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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, 1998
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.)
One SeaGate, Toledo, Ohio 43666
(Address of principal executive offices) (Zip Code)
Registrant's 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
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Common Stock, $.01 par value New York Stock Exchange
Convertible Preferred Stock, $.01 par value,
$50 liquidation preference New York Stock Exchange
11% Senior Debentures due 2003 New York Stock Exchange
7.85% Senior Notes due 2004 New York Stock Exchange
7.15% Senior Notes due 2005 New York Stock Exchange
8.10% Senior Notes due 2007 New York Stock Exchange
7.35% Senior Notes due 2008 New York Stock Exchange
7.50% Senior Debentures due 2010 New York Stock Exchange
7.80% Senior Debentures due 2018 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 registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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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 registrant's 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. [X]
The aggregate market value (based on the consolidated tape closing price
on February 28, 1999) of the voting stock beneficially held by non-affiliates
of Owens-Illinois, Inc. was approximately $2,832,676,000. 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, 1999, was 155,638,236.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Owens-Illinois, Inc. Proxy Statement for The Annual Meeting of
Share Owners To Be Held Wednesday, May 12, 1999 ("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. . . . . . . . . . . . . . . . . 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . 16
EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . 17
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 5. MARKET FOR OWENS-ILLINOIS, INC.'S COMMON STOCK
AND RELATED SHARE OWNER MATTERS. . . . . . . . . . 20
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . 25
ITEM 7.(a). QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK . . . . . . . . . . . . . . 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . 79
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . 80
ITEMS 11. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS
and 13. AND RELATED TRANSACTIONS . . . . . . . . . . . . . 80
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . 80
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
ITEM 14.(a). EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. . 81
ITEM 14.(b). REPORTS ON FORM 8-K . . . . . . . . . . . . . 86
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
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,
Australia, New Zealand, and India, and the second largest in Europe, 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 bottles. Since 1993, through acquisitions and
investments strategic to its core businesses, the Company has expanded and
furthered its market leadership position in the geographic areas in which it
competes. During the years 1994 through 1998, the Company has invested more
than $1.7 billion in capital expenditures (excluding acquisition
expenditures) and more than $280 million in research, development and
engineering to, among other things, increase capacity in key locations,
commercialize its technology into new products, and improve productivity.
On April 30, 1998, the Company completed the acquisition of the worldwide
glass and plastics packaging businesses of BTR plc in an all cash transaction
valued at approximately $3.6 billion (the "Acquisition"). In the Acquisition,
the Company acquired BTR's ACI Glass Packaging ("ACI") glass container
operations in the Asia Pacific region (i.e. Australia, New Zealand, China, and
Indonesia) and its Continental PET Technologies ("CPT") plastics packaging
operations in the United States, South America, Australia, Europe, and Asia,
as well as BTR's United Kingdom glass container manufacturer ("Rockware").
Pursuant to an agreement with the Commission of the European Communities, the
Company has committed to sell Rockware (the "Rockware Sale"). On March 15,
1999, the Company announced that it agreed to sell Rockware to a subsidiary of
Ardagh plc, the Irish glass container manufacturer based in Dublin, Ireland,
for total consideration of 240 million British pounds sterling (approximately
$390 million). The transaction is subject to certain conditions and is
expected to close by March 31, 1999. Proceeds from the Rockware Sale will be
used to reduce long-term debt.
ACI is the only glass container manufacturer in Australia and New Zealand,
with additional operations in China and Indonesia. CPT is a leading supplier
of high-performance polyethylene terephthalate (PET) hot fill food and non-
carbonated drink containers, with operations in the United States, Australia,
New Zealand, the United Kingdom, the Netherlands, Brazil, China, Hungary, and
Mexico. The Company has provided technology and equipment to ACI's glass
container operations since 1967 and to certain of the CPT plastics businesses
under a series of technical assistance agreements.
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Since 1991, the Company has acquired 15 glass container businesses in 16
countries, including businesses in Central and Eastern Europe and in the Asia
Pacific region, and five plastics packaging businesses with operations in 11
countries. These acquisitions are consistent with the Company's strategy to
maintain leadership in glass and plastics packaging and to pursue revenue and
earnings growth opportunities around the world.
As part of the Company's continual monitoring of asbestos-related matters, a
comprehensive review of such matters was conducted during the fourth quarter
of 1998. This review resulted in the recording of a charge which reduced 1998
earnings before extraordinary items by $154.4 million. Also, during the
fourth quarter of 1998 the Company's glass container affiliate in the United
Kingdom took steps to reduce costs and improve efficiency by initiating the
closing of its least efficient glass container manufacturing plant. Also,
affiliates in South America, Central Europe, and Asia initiated restructurings
that are expected to improve efficiency and reduce costs in 1999 and beyond.
Total charges recorded as a result of these actions reduced 1998 earnings
before extraordinary items by $47.4 million.
The principal executive office of the Registrant is located at One SeaGate,
Toledo, Ohio 43666; the telephone number is (419) 247-5000.
Financial Information about Product Segments
Information as to sales, earnings before interest income, interest expense,
provision for income taxes, minority share owners' interests in earnings of
subsidiaires, and extraordinary charges ("EBIT"), and total assets by product
segment is included on pages 72 - 75.
Narrative Description of Business
The Company has two product segments: (1) Glass Containers and (2) Plastics
Packaging. 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 PRODUCT 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, Australia, New Zealand, and
India, the Company also is a leading manufacturer of glass packaging in
Europe. Worldwide glass container sales represented 68%, 71%, and 66% of the
Company's consolidated net sales for the years ended December 31, 1998, 1997,
and 1996, respectively. The Company believes that its internally developed
machines are significantly more efficient and productive than those used by
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its competitors, making it the low-cost manufacturer and a recognized
technological leader in the industry.
The Company currently has technical assistance agreements with 23 different
companies in 21 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 have a presence, and expand in regions where the Company currently
has operations.
Products and Services
Glass containers are produced in a wide range of sizes, shapes and colors for
beer, food, tea, juice, soft drinks, liquor, wine, wine coolers and
pharmaceuticals. The Company has been a leader in product innovation,
introducing products including long neck nonreturnable beer bottles, and in
developing containers for teas, juices, food, soft drinks and wine coolers.
The Company's product development efforts in glass containers are aimed at
providing custom designed packaging systems to customers and consumers.
Product lines designed to complement glass containers include product
extensions related to single service packages for teas, juices and soft drinks
and innovative secondary packaging systems such as closures, carriers and
labeled containers.
Customers
Beer, food (which includes juice 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 industries. The Company believes its position gives it the ability to
sustain market share and take advantage of new opportunities and areas of
growth for all customers within these industries.
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.
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Markets and Competitive Conditions
The Company has glass container operations located in 20 countries. The
principal markets for the Company's glass products are in the United States,
Europe, Latin America, and Australia. The Company has the leading market
share of the glass segment of United States beer and food (including juice
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 and plastic 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, the assets of which are owned by
Canadian-based Consumers Packaging, Inc. 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., a wholly-owned subsidiary of Suiza Foods), Graham Packaging
Co., Plastipak Packaging, Inc., and Silgan Corporation. In the plastic
containers market, no one competitor is dominant.
Methods of Distribution
Due to the significance of transportation costs and the importance of timely
delivery, manufacturing facilities are located close to customers. Most of
the Company's glass container products are shipped by common carrier to
customers within a 250-mile radius of a given production site. In addition to
glass container manufacturing facilities, the Company operates several raw
materials plants and machine and mold shops which manufacture high-
productivity glass-making machines and equipment.
Domestic Glass Operations
The Company has an approximate 45% share of the glass container category of
the U.S. rigid packaging market. Domestically, the Company operates 21 glass
container manufacturing facilities, a sand plant and two machine shops which
manufacture high-productivity glass-making machines and equipment. Marketing
under the trade name Owens-Brockway, the Company believes that its 1998 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 juice and teas, approximated 90% of the Company's total U.S. glass
container unit shipments for 1998, 1997, and 1996.
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During 1998, total glass container industry shipments within the United States
rigid packaging market were slightly below 1997 shipment levels. Shipments
declined in 1998 as a result of lower demand for food containers, including
tea and juice bottles, partially offset by increased shipments of beer
containers. The Company's share of the United States glass container market
increased slightly during this time. Overall, the Company expects glass
containers' share of the United States rigid packaging market to remain
relatively stable compared to 1998 levels and that the Company will maintain
its share of the glass container segment due in part to the Company's ongoing
improvement in operating efficiencies and its technological leadership.
The glass container industry in the United States continues to recycle used
glass containers into new glass containers. The Company is an important part
of this effort and continues to melt substantial tonnage of recycled glass in
its glass furnaces. The infrastructure for recycling glass also supplies
recycled glass containers to producers other than those in the glass container
industry for use in the manufacture of secondary products (i.e. fiberglass and
roadway 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
The Company has added to its international operations by acquiring glass
container companies with leading positions in growing or established markets,
increasing capacity at selected foreign affiliates, and maintaining the global
network of glass container companies that license the Company's technology.
The Company has significant ownership positions in 25 companies located in 19
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, glass insulators, rolled glass, sheet glass and glass tableware. The
Company's principal international glass affiliates are located in Latin
America and Europe, and Australia.
Outside of the United States, unit shipments of glass containers have grown
substantially in recent years. In many regions, international glass
operations are benefiting from increased consumer spending power, increased
privatization of industry, a favorable climate for foreign investment,
lowering of trade barriers, and global expansion programs by major customers.
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
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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. Revenues generated 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 licensees.
The Company's significant ownership positions in international glass
affiliates are summarized below:
Owens-Illinois
Company/Country Ownership
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ACI Glass Packaging, Australia 100.0%
Avirunion, a.s., Czech Republic 100.0
Karhulan Lasi Oy, Finland 100.0
United Hungarian Glass Containers, Kft., Hungary 100.0
Owens-Brockway (India) Limited, India 100.0
AVIR S.p.A., Italy 100.0
New Zealand Glass Manufacturers, New Zealand 100.0
Vidrieria Rovira, S.A., Spain 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
A/S Jarvakandi Klaas, Estonia 82.0
Owens-Illinois de Puerto Rico, Puerto Rico 80.0
Comphania Industrial Sao Paulo e Rio, Brazil 79.4
Vidrios Industriales, S.A., Peru 77.3
Owens-Illinois de Venezuela, C.A., Venezuela 74.0
ACI Guangdong Glass Co., Ltd., China 70.0
ACI Shanghai Glass Co., Ltd., China 70.0
Wuhan Owens Glass Container Company, Ltd., China 70.0
Huta Szkla Jaroslaw S.A., Poland 69.7
Cristaleria del Ecuador, S.A., Ecuador 69.0
Fabrica Boliviana de Vidrios, S. A., Bolivia 68.8
Huta Szkla Antoninek Sp.zo.o, Poland 60.1
Cristaleria Peldar, S.A., Colombia 57.6
P.T. Kangar Consolidated Industries, Indonesia 51.2
PLASTICS PACKAGING PRODUCT SEGMENT
The Company is a leading plastic container manufacturer in the United States,
with operations also located in Latin America, Australia, Europe, and Asia.
The Company is the market leader in most plastic segments in which it
competes. Plastic container sales represented 18%, 15%, and 17% of the
Company's consolidated net sales for the years ended December 31, 1998, 1997,
and 1996, respectively. The Company's Plastics Packaging segment is comprised
of three business units.
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Plastic Containers. This unit, with 50 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. This unit includes the CPT
operations, which produces multi-layer PET containers for a number of
applications that require special processing to ensure heat resistance for
food and beverage containers that are filled at high temperatures, and to
enhance barrier protection in order to increase shelf life.
Closure and Specialty Products. This unit, with 20 manufacturing facilities,
develops and produces closures and closure systems which incorporate
functional features such as tamper evidence, child resistance and dispensing.
In addition, this unit's diverse product line includes trigger sprayers,
finger pumps, and lotion pumps, as well as metal closures and finger pumps for
the fragrance and cosmetic industry. In the United States, the Company has a
sole license for Alcoa's technology for compression molded, tamper evident,
thermoplastic closures. This unit also manufactures custom injection molded
products, such as deodorant canisters and toothpaste dispensers.
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.
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, closure system, and label), diversified
market positions, proprietary technology and products, new package
development, and packaging innovation. 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
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Company's product innovations in plastic containers and closures include in-
mold labeling for custom molded bottles, multilayer structured bottles
containing post consumer recycled resin, Flex-Band and PlasTop tamper-
evident closures, Clic Loc child-resistant closures, and 1-Clic vial system
which can be used in either child-resistant or non-child-resistant modes.
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 Packaging segment currently has technical assistance
agreements or cross-licenses with 26 companies in 16 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.
OTHER PRODUCTS
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. The proprietary Contour-Pak plastic carrier line
for bottles is also produced by this unit. This carrier line is predominantly
used as six-pack and four-pack carriers for iced teas and other fruit drinks.
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
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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 Group
business segments such as beer and certain food containers are seasonal.
Shipments in the United States and Europe are typically greater in the second
and third quarters of the year, while shipments in Latin America and the Asia
Pacific region are typically greater in the first and fourth quarters of the
year.
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
Quaker Oats Company, 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 were $36.4 million, $28.9
million, and $31.1 million, for 1998, 1997, and 1996, respectively. Operating
engineering expenditures were $34.8 million, $29.9 million, and $25.6 million
for 1998, 1997, and 1996, 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
1998, 1997, or 1996.
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
1998.
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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 states will continue to enact and develop curbside
recycling and recycling content legislation.
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, 1999, 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 1998 and 1997, many plastic containers for products other
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 38,800 persons at December 31,
1998. A majority of these employees are hourly workers covered by collective
bargaining agreements, the principal one of which was renewed early in 1999
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, EBIT, and assets of the Company's product and
geographic segments is included on pages 72 - 75. Export sales, in the
aggregate or by geographic area, were not material for the years 1998, 1997,
or 1996.
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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, 1998
are listed below and grouped by product segment. All properties shown are
owned in fee except where otherwise noted.
Glass Containers
Domestic Operations
Glass Container Plants
Atlanta, GA Muskogee, OK (1)
Auburn, NY Oakland, CA
Brockway, PA Portland, OR
Charlotte, MI Streator, IL
Clarion, PA (1) Toano, VA
Crenshaw, PA Tracy, CA
Danville, VA Volney, NY
Hayward, CA Waco, TX
Lakeland, FL Winston-Salem, NC
Lapel, IN Zanesville, OH
Los Angeles, CA
Machine Shops
Brockway, PA Godfrey, IL
Sand Plant
Ione, CA (2)
Asia Pacific Operations
Australia
Glass Container Plants
Adelaide Perth
Brisbane Sydney
Melbourne
Mold Shop
Melbourne
Raw Materials Plants
Beachworth Port Stephens
Caroline North Stradbroke Island
Dandenong Tantanoola
Glenshera Upper Wakefield
Lang Lang Williamstown
Port Parham
11
<PAGE>
China
Glass Container Plants
Guangzhou Wuhan
Shanghai
Mold Shop
Tianjin
India
Glass Container Plants
Pondicherry Rishikesh
Pune
Indonesia
Glass Container Plant
Jakarta
New Zealand
Glass Container Plant
Auckland
European Operations
Czech Republic
Glass Container Plants
Sokolov Teplice
Estonia
Glass Container Plant
Jarvakandi
Finland
Glass Container Plant
Karhula
Hungary
Glass Container Plant
Oroshaza
Italy
Glass Container Plants
Allessandria Pordenone
Asti Rome
Bari (2 plants) Terni
Bologna Trento
Cagliari Treviso
Milan Verese
Napoli
Mold Shop
Napoli
12
<PAGE>
Poland
Glass Container Plants
Jaroslaw Poznan
Spain
Glass Container Plants
Barcelona (2 plants)
United Kingdom
Glass Container Plants
Alloa St. Albans
Harlow
Sand Plant
Devilla
Latin American Operations
Bolivia
Glass Container Plant
La Paz
Brazil
Glass Container Plants
Rio de Janeiro Sao Paulo
Machine Shop
Manaus
Colombia
Glass Container Plants
Envigado Zipaquira
Ecuador
Glass Container Plant
Guayaquil
Peru
Glass Container Plant
Callao
Puerto Rico
Glass Container Plant
Vega Alta
Venezuela
Glass Container Plants
Caracas Valencia
Guarenas Valera
La Victoria
13
<PAGE>
Plastics Packaging
Domestic Operations
Plastic Containers Plants
Atlanta, GA Kansas City, MO (2)
Baltimore, MD La Mirada, CA (2)
Belvidere, NJ Nashua, NH
Chicago, IL Newburyport, MA
Cincinnati, OH (1) Rocky Mount, NC
Edison, NJ Rossville, GA (2)
Findlay, OH St. Louis, MO (2)
Florence, KY (1) Sullivan, IN
Greenville, SC Vandalia, IL (1)
Harrisonburg, VA Washington, NJ (2)
Mold Shop
Kansas City (2)
Continental PET Technologies Plants
Bedford, NH Kissimmee, FL
Cartersville, GA Modesto, CA
Florence, KY Rockwall, TX
Fremont, OH Tolleson, AZ
Hazleton, PA
Closure and Specialty Products Plants
Bridgeport, CT Erie, PA
Brookville, PA Franklin, IN
Chattanooga, TN Hamlet, NC
Constantine, MI (1) Maumee, OH (2)
El Paso, TX (2) Waterbury, CT
Prescription Products Plant
Berlin, OH (1)
Asia Pacific Operations
Continental PET
Australia
Adelaide Perth
Brisbane Sydney (3 plants)
Melbourne (2 plants) Wadonga
China
Quindao
New Zealand
Auckland Christchurch
14
<PAGE>
Closure Plants
Australia
Brisbane (2 plants) Perth
Drouin Sydney
Melbourne (3 plants)
New Zealand
Auckland
Thailand
Bangkok
European Operations
Plastic Container Plants
Finland
Ryttyla
Continental PET
Hungary
Gyor
Netherlands
Etten-Leur
United Kingdom
Chalgrove
Latin American Operations
Plastic Container Plants
Mexico
Mexico City
Puerto Rico
Las Piedras
Continental PET
Brazil
Sorocaba
Mexico
Pachuca
Other
Label and Carrier Products Plant
Bardstown, KY
15
<PAGE>
Corporate Facilities
World Headquarters Building
Toledo, OH (2)
Levis Development Park
Perrysburg, OH
- --------------------------------
(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.
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 69 - 72.
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, 1998.
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
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. Officers serve at the discretion of the Board of
Directors.
Name and Age Position
- ------------ --------
Joseph H. Lemieux (68) . . . . . 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 2000.
R. Scott Trumbull (50) . . . . . Executive Vice President, International
Operations since 1993; Executive Vice
President, Corporate Development since
1998; Vice President and Director of
Corporate Planning, 1992-1993; Vice
President and General Manager of Plastics
and Closure Operations, 1986-1992.
Terry L. Wilkison (57) . . . . . Executive Vice President, Latin American
Operations since 1998; Executive Vice
President, 1993-1997; 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 (55) . . . . . . Executive Vice President, Administration
and General Counsel since 1993;
Secretary, 1990-1998; Vice President,
General Counsel, General Manager -
Operations Administration, 1992-1993;
Vice President and General Counsel, 1990-
1992; Member of Class I of the Board of
Directors of the Company, with a term
expiring in 2001.
David G. Van Hooser (52) . . . . Senior Vice President and Chief Financial
Officer since 1998; Senior Vice President
and Director of Corporate Strategy, 1996-
1998; Vice President and General Manager
of Plastic Components Operations, 1994-
1996; Vice President, Treasurer and
Controller, 1990-1994; Vice President and
Treasurer, 1988-1990.
17
<PAGE>
Name and Age Position
- ------------ --------
John Bachey (50) . . . . . . . . Vice President since 1997; General
Manager, Europe and Latin America,
Continental PET Technologies since 1998;
Managing Director of United Glass, 1997;
Vice President of Glass Container Sales
and Marketing, 1996-1997; Vice President
and General Manager, West Coast, 1993-
1996.
James W. Baehren (48). . . . . . Corporate Secretary since 1998; Associate
General Counsel since 1996; Assistant
General Counsel, 1992-1996.
Russell C. Berkoben (57) . . . . Vice President since 1992; Vice President
and General Manager of Plastics Group
since 1997; Vice President and General
Manager of Plastic Containers Operations,
1991-1996; Vice President and Plastic
Containers Business Unit Manager, 1985-
1991.
Joseph V. Conda (57) . . . . . . Vice President since 1998; Vice President
of Glass Container Sales and Marketing
since 1997; Vice President and General
Manager of Prescription Products, 1996-
1997.
Thomas E. Coyle (48) . . . . . . Vice President since 1999; Vice President
and General Manager of Prescription
Products since 1997; Vice President of
Plastic Containers Operations, 1991-1997.
Jeffrey A. Denker (51) . . . . . Treasurer since 1998; Assistant
Treasurer, 1988-1998; Director of
International Finance, 1987-1998.
Larry A. Griffith (53) . . . . . Vice President since 1990; Vice President
and General Manager of Closure and
Specialty Products since 1998; Vice
President of International Operations,
1997-1998; Vice President and Chief
Information Officer since 1996; General
Manager of Plastic Components Operations,
1996-1997; General Manager of Kimble,
1992-1995; Vice President of Corporate
Staff and Director of Corporate Planning,
1988-1990.
18
<PAGE>
Name and Age Position
- ------------ --------
W. Bruce Larsen (45) . . . . . . Vice President since 1997; Vice President
and Director of Operations, Plastic
Containers since 1998; Vice President and
Director of Manufacturing, Plastic
Containers, 1993-1998.
Gerald J. Lemieux (41) . . . . . Vice President since 1997; Vice President
and General Manager of Domestic Glass
Container since 1997; Vice President,
Domestic Glass Container Finance and
Administration, 1992-1997.
Mr. Gerald J. Lemieux is the son of Mr. Joseph H. Lemieux.
Michael D. McDaniel (50) . . . . Vice President since 1992; Vice President
and General Manager of Continental PET
Technologies since 1998; Vice President
and General Manager of Closure and
Specialty Products, 1991-1998; 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 (59). . . . . . . Vice President and General Counsel -
Corporate since 1988.
Peter J. Robinson (55) . . . . . Vice President since 1999; General
Manager of Asia Pacific Operations since
1998; Chief Executive of ACI Packaging
Group, 1988-1998.
Robert A. Smith (57) . . . . . . Vice President since 1993; Vice President
and Technical Director since 1998; Vice
President of International Operations
1997-1998; Vice President of Glass
Container Manufacturing, 1993-1997; Vice
President and General Manager, West
Coast, 1990-1993; Vice President and Area
Manufacturing Manager, 1986-1990.
Franco Todisco (55). . . . . . . Vice President since 1999; President of
Avir S.p.A. since 1994; Vice President of
Avir S.p.A., 1977-1994.
Edward C. White (51) . . . . . . Controller since 1999. Vice President
and Director of Finance, Planning, and
Administration - International
Operations, 1997-1999.
19
<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:
1998 1997
-------------------- ------------------
High Low High Low
------- -------- ------ ------
First Quarter 46-3/16 33-3/4 27-1/8 21-1/2
Second Quarter 47-9/16 38-15/16 34 23-3/8
Third Quarter 49 23-3/4 37-1/8 29-5/8
Fourth Quarter 35-3/4 24 38-3/8 29-3/4
On December 31, 1998, there were 1,115 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 56.
20
<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, 1998. 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,
----------------------------------------------------
1998 (a) 1997 (b) 1996 1995 1994
-------- -------- -------- -------- --------
Consolidated operating (Dollar amounts in millions)
results: .
Net sales. . . . . . $5,306.3 $4,658.5 $3,845.7 $3,763.2 $3,567.3
Other (c). . . . . . 193.0 169.9 130.5 117.8 85.6
-------- -------- -------- -------- --------
5,499.3 4,828.4 3,976.2 3,881.0 3,652.9
Costs and expenses:
Manufacturing, shipping
and delivery . . . 4,075.6 3,666.4 3,025.6 2,948.5 2,824.3
Research, engineering,
selling, administra-
tive and other (d) 834.7 407.0 323.9 322.9 379.1
Earnings before -------- -------- -------- -------- --------
interest expense
and items below. . 589.0 755.0 626.7 609.6 449.5
Interest expense . . 380.0 302.7 302.6 299.6 278.2
-------- -------- -------- -------- --------
Earnings before items
below. . . . . . . 209.0 452.3 324.1 310.0 171.3
Provision for income
taxes (e). . . . . 66.7 148.5 104.9 100.8 68.9
Minority share owners'
interests in
earnings of
subsidiaries . . . 20.2 31.4 28.1 40.1 24.1
Earnings before -------- -------- -------- -------- --------
extraordinary
items . . . . . 122.1 272.4 191.1 169.1 78.3
Extraordinary charges
from early
extinguishment of
debt, net of
applicable income
taxes . . . . . . (14.1) (104.5)
-------- -------- -------- -------- --------
Net earnings . . . . $ 108.0 $ 167.9 $ 191.1 $ 169.1 $ 78.3
======== ======== ======== ======== ========
21
<PAGE>
SELECTED FINANCIAL DATA -- continued
Years ended December 31,
----------------------------------------------------
1998 (a) 1997 (b) 1996 1995 1994
-------- -------- -------- -------- --------
(Dollar amounts in millions, except per share data)
Basic earnings (loss)
per share of
common stock:
Earnings before
extraordinary
items. . . . . . $ 0.71 $ 2.03 $ 1.58 $ 1.40 $ 0.64
Extraordinary charges (0.09) (0.78)
-------- -------- -------- -------- --------
Net earnings . . . $ 0.62 $ 1.25 $ 1.58 $ 1.40 $ 0.64
======== ======== ======== ======== ========
Weighted average
shares outstanding
(in thousands) . . 149,970 133,597 120,276 119,343 119,005
======= ======= ======= ======= =======
Diluted earnings (loss)
per share of
common stock:
Earnings before
extraordinary
items. . . . . . $ 0.71 $ 2.01 $ 1.55 $ 1.37 $ 0.64
Extraordinary charges (0.09) (0.77)
-------- -------- -------- -------- --------
Net earnings . . . $ 0.62 $ 1.24 $ 1.55 $ 1.37 $ 0.64
======== ======== ======== ======== ========
Weighted diluted average
shares (in thousands) 150,944 135,676 123,567 123,161 122,863
======= ======= ======= ======= =======
The Company's Exchangeable preferred stock and Convertible preferred stock
were not included in the computation of 1998 diluted earnings per share since
the result would have been antidilutive. Options to purchase 1,160,667,
11,429, 146,975, 781,290, and 1,022,548 weighted average shares of common
stock which were outstanding during 1998, 1997, 1996, 1995, and 1994,
respectively, were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average market
price of the common shares and, therefore, the effect would be antidilutive.
22
<PAGE>
SELECTED FINANCIAL DATA -- continued
Years ended December 31,
----------------------------------------------------
1998 (a) 1997 (b) 1996 1995 1994
-------- -------- -------- -------- --------
(Dollar amounts in millions)
Other data:
The following are included in
net earnings:
Depreciation . . . $ 358.5 $ 283.5 $ 219.8 $ 188.3 $ 183.3
Amortization of
excess cost and
intangibles. . . 98.0 55.9 46.8 44.8 45.2
Amortization of
deferred finance
fees (included
in interest
expense) . . . . 7.4 4.1 5.0 5.0 5.1
-------- -------- -------- -------- --------
$ 463.9 $ 343.5 $ 271.6 $ 238.1 $ 233.6
======== ======== ======== ======== ========
Balance sheet data (at end of period):
Working capital. . $ 850 $ 604 $ 380 $ 328 $ 171
Total assets . . . 11,061 6,845 6,105 5,439 5,318
Total debt . . . . 5,917 3,324 3,395 2,833 2,690
Share owners' equity 2,472 1,342 730 532 376
(a) Results of operations and other data since April 1998 include the
acquisition of the worldwide glass and plastics packaging businesses of
BTR plc, and the related financings. For further information, see
Acquisition of Worldwide Packaging Businesses of BTR plc, and Pro Forma
Information - Acquisition of BTR Packaging on pages 50 - 52.
(b) Results of operations since January 1997 include the acquisition of AVIR
S.p.A. Also during 1997, the Company implemented a refinancing plan.
(c) Other revenues in 1998 includes: (1) a gain of $18.5 million ($11.4
million aftertax) related to the termination of a license agreement, net
of charges for related equipment write-offs and capacity adjustments,
under which the Company had produced plastic multipack carriers for
beverage cans; and (2) a loss of $5.7 million ($3.5 million aftertax) on
the sale of a discontinued operation by an equity investee. Other
revenues in 1997 includes a gain of $16.3 million ($16.3 million
aftertax) from the sale of the remaining 49% interest in Kimble Glass.
(d) In 1998, the Company recorded: (1) charges of $250.0 million ($154.4
million aftertax) related to adjustment of the reserve for estimated
future asbestos-related costs; (2) charges of $72.6 million ($47.4
million after tax and minority share owners' interests) related
principally to a plant closing in the United Kingdom and restructuring
costs at certain international affiliates; (3) a net charge of $0.9
million ($0.6 million aftertax) for the settlement of certain
environmental litigation and the reduction of previously established
23
<PAGE>
reserves for guarantees of certain obligations of a previously divested
business.
In 1998, the Company also recorded charges of $42.0 million ($31.5
million after tax and minority share owners' interests) principally for
write-offs of certain assets associated with business conditions in
emerging markets.
In 1997, the Company recorded charges of $14.1 million ($8.7 million
aftertax) principally for guarantees of certain lease obligations of a
previously divested business. In 1995, the Company recorded a charge of
$40.0 million ($24.7 million aftertax) to write down the asbestos
insurance asset and a net credit of $40.0 million ($24.7 million
aftertax) primarily from the reduction of previously established
restructuring reserves. In 1994, the Company recorded a charge of $100.0
million ($61.7 million aftertax) to write down the asbestos insurance
asset.
(e) In 1998, the Company recorded a credit of $15.1 million to adjust net
deferred income tax liabilities as a result of a reduction in Italy's
statutory income tax rate.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Comparison of 1998 with 1997
For the year ended December 31, 1998, the Company recorded earnings before
extraordinary items of $122.1 million compared to $272.4 million for 1997.
Excluding the effects of unusual items for both 1998 and 1997 discussed below,
the Company's 1998 earnings before extraordinary items of $301.5 million
increased $36.7 million, or 13.9%, over 1997 earnings before extraordinary
items of $264.8 million.
The following table details unusual items, and related effects on consolidated
earnings before interest income, interest expense, provision for income taxes,
minority share owners' interests in earnings of subsidiaries, and
extraordinary charges ("EBIT"), and effects on earnings before extraordinary
items, recorded in 1998 and 1997:
25
<PAGE>
- -------------------------------------------------- -----------------------
1998 1997
- -------------------------------------------------- -----------------------
Earnings Earnings
before before
extraordinary extraordinary
EBIT items EBIT items
- -------------------------------------------------- -----------------------
As reported $559.8 $122.1 $731.4 $272.4
Unusual items - charges
(credits):
Adjustment of reserve
for estimated future
asbestos-related costs 250.0 154.4
Plant closing and
restructuring costs
at certain interna-
tional affiliates 72.6 47.4
Loss on sale of discon-
tinued operation by
equity investee 5.7 3.5
Net charge for settle-
ment of environmental
litigation and reduction
of previously
established reserves 0.9 0.6
Net gain on sale of
license agreement (18.5) (11.4)
Adjustment of net
deferred income tax
liabilities as a result
of a reduction in
Italy's statutory
income tax rate (15.1)
Charges principally for
guarantees of certain
lease obligations of a
previously divested
business 14.1 8.7
Gain on sale of Kimble
Glass (16.3) (16.3)
- -------------------------------------------------- -----------------------
Before unusual items $870.5 $301.5 $729.2 $264.8
================================================== =======================
The year ended 1998 includes amounts relating to the April 30, 1998,
acquisition of the worldwide glass and plastics packaging businesses of BTR
plc (see Acquisition of Worldwide Packaging Businesses of BTR plc note to the
financial statements). The year ended 1998 also includes charges which
reduced earnings before extraordinary items by $31.5 million. Such charges
relate principally to write-offs of certain assets associated with business
conditions in emerging markets.
26
<PAGE>
Consolidated EBIT for 1998, excluding the effects of unusual items, was $870.5
million, an increase of $141.3 million, or 19.4%, compared to the same period
in 1997. The increase is attributable to higher EBIT for both the Glass
Containers segment and the Plastics Packaging segment. Interest expense, net
of interest income, increased $71.7 million from the 1997 period due princi-
pally to the financings related to the acquisition of the BTR glass and
plastics packaging businesses. The increase in interest expense resulting
from the acquisition was partially offset by lower borrowing costs resulting
from the 1997 refinancing of higher cost debt, which began in May 1997. The
decrease in minority share owners' interests in earnings of subsidiaries
resulted from lower net earnings of certain foreign affiliates, principally
the affiliate located in Colombia. The Company's effective tax rate for 1998,
excluding the effects of the adjustment to Italy's net deferred tax liabili-
ties and other unusual items previously discussed, was 37.3%. This compares
with 34.1% for the full year 1997, excluding the effect of the gain on the
1997 sale of the remaining 49% interest in Kimble Glass. Increased goodwill
amortization resulting from the acquisition of the former BTR packaging
businesses and operating losses incurred at certain international affiliates
for which no related tax benefit was recorded were the primary reasons for the
increase. Net earnings of $108.0 million and $167.9 million for 1998 and
1997, respectively, reflect $14.1 million and $104.5 million, respectively, of
extraordinary charges from the early extinguishment of debt. The additional
earnings of the businesses acquired from BTR and the effect of the related
financings resulted in a dilution of $0.05 in earnings per share in 1998.
Capsule segment results (in millions of dollars) for 1998 and 1997 are as
follows (a):
- ----------------------------------------------------------------------------
Net sales to unaffiliated customers 1998 1997
- ----------------------------------------------------------------------------
Glass Containers $3,809.9 $3,528.4
Plastics Packaging 1,414.5 1,029.8
Other 81.9 100.3
- ----------------------------------------------------------------------------
Segment and consolidated net sales $5,306.3 $4,658.5
============================================================================
- ----------------------------------------------------------------------------
EBIT 1998 (b) 1997
- ----------------------------------------------------------------------------
Glass Containers $ 547.7 $ 543.2
Plastics Packaging 232.0 173.8
Other 29.1 15.1
- ----------------------------------------------------------------------------
Segment EBIT 808.8 732.1
Eliminations and other retained costs (c) (249.0) (0.7)
- ----------------------------------------------------------------------------
Consolidated EBIT $ 559.8 $ 731.4
============================================================================
(a) See Segment Information included on pages 72 - 75.
27
<PAGE>
(b) 1998 segment EBIT includes the following unusual items: (1) charges of
$72.6 million related principally to a plant closing in the United
Kingdom and restructuring costs at certain international affiliates; (2)
a loss of $5.7 million on the sale of a discontinued operation by an
equity investee; and (3) a gain of $18.5 million related to the
termination of a license agreement, net of charges for related equipment
write-offs and capacity adjustments, under which the Company had produced
plastic multipack carriers for beverage cans. These items increased
(decreased) segment EBIT as follows: Glass Containers, $(78.3) million;
Other, $18.5 million.
(c) 1998 eliminations and other retained costs includes the following unusual
items: (1) charges of $250.0 million related to adjustment of the
reserve for estimated future asbestos-related costs; and (2) net charges
of $0.9 million for the settlement of certain environmental litigation
and the reduction of previously established reserves for guarantees of
certain obligations of a previously divested business. 1997 eliminations
and other retained costs includes the following unusual items: (1) a
gain of $16.3 million on the sale of the remaining 49% interest in Kimble
Glass; and (2) charges of $14.1 million principally for guarantees of
certain lease obligations of a previously divested business.
Consolidated net sales for 1998 increased $647.8 million, or 13.9%, over the
prior year. Net sales of the Glass Containers segment increased $281.5
million, or 8.0%, from 1997. The combined U.S. dollar sales of the segment's
foreign affiliates increased over the prior year, reflecting the Asia Pacific
glass container businesses recently acquired from BTR (which contributed
approximately $362 million to 1998 U.S. dollar sales), the February 1997
acquisition of AVIR S.p.A., the largest manufacturer of glass containers in
Italy, and increased unit shipments in Poland and Venezuela, all of which were
partially offset by soft market conditions in Brazil, Colombia, and the United
Kingdom. The effect of foreign currency movements reduced 1998 U.S. dollar
sales of the segment's foreign affiliates by approximately $100 million in
comparison to 1997. Domestically, glass container unit volume nearly equaled
prior year, reflecting increased shipments of containers for the beer, tea and
juice, and liquor and wine industries, offset by lower shipments of certain
food containers. Net sales of the Plastics Packaging segment increased $384.7
million, or 37.4%, over 1997, reflecting the plastics businesses recently
acquired from BTR (which contributed approximately $372 million to 1998 U.S.
dollar sales), and increased unit shipments of closures along with plastic
containers for health care and household end uses, partially offset by the
effects of lower resin costs on pass-through arrangements with customers. The
Other segment net sales comparison to prior year was adversely affected by the
first quarter 1998 termination of a license agreement under which the Company
had produced plastic multipack carriers for beverage cans.
Segment EBIT for 1998, excluding unusual items, increased $136.5 million, or
18.6%, to $868.6 million from 1997 segment EBIT of $732.1 million. Segment
EBIT, exclusive of the 1998 unusual items, was 16.4% and 15.7% of net sales
for 1998 and 1997, respectively. Consolidated operating expense (consisting
of selling and administrative, engineering, and research and development
28
<PAGE>
expenses) as a percentage of net sales was 6.5% in 1998 compared to 6.3% in
1997. EBIT of the Glass Containers segment, excluding the 1998 unusual items,
increased $82.8 million to $626.0 million, compared to $543.2 million in 1997.
The Asia Pacific glass container businesses recently acquired from BTR
contributed approximately $91 million to 1998 U.S. dollar EBIT. Improved
results at the segment's affiliate in Italy was more than offset by soft
market conditions in the United Kingdom, Hungary, and most of the affiliates
located in Latin America. The effect of foreign currency movements reduced
1998 U.S. dollar EBIT, before unusual items, of the segment's foreign
affiliates by approximately $15 million in comparison to 1997. Domestically,
EBIT increased from 1997 as a result of an improved cost structure. The EBIT
of the Plastics Packaging segment increased $58.2 million, or 33.5%, compared
to 1997. The plastics businesses recently acquired from BTR contributed
approximately $55 million to 1998 EBIT. The Other segment EBIT, excluding the
1998 unusual items, was lower due to lower shipments of labels and carriers,
including plastic multipack carriers for beverage cans.
Eliminations and other retained costs, excluding both 1998 and 1997 unusual
items, were $1.9 million of income for 1998 compared to $2.9 million of
expense for 1997, reflecting higher net financial services income, offset by
the nonrecurrence of a reported gain on an asset sale in 1997.
In 1998, the Company recorded pretax charges of $72.6 million ($47.4 million
after tax and minority share owners' interests). Included in these charges
are employee severance costs at certain international affiliates and write-
downs of assets which will no longer be used, including the closure of a plant
in the United Kingdom. The Company expects the actions associated with these
charges to be substantially completed in the first half of 1999. Future cash
expenditures associated with these charges, principally for severance, are
expected to approximate $50 million, the most of which should occur by the
second quarter of 1999.
The 1998 results also include fourth quarter non-cash charges of $42.0 million
($31.5 million after tax and minority share owners' interests) principally for
write-offs of certain assets associated with business conditions in emerging
markets.
Because of historically high rates of inflation in Poland and Mexico, the
Company has used the U.S. dollar as the functional currency for translation of
its affiliates located in those countries. As a result of recent reductions
in the reported Polish and Mexican inflation rates, the applicable financial
accounting standards require the Company to use the Polish and Mexican
currencies as the functional currency beginning in 1999. The Company believes
this change will not have a material effect on its consolidated financial
statements.
29
<PAGE>
Comparison of 1997 with 1996
For the year ended December 31, 1997, the Company recorded earnings before
extraordinary items of $272.4 million compared to net earnings of $191.1
million for 1996. Excluding the effects of the 1997 unusual items discussed
below, the Company's 1997 earnings before extraordinary items of $264.8
million increased $73.7 million over 1996 net earnings of $191.1 million. The
year ended 1997 includes amounts relating to: (1) the acquisition of AVIR
S.p.A. ("AVIR"), the largest manufacturer of glass containers in Italy and (2)
certain assets of Anchor Glass Container Corporation acquired on February 5,
1997 ("Anchor Assets"). Consolidated EBIT, excluding the 1997 unusual items,
was $729.2 million in 1997, an increase of $124.8 million, or 20.6%, compared
to 1996. The increase reflects higher EBIT for both the Glass Containers
segment and the Plastics Packaging segment. The Company's effective tax rate,
excluding the effect of the gain on the sale of the interest in Kimble Glass
discussed below, increased to 34.1% for 1997 compared with 32.4% for 1996.
The higher statutory tax rate in Italy was the primary reason for the
increase. Net earnings of $167.9 million for 1997 reflect $104.5 million of
extraordinary charges from the early extinguishment of debt.
Capsule segment results (in millions of dollars) for 1997 and 1996 were as
follows (a):
- ----------------------------------------------------------------------------
Net sales to unaffiliated customers 1997 1996
- ----------------------------------------------------------------------------
Glass Containers $3,528.4 $2,783.3
Plastics Packaging 1,029.8 973.5
Other 100.3 88.9
- ----------------------------------------------------------------------------
Segment and consolidated net sales $4,658.5 $3,845.7
============================================================================
- ----------------------------------------------------------------------------
EBIT 1997 1996
- ----------------------------------------------------------------------------
Glass Containers $ 543.2 $ 437.0
Plastics Packaging 173.8 161.8
Other 15.1 10.5
- ----------------------------------------------------------------------------
Segment EBIT 732.1 609.3
Eliminations and other retained costs (b) (0.7) (4.9)
- ----------------------------------------------------------------------------
Consolidated EBIT $ 731.4 $ 604.4
============================================================================
(a) See Segment Information included on pages 72 - 75.
(b) 1997 eliminations and other retained costs includes the following unusual
items: (1) a gain of $16.3 million on the sale of the remaining 49%
interest in Kimble Glass; and (2) charges of $14.1 million principally
for guarantees of certain lease obligations of a previously divested
business.
30
<PAGE>
Consolidated net sales for 1997 increased $812.8 million, or 21.1%, over the
prior year. Net sales of the Glass Containers segment increased $745.1
million, or 26.8%, over 1996. The combined U.S. dollar sales of the segment's
foreign affiliates increased over the prior year, reflecting the recent
acquisition of AVIR (which contributed approximately $524 million to 1997 U.S.
dollar sales), improved pricing in Venezuela and increased unit shipments at
several other affiliates, particularly in Colombia and the United Kingdom.
Domestically, glass container unit shipments increased over prior year,
reflecting additional business gained through the acquisition of the Anchor
Assets and increased shipments in most end uses. Net sales of the Plastics
Packaging segment increased $56.3 million, or 5.8%, over 1996. Increased
shipments of plastic containers for personal care items such as hair care,
skin care, and body wash products, along with increased demand for
prescription containers, contributed to the increase.
Segment EBIT for 1997 increased $122.8 million, or 20.2%, to $732.1 million
from 1996 segment EBIT of $609.3 million. Segment EBIT was 15.7% and 15.8% of
net sales for 1997 and 1996, respectively. Consolidated operating expense as
a percentage of net sales was 6.3% in 1997 compared to 6.4% in 1996. EBIT of
the Glass Containers segment increased $106.2 million to $543.2 million,
compared to $437.0 million in 1996. The combined U.S. dollar EBIT of the
segment's foreign affiliates increased from 1996. AVIR contributed approxi-
mately $73 million to 1997 U.S. dollar EBIT. Improved results at the
segment's affiliates in Venezuela, Colombia, and the United Kingdom more than
offset the effects of reduced export shipments from Hungary and soft market
conditions in Brazil. Domestically, EBIT of the Glass Containers segment
increased from 1996. EBIT for 1997 benefitted from increased sales volume in
most end uses, along with the incremental business gained through the
acquisition of the Anchor Assets. The EBIT of the Plastics Packaging segment
increased $12.0 million, or 7.4%, compared to 1996. The increase resulted
from improved manufacturing performance and increased unit shipments in most
businesses, particularly plastic containers for personal care items. The
Other segment EBIT increased due to an improved cost structure in the labels
and carriers products business unit. Eliminations and other retained costs,
excluding the 1997 unusual items discussed below, were $2.9 million for 1997
compared to $4.9 million for 1996, reflecting higher net financial services
income.
The 1997 results include the following unusual items: (1) a gain of $16.3
million ($16.3 million aftertax) on the sale of the Company's remaining 49%
interest in Kimble Glass; and (2) charges of $14.1 million ($8.7 million
aftertax) principally for guarantees of certain lease obligations of a
previously divested business.
31
<PAGE>
Capital Resources and Liquidity
The Company's total debt at December 31, 1998 was $5.92 billion, compared to
$3.32 billion at December 31, 1997.
At December 31, 1998, the Company had available credit totaling $4.5 billion
under its agreement with a group of banks ("Bank Credit Agreement") expiring
in December 2001, of which $731.0 million had not been utilized. At December
31, 1997, total commitments under the Company's previous credit facility were
$3.0 billion of which $741.0 million had not been utilized. The increased
commitment, utilization and corresponding higher debt balances at December 31,
1998 resulted in large part from borrowings for the acquisition of the
worldwide glass and plastics packaging businesses of BTR plc. Cash provided
by operating activities was $647.3 million in 1998 compared to $445.2 million
in 1997.
The Company anticipates that cash flow from its operations and from utiliza-
tion of credit available through December 2001 under the Bank Credit Agreement
will be sufficient to fund its operating and seasonal working capital needs,
debt service and other obligations. The Company also plans to use the
proceeds received from the sale of Rockware Glass to reduce amounts outstand-
ing under the Bank Credit Agreement. The Company faces additional demands
upon its liquidity for asbestos-related payments. Based on the Company's
expectations regarding favorable trends which should lower its aggregate
payments for lawsuits and claims and its expectation of the collection of its
insurance coverage and reimbursement for such lawsuits and claims, and also
based on the Company's expected operating cash flow, the Company believes that
the payment of any deferred amounts of previously settled or otherwise
determined lawsuits and claims, and the resolution of presently pending and
anticipated future lawsuits and claims associated with asbestos, will not have
a material adverse effect upon the Company's liquidity on a short-term or
long-term basis.
Excess of Purchase Cost over Net Assets Acquired
The excess of purchase cost over net assets acquired, net of accumulated
amortization ("goodwill") was $3.31 billion and $1.29 billion at December 31,
1998 and 1997, respectively. This represents 30% and 19% of total assets, and
134% and 96% of share owners' equity at December 31, 1998 and 1997, respec-
tively. Goodwill represents the excess of purchase price and related costs
over the fair values assigned to the net tangible and identifiable intangible
assets of businesses acquired, and is amortized over 40 years. In assigning a
benefit period to goodwill, the Company considers regulatory provisions, the
technological environment in which the acquired company operates, including
barriers to new competing entities, the maturity of the products manufactured
by the businesses acquired, and the effects of obsolescence, demand,
competition and other economic factors. The Company has determined that no
events or circumstances occurred in 1998 to warrant revised estimates of the
goodwill benefit period.
32
<PAGE>
Year 2000
General
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations or a temporary inability to engage in normal
business activities. The Company uses a significant number of computer
software programs and operating systems across its entire organization,
including applications used in financial business systems, manufacturing, and
various administrative functions. To the extent that the Company's software
applications contain source code that is unable to appropriately interpret the
upcoming calendar year 2000 and beyond, modification, replacement, or retire-
ment of such applications will be necessary. The Company has determined that
it will be required to modify or replace portions of its software and hardware
so that the affected systems will properly utilize dates beyond December 31,
1999.
Project
The Company has undertaken a Year 2000 Project (the "Project") to identify and
mitigate Year 2000 compliance issues in its critical information technology
("IT") and non-IT systems. Such systems include manufacturing information
systems, process control and embedded systems, business applications, and
information technology infrastructure. The general phases of the Project are:
(1) inventorying/identification of Year 2000 items and issues; (2) assessment
and solution definition; (3) remediation/conversion of Year 2000 items and
issues identified; (4) acceptance testing; and (5) implementation. The
results of the assessment and solution definition phase to date has indicated
that certain of the Company's significant systems are not Year 2000 compliant.
The results have also indicated that certain software and hardware (embedded
chips) used in building and machine maintenance, production, and manufacturing
systems also are at risk.
The Company is nearing completion of the inventorying/identification and the
assessment and solution definition phases of the Project. Activities
involving the remaining phases of remediation/conversion, acceptance testing,
and implementation are ongoing and will continue into the second half of
calendar year 1999. The Company expects to have its critical IT and non-IT
systems Year 2000 compliant by September 1999.
The Company relies on numerous third-party vendors and suppliers for a wide
variety of goods and services, including raw materials, transportation, and
utilities such as electricity and natural gas. The Project includes identify-
ing and prioritizing critical suppliers and customers and communicating with
them about their plans and progress in addressing Year 2000 compliance issues.
Information requests have been distributed and replies are being evaluated.
The replies received to date indicate that most suppliers, vendors and
customers will not provide any assurance that they will be Year 2000 compli-
33
<PAGE>
ant. The process of evaluating the Company's critical suppliers is ongoing
and scheduled for completion by September 1999. The Company cannot be certain
when or if suppliers and customers will be Year 2000 compliant. Although it
is not presently expected, the inability of customers and suppliers to
complete their Year 2000 compliance efforts in a timely fashion could
materially impact the Company.
Costs
The Company is utilizing both internal and external resources to reprogram or
replace, test, and implement the software and equipment for Year 2000 modifi-
cations. The total cost associated with the Project, including certain
previously scheduled replacements of software and equipment which have been
accelerated due to Year 2000 issues, is estimated to be approximately $50
million and is being funded through operating cash flows. The majority of
these costs are attributable to the purchase of new software and operating
equipment, and will therefore, be capitalized. To date, the Company has
incurred approximately $24 million related to all phases of the Project.
Risks
The Project undertaken by the Company is expected to significantly reduce the
Company's level of uncertainty about Year 2000 compliance issues. As
previously noted, the Company has not yet completed all necessary phases of
the Project. The failure to correct a Year 2000 compliance issue could result
in an interruption in, or a failure of, certain normal business activities or
operations. Although it is not presently expected, such failures could
materially and adversely affect the Company's results of operations,
liquidity, and financial condition. Due to the general uncertainty inherent
in Year 2000 compliance issues, resulting in part from the uncertainty of Year
2000 readiness of third-party suppliers and customers, the Company is unable
to determine at this time the consequences of Year 2000 failures on the
Company's results of operations, liquidity, or financial condition.
Contingency Plans
The Company is developing contingency plans for certain of its applications.
Those contingency plans involve, among other actions, manual workarounds,
increasing inventories, adjusting staffing strategies, and planned shutdowns
of non-critical equipment prior to January 1, 2000. Actions related to the
development of contingency plans have not been completed as the necessity of
such contingency plans depend upon the progress of Year 2000 compliance
efforts.
The foregoing statements as to costs and dates relating to the Project are
forward looking and are made in reliance on the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. They are based on the
Company's best estimates which may be updated as additional information
becomes available. The Company's forward looking statements are also based on
assumptions about many important factors, including the availability of
certain resources, the technical skills of employees and independent
contractors, the representations and preparedness of third parties, the
34
<PAGE>
ability of vendors and suppliers to deliver goods or perform services required
by the Company and the collateral effects of Year 2000 compliance issues on
the Company's business partners and customers. While the Company believes its
assumptions are reasonable, it cautions that it is impossible to predict the
impact of certain factors that could cause actual costs or timetables to
differ materially from the expected results. No assurance can be given that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the Project.
Introduction of Euro Currency
On January 1, 1999, a new currency called the "euro" was introduced in eleven
of the fifteen Economic and Monetary Union ("EMU") countries. The
participating EMU member countries have established fixed conversion rates
between their legacy currencies and the euro. The participating countries no
longer control their own monetary policies by directing independent interest
rates for the legacy currencies. Instead, monetary policy, including money
supply and official interest rates for the euro, are being directed by the new
European Central Bank. The legacy currencies in the participating countries
will continue to be used as legal tender through January 1, 2002. Thereafter,
the legacy currencies will be canceled and euro bills and coins will be used
for cash transactions in the participating countries. The Company has
affiliates located in the following countries which participated in the euro
introduction: Finland, Italy, the Netherlands, and Spain. In addition, the
Company transacts business in other countries in which the euro has been
introduced. The Company has initiated an assessment of the potential impact
that the euro introduction will have on its information systems, financial
reporting, banking facilities, purchases and the sale of its products. Based
upon the assessment to date, the Company does not believe the conversion to
the euro and the cost of implementing required system changes will be material
to the Company's consolidated financial statements.
35
<PAGE>
ITEM 7.(a). QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from
fluctuations in foreign currency exchange rates and changes in interest rates.
The Company is not a party to any material derivative financial instruments.
Foreign Currency Exchange Rate Risk
An increasing portion of the Company's operations consists of manufacturing
and sales activities conducted by affiliates in foreign jurisdictions. The
primary foreign markets served by the Company's affiliates are in Australia,
Latin America (principally Colombia, Brazil and Venezuela), and Europe
(principally Italy, the United Kingdom, and Poland). In general, revenues
earned and costs incurred by the Company's major foreign affiliates are
denominated in their respective local currencies. Consequently, the Company's
reported financial results could be affected by factors such as changes in
foreign currency exchange rates or highly inflationary economic conditions in
the foreign markets in which the Company's affiliates operate. When the U.S.
dollar strengthens against foreign currencies, the reported dollar value of
local currency EBIT generally decreases; when the U.S. dollar weakens against
foreign currencies, the reported U.S. dollar value of local currency EBIT
generally increases.
Subject to other business and tax considerations, the Company's strategy is to
mitigate the economic effects of currency exchange rate fluctuations on that
portion of foreign currency EBIT which is expected to be invested elsewhere or
remitted to the parent company. The Company's foreign affiliates generally
invest their excess funds in U.S. dollars or dollar-based instruments, where
such instruments are available with acceptable interest rates and terms. In
those countries where the local currency is the designated functional
currency, however, this strategy exposes the Company to reported losses or
gains in the event the foreign currency strengthens or weakens against the
U.S. dollar. The Company believes that the benefit of investing excess cash
in U.S. dollars or their equivalent outweighs the risk of reporting losses or
gains from currency exchange rate fluctuations. In those countries with
hyper-inflationary economies, where the U.S. dollar is the designated
functional currency, this investment strategy for excess funds mitigates the
risk of reported losses or gains.
Because most of the Company's foreign affiliates operate within their local
economic environment, the Company believes it is appropriate to finance those
operations with local currency borrowings to the extent practicable. Consid-
erations which influence the amount of such borrowings include long- and
short-term business plans, tax implications, and the availability of borrow-
ings with acceptable interest rates and terms. In those countries where the
local currency is the designated functional currency, this strategy mitigates
the risk of reported losses or gains in the event the foreign currency
strengthens or weakens against the U.S. dollar. In those countries where the
U.S. dollar is the designated functional currency, however, local currency
borrowings expose the Company to reported losses or gains in the event the
foreign currency strengthens or weakens against the U.S. dollar.
36
<PAGE>
The Company's Bank Credit Agreement provides for a $1.75 billion loan
revolving facility which is available to certain of the Company's foreign
subsidiaries and denominated in certain foreign currencies. As of December
31, 1998, amounts outstanding under the offshore loan revolving facility were
as follows:
Millions of
Foreign Currency Amount U.S. Dollars
------------------------------- ------------
1.39 billion Australian dollars $ 874.0
333.0 million British pounds 549.8
129.0 billion Italian lire 77.0
--------
$1,500.8
========
The remaining portion of the Company's consolidated debt which was denominated
in foreign currencies was not significant.
The Company believes it does not have material foreign currency exchange rate
risk related to the financial instruments (i.e. cash, short-term investments,
and long-term debt) of its foreign affiliates.
Interest Rate Risk
The Company's interest expense is most sensitive to changes in the general
level of U.S. interest rates applicable to its U.S. dollar indebtedness. To
mitigate the impact of fluctuations in variable interest rates, the Company
could, at its option, convert to fixed interest rates by either refinancing
variable rate debt with fixed rate debt or entering into interest rate swaps.
37
<PAGE>
The following table provides information about the Company's significant
interest rate risk at December 31, 1998:
- ----------------------------------------------------------------------------
Outstanding Fair Value
- ----------------------------------------------------------------------------
(Millions of dollars)
Variable rate debt:
Bank Credit Agreement, matures December 2001:
Revolving Loans and Bid Rate Loans bear
interest at a Eurodollar based rate
plus .50% $2,207.0 $2,207.0
Offshore Loans bear interest at the
applicable Offshore Base Rate (as defined
in the Bank Credit Agreement) as follows:
1.39 billion Australian dollars -- 5.61% $ 874.0 $ 874.0
333.0 million British pounds -- 7.45% $ 549.8 $ 549.8
129.0 billion Italian lira -- 4.69% $ 77.0 $ 77.0
Fixed rate debt:
Senior Notes:
Due May 2004, interest at 7.85% $ 300.0 $ 311.6
Due May 2005, interest at 7.15% $ 350.0 $ 352.6
Due May 2007, interest at 8.10% $ 300.0 $ 315.8
Due May 2008, interest at 7.35% $ 250.0 $ 255.3
Senior Debentures:
Due May 2010, interest at 7.50% $ 250.0 $ 254.4
Due May 2018, interest at 7.80% $ 250.0 $ 248.8
- ----------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain forward looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
projected. Forward looking statements are necessarily projections which are
subject to change upon the occurrence of events that may affect the business.
In addition, acquisitions involve a number of risks that can cause actual
results to be materially different from expected results.
38
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Auditors 40
Consolidated Balance Sheets at December 31, 1998 and 1997 42-43
For the years ended December 31, 1998, 1997, and 1996:
Consolidated Results of Operations 41
Consolidated Share Owners' Equity 44-45
Consolidated Cash Flows 46
Statement of Significant Accounting Policies 47-48
Financial Review 49-75
Selected Quarterly Financial Data 76-79
39
<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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, 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, 1999
40
<PAGE>
===========================================================================
CONSOLIDATED RESULTS OF OPERATIONS Owens-Illinois, Inc.
Millions of dollars, except per share amounts
Years ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------
Revenues:
Net sales $5,306.3 $4,658.5 $3,845.7
Royalties and net technical assistance 26.6 21.6 23.6
Equity earnings 16.0 17.9 15.2
Interest 29.2 23.6 22.3
Other 121.2 106.8 69.4
- ---------------------------------------------------------------------------
5,499.3 4,828.4 3,976.2
Costs and expenses:
Manufacturing, shipping, and delivery 4,075.6 3,666.4 3,025.6
Research and development 36.4 28.9 31.1
Engineering 34.8 29.9 25.6
Selling and administrative 274.2 232.8 188.6
Interest 380.0 302.7 302.6
Other 489.3 115.4 78.6
- ---------------------------------------------------------------------------
5,290.3 4,376.1 3,652.1
- ---------------------------------------------------------------------------
Earnings before items below 209.0 452.3 324.1
Provision for income taxes 66.7 148.5 104.9
- ---------------------------------------------------------------------------
142.3 303.8 219.2
Minority share owners' interests
in earnings of subsidiaries 20.2 31.4 28.1
- ---------------------------------------------------------------------------
Earnings before extraordinary items 122.1 272.4 191.1
Extraordinary charges from early
extinguishment of debt, net of
applicable income taxes (14.1) (104.5)
- ---------------------------------------------------------------------------
Net earnings $ 108.0 $ 167.9 $ 191.1
===========================================================================
Basic earnings per share of common stock:
Earnings before extraordinary items $ 0.71 $ 2.03 $ 1.58
Extraordinary charges (0.09) (0.78)
- ---------------------------------------------------------------------------
Net earnings $ 0.62 $ 1.25 $ 1.58
===========================================================================
Diluted earnings per share of common stock:
Earnings before extraordinary items $ 0.71 $ 2.01 $ 1.55
Extraordinary charges (0.09) (0.77)
- ---------------------------------------------------------------------------
Net earnings $ 0.62 $ 1.24 $ 1.55
===========================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
41
<PAGE>
=============================================================================
CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc.
Millions of dollars, except share amounts
December 31, 1998 1997
- -----------------------------------------------------------------------------
Assets
Current assets:
Cash, including time deposits of $95.1
($101.6 in 1997) $ 271.4 $ 218.2
Short-term investments 21.1 16.1
Receivables, less allowances of $56.9
($52.9 in 1997) for losses and discounts 877.7 681.6
Inventories 838.1 592.4
Prepaid expenses 168.8 140.0
- -----------------------------------------------------------------------------
Total current assets 2,177.1 1,648.3
Other assets:
Equity investments 195.3 87.7
Repair parts inventories 254.2 227.2
Prepaid pension 686.1 647.9
Insurance receivable for asbestos-related costs 212.8 239.3
Deposits, receivables, and other assets 383.7 294.4
Net assets held for sale 409.6
Excess of purchase cost over net assets
acquired, net of accumulated amortization
of $405.3 ($328.3 in 1997) 3,314.9 1,294.9
- -----------------------------------------------------------------------------
Total other assets 5,456.6 2,791.4
Property, plant, and equipment:
Land, at cost 169.1 143.0
Buildings and equipment, at cost:
Buildings and building equipment 835.2 631.7
Factory machinery and equipment 3,960.4 2,964.0
Transportation, office, and miscellaneous equipment 138.1 91.9
Construction in progress 291.3 274.5
- -----------------------------------------------------------------------------
5,394.1 4,105.1
Less accumulated depreciation 1,967.1 1,699.7
- -----------------------------------------------------------------------------
Net property, plant, and equipment 3,427.0 2,405.4
- -----------------------------------------------------------------------------
Total assets $11,060.7 $6,845.1
=============================================================================
42
<PAGE>
=============================================================================
CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc. (continued)
Millions of dollars, except share amounts
December 31, 1998 1997
- -----------------------------------------------------------------------------
Liabilities and Share Owners' Equity
Current liabilities:
Short-term loans $ 158.3 $ 106.8
Accounts payable 534.9 452.3
Salaries and wages 92.9 86.0
U.S. and foreign income taxes 30.9 4.8
Current portion of asbestos-related liabilities 85.0 85.0
Other accrued liabilities 333.9 238.8
Long-term debt due within one year 91.2 70.1
- -----------------------------------------------------------------------------
Total current liabilities 1,327.1 1,043.8
Long-term debt 5,667.2 3,146.7
Deferred taxes 325.0 229.2
Nonpension postretirement benefits 338.4 354.8
Other liabilities 690.4 482.2
Commitments and contingencies
Minority share owners' interests 240.6 246.5
Share owners' equity:
Convertible preferred stock, par value $.01 per
share, liquidation preference $50 per share,
9,050,000 shares authorized, issued and
outstanding 452.5
Exchangeable preferred stock 18.3 20.4
Common stock, par value $.01 per share, 250,000,000
shares authorized, 155,450,173 shares outstanding
(140,526,195 in 1997) 1.5 1.4
Capital in excess of par value 2,183.1 1,558.4
Retained earnings (deficit) 7.3 (90.3)
Accumulated other comprehensive income (190.7) (148.0)
- -----------------------------------------------------------------------------
Total share owners' equity 2,472.0 1,341.9
- -----------------------------------------------------------------------------
Total liabilities and share owners' equity $11,060.7 $6,845.1
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
43
<PAGE>
=============================================================================
CONSOLIDATED SHARE OWNERS' EQUITY Owens-Illinois, Inc.
Millions of dollars
Years ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------
Convertible preferred stock
Balance at beginning of year
Issuance of convertible preferred stock $ 452.5
- -----------------------------------------------------------------------------
Balance at end of year 452.5
=============================================================================
Exchangeable preferred stock
Balance at beginning of year 20.4 $ 21.4 $ 21.9
Exchange of preferred stock
for common stock (2.1) (1.0) (.5)
- -----------------------------------------------------------------------------
Balance at end of year 18.3 20.4 21.4
=============================================================================
Common stock
Balance at beginning of year 1.4 1.2 1.2
Issuance of common stock .1 .2
Exchange of preferred stock
for common stock
- -----------------------------------------------------------------------------
Balance at end of year 1.5 1.4 1.2
=============================================================================
Capital in excess of par value
Balance at beginning of year 1,558.4 1,047.6 1,042.8
Issuance of common stock 622.6 509.8 4.3
Exchange of preferred stock
for common stock 2.1 1.0 .5
- -----------------------------------------------------------------------------
Balance at end of year 2,183.1 1,558.4 1,047.6
=============================================================================
Retained earnings (deficit)
Balance at beginning of year (90.3) (258.2) (449.3)
Cash dividends on convertible
preferred stock -- $1.15 per share (10.4)
Net earnings 108.0 167.9 191.1
- -----------------------------------------------------------------------------
Balance at end of year 7.3 (90.3) (258.2)
=============================================================================
Accumulated other comprehensive income
Balance at beginning of year (148.0) (82.3) (84.7)
Foreign currency translation adjustments (42.7) (65.7) 2.4
- -----------------------------------------------------------------------------
Balance at end of year (190.7) (148.0) (82.3)
=============================================================================
Total share owners' equity $2,472.0 $1,341.9 $ 729.7
=============================================================================
44
<PAGE>
=============================================================================
CONSOLIDATED SHARE OWNERS' EQUITY Owens-Illinois, Inc. (continued)
Millions of dollars
Years ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------
Total comprehensive income
Net earnings $ 108.0 $ 167.9 $ 191.1
Foreign currency translation adjustments (42.7) (65.7) 2.4
- -----------------------------------------------------------------------------
Total $ 65.3 $ 102.2 $ 193.5
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
45
<PAGE>
=============================================================================
CONSOLIDATED CASH FLOWS Owens-Illinois, Inc.
Millions of dollars
Years ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------
Operating activities:
Earnings before extraordinary items $ 122.1 $ 272.4 $ 191.1
Non-cash charges (credits):
Depreciation 358.5 283.5 219.8
Amortization of deferred costs 105.4 60.0 51.8
Deferred tax provision (17.4) 83.9 77.5
Future asbestos related costs 250.0
Plant closing and restructuring costs 72.6
Write-offs of certain assets 42.0
Other (38.3) (30.1) (7.6)
Change in non-current operating assets (36.9) (51.8) (68.2)
Asbestos-related payments (96.1) (104.1) (132.2)
Asbestos-related insurance proceeds 26.5 32.1 52.1
Reduction of non-current liabilities (5.0) (8.9) (9.3)
Change in components of working capital (136.1) (91.8) (57.2)
- -----------------------------------------------------------------------------
Cash provided by operating activities 647.3 445.2 317.8
Investing activities:
Additions to property, plant and equipment (573.5) (471.3) (388.4)
Acquisitions, net of cash acquired (3,700.2) (137.1) (442.9)
Net cash proceeds from divestitures and other 41.1 57.4 9.2
- -----------------------------------------------------------------------------
Cash utilized in investing activities (4,232.6) (551.0) (822.1)
Financing activities:
Additions to long-term debt 5,232.5 1,954.1 618.7
Repayments of long-term debt (2,659.8) (2,106.4) (118.7)
Increase (decrease) in short-term loans 61.3 (4.5) 53.6
Issuance of common stock 641.1 503.8 4.3
Issuance of convertible preferred stock 439.6
Payment of finance fees and debt retirement
costs (61.7) (164.7) (2.9)
Other (10.4) 8.5
- -----------------------------------------------------------------------------
Cash provided by financing activities 3,642.6 182.3 563.5
Effect of exchange rate fluctuations on cash (4.1) (19.2) (7.7)
- -----------------------------------------------------------------------------
Increase in cash 53.2 57.3 51.5
Cash at beginning of year 218.2 160.9 109.4
- -----------------------------------------------------------------------------
Cash at end of year $ 271.4 $ 218.2 $ 160.9
=============================================================================
See accompanying Statement of Significant Accounting Policies and Financial
Review.
46
<PAGE>
==============================================================================
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
Basis of Consolidated Statements. The consolidated financial statements of
Owens-Illinois, Inc. ("Company") include the accounts of its subsidiaries.
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 product segments.
The Company's principal product lines in the Glass Containers product segment
are glass containers for the food and beverage industries. Sales of the Glass
Containers product segment were 72% of the Company's 1998 consolidated sales.
The Company has glass container operations located in 20 countries, while the
plastics packaging products operations are located in 11 countries. The
principal markets and operations for the Company's glass products are in the
United States, Europe, Latin America, and Australia. The Company's principal
product lines in the Plastics Packaging product segment include plastic
containers, plastic closures, and plastic prescription containers. Major
markets for the Company's plastics packaging 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 69.
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
for the Company's significant fixed rate debt obligations are generally based
on published market quotations. The Company is not a party to any material
derivative financial instruments.
47
<PAGE>
Inventory Valuation. The Company values most domestic inventories at the
lower of last-in, first-out (LIFO) cost or market. 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 affiliates which are located in Venezuela, Poland and
Mexico 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.
As a result of recent reductions in the reported Polish and Mexican inflation
rates, beginning in 1999 the Company's Polish and Mexican affiliates will no
longer be considered to operate in "highly inflationary" economies. The
Company believes this change will not have a material effect on its
consolidated financial statements.
48
<PAGE>
==============================================================================
FINANCIAL REVIEW
Tabular data in millions of dollars, except share and per share amounts
- ------------------------------------------------------------------------------
Earnings Per Share. The following table sets forth the computation of basic
and diluted earnings per share:
- ---------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------
Numerator:
Earnings before extraordinary
items $122.1 $272.4 $191.1
Preferred stock dividends:
Convertible (13.1)
Exchangeable (1.4) (1.5) (1.5)
- ---------------------------------------------------------------------------
(14.5) (1.5) (1.5)
Numerator for basic earnings per
share - income available to common
share owners 107.6 270.9 189.6
Effect of dilutive securities -
preferred stock dividends 1.5 1.5
- ---------------------------------------------------------------------------
Numerator for diluted earnings per
share - income available to common
share owners after assumed
exchanges of preferred stock
for common stock $107.6 $272.4 $191.1
===========================================================================
Denominator:
Denominator for basic earnings per
share - weighted average
shares outstanding 149,970,468 133,596,755 120,276,223
Effect of dilutive securities:
Stock options 973,096 1,131,911 1,608,327
Exchangeable preferred stock 947,437 1,681,981
- ---------------------------------------------------------------------------
Dilutive potential common shares 973,096 2,079,348 3,290,308
- ---------------------------------------------------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
exchanges of preferred stock
for common stock 150,943,564 135,676,103 123,566,531
===========================================================================
Basic earnings per share $0.71 $2.03 $1.58
===========================================================================
Diluted earnings per share $0.71 $2.01 $1.55
===========================================================================
See "Convertible Preferred Stock" and "Exchangeable Preferred Stock" footnotes
on pages 61-62 for additional information.
49
<PAGE>
The Exchangeable preferred stock and the Convertible preferred stock were not
included in the computation of 1998 diluted earnings per share since the
result would have been antidilutive. Options to purchase 1,160,667, 11,429,
and 146,975, weighted average shares of common stock which were outstanding
during 1998, 1997, and 1996, respectively, were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.
Earnings per share are computed independently for each period presented. Due
primarily to the issuance of 14,479,522 shares and 16,936,100 shares of common
stock in the second quarters of 1998 and 1997, respectively, the second
quarter of 1998 issuance of convertible preferred stock, which is convertible
into 8,589,355 shares of common stock, and the resultant effect of all these
changes on average shares, per share amounts calculated on a year-to-date
basis may not equal the sums of such amounts calculated separately for each
quarter.
Acquisition of Worldwide Packaging Businesses of BTR plc. On April 30, 1998,
the Company completed the acquisition of the worldwide glass and plastics
packaging businesses of BTR plc in an all cash transaction valued at
approximately $3.6 billion (the "Acquisition"). In the Acquisition, the
Company acquired BTR's glass container operations in the Asia Pacific region
(i.e. Australia, New Zealand, China and Indonesia) and its plastics packaging
operations in the United States, South America, Australia, Europe and Asia
("BTR Packaging"), as well as BTR's United Kingdom glass container
manufacturer ("Rockware"). Pursuant to an agreement with the Commission of
the European Communities, the Company has committed to sell Rockware (the
"Rockware Sale"). The Acquisition was initially financed through additional
borrowings under the Company's Second Amended and Restated Credit Agreement
(see "Long-Term Debt" note), which was amended on April 30, 1998, to provide,
among other things, additional borrowing capacity for the Acquisition. On May
20, 1998, the $2.2 billion of proceeds received from the offerings of the
Company's common stock, convertible preferred stock, and debt securities were
used to repay a portion of the Term Loan outstanding under the Second Amended
and Restated Credit Agreement (see "Long-Term Debt" note).
The Acquisition is being accounted for under the purchase method of
accounting. The total purchase cost of approximately $3.6 billion will be
allocated to the tangible and identifiable intangible assets and liabilities
based upon their respective fair values. Such allocations will be based upon
valuations which have not been finalized. Accordingly, the allocation of the
purchase consideration included in the accompanying Consolidated Balance Sheet
at December 31, 1998, is preliminary. The accompanying Consolidated Results
of Operations for the year ended December 31, 1998, includes eight months of
BTR Packaging operations.
50
<PAGE>
The aggregate purchase cost and its preliminary allocation to the historical
assets and liabilities of BTR Packaging and Rockware are as follows (in
millions of dollars):
Net working capital acquired $ 215
Property, plant and equipment 857
Net assets held for sale 405
Other non-current assets 192
Excess of purchase cost over net assets acquired 2,098
------
3,767
Long-term liabilities (167)
------
Aggregate purchase cost $3,600
======
Pro Forma Information - Acquisition of BTR Packaging (unaudited). Had the
acquisition of BTR Packaging and the related financing, including the public
offerings described in the "Long-Term Debt" note, occurred on January 1, 1998
and 1997, unaudited pro forma consolidated net sales, net earnings, and net
earnings per share of common stock would have been as follows:
Year ended December 31, 1998
----------------------------------------------------
As BTR Packaging Financing Pro Forma
Reported Adjustments Adjustments As Adjusted
-------- ------------- ----------- -----------
Net sales $5,306.3 $ 384.1 $5,690.4
======== ========
Net earnings $122.1 $ 31.9 $(33.2) $120.8
====== ======
Basic net earnings per
share of common stock $0.71 $0.63
===== =====
Basic weighted average
shares outstanding
(thousands) 149,970 155,286
Diluted net earnings per
share of common stock $0.71 $0.63
===== =====
Diluted weighted average
shares (thousands) 150,944 156,259
51
<PAGE>
Year ended December 31, 1997
----------------------------------------------------
As BTR Packaging Financing Pro Forma
Reported Adjustments Adjustments As Adjusted
-------- ------------- ----------- -----------
Net sales $4,658.5 $1,217.2 $5,875.7
======== ========
Net earnings $272.4 $ 134.4 $(103.0) $303.8
====== ======
Basic net earnings per
share of common stock $2.03 $1.90
===== =====
Basic weighted average
shares outstanding
(thousands) 133,597 148,077
Diluted net earnings per
share of common stock $2.01 $1.88
===== =====
Diluted weighted average
shares (thousands) 135,676 150,156
Shares of common stock issuable upon conversion of the convertible preferred
stock in the pro forma periods were not included in the computation of pro
forma diluted earnings per share because the effect would be antidilutive.
The pro forma data does not purport to represent what the results of
operations would actually have been if the Acquisition and the related
financing had in fact occurred on the dates indicated, or to project results
of operations for any future period.
Net Assets Held For Sale. In connection with the Acquisition, the Company has
committed to sell Rockware. On March 15, 1999, the Company announced that it
agreed to sell Rockware to a subsidiary of Ardagh plc, the Irish glass
container manufacturer based in Dublin, Ireland, for total consideration of
240 million British pounds sterling (approximately $390 million). The
transaction is subject to certain conditions and is expected to close by March
31, 1999. The accompanying Consolidated Results of Operations for the year
ended December 31, 1998, exclude Rockware and related financing costs.
Proceeds from the Rockware Sale will be used to reduce long-term debt. The
carrying value at December 31, 1998 is based upon estimated future cash flows
associated with the assets.
52
<PAGE>
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:
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Decrease (increase) in current assets:
Short-term investments $ (6.4) $ 1.1 $ 36.7
Receivables (18.2) (76.2) (60.8)
Inventories (69.7) 17.9 10.9
Prepaid expenses (29.8) (.2) 1.2
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities (37.8) (19.7) (19.7)
Salaries and wages 7.5 (4.1) (5.8)
U.S. and foreign income taxes 18.3 (10.6) (19.7)
- ----------------------------------------------------------------------------
$(136.1) $(91.8) $(57.2)
============================================================================
Inventories. Major classes of inventory are as follows:
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
Finished goods $608.9 $447.3
Work in process 35.0 9.4
Raw materials 123.6 92.5
Operating supplies 70.6 43.2
- ----------------------------------------------------------------------------
$838.1 $592.4
============================================================================
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 $6.1 million and $21.6 million at
December 31, 1998 and 1997, respectively.
Inventories which are valued at the lower of standard costs (which approximate
average costs), average costs, or market at December 31, 1998 and 1997 were
approximately $506.4 million and $313.0 million, respectively.
53
<PAGE>
Investments. Investments and advances relate principally to equity
associates. Summarized information pertaining to the Company's equity
associates follows:
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
At end of year:
Equity in undistributed earnings:
Foreign $ 80.6 $ 75.8
Domestic 8.4 2.9
- ----------------------------------------------------------------------------
Total $ 89.0 $ 78.7
============================================================================
Equity in cumulative translation adjustment $(35.5) $(28.5)
============================================================================
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
For the year:
Equity in earnings:
Foreign $ 6.9 $15.1 $12.7
Domestic 9.1 2.8 2.5
- ----------------------------------------------------------------------------
Total $16.0 $17.9 $15.2
============================================================================
Dividends received $ 6.6 $ 4.8 $ 2.7
============================================================================
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 $170 million at
December 31, 1998.
54
<PAGE>
Long-Term Debt. The following table summarizes the long-term debt of the
Company at December 31, 1998 and 1997:
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Bank Credit Agreement:
Revolving Credit Facility:
Revolving Loans $2,207.0 $2,125.0
Offshore Loans:
1.39 billion Australian dollars 874.0
333.0 million British pounds 549.8
129.0 billion Italian lira 77.0
Bid Rate Loans 50.0
Senior Notes:
7.85%, due 2004 300.0 300.0
7.15%, due 2005 350.0
8.10%, due 2007 300.0 300.0
7.35%, due 2008 250.0
Senior Debentures:
7.50%, due 2010 250.0
7.80%, due 2018 250.0
Other 350.6 441.8
- -----------------------------------------------------------------------------
5,758.4 3,216.8
Less amounts due within one year 91.2 70.1
- -----------------------------------------------------------------------------
Long-term debt $5,667.2 $3,146.7
=============================================================================
On April 30, 1998, in connection with the Acquisition, the Company amended its
former bank credit agreement by entering into a Second Amended and Restated
Credit Agreement (the "Bank Credit Agreement" or "Agreement") with a group of
banks which expires on December 31, 2001. The Agreement provides up to $7.0
billion in credit facilities and consists of (i) a $2.5 billion term loan to
the Company (the "Term Loan") (see below for a discussion of the repayment of
the Term Loan) and (ii) a $4.5 billion revolving credit facility (the
"Revolving Credit Facility") available to the Company, which includes a $1.75
billion fronted offshore loan revolving facility (the "Offshore Facility")
denominated in certain foreign currencies, subject to certain sublimits,
available to certain of the Company's foreign subsidiaries. The Agreement
includes an Overdraft Account facility providing for aggregate borrowings up
to $100 million which reduce the amount available for borrowing under the
Revolving Credit Facility. In addition, the terms of the Bank Credit
Agreement permit the Company to request Bid Rate Loans from banks
participating in the Agreement. Borrowings outstanding under Bid Rate Loans
are limited to $750 million and reduce the amount available for borrowing
under the Revolving Credit Facility. The Agreement also provides for the
issuance of letters of credit totaling up to $500 million, which also reduce
the amount available for borrowing under the Revolving Credit Facility. At
December 31, 1998, the Company had unused credit of $731.0 million available
under the Bank Credit Agreement.
55
<PAGE>
Borrowings under the Revolving Loans commitment bear interest, at the
Company's option, at the prime rate or a reserve adjusted Eurodollar rate.
Loans under the Offshore Facility bear interest, at the applicable borrower's
option, at the applicable Offshore Base Rate (as defined in the Bank Credit
Agreement). Borrowings under the Revolving Credit Facility also bear a margin
linked to the Company's Consolidated Leverage Ratio, as defined in the
Agreement. The margin is currently .500% and is limited to a range of .275%
to 1.000%. Overdraft Account loans bear interest at the prime rate minus the
facility fee percentage, defined below. The weighted average interest rate on
borrowings outstanding under the Revolving Loans commitment at December 31,
1998, was 5.92%. The weighted average interest rate on borrowings outstanding
under the Offshore Facility at December 31, 1998, was 6.26%. While no
compensating balances are required by the Agreement, the Company must pay a
facility fee on the Revolving Credit Facility commitments. The facility fee,
currently .250%, is limited to a range of .125% and .500%, based on the
Company's Consolidated Leverage Ratio.
Borrowings outstanding under the Bank Credit Agreement are unsecured. All of
the obligations of the Company's foreign subsidiaries under the Offshore
Facility are guaranteed by the Company. The Company's Senior Notes and Senior
Debentures rank pari passu with the obligations of the Company under the Bank
Credit Agreement. The Bank Credit Agreement, Senior Notes, and Senior
Debentures are senior in right of payment to all existing and future
subordinated debt of the Company.
Under the terms of the Bank Credit Agreement, dividend payments with respect
to the Company's Preferred or Common Stock and payments for redemption of
shares of its Common Stock are subject to certain limitations. At
December 31, 1998, the maximum allowable amount of such payments was $386.8
million. The Agreement also requires, among other things, the maintenance of
certain financial ratios, and restricts the creation of liens and certain
types of business activities and investments.
On May 20, 1998, the Company completed the public offerings of: (1)
15,690,000 shares of common stock at a public offering price of $41.8125 per
share; (2) 9,050,000 shares of $2.375 convertible preferred stock at a public
offering price of $50.00 per share; (3) $350 million aggregate principal
amount of 7.15% Senior Notes due May 15, 2005; (4) $250 million aggregate
principal amount of 7.35% Senior Notes due May 15, 2008; (5) $250 million
aggregate principal amount of 7.50% Senior Debentures due May 15, 2010; and
(6) $250 million aggregate principal amount of 7.80% Senior Debentures due May
15, 2018 (collectively the "Offerings"). The Company repaid $2.2 billion of
the Term Loan on May 20, 1998, with proceeds received from the Offerings. In
August, 1998, the Company repaid the remainder of the Term Loan with
borrowings under the Revolving Loans commitment.
Annual maturities for all of the Company's long-term debt through 2003 are as
follows: 1999, $91.2 million; 2000, $79.6 million; 2001, $3,748.1 million;
2002, $38.7 million, and 2003, $89.5 million.
Interest paid in cash aggregated $326.6 million for 1998, $303.8 million for
1997, and $281.3 million for 1996.
56
<PAGE>
Fair values at December 31, 1998, of the Company's significant fixed rate debt
obligations are as follows:
- -----------------------------------------------------------------------------
Principal Amount Indicated Fair Value
(millions of Market (Millions of
dollars) Price dollars)
- -----------------------------------------------------------------------------
Senior Notes:
7.85% $300.0 $103.88 $311.6
7.15% 350.0 100.75 352.6
8.10% 300.0 105.25 315.8
7.35% 250.0 102.13 255.3
Senior Debentures:
7.50% 250.0 101.75 254.4
7.80% 250.0 99.50 248.8
- -----------------------------------------------------------------------------
Operating Leases. Rent expense attributable to all operating leases was $68.5
million in 1998, $57.3 million in 1997, and $59.0 million in 1996. Minimum
future rentals under operating leases are as follows: 1999, $50.4 million;
2000, $38.8 million; 2001, $30.2 million; 2002, $24.1 million; 2003, $19.5
million, and 2004 and thereafter, $42.7 million.
Foreign Currency Translation. Aggregate foreign currency exchange gains
(losses) included in other costs and expenses were $(2.8) million in 1998,
$(8.1) million in 1997, and $.5 million in 1996, and resulted principally from
translation of the balance sheets of certain of the Company's major affiliates
which are located in Venezuela. Earnings on time deposits and short-term
investments typically include an inflationary component, which has
substantially offset the exchange losses.
Accumulated Other Comprehensive Income. Foreign currency translation
adjustments comprise accumulated other comprehensive income. Changes in the
cumulative foreign currency translation adjustments were as follows:
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Balance at beginning of year $(148.0) $ (82.3) $(84.7)
Net effect of exchange rate
fluctuations (45.1) (79.6) (1.1)
Deferred income taxes 2.4 13.9 3.5
- ----------------------------------------------------------------------------
Balance at end of year $(190.7) $(148.0) $(82.3)
============================================================================
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.
57
<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, 1998 and 1997 are as follows:
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
Deferred tax assets:
Accrued postretirement benefits $ 118.4 $ 124.2
Other accrued liabilities 138.0 132.4
Asbestos-related liabilities 104.3 50.5
U.S. Federal tax loss carryovers 93.0 164.5
Alternative minimum tax credits 21.4 18.0
Other 105.7 74.2
- ----------------------------------------------------------------------------
Total deferred tax assets 580.8 563.8
Deferred tax liabilities:
Property, plant and equipment 339.8 273.9
Prepaid pension costs 231.8 222.3
Insurance for asbestos-related costs 68.7 76.3
Inventory 33.8 36.5
Receivables and other assets 24.3 19.4
Other 73.3 46.6
- ----------------------------------------------------------------------------
Total deferred tax liabilities 771.7 675.0
- ----------------------------------------------------------------------------
Net deferred tax liabilities $(190.9) $(111.2)
============================================================================
Deferred taxes are included in the Consolidated Balance Sheets at December 31,
1998 and 1997 as follows:
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
Prepaid expenses $ 134.1 $ 118.0
Deferred tax liabilities (325.0) (229.2)
- ----------------------------------------------------------------------------
Net deferred tax liabilities $(190.9) $(111.2)
============================================================================
58
<PAGE>
The provision (benefit) for income taxes consists of the following:
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Current:
U.S. federal $ 4.0 $ 1.0 $ 1.5
State 3.6 1.0 1.1
Foreign 76.5 62.6 24.8
- ----------------------------------------------------------------------------
84.1 64.6 27.4
- ----------------------------------------------------------------------------
Deferred:
U.S. federal 23.4 65.8 57.9
State (2.7) 7.2 9.2
Foreign (38.1) 10.9 10.4
- ----------------------------------------------------------------------------
(17.4) 83.9 77.5
- ----------------------------------------------------------------------------
Total:
U.S. federal 27.4 66.8 59.4
State .9 8.2 10.3
Foreign 38.4 73.5 35.2
- ----------------------------------------------------------------------------
$ 66.7 $148.5 $104.9
============================================================================
The provision for income taxes was calculated based on the following
components of earnings before income taxes:
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Domestic $ 40.2 $224.5 $160.9
Foreign 168.8 227.8 163.2
- ----------------------------------------------------------------------------
$209.0 $452.3 $324.1
============================================================================
Income taxes paid in cash were as follows:
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Domestic $ 7.3 $ 1.9 $ .5
Foreign 54.7 86.0 33.4
- ----------------------------------------------------------------------------
$ 62.0 $ 87.9 $ 33.9
============================================================================
59
<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:
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Pretax earnings at statutory
U.S. Federal tax rate $ 73.1 $158.3 $113.4
Increase (decrease) in provision for
income taxes due to:
Amortization of goodwill 17.6 10.6 10.5
Foreign earnings at different rates .8 (.6) (8.9)
State taxes, net of federal benefit .6 5.3 6.7
Adjustment for enacted change in tax rate (15.1)
Foreign sales corporation and possession
tax credits (2.9) (7.3) (5.9)
Divestiture (5.7)
Nontaxable foreign earnings (4.8) (5.4)
Research and development credits (1.5) (1.5) (.5)
Other items (5.9) (5.8) (5.0)
- ----------------------------------------------------------------------------
Provision for income taxes $ 66.7 $148.5 $104.9
============================================================================
Effective tax rate 31.9% 32.8% 32.4%
============================================================================
For U.S. Federal income tax purposes, approximately $266 million of net
operating loss is available as a carryover at December 31, 1998. Carryovers
of the net operating loss expire beginning in 2005.
Alternative minimum tax credits and research and development credits of
approximately $21 million and $8 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, 1998, the Company's equity in the undistributed earnings of
foreign subsidiaries for which income taxes had not been provided approximated
$563 million. It is not practicable to estimate the U.S. and foreign tax
which would be payable should these earnings be distributed.
60
<PAGE>
Convertible Preferred Stock. In conjunction with the Offerings, on May 20,
1998, the Company issued 9,050,000 shares of convertible preferred stock at a
public offering price of $50.00 per share (see "Long-Term Debt" note). Annual
cumulative dividends of $2.375 per share accruing from the date of issuance
are payable in cash quarterly commencing August 15, 1998. The convertible
preferred stock is convertible at the option of the holder at any time, unless
previously redeemed, into shares of common stock of the Company at an initial
conversion rate of 0.9491 shares of common stock for each share of convertible
stock, subject to adjustment in certain events. The convertible preferred
stock may not be redeemed prior to May 15, 2001. At any time on or after such
date, the convertible preferred stock may be redeemed only in shares of common
stock of the Company at the option of the Company at predetermined redemption
prices plus accrued and unpaid dividends, if any, to the redemption date.
Holders of the convertible preferred stock have no voting rights, except as
required by applicable law and except that among other things, whenever
accrued and unpaid dividends on the convertible preferred stock are equal to
or exceed the equivalent of six quarterly dividends payable on the convertible
preferred stock such holders will be entitled to elect two directors to the
Company's board of directors until the dividend arrearage has been paid or
amounts have been set apart for such payment. In addition, certain changes
that would be materially adverse to the rights of holders of the convertible
preferred stock cannot be made without the vote of holders of two-thirds of
the outstanding convertible preferred stock. The convertible preferred stock
is senior to the common stock and the exchangeable preferred stock with
respect to dividends and liquidation events.
Exchangeable Preferred Stock. Exchangeable preferred stock, $.01 par value,
$7.00 cumulative dividend, issuable in series, at December 31, 1998 and 1997,
were as follows:
Number of Shares
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Series A Exchangeable
Authorized 75,000 75,000
Issued 65,625 65,625
Outstanding 15,956 17,099
Series B Exchangeable
Authorized 75,000 75,000
Issued 65,625 65,625
Outstanding 51,343 55,665
Series C Exchangeable
Authorized 150,000 150,000
Issued 131,250 131,250
Outstanding 115,402 131,250
The exchangeable preferred stock is exchangeable at the option of the owners
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 stock on the New York Stock
61
<PAGE>
Exchange at the close of business on the business day next preceding the day
of exchange. Dividends accumulated and unpaid were approximately $7.9 million
and $7.4 million at December 31, 1998 and 1997, respectively.
Holders of the exchangeable preferred stock 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.
Stock Options. The Company has three nonqualified stock option plans: (1)
1991 Stock Option Plan for Key Employees of Owens-Illinois, Inc., (2) 1994
Stock Option Plan for Directors of Owens-Illinois, Inc. and (3) 1997 Equity
Participation Plan 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 following termination of employment or the
day after the tenth anniversary date of the option grant.
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:
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Net income:
As reported $108.0 $167.9 $191.1
Pro forma 103.6 166.3 190.6
Basic earnings per share:
As reported 0.62 1.25 1.58
Pro forma 0.59 1.23 1.57
Diluted earnings per share:
As reported 0.62 1.24 1.55
Pro forma $ 0.59 $ 1.23 $ 1.54
- -----------------------------------------------------------------------------
The pro forma effect on net income 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.
62
<PAGE>
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:
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Expected life of options 5 years 5 years 5 years
Expected stock price volatility 31.9% 26.3% 27.3%
Risk-free interest rate 5.70% 6.08% 6.70%
Expected dividend yield 0.00% 0.00% 0.00%
- -----------------------------------------------------------------------------
Stock option activity is as follows:
- -----------------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Fair
Shares Price Value
- -----------------------------------------------------------------------------
Options outstanding at December 31, 1995 5,331,200 $ 8.13
Granted 552,200 16.50 $ 6.14
Exercised (435,426) 6.32
Cancelled (73,125) 12.49
- -----------------------------------------------------------------------------
Options outstanding at December 31, 1996 5,374,849 9.08
Granted 1,188,787 31.73 $11.18
Exercised (3,192,874) 6.66
Cancelled (28,987) 21.43
- -----------------------------------------------------------------------------
Options outstanding at December 31, 1997 3,341,775 19.35
Granted 1,788,550 39.74 $15.31
Exercised (317,131) 13.44
Cancelled (29,437) 25.39
- -----------------------------------------------------------------------------
Options outstanding at December 31, 1998 4,783,757 $27.33
==================================================================
Options exercisable at:
December 31, 1998 2,158,646 $15.37
December 31, 1997 2,202,125 $12.99
December 31, 1996 3,971,378 $ 7.34
==================================================================
Shares available for option grant at:
December 31, 1998 8,376,652
December 31, 1997 10,135,765
December 31, 1996 1,295,565
=======================================================
63
<PAGE>
The following table summarizes significant option groups outstanding at
December 31, 1998, 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 $16.50 1,851,677 5.1 $12.61 1,851,677 $12.61
$31.63 to $41.50 2,932,080 9.0 $36.62 306,969 $32.03
- ------------------------------------------------------------------------------
4,783,757 2,158,646
==============================================================================
Pension Benefit Plans. Net credits to results of operations for all of the
Company's pension plans and certain deferred compensation arrangements
amounted to $52.1 million in 1998, $40.2 million in 1997, and $29.8 million in
1996.
The Company has pension plans covering substantially all employees located in
the United States, the United Kingdom and Australia. Benefits generally are
based on compensation for salaried employees and on length of service for
hourly employees. The Company's policy is to fund pension plans such that
sufficient assets will be available to meet future benefit requirements.
The following tables relate to the Company's principal United States, United
Kingdom, and Australian pension plans. The Company has adopted the provisions
of Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." Prior year
amounts in the following tables have been restated to conform to the 1998
presentation.
64
<PAGE>
The change in the pension benefit obligations for the year were as follows:
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Obligations at beginning of year $2,254.0 $2,070.7
Change in benefit obligations:
Service cost 37.0 30.7
Interest cost 156.0 152.1
Actuarial loss 172.0 140.9
Acquisitions 75.5 17.5
Benefit payments (192.4) (185.6)
Other 2.7 27.7
- -----------------------------------------------------------------------------
Net increase in benefit obligations 250.8 183.3
- -----------------------------------------------------------------------------
Obligations at end of year $2,504.8 $2,254.0
=============================================================================
The change in the fair value of the pension plans assets for the year were as
follows:
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Fair value at beginning of year $3,345.7 $2,885.1
Change in fair value:
Actual return on plan assets 296.3 670.1
Acquisitions 80.1
Benefit payments (192.4) (185.6)
Transfer of assets to a special trust to fund
qualified current retiree health liabilities (36.5) (35.5)
Other 10.4 11.6
- -----------------------------------------------------------------------------
Net increase in fair value of assets 157.9 460.6
- -----------------------------------------------------------------------------
Fair value at end of year $3,503.6 $3,345.7
=============================================================================
65
<PAGE>
The funded status of the pension plans at year end was as follows:
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Plan assets at fair value $3,503.6 $3,345.7
Projected benefit obligations 2,504.8 2,254.0
- -----------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligations 998.8 1,091.7
Net unrecognized items:
Actuarial gain (364.0) (498.7)
Prior service cost 51.3 54.9
- -----------------------------------------------------------------------------
(312.7) (443.8)
- -----------------------------------------------------------------------------
Prepaid pension $ 686.1 $ 647.9
=============================================================================
The components of the net pension credit for the year were as follows:
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Service cost $ 37.0 $ 30.7 $ 31.6
Interest cost 156.0 152.1 149.5
Expected asset return (266.1) (245.3) (231.8)
Amortization:
Prior service cost 7.7 5.9 6.7
Loss 0.7 0.5 1.3
- -----------------------------------------------------------------------------
Net amortization 8.4 6.4 8.0
- -----------------------------------------------------------------------------
Net income $ (64.7) $ (56.1) $ (42.7)
=============================================================================
The actuarial present value of benefit obligations is based on a weighted
discount rate of approximately 6.25% for 1998 and 7.00% for 1997. 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 weighted scale of approximately 4.75%
and 5% for 1998 and 1997, respectively. The expected weighted long-term rate
of return on assets was approximately 9.50% for 1998, and 9.75% for 1997 and
1996. 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, 1998 and 1997 included 14,423,621 and
16,022,880 shares of the Company's common stock, respectively), government and
corporate debt securities, real estate and commingled funds.
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.
66
<PAGE>
Company contributions to these plans amounted to $10.6 million in 1998, $9.6
million in 1997, and $7.5 million in 1996.
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.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." Prior year amounts in the following tables have
been restated to conform to the 1998 presentation.
The change in the postretirement benefit obligations for the year were as
follows:
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Obligations at beginning of year $307.5 $302.6
Change in benefit obligations:
Service cost 2.2 2.0
Interest cost 20.7 21.8
Actuarial loss 3.5 8.6
Acquisitions 0.6
Benefit payments (27.0) (28.1)
- -----------------------------------------------------------------------------
Net change in benefit obligations (0.6) 4.9
- -----------------------------------------------------------------------------
Obligations at end of year $306.9 $307.5
=============================================================================
The funded status of the postretirement benefit plans at year end was as
follows:
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Accumulated postretirement benefit
obligations $306.9 $307.5
Unrecognized net reduction in obligations:
Prior service cost 73.4 87.1
Actuarial loss (41.9) (39.8)
- -----------------------------------------------------------------------------
31.5 47.3
- -----------------------------------------------------------------------------
Nonpension postretirement
benefit obligations $338.4 $354.8
=============================================================================
67
<PAGE>
The components of the net postretirement benefit cost for the year were as
follows:
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Service cost $ 2.2 $ 2.0 $ 2.0
Interest cost 20.7 21.8 21.8
Amortization:
Prior service cost (13.7) (13.7) (13.7)
Loss 1.4 0.7 0.5
- -----------------------------------------------------------------------------
Net amortization (12.3) (13.0) (13.2)
- -----------------------------------------------------------------------------
Net postretirement benefit cost $ 10.6 $ 10.8 $ 10.6
=============================================================================
Assumed health care cost inflation was based on a rate of 7.00% in 1998 and
7.50% in 1997, declining ratably to an ultimate rate of 6.00% in the year
2000. A one percentage point decrease in these rates would have decreased the
accumulated postretirement benefit obligation at December 31, 1998 by $10.0
million and decreased the net postretirement benefit cost for 1998 by $0.9
million. A one percentage point increase in these rates would have increased
the accumulated postretirement benefit obligation at December 31, 1998 by
$11.8 million and increased the net postretirement benefit cost for 1998 by
$1.1 million. The assumed discount rates used in determining the accumulated
postretirement benefit obligation were 6.50% and 7.00% at December 31, 1998
and 1997, 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 $8.6 million in 1998 and 1997, and $7.5 million in 1996. 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 Revenues. Other revenues for the year ended December 31, 1998, includes
a gain of $18.5 million related to the termination of a license agreement, net
of charges for related equipment write-offs and capacity adjustments, under
which the Company had produced plastic multipack carriers for beverage cans.
Other revenues for the year ended December 31, 1997, includes a gain of $16.3
million on the sale of the remaining 49% interest in Kimble Glass.
68
<PAGE>
Other Costs and Expenses. Other costs and expenses for the year ended
December 31, 1998, includes: (1) $250.0 million related to adjustment of the
reserve for estimated future asbestos-related costs, (2) $72.6 million,
including approximately $45 million of termination benefits for the
elimination of about 1,500 jobs and aproximately $25 million for asset write-
downs, related principally to a plant closing in the United Kingdom and
restructuring costs at certain international affiliates, (3) a net charge of
$0.9 million for the settlement of certain environmental litigation and the
reduction of previously established reserves for guarantees of certain
obligations of a previously divested business. Amount for 1998 also includes
$42.0 million principally for write-offs of certain assets associated with
business conditions in emerging markets. Other costs and expenses for the
year ended December 31, 1997, includes $14.1 million principally for
guarantees of certain lease obligations of a previously divested business.
Extraordinary Charges from Early Extinguishment of Debt. During 1998, the
Company used proceeds from the Offerings to repay a portion of the Term Loan
due October 30, 1999. As a result, the Company recorded extraordinary charges
for the write-off of unamortized deferred finance fees totaling $22.8 million,
net of applicable income taxes of $8.7 million.
During 1997, the Company used the proceeds from the sale of 16,936,100 shares
of common stock, par value $.01 per share, for net proceeds of $464.2 million,
the issuance of $600 million of aggregate principal amount of Senior Notes,
and borrowings under its Bank Credit Agreement to redeem $1,907.4 million
aggregate principal amount of fixed cost debt, with annual interest rates
ranging from 9.75% - 11%. As a result, the Company recorded extraordinary
charges for redemption premiums and the write-off of unamortized deferred
finance fees totaling $169.2 million, net of applicable income tax effects of
$64.7 million.
Contingencies. The Company was contingently liable at December 31, 1998,
under guarantees of loans and lease obligations related to certain divested
businesses, equity associates and other third parties in the principal amount
of $14.8 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 approximately $40 million of a
high-temperature, clay-based insulating material containing asbestos. 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").
69
<PAGE>
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):
1998 1997 1996
------ ------ ------
Pending at beginning of year 14,000 16,000 21,000
Disposed 7,000 7,000 13,000
Filed 7,000 5,000 8,000
------ ------ ------
Pending at end of year 14,000 14,000 16,000
====== ====== ======
The Company is also a defendant in other asbestos-related lawsuits or claims
involving maritime workers, medical monitoring claimants, co-defendants and
property damage claimants. Based on its past experience, the Company believes
that the foregoing categories of claims will not involve any material
liability and they are not included in the above description of pending
claims.
Since receiving its first asbestos claim, the Company, as of December 31,
1998, has disposed of the asbestos claims of approximately 213,000 plaintiffs
and claimants at an average indemnity payment per claim of approximately
$4,400. Certain of these dispositions have included deferred payment amounts
payable over periods ranging from one to seven years. Deferred payments at
December 31, 1998 totaled $41.5 million and are included in the foregoing
average indemnity payment per claim. 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.
In 1984, the Company initiated 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). Beginning
in December 1994 and continuing intermittently for approximately one year
thereafter, the Company entered into settlements for approximately $240
million of its coverage claim against OIL to the extent of reinsurance
provided to OIL by the settling reinsurance companies. Following such
settlements, a settlement agreement (the "OIL Settlement") was reached with
OIL. The OIL Settlement 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 approving the OIL Settlement, and specifically finding that
it was a good faith settlement which was fair and reasonable as to OIL and all
of OIL's non-settling reinsurers.
70
<PAGE>
In November 1995, 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 (Employer's Mutual v.
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 non-
settling reinsurers affected by the United Insurance case, informing all such
reinsurers of the terms of the OIL Settlement and demanding timely payment
from such reinsurers pursuant to such terms. Since the date of the OIL
Settlement, 27 previously non-settling reinsurers have made the payments
called for under the OIL Settlement or otherwise settled their obligations
thereunder. Other non-settling solvent reinsurers, all of which are parties
to the Employers Mutual case described above, have not, however, made the
payments called for under the OIL Settlement.
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 $314.5 million. Of the total amount confirmed to date, $297.2
million had been received through December 31, 1998; and the balance of
approximately $17.3 million will be received throughout 1999 and the next
several years. The remainder of the insurance asset of approximately $195.5
million relates principally to the reinsurers who have not yet paid, and
continue to contest, their reinsurance obligations under the OIL Settlement.
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 and based on
advice of counsel, McCarter & English L.L.P., that it is probable substantial
additional payments will be received to cover the Company's asbestos-related
claim losses.
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, in 1993, the
Company established a liability of $975 million to cover what it then
estimated would be the total indemnity payments and legal fees associated with
the resolution of then outstanding and all expected future asbestos lawsuits
and claims. As part of its continual monitoring of asbestos-related matters,
the Company in 1998 conducted a comprehensive review to determine if
adjustments of asbestos-related assets or liabilities are appropriate. As a
result of that review, the Company established an additional liability of $250
million to cover what it now estimates will be the total indemnity payments
and legal fees associated with the resolution of outstanding asbestos personal
injury lawsuits and claims and asbestos personal injury lawsuits and claims
filed during the succeeding five years, after which any remaining liability is
not expected to be material in relation to the Company's Consolidated
Financial Statements.
71
<PAGE>
Based on all the factors and matters relating to the Company's asbestos-
related litigation and claims, the Company presently believes that its
asbestos-related costs and liabilities will not exceed by a material amount
the sum of the available insurance reimbursement the Company believes it has
and will have principally as a result of the United Insurance case, and the
OIL Settlement, as described above, and the amount of the charges for
asbestos-related costs described above.
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.
Segment Information. The Company operates in the rigid packaging industry.
The Company has two reportable product segments within the rigid packaging
industry: (1) Glass Containers and (2) Plastics Packaging. The Glass
Containers segment includes operations in the United States, Europe, South
America, and the Asia Pacific region. The Plastics Packaging segment consists
of three business units -- plastic containers, closure and specialty products,
and prescription products. The Other segment shown in the tables below
consists primarily of the Company's labels and carriers products business
unit. The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Prior year amounts in the following tables have been
restated to conform to the 1998 presentation.
The Company evaluates performance and allocates resources based on earnings
before interest income, interest expense, provision for income taxes, minority
share owners' interests in earnings of subsidiaries, extraordinary charges,
(collectively "EBIT") and unusual items. EBIT includes an allocation of
corporate expenses based on both a percentage of sales and direct billings
based on the costs of specific services provided. For the Company's U.S.
pension plans, net periodic pension cost (credit) has been allocated to
product segments while the related prepaid pension asset is included in the
caption Eliminations and Other Retained. Net sales as shown in the geographic
segment information are based on the location of the Company's affiliate.
72
<PAGE>
Financial information regarding the Company's product segments is as follows:
- -----------------------------------------------------------------------------
Elimina-
tions
Total and Consoli-
Glass Plastics Product Other dated
Containers Packaging Other Segments Retained Totals
- -----------------------------------------------------------------------------
Net sales:
1998 $3,809.9 $1,414.5 $ 81.9 $5,306.3 $ 5,306.3
1997 3,528.4 1,029.8 100.3 4,658.5 4,658.5
1996 2,783.3 973.5 88.9 3,845.7 3,845.7
=============================================================================
EBIT, excluding unusual items:
1998 $ 626.0 $ 232.0 $ 10.6 $ 868.6 $ 1.9 $ 870.5
1997 543.2 173.8 15.1 732.1 (2.9) 729.2
1996 437.0 161.8 10.5 609.3 (4.9) 604.4
=============================================================================
Unusual items:
1998:
Charges for
restructuring
costs at
certain
international
affiliates $ (72.6) $ (72.6) $ (72.6)
Gain on ter-
mination of
license
agreement $ 18.5 18.5 18.5
Loss on sale
of discon-
tinued
operation
by equity
investee (5.7) (5.7) (5.7)
Other (1) $(250.9) (250.9)
1997:
Other (1) 2.2 2.2
=============================================================================
Depreciation and amortization expense:
1998 $ 312.9 $ 128.3 $ 10.7 $ 451.9 $ 12.0 $ 463.9
1997 250.3 73.4 11.7 335.4 8.1 343.5
1996 177.6 72.2 12.3 262.1 9.5 271.6
=============================================================================
Total assets:
1998 $6,166.2 $3,137.2 $174.4 $9,477.8 $1,582.9 $11,060.7
1997 4,313.6 1,239.1 190.5 5,743.2 1,101.9 6,845.1
1996 3,612.6 1,176.3 163.9 4,952.8 1,152.5 6,105.3
=============================================================================
73
<PAGE>
Financial information regarding the Company's product segments (continued)
- ----------------------------------------------------------------------------
Elimina-
tions
Total and Consoli-
Glass Plastics Product Other dated
Containers Packaging Other Segments Retained Totals
- ----------------------------------------------------------------------------
Capital expenditures (2):
1998 $ 382.8 $ 185.0 $ 4.1 $ 571.9 $ 1.6 $ 573.5
1997 317.4 111.9 8.0 437.3 34.0 471.3
1996 298.1 84.0 4.7 386.8 1.6 388.4
============================================================================
(1) Detail presented in tables on page 75.
(2) Excludes property, plant and equipment acquired through acquisitions.
Financial information regarding the Company's geographic segments is as
follows:
- -----------------------------------------------------------------------------
Total
United Latin Asia Geographic
States Europe America Pacific Segments
- -----------------------------------------------------------------------------
Net sales:
1998 $3,042.2 $1,052.0 $689.5 $522.6 $5,306.3
1997 2,870.3 1,037.5 690.7 60.0 4,658.5
1998 2,670.5 496.1 631.6 47.5 3,845.7
=============================================================================
EBIT, excluding unusual items:
1998 $ 533.0 $ 139.5 $108.8 $ 87.3 $ 868.6
1997 457.9 140.0 135.2 (1.0) 732.1
1996 423.9 66.7 118.3 .4 609.3
=============================================================================
Unusual items:
1998:
Charges for re-
structuring
costs at certain
international
affiliates $ (46.8) $(22.2) $ (3.6) $ (72.6)
Gain on termination
of license
agreement $ 18.5 18.5
Loss on sale of
discontinued
operation by
equity investee (5.7) (5.7)
=============================================================================
74
<PAGE>
The Company's net fixed assets by geographic segment are as follows:
- -----------------------------------------------------------------------------
United
States Foreign Total
- -----------------------------------------------------------------------------
1998 $1,619.4 $1,807.6 $3,427.0
1997 1,288.3 1,117.1 2,405.4
1996 1,171.4 770.2 1,941.6
=============================================================================
Reconciliations to consolidated totals are as follows:
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Revenues:
Net sales for reportable segments $5,306.3 $4,658.5 $3,845.7
Royalties and net technical assistance 26.6 21.6 23.6
Equity earnings 16.0 17.9 15.2
Interest income 29.2 23.6 22.3
Other revenue 121.2 106.8 69.4
- -----------------------------------------------------------------------------
Total $5,499.3 $4,828.4 $3,976.2
=============================================================================
EBIT:
EBIT, excluding unusual items for
reportable segments $ 868.6 $ 732.1 $ 609.3
Unusual items excluded from reportable
segment information (59.8)
Eliminations and other retained,
excluding unusual items 1.9 (2.9) (4.9)
Unusual items excluded from eliminations
and other retained:
1998:
Adjustment of reserve for estimated
future asbestos-related costs (250.0)
Net charges for the settlement of
certain environmental litigation
and the reduction of previously
established reserves (0.9)
1997:
Gain on sale of Kimble Glass 16.3
Charges principally for guarantees of
certain lease obligations (14.1)
Net interest expense (350.8) (279.1) (280.3)
- -----------------------------------------------------------------------------
Earnings before income taxes, minority
share owners' interests in earnings of
subsidiaries, and extraordinary items $ 209.0 $ 452.3 $ 324.1
=============================================================================
75
<PAGE>
Selected Quarterly Financial Data (unaudited). The following tables present
selected financial data by quarter for the years ended December 31, 1998 and
1997:
- -----------------------------------------------------------------------------
1998
- -----------------------------------------------------------------------------
First Second Third Fourth
Quarter (a) Quarter Quarter (b) Quarter (c) Total
- -----------------------------------------------------------------------------
Net sales $1,098.5 $1,385.0 $1,453.6 $1,369.2 $5,306.3
=============================================================================
Gross profit $ 237.4 $ 353.4 $ 347.9 $ 292.0 $1,230.7
=============================================================================
Earnings (loss):
Before extra-
ordinary
items $ 80.4 $ 115.0 $ 113.6 $ (186.9) $ 122.1
Extraordinary
charges from
early
extinguishment
of debt, net
of applicable
income taxes (14.1) (14.1)
- -----------------------------------------------------------------------------
Net earnings $ 80.4 $ 100.9 $ 113.6 $ (186.9) $ 108.0
=============================================================================
Earnings (loss) per share
of common stock (d):
Basic:
Before extra-
ordinary
items $ 0.57 $ 0.76 $ 0.70 $ (1.24) $ 0.71
Extraordinary
charges (0.10) (0.09)
- -----------------------------------------------------------------------------
Net earnings $ 0.57 $ 0.66 $ 0.70 $ (1.24) $ 0.62
Diluted:
Before extra-
ordinary
items $ 0.56 $ 0.75 $ 0.69 $ (1.24) $ 0.71
Extraordinary
charges (0.09) (0.09)
- -----------------------------------------------------------------------------
Net earnings $ 0.56 $ 0.66 $ 0.69 $ (1.24) $ 0.62
=============================================================================
(a) In the first quarter of 1998, the Company recorded: (1) a credit of
$15.1 million to adjust net deferred income tax liabilities as a result
of a reduction in Italy's statutory income tax rate; (2) a gain of $18.5
76
<PAGE>
million ($11.4 million aftertax) related to the termination of a license
agreement, net of charges for related equipment write-offs and capacity
adjustments, under which the Company had produced plastic multipack
carriers for beverage cans; and (3) charges of $16.3 million ($10.1
million aftertax) for the settlement of certain environmental litigation
and severance costs at certain international affiliates. The net
aftertax amounts of these items was a credit of $16.4 million, or $0.12
per share on both a basic and diluted basis for the first quarter.
(b) In the third quarter of 1998, the Company recorded: (1) a benefit of
$7.6 million ($4.7 million aftertax) from the reduction of previously
established reserves for guarantees of certain obligations of a
previously divested business; and (2) a loss of $5.7 million ($3.5
million aftertax) on the sale of a discontinued operation by an equity
investee. The net aftertax amounts of these items was a credit of $1.2
million, or $0.01 per share on both a basic and diluted basis for the
third quarter.
(c) In the fourth quarter of 1998, the Company recorded: (1) charges of
$250.0 million ($154.4 million aftertax) related to adjustment of the
reserve for estimated future asbestos-related costs; (2) charges of $64.8
million ($42.6 million after tax and minority share owners' interests)
related principally to a plant closing in the United Kingdom and
restructuring costs at certain international affiliates. The net
aftertax amounts of these items was a charge of $197.0 million, or $1.27
per share on both a basic and diluted basis for the fourth quarter.
In the fourth quarter of 1998, the Company also recorded: (1) charges of
$42.0 million ($31.5 million after tax and minority share owners'
interests) principally for write-offs of certain assets associated with
business conditions in emerging markets; and (2) charges of $8.2 million
($6.2 million aftertax) associated with changes in estimated carrying
costs of the Rockware glass container business. The net aftertax amounts
of these items was a charge of $37.7 million, or $0.24 per share on both
a basic and diluted basis for the fourth quarter.
(d) Earnings per share are computed independently for each period presented.
Due primarily to the issuance of 14.5 million shares of common stock in
the second quarter of 1998, the second quarter of 1998 issuance of
convertible preferred stock, which is convertible into approximately 8.6
million shares of common stock, and the resultant effect of all these
changes on average shares, per share amounts calculated on a year-to-date
basis may not equal the sums of such amounts calculated separately for
each quarter.
77
<PAGE>
- -----------------------------------------------------------------------------
1997
- -----------------------------------------------------------------------------
First Second Third Fourth
Quarter (a) Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------
Net sales $1,056.3 $1,224.5 $1,239.5 $1,138.2 $4,658.5
=============================================================================
Gross profit $ 211.4 $ 294.8 $ 278.1 $ 207.8 $ 992.1
=============================================================================
Earnings (loss):
Before extra-
ordinary
items $ 54.6 $ 86.9 $ 91.8 $ 39.1 $ 272.4
Extraordinary
charges from
early
extinguishment
of debt, net of
applicable
income taxes (84.5) (16.4) (3.6) (104.5)
- -----------------------------------------------------------------------------
Net earnings $ 54.6 $ 2.4 $ 75.4 $ 35.5 $ 167.9
=============================================================================
Earnings (loss) per share
of common stock (b):
Basic:
Before extra-
ordinary
items $ 0.44 $ 0.66 $ 0.65 $ 0.28 $ 2.03
Extraordinary
charges (0.64) (0.12) (0.03) (0.78)
- -----------------------------------------------------------------------------
Net earnings $ 0.44 $ 0.02 $ 0.53 $ 0.25 $ 1.25
Diluted:
Before extra-
ordinary
items $ 0.44 $ 0.65 $ 0.65 $ 0.27 $ 2.01
Extraordinary
charges (0.63) (0.12) (0.02) (0.77)
- -----------------------------------------------------------------------------
Net earnings $ 0.44 $ 0.02 $ 0.53 $ 0.25 $ 1.24
=============================================================================
(a) In the first quarter of 1997, the Company recorded: (1) a gain of $16.3
million ($16.3 million aftertax) on the sale of the remaining 49%
interest in Kimble Glass; and (2) charges of $14.1 million ($8.7 million
aftertax) principally for guarantees of certain lease obligations of a
previously divested business. The net aftertax amounts of these items
was a credit of $7.6 million, or $0.06 per share on both a basic and
diluted basis.
78
<PAGE>
(b) Earnings per share are computed independently for each period presented.
Due to the issuance of 16.9 million shares of common stock in the second
quarter of 1997 and the resultant effect on average shares outstanding,
per share amounts calculated on a year-to-date basis do not equal the
sums of such amounts calculated separately for each quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
79
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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
17 - 19.
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.
80
<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 40
Consolidated Balance Sheets at December 31, 1998 and 1997 42-43
For the years ended December 31, 1998, 1997 and 1996
Consolidated Results of Operations 41
Consolidated Share Owners' Equity 44-45
Consolidated Cash Flows 46
Statement of Significant Accounting Policies 47-48
Financial Review 49-75
Exhibit Index 82-86
Financial Statement Schedule Schedule Page
---------------------------- -------------
For the years ended December 31, 1998, 1997, and 1996:
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.
81
<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 Registrant's Registration
Statement, File No. 33-43224, and incorporated herein by
reference).
3.2 -- Bylaws of Owens-Illinois, Inc., as amended (filed as Exhibit
3.2 to the Registrant's Registration Statement, File No. 33-
43224, and incorporated herein by reference).
4.1 -- 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 Registrant's Registration Statement, File
No. 33-34825, and incorporated herein by reference).
4.2 -- Supplemental Indenture, dated as of May 9, 1997, between Owens-
Illinois, Inc., the Guarantors named therein, and The Bank of
New York related to the 11% Senior Debentures (filed as Exhibit
4.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, File No. 1-9576, and incorporated
herein by reference).
4.3 -- Indenture dated as of May 15, 1997, between Owens-Illinois,
Inc. and The Bank of New York, as Trustee (filed as Exhibit 4.1
to the Registrant's Form 8-K dated May 16, 1997, File No. 1-
9576, and incorporated herein by reference).
4.4 -- Indenture dated as of May 20, 1998, between Owens-Illinois,
Inc. and The Bank of New York, as Trustee (filed as Exhibit 4.1
to the Registrant's Form 8-K dated May 20, 1998, File No. 1-
9576, and incorporated herein by reference).
4.5 -- 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 Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992, File No. 1-9576, and incorporated
herein by reference).
4.6 -- Certificate of Designation of Convertible Preferred Stock
(filed as Exhibit 4.10 to the Registrant's Form 8-K dated May
20, 1998, File No. 1-9576, and incorporated herein by
reference).
4.7 -- Second Amended and Restated Credit Agreement, dated as of April
30, 1998, among Owens-Illinois, Inc. and certain of its
subsidiaries and the lenders listed therein, including those
named as managing agents, co-agents, lead managers, arrangers,
offshore administrative agents, The Bank of Nova Scotia,
NationsBank, N.A., Bank of America National Trust and Savings
Association, and Bankers Trust Company including exhibits and
schedules thereto (filed as Exhibit 4.1 to the Registrant's
82
<PAGE>
S-K Item 601
No. Document
- ------------ --------
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, File No. 1-9576, 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 Registrant's Registration Statement, File
No. 2-68022, and incorporated herein by reference).
10.2* -- Amended and Restated Owens-Illinois Supplemental Retirement
Benefit Plan (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, File No. 1-9576, and incorporated herein by reference).
10.3 * -- Written description of the Owens-Illinois Senior Executive Life
Insurance Plan (filed as Exhibit 3.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992, File
No. 1-9576, and incorporated herein by reference).
10.4 * -- Form of Employment Agreement between Owens-Illinois, Inc. and
various Employees (filed as Exhibit 10(m) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1987, File No. 1-9576, and incorporated herein by reference).
10.5 * -- Form of Non-Qualified Stock Option Agreement between Owens-
Illinois, Inc. and various Employees (filed as Exhibit 10(1) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987, File No. 1-9576, and incorporated herein by
reference).
10.6 * -- Form of Subscription Agreement between Owens-Illinois, Inc. and
various Purchasers (filed as Exhibit 10(k) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1987, File No. 1-9576, and incorporated herein by reference).
10.7 * -- Stock Option Plan for Directors of Owens-Illinois, Inc. (filed
as Exhibit 4.3 to Registrant's Form S-8, File No. 33-57141, and
incorporated herein by reference).
10.8 * -- 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 No. 1-9576, and incorporated herein by reference).
10.9 * -- Form of Non-Qualified Stock Option Agreement for use under the
Stock Option Plan for Directors of Owens-Illinois, Inc. (filed
as Exhibit 4.4 to Registrant's Form S-8, File No. 33-57141, and
incorporated herein by reference).
10.10 * -- Second Amended and Restated Stock Option Plan for Key Employees
of Owens-Illinois, Inc. (filed as Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 1-9576, and incorporated herein by
reference).
10.11 * -- 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 No. 1-9576, and
incorporated herein by reference).
83
<PAGE>
S-K Item 601
No. Document
- ------------ --------
10.12 * -- Second Amendment to Second Amended and Restated Stock Option
Plan for Key Employees of Owens-Illinois, Inc. (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, File No. 1-9576, and
incorporated herein by reference).
10.13 * -- Form of Non-Qualified Stock Option Agreement for use under the
Amended and Restated Stock Option Plan for Key Employees of
Owens-Illinois, Inc. (filed as Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 1-9576, and incorporated herein by
reference).
10.14 * -- Form of First Amendment to Subscription Agreement between
Owens-Illinois, Inc. and Robert J. Lanigan (filed as Exhibit
10.19 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990, File No. 1-9576, and incorporated
herein by reference).
10.15 * -- Form of Non-Qualified Stock Option Agreement between Owens-
Illinois, Inc., and Robert J. Lanigan (filed as Exhibit 10.21
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990, File No. 1-9576, and incorporated
herein by reference).
10.16 * -- 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 Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990, File No. 1-9576, and
incorporated herein by reference).
10.17 * -- Amended and Restated Owens-Illinois, Inc. Senior Management
Incentive Plan (filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1993, File No. 1-9576, and incorporated herein by reference).
10.18 * -- First Amendment to Amended and Restated Owens-Illinois, Inc.
Senior Management Incentive Plan (filed as Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 1-9576, and incorporated herein by
reference).
10.19 * -- Second Amendment to Amended and Restated Owens-Illinois, Inc.
Senior Management Incentive Plan (filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, File No. 1-9576, and incorporated herein
by reference).
10.20 * -- Third Amendment to Amended and Restated Owens-Illinois, Inc.
Senior Management Incentive Plan (filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, File No. 1-9576, and incorporated herein
by reference).
84
<PAGE>
S-K Item 601
No. Document
- ------------ --------
10.21 * -- Amended and Restated Owens-Illinois, Inc. Performance Award
Plan (filed as Exhibit 10.16 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, File No. 1-
9576, and incorporated herein by reference).
10.22 * -- First Amendment to Amended and Restated Owens-Illinois, Inc.
Performance Award Plan (filed as Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, File No. 1-9576, and incorporated herein
by reference).
10.23 * -- Owens-Illinois, Inc. Corporate Officers Deferred Compensation
Plan (filed as Exhibit 10.17 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, File No. 1-
9576, and incorporated herein by reference).
10.24 * -- First Amendment to Owens-Illinois, Inc. Corporate Officers
Deferred Compensation Plan (filed as Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 1-9576, and incorporated herein by
reference).
10.25 * -- Second Amendment to Owens-Illinois, Inc. Corporate Officers
Deferred Compensation Plan (filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, File No. 1-9576, and incorporated herein
by reference).
10.26 * -- Owens-Illinois, Inc. Executive Savings Plan (filed as Exhibit
10.18 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993, File No. 1-9576, and incorporated
herein by reference).
10.27 * -- First Amendment to Owens-Illinois, Inc. Executive Savings Plan
(filed as Exhibit 10.24 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, File No. 1-
9576, and incorporated herein by reference).
10.28 * -- Second Amendment to Owens-Illinois, Inc. Executive Savings Plan
(filed as Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, File No. 1-
9576, and incorporated herein by reference).
10.29 * -- Third Amendment to Owens-Illinois, Inc. Executive Savings Plan
(filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, File No. 1-
9576, and incorporated herein by reference).
10.30 * -- Owens-Illinois, Inc. Directors Deferred Compensation Plan
(filed as Exhibit 10.26 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, File No. 1-
9576, and incorporated herein by reference).
10.31 * -- First Amendment to Owens-Illinois, Inc. Directors Deferred
Compensation Plan (filed as Exhibit 10.27 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995, File No. 1-9576, and incorporated herein by reference).
85
<PAGE>
S-K Item 601
No. Document
- ------------ --------
10.32 * -- Second Amendment to Owens-Illinois, Inc. Directors Deferred
Compensation Plan (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, File No. 1-9576, and incorporated herein by reference).
10.33 * -- 1997 Equity Participation Plan of Owens-Illinois, Inc. (filed
as Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, File No. 1-9576, and
incorporated herein by reference).
10.34 * -- First Amendment to 1997 Equity Participation Plan of Owens-
Illinois, Inc. (filed as Exhibit 4.2 to the Registrant's Form
S-8, File No. 333-47691, and incorporated herein by reference).
10.35 * -- Form of Non-Qualified Stock Option Agreement for use under the
1997 Equity Participation Plan of Owens-Illinois, Inc. (filed
as Exhibit 4.3 to the Registrant's Form S-8, File No. 333-
47691, and incorporated herein by reference).
10.36 * -- Form of Restricted Stock Agreement for use under the 1997
Equity Participation Plan of Owens-Illinois, Inc. (filed as
Exhibit 4.4 to the Registrant's Form S-8, File No. 333-47691,
and incorporated herein by reference).
12 -- Computation of Ratio of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock Dividends (filed
herewith).
21 -- Subsidiaries of the Registrant (filed herewith).
23.1 -- Consent of Independent Auditors (filed herewith).
23.2 -- Consent of McCarter & English, LLP (filed herewith).
24 -- Owens-Illinois, 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
No reports on Form 8-K were filed by the Registrant during the last quarter of
1998.
86
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
OWENS-ILLINOIS, INC.
(Registrant)
By/s/ James W. Baehren
-------------------------
James W. Baehren
Corporate Secretary and
Associate General Counsel
Date: March 31, 1999
87
<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 in the capacities and on the dates indicated.
Signature Title
--------- -----
James H. Greene, Jr. Director
Robert J. Lanigan 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
David G. Van Hooser Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Edward C. White Controller (Principal Accounting Officer)
Thomas L. Young Executive Vice President, Administration and General
Counsel; Director
By/s/ James W. Baehren
--------------------
James W. Baehren
Attorney-in-fact
Date: March 31, 1999
88
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULE
Financial Statement Schedule of Owens-Illinois, Inc. and Subsidiaries:
For the years ended December 31, 1998, 1997, and 1996:
PAGE
----
II -- Valuation and Qualifying Accounts (Consolidated) . . . . . . . S-1
<PAGE>
OWENS-ILLINOIS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (CONSOLIDATED)
Years ended December 31, 1998, 1997, and 1996
(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
---------------------------------------------------------
1998 . . . . . . . $ 52.9 $ 61.2 $ 0.0 $ 57.2 $ 56.9
======= ======= ======= ======= =======
1997 . . . . . . . $ 40.6 $ 51.3 $ 0.0 $ 39.0 $ 52.9
======= ======= ======= ======= =======
1996 . . . . . . . $ 39.7 $ 38.5 $ 0.0 $ 37.6 $ 40.6
======= ======= ======= ======= =======
(1) Deductions from allowances for losses and discounts on receivables
represent uncollectible notes and accounts written off.
S-1
<PAGE>
Exhibit 12 -- Page 1 of 2
OWENS-ILLINOIS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Millions of dollars, except ratios)
Years ended December 31,
-----------------------------------
Pro Forma
As Adjusted For
BTR Packaging
Acquisition
1998 1998 1997
------ --------------- ------
Earnings before income taxes, minority
share owners' interests, and
extraordinary items . . . . . . . . $209.0 $256.2 $452.3
Less: Equity earnings . . . . . . . . (16.0) (16.0) (17.9)
Add: Total fixed charges deducted
from earnings. . . . . . . . . 404.8 459.6 324.1
Proportional share of pre-tax
earnings of 50% owned
associates . . . . . . . . . . 7.2 7.2 2.8
Dividends received from less
than 50% owned associates. . . 6.6 6.6 4.8
------ ------ ------
Earnings available for
payment of fixed charges . . $611.6 $713.6 $766.1
====== ====== ======
Fixed charges (including the Company's
proportional share of 50% owned
associates):
Interest expense . . . . . . . . . $372.6 $422.9 $298.7
Portion of operating lease rental
deemed to be interest. . . . . . 24.8 25.9 21.3
Amortization of deferred financing
costs and debt discount expense. 7.4 10.8 4.1
------ ------ ------
Total fixed charges
deducted from earnings
and total fixed charges. . . $404.8 $459.6 $324.1
Preferred stock dividends (increased
to assumed pre-tax amount) . . . . . 21.3 33.6 2.2
------ ------ ------
Combined fixed charges and preferred
stock dividends. . . . . . . . . . . $426.1 $493.2 $326.3
====== ====== ======
Ratio of earnings to fixed charges . . 1.5 1.6 2.4
Ratio of earnings to combined fixed
charges and preferred stock
dividends. . . . . . . . . . . . . . 1.4 1.4 2.3
E-1
<PAGE>
Exhibit 12 -- Page 2 of 2
OWENS-ILLINOIS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Millions of dollars, except ratios)
Years ended December 31,
--------------------------
1996 1995 1994
------ ------ ------
Earnings before income taxes, minority share
owners' interests, and extraordinary items . . $324.1 $310.0 $171.3
Pretax earnings of majority-owned subsidiary not
consolidated . . . . . . . . . . . . . . . . . 8.7
Less: Equity earnings . . . . . . . . . . . . . (15.2) (14.4) (22.3)
Add: Total fixed charges deducted from
earnings . . . . . . . . . . . . . . . . 324.3 321.1 298.0
Proportional share of pre-tax earnings of
50% owned associates . . . . . . . . . .
Dividends received from less than 50%
owned associates . . . . . . . . . . . . 2.7 3.7 2.9
------ ------ ------
Earnings available for payment of
fixed charges. . . . . . . . . . . . . $635.9 $620.4 $458.6
====== ====== ======
Fixed charges (including the Company's
proportional share of 50% owned associates):
Interest expense . . . . . . . . . . . . . . $297.6 $294.6 $273.1
Portion of operating lease rental deemed
to be interest . . . . . . . . . . . . . . 21.7 21.5 19.8
Amortization of deferred financing costs and
debt discount expense. . . . . . . . . . . 5.0 5.0 5.1
------ ------ ------
Total fixed charges deducted from
earnings and total fixed charges . . . $324.3 $321.1 $298.0
Preferred stock dividends (increased to assumed
pre-tax amount). . . . . . . . . . . . . . . . 2.2 2.6 3.1
------ ------ ------
Combined fixed charges and preferred stock
dividends. . . . . . . . . . . . . . . . . . . $326.5 $323.7 $301.1
====== ====== ======
Ratio of earnings to fixed charges . . . . . . 2.0 1.9 1.5
Ratio of earnings to combined fixed charges and
preferred stock dividends. . . . . . . . . 1.9 1.9 1.5
E-2
<PAGE>
EXHIBIT 21
OWENS-ILLINOIS, INC.
SUBSIDIARIES OF THE REGISTRANT
The Registrant had the following subsidiaries at December 31, 1998 (subsid-
iaries are indented following their respective parent companies):
State/Country of Incorporation
Name or Organization
- ---- ------------------------------
Owens-Illinois Group, Inc. Delaware
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
O-I Brazil Closure Inc. Delaware
OI Tampas do Brasil Ltda. Brazil
OI Plastic Products FTS Inc. Delaware
Owens-Illinois Prescription Products Inc. Delaware
OI Medical Inc. Delaware
MARC Industries, Inc. Delaware
EntraCare Corporation Kansas
MARC Medical Inc. Kansas
Precision Medical Molding, Inc. Missouri
K&M Plastics, Inc. Kansas
Specialtiy Packaging Products de Mexico,
S.A. de C.V. Mexico
OI Medical Holdings Inc. Delaware
Anamed International, Inc. Nevada
Martell Medical Products, Inc. California
Owens-BriGam Medical Company Delaware
BriGam, Inc. North Carolina
BriGam Medical Inc. North Carolina
BriGam Ventures, Inc. North Carolina
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
OI Australia Inc. Delaware
Continental PET Holdings Pty. Ltd. Australia
ACI America Holdings Inc. Delaware
Continental PET Technologies Inc. Delaware
Continental PET Technologies de
Mexico, S.A. de C.V. Mexico
Continental PET Technologies
Magyaoroszag Kft. Hungary
Continental PET do Brasil Ltda. Brazil
E-3
<PAGE>
Subsidiaries of the Registrant (continued)
State/Country of Incorporation
Name or Organization
- ---- ------------------------------
Owens-Illinois Labels Inc. Delaware
OI Venezuela Plastic Products Inc. Delaware
OI Plasticos de Venezuela C.A. Venezuela
OI General FTS Inc. Delaware
OI Castalia STS Inc. Delaware
OI Levis Park STS Inc. Delaware
OI AID STS Inc. Delaware
Owens-Illinois Leasing, 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
OIB Produvisa Inc. Delaware
OI Consol STS Inc. Delaware
OI Finance Ltd. Ireland
OI Puerto Rico STS Inc. Delaware
Owens-Illinois de Puerto Rico Ohio
OI Venezuela STS Inc. Delaware
Owens Brockway Venezuelan Holding, C.A. Venezuela
Centro Vidriero de Venezuela, C.A. Venezuela
Manufacturera de Vidrios Planos, C.A. Venezuela
OIV Holding, 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
E-4
<PAGE>
Subsidiaries of the Registrant (continued)
State/Country of Incorporation
Name or Organization
- ---- ------------------------------
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
PET Technologies B.V. Netherlands
BTR China Holdings B.V. Netherlands
ACI Qingdao Plastic Packaging Co. Ltd. China
Owens-Illinois (HK) Ltd. Hong Kong
ACI Guangdong Ltd. Hong Kong
ACI Guangdong Glass Company Ltd. China
ACI Shanghai Ltd. Hong Kong
ACI Shanghai Glass Company Ltd. China
ACI Tianjin Ld. Hong Kong
ACI Tianjin Mould Company Ltd. China
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
PET Technologies Limited United Kingdom
OI Poland Inc. Delaware
Huta Szkla Jaroslaw S.A. Poland
Huta Szkla Antoninek Sp.zo.o Poland
OI Hungary Inc. Delaware
United Hungarian Glass Containers Kft. Hungary
OI Italy Inc. Delaware
OI Italy Holdings Inc. Delaware
OI Italia S.r.l. Italy
AVIR S.p.A. Italy
Avirunion, a.s. Czech Republic
Sonator Investments B.V. Netherlands
Vidrieria Rovira, S.A. Spain
OI India Inc. Delaware
Owens-Brockway (India) 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-5
<PAGE>
Subsidiaries of the Registrant (continued)
State/Country of Incorporation
Name or Organization
- ---- ------------------------------
Owens-Illinois (Australia) Pty. Ltd. Australia
BTR Nylex Ltd. Australia
ACI Operations Pty. Ltd. Australia
ACI Plastics Packaging (Thailand) Ltd. Thailand
Nonken Pty. Ltd. Australia
Beadle Pty. Ltd. Australia
ACI International Ltd. Australia
OI Andover Group Inc. Delaware
The Andover Group Inc. Delaware
Breadalbane Shipping PTE Ltd. Singapore
P.T. Kangar Consolidated
Industries Ltd. Indonesia
Owens-Illinois (NZ) Ltd. New Zealand
ACI Operations New Zealand
Ltd. New Zealand
E-6
<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. 333-47519) of Owens-Illinois, Inc. and in the related
Prospectus, in the Registration Statement (Form S-8 No. 333-67377) pertaining
to the Amended and Restated Owens-Illinois, Inc. Stock Purchase and Savings
Program, the Amended and Restated Owens-Illinois, Inc. Long-Term Savings Plan,
and the Owens-Illinois de Puerto Rico 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., in the
Registration Statement (Form S-8 No. 33-57141) pertaining to the Stock Option
Plan for Directors of Owens-Illinois, Inc., and in the Registration Statement
(Form S-8 No. 333-47691) pertaining to the 1997 Equity Participation Plan of
Owens-Illinois, Inc. of our report dated February 4, 1999 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,
1998.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Toledo, Ohio
March 31, 1999
E-7
<PAGE>
EXHIBIT 23.2
CONSENT OF MCCARTER & ENGLISH, LLP
March 30, 1999
Ladies and Gentlemen:
We consent to the incorporation by reference in this Annual Report on
Form 10-K of Owens-Illinois, Inc. for the year ended December 31, 1998, of
the reference to our firm under the caption "Legal Proceedings."
Very truly yours,
/s/McCarter & English, LLP
--------------------------
McCarter & English, LLP
E-8
<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 David G. Van Hooser,
James W. Baehren, 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 1998 Annual
Report on Form 10-K of Owens-Illinois, Inc., a corporation 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 and 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 3/31/99
- ------------------------- Directors and Chief Executive --------
Joseph H. Lemieux Officer (Principal Executive
Officer); Director
Thomas L. Young Executive Vice President, 3/31/99
- ------------------------- Administration and General --------
Thomas L. Young Counsel; Director
Robert J. Lanigan Chairman Emeritus of 3/31/99
- ------------------------- the Board of Directors; --------
Robert J. Lanigan Director
Director
- ------------------------- --------
Robert J. Dineen
Director
- ------------------------- --------
Edward A. Gilhuly
James H. Greene, Jr. Director 3/31/99
- ------------------------- --------
James H. Greene, Jr.
E-9
<PAGE>
Signature Title Date
- --------- ----- --------
Director
- ------------------------- --------
Henry R. Kravis
Director
- ------------------------- --------
Robert I. MacDonnell
John J. McMackin, Jr. Director 3/31/99
- ------------------------- --------
John J. McMackin, Jr.
Michael W. Michelson Director 3/31/99
- ------------------------- --------
Michael W. Michelson
George R. Roberts Director 3/31/99
- ------------------------- --------
George R. Roberts
David G. Van Hooser Senior Vice President and 3/31/99
- ------------------------- Chief Financial Officer --------
David G. Van Hooser (Principal Financial Officer)
Edward C. White Controller (Principal 3/31/99
- ------------------------- Accounting Officer) --------
Edward C. White
E-10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 292,500,000
<SECURITIES> 0
<RECEIVABLES> 877,700,000
<ALLOWANCES> 56,900,000
<INVENTORY> 838,100,000
<CURRENT-ASSETS> 2,177,100,000
<PP&E> 5,394,100,000
<DEPRECIATION> 1,967,100,000
<TOTAL-ASSETS> 11,060,700,000
<CURRENT-LIABILITIES> 1,327,100,000
<BONDS> 5,758,400,000
0
470,800,000
<COMMON> 1,500,000
<OTHER-SE> 1,999,700,000
<TOTAL-LIABILITY-AND-EQUITY> 11,060,700,000
<SALES> 5,306,300,000
<TOTAL-REVENUES> 5,499,300,000
<CGS> 4,075,600,000
<TOTAL-COSTS> 4,075,600,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 61,200,000
<INTEREST-EXPENSE> 380,000,000
<INCOME-PRETAX> 209,000,000
<INCOME-TAX> 66,700,000
<INCOME-CONTINUING> 122,100,000
<DISCONTINUED> 0
<EXTRAORDINARY> (14,100,000)
<CHANGES> 0
<NET-INCOME> 108,000,000
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
