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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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, 2000
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 of other jurisdiction (Commission (IRS Employer
of
incorporation or file number) Identification No.)
organization
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 New York Stock Exchange
value, $50 liquidation preference........
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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 ___
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. / /
The aggregate market value (based on the consolidated tape closing price on
February 28, 2001) of the voting stock beneficially held by non-affiliates of
Owens-Illinois, Inc. was approximately $826,165,000. 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, 2001 was 144,954,443.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Owens-Illinois, Inc. Proxy Statement for The Annual Meeting of Share
Owners To Be Held Wednesday, May 9, 2001 ("Proxy Statement").
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TABLE OF CONTENTS
PART I........................................................................... 1
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 7
ITEM 3. Legal Proceedings........................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders......... 11
Executive Officers of the Registrant........................ 11
PART II.......................................................................... 14
ITEM 5. Market for Owens-Illinois, Inc.'s Common Stock and Related
Share Owner Matters......................................... 14
ITEM 6. Selected Financial Data..................................... 14
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
ITEM 7.(A). Qualitative and Quantitative Disclosures About Market
Risk........................................................ 23
ITEM 8. Financial Statements and Supplementary Data................. 26
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 55
PART III......................................................................... 56
ITEM 10. Directors and Executive Officers of the Registrant.......... 56
ITEM 11. Executive Compensation and Certain Relationships and Related
Transactions................................................ 56
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 56
PART IV.......................................................................... 56
ITEM 14.(A). Exhibits and Financial Statement Schedules.................. 56
ITEM 14.(B). Reports on Form 8-K......................................... 61
Signatures....................................................................... 62
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
China, and one of the largest in Europe, the Company is a leading manufacturer
in North America of plastic containers, plastic closures, plastic prescription
containers, and multipack plastic carriers for beverage bottles. The Company
also has plastics packaging operations in South America, Australia, Europe, and
Asia. 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 1996
through 2000, the Company has invested more than $2.2 billion in capital
expenditures (excluding acquisition expenditures) and more than $325 million in
research, development and engineering to, among other things, increase capacity
in key locations, commercialize its technology into new products, and improve
productivity.
In May 1999 the Company's Board of Directors authorized the management of
the Company to repurchase up to 10 million shares of common stock and in
February 2000 to repurchase up to an additional 10 million shares. As of
December 31, 2000, Owens-Illinois had repurchased approximately 12.0 million
shares. In January 2001, the company redeemed the remaining outstanding shares
of exchangeable preferred stock that were issued in 1993. The redeemed
exchangeable preferred shares were equivalent to 910,697 shares of the company's
common stock. The Company intends to purchase its common stock from time to time
on the open market depending on market conditions and other factors.
Since 1991, the Company has acquired 17 glass container businesses in 17
countries, including businesses in Central and Eastern Europe and in the Asia
Pacific region, and six 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.
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
subsidiaries, and extraordinary charges ("EBIT"), and total assets by product
segment is included on pages 50 - 53.
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.
1
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 China, the
Company is also a leading manufacturer of glass packaging in Europe. Worldwide
glass container sales represented 64%, 66%, and 68% of the Company's
consolidated net sales for the years ended December 31, 2000, 1999, and 1998,
respectively. The Company believes that its internally-designed glass forming
machines are significantly more efficient and productive than those used by its
competitors, making it the low-cost manufacturer and a recognized technological
leader in the industry.
The Company currently has technical assistance agreements with 19 different
companies in 19 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 and is active with new product development.
The Company's product development efforts in glass containers are aimed to
provide custom designed and value-added packaging systems to customers and
consumers. Product lines designed to complement glass containers include product
extensions related to single service packages for teas, juices and soft drinks
and innovative secondary packaging systems such as closures, carriers and
labeled containers.
CUSTOMERS. Beer, food (which 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 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
industry end uses. 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 supply agreements, which
specify estimated quantities to be shipped as a percentage of the customers'
total annual shipment requirements. Containers are typically scheduled for
production in response to customers' orders for their quarterly requirements.
MARKETS AND COMPETITIVE CONDITIONS. The Company has glass container
operations located in 19 countries. The principal markets for the Company's
glass products are in North America, Europe, Australia, and South America. The
Company has the leading market share of the glass segment of United States beer
and food (including juice and teas) packaging. Internationally, the Company is
the leading producer of glass containers in most of the geographic markets in
which it is located.
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, a wholly-owned subsidiary of Canadian-based Consumers
Packaging, Inc. The principal competitor producing glass containers outside the
U.S. market is Saint-Gobain. As well as competing with other large,
well-established manufacturers in the glass container
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segment, the Company's glass products compete with other forms of rigid
packaging, principally aluminum cans and plastic bottles, on the basis of
quality, service, and price. The principal competitors producing metal
containers are Rexam PLC, Ball Corporation, Crown Cork & Seal Company, Inc., and
Silgan Holdings Inc. In the metal container market, no one competitor is
dominant. The principal competitors supplying plastic containers are
Consolidated Container Company LLC, (a subsidiary of Consolidated Container
Holdings formed to own all of the plastics packaging assets of Reid Plastics and
substantially all of the U.S. plastic packaging assets of Suiza Foods, which
consist of Franklin Plastics and Plastic Containers), 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 generally
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, the international glass operations export some
products to customers beyond their national boundaries, which may include
transportation by rail and ocean delivery in combination with common carriers.
The Company also operates several machine and mold shops, which manufacture
high-productivity glass-forming machines, molds, and related equipment.
DOMESTIC GLASS OPERATIONS. The Company has an approximate 46% share of the
glass container category of the U.S. rigid packaging market. Domestically, the
Company operates 18 glass container manufacturing facilities and two machine
shops which manufacture high-productivity glass-forming machines and equipment.
Marketing under the trade name Owens-Brockway, the Company believes that its
2000 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 2000, 1999, and 1998.
During 2000, total glass container industry shipments within the United
States rigid packaging market were slightly below 1999 shipment levels. The
Company's share of the United States glass container market remained relatively
stable during this time. Overall, the Company expects glass containers' share of
the United States rigid packaging market to decline compared to 2000 levels and
that the Company will maintain its share of the glass container segment due to
new market opportunities such as microbrew beers, excellent cost control and
proprietary technology.
The glass container industry in the United States continues to recycle used
glass containers into new glass containers. In addition, recycling content
legislation which has been enacted in California requires that thirty-five
percent of recycled glass be included in the production of new glass containers.
The Company is an important part of the recycling effort and continues to melt
substantial recycled glass tonnage in all of 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 saves energy, reduces costs as well as
consumption of raw materials, and diverts billions of bottles and jars annually
from landfills. 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 23 companies located in 18 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
3
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
Europe, Australia, and South America.
Although unusually severe economic and market conditions in South America
and Europe have adversely affected the Company's 2000 and 1999 operating
results, unit shipments of glass containers in countries outside of the United
States have grown substantially from levels of the early 1990's. In many
regions, international glass operations have benefited 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 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:
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
ACI New Zealand Glass Manufacturers, New Zealand............ 100.0
Vidrieria Rovira, S.A., Spain............................... 100.0
United Glass Ltd., United Kingodm........................... 100.0
Manufacturera de Vidrios Planos, C.A., Venezuela............ 100.0
A/S Jarvakandi Klaas, Estonia............................... 99.9
Huta Szkla Jaroslaw S.A., Poland............................ 99.2
Vidrios Industriales, S.A., Peru............................ 96.0
Owens-Illinois de Puerto Rico, Puerto Rico.................. 80.0
Huta Szkla Antoninek Sp.zo.o, Poland........................ 80.0
Companhia industrial Sao Paulo e Rio, Brazil................ 79.4
Owens-Illinois de Venezuela, C.A., Venezuela................ 74.0
ACI Guangdong Glass Company Ltd., China..................... 70.0
ACI Shanghai Glass Company Ltd., China...................... 70.0
Wuhan Owens Glass Container Company Ltd., China............. 70.0
Cristaleria del Ecuador, S.A., Ecuador...................... 69.0
Cristaleria Peldar, S. A., Colombia......................... 58.4
PT Kangar Consolidated Industries, Indonesia................ 50.2
PLASTICS PACKAGING PRODUCT SEGMENT
The Company is a leading plastic container manufacturer in North America,
with operations also located in South America, Australia, Europe, and Asia. The
Company is the market leader in most
4
plastic segments in which it competes. Plastic container sales represented 22%,
20%, and 18%, and of the Company's consolidated net sales for the years ended
December 31, 2000, 1999, and 1998, respectively. The Company's Plastics
Packaging segment is comprised of three business units.
PLASTIC CONTAINERS. This unit, with 48 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 mono and multi-material 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 17 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 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 as well as the proprietary
Contour-Pak-Registered Trademark- plastic carrier line for bottles. This carrier
line is predominantly used as six-pack and four-pack carriers for iced teas and
other fruit drinks.
PRESCRIPTION PRODUCTS. The Company's Prescription Products unit
manufactures prescription containers. These products are sold primarily to drug
wholesalers, major drug chains, mail order pharmacy and the government.
Containers for prescriptions include plastic and glass ovals, vials, ointment
jars, dropper bottles and automation friendly RX bottles and closures. 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 and closure system), 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 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-Registered Trademark- and
PlasTop-Registered Trademark- tamper-evident closures, Clic
Loc-Registered Trademark-, Argus-Loc-Registered Trademark-, and
Ultra-Loc-Registered Trademark- child-resistant closures, and
1-Clic-Registered Trademark- 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 certain new plastic
containers. The Company has met such legislated standards in part due to its
material and multilayer process technology.
5
The Company's Plastics Packaging segment currently has technical assistance
agreements or cross-licenses with 37 companies in 20 countries. These
agreements, which cover areas ranging from manufacturing and engineering
assistance to support in functions such as marketing, sales, and administration,
allow the Company to participate in the worldwide growth of the plastic
packaging industry.
ADDITIONAL INFORMATION
NEW PRODUCTS. New products and numerous refinements of existing products
are developed and introduced in each segment every year. No single new product
or refinement, or group of new products and refinements, have been recently
introduced or are scheduled for introduction which required the investment of a
material amount of the Company's assets or which otherwise would be considered
material.
SOURCES AND AVAILABILITY OF RAW MATERIALS. All of the raw materials the
Company uses have historically been available in adequate supply from multiple
sources. However, for certain raw materials, there may be temporary shortages
due to weather or other factors, including disruptions in supply caused by raw
material transportation or production delays; such shortages are not expected to
have a material effect on the Company's operations.
PATENTS AND LICENSES. The Company has a large number of patents which
relate to a wide variety of products and processes, has pending a substantial
number of patent applications, and is licensed under several patents of others.
While in the aggregate its patents are of material importance to its business,
the Company does not consider that any patent or group of patents relating to a
particular product or process is of material importance when judged from the
standpoint of any segment or its business as a whole.
SEASONALITY. Sales of particular products of the Glass Containers and
Plastics 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., Pepsico, 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
$46.7 million, $37.5 million, and $36.4 million for 2000, 1999, and 1998,
respectively. Operating engineering expenditures were $31.3 million,
$42.2 million, and $34.8 million for 2000,1999, and 1998, 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 2000, 1999, or 1998.
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
6
expenditures for property, plant, and equipment for environmental control
activities were not material during 2000.
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, 2001, 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 2000 and 1999, many plastic containers for products other than
food, drugs, and cosmetics contained 25% post consumer resin. The Company
believes it is an 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 34,400
persons at December 31, 2000. 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 50 - 53. Export sales, in the
aggregate or by geographic area, were not material for the years 2000, 1999, or
1998.
ITEM 2. PROPERTIES
The principal manufacturing facilities and other material important physical
properties of the continuing operations of the Company at December 31, 2000 are
listed below and grouped by product segment. All properties shown are owned in
fee except where otherwise noted.
GLASS CONTAINERS
NORTH AMERICAN OPERATIONS
United States
Glass Container Plants
Atlanta, GA Oakland, CA
Auburn, NY Portland, OR
Charlotte, MI Streator, IL
Clarion, PA Toano, VA
Crenshaw, PA Tracy, CA
Danville, VA Volney, NY (3)
Hayward, CA Waco, TX
Lapel, IN Winston-Salem, NC
Los Angeles, CA Zanesville, OH
Muskogee, OK
Machine Shops
Brockway, PA Godfrey, IL
Puerto Rico
Glass Container Plant
Vega Alta
7
ASIA PACIFIC OPERATIONS
Australia
Glass Container Plants
Adelaide Perth
Brisbane Sydney
Melbourne
Mold Shop
Melbourne
Raw Materials Plants (4)
Beachworth Lang Lang
Caroline Port Parham
Dandenong Port Stephens
Glenshera North Stradbroke Island
Tantanoola
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
Asti Pordenone
Bari (2 plants) Rome
Bologna Terni
Milan (2 plants) Trento (2 plants)
Napoli Treviso
Mold Shop
Napoli
Poland
Glass Container Plants
Jaroslaw Poznan
Spain
Glass Container Plant
Barcelona
United Kingdom
Glass Container Plants
Alloa Harlow
Sand Plant
Devilla
8
SOUTH AMERICAN OPERATIONS
Brazil
Glass Container Plants
Rio de Janeiro Sao Paulo
Machine Shop
Manaus
Colombia
Glass Container Plants
Envigado Zipaquira
Soacha
Tableware Plant
Buga
Machine Shop
Cali
Ecuador
Glass Container Plant
Guayaquil
Peru
Glass Container Plants
Callao Surquillo
Venezuela
Glass Container Plants
La Victoria Valera
Valencia
PLASTICS PACKAGING
NORTH AMERICAN OPERATIONS
HDPE (High Density Polyethylene)
and
PET (Polyethylene
Terephthalate)
Container Plants
United States
Atlanta, GA Kansas City, MO (2)
Baltimore, MD Kissimmee, FL
Bedford, NH La Mirada, CA (2)
Belvidere, NJ Modesto, CA
Cartersville, GA Nashua, NH
Chicago, IL Newburyport, MA
Cincinnati, OH Rockwall, TX
Edison, NJ Rocky Mount, NC
Findlay, OH Rossville, GA (2)
Florence, KY (2 plants) St. Louis, MO (2)
Fremont, OH Sullivan, IN
Greenville, SC Tolleson, AZ
Harrisonburg, VA Vandalia, IL
Hazleton, PA Washington, NJ (2)
Henderson, NV
Mexico
Mexico City
Pachuca
Closure and Specialty Products
Plants
United States
Bridgeport, CT Erie, PA
Brookville, PA Franklin, IN
Constantine, MI Hamlet, NC
El Paso, TX (2) Maumee, OH (2)
Puerto Rico
Las Piedras
Prescription Products Plant
United States
Berlin, OH (1)
9
ASIA PACIFIC OPERATIONS
Plastic Container Plants
Australia
Adelaide Perth
Brisbane Sydney (2 plants)
Berri Wadonga
Melbourne (2 plants)
New Zealand
Auckland Christchurch
Closure Plants
Australia
Brisbane (2 plants) Perth
Drouin Sydney
Melbourne (3 plants)
EUROPEAN OPERATIONS
Plastic Container Plants
Finland
Ryttyla
Hungary
Gyor
Netherlands
Etten-Leur
United Kingdom
Chalgrove
SOUTH AMERICAN OPERATIONS
Plastic Container Plants
Brazil
Sorocaba
Venezuela
Valencia
OTHER
Label and Carrier Products Plant
Bardstown, KY (4)
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.
(3) Subsequent to December 31, 2000, this facility will be shut down.
(4) Subsequent to December 31, 2000, these facilities were sold.
The Company believes that its facilities are well maintained and currently
adequate for its planned production requirements over the next three to five
years.
10
ITEM 3. LEGAL PROCEEDINGS
See the section entitled "Contingencies" on pages 48 - 50.
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, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AND AGE POSITION
- ------------ --------
Joseph H. Lemieux (70)....................... 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 2003.
R. Scott Trumbull (52)....................... 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 (59)....................... Executive Vice President, Plastics Group General
Manager since 2000; Executive Vice President, Latin
American Operations, 1998-2000; 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 (57)......................... 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 (54)..................... 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.
John Bachey (52)............................. Vice President since 1997; Vice President of Glass
Container Sales and Marketing since 2000; General
Manager, European and Latin American Plastics
Operations, 1999-2000; General Manager, Europe and
Latin America, Continental PET Technologies,
1998-1999; Vice President of Glass Container Sales
and Marketing, 1996-1997; Vice President and General
Manager, West Coast, 1993-1996.
11
NAME AND AGE POSITION
- ------------ --------
James W. Baehren (50)........................ Corporate Secretary since 1998; Associate General
Counsel since 1996; Assistant General Counsel,
1992-1996.
Joseph V. Conda (59)......................... Vice President since 1998; Vice President and General
Manager of Prescription Products since 2000; Vice
President of Glass Container Sales and Marketing,
1997-2000; Vice President and General Manager of
Prescription Products, 1996-1997.
Thomas E. Coyle (50)......................... Vice President since 1999; Vice President and
Director of Marketing and Business Development for
Plastic Containers since 2000; Vice President and
General Manager of Prescription Products, 1997-2000;
Vice President of Plastic Containers Operations,
1991-1997.
L. Richard Crawford (39)..................... Vice President since 2000; Manufacturing Manager of
Domestic Glass Container since 2000; Vice President
of Domestic Glass Container and Area Manufacturing
Manager, West Coast, 1997-2000; Domestic Glass
Container Area Manufacturing Manager, 1994-1997.
Jeffrey A. Denker (53)....................... Treasurer since 1998; Assistant Treasurer, 1988-1998;
Director of International Finance, 1987-1998.
Larry A. Griffith (55)....................... 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, 1996-1998; 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.
W. Bruce Larsen (47)......................... Vice President since 1997; Vice President and General
Manager of Plastic Containers since 1999; Vice
President and Director of Operations, Plastic
Containers 1998-1999; Vice President and Director of
Manufacturing, Plastic Containers, 1993-1998.
Gerald J. Lemieux (43)....................... 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 (52)..................... 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 (61).......................... Vice President and General Counsel -- Corporate since
1988.
12
NAME AND AGE POSITION
- ------------ --------
Gilberto Restrepo (60)....................... Vice President since 2000; General Manager of Latin
American Glass Container Operations since 2000; Vice
President of International Operations and General
Manager, Western Region--Latin America, 1997-2000;
President of Cristaleria Peldar, S.A., since 1982.
Peter J. Robinson (57)....................... Vice President since 1999; General Manager of Asia
Pacific Operations since 1998; Chief Executive of ACI
Packaging Group, 1988-1998.
Robert A. Smith (59)......................... 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 (57).......................... Vice President since 1999; General Manager of
Southern and Central Europe Operations since 1999;
President of Avir S.p.A., 1994-1999; Vice President
of Avir S.p.A., 1977-1994.
Edward C. White (53)......................... Controller since 1999. Vice President and Director of
Finance, Planning, and Administration --
International Operations, 1997-1999; Financial
Director of the Company's affiliates in Finland and
Poland, 1996-1997; President, Coe Press Equipment
Company, 1995-1996
13
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:
2000 1999
------------------------ -------------------------
HIGH LOW HIGH LOW
---------- ----------- ----------- -----------
First Quarter..................................... 24 7/8 13 1/4 32 3/4 22
Second Quarter.................................... 17 3/4 11 1/16 33 7/16 23 5/8
Third Quarter..................................... 14 3/8 9 32 3/16 19 7/16
Fourth Quarter.................................... 9 7/8 2 1/2 25 7/16 19 5/16
The number of share owners of record on January 31, 2001 was 1,279.
Approximately 75 percent of the outstanding shares were registered in the name
of Depository Trust Company, or CEDE, which held such shares on behalf of 242
brokerage firms, banks, and other financial institutions. The shares attributed
to these financial institutions, in turn, represented the interests of more than
25,000 unidentified beneficial owners. 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 fourth paragraph of the section
entitled "Long-Term Debt" on page 37.
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, 2000. 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,
----------------------------------------------------
2000 1999 1998(a) 1997(b) 1996
-------- -------- -------- -------- --------
(Dollar amounts in millions)
Consolidated operating results:
Net sales.................................... $5,552.1 $5,522.9 $5,306.3 $4,658.5 $3,845.7
Other revenue(c)............................. 262.7 263.8 193.0 169.9 130.5
-------- -------- -------- -------- --------
5,814.8 5,786.7 5,499.3 4,828.4 3,976.2
Costs and expenses:
Manufacturing, shipping and delivery......... 4,359.1 4,296.4 4,075.6 3,666.4 3,025.6
Research, engineering, selling,
administrative and other(d)................ 1,360.6 566.6 834.7 407.0 323.9
-------- -------- -------- -------- --------
Earnings before interest expense and items
below...................................... 95.1 923.7 589.0 755.0 626.7
Interest expense............................. 486.7 425.9 380.0 302.7 302.6
-------- -------- -------- -------- --------
Earnings (loss) before items below........... (391.6) 497.8 209.0 452.3 324.1
Provision (credit) for income taxes(e)....... (143.9) 185.5 66.7 148.5 104.9
Minority share owners' interests in earnings
of subsidiaries............................ 22.0 13.2 20.2 31.4 28.1
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary items... (269.7) 299.1 122.1 272.4 191.1
Extraordinary charges from early
extinguishment of debt, net of applicable
income taxes............................... (0.8) (14.1) (104.5)
-------- -------- -------- -------- --------
Net earnings (loss).......................... $ (269.7) $ 298.3 $ 108.0 $ 167.9 $ 191.1
======== ======== ======== ======== ========
14
Years ended December 31,
----------------------------------------------------
2000 1999 1998(a) 1997(b) 1996
-------- -------- -------- -------- --------
(Dollar amounts in millions, except per share data)
Basic earnings (loss) per share of common
stock:
Earnings (loss) before extraordinary
items................................... $ (2.00) $ 1.80 $ 0.71 $ 2.03 $ 1.58
Extraordinary charges..................... (0.01) (0.09) (0.78)
-------- -------- -------- -------- --------
Net earnings (loss)....................... $ (2.00) $ 1.79 $ 0.62 $ 1.25 $ 1.58
======== ======== ======== ======== ========
Weighted average shares outstanding (in
thousands).............................. 145,983 153,804 149,970 133,597 120,276
======== ======== ======== ======== ========
Diluted earnings (loss) per share of
common stock:
Earnings (loss) before extraordinary
items................................... $ (2.00) $ 1.79 $ 0.71 $ 2.01 $ 1.55
Extraordinary charges..................... (0.01) (0.09) (0.77)
Net earnings (loss)....................... $ (2.00) $ 1.78 $ 0.62 $ 1.24 $ 1.55
======== ======== ======== ======== ========
Diluted average shares (in thousands)..... 145,983 155,209 150,944 135,676 123,567
======== ======== ======== ======== ========
For the year ended December 31, 2000, diluted earnings per share of common
stock are equal to basic earnings per share of common stock due to the net loss.
The Company's convertible preferred stock was not included in the computation of
1999 and 1998 diluted earnings per share since the result would have been
antidilutive. The Company's exchangeable preferred stock was not included in the
computation of 1998 diluted earnings per share since the result would have been
antidilutive. Options to purchase 3,357,449, 1,160,667, 11,429, and 146,975
weighted average shares of common stock which were outstanding during 1999,
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.
Years ended December 31,
-------------------------------------------------------
2000 1999 1998(a) 1997(b) 1996
--------- --------- --------- -------- --------
(Dollar amounts in millions)
Other data:
The following are included in net
earnings:
Depreciation............................ $ 412.6 $ 403.7 $ 358.5 $ 283.5 $ 219.8
Amortization of excess cost and
intangibles........................... 126.8 132.7 98.0 55.9 46.8
Amortization of deferred finance fees
(included in interest expense)........ 10.1 8.9 7.4 4.1 5.0
--------- --------- --------- -------- --------
$ 549.5 $ 545.3 $ 463.9 $ 343.5 $ 271.6
========= ========= ========= ======== ========
Balance sheet data (at end of period):
Working capital......................... $ 764 $ 837 $ 850 $ 604 $ 380
Total assets............................ 10,343 10,756 11,061 6,845 6,105
Total debt.............................. 5,850 5,939 5,917 3,324 3,395
Share owners' equity.................... 1,883 2,350 2,472 1,342 730
- ------------------------
(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.
15
(b) Results of operations and other data since January 1997 include the
acquisition of AVIR S.p.A. Also during 1997, the Company implemented a
refinancing plan.
(c) Other revenue in 1999 includes gains totaling $40.8 million ($23.6 million
after tax and minority share owners' interests) related to the sales of a
U.S. glass container plant and a mold manufacturing business in Colombia.
Other revenue in 1998 includes: (1) a gain of $18.5 million
($11.4 million after tax) 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 after tax) on the sale of a discontinued operation by an
equity investee.
Other revenue in 1997 includes a gain of $16.3 million ($16.3 million
after tax) from the sale of the remaining 49% interest in Kimble Glass.
(d) In 2000, the Company recorded pretax charges totaling $798.3 million
($513.1 million after tax and minority share owners' interests) for the
following: (1) $550.0 million ($342.1 million after tax) related to
adjustment of the reserve for estimated future asbestos-related costs;
(2) $122.4 million ($77.3 million after tax and minority share owners'
interests) related to the consolidation of manufacturing capacity; (3) a net
charge of $52.4 million ($32.6 million after tax) related to early
retirement incentives and special termination benefits for 350 United States
salaried employees; (4) $40.0 million ($40.0 million after tax) related to
the impairment of property, plant and equipment at the Company's facilities
in India; and (5) $33.5 million ($21.1 million after tax and minority share
owners' interests) related principally to the write-off of software and
related development costs.
Amount for 1999 includes second quarter charges totaling $20.8 million
($14.0 million after tax and minority share owners' interests) related
principally to restructuring costs and write-offs of certain assets in
Europe and Latin America.
In 1998, the Company recorded: (1) a charge of $250.0 million
($154.4 million after tax) 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 after tax) for the settlement of certain
environmental litigation and the reduction of previously established
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
after tax) principally for guarantees of certain lease obligations of a
previously divested business.
(e) Amount for 2000 includes a fourth quarter benefit of $9.3 million to adjust
net income tax liabilities in Italy as a result of recent legislation.
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.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF 2000 WITH 1999
For the year ended December 31, 2000, the Company recorded a net loss of
$269.7 million compared to earnings before extraordinary items of
$299.1 million for 1999. Net earnings of $298.3 million for 1999 reflect
$.8 million of extraordinary charges from the early extinguishment of debt.
Excluding the effects of unusual items for both 2000 and 1999 discussed in the
table below, the Company's 2000 earnings of $234.1 million decreased
$55.4 million, or 19.1%, from 1999 earnings before extraordinary items of
$289.5 million.
The following table lists unusual items (in millions of dollars) recorded in
2000 and 1999, and their related effects on both EBIT and earnings before
extraordinary items. EBIT is defined as earnings before interest income,
interest expense, provision for income taxes, minority share owners' interest in
earnings of subsidiaries, and extraordinary charges.
2000 1999
------------------- ------------------------
EARNINGS
BEFORE
EARNINGS EXTRAORDINARY
EBIT (LOSS) EBIT ITEMS
---- -------- -------- -------------
As reported............................................ $ 62.6 $(269.7) $895.2 $299.1
Unusual items--charges (credits):
Adjustment of reserve for estimated future
asbestos-related costs............................. 550.0 342.1
Charges related to consolidation of manufacturing
capacity........................................... 122.4 77.3
Charges related to early retirement incentives and
special termination benefits....................... 52.4 32.6
Charges related to impairment of property, plant, and
equipment in India................................. 40.0 40.0
Other charges, principally related to the write-off
of software........................................ 33.5 21.1
Benefit related to an adjustment of tax liabilities
in Italy as a result of recent legislation......... (9.3)
Net gains on the sales of a U.S. glass container
plant and a mold manufacturing business in
Colombia........................................... (40.8) (23.6)
Charges for restructuring costs and write-offs of
certain assets in Europe and South America......... 20.8 14.0
------ ------- ------ ------
Before unusual items................................. $860.9 $ 234.1 $875.2 $289.5
====== ======= ====== ======
Consolidated EBIT, excluding unusual items, for 2000 was $860.9 million, a
decrease of $14.3 million, or 1.6%, compared to 1999 EBIT, excluding unusual
items, of $875.2 million. The decrease is attributable to lower EBIT for the
Plastics Packaging segment, partially offset by slightly higher EBIT for the
Glass Containers segment. Results of both segments are discussed further below.
Interest expense, net of interest income, increased $56.8 million from the 1999
period due principally to higher interest rates. The $8.8 million increase in
minority share owners' interests in earnings of subsidiaries resulted from
higher net earnings of certain foreign affiliates, principally the affiliates in
Colombia, Venezuela, and Brazil. Exclusive of the adjustment for net income tax
liabilities in Italy and other unusual items previously discussed, the Company's
effective tax rate for 2000 was 36.9%. This compares with a rate of 36.9% for
1999, excluding unusual items.
17
Capsule segment results (millions of dollars) for 2000 and 1999 are as
follows (a):
NET SALES TO UNAFFILIATED CUSTOMERS 2000 1999
- ----------------------------------- -------- --------
Glass Containers............................................ $3,695.6 $3,762.6
Plastics Packaging.......................................... 1,787.6 1,686.7
Other....................................................... 68.9 73.6
-------- --------
Segment and consolidated net sales.......................... $5,552.1 $5,522.9
======== ========
EBIT 2000(b) 1999
- ---- -------- --------
Glass Containers............................................ $ 401.2 $ 602.4(c)
Plastics Packaging.......................................... 238.0 277.7
Other....................................................... 1.1 9.2
-------- --------
Segment EBIT................................................ 640.3 889.3
Eliminations and other retained costs....................... (577.7) 5.9
-------- --------
Consolidated EBIT........................................... $ 62.6 $ 895.2
======== ========
- ------------------------
(a) See Segment Information included on pages 50 - 53.
(b) EBIT for 2000 includes charges totaling $798.3 million for the following:
(1) $550.0 million related to adjustment of the reserve for estimated future
asbestos-related costs; (2) $122.4 million related to the consolidation of
manufacturing capacity; (3) a net charge of $52.4 million related to early
retirement incentives and special termination benefits for 350 United States
salaried employees; (4) $40.0 million related to the impairment of property,
plant and equipment at the Company's facilities in India; and
(5) $33.5 million related principally to the write-off of software and
related development costs. These items were recorded in the third quarter of
2000. These items decreased segment EBIT as follows: Glass
Containers--$186.0 million; Plastics Packaging--$11.2 million; Eliminations
and Other Retained Costs--$601.1 million.
(c) EBIT for 1999 includes: (1) gains totaling $40.8 million related to the
sales of a U.S. glass container plant and a mold manufacturing business in
Colombia and (2) charges totaling $20.8 million related principally to
restructuring costs and write-offs of certain assets in Europe and South
America.
Consolidated net sales for 2000 increased $29.2 million, or .5%, over the
prior year. Net sales of the Glass Containers segment decreased $67.0 million
from 1999. In the United States, the effect of increased shipments of containers
for beer producers was partially offset by lower shipments of certain food
containers. The combined U.S. dollar sales of the segment's foreign affiliates
decreased from the prior year due to the strength of the U.S. dollar. Increased
shipments from the Company's operations throughout most of Europe, South
America, and the Asia Pacific region were more than offset by lower shipments
from the Company's operations in the United Kingdom and the effects of a strong
U.S. dollar. The effect of changing foreign currency exchange rates reduced U.S.
dollar sales of the segment's foreign affiliates by approximately $250 million.
Net sales of the Plastics Packaging segment increased $100.9 million, or 6.0%,
over 1999, reflecting increased shipments of plastic containers for juices,
closures for food and beverages, and the effects of higher resin costs on
pass-through arrangements with customers, partially offset by lower shipments of
household, health care, and personal care containers. The effects of higher
resin costs increased sales by approximately $90 million compared to 1999.
Segment EBIT for 2000, excluding the 2000 and 1999 unusual items, decreased
$31.8 million to $837.5 million, or 15.1% of net sales, from 1999 segment EBIT
of $869.3 million, or 15.7% of net sales. Consolidated operating expense
(consisting of selling and administrative, engineering, and research and
18
development expenses) as a percentage of net sales was 6.5% in 2000 compared to
6.8% in 1999. EBIT of the Glass Containers segment increased $4.8 million, or
.8%, to $587.2 million, compared to $582.4 million in 1999. The combined U.S.
dollar EBIT of the segment's foreign affiliates increased from prior year.
Increased shipments from the Company's operations throughout most of Europe,
South America, and the Asia Pacific region, and a gain from the restructuring of
the ownership in two small joint ventures in South America were partially offset
by the effects of a strong U.S. dollar, higher energy costs worldwide, and
expenses associated with the scheduled rebuild of a glass melting furnace in
Australia. In the United States, Glass Container EBIT decreased from 1999
principally due to higher energy costs and conversions of juice and iced tea
bottles from glass to plastic containers, partially offset by further
improvements in cost structure. EBIT of the Plastics Packaging segment decreased
$28.5 million, or 10.3%, to $249.2 million, compared to $277.7 million in 1999.
Increased shipments of plastic containers for juices and closures for food and
beverages were more than offset by lower shipments of household, health care,
and personal care containers and costs incurred in connection with the start-up
of new custom PET capacity, including a new plastic bottle plant.
Eliminations and other retained costs improved $17.5 million from 1999
principally due to higher net financial services income.
The 2000 results include pretax charges totaling $798.3 million
($513.1 million after tax and minority share owners' interests) for the
following: (1) $550.0 million ($342.1 million after tax) related to adjustment
of the reserve for estimated future asbestos-related costs; (2) $122.4 million
($77.3 million after tax and minority share owners' interests) related to the
consolidation of manufacturing capacity; (3) a net charge of $52.4 million
($32.6 million after tax) related to early retirement incentives and special
termination benefits for 350 United States salaried employees;
(4) $40.0 million ($40.0 million after tax) related to the impairment of
property, plant and equipment at the Company's facilities in India; and
(5) $33.5 million ($21.1 million after tax and minority share owners' interests)
related principally to the write-off of software and related development costs.
The 1999 results include the following unusual items: (1) gains totaling
$40.8 million ($23.6 million after tax and minority share owners' interests)
related to the sales of a U.S. glass container plant and a mold manufacturing
business in Colombia and (2) charges totaling $20.8 million ($14.0 million after
tax and minority share owners' interests) related principally to restructuring
costs and write-offs of certain assets in Europe and South America.
COMPARISON OF 1999 WITH 1998
For the year ended December 31, 1999, the Company recorded earnings before
extraordinary items of $299.1 million compared to $122.1 million for 1998. Net
earnings of $298.3 million for 1999 and $108.0 million for 1998 reflect
$.8 million and $14.1 million, respectively, of extraordinary charges from the
early extinguishment of debt. Excluding the effects of unusual items for both
1999 and 1998 discussed in the table below, the Company's 1999 earnings before
extraordinary items of $289.5 million decreased $12.0 million, or 4.0%, from
1998 earnings before extraordinary items of $301.5 million.
The 1999 results include the unusual items discussed above. The 1998 results
include the following unusual items: (1) charges of $250.0 million
($154.4 million after tax) for the 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) for plant closings and restructuring
costs at certain international affiliates; (3) a charge of $5.7 million
($3.5 million after tax) related to a loss on the sale of a discontinued
operation by an equity investee; (4) charges of $0.9 million ($0.6 million after
tax) for the settlement of environmental litigation and the reduction of
previous established reserves; (5) a net gain of $18.5 million ($11.4 million
after tax) related to the sale of a license agreement; and (6) a net gain of
$15.1 million related to the adjustment of net deferred income tax liabilities
as a result of a reduction in Italy's statutory income tax rate.
19
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.
Consolidated EBIT, excluding both the 1999 and 1998 unusual items, was
$875.2 million for 1999, an increase of $4.7 million, or 0.5%, compared to
$870.5 million for 1998. The increase is attributable to higher EBIT for the
Plastics Packaging segment, partially offset by lower EBIT in the Glass
Containers segment. Results of both segments are discussed further below.
Interest expense, net of interest income, increased $46.6 million in 1999 due
principally to the financings related to the acquisition of the BTR glass and
plastics packaging businesses. The $7.0 million decrease in minority share
owners' interests in earnings of subsidiaries resulted from lower net earnings
of certain foreign affiliates, principally the affiliate in Colombia. Exclusive
of unusual items, the Company's effective tax rate for 1999 was 36.9% compared
to a rate of 37.3% for 1998.
Capsule segment results (in millions of dollars) for 1999 and 1998 are as
follows (a):
NET SALES TO UNAFFILIATED CUSTOMERS 1999 1998
- ----------------------------------- -------- --------
Glass Containers............................................ $3,762.6 $3,809.9
Plastics Packaging.......................................... 1,686.7 1,414.5
Other....................................................... 73.6 81.9
-------- --------
Segment and consolidated net sales.......................... $5,522.9 $5,306.3
======== ========
EBIT 1999 1998(c)
- ---- -------- --------
Glass Containers............................................ $ 602.4(b) $ 547.7
Plastics Packaging.......................................... 277.7 227.9
Other....................................................... 9.2 33.2
-------- --------
Segment EBIT................................................ 889.3 808.8
Eliminations and other retained costs (d)................... 5.9 (249.0)
-------- --------
Consolidated EBIT........................................... $ 895.2 $ 559.8
======== ========
- ------------------------
(a) See Segment Information included on pages 50-53.
(b) EBIT for 1999 includes: (1) gains totaling $40.8 million related to the
sales of a U. S. glass container plant and a mold manufacturing business in
Colombia and (2) charges totaling $20.8 million related principally to
restructuring costs and write-offs of certain assets in Europe and South
America.
(c) Segment EBIT in 1998 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.
(d) Eliminations and other retained costs for 1998 include the following unusual
items: (1) a charge 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.
20
Consolidated net sales for 1999 increased $216.6 million, or 4.1%, over the
prior year. Net sales of the Glass Containers segment decreased $47.3 million,
or 1.2%, from 1998. The combined U.S. dollar sales of the segment's foreign
affiliates were nearly equal to the prior year. Increased reported sales from
the Asia Pacific glass container businesses acquired from BTR on April 30, 1998
(an increase of approximately $235 million from 1998 to 1999) were offset by
weak economic conditions in markets served by the Company's operations in South
America and Europe. The effect of changing foreign currency exchange rates
reduced 1999 U.S. dollar sales of the segment's foreign affiliates by
approximately $165 million. In the United States, increased unit shipments of
glass containers for the beer industry partially offset the year to year
comparative effects of the April 1, 1999 sale of a specialized glass
manufacturing facility and lower shipments of food containers. Net sales of the
Plastics Packaging segment increased $272.2 million, or 19.2%, over 1998,
reflecting the plastics businesses acquired on April 30, 1998 from BTR (an
increase of approximately $200 million from 1998 to 1999), and increased unit
shipments from all business units.
Segment EBIT for 1999, excluding the 1999 and 1998 unusual items, increased
$.7 million to $869.3 million, or 15.7% of net sales, from 1998 segment EBIT of
$868.6 million, or 16.4% of net sales. Consolidated operating expense
(consisting of selling and administrative, engineering, and research and
development expenses) as a percentage of net sales was 6.8% in 1999 compared to
6.5% in 1998. EBIT of the Glass Containers segment, excluding the 1999 and 1998
unusual items, decreased $43.6 million to $582.4 million, compared to
$626.0 million in 1998. EBIT of the Asia Pacific glass container businesses
acquired from BTR on April 30, 1998 increased approximately $40 million from the
eight months of 1998 to the full year of 1999. The contributions of the acquired
businesses and gains on sales of non-strategic assets in Europe were more than
offset by soft market conditions for most of the affiliates located in Europe
and South America. The effect of changing foreign currency exchange rates
reduced 1999 U.S. dollar EBIT, before unusual items, of the segment's foreign
affiliates by approximately $15 million in comparison to 1998. In the United
States, Glass Container EBIT increased from 1998 as a result of increased unit
shipments of beer containers. The EBIT of the Plastics Packaging segment
increased $49.8 million, or 21.5%, compared to 1998. Contributing to this
increase were the plastics businesses acquired on April 30, 1998 from BTR (an
increase of approximately $22 million from the eight months of 1998 to the full
year of 1999), increased shipments of containers for health care and personal
care products, food containers, closures and trigger pumps, and strong demand
for prescription packaging, including the new 1-Clic(TM) prescription vial. The
Other segment EBIT in comparison to prior year, excluding the 1998 unusual item,
was adversely affected by the end of the first quarter 1998 termination of a
license agreement under which the Company had produced plastic multipack
carriers for beverage cans, and lower shipments of labels.
Eliminations and other retained costs were $5.9 million for 1999, reflecting
higher net financial services income, compared to $1.9 million for 1998,
excluding the 1998 unusual items.
RESTRUCTURING AND CAPACITY REALIGNMENT PROGRAM
The 2000 operating results include a pretax charge of $248.3 million,
principally related to a restructuring and capacity realignment program. The
restructuring and capacity realignment program, initiated in the third quarter
of 2000, includes the consolidation of manufacturing capacity and a reduction of
350 employees in the U.S. salaried work force, or about 10%, principally as a
result of early retirement incentives. Also included in the charge are a
write-down of plant and equipment for the Company's glass container affiliate in
India and certain other asset write-offs, including $27.9 million for software
which has been abandoned. Manufacturing capacity consolidations principally
involve U.S. glass container facilities and reflect technology-driven
improvements in productivity, conversions of some juice and similar products to
plastic containers, Company and customer decisions regarding pricing and volume,
and the further concentration of production in the most strategically-located
facilities.
21
The Company expects the actions associated with the restructuring and
capacity realignment program, including the orderly transition of production to
other facilities, to be substantially completed by the first half of 2001. Cash
expenditures associated with these actions, principally for severance, are
expected to approximate $60 million, which does not include amounts funded from
the Company's defined benefit pension plan. The majority of the cash
expenditures related to these actions are expected to occur in the first quarter
of 2001, with the remainder occurring throughout the year 2001. The remaining
$190 million consists of non-cash charges principally for asset write-offs and
reduction of the asset associated with the Company's defined benefit pension
plans. Upon completion of the restructuring activities, the Company expects to
realize EBIT improvement of approximately $50 million on an annualized basis.
The Company is contemplating further restructuring activities, including
consolidation of manufacturing facilities and sales of non-core businesses and
assets. As a result, additional unusual items may be recorded in 2001.
ASBESTOS-RELATED CHARGE
The asbestos-related pretax charge of $550.0 million was established to
cover estimated indemnity payments and legal fees arising from outstanding
asbestos personal injury lawsuits and claims and asbestos personal injury
lawsuits and claims filed in the next several years, during which period the
Company expects to receive the majority of the future asbestos-related lawsuits
and claims that could involve the Company. The estimate is based on a
comprehensive review of the Company's asbestos-related assets and liabilities
completed during the third quarter of 2000. The estimate includes consideration
of the negative impact of recent bankruptcy filings, particularly the most
recent filing by Owens Corning and Fibreboard Corporation on October 5, 2000.
The estimate does not include the possibility of partial relief in the form of
tax or other legislation that could result in funds to compensate asbestos
claimants.
A former business unit of the Company produced a minor amount of specialized
high-temperature insulation material containing asbestos from 1948 until 1958,
when the business was sold to Owens Corning. In line with its limited
involvement with an asbestos-containing product and its exit from that business
43 years ago, the Company will continue to work aggressively to minimize the
number of incoming cases and will continue to limit payments to only those
impaired claimants who were exposed to the Company's products and whose claims
have merit under applicable state law.
CAPITAL RESOURCES AND LIQUIDITY
The Company's total debt at December 31, 2000 was $5.85 billion, compared to
$5.94 billion at December 31, 1999.
At December 31, 2000, 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 $597.8 million had not been utilized. At
December 31, 1999, the Company had $565.3 million of credit which had not been
utilized under the Bank Credit Agreement. The decreased utilization resulted
from improved cash flow by certain international affiliates and the effects of
exchange rates on the off-shore loans, partially offset by higher
asbestos-related payments. Cash provided by operating activities was
$364.8 million for 2000 compared to $563.0 million for 1999.
In early 2001, the Company began negotiations with the lenders under its
Bank Credit Agreement to amend the agreement. Among other things, the amendment
will extend the maturity to March 31, 2004 and will provide for an interest rate
margin which will be 1.00 to 1.25 percentage points higher than the margin in
effect under the current agreement. As of late March 2001, the Company had
noncancelable commitments in excess of the amount of borrowings outstanding at
December 31, 2000. The Company expects to finalize the amendment in April 2001.
22
The Company anticipates that cash flow from its operations and from
utilization 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 is contemplating sales of
non-core businesses and assets, the completion of which will provide additional
cash. The Company faces additional demands upon its liquidity for
asbestos-related payments. Based on the Company's expectations regarding future
payments for lawsuits and claims and its expectation of the collection of its
insurance coverage for partial 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.
The Company's Board of Directors has authorized the management of the
Company to repurchase up to 20 million shares of the Company's common stock.
During 2000, the Company repurchased 2,018,700 shares for $17.2 million. Since
July 1999, the Company has repurchased 12,018,700 shares for $242.8 million. The
Company intends to purchase its common stock from time to time on the open
market depending on market conditions and other factors. The Company believes
that cash flows from its operations and from utilization of credit available
under the Bank Credit Agreement will be sufficient to fund such repurchases in
addition to the obligations mentioned in the previous paragraph.
EXCESS OF PURCHASE COST OVER NET ASSETS ACQUIRED
The excess of purchase cost over net assets acquired, net of accumulated
amortization ("goodwill") was $3.10 billion and $3.29 billion at December 31,
2000 and 1999, respectively. This represents 30% and 31% of total assets, and
165% and 140% of share owners' equity at December 31, 2000 and 1999,
respectively. 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 2000 to warrant revised estimates of the goodwill
benefit period.
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
A substantial 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,
South 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.
23
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.
Considerations which influence the amount of such borrowings include long- and
short-term business plans, tax implications, and the availability of borrowings
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.
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,
2000, amounts outstanding under the offshore loan revolving facility were as
follows:
MILLIONS OF
FOREIGN CURRENCY AMOUNT U.S. DOLLARS
- ----------------------- ------------
1.39 billion Australian dollars............................. $775.3
125.0 million British pounds................................ 186.8
18.0 billion Italian lira................................... 8.7
------
$970.8
======
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.
24
The following table provides information about the Company's significant
interest rate risk at December 31, 2000.
OUTSTANDING FAIR VALUE
----------- ----------
(MILLIONS OF DOLLARS)
Variable rate debt:
Bank Credit Agreement, matures December 2001:
Revolving Loans and Bid Rate Loans, interest at a
Eurodollar based rate plus .75%....................... $2,857.0 $2,857.0
Offshore Loans, interest at the applicable Offshore Base
Rate (as defined in the Bank Credit Agreement) as
follows:
1.39 billion Australian dollars--7.15%.............. $ 775.3 $ 775.3
125.0 million British pounds--6.93%................. $ 186.8 $ 186.8
18.0 billion Italian lira--5.77%.................... $ 8.7 $ 8.7
Fixed rate debt:
Senior Notes:
7.85%, due 2004......................................... $ 300.0 $ 179.3
7.15%, due 2005......................................... $ 350.0 $ 195.1
8.10%, due 2007......................................... $ 300.0 $ 161.3
7.35%, due 2008......................................... $ 250.0 $ 131.9
Senior Debentures:
7.50%, due 2010......................................... $ 250.0 $ 129.4
7.80%, due 2018......................................... $ 250.0 $ 114.4
======== ========
FORWARD LOOKING STATEMENTS
This document may contain "forward looking" statements as defined in the
Private Securities Litigation Reform Act of 1995. Forward looking statements
reflect the Company's best assessment at the time, and thus involve uncertainty
and risk. It is possible the Company's future financial performance may differ
from expectations due to a variety of factors including, but not limited to the
following: (1) foreign currency fluctuations relative to the U.S. dollar,
(2) change in capital availability or cost, including interest rate
fluctuations, (3) the general political, economic and competitive conditions in
markets and countries where the Company has operations, including competitive
pricing pressures, inflation or deflation, and changes in tax rates,
(4) consumer preferences for alternative forms of packaging, (5) fluctuations in
raw material and labor costs, (6) availability of raw materials, (7) costs and
availability of energy, (8) transportation costs, (9) consolidation among
competitors and customers, (10) the ability of the Company to integrate
operations of acquired businesses, (11) the performance by customers of their
obligations under purchase agreements, and (12) the timing and occurrence of
events which are beyond the control of the Company. It is not possible to
foresee or identify all such factors. Any forward looking statements in this
document are based on certain assumptions and analyses made by the Company in
light of its experience and perception of historical trends, current conditions,
expected future developments, and other factors it believes are appropriate in
the circumstances. Forward looking statements are not a guarantee of future
performance and actual results or developments may differ materially from
expectations. While the Company continually reviews trends and uncertainties
affecting the Company's results of operations and financial condition, the
Company does not intend to update any particular forward looking statements
contained in this document.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Report of Independent Auditors.............................. 27
Consolidated Balance Sheets at December 31, 2000 and 1999... 29-30
For the years ended December 31, 2000, 1999, and 1998:
Consolidated Results of Operations...................... 28
Consolidated Share Owners' Equity....................... 31
Consolidated Cash Flows................................. 32
Statement of Significant Accounting Policies................ 33-34
Financial Review............................................ 35-53
Selected Quarterly Financial Data........................... 54-55
26
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, 2000 and 1999, 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, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. 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.
Ernst & Young LLP
Toledo, Ohio
January 26, 2001
except for information in the sections
entitled "Long-Term Debt" on
pages 37 - 38 and "Subsequent Event"
on page 50, as to which
the date is March 29, 2001.
27
OWENS-ILLINOIS, INC.
CONSOLIDATED RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(MILLIONS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
Revenues:
Net sales................................................. $5,552.1 $5,522.9 $5,306.3
Royalties and net technical assistance.................... 25.3 30.3 26.6
Equity earnings........................................... 19.8 22.3 16.0
Interest.................................................. 32.5 28.5 29.2
Other..................................................... 185.1 182.7 121.2
-------- -------- --------
5,814.8 5,786.7 5,499.3
Costs and expenses:
Manufacturing, shipping, and delivery..................... 4,359.1 4,296.4 4,075.6
Research and development.................................. 46.7 37.5 36.4
Engineering............................................... 31.3 42.2 34.8
Selling and administrative................................ 285.1 295.6 274.2
Interest.................................................. 486.7 425.9 380.0
Other..................................................... 997.5 191.3 489.3
-------- -------- --------
6,206.4 5,288.9 5,290.3
-------- -------- --------
Earnings (loss) before items below.......................... (391.6) 497.8 209.0
Provision (credit) for income taxes......................... (143.9) 185.5 66.7
-------- -------- --------
(247.7) 312.3 142.3
Minority share owners' interests in earnings of
subsidiaries.............................................. 22.0 13.2 20.2
-------- -------- --------
Earnings (loss) before extraordinary items.................. (269.7) 299.1 122.1
Extraordinary charges from early extinguishment of debt, net
of applicable income taxes................................ -- (0.8) (14.1)
-------- -------- --------
Net earnings (loss)......................................... $ (269.7) $ 298.3 $ 108.0
======== ======== ========
Basic earnings (loss) per share of common stock:
Earnings (loss) before extraordinary items................ $ (2.00) $ 1.80 $ 0.71
Extraordinary charges..................................... (0.01) (0.09)
-------- -------- --------
Net earnings (loss)......................................... $ (2.00) $ 1.79 $ 0.62
======== ======== ========
Diluted earnings (loss) per share of common stock:
Earnings (loss) before extraordinary items................ $ (2.00) $ 1.79 $ 0.71
Extraordinary charges..................................... (0.01) (0.09)
-------- -------- --------
Net earnings (loss)......................................... $ (2.00) $ 1.78 $ 0.62
======== ======== ========
See accompanying Statement of Significant Accounting Policies and Financial
Review.
28
OWENS-ILLINOIS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------
2000 1999
--------- ---------
(MILLIONS OF DOLLARS)
ASSETS
CURRENT ASSETS:
Cash, including time deposits of $61.2 ($113.4 in 1999)... $ 229.7 $ 257.1
Short-term investments.................................... 19.7 32.1
Receivables, less allowances of $69.9 ($56.9 in 1999) for
losses and discounts.................................... 770.9 856.4
Inventories............................................... 862.4 826.6
Prepaid expenses.......................................... 199.0 137.6
--------- ---------
Total current assets.................................. 2,081.7 2,109.8
OTHER ASSETS:
Equity investments........................................ 181.4 195.2
Repair parts inventories.................................. 232.0 234.1
Prepaid pension........................................... 770.9 745.6
Insurance receivable for asbestos-related costs........... 200.7 205.3
Deposits, receivables, and other assets................... 490.6 527.8
Excess of purchase cost over net assets acquired, net of
accumulated amortization of $597.7 ($502.8 in 1999)..... 3,101.0 3,294.4
--------- ---------
Total other assets.................................... 4,976.6 5,202.4
PROPERTY, PLANT, AND EQUIPMENT:
Land, at cost............................................. 165.1 163.8
Buildings and equipment, at cost:
Buildings and building equipment........................ 817.1 813.6
Factory machinery and equipment......................... 4,301.0 4,121.6
Transportation, office, and miscellaneous equipment..... 134.5 156.0
Construction in progress................................ 244.7 335.8
--------- ---------
5,662.4 5,590.8
Less accumulated depreciation............................. 2,377.5 2,146.7
--------- ---------
Net property, plant, and equipment.................... 3,284.9 3,444.1
--------- ---------
Total assets................................................ $10,343.2 $10,756.3
========= =========
29
OWENS-ILLINOIS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------
2000 1999
--------- ---------
(MILLIONS OF DOLLARS)
LIABILITIES AND SHARE OWNERS' EQUITY
CURRENT LIABILITIES:
Short-term loans.......................................... $ 89.2 $ 128.9
Accounts payable.......................................... 522.7 520.1
Salaries and wages........................................ 83.8 95.0
U.S. and foreign income taxes............................. 21.4 26.5
Current portion of asbestos-related liabilities........... 180.0 85.0
Other accrued liabilities................................. 390.1 340.8
Long-term debt due within one year........................ 30.8 76.8
--------- ---------
Total current liabilities............................. 1,318.0 1,273.1
LONG-TERM DEBT.............................................. 5,729.8 5,733.1
DEFERRED TAXES.............................................. 218.2 407.4
NONPENSION POSTRETIREMENT BENEFITS.......................... 296.1 314.9
OTHER LIABILITIES........................................... 360.5 391.8
ASBESTOS-RELATED LIABILITIES................................ 364.7 91.2
COMMITMENTS AND CONTINGENCIES
MINORITY SHARE OWNERS' INTERESTS............................ 172.9 194.9
SHARE OWNERS' EQUITY:
Convertible preferred stock, par value $.01 per share,
liquidation preference $50 per share, 9,050,000 shares
authorized, issued and outstanding...................... 452.5 452.5
Exchangeable preferred stock.............................. 3.4 4.0
Common stock, par value $.01 per share, 250,000,000 shares
authorized, 156,973,143 shares issued and outstanding,
less 12,018,700 treasury shares at December 31, 2000
(156,851,337 issued and outstanding, less 10,000,000
treasury shares at December 31, 1999)................... 1.6 1.6
Capital in excess of par value............................ 2,205.1 2,201.9
Treasury stock, at cost................................... (242.8) (225.6)
Retained earnings (deficit)............................... (30.4) 284.1
Accumulated other comprehensive income (loss)............. (506.4) (368.6)
--------- ---------
Total share owners' equity............................ 1,883.0 2,349.9
--------- ---------
Total liabilities and share owners' equity.................. $10,343.2 $10,756.3
========= =========
See accompanying Statement of Significant Accounting Policies and Financial
Review.
30
OWENS-ILLINOIS, INC.
CONSOLIDATED SHARE OWNERS' EQUITY
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(MILLIONS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
CONVERTIBLE PREFERRED STOCK
Balance at beginning of year.............................. $ 452.5 $ 452.5
Issuance of convertible preferred stock................... $ 452.5
-------- -------- --------
Balance at end of year.................................. 452.5 452.5 452.5
======== ======== ========
EXCHANGEABLE PREFERRED STOCK
Balance at beginning of year.............................. 4.0 18.3 20.4
Exchange of preferred stock for common stock.............. (0.6) (14.3) (2.1)
-------- -------- --------
Balance at end of year.................................. 3.4 4.0 18.3
======== ======== ========
COMMON STOCK
Balance at beginning of year.............................. 1.6 1.5 1.4
Issuance of common stock.................................. 0.1
Exchange of preferred stock for common stock.............. 0.1
-------- -------- --------
Balance at end of year.................................. 1.6 1.6 1.5
======== ======== ========
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year.............................. 2,201.9 2,183.1 1,558.4
Issuance of common stock.................................. 2.6 4.6 622.6
Exchange of preferred stock for common stock.............. 0.6 14.2 2.1
-------- -------- --------
Balance at end of year.................................. 2,205.1 2,201.9 2,183.1
======== ======== ========
TREASURY STOCK
Balance at beginning of year.............................. (225.6)
Repurchases of common stock............................... (17.2) (225.6)
-------- -------- --------
Balance at end of year.................................. (242.8) (225.6)
======== ======== ========
RETAINED EARNINGS (DEFICIT)
Balance at beginning of year.............................. 284.1 7.3 (90.3)
Cash dividends on convertible preferred stock--$2.375 per
share ($1.15 per share in 1998)......................... (21.5) (21.5) (10.4)
Net earnings (loss)....................................... (269.7) 298.3 108.0
Net loss for the month ended December 31, 2000 for the
change in the fiscal year end of certain international
affiliates.............................................. (23.3)
-------- -------- --------
Balance at end of year.................................. (30.4) 284.1 7.3
======== ======== ========
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of year.............................. (368.6) (190.7) (148.0)
Foreign currency translation adjustments.................. (137.8) (177.9) (42.7)
-------- -------- --------
Balance at end of year.................................. (506.4) (368.6) (190.7)
======== ======== ========
Total share owners' equity.................................. $1,883.0 $2,349.9 $2,472.0
======== ======== ========
TOTAL COMPREHENSIVE INCOME (LOSS)
Net earnings (loss)....................................... (269.7) 298.3 108.0
Foreign currency translation adjustments.................. (137.8) (177.9) (42.7)
-------- -------- --------
Total................................................... $ (407.5) $ 120.4 $ 65.3
======== ======== ========
See accompanying Statement of Significant Accounting Policies and Financial
Review.
31
OWENS-ILLINOIS, INC.
CONSOLIDATED CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(MILLIONS OF DOLLARS)
OPERATING ACTIVITIES:
Earnings (loss) before extraordinary items................ $(269.7) $299.1 $ 122.1
Non-cash charges (credits):
Depreciation............................................ 412.6 403.7 358.5
Amortization of deferred costs.......................... 136.9 141.6 105.4
Deferred tax provision (credit)......................... (243.8) 110.8 (17.4)
Restructuring costs, writeoffs of certain assets and
settlement of environmental litigation................ 248.3 20.8 114.6
Gains on asset sales.................................... (40.8) (18.5)
Future asbestos-related costs........................... 550.0 250.0
Other................................................... (104.9) (69.8) (19.8)
Change in non-current operating assets.................... (43.0) (47.1) (36.9)
Asbestos-related payments................................. (181.5) (121.8) (96.1)
Asbestos-related insurance proceeds....................... 4.6 7.5 26.5
Reduction of non-current liabilities...................... (28.4) (18.6) (5.0)
Change in components of working capital................... (116.3) (122.4) (136.1)
------- ------ --------
Cash provided by operating activities................... 364.8 563.0 647.3
INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (481.4) (650.4) (573.5)
Acquisitions, net of cash acquired........................ (77.1) (34.0) (3,700.2)
Net cash proceeds from divestitures and other............. 94.4 337.1 41.1
------- ------ --------
Cash utilized in investing activities................... (464.1) (347.3) (4,232.6)
FINANCING ACTIVITIES:
Additions to long-term debt............................... 619.2 617.0 5,232.5
Repayments of long-term debt.............................. (516.2) (567.1) (2,659.8)
Increase (decrease) in short-term loans................... (43.8) (19.6) 61.3
Treasury shares purchased................................. (17.2) (225.6)
Payment of convertible preferred stock dividends.......... (21.5) (21.5) (10.4)
Issuance of common stock.................................. 2.6 4.6 641.1
Payment of finance fees and debt retirement costs......... (1.0) (61.7)
Issuance of convertible preferred stock................... 439.6
------- ------ --------
Cash provided by (utilized in) financing activities..... 23.1 (213.2) 3,642.6
Effect of exchange rate fluctuations on cash............ 15.6 (16.8) (4.1)
Effect of change in fiscal year end for certain
international affiliates................................ 33.2
------- ------ --------
Increase (decrease) in cash................................. (27.4) (14.3) 53.2
Cash at beginning of year................................... 257.1 271.4 218.2
------- ------ --------
Cash at end of year......................................... $ 229.7 $257.1 $ 271.4
======= ====== ========
See accompanying Statement of Significant Accounting Policies and Financial
Review.
32
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. Prior to December 2000, substantially all
of the Company's consolidated foreign subsidiaries reported their results of
operations on a one-month lag, which allowed additional time to compile the
results. Beginning in December 2000, the one-month lag was eliminated. As a
result, the December 2000 results of operations for these subsidiaries, which
amounted to a net loss of $23.3 million, was recorded directly to retained
earnings in December 2000.
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 plastics 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 67% of the Company's 2000 consolidated sales.
The Company has glass container operations located in 19 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, South 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 pages 48-50.
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.
INVENTORY VALUATION. The Company values most U.S. 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 OF 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. Renewals and improvements are capitalized. Maintenance
and repairs are expensed as incurred.
33
REVENUE RECOGNITION. The Company recognizes sales upon the shipment of its
products. Shipping and handling costs are included with manufacturing, shipping,
and delivery costs.
INCOME TAXES ON UNDISTRIBUTED EARNINGS. In general, the Company plans to
continue to invest in the business the undistributed earnings of foreign
subsidiaries and foreign 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.
The Company's affiliates located in Venezuela 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.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (as amended by Statements Nos. 137 and 138),
which is effective for financial statements for fiscal years beginning after
June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that all
derivative instruments be recognized as either assets or liabilities in the
statement of financial position and that such instruments be measured at fair
value. The impact of SFAS No. 133 on the Company's reporting and disclosure of
derivative instruments is not expected to be material to the Company's financial
position or results of operations.
34
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 2000 1999 1998
- ----------------------- ------------ ------------ ------------
Numerator:.........................................
Earnings (loss) before extraordinary items....... $ (269.7) $ 299.1 $ 122.1
Preferred stock dividends:.......................
Convertible.................................... (21.5) (21.5) (13.1)
Exchangeable................................... (0.2) (0.8) (1.4)
------------ ------------ ------------
Numerator for basic earnings (loss) per
share--income (loss) available to common share
owners......................................... (291.4) 276.8 107.6
Effect of dilutive securities--preferred stock
dividends...................................... 0.8
------------ ------------ ------------
Numerator for diluted earnings (loss) per share--
income (loss) available to common share owners
after assumed exchanges of preferred stock for
common stock................................... $ (291.4) $ 227.6 $ 107.6
============ ============ ============
Denominator:
Denominator for basic earnings (loss) per share--
weighted average shares outstanding............ 145,983,475 153,803,732 149,970,468
Effect of dilutive securities:
Stock options and other........................ 649,766 973,096
Exchangeable preferred stock................... 755,804
------------ ------------ ------------
Dilutive potential common shares................. 1,405,570 973,096
------------ ------------ ------------
Denominator for diluted earnings (loss) per
share--adjusted weighted average shares and
assumed exchanges of preferred stock for common
stock.......................................... 145,983,475 155,209,302 150,943,564
============ ============ ============
Basic earnings (loss) per share.................... $ (2.00) $ 1.80 $ 0.71
============ ============ ============
Diluted earnings (loss) per share.................. $ (2.00) $ 1.79 $ 0.71
============ ============ ============
See "Convertible Preferred Stock" and "Exchangeable Preferred Stock" on page
42 for additional information.
For the year ended December 31, 2000, diluted earnings per share of common
stock are equal to basic earnings per share of common stock due to the net loss.
The convertible preferred stock was not included in the computation of 1999 and
1998 diluted earnings per share since the result would have been antidilutive.
The exchangeable preferred stock was not included in the computation of 1998
diluted earnings per share since the result would have been antidilutive.
Options to purchase 3,357,449 and 1,160,667 weighted average shares of common
stock which were outstanding during 1999 and 1998, respectively, were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares.
35
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:
2000 1999 1998
-------- -------- --------
Decrease (increase) in current assets:
Short-term investments.......................... $ 10.4 $ (14.9) $ (6.4)
Receivables..................................... (43.9) (50.2) (18.2)
Inventories..................................... (50.9) (46.9) (69.7)
Prepaid expenses................................ 0.8 4.4 (29.8)
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities........ (47.1) (29.2) (37.8)
Salaries and wages.............................. (5.0) 3.2 7.5
U.S. and foreign income taxes................... 19.4 11.2 18.3
------- ------- -------
$(116.3) $(122.4) $(136.1)
======= ======= =======
INVENTORIES. Major classes of inventory are as follows:
2000 1999
-------- --------
Finished goods.............................................. $609.0 $580.0
Work in process............................................. 54.6 36.3
Raw materials............................................... 130.6 131.3
Operating supplies.......................................... 68.2 79.0
------ ------
$862.4 $826.6
====== ======
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 $23.0 million and $17.7 million at
December 31, 2000 and 1999, respectively.
Inventories which are valued at the lower of standard costs (which
approximate average costs), average costs, or market at December 31, 2000 and
1999 were approximately $455.4 and $454.3 million, respectively.
EQUITY INVESTMENTS. Summarized information pertaining to the Company's
equity associates follows:
2000 1999
-------- --------
At end of year:
Equity in undistributed earnings:
Foreign............................................... $ 89.3 $ 85.4
Domestic.............................................. 19.0 17.3
------ ------
Total............................................... $108.3 $102.7
====== ======
Equity in cumulative translation adjustment............. $(46.7) $(38.7)
====== ======
36
2000 1999 1998
-------- -------- --------
For the year:
Equity in earnings:
Foreign............................................... $ 5.8 $ 9.5 $ 6.9
Domestic.............................................. 14.0 12.8 9.1
----- ----- -----
Total............................................... $19.8 $22.3 $16.0
===== ===== =====
Dividends received...................................... $14.5 $10.1 $ 6.6
===== ===== =====
LONG-TERM DEBT. The following table summarizes the long-term debt of the
Company at December 31, 2000 and 1999:
2000 1999
-------- --------
Bank Credit Agreement:
Revolving Credit Facility:
Revolving Loans...................................... $2,857.0 $2,559.4
Offshore Loans:
1.39 billion (1.42 billion in 1999)
Australian dollars............................... 775.3 904.4
125.0 million (230.0 million in 1999)
British pounds................................... 186.8 369.5
18.0 billion (100.0 billion in 1999)
Italian lira..................................... 8.7 52.0
Senior Notes:
7.85%, due 2004........................................ 300.0 300.0
7.15%, due 2005........................................ 350.0 350.0
8.10%, due 2007........................................ 300.0 300.0
7.35%, due 2008........................................ 250.0 250.0
Senior Debentures:
7.50%, due 2010........................................ 250.0 250.0
7.80%, due 2018........................................ 250.0 250.0
Other.................................................... 232.8 224.6
-------- --------
5,760.6 5,809.9
Less amounts due within one year....................... 30.8 76.8
-------- --------
Long-term debt....................................... $5,729.8 $5,733.1
======== ========
In April 1998, the Company entered into the 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 for a
$4.5 billion revolving credit facility (the "Revolving Credit Facility"), 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 $50 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, 2000, the Company
had unused credit of $597.8 million available under the Bank Credit Agreement.
37
The interest rate on borrowings under the Revolving Loans commitment is, at
the Company's option, the prime rate or a reserve adjusted Eurodollar rate. The
interest rate on loans under the Offshore Facility is, at the applicable
borrower's option, the applicable Offshore Base Rate or the Adjusted Offshore
Periodic Rate (as those terms are defined in the Bank Credit Agreement). The
interest rate on borrowings under the Revolving Credit Facility also includes a
margin linked to the Company's Consolidated Leverage Ratio, as defined in the
Agreement. The margin is currently .750% and is limited to a range of .275% to
1.000%. The interest rate on Overdraft Account loans is 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,
2000 was 7.46%. The weighted average interest rate on borrowings outstanding
under the Offshore Facility at December 31, 2000, was 7.10%. 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 .375%, 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, 2000,
the maximum remaining allowable amount of such payments was $115.7 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.
The Company intends to amend the Bank Credit Agreement to, among other
things, extend its maturity to March 31, 2004. As of late March 2001, the
Company had noncancelable commitments in excess of the amount of borrowings
outstanding at December 31, 2000. The Company expects to finalize the amendment
in April 2001. As such, the Company has classified the debt associated with the
Agreement as long-term.
Annual maturities for all of the Company's long-term debt through 2005 are
as follows: 2001, $30.8 million; 2002, $65.8 million; 2003, $23.7 million; 2004,
$4,155.5 million; and 2005, $420.8 million. These maturities reflect the
Company's intention to amend the Bank Credit Agreement in order to extend the
maturity of the Agreement from December 31, 2001 to March 31, 2004.
Interest paid in cash aggregated $467.6 million for 2000, $388.1 million for
1999, and $326.6 million for 1998.
38
Fair values at December 31, 2000, 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 $59.75 $179.3
7.15%.................................. 350.0 55.75 195.1
8.10%.................................. 300.0 53.75 161.3
7.35%.................................. 250.0 52.75 131.9
Senior Debentures:
7.50%.................................. 250.0 51.75 129.4
7.80%.................................. 250.0 45.75 114.4
OPERATING LEASES. Rent expense attributable to all operating leases was
$77.8 million in 2000, $73.7 million in 1999, and $68.5 million in 1998. Minimum
future rentals under operating leases are as follows: 2001, $49.9 million; 2002,
$43.2 million; 2003, $37.2 million; 2004, $32.7 million; 2005, $27.3 million;
and 2006 and thereafter, $39.5 million.
FOREIGN CURRENCY TRANSLATION. Aggregate foreign currency exchange gains
(losses) included in other costs and expenses were $(1.0) million in 2000,
$4.9 million in 1999, and $(2.8) million in 1998.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS). Foreign currency translation
adjustments comprise accumulated other comprehensive income (loss). Changes in
the cumulative foreign currency translation adjustments were as follows:
2000 1999 1998
-------- -------- --------
Balance at beginning of year...................... $(368.6) $(190.7) $(148.0)
Net effect of exchange rate fluctuations.......... (140.6) (175.8) (45.1)
Deferred income taxes............................. 2.8 (2.1) 2.4
------- ------- -------
Balance at end of year............................ $(506.4) $(368.6) $(190.7)
======= ======= =======
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.
INCOME TAXES. Deferred income taxes reflect: (1) 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 and
(2) carryovers and credits for income tax purposes. Certain amounts
39
from 1999 have been reclassed to conform to current year presentation.
Significant components of the Company's deferred tax assets and liabilities at
December 31, 2000 and 1999 are as follows:
2000 1999
-------- --------
Deferred tax assets:
Accrued postretirement benefits.......................... $103.6 $ 110.2
Asbestos-related liabilities............................. 190.6 61.7
U.S. federal tax loss carryovers......................... 121.1 68.1
Alternative minimum tax credits.......................... 23.6 23.7
Other.................................................... 324.9 228.6
------ -------
Total deferred tax assets.............................. 763.8 492.3
Deferred tax liabilities:
Property, plant and equipment............................ 262.8 302.0
Prepaid pension costs.................................... 254.1 252.1
Insurance for asbestos-related costs..................... 70.3 67.4
Inventory................................................ 42.3 34.2
Other.................................................... 183.5 141.3
------ -------
Total deferred tax liabilities......................... 813.0 797.0
------ -------
Net deferred tax liabilities........................... $(49.2) $(304.7)
====== =======
Deferred taxes are included in the Consolidated Balance Sheets at
December 31, 2000 and 1999 as follows:
2000 1999
-------- --------
Prepaid expenses........................................... $169.0 $ 102.7
Deferred tax liabilities................................... (218.2) (407.4)
------ -------
Net deferred tax liabilities............................... $(49.2) $(304.7)
====== =======
The provision (benefit) for income taxes consists of the following:
2000 1999 1998
-------- -------- --------
Current:
U.S. Federal..................................... $ 0.8 $ 3.8 $ 4.0
State............................................ 2.1 2.9 3.6
Foreign.......................................... 97.0 68.0 76.5
------- ------ ------
99.9 74.7 84.1
------- ------ ------
Deferred:
U.S. Federal..................................... (167.4) 111.1 23.4
State............................................ (32.9) 11.4 (2.7)
Foreign.......................................... (43.5) (11.7) (38.1)
------- ------ ------
(243.8) 110.8 (17.4)
------- ------ ------
Total:
U.S. Federal..................................... (166.6) 114.9 27.4
State............................................ (30.8) 14.3 0.9
Foreign.......................................... 53.5 56.3 38.4
------- ------ ------
$(143.9) $185.5 $ 66.7
======= ====== ======
40
The provision for income taxes was calculated based on the following
components of earnings (loss) before income taxes:
2000 1999 1998
-------- -------- --------
Domestic........................................... $(566.0) $320.9 $ 40.2
Foreign............................................ 174.4 176.9 168.8
------- ------ ------
$(391.6) $497.8 $209.0
======= ====== ======
Income taxes paid (received) in cash were as follows:
2000 1999 1998
-------- -------- --------
Domestic............................................... $(0.7) $11.0 $ 7.3
Foreign................................................ 46.4 51.5 54.7
----- ----- -----
$45.7 $62.5 $62.0
===== ===== =====
A reconciliation of the provision (benefit) for income taxes based on the
statutory U.S. Federal tax rate of 35% to the provision for income taxes is as
follows (certain amounts for the 1999 and 1998 presentations have been
reclassified to conform to the 2000 presentation):
2000 1999 1998
-------- -------- --------
Pretax earnings at statutory U.S. Federal tax
rate.............................................. $(137.1) $174.2 $73.1
Increase (decrease) in provision for income taxes
due to:
Amortization of goodwill.......................... 33.0 33.1 24.8
State taxes, net of federal benefit............... (19.5) 9.3 0.6
Foreign earnings at different rates............... (7.8) (11.7) (6.4)
Research and development credits.................. (2.0) (1.8) (1.5)
Adjustment for non-U.S. tax law changes........... (9.3) (15.1)
Other items....................................... (1.2) (17.6) (8.8)
------- ------ -----
Provision (credit) for income taxes................. $(143.9) $185.5 $66.7
======= ====== =====
Effective tax rate.................................. 36.7% 37.3% 31.9%
======= ====== =====
41
For U.S. Federal income tax purposes, approximately $346.1 million of net
operating loss is available as a carryover at December 31, 2000. Carryovers of
the net operating loss expire beginning in 2007.
Alternative minimum tax credits and research and development credits of
approximately $24 million and $13 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 2007.
At December 31, 2000, the Company's equity in the undistributed earnings of
foreign subsidiaries for which income taxes had not been provided approximated
$790.2 million. It is not practicable to estimate the U.S. and foreign tax which
would be payable should these earnings be distributed.
CONVERTIBLE PREFERRED STOCK. 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 based on
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. All remaining exchangeable preferred stock
was exchanged in January 2001.
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
42
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:
2000 1999 1998
-------- -------- --------
Net income (loss):
As reported..................................... $(269.7) $298.3 $108.0
Pro forma....................................... (277.7) 291.4 103.6
Basic earnings (loss) per share:
As reported..................................... (2.00) 1.79 0.62
Pro forma....................................... (2.05) 1.75 0.59
Diluted earnings (loss) per share:
As reported..................................... (2.00) 1.78 0.62
Pro forma....................................... (2.05) 1.74 0.59
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:
2000 1999 1998
-------- -------- --------
Expected life of options.......................... 5 years 5 years 5 years
Expected stock price volatility................... 62.9% 36.5% 31.9%
Risk-free interest rate........................... 6.60% 5.10% 5.70%
Expected dividend yield........................... 0.00% 0.00% 0.00%
Stock option activity is as follows:
NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE FAIR VALUE
--------- ---------------- ----------------
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
Granted........................................... 1,786,510 23.94 $ 9.68
Exercised......................................... (157,420) 8.15
Cancelled......................................... (91,813) 33.31
--------- ------
Options outstanding at December 31, 1999............ 6,321,034 26.76
Granted........................................... 1,778,190 13.50 $ 8.01
Exercised......................................... (10,350) 12.18
Cancelled......................................... (218,435) 27.61
--------- ------
Options outstanding at December 31, 2000............ 7,870,439 $23.76
========= ======
Options exercisable at:
December 31, 2000................................. 1,949,726 $16.03
December 31, 1999................................. 1,992,136 $15.89
December 31, 1998................................. 2,158,646 $15.37
========= ======
Shares available for option grant at:
December 31, 2000................................. 4,585,996
December 31, 1999................................. 6,217,087
December 31, 1998................................. 8,376,652
=========
43
The following table summarizes significant option groups outstanding at
December 31, 2000, and related weighted average price and life information:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED AVERAGE
RANGE OF REMAINING
EXERCISE OPTIONS CONTRACTUAL LIFE WEIGHTED AVERAGE OPTIONS WEIGHTED AVERAGE
PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ---------------- ---------------- ----------- ----------------
$ 7.50 to $16.50 3,405,712 6.5 $13.28 1,642,722 $13.04
$23.94 to $31.63 2,769,560 7.6 $26.91 274,437 $31.46
$31.64 to $41.50 1,695,167 7.4 $39.67 32,567 $36.98
--------- ---------
7,870,439 1,949,726
========= =========
PENSION BENEFIT PLANS. Net credits to results of operations for all of the
Company's pension plans and certain deferred compensation arrangements amounted
to $88.6 million in 2000, $58.6 million in 1999, and $52.1 million in 1998.
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 changes in the pension benefit obligations for the year were as follows:
2000 1999
-------- --------
Obligations at beginning of year......................... $2,286.5 $2,504.8
Change in benefit obligations:
Service cost........................................... 36.6 41.8
Interest cost.......................................... 168.8 155.2
Actuarial loss (gain).................................. 182.7 (205.6)
Special separation program benefits.................... 92.2
Benefit payments....................................... (348.1) (197.5)
Other.................................................. (29.9) (12.2)
-------- --------
Net increase (decrease) in benefit obligations....... 102.3 (218.3)
-------- --------
Obligations at end of year............................... $2,388.8 $2,286.5
======== ========
The changes in the fair value of the pension plans' assets for the year were
as follows:
2000 1999
-------- --------
Fair value at beginning of year.......................... $3,712.4 $3,503.6
Change in fair value:
Actual return on plan assets........................... (362.9) 428.9
Benefit payments....................................... (348.1) (197.5)
Transfer of assets to a special trust to fund qualified
current
retiree health liabilities........................... (38.5) (30.5)
Other.................................................. (14.2) 7.9
-------- --------
Net increase (decrease) in fair value of assets...... (763.7) 208.8
-------- --------
Fair value at end of year................................ $2,948.7 $3,712.4
======== ========
44
The funded status of the pension plans at year end was as follows:
2000 1999
-------- --------
Plan assets at fair value................................ $2,948.7 $3,712.4
Projected benefit obligations............................ 2,388.8 2,286.5
-------- --------
Plan assets in excess of projected benefit
obligations.......................................... 559.9 1,425.9
Net unrecognized items:
Actuarial (gain) loss.................................. 170.5 (721.4)
Prior service cost..................................... 41.0 41.1
-------- --------
211.5 (680.3)
-------- --------
Prepaid pension.......................................... $ 771.4 $ 745.6
======== ========
The components of the net pension credit for the year were as follows:
2000 1999 1998
-------- -------- --------
Service cost...................................... $ 36.6 $ 41.8 $ 37.0
Interest cost..................................... 168.8 155.2 156.0
Expected asset return............................. (318.5) (280.6) (266.1)
Amortization:
Prior service cost.............................. 7.9 8.1 7.7
(Gain) loss..................................... (0.2) 1.1 0.7
------- ------- -------
Net amortization.............................. 7.7 9.2 8.4
------- ------- -------
Net credit........................................ $(105.4) $ (74.4) $ (64.7)
======= ======= =======
The actuarial present value of benefit obligations is based on a weighted
discount rate of approximately 7.00% for 2000 and 7.50% for 1999. 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% for 2000 and
1999. The expected weighted long-term rate of return on assets was approximately
10.00% for 2000, and 9.50% for both 1999 and 1998. 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, 2000 and 1999
included 14,423,621 shares of the Company's common stock), government and
corporate debt securities, real estate and commingled funds.
The Company also sponsors several defined contribution plans for all
salaried and hourly U.S. employees. Participation is voluntary and participants'
contributions are based on their compensation. The Company matches substantially
all plan participants' contributions up to various limits. Company contributions
to these plans amounted to $10.2 million in 2000, $10.5 million in 1999, and
$10.6 million in 1998.
45
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 changes in the postretirement benefit obligations for the year were as
follows:
2000 1999
-------- --------
Obligations at beginning of year............................ $267.5 $306.9
Change in benefit obligations:
Service cost.............................................. 1.6 2.3
Interest cost............................................. 20.4 19.1
Actuarial loss (gain)..................................... 15.2 (27.7)
Curtailments.............................................. 5.8
Special separation program termination benefits........... 2.0
Divestiture............................................... (0.6)
Benefit payments.......................................... (33.0) (32.5)
------ ------
Net change in benefit obligations....................... 12.0 (39.4)
------ ------
Obligations at end of year.................................. $279.5 $267.5
====== ======
The funded status of the postretirement benefit plans at year end was as
follows:
2000 1999
-------- --------
Accumulated postretirement benefit obligations.............. $279.5 $267.5
Unrecognized net reduction in obligations:
Prior service cost........................................ 43.6 59.7
Actuarial loss............................................ (27.0) (12.3)
------ ------
16.6 47.4
------ ------
Nonpension postretirement benefit obligations............... $296.1 $314.9
------ ------
The components of the net postretirement benefit cost for the year were as
follows:
2000 1999 1998
-------- -------- --------
Service cost................................................ $ 1.6 $ 2.3 $ 2.2
Interest cost............................................... 20.5 19.1 20.7
Amortization:
Prior service cost........................................ (13.6) (13.7) (13.7)
(Gain) loss............................................... (0.1) 1.9 1.4
------ ------ ------
Net amortization........................................ (13.7) (11.8) (12.3)
------ ------ ------
Net postretirement benefit cost............................. $ 8.4 $ 9.6 $ 10.6
====== ====== ======
Assumed health care cost inflation was based on a rate of 6.00% in 2000 and
6.50% in 1999. A one percentage point decrease in the rate would have decreased
the accumulated postretirement benefit obligation at December 31, 2000 by
$8.3 million and decreased the net postretirement benefit cost for 2000 by
$0.8 million. A one percentage point increase in the rate would have increased
the accumulated postretirement benefit obligation at December 31, 2000 by
$9.6 million and increased the net postretirement benefit cost for 2000 by
$0.9 million. The assumed discount rates used in determining the accumulated
postretirement benefit obligation were 7.50% and 8.00% at December 31,
46
2000 and 1999, respectively. Amortization included in net postretirement benefit
cost is based on the average remaining service of employees.
Benefits provided by the Company for certain of the hourly retirees are
determined by collective bargaining. Most other domestic hourly retirees receive
health and life insurance benefits from a multiemployer trust established by
collective bargaining. Payments to the trust as required by the bargaining
agreements are based upon specified amounts per hour worked and were
$7.5 million in 2000, $8.0 million in 1999, and $8.6 million in 1998.
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 REVENUE. Other revenue for the year ended December 31, 1999 includes
gains totaling $40.8 million related to the sales of a U.S. glass container
plant and a mold manufacturing business in Colombia. Other revenue 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 COSTS AND EXPENSES. Other costs and expenses for the year ended
December 31, 2000 include: (1) $550.0 million related to adjustment of the
reserve for estimated future asbestos-related indemnity payments and legal fees
and (2) $248.3 million principally related to a restructuring and capacity
realignment program.
The restructuring and capacity realignment program, initiated in the third
quarter of 2000, includes the consolidation of manufacturing capacity and a
reduction of 350 employees in the U.S. salaried work force, or about 10%,
principally as a result of early retirement incentives. Also included in the
program are a write-down of plant and equipment for the Company's glass
container affiliate in India and certain other asset write-offs. Manufacturing
capacity consolidations principally involve U.S. glass container facilities and
reflect technology-driven improvements in productivity, conversions from some
juice and similar products to plastic containers, Company and customer decisions
regarding pricing and volume, and the further concentration of production in the
most strategically-located facilities. Selected information relating to the
third quarter 2000 charges, excluding asbestos-related items, follows:
RETIREMENT WRITE-DOWN
INCENTIVES OF PROPERTY, OTHER,
AND SPECIAL PLANT AND PRINCIPALLY
CAPACITY TERMINATION EQUIPMENT SOFTWARE
REALIGNMENT BENEFITS IN INDIA WRITE-OFF TOTAL
----------- ----------- ------------ ----------- --------
2000 restructuring
charges............... $122.4 $ 52.4 $40.0 $33.5 $ 248.3
Write-down of assets to
net realizable
value................. (49.0) (40.0) (31.5) (120.5)
Reduction of prepaid
pension asset......... (13.6) (45.8) (59.4)
Increase in nonpension
postretirement benefit
liability............. (0.6) (5.4) (6.0)
Net cash paid........... (1.5) (0.4) (1.9)
------ ------ ----- ----- -------
Remaining liabilities
related to 2000
charges as of
December 31, 2000..... $ 57.7 $ 0.8 $ -- $ 2.0 $ 60.5
====== ====== ===== ===== =======
As a result of a 10% reduction of the U.S. salaried workforce in 2000, the
Company recognized a settlement gain of approximately $40 million related to its
defined benefit pension plan. This gain has
47
been included in the net charge of $52.4 million for retirement incentives and
special termination benefits.
The pretax charge of $40.0 million was related to the write-down of
property, plant, and equipment in India. Based on the Company's expectation of
future net cash flows of its affiliate in India, the related property, plant,
and equipment have been written down to realizable values in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Other costs and expenses for the year ended December 31, 1999 include
charges totaling $20.8 million related principally to restructuring costs and
write-offs of certain assets in Europe and South America. Other costs and
expenses for the year ended December 31, 1998, include: (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 approximately $25 million
for asset write-downs, related principally to a plant closing in the United
Kingdom and restructuring costs at certain international affiliates; and (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. The amount for 1998
also includes $42.0 million principally for write-offs of certain assets
associated with business conditions in emerging markets.
EXTRAORDINARY CHARGES FROM EARLY EXTINGUISHMENT OF DEBT. During 1999, the
Company incurred redemption premiums and wrote off unamortized deferred
financing fees related to indebtedness repaid prior to its scheduled maturity.
As a result, the Company recorded extraordinary charges totaling $1.2 million
less applicable income taxes of $0.4 million. During 1998, the Company used
proceeds from the May 1998 sale of shares of common stock, convertible preferred
stock, and the issuance of debt for the early retirement of debt incurred in
connection with an acquisition. 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.
CONTINGENCIES. The Company is one of a number of defendants (typically 10
to 20) in a substantial number of lawsuits filed in numerous state and federal
courts by persons alleging bodily injury (including death) as a result of
exposure to dust from asbestos fibers. From 1948 to 1958, one of the Company's
former business units commercially produced and sold 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").
The following table shows the approximate number of plaintiffs and claimants
involved in asbestos claims pending at the beginning of, disposed of, filed
during, and pending at the end of, each of the years listed (eliminating
duplicate filings):
2000 1999 1998
-------- -------- --------
Pending at beginning of year................................ 17,000 15,000 15,000
Disposed.................................................... 18,000 10,000 7,000
Filed....................................................... 20,000 12,000 7,000
------ ------ ------
Pending at end of year...................................... 19,000 17,000 15,000
====== ====== ======
Additionally, the Company has claims-handling agreements in place with many
plaintiff's counsel throughout the country. These agreements require evaluation
and negotiation regarding whether particular claimants qualify under the
criteria established by such agreements. The criteria for such
48
claims include verification of a compensable illness, exposure to a product
manufactured by the Company's former business unit during its manufacturing
period ending in 1958, and viability of such claims under applicable statutes of
limitations. The Company believes that the outcome of evaluations and
negotiations conducted in the third and fourth quarters of 2000 and continuing
into 2001 could result in resolution of a substantial number of prospective
claims pursuant to such agreements in addition to the resolution of certain of
the asbestos claims pending at the end of 2000.
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 these 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,
2000, has disposed of the asbestos claims of approximately 241,000 plaintiffs
and claimants at an average indemnity payment per claim of approximately $4,900.
Certain of these dispositions have included deferred payment amounts payable
over periods ranging from one to seven years. Deferred payments at December 31,
2000 totaled $40.7 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.
Commencing in 1984, the Company has been engaged in litigation (the
"Insurance Litigation") in Middlesex County and Morris County, New Jersey with
its insurers and with reinsurers of its wholly-owned captive insurer, Owens
Insurance Limited, seeking damages and a declaration of coverage for the
Company's asbestos personal injury and property damage claims. As a result of
payments and commitments that have been made by insurers and reinsurers pursuant
to the Insurance Litigation and certain other available insurance, the Company
has to date confirmed coverage for its asbestos-related costs of approximately
$489.5 million. Of the total amount confirmed to date, $309.3 million had been
received through December 31, 2000; and the balance of approximately
$180.2 million will be received in 2001 and throughout the next several years.
The remainder of the insurance asset of approximately $20.5 million relates to
reinsurers which to date have not met their obligations.
The Company believes, based upon court rulings, its understanding of the
facts and legal precedents, and advice of its counsel, McCarter and English,
LLP, that it is probable it will collect the balance of its recorded insurance
asset.
The Company believes that its ultimate asbestos-related contingent liability
(i.e., its indemnity or other claim disposition costs plus related litigation
expenses) cannot be estimated with certainty. In 1993, the Company established a
liability of $975 million to cover indemnity payments and legal fees associated
with the resolution of outstanding and expected future asbestos lawsuits and
claims. In 1998, an additional liability of $250 million was established.
After establishing the additional liability in 1998, the Company continued
to monitor the trends of matters which may affect its ultimate liability and
continued to analyze the trends, developments and variables affecting or likely
to affect the resolution of pending and future asbestos claims against the
Company. The number of asbestos lawsuits and claims pending and filed against
the Company since 1998 has exceeded the number estimated at that time. The trend
of costs to resolve lawsuits and claims since 1998 has also been unfavorable
compared to expectations. In addition, during 2000, Pittsburgh-Corning,
Babcock & Wilcox, Owens Corning, and Fibreboard Corporation sought protection
under Chapter 11 of the Bankruptcy Code.
During the third quarter of 2000, the Company conducted a comprehensive
review to determine whether further adjustments of asbestos-related assets or
liabilities were appropriate. As a result of that review, as of September 30,
2000, the Company established an additional liability of $550 million to cover
the Company's estimated indemnity payments and legal fees arising from
outstanding asbestos
49
personal injury lawsuits and claims and asbestos personal injury lawsuits and
claims filed in the next several years, during which period the Company expects
to receive the majority of the future asbestos-related lawsuits and claims that
could involve the Company. Based on all the factors and matters relating to the
Company's asbestos-related lawsuits and claims, the Company presently believes
that its asbestos-related costs and liabilities, to the extent it is able
reasonably to estimate such cost 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 Insurance Litigation 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 and subject to the
matters discussed above, that such ultimate liability will not be material in
relation to the Company's Consolidated Financial Statements.
SUBSEQUENT EVENTS. On March 21, 2001, the Company announced that it has
entered into a definitive agreement to sell its Harbor Capital Advisors
financial services business to Robeco Groep N.V. Harbor Capital Advisors is the
adviser to the Harbor Fund family of mutual funds and the advisers to the
Company's pension funds. Total consideration for the sale is up to $490 million
in cash, subject to certain downward adjustments principally for changes in
revenues based on sales or redemptions of shares of the Harbor Fund. The
transaction is subject to several conditions, including approval of the
independent trustees of Harbor Fund and of the shareholders of each of the 12
mutual funds in the Harbor Fund family of certain agreements to be entered into
at the closing, and receipt of a number of permits, licenses and consents,
foreign and domestic regulatory approvals and other conditions. The transaction
is expected to close in June of 2001. Proceeds from the sale will be used to
reduce debt.
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 North America, Europe, the Asia Pacific region,
and South America. The Plastics Packaging segment consists of three business
units--plastic containers, closure and specialty products, and prescription
products. The Other segment consists primarily of the Company's labels and
carriers products business unit.
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, and extraordinary charges
(collectively "EBIT") excluding unusual items. EBIT for product segments
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 which recorded the sales.
Certain prior year amounts have been reclassified in order to conform to
current year presentation.
50
Financial information regarding the Company's product segments is as
follows:
ELIMINATIONS
TOTAL AND
GLASS PLASTICS PRODUCT OTHER CONSOLIDATED
CONTAINERS PACKAGING OTHER SEGMENTS RETAINED TOTALS
---------- --------- -------- -------- ------------ ------------
Net sales:
2000.................................. $3,695.6 $1,787.6 $68.9 $5,552.1 $5,552.1
1999.................................. 3,762.6 1,686.7 73.6 5,522.9 5,522.9
1998.................................. 3,809.9 1,414.5 81.9 5,306.3 5,306.3
======== ======== ===== ======== ======= ========
EBIT, excluding unusual items:
2000.................................. $ 587.2 $ 249.2 $ 1.1 $ 837.5 $ 23.4 $ 860.9
1999.................................. 582.4 277.7 9.2 869.3 5.9 875.2
1998.................................. 626.0 227.9 14.7 868.6 1.9 870.5
======== ======== ===== ======== ======= ========
Unusual items:
2000:
Adjustment of reserve for estimated
future asbestos-related costs..... $(550.0) $ (550.0)
Charges related to consolidation of
manufacturing capacity............ $ (120.4) $ (2.0) $ (122.4) (122.4)
Charges related to early retirement
incentives and special termination
benefits.......................... (22.0) (9.2) (31.2) (21.2) (52.4)
Charges related to impairment of
property, plant and equipment in
India............................. (40.0) (40.0) (40.0)
Other charges, principally related
to the write-off of software...... (3.6) (3.6) (29.9) (33.5)
1999:
Gains related to the sales of two
manufacturing facilities.......... 40.8 40.8 40.8
Charges related principally to
restructuring costs and write-offs
of certain assets in Europe and
South America..................... (20.8) (20.8) (20.8)
1998:
Charges for restructuring costs at
certain international
affiliates........................ (72.6) (72.6) (72.6)
Gain on termination of license
agreement......................... $18.5 18.5 18.5
Loss on sale of discontinued
operation by equity investee...... (5.7) (5.7) (5.7)
Other (1)........................... (250.9) (250.9)
======== ======== ===== ======== ======= ========
51
ELIMINATIONS
TOTAL AND
GLASS PLASTICS PRODUCT OTHER CONSOLIDATED
CONTAINERS PACKAGING OTHER SEGMENTS RETAINED TOTALS
---------- --------- -------- -------- ------------ ------------
Depreciation and amortization expense:
2000.................................... $ 346.2 $ 177.3 $ 6.4 $ 529.9 $ 19.6 $ 549.5
1999.................................... 348.8 173.0 6.5 528.3 17.0 545.3
1998.................................... 312.9 132.4 6.6 451.9 12.0 463.9
======== ======== ====== ======== ======== =========
Total assets:
2000.................................... $5,633.8 $3,398.4 $117.0 9,149.2 $1,194.0 $10,343.2
1999.................................... 6,016.8 3,399.5 109.3 9,525.6 1,230.7 10,756.3
1998.................................... 6,166.2 3,205.3 106.3 9,477.8 1,582.9 11,060.7
======== ======== ====== ======== ======== =========
Capital expenditures (2):
2000.................................... $ 290.9 $ 184.9 $ 2.4 $ 478.2 $ 3.2 $ 481.4
1999.................................... 428.4 212.3 3.4 644.1 6.3 650.4
1998.................................... 382.8 185.0 4.1 571.9 1.6 573.5
======== ======== ====== ======== ======== =========
- --------------------------
(1) Detail presented in tables on page 53.
(2) Excludes property, plant and equipment acquired through acquisitions.
Financial information regarding the Company's geographic segments is as
follows:
TOTAL
NORTH ASIA SOUTH GEOGRAPHIC
AMERICA EUROPE PACIFIC AMERICA SEGMENTS
-------- -------- -------- -------- ----------
Net sales:
2000.................................................. $3,390.5 $ 896.9 $760.0 $504.7 $5,552.1
1999.................................................. 3,319.4 968.8 814.9 419.8 5,522.9
1998.................................................. 3,163.3 1,052.0 522.6 568.4 5,306.3
======== ======== ====== ====== ========
EBIT, excluding unusual items:
2000.................................................. $ 555.3 $ 81.8 $123.9 $ 76.5 $ 837.5
1999.................................................. 601.7 101.2 135.1 31.3 869.3
1998.................................................. 550.3 139.5 87.3 91.5 868.6
======== ======== ====== ====== ========
Unusual items:
2000:
Charges related to consolidation of manufacturing
capacity.......................................... $ (126.0) $ 3.6 $ (122.4)
Charges related to early retirement incentives and
special termination benefits...................... (31.2) (31.2)
Charges related to impairment of property, plant,
and equipment in India............................ $(40.0) (40.0)
Other............................................... (3.6) (3.6)
1999:
Gains related to the sales of two manufacturing
facilities........................................ 30.8 10.0 40.8
Charges related principally to restructuring costs
and write-offs of certain assets in Europe and
South America..................................... $(10.8) (10.0) (20.8)
1998:
Charges for restructuring costs at certain
international affiliates.......................... (46.8) (3.6) (22.2) (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)
52
The Company's net fixed assets by geographic segment are as follows:
UNITED
STATES FOREIGN TOTAL
-------- -------- --------
2000................................................... $1,721.8 $1,563.1 $3,284.9
1999................................................... 1,755.0 1,689.1 3,444.1
1998................................................... 1,619.4 1,807.6 3,427.0
======== ======== ========
Reconciliations to consolidated totals are as follows:
2000 1999 1998
-------- -------- --------
Net sales for reportable segments...................... $5,552.1 $5,522.9 $5,306.3
Royalties and net technical assistance................. 25.3 30.3 26.6
Equity earnings........................................ 19.8 22.3 16.0
Interest income........................................ 32.5 28.5 29.2
Other revenue.......................................... 185.1 182.7 121.2
-------- -------- --------
Total................................................ $5,814.8 $5,786.7 $5,499.3
======== ======== ========
Earnings before income taxes, minority share owners'
interests in earnings of subsidiaries, and
extraordinary items:
EBIT, excluding unusual items for reportable
segments........................................... $ 837.5 $ 869.3 $ 868.6
Unusual items excluded from reportable segment
information........................................ (197.2) 20.0 (59.8)
Eliminations and other retained, excluding unusual
items.............................................. 23.4 5.9 1.9
Unusual items excluded from eliminations and other
retained:
2000:
Adjustment of reserve for estimated future
asbestos-related costs......................... (550.0)
Charges related to early retirement incentives
and special termination benefits............... (21.2)
Other, principally software write-off............ (29.9)
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)
Net interest expense................................. (454.2) (397.4) (350.8)
-------- -------- --------
Total................................................ $ (391.6) $ 497.8 $ 209.0
======== ======== ========
53
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED). The following tables present
selected financial data by quarter for the years ended December 31, 2000 and
1999:
2000
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER(A) QUARTER(B) TOTAL
-------- -------- ---------- ---------- --------
Net sales.................................. $1,345.6 $1,449.2 $1,430.3 $1,327.0 $5,552.1
======== ======== ======== ======== ========
Gross profit............................... $ 299.7 $ 341.6 $ 303.9 $ 247.8 $1,193.0
======== ======== ======== ======== ========
Net earnings (loss):....................... $ 58.7 $ 88.5 $ (449.2) $ 32.3 $ (269.7)
======== ======== ======== ======== ========
Earnings (loss) per share of common stock:
(c)
Basic:
Net earnings (loss).................... $ 0.36 $ 0.57 $ (3.12) $ 0.19 $ (2.00)
Diluted:
Net earnings (loss).................... $ 0.36 $ 0.57 $ (3.12) $ 0.18 $ (2.00)
======== ======== ======== ======== ========
- ------------------------
(a) In the third quarter of 2000, the Company recorded pretax charges totaling
$798.3 million ($513.1 million after tax and minority share owners'
interests) for the following: (1) $550.0 million ($342.1 million after tax)
related to adjustment of the reserve for estimated future asbestos-related
costs; (2) $122.4 million ($77.3 million after tax and minority share
owners' interests) related to the consolidation of manufacturing capacity;
(3) a net charge of $52.4 million ($32.6 million after tax) related to early
retirement incentives and special termination benefits for 350 United States
salaried employees; (4) $40.0 million ($40.0 million after tax) related to
the impairment of property, plant and equipment at the Company's facilities
in India; and (5) $33.5 million ($21.1 million after tax and minority share
owners' interests) related principally to the write-off of software and
related development costs. The net after tax effect of these items is a
reduction in earnings per share of $3.51 for the third quarter.
(b) In the fourth quarter of 2000, the Company recorded a benefit of
$9.3 million to adjust net income tax liabilities in Italy as a result of
recent legislation. The benefit of this item on earnings per share on both a
basic and diluted basis was $0.06 for the fourth quarter.
(c) Earnings per share are computed independently for each period presented. Due
to the net loss for the year, the year-to-date basic earnings per share is
equal to the diluted earnings per share. As such, the sums of the amounts
calculated separately for each quarter do not equal the year-to-date amount.
1999
------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(A) QUARTER QUARTER TOTAL
-------- ---------- -------- -------- --------
Net sales................................... $1,307.0 $1,423.1 $1,426.2 $1,366.6 $5,522.9
======== ======== ======== ======== ========
Gross Profit................................ $ 307.2 $ 354.7 $ 314.0 $ 250.6 $1,226.5
======== ======== ======== ======== ========
Earnings:
Before extraordinary items................ $ 69.3 $ 110.9 $ 77.5 $ 41.4 $ 299.1
Extraordinary charges from early
extinguishment of debt, net of
applicable income taxes................. (0.8) (0.8)
-------- -------- -------- -------- --------
Net earnings:............................... $ 69.3 $ 110.9 $ 77.5 $ 40.6 $ 298.3
======== ======== ======== ======== ========
54
1999
------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(A) QUARTER QUARTER TOTAL
-------- ---------- -------- -------- --------
Earnings per share of common stock: (b)
Basic:
Before extraordinary items.............. $ 0.41 $ 0.68 $ 0.46 $ 0.24 $ 1.80
Extraordinary charges................... (0.01) (0.01)
-------- -------- -------- -------- --------
Net earnings:............................. $ 0.41 $ 0.68 $ 0.46 $ 0.23 $ 1.79
Diluted:
Before extraordinary items.............. $ 0.41 $ 0.67 $ 0.46 $ 0.24 $ 1.79
Extraordinary charges................... (0.01) (0.01)
-------- -------- -------- -------- --------
Net earnings:............................. $ 0.41 $ 0.67 $ 0.46 $ 0.23 $ 1.78
======== ======== ======== ======== ========
- ------------------------
(a) In the second quarter of 1999, the Company recorded: (1) gains totaling
$40.8 million ($23.6 million after tax and minority share owners' interests)
related to the sales of a U.S. glass container plant and a mold
manufacturing business in Colombia and (2) charges totaling $20.8 million
($14.0 million after tax and minority share owners' interests) related
principally to restructuring costs and write-offs of certain assets in
Europe and South America. The net after tax amounts of these items was a
credit of $9.6 million, or $.06 per share on both a basic and diluted basis
for the second quarter.
(b) Earnings per share are computed independently for each period presented. Due
primarily to the repurchase of 10 million shares of common stock during the
fourth quarter, and the resultant effect of this change on average shares,
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.
55
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
11 - 13.
ITEM 11. AND 13. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS AND RELATED
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.
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.............................. 27
Consolidated Balance Sheets at December 31, 2000 and 1999... 29-30
For the years ended December 31, 2000, 1999, and 1998
Consolidated Results of Operations........................ 28
Consolidated Share Owners' Equity......................... 31
Consolidated Cash Flows................................... 32
Statement of Significant Accounting Policies.............. 33-34
Financial Review.......................................... 35-53
Exhibit Index............................................. 57-61
FINANCIAL STATEMENT SCHEDULE SCHEDULE PAGE
- ---------------------------- -------------
For the years ended December 31, 2000, 1999, and 1998:
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.
56
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 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).
4.2 -- 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).
4.3 -- 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).
4.4 -- Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and
Restrictions thereof of Convertible Preferred Stock of
Owens-Illinois, Inc., dated May 15, 1998 (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).
4.5 -- 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 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* -- First Amendment to Amended and Restated Owens-Illinois
Supplemental Retirement Benefit Plan (filed herewith).
57
S-K
ITEM 601 NO. DOCUMENT
------------ ------------------------------------------------------------
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 the 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).
10.12* -- Third 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 September 30, 2000, File No.
1-9576, and incorporated herein by reference.)
10.13* -- 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).
10.14* -- 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).
10.15* -- 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).
58
S-K
ITEM 601 NO. DOCUMENT
------------ ------------------------------------------------------------
10.16* -- 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).
10.17* -- Form of First Amendment to Non-Qualified Stock Option
Agreement between Owens-Illinois, Inc. and Robert J. Lanigan
(filed as Exhibit 10.20 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990, File No.
1-9576, and incorporated herein by reference).
10.18* -- 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).
10.19* -- 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).
10.20* -- 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).
10.21* -- 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).
10.22* -- 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).
10.23* -- 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).
10.24* -- 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).
10.25* -- 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).
10.26* -- 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).
10.27 -- Third Amendment to Owens-Illinois, Inc. Corporate Officers
Deferred Compensation Plan (filed herewith).
10.28* -- Termination of Owens-Illinois, Inc. Corporate Officers
Deferred Compensation Plan (filed herewith).
59
S-K
ITEM 601 NO. DOCUMENT
------------ ------------------------------------------------------------
10.29* -- 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).
10.30* -- 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).
10.31* -- 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).
10.32* -- 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).
10.33* -- Fourth Amendment to Owens-Illinois, Inc. Executive Savings
Plan (filed herewith).
10.34* -- Termination of Owens-Illinois, Inc. Executive Savings Plan
(filed herewith).
10.35* -- 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).
10.36* -- 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).
10.37* -- 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).
10.38* -- Amended and Restated 1997 Equity Participation Plan 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, 1999, File No. 1-9576, and incorporated
herein by reference).
10.39* -- Form of Non-Qualified Stock Option Agreement for use under
the Amended and Restated 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).
10.40* -- Form of Restricted Stock Agreement for use under the Amended
and Restated 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).
10.41* -- Form of Restricted Stock Agreement for use under the Amended
and Restated 1997 Equity Participation Plan of
Owens-Illinois, Inc. (filed as Exhibit 10.2 to the
Registrant's Quarterly report on Form 10-Q for the quarter
ended June 30, 1999, File No. 1-9576, and incorporated
herein by reference).
10.42* -- Form of Phantom Stock Agreement for use under the Amended
and Restated 1997 Equity Participation Plan of
Owens-Illinois, Inc. (filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, File No. 1-9576, and incorporated
herein by reference).
60
S-K
ITEM 601 NO. DOCUMENT
------------ ------------------------------------------------------------
10.43* -- Owens-Illinois, Inc. Executive Life Insurance Plan (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000, File No. 1-9576,
and incorporated herein by reference).
10.44* -- Owens-Illinois, Inc. Death Benefit Only Agreement (filed as
Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000, File No. 1-9576,
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).
- ------------------------
* 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 2000.
61
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.
Date: March 30, 2001 OWENS-ILLINOIS, INC.
(Registrant)
By: /s/ JAMES W. BAEHREN
-----------------------------------------
James W. Baehren
CORPORATE SECRETARY AND
ASSOCIATE GENERAL COUNSEL
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.
SIGNATURES TITLE
---------- -----
Robert J. Dineen Director
Edward A. Gilhuly Director
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
62
SIGNATURES TITLE
---------- -----
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
Date: March 30, 2001
By: /s/ JAMES W. BAEHREN
----------------------------------------
James W. Baehren
ATTORNEY-IN-FACT
63
INDEX TO FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENT SCHEDULE OF OWENS-ILLINOIS, INC. AND SUBSIDIARIES:
For the years ended December 31, 2000, 1999, and 1998:
PAGE
--------
II--Valuation and Qualifying Accounts (Consolidated)........ S-1
OWENS-ILLINOIS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (CONSOLIDATED)
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(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 OTHER DEDUCTIONS AT END OF
OF PERIOD EXPENSES (NOTE 2) (NOTE 1) PERIOD
---------- ---------- -------- ---------- ---------
2000................................. $56.9 $68.0 $7.1 $62.1 $69.9
===== ===== ==== ===== =====
1999................................. $56.9 $53.3 $ -- $53.3 $56.9
===== ===== ==== ===== =====
1998................................. $52.9 $61.2 $ -- $57.2 $56.9
===== ===== ==== ===== =====
- ------------------------
(1) Deductions from allowances for losses and discounts on receivables represent
uncollectible notes and accounts written off.
(2) Other for 2000 relates to acquisitions during the year.
S-1