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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
OWENS-ILLINOIS, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-9576 22-2781933
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) file number) Identification No.)
OWENS-ILLINOIS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-13061 34-1559348
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) file number) Identification No.)
One SeaGate, Toledo, Ohio 43666
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (419) 247-5000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
11% Senior Debentures due December 1, 2003 New York Stock Exchange
10-1/4% Senior Subordinated Notes due 1999 New York Stock Exchange
10-1/2% Senior Subordinated Notes due 2002 New York Stock Exchange
10% Senior Subordinated Notes due 2002 New York Stock Exchange
9-3/4% Senior subordinated Notes due 2004 New York Stock Exchange
9.95% Senior Subordinated Notes due 2004 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Cover page 1 of 2 pages)
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Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrants were required to file such reports) and (2) have been subject
to such filing requirements for the past 90 days.
Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value (based on the consolidated tape closing price
on February 28, 1997) of the voting stock beneficially held by non-affiliates
of Owens-Illinois, Inc. was approximately $2,058,092,000. For the sole
purpose of making this calculation, the term "non-affiliate" has been
interpreted to exclude directors and executive officers of the Company. Such
interpretation is not intended to be, and should not be construed to be, an
admission by Owens-Illinois, Inc. or such directors or executive officers of
the Company that such directors and executive officers of the Company are
"affiliates" of Owens-Illinois, Inc., as that term is defined under the
Securities Act of 1934.
The number of shares of Common Stock, $.01 par value, of Owens-Illinois,
Inc. outstanding as of February 28, 1997, was 122,533,742.
The number of shares of Common Stock, $.01 par value, of Owens-Illinois,
Group, Inc. outstanding as of February 28, 1997, was 100, all of which were
owned by Owens-Illinois, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Owens-Illinois, Inc. Proxy Statement for The Annual Meeting of
Share Owners To Be Held Wednesday, May 14, 1997 ("Proxy
Statement").
(Cover page 2 of 2 pages)
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TABLE OF CONTENTS
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . 11
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . 12
EXECUTIVE OFFICERS OF THE REGISTRANTS . . . . 13
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 5. MARKET FOR OWENS-ILLINOIS, INC.'S COMMON STOCK
AND RELATED SHARE OWNER MATTERS . . . . . . . 16
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . 59
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANTS . . . . . . . . . . . . . . . . . 60
ITEMS 11. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS
and 13. AND RELATED TRANSACTIONS. . . . . . . . . . . 60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. . . . . . . . . . . . . . . . 60
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ITEM 14.(a). EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 61
ITEM 14.(b). REPORTS ON FORM 8-K . . . . . . . . . . . . 66
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
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PART I
ITEM 1. BUSINESS
General Development of Business
Owens-Illinois, Inc. (the "Company"), through its subsidiaries, is the
successor to a business established in 1903. The Company is one of the
world's leading 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. 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 four years, the Company has invested more
than $1 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
S.p.A. ("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. During the first half of 1997, the Company also
will initiate 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 $580 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
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packaging and to take advantage of revenue and earnings growth opportunities
around the world.
The principal executive office of the Registrants is located at One SeaGate,
Toledo, Ohio 43666; the telephone number is (419) 247-5000.
Financial Information about Industry Segments
Information as to sales, operating profit, and identifiable assets by industry
segment is included on pages 56 - 58.
Narrative Description of Business
The Company has two industry segments: (1) Glass Containers and (2) Plastics
and Closures. Below is a description of these segments and information to the
extent material to understanding the Company's business taken as a whole.
Products and Services, Customers, Markets and Competitive Conditions, and
Methods of Distribution
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 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
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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.
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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
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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
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Exclusive of the Avir acquisition completed in 1997, the Company has glass
container operations located in fourteen countries. 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,
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Inc., and Silgan Corporation. In the plastic containers market, no one
competitor is dominant.
Methods of Distribution
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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
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The Company has an approximate 40% share, which is expected to increase
slightly due to the 1997 acquisition of the Anchor Assets, of the glass
container category of the U.S. rigid packaging market. Domestically,
exclusive of the 1997 acquisition of the Anchor Assets, the Company operates
21 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
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roadway material manufacturers). 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
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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.
Exclusive of the Avir acquisition, the Company has significant ownership
positions in sixteen companies located in thirteen foreign countries and
Puerto Rico. Most of the Company's international glass affiliates are the
leading container manufacturers in their respective countries, producing a
full line of containers for the soft drink, beer, wine, liquor, food, drug and
chemical industries. Some of these companies also produce molds, mold parts,
sand and feldspar, limestone, machines and machine parts, rolled glass, sheet
glass and glass tableware. The Company's principal international glass
affiliates are 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.
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The Company's significant ownership positions in international glass
affiliates are summarized below:
Owens-Illinois
Company/Country Ownership
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Karhulan Lasi Oy, Finland 100.0%
Oroshaza Glass Manufacturing and Trading, Kft., Hungary 100.0
United Glass Ltd., United Kingdom 100.0
Centro Vidriero de Venezuela, C.A., Venezuela 100.0
Manufacturera de Vidrios Planos, C.A., Venezuela 100.0
Owens-Illinois de Venezuela, C.A., Venezuela 92.2
A/S Jarvakandi Klaas, Estonia 82.0
Owens-Illinois de Puerto Rico, Puerto Rico 80.0
Companhia Industrial Sao Paulo e Rio, Brazil 79.4
Vidrios Industriales, S.A., Peru 77.0
Wuhan Owens Glass Container Company, Ltd., China 70.0
Cristaleria del Ecuador, S.A., Ecuador 66.8
Cristaleria Peldar, S.A., Colombia 57.4
Owens-BILT Limited, India 51.0
Fabrica Boliviana de Vidrios, S. A., Bolivia 50.0
Huta Szkla Jaroslaw S.A., Poland 49.0
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 segments in which it competes
except for Hi-Cone, in which it is second. Plastic container sales
represented 17%, 16% and 17% of the Company's consolidated net sales for the
years ended December 31, 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
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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.
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 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 and PlasTop tamper-
evident closures, Clic Loc child-resistant closures and Pharmacy Mate
reversible prescription container closures.
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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.
ADDITIONAL INFORMATION
New Products
New products and numerous refinements of existing products are developed and
introduced in each segment every year. No single new product or refinement,
or group of new products and refinements, have been recently introduced or are
scheduled for introduction which required the investment of a material amount
of the Company's assets or which otherwise would be considered material.
Sources and Availability of Raw Materials
All of the raw materials the Company uses have historically been available in
adequate supply from multiple sources. However, for certain raw materials,
there may be temporary shortages due to weather or other factors, including
disruptions in supply caused by raw material transportation or production
delays; such shortages are not expected to have a material effect on the
Company's operations.
Patents and Licenses
The Company has a large number of patents which relate to a wide variety of
products and processes, has pending a substantial number of patent
applications, and is licensed under several patents of others. While in the
aggregate its patents are of material importance to its business, the Company
does not consider that any patent or group of patents relating to a particular
product or process is of material importance when judged from the standpoint
of any segment or its business as a whole.
Seasonality
Sales of particular products of the Glass Containers and Plastics and Closures
business segments such as beer and certain food containers are seasonal, with
shipments typically greater in the second and third quarters of the year.
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Working Capital
In general, the working capital practices followed by the Company are typical
of the businesses in which it operates. During the first and second quarters
of the year the accumulation of inventories of certain products in advance of
expected shipments reflects the seasonal nature of those businesses and may
require periodic borrowings.
Customers
Major customers exist for each of the Company's industry segments, and in each
industry segment the loss of a few of these customers might have a material
adverse effect on the segment. Major customers of the Company include such
companies as Anheuser-Busch Companies, Inc., Philip Morris Companies Inc.,
The Procter & Gamble Company, Unilever, N.V. and other leading companies which
manufacture and market a variety of consumer products.
Research and Development
Research and development constitutes an important part of the Company's
activities. Research and development expenditures for continuing operations
were $31.1 million, $30.3 million, and $31.8 million for 1996, 1995, and 1994,
respectively. Operating engineering expenditures were $25.6 million, $24.5
million, and $22.8 million for 1996, 1995, and 1994, respectively. In
addition to new product development, substantial portions of the technical
effort are devoted to increased process control, automatic inspection, and
automation. No material amount of money was spent on customer-sponsored
research activities during 1996, 1995, or 1994.
Environment
The Company's operations, in common with those of the industry generally, are
subject to numerous existing and proposed laws and governmental regulations
designed to protect the environment, particularly regarding plant wastes and
emissions and solid waste disposal. Capital expenditures for property, plant,
and equipment for environmental control activities were not material during
1996.
A number of states have enacted, or are considering, legislation to promote
curbside recycling and recycled content legislation as alternatives to
mandatory deposit laws. Although such legislation is not uniformly developed,
the Company believes that curbside recycling and recycling content legislation
could become more significant during the next two years.
Sales of non-refillable glass beverage bottles and other convenience packages
are affected by mandatory deposit laws and other types of restrictive
legislation. As of January 1, 1997, there are nine states with mandatory
deposit laws in effect.
Plastic containers have also been the subject of legislation in various
states. The Company utilizes recycled plastic resin in its manufacturing
processes. During 1996 and 1995, many plastic containers for products other
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than food, drugs, and cosmetics contained 25% post consumer resin. The
Company believes it is a industry leader in such technology.
Although the Company is unable to predict what legislation or regulations may
be adopted in the future with respect to environmental protection and waste
disposal, compliance with existing legislation and regulations has not had,
and is not expected to have, a material adverse effect on its capital
expenditures, results of operations, or competitive position.
Number of Employees
The Company's operations employed approximately 30,800 persons at December 31,
1996. A majority of these employees are hourly workers covered by collective
bargaining agreements, the principal one of which was renewed early in 1996
for three years. The Company considers its employee relations to be good.
The Company has not had any material labor disputes in the last five years,
and does not anticipate any material work stoppages in the near term.
Financial Information about Foreign and Domestic Operations and Export Sales
Information as to net sales, operating profit, and identifiable assets of the
Company's operating and geographic segments is included on pages 56 - 58.
Export sales, in the aggregate or by geographic area, were not material for
the years 1996, 1995, or 1994.
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ITEM 2. PROPERTIES
The principal manufacturing facilities and other material important physical
properties of the continuing operations of the Company at December 31, 1996
are listed below and grouped by industry segment. All properties shown are
owned in fee except where otherwise noted.
Glass Containers (3) Guarenas, Venezuela
Glass Container Plants Valencia, Venezuela
Atlanta, GA Valera, Venezuela
Auburn, NY
Brockway, PA Flat Glass Plant
Charlotte, MI La Victoria, Venezuela
Chicago Heights, IL (1)
Clarion, PA (1) Machine Shops
Crenshaw, PA Brockway, PA
Danville, VA Godfrey, IL
Lakeland, FL Manaus, Brazil
Lapel, IN
Los Angeles, CA Sand Plants
Muskogee, OK (1) Ione, CA (2)
Oakland, CA Devilla, United Kingdom
Portland, OR
Streator, IL Plastics and Closures
Toano, VA Plastic Container Plants
Tracy, CA Atlanta, GA
Volney, NY Baltimore, MD
Waco, TX Belvidere, NJ
Winston-Salem, NC Charlotte, NC
Zanesville, OH Chicago, IL
La Paz, Bolivia Cincinnati, OH (1)
Rio de Janeiro, Brazil Edison, NJ
Sao Paulo, Brazil Findlay, OH
Wuhan, China Florence, KY (1)
Envigado, Colombia Greenville, SC
Zipaquira, Colombia Harrisonburg, VA
Guayaquil, Ecuador Kansas City, MO (2)
Jarvakandi, Estonia La Mirada, CA (2)
Karhula, Finland Nashua, NH
Oroshaza, Hungary Newburyport, MA
Pondicherry, India Rossville, GA (2)
Pune, India St. Louis, MO (2)
Rishikesh, India Sullivan, IN
Callao, Peru Vandalia, IL (1)
Jaroslaw, Poland Washington, NJ (2)
Vega Alta, Puerto Rico Ryttyla, Finland
St. Albans, United Kingdom Mexico City, Mexico
Alloa, United Kingdom
Harlow, United Kingdom Mold Shop
Peasley, United Kingdom Kansas City, MO (2)
Caracas, Venezuela
11
<PAGE>
Label and Carrier Products Plant Corporate Facilities
Bardstown, KY (1) World Headquarters Building
Toledo, OH (2)
Closure & Specialty Products Plants
Bridgeport, CT Levis Development Park
Brookville, PA Perrysburg, OH
Chattanooga, TN
Constantine, MI (1)
El Paso, TX (2)
Erie, PA
Hamlet, NC
Maumee, OH (2)
Waterbury, CT
Las Piedras, Puerto Rico
Prescription Products Plant
Berlin, OH (1)
- ---------------
(1) This facility is financed in whole or in part under tax-exempt financing
agreements.
(2) This facility is leased in whole or in part.
(3) Excludes facilities associated with acquisitions closing in early 1997
discussed in the second and third paragraphs on page 1.
The Company believes that its facilities are well maintained and currently
adequate for its planned production requirements over the next three to five
years.
ITEM 3. LEGAL PROCEEDINGS
See the second through last paragraphs of the section entitled "Contingencies"
on pages 51 - 55.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last quarter
of the fiscal year ended December 31, 1996.
12
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANTS
Set forth below are the names and the ages, positions, and offices held (as of
the date hereof), and a brief account of the business experience of each
executive officer. Each officer listed below holds the same position or
positions with Owens-Illinois Group, Inc. as he does with the Company.
Officers serve at the discretion of the Board of Directors.
Name and Age Position
- ------------ --------
Joseph H. Lemieux (66) . . . . . .Chairman since 1991; Chief Executive
Officer since 1990; President and Chief
Operating Officer, 1986-1990; Director
since 1984. Member of Class III of the
Board of Directors of the Company, with a
term expiring in 1997.
Lee A. Wesselmann (61) . . . . . .Senior Vice President and Chief Financial
Officer since 1988; Secretary, 1988-1990;
Vice President - Finance, 1988; Director
since 1988. Member of Class I of the
Board of Directors of the Company, with a
term expiring in 1998.
R. Scott Trumbull (48) . . . . . .Executive Vice President, International
Operations since 1993; Vice President and
Director of Corporate Planning, 1992-
1993; Vice President and General Manager
of Plastics and Closure Operations,
1986 - 1992.
Terry L. Wilkison (55) . . . . . .Executive Vice President since 1993;
Executive Vice President, Domestic
Packaging Operations, 1993-1996; Vice
President and General Manager of
Plastics, Closures, and Prescription
Products, 1992-1993; Vice President and
General Manager of Specialty Glass
Operations, 1987-1992.
Thomas L. Young (53) . . . . . . .Executive Vice President, Administration,
General Counsel and Secretary since 1993;
Vice President, General Counsel, General
Manager - Operations Administration and
Secretary, 1992-1993; Vice President,
General Counsel and Secretary, 1990-1992;
Vice President and General Counsel -
Operations, 1988-1990.
13
<PAGE>
Name and Age Position
- ------------ --------
Russell C. Berkoben (55) . . . . .Vice President and General Manager of
Plastic Containers Operations since 1991;
Vice President and Plastic Container
Business Unit Manager, 1985-1991.
Gary R. Clinard (58) . . . . . . .Vice President and General Manager of
International Operations since 1990; Vice
President of International Operations and
Technical Assistance, 1987-1990.
Larry A. Griffith (51) . . . . . .Vice President, Chief Information Officer
and General Manager of Plastic Components
Operations since 1996; Vice President
since 1990; General Manager of Kimble,
1992-1995; Vice President of Corporate
Staff and Director of Corporate Planning,
1988-1990.
John L. Hodges (57). . . . . . . .Vice President and Technical Director
since 1996; Vice President and General
Manager of Glass Container Operations,
1993-1996; Vice President of Glass
Container Sales and Marketing, 1991-1993;
Vice President and General Manager of
Glass Container Manufacturing, 1984-1991.
Michael D. McDaniel (48) . . . . .Vice President and General Manager of
Closure and Specialty Products Operations
since 1991; Vice President and Director
of Manufacturing and Engineering of
Closure Operations, 1990-1991; Vice
President and Manufacturing Manager of
Closure Operations, 1985-1990.
Philip McWeeny (57). . . . . . . .Vice President and General Counsel -
Corporate since 1988.
14
<PAGE>
Name and Age Position
- ------------ --------
B. Calvin Philips (55) . . . . . .Vice President of International
Operations since 1990; Vice President and
General Manager of Closure and Specialty
Products, 1987-1990.
Robert A. Smith (55) . . . . . . .Vice President and General Manager of
Glass Container Manufacturing since 1993;
Vice President and General Manager, West
Coast, 1990-1993; Vice President and Area
Manufacturing Manager, 1986-1990.
David G. Van Hooser (50) . . . . .Senior Vice President and Director of
Corporate Strategy since 1996; Vice
President and General Manager of Plastic
Components Operations, 1994-1996; Vice
President, Treasurer and Comptroller,
1990-1994; Vice President and Treasurer,
1988-1990.
15
<PAGE>
PART II
ITEM 5. MARKET FOR OWENS-ILLINOIS, INC.'S COMMON STOCK
AND RELATED SHARE OWNER MATTERS
The price range for the Company's Common Stock on the New York Stock Exchange,
as reported by National Association of Securities Dealers, was as follows:
1996 1995
------------------ ------------------
High Low High Low
------ ------ ------ ------
First Quarter 17-1/8 13-5/8 11-1/2 10-1/8
Second Quarter 16-3/4 15-1/8 13-1/2 10-7/8
Third Quarter 17-1/2 15-1/4 14-1/4 12-5/8
Fourth Quarter 22-3/4 15-1/4 14-3/4 12
On December 31, 1996, there were 1,254 common share owners of record. No
dividends have been declared or paid since the Company's initial public
offering in December 1991. For restrictions on payment of dividends on Common
Stock, see the third paragraph of the section entitled "Long-Term Debt" on
page 40.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below relates to each of
the five years in the period ended December 31, 1996. Such data was derived
from the Consolidated Financial Statements, of which the most recent three
years are included elsewhere in this document and were audited by Ernst &
Young LLP, independent auditors, whose report with respect to the financial
statements appears elsewhere in this document. See Consolidated Financial
Statements -- Statement of Significant Accounting Policies and Financial
Review.
Years Ended December 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Consolidated operating (Dollar amounts in millions)
results (a):
Net sales. . . . . . . $3,845.7 $3,763.2 $3,567.3 $3,535.0 $3,392.6
Other (c). . . . . . . 130.5 117.8 85.6 127.1 81.6
-------- -------- -------- -------- --------
3,976.2 3,881.0 3,652.9 3,662.1 3,474.2
Costs and expenses:
Manufacturing, shipping
and delivery . . . . 3,025.6 2,948.5 2,824.3 2,823.8 2,744.1
Research, engineering,
selling, administra-
tive and other (d) . 323.9 322.9 379.1 842.8 260.3
-------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before interest
expense and items
below. . . . . . . . 626.7 609.6 449.5 (4.5) 469.8
Interest expense . . . 302.6 299.6 278.2 290.0 312.9
-------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before items
below. . . . . . . . 324.1 310.0 171.3 (294.5) 156.9
Provision (credit)
for income taxes . . 104.9 100.8 68.9 (113.1) 64.0
Minority share owners'
interests in
earnings of
subsidiaries . . . . 28.1 40.1 24.1 19.4 14.6
-------- -------- -------- -------- --------
Earnings (loss) from
continuing operations
before extraordinary
items and cumulative
effect of accounting
changes. . . . . . . 191.1 169.1 78.3 (200.8) 78.3
Net earnings of
discontinued
operations . . . . . 1.4 18.4
17
<PAGE>
SELECTED FINANCIAL DATA -- continued
Years ended December 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollar amounts in millions, except per share data)
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
postretirement
benefits, net
of applicable
income taxes (b) . . (199.4)
-------- -------- -------- -------- --------
Net earnings (loss) $ 191.1 $ 169.1 $ 78.3 $ 4.9 $(134.2)
======== ======== ======== ======== ========
Earnings (loss) per
share of common
stock:
Earnings (loss)
from continuing
operations before
extraordinary
items and cumula-
tive effect of
accounting changes $ 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 (b). . . . (1.68)
-------- -------- -------- -------- --------
Net earnings (loss) $ 1.58 $ 1.40 $ 0.64 $ 0.03 $ (1.13)
======== ======== ======== ======== ========
18
<PAGE>
SELECTED FINANCIAL DATA -- continued
Years Ended December 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Other data: (Dollar amounts in millions)
The following are included in the
results from continuing operations:
Depreciation . . . . $ 219.8 $ 188.3 $ 183.3 $ 180.0 $ 181.9
Amortization of
excess cost and
intangibles. . . . 46.8 44.8 45.2 40.8 38.6
Amortization of
deferred finance
fees (included
in interest
expense) . . . . . 5.0 5.0 5.1 11.5 12.0
-------- -------- -------- -------- --------
$ 271.6 $ 238.1 $ 233.6 $ 232.3 $ 232.5
======== ======== ======== ======== ========
Weighted average
shares outstanding
(in thousands) . . . 120,276 119,343 119,005 118,978 118,980
Balance sheet data (at end of period):
Working capital. . . $ 380 $ 328 $ 171 $ 234 $ 245
Total assets . . . . 6,105 5,439 5,318 4,901 5,151
Total debt . . . . . 3,395 2,833 2,690 2,487 3,107
Share owners' equity 730 532 376 295 299
(a) Results of operations have been restated to reflect the effects of the
sale of the Libbey business, which was consummated on June 24, 1993, as
discontinued operations.
(b) In the fourth quarter of 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," each as of January 1, 1992.
(c) Other revenues in 1993 includes gains of $46.1 million ($34.6 million
after tax) from divestitures.
(d) 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.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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 (a):
- -----------------------------------------------------------------------------
Net sales to unaffiliated customers 1996 1995
- -----------------------------------------------------------------------------
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
=============================================================================
- -----------------------------------------------------------------------------
Operating profit 1996 1995 (b)
- -----------------------------------------------------------------------------
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
=============================================================================
(a) See Segment Information included on pages 56 - 58.
(b) 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.
20
<PAGE>
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. Domesti-
cally, glass container unit shipments were slightly below prior year levels
due in part to the absence in 1996 of sales of soft drink 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 Contain-
ers segment was $424.5 million, a decrease of $13.1 million, or 3.0%, from
1995, excluding the 1995 unusual item discussed below. Domestically, operat-
ing 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 interna-
tional 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 recent 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 $10.7 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
21
<PAGE>
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 on page 25 and Contingencies on page 51.
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.
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%
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 (a):
- -----------------------------------------------------------------------------
Net sales to unaffiliated customers 1995 1994
- -----------------------------------------------------------------------------
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
=============================================================================
- -----------------------------------------------------------------------------
Operating profit 1995 (b) 1994
- -----------------------------------------------------------------------------
Glass Containers $ 482.7 $ 393.0
Plastics and Closures 137.4 140.4
Eliminations and other retained costs (c) (54.6) (125.2)
- -----------------------------------------------------------------------------
Consolidated total $ 565.5 $ 408.2
=============================================================================
22
<PAGE>
(a) See Segment Information included on pages 56 - 58.
(b) 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.
(c) 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 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
23
<PAGE>
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 pre-
scription 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 on page 25 and Contingencies on page 51.
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.
24
<PAGE>
Capital Resources and Liquidity
The Company's total debt at December 31, 1996 was $3.39 billion compared to
$2.83 billion at December 31, 1995.
At December 31, 1996, the Company had available credit totaling $1.8 billion
under its recently completed Bank Credit Agreement expiring in December 2001,
of which $628.7 million had not been utilized. At December 31, 1995, total
commitments under the Company's previous credit facility were $1 billion of
which $322.0 million had not been utilized. The increased utilization and
corresponding higher debt balances at December 31, 1996, resulted principally
from borrowings in December 1996 to provide approximately $440 million of
escrow funding in connection with the acquisition of AVIR S.p.A. Utilization
was also higher as a result of capital expenditures and asbestos-related
payments, partially offset by cash provided by operations, including cash
received for settlement of a portion of the insurance asset for asbestos-
related costs. Cash provided by operating activities was $317.8 million in
1996 compared to $252.6 million in 1995. Capital expenditures for property,
plant and equipment were $388.4 million in 1996 and $283.6 million in 1995.
In the twelve-month period commencing January 1, 1997, the Company anticipates
that cash flow from its operations and from utilization of available credit
under the Bank Credit Agreement will be sufficient to fund its operating and
seasonal working capital needs, debt service, completion of recently announced
acquisitions, and other obligations. The Company faces additional demands
upon its liquidity for asbestos-related payments. The Company has entered
into group settlement agreements which include settlement amounts payable in
1997 and later years. As of December 31, 1996, such deferred payment amounts
were approximately $97.8 million. The foregoing amount does not include
spending commitments with respect to lawsuits and claims pending against the
Company as of December 31, 1996. Based on the Company's expectations regard-
ing 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.
The Company has settlement agreements with certain reinsurers involved in the
asbestos-related litigation. Pursuant to these settlement agreements, the
Company has received payments since 1994 aggregating $238.6 million, including
$52.1 million received during 1996. The Company expects to receive additional
insurance proceeds in 1997 and future years under the agreements. The Company
has and will use the settlement proceeds, when received, to reduce bank debt
incurred in paying claims.
The Company expects that the utilization of available credit under the Bank
Credit Agreement, 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
25
<PAGE>
recently announced acquisitions, and other obligations through early 1999.
Beyond that, based upon current levels of operations and anticipated growth,
the Company anticipates that it will have to refinance existing indebtedness,
sell assets and/or otherwise raise funds in either the private or public
markets to make all of the principal payments when due under its outstanding
debt securities, beginning with principal payments due in 1999 under the 10-
1/4% Senior Subordinated Notes. There can be no assurance that the Company
will be able to refinance existing indebtedness or otherwise raise funds in a
timely manner or that the proceeds therefrom will be sufficient to make all
such principal payments.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
-----
Report of Independent Auditors 28
Consolidated Balance Sheets at December 31, 1996 and 1995 30-31
For the years ended December 31, 1996, 1995, and 1994:
Consolidated Results of Operations 29
Consolidated Share Owners' Equity 32
Consolidated Cash Flows 33
Statement of Significant Accounting Policies 34-35
Financial Review 36-58
Selected Quarterly Financial Data 59
27
<PAGE>
==============================================================================
REPORT OF INDEPENDENT AUDITORS
==============================================================================
The Board of Directors and Share Owners
Owens-Illinois, Inc.
We have audited the accompanying consolidated balance sheets of Owens-
Illinois, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of results of operations, share owners' equity, and cash flows for
each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14.(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Owens-Illinois,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Toledo, Ohio
February 4, 1997
28
<PAGE>
=============================================================================
CONSOLIDATED RESULTS OF OPERATIONS Owens-Illinois, Inc.
Millions of dollars, except per share amounts
Years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Revenues:
Net sales $3,845.7 $3,763.2 $3,567.3
Royalties and net technical assistance 23.6 26.8 29.1
Equity earnings 15.2 14.4 22.3
Interest 22.3 29.7 19.0
Other 69.4 46.9 15.2
- -----------------------------------------------------------------------------
3,976.2 3,881.0 3,652.9
Costs and expenses:
Manufacturing, shipping, and delivery 3,025.6 2,948.5 2,824.3
Research and development 31.1 30.3 31.8
Engineering 25.6 24.5 22.8
Selling and administrative 188.6 187.8 193.5
Interest 302.6 299.6 278.2
Other 78.6 80.3 131.0
- -----------------------------------------------------------------------------
3,652.1 3,571.0 3,481.6
- -----------------------------------------------------------------------------
Earnings before items below 324.1 310.0 171.3
Provision for income taxes 104.9 100.8 68.9
- -----------------------------------------------------------------------------
219.2 209.2 102.4
Minority share owners' interests
in earnings of subsidiaries 28.1 40.1 24.1
- -----------------------------------------------------------------------------
Net earnings $ 191.1 $ 169.1 $ 78.3
=============================================================================
Net earnings per share of common stock $ 1.58 $ 1.40 $ 0.64
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
29
<PAGE>
=============================================================================
CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc.
Millions of dollars, except share amounts
December 31, 1996 1995
- -----------------------------------------------------------------------------
Assets
Current assets:
Cash, including time deposits of $97.9
($58.9 in 1995) $ 160.9 $ 109.4
Short-term investments, at cost which
approximates market 14.4 52.5
Receivables, less allowances of $40.6
($39.7 in 1995) for losses and discounts 488.8 423.9
Inventories 494.6 502.2
Prepaid expenses 126.4 128.8
- ------------------------------------------------------------------------------
Total current assets 1,285.1 1,216.8
Investments and other assets:
Domestic investments and advances 25.1 22.7
Foreign investments and advances 60.5 61.4
Repair parts inventories 189.4 156.3
Prepaid pension 624.5 615.7
Insurance for asbestos-related costs 271.4 323.5
Deposits, receivables, and other assets 704.2 234.1
Excess of purchase cost over net assets
acquired, net of accumulated amortization
of $293.7 ($262.0 in 1995) 1,003.5 1,023.9
- ------------------------------------------------------------------------------
Total investments and other assets 2,878.6 2,437.6
Property, plant, and equipment:
Land, at cost 103.0 101.3
Buildings and equipment, at cost:
Buildings and building equipment 493.4 475.1
Factory machinery and equipment 2,624.4 2,306.1
Transportation, office, and miscellaneous equipment 83.8 77.8
Construction in progress 131.3 126.9
- ------------------------------------------------------------------------------
3,435.9 3,087.2
Less accumulated depreciation 1,494.3 1,302.4
- ------------------------------------------------------------------------------
Net property, plant, and equipment 1,941.6 1,784.8
- ------------------------------------------------------------------------------
Total assets $6,105.3 $5,439.2
==============================================================================
30
<PAGE>
=============================================================================
CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc. (continued)
Millions of dollars, except share amounts
December 31, 1996 1995
- -----------------------------------------------------------------------------
Liabilities and Share Owners' Equity
Current liabilities:
Short-term loans $ 106.8 $ 52.6
Accounts payable 318.9 289.5
Salaries and wages 78.8 83.9
U.S. and foreign income taxes 12.7 26.8
Current portion of asbestos-related liabilities 110.0 145.0
Other accrued liabilities 243.0 268.2
Long-term debt due within one year 34.7 22.9
- -----------------------------------------------------------------------------
Total current liabilities 904.9 888.9
Long-term debt 3,253.2 2,757.7
Deferred taxes 201.2 133.4
Nonpension postretirement benefits 371.7 389.1
Asbestos-related liabilities 138.2 235.4
Other liabilities 311.7 335.3
Commitments and contingencies
Minority share owners' interests 194.7 167.5
Share owners' equity:
Preferred stock 21.4 21.9
Common stock, par value $.01 per share, 250,000,000
shares authorized, 120,446,348 shares outstanding
(119,966,191 in 1995) 1.2 1.2
Capital in excess of par value 1,047.6 1,042.8
Deficit (258.2) (449.3)
Cumulative foreign currency translation adjustment (82.3) (84.7)
- -----------------------------------------------------------------------------
Total share owners' equity 729.7 531.9
- -----------------------------------------------------------------------------
Total liabilities and share owners' equity $6,105.3 $5,439.2
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
31
<PAGE>
=============================================================================
CONSOLIDATED SHARE OWNERS' EQUITY Owens-Illinois, Inc.
Millions of dollars
Years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Preferred stock
Balance at beginning of year $ 21.9 $ 26.3 $ 26.3
Exchange of Series A preferred stock
for common stock (.5) (4.4)
- -----------------------------------------------------------------------------
Balance at end of year 21.4 21.9 26.3
=============================================================================
Common stock
Balance at beginning of year 1.2 1.2 1.2
Exchange of Series A preferred stock
for common stock
Issuance of common stock
- -----------------------------------------------------------------------------
Balance at end of year 1.2 1.2 1.2
=============================================================================
Capital in excess of par value
Balance at beginning of year 1,042.8 1,034.6 1,033.9
Exchange of Series A preferred stock
for common stock .5 4.4
Issuance of common stock 4.3 3.8 .7
- -----------------------------------------------------------------------------
Balance at end of year 1,047.6 1,042.8 1,034.6
=============================================================================
Deficit
Balance at beginning of year (449.3) (618.4) (696.7)
Net earnings 191.1 169.1 78.3
- -----------------------------------------------------------------------------
Balance at end of year (258.2) (449.3) (618.4)
=============================================================================
Cumulative foreign currency
translation adjustment
Balance at beginning of year (84.7) (67.8) (69.9)
Net change for the year 2.4 (16.9) 2.1
- -----------------------------------------------------------------------------
Balance at end of year (82.3) (84.7) (67.8)
=============================================================================
Total share owners' equity $ 729.7 $ 531.9 $ 375.9
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
32
<PAGE>
=============================================================================
CONSOLIDATED CASH FLOWS Owens-Illinois, Inc.
Millions of dollars
Years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Operating activities:
Net earnings $ 191.1 $ 169.1 $ 78.3
Non-cash charges (credits):
Depreciation 219.8 188.3 183.3
Amortization of deferred costs 51.8 49.8 50.3
Deferred tax provision 77.5 48.7 30.2
Asbestos-related insurance 40.0 100.0
Restructuring and other costs (40.0)
Other (10.3) (33.7) (25.4)
Dividends from equity affiliates 2.7 3.7 4.4
Change in non-current operating assets (68.2) (33.4) (14.7)
Asbestos-related payments (132.2) (169.0) (142.7)
Asbestos-related insurance proceeds 52.1 106.6 79.9
Reduction of non-current liabilities (9.3) (17.5) (77.5)
Change in components of working capital (57.2) (60.0) (38.7)
- -----------------------------------------------------------------------------
Cash provided by operating activities 317.8 252.6 227.4
Investing activities:
Additions to property, plant and equipment (388.4) (283.6) (286.0)
Acquisitions (442.9) (58.8) (47.1)
Net cash proceeds from divestitures and other 9.2 8.1 13.1
- -----------------------------------------------------------------------------
Cash utilized in investing activities (822.1) (334.3) (320.0)
Financing activities:
Additions to long-term debt 618.7 164.3 513.7
Repayments of long-term debt (118.7) (81.8) (336.8)
Increase (decrease) in short-term loans 53.6 (5.3) (4.0)
Issuance of subsidiaries' stock 8.5 4.3
Payment of finance fees and debt retirement
costs (2.9) (1.2)
Issuance of common stock 4.3 3.8 .7
- -----------------------------------------------------------------------------
Cash provided by financing activities 563.5 81.0 176.7
Effect of exchange rate fluctuations on cash (7.7) .7 (41.8)
- -----------------------------------------------------------------------------
Increase in cash 51.5 0.0 42.3
Cash at beginning of year 109.4 109.4 67.1
- -----------------------------------------------------------------------------
Cash at end of year $ 160.9 $ 109.4 $ 109.4
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
33
<PAGE>
================================================================================
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Basis of Consolidated Statements. The consolidated financial statements of
Owens-Illinois, Inc. ("Company") include the accounts of its wholly-owned
direct subsidiary, Owens-Illinois Group, Inc. ("Group"), and all other
subsidiaries. Substantially all the assets of the Company are represented by
its investment in and receivables from Group.
Newly acquired subsidiaries have been included in the consolidated financial
statements from dates of acquisition.
Consolidated foreign subsidiaries are principally reported on the basis of
fiscal years ending November 30.
The Company uses the equity method of accounting for investments in which it
has a significant ownership interest, generally 20% to 50%. Other investments
are accounted for at cost.
Nature of Operations. The Company is a leading manufacturer of glass
container and plastic packaging products operating in two industry segments.
The Company's principal product lines in the Glass Containers industry segment
are glass containers for the food and beverage industries. Sales of the Glass
Containers industry segment were 72% of the Company's 1996 consolidated sales.
The Company has glass container operations located in fourteen countries,
while the plastics and closures operations are predominantly located in the
United States. The principal markets and operations for the Company's glass
products are in the United States, Latin America and Europe. The Company's
principal product lines in the Plastics and Closures industry segment include
plastic containers, plastic closures, plastic prescription containers, labels,
and multipack plastic carriers for beverage containers. Major markets for the
plastics and closures products include the United States household products,
personal care products, health care products, and food and beverage
industries.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management of the Company to
make estimates and assumptions that affect certain amounts reported in the
financial statements and accompanying notes. Actual results may differ from
those estimates, at which time the Company would revise its estimates
accordingly. For further information on certain of the Company's significant
estimates, see Contingencies on page 51.
Cash. The Company defines "cash" as cash and time deposits with maturities of
three months or less when purchased.
Fair Values of Financial Instruments. The carrying amounts reported for cash,
short-term investments and short-term loans approximate fair value. In
addition, carrying amounts approximate fair value for certain long-term debt
obligations subject to frequently redetermined interest rates. Fair values
34
<PAGE>
for the Company's significant fixed rate debt obligations are generally based
on published market quotations. The Company is not a party to any significant
derivative financial instruments.
Inventory Valuation. The Company uses the last-in, first-out (LIFO) cost
method of inventory valuation for most domestic inventories. Other
inventories are valued at the lower of standard costs (which approximate
average costs), average costs, or market.
Excess of Purchase Cost over Net Assets Acquired. The excess of purchase cost
over net assets acquired is being amortized over 40 years. The Company
evaluates the recoverability of long-lived assets based on undiscounted
projected cash flows, excluding interest and taxes, when factors indicate that
an impairment may exist.
Property, Plant, and Equipment. In general, depreciation is computed using
the straight-line method.
Income Taxes on Undistributed Earnings. In general, the Company plans to
continue to invest in the business the undistributed earnings of foreign
subsidiaries and corporate joint ventures accounted for by the equity method.
Accordingly, taxes are provided only on that amount of undistributed earnings
in excess of planned reinvestments.
Foreign Currency Translation. The assets and liabilities of certain
affiliates and associates are translated at current exchange rates and any
related translation adjustments are recorded directly in share owners' equity.
Certain of the Company's major affiliates which are located in Brazil,
Venezuela and Poland operate in "highly inflationary" economies. In such
cases, certain assets of these affiliates are translated at historical
exchange rates and all translation adjustments are reflected in the statements
of Consolidated Results of Operations.
Earnings Per Share of Common Stock. Earnings per share of common stock is
computed using weighted average shares of common stock outstanding
(120,276,223 shares for 1996, 119,343,048 shares for 1995, and 119,004,785
shares for 1994) after deducting dividend requirements for preferred stock.
Incremental shares applicable to outstanding stock options and exchangeable
preferred stock are not included in the calculation as they would not
materially affect the reported amounts.
35
<PAGE>
================================================================================
FINANCIAL REVIEW
Tabular data in millions of dollars, except share and per share amounts
- --------------------------------------------------------------------------------
Changes in Components of Working Capital Related to Operations. Changes in
the components of working capital related to operations (net of the effects
related to acquisitions and divestitures) were as follows:
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Decrease (increase) in current assets:
Short-term investments $ 36.7 $ (5.5) $ (1.5)
Receivables (60.8) 21.0 (71.3)
Inventories 10.9 8.4 6.9
Prepaid expenses 1.2 (8.9) (6.0)
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities (19.7) (76.6) 26.7
Salaries and wages (5.8) .2 4.8
U.S. and foreign income taxes (19.7) 1.4 1.7
- -----------------------------------------------------------------------------
$(57.2) $(60.0) $(38.7)
=============================================================================
Inventories. Major classes of inventory are as follows:
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
Finished goods $374.5 $381.4
Work in process 4.2 3.2
Raw materials 81.2 80.3
Operating supplies 34.7 37.3
- -----------------------------------------------------------------------------
$494.6 $502.2
=============================================================================
If the inventories which are valued on the LIFO method had been valued at
standard or average costs, which approximate current costs, consolidated
inventories would be higher than reported by $21.7 million and $21.0 million
at December 31, 1996 and 1995, respectively.
Inventories which are valued at the lower of standard costs (which approximate
average costs), average costs, or market at December 31, 1996 and 1995 were
approximately $210.4 million and $185.2 million, respectively.
36
<PAGE>
Investments. Domestic and foreign investments and advances relate principally
to equity associates. Summarized information pertaining to the Company's
equity associates follows:
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
At end of year:
Equity in undistributed earnings:
Foreign $ 65.5 $ 55.4
Domestic 10.9 8.4
- -----------------------------------------------------------------------------
Total $ 76.4 $ 63.8
=============================================================================
Equity in cumulative translation adjustment $(25.0) $(15.0)
=============================================================================
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
For the year:
Equity in earnings:
Foreign $12.7 $10.1 $12.8
Domestic 2.5 4.3 9.5
- -----------------------------------------------------------------------------
Total $15.2 $14.4 $22.3
=============================================================================
Dividends received:
Foreign $ 2.7 $ 3.7 $ 2.9
Domestic 1.5
- -----------------------------------------------------------------------------
Total $ 2.7 $ 3.7 $ 4.4
=============================================================================
Summarized combined financial information for equity associates is as follows:
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
At end of year:
Current assets $386.4 $423.4
Non-current assets 432.2 441.8
- -----------------------------------------------------------------------------
Total assets 818.6 865.2
- -----------------------------------------------------------------------------
Current liabilities 227.6 205.3
Other liabilities and deferred items 289.6 358.6
- -----------------------------------------------------------------------------
Total liabilities and deferred items 517.2 563.9
- -----------------------------------------------------------------------------
Net assets $301.4 $301.3
=============================================================================
37
<PAGE>
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
For the year:
Net sales $1,075.8 $1,099.0 $1,018.6
==============================================================================
Gross profit $ 170.0 $ 178.4 $ 199.3
==============================================================================
Net earnings $ 61.2 $ 56.0 $ 62.2
==============================================================================
On January 1, 1995, the Company consolidated the operations of its affiliates
in Poland and Bolivia. Results of these affiliates for 1994 are included
above.
Deposits, Receivables, and Other Assets. At December 31, 1996, deposits,
receivables, and other assets includes approximately $440 million of escrow
funding in connection with the acquisition of Avir Finanziaria 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 will also initiate a tender offer during the first half of 1997 for
the 21% of the shares of AVIR that are publicly held. Total consideration for
100% of the AVIR shares is expected to be approximately $580 million.
The acquisition will be accounted for under the purchase method of accounting.
The total purchase cost of approximately $580 million will be allocated to the
tangible and identifiable intangible assets and liabilities of AVIR based upon
their respective fair values.
Restrictions on Transfer of Assets. The governments and national banking
systems of certain countries in which the Company has consolidated foreign
affiliates impose various restrictions on the payment of dividends and
transfer of funds out of those countries. Additionally, provisions of credit
agreements entered into by certain foreign affiliates presently restrict the
payment of dividends. The estimated U.S. dollar amount of the foreign net
assets included in the Consolidated Balance Sheets that are restricted in some
manner as to transfer to the Company was approximately $145 million at
December 31, 1996.
Other Accrued Liabilities. At December 31, 1996 and 1995, other accrued
liabilities include accruals for interest, consisting principally of interest
accrued on domestic obligations of $41.2 million and $40.7 million,
respectively.
Short-Term Borrowings. At December 31, 1996 and 1995, the weighted average
interest rate on outstanding short-term borrowings was 16.5% and 14.0%,
respectively. The relatively high weighted average interest rates are
reflective of the generally higher short-term borrowing costs incurred by most
of the Company's Latin American affiliates.
38
<PAGE>
Long-Term Debt. The following table summarizes the long-term debt of the
Company at December 31, 1996 and 1995:
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
Bank Credit Agreement:
Revolving Loans $1,105.0 $ 549.4
Bid Rate Loans 61.0
Senior Debentures, 11%, due 1999 to 2003 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
Other 232.9 220.2
- ------------------------------------------------------------------------------
3,287.9 2,780.6
Less amounts due within one year 34.7 22.9
- ------------------------------------------------------------------------------
Long-term debt $3,253.2 $2,757.7
==============================================================================
In November 1996, the Company entered into an agreement with a group of banks
("Bank Credit Agreement" or "Agreement") which provides Revolving Loan
Commitments under which the Company may borrow up to $1.8 billion through
December 31, 2001. The Agreement includes an Overdraft Account facility
providing for aggregate borrowings up to $50 million which reduce the amount
available for borrowing under the Revolving Loan Commitments. In addition,
the terms of the Bank Credit Agreement permit the Company to request Bid Rate
Loans from banks participating in the Agreement and to issue Commercial Paper
notes to other purchasers. Borrowings outstanding under Bid Rate Loans and
Commercial Paper notes are limited to $450 million in the aggregate and reduce
the amount available for borrowing under the Revolving Loan Commitments. The
Revolving Loan Commitments also provide for the issuance of letters of credit
totaling up to $300 million.
At December 31, 1996, the Company had unused credit available under the Bank
Credit Agreement of $628.7 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 December 31, 1996, was 5.95%.
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.
39
<PAGE>
The capital stock and intercompany debt obligations of most of the Company's
domestic subsidiaries are pledged as collateral for borrowings under the
Agreement and certain other obligations. While these pledges do not directly
encumber the operating assets owned by these subsidiaries, the Agreement
restricts the creation of liens on them. The Agreement also requires the
maintenance of certain financial ratios, restricts the incurrence of
indebtedness and other contingent financial obligations, and restricts certain
types of business activities and investments.
The Senior Debentures rank pari passu with the obligations of the Company
under the Bank Credit Agreement and other senior indebtedness, and senior in
right of payment to all existing and future subordinated debt of the Company.
The Senior Debentures are guaranteed on a senior basis by Group and most of
the Company's domestic subsidiaries and secured by a pledge of the capital
stock of, and intercompany indebtedness of, Group and such subsidiaries.
Under the terms of the Bank Credit Agreement and the various Indentures
related to the Company's senior and subordinated notes and debentures,
dividend payments with respect to the Company's Preferred or Common Stock are
limited. The Company is also limited with regard to payments for redemption
of shares of its Common Stock. At December 31, 1996, the maximum allowable
amount of such payments was $125 million.
Annual maturities for all of the Company's long-term debt through 2001 are as
follows: 1997, $34.7 million; 1998, $43.3 million; 1999, $498.9 million;
2000, $278.7 million; and 2001, $1,313.1 million.
Interest paid in cash aggregated $281.3 million for 1996, $283.1 million for
1995, and $259.1 million for 1994.
Fair values at December 31, 1996, of the Company's significant fixed rate debt
obligations are as follows:
- ------------------------------------------------------------------------------
Indicated
Principal Market
Amount Price Fair Value
- ------------------------------------------------------------------------------
11% Senior Debentures $1,000.0 $111 $1,110.0
Senior Subordinated Notes:
10-1/4% 250.0 101 252.5
10-1/2% 150.0 106 159.0
10% 250.0 104-1/2 261.3
9-3/4% 200.0 105-1/2 211.0
9.95% 100.0 104-1/8 104.1
- ------------------------------------------------------------------------------
Operating Leases. Rent expense attributable to all operating leases was $59.0
million in 1996, $58.5 million in 1995, and $53.4 million in 1994. Contingent
rental expense was not significant in any period presented. Minimum future
rentals under operating leases are as follows: 1997, $31.0 million; 1998,
40
<PAGE>
$28.0 million; 1999, $25.6 million; 2000, $18.7 million; 2001, $17.4 million;
2002 and thereafter, $83.2 million.
Foreign Currency Translation. Aggregate foreign currency exchange gains
(losses) included in other costs and expenses were $.5 million in 1996,
$(10.1) million in 1995, and $(53.9) million in 1994, and resulted principally
from translation of the balance sheets of certain of the Company's major
affiliates which are located in Brazil and Venezuela. Earnings on time
deposits and short-term investments in those countries typically include an
inflationary component, which has substantially offset the exchange losses.
Changes in the cumulative foreign currency translation adjustment were as
follows:
- ----------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
Balance at beginning of year $(84.7) $(67.8) $(69.9)
Net effect of exchange rate
fluctuations (1.1) (17.2) 1.6
Deferred income taxes 3.5 .3 .5
- ----------------------------------------------------------------------------
Balance at end of year $(82.3) $(84.7) $(67.8)
============================================================================
The net effect of exchange rate fluctuations generally reflects changes in the
relative strength of the U.S. dollar against major foreign currencies between
the beginning and end of the year.
41
<PAGE>
Income Taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities at
December 31, 1996 and 1995 are as follows:
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
Deferred tax assets:
Accrued postretirement benefits $ 131.9 $138.4
Other accrued liabilities 104.1 111.6
U.S. Federal tax loss carryovers 102.6 104.3
Asbestos-related liabilities 86.9 133.2
Other 68.2 79.9
- -----------------------------------------------------------------------------
Total deferred tax assets 493.7 567.4
Deferred tax liabilities:
Prepaid pension costs 226.2 216.2
Property, plant and equipment 196.8 193.0
Insurance for asbestos-related costs 82.3 95.2
Inventory 32.4 38.8
Receivables and other assets 16.9 20.6
Other 35.9 31.2
- -----------------------------------------------------------------------------
Total deferred tax liabilities 590.5 595.0
- -----------------------------------------------------------------------------
Net deferred tax liabilities $ (96.8) $(27.6)
=============================================================================
Deferred taxes are included in the Consolidated Balance Sheets at December 31,
1996 and 1995 as follows:
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
Prepaid expenses $ 104.4 $ 105.8
Deferred tax liabilities (201.2) (133.4)
- -----------------------------------------------------------------------------
Net deferred tax liabilities $ (96.8) $ (27.6)
=============================================================================
42
<PAGE>
The provision for income taxes consists of the following:
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Current:
U.S. federal $ 1.5 $ 1.5
State 1.1 .8 $ 2.9
Foreign 24.8 49.8 35.8
- -----------------------------------------------------------------------------
27.4 52.1 38.7
- -----------------------------------------------------------------------------
Deferred:
U.S. federal 57.9 34.7 22.7
State 9.2 6.6 1.1
Foreign 10.4 7.4 6.4
- -----------------------------------------------------------------------------
77.5 48.7 30.2
- -----------------------------------------------------------------------------
Total:
U.S. federal 59.4 36.2 22.7
State 10.3 7.4 4.0
Foreign 35.2 57.2 42.2
- -----------------------------------------------------------------------------
$104.9 $100.8 $ 68.9
=============================================================================
The provision for income taxes was calculated based on the following
components of earnings before income taxes:
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Domestic $160.9 $100.2 $ 32.4
Foreign 163.2 209.8 138.9
- -----------------------------------------------------------------------------
$324.1 $310.0 $171.3
=============================================================================
Income taxes paid (refunded) in cash were as follows:
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Domestic $ .5 $ 3.1 $ (6.5)
Foreign 33.4 35.5 20.2
- -----------------------------------------------------------------------------
$ 33.9 $ 38.6 $ 13.7
=============================================================================
43
<PAGE>
A reconciliation of the provision for income taxes based on the statutory U.S.
federal tax rate of 35% to the provision for income taxes is as follows:
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Pretax earnings at statutory
U.S. Federal tax rate $113.4 $108.5 $60.0
Increase (decrease) in provision for
income taxes due to:
Amortization of goodwill 10.5 10.5 11.5
State taxes, net of federal benefit 6.7 4.8 2.6
Foreign earnings at different rates (8.9) (4.9) 2.5
Foreign sales corporation and possession
tax credits (5.9) (5.3) (1.5)
Nontaxable foreign earnings (5.4) (5.3)
Research and development credits (.5) (1.0) (1.8)
Equity earnings (.9) (2.1) (3.1)
Other items (4.1) (4.4) (1.3)
- -----------------------------------------------------------------------------
Provision for income taxes $104.9 $100.8 $68.9
=============================================================================
Effective tax rate 32.4% 32.5% 40.2%
=============================================================================
For U.S. Federal income tax purposes, approximately $293 million of net
operating loss is available as a carryover at December 31, 1996. Carryovers
of the net operating loss expire beginning in 2004.
Alternative minimum tax credits and research and development credits of
approximately $18 million and $4 million, respectively, are available to
offset future U.S. federal income tax. The alternative minimum tax credits do
not expire while carryovers of the research and development credits expire
beginning in 2009.
At December 31, 1996, the Company's equity in the undistributed earnings of
foreign subsidiaries for which income taxes had not been provided approximated
$295 million. It is not practicable to estimate the U.S. and foreign tax
which would be payable should these earnings be distributed.
44
<PAGE>
Preferred Stock. Preferred shares, $.01 par value, $7.00 cumulative dividend,
issuable in series, at December 31, 1996 and 1995, were as follows:
Number of Shares
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
Series A Exchangeable
Authorized 75,000 75,000
Issued 65,625 65,625
Outstanding 17,099 22,397
Series B Exchangeable
Authorized 75,000 75,000
Issued and outstanding 65,625 65,625
Series C Exchangeable
Authorized 150,000 150,000
Issued and outstanding 131,250 131,250
The preferred shares, all of which were issued October 30, 1992, are
exchangeable for a number of common shares determined by multiplying the total
number of exchangeable shares being exchanged by the sum of $100 plus all
dividends accumulated and unpaid on each share being exchanged and dividing
such amount by the last reported sales price of common shares on the New York
Stock Exchange at the close of business on the business day next preceding the
day of exchange. The shares are exchangeable at the option of the owners as
follows: Series A, from and after the third anniversary of the date of
issuance; Series B, from and after the fifth anniversary of the date of
issuance; and Series C, from and after the sixth anniversary of the date of
issuance. Dividends accumulated and unpaid were approximately $6.2 million
and $4.8 million at December 31, 1996 and 1995, respectively.
Holders of the preferred shares have no voting rights, except on actions which
would affect their rights to exchange shares for common shares, or on actions
to increase the authorized number of exchangeable shares.
45
<PAGE>
Stock Options. The Company has two nonqualified stock option plans: (1) 1991
Stock Option Plan for Key Employees of Owens-Illinois, Inc. and (2) 1994 Stock
Option Plan for Directors of Owens-Illinois, Inc. No options may be exercised
in whole or in part during the first year after the date granted. In general,
subject to accelerated exercisability provisions related to the performance of
the Company's common stock or change of control, 50% of the options become
exercisable on the fifth anniversary of the date of the option grant, with the
remaining 50% becoming exercisable on the sixth anniversary date of the option
grant. In general, options expire the day after the tenth anniversary date of
the option grant or following termination of employment.
All options have been granted at prices equal to the market price of the
Company's common stock on the date granted. Accordingly, the Company
recognizes no compensation expense related to the stock option plans. The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as allowed by
SFAS No. 123, pro forma net income and earnings per share would have been as
follows:
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
Net income - as reported $191.1 $169.1
Net income - pro forma $190.6 $169.0
Earnings per share - as reported $ 1.58 $ 1.40
Earnings per share - pro forma $ 1.57 $ 1.40
- ------------------------------------------------------------------------------
The pro forma effect on net income for 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995. Assuming similar grants in future years, the pro forma effects will
not be fully reflected until 2000.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
Expected life of options 5 years 5 years
Expected stock price volatilty 27.3% 27.3%
Risk-free interest rate 6.70% 6.03%
Expected dividend yield 0.00% 0.00%
- -----------------------------------------------------------------------------
46
<PAGE>
Stock option activity is as follows:
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Weighted
Average
Exercise
Shares Price Shares Shares
- ----------------------------------------------- ------------ ------------
Outstanding at beginning
of year 5,331,200 $ 8.13 5,314,400 4,912,696
Granted 552,200 16.50 528,450 571,673
Exercised (435,426) 6.32 (470,900) (106,169)
Cancelled (73,125) 12.49 (40,750) (63,800)
- ----------------------------------------------- ------------ ------------
Outstanding at end of
year 5,374,849 9.08 5,331,200 5,314,400
=============================================== ============ ============
Share options exercisable
at end of year 3,971,378 $ 7.34 3,272,761 3,497,772
=============================================== ============ ============
Price range for exercised
shares $5.00-$13.25 $5.00-$11.00 $5.00
===================================== ============ ============
Price range at end of
year $5.00-$16.50 $5.00-$13.25 $5.00-$12.63
===================================== ============ ============
Price range of share
options exercisable at
year end $5.00-$13.25 $5.00-$13.25 $5.00-$12.50
===================================== ============ ============
Available for grant at
end of year 1,295,565 1,774,640 2,262,340
===================================== ============ ============
Weighted-average fair
value of options granted
during year $6.14
=====================================
47
<PAGE>
The following table summarizes significant option groups outstanding at
December 31, 1996, and related weighted average price and life information:
Options Outstanding Options Exercisable
-------------------------------- ---------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contract- Average Average
Exercise Options ual Life Exercise Options Exercise
Prices Outstanding (in years) Price Exercisable Price
- ------------------------------------------------------ ---------------------
$ 5.00 to $ 7.50 2,660,596 0.7 $ 5.11 2,660,596 $ 5.11
$ 7.51 to $12.50 1,624,130 6.2 $11.71 1,040,342 $11.53
$12.51 to $16.50 1,090,123 9.0 $14.86 270,440 $13.21
- ------------------------------------------------------------------------------
5,374,849 3,971,378
==============================================================================
Pension Benefit Plans. Net credits to continuing operations for all of the
Company's pension plans and certain deferred compensation arrangements
amounted to $29.8 million in 1996, $31.5 million in 1995, and $28.2 million in
1994.
The Company has pension plans covering substantially all domestic employees.
Benefits generally are based on compensation for salaried employees and on
length of service for hourly employees. The Company's policy is to fund
domestic pension plans such that sufficient assets will be available to meet
future benefit requirements.
The following tables relate to the Company's principal domestic pension plans.
The funded status at year-end was as follows:
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $1,614.9 $1,651.9
Nonvested 103.0 104.2
- ------------------------------------------------------------------------------
Accumulated benefit obligation 1,717.9 1,756.1
Effect of assumed benefit increases 131.6 143.1
- ------------------------------------------------------------------------------
Projected benefit obligation 1,849.5 1,899.2
Plan assets at fair value 2,662.1 2,357.9
- ------------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation 812.6 458.7
Unrecognized prior service cost 34.9 34.3
Unrecognized net loss (gain) (223.0) 122.7
- ------------------------------------------------------------------------------
Prepaid pension $ 624.5 $ 615.7
==============================================================================
48
<PAGE>
The components of the net pension credit for the year were as follows:
- ----------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
Service cost (benefits earned
during the period) $ 25.7 $ 19.7 $ 27.3
Interest cost on projected
benefit obligation 134.4 137.4 133.1
Actual return on plan assets (492.7) (504.3) 21.8
Net amortization and deferral 286.1 300.9 (223.6)
- ----------------------------------------------------------------------------
$ (46.5) $ (46.3) $ (41.4)
============================================================================
The actuarial present value of benefit obligations is based on a discount rate
of 7.50% for 1996 and 7.25% for 1995. Future benefits are assumed to increase
in a manner consistent with past experience of the plans, which, to the extent
benefits are based on compensation, includes assumed salary increases on a
scale of 5% for 1996 and 1995. The expected long-term rate of return on
assets was 10% for 1996, 1995 and 1994. Amortization included in net pension
credits is based on the average remaining service of employees. Plan assets
include marketable equity securities which, at December 31, 1996, included
18,966,317 shares of the Company's common stock, government and corporate debt
securities, real estate and commingled funds. During 1996 and 1995, the
Company transferred $35.0 million and $22.0 million, respectively, of pension
plan assets to a special trust for the purpose of funding qualified current
retiree health liabilities.
The Company also sponsors several defined contribution plans for all salary
and hourly domestic employees. Participation is voluntary and participants'
contributions are based on their compensation. The Company matches
substantially all plan participants' contributions up to various limits.
Company contributions to these plans amounted to $7.5 million in 1996, $7.4
million in 1995, and $6.8 million in 1994.
Postretirement Benefits Other Than Pensions. The Company provides certain
retiree health care and life insurance benefits covering substantially all
U.S. salaried and certain hourly employees. Employees are generally eligible
for benefits upon retirement and completion of a specified number of years of
creditable service.
49
<PAGE>
The components of the net postretirement benefit cost for the year were as
follows:
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Service cost (benefits earned during
the period) $ 2.0 $ 1.6 $ 2.1
Interest cost on accumulated
postretirement benefit obligation 21.8 23.5 21.9
Amortization (13.2) (13.7) (13.3)
- -----------------------------------------------------------------------------
Net postretirement benefit cost $ 10.6 $ 11.4 $ 10.7
=============================================================================
The components of the accumulated postretirement benefit obligation and
amounts accrued at year-end were as follows:
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Retirees and dependents $258.4 $264.4
Eligible active employees 21.5 17.1
Other active employees 22.7 30.5
- -----------------------------------------------------------------------------
302.6 312.0
Unamortized prior service credit 100.7 114.4
Unrecognized net loss (31.6) (37.3)
- -----------------------------------------------------------------------------
Nonpension postretirement benefits $371.7 $389.1
=============================================================================
Assumed health care cost inflation was based on a rate of 8.00% in 1996 and
8.50% in 1995, declining ratably to an ultimate rate of 6.00%. A one
percentage point increase in these rates would have increased the accumulated
postretirement benefit obligation at December 31, 1996 by $11.7 million and
increased the net postretirement benefit cost for 1996 by $1.1 million. The
assumed discount rates used in determining the accumulated postretirement
benefit obligation were 7.50% and 7.25% at December 31, 1996 and 1995,
respectively. Amortization included in net postretirement benefit cost is
based on the average remaining service of employees.
Benefits provided by the Company for certain of the hourly retirees are
determined by collective bargaining. Most other domestic hourly retirees
receive health and life insurance benefits from a multiemployer trust
established by collective bargaining. Payments to the trust as required by
the bargaining agreements are based upon specified amounts per hour worked and
were $7.5 million in 1996, $7.1 million in 1995, and $7.5 million in 1994.
Postretirement health and life benefits for retirees of foreign affiliates are
generally provided through the national health care programs of the countries
in which the affiliates are located.
Other Costs and Expenses. Other costs and expenses for the year ended
December 31, 1995, includes $40 million to write down the asbestos insurance
50
<PAGE>
asset and a net credit of $40 million primarily from the reduction of
previously established restructuring reserves. Other costs and expenses for
the year ended December 31, 1994, includes $100 million to write down the
asbestos insurance asset.
Contingencies. The Company was contingently liable at December 31, 1996,
under guarantees of loans and lease obligations related to certain divested
businesses, equity associates and other third parties in the principal amount
of $22.5 million.
The Company is one of a number of defendants (typically 10 to 20) in a
substantial number of lawsuits filed in numerous state and federal courts by
persons alleging bodily injury (including death) as a result of exposure to
dust from asbestos fibers. From 1948 to 1958, one of the Company's former
business units commercially produced and sold a high-temperature, clay-based
insulating material containing asbestos. The insulation material was used in
limited industrial applications such as shipyards, power plants and chemical
plants. During its ten years in the high-temperature insulation business, the
Company's aggregate sales of insulation material containing asbestos were less
than $40 million. The Company exited the insulation business in April 1958.
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 December 31, 1996, the Company estimates that it
is a named defendant in asbestos claims involving approximately 15,000
plaintiffs and claimants.
The following table shows the approximate number of plaintiffs and claimants
involved in asbestos claims pending at the beginning of, disposed of and filed
during, and pending at the end of, each of the years listed (eliminating
duplicate filings):
1996 1995 1994
------ ------ ------
Pending at beginning of year 20,000 28,000 36,000
Disposed 13,000 24,000 20,000
Filed 8,000 16,000 12,000
------ ------ ------
Pending at end of year 15,000 20,000 28,000
====== ====== ======
Since receiving its first asbestos claim, the Company, as of December 31,
1996, has disposed of the asbestos claims of approximately 200,000 plaintiffs
and claimants at an average indemnity payment per claim of approximately
$4,100. Certain of these dispositions have included deferred payment amounts
payable over periods ranging from one to seven years. Deferred payments at
December 31, 1996 totaled $97.8 million and are included in the foregoing
average indemnity payment per claim. The Company believes the increased 1995
filings were in part attributable to the efforts of claimants attempting to
51
<PAGE>
avoid the impact of various federal and state "tort reform" legislative
proposals.
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) and (iii)
lawsuits brought by public or private property owners alleging damages to
their various properties ("Property Damage Claims"). Certain of these
Maritime Claims, Medical Monitoring Claims and Property Damage Claims seek
class action treatment. Based on its past experience, the Company presently
believes that the probable ultimate disposition of these Maritime Claims,
Medical Monitoring Claims 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
52
<PAGE>
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
(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
53
<PAGE>
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, $238.6
million had been received through December 31, 1996; and the balance of
approximately $58.2 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 their
reinsurance obligations under the OIL Settlement. This $213.2 million asset
valuation at December 31, 1996 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
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
54
<PAGE>
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.
55
<PAGE>
Segment Information.
The Company has two industry segments: (1) Glass Containers; and (2) Plastics
and Closures.
Operating profit includes an allocation of corporate expenses based on both a
percentage of sales and direct billings based on the costs of specific
services provided.
Transfers between segments and geographic areas are not significant. In
arriving at the consolidated totals for segments and geographic areas,
eliminations are made as follows: as to sales and transfers, intersegment and
intergeographic sales and transfers are eliminated; as to operating profit and
identifiable assets, eliminations primarily relate to unrealized profit in
inventory.
Financial information regarding the Company's geographic segments is as
follows:
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Sales to unaffiliated customers:
United States $2,725.2 $2,702.8 $2,773.9
Other Western Hemisphere 576.9 636.7 510.0
Europe and Asia 543.6 423.7 283.4
- -----------------------------------------------------------------------------
Consolidated total $3,845.7 $3,763.2 $3,567.3
=============================================================================
Operating profit:
United States (a) $ 425.4 $ 419.5 $ 394.8
Other Western Hemisphere 98.3 151.6 114.0
Europe and Asia 74.0 50.4 26.0
Eliminations (.9) .1 (.8)
- -----------------------------------------------------------------------------
Combined segment total $ 596.8 $ 621.6 $ 534.0
=============================================================================
Identifiable assets:
United States $3,031.4 $2,952.6 $2,944.8
Other Western Hemisphere 754.1 697.4 590.6
Europe and Asia 1,110.6 525.5 306.2
Eliminations (1.1) (1.3) (1.3)
- -----------------------------------------------------------------------------
Combined segment total $4,895.0 $4,174.2 $3,840.3
=============================================================================
(a) Operating profit for the United States geographic segment includes a net
credit of $40.0 million in 1995 primarily from the reduction of
previously established restructuring reserves.
56
<PAGE>
Financial information regarding the Company's worldwide industry segments is
as follows:
- -----------------------------------------------------------------------------
1996 1995 (b) 1994 (c)
- -----------------------------------------------------------------------------
Sales to unaffiliated customers (a):
Glass Containers $2,783.3 $2,744.0 $2,590.1
Plastics and Closures 1,060.7 1,017.7 976.1
Other 1.7 1.5 1.1
- -----------------------------------------------------------------------------
Consolidated total $3,845.7 $3,763.2 $3,567.3
=============================================================================
Operating profit:
Glass Containers $ 424.5 $ 482.7 $ 393.0
Plastics and Closures 172.1 137.4 140.4
Eliminations .2 1.5 .6
- -----------------------------------------------------------------------------
Combined segment total 596.8 621.6 534.0
Other retained costs (7.6) (56.1) (125.8)
- -----------------------------------------------------------------------------
Consolidated total 589.2 565.5 408.2
Equity earnings 15.2 14.4 22.3
Interest expense (net) (280.3) (269.9) (259.2)
- -----------------------------------------------------------------------------
324.1 310.0 171.3
Reconciliation to net earnings:
Provision for income taxes (104.9) (100.8) (68.9)
Minority share owners' interests (28.1) (40.1) (24.1)
- -----------------------------------------------------------------------------
Net earnings $ 191.1 $ 169.1 $ 78.3
=============================================================================
(a) Sales of similar products which contributed 10% or more of consolidated
net sales for 1996, 1995, and 1994, and their percentage contribution in
each year, respectively, are glass containers with 66%, 66%, and 67%; and
plastic containers with 17%, 16%, and 17%. In 1996 and 1995, sales by
both the Glass Containers and Plastics and Closures industry segments to
one customer aggregated approximately 10% and 11%, respectively, of
consolidated total sales.
(b) Operating profit for 1995 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.
(c) Other retained costs for 1994 includes a charge of $100.0 million to
write down the asbestos insurance asset.
57
<PAGE>
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Identifiable assets:
Glass Containers $3,557.5 $2,880.6 $2,628.1
Plastics and Closures 1,338.0 1,295.0 1,215.1
Eliminations (.5) (1.4) (2.9)
- -----------------------------------------------------------------------------
Combined segment total 4,895.0 4,174.2 3,840.3
Investments in and advances
to associates 85.6 84.1 91.9
Corporate and other
retained assets 1,124.7 1,180.9 1,385.4
- -----------------------------------------------------------------------------
Total $6,105.3 $5,439.2 $5,317.6
=============================================================================
Property, plant and equipment
- -- capital expenditures:
Glass Containers $ 298.1 $ 209.0 $ 174.6
Plastics and Closures 88.7 67.8 110.9
- -----------------------------------------------------------------------------
Combined segment total 386.8 276.8 285.5
Corporate and other
retained assets 1.6 6.8 .5
- -----------------------------------------------------------------------------
Total $ 388.4 $ 283.6 $ 286.0
=============================================================================
Property, plant and equipment
- -- depreciation:
Glass Containers $ 151.2 $ 125.5 $ 117.9
Plastics and Closures 64.4 59.2 62.2
- -----------------------------------------------------------------------------
Combined segment total 215.6 184.7 180.1
Corporate and other
retained assets 4.2 3.6 3.2
- -----------------------------------------------------------------------------
Total $ 219.8 $ 188.3 $ 183.3
=============================================================================
58
<PAGE>
Selected Quarterly Financial Data (unaudited). The following tables present
selected financial data by quarter for the years ended December 31, 1996 and
1995:
- ------------------------------------------------------------------------------
1996
- ------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------
Net sales $905.8 $963.7 $1,014.1 $962.1 $3,845.7
==============================================================================
Gross profit $196.9 $226.2 $ 225.8 $171.2 $ 820.1
==============================================================================
Net earnings $ 39.6 $ 66.6 $ 62.0 $ 22.9 $ 191.1
==============================================================================
Net earnings per share
of common stock $ 0.33 $ 0.55 $ 0.51 $ 0.19 $ 1.58
==============================================================================
- ------------------------------------------------------------------------------
1995 (a)
- ------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------
Net sales $923.6 $985.0 $ 962.2 $892.4 $3,763.2
==============================================================================
Gross profit $191.7 $232.0 $ 214.3 $176.7 $ 814.7
==============================================================================
Net earnings $ 33.3 $ 59.0 $ 56.1 $ 20.7 $ 169.1
==============================================================================
Net earnings per share
of common stock $ 0.28 $ 0.49 $ 0.46 $ 0.17 $ 1.40
==============================================================================
(a) In the fourth quarter of 1995, the Company recorded 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. The net aftertax amounts of each of these
offsetting items was $24.7 million, or $0.21 per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
59
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Information with respect to non-officer directors is included in the Proxy
Statement in the section entitled "Election of Directors" and such information
is incorporated herein by reference.
Information with respect to executive officers is included herein on pages
13 - 15.
ITEMS 11. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS AND RELATED
and 13. TRANSACTIONS
The section entitled "Director and Executive Compensation and Other
Information," exclusive of the subsections entitled "Board Compensation
Committee Report on Executive Compensation" and "Performance Graph," which is
included in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" which is included in the Proxy Statement is incorporated herein by
reference.
60
<PAGE>
PART IV
ITEM 14.(a). EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Index of Financial Statements and Financial Statement Schedules Covered by
Report of Independent Auditors.
Page
-----
Report of Independent Auditors 28
Consolidated Balance Sheets at December 31, 1996 and 1995 30-31
For the years ended December 31, 1996, 1995 and 1994
Consolidated Results of Operations 29
Consolidated Share Owners' Equity 32
Consolidated Cash Flows 33
Statement of Significant Accounting Policies 34-35
Financial Review 36-58
Financial Statement Schedule Schedule Page
---------------------------- -------------
For the years ended December 31, 1996, 1995, and 1994:
II - Valuation and Qualifying Accounts (Consolidated) S-1
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule.
61
<PAGE>
EXHIBIT INDEX
S-K Item 601
No. Document
- ------------ --------
3.1 -- Restated Certificate of Incorporation of Owens-Illinois, Inc.
(filed as Exhibit 3.1 to the Registrants' Registration
Statement, File No. 33-43224, and incorporated herein by
reference).
3.2 -- By-laws of Owens-Illinois, Inc., as amended (filed as Exhibit
3.2 to the Registrants' Registration Statement, File No. 33-
43224, and incorporated herein by reference).
3.3 -- Certificate of Incorporation of Owens-Illinois Group, Inc., as
amended (filed as Exhibit 3.4 to the Registrants' Registration
Statement, File No. 33-13061, and incorporated herein by refer-
ence).
3.4 -- By-laws of Owens-Illinois Group, Inc. (filed as Exhibit 3.5 to
the Registrants' Registration Statement, File No. 33-13061, and
incorporated herein by reference).
3.5 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred
Stock and Qualifications, Limitations and Restrictions Thereof
of Series A Exchangeable Preferred Stock, Series B Exchangeable
Preferred Stock and Series C Exchangeable Preferred Stock of
Owens-Illinois, Inc., dated October 30, 1992 (filed as Exhibit
3.5 to the Registrants' Annual Report on Form 10-K for the year
ended December 31, 1992, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
4.1 -- Note, dated March 17, 1987, to OII Holdings Corporation issued
by OII Group, Inc., as amended (filed as Exhibit 4.44 to the
Registration Statement, File No. 33-43224, of Owens-Illinois,
Inc., and incorporated herein by reference).
4.2 -- Indenture, dated as of December 15, 1991, among Owens-Illinois,
Inc., Owens-Illinois Group, Inc., and The Bank of New York
related to Senior Debentures of Owens-Illinois, Inc. (filed as
Exhibit 4.32 to the Registrants' Registration Statement, File
No. 33-34825, and incorporated herein by reference).
4.3 -- Group Exchange Guaranty, dated as of July 10, 1992, by Owens-
Illinois Group, Inc., in favor of the Trustee (filed as Exhibit
4.1 to the Registrants' Current Report on Form 8-K dated as of
July 15, 1992, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
4.4 -- Subsidiary Guaranty, dated as of July 10, 1992, by the
Subsidiaries in favor of the Trustee (filed as Exhibit 4.2 to
the Registrants' Current Report on Form 8-K dated as of July
15, 1992, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
4.5 -- Contribution Agreement, dated as of July 10, 1992, by and among
the Company, Owens-Illinois Group, Inc., and the Subsidiaries
(filed as Exhibit 4.3 to the Registrants' Current Report on
Form 8-K dated as of July 15, 1992, File nos. 1-9576 and 33-
13061, and incorporated herein by reference).
62
<PAGE>
S-K Item 601
No. Document
- ------------ --------
4.6 -- Acknowledgment Regarding Additional Secured Debt, dated as of
July 10, 1992, by the Pledgors (filed as Exhibit 4.4 to the
Registrants' Current Report on Form 8-K dated as of July 15,
1992, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
4.7 -- Acknowledgment to Intercreditor Agreement, dated as of July 9,
1992, by the Trustee and the Pledgors (filed as Exhibit 4.5 to
the Registrants' Current Report on Form 8-K dated as of July
15, 1992, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
4.8 -- Indenture, dated as of April 1, 1992, between the Company and
Harris Trust and Savings Bank under which the Company has
issued its 10-1/4% Senior Subordinated Notes due April 1, 1999;
10% Senior Subordinated Notes due August 1, 2002; 10-1/2%
Senior Subordinated Notes due June 15, 2002; and 9-3/4% Senior
Subordinated Notes due August 15, 2004 (filed as Exhibit 4(a)
to the Registrants' Current Report on Form 8-K dated as of
March 27, 1992, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
4.9 -- First Supplemental Indenture, dated as of September 28, 1992,
between the Company and Harris Trust and Savings Bank (filed as
Exhibit 4(a) to the Registrants' Current Report on Form 8-K
dated as of October 1, 1992, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
4.10 -- Form of Indenture dated September 28, 1992, Shelf Registration
for up to $200 million of Senior Subordinated Debt Securities
between the Company and Harris Trust and Savings Bank, under
which the Company has issued its 9.95% Senior Subordinated
Notes due October 15, 2004 (filed as Exhibit 4.2 to the
Registrants' Registration Statement, File no. 33-51982, and
incorporated herein by reference).
4.11 -- Refinancing Credit Agreement, dated as of November 19, 1996,
among Owens-Illinois, Inc., the lenders listed therein,
including those named as lead managers and co-agents, Bank of
America National Trust and Savings Association, and Bankers
Trust Company including exhibits thereto (filed as Exhibit 4.1
to the Registrants' Current Report on Form 8-K dated as of
March 31, 1997, File nos. 1-9576 and 33-13061, and incorporated
herein by reference).
10.1 -- Lease Agreement, dated as of May 21, 1980, between Owens-
Illinois, Inc. and Leyden Associates Limited Partnership (filed
as Exhibit 5 to the Registrants' Registration Statement, File
No. 2-68022, and incorporated herein by reference).
10.2 -- Owens-Illinois Supplemental Retirement Benefit Plan, dated as
of October 1, 1991 (filed as Exhibit 3.5 to the Registrants'
Annual Report on Form 10-K for the year ended December 31,
1992, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
63
<PAGE>
S-K Item 601
No. Document
- ------------ --------
10.3 * -- First Amendment to Owens-Illinois, Inc. Supplemental Retirement
Benefit Plan (filed as Exhibit 10.19 to the Registrants' Annual
Report on Form 10-K for the year ended December 31, 1993, File
nos. 1-9576 and 33-13061, and incorporated herein by
reference).
10.4 * -- Second Amendment to Owens-Illinois, Inc. Supplemental
Retirement Benefit Plan (filed as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
10.5 * -- Written description of the Owens-Illinois Senior Executive Life
Insurance Plan (filed as Exhibit 3.5 to the Registrants' Annual
Report on Form 10-K for the year ended December 31, 1992, File
nos. 1-9576 and 33-13061, and incorporated herein by
reference).
10.6 * -- Form of Employment Agreement between Owens-Illinois, Inc. and
various Employees (filed as Exhibit 10(m) to the Registrants'
Annual Report on Form 10-K for the year ended December 31,
1987, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
10.7 * -- Form of Non-Qualified Stock Option Agreement between Owens-
Illinois, Inc. and various Employees (filed as Exhibit 10(1) to
the Registrants' Annual Report on Form 10-K for the year ended
December 31, 1987, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
10.8 * -- Form of Subscription Agreement between Owens-Illinois, Inc. and
various Purchasers (filed as Exhibit 10(k) to the Registrants'
Annual Report on Form 10-K for the year ended December 31,
1987, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
10.9 * -- Stock Option Plan for Directors of Owens-Illinois, Inc. (filed
as Exhibit 4.3 to Registrants' Form S-8, File no. 33-57141, and
incorporated herein by reference).
10.10 * -- First Amendment to Stock Option Plan for Directors of Owens-
Illinois, Inc. (filed as Exhibit 10.10 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
10.11 * -- Form of Non-Qualified Stock Option Agreement for Stock Option
Plan for Directors of Owens-Illinois, Inc. for use under the
Plan (filed as Exhibit 4.4 to Registrants' Form S-8, File no.
33-57141, and incorporated herein by reference).
10.12 * -- Second Amended and Restated Stock Option Plan for Key Employees
of Owens-Illinois, Inc. (filed as Exhibit 10.20 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1994, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
64
<PAGE>
S-K Item 601
No. Document
- ------------ --------
10.13 * -- First Amendment to Second Amended and Restated Stock Option
Plan for Key Employees of Owens-Illinois, Inc. (filed as
Exhibit 10.13 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, File nos. 1-9576 and 33-
13061, and incorporated herein by reference).
10.14 * -- Form of Non-Qualified Stock Option Agreement for Amended and
Restated Stock Option Plan for Key Employees of Owens-Illinois,
Inc. for use under the Plan (filed as Exhibit 10.21 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1994, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
10.15 * -- Form of First Amendment to Subscription Agreement between
Owens-Illinois, Inc. and Robert J. Lanigan (filed as Exhibit
10.19 to the Registrants' Annual Report on Form 10-K for the
year ended December 31, 1990, File nos. 1-9576 and 33-13061,
and incorporated herein by reference).
10.16 * -- Form of Non-Qualified Stock Option Agreement between Owens-
Illinois, Inc., and Robert J. Lanigan (filed as Exhibit 10.21
to the Registrants' Annual Report on Form 10-K for the
year ended December 31, 1990, File nos. 1-9576 and 33-13061,
and incorporated herein by reference).
10.17 * -- Form of First Amendment to Non-Qualified Stock Option Agreement
between Owens-Illinois, Inc. and Robert J. Lanigan (filed as
Exhibit 10.20 to the Registrants' Annual Report on Form 10-K
for the year ended December 31, 1990, File nos. 1-9576 and 33-
13061, and incorporated herein by reference).
10.18 * -- Amended and Restated Owens-Illinois, Inc. Senior Management
Incentive Plan (filed as Exhibit 10.15 to the Registrants'
Annual Report on Form 10-K for the year ended December 31,
1993, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
10.19 * -- First Amendment to Amended and Restated Owens-Illinois, Inc.
Senior Management Incentive Plan (filed as Exhibit 10.19 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1995, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
10.20 * -- Amended and Restated Owens-Illinois, Inc. Performance Award
Plan (filed as Exhibit 10.16 to the Registrants' Annual Report
on Form 10-K for the year ended December 31, 1993, File nos. 1-
9576 and 33-13061, and incorporated herein by reference).
10.21 * -- Owens-Illinois, Inc. Corporate Officers Deferred Compensation
Plan (filed as Exhibit 10.17 to the Registrants' Annual Report
on Form 10-K for the year ended December 31, 1993, File nos. 1-
9576 and 33-13061, and incorporated herein by reference).
10.22 * -- First Amendment to Owens-Illinois, Inc. Corporate Officers
Deferred Compensation Plan (filed as Exhibit 10.22 to the
Registrants' Annual Report on Form 10-K for the year ended
December 31, 1995, File nos. 1-9576 and 33-13061, and
incorporated herein by reference).
65
<PAGE>
S-K Item 601
No. Document
- ------------ --------
10.23 * -- Owens-Illinois, Inc. Executive Savings Plan (filed as Exhibit
10.18 to the Registrants' Annual Report on Form 10-K for the
year ended December 31, 1993, File nos. 1-9576 and 33-13061,
and incorporated herein by reference).
10.24 * -- First Amendment to Owens-Illinois, Inc. Executive Savings Plan
(filed as Exhibit 10.24 to the Registrants' Annual Report on
Form 10-K for the year ended December 31, 1995, File nos. 1-
9576 and 33-13061, and incorporated herein by reference).
10.25 * -- Second Amendment to Owens-Illinois, Inc. Executive Savings Plan
(filed as Exhibit 10.25 to the Registrants' Annual Report on
Form 10-K for the year ended December 31, 1995, File nos. 1-
9576 and 33-13061, and incorporated herein by reference).
10.26 * -- Owens-Illinois, Inc. Directors Deferred Compensation Plan
(filed as Exhibit 10.26 to the Registrants' Annual Report on
Form 10-K for the year ended December 31, 1995, File nos. 1-
9576 and 33-13061, and incorporated herein by reference).
10.27 * -- First Amendment to Owens-Illinois, Inc. Directors Deferred
Compensation Plan (filed as Exhibit 10.27 to the Registrants'
Annual Report on Form 10-K for the year ended December 31,
1995, File nos. 1-9576 and 33-13061, and incorporated herein by
reference).
21 -- Subsidiaries of the Registrants (filed herewith).
23.1 -- Consent of Independent Auditors (filed herewith).
23.2 -- Consent of McCarter & English (filed herewith).
24 -- Owens-Illinois, Inc. and Owens-Illinois Group, Inc. Power of
Attorney (filed herewith).
27 -- Financial Data Schedule (filed herewith).
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to Item 14(c).
- ---------------
ITEM 14.(b). REPORTS ON FORM 8-K
On December 31, 1996, the Registrants filed a Form 8-K with the Commission
with a press release dated December 16, 1996, announcing the completion of a
definitive agreement to purchase a controlling interest of approximately 76%
in AVIR S.p.A., the largest manufacturer of glass containers in Italy. The
Company will also initiate a tender offer for the 21% of the shares that are
publicly held. Total consideration for 100% of the AVIR shares is expected to
be approximately $580 million and will be financed initially by bank
borrowings. The acquisition is expected to be completed in the first quarter
of 1997.
No other reports on Form 8-K were filed by the Registrants during the last
quarter of 1996.
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on
their behalf by the undersigned thereunto duly authorized.
OWENS-ILLINOIS, INC.
OWENS-ILLINOIS GROUP, INC.
(Registrants)
By/s/ Thomas L. Young
------------------------------
Thomas L. Young
Executive Vice President --
Administration, General Counsel
and Secretary
Date: March 31, 1997
67
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Owens-
Illinois, Inc. and Owens-Illinois Group, Inc. and in the capacities and on the
dates indicated.
Signature Title
--------- -----
Robert J. Dineen Director
Edward A. Gilhuly Director
James H. Greene, Jr. Director
Joseph H. Lemieux Chairman of the Board of Directors and Chief Executive
Officer (Principal Executive Officer); Director
John J. McMackin, Jr. Director
Michael W. Michelson Director
George R. Roberts Director
Lee A. Wesselmann Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer); Director
By/s/ Thomas L. Young
-----------------------------
Thomas L. Young
Attorney-in-fact
Date: March 31, 1997
68
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule of Owens-Illinois, Inc. and Subsidiaries:
For the years ended December 31, 1996, 1995, and 1994:
PAGE
----
II -- Valuation and Qualifying Accounts (Consolidated) . . . . . . . S-1
<PAGE>
OWENS-ILLINOIS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (CONSOLIDATED)
Years ended December 31, 1996, 1995, and 1994
(Millions of Dollars)
Reserves deducted from assets in the balance sheets:
Allowances for losses and discounts on receivables
- --------------------------------------------------
Additions
-----------------
Balance at Charged to Balance
beginning costs and Deductions at end of
of period expenses Other (Note 1) period
--------------------------------------------------------
1996 . . . . . . . $ 39.7 $ 38.5 $ 0.0 $ 37.6 $ 40.6
======= ======= ======= ======= =======
1995 . . . . . . . $ 38.7 $ 32.4 $ 0.0 $ 31.4 $ 39.7
======= ======= ======= ======= =======
1994 . . . . . . . $ 31.3 $ 32.4 $ 0.0 $ 25.0 $ 38.7
======= ======= ======= ======= =======
(1) Deductions from allowances for losses and discounts on receivables
represent uncollectible notes and accounts written off.
S-1
<PAGE>
EXHIBIT 21
OWENS-ILLINOIS, INC.
SUBSIDIARIES OF THE REGISTRANTS
The Registrants had the following subsidiaries at December 31, 1996 (subsid-
iaries are indented following their respective parent companies):
State/Country of Incorporation
Name or Organization
- ---- ------------------------------
OI Health Care Holding Corp. Delaware
OI General Finance Inc. Delaware
OI Closure FTS Inc. Delaware
Specialty Packaging Licensing Company Limited Delaware
Owens-Illinois Closure Inc. Delaware
Product Design & Engineering, Inc. Minnesota
Specialty Packaging Products de Mexico, S.A.
de C.V. Mexico
OI Plastic Products FTS Inc. Delaware
Owens-Illinois Prescription Products Inc. Delaware
OI Medical Inc. Delaware
Anamed International, Inc. Nevada
Martell Medical Products, Inc. California
Owens-BriGam Medical Company Delaware
Owens-Brockway Plastic Products Inc. Delaware
Owens-Illinois Specialty Products Puerto Rico, Inc. Delaware
OI Regioplast STS Inc. Delaware
Regioplast S.A. de C.V. Mexico
Owens-Illinois Labels Inc. Delaware
OI General FTS Inc. Delaware
OI Castalia STS Inc. Delaware
OI Levis Park STS Inc. Delaware
OI AID STS Inc. Delaware
Owens-Illinois General Inc. Delaware
Owens Insurance, Ltd. Bermuda
OI Holding Company, Inc. Ohio
Owens-Illinois Foreign Sales Corp. Virgin Islands
Harbor Capital Advisors, Inc. Delaware
HCA Securities, Inc. Delaware
Harbor Transfer, Inc. Delaware
Universal Materials, Inc. Ohio
Owens-Brockway Packaging, Inc. Delaware
OI Ione STS Inc. Delaware
Owens-Brockway Glass Container Inc. Delaware
Brockway Realty Inc. Pennsylvania
Brockway Research Inc. Delaware
OI Auburn Inc. Delaware
Seagate, Inc. Ohio
E-1
<PAGE>
Subsidiaries of the Registrants (continued)
State/Country of Incorporation
Name or Organization
- ---- ------------------------------
OIB Produvisa Inc. Delaware
OI Consol STS Inc. Delaware
OI Puerto Rico STS Inc. Delaware
Owens-Illinois de Puerto Rico Ohio
OI Venezuela STS Inc. Delaware
Owens Brockway Venezuelan Holding Venezuela
Centro Vidriero de Venezuela, C.A. Venezuela
Manufacturera de Vidrios Planos, C.A. Venezuela
Owens-Illinois de Venezuela, C.A. Venezuela
Fabrica de Vidrio Los Andes, C.A. Venezuela
Owens-Illinois Ventas, S.A. Venezuela
OI Peldar STS Inc. Delaware
OI Latin America Inc. Delaware
OI Ecuador STS Inc. Delaware
Cristaleria del Ecuador, S.A. Ecuador
OI Peru STS Inc. Delaware
Vidrios Industriales S.A. Peru
Bolivian Investments, Inc. Delaware
Fabrica Boliviana de Vidrios S.A. Bolivia
OI Brazil Inc. Delaware
Owens-Illinois International B. V. Netherlands
Cristaleria Peldar, S.A. Colombia
Sao Raimundo Administracao, Participacoes
e Representacoes, Limitada Brazil
Companhia Industrial Sao Paulo e Rio Brazil
OI Finnish Holdings Oy Finland
Ryttylan Muovi Oy Finland
Karhulan Lasi Oy Finland
A/S Jarvakandi Klaas Estonia
OI Machineworks Inc. Delaware
O-I Europe (Machinery and Distribution) Limited United Kingdom
OI Overseas Management Company Limited Delaware
United Glass Group Ltd. United Kingdom
United Glass, Limited United Kingdom
OI Poland Inc. Delaware
Huta Szkla Jaroslaw S.A. Poland
OI Hungary Inc. Delaware
Oroshaza Glass Manufacturing and Trading Kft. Hungary
OI Italy Inc. Delaware
OI Italy Holdings Inc. Delaware
OI Italia, S.r.l. Italy
OI India Inc. Delaware
Owens-BILT Limited India
OI China Inc. Delaware
Wuhan-Owens Glass Container Co., Ltd. China
OI Thailand Inc. Delaware
OI Pacific (Machinery and Distribution) Limited Thailand
E-2
<PAGE>
EXHIBIT 23.1
OWENS-ILLINOIS, INC.
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected Financial
Data."
We also consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 33-51982) of Owens-Illinois, Inc. and in the related
Prospectus, in the Registration Statement (Form S-8 No. 33-57139) pertaining
to the Amended and Restated Owens-Illinois, Inc. Stock Purchase and Savings
Program and the Amended and Restated Owens-Illinois, Inc. Long-Term Savings
Plan, in the Registration Statement (Form S-8 No. 33-44252) pertaining to the
Amended and Restated Stock Option Plan for Key Employees of Owens-Illinois,
Inc., and in the Registration Statement (Form S-8 No. 33-57141) pertaining to
the Stock Option Plan for Directors of Owens-Illinois, Inc. of our report
dated February 4, 1997 with respect to the consolidated financial statements
and schedule of Owens-Illinois, Inc., included in this Annual Report (Form 10-
K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Toledo, Ohio
March 31, 1997
E-3
<PAGE>
EXHIBIT 23.2
CONSENT OF MCCARTER & ENGLISH
March 28, 1997
Ladies and Gentlemen:
We consent to the incorporation by reference in this Annual Report on
Form 10-K of Owens-Illinois, Inc. and Owens-Illinois Group, Inc. for the quarter
ended December 31, 1996, of the reference to our firm under the caption "Legal
Proceedings."
Very truly yours,
/s/McCarter & English
---------------------
McCarter & English
<PAGE>
EXHIBIT 24
OWENS-ILLINOIS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That each individual whose
signature appears below hereby consents to and appoints Thomas L. Young, Lee
A. Wesselmann, or either of them, individually, as his true and lawful
attorney-in-fact and agent with all power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign the 1996 Annual
Report on Form 10-K of Owens-Illinois, Inc. and Owens-Illinois Group, Inc.,
both corporations organized and existing under the laws of the State of
Delaware, and any and all amendments thereto, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission pursuant to the requirements of the
Securities Exchange Act of 1934, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the same as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his
hand on the date set opposite his name.
Signature Title Date
- --------- ----- --------
Joseph H. Lemieux Chairman of the Board of 3/27/97
- ------------------------- Directors and Chief Executive --------
Joseph H. Lemieux Officer (Principal Executive
Officer); Director
Lee A. Wesselmann Senior Vice President 3/27/97
- ------------------------- and Chief Financial Officer --------
Lee A. Wesselmann (Principal Financial and
Accounting Officer); Director
Chairman Emeritus of
- ------------------------- the Board of Directors; --------
Robert J. Lanigan Director
Robert J. Dineen Director 3/27/97
- ------------------------- --------
Robert J. Dineen
Edward A. Gilhuly Director 3/27/97
- ------------------------- --------
Edward A. Gilhuly
James H. Greene, Jr. Director 3/27/97
- ------------------------- --------
James H. Greene, Jr.
<PAGE>
Signature Title Date
- --------- ----- --------
Director
- ------------------------- --------
Henry R. Kravis
Director
- ------------------------- --------
Robert I. MacDonnell
John J. McMackin, Jr. Director 3/27/97
- ------------------------- --------
John J. McMackin, Jr.
Michael W. Michelson Director 3/27/97
- ------------------------- --------
Michael W. Michelson
George R. Roberts Director 3/27/97
- ------------------------- --------
George R. Roberts
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1996 consolidated balance sheet, and the consolidated results
of operations for the year then ended and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 175,300,000
<SECURITIES> 0
<RECEIVABLES> 488,800,000
<ALLOWANCES> 40,600,000
<INVENTORY> 494,600,000
<CURRENT-ASSETS> 1,285,100,000
<PP&E> 3,435,900,000
<DEPRECIATION> 1,494,300,000
<TOTAL-ASSETS> 6,105,300,000
<CURRENT-LIABILITIES> 904,900,000
<BONDS> 3,287,900,000
0
21,400,000
<COMMON> 1,200,000
<OTHER-SE> 707,100,000
<TOTAL-LIABILITY-AND-EQUITY> 6,105,300,000
<SALES> 3,845,700,000
<TOTAL-REVENUES> 3,976,200,000
<CGS> 3,025,600,000
<TOTAL-COSTS> 3,025,600,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38,500,000
<INTEREST-EXPENSE> 302,600,000
<INCOME-PRETAX> 324,100,000
<INCOME-TAX> 104,900,000
<INCOME-CONTINUING> 191,100,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191,100,000
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
