<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark one) FORM 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For Quarter Ended September 30, 1997
or
( ) Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Owens-Illinois, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9576 22-2781933
- ---------------- ----------- -------------------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
Owens-Illinois Group, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-13061 34-1559348
- ---------------- ----------- -------------------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
One SeaGate, Toledo, Ohio 43666
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
419-247-5000
- -------------------------------------------------------------------------------
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file
such reports), and (2) have been subject to such filing require-
ments for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Owens-Illinois, Inc. $.01 par value common stock - 140,452,261
shares at October 31, 1997.
Owens-Illinois Group, Inc. $.01 par value common stock - 100
shares at October 31, 1997.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Condensed Consolidated Financial Statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to
present fairly such information for the periods and at the dates indicated.
Since the following condensed unaudited financial statements have been
prepared in accordance with Article 10 of Regulation S-X, they do not contain
all information and footnotes normally contained in annual consolidated
financial statements; accordingly, they should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing in the
Registrants' Annual Report on Form 10-K for the year ended December 31, 1996.
3
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Three months ended September 30, 1997 and 1996
(Millions of dollars, except per-share amounts)
1997 1996
Revenues: -------- --------
Net sales $1,239.5 $1,014.1
Royalties and net technical assistance 4.6 5.8
Equity earnings 3.7 4.8
Interest 4.8 4.2
Other 26.7 14.1
-------- --------
1,279.3 1,043.0
Costs and expenses:
Manufacturing, shipping, and delivery 961.4 788.3
Research and development 7.9 7.7
Engineering 7.6 6.3
Selling and administrative 57.8 47.6
Interest 69.8 76.7
Other 23.9 16.0
-------- --------
1,128.4 942.6
-------- --------
Earnings before items below 150.9 100.4
Provision for income taxes 51.5 32.7
Minority share owners' interests in earnings
of subsidiaries 7.6 5.7
-------- --------
Earnings before extraordinary items 91.8 62.0
Extraordinary charges from early extinguishment
of debt, net of applicable income taxes (16.4)
-------- --------
Net earnings $ 75.4 $ 62.0
======== ========
Earnings per share of common stock:
Earnings before extraordinary items $ 0.65 $ 0.51
Extraordinary charges from early extinguishment
of debt, net of applicable income taxes (0.12)
-------- --------
Net earnings $ 0.53 $ 0.51
======== ========
Average shares outstanding (thousands) 140,333 120,360
======= =======
See accompanying notes.
4
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Nine months ended September 30, 1997 and 1996
(Millions of dollars, except per-share amounts)
1997 1996
Revenues: -------- --------
Net sales $3,520.3 $2,883.6
Royalties and net technical assistance 16.3 18.0
Equity earnings 13.0 13.2
Interest 19.4 16.3
Other 84.2 44.4
-------- --------
3,653.2 2,975.5
Costs and expenses:
Manufacturing, shipping, and delivery 2,736.0 2,234.7
Research and development 22.6 22.8
Engineering 22.8 19.5
Selling and administrative 168.2 139.6
Interest 237.1 225.0
Other 82.6 46.2
-------- --------
3,269.3 2,687.8
-------- --------
Earnings before items below 383.9 287.7
Provision for income taxes 125.7 97.9
Minority share owners' interests in earnings
of subsidiaries 24.9 21.6
-------- --------
Earnings before extraordinary items 233.3 168.2
Extraordinary charges from early extinguishment
of debt, net of applicable income taxes (100.9)
-------- --------
Net earnings $ 132.4 $ 168.2
======== ========
Earnings per share of common stock:
Earnings before extraordinary items $ 1.77 $ 1.39
Extraordinary charges from early extinguishment
of debt, net of applicable income taxes (0.77)
-------- --------
Net earnings $ 1.00 $ 1.39
======== ========
Average shares outstanding (thousands) 131,277 120,235
======= =======
See accompanying notes.
5
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1997, December 31, 1996, and September 30, 1996
(Millions of dollars)
Sept. 30, Dec. 31, Sept. 30,
1997 1996 1996
Assets --------- -------- ---------
Current assets:
Cash, including time deposits $ 202.5 $ 160.9 $ 112.6
Short-term investments, at cost which
approximates market 74.5 14.4 12.5
Receivables, less allowances for losses and
discounts ($41.0 at September 30, 1997,
$40.6 at December 31, 1996, and $36.9
at September 30, 1996) 715.7 488.8 478.7
Inventories 579.2 494.6 494.4
Prepaid expenses 128.3 126.4 112.5
-------- -------- --------
Total current assets 1,700.2 1,285.1 1,210.7
Investments and other assets:
Investments and advances 128.4 85.6 88.7
Repair parts inventories 237.9 189.4 195.0
Prepaid pension 670.8 624.5 649.7
Insurance for asbestos-related costs 252.7 271.4 274.1
Deposits, receivables, and other assets 277.9 704.2 255.5
Excess of purchase cost over net assets
acquired, net of accumulated amortization
($323.0 at September 30, 1997, $293.7
at December 31, 1996, and $285.8 at
September 30, 1996) 1,303.7 1,003.5 998.4
-------- -------- --------
Total investments and other assets 2,871.4 2,878.6 2,461.4
Property, plant, and equipment, at cost 3,866.3 3,435.9 3,345.4
Less accumulated depreciation 1,651.1 1,494.3 1,450.7
-------- -------- --------
Net property, plant, and equipment 2,215.2 1,941.6 1,894.7
-------- -------- --------
Total assets $6,786.8 $6,105.3 $5,566.8
======== ======== ========
6
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CONDENSED CONSOLIDATED BALANCE SHEETS -- continued
Sept. 30, Dec. 31, Sept. 30,
1997 1996 1996
Liabilities and Share Owners' Equity --------- -------- ---------
Current liabilities:
Short-term loans and long-term debt
due within one year $ 165.3 $ 141.5 $ 127.8
Current portion of asbestos-related
liabilities 85.0 110.0 145.0
Accounts payable and other liabilities 753.9 653.4 682.2
-------- -------- --------
Total current liabilities 1,004.2 904.9 955.0
Long-term debt 3,197.6 3,253.2 2,755.6
Deferred taxes 204.9 201.2 146.3
Nonpension postretirement benefits 354.5 371.7 372.3
Asbestos-related liabilities 91.0 138.2 143.2
Other liabilities 405.4 311.7 309.1
Commitments and contingencies
Minority share owners' interests 240.2 194.7 189.0
Share owners' equity:
Preferred stock 21.4 21.4 21.6
Common stock, par value $.01 per share
(140,431,861 shares outstanding
at September 30, 1997; 120,446,348
at December 31, 1996; and 120,365,799
at September 30, 1996) 1.4 1.2 1.2
Capital in excess of par value 1,553.4 1,047.6 1,046.4
Deficit (125.8) (258.2) (281.1)
Cumulative foreign currency translation
adjustment (161.4) (82.3) (91.8)
-------- -------- --------
Total share owners' equity 1,289.0 729.7 696.3
-------- -------- --------
Total liabilities and share owners' equity $6,786.8 $6,105.3 $5,566.8
======== ======== ========
See accompanying notes.
7
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED CASH FLOWS
Nine months ended September 30, 1997 and 1996
(Millions of dollars)
1997 1996
-------- --------
Cash flows from operating activities:
Earnings before extraordinary items $ 233.3 $ 168.2
Non-cash charges (credits):
Depreciation 206.3 163.4
Amortization of deferred costs 45.2 39.0
Other 9.1 (32.0)
Change in non-current operating assets (66.7) (72.4)
Asbestos-related payments (72.2) (92.2)
Asbestos-related insurance proceeds 18.7 49.4
Reduction of non-current liabilities (4.5) (8.0)
Change in components of working capital (138.8) 23.4
-------- --------
Cash provided by operating activities 230.4 238.8
Cash flows from investing activities:
Additions to property, plant, and equipment (278.4) (290.6)
Acquisitions, net of cash acquired (209.1)
Net cash proceeds from divestitures 55.7 5.3
-------- --------
Cash utilized in investing activities (431.8) (285.3)
Cash flows from financing activities:
Additions to long-term debt 1,704.8 103.6
Repayments of long-term debt (1,810.8) (114.1)
Payment of finance fees and debt retirement costs (159.7)
Increase in short-term loans 14.0 60.9
Issuance of common stock 502.7 3.4
Issuance of subsidiaries' stock 4.0
-------- --------
Cash provided by financing activities 251.0 57.8
Effect of exchange rate fluctuations on cash (8.0) (8.1)
-------- --------
Increase in cash 41.6 3.2
Cash at beginning of period 160.9 109.4
-------- --------
Cash at end of period $ 202.5 $ 112.6
======== ========
See accompanying notes.
8
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OWENS-ILLINOIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Tabular data in millions of dollars
1. Acquisition of AVIR S.p.A.
At December 31, 1996, deposits, receivables, and other assets includes
approximately $440 million of escrow funding in connection with the
acquisition of AVIR S.p.A. ("AVIR"), the largest manufacturer of glass
containers in Italy. On February 3, 1997, the Company completed the
acquisition of 79% of AVIR. In addition to purchasing this controlling
interest pursuant to an acquisition agreement, the Company acquired an
additional 20% interest through a public tender offer and has initiated a
second tender offer for the remaining 1%. Total consideration for 100% of the
AVIR shares is currently expected to be approximately $571 million.
The acquisition is being accounted for under the purchase method of
accounting. The total purchase cost of approximately $571 million will be
allocated to the tangible and identifiable intangible assets and liabilities
of AVIR based upon their respective fair values. The Company believes that a
portion of the $241.5 million unallocated excess of purchase cost over net
assets acquired will ultimately be allocated to property, plant, and equipment
and certain identifiable intangible assets. Such allocations will be based
upon valuations which have not been finalized. Accordingly, the allocation of
the purchase consideration included in the accompanying Condensed Consolidated
Balance Sheet at September 30, 1997, is preliminary. The accompanying
Condensed Consolidated Results of Operations for the nine months ended
September 30, 1997, includes eight months of AVIR operations.
The aggregate purchase cost and its preliminary allocation to the historical
assets and liabilities of AVIR are as follows (in millions of dollars):
Cash and short-term investments $131.2
Other net working capital acquired 72.3
Property, plant and equipment 254.5
Other non-current assets 49.0
Excess of purchase cost over net assets acquired 241.5
------
748.5
Other long-term liabilities (96.9)
Debt assumed (80.5)
------
Aggregate purchase cost $571.1
======
9
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2. Pro Forma Information - AVIR Acquisition
Had the acquisition of AVIR described in Note 1 occurred on January 1, 1996,
unaudited pro forma consolidated net sales, net earnings, and net earnings per
share of common stock would have been as follows (in millions of dollars,
except per share amounts):
Three Months ended September 30, 1996
--------------------------------------
Effect of
As AVIR As
Reported Acquisition Adjusted
-------- ----------- --------
Net sales $1,014.7 $158.1 $1,172.8
======== ====== ========
Net earnings $ 62.0 $ 4.5 $ 66.5
======== ====== ========
Net earnings per share of common stock $ 0.51 $ 0.55
======== ========
Nine Months ended September 30, 1996
--------------------------------------
Effect of
As AVIR As
Reported Acquisition Adjusted
-------- ----------- --------
Net sales $2,883.6 $457.5 $3,341.1
======== ====== ========
Net earnings $ 168.2 $ 22.0 $ 190.2
======== ====== ========
Net earnings per share of common stock $ 1.39 $ 1.57
======== ========
The pro forma information assumes financing for the acquisition will be
provided by additional borrowings under the Company's Bank Credit Agreement.
In the event any portion of the acquisition is financed or refinanced with
borrowings from sources other than under the Company's Bank Credit Agreement,
the pro forma net earnings may have been different from amounts shown above.
The Company believes that a portion of the $241.5 million unallocated excess
of purchase cost over the 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. The pro forma net earnings amounts reflect amortization
of such excess over 30 years.
Certain of the glass container products produced by AVIR are subject to
seasonal demand; shipments of such products have typically been greater in the
second and third quarters of the year compared to the first and fourth
quarters. Net sales of AVIR for the full year 1996 were approximately $600
million. On a pro forma basis, the Company's full year 1996 net income
10
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increases approximately $16 million, or $0.13 per share, after giving effect
to the AVIR acquisition.
The pro forma data does not purport to represent what the results of
operations would actually have been if the AVIR acquisition had in fact
occurred on the date indicated, or to project results of operations for any
future period.
3. Refinancing Plan
During the second quarter of 1997, the Company began implementation of a
refinancing plan (the "Refinancing Plan") designed to reduce interest expense,
reduce the amount of long-term debt, and improve financial flexibility. The
Refinancing Plan, which was completed on October 15, 1997, included a $1.2
billion increase in the borrowing capacity under the Company's Bank Credit
Agreement to a total of $3.0 billion, the sale of 16,936,100 shares of common
stock, par value $.01 per share, for net proceeds of $464.2 million, the
issuance of $300 million aggregate principal amount of 7.85% Senior Notes due
May 15, 2004, the issuance of $300 million aggregate principal amount of 8.10%
Senior Notes due May 15, 2007, and the retirement of approximately $1.9
billion of higher cost debt. The sale of the shares of common stock and the
issuance of the Senior Notes were made pursuant to public offerings (the
"Offerings").
Earnings per share are computed independently for each period presented. Due
to the issuance of 16,936,100 shares of common stock in the second quarter of
1997 and the resultant effect on average shares outstanding, 1997 per share
amounts calculated on a year-to-date basis do not equal the sums of such
amounts calculated separately for each quarter.
4. Pro Forma Information - Refinancing Plan
The following pro forma information gives effect to the various transactions
related to the Refinancing Plan, described in Note 3, as if they had occurred
at the beginning of the respective periods.
11
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Three Months Ended September 30,
--------------------------------------------------
1997 1996
-------------------- -------------------------
As Adjusted
As As for AVIR As Further
Reported Adjusted (Note 2) Adjusted
-------- -------- ----------- ----------
Net earnings
(millions of dollars) $91.8 $92.8 $66.5 $79.2
===== ===== ===== =====
Net earnings per share of
common stock $0.65 $0.66 $0.55 $0.57
===== ===== ===== =====
Weighted average shares
outstanding (thousands) 140,333 140,333 120,360 137,296
Nine Months Ended September 30,
--------------------------------------------------
1997 1996
-------------------- -------------------------
As Adjusted
As As for AVIR As Further
Reported Adjusted (Note 2) Adjusted
-------- -------- ----------- ----------
Net earnings
(millions of dollars) $233.3 $255.2 $190.2 $228.1
====== ====== ====== ======
Net earnings per share of
common stock $ 1.77 $ 1.82 $ 1.57 $ 1.65
====== ====== ====== ======
Weighted average shares
outstanding (thousands) 131,277 139,690 120,235 137,171
The pro forma amounts reflect the elimination of interest expense related to
the indebtedness redeemed or to be redeemed, additional interest expense
related to the additional borrowings under the Bank Credit Agreement (using an
assumed annual interest rate of 7.375%), interest on the Senior Notes, and
related changes in amortization of deferred finance fees. The pro forma
reduction in interest expense for the three and nine months ended
September 30, 1997, was $1.6 million and $35.5 million, respectively. The pro
forma reduction in interest expense for the three and nine months ended
September 30, 1996, was $20.6 million and $61.3 million, respectively. The
provision for income taxes was adjusted at a rate of 38.25% for all periods to
reflect the reduction in interest expense. The weighted average shares
outstanding have been adjusted to reflect the issuance of 16,936,100 shares
pursuant to the Refinancing Plan.
12
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The pro forma data does not purport to represent what the results of
operations would actually have been if the Refinancing Plan had actually
occurred on the dates indicated, or to project results of operations for any
future period.
5. Inventories
Major classes of inventory are as follows:
Sept. 30, Dec. 31, Sept. 30,
1997 1996 1996
--------- -------- ---------
Finished goods $432.4 $374.5 $372.5
Work in process 9.0 4.2 4.4
Raw materials 78.6 81.2 77.2
Operating supplies 59.2 34.7 40.3
------ ------ ------
$579.2 $494.6 $494.4
====== ====== ======
6. Long-Term Debt
The following table summarizes the long-term debt of the Company:
- ------------------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30,
1997 1996 1996
Bank Credit Agreement: --------- -------- ---------
Revolving Loans $1,894.0 $1,105.0 $ 423.4
Bid Rate Loans 218.0 155.0
Senior Notes:
7.85%, due 2004 300.0
8.10%, due 2007 300.0
Senior Debentures, 11%,
due 1999 to 2003 42.6 1,000.0 1,000.0
Senior Subordinated Notes:
10-1/4%, due 1999 250.0 250.0
10-1/2%, due 2002 150.0 150.0
10%, due 2002 250.0 250.0
9-3/4%, due 2004 200.0 200.0
9.95%, due 2004 100.0 100.0 100.0
Other 387.7 232.9 241.8
- ------------------------------------------------------------------------------
3,241.9 3,287.9 2,770.2
Less amounts due within one year 44.3 34.7 14.6
- ------------------------------------------------------------------------------
Long-term debt $3,197.6 $3,253.2 $2,755.6
==============================================================================
In May 1997, the Company entered into an agreement with a group of banks
("Bank Credit Agreement" or "Agreement") which provides Revolving Loan
Commitments under which the Company may borrow up to $3.0 billion through
December 31, 2001. The Agreement includes an Overdraft Account facility
providing for aggregate borrowings up to $50 million which reduce the amount
13
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available for borrowing under the Revolving Loan Commitments. In addition,
the terms of the Bank Credit Agreement permit the Company to request Bid Rate
Loans from banks participating in the Agreement. Borrowings outstanding under
Bid Rate Loans are limited to $750 million and reduce the amount available for
borrowing under the Revolving Loan Commitments. The Revolving Loan
Commitments also provide for the issuance of letters of credit totaling up to
$300 million.
At September 30, 1997, the Company had unused credit available under the Bank
Credit Agreement of $810.5 million.
Revolving loans bear interest, at the Company's option, at the prime rate or a
Eurodollar deposit-based rate plus a margin linked to the Company's
Consolidated Leverage Ratio, as defined in the Agreement. The margin is
currently .425% and is limited to a range of .275% to .625%. Overdraft
Account loans bear interest at the prime rate minus the facility fee
percentage, defined below. The weighted average interest rate on borrowings
outstanding under the Bank Credit Agreement at September 30, 1997, was 6.12%.
While no compensating balances are required by the Agreement, the Company must
pay a facility fee on the Revolving Loan Commitments. The facility fee,
currently .20%, is limited to a range of .125% to .375%, based on changes in
the Company's Consolidated Leverage Ratio. The Agreement requires the
maintenance of certain financial ratios, restricts the creation of liens and
incurrence of indebtedness, and restricts certain types of business activities
and investments.
In April 1997, the Company filed a registration statement with the Securities
and Exchange Commission for the offering of up to $2.5 billion of debt
securities, common stock, or both from time to time as market conditions
permit. On May 16, 1997, pursuant to the registration statement, the Company
completed the offerings of: (1) 14,750,000 shares of common stock at a public
offering price of $28.50 per share; (2) $300 million aggregate principal
amount of 7.85% Senior Notes due May 15, 2004; and (3) $300 million aggregate
principal amount of 8.10% Senior notes due May 15, 2007. On May 23, 1997, the
Company used the proceeds from these offerings in addition to borrowings under
the Company's Bank Credit Agreement to redeem $957.4 million aggregate
principal amount of the 11% Senior Debentures due 2003 pursuant to a tender
offer and consent solicitation for such securities. On June 13, 1997, the
Company issued an additional 2,168,100 shares of common stock pursuant to the
partial exercise of the underwriters' overallotment option. On June 16, 1997,
the Company redeemed all $250 million aggregate principal amount of the 10.25%
Senior Subordinated Notes due 1999, and all $150 million aggregate principal
amount of the 10.50% Senior Subordinated notes due 2002. The June 16, 1997,
redemptions were funded by proceeds received from the June 13, 1997, issuance
of common stock and borrowings under the Company's Bank Credit Agreement. On
August 1, 1997, the Company redeemed all $250 million aggregate principal
amount of the 10% Senior Subordinated Notes due 2002. On August 15, 1997, the
Company redeemed all $200 million aggregate principal amount of the 9.75%
Senior Subordinated Notes due 2004. On October 15, 1997, the Company redeemed
all $100 million aggregate principal amount of 9.95% Senior Subordinated Notes
due 2004. The August and October redemptions were funded by borrowings under
the Company's Bank Credit Agreement.
14
<PAGE>
As a result of the release of the guarantees and collateral securing the Bank
Credit Agreement and the 11% Senior Debentures, the newly issued Senior Notes
rank pari passu with such obligations. The Bank Credit Agreement, 11% Senior
Debentures, and Senior Notes are senior in right of payment to all existing
and future subordinated debt of the Company.
Under the terms of the Bank Credit Agreement and the Indenture related to the
Company's subordinated notes, dividend payments with respect to the Company's
Preferred or Common Stock and payments for redemption of shares of its Common
Stock are subject to certain limitations.
7. Extraordinary Charges from Early Extinguishment of Debt
During the third quarter of 1997, the Company used borrowings under its Bank
Credit Agreement to redeem: (1) all $250 million aggregate principal amount
of the 10% Senior Subordinated Notes due 2002, at 105% of the principal
amount; and (2) all $200 million aggregate principal amount of the 9.75%
Senior Subordinated Notes due 2004, at 104.875% of the principal amount. As a
result, the Company recorded extraordinary charges for redemption premiums and
the write-off of unamortized deferred finance fees totaling $26.6 million, net
of applicable income tax effects of $10.2 million for the three months ended
September 30, 1997.
In addition to the redemptions discussed above, during the second quarter of
1997, the Company used the proceeds from the Offerings along with borrowings
under its Bank Credit Agreement to redeem: (1) $957.6 million aggregate
principal amount of the 11% Senior Debentures due 2003, at 109.56% of the
principal amount plus a $20 consent payment per debenture for consents to
proposed amendments to the indenture relating to the debentures; (2) all $250
million aggregate principal amount of the 10.25% Senior Subotrdinated Notes
due 1999, at 100% of the principal amount; and (3) all $150 million aggregate
principal amount of the 10.50% Senior Subordinated Notes due 2002, at 105.25%
of the principal amount. As a result, the Company recorded extraordinary
charges for redemption premiums and the write-off of unamortized deferred
finance fees totaling $163.5 million, net of applicable income tax effects of
$62.6 million for the nine months ended September 30, 1997.
8. Cash Flow Information
Interest paid in cash aggregated $222.9 million and $179.4 million for the
nine months ended September 30, 1997 and September 30, 1996, respectively.
Income taxes paid in cash totaled $59.2 million and $25.1 million for the nine
months ended September 30, 1997 and September 30, 1996, respectively.
9. Contingencies
The Company is one of a number of defendants (typically 10 to 20) in a
substantial number of lawsuits filed in numerous state and federal courts by
persons alleging bodily injury (including death) as a result of exposure to
dust from asbestos fibers. From 1948 to 1958, one of the Company's former
business units commercially produced and sold a high-temperature, clay-based
insulating material containing asbestos. The insulation material was used in
15
<PAGE>
limited industrial applications such as shipyards, power plants and chemical
plants. During its ten years in the high-temperature insulation business, the
Company's aggregate sales of insulation material containing asbestos were less
than $40 million. The Company exited the insulation business in April 1958.
The traditional asbestos personal injury lawsuits and claims relating to such
production and sale of asbestos material typically allege various theories of
liability, including negligence, gross negligence and strict liability and
seek compensatory and punitive damages in various amounts (herein referred to
as "asbestos claims"). As of September 30, 1997, the Company estimates that
it is a named defendant in asbestos claims involving approximately 14,000
plaintiffs and claimants.
The Company's indemnity payments for these claims have varied on a per claim
basis, and are expected to continue to vary considerably over time. They are
affected by a multitude of factors, including the type and severity of the
disease sustained by the claimant; the occupation of the claimant; the extent
of the claimant's exposure to asbestos-containing insulation products
manufactured or sold by the Company; the extent of the claimant's exposure to
asbestos-containing products manufactured or sold by other producers; the
number and financial resources of other defendants and the nature and extent
of indemnity or contribution claims that may be asserted by or against such
other defendants; the jurisdiction of suit; the presence or absence of other
possible causes of the claimant's illness; the availability of legal defenses
such as the statute of limitations or state of the art; and whether the claim
was resolved on an individual basis or as part of a group settlement.
The Company's indemnity payments may also be affected by co-defendant
bankruptcy and class action filings. Since 1982 a number of former producers
of asbestos-containing products have filed for reorganization under Chapter 11
of the United States Bankruptcy Code ("Co-Defendant Bankruptcies"). Pending
lawsuits are generally stayed as to these entities, but continue against the
Company and other defendants. Certain other defendants, and certain
plaintiffs, have also sought to resolve all asbestos claims on a global basis
by filing petitions to certify nationwide litigation or settlement class
actions ("Class Actions"), certain of which the Company believes are not
supported by existing case law. The precise impact on the Company of these
Co-Defendant Bankruptcies and Class Actions is not determinable. However, the
Company believes that the Co-Defendant Bankruptcies probably have adversely
affected, and may adversely affect in the future, the Company's share of the
total liability to plaintiffs in previously settled or otherwise determined
lawsuits and claims and that the dissemination of class notices in the Class
Actions may have increased the number of claims and lawsuits against the
Company or accelerated the filing of such claims.
The Company is also one of a number of defendants in (i) bodily injury
lawsuits involving plaintiffs who allege that they are or were maritime
workers ("Maritime Claims"), (ii) a lawsuit on behalf of individuals in
Pennsylvania who have no asbestos-related impairment, but nevertheless seek
the costs of future medical monitoring ("Medical Monitoring Claims"), (iii)
defendants' claims for contribution ("Contribution Claims") and (iv) lawsuits
brought by public or private property owners alleging damages to their various
properties ("Property Damage Claims"). Certain of these Maritime Claims,
16
<PAGE>
Medical Monitoring Claims and Property Damage Claims seek class action
treatment. Based on its past experience, the Company presently believes that
the probable ultimate disposition of these Maritime Claims, Medical Monitoring
Claims, Contribution Claims and Property Damage Claims will not involve any
material additional liability and does not include them in the description
herein of asbestos claims or in the total number of pending asbestos claims
above.
In April 1986, the Company and Aetna Life & Casualty Company ("Aetna") agreed
to a final settlement fully resolving asbestos bodily injury and property
damage insurance coverage litigation between them (which followed the entry of
partial summary judgment in favor of the Company in such litigation). The
Company has processed claims which have effectively exhausted its coverage
under the Aetna agreement. In 1984, the Company initiated similar litigation
in New Jersey against the Company's insurers, including its wholly-owned
captive insurer Owens Insurance Limited ("OIL"), and certain other parties for
the years 1977 through 1985 in which the Company sought damages and a
declaration of coverage for both asbestos bodily injury and property damage
claims under insurance policies in effect during those years (Owens-Illinois,
Inc. v. United Insurance Co., et al, Superior Court of New Jersey, Middlesex
County, November 30, 1984).
In December 1994, the Company partially settled for approximately $100 million
its coverage claim against OIL to the extent of reinsurance provided to OIL by
certain reinsurance companies representing approximately 19% of total United
Insurance coverage limits. Subsequently, the Company reached separate
settlements for approximately $140 million with various other reinsurers, and
with OIL to the extent of reinsurance provided by such settling reinsurance
companies. These settlements also included all of the reinsurers who had
participated actively as litigating parties in the United Insurance case.
Following the settlements described above, a settlement agreement (the "OIL
Settlement") was reached with OIL. The OIL Settlement, which was endorsed by
three mediators and approved by OIL's independent directors, called for the
payment of remaining non-settled reinsurance at 78.5% of applicable
reinsurance limits, increasing to 81% on approximately March 1, 1996 and
accruing interest thereafter at 10% per annum.
In December 1995, the presiding judge in the United Insurance case entered a
Consent Judgment settling the United Insurance case as to all remaining issues
and all parties with the single exception of a broker malpractice claim
asserted by the Company, which remains pending. In the Consent Judgment
Order, the presiding judge specifically found that the OIL Settlement is a
good faith and non-collusive settlement and that it is fair and reasonable as
to OIL and all of OIL's non-settling reinsurers.
In November 1995, before all the settlements described above were finalized, a
reinsurer of OIL during the years affected by the United Insurance case
brought a separate suit against OIL seeking a declaratory judgment that it had
no reinsurance obligation to OIL due to alleged OIL fraud and also to OIL
not having joined non-party reinsurers as parties in the United Insurance case
as alleged to be required under New Jersey's "entire controversy" doctrine
17
<PAGE>
(Employer's Mutual vs Owens-Insurance Limited, Superior Court of New Jersey,
Morris County, December 1995). The Company was not a named party to this
cause of action but was subsequently joined in it as a necessary party
defendant.
Subsequent to the entry of the Consent Judgment Order in the United Insurance
case described above, OIL gave notice of the OIL Settlement to all nonsettling
reinsurers affected by the United Insurance case, informing all such
reinsurers of the terms of the OIL Settlement and demanding timely payment
from such reinsurers pursuant to such terms. Certain previously nonsettling
reinsurers made the payments called for under the OIL Settlement or otherwise
settled their obligations thereunder. Other nonsettling solvent reinsurers,
all of which are parties to the Employers Mutual case described above, did
not, however, make the payments called for under the OIL Settlement by the
date specified therein.
In June 1996, the Superior Court of New Jersey, Morris County granted OIL
summary judgment on the "entire controversy" doctrine claim in the Employers
Mutual case. A petition for interlocutory appeal of this summary judgment by
certain nonsettling OIL reinsurers was rejected first by the Appellate
Division of the New Jersey Superior Court and thereafter by the New Jersey
Supreme Court.
As a result of payments and commitments that have been made by reinsurers
pursuant to the OIL Settlement and the earlier settlement agreements described
above in the United Insurance case and certain other available insurance, the
Company has to date confirmed coverage for its asbestos-related costs of
approximately $296.8 million. Of the total amount confirmed to date, $257.3
million had been received through September 30, 1997; and the balance of
approximately $39.5 million will be received throughout 1997 and the next
several years. The remainder of the insurance asset of approximately $213.2
million relates principally to the reinsurers who have not yet paid, and
continue to contest, their reinsurance obligations under the OIL Settlement.
This $213.2 million asset valuation at September 30, 1997 also reflects 1994
and 1995 reductions of $100 million and $40 million, respectively, in the
insurance asset valuation of $650 million established in 1993, which had been
made to reflect settlement activity and litigation developments in the United
Insurance case.
The Company believes, based on the rulings of the trial court, the Appellate
Division and the New Jersey Supreme Court in the United Insurance case, as
well as its understanding of the facts and legal precedents (including
specifically the legal precedent requiring that reinsurers "follow the
fortunes" of and adhere to any good faith, fair and reasonable settlement
entered into by the primary carrier which such reinsurers had agreed to
reinsure) and based on advice of counsel, McCarter & English, that it is
probable substantial additional payments will be received to cover the
Company's asbestos-related claim losses, in addition to the amounts already
received or to be received as a result of the settlements described above.
As a result of the Co-Defendant Bankruptcies, the Class Actions, and the
continuing efforts in various federal and state courts to resolve asbestos
18
<PAGE>
lawsuits and claims in nontraditional manners, as well as the continued
filings of new lawsuits and claims, the Company believes that its ultimate
asbestos-related contingent liability (i.e., its indemnity or other claim
disposition costs plus related litigation expenses) is difficult to estimate
with certainty. However, the Company has continually monitored the trends of
matters which may affect its ultimate liability and continually analyzes the
trends, developments and variables affecting or likely to affect the
resolution of pending and future asbestos claims against the Company.
Based on all the factors and matters relating to the Company's asbestos-
related litigation and claims, the Company believes that its asbestos-related
costs and liabilities will not exceed by a material amount the sum of the
available insurance reimbursement the Company believes it has and will have
principally as a result of the United Insurance case, and the OIL Settlement,
as described above, and the amount of previous charges for asbestos-related
costs.
Other litigation is pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company and in
others presenting allegations that are nonroutine and involve compensatory,
punitive or treble damage claims as well as other types of relief. The
ultimate legal and financial liability of the Company in respect to the
lawsuits and proceedings referred to above, in addition to other pending
litigation, cannot be estimated with certainty. However, the Company
believes, based on its examination and review of such matters and experience
to date, that such ultimate liability will not be material in relation to the
Company's Consolidated Financial Statements.
10. New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS No. 128"),
which is required to be adopted for periods ending after December 15, 1997.
FAS No. 128 establishes standards for computing and presenting earnings per
share. The adoption of FAS No. 128 by the Company is expected to result in no
change in primary earnings per share for the three and nine month periods
ended September 30, 1997 and 1996. The impact of FAS No. 128 on the
calculation of fully diluted earnings per share for these quarters is not
expected to be material.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
No. 130"), which is required to be adopted for fiscal years beginning after
December 15, 1997. FAS No. 130 requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same
prominence as other financial statements. The Company's components of
comprehensive income have historically been net earnings and foreign currency
translation adjustments.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
19
<PAGE>
Enterprise and Related Information" ("FAS No. 131"), which is effective for
financial statements for periods beginning after December 15, 1997. FAS No.
131 establishes revised standards for determining an entity's operating
segments and the type and level of financial information to be presented
related to such operating segments. The impact of FAS No. 131 on the
Company's disclosures of operating segment information has not been
determined.
20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations - Third Quarter 1997 compared with Third Quarter 1996
The Company recorded earnings before extraordinary items of $91.8 million for
the third quarter of 1997 compared to net earnings of $62.0 million for the
third quarter of 1996, an increase of $29.8 million. The third quarter of
1997 includes amounts relating to: (1) the recently acquired AVIR operations
(see Note 1 to the financial statements) and (2) certain assets of Anchor
Glass Container Corporation acquired on February 5, 1997 ("Anchor Assets").
Consolidated operating profit for the third quarter of 1997 was $212.2
million, an increase of $44.1 million, or 26.2%, compared to the same period
in 1996. 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,
decreased $7.5 million due in part to the implementation of the Refinancing
Plan (see Note 3 to the financial statements). Effects of the Refinancing
Plan were partially offset by additional interest expense on debt incurred or
assumed in connection with acquisitions. Net earnings of $75.4 million for
the third quarter of 1997 reflect $16.4 million of extraordinary charges from
the early extinguishment of debt.
Capsule segment results (in millions of dollars) for the third quarter of 1997
and 1996 were as follows:
- ----------------------------------------------------------------------------
Net sales
(Unaffiliated customers) Operating profit
- ----------------------------------------------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
Glass Containers $ 957.5 $ 747.1 $ 162.8 $ 126.6
Plastics and Closures 281.6 266.6 46.4 42.8
Eliminations and other
retained costs .4 .4 3.0 (1.3)
- ----------------------------------------------------------------------------
Consolidated total $1,239.5 $1,014.1 $ 212.2 $ 168.1
============================================================================
Consolidated net sales for the third quarter of 1997 increased $225.4 million,
or 22.2%, over the prior year. Net sales of the Glass Containers segment
increased $210.4 million, or 28.2%, from 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 $154 million
to third quarter 1997 U.S. dollar sales) and increased unit shipments.
Domestically, glass container unit shipments increased over prior year,
reflecting additional business gained through the acquisition of the Anchor
Assets and increased shipments in most end uses. Net sales of the Plastics
and Closures segment increased $15.0 million, or 5.6%, over 1996. Increased
shipments of plastic containers for personal care items such as hair care,
skin care, and body wash products contributed to the increase.
21
<PAGE>
Consolidated operating profit for the third quarter of 1997 increased $44.1
million, or 26.2%, to $212.2 million from third quarter 1996 operating profit
of $168.1 million. The operating profit of the Glass Containers segment
increased $36.2 million to $162.8 million, compared to $126.6 million in the
third quarter of 1996. The combined U.S. dollar operating profit of the
segment's foreign affiliates increased from the third quarter of 1996. AVIR
contributed approximately $25 million to third quarter 1997 U.S. dollar
operating profit. Improved results at the segment's affiliates in Venezuela
and Brazil were offset by the effects of reduced export shipments from Hungary
and the temporary downtime and additional expenses associated with scheduled
rebuilds of glass melting furnaces at some international affiliates. Domesti-
cally, operating profit of the Glass Containers segment increased from the
third quarter of 1996. Third quarter 1997 operating profit benefitted from
increased sales volume in most end uses, along with the incremental business
gained through the acquisition of the Anchor Assets. The operating profit of
the Plastics and Closures segment increased $3.6 million, or 8.4%, compared to
the third quarter of 1996. The increase resulted from higher unit shipments
in most businesses, particularly plastic containers for personal care items.
Other retained costs for the third quarter of 1997 were lower principally due
to higher net financial services income and the reported gain on an asset
sale.
First Nine Months 1997 compared with First Nine Months 1996
For the first nine months of 1997, the Company recorded earnings before
extraordinary items of $233.3 million compared to net earnings of $168.2
million for the first nine months of 1996. Excluding the effects of the 1997
unusual items discussed below, the Company's first nine months of 1997
earnings before extraordinary items of $225.7 million increased $57.5 million,
or 34.2%, over first nine months of 1996 net earnings of $168.2 million. The
first nine months of 1997 includes amounts relating to: (1) the recently
acquired AVIR operations and (2) the Anchor Assets acquired on February 5,
1997. Consolidated segment operating profit, excluding the 1997 unusual
items, was $586.4 million for the first nine months of 1997, an increase of
$103.2 million, or 21.4%, 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 retained costs. The
Company's estimated effective tax rate, excluding the effect of the Kimble
Glass gain discussed below, was 34.2% for the first nine months of 1997,
compared with 34.0% estimated for the first nine months of 1996 and the actual
rate of 32.4% for the full year 1996. Net earnings of $132.4 million for the
first nine months of 1997 reflect $100.9 million of extraordinary charges from
the early extinguishment of debt.
22
<PAGE>
Capsule segment results (in millions of dollars) for the first nine months of
1997 and 1996 were as follows:
- ----------------------------------------------------------------------------
Net sales
(Unaffiliated customers) Operating profit
- ----------------------------------------------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
Glass Containers $2,664.2 $2,086.0 $ 428.9 $ 355.8
Plastics and Closures 855.0 796.3 155.6 135.7
Eliminations and other
retained costs (a) 1.1 1.3 4.1 (8.3)
- ----------------------------------------------------------------------------
Consolidated total $3,520.3 $2,883.6 $ 588.6 $ 483.2
============================================================================
(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. These items were recorded
in the first quarter of 1997.
Consolidated net sales for the first nine months of 1997 increased $636.7
million, or 22.1%, over the prior year. Net sales of the Glass Containers
segment increased $578.2 million, or 27.7%, 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 approxi-
mately $394 million to first nine months 1997 U.S. dollar sales), improved
pricing in Venezuela and increased unit shipments at several other affiliates,
particularly those affiliates located in Colombia and the United Kingdom.
Domestically, glass container unit shipments increased over prior year,
reflecting additional business gained through the acquisition of the Anchor
Assets and increased shipments in most end uses. Net sales of the Plastics
and Closures segment increased $58.7 million, or 7.4%, over 1996. Increased
shipments of plastic containers for personal care items such as hair care,
skin care, and body wash products along with increased demand for prescription
containers contributed to the increase.
Consolidated operating profit for the first nine months of 1997, excluding the
1997 unusual items, increased $103.2 million, or 21.4%, to $586.4 million from
first nine months 1996 operating profit of $483.2 million. The operating
profit of the Glass Containers segment increased $73.1 million to $428.9
million, compared to $355.8 million in the first nine months of 1996. The
combined U.S. dollar operating profit of the segment's foreign affiliates
increased from the first nine months of 1996. AVIR contributed approximately
$58 million to first nine months 1997 U.S. dollar operating profit. Improved
results at the segment's affiliates in Venezuela and Poland more than offset
the effects of reduced export shipments from Hungary and soft market condi-
tions in Brazil. Domestically, operating profit of the Glass Containers
segment increased from the same 1996 period. First nine months 1997 operating
profit benefitted from increased sales volume in most end uses, along with the
incremental business gained through the acquisition of the Anchor Assets. The
operating profit of the Plastics and Closures segment increased $19.9 million,
23
<PAGE>
or 14.7%, compared to the first nine months of 1996. The increase resulted
from improved manufacturing performance and increased unit shipments in most
businesses, particularly plastic containers for personal care items. Other
retained costs, excluding the 1997 unusual items discussed below, were $1.9
million income for the first nine months of 1997 compared to $8.3 million
expense for the first nine months of 1996, reflecting higher net financial
services income and the reported gain on an asset sale.
Capital Resources and Liquidity
The Company's total debt at September 30, 1997 was $3.36 billion compared to
$3.39 billion at December 31, 1996 and $2.88 billion at September 30, 1996.
At September 30, 1997, the Company had available credit totaling $3 billion
under its May 15, 1997 Bank Credit Agreement, expiring in December 2001, of
which $810.5 million had not been utilized. At December 31, 1996, total
commitments under the Company's previous credit facility were $1.8 billion of
which $628.7 million of credit had not been utilized. The increased utiliza-
tion of the Bank Credit Agreement resulted in large part from implementation
of the Refinancing Plan 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 $230.4 million for the first nine months of 1997
compared to $238.8 million in 1996.
During the second quarter of 1997, the Company filed a registration statement
with the Securities and Exchange Commission for the offering of up to $2.5
billion of debt securities, common stock, or both from time to time as market
conditions permit. On May 16, 1997, the Company completed the offerings of:
(1) 14,750,000 shares of common stock at a public offering price of $28.50 per
share; (2) $300 million aggregate principal amount of 7.85% Senior Notes due
May 15, 2004; and (3) $300 million aggregate principal amount of 8.10% Senior
Notes due May 15, 2007. On May 23, 1997, the Company used the proceeds from
these offerings in addition to borrowings under the Company's Bank Credit
Agreement to redeem $957.4 million aggregate principal amount of the 11%
Senior Debentures due 2003, which represents more than 95% of the aggregate
principal amount of these securities outstanding, pursuant to a tender offer
and consent solicitation for such securities. Total consideration for each
$1,000 principal amount of the 11% Senior Debentures redeemed on May 23, 1997
was $1,115.60, which included a $20 payment for consents to amendments to the
related indenture. On June 13, 1997, the Company issued an additional
2,186,100 shares of common stock pursuant to the partial exercise of the
underwriters' overallotment option. On June 16, 1997, the Company redeemed
all $250 million aggregate principal amount of the 10.25% Senior Subordinated
Notes due 1999, at 100% of principal amount, and all $150 million aggregate
principal amount of the 10.50% Senior Subordinated Notes due 2002, at 105.25%
of principal amount. The June 16, 1997, redemptions were funded by proceeds
received from the June 13, 1997, issuance of common stock and borrowings under
the Company's Bank Credit Agreement. On August 1, 1997, the Company redeemed
24
<PAGE>
all $250 million aggregate principal amount of the 10% Senior Subordinated
Notes due 2002, at 105% of principal amount. On August 15, 1997, the Company
redeemed all $200 million aggregate principal amount of the 9.75% Senior
Subordinated Notes due 2004, at 104.875% of principal amount. On October 15,
1997, the Company redeemed all $100 million aggregate principal amount of the
9.95% Senior Subordinated Notes due 2004, at 104.975% of principal amount.
These redemptions were funded by borrowings under the Company's Bank Credit
Agreement. The results of all the above refinancing actions include both a
reduction of indebtedness and lower overall interest rates. The favorable
effect on annual interest expense amounts to approximately $80 million, based
upon the 1996 pro forma calculations.
The Company anticipates that cash flow from its operations and from utiliza-
tion of credit available through December 2001 under the Bank Credit Agreement
will be sufficient to fund its operating and seasonal working capital needs,
debt service and other obligations. The Company faces additional demands upon
its liquidity for asbestos-related payments. Based on the Company's expecta-
tions 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.
25
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Contingencies. Note 9 to the Condensed Consolidated Financial
Statements, "Contingencies," that is included in Part I of this Report, is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 12 Computation of Ratio of Earnings to Fixed
Charges.
Exhibit 23 Consent of McCarter & English.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this Report is filed.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
OWENS-ILLINOIS, INC.
Date November 13, 1997 By /s/ Lee A. Wesselmann
----------------- --------------------------------------------
Lee A. Wesselmann, Senior Vice President and
Chief Financial Officer (Principal Financial
Officer)
OWENS-ILLINOIS GROUP, INC.
Date November 13, 1997 By /s/ Lee A. Wesselmann
----------------- --------------------------------------------
Lee A. Wesselmann, Senior Vice President and
Chief Financial Officer (Principal Financial
Officer)
27
<PAGE>
INDEX TO EXHIBITS
Exhibit
12 Computation of Ratio of Earnings to Fixed Charges.
23 Consent of McCarter & English.
27 Financial Data Schedule.
<PAGE>
Exhibit 12
OWENS-ILLINOIS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of dollars, except ratios)
Nine Months ended September 30,
----------------------------------------------
Pro Forma
Pro Forma As Adjusted
As Adjusted for Avir
For Acquisition
Refinancing and
Actual Plan Actual Refinancing
1997 1997 1996 Plan 1996
Earnings from continuing ------ ----------- ------ -----------
operations before income
taxes, minority share
owners' interests, extra-
ordinary items and
cumulative effect of
accounting changes $383.9 $419.4 $287.7 $415.3
Less: Equity earnings (13.0) (13.0) (13.2) (16.3)
Add: Total fixed charges
deducted from earnings 253.7 218.2 241.3 207.4
------ ------ ------ ------
Earnings available for
payment of fixed
charges $624.6 $624.6 $515.8 $606.4
====== ====== ====== ======
Fixed charges (including the
Company's proportional
share of 50% owned
associates):
Interest expense $233.8 $199.4 $221.2 $188.2
Portion of operating
lease rental deemed
to be interest 16.6 16.6 16.3 16.9
Amortization of
deferred financing
costs and debt
discount expense 3.3 2.2 3.8 2.3
Total fixed charges ------ ------ ------ ------
deducted from
earnings and total
fixed charges $253.7 $218.2 $241.3 $207.4
====== ====== ====== ======
Ratio of earnings to
fixed charges 2.5 2.9 2.1 2.9
<PAGE>
EXHIBIT 23
CONSENT OF MCCARTER & ENGLISH
November 11, 1997
Ladies and Gentlemen:
We consent to the incorporation by reference in this Quarterly Report
on Form 10-Q of Owens-Illinois, Inc. and Owens-Illinois Group, Inc. for the
quarter ended September 30, 1997, of the reference to our firm under the
caption "Legal Proceedings."
Very truly yours,
/s/McCarter & English
---------------------
McCarter & English
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1997 condensed consolidated balance sheet, and the condensed
consolidated results of operations for the nine-month period then ended
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 277,000,000
<SECURITIES> 0
<RECEIVABLES> 715,700,000
<ALLOWANCES> 41,000,000
<INVENTORY> 579,200,000
<CURRENT-ASSETS> 1,700,200,000
<PP&E> 3,866,300,000
<DEPRECIATION> 1,651,100,000
<TOTAL-ASSETS> 6,786,800,000
<CURRENT-LIABILITIES> 1,004,200,000
<BONDS> 3,241,900,000
0
21,400,000
<COMMON> 1,400,000
<OTHER-SE> 1,266,200,000
<TOTAL-LIABILITY-AND-EQUITY> 6,786,800,000
<SALES> 3,520,300,000
<TOTAL-REVENUES> 3,653,200,000
<CGS> 2,736,000,000
<TOTAL-COSTS> 2,736,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237,100,000
<INCOME-PRETAX> 383,900,000
<INCOME-TAX> 125,700,000
<INCOME-CONTINUING> 233,300,000
<DISCONTINUED> 0
<EXTRAORDINARY> (100,900,000)
<CHANGES> 0
<NET-INCOME> 132,400,000
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
