UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2010
or
o 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)
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Delaware |
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1-9576 |
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22-2781933 |
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(State or other |
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(Commission |
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(IRS Employer |
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jurisdiction of |
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File No.) |
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Identification No.) |
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incorporation or |
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organization) |
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One Michael Owens Way, Perrysburg, Ohio |
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43551-2999 |
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(Address of principal executive offices) |
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(Zip Code) |
567-336-5000
(Registrant’s telephone number, including area code)
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Owens-Illinois, Inc. $.01 par value common stock — 163,550,740 shares at June 30, 2010.
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements.
The Condensed Consolidated Financial Statements of Owens-Illinois, Inc. (“the Company”) presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. All adjustments are of a normal recurring nature. Because the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009.
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Dollars in millions, except per share amounts)
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|
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Three months ended June 30, |
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||||
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|
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2010 |
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2009 |
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||
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Net sales |
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$ |
1,710.9 |
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$ |
1,807.0 |
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Manufacturing, shipping, and delivery expense |
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(1,314.0 |
) |
(1,399.6 |
) |
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Gross profit |
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396.9 |
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407.4 |
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||
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|
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Selling and administrative expense |
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(125.6 |
) |
(122.4 |
) |
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Research, development, and engineering expense |
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(15.2 |
) |
(14.1 |
) |
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Interest expense |
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(60.0 |
) |
(57.9 |
) |
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Interest income |
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3.8 |
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6.5 |
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Equity earnings |
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13.6 |
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14.1 |
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Royalties and net technical assistance |
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4.2 |
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3.5 |
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Other income |
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1.5 |
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0.9 |
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Other expense |
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(9.6 |
) |
(26.0 |
) |
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Earnings from continuing operations before income taxes |
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209.6 |
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212.0 |
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Provision for income taxes |
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(54.7 |
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(49.5 |
) |
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Net earnings |
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154.9 |
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162.5 |
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Net earnings attributable to noncontrolling interests |
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(13.8 |
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(13.2 |
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Net earnings attributable to the Company |
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$ |
141.1 |
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$ |
149.3 |
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Basic earnings per share |
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$ |
0.86 |
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$ |
0.89 |
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Weighted average shares outstanding (thousands) |
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163,501 |
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167,764 |
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Diluted earnings per share |
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$ |
0.85 |
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$ |
0.88 |
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Weighted diluted average shares (thousands) |
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166,459 |
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170,493 |
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Comprehensive income (loss): |
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Net earnings |
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$ |
154.9 |
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$ |
162.5 |
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Foreign currency translation adjustments |
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(156.2 |
) |
304.2 |
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Pension and other postretirement benefit adjustments, net of tax |
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25.7 |
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(25.7 |
) |
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Change in fair value of derivative instruments, net of tax |
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4.8 |
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14.8 |
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Total comprehensive income |
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29.2 |
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455.8 |
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Comprehensive income attributable to noncontrolling interests |
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(11.7 |
) |
(30.5 |
) |
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Comprehensive income attributable to the Company |
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$ |
17.5 |
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$ |
425.3 |
|
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Dollars in millions, except per share amounts)
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Six months ended June 30, |
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||||
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2010 |
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2009 |
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Net sales |
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$ |
3,293.4 |
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$ |
3,326.0 |
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Manufacturing, shipping, and delivery expense |
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(2,585.7 |
) |
(2,621.8 |
) |
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Gross profit |
|
707.7 |
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704.2 |
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||
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|
|
|
|
|
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Selling and administrative expense |
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(246.6 |
) |
(240.9 |
) |
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Research, development, and engineering expense |
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(29.1 |
) |
(28.0 |
) |
||
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Interest expense |
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(115.6 |
) |
(106.0 |
) |
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Interest income |
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8.2 |
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15.0 |
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Equity earnings |
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26.1 |
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27.7 |
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Royalties and net technical assistance |
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8.0 |
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6.3 |
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Other income |
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2.6 |
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2.5 |
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Other expense |
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(23.1 |
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(78.8 |
) |
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Earnings from continuing operations before income taxes |
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338.2 |
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302.0 |
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Provision for income taxes |
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(88.9 |
) |
(80.7 |
) |
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Net earnings |
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249.3 |
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221.3 |
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Net earnings attributable to noncontrolling interests |
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(22.9 |
) |
(26.9 |
) |
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Net earnings attributable to the Company |
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$ |
226.4 |
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$ |
194.4 |
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Basic earnings per share |
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$ |
1.36 |
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$ |
1.16 |
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Weighted average shares outstanding (thousands) |
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165,431 |
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167,424 |
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Diluted earnings per share |
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$ |
1.34 |
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$ |
1.15 |
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Weighted diluted average shares (thousands) |
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168,555 |
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169,481 |
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Comprehensive income (loss): |
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Net earnings |
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$ |
249.3 |
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$ |
221.3 |
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Foreign currency translation adjustments |
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(192.0 |
) |
210.6 |
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Pension and other postretirement benefit adjustments, net of tax |
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57.4 |
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(15.2 |
) |
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Change in fair value of derivative instruments, net of tax |
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(1.1 |
) |
8.8 |
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Total comprehensive income |
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113.6 |
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425.5 |
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Comprehensive income attributable to noncontrolling interests |
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(21.0 |
) |
(34.9 |
) |
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Comprehensive income attributable to the Company |
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$ |
92.6 |
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$ |
390.6 |
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See accompanying notes.
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)
|
|
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June 30, |
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December 31, |
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June 30, |
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|||
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2010 |
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2009 |
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2009 |
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|||
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Assets |
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Current assets: |
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|
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|||
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Cash and cash equivalents |
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$ |
682.3 |
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$ |
811.7 |
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$ |
677.2 |
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Short-term investments, at cost which approximates market |
|
0.7 |
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0.9 |
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4.8 |
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|||
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Receivables, less allowances for losses and discounts ($32.2 at June 30, 2010, $36.5 at December 31, 2009, and $37.0 at June 30, 2009) |
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1,099.2 |
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1,004.2 |
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1,126.4 |
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Inventories |
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874.0 |
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900.3 |
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1,039.0 |
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|||
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Prepaid expenses |
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71.8 |
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79.6 |
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70.0 |
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|||
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|||
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Total current assets |
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2,728.0 |
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2,796.7 |
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2,917.4 |
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|||
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|
|
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|||
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Investments and other assets: |
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|
|
|
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|||
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Equity investments |
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106.0 |
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114.3 |
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115.7 |
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|||
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Repair parts inventories |
|
138.3 |
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125.1 |
|
139.9 |
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|||
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Prepaid pension |
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41.1 |
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46.3 |
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|
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Deposits, receivables, and other assets |
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495.2 |
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521.7 |
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498.1 |
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|||
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Goodwill |
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2,221.7 |
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2,381.0 |
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2,290.8 |
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|||
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|
|
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|||
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Total other assets |
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3,002.3 |
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3,188.4 |
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3,044.5 |
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|||
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|
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|
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|||
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Property, plant, and equipment, at cost |
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6,297.3 |
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6,618.9 |
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6,206.3 |
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|||
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Less accumulated depreciation |
|
3,669.4 |
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3,876.6 |
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3,554.0 |
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|||
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|
|
|
|
|
|
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|||
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Net property, plant, and equipment |
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2,627.9 |
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2,742.3 |
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2,652.3 |
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|||
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|
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|
|
|
|
|
|
|||
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Total assets |
|
$ |
8,358.2 |
|
$ |
8,727.4 |
|
$ |
8,614.2 |
|
CONDENSED CONSOLIDATED BALANCE SHEETS — Continued
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
|||
|
|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
Liabilities and Share Owners’ Equity |
|
|
|
|
|
|
|
|||
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Current liabilities: |
|
|
|
|
|
|
|
|||
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Short-term loans and long-term debt due within one year |
|
$ |
272.7 |
|
$ |
352.0 |
|
$ |
357.8 |
|
|
Current portion of asbestos-related liabilities |
|
175.0 |
|
175.0 |
|
175.0 |
|
|||
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Accounts payable |
|
812.9 |
|
863.2 |
|
802.5 |
|
|||
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Other liabilities |
|
658.4 |
|
644.1 |
|
622.6 |
|
|||
|
|
|
|
|
|
|
|
|
|||
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Total current liabilities |
|
1,919.0 |
|
2,034.3 |
|
1,957.9 |
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|||
|
|
|
|
|
|
|
|
|
|||
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Long-term debt |
|
3,227.8 |
|
3,257.5 |
|
3,284.4 |
|
|||
|
Deferred taxes |
|
159.9 |
|
186.3 |
|
154.2 |
|
|||
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Pension benefits |
|
533.6 |
|
577.6 |
|
712.4 |
|
|||
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Nonpension postretirement benefits |
|
264.5 |
|
266.7 |
|
239.0 |
|
|||
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Other liabilities |
|
276.7 |
|
358.5 |
|
349.7 |
|
|||
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Asbestos-related liabilities |
|
233.0 |
|
310.1 |
|
236.1 |
|
|||
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Commitments and contingencies |
|
|
|
|
|
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|
|||
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Share owners’ equity: |
|
|
|
|
|
|
|
|||
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Share owners’ equity of the Company: |
|
|
|
|
|
|
|
|||
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Common stock, par value $.01 per share, 250,000,000 shares authorized, 180,746,135, 179,923,309, and 179,791,262 shares issued (including treasury shares), respectively |
|
1.8 |
|
1.8 |
|
1.8 |
|
|||
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Capital in excess of par value |
|
3,046.6 |
|
2,941.9 |
|
2,927.6 |
|
|||
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Treasury stock, at cost, 17,195,395, 11,322,544, and 11,409,253 shares, respectively |
|
(414.3 |
) |
(217.1 |
) |
(218.8 |
) |
|||
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Retained earnings |
|
355.8 |
|
129.4 |
|
162.0 |
|
|||
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Accumulated other comprehensive loss |
|
(1,451.6 |
) |
(1,317.8 |
) |
(1,424.4 |
) |
|||
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Total share owners’ equity of the Company |
|
1,538.3 |
|
1,538.2 |
|
1,448.2 |
|
|||
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Noncontrolling interests |
|
205.4 |
|
198.2 |
|
232.3 |
|
|||
|
Total share owners’ equity |
|
1,743.7 |
|
1,736.4 |
|
1,680.5 |
|
|||
|
Total liabilities and share owners’ equity |
|
$ |
8,358.2 |
|
$ |
8,727.4 |
|
$ |
8,614.2 |
|
See accompanying notes.
OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED CASH FLOWS
(Dollars in millions)
|
|
|
Six months ended June 30, |
|
||||
|
|
|
2010 |
|
2009 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
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Net earnings |
|
$ |
249.3 |
|
$ |
221.3 |
|
|
Non-cash charges (credits): |
|
|
|
|
|
||
|
Depreciation |
|
177.4 |
|
182.2 |
|
||
|
Amortization of intangibles and other deferred items |
|
12.6 |
|
9.3 |
|
||
|
Amortization of finance fees and debt discount |
|
8.6 |
|
4.0 |
|
||
|
Deferred tax benefit |
|
(7.7 |
) |
(0.4 |
) |
||
|
Restructuring and asset impairment |
|
8.0 |
|
55.6 |
|
||
|
Other |
|
92.0 |
|
41.1 |
|
||
|
Asbestos-related payments |
|
(77.2 |
) |
(84.2 |
) |
||
|
Cash paid for restructuring activities |
|
(31.2 |
) |
(33.2 |
) |
||
|
Change in non-current operating assets |
|
(26.5 |
) |
11.1 |
|
||
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Change in non-current liabilities |
|
(30.1 |
) |
(67.7 |
) |
||
|
Change in components of working capital |
|
(200.6 |
) |
(155.9 |
) |
||
|
Cash provided by operating activities |
|
174.6 |
|
183.2 |
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
||
|
Additions to property, plant, and equipment |
|
(236.5 |
) |
(124.1 |
) |
||
|
Acquisitions, net of cash acquired |
|
(25.8 |
) |
|
|
||
|
Advances to equity affiliate - net |
|
|
|
1.6 |
|
||
|
Change in short-term investments |
|
0.3 |
|
|
|
||
|
Net cash proceeds related to sale of assets |
|
0.3 |
|
4.2 |
|
||
|
Cash utilized in investing activities |
|
(261.7 |
) |
(118.3 |
) |
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Additions to long-term debt |
|
690.0 |
|
1,070.4 |
|
||
|
Repayments of long-term debt |
|
(490.0 |
) |
(745.8 |
) |
||
|
Decrease in short-term loans |
|
(8.4 |
) |
(65.5 |
) |
||
|
Net receipts for hedging activity |
|
21.5 |
|
29.1 |
|
||
|
Payment of finance fees |
|
(17.9 |
) |
(11.8 |
) |
||
|
Dividends paid to noncontrolling interests |
|
(21.7 |
) |
(55.4 |
) |
||
|
Treasury shares purchased |
|
(199.2 |
) |
|
|
||
|
Issuance of common stock and other |
|
3.5 |
|
4.3 |
|
||
|
Cash provided by (utilized in) financing activities |
|
(22.2 |
) |
225.3 |
|
||
|
Effect of exchange rate fluctuations on cash |
|
(20.1 |
) |
7.5 |
|
||
|
Increase (decrease) in cash |
|
(129.4 |
) |
297.7 |
|
||
|
Cash at beginning of period |
|
811.7 |
|
379.5 |
|
||
|
Cash at end of period |
|
$ |
682.3 |
|
$ |
677.2 |
|
See accompanying notes.
OWENS-ILLINOIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Tabular data dollars in millions,
except share and per share amounts
1. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
Three months ended June 30, |
|
||||
|
|
|
2010 |
|
2009 |
|
||
|
Numerator: |
|
|
|
|
|
||
|
Net earnings attributable to the Company |
|
$ |
141.1 |
|
$ |
149.3 |
|
|
Net earnings attributable to participating securities |
|
(0.4 |
) |
(0.5 |
) |
||
|
|
|
|
|
|
|
||
|
Numerator for basic earnings per share - income available to common share owners |
|
$ |
140.7 |
|
$ |
148.8 |
|
|
|
|
|
|
|
|
||
|
Denominator: |
|
|
|
|
|
||
|
Denominator for basic earnings per share - weighted average shares outstanding |
|
163,501,124 |
|
167,764,443 |
|
||
|
|
|
|
|
|
|
||
|
Effect of dilutive securities: |
|
|
|
|
|
||
|
Stock options and other |
|
2,958,181 |
|
2,728,813 |
|
||
|
|
|
|
|
|
|
||
|
Denominator for diluted earnings per share - adjusted weighted average shares outstanding |
|
166,459,305 |
|
170,493,256 |
|
||
|
|
|
|
|
|
|
||
|
Basic earnings per share |
|
$ |
0.86 |
|
$ |
0.89 |
|
|
|
|
|
|
|
|
||
|
Diluted earnings per share |
|
$ |
0.85 |
|
$ |
0.88 |
|
Options to purchase 687,254 and 1,043,714 weighted average shares of common stock that were outstanding during the three months ended June 30, 2010 and 2009, 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.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
Six months ended June 30, |
|
||||
|
|
|
2010 |
|
2009 |
|
||
|
Numerator: |
|
|
|
|
|
||
|
Net earnings attributable to the Company |
|
$ |
226.4 |
|
$ |
194.4 |
|
|
Net earnings attributable to participating securities |
|
(0.7 |
) |
(0.6 |
) |
||
|
|
|
|
|
|
|
||
|
Numerator for basic earnings per share - income available to common share owners |
|
$ |
225.7 |
|
$ |
193.8 |
|
|
|
|
|
|
|
|
||
|
Denominator: |
|
|
|
|
|
||
|
Denominator for basic earnings per share - weighted average shares outstanding |
|
165,430,571 |
|
167,423,900 |
|
||
|
|
|
|
|
|
|
||
|
Effect of dilutive securities: |
|
|
|
|
|
||
|
Stock options and other |
|
3,124,033 |
|
2,057,253 |
|
||
|
|
|
|
|
|
|
||
|
Denominator for diluted earnings per share - adjusted weighted average shares outstanding |
|
168,554,604 |
|
169,481,153 |
|
||
|
|
|
|
|
|
|
||
|
Basic earnings per share |
|
$ |
1.36 |
|
$ |
1.16 |
|
|
|
|
|
|
|
|
||
|
Diluted earnings per share |
|
$ |
1.34 |
|
$ |
1.15 |
|
Options to purchase 541,173 and 1,594,799 weighted average shares of common stock that were outstanding during the six months ended June 30, 2010 and 2009, 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.
The 2015 Exchangeable Notes have a dilutive effect only in those periods in which the Company’s average stock price exceeds the exchange price of $47.47 per share. For the three and six months ended June 30, 2010, the Company’s average stock price did not exceed the exchange price. Therefore, the potentially issuable shares resulting from the settlement of the 2015 Exchangeable Notes were not included in the calculation of diluted earnings per share. See Note 2 for additional information on the 2015 Exchangeable Notes.
2. Debt
The following table summarizes the long-term debt of the Company:
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
|||
|
|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
Secured Credit Agreement: |
|
|
|
|
|
|
|
|||
|
Revolving Credit Facility: |
|
|
|
|
|
|
|
|||
|
Revolving Loans |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Term Loans: |
|
|
|
|
|
|
|
|||
|
Term Loan A (160.0 million AUD at June 30, 2010) |
|
136.1 |
|
143.9 |
|
182.9 |
|
|||
|
Term Loan B |
|
189.5 |
|
189.5 |
|
191.5 |
|
|||
|
Term Loan C (110.8 million CAD at June 30, 2010) |
|
105.1 |
|
105.4 |
|
96.0 |
|
|||
|
Term Loan D (€189.5 million at June 30, 2010) |
|
231.5 |
|
273.5 |
|
270.5 |
|
|||
|
Senior Notes: |
|
|
|
|
|
|
|
|||
|
8.25%, due 2013 |
|
|
|
460.4 |
|
462.0 |
|
|||
|
6.75%, due 2014 |
|
400.0 |
|
400.0 |
|
400.0 |
|
|||
|
6.75%, due 2014 (€225 million) |
|
274.9 |
|
324.7 |
|
317.8 |
|
|||
|
3.00%, Exchangeable, due 2015 |
|
599.0 |
|
|
|
|
|
|||
|
7.375%, due 2016 |
|
583.5 |
|
582.1 |
|
580.7 |
|
|||
|
6.875%, due 2017 (€300 million) |
|
366.5 |
|
432.9 |
|
423.7 |
|
|||
|
Senior Debentures: |
|
|
|
|
|
|
|
|||
|
7.50%, due 2010 |
|
|
|
28.3 |
|
28.6 |
|
|||
|
7.80%, due 2018 |
|
250.0 |
|
250.0 |
|
250.0 |
|
|||
|
Other |
|
108.1 |
|
116.5 |
|
124.0 |
|
|||
|
Total long-term debt |
|
3,244.2 |
|
3,307.2 |
|
3,327.7 |
|
|||
|
Less amounts due within one year |
|
16.4 |
|
49.7 |
|
43.3 |
|
|||
|
Long-term debt |
|
$ |
3,227.8 |
|
$ |
3,257.5 |
|
$ |
3,284.4 |
|
On June 14, 2006, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”). At June 30, 2010, the Agreement included a $900.0 million revolving credit facility, a 160.0 million Australian dollar term loan, and a 110.8 million Canadian dollar term loan, each of which has a final maturity date of June 15, 2012. It also included a $189.5 million term loan and a €189.5 million term loan, each of which has a final maturity date of June 14, 2013. At June 30, 2010, the Company’s subsidiary borrowers had unused credit of $725.2 million available under the Agreement.
The weighted average interest rate on borrowings outstanding under the Agreement at June 30, 2010 was 2.62%.
During May 2010, a subsidiary of the Company issued exchangeable senior notes with a face value of $690.0 million due June 1, 2015 (“2015 Exchangeable Notes”). The 2015 Exchangeable Notes bear interest at 3.00% and are guaranteed by substantially all of the Company’s domestic subsidiaries. The net proceeds, after deducting debt issuance costs, totaled approximately $672 million.
Upon exchange of the 2015 Exchangeable Notes, under the terms outlined below, the issuer of the 2015 Exchangeable Notes is required to settle the principal amount in cash and the Company is required to settle the exchange premium in shares of the Company’s common stock. The exchange premium is calculated as the value of the Company’s common stock in excess of the initial exchange price of approximately $47.47 per share, which is equivalent to an exchange rate of 21.0642 per $1,000 principal amount of the 2015 Exchangeable Notes. The
exchange rate may be adjusted upon the occurrence of certain events or corporate transactions.
Prior to March 1, 2015, the 2015 Exchangeable Notes may be exchanged only if (1) the price of the Company’s common stock exceeds $61.71 (130% of the exchange price) for a specified period of time, (2) the trading price of the 2015 Exchangeable Notes falls below 98% of the average exchange value of the 2015 Exchangeable Notes for a specified period of time (trading price was 164% of exchange value at June 30, 2010), or (3) upon the occurrence of specified corporate transactions. The 2015 Exchangeable Notes may be exchanged without restrictions on or after March 1, 2015. As of June 30, 2010, the 2015 Exchangeable Notes are not exchangeable by the holders.
The value of the exchange feature of the 2015 Exchangeable Notes was computed using the Company’s non-exchangeable debt borrowing rate at the date of issuance of 6.15% and was accounted for as a debt discount and a corresponding increase to share owners’ equity. The carrying values of the liability and equity components at June 30, 2010 are as follows:
|
Principal amount of exchangeable notes |
|
$ |
690.0 |
|
|
Unamortized discount on exchangeable notes |
|
91.0 |
|
|
|
Net carrying amount of liability component |
|
$ |
599.0 |
|
|
|
|
|
|
|
|
Carrying amount of equity component |
|
$ |
93.4 |
|
The debt discount is being amortized over the life of the 2015 Exchangeable Notes. The amount of interest expense recognized on the 2015 Exchangeable Notes for the three months ended June 30, 2010 is as follows:
|
Contractual coupon interest |
|
$ |
3.1 |
|
|
Amortization of discount on exchangeable notes |
|
2.4 |
|
|
|
Total interest expense |
|
$ |
5.5 |
|
During June 2010, a subsidiary of the Company redeemed all $450.0 million of the 8.25% senior notes due 2013. During the second quarter of 2010, the Company recorded $9.0 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees. In addition, the Company recorded a reduction of interest expense of $9.0 million during the second quarter of 2010 to recognize the unamortized proceeds from terminated interest rate swaps on these notes.
During October 2006, the Company entered into a €300 million European accounts receivable securitization program. The program extends through October 2011, subject to annual renewal of backup credit lines. In addition, the Company participates in a receivables financing program in the Asia Pacific region with a revolving funding commitment of 10 million New Zealand dollars that expires October 2010.
Information related to the Company’s accounts receivable securitization programs is as follows:
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
|||
|
|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance (included in short-term loans) |
|
$ |
234.4 |
|
$ |
289.0 |
|
$ |
289.5 |
|
|
|
|
|
|
|
|
|
|
|||
|
Weighted average interest rate |
|
2.26 |
% |
2.52 |
% |
2.18 |
% |
|||
The carrying amounts reported for the accounts receivable securitization programs, and certain long-term debt obligations subject to frequently redetermined interest rates, approximate fair value. Fair values for the Company’s significant fixed rate debt obligations are generally based on published market quotations.
Fair values at June 30, 2010 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: |
|
|
|
|
|
|
|
||
|
6.75%, due 2014 |
|
$ |
400.0 |
|
101.75 |
|
$ |
407.0 |
|
|
6.75%, due 2014 (€225 million) |
|
274.9 |
|
100.66 |
|
276.7 |
|
||
|
3.00%, Exchangeable, due 2015 |
|
690.0 |
|
91.47 |
|
631.1 |
|
||
|
7.375%, due 2016 |
|
600.0 |
|
104.50 |
|
627.0 |
|
||
|
6.875%, due 2017 (€300 million) |
|
366.5 |
|
98.63 |
|
361.5 |
|
||
|
Senior Debentures: |
|
|
|
|
|
|
|
||
|
7.80%, due 2018 |
|
250.0 |
|
104.50 |
|
261.3 |
|
||
3. Supplemental Cash Flow Information
|
|
|
Six months ended June 30, |
|
||||
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
||
|
Interest paid in cash |
|
$ |
112.9 |
|
$ |
95.7 |
|
|
|
|
|
|
|
|
||
|
Income taxes paid in cash |
|
54.0 |
|
80.6 |
|
||
Cash interest for 2010 includes note repurchase premiums related to the June 2010 redemption of the Company’s 8.25% senior notes due 2013. Cash interest for 2009 includes note repurchase premiums and the proceeds from the settlement of interest rate swaps related to the May 2009 tender of the Company’s 7.50% senior debentures due 2010.
4. Share Owners’ Equity
The activity in share owners’ equity for the three months ended June 30, 2010 and 2009 is as follows:
|
|
|
Share Owners’ Equity of the Company |
|
|
|
|
|
|||||||||||||||
|
|
|
Common |
|
Capital in |
|
Treasury |
|
Retained |
|
Accumulated |
|
Non- |
|
Total Share |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Balance on April 1, 2010 |
|
$ |
1.8 |
|
$ |
2,948.9 |
|
$ |
(360.4 |
) |
$ |
214.7 |
|
$ |
(1,328.0 |
) |
$ |
209.6 |
|
$ |
1,686.6 |
|
|
Issuance of common stock (0.2 million shares) |
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
6.3 |
|
|||||||
|
Reissuance of common stock (0.1 million shares) |
|
|
|
0.4 |
|
1.1 |
|
|
|
|
|
|
|
1.5 |
|
|||||||
|
Treasury shares purchased (1.6 million shares) |
|
|
|
|
|
(55.0 |
) |
|
|
|
|
|
|
(55.0 |
) |
|||||||
|
Issuance of exchangeable notes |
|
|
|
91.0 |
|
|
|
|
|
|
|
|
|
91.0 |
|
|||||||
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Net earnings |
|
|
|
|
|
|
|
141.1 |
|
|
|
13.8 |
|
154.9 |
|
|||||||
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
(154.1 |
) |
(2.1 |
) |
(156.2 |
) |
|||||||
|
Pension and other postretirement benefit adjustments, net of tax |
|
|
|
|
|
|
|
|
|
25.7 |
|
|
|
25.7 |
|
|||||||
|
Change in fair value of derivative instruments, net of tax |
|
|
|
|
|
|
|
|
|
4.8 |
|
|
|
4.8 |
|
|||||||
|
Dividends paid to noncontrolling interests on subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
(15.9 |
) |
(15.9 |
) |
|||||||
|
Balance on June 30, 2010 |
|
$ |
1.8 |
|
$ |
3,046.6 |
|
$ |
(414.3 |
) |
$ |
355.8 |
|
$ |
(1,451.6 |
) |
$ |
205.4 |
|
$ |
1,743.7 |
|
|
|
|
Share Owners’ Equity of the Company |
|
|
|
|
|
|||||||||||||||
|
|
|
Common |
|
Capital in |
|
Treasury |
|
Retained |
|
Accumulated |
|
Non- |
|
Total Share |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Balance on April 1, 2009 |
|
$ |
1.8 |
|
$ |
2,921.8 |
|
$ |
(219.9 |
) |
$ |
12.7 |
|
$ |
(1,700.4 |
) |
$ |
240.2 |
|
$ |
1,256.2 |
|
|
Issuance of common stock (0.04 million shares) |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
5.6 |
|
|||||||
|
Reissuance of common stock (0.1 million shares) |
|
|
|
0.2 |
|
1.1 |
|
|
|
|
|
|
|
1.3 |
|
|||||||
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Net earnings |
|
|
|
|
|
|
|
149.3 |
|
|
|
13.2 |
|
162.5 |
|
|||||||
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
286.9 |
|
17.3 |
|
304.2 |
|
|||||||
|
Pension and other postretirement benefit adjustments, net of tax |
|
|
|
|
|
|
|
|
|
(25.7 |
) |
|
|
(25.7 |
) |
|||||||
|
Change in fair value of derivative instruments, net of tax |
|
|
|
|
|
|
|
|
|
14.8 |
|
|
|
14.8 |
|
|||||||
|
Dividends paid to noncontrolling interests on subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
(38.4 |
) |
(38.4 |
) |
|||||||
|
Balance on June 30, 2009 |
|
$ |
1.8 |
|
$ |
2,927.6 |
|
$ |
(218.8 |
) |
$ |
162.0 |
|
$ |
(1,424.4 |
) |
$ |
232.3 |
|
$ |
1,680.5 |
|
The activity in share owners’ equity for the six months ended June 30, 2010 and 2009 is as follows:
|
|
|
Share Owners’ Equity of the Company |
|
|
|
|
|
|||||||||||||||
|
|
|
Common |
|
Capital in |
|
Treasury |
|
Retained |
|
Accumulated |
|
Non- |
|
Total Share |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Balance on January 1, 2010 |
|
$ |
1.8 |
|
$ |
2,941.9 |
|
$ |
(217.1 |
) |
$ |
129.4 |
|
$ |
(1,317.8 |
) |
$ |
198.2 |
|
$ |
1,736.4 |
|
|
Issuance of common stock (0.8 million shares) |
|
|
|
12.8 |
|
|
|
|
|
|
|
|
|
12.8 |
|
|||||||
|
Reissuance of common stock (0.1 million shares) |
|
|
|
0.9 |
|
2.0 |
|
|
|
|
|
|
|
2.9 |
|
|||||||
|
Treasury shares purchased (6.0 million shares) |
|
|
|
|
|
(199.2 |
) |
|
|
|
|
|
|
(199.2 |
) |
|||||||
|
Issuance of exchangeable notes |
|
|
|
91.0 |
|
|
|
|
|
|
|
|
|
91.0 |
|
|||||||
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Net earnings |
|
|
|
|
|
|
|
226.4 |
|
|
|
22.9 |
|
249.3 |
|
|||||||
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
(190.1 |
) |
(1.9 |
) |
(192.0 |
) |
|||||||
|
Pension and other postretirement benefit adjustments, net of tax |
|
|
|
|
|
|
|
|
|
57.4 |
|
|
|
57.4 |
|
|||||||
|
Change in fair value of derivative instruments, net of tax |
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
(1.1 |
) |
|||||||
|
Noncontrolling interests’ share of acquisition |
|
|
|
|
|
|
|
|
|
|
|
7.9 |
|
7.9 |
|
|||||||
|
Dividends paid to noncontrolling interests on subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
(21.7 |
) |
(21.7 |
) |
|||||||
|
Balance on June 30, 2010 |
|
$ |
1.8 |
|
$ |
3,046.6 |
|
$ |
(414.3 |
) |
$ |
355.8 |
|
$ |
(1,451.6 |
) |
$ |
205.4 |
|
$ |
1,743.7 |
|
|
|
|
Share Owners’ Equity of the Company |
|
|
|
|
|
|||||||||||||||
|
|
|
Common |
|
Capital in |
|
Treasury |
|
Retained |
|
Accumulated |
|
Non- |
|
Total Share |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Balance on January 1, 2009 |
|
$ |
1.8 |
|
$ |
2,913.3 |
|
$ |
(221.5 |
) |
$ |
(32.4 |
) |
$ |
(1,620.6 |
) |
$ |
252.8 |
|
$ |
1,293.4 |
|
|
Issuance of common stock (1.1 million shares) |
|
|
|
14.1 |
|
|
|
|
|
|
|
|
|
14.1 |
|
|||||||
|
Reissuance of common stock (0.2 million shares) |
|
|
|
0.2 |
|
2.7 |
|
|
|
|
|
|
|
2.9 |
|
|||||||
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Net earnings |
|
|
|
|
|
|
|
194.4 |
|
|
|
26.9 |
|
221.3 |
|
|||||||
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
202.6 |
|
8.0 |
|
210.6 |
|
|||||||
|
Pension and other postretirement benefit adjustments, net of tax |
|
|
|
|
|
|
|
|
|
(15.2 |
) |
|
|
(15.2 |
) |
|||||||
|
Change in fair value of derivative instruments, net of tax |
|
|
|
|
|
|
|
|
|
8.8 |
|
|
|
8.8 |
|
|||||||
|
Dividends paid to noncontrolling interests on subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
(55.4 |
) |
(55.4 |
) |
|||||||
|
Balance on June 30, 2009 |
|
$ |
1.8 |
|
$ |
2,927.6 |
|
$ |
(218.8 |
) |
$ |
162.0 |
|
$ |
(1,424.4 |
) |
$ |
232.3 |
|
$ |
1,680.5 |
|
During the first six months of 2010, the Company purchased 6.0 million shares of its common stock for $199.2 million pursuant to authorization by its Board of Directors in September 2008 to purchase up to $350 million of the Company common stock.
5. Inventories
Major classes of inventory are as follows:
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
|||
|
|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Finished goods |
|
$ |
723.0 |
|
$ |
741.5 |
|
$ |
860.3 |
|
|
Raw materials |
|
101.2 |
|
107.4 |
|
126.2 |
|
|||
|
Operating supplies |
|
49.8 |
|
51.4 |
|
52.5 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
$ |
874.0 |
|
$ |
900.3 |
|
$ |
1,039.0 |
|
6. Contingencies
The Company is one of a number of defendants 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 containing 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, calcium-silicate based pipe and block insulation material containing asbestos. The Company exited the pipe and block 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 in some cases, punitive damages in various amounts (herein referred to as “asbestos claims”).
As of June 30, 2010, the Company has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 6,400 plaintiffs and claimants. Based on an analysis of the lawsuits pending as of December 31, 2009, approximately 79% of plaintiffs either do not specify the monetary damages sought, or in the case of court filings, claim an amount sufficient to invoke the jurisdictional minimum of the trial court. Approximately 20% of plaintiffs specifically plead damages of $15 million or less, and 1% of plaintiffs specifically plead damages greater than $15 million but less than $100 million. Fewer than 1% of plaintiffs specifically plead damages $100 million or greater but less than $122 million.
As indicated by the foregoing summary, current pleading practice permits considerable variation in the assertion of monetary damages. The Company’s experience resolving hundreds of thousands of asbestos claims and lawsuits over an extended period, demonstrates that the monetary relief which may be alleged in a complaint bears little relevance to a claim’s merits or disposition value. Rather, the amount potentially recoverable is determined by such factors as the plaintiff’s severity of disease, the product identification evidence against specific defendants, the defenses available to those defendants, the specific jurisdiction in which the claim is made, and the plaintiff’s history of smoking or exposure to other possible disease-causative factors.
In addition to the pending claims set forth above, the Company has claims-handling agreements in place with many plaintiffs’ 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 claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by the Company’s former business unit during its manufacturing period ending in 1958. Some plaintiffs’ counsel have historically withheld claims under these agreements for later
presentation while focusing their attention on active litigation in the tort system. The Company believes that as of June 30, 2010 there are approximately 800 claims against other defendants which are likely to be asserted some time in the future against the Company. These claims are not included in the pending “lawsuits and claims” totals set forth above.
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 upon its past experience, the Company believes that these categories of lawsuits and claims will not involve any material liability and they are not included in the above description of pending matters or in the following description of disposed matters.
Since receiving its first asbestos claim, the Company as of June 30, 2010, has disposed of the asbestos claims of approximately 380,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $7,700. Certain of these dispositions have included deferred amounts payable over a number of years. Deferred amounts payable totaled approximately $39.8 million at June 30, 2010 ($36.3 million at December 31, 2009) 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. As discussed above, a part of the Company’s objective is to achieve, where possible, resolution of asbestos claims pursuant to claims-handling agreements. Failure of claimants to meet certain medical and product exposure criteria in the Company’s administrative claims handling agreements has generally reduced the number of marginal or suspect claims that would otherwise have been received. This may have the effect of increasing the Company’s per-claim average indemnity payment over time.
The Company believes that its ultimate asbestos-related liability (i.e., its indemnity payments or other claim disposition costs plus related legal fees) cannot reasonably be estimated. Beginning with the initial liability of $975 million established in 1993, the Company has accrued a total of approximately $3.65 billion through 2009, before insurance recoveries, for its asbestos-related liability. The Company’s ability to reasonably estimate its liability has been significantly affected by the volatility of asbestos-related litigation in the United States, the inherent uncertainty of future disease incidence and claiming patterns, the expanding list of non-traditional defendants that have been sued in this litigation and found liable for substantial damage awards, the use of mass litigation screenings to generate new lawsuits, the large number of claims asserted or filed by parties who claim prior exposure to asbestos materials but have no present physical impairment as a result of such exposure, and the significant number of co-defendants that have filed for bankruptcy.
The Company has continued to monitor trends that may affect its ultimate liability and has continued to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against the Company. The material components of the Company’s accrued liability are based on amounts determined by the Company in connection with its annual comprehensive review and consist of the following estimates, to the extent it is probable that such liabilities have been incurred and can be reasonably estimated: (i) the liability for asbestos claims already asserted against the Company; (ii) the liability for preexisting but unasserted asbestos claims for prior periods arising under its administrative claims-handling agreements with various plaintiffs’ counsel; (iii) the liability for asbestos claims not yet asserted against the Company, but which the Company believes will be asserted in the next several years; and (iv) the legal defense costs likely to be incurred in connection with the foregoing types of claims.
The significant assumptions underlying the material components of the Company’s accrual are:
a) the extent to which settlements are limited to claimants who were exposed to the Company’s asbestos-containing insulation prior to its exit from that business in 1958;
b) the extent to which claims are resolved under the Company’s administrative claims agreements or on terms comparable to those set forth in those agreements;
c) the extent of decrease or increase in the incidence of serious disease cases and claiming patterns for such cases;
d) the extent to which the Company is able to defend itself successfully at trial;
e) the extent to which courts and legislatures eliminate, reduce or permit the diversion of financial resources for unimpaired claimants and so-called forum shopping;
f) the extent to which additional defendants with substantial resources and assets are required to participate significantly in the resolution of future asbestos lawsuits and claims;
g) the number and timing of additional co-defendant bankruptcies; and
h) the extent to which co-defendant bankruptcy trusts direct resources to resolve claims that are also presented to the Company and the timing of the payments made by the bankruptcy trusts.
As noted above, the Company conducts a comprehensive review of its asbestos-related liabilities and costs annually in connection with finalizing and reporting its annual results of operations, unless significant changes in trends or new developments warrant an earlier review. If the results of an annual comprehensive review indicate that the existing amount of the accrued liability is insufficient to cover its estimated future asbestos-related costs, then the Company will record an appropriate charge to increase the accrued liability. The Company believes that a reasonable estimation of the probable amount of the liability for claims not yet asserted against the Company is not possible beyond a period of several years. Therefore, while the results of future annual comprehensive reviews cannot be determined, the Company expects the addition of one year to the estimation period will result in an annual charge.
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 non-routine and involve compensatory, punitive or treble damage claims as well as other types of relief. The Company records a liability for such matters when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated. Recorded amounts are reviewed and adjusted to reflect changes in the factors upon which the estimates are based including additional information, negotiations, settlements, and other events.
The ultimate legal and financial liability of the Company with respect to the lawsuits and proceedings referred to above, in addition to other pending litigation, cannot reasonably be estimated. The Company’s reported results of operations for 2009 were materially affected by the $180.0 million (pretax and after tax) fourth quarter charge for asbestos-related costs and asbestos-related payments continue to be substantial. Any future additional charge would likewise materially affect the Company’s results of operations for the period in which it is
recorded. Also, the continued use of significant amounts of cash for asbestos-related costs has affected and will continue to affect the Company’s cost of borrowing and its ability to pursue global or domestic acquisitions. However, the Company believes that its operating cash flows and other sources of liquidity will be sufficient to pay its obligations for asbestos-related costs and to fund its working capital and capital expenditure requirements on a short-term and long-term basis.
7. Segment Information
The Company has four reportable segments based on its four geographic locations: (1) Europe; (2) North America; (3) South America; (4) Asia Pacific. These four segments are aligned with the Company’s internal approach to managing, reporting, and evaluating performance of its global glass operations. Certain assets and activities not directly related to one of the regions or to glass manufacturing are reported with Retained Corporate Costs and Other. These include licensing, equipment manufacturing, global engineering, and non-glass equity investments. Retained Corporate Costs and Other also includes certain headquarters administrative and facilities costs and certain incentive compensation and other benefit plan costs that are global in nature and are not allocable to the reportable segments.
The Company’s measure of profit for its reportable segments is Segment Operating Profit, which consists of consolidated earnings from continuing operations before interest income, interest expense, and provision for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations as well as certain retained corporate costs. The Company’s management uses Segment Operating Profit, in combination with net sales and selected cash flow information, to evaluate performance and to allocate resources.
Segment Operating Profit for reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided.
Financial information for the three-month periods ended June 30, 2010 and 2009 regarding the Company’s reportable segments is as follows:
|
Net sales: |
|
2010 |
|
2009 |
|
||
|
Europe |
|
$ |
715.6 |
|
$ |
793.9 |
|
|
North America |
|
516.2 |
|
560.5 |
|
||
|
South America |
|
247.5 |
|
249.9 |
|
||
|
Asia Pacific |
|
223.1 |
|
192.7 |
|
||
|
|
|
|
|
|
|
||
|
Reportable segment totals |
|
1,702.4 |
|
1,797.0 |
|
||
|
Other |
|
8.5 |
|
10.0 |
|
||
|
Net sales |
|
$ |
1,710.9 |
|
$ |
1,807.0 |
|
|
Segment Operating Profit: |
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
||
|
Europe |
|
$ |
104.5 |
|
$ |
120.4 |
|
|
North America |
|
87.5 |
|
103.1 |
|
||
|
South America |
|
64.3 |
|
57.0 |
|
||
|
Asia Pacific |
|
30.8 |
|
11.4 |
|
||
|
Reportable segment totals |
|
287.1 |
|
291.9 |
|
||
|
|
|
|
|
|
|
||
|
Items excluded from Segment Operating Profit: |
|
|
|
|
|
||
|
Retained corporate costs and other |
|
(13.3 |
) |
(23.3 |
) |
||
|
Restructuring and asset impairments |
|
(8.0 |
) |
(5.2 |
) |
||
|
Interest income |
|
3.8 |
|
6.5 |
|
||
|
Interest expense |
|
(60.0 |
) |
(57.9 |
) |
||
|
Earnings before income taxes |
|
$ |
209.6 |
|
$ |
212.0 |
|
Financial information for the six-month periods ended June 30, 2010 and 2009 regarding the Company’s reportable segments is as follows:
|
Net sales: |
|
2010 |
|
2009 |
|
||
|
Europe |
|
$ |
1,383.6 |
|
$ |
1,406.8 |
|
|
North America |
|
959.9 |
|
1,054.7 |
|
||
|
South America |
|
458.5 |
|
463.9 |
|
||
|
Asia Pacific |
|
473.6 |
|
374.8 |
|
||
|
|
|
|
|
|
|
||
|
Reportable segment totals |
|
3,275.6 |
|
3,300.2 |
|
||
|
Other |
|
17.8 |
|
25.8 |
|
||
|
Net sales |
|
$ |
3,293.4 |
|
$ |
3,326.0 |
|
|
Segment Operating Profit: |
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
||
|
Europe |
|
$ |
160.9 |
|
$ |
164.6 |
|
|
North America |
|
150.8 |
|
165.8 |
|
||
|
South America |
|
106.0 |
|
117.0 |
|
||
|
Asia Pacific |
|
67.6 |
|
36.4 |
|
||
|
Reportable segment totals |
|
485.3 |
|
483.8 |
|
||
|
|
|
|
|
|
|
||
|
Items excluded from Segment Operating Profit: |
|
|
|
|
|
||
|
Retained corporate costs and other |
|
(31.7 |
) |
(35.2 |
) |
||
|
Restructuring and asset impairments |
|
(8.0 |
) |
(55.6 |
) |
||
|
Interest income |
|
8.2 |
|
15.0 |
|
||
|
Interest expense |
|
(115.6 |
) |
(106.0 |
) |
||
|
Earnings before income taxes |
|
$ |
338.2 |
|
$ |
302.0 |
|
Financial information regarding the Company’s total assets is as follows:
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
|||
|
Total assets: |
|
2010 |
|
2009 |
|
2009 |
|
|||
|
Europe |
|
$ |
3,401.9 |
|
$ |
3,852.3 |
|
$ |
3,853.9 |
|
|
North America |
|
2,005.3 |
|
1,899.8 |
|
1,927.4 |
|
|||
|
South America |
|
902.9 |
|
855.9 |
|
992.2 |
|
|||
|
Asia Pacific |
|
1,610.1 |
|
1,683.0 |
|
1,470.2 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Reportable segment totals |
|
7,920.2 |
|
8,291.0 |
|
8,243.7 |
|
|||
|
Other |
|
438.0 |
|
436.4 |
|
370.5 |
|
|||
|
Consolidated totals |
|
$ |
8,358.2 |
|
$ |
8,727.4 |
|
$ |
8,614.2 |
|
8. Other Expense
Other expense in 2010 includes foreign currency exchange gains and losses recognized by the Company to revalue its net monetary assets in Venezuela due to fluctuations in the exchange rate, and amounted to approximately $8 million of losses in the first quarter and $6 million of gains in the second quarter. See Note 13 for additional information.
During the three and six months ended June 30, 2010, the Company recorded charges totaling $8.0 million ($7.9 million after tax amount attributable to the Company), for restructuring and asset impairment related to the Company’s strategic review of its global manufacturing footprint. See Note 9 for additional information.
During the second quarter of 2009, the Company recorded charges totaling $5.2 million (pretax and after tax amount attributable to the Company), for restructuring and asset impairment related to the Company’s strategic review of its global manufacturing footprint. The total of all such charges for the six months ended June 30, 2009 was $55.6 million ($52.9 million after tax amount attributable to the Company). See Note 9 for additional information.
9. Restructuring Accruals
Beginning in 2007, the Company commenced a strategic review of its global profitability and manufacturing footprint. The combined 2007, 2008, 2009 and 2010 charges, amounting to $409.3 million ($341.0 million after tax amount attributable to the Company), reflect the decisions reached by the Company in its strategic review of its global manufacturing footprint. The related curtailment of plant capacity and realignment of selected operations will result in an overall reduction in the Company’s workforce of approximately 3,250 jobs. Amounts recorded by the Company do not include any gains that may be realized upon the ultimate sale or disposition of closed facilities.
The Company’s decisions to curtail selected production capacity have resulted in write downs of certain long-lived assets to the extent their carrying amounts exceeded fair value or fair value less cost to sell. The Company classified the significant assumptions used to determine the fair value of the impaired assets, which was not material, as Level 3 in the fair value hierarchy as set forth in the general accounting principles for fair value measurements.
The Company also recorded liabilities for certain employee separation costs to be paid under contractual arrangements and other exit costs.
2007
During the third and fourth quarters of 2007, the Company recorded charges totaling $55.3 million ($40.2 million after tax) for restructuring and asset impairment in Europe and North America. The curtailment of plant capacity resulted in elimination of approximately 560 jobs and a corresponding reduction in the Company’s workforce.
2008
During 2008, the Company recorded charges totaling $132.4 million ($110.1 million after tax amount attributable to the Company) for restructuring and asset impairment across all segments as well as in Retained Corporate Costs and Other. The curtailment of plant capacity and realignment of selected operations resulted in elimination of approximately 1,240 jobs and a corresponding reduction in the Company’s workforce.
2009
During 2009, the Company recorded charges totaling $213.6 million ($182.8 million after tax amount attributable to the Company) for restructuring and asset impairment across all segments. The curtailment of plant capacity will result in elimination of approximately 1,450 jobs and a corresponding reduction in the Company’s workforce.
2010
As of December 31, 2009, the Company had concluded its global manufacturing footprint review. During the second quarter of 2010, the Company recorded charges totaling $8.0 million ($7.9 million after tax amount attributable to the Company) for restructuring and asset impairment related to the completion of certain previously announced actions, primarily in North America.
The Company expects that the majority of the remaining estimated cash expenditures related to the above charges will be paid out by the end of 2010.
Selected information related to the restructuring accrual is as follows:
|
|
|
Employee |
|
Asset |
|
Other |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
2007 Charges |
|
$ |
26.1 |
|
$ |
22.3 |
|
$ |
6.9 |
|
$ |
55.3 |
|
|
Write-down of assets to net realizable value |
|
— |
|
(22.3 |
) |
(2.4 |
) |
(24.7 |
) |
||||
|
Balance at December 31, 2007 |
|
26.1 |
|
— |
|
4.5 |
|
30.6 |
|
||||
|
2008 charges |
|
70.1 |
|
32.5 |
|
29.8 |
|
132.4 |
|
||||
|
Write-down of assets to net realizable value |
|
|
|
(32.5 |
) |
(4.7 |
) |
(37.2 |
) |
||||
|
Net cash paid, principally severance and related benefits |
|
(35.6 |
) |
|
|
(7.2 |
) |
(42.8 |
) |
||||
|
Other, principally foreign exchange translation |
|
(13.0 |
) |
|
|
(6.1 |
) |
(19.1 |
) |
||||
|
Balance at December 31, 2008 |
|
47.6 |
|
— |
|
16.3 |
|
63.9 |
|
||||
|
2009 charges |
|
116.3 |
|
78.7 |
|
18.6 |
|
213.6 |
|
||||
|
Write-down of assets to net realizable value |
|
|
|
(78.7 |
) |
|
|
(78.7 |
) |
||||
|
Net cash paid, principally severance and related benefits |
|
(60.8 |
) |
|
|
(7.5 |
) |
(68.3 |
) |
||||
|
Other, principally foreign exchange translation |
|
(8.8 |
) |
|
|
(1.6 |
) |
(10.4 |
) |
||||
|
Balance at December 31, 2009 |
|
94.3 |
|
— |
|
25.8 |
|
120.1 |
|
||||
|
Net cash paid, principally severance and related benefits |
|
(17.9 |
) |
|
|
(1.0 |
) |
(18.9 |
) |
||||
|
Other, principally foreign exchange translation |
|
(1.1 |
) |
|
|
|
|
(1.1 |
) |
||||
|
Balance at March 31, 2010 |
|
75.3 |
|
— |
|
24.8 |
|
100.1 |
|
||||
|
Second quarter 2010 charges |
|
(2.3 |
) |
0.7 |
|
9.6 |
|
8.0 |
|
||||
|
Write-down of assets to net realizable value |
|
|
|
(0.7 |
) |
|
|
(0.7 |
) |
||||
|
Net cash paid, principally severance and related benefits |
|
(9.0 |
) |
|
|
(3.3 |
) |
(12.3 |
) |
||||
|
Other, principally foreign exchange translation |
|
(3.4 |
) |
|
|
(0.9 |
) |
(4.3 |
) |
||||
|
Balance at June 30, 2010 |
|
$ |
60.6 |
|
$ |
— |
|
$ |
30.2 |
|
$ |
90.8 |
|
10. Derivative Instruments
The Company has certain derivative assets and liabilities which consist of interest rate swaps, natural gas forwards, and foreign exchange option and forward contracts. The Company uses an income approach to valuing these contracts. Interest rate yield curves, natural gas forward rates, and foreign exchange rates are the significant inputs into the valuation models. These inputs are observable in active markets over the terms of the instruments the Company holds, and accordingly, the Company classifies its derivative assets and liabilities as Level 2 in the hierarchy. The Company also evaluates counterparty risk in determining fair values.
Interest Rate Swaps Designated as Fair Value Hedges
In the fourth quarter of 2003 and the first quarter of 2004, the Company entered into a series of interest rate swap agreements with a total notional amount of $700 million that were to mature in 2010 and 2013. The swaps were executed in order to: (i) convert a portion of the senior notes and senior debentures fixed-rate debt into floating-rate debt; (ii) maintain a capital structure containing appropriate amounts of fixed and floating-rate debt; and (iii) reduce net interest payments and expense in the near-term.
The Company’s fixed-to-floating interest rate swaps were accounted for as fair value hedges. Because the relevant terms of the swap agreements matched the corresponding terms of the notes, there was no hedge ineffectiveness. Accordingly, the Company recorded the net of the fair market values of the swaps as a long-term asset (liability) along with a corresponding net increase (decrease) in the carrying value of the hedged debt.
For derivative instruments that are designated and qualify as fair value hedges, the change in the fair value of the derivative instrument related to the future cash flows (gain or loss on the derivative) as well as the offsetting change in the fair value of the hedged item attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the hedged items (i.e. long-term debt) in the same line item (interest expense) as the offsetting loss or gain on the related interest rate swaps.
During the second quarter of 2009, the Company completed a tender offer for its $250 million senior debentures due 2010. As a result of the tender offer, the Company extinguished $221.9 million of the senior debentures and terminated the related interest rate swap agreements for proceeds of $5.0 million. The Company recognized $4.4 million of the proceeds as a reduction to interest expense upon the termination of the interest rate swap agreements, while the remaining proceeds were recognized as a reduction to interest expense over the remaining life of the outstanding senior debentures, which matured in May 2010.
During the second quarter of 2009, the Company’s interest rate swaps related to the $450 million senior notes due 2013 were terminated. The Company received proceeds of $12.4 million which were recorded as an adjustment to debt and were to be recognized as a reduction to interest expense over the remaining life of the senior notes due 2013. During the second quarter of 2010, a subsidiary of the Company redeemed the senior notes due 2013. Accordingly, the remaining unamortized proceeds from the terminated interest rate swaps were recognized in the second quarter as a reduction to interest expense. See Note 2 for additional information.
The effect of the interest rate swaps on the results of operations for the three and six months ended June 30, 2010 and 2009 is as follows:
|
|
|
Amount of Gain (Loss) Recognized in Interest Expense |
|
||||||||||
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest Rate Swaps |
|
|
|
$ |
(7.0 |
) |
|
|
$ |
(11.0 |
) |
||
|
Related long-term debt |
|
|
|
7.0 |
|
|
|
11.0 |
|
||||
|
Proceeds recognized and amortized for terminated interest rate swaps |
|
$ |
9.7 |
|
4.8 |
|
$ |
10.6 |
|
4.8 |
|
||
|
Net impact on interest expense |
|
$ |
9.7 |
|
$ |
4.8 |
|
$ |
10.6 |
|
$ |
4.8 |
|
Commodity Futures Contracts Designated as Cash Flow Hedges
The Company enters into commodity futures contracts related to forecasted natural gas requirements, the objectives of which are to limit the effects of fluctuations in the future market price paid for natural gas and the related volatility in cash flows. The Company continually evaluates the natural gas market with respect to its forecasted usage requirements over the next twelve to twenty-four months and periodically enters into commodity futures contracts in order to hedge a portion of its usage requirements over that period. At June 30, 2010, the Company had entered into commodity futures contracts covering approximately 4,800,000 MM BTUs over that period. The volume of natural gas covered by commodity futures contracts is lower than prior periods because the renegotiation of several large customer contracts in North
America reduced the Company’s exposure to gas price volatility through provisions that pass the price of natural gas to the customer.
The Company accounts for the above futures contracts as cash flow hedges at June 30, 2010 and recognizes them on the balance sheet at fair value. The effective portion of changes in the fair value of a derivative that is designated as, and meets the required criteria for, a cash flow hedge is recorded in the Accumulated Other Comprehensive Income component of share owners’ equity (“OCI”) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. At June 30, 2010, an unrecognized loss of $2.4 million (pretax and after tax) related to the commodity futures contracts was included in Accumulated OCI, and will be reclassified into earnings over the next twelve to twenty-four months. Any material portion of the change in the fair value of a derivative designated as a cash flow hedge that is deemed to be ineffective is recognized in current earnings. The ineffectiveness related to these natural gas hedges for the three and six months ended June 30, 2010 and 2009 was not material.
The effect of the commodity futures contracts on the results of operations for the three months ended June 30, 2010 and 2009 is as follows:
|
Amount of Gain (Loss) |
|
Amount of Loss |
|
||||||||
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
||||
|
$ |
1.2 |
|
$ |
(1.7 |
) |
$ |
(3.6 |
) |
$ |
(16.5 |
) |
The effect of the commodity futures contracts on the results of operations for the six months ended June 30, 2010 and 2009 is as follows:
|
|
|
Amount of Loss |
|
||||||||
|
|
|
Reclassified from |
|
||||||||
|
Amount of Loss |
|
Accumulated OCI into |
|
||||||||
|
Recognized in OCI on |
|
Income (reported in |
|
||||||||
|
Commodity Futures Contracts |
|
manufacturing, shipping, and |
|
||||||||
|
(Effective Portion) |
|
delivery) (Effective Portion) |
|
||||||||
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
||||
|
$ |
(6.0) |
|
$ |
(21.0 |
) |
$ |
(4.9 |
) |
$ |
(29.8 |
) |
Senior Notes Designated as Net Investment Hedge
During December 2004, a U.S. subsidiary of the Company issued senior notes totaling €225 million. These notes were designated by the Company’s subsidiary as a hedge of a portion of its net investment in a non-U.S. subsidiary with a Euro functional currency. Because the amount of the senior notes matches the hedged portion of the net investment, there is no hedge ineffectiveness. Accordingly, the Company recorded the impact of changes in the foreign currency exchange rate on the Euro-denominated notes in OCI. The amount recorded in OCI will be reclassified into earnings when the Company sells or liquidates its net investment in the non-U.S. subsidiary.
The effect of the net investment hedge on the results of operations for the three months ended June 30, 2010 and 2009 is as follows:
|
|
|
|
|
Amount of Gain (Loss) |
|
||||||||
|
Amount of Gain (Loss) |
|
Location of Gain (Loss) |
|
Reclassified from Accumulated |
|
||||||||
|
Recognized in OCI |
|
Reclassified from Accumulated |
|
OCI into Income |
|
||||||||
|
2010 |
|
2009 |
|
OCI into Income |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
27.2 |
|
$ |
(20.7 |
) |
N/A |
|
$ |
— |
|
$ |
— |
|
The effect of the net investment hedge on the results of operations for the six months ended June 30, 2010 and 2009 is as follows:
|
|
|
|
|
Amount of Gain (Loss) |
|
||||||||
|
Amount of Gain (Loss) |
|
Location of Gain (Loss) |
|
Reclassified from Accumulated |
|
||||||||
|
Recognized in OCI |
|
Reclassified from Accumulated |
|
OCI into Income |
|
||||||||
|
2010 |
|
2009 |
|
OCI into Income |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
50.7 |
|
$ |
(1.3 |
) |
N/A |
|
$ |
— |
|
$ |
— |
|
Forward Exchange Contracts not Designated as Hedging Instruments
The Company’s subsidiaries may enter into short-term forward exchange or option agreements to purchase foreign currencies at set rates in the future. These agreements are used to limit exposure to fluctuations in foreign currency exchange rates for significant planned purchases of fixed assets or commodities that are denominated in currencies other than the subsidiaries’ functional currency. Subsidiaries may also use forward exchange agreements to offset the foreign currency risk for receivables and payables, including intercompany receivables and payables, not denominated in, or indexed to, their functional currencies. The Company records these short-term forward exchange agreements on the balance sheet at fair value and changes in the fair value are recognized in current earnings.
At June 30, 2010, various subsidiaries of the Company had outstanding forward exchange and option agreements denominated in various currencies covering the equivalent of approximately $610 million related primarily to intercompany transactions and loans.
The effect of the forward exchange contracts on the results of operations for the three months ended June 30, 2010 and 2009 is as follows:
|
|
|
Amount of Gain |
|
||||
|
Location of Gain (Loss) |
|
Recognized in Income on |
|
||||
|
Recognized in Income on |
|
Forward Exchange Contracts |
|
||||
|
Forward Exchange Contracts |
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
||
|
Other expense |
|
$ |
18.1 |
|
$ |
1.2 |
|
The effect of the forward exchange contracts on the results of operations for the six months ended June 30, 2010 and 2009 is as follows:
|
|
|
Amount of Gain |
|
||||
|
Location of Gain (Loss) |
|
Recognized in Income on |
|
||||
|
Recognized in Income on |
|
Forward Exchange Contracts |
|
||||
|
Forward Exchange Contracts |
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
|
||
|
Other expense |
|
$ |
41.0 |
|
$ |
11.8 |
|
Balance Sheet Classification
The Company records the fair values of derivative financial instruments on the balance sheet as follows: (a) receivables if the instrument has a positive fair value and maturity within one year, (b) deposits, receivables, and other assets if the instrument has a positive fair value and maturity after one year, (c) other accrued liabilities or other liabilities (current) if the instrument has a negative fair value and maturity within one year, and (d) other liabilities if the instrument has a negative fair value and maturity after one year. The following table shows the amount and classification (as noted above) of the Company’s derivatives:
|
|
|
Balance |
|
Fair Value |
|
|||||||
|
|
|
Sheet |
|
June 30, |
|
December 31, |
|
June 30, |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Asset Derivatives: |
|
|
|
|
|
|
|
|
|
|||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|||
|
Commodity futures contracts |
|
a |
|
$ |
— |
|
$ |
0.4 |
|
$ |
— |
|
|
Commodity futures contracts |
|
b |
|
0.1 |
|
|
|
|
|
|||
|
Commodity futures contracts |
|
c |
|
|
|
0.1 |
|
|
|
|||
|
Total derivatives designated as hedging instruments |
|
|
|
0.1 |
|
0.5 |
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|||
|
Foreign exchange contracts |
|
a |
|
23.7 |
|
6.0 |
|
5.5 |
|
|||
|
Foreign exchange contracts |
|
b |
|
2.3 |
|
|
|
0.3 |
|
|||
|
Foreign exchange contracts |
|
c |
|
0.1 |
|
0.2 |
|
0.1 |
|
|||
|
Total derivatives not designated as hedging instruments |
|
|
|
26.1 |
|
6.2 |
|
5.9 |
|
|||
|
Total asset derivatives |
|
|
|
$ |
26.2 |
|
$ |
6.7 |
|
$ |
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Liability Derivatives: |
|
|
|
|
|
|
|
|
|
|||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|||
|
Commodity futures contracts |
|
c |
|
$ |
2.5 |
|
$ |
1.8 |
|
$ |
28.6 |
|
|
Total derivatives designated as hedging instruments |
|
|
|
2.5 |
|
1.8 |
|
28.6 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|||
|
Foreign exchange contracts |
|
c |
|
6.4 |
|
2.9 |
|
13.9 |
|
|||
|
Total derivatives not designated as hedging instruments |
|
|
|
6.4 |
|
2.9 |
|
13.9 |
|
|||
|
Total liability derivatives |
|
|
|
$ |
8.9 |
|
$ |
4.7 |
|
$ |
42.5 |
|
11. Pensions Benefit Plans and Other Postretirement Benefits
The components of the net periodic pension cost for the three months ended June 30, 2010 and 2009 are as follows:
|
|
|
2010 |
|
2009 |
|
||
|
Service cost |
|
$ |
11.0 |
|
$ |
10.4 |
|
|
Interest cost |
|
51.0 |
|
53.2 |
|
||
|
Expected asset return |
|
(66.4 |
) |
(69.0 |
) |
||
|
|
|
|
|
|
|
||
|
Amortization: |
|
|
|
|
|
||
|
Prior service credit |
|
(0.2 |
) |
(0.2 |
) |
||
|
Actuarial loss |
|
22.4 |
|
10.9 |
|
||
|
|
|
|
|
|
|
||
|
Net amortization |
|
22.2 |
|
10.7 |
|
||
|
|
|
|
|
|
|
||
|
Net periodic pension cost |
|
$ |
17.8 |
|
$ |
5.3 |
|
The components of the net periodic pension cost for the six months ended June 30, 2010 and 2009 are as follows:
|
|
|
2010 |
|
2009 |
|
||
|
Service cost |
|
$ |
22.6 |
|
$ |
20.3 |
|
|
Interest cost |
|
103.9 |
|
104.7 |
|
||
|
Expected asset return |
|
(134.7 |
) |
(136.3 |
) |
||
|
|
|
|
|
|
|
||
|
Amortization: |
|
|
|
|
|
||
|
Prior service credit |
|
(0.4 |
) |
(0.4 |
) |
||
|
Actuarial loss |
|
45.2 |
|
21.8 |
|
||
|
|
|
|
|
|
|
||
|
Net amortization |
|
44.8 |
|
21.4 |
|
||
|
|
|
|
|
|
|
||
|
Net periodic pension cost |
|
$ |
36.6 |
|
$ |
10.1 |
|
The components of the net postretirement benefit cost for the three months ended June 30, 2010 and 2009 are as follows:
|
|
|
2010 |
|
2009 |
|
||
|
Service cost |
|
$ |
0.5 |
|
$ |
0.5 |
|
|
Interest cost |
|
3.9 |
|
4.1 |
|
||
|
|
|
|
|
|
|
||
|
Amortization: |
|
|
|
|
|
||
|
Prior service credit |
|
(0.8 |
) |
(0.8 |
) |
||
|
Actuarial loss |
|
1.4 |
|
0.9 |
|
||
|
|
|
|
|
|
|
||
|
Net amortization |
|
0.6 |
|
0.1 |
|
||
|
|
|
|
|
|
|
||
|
Net postretirement benefit cost |
|
$ |
5.0 |
|
$ |
4.7 |
|
The components of the net postretirement benefit cost for the six months ended June 30, 2010 and 2009 are as follows:
|
|
|
2010 |
|
2009 |
|
||
|
Service cost |
|
$ |
1.1 |
|
$ |
0.9 |
|
|
Interest cost |
|
7.9 |
|
8.1 |
|
||
|
|
|
|
|
|
|
||
|
Amortization: |
|
|
|
|
|
||
|
Prior service credit |
|
(1.6 |
) |
(1.6 |
) |
||
|
Actuarial loss |
|
2.7 |
|
1.9 |
|
||
|
|
|
|
|
|
|
||
|
Net amortization |
|
1.1 |
|
0.3 |
|
||
|
|
|
|
|
|
|
||
|
Net postretirement benefit cost |
|
$ |
10.1 |
|
$ |
9.3 |
|
In March 2010, the Patient Protection and Affordable Care Act and the Health Care Education and Affordability Reconciliation Act (the “Acts”) were signed into law. The Acts contain provisions which could impact the Company’s accounting for retiree medical benefits in future periods. However, the extent of that impact, if any, cannot be determined until additional interpretations of the Acts become available. Based on the analysis to date, the impact of provisions in the Acts which are reasonably determinable is not expected to have a material impact on the Company’s other postretirement benefit plans. Accordingly, a remeasurement of the Company’s postretirement benefit obligation is not required at this time. The Company will continue to assess the provisions of the Acts and may consider plan amendments in future periods to better align these plans with the provisions of the Acts.
12. Business Combination
In the second quarter of 2010, the Company formed a joint venture with Berli Jucker Public Company Limited (“BJC”) of Thailand in order to expand the Company’s presence in China and Southeast Asia. The joint venture entered into an agreement to purchase the operations of Malaya Glass from Fraser & Neave Holdings Bhd. Malaya Glass produces glass containers for the beer, non-alcoholic beverage and food markets, with plants located in China, Thailand, Malaysia and Vietnam. Following the acquisition, the plants in Malaysia and Vietnam will remain with the joint venture, while the interest in the China plant will be transferred to the Company and the interest in the Thailand plant will be transferred to BJC. The Company’s share of the purchase price for Malaya Glass is $132.4 million. The acquisition was completed on July 16, 2010.
On March 11, 2010, the Company acquired the majority share of Cristalerias Rosario, a one-plant glass container manufacturer located in Rosario, Argentina. Cristalerias Rosario primarily produces wine and non-alcoholic beverage glass containers and employs approximately 230 people.
13. Venezuelan Operations
Beginning January 1, 2010, Venezuela’s economy is considered to be highly inflationary for accounting purposes. Accordingly, the Company has adopted the U.S. dollar as the functional currency for its Venezuelan operations. All bolivar-denominated transactions, as well as monetary assets and liabilities, are remeasured at the end of each month into U.S. dollars using the current exchange rate at that date.
At the beginning of 2010, the Company elected to use the parallel market rate to remeasure its Venezuelan operations due to the continued restrictions on currency exchange in Venezuela at the official rates. At March 31, 2010, the bolivar to U.S. dollar exchange rate in the parallel market was 6.9 bolivars to one U.S. dollar. In May 2010, the Venezuelan government suspended trading in the parallel market and replaced it with a system called Transaction System for Foreign Currency Denominated Securities (“SITME”), under the control of the Central Bank of Venezuela. The bolivar to U.S. dollar exchange rate under SITME was 5.3 bolivars to one U.S. dollar at June 30, 2010.
The use of the parallel market and SITME rates for remeasurement in Venezuela in 2010 resulted in a reduction to the South American segment operating profit of approximately $15 million and $40 million compared to the three and six months ended June 30, 2009, respectively, as bolivar-denominated revenues and costs of the Company’s Venezuelan operations were remeasured into fewer U.S. dollars compared to the 2.15 official rate used for translation in 2009.
14. Financial Information for Subsidiary Guarantors and Non-Guarantors
The following presents condensed consolidating financial information for the Company, segregating: (1) Owens-Illinois, Inc., the issuer of two series of senior debentures (the “Parent”); (2) the two subsidiaries which have guaranteed the senior debentures on a subordinated basis (the “Guarantor Subsidiaries”); and (3) all other subsidiaries (the “Non-Guarantor Subsidiaries”). The Guarantor Subsidiaries are 100% owned direct and indirect subsidiaries of the Company and their guarantees are full, unconditional and joint and several. They have no operations and function only as intermediate holding companies.
100% owned subsidiaries are presented on the equity basis of accounting. Certain reclassifications have been made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminations relate to investments in subsidiaries and intercompany balances and transactions.
|
|
|
June 30, 2010 |
|
|||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||||
|
|
|
|
|
Guarantor |
|
Guarantor |
|
|
|
|
|
|||||
|
Balance Sheet |
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts receivable |
|
$ |
— |
|
$ |
— |
|
$ |
1,099.2 |
|
$ |
— |
|
$ |
1,099.2 |
|
|
Inventories |
|
|
|
|
|
874.0 |
|
|
|
874.0 |
|
|||||
|
Other current assets |
|
|
|
|
|
754.8 |
|
|
|
754.8 |
|
|||||
|
Total current assets |
|
— |
|
— |
|
2,728.0 |
|
— |
|
2,728.0 |
|
|||||
|
Investments in and advances to subsidiaries |
|
2,196.3 |
|
1,946.3 |
|
|
|
(4,142.6 |
) |
— |
|
|||||
|
Goodwill |
|
|
|
|
|
2,221.7 |
|
|
|
2,221.7 |
|
|||||
|
Other non-current assets |
|
|
|
|
|
780.6 |
|
|
|
780.6 |
|
|||||
|
Total other assets |
|
2,196.3 |
|
1,946.3 |
|
3,002.3 |
|
(4,142.6 |
) |
3,002.3 |
|
|||||
|
Property, plant and equipment, net |
|
|
|
|
|
2,627.9 |
|
|
|
2,627.9 |
|
|||||
|
Total assets |
|
$ |
2,196.3 |
|
$ |
1,946.3 |
|
$ |
8,358.2 |
|
$ |
(4,142.6 |
) |
$ |
8,358.2 |
|
|
Current liabilities : |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts payable and accrued liabilities |
|
$ |
— |
|
$ |
— |
|
$ |
1,471.3 |
|
$ |
— |
|
$ |
1,471.3 |
|
|
Current portion of asbestos liability |
|
175.0 |
|
|
|
|
|
|
|
175.0 |
|
|||||
|
Short-term loans and long-term debt due within one year |
|
|
|
|
|
272.7 |
|
— |
|
272.7 |
|
|||||
|
Total current liabilities |
|
175.0 |
|
— |
|
1,744.0 |
|
— |
|
1,919.0 |
|
|||||
|
Long-term debt |
|
250.0 |
|
|
|
3,227.8 |
|
(250.0 |
) |
3,227.8 |
|
|||||
|
Asbestos-related liabilities |
|
233.0 |
|
|
|
|
|
|
|
233.0 |
|
|||||
|
Other non-current liabilities |
|
|
|
|
|
1,234.7 |
|
|
|
1,234.7 |
|
|||||
|
Total share owners’ equity of the Company |
|
1,538.3 |
|
1,946.3 |
|
1,946.3 |
|
(3,892.6 |
) |
1,538.3 |
|
|||||
|
Noncontrolling interests |
|
|
|
|
|
205.4 |
|
|
|
205.4 |
|
|||||
|
Total liabilities and share owners’ equity |
|
$ |
2,196.3 |
|
$ |
1,946.3 |
|
$ |
8,358.2 |
|
$ |
(4,142.6 |
) |
$ |
8,358.2 |
|
|
|
|
December 31, 2009 |
|
|||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||||
|
|
|
|
|
Guarantor |
|
Guarantor |
|
|
|
|
|
|||||
|
Balance Sheet |
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts receivable |
|
$ |
— |
|
$ |
— |
|
$ |
1,004.2 |
|
$ |
— |
|
$ |
1,004.2 |
|
|
Inventories |
|
|
|
|
|
900.3 |
|
|
|
900.3 |
|
|||||
|
Other current assets |
|
|
|
|
|
892.2 |
|
|
|
892.2 |
|
|||||
|
Total current assets |
|
— |
|
— |
|
2,796.7 |
|
— |
|
2,796.7 |
|
|||||
|
Investments in and advances to subsidiaries |
|
2,301.4 |
|
2,023.3 |
|
|
|
(4,324.7 |
) |
— |
|
|||||
|
Goodwill |
|
|
|
|
|
2,381.0 |
|
|
|
2,381.0 |
|
|||||
|
Other non-current assets |
|
|
|
|
|
807.4 |
|
|
|
807.4 |
|
|||||
|
Total other assets |
|
2,301.4 |
|
2,023.3 |
|
3,188.4 |
|
(4,324.7 |
) |
3,188.4 |
|
|||||
|
Property, plant and equipment, net |
|
|
|
|
|
2,742.3 |
|
|
|
2,742.3 |
|
|||||
|
Total assets |
|
$ |
2,301.4 |
|
$ |
2,023.3 |
|
$ |
8,727.4 |
|
$ |
(4,324.7 |
) |
$ |
8,727.4 |
|
|
Current liabilities : |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts payable and accrued liabilities |
|
$ |
— |
|
$ |
— |
|
$ |
1,507.3 |
|
$ |
— |
|
$ |
1,507.3 |
|
|
Current portion of asbestos liability |
|
175.0 |
|
|
|
|
|
|
|
175.0 |
|
|||||
|
Short-term loans and long-term debt due within one year |
|
28.1 |
|
|
|
352.0 |
|
(28.1 |
) |
352.0 |
|
|||||
|
Total current liabilities |
|
203.1 |
|
— |
|
1,859.3 |
|
(28.1 |
) |
2,034.3 |
|
|||||
|
Long-term debt |
|
250.0 |
|
|
|
3,257.5 |
|
(250.0 |
) |
3,257.5 |
|
|||||
|
Asbestos-related liabilities |
|
310.1 |
|
|
|
|
|
|
|
310.1 |
|
|||||
|
Other non-current liabilities |
|
|
|
|
|
1,389.1 |
|
|
|
1,389.1 |
|
|||||
|
Total share owners’ equity of the Company |
|
1,538.2 |
|
2,023.3 |
|
2,023.3 |
|
(4,046.6 |
) |
1,538.2 |
|
|||||
|
Noncontrolling interests |
|
|
|
|
|
198.2 |
|
|
|
198.2 |
|
|||||
|
Total liabilities and share owners’ equity |
|
$ |
2,301.4 |
|
$ |
2,023.3 |
|
$ |
8,727.4 |
|
$ |
(4,324.7 |
) |
$ |
8,727.4 |
|
|
|
|
June 30, 2009 |
|
|||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||||
|
|
|
|
|
Guarantor |
|
Guarantor |
|
|
|
|
|
|||||
|
Balance Sheet |
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts receivable |
|
$ |
— |
|
$ |
— |
|
$ |
1,126.4 |
|
$ |
— |
|
$ |
1,126.4 |
|
|
Inventories |
|
|
|
|
|
1,039.0 |
|
|
|
1,039.0 |
|
|||||
|
Other current assets |
|
|
|
|
|
752.0 |
|
|
|
752.0 |
|
|||||
|
Total current assets |
|
— |
|
— |
|
2,917.4 |
|
— |
|
2,917.4 |
|
|||||
|
Investments in and advances to subsidiaries |
|
2,137.4 |
|
1,859.3 |
|
|
|
(3,996.7 |
) |
— |
|
|||||
|
Goodwill |
|
|
|
|
|
2,290.8 |
|
|
|
2,290.8 |
|
|||||
|
Other non-current assets |
|
|
|
|
|
753.7 |
|
|
|
753.7 |
|
|||||
|
Total other assets |
|
2,137.4 |
|
1,859.3 |
|
3,044.5 |
|
(3,996.7 |
) |
3,044.5 |
|
|||||
|
Property, plant, and equipment, net |
|
|
|
|
|
2,652.3 |
|
|
|
2,652.3 |
|
|||||
|
Total assets |
|
$ |
2,137.4 |
|
$ |
1,859.3 |
|
$ |
8,614.2 |
|
$ |
(3,996.7 |
) |
$ |
8,614.2 |
|
|
Current liabilities : |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts payable and accrued liabilities |
|
$ |
— |
|
$ |
— |
|
$ |
1,425.1 |
|
$ |
— |
|
$ |
1,425.1 |
|
|
Current portion of asbestos liability |
|
175.0 |
|
|
|
|
|
|
|
175.0 |
|
|||||
|
Short-term loans and long-term debt due within one year |
|
28.1 |
|
|
|
357.8 |
|
(28.1 |
) |
357.8 |
|
|||||
|
Total current liabilities |
|
203.1 |
|
— |
|
1,782.9 |
|
(28.1 |
) |
1,957.9 |
|
|||||
|
Long-term debt |
|
250.0 |
|
|
|
3,284.4 |
|
(250.0 |
) |
3,284.4 |
|
|||||
|
Asbestos-related liabilities |
|
236.1 |
|
|
|
|
|
|
|
236.1 |
|
|||||
|
Other non-current liabilities |
|
|
|
|
|
1,455.3 |
|
|
|
1,455.3 |
|
|||||
|
Total share owners’ equity of the Company |
|
1,448.2 |
|
1,859.3 |
|
1,859.3 |
|
(3,718.6 |
) |
1,448.2 |
|
|||||
|
Noncontrolling interests |
|
|
|
|
|
232.3 |
|
|
|
232.3 |
|
|||||
|
Total liabilities and share owners’ equity |
|
$ |
2,137.4 |
|
$ |
1,859.3 |
|
$ |
8,614.2 |
|
$ |
(3,996.7 |
) |
$ |
8,614.2 |
|
|
|
|
Three months ended June 30, 2010 |
|
|||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||||
|
|
|
|
|
Guarantor |
|
Guarantor |
|
|
|
|
|
|||||
|
Results of Operations |
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
|
Net sales |
|
$ |
— |
|
$ |
— |
|
$ |
1,710.9 |
|
$ |
— |
|
$ |
1,710.9 |
|
|
Manufacturing, shipping, and delivery |
|
|
|
|
|
(1,314.0 |
) |
|
|
(1,314.0 |
) |
|||||
|
Gross profit |
|
— |
|
— |
|
396.9 |
|
— |
|
396.9 |
|
|||||
|
Research, engineering, selling, administrative, and other |
|
|
|
|
|
(150.4 |
) |
|
|
(150.4 |
) |
|||||
|
External interest expense |
|
(5.2 |
) |
|
|
(54.8 |
) |
|
|
(60.0 |
) |
|||||
|
Intercompany interest expense |
|
|
|
(5.2 |
) |
(5.2 |
) |
10.4 |
|
— |
|
|||||
|
External interest income |
|
|
|
|
|
3.8 |
|
|
|
3.8 |
|
|||||
|
Intercompany interest income |
|
5.2 |
|
5.2 |
|
|
|
(10.4 |
) |
— |
|
|||||
|
Equity earnings from subsidiaries |
|
141.1 |
|
141.1 |
|
|
|
(282.2 |
) |
— |
|
|||||
|
Other equity earnings |
|
|
|
|
|
13.6 |
|
|
|
13.6 |
|
|||||
|
Other revenue |
|
|
|
|
|
5.7 |
|
|
|
5.7 |
|
|||||
|
Earnings before income taxes |
|
141.1 |
|
141.1 |
|
209.6 |
|
(282.2 |
) |
209.6 |
|
|||||
|
Provision for income taxes |
|
|
|
|
|
(54.7 |
) |
|
|
(54.7 |
) |
|||||
|
Net earnings |
|
141.1 |
|
141.1 |
|
154.9 |
|
(282.2 |
) |
154.9 |
|
|||||
|
Net earnings attributable to noncontrolling interest |
|
|
|
|
|
(13.8 |
) |
|
|
(13.8 |
) |
|||||
|
Net earnings attributable to the Company |
|
$ |
141.1 |
|
$ |
141.1 |
|
$ |
141.1 |
|
$ |
(282.2 |
) |
$ |
141.1 |
|
|
|
|
Three months ended June 30, 2009 |
|
|||||||||||||
|
Results of Operations |
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
|
|||||
|
Net sales |
|
$ |
— |
|
$ |
— |
|
$ |
1,807.0 |
|
$ |
— |
|
$ |
1,807.0 |
|
|
Manufacturing, shipping, and delivery |
|
|
|
|
|
(1,399.6 |
) |
|
|
(1,399.6 |
) |
|||||
|
Gross profit |
|
— |
|
— |
|
407.4 |
|
— |
|
407.4 |
|
|||||
|
Research, engineering, selling, administrative, and other |
|
|
|
|
|
(162.5 |
) |
|
|
(162.5 |
) |
|||||
|
External interest expense |
|
(18.4 |
) |
|
|
(39.5 |
) |
|
|
(57.9 |
) |
|||||
|
Intercompany interest expense |
|
|
|
(18.4 |
) |
(18.4 |
) |
36.8 |
|
— |
|
|||||
|
External interest income |
|
|
|
|
|
6.5 |
|
|
|
6.5 |
|
|||||
|
Intercompany interest income |
|
18.4 |
|
18.4 |
|
|
|
(36.8 |
) |
— |
|
|||||
|
Equity earnings from subsidiaries |
|
149.3 |
|
149.3 |
|
|
|
(298.6 |
) |
— |
|
|||||
|
Other equity earnings |
|
|
|
|
|
14.1 |
|
|
|
14.1 |
|
|||||
|
Other revenue |
|
|
|
|
|
4.4 |
|
|
|
4.4 |
|
|||||
|
Earnings before income taxes |
|
149.3 |
|
149.3 |
|
212.0 |
|
(298.6 |
) |
212.0 |
|
|||||
|
Provision for income taxes |
|
|
|
|
|
(49.5 |
) |
|
|
(49.5 |
) |
|||||
|
Net earnings |
|
149.3 |
|
149.3 |
|
162.5 |
|
(298.6 |
) |
162.5 |
|
|||||
|
Net earnings attributable to noncontrolling interest |
|
|
|
|
|
(13.2 |
) |
|
|
(13.2 |
) |
|||||
|
Net earnings attributable to the Company |
|
$ |
149.3 |
|
$ |
149.3 |
|
$ |
149.3 |
|
$ |
(298.6 |
) |
$ |
149.3 |
|
|
|
|
Six months ended June 30, 2010 |
|
|||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||||
|
|
|
|
|
Guarantor |
|
Guarantor |
|
|
|
|
|
|||||
|
Results of Operations |
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
|
Net sales |
|
$ |
— |
|
$ |
— |
|
$ |
3,293.4 |
|
$ |
— |
|
$ |
3,293.4 |
|
|
Manufacturing, shipping, and delivery |
|
|
|
|
|
(2,585.7 |
) |
|
|
(2,585.7 |
) |
|||||
|
Gross profit |
|
— |
|
— |
|
707.7 |
|
— |
|
707.7 |
|
|||||
|
Research, engineering, selling, administrative, and other |
|
|
|
|
|
(298.8 |
) |
|
|
(298.8 |
) |
|||||
|
External interest expense |
|
(10.7 |
) |
|
|
(104.9 |
) |
|
|
(115.6 |
) |
|||||
|
Intercompany interest expense |
|
|
|
(10.7 |
) |
(10.7 |
) |
21.4 |
|
— |
|
|||||
|
External interest income |
|
|
|
|
|
8.2 |
|
|
|
8.2 |
|
|||||
|
Intercompany interest income |
|
10.7 |
|
10.7 |
|
|
|
(21.4 |
) |
— |
|
|||||
|
Equity earnings from subsidiaries |
|
226.4 |
|
226.4 |
|
|
|
(452.8 |
) |
— |
|
|||||
|
Other equity earnings |
|
|
|
|
|
26.1 |
|
|
|
26.1 |
|
|||||
|
Other revenue |
|
|
|
|
|
10.6 |
|
|
|
10.6 |
|
|||||
|
Earnings before income taxes |
|
226.4 |
|
226.4 |
|
338.2 |
|
(452.8 |
) |
338.2 |
|
|||||
|
Provision for income taxes |
|
|
|
|
|
(88.9 |
) |
|
|
(88.9 |
) |
|||||
|
Net earnings |
|
226.4 |
|
226.4 |
|
249.3 |
|
(452.8 |
) |
249.3 |
|
|||||
|
Net earnings attributable to noncontrolling interest |
|
|
|
|
|
(22.9 |
) |
|
|
(22.9 |
) |
|||||
|
Net earnings attributable to the Company |
|
$ |
226.4 |
|
$ |
226.4 |
|
$ |
226.4 |
|
$ |
(452.8 |
) |
$ |
226.4 |
|
|
|
|
Six months ended June 30, 2009 |
|
|||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||||
|
|
|
|
|
Guarantor |
|
Guarantor |
|
|
|
|
|
|||||
|
Results of Operations |
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
|
Net sales |
|
$ |
— |
|
$ |
— |
|
$ |
3,326.0 |
|
$ |
— |
|
$ |
3,326.0 |
|
|
Manufacturing, shipping, and delivery |
|
|
|
|
|
(2,621.8 |
) |
|
|
(2,621.8 |
) |
|||||
|
Gross profit |
|
— |
|
— |
|
704.2 |
|
— |
|
704.2 |
|
|||||
|
Research, engineering, selling, administrative, and other |
|
|
|
|
|
(347.7 |
) |
|
|
(347.7 |
) |
|||||
|
External interest expense |
|
(28.1 |
) |
|
|
(77.9 |
) |
|
|
(106.0 |
) |
|||||
|
Intercompany interest expense |
|
|
|
(28.1 |
) |
(28.1 |
) |
56.2 |
|
— |
|
|||||
|
External interest income |
|
|
|
|
|
15.0 |
|
|
|
15.0 |
|
|||||
|
Intercompany interest income |
|
28.1 |
|
28.1 |
|
|
|
(56.2 |
) |
— |
|
|||||
|
Equity earnings from subsidiaries |
|
194.4 |
|
194.4 |
|
|
|
(388.8 |
) |
— |
|
|||||
|
Other equity earnings |
|
|
|
|
|
27.7 |
|
|
|
27.7 |
|
|||||
|
Other revenue |
|
|
|
|
|
8.8 |
|
|
|
8.8 |
|
|||||
|
Earnings before income taxes |
|
194.4 |
|
194.4 |
|
302.0 |
|
(388.8 |
) |
302.0 |
|
|||||
|
Provision for income taxes |
|
|
|
|
|
(80.7 |
) |
|
|
(80.7 |
) |
|||||
|
Net earnings |
|
194.4 |
|
194.4 |
|
221.3 |
|
(388.8 |
) |
221.3 |
|
|||||
|
Net earnings attributable to noncontrolling interest |
|
|
|
|
|
(26.9 |
) |
|
|
(26.9 |
) |
|||||
|
Net earnings attributable to the Company |
|
$ |
194.4 |
|
$ |
194.4 |
|
$ |
194.4 |
|
$ |
(388.8 |
) |
$ |
194.4 |
|
|
|
|
Six months ended June 30, 2010 |
|
|||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||||
|
|
|
|
|
Guarantor |
|
Guarantor |
|
|
|
|
|
|||||
|
Cash Flows |
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash provided by (used in) operating activities |
|
$ |
(77.2 |
) |
$ |
— |
|
$ |
251.8 |
|
$ |
— |
|
$ |
174.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash used in investing activities |
|
|
|
|
|
(261.7 |
) |
|
|
(261.7 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash provided by (used in) financing activities |
|
77.2 |
|
|
|
(99.4 |
) |
|
|
(22.2 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Effect of exchange rate change on cash |
|
|
|
|
|
(20.1 |
) |
|
|
(20.1 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net change in cash |
|
— |
|
— |
|
(129.4 |
) |
— |
|
(129.4 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash at beginning of period |
|
|
|
|
|
811.7 |
|
|
|
811.7 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash at end of period |
|
$ |
— |
|
$ |
— |
|
$ |
682.3 |
|
$ |
— |
|
$ |
682.3 |
|
|
|
|
Six months ended June 30, 2009 |
|
|||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|||||
|
|
|
|
|
Guarantor |
|
Guarantor |
|
|
|
|
|
|||||
|
Cash Flows |
|
Parent |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Consolidated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash provided by (used in) operating activities |
|
$ |
(84.2 |
) |
$ |
— |
|
$ |
267.4 |
|
$ |
— |
|
$ |
183.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash used in investing activities |
|
|
|
|
|
(118.3 |
) |
|
|
(118.3 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash provided by financing activities |
|
84.2 |
|
|
|
141.1 |
|
|
|
225.3 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Effect of exchange rate change on cash |
|
|
|
|
|
7.5 |
|
|
|
7.5 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net change in cash |
|
— |
|
— |
|
297.7 |
|
— |
|
297.7 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash at beginning of period |
|
|
|
|
|
379.5 |
|
|
|
379.5 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash at end of period |
|
$ |
— |
|
$ |
— |
|
$ |
677.2 |
|
$ |
— |
|
$ |
677.2 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Following are the Company’s net sales by segment and Segment Operating Profit for the three and six months ended June 30, 2010 and 2009 (dollars in millions). The Company’s measure of profit for its reportable segments is Segment Operating Profit, which consists of consolidated earnings from continuing operations before interest income, interest expense, and provision for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations as well as certain retained corporate costs. The segment data presented below is prepared in accordance with general accounting principles for segment reporting. The line titled ‘reportable segment totals’, however, is a non-GAAP measure when presented outside of the financial statement footnotes. Management has included ‘reportable segment totals’ below to facilitate the discussion and analysis of financial condition and results of operations. The Company’s management uses Segment Operating Profit, in combination with net sales and selected cash flow information, to evaluate performance and to allocate resources.
|
|
|
Three months ended |
|
Six months ended |
|
||||||||
|
Net Sales: |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
Europe |
|
$ |
715.6 |
|
$ |
793.9 |
|
$ |
1,383.6 |
|
$ |
1,406.8 |
|
|
North America |
|
516.2 |
|
560.5 |
|
959.9 |
|
1,054.7 |
|
||||
|
South America |
|
247.5 |
|
249.9 |
|
458.5 |
|
463.9 |
|
||||
|
Asia Pacific |
|
223.1 |
|
192.7 |
|
473.6 |
|
374.8 |
|
||||
|
Reportable segment totals |
|
1,702.4 |
|
1,797.0 |
|
3,275.6 |
|
3,300.2 |
|
||||
|
Other |
|
8.5 |
|
10.0 |
|
17.8 |
|
25.8 |
|
||||
|
Net Sales |
|
$ |
1,710.9 |
|
$ |
1,807.0 |
|
$ |
3,293.4 |
|
$ |
3,326.0 |
|
|
|
|
Three months ended |
|
Six months ended |
|
||||||||
|
Segment Operating Profit: |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
Europe |
|
$ |
104.5 |
|
$ |
120.4 |
|
$ |
160.9 |
|
$ |
164.6 |
|
|
North America |
|
87.5 |
|
103.1 |
|
150.8 |
|
165.8 |
|
||||
|
South America |
|
64.3 |
|
57.0 |
|
106.0 |
|
117.0 |
|
||||
|
Asia Pacific |
|
30.8 |
|
11.4 |
|
67.6 |
|
36.4 |
|
||||
|
Reportable segment totals |
|
287.1 |
|
291.9 |
|
485.3 |
|
483.8 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Items excluded from Segment Operating Profit: |
|
|
|
|
|
|
|
|
|
||||
|
Retained corporate costs and other |
|
(13.3 |
) |
(23.3 |
) |
(31.7 |
) |
(35.2 |
) |
||||
|
Restructuring and asset impairments |
|
(8.0 |
) |
(5.2 |
) |
(8.0 |
) |
(55.6 |
) |
||||
|
Interest income |
|
3.8 |
|
6.5 |
|
8.2 |
|
15.0 |
|
||||
|
Interest expense |
|
(60.0 |
) |
(57.9 |
) |
(115.6 |
) |
(106.0 |
) |
||||
|
Earnings before income taxes |
|
209.6 |
|
212.0 |
|
338.2 |
|
302.0 |
|
||||
|
Provision for income taxes |
|
(54.7 |
) |
(49.5 |
) |
(88.9 |
) |
(80.7 |
) |
||||
|
Net earnings |
|
154.9 |
|
162.5 |
|
249.3 |
|
221.3 |
|
||||
|
Net earnings attributable to noncontrolling interests |
|
(13.8 |
) |
(13.2 |
) |
(22.9 |
) |
(26.9 |
) |
||||
|
Net earnings attributable to the Company |
|
$ |
141.1 |
|
$ |
149.3 |
|
$ |
226.4 |
|
$ |
194.4 |
|
Note: All amounts excluded from reportable segment totals are discussed in the following applicable sections.
Executive Overview — Quarters ended June 30, 2010 and 2009
Net sales were $96.1 million lower than the prior year, principally resulting from the unfavorable effect of foreign currency exchange rates and lower sales volumes. The stronger U.S. dollar in the second quarter of 2010 compared to the second quarter of 2009, primarily in relation to the Euro and Venezuelan bolivar, decreased net sales by approximately $81 million. Glass container shipments, in tonnes, were down 1.8% in the second quarter of 2010 compared to the second quarter of 2009, resulting in lower net sales of approximately $28 million. Partially offsetting the unfavorable effects of foreign currency translation and lower sales volumes was improved price and mix, primarily due to the Company’s price over volume strategy aimed at improving margins.
Segment Operating Profit for reportable segments was $4.8 million lower than the prior year, principally resulting from the unfavorable effect of foreign currency exchange rates and higher manufacturing and delivery costs. The stronger U.S. dollar in the second quarter of 2010 compared to the second quarter of 2009, primarily in relation to the Euro and Venezuelan bolivar, decreased Segment Operating Profit by approximately $17 million. Manufacturing and delivery costs increased approximately $18 million due to inflationary costs increases. An increase in other manufacturing costs was more than offset by approximately $18 million of savings related to the permanent curtailment of plant capacity and improved capacity utilization. Improved price and product mix contributed approximately $23 million to Segment Operating Profit in the second quarter of 2010.
Interest expense for the second quarter of 2010 was $60.0 million compared with $57.9 million for the second quarter of 2009. The 2009 amount includes $5.2 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees, net of a gain from the termination of the interest rate swap agreement following the May 2009 tender for the 7.50% Senior Debentures due May 2010. Excluding these amounts, interest expense for the second quarter of 2010 increased $7.3 million from the second quarter of 2009. The increase is principally due to higher debt balances as a result of the Company’s debt issuances in May 2009 and May 2010.
Interest income for the second quarter of 2010 was $3.8 million compared with $6.5 million for the second quarter of 2009. The decrease is principally due to lower interest rates on the Company’s cash and investments.
Net earnings attributable to the Company for the second quarter of 2010 was $141.1 million, or $0.85 per share (diluted), compared with $149.3 million, or $0.88 per share (diluted), for the second quarter of 2009. Earnings in both periods included items that management considered not representative of ongoing operations. These items decreased net earnings attributable to the Company in 2010 by $7.9 million, or $0.05 per share, and decreased net earnings attributable to the Company in 2009 by $10.4 million, or $0.06 per share.
Cash payments for asbestos-related costs were $43.2 million for the three months ended June 30, 2010 compared with $49.4 million for the three months ended June 30, 2009.
Capital spending for property, plant and equipment was $139.7 million for the second quarter of 2010 compared with $77.5 million for the second quarter of 2009. The increase in 2010 is due to the intentional deferral of capital expenditures in the first half of 2009 until later in the year given the economic conditions in the market during 2009.
Executive Overview — Six Months ended June 30, 2010 and 2009
Net sales were $32.6 million lower than the prior year, principally resulting from lower sales volumes and the impact of cost pass-through provisions on certain customer contracts. Glass container shipments, in tonnes, were down 1.0% in the first six months of 2010 compared to 2009, resulting in lower net sales of approximately $28 million. Partially offsetting the lower sales volumes was improved price and mix, primarily due to the Company’s price over volume strategy aimed at improving margins. Foreign currency exchange rate changes in the first six months of 2010 compared to the first six months of 2009 increased net sales by approximately $127 million, but was partially offset by an approximate $118 million unfavorable impact due to the translation of the Company’s Venezuelan operations at the parallel market and SITME rates in 2010, compared to the 2.15 official rate in 2009.
Segment Operating Profit for reportable segments was $1.5 million higher than the prior year, principally resulting from improved price and mix which benefited 2010 by approximately $33 million. The Company also recognized savings of approximately $46 million from permanent curtailment of plant capacity and realignment of selected operations. Partially offsetting these benefits were approximately $33 million of higher unabsorbed fixed costs due to temporary production curtailments and $18 million of inflationary cost increases. Segment Operating Profit also decreased approximately $19 million related to changes in foreign currency exchange rates. The favorable effects of foreign currency exchange rates from the Company’s international operations excluding Venezuela increased Segment Operating Profit approximately $21 million, but were more than offset by an approximate $40 million unfavorable impact due to the translation of the Company’s Venezuelan operations at the parallel market and SITME rates in 2010.
Interest expense for the first six months of 2010 was $115.6 million compared with $106.0 million for the first six months of 2009. The 2009 amount includes $5.2 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees, net of a gain from the termination of the interest rate swap agreement following the May 2009 tender for the 7.50% Senior Debentures due May 2010. Excluding these amounts, interest expense for the first six months of 2010 increased $14.8 million from the first six months of 2009. The increase is principally due to higher debt balances as a result of the Company’s debt issuances in May 2009 and May 2010.
Interest income for the first six months of 2010 was $8.2 million compared with $15.0 million for the first six months of 2009. The decrease is principally due to lower interest rates on the Company’s cash and investments.
Net earnings attributable to the Company for 2010 were $226.4 million, or $1.34 per share (diluted), compared with $194.4 million, or $1.15 per share (diluted), for 2009. Earnings in both periods included items that management considered not representative of ongoing operations. These items decreased net earnings in 2010 by $7.9 million, or $0.05 per share, and decreased net earnings in 2009 by $58.1 million, or $0.34 per share.
Cash payments for asbestos-related costs were $77.2 million for the six months ended June 30, 2010 compared with $84.2 million for the six months ended June 30, 2009.
Capital spending for property, plant and equipment was $236.5 million for 2010 compared with $124.1 million for 2009. The increase in 2010 is due to the intentional deferral of capital
expenditures in the first half of 2009 until later in the year given the economic conditions in the market during 2009.
Results of Operations —Second Quarter of 2010 compared with Second Quarter of 2009
Net Sales
The Company’s net sales in the second quarter of 2010 were $1,710.9 million compared with $1,807.0 million for the second quarter of 2009, a decrease of $96.1 million, or 5.3%. For further information, see Segment Information included in Note 7 to the Condensed Consolidated Financial Statements.
The decline in net sales in the second quarter of 2010 was primarily due to the unfavorable effects of foreign currency translation and lower sales volumes, partially offset by improved price and mix. Net sales decreased by approximately $81 million in the second quarter of 2010 as a result of foreign currency movements, approximately $62 million of which was due to the translation of the Company’s Venezuelan operations at the parallel market and SITME rates in 2010, compared to the 2.15 official rate in 2009 (see Note 13 to the Condensed Consolidated Financial Statements for more information). Glass container shipments, in tonnes, were down 1.8% in the second quarter of 2010 compared to the prior year, primarily due to lower beer sales in North America and Europe. The Company’s beer markets remain weak in North America and Europe due to continued weakness in the economy and high unemployment levels. In addition, North American beer volumes were impacted by the loss of certain beer contracts resulting from business renegotiated at the end of 2009 in order for the Company to achieve its margin objectives. Partially offsetting these unfavorable effects was improved price and mix, primarily due to the Company’s strategy in 2009 of focusing on price over volume to improve margins.
The change in net sales of reportable segments can be summarized as follows (dollars in millions):
|
Net sales - 2009 |
|
|
|
$ |
1,797.0 |
|
|
|
Price |
|
|
|
|
|
||
|
Net effect of price and mix |
|
$ |
22.8 |
|
|
|
|
|
Cost pass-through provisions |
|
(8.6 |
) |
|
|
||
|
Sales volume |
|
(27.9 |
) |
|
|
||
|
Effects of changing foreign currency rates |
|
(80.9 |
) |
|
|
||
|
|
|
|
|
|
|
||
|
Total effect on net sales |
|
|
|
(94.6 |
) |
||
|
Net sales - 2010 |
|
|
|
$ |
1,702.4 |
|
|
Cost pass-through provisions include monthly or quarterly contractual provisions as well as the transfer of certain third-party costs, such as shipping, to customers, primarily in North America.
Segment Operating Profit
Operating Profit of the reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided. Unallocated corporate expenses and certain other expenses not directly related to the reportable segments’ operations are included in Retained Corporate Costs and Other. For further information, see Segment Information included in Note 7 to the Condensed Consolidated Financial Statements.
Segment Operating Profit of reportable segments in the second quarter of 2010 was $287.1 million compared to $291.9 million for the second quarter of 2009, a decrease of $4.8 million, or 1.6%. Improved price and mix contributed approximately $23 million in the second quarter of 2010 as a result of the Company’s price over volume strategy aimed at improving margins. Sales volume had a minimal impact on Segment Operating Profit in the second quarter of 2010 as the 1.8% decrease in glass container shipments during the quarter was offset by favorable regional sales mix, primarily due to growth of higher margin business in South America. Manufacturing and delivery costs increased approximately $18 million due to inflationary cost increases. An increase in other manufacturing costs was more than offset by approximately $18 million of savings related to the permanent curtailment of plant capacity and improved capacity utilization. Segment Operating Profit also decreased approximately $17 million due to changes in foreign currency exchange rates, primarily due to the unfavorable impact of translating the Company’s Venezuelan operations at the parallel market and SITME rates in the second quarter of 2010 (see Note 13 to the Condensed Consolidated Financial Statements for more information). The economic and political environment in Venezuela remains uncertain and the Company cannot predict what impact future events may have on the reported results of its operations in that country.
The change in Segment Operating Profit of reportable segments can be summarized as follows (dollars in millions):
|
Segment Operating Profit - 2009 |
|
|
|
$ |
291.9 |
|
|
|
Net effect of price and mix |
|
$ |
22.8 |
|
|
|
|
|
Sales volume |
|
0.3 |
|
|
|
||
|
Manufacturing and delivery |
|
(5.9 |
) |
|
|
||
|
Operating expenses and other |
|
(4.7 |
) |
|
|
||
|
Effects of changing foreign currency rates |
|
(17.3 |
) |
|
|
||
|
|
|
|
|
|
|
||
|
Total net effect on Segment Operating Profit |
|
|
|
(4.8 |
) |
||
|
Segment Operating Profit - 2010 |
|
|
|
$ |
287.1 |
|
|
Interest Expense
Interest expense for the second quarter of 2010 was $60.0 million compared with $57.9 million for the second quarter of 2009. The 2009 amount includes $5.2 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees, net of a gain from the termination of the interest rate swap agreement following the May 2009 tender for the 7.50% Senior Debentures due May 2010. Excluding these amounts, interest expense for the second quarter of 2010 increased $7.3 million from the second quarter of 2009. The increase is principally due to higher debt balances as a result of the Company’s debt issuances in May 2009 and May 2010.
Interest Income
Interest income for the second quarter of 2010 was $3.8 million compared with $6.5 million for the second quarter of 2009. The decrease is principally due to lower interest rates on the Company’s cash and investments.
Net Earnings Attributable to Noncontrolling Interests
Net earnings attributable to noncontrolling interests in the second quarter of 2010 were $13.8 million compared with $13.2 million in the second quarter of 2009. The increase is primarily a result of higher segment operating profit in the Company’s South American segment in the second quarter of 2010.
Results of Operations —First six months of 2010 compared with first six months of 2009
Net Sales
The Company’s net sales in the first six months of 2010 were $3,293.4 million compared with $3,326.0 million for the first six months of 2009, a decrease of $32.6 million, or 1.0%. For further information, see Segment Information included in Note 7 to the Condensed Consolidated Financial Statements.
The decline in net sales in 2010 was due to lower sales volumes and the impact of cost pass-through provisions on certain customer contracts, partially offset by improved price and mix and favorable effects of foreign currency translation. Glass container shipments, in tonnes, were down 1.0% in 2010 compared to 2009, primarily due to lower beer sales in North America and Europe, resulting in lower net sales of approximately $28 million. The Company’s beer markets remain weak in North America and Europe due to continued weakness in the economy and high unemployment levels. In addition, North American beer volumes were impacted by the loss of certain beer contracts resulting from business renegotiated at the end of 2009 in order for the Company to achieve its margin objectives. Improved price and mix, primarily due to the Company’s strategy in 2009 of focusing on price over volume to improve margins, increased net sales in 2010 by approximately $17 million compared to 2009. Foreign currency exchange rate changes in the first six months of 2010 compared to the first six months of 2009 increased net sales by approximately $127 million, but was partially offset by an approximate $118 million unfavorable impact due to the translation of the Company’s Venezuelan operations at the parallel market and SITME rates in 2010, compared to the 2.15 official rate in 2009 (see Note 13 to the Condensed Consolidated Financial Statements for more information).
The change in net sales of reportable segments can be summarized as follows (dollars in millions):
|
Net sales - 2009 |
|
|
|
$ |
3,300.2 |
|
|
|
Price |
|
|
|
|
|
||
|
Net effect of price and mix |
|
$ |
17.0 |
|
|
|
|
|
Cost pass-through provisions |
|
(22.7 |
) |
|
|
||
|
Sales volume |
|
(27.9 |
) |
|
|
||
|
Effects of changing foreign currency rates |
|
9.0 |
|
|
|
||
|
|
|
|
|
|
|
||
|
Total effect on net sales |
|
|
|
(24.6 |
) |
||
|
Net sales - 2010 |
|
|
|
$ |
3,275.6 |
|
|
Cost pass-through provisions include monthly or quarterly contractual provisions as well as the transfer of certain third-party costs, such as shipping, to customers, primarily in North America.
Segment Operating Profit
Operating Profit of the reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided. Unallocated corporate expenses and certain other expenses not directly related to
the reportable segments’ operations are included in Retained Corporate Costs and Other. For further information, see Segment Information included in Note 7 to the Condensed Consolidated Financial Statements.
Segment Operating Profit of reportable segments in the first six months of 2010 was $485.3 million compared to $483.8 million for the first six months of 2009, an increase of $1.5 million, or 0.3%. Improved price and mix contributed approximately $33 million in 2010 as a result of the Company’s price over volume strategy aimed at improving margins. Sales volume had a minimal impact on Segment Operating Profit in 2010 as the 1.0% decrease in glass container shipments during the first six months was offset by favorable regional sales mix, primarily due to growth of higher margin business in South America. Manufacturing costs increased approximately $33 million in 2010 compared to 2009 due to higher unabsorbed fixed costs from temporary production curtailments as the Company matched supply with the lower demand. Manufacturing and delivery costs also increased approximately $18 million due to inflationary cost increases. The Company’s strategic review of its global manufacturing footprint led to the permanent curtailment of plant capacity and the realignment of selected operations, resulting in savings of approximately $46 million during the first six months of 2010. Segment Operating Profit also decreased approximately $19 million related to changes in foreign currency exchange rates. The favorable effects of foreign currency exchange rates from the Company’s international operations excluding Venezuela increased Segment Operating Profit approximately $21 million, but were more than offset by an approximate $40 million unfavorable impact due to the translation of the Company’s Venezuelan operations at the parallel market and SITME rates in 2010 (see Note 13 to the Condensed Consolidated Financial Statements for more information). The economic and political environment in Venezuela remains uncertain and the Company cannot predict what impact future events may have on the reported results of its operations in that country.
The change in Segment Operating Profit of reportable segments can be summarized as follows (dollars in millions):
|
Segment Operating Profit - 2009 |
|
|
|
$ |
483.8 |
|
|
|
Net effect of price and mix |
|
$ |
33.2 |
|
|
|
|
|
Sales volume |
|
0.3 |
|
|
|
||
|
Manufacturing and delivery |
|
(5.0 |
) |
|
|
||
|
Operating expenses and other |
|
(7.7 |
) |
|
|
||
|
Effects of changing foreign currency rates |
|
(19.3 |
) |
|
|
||
|
|
|
|
|
|
|
||
|
Total net effect on Segment Operating Profit |
|
|
|
1.5 |
|
||
|
Segment Operating Profit - 2010 |
|
|
|
$ |
485.3 |
|
|
Interest Expense
Interest expense for the first six months of 2010 was $115.6 million compared with $106.0 million for the first six months of 2009. The 2009 amount includes $5.2 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees, net of a gain from the termination of the interest rate swap agreement following the May 2009 tender for the 7.50% Senior Debentures due May 2010. Excluding these amounts, interest expense for the first six months of 2010 increased $14.8 million from the first six months of 2009. The increase is principally due to higher debt balances as a result of the Company’s debt issuances in May 2009 and May 2010.
Interest Income
Interest income for the first six months of 2010 was $8.2 million compared with $15.0 million for the first six months of 2009. The decrease is principally due to lower interest rates on the Company’s cash and investments.
Provision for Income Taxes
The Company’s effective tax rate for the six months ended June 30, 2010 was 26.3%, compared with 26.7% for the first six months of 2009. Excluding the effects of pretax items in both periods for which taxes are separately calculated and recorded, the Company expects that the full year effective tax rate for 2010 will approximate the 26.5% effective tax rate for 2009.
Net Earnings Attributable to Noncontrolling Interests
Net earnings attributable to noncontrolling interests in the first six months of 2010 were $22.9 million compared with $26.9 million in the first six months of 2009. The decrease is primarily a result of lower segment operating profit in the Company’s South American segment in 2010.
Items Excluded from Reportable Segment Totals
Retained Corporate Costs and Other
Retained corporate costs and other for the second quarter of 2010 was $13.3 million compared with $23.3 million for the second quarter of 2009, and $31.7 million for the first six months of 2010 compared with $35.2 million for the first six months of 2009. The decreased expense in 2010 is mainly attributable to the favorable impact of foreign currency derivatives as the U.S. dollar strengthened in the second quarter. This favorable impact was partially offset by increased employee benefit costs, primarily pension expense.
Restructuring and Asset Impairments
During the three and six months ended June 30, 2010, the Company recorded charges totaling $8.0 million ($7.9 million after tax amount attributable to the Company), for restructuring and asset impairment related to the Company’s strategic review of its global manufacturing footprint. See Note 9 to the Condensed Consolidated Financial Statements for additional information.
Charges for similar actions during the second quarter of 2009 totaled $5.2 million (pretax and after tax amount attributable to the Company). The total of all such charges for the six months ended June 30, 2009 was $55.6 million ($52.9 million after tax). See Note 9 to the Condensed Consolidated Financial Statements for additional information.
As of December 31, 2009, the Company had concluded this strategic review of its manufacturing footprint. The charges recorded in 2010 relate to capacity curtailments announced in 2009. On an ongoing basis, the Company will review its manufacturing operations, and it is possible that it will close selected facilities or production lines in the future.
Capital Resources and Liquidity
The Company’s total debt at June 30, 2010 was $3.50 billion, compared with $3.61 billion at December 31, 2009 and $3.64 billion at June 30, 2009.
On June 14, 2006, the Company’s subsidiary borrowers entered into the Secured Credit Agreement (the “Agreement”). At June 30, 2010, the Agreement included a $900.0 million revolving credit facility, a 160.0 million Australian dollar term loan, and a 110.8 million Canadian dollar term loan, each of which has a final maturity date of June 15, 2012. It also included a $189.5 million term loan and a €189.5 million term loan, each of which has a final maturity date of June 14, 2013. At June 30, 2010, the Company’s subsidiary borrowers had unused credit of $725.2 million available under the Agreement.
The weighted average interest rate on borrowings outstanding under the Agreement at June 30, 2010 was 2.62%.
During May 2010, a subsidiary of the Company issued exchangeable senior notes with a face value of $690.0 million due June 1, 2015 (“2015 Exchangeable Notes”). The 2015 Exchangeable Notes bear interest at 3.00% and are guaranteed by substantially all of the Company’s domestic subsidiaries. The net proceeds, after deducting debt issuance costs, totaled approximately $672 million.
Upon exchange of the 2015 Exchangeable Notes, under the terms outlined below, the issuer of the 2015 Exchangeable Notes is required to settle the principal amount in cash and the Company is required to settle the exchange premium in shares of the Company’s common stock. The exchange premium is calculated as the value of the Company’s common stock in excess of the initial exchange price of approximately $47.47 per share, which is equivalent to an exchange rate of 21.0642 per $1,000 principal amount of the 2015 Exchangeable Notes. The exchange rate may be adjusted upon the occurrence of certain events or corporate transactions.
Prior to March 1, 2015, the 2015 Exchangeable Notes may be exchanged only if (1) the price of the Company’s common stock exceeds $61.71 (130% of the exchange price) for a specified period of time, (2) the trading price of the 2015 Exchangeable Notes falls below 98% of the average exchange value of the 2015 Exchangeable Notes for a specified period of time (trading price was 164% of exchange value at June 30, 2010), or (3) upon the occurrence of specified corporate transactions. The 2015 Exchangeable Notes may be exchanged without restrictions on or after March 1, 2015. As of June 30, 2010, the 2015 Exchangeable Notes are not exchangeable by the holders.
During June 2010, a subsidiary of the Company redeemed all $450.0 million of the 8.25% senior notes due 2013. During the second quarter of 2010, the Company recorded $9.0 million of additional interest charges for note repurchase premiums and the related write-off of unamortized finance fees. In addition, the Company recorded a reduction of interest expense of $9.0 million during the second quarter of 2010 to recognize the unamortized proceeds from terminated interest rate swaps on these notes.
The Company assesses its capital raising and refinancing needs on an ongoing basis and may seek to issue equity and/or debt securities in the domestic and international capital markets if market conditions are favorable.
During October 2006, the Company entered into a €300 million European accounts receivable securitization program. The program extends through October 2011, subject to annual renewal
of backup credit lines. In addition, the Company participates in a receivables financing program in the Asia Pacific region with a revolving funding commitment of 10 million New Zealand dollars that expires October 2010.
Information related to the Company’s accounts receivable securitization programs is as follows:
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June 30, |
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December 31, |
|
June 30, |
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|||
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|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Balance (included in short-term loans) |
|
$ |
234.4 |
|
$ |
289.0 |
|
$ |
289.5 |
|
|
|
|
|
|
|
|
|
|
|||
|
Weighted average interest rate |
|
2.26 |
% |
2.52 |
% |
2.18 |
% |
|||
For the six months ended June 30, 2010, cash provided by operating activities was $174.6 million compared with $183.2 million for the six months ended June 30, 2009. The decrease in cash flows from operating activities was primarily due to an increase in receivables and inventory of $188 million and $48 million, respectively, in 2010, compared to an increase in receivables and inventory of $121 million and $12 million, respectively, in 2009. The decrease in cash flow from operating activities was also due to increased interest payments of $17 million as a result of higher debt balances. These decreases in cash flow from operating activities were partially offset by an increase in accounts payable of $8 million in 2010 compared to a decrease of $52 million in 2009 and an increase in dividends received from equity investments of $24 million.
The Company contributed $123.1 million to its non-U.S. defined benefit pension plans in 2009, including $49.5 million of accelerated 2010 contributions. Based on current exchange rates, the Company expects to contribute approximately $10 million to $15 million to its non-U.S. defined benefit pension plans in 2010. The Company is not required to make cash contributions to the U.S. defined benefit pension plans during 2010. Depending on a number of factors, the Company may elect to contribute amounts in excess of minimum required amounts in order to improve the funded status of certain plans.
Capital spending for property, plant and equipment during the six months ended June 30, 2010 was $236.5 million compared with $124.1 million in the prior year. In addition, the Company capitalized $9.2 million and $16.4 million in 2010 and 2009, respectively, under capital lease obligations with the related financing recorded as long-term debt. Total capital spending for the full year 2009 was $427.6 million. Total capital spending for 2010 is expected to be up to $500 million.
As of June 30, 2010, the Company had $682.3 million in cash and cash equivalents. The decrease from the December 31, 2009 balance of $811.7 million largely represents capital spending of $236.5 million, $25.8 million paid for the acquisition of Cristalerias Rosario, $199.2 million paid to purchase 6.0 million shares of the Company’s stock, and $450 million paid to redeem the Company’s senior notes due 2013. These cash payments were partially offset by the net proceeds received from the issuance of the 2015 Exchangeable Notes. Most of the cash is held in mature, liquid markets where the Company has operations, such as North America, Europe and Australia and is readily available to fund global liquidity requirements. Approximately 5% of the cash at June 30, 2010, is held in Venezuela where government restrictions on transfers of cash out of the country limit the Company’s ability to immediately
access cash at the government’s official exchange rates. Until May 2010, the Company was able to access its cash in Venezuela through the market-driven parallel exchange process. In May 2010, the Venezuelan government suspended trading in the parallel market and replaced it with a system called SITME. Under the new regulations, the Company is limited to purchasing $50,000 per day, up to a maximum of $350,000 per month, as permitted by the Central Bank of Venezuela. See Note 13 to the Condensed Consolidated Financial Statements for more information.
The Company anticipates that cash flows from its operations and from utilization of credit available under the Agreement will be sufficient to fund its operating and seasonal working capital needs, debt service and other obligations on a short-term (twelve-months) and long-term basis. Based on the Company’s expectations regarding future payments for 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.
Critical Accounting Estimates
The Company’s analysis and discussion of its financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The Company evaluates these estimates and assumptions on an ongoing basis. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances at the time the financial statements are issued. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ from estimates.
The impact of, and any associated risks related to, estimates and assumptions are discussed within Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as in the Notes to the Condensed Consolidated Financial Statements, if applicable, where estimates and assumptions affect the Company’s reported and expected financial results.
There have been no material changes in critical accounting estimates at June 30, 2010 from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
Forward Looking Statements
This document contains “forward looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Forward-looking statements reflect the Company’s current expectations and projections about future events 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) changes 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 its operations, including disruptions in capital markets, disruptions in the supply chain, competitive pricing pressures, inflation or deflation, and changes in tax rates and laws, (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) the ability of the Company to raise selling prices commensurate with energy and other cost increases, (10) consolidation among competitors and customers, (11) the ability of the Company to integrate operations of acquired businesses and achieve expected synergies, (12) unanticipated expenditures with respect to environmental, safety and health laws, (13) the performance by customers of their obligations under purchase agreements, and (14) the timing and occurrence of events which are beyond the control of the Company, including events related to asbestos-related claims. 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 assume any obligation to update or supplement any particular forward looking statements contained in this document.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
There have been no material changes in market risk at June 30, 2010 from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
Item 4. Controls and Procedures.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, the Company has investments in certain unconsolidated entities. As the Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those maintained with respect to its consolidated subsidiaries.
As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2010.
Management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2009. There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting. The Company is undertaking the phased implementation of a global Enterprise Resource Planning software system and believes it is maintaining and monitoring appropriate internal controls during the implementation period. The Company believes that the internal control environment will be enhanced as a result of implementation.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
For further information on legal proceedings, see Note 6 to the Condensed Consolidated Financial Statements, “Contingencies,” that is included in Part I of this Report and is incorporated herein by reference.
Item 1A. Risk Factors.
There have been no material changes in risk factors at June 30, 2010 from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
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Period |
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Total Number |
|
Average Price |
|
Total Number |
|
Approximate |
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||
|
|
|
|
|
|
|
|
|
|
|
||
|
March 1 - March 31, 2010 |
|
4,344.7 |
|
$ |
33.19 |
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|
|
|
|
|
|
May 1 - May 31, 2010 |
|
1,621.9 |
|
$ |
33.91 |
|
5,966.6 |
|
$ |
150.8 |
|
The Company purchased the 6.0 million shares pursuant to authorization by its Board of Directors in September 2008 to purchase up to $350 million of the Company’s common stock until December 31, 2010.
Item 6. Exhibits.
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Exhibit 4.1 |
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Form of Indenture, dated May 7, 2010, by and among Owens-Brockway Glass Container Inc., Owens-Illinois, Inc., the Guarantors party thereto, and U.S. Bank National Association, as trustee, paying agent, registrar and exchange agent |
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Exhibit 12 |
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Computation of Ratio of Earnings to Fixed Charges |
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Exhibit 31.1 |
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 31.2 |
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 32.1* |
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Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 |
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Exhibit 32.2* |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 |
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Exhibit 101 |
|
Financial statements from the quarterly report on Form 10-Q of Owens-Illinois, Inc. for the quarter ended June 30, 2010, formatted in XBRL: (i) the Condensed Consolidated Results of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements. |
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
SIGNATURES
Pursuant to the requirements 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.
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|
OWENS-ILLINOIS, INC. |
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Date |
July 29, 2010 |
|
By |
/s/ Edward C. White |
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|
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Edward C. White |
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Senior Vice President and Chief Financial |
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INDEX TO EXHIBITS
|
Exhibits |
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4.1 |
|
Form of Indenture, dated May 7, 2010, by and among Owens-Brockway Glass Container Inc., Owens-Illinois, Inc., the Guarantors party thereto, and U.S. Bank National Association, as trustee, paying agent, registrar and exchange agent |
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|
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|
12 |
|
Computation of Ratio of Earnings to Fixed Charges |
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31.1 |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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|
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|
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31.2 |
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1* |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 |
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32.2* |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 |
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101 |
|
Financial statements from the quarterly report on Form 10-Q of Owens-Illinois, Inc. for the quarter ended June 30, 2010, formatted in XBRL: (i) the Condensed Consolidated Results of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements. |
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.