, no Default (as
defined in the Indenture) or Event of Default shall have occurred and be
continuing. Notwithstanding the foregoing, any Subsidiary of the Company may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company.
PAYMENTS FOR CONSENT
The Indenture will provide that neither the Company nor any Subsidiary of
the Company shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
the 7-Year Notes or the 10-Year Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or such
Notes unless such consideration is offered to be paid or agreed to be paid to
all Holders of such Notes which so consent, waive or agree to amend in the time
frame set forth in solicitation documents relating to such consent, waiver or
agreement.
DEFAULTS
The following are Events of Default with respect to each of the 7-Year Notes
and the 10-Year Notes under the Indenture: (a) failure to pay the principal of,
or premium, if any, on such Notes when due and payable; (b) failure to pay any
interest on such Notes when due, continued for 30 days; (c) failure to perform
or observe any other agreements of the Company in such Indenture continued for
60 days after written notice; (d) failure to comply with the provisions of the
Indenture applicable to consolidation, merger and sale of assets of the Company;
(e) acceleration of $125,000,000 or more, individually or in the aggregate, in
principal amount of Indebtedness of the Company under the terms of the
instrument under which such indebtedness is issued or secured, except as a
result of compliance with applicable laws, orders
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or decrees, if such Indebtedness shall not have been discharged or such
acceleration is not annulled within ten days after written notice; and (f)
certain events of bankruptcy, insolvency or reorganization.
If an Event of Default with respect to a series of outstanding Notes (other
than an Event or Default relating to certain events of bankruptcy, insolvency or
reorganization) shall occur and be continuing, either the Trustee or the holders
of at least 50% in principal amount of the outstanding series of Notes by
notice, as provided in the Indenture, may declare the unpaid principal amount
of, and any accrued and unpaid interest on, all Notes of such series to be due
and payable immediately. However, at any time after a declaration of
acceleration with respect to such series of Notes has been made, the holders of
a majority in principal amount of the outstanding Notes of such series may,
under certain circumstances, rescind and annul such acceleration if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default with respect to that series have been cured or waived except
nonpayment of principal (or such lesser amount) or interest that has become due
solely because of the acceleration. For information as to waiver of defaults,
see "Description of Debt Securities--Modification and Waiver" in the
accompanying Prospectus.
The Indenture will provide that, subject to the duty of the Trustee during
an Event of Default to act with the required standard of care, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders, unless such holders
shall have offered to the Trustee reasonable security or indemnity. Subject to
certain provisions, including those requiring security or indemnification of the
Trustee, the holders of a majority in principal amount of the outstanding series
of Notes will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee, with respect to such series of Notes.
The Company will be required to furnish to the Trustee under the Indenture
annually a statement as to the performance by the Company of its obligations
under that Indenture and as to any default in such performance.
DEFEASANCE
The provisions described under "Description of Debt Securities--Defeasance
of Debt Securities and Certain Covenants in Certain Circumstances" in the
accompanying Prospectus are applicable to the Notes. Each of the covenants
described under "--Covenants" may be subject to covenant defeasance.
MODIFICATION AND WAIVER
The provisions described under "Description of Debt Securities--Modification
and Waiver" in the accompanying Prospectus are applicable to the Notes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture which will be applicable to both
series of Notes. Reference is made to the Indenture for the full definition of
all terms as well as any other capitalized term used herein for which no
definition is provided.
"Affiliate" means, as applied to any person, any other person directly or
indirectly controlling, controlled by, or under common control with, that
person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that person, whether through the ownership of voting securities, by
contract or otherwise.
"Capitalized Lease Obligation" means, as applied to any person, any lease of
any property (whether real, personal or mixed) by that person as lessee which,
in conformity with GAAP, is required to be accounted for as a capital lease on
the balance sheet of that person.
S-43
<PAGE>
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock.
"Closing Date" means the date on which the Notes are originally issued under
the Indenture.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means, subject to certain provisions of the Indenture, generally
accepted accounting principles set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession, which are applicable to the
circumstances as of the Closing Date.
"Indebtedness" of any person means, without duplication, with respect to
such person, any indebtedness, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements with respect thereto) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to Capitalized Lease Obligations), except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness would appear as a liability upon a balance sheet of such
person prepared in accordance with GAAP (but does not include contingent
liabilities which appear only in a footnote to a balance sheet), and shall also
include, to the extent not otherwise included, the guaranty by such person of
items which would be included within this definition, obligations in respect of
Currency Agreements and Interest Rate Agreements and the maximum fixed
repurchase price of any Redeemable Stock. For purposes of the preceding
sentence, the maximum fixed repurchase price of any Redeemable Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Stock as if such Redeemable Stock were repurchased on
any date of determination, provided that if such Redeemable Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Redeemable Stock.
"Interest Rate Agreements" means the obligations of any person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such person or any of its
Subsidiaries against fluctuations in interest rates.
"Investment" means any direct or indirect advance, loan (other than advances
to customers in the ordinary course of business, which are recorded as accounts
receivable on the balance sheet of any person or its Subsidiaries) or other
extension of credit or capital contribution to (by means of any transfer of cash
or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities issued by any other person. For the
purposes of the definition of "Unrestricted Subsidiary" and the covenant
"INVESTMENTS IN UNRESTRICTED SECURITIES" (i) the amount of any "Investment"
shall be the fair market value of the net assets of any Subsidiary at the time
that such Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the fair market value of the net assets of any Unrestricted Subsidiary that is
designated a Subsidiary and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at fair market value at the time of such
transfer, in each case as determined by the Board of Directors of the Company in
good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Permitted Liens" means (i) Liens (including extensions and renewals
thereof) upon real or personal (whether tangible or intangible) property
acquired after the Closing Date; provided that (a) such Lien is created solely
for the purpose of securing Indebtedness incurred, (1) to finance the cost
(including the cost
S-44
<PAGE>
of improvement or construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of or within 12 months
after the later of the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any property or assets other than such item of
property or assets and any improvements on such item; (ii) any interest or title
of a lessor in the property subject to any Capitalized Lease Obligation or
operating lease; (iii) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any person existing at the time such person becomes, or becomes
a part of, the Company or any Subsidiary; provided that such Liens do not extend
to or cover any property or assets of the Company or any Subsidiary other than
the property or assets acquired; (iv) Liens in favor of the Company or any
Subsidiary; (v) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (vi) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are either within the
general parameters customary in the industry and incurred in the ordinary course
of business, in each case, securing Indebtedness under Interest Rate Agreements
and Currency Agreements and forward contracts, options, future contracts,
futures options or similar agreements or arrangements designed solely to protect
the Company or any of its Subsidiaries from fluctuations in interest rates,
currencies or the price of commodities; (vii) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Subsidiaries in the ordinary course of
business of the Company and its Subsidiaries; (viii) Liens on or sales of
receivables; (ix) Liens securing the Company's obligations in respect of
bankers' acceptances issued or created to facilitate the purchase, shipment or
storage of inventory or other goods; and (x) in addition to any other Liens
permitted to be incurred pursuant to the Indenture, Liens securing Indebtedness
in an amount not to exceed $500.0 million.
"Redeemable Stock" means any equity security that by its terms or otherwise
is required to be redeemed prior to the stated maturity of the applicable series
of Notes, or is redeemable at the option of the holder thereof at any time prior
to the stated maturity of such Notes.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any person or one or more of the other
Subsidiaries of that person or a combination thereof; provided that an
Unrestricted Subsidiary shall not be deemed to be a Subsidiary of the Company
for purposes of the Indenture.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (2) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns, or holds any Lien on, any property of, the Company or
any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary
to be so designated; provided that either (x) the fair market value of the net
assets of the Subsidiary to be so designated is $1,000 or less or (y) if the
fair market value of the net assets of such Subsidiary is greater than $1,000,
the amount of the Company's Investments in Unrestricted Subsidiaries at the time
of designation is less than $150,000,000. The Board of Directors may designate
any Unrestricted Subsidiary to be a Subsidiary. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the resolution of the Board of Directors giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
S-45
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions set forth in the Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amount of the Notes set forth opposite their respective
names below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF 7.85% AMOUNT OF 8.10%
SENIOR SENIOR
UNDERWRITER NOTES DUE 2004 NOTES DUE 2007
- -------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated............................................... $ 120,000,000 $ 120,000,000
BT Securities Corporation....................................................... 45,000,000 45,000,000
Credit Suisse First Boston Corporation.......................................... 45,000,000 45,000,000
NationsBanc Capital Markets, Inc................................................ 45,000,000 45,000,000
Salomon Brothers Inc ........................................................... 45,000,000 45,000,000
--------------- ---------------
Total....................................................................... $ 300,000,000 $ 300,000,000
--------------- ---------------
--------------- ---------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to receipt
of an opinion of counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all the Notes if any are taken.
The Underwriters propose initially to offer part of the Notes to the public
at the public offering prices set forth on the cover page hereof and in part to
certain dealers at prices that represent a concession not in excess of .50% and
.60% of the principal amount of the 7-Year Notes and the 10-Year Notes,
respectively. Any Underwriter may allow, and such dealers may reallow, a
concession not in excess of 0.25% of the principal amount of each series of
Notes to certain other dealers. After the initial offering of the Notes, the
respective offering prices and other selling terms may from time to time be
varied by the Underwriters.
The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market making may be discontinued at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Notes.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the
respective prices of the Notes. Specifically, the Underwriters may over-allot in
connection with the Senior Note Offerings, creating short positions in the Notes
for their own account. In addition, to cover over-allotments or to stabilize the
respective prices of the Notes, the Underwriters may bid for, and purchase,
Notes in the open market. Finally, Morgan Stanley & Co. Incorporated may reclaim
selling concessions allowed to an Underwriter or dealer for distributing Notes
in the Senior Note Offerings, if Morgan Stanley & Co. Incorporated repurchases
previously distributed Notes in transactions that cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Notes above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Underwriters or their affiliates have provided and will in the future
continue to provide investment banking and other financial services, including
the provision of credit facilities, for the Company, KKR and certain of their
affiliates in the ordinary course of business for which they have received and
will receive customary compensation. In addition, Morgan Stanley & Co.
Incorporated is a
S-46
<PAGE>
managing underwriter in the Equity Offerings and is a co-dealer manager in the
Tender Offer. Salomon Brothers Inc is also the lead underwriter in the Equity
Offerings.
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon by
Latham & Watkins, San Francisco, California, as counsel for the Company, and for
the Underwriters by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York. Certain partners of Latham &
Watkins, members of their families, related persons and others, have an indirect
interest, through limited partnerships, in less than 1% of the Common Stock of
the Company. Such persons do not have the power to vote or dispose of such
shares of Common Stock. Simpson Thacher & Bartlett has from time to time acted
as counsel for the Company and KKR in certain matters.
S-47
<PAGE>
OWENS-ILLINOIS, INC.
[LOGO]
DEBT SECURITIES
COMMON STOCK
------------------------
Owens-Illinois, Inc. (the "Company"), directly or through agents, dealers,
or underwriters designated from time to time, may offer, issue and sell, in one
or more series or issuances, up to $2,500,000,000 in the aggregate of (a)
secured or unsecured debt securities (the "Debt Securities") of the Company, in
one or more series, which may be either senior debt securities (the "Senior Debt
Securities"), senior subordinated debt securities (the "Senior Subordinated Debt
Securities") or subordinated debt securities (the "Subordinated Debt
Securities") and (b) shares of common stock of the Company, par value $.01 per
share (the "Common Stock"), or any combination of the foregoing, either
individually or as units consisting of one or more of the foregoing, each on
terms to be determined at the time of sale. The Debt Securities may be issued as
exchangeable and/or convertible Debt Securities exchangeable for or convertible
into shares of Common Stock. The Company's payment obligations under any series
of Debt Securities may be guaranteed by Owens-Illinois Group, Inc., a wholly
owned subsidiary of the Company ("Group"). The Debt Securities, including any
guarantee of the Debt Securities, and the Common Stock are collectively referred
to herein as the "Securities." When a particular series of Securities is
offered, a supplement to this Prospectus (each a "Prospectus Supplement") will
be delivered with this Prospectus. The Prospectus Supplement will set forth the
terms of the offering and sale of the offered Securities.
Except as described more fully herein or as set forth in the Prospectus
Supplement relating to any offered Debt Securities, the Indenture (as herein
defined) will not provide holders of Debt Securities protection in the event of
a highly-leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company which could adversely affect holders of Debt
Securities. See "Description of Debt Securities--Consolidation, Merger and Sale
of Assets."
The Company's Common Stock is traded on The New York Stock Exchange under
the symbol OI. Any Common Stock sold pursuant to a Prospectus Supplement will be
listed on The New York Stock Exchange. On April 17, 1997, the last reported sale
price of the Common Stock on The New York Stock Exchange was $25 1/2 per share.
The Company has not yet determined whether any of the Debt Securities offered
hereby will be listed on any exchange or over-the-counter market. If the Company
decides to seek listing of any such Securities, the Prospectus Supplement
relating thereto will disclose such exchange or market.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Securities will be sold directly, through agents, underwriters or
dealers as designated from time to time, or through a combination of such
methods. The Company reserves the sole right to accept, and together with its
agents, from time to time, to reject in whole or in part any proposed purchase
of Securities to be made directly or through agents. If agents of the Company or
any dealers or underwriters are involved in the sale of the Securities in
respect of which this Prospectus is being delivered, the names of such agents,
dealers or underwriters and any applicable commissions or discounts will be set
forth in or may be calculated from the Prospectus Supplement with respect to
such Securities. See "Plan of Distribution" for possible indemnification
arrangements with agents, dealers and underwriters.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by the applicable Prospectus Supplement.
The date of this Prospectus is April 18, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company and Group have filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, part of which has been
omitted in accordance with the rules and regulations of the Commission. For
further information about the Company, Group and the Securities offered hereby,
reference is made to the Registration Statement, including the exhibits filed as
a part thereof and otherwise incorporated therein. Statements made in this
Prospectus as to the contents of any agreement or other document referred to
herein are qualified by reference to the copy of such agreement or other
document filed as an Exhibit to the Registration Statement or such other
document, each such statement being qualified in its entirety by such reference.
Each of the Company and Group is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy statements and other
information with the Commission. The Registration Statement, including the
exhibits thereto, as well as such reports and other information filed by the
Company and Group with the Commission, can be inspected, without charge, and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington D.C., 20549; 7 World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Commission also maintains a site on the World Wide Web at
http://www.sec.gov, that contains reports, proxy and other information regarding
registrants that file electronically with the Commission and certain of the
Company's and Group's filings are available at such web site. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports and
other information concerning the Company can also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated by reference in this Prospectus:
(1) the Company's and Group's Annual Report on Form 10-K for the year
ended December 31, 1996;
(2) the Company's and Group's Current Report on Form 8-K filed with the
Commission on December 31, 1996, as amended by Form 8-K/A filed with the
Commission on March 3, 1997;
(3) the Company's and Group's Current Report on Form 8-K filed with the
Commission on March 31, 1997;
(4) the Company's and Group's Current Report on Form 8-K filed with the
Commission on April 17, 1997;
(5) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed on December 3, 1991, as amended;
(6) all other documents subsequently filed by the Company or Group
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and before the termination of the offering, which
shall be deemed to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such
2
<PAGE>
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
This Prospectus may not be used to consummate sales of offered securities
unless accompanied by a Prospectus Supplement. The delivery of this Prospectus
together with a Prospectus Supplement relating to particular offered Securities
in any jurisdiction shall not constitute an offer in the jurisdiction of any
other securities covered by this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon request, a copy of
any documents incorporated into this Prospectus by reference (other than
exhibits incorporated by reference into such document). Requests for documents
should be submitted to the Corporate Secretary, Owens-Illinois, Inc., One
SeaGate, Toledo, Ohio 43666, (telephone (419) 247-5000). The information
relating to the Company contained in this Prospectus does not purport to be
comprehensive and should be read together with the information contained in the
documents incorporated or deemed to be incorporated by reference herein.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS, INCLUDING ANY DOCUMENTS THAT ARE INCORPORATED BY REFERENCE
AS SET FORTH IN "INFORMATION INCORPORATED BY REFERENCE," CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH STATEMENTS ARE INDICATED BY WORDS
OR PHRASES SUCH AS "ANTICIPATE," "ESTIMATE," "PROJECTS," "MANAGEMENT BELIEVES,"
"THE COMPANY BELIEVES" AND SIMILAR WORDS OR PHRASES. SUCH STATEMENTS ARE SUBJECT
TO CERTAIN RISKS, UNCERTAINTIES OR ASSUMPTIONS. SHOULD ONE OR MORE OF THESE
RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED
OR PROJECTED.
THE COMPANY
The Company, through its subsidiaries, is the successor to a business
established in 1903. The Company is one of the world's leading manufacturers of
packaging products. Approximately one of every two glass containers made
worldwide is made by the Company, its affiliates or licensees. In addition to
being the largest manufacturer of glass containers in the United States, North
America, South America and India, and the second largest in Europe with the
acquisition of Avir S.p.A., the Company is a leading manufacturer in the United
States of plastic containers, plastic closures, plastic prescription containers,
labels, and multipack plastic carriers for beverage containers. Since 1992,
through acquisitions and investments strategic to its core businesses, the
Company has furthered its market leadership position in the geographic areas in
which it competes. During the years 1993 through 1996, the Company has invested
more than $1.0 billion in capital expenditures alone (excluding acquisition
expenditures) to improve productivity and increase capacity in key locations.
Group is a wholly owned subsidiary of the Company. The principal offices of
the Company and Group are located at One SeaGate, Toledo, Ohio 43666, and the
telephone number of each is (419) 247-5000.
3
<PAGE>
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company anticipates that any net proceeds would be used for general corporate
purposes, which may include but are not limited to working capital, capital
expenditures and acquisitions or the repayment or refinancing of the Company's
indebtedness, including the Company's $250.0 million Senior Subordinated Notes
which are redeemable at 100% of principal amount on and after April 1, 1997, and
the Company's remaining Senior Subordinated Notes, aggregating $700.0 million,
which are redeemable beginning on various dates throughout 1997, commencing June
15, 1997. The factors which the Company will consider in any refinancing will
include the number of shares of Common Stock and/or the amount and
characteristics of any Debt Securities issued and may include, among others, the
impact of such refinancing on the Company's liquidity, debt-to-capital ratio and
earnings per share. When a particular series of Securities is offered, the
Prospectus Supplement relating thereto will set forth the Company's intended use
for the net proceeds received from the sale of such Securities. Pending the
application of the net proceeds, the Company expects to invest such proceeds in
short-term, interest-bearing instruments or other investment-grade securities or
to reduce indebtedness under its Bank Credit Agreement.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Ratio of earnings to fixed charges (a).................................................... 2.0x 1.9x 1.5x (b) 1.5x
</TABLE>
- ------------------------
(a) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges. Fixed
charges include interest expense and that portion of rentals representative
of an interest factor.
(b) Earnings of the Company were insufficient to cover fixed changes for the
year ended December 31, 1993 in the amount of $292.0 million due to a $250.0
million charge in the fourth quarter of 1993 principally related to the
Company's restructuring program and a $325.0 million charge in the fourth
quarter of 1993 for estimated uninsured future asbestos-related costs.
4
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement,
and the extent, if any, to which such general provisions do not apply to the
Debt Securities so offered, will be described in the Prospectus Supplement
relating to such Debt Securities.
Debt Securities may be issued from time to time in series under an
indenture, and one or more indentures supplemental thereto (collectively, the
"Indenture"), between the Company and a trustee to be identified in the
applicable Prospectus Supplement (the "Trustee"). The terms of the Debt
Securities will include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "TIA") as in
effect on the date of the Indenture. The Debt Securities will be subject to all
such terms, and potential purchasers of the Debt Securities are referred to the
Indenture and the TIA for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. A copy of the proposed form of Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. As used under this caption, unless the context otherwise requires,
"Offered Debt Securities" shall mean the Debt Securities offered by this
Prospectus and an accompanying Prospectus Supplement.
GENERAL
The Indenture will provide for the issuance of Debt Securities in series and
will not limit the principal amount of Debt Securities which may be issued
thereunder. In addition, except as may be provided in the Prospectus Supplement
relating to such Debt Securities, the Indenture will not limit the amount of
additional indebtedness the Company may incur.
The applicable Prospectus Supplement or Prospectus Supplements will describe
the following terms of the series of Offered Debt Securities in respect of which
this Prospectus is being delivered: (1) the title of the Offered Debt
Securities; (2) whether the Offered Debt Securities are Senior Debt Securities,
Senior Subordinated Debt Securities or Subordinated Debt Securities or any
combination thereof; (3) the price or prices (expressed as a percentage of the
aggregate principal amount therof) at which the Offered Debt Securities will be
issued; (4) any limit upon the aggregate principal amount of the Offered Debt
Securities; (5) the date or dates on which the principal of the Offered Debt
Securities is payable; (6) the rate or rates (which may be fixed or variable) at
which the Offered Debt Securities will bear interest, if any, or the manner in
which such rate or rates are determined; (7) the date or dates from which any
such interest will accrue, the interest payment dates on which any such interest
on the Offered Debt Securities will be payable and the record dates for the
determination of holders to whom such interest is payable; (8) the place or
places where the principal of and any interest on the Offered Debt Securities
will be payable; (9) the obligation of the Company, if any, to redeem,
repurchase or repay the Offered Debt Securities in whole or in part pursuant to
any sinking fund or analogous provisions or at the option of the holders and the
price or prices at which and the period or periods within which and the terms
and conditions upon which the Offered Debt Securities shall be redeemed,
repurchased or repaid pursuant to such obligation; (10) the denominations in
which any Offered Debt Securities will be issuable, if other than denominations
of U.S. $1,000 and any integral multiple thereof; (11) if other than the
principal amount thereof, the portion of the principal amount of the Offered
Debt Securities of the series which will be payable upon declaration of the
acceleration of the maturity thereof; (12) any addition to or change in the
covenants which apply to the Offered Debt Securities; (13) any Events of Default
with respect to the Offered Debt Securities, if not otherwise set forth under
"Events of Default;" (14) whether the Offered Debt Securities will be issued in
whole or in part in global form, the terms and conditions, if any, upon which
such global Offered Debt Securities may be exchanged in whole or in part for
other individual securities, and the depositary for the Offered Debt Securities;
(15) the terms and conditions, if any, upon which the Offered Debt Securities
shall be exchanged for or converted into Common Stock; (16) the nature and terms
of the
5
<PAGE>
security for any secured Offered Debt Securities; (17) the form and terms of any
guarantee of the Offered Debt Securities; and (18) any other terms of the
Offered Debt Securities which terms shall not be inconsistent with the
provisions of the Indenture.
Debt Securities may be issued at a discount from their principal amount
("Original Issue Discount Securities"). Federal income tax considerations and
other special considerations applicable to any such Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Debt Securities may be issued in bearer form, with or without coupons.
Federal income tax considerations and other special considerations applicable to
bearer securities will be described in the applicable Prospectus Supplement.
STATUS OF DEBT SECURITIES
The Senior Debt Securities will rank PARI PASSU with all other unsecured and
unsubordinated indebtedness of the Company.
The obligations of the Company pursuant to Senior Subordinated Debt
Securities will be subordinate in right of payment, to the extent and in the
manner set forth in the Indenture, to all Senior Indebtedness of the Company.
With respect to any series of Senior Subordinated Debt Securities, "Senior
Indebtedness" of the Company will be defined to mean the principal of, and
premium, if any, and any interest (including interest accruing subsequent to the
commencement of any proceeding for the bankruptcy or reorganization of the
Company under any applicable bankruptcy, insolvency or similar law now or
hereafter in effect) and all other monetary obligations of every kind or nature
due on or in connection with (a) all indebtedness of the Company whether
heretofore or hereafter incurred (i) for borrowed money or (ii) in connection
with the acquisition by the Company or a subsidiary of the Company of assets
other than in the ordinary course of business, for the payment of which the
Company is liable directly or indirectly by guarantee, letter of credit,
obligation to purchase or acquire or otherwise, or the payment of which is
secured by a lien, charge or encumbrance on assets acquired by the Company, (b)
amendments, modifications, renewals, extensions and deferrals of any such
indebtedness, and (c) any indebtedness issued in exchange for any such
indebtedness (clauses (a) through (c) hereof being collectively referred to
herein as "Debt"); provided, however, that the following will not constitute
Senior Indebtedness with respect to Senior Subordinated Debt Securities: (1) any
Debt as to which, in the instrument evidencing such Debt or pursuant to which
such Debt was issued, it is expressly provided that such Debt is subordinate in
right of payment to all Debt of the Company not expressly subordinated to such
Debt; (2) any Debt which by its terms refers explicitly to the Senior
Subordinated Debt Securities and states that such Debt shall not be senior in
right of payment; and (3) any Debt of the Company in respect of the Senior
Subordinated Debt Securities or any Subordinated Debt Securities.
The obligations of the Company pursuant to Subordinated Debt Securities will
be subordinate in right of payment to all Senior Indebtedness of the Company and
to any Senior Subordinated Debt Securities; provided, however, that the
following will not constitute Senior Indebtedness with respect to Subordinated
Debt Securities: (1) any Debt as to which, in the instrument evidencing such
Debt or pursuant to which such Debt was issued, it is expressly provided that
such Debt is subordinate in right of payment to all Debt of the Company not
expressly subordinated to such Debt; and (2) any Debt of the Company in respect
of Subordinated Debt Securities and any Debt which by its terms refers
explicitly to the Subordinated Debt Securities and states that such Debt shall
not be senior in right of payment.
No payment pursuant to the Senior Subordinated Debt Securities or the
Subordinated Debt Securities, as the case may be, may be made unless all amounts
of principal, premium, if any, and interest then due on all applicable Senior
Indebtedness of the Company shall have been paid in full or if there shall have
occurred and be continuing beyond any applicable grace period a default in any
payment with respect to any such Senior Indebtedness, or if there shall have
occurred any event of default with respect to any such Senior Indebtedness
permitting the holders thereof to accelerate the maturity thereof, or if any
judicial
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proceeding shall be pending with respect to any such default. However, the
Company may make payments pursuant to the Senior Subordinated Debt Securities or
the Subordinated Debt Securities, as the case may be, if a default in payment or
an event of default with respect to the Senior Indebtedness permitting the
holder thereof to accelerate the maturity thereof has occurred and is continuing
and judicial proceedings with respect thereto have not been commenced within a
certain number of days of such default in payment or event of default. Upon any
distribution of the assets of the Company upon dissolution, winding-up,
liquidation or reorganization, the holders of Senior Indebtedness of the Company
will be entitled to receive payment in full of principal, premium, if any, and
interest (including interest accruing subsequent to the commencement of any
proceeding for the bankruptcy or reorganization of the Company under any
applicable bankruptcy, insolvency or similar law now or hereafter in effect)
before any payment is made on the Senior Subordinated Debt Securities or
Subordinated Debt Securities, as applicable. By reason of such subordination, in
the event of insolvency of the Company, holders of Senior Indebtedness of the
Company may receive more, ratably, and holders of the Senior Subordinated Debt
Securities or Subordinated Debt Securities, as applicable, having a claim
pursuant to the Senior Subordinated Debt Securities or Subordinated Debt
Securities, as applicable, may receive less, ratably, than the other creditors
of the Company. Such subordination will not prevent the occurrence of any event
of default (an "Event of Default") in respect of the Senior Subordinated Debt
Securities or the Subordinated Debt Securities.
If the Company offers Debt Securities, the applicable Prospectus Supplement
will set forth the aggregate amount of outstanding indebtedness, if any, as of
the most recent practicable date that by the terms of such Debt Securities would
be senior to such Debt Securities. The applicable Prospectus Supplement will
also set forth any limitation on the issuance by the Company of any additional
senior indebtedness.
CONVERSION RIGHTS
The terms, if any, on which Debt Securities of a series may be exchanged for
or converted into shares of Common Stock or Preferred Stock will be set forth in
the Prospectus Supplement relating thereto.
EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, payment
of principal, premium, if any, and any interest on the Debt Securities will be
payable, and the exchange of and the transfer of Debt Securities will be
registerable, at the office of the Trustee or at any other office or agency
maintained by the Company for such purpose subject to the limitations of the
Indenture. Unless otherwise indicated in the applicable Prospectus Supplement,
the Debt Securities will be issued in denominations of U.S. $1,000 or integral
multiples thereof. No service charge will be made for any registration of
transfer or exchange of the Debt Securities, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities (the "Global Securities") that will be deposited with a
Depositary or its nominee identified in the applicable Prospectus Supplement. In
such a case, one or more Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding Debt Securities of the series to be represented by such Global
Security or Securities. Each Global Security will be deposited with such
Depositary or nominee or a custodian therefor and will bear a legend regarding
the restrictions on exchanges and registration of transfer thereof referred to
below and any such other matters as may be provided for pursuant to the
applicable Indenture.
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Notwithstanding any provision of the Indenture or any Debt Security
described herein, no Global Security may be transferred to, or registered or
exchanged for Debt Securities registered in the name of, any person or entity
other than the Depositary for such Global Security or any nominee of such
Depositary, and no such transfer may be registered, unless (i) the Depositary
has notified the Company that it is unwilling or unable to continue as
Depositary for such Global Security or has ceased to be qualified to act as such
as required by the applicable Indenture, (ii) the Company executes and delivers
to the Trustee an order that such Global Security shall be so transferable,
registrable and exchangeable, and such transfers shall be registrable, or (iii)
there shall exist such circumstances, if any, as may be described in the
applicable Prospectus Supplement. All Debt Securities issued in exchange for a
Global Security or any portion thereof will be registered in such names as the
Depositary may direct.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security will be
described in the applicable Prospectus Supplement. The Company expects that the
following provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of such Global
Security, and the deposit of such Global Security with or on behalf of the
Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in such Global Security will be limited to participants or persons
that may hold interests through participants. Ownership of beneficial interests
by participants in such Global Security will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depositary or its nominee for such Global Security. Ownership of beneficial
interests in such Global Security by persons that hold through participants will
be shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in certificated form. The foregoing
limitations and such laws may impair the ability to transfer beneficial
interests in such Global Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise specified in the applicable Prospectus Supplement,
owners of beneficial interests in such Global Security will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certified form and will not be
considered the holders thereof for any purposes under the Indenture.
Accordingly, each person owning a beneficial interest in such Global Security
must rely on the procedures of the Depositary and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a holder under the Indenture. If the
Company requests any action of holders or if an owner of a beneficial interest
in such Global Security desires to give any notice or take any action a holder
is entitled to give or take under the Indenture, the Depositary will authorize
the participants to give such notice or take such action, and participants would
authorize beneficial owners owning through such participants to give such notice
or take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Notwithstanding any other provisions to the contrary in the Indenture, the
rights of the beneficial owners of the Debt Securities to receive payment of the
principal and premium, if any, of and interest on such Debt Securities, on or
after the respective due dates expressed in such Debt Securities, or to
institute
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suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of the beneficial owners.
Principal of and any interest on a Global Security will be payable in the
manner described in the applicable Prospectus Supplement.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
property or assets to any person unless (a) the Company is the surviving
corporation or the entity or the person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia; (b) the entity or person
formed by or surviving any such consolidation or merger (if other than the
Company) or the entity or person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Debt Securities and the Indenture; and (c)
immediately prior to and after giving effect to the transaction, no Default (as
defined in the Indenture) or Event of Default shall have occurred and be
continuing.
CERTAIN OTHER COVENANTS
Unless otherwise indicated in this Prospectus or a Prospectus Supplement,
the Debt Securities will not have the benefit of any covenants that limit or
restrict the Company's business or operations, the pledging of the Company's
assets or the incurrence of indebtedness by the Company.
With respect to any series of Senior Subordinated Debt Securities, the
Company will agree not to issue Debt which is, expressly by its terms,
subordinated in right of payment to any other Debt of the Company and which is
not expressly made PARI PASSU with, or subordinate and junior in right of
payment to, the Senior Subordinated Debt Securities.
The applicable Prospectus Supplement will describe any material covenants in
respect of a series of Debt Securities. Other than the covenants of the Company
included in the Indenture as described above or as described in the applicable
Prospectus Supplement, there are no covenants or other provisions in the
Indenture providing for a put or increased interest or otherwise that would
afford holders of Debt Securities additional protection in the event of a
recapitalization transaction, a change of control of the Company or a highly
leveraged transaction.
EVENTS OF DEFAULT
Unless otherwise specified in the applicable Prospectus Supplement, the
following will constitute Events of Default under the Indenture with respect to
Debt Securities of any series: (a) failure to pay principal of any Debt Security
of that series when due and payable at maturity, upon redemption or otherwise;
(b) failure to pay any interest on any Debt Security of that series when due,
and the Default continues for 30 days; (c) an Event of Default, as defined in
the Debt Securities of that series, occurs and is continuing, or the Company
fails to comply with any of its other agreements in the Debt Securities of that
series or in the Indenture with respect to that series and the Default continues
for the period and after the notice provided therein (and described below); and
(d) certain events of bankruptcy, insolvency or reorganization. A Default under
clause (c) above is not an Event of Default with respect to a particular series
of Debt Securities until the Trustee or the holders of at least 50% in principal
amount of the then outstanding Debt Securities of that series notify the Company
of the Default and the Company does not cure the Default within 30 days after
receipt of the notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default."
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If an Event of Default with respect to outstanding Debt Securities of any
series (other than an Event or Default relating to certain events of bankruptcy,
insolvency or reorganization) shall occur and be continuing, either the Trustee
or the holders of at least 50% in principal amount of the outstanding Debt
Securities of that series by notice, as provided in the Indenture, may declare
the unpaid principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities, such lesser amount as may be specified in
the terms of that series) of, and any accrued and unpaid interest on, all Debt
Securities of that series to be due and payable immediately. However, at any
time after a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree based on such acceleration
has been obtained, the holders of a majority in principal amount of the
outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. For information as to waiver of defaults,
see "Modification and Waiver" below.
The Indenture will provide that, subject to the duty of the Trustee during
an Event of Default to act with the required standard of care, the Trustee will
be under no obligation to exercise any of its rights or powers under the
applicable Indenture at the request or direction of any of the holders, unless
such holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions, including those requiring security or
indemnification of the Trustee, the holders of a majority in principal amount of
the outstanding Debt Securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Debt Securities of that series.
The Company will be required to furnish to the Trustee under the Indenture
annually a statement as to the performance by the Company of its obligations
under that Indenture and as to any default in such performance.
MODIFICATION AND WAIVER
Subject to certain exceptions, the Company and the Trustee may amend the
Indenture or the Debt Securities with the written consent of the holders of a
majority in principal amount of the then outstanding Debt Securities of each
series affected by the amendment with each series voting as a separate class.
The holders of a majority in principal amount of the then outstanding Debt
Securities of any series may also waive compliance in a particular instance by
the Company with any provision of the Indenture with respect to the Debt
Securities of that series; provided, however, that without the consent of each
holder of Debt Securities affected, an amendment or waiver may not (i) reduce
the percentage of the principal amount of Debt Securities whose holders must
consent to an amendment or waiver; (ii) reduce the rate or change the time for
payment of interest on any Debt Security (including default interest); (iii)
reduce the principal of, premium, if any, or change the fixed maturity of any
Debt Security, or reduce the amount of, or postpone the date fixed for,
redemption or the payment of any sinking fund or analogous obligation with
respect thereto; (iv) make any Debt Security payable in currency other than that
stated in the Debt Security; (v) make any change in the provisions concerning
waivers of Default or Events of Default by holders or the rights of holders to
recover the principal of, premium, if any, or interest on, any Debt Security;
(vi) waive a default in the payment of the principal of, or interest on, any
Debt Security, except as otherwise provided in the Indenture or (vii) reduce the
principal amount of Original Issue Discount Securities payable upon acceleration
of the maturity thereof. The Company and the Trustee may amend the Indenture or
the Debt Securities without notice to or the consent of any holder of a Debt
Security: (i) to cure any ambiguity, defect or inconsistency; (ii) to comply
with the Indenture's provisions with respect to successor corporations; (iii) to
comply with any requirements of the Commission in connection with the
qualification of the Indenture under the TIA; (iv) to provide for Debt
Securities in addition to or in place of certificated Debt Securities; (v) to
add to, change or eliminate any of the provisions of the Indenture in respect of
one of more series of Debt Securities, provided, however, that any such
addition, change or elimination (A) shall neither (1) apply to any Debt Security
of any series created prior to the execution of such amendment and entitled to
the benefit of such provision, nor (2) modify the rights of a holder of any such
Debt Security
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with respect to such provision, or (B) shall become effective only when there is
no outstanding Debt Security of any series created prior to such amendment and
entitled to the benefit of such provision; (vi) to make any change that does not
adversely affect in any material respect the interest of any holder; or (vii) to
establish additional series of Debt Securities as permitted by the Indenture.
The holders of a majority in principal amount of the then outstanding Debt
Securities of any series, by notice to the Trustee, may waive an existing
Default or Event of Default and its consequences except a Default or Event of
Default in the payment of the principal of, or any interest on, any Debt
Security with respect to the Debt Securities of that series; provided, however,
that the holders of a majority in principal amount of the outstanding Debt
Securities of any series may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration.
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
LEGAL DEFEASANCE. Unless otherwise specified in the applicable Prospectus
Supplement, the Indenture will provide that the Company may be discharged from
any and all obligations in respect of the Debt Securities of any series (except
for certain obligations to register the transfer or exchange of Debt Securities
of such series, to replace stolen, lost or mutilated Debt Securities of such
series, and to maintain paying agencies and certain provisions relating to the
treatment of funds held by paying agents) upon the deposit with the Trustee, in
trust, of money and/or U.S. government obligations, that, through the payment of
interest and principal in respect thereof in accordance with their terms, will
provide money in an amount sufficient in the opinion of a nationally recognized
firm of independent public accountants to pay and discharge each installment of
principal, premium, if any, and interest, if any, on and any mandatory sinking
fund payments in respect of the Debt Securities of such series on the stated
maturity of such payments in accordance with the terms of the Indenture and such
Debt Securities. Such discharge may occur only if, among other things, the
Company has received from, or there has been published by, the United States
Internal Revenue Service a ruling, or, since the date of execution of the
Indenture, there has been a change in the applicable United States federal
income tax law, in either case to the effect that holders of the Debt Securities
of such series will not recognize income, gain or loss for United States federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to United States federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred.
DEFEASANCE OF CERTAIN COVENANTS. Unless otherwise specified in the
applicable Prospectus Supplement, the Indenture will provide that, upon
compliance with certain conditions, the Company may omit to comply with the
restrictive covenants contained in the Indenture, as well as any additional
covenants contained in a supplement to the Indenture, a Board Resolution or an
Officers' Certificate delivered pursuant thereto. The conditions include: the
deposit with the Trustee of money and/or U.S. government obligations, that,
through the payment of interest and principal in respect thereof in accordance
with their terms, will provide money in an amount sufficient in the opinion of a
nationally recognized firm of independent public accountants to pay principal,
premium, if any, and interest, if any, on and any mandatory sinking fund
payments in respect of the Debt Securities of such series on the stated maturity
of such payments in accordance with the terms of the Indenture and such Debt
Securities; and the delivery to the Trustee of an opinion of counsel to the
effect that the holders of the Debt Securities of such series will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such deposit and related covenant defeasance and will be subject to United
States federal income tax in the same amount and in the same manner and at the
same times as would have been the case if such deposit and related covenant
defeasance had not occurred.
DEFEASANCE AND EVENTS OF DEFAULT. In the event the Company exercises its
option to omit compliance with certain covenants of the Indenture with respect
to any series of Debt Securities and the Debt Securities of such series are
declared due and payable because of the occurrence of any Event of Default, the
amount of money and/or U.S. government obligations on deposit with the Trustee
will be sufficient to pay amounts
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due on the Debt Securities of such series at the time of their stated maturity
but may not be sufficient to pay amounts due on the Debt Securities of such
series at the time of the acceleration resulting from such Event of Default.
However, the Company will remain liable for such payments.
GUARANTEES
The Company's payment obligation under any series of Debt Securities may be
guaranteed by Group. The terms of any such guarantees will be set forth in the
applicable Prospectus Supplement.
REGARDING THE TRUSTEES
The Trustee with respect to any series of Debt Securities will be identified
in the Prospectus Supplement relating to such Debt Securities. The Indenture and
provisions of the TIA incorporated by reference therein contain certain
limitations on the rights of the Trustee, should it become a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim, as security or otherwise. The
Trustee and its affiliates may engage in, and will be permitted to continue to
engage in, other transactions with the Company and its affiliates; PROVIDED,
HOWEVER, that if it acquires any conflicting interest (as defined in the TIA),
it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee. The TIA and the Indenture provide that in case an Event of Default
shall occur (and be continuing), the Trustee will be required, in the exercise
of its rights and powers, to use the degree of care and skill of a prudent man
in the conduct of his own affairs. Subject to such provision, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of the Debt Securities issued
thereunder, unless they have offered to the Trustee indemnity satisfactory to
it.
SECTION 203 OF THE DGCL
The Company is subject to the "business combination" statute of the Delaware
General Corporation Law (the "DGCL"), an anti-takeover law enacted in 1988. In
general, Section 203 of the DGCL prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder," for
a period of three years after the date of the transaction in which a person
became an "interested stockholder," unless (i) prior to such date the board of
directors of the corporation approved either the "business combination" or the
transaction which resulted in the stockholder becoming an "interested
stockholder," (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned (1) by persons who are directors and
also officers and (2) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date the "business combination" is approved by the board of directors
and authorized at an annual or special meeting of stockholders by the
affirmative vote of a least 66% of the outstanding voting stock which is not
owned by the "interested stockholder." A "business combination" includes
mergers, stock or asset sales and other transactions resulting in a financial
benefit to the "interested stockholders." An "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock. Although Section
203 permits the Company to elect not to be governed by its provisions, the
Company to date has not made this election. As a result of the application of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect an acquisition transaction with the Company, thereby
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possibly depriving holders of the Company's securities of certain opportunities
to sell or otherwise dispose of such securities at above-market prices pursuant
to such transactions.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them and may also sell the Securities to investors directly
or through agents. Any such underwriter, or agent involved in the offer and sale
of Securities will be named in the applicable Prospectus Supplement. The Company
has reserved the right to sell or exchange Securities directly to investors on
its own behalf in those jurisdictions where and in such manner as it is
authorized to do so.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. Sales of Common Stock offered
hereby may be effected from time to time in one or more transactions on the New
York Stock Exchange or in negotiated transactions or a combination of such
methods. The Company may also, from time to time, authorize dealers, acting as
the Company's agents, to offer and sell Securities upon the terms and conditions
as are set forth in the applicable Prospectus Supplement. In connection with the
sale of Securities, underwriters may receive compensation from the Company in
the form of underwriting discounts or commissions and may also receive
commissions from purchasers of the Securities for whom they may act as agent.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agent. Any such underwriter, dealer or agent will be identified, and any such
compensation received from the Company will be described, in the Prospectus
Supplement. Unless otherwise indicated in a Prospectus Supplement, an agent will
be acting on a best efforts basis and a dealer will purchase Securities as a
principal, and may then resell such Securities at varying prices to be
determined by the dealer.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Dealers and agents participating in the
distribution of Securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them on resale of
the Securities may be deemed to be underwriting discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act, and to
reimbursement by the Company for certain expenses.
To facilitate an offering of a series of Securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the Securities. This may include
over-allotments or short sales of the Securities, which involves the sale by
persons participating in the offering of more Securities than have been sold to
them by the Company. In such circumstances, such persons would cover such
over-allotments or short positions by purchasing in the open market or by
exercising the over-allotment option granted to such persons. In addition, such
persons may stabilize or maintain the price of the Securities by bidding for or
purchasing Securities in the open market or by imposing penalty bids, whereby
selling concessions allowed to dealers participating in any such offering may be
reclaimed if Securities sold by them are repurchased in connection with
stabilization transactions. The effect of these transactions may be to stabilize
or maintain the market price of the Securities at a level above that which might
otherwise prevail in the open market. Such transactions, if commenced, may be
discontinued at any time.
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Certain of the underwriters, dealers or agents and their associates may
engage in transactions with and perform services for the Company in the ordinary
course of business, including refinancing of the Company's indebtedness. See
"Use of Proceeds."
LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby will be
passed upon for the Company by Latham & Watkins, San Francisco, California.
Certain legal matters will be passed upon for any agents or underwriters by
counsel for such agents or underwriters identified in the applicable Prospectus
Supplement. Certain partners of Latham & Watkins, members of their families,
related persons and others, have an indirect interest, through limited
partnerships, in less than 1% of the Common Stock. Such persons do not have the
power to vote or dispose of such shares of Common Stock.
EXPERTS
The consolidated financial statements of Owens-Illinois, Inc. appearing in
the Company's and Group's Annual Report (Form 10-K) for the year ended December
31, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Avir Finanziaria S.p.A. and
subsidiaries as of and for the year ended December 31, 1995, appearing in the
Form 8-K/A of Owens-Illinois, Inc., dated March 3, 1997, have been audited by
KPMG S.p.A., independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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