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EX-32.2 - EX-32.2 - OWENS-ILLINOIS GROUP INCow-20171231ex322200f67.htm
EX-32.1 - EX-32.1 - OWENS-ILLINOIS GROUP INCow-20171231ex3210b6019.htm
EX-31.2 - EX-31.2 - OWENS-ILLINOIS GROUP INCow-20171231ex31256da06.htm
EX-31.1 - EX-31.1 - OWENS-ILLINOIS GROUP INCow-20171231ex311a5bc39.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549


FORM 10‑K/A

(Amendment No. 1)

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended
December 31, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission file number 33-13061

OWENS-ILLINOIS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

34-1559348
(IRS Employer
Identification No.)

One Michael Owens Way, Perrysburg, Ohio
(Address of principal executive offices)

43551
(Zip Code)

 

Registrant’s telephone number, including area code:  (567) 336-5000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒ No ☐

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 ☒ No ☐

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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “ large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b 2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non‑accelerated filer ☒ (Do not check if smaller reporting company)

Smaller reporting company ☐

Emerging growth  company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒

The number of shares of common stock, $.01 par value of Owens-Illinois Group, Inc. outstanding as of January 31, 2018 was 100.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Owens-Illinois, Inc. Proxy Statement for The Annual Meeting of Share Owners To Be Held Thursday, May 10, 2018 (“Proxy Statement”) are incorporated by reference into Part III hereof.

The registrant, along with most of its direct and indirect wholly-owned subsidiaries, has guaranteed certain debt securities issued by one of its indirect wholly-owned subsidiaries, Owens-Brockway Glass Container Inc. (the “issuer”).  The consolidating condensed financial statements of the registrant depicting separately the registrant, the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries are presented in the notes to the registrant’s consolidated financial statements.

The registrant meets the conditions set forth in General Instructions I (1)(a) and (b) of Form 10-K and is therefore filing this Form with a partially reduced disclosure format which omits the information otherwise required by Item 10, 11, 12 and 13 as permitted under General Instructions I (2)(c) of Form 10-K.

 

 


 

Explanatory Note

This Amendment No. 1 (this “Amendment”) on Form 10-K/A amends the Annual Report on Form 10-K of Owens-Illinois Group, Inc. for the year ended December 31, 2017 as originally filed with the Securities and Exchange Commission on February 14, 2018 (the “Original Filing”) to correct an inadvertent omission from the text of the Report of Independent Registered Public Accounting Firm (the “Report”) included in Item 8. Specifically, certain information was omitted from “Basis for Opinion” in the Report.  No other revisions to Item 8 have been made.

In addition, Owens-Illinois Group Inc.’s principal executive officer and principal financial officer have provided new certifications dated as of the date of this filing in connection with this Amendment (see Exhibits 31.1, 31.2, 32.1 and 32.2). The Exhibit Index has been updated to note that only these new certifications are being included with this Amendment.

 

Except as discussed above, this Amendment does not amend or otherwise update any other information in the Original Filing.

 

 

 

 

 


 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

 

1


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Share Owner of
Owens‑Illinois Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Owens-Illinois Group, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of results of operations, comprehensive income, share owner’s equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).   In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.
Toledo, Ohio
February 14, 2018

 

 

 

2


 

Owens-Illinois Group, Inc.

CONSOLIDATED RESULTS OF OPERATIONS

Dollars in millions

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

2017

 

2016

    

2015

 

Net sales

 

$

6,869

 

$

6,702

 

$

6,156

 

Cost of goods sold

 

 

(5,736)

 

 

(5,490)

 

 

(5,046)

 

Gross profit

 

 

1,133

 

 

1,212

 

 

1,110

 

Selling and administrative expense

 

 

(502)

 

 

(503)

 

 

(476)

 

Research, development and engineering expense

 

 

(60)

 

 

(65)

 

 

(64)

 

Interest expense, net

 

 

(268)

 

 

(272)

 

 

(251)

 

Equity earnings

 

 

77

 

 

60

 

 

60

 

Other expense, net

 

 

(105)

 

 

(76)

 

 

(95)

 

Earnings from continuing operations before income taxes

 

 

275

 

 

356

 

 

284

 

Provision for income taxes

 

 

(70)

 

 

(119)

 

 

(106)

 

Earnings from continuing operations

 

 

205

 

 

237

 

 

178

 

Loss from discontinued operations

 

 

(3)

 

 

(7)

 

 

(4)

 

Net earnings

 

 

202

 

 

230

 

 

174

 

Net (earnings) attributable to noncontrolling interests

 

 

(22)

 

 

(21)

 

 

(23)

 

Net earnings attributable to the Company

 

$

180

 

$

209

 

$

151

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

183

 

$

216

 

$

155

 

Loss from discontinued operations

 

 

(3)

 

 

(7)

 

 

(4)

 

Net earnings

 

$

180

 

$

209

 

$

151

 

 

See accompanying Notes to the Consolidated Financial Statements.

3


 

Owens-Illinois Group, Inc.

CONSOLIDATED COMPREHENSIVE INCOME

Dollars in millions

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

2017

    

2016

    

2015

 

Net earnings

 

$

202

 

$

230

 

$

174

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

70

 

 

(224)

 

 

(529)

 

Pension and other postretirement benefit adjustments, net of tax

 

 

289

 

 

52

 

 

(4)

 

Change in fair value of derivative instruments, net of tax

 

 

(8)

 

 

13

 

 

(6)

 

Other comprehensive income (loss)

 

 

351

 

 

(159)

 

 

(539)

 

Total comprehensive income (loss)

 

 

553

 

 

71

 

 

(365)

 

Comprehensive income attributable to noncontrolling interests

 

 

(27)

 

 

(17)

 

 

(7)

 

Comprehensive income (loss) attributable to the Company

 

$

526

 

$

54

 

$

(372)

 

 

 

 

See accompanying Notes to the Consolidated Financial Statements.

4


 

Owens-Illinois Group, Inc.

CONSOLIDATED BALANCE SHEETS

Dollars in millions

 

 

 

 

 

 

 

 

December 31,

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

492

 

$

492

 

Trade receivables, net of allowances of $34 million and $32 million at December 31, 2017 and 2016, respectively

 

 

663

 

 

580

 

Inventories

 

 

1,036

 

 

983

 

Prepaid expenses and other current assets

 

 

229

 

 

199

 

Total current assets

 

 

2,420

 

 

2,254

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

Equity investments

 

 

525

 

 

433

 

Pension assets

 

 

49

 

 

40

 

Other assets

 

 

602

 

 

602

 

Intangibles

 

 

439

 

 

464

 

Goodwill

 

 

2,590

 

 

2,462

 

Total other assets

 

 

4,205

 

 

4,001

 

 

 

 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

 

 

 

Land, at cost

 

 

255

 

 

241

 

Buildings and equipment, at cost:

 

 

 

 

 

 

 

Buildings and building equipment

 

 

1,180

 

 

1,090

 

Factory machinery and equipment

 

 

5,015

 

 

4,496

 

Transportation, office and miscellaneous equipment

 

 

96

 

 

85

 

Construction in progress

 

 

303

 

 

238

 

 

 

 

6,849

 

 

6,150

 

Less accumulated depreciation

 

 

3,718

 

 

3,270

 

Net property, plant and equipment

 

 

3,131

 

 

2,880

 

Total assets

 

$

9,756

 

$

9,135

 

 

 

See accompanying Notes to the Consolidated Financial Statements.

5


 

Owens-Illinois Group, Inc.

CONSOLIDATED BALANCE SHEETS (Continued)

Dollars in millions, except per share amounts

 

 

 

 

 

 

 

 

December 31,

    

2017

    

2016

 

Liabilities and Share Owner's Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,324

 

$

1,135

 

Salaries and wages

 

 

166

 

 

174

 

U.S. and foreign income taxes

 

 

35

 

 

58

 

Other accrued liabilities

 

 

378

 

 

383

 

Other liabilities - discontinued operations

 

 

115

 

 

 

 

Short-term loans

 

 

151

 

 

162

 

Long-term debt due within one year

 

 

11

 

 

33

 

Total current liabilities

 

 

2,180

 

 

1,945

 

Long-term debt

 

 

5,121

 

 

5,133

 

Deferred taxes

 

 

99

 

 

100

 

Pension benefits

 

 

471

 

 

552

 

Nonpension postretirement benefits

 

 

167

 

 

162

 

Other liabilities

 

 

209

 

 

188

 

Commitments and contingencies

 

 

 

 

 

 

 

Share owner's equity:

 

 

 

 

 

 

 

Share owner's equity of the Company:

 

 

 

 

 

 

 

Common stock, par value $.01 per share, 1,000 shares authorized, 100 shares issued

 

 

 

 

 

 

 

Other contributed capital

 

 

553

 

 

635

 

Retained earnings

 

 

2,622

 

 

2,442

 

Accumulated other comprehensive loss

 

 

(1,785)

 

 

(2,131)

 

Total share owner's equity of the Company

 

 

1,390

 

 

946

 

Noncontrolling interests

 

 

119

 

 

109

 

Total share owner's equity

 

 

1,509

 

 

1,055

 

Total liabilities and share owner's equity

 

$

9,756

 

$

9,135

 

 

 

See accompanying Notes to the Consolidated Financial Statements.

6


 

Owens-Illinois Group, Inc.

CONSOLIDATED SHARE OWNER’S EQUITY

Dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Owner's Equity of the Company

 

 

 

 

 

 

 

 

    

 

    

 

    

Accumulated

    

 

    

 

 

 

 

Other

 

 

 

 

Other

 

 

 

 

 

 

 

Contributed

 

Retained

 

Comprehensive

 

Noncontrolling

 

Total Share

 

 

 

Capital

 

Earnings

 

Loss

 

Interests

 

Owner's Equity

 

Balance on January 1, 2015

 

$

964

 

 

2,082

 

 

(1,453)

 

 

117

 

 

1,710

 

Net distribution to parent

 

 

(215)

 

 

 

 

 

 

 

 

 

 

 

(215)

 

Net earnings

 

 

 

 

 

151

 

 

 

 

 

23

 

 

174

 

Other comprehensive loss

 

 

 

 

 

 

 

 

(523)

 

 

(16)

 

 

(539)

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(22)

 

 

(22)

 

Acquisitions of noncontrolling interests

 

 

(18)

 

 

 

 

 

 

 

 

 6

 

 

(12)

 

Balance on December 31, 2015

 

 

731

 

 

2,233

 

 

(1,976)

 

 

108

 

 

1,096

 

Net distribution to parent

 

 

(96)

 

 

 

 

 

 

 

 

 

 

 

(96)

 

Net earnings

 

 

 

 

 

209

 

 

 

 

 

21

 

 

230

 

Other comprehensive loss

 

 

 

 

 

 

 

 

(155)

 

 

(4)

 

 

(159)

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(16)

 

 

(16)

 

Balance on December 31, 2016

 

 

635

 

 

2,442

 

 

(2,131)

 

 

109

 

 

1,055

 

Net distribution to parent

 

 

(82)

 

 

 

 

 

 

 

 

 

 

 

(82)

 

Net earnings

 

 

 

 

 

180

 

 

 

 

 

22

 

 

202

 

Other comprehensive income

 

 

 

 

 

 

 

 

346

 

 

 5

 

 

351

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(17)

 

 

(17)

 

Balance on December 31, 2017

 

$

553

 

$

2,622

 

$

(1,785)

 

$

119

 

$

1,509

 

 

 

See accompanying Notes to the Consolidated Financial Statements.

7


 

Owens-Illinois Group, Inc.

CONSOLIDATED CASH FLOWS

Dollars in millions

 

 

 

 

 

 

 

 

 

 

 

Years ended December 31,

 

2017

 

2016

 

2015

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

202

 

$

230

 

$

174

 

Loss from discontinued operations

 

 

 3

 

 

 7

 

 

 4

 

Non-cash charges (credits):

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

387

 

 

375

 

 

323

 

Amortization of intangibles and other deferred items

 

 

101

 

 

103

 

 

86

 

Amortization of finance fees and debt discount

 

 

13

 

 

13

 

 

15

 

Deferred tax provision (benefit)

 

 

(12)

 

 

(4)

 

 

12

 

Pension expense

 

 

29

 

 

31

 

 

31

 

Restructuring, asset impairment and related charges

 

 

72

 

 

98

 

 

63

 

Pension settlement charges

 

 

218

 

 

98

 

 

 

 

Impairment of equity investment

 

 

 

 

 

25

 

 

 

 

Gain on China land sale

 

 

 

 

 

(71)

 

 

 

 

Acquisition-related fair value inventory adjustments

 

 

 

 

 

 

 

 

22

 

Acquisition-related fair value intangible adjustments

 

 

 

 

 

 

 

 

10

 

Pension contributions

 

 

(31)

 

 

(38)

 

 

(17)

 

Cash paid for restructuring activities

 

 

(62)

 

 

(24)

 

 

(38)

 

Change in components of working capital

 

 

(89)

 

 

90

 

 

88

 

Other

 

 

 3

 

 

(50)

 

 

(23)

 

Cash provided by continuing operating activities

 

 

834

 

 

883

 

 

750

 

Cash utilized in discontinued operating activities

 

 

(3)

 

 

(7)

 

 

(4)

 

Total cash provided by operating activities

 

 

831

 

 

876

 

 

746

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

Cash payments for property, plant, and equipment

 

 

(441)

 

 

(454)

 

 

(402)

 

Acquisitions, net of cash acquired

 

 

(39)

 

 

(56)

 

 

(2,351)

 

Net cash proceeds related to sale of assets and other

 

 

14

 

 

85

 

 

 1

 

Net foreign exchange derivative activity

 

 

 

 

 

 8

 

 

 4

 

Cash utilized in continuing investing activities

 

 

(466)

 

 

(417)

 

 

(2,748)

 

Cash provided by discontinued investing activities

 

 

115

 

 

 

 

 

 

 

Total cash utilized in investing activities

 

 

(351)

 

 

(417)

 

 

(2,748)

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

Additions to long-term debt

 

 

1,458

 

 

1,235

 

 

4,538

 

Repayments of long-term debt

 

 

(1,764)

 

 

(1,453)

 

 

(2,321)

 

Increase (decrease) in short-term loans

 

 

(36)

 

 

10

 

 

51

 

Payment of finance fees

 

 

(28)

 

 

(9)

 

 

(90)

 

Other

 

 

(6)

 

 

 

 

 

 

 

Distributions paid to noncontrolling interests

 

 

(17)

 

 

(16)

 

 

(22)

 

Distribution to parent

 

 

(109)

 

 

(120)

 

 

(237)

 

Cash provided by (utilized in) financing activities

 

 

(502)

 

 

(353)

 

 

1,919

 

Effect of exchange rate fluctuations on cash

 

 

22

 

 

(13)

 

 

(30)

 

Increase (decrease) in cash

 

 

 —

 

 

93

 

 

(113)

 

Cash and cash equivalents at beginning of period

 

 

492

 

 

399

 

 

512

 

Cash and cash equivalents at end of period

 

$

492

 

$

492

 

$

399

 

 

 

 

See accompanying Notes to the Consolidated Financial Statements.

8


 

 

Owens‑Illinois Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular data dollars in millions

1. Significant Accounting Policies

Basis of Consolidated Statements The consolidated financial statements of Owens-Illinois Group, Inc. (the “Company”) include the accounts of its subsidiaries.  Newly acquired subsidiaries have been included in the consolidated financial statements from dates of acquisition.

The Company uses the equity method of accounting for investments in which it has a significant ownership interest, generally 20% to 50%.  Other investments are accounted for at cost.  The Company monitors other than temporary declines in fair value and records reductions in carrying values when appropriate.

Relationship with Owens-Illinois, Inc.  The Company is a 100% - owned subsidiary of Owens-Illinois, Inc. (“OI Inc.”).  Although OI Inc. does not conduct any operations, it has substantial obligations related to asbestos‑related payments. OI Inc. relies primarily on distributions from its direct and indirect subsidiaries to meet these obligations.

For federal and certain state income tax purposes, the taxable income of the Company is included in the consolidated tax returns of OI Inc. and income taxes are allocated to the Company on a basis consistent with separate returns.

Nature of Operations The Company is a leading manufacturer of glass container products.  The Company’s principal product lines are glass containers for the food and beverage industries.  The Company has glass container operations located in 23 countries.  The principal markets and operations for the Company’s products are in Europe, North America, Latin America and Asia Pacific.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management of the Company to make estimates and assumptions that affect certain amounts reported in the financial statements and accompanying notes.  Actual results may differ from those estimates, at which time the Company would revise its estimates accordingly.

Foreign Currency Translation The assets and liabilities of non-U.S. subsidiaries are translated into U.S. dollars at year-end exchange rates.  Any related translation adjustments are recorded in accumulated other comprehensive income in share owner’s equity.

Revenue Recognition The Company recognizes sales, net of estimated discounts and allowances, when the title to the products and risk of loss are transferred to customers.  Provisions for rebates to customers are provided in the same period that the related sales are recorded.

Shipping and Handling Costs Shipping and handling costs are included with cost of goods sold in the Consolidated Results of Operations.

Stock-Based Compensation The Company participates in OI Inc.’s stock-based compensation plans consisting of stock option grants and restricted share awards.  Costs resulting from all share-based compensation plans are required to be recognized in the financial statements.  A public entity is required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost is recognized over the required service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the required service.

Cash The Company defines “cash” as cash and time deposits with maturities of three months or less when purchased.  Outstanding checks in excess of funds on deposit are included in accounts payable.

Accounts Receivable Receivables are stated at amounts estimated by management to be the net realizable value.  The Company charges off accounts receivable when it becomes apparent based upon age or customer circumstances that amounts will not be collected.

9


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

Allowance for Doubtful Accounts The allowance for doubtful accounts is established through charges to the provision for bad debts.  The Company evaluates the adequacy of the allowance for doubtful accounts on a periodic basis.  The evaluation includes historical trends in collections and write-offs, management’s judgment of the probability of collecting accounts and management’s evaluation of business risk.

Inventory Valuation Inventories are valued at the lower of average costs or market.

Goodwill Goodwill represents the excess of cost over fair value of net assets of businesses acquired.  Goodwill is evaluated annually, as of October 1, for impairment or more frequently if an impairment indicator exists.

Intangible Assets and Other Long-Lived Assets Intangible assets are amortized over the expected useful life of the asset.  Amortization expense directly attributed to the manufacturing of the Company’s products is included in cost of goods sold.  Amortization expense related to non-manufacturing activities is included in selling and administrative and other. The Company evaluates the recoverability of intangible assets and other long-lived assets based on undiscounted projected cash flows, excluding interest and taxes, when factors indicate that impairment may exist.  If impairment exists, the asset is written down to fair value.

Property, Plant and Equipment Property, plant and equipment (“PP&E”) is carried at cost and includes expenditures for new facilities and equipment and those costs which substantially increase the useful lives or capacity of existing PP&E.  In general, depreciation is computed using the straight-line method and recorded over the estimated useful life of the asset.  Factory machinery and equipment is depreciated over periods ranging from 5 to 25 years with the majority of such assets (principally glass-melting furnaces and forming machines) depreciated over 7 to 15 years.  Buildings and building equipment are depreciated over periods ranging from 10 to 50 years. Depreciation expense directly attributed to the manufacturing of the Company’s products is included in cost of goods sold.  Depreciation expense related to non-manufacturing activities is included in selling and administrative. Depreciation expense includes the amortization of assets recorded under capital leases.  Maintenance and repairs are expensed as incurred.  Costs assigned to PP&E of acquired businesses are based on estimated fair values at the date of acquisition.  The Company evaluates the recoverability of PP&E based on undiscounted projected cash flows, excluding interest and taxes, when factors indicate that impairment may exist.  If impairment exists, the asset is written down to fair value.

Derivative Instruments The Company uses currency swaps, interest rate swaps, forward exchange contracts, options and commodity forward contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity market volatility.  Derivative financial instruments are included on the balance sheet at fair value.  When appropriate, derivative instruments are designated as and are effective as hedges, in accordance with accounting principles generally accepted in the United States.  If the underlying hedged transaction ceases to exist, all changes in fair value of the related derivatives that have not been settled are recognized in current earnings.  The Company does not enter into derivative financial instruments for trading purposes and is not a party to leveraged derivatives. Cash flows from forward exchange contracts not designated as hedges are classified as an investing activity and cash flows from commodity forward contracts are classified as operating activities.  Cash flows of currency swaps and interest rate swap contracts are classified within the cash flow statement based on the nature of the underlying cash flows.

Fair Value Measurements Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  Generally accepted accounting principles defines a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:  Observable inputs such as quoted prices in active markets;

10


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:  Unobservable inputs for which there is little or no market data, which requires the Company to develop assumptions.

The carrying amounts reported for cash and short-term loans approximate fair value.  In addition, carrying amounts approximate fair value for certain long-term debt obligations subject to frequently redetermined interest rates.  Fair values for the Company’s significant fixed rate debt obligations are generally based on published market quotations.

The Company’s derivative assets and liabilities consist of natural gas forwards and foreign exchange option and forward contracts.  The Company uses an income approach to valuing these contracts.  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.

Reclassifications   Certain reclassifications of prior years’ data have been made to conform to the current year presentation.

New Accounting Standards

Revenue from Contracts with Customers - In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers," which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.  In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers”, which delayed by one year the effective date of the new revenue recognition standard, and therefore will be effective for the Company on January 1, 2018. The Company is nearing the completion of its implementation process, which included a review of customer contracts, to evaluate the effect this standard will have on its consolidated financial statements and related disclosures.  At this time, the Company does not expect that the implementation of this standard in 2018 will have a significant impact on the timing in which it recognizes revenue. The Company does not currently expect the adoption of the new standard to have a material impact on consolidated net income or the consolidated balance sheet. The standard requires new substantial disclosures and the Company continues to evaluate these requirements. The Company plans to select the modified retrospective transition method upon adoption effective January 1, 2018.

Leases - In February 2016, the FASB issued ASU No. 2016-02, “Leases”. Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee's obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for the Company on January 1, 2019. ASU No. 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. The Company anticipates the new guidance will significantly impact its consolidated financial statements as the Company has a significant number of leases. As further described in Note 16, Operating Leases, as of December 31, 2017, the Company had minimum lease commitments under non-cancellable operating leases totaling $258 million. The Company has begun the implementation of new software to manage its leases in accordance with this new accounting standard.

11


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

Stock Compensation - In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which requires all excess tax benefits or deficiencies to be recognized as income tax expense or benefit in the income statement. In addition, excess tax benefits should be classified along with other income tax cash flows as an operating activity in the statement of cash flows. Application of the standard is required for the annual and interim periods beginning after December 15, 2016. The Company adopted this standard in the first quarter of 2017. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

Credit Losses - In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidance is effective for the Company on January 1, 2020. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

Goodwill -  In January 2017, the FASB issued ASU No. 2017-05, “Simplifying the Accounting for Goodwill Impairment” which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, but not exceeding the carrying amount of goodwill. Application of the standard will be applied prospectively and is effective for calendar year-end filers in 2020, with early adoption permitted for any impairment tests performed after January 1, 2017.  The Company elected to early adopt this standard in the fourth quarter of 2017. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Compensation - Retirement Benefits - In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” which requires the service cost component to be presented with other employee compensation costs in operating income within the income statement while the other components will be reported separately outside of operations. Application of the standard is required for annual periods beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements, except for the reclassification in the Consolidated Results of Operations of prior period pension settlement charges from the Cost of goods sold and Selling and administrative expense accounts into the Other expenses, net account.

Derivatives and Hedging - In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities” which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. Application of the standard is required for annual periods beginning after December 15, 2018. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

2. Segment Information

The Company has four reportable segments based on its geographic locations:  Europe, North America, Latin America and 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 certain equity investments.  Retained corporate costs and other also includes certain headquarters administrative and facilities costs and

12


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

certain incentive compensation and other benefit plan costs that are global in nature and are not allocable to the reportable segments.

Beginning in the first quarter of 2017, equity earnings related to the Company’s joint-venture with Constellation Brands in Mexico were recorded in the North America region. In prior years, equity earnings from this joint-venture were recorded in Retained corporate costs and other as it was mostly in construction mode. 

Beginning in the first quarter of 2018, to better leverage its scale and presence across a larger geography and market, and to reduce administrative costs, the Company merged the North America and Latin America segments into one segment named the Americas. This change in segment reporting for the Americas is aligned with the Company’s internal approach to managing, reporting, and evaluating performance of this region. 

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 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 regarding the Company’s reportable segments is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Net sales:

 

 

 

 

 

 

 

 

 

 

Europe

 

$

2,375

 

$

2,300

 

$

2,324

 

North America

 

 

2,160

 

 

2,220

 

 

2,039

 

Latin America

 

 

1,551

 

 

1,432

 

 

1,064

 

Asia Pacific

 

 

714

 

 

684

 

 

671

 

Reportable segment totals

 

 

6,800

 

 

6,636

 

 

6,098

 

Other

 

 

69

 

 

66

 

 

58

 

Net sales

 

$

6,869

 

$

6,702

 

$

6,156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Segment operating profit:

 

 

 

 

 

 

 

 

 

 

Europe

 

$

263

 

$

237

 

$

209

 

North America

 

 

318

 

 

299

 

 

265

 

Latin America

 

 

296

 

 

269

 

 

183

 

Asia Pacific

 

 

65

 

 

77

 

 

83

 

Reportable segment totals

 

 

942

 

 

882

 

 

740

 

Items excluded from segment operating profit:

 

 

 

 

 

 

 

 

 

 

Retained corporate costs and other

 

 

(104)

 

 

(98)

 

 

(70)

 

Pension settlement charges

 

 

(218)

 

 

(98)

 

 

 

 

Restructuring, asset impairment and other charges

 

 

(77)

 

 

(129)

 

 

(80)

 

Gain on China land sale

 

 

 

 

 

71

 

 

 

 

Strategic transaction costs

 

 

 

 

 

 

 

 

(23)

 

Acquisition-related fair value inventory adjustments

 

 

 

 

 

 

 

 

(22)

 

Acquisition-related fair value intangible adjustments

 

 

 

 

 

 

 

 

(10)

 

Interest expense, net

 

 

(268)

 

 

(272)

 

 

(251)

 

Earnings from continuing operations before income taxes

 

$

275

 

$

356

 

$

284

 

 

 

13


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Reportable

    

Retained

    

 

 

 

 

 

 

 

North

 

Latin

 

Asia

 

Segment

 

Corp Costs

 

Consolidated

 

 

 

Europe

 

America

 

America

 

Pacific

 

Totals

 

and Other

 

Totals

 

Total assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

3,133

 

$

2,794

 

$

2,617

 

$

1,001

 

$

9,545

 

$

211

 

$

9,756

 

2016

 

 

2,792

 

 

2,522

 

 

2,537

 

 

926

 

 

8,777

 

 

358

 

 

9,135

 

2015

 

 

2,902

 

 

2,500

 

 

2,807

 

 

917

 

 

9,126

 

 

295

 

 

9,421

 

Equity investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

95

 

$

259

 

$

 —

 

$

114

 

$

468

 

$

57

 

$

525

 

2016

 

 

78

 

 

21

 

 

 

 

 

117

 

 

216

 

 

217

 

 

433

 

2015

 

 

78

 

 

22

 

 

 

 

 

145

 

 

245

 

 

164

 

 

409

 

Equity earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

18

 

$

41

 

$

 —

 

$

 —

 

$

59

 

$

18

 

$

77

 

2016

 

 

15

 

 

12

 

 

 

 

 

 4

 

 

31

 

 

29

 

 

60

 

2015

 

 

16

 

 

19

 

 

 

 

 

 7

 

 

42

 

 

18

 

 

60

 

Capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

152

 

$

106

 

$

127

 

$

55

 

$

440

 

$

 1

 

$

441

 

2016

 

 

163

 

 

108

 

 

123

 

 

59

 

 

453

 

 

 1

 

 

454

 

2015

 

 

164

 

 

97

 

 

89

 

 

50

 

 

400

 

 

 2

 

 

402

 

Depreciation and amortization expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

125

 

$

134

 

$

176

 

$

43

 

$

478

 

$

10

 

$

488

 

2016

 

 

118

 

 

139

 

 

173

 

 

37

 

 

467

 

 

11

 

 

478

 

2015

 

 

120

 

 

128

 

 

107

 

 

40

 

 

395

 

 

14

 

 

409

 

The Company’s net property, plant and equipment by geographic segment are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

U.S.

    

Non-U.S.

    

Total

 

2017

 

$

757

 

$

2,374

 

$

3,131

 

2016

 

 

749

 

 

2,131

 

 

2,880

 

2015

 

 

736

 

 

2,225

 

 

2,961

 

The Company’s net sales by geographic segment are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

U.S.

    

Non-U.S.

    

Total

 

2017

 

$

2,072

 

$

4,797

 

$

6,869

 

2016

 

 

2,124

 

 

4,578

 

 

6,702

 

2015

 

 

1,939

 

 

4,217

 

 

6,156

 

Intercompany sales in Latin America totaled $150 million, $179 million and $101 for the years ended December 31, 2017, 2016, and 2015, respectively.

For only the year ended December 31, 2015, operations outside the U.S. that accounted for more than 10% of consolidated net sales were in France.

 

14


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

3. Inventories

Major classes of inventory are as follows:

 

 

 

 

 

 

 

 

 

 

2017

    

2016

 

Finished goods

 

$

873

 

$

827

 

Raw materials

 

 

122

 

 

118

 

Operating supplies

 

 

41

 

 

38

 

 

 

$

1,036

 

$

983

 

 

 

4. Equity Investments

At December 31, 2017 the Company’s ownership percentage in affiliates include:

 

 

 

 

 

 

 

 

 

O-I Ownership

 

 

 

Affiliates

   

Percentage

   

Business Type

 

BJC O-I Glass Pte. Ltd.

 

50

%

 

Glass container manufacturer

 

CO Vidrieria SARL ("COV")

 

50

%

 

Glass container manufacturer

 

Rocky Mountain Bottle Company

 

50

%

 

Glass container manufacturer

 

Tata Chemical (Soda Ash) Partners

 

 25

%

 

Soda ash supplier

 

Vetrerie Meridionali SpA ("VeMe")

 

50

%

 

Glass container manufacturer

 

Vetri Speciali SpA

 

50

%

 

Specialty glass manufacturer

 

Summarized information pertaining to the Company’s equity affiliates follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Equity in earnings:

 

 

 

 

 

 

 

 

 

 

Non-U.S.

 

$

45

 

$

19

 

$

23

 

U.S.

 

 

32

 

 

41

 

 

37

 

Total

 

$

77

 

$

60

 

$

60

 

Dividends received

 

$

48

 

$

38

 

$

53

 

Summarized combined financial information for equity affiliates is as follows (unaudited):

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

At end of year:

 

 

 

 

 

 

 

Current assets

 

$

466

 

$

425

 

Non-current assets

 

 

1,021

 

 

779

 

Total assets

 

 

1,487

 

 

1,204

 

Current liabilities

 

 

232

 

 

190

 

Other liabilities and deferred items

 

 

198

 

 

145

 

Total liabilities and deferred items

 

 

430

 

 

335

 

Net assets

 

$

1,057

 

$

869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

For the year:

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

883

 

$

755

 

$

719

 

Gross profit

 

$

242

 

$

182

 

$

193

 

Net earnings

 

$

165

 

$

145

 

$

139

 

 

15


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

Based on an evaluation of each of the Company’s equity investments for the three years ending December 31, 2017, no investments exceeded the significant subsidiary thresholds per Rule 3-09 of Regulation S-X.  As such, separate financial statements for the Company’s equity investments are not required to be filed.

The Company made purchases of approximately $180 million and $176 million from equity affiliates in 2017 and 2016, respectively, and owed approximately $90 million and $76 million to equity affiliates as of December 31, 2017 and 2016, respectively.

There is a difference of approximately $10 million as of December 31, 2017, between the amount at which certain investments are carried and the amount of underlying equity in net assets.  The portion of the difference related to inventory or amortizable assets is amortized as a reduction of the equity earnings.  The remaining difference is considered goodwill.

 

5. Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2017, 2016, and 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

North

    

Latin

    

 

 

    

 

 

 

 

 

Europe

 

America

 

America

 

Other

 

Total

 

Balance as of January 1, 2015

 

$

926

 

$

723

 

$

239

 

$

 5

 

$

1,893

 

Acquisition related adjustments

 

 

 

 

 

316

 

 

480

 

 

 

 

 

796

 

Translation effects

 

 

(86)

 

 

(19)

 

 

(95)

 

 

 

 

 

(200)

 

Balance as of December 31, 2015

 

 

840

 

 

1,020

 

 

624

 

 

 5

 

 

2,489

 

Acquisition related adjustments

 

 

 

 

 

15

 

 

26

 

 

 

 

 

41

 

Translation effects

 

 

(32)

 

 

 3

 

 

(39)

 

 

 

 

 

(68)

 

Balance as of December 31, 2016

 

 

808

 

 

1,038

 

 

611

 

 

 5

 

 

2,462

 

Translation effects

 

 

105

 

 

 8

 

 

15

 

 

 

 

 

128

 

Balance as of December 31, 2017

 

$

913

 

$

1,046

 

$

626

 

$

 5

 

$

2,590

 

The acquisition related adjustments in 2016 and 2015 primarily relate to the Vitro Acquisition (see Note 18).

Goodwill for the Asia Pacific segment is $0 and net of accumulated impairment losses of $1,135 million as of December 31, 2017, 2016, and 2015.

Goodwill is tested for impairment annually as of October 1 (or more frequently if impairment indicators arise) by comparing the business enterprise value (“BEV”) of each reporting unit with its carrying value. The BEV is computed based on estimated future cash flows, discounted at the weighted average cost of capital of a hypothetical third-party buyer. If the BEV is less than the carrying value for any reporting unit, then any excess of the BEV of the goodwill over the carrying value will be recorded as an impairment loss.  The calculations of the BEV are based on significant unobservable inputs, such as price trends, customer demand, material costs, discount rates and asset replacement costs, and are classified as Level 3 in the fair value hierarchy.

During the fourth quarter of 2017, the Company completed its annual impairment testing and determined that no impairment existed.

Intangible assets

Customer list intangible assets are amortized using the accelerated amortization method over their 20 year lives. Net intangible asset values were $439 million and $464 million for the years ended December 31, 2017 and 2016, respectively. Amortization expense for intangible assets was $41 million, $39 million and $21 million for the years ended December 31, 2017, 2016, and 2015, respectively. Estimated amortization related to intangible

16


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

assets through 2022 is as follows: 2018, $44 million; 2019, $42 million; 2020, $41 million; 2021, $39 million; and 2022, $36 million. No impairment existed on these assets at December 31, 2017.

The Company has determined that the fair value measurements related to the customer list intangibles are based on significant unobservable inputs and are classified as Level 3 in the fair value hierarchy.

 

6. Other Assets

Other assets (noncurrent) consist of the following at December 31, 2017 and 2016:

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Deferred tax assets

 

$

194

 

$

185

 

Deferred returnable packaging costs

 

 

119

 

 

115

 

Repair part inventories

 

 

106

 

 

107

 

Capitalized software

 

 

82

 

 

85

 

Value added taxes

 

 

24

 

 

22

 

Other

 

 

77

 

 

88

 

 

 

$

602

 

$

602

 

Capitalized software includes costs related to the acquisition and development of internal-use software. These costs are amortized over the estimated useful life of the software. Amortization expense for capitalized software was $12 million, $13 million and $19 million for 2017, 2016, and 2015, respectively. Estimated amortization related to capitalized software through 2022 is as follows: 2018, $13 million; 2019, $14 million; 2020, $13 million; 2021, $12 million and 2022, $11 million.

 

7. Derivative Instruments

The Company has certain derivative assets and liabilities which consist of natural gas forwards and foreign exchange option and forward contracts.  The Company uses an income approach to value these contracts.  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.

Commodity Forward Contracts Designated as Cash Flow Hedges

In several regions, the Company enters into commodity forward 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. In North America, the majority of its customer contracts contain provisions that pass the price of natural gas to its customers.  In certain of these contracts, the customer has the option of fixing the natural gas price component for a specified period of time.  To limit the effects of fluctuations in cash flows resulting from these customer contracts, the Company enters into commodity forward contracts related to forecasted natural gas requirements.  In Asia Pacific, the Company implemented a hedging program in 2016, which included the execution of commodity forward contracts for certain contracted natural gas requirements.  At December 31, 2017 and 2016, the Company had entered into commodity forward contracts covering approximately 8,800,000 MM BTUs and 12,300,000 MM BTUs, respectively.

The Company accounts for the above forward contracts as cash flow hedges at December 31, 2017 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.  An unrecognized gain of $3 million at December 31, 2017 and an unrecognized gain of $6 million at December 31,

17


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

2016 related to the commodity forward contracts was included in Accumulated OCI, and will be reclassified into earnings in the period when the commodity forward contracts expire.  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 year ended December 31, 2017 and 2016 was not material.

The effect of the commodity forward contracts on the results of operations for the years ended December 31, 2017, 2016, and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of gain (loss) Reclassified from

 

Amount of gain (loss) Recognized in OCI on

 

Accumulated OCI into Income

 

Commodity Forward Contracts

 

(reported in cost of goods sold)

 

(Effective Portion)

 

(Effective Portion)

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

$

 6

 

$

 7

 

$

(4)

 

$

 —

 

$

 —

 

$

(1)

 

Foreign Exchange Derivative Contracts and not Designated as Hedging Instruments

The Company 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. The Company may also use foreign exchange agreements to offset the foreign currency risk for receivables and payables, including intercompany receivables, payables, and loans, not denominated in, or indexed to, their functional currencies. The Company records these short-term foreign exchange agreements on the balance sheet at fair value and changes in the fair value are recognized in current earnings.

At December 31, 2017 and 2016, the Company had outstanding foreign exchange and option agreements denominated in various currencies covering the equivalent of approximately $460 million and $490 million, respectively, related primarily to intercompany transactions and loans.

The effect of the foreign exchange derivative contracts on the results of operations for the years ended December 31, 2017, 2016, and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

Location of Gain (Loss)

 

Recognized in Income on

 

Recognized in Income on

 

Foreign Exchange Contracts

 

Foreign Exchange Contracts

 

2017

 

2016

 

2015

 

Other expense, net

    

$

10

    

$

 6

    

$

10

 

Hedges of Multiple Risks

The Company has variable-interest rate borrowings denominated in currencies other than the functional currency of the borrowing subsidiaries. As a result, the Company is exposed to fluctuations in both the underlying variable interest rate and the currency of the borrowing against the subsidiaries’ functional currency.  The Company uses derivatives to manage these exposures and designates these derivatives as cash flow hedges of both interest rate and foreign exchange risks.  The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of both interest rate risk and foreign exchange risk is recorded in Accumulated OCI and is subsequently reclassified into earnings in the period for which the hedged forecasted transaction affects earnings. If there is an ineffective portion of the change in fair value of the derivative it is recognized directly in earnings.

During the second quarter of 2017, one of the Company’s Euro-functional subsidiaries entered into a cross-currency interest rate swap to manage its exposure to fluctuations in the variable interest rate and the U.S. dollar-

18


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

Euro exchange rate arising from a U.S. dollar denominated borrowing.  This swap involves exchanging fixed rate Euro interest payments for floating rate U.S. dollar interest receipts both of which will occur at the forward exchange rates in effect upon entering into the instrument. This instrument, which settled in the third quarter of 2017, had a pay fixed notional amount of €81 million and a receive floating notional amount of $90 million. There was no ineffectiveness related to these cross-currency interest rate swaps for the year ended December 31, 2017.

During the fourth quarter of 2017, one of the Company’s Euro-functional subsidiaries entered into a series of cross-currency interest rate swaps to manage its exposure to fluctuations in the Euro-U.S dollar exchange rate arising from a U.S. dollar denominated borrowing.  These swaps involve exchanging fixed rate Euro interest payments for fixed rate U.S. dollar interest receipts both of which will occur at the forward exchange rates in effect upon entering into the instrument. An unrecognized loss of less than $1 million at December 31, 2017 related to these cross-currency interest rate swaps was included in Accumulated OCI, and will be reclassified into earnings within the next twelve months. These instruments, in the aggregate, have a pay fixed notional amount of €263 million and a receive notional amount of $310 million and reach final maturity in 2023. There was no ineffectiveness related to these cross-currency interest rate swaps for the year ended December 31, 2017.

Interest Rate Swaps Designated as Fair Value Hedges

During the third and fourth quarters of 2017, the Company entered into a series of interest rate swap agreements with a total notional amount of €725 million that reach final maturity in 2024. The swaps were executed in order to maintain a capital structure containing appropriate amounts of fixed and floating-rate debt and to reduce net interest payments and expense in the near-term.

The Company’s fixed-to-variable interest rate swaps were accounted for as fair value hedges. The relevant terms of the swap agreements match the corresponding terms of the notes and therefore there is no hedge ineffectiveness. The Company recorded the net of the fair market values of the swaps as a long-term liability and short-term asset along with a corresponding net decrease in the carrying value of the hedged debt.

Under the swaps, the Company receives fixed rate interest amounts (equal to the interest on the corresponding hedged note) and pays interest at a six-month Euribor rate (set in arrears) plus a margin spread (see table below). The interest rate differential on each swap is recognized as an adjustment of interest expense during each six-month period over the term of the agreement.

The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.  The Company has determined that the majority of the inputs used to value these derivatives fall within Level 2 of the fair value hierarchy.

The following selected information relates to fair value swaps at December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

Amount Hedged

 

 

Receive Rate

 

Average Spread

Senior Notes due 2024

725

 

 

3.125

%

 

2.6

%

 

19


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

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 accrued liabilities or 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 as of December 31, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

Balance Sheet

 

 

 

 

 

 

 

    

Location

    

2017

    

2016

Asset Derivatives:

 

    

    

 

    

    

 

    

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

Commodity futures contracts

 

b

 

$

 3

 

$

 6

Interest rate swaps designated as fair value hedges

 

a

 

 

 6

 

 

 

Hedges of multiple risks designated as cash flow hedges

 

a

 

 

 4

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

Foreign exchange derivative contracts

 

a

 

$

 4

 

$

 9

Total asset derivatives

 

 

 

$

17

 

$

15

Liability Derivatives:

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

Commodity futures contracts

 

c

 

$

 —

 

$

 —

Interest rate swaps designated as fair value hedges

 

d

 

 

13

 

 

 

Hedges of multiple risks designated as cash flow hedges

 

d

 

 

10

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

Foreign exchange derivative contracts

 

d

 

 

 1

 

 

 5

Total liability derivatives

 

 

 

$

24

 

$

 5

 

 

 

8. Restructuring Accruals, Asset Impairments and Other Costs Related to Closed Facilities

The Company continually reviews its manufacturing footprint and operating cost structure and may decide to close operations or reduce headcount to gain efficiencies, integrate acquired operations, reduce future expenses and other market factors.  The Company incurs costs associated with these actions including employee severance and benefits, other exit costs such as those related to contract terminations, and asset impairment charges.  The Company also may incur other costs related to closed facilities including environmental remediation, clean up, dismantling and preparation for sale or other disposition.

The Company accounts for restructuring and other costs under applicable provisions of generally accepted accounting principles.  Charges for employee severance and related benefits are generally accrued based on contractual arrangements with employees or their representatives.  Other exit costs are accrued based on the estimated cost to settle related contractual arrangements.  Estimated environmental remediation costs are accrued when specific claims have been received or are probable of being received.

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 as Level 3 in the fair value hierarchy as set forth in the general accounting principles for fair value measurements.

When a decision is made to take these actions, the Company manages and accounts for them programmatically apart from the on-going operations of the business.  Information related to major programs is

20


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

presented separately while minor initiatives are presented on a combined basis. As of December 31, 2017 and 2016, no major restructuring programs were in effect.

In 2017, the Company implemented a number of minor restructuring initiatives and recorded restructuring, asset impairment and other charges of $72 million. These charges primarily consisted of employee costs, write-down of assets, and other exit costs in the following regions: Latin America ($45 million), Europe ($19 million), North America ($4 million) and Asia Pacific ($4 million). The restructuring charges recorded in 2017 were discrete actions and are expected to approximate the total cumulative cost for those actions as no significant additional costs are expected to be incurred. As part of the total restructuring charges recorded in Europe in 2016 and 2017, the Company has recorded total cumulative charges of $56 million related to a plant closure in this region and does not expect to execute any further significant actions related to this facility.  The restructuring charges recorded in 2017 in the Latin American and European regions primarily relate to capacity curtailments and products produced at those facilities have, in large part, been reallocated to others in their respective regions. The Company expects that the majority of the remaining cash expenditures related to the above charges will be paid out by the end of 2019.

In 2016, the Company implemented a number of minor restructuring initiatives and the Company recorded restructuring, asset impairment and other charges of $98 million. These charges primarily consisted of employee costs, write-down of assets, and other exit costs in the following regions: Latin America ($18 million), Europe ($48 million), North America ($4 million), Asia Pacific ($4 million) and other corporate restructuring actions ($24 million). Except for the charges recorded in Europe, the other discrete restructuring charges recorded in 2016 are expected to approximate the total cumulative costs for those actions as no significant additional costs are expected to be incurred. The Company has recorded total cumulative charges of $47 million related to a plant closure in Europe.  These restructuring charges primarily relate to several capacity curtailments and the Company reallocated the products produced at these facility to others in the region.

The following table presents information related to restructuring, asset impairment and other costs related to closed facilities from January 1, 2016 through December 31, 2017:

 

 

 

 

 

 

 

 

    

 

 

Total

 

 

    

Restructuring

 

Balance at January 1, 2016

 

$

43

 

Charges

 

 

98

 

Write-down of assets to net realizable value

 

 

(28)

 

Net cash paid, principally severance and related benefits

 

 

(24)

 

Other, including foreign exchange translation

 

 

(4)

 

Balance at December 31, 2016

 

 

85

 

Charges

 

 

72

 

Write-down of assets to net realizable value

 

 

(11)

 

Net cash paid, principally severance and related benefits

 

 

(62)

 

Other, including foreign exchange translation

 

 

 1

 

Balance at December 31, 2017

 

$

85

 

The restructuring accrual balance represents the Company’s estimates of the remaining future cash amounts to be paid related to the actions noted above.  As of December 31, 2017, the Company’s estimates include approximately $65 million for employee benefits costs, $19 million for environmental remediation costs, and $1 million for other exit costs.

 

21


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

9. Pension Benefit Plans and Other Postretirement Benefits

Pension Benefit Plans

The Company has defined benefit pension plans covering a substantial number of employees located in the United States and several other non-U.S. jurisdictions.  Benefits generally are based on compensation for salaried employees and on length of service for hourly employees.  The Company’s policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements.  The Company’s defined benefit pension plans use a December 31 measurement date. 

The changes in the pension benefit obligations for the year are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Obligations at beginning of year

 

$

1,956

 

$

2,190

 

$

1,235

 

$

1,210

 

Change in benefit obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

 

14

 

 

15

 

 

15

 

 

16

 

Interest cost

 

 

78

 

 

90

 

 

40

 

 

44

 

Actuarial (gain) loss, including the effect of change in discount rates

 

 

123

 

 

36

 

 

(15)

 

 

160

 

Curtailment, settlement, and plan amendment

 

 

(393)

 

 

(200)

 

 

(171)

 

 

 

 

Participant contributions

 

 

 

 

 

 

 

 

 1

 

 

 2

 

Benefit payments

 

 

(128)

 

 

(175)

 

 

(60)

 

 

(71)

 

Other

 

 

 

 

 

 

 

 

 

 

 

 3

 

Foreign currency translation

 

 

 

 

 

 

 

 

103

 

 

(129)

 

Net change in benefit obligations

 

 

(306)

 

 

(234)

 

 

(87)

 

 

25

 

Obligations at end of year

 

$

1,650

 

$

1,956

 

$

1,148

 

$

1,235

 

 

The changes in the fair value of the pension plans’ assets for the year are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Fair value at beginning of year

 

$

1,654

 

$

1,909

 

$

1,011

 

$

1,012

 

Change in fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual gain (loss) on plan assets

 

 

254

 

 

118

 

 

87

 

 

139

 

Benefit payments

 

 

(128)

 

 

(175)

 

 

(60)

 

 

(71)

 

Employer contributions

 

 

 7

 

 

 2

 

 

24

 

 

38

 

Participant contributions

 

 

 

 

 

 

 

 

 1

 

 

 2

 

Settlements

 

 

(393)

 

 

(200)

 

 

(171)

 

 

 

 

Foreign currency translation

 

 

 

 

 

 

 

 

83

 

 

(111)

 

Other

 

 

 

 

 

 

 

 

 

 

 

 2

 

Net change in fair value of assets

 

 

(260)

 

 

(255)

 

 

(36)

 

 

(1)

 

Fair value at end of year

 

$

1,394

 

$

1,654

 

$

975

 

$

1,011

 

The Company recognizes the funded status of each pension benefit plan on the balance sheet. The funded status of each plan is measured as the difference between the fair value of plan assets and actuarially calculated benefit obligations as of the balance sheet date. Actuarial gains and losses are accumulated in Other Comprehensive Income and the portion of each plan that exceeds 10% of the greater of that plan’s assets or projected benefit obligation is amortized to income on a straight-line basis over the average remaining service period of employees still accruing benefits or the expected life of participants not accruing benefits if all, or almost all, of the plan’s participants are no longer accruing benefits.

22


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The funded status of the pension plans at year end is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

 

2017

    

2016

    

2017

    

2016

 

Plan assets at fair value

    

$

1,394

    

$

1,654

    

$

975

    

$

1,011

 

Projected benefit obligations

 

 

1,650

 

 

1,956

 

 

1,148

 

 

1,235

 

Plan assets less than projected benefit obligations

 

 

(256)

 

 

(302)

 

 

(173)

 

 

(224)

 

Items not yet recognized in pension expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

811

 

 

1,046

 

 

284

 

 

352

 

Prior service cost (credit)

 

 

 1

 

 

 1

 

 

(2)

 

 

(1)

 

 

 

 

812

 

 

1,047

 

 

282

 

 

351

 

Net amount recognized

 

$

556

 

$

745

 

$

109

 

$

127

 

The net amount recognized is included in the Consolidated Balance Sheets at December 31, 2017 and 2016 as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Pension assets

 

$

 —

 

$

 —

 

$

49

 

$

40

 

Current pension liability, included with other accrued liabilities

 

 

(2)

 

 

(7)

 

 

(5)

 

 

(7)

 

Pension benefits

 

 

(254)

 

 

(295)

 

 

(217)

 

 

(257)

 

Accumulated other comprehensive loss

 

 

812

 

 

1,047

 

 

282

 

 

351

 

Net amount recognized

 

$

556

 

$

745

 

$

109

 

$

127

 

The following changes in plan assets and benefit obligations were recognized in accumulated other comprehensive income at December 31, 2017 and 2016 as follows (amounts are pretax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Current year actuarial (gain) loss

 

$

(2)

 

$

66

 

$

(40)

 

$

87

 

Amortization of actuarial loss

 

 

(57)

 

 

(67)

 

 

(16)

 

 

(12)

 

Settlement

 

 

(176)

 

 

(98)

 

 

(42)

 

 

 

 

 

 

 

(235)

 

 

(99)

 

 

(98)

 

 

75

 

Translation

 

 

 

 

 

 

 

 

30

 

 

(43)

 

Change in accumulated other comprehensive income

 

$

(235)

 

$

(99)

 

$

(68)

 

$

32

 

The accumulated benefit obligation for all defined benefit pension plans was $2,735 million and $3,126 million at December 31, 2017 and 2016, respectively.

23


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The components of the net pension expense for the year are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

Service cost

    

$

14

    

$

15

    

$

24

    

$

15

    

$

16

    

$

15

 

Interest cost

 

 

78

 

 

90

 

 

96

 

 

40

 

 

44

 

 

44

 

Expected asset return

 

 

(128)

 

 

(149)

 

 

(170)

 

 

(63)

 

 

(65)

 

 

(67)

 

Amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

57

 

 

67

 

 

74

 

 

16

 

 

13

 

 

15

 

Net expense

 

$

21

 

$

23

 

$

24

 

$

 8

 

$

 8

 

$

 7

 

Effective January 1, 2016 the Company amended its salary pension plan in North America to freeze future pension benefits. This action required an obligation remeasurement for the curtailment of benefits, which resulted in a reduction of the Company’s pension expense.  

In 2017, the Company settled a portion of its pension obligations in the U.S., Canada and the United Kingdom, resulting in settlement charges of $176 million, $27 million and $15 million, respectively.  Retiree annuity contract purchase transactions in the U.S. and Canada amounting to approximately $369 million and $123 million, respectively, with several insurers, gave rise to the majority of the settlement transactions, with lump-sum payments directly to plan participants comprising the remainder. In 2016, the Company settled a portion of its U.S. pension obligation via a retiree annuity contract purchase of approximately $200 million, which resulted in a settlement charge of $98 million.

Amounts that are expected to be amortized from accumulated other comprehensive income into net pension expense during 2018:

 

 

 

 

 

 

 

 

 

    

U.S.

    

Non-U.S.

 

Actuarial loss

 

$

52

 

$

13

 

 

The following information is for plans with projected and accumulated benefit obligations in excess of the fair value of plan assets at year end:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Projected Benefit Obligation Exceeds 

 

Accumulated Benefit Obligation Exceeds

 

 

 

the Fair Value of Plan Assets

 

the Fair Value of Plan Assets

 

 

 

U.S.

 

Non-U.S.

 

U.S.

 

Non-U.S.

 

 

    

2017

 

2016

    

2017

 

2016

    

2017

 

2016

    

2017

 

2016

 

Projected benefit obligations

 

$

1,650

 

$

1,956

 

$

905

 

$

897

 

$

1,650

 

$

1,956

 

$

261

 

$

897

 

Accumulated benefit obligation

 

 

1,650

 

 

1,956

 

 

878

 

 

867

 

 

1,650

 

 

1,956

 

 

241

 

 

867

 

Fair value of plan assets

 

 

1,394

 

 

1,654

 

 

682

 

 

632

 

 

1,394

 

 

1,654

 

 

39

 

 

632

 

 

24


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The weighted average assumptions used to determine benefit obligations are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Discount rate

 

3.69

%  

4.17

%  

2.76

%  

2.94

%  

Rate of compensation increase

 

N/A

 

N/A

 

2.78

%  

2.90

%  

The weighted average assumptions used to determine net periodic pension costs are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

Discount rate

    

4.17

%  

4.43

%  

4.05

%  

2.94

%  

3.68

%  

3.65

%  

Rate of compensation increase

 

N/A

 

N/A

 

2.96

%  

2.90

%  

2.84

%  

2.89

%  

Expected long-term rate of return on assets

 

7.50

%  

7.50

%  

8.00

%  

6.32

%  

7.15

%  

7.21

%  

Future benefits are assumed to increase in a manner consistent with past experience of the plans, which, to the extent benefits are based on compensation, includes assumed salary increases as presented above.

For 2017, the Company’s weighted average expected long-term rate of return on assets was 7.50% for the U.S. plans and 6.32% for the non-U.S. plans.  In developing this assumption, the Company considered its historical 10-year average return (through December 31, 2016) and evaluated input from its third party pension plan asset consultants, including their review of asset class return expectations. 

It is the Company’s policy to invest pension plan assets in a diversified portfolio consisting of an array of asset classes within established target asset allocation ranges.  The investment risk of the assets is limited by appropriate diversification both within and between asset classes.  The assets for the U.S. plans are maintained in a group trust.  The U.S. plans hold no individual assets other than the investment in the group trust.  The assets of the group trust and the Company’s non-U.S. plans are primarily invested in a broad mix of domestic and international equities, domestic and international bonds, and real estate, subject to the target asset allocation ranges.  The assets are managed with a view to ensuring that sufficient liquidity will be available to meet expected cash flow requirements.

The investment valuation policy of the Company is to value investments at fair value.  All investments are valued at their respective net asset values. Equity securities for which market quotations are readily available are valued at the last reported sales price on their principal exchange on valuation date or official close for certain markets.  Fixed income investments are valued by an independent pricing service.  Investments in registered investment companies or collective pooled funds are valued at their respective net asset values.  Short-term investments are stated at amortized cost, which approximates fair value.  The fair value of real estate is determined by periodic appraisals.

25


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The Company’s U.S. pension plan assets held in the group trust are measured at net asset value in the fair value hierarchy. The total U.S. plan assets amounted to $1,394 million and $1,654 million as of December 31, 2017 and 2016, respectively. In 2017, the U.S. plan assets consisted of approximately 65% equity securities, 28% debt securities, and 7% real estate and other. In 2017, the non-U.S. plan assets consisted of approximately 22% equity securities, 54% debt securities, and 24% real estate and other. The following table sets forth by level, within the fair value hierarchy, the Company’s non-U.S. pension plan assets at fair value as of December 31, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

2016

 

    

Level 1

    

Level 2

    

Level 3

 

Total

    

Level 1

    

Level 2

    

Level 3

 

Total

Cash and cash equivalents

 

$

 9

 

$

 —

 

$

 —

 

$

 9

 

$

24

 

$

 —

 

$

 —

 

$

24

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 —

Debt securities

 

 

33

 

 

 

 

 

 

 

 

33

 

 

37

 

 

 2

 

 

 

 

 

39

Real estate

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

 

 

 

 

 

 

 4

 

 

 4

Other

 

 

 

 

 

27

 

 

 

 

 

27

 

 

 

 

 

37

 

 

 6

 

 

43

Total

 

$

42

 

$

27

 

$

 —

 

 

 

 

$

61

 

$

39

 

$

10

 

 

 

Investments measured at net asset value

 

 

 

 

 

 

 

 

 

 

$

906

 

 

 

 

 

 

 

 

 

 

$

901

Total non-U.S. assets at fair value

 

 

 

 

 

 

 

 

 

 

$

975

 

 

 

 

 

 

 

 

 

 

$

1,011

The following is a reconciliation of the Company’s pension plan assets recorded at fair value using significant unobservable inputs (Level 3):

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Beginning balance

 

$

10

 

$

11

 

Net increase (decrease)

 

 

(10)

 

 

(1)

 

Ending balance

 

$

 —

 

$

10

 

The net increase (decrease) in the fair value of the Company’s Level 3 pension plan assets is primarily due to purchases and sales of unlisted real estate funds.  The change in the fair value of Level 3 pension plan assets due to actual return on those assets was immaterial in 2017.

In order to maintain minimum funding requirements, the Company is required to make contributions to its defined benefit pension plans of approximately $35 million in 2018.

The following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:

 

 

 

 

 

 

 

Year(s)

    

U.S.

    

Non-U.S.

2018

 

$

111

 

$

51

2019

 

 

112

 

 

47

2020

 

 

112

 

 

51

2021

 

 

109

 

 

53

2022

 

 

109

 

 

55

2023 - 2027

 

 

517

 

 

289

The Company also sponsors several defined contribution plans for all salaried and hourly U.S. employees, and employees in Canada, the U.K., The Netherlands and Australia. Participants’ contributions are based on their compensation.  The Company matches contributions of participants, up to various limits, in substantially all plans.  Company contributions to these plans amounted to $33 million in 2017, $34 million in 2016, and $29 million in 2015.

26


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

Postretirement Benefits Other Than Pensions

The Company provides retiree health care and life insurance benefits covering certain U.S. salaried and hourly employees, and substantially all employees in Canada.  Benefits provided by the Company for hourly retirees are determined by collective bargaining.  Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service.  The Company uses a December 31 measurement date to measure its postretirement benefit obligations.

The changes in the postretirement benefit obligations for the year are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Obligations at beginning of year

 

$

92

 

$

97

 

$

81

 

$

68

 

Change in benefit obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

 

 

 

 

 

 

 

 1

 

 

 1

 

Interest cost

 

 

 4

 

 

 4

 

 

 3

 

 

 3

 

Actuarial (gain) loss, including the effect of changing discount rates

 

 

 

 

 

(1)

 

 

 1

 

 

 9

 

Benefit payments

 

 

(7)

 

 

(9)

 

 

(2)

 

 

(2)

 

Foreign currency translation

 

 

 

 

 

 

 

 

 5

 

 

 2

 

Other

 

 

 

 

 

 1

 

 

 

 

 

 

 

Net change in benefit obligations

 

 

(3)

 

 

(5)

 

 

 8

 

 

13

 

Obligations at end of year

 

$

89

 

$

92

 

$

89

 

$

81

 

The funded status of the postretirement benefit plans at year end is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Postretirement benefit obligations

 

$

(89)

 

$

(92)

 

$

(89)

 

$

(81)

 

Items not yet recognized in net postretirement benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial gain (loss)

 

 

(19)

 

 

(21)

 

 

(7)

 

 

(6)

 

Prior service credit

 

 

22

 

 

30

 

 

 

 

 

 

 

 

 

 

 3

 

 

 9

 

 

(7)

 

 

(6)

 

Net amount recognized

 

$

(86)

 

$

(83)

 

$

(96)

 

$

(87)

 

The net amount recognized is included in the Consolidated Balance Sheets at December 31, 2017 and 2016 as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Current nonpension postretirement benefit, included with Other accrued liabilities

 

$

(8)

 

$

(8)

 

$

(3)

 

$

(3)

 

Nonpension postretirement benefits

 

 

(81)

 

 

(84)

 

 

(86)

 

 

(78)

 

Accumulated other comprehensive income (loss)

 

 

 3

 

 

 9

 

 

(7)

 

 

(6)

 

Net amount recognized

 

$

(86)

 

$

(83)

 

$

(96)

 

$

(87)

 

27


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The following changes in benefit obligations were recognized in accumulated other comprehensive income at December 31, 2017 and 2016 as follows (amounts are pretax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Current year actuarial (gain) loss

 

$

 —

 

$

(1)

 

$

 1

 

$

 9

 

Amortization of actuarial loss

 

 

(2)

 

 

(2)

 

 

 

 

 

 

 

Amortization of prior service credit

 

 

 8

 

 

 8

 

 

 

 

 

 

 

 

 

$

 6

 

$

 5

 

$

 1

 

$

 9

 

The components of the net postretirement benefit cost for the year are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2015

    

2017

    

2016

    

2015

 

Service cost

 

$

 —

 

$

 —

 

$

 —

 

$

 1

 

$

 1

 

$

 1

 

Interest cost

 

 

 4

 

 

 4

 

 

 4

 

 

 3

 

 

 3

 

 

 3

 

Amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss

 

 

 2

 

 

 2

 

 

 2

 

 

 

 

 

 

 

 

 

 

Prior service credit

 

 

(8)

 

 

(8)

 

 

(8)

 

 

 

 

 

 

 

 

 

 

Net amortization

 

 

(6)

 

 

(6)

 

 

(6)

 

 

 —

 

 

 —

 

 

 —

 

Net postretirement benefit (income) cost

 

$

(2)

 

$

(2)

 

$

(2)

 

$

 4

 

$

 4

 

$

 4

 

Amounts that are expected to be amortized from accumulated other comprehensive income into net postretirement benefit cost during 2018:

 

 

 

 

 

 

 

 

 

    

U.S.

    

Non-U.S.

 

Amortization:

 

 

 

 

 

 

 

Actuarial loss

 

$

 1

 

$

 —

 

Prior service credit

 

 

(8)

 

 

 

 

Net amortization

 

$

(7)

 

$

 —

 

Amortization included in net postretirement benefit cost is based on the average remaining service of employees. The weighted average discount rates used to determine the accumulated postretirement benefit obligation and net postretirement benefit cost are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2015

    

2017

    

2016

    

2015

 

Accumulated postretirement benefit obligation

 

3.61

%  

4.11

%  

4.35

%  

3.35

%  

3.55

%  

3.80

%  

Net postretirement benefit cost

 

4.11

%  

4.35

%  

3.99

%  

3.55

%  

3.80

%  

3.75

%  

28


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The weighted average assumed health care cost trend rates at December 31 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

    

2017

    

2016

    

2017

    

2016

 

Health care cost trend rate assumed for next year

 

6.20

%  

6.40

%  

5.00

%  

5.00

%  

Rate to which the cost trend rate is assumed to decline (ultimate trend rate)

 

5.00

%  

5.00

%  

5.00

%  

5.00

%  

Year that the rate reaches the ultimate trend rate

 

2024

 

2024

 

N/A

 

N/A

 

Assumed health care cost trend rates affect the amounts reported for the postretirement benefit plans.  A one-percentage-point change in assumed health care cost trend rates would have the following effects:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

Non-U.S.

 

 

 

1-Percentage-Point

 

1-Percentage-Point

 

 

    

Increase

    

Decrease

    

Increase

    

Decrease

 

Effect on total of service and interest cost

 

$

 —

 

$

 —

 

$

 —

 

$

 1

 

Effect on accumulated postretirement benefit obligations

 

 

(4)

 

 

 4

 

 

(6)

 

 

 8

 

Amortization included in net postretirement benefit cost is based on the average remaining service of employees.

The following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:

 

 

 

 

 

 

 

 

Year(s)

    

U.S.

    

Non-U.S.

 

2018

 

$

 8

 

$

 3

 

2019

 

 

 7

 

 

 3

 

2020

 

 

 7

 

 

 3

 

2021

 

 

 7

 

 

 4

 

2022

 

 

 6

 

 

 4

 

2023 - 2027

 

 

28

 

 

20

 

Other U.S. hourly retirees receive health and life insurance benefits from a multi-employer trust established by collective bargaining.  Payments to the trust as required by the bargaining agreements are based upon specified amounts per hour worked and were $6 million in 2017, $6 million in 2016 and $6 million in 2015.  Postretirement health and life benefits for retirees of foreign subsidiaries are generally provided through the national health care programs of the countries in which the subsidiaries are located.

 

10. Income Taxes

The provision for income taxes was calculated based on the following components of earnings (loss) before income taxes:

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

    

2017

    

2016

    

2015

 

U.S.

 

$

(43)

 

$

(27)

 

$

15

 

Non-U.S.

 

 

318

 

 

383

 

 

269

 

 

 

$

275

 

$

356

 

$

284

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

    

2017

    

2016

    

2015

 

U.S.

 

$

 —

 

$

 —

 

$

 —

 

Non-U.S.

 

 

(3)

 

 

(7)

 

 

(4)

 

 

 

$

(3)

 

$

(7)

 

$

(4)

 

29


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The provision (benefit) for income taxes consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Current:

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

(5)

 

$

 —

 

$

 9

 

Non-U.S.

 

 

87

 

 

123

 

 

85

 

 

 

 

82

 

 

123

 

 

94

 

Deferred:

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

 6

 

 

 3

 

 

10

 

Non-U.S.

 

 

(18)

 

 

(7)

 

 

 2

 

 

 

 

(12)

 

 

(4)

 

 

12

 

Total:

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

 1

 

 

 3

 

 

19

 

Non-U.S.

 

 

69

 

 

116

 

 

87

 

Total for continuing operations

 

 

70

 

 

119

 

 

106

 

Total for discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

 

$

70

 

$

119

 

$

106

 

A reconciliation of the provision for income taxes based on the statutory U.S. Federal tax rate of 35% to the provision for income taxes is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Tax provision on pretax earnings from continuing operations at statutory U.S. Federal tax rate

 

$

96

 

$

124

 

$

94

 

Increase (decrease) in provision for income taxes due to:

 

 

 

 

 

 

 

 

 

 

Non-U.S. tax rates

 

 

(29)

 

 

(22)

 

 

(12)

 

U.S. Tax Cut and Jobs Act: transition tax, net of foreign tax credits

 

 

 2

 

 

 

 

 

 

 

Tax law changes

 

 

70

 

 

(3)

 

 

(3)

 

Change in valuation allowance: U.S. tax law change

 

 

(80)

 

 

 

 

 

 

 

Change in valuation allowance: other

 

 

(283)

 

 

 3

 

 

 1

 

Tax attribute expiration

 

 

330

 

 

 

 

 

 

 

Withholding tax, net

 

 

 8

 

 

 7

 

 

10

 

Non-deductible acquisition costs

 

 

 

 

 

 

 

 

 6

 

Non-deductible expenses

 

 

 9

 

 

20

 

 

 7

 

U.S. tax on intercompany dividends and interest

 

 

 2

 

 

 3

 

 

16

 

Tax exempt income

 

 

(3)

 

 

(2)

 

 

(3)

 

Intraperiod tax allocation

 

 

 

 

 

(8)

 

 

 

 

Tax credit

 

 

(37)

 

 

(19)

 

 

(14)

 

Changes in tax reserves

 

 

(18)

 

 

 8

 

 

 5

 

Mexico inflationary adjustments

 

 

13

 

 

 6

 

 

 3

 

Equity earnings

 

 

(13)

 

 

(9)

 

 

(7)

 

Intercompany financing

 

 

(4)

 

 

(5)

 

 

 1

 

Other taxes based on income

 

 

10

 

 

11

 

 

 3

 

Other items

 

 

(3)

 

 

 5

 

 

(1)

 

Provision for income taxes

 

$

70

 

$

119

 

$

106

 

Deferred income taxes reflect: (1) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes; and (2) carryovers and credits for income tax purposes.

30


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows:

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Deferred tax assets:

 

 

 

 

 

 

 

Accrued postretirement benefits

 

$

44

 

$

53

 

Foreign tax credit carryovers

 

 

124

 

 

413

 

Operating and capital loss carryovers

 

 

342

 

 

389

 

Other credit carryovers

 

 

17

 

 

34

 

Accrued liabilities

 

 

69

 

 

95

 

Pension liabilities

 

 

77

 

 

138

 

Other

 

 

25

 

 

53

 

Total deferred tax assets

 

 

698

 

 

1,175

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Property, plant and equipment

 

 

101

 

 

131

 

Intangibles and deferred software

 

 

97

 

 

119

 

Other

 

 

(1)

 

 

 2

 

Total deferred tax liabilities

 

 

197

 

 

252

 

Valuation allowance

 

 

(406)

 

 

(838)

 

Net deferred taxes

 

$

95

 

$

85

 

Deferred taxes are included in the Consolidated Balance Sheets at December 31, 2017 and 2016 as follows:

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Other assets

 

$

194

 

$

185

 

Deferred taxes

 

 

(99)

 

 

(100)

 

Net deferred taxes

 

$

95

 

$

85

 

The deferred tax benefit associated with the reduction in the valuation allowance of $432 million was primarily allocated $363 million to income from continuing operations due to the primacy of continuing operations, the change in tax law and expiration of certain tax attribute carryovers, and $79 million to other comprehensive income.

Deferred tax assets and liabilities are determined separately for each tax jurisdiction on a separate or on a consolidated tax filing basis, as applicable, in which the Company conducts its operations or otherwise incurs taxable income or losses. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of deferred tax assets:

·

taxable income in prior carryback years;

·

future reversals of existing taxable temporary differences;

·

future taxable income exclusive of reversing temporary differences and carryforwards; and

·

prudent and feasible tax planning strategies that the Company would be willing to undertake to prevent a deferred tax asset from otherwise expiring.

31


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The assessment regarding whether a valuation allowance is required or whether a change in judgment regarding the valuation allowance has occurred also considers all available positive and negative evidence, including but not limited to:

·

nature, frequency, and severity of cumulative losses in recent years;

·

duration of statutory carryforward and carryback periods;

·

statutory limitations against utilization of tax attribute carryforwards against taxable income;

·

historical experience with tax attributes expiring unused; and

·

near‑ and medium‑term financial outlook.

The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Accordingly, it is generally difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. The Company uses the actual results for the last two years and current year results as the primary measure of cumulative losses in recent years.

The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events recognized in the financial statements or tax returns and future profitability. The recognition of deferred tax assets represents the Company’s best estimate of those future events. Changes in the current estimates, due to unanticipated events or otherwise, could have a material effect on the Company’s results of operations and financial condition.

In certain tax jurisdictions, the Company’s analysis indicates that it has cumulative losses in recent years. This is considered significant negative evidence which is objective and verifiable and, therefore, difficult to overcome. However, the cumulative loss position is not solely determinative and, accordingly, the Company considers all other available positive and negative evidence in its analysis. Based on its analysis, the Company has recorded a valuation allowance for the portion of deferred tax assets where based on the weight of available evidence it is unlikely to realize those deferred tax assets. 

Based on the evidence available including a lack of sustainable earnings, the Company in its judgment previously recorded a valuation allowance against substantially all of its net deferred tax assets in the United States. If a change in judgment regarding this valuation allowance were to occur in the future, the Company will record a potentially material deferred tax benefit, which could result in a favorable impact on the effective tax rate in that period.

The U.S. Tax Cuts and Jobs Act (“Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cut and Jobs Act, allows filers to use prior year methodologies or estimates of the anticipated current impact of the Act in the preparation of their 2017 financial statements.  At December 31, 2017, the Company had not completed its accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, it has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In all cases, the Company will continue to make and refine its calculations as additional data is gathered and further analysis is completed. In addition, the Company’s estimates may also be affected as it gains a more thorough understanding of the tax law and certain aspects of the Act are clarified by the taxing authorities. Any adjustments to these provisional amounts will be reported as a component of tax expense (benefit) in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.

32


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The Company remeasured certain U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of net deferred tax assets was a net tax charge of $80 million, which was fully offset by an adjustment to valuation allowance. Additionally, the Company recorded a deferred tax benefit of $11 million for the reduction of a deferred tax liability related to an indefinite lived intangible asset. The Act did not change the Company’s judgment regarding the realizability of these net deferred tax assets.

The one-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes and for which no deferred taxes were recorded since the Company previously claimed the indefinite reinvestment assertion exception on these earnings. At the date of enactment, the Company’s equity in the undistributed earnings of foreign subsidiaries for which income taxes had not been provided approximated $2.3 billion on a U.S. taxable E&P basis.  The Act had the effect of subjecting approximately $1.8 billion of these undistributed earnings to the one-time transition tax.  This tax, amounting to a provisional amount of $331 million, is expected to be substantially offset by available foreign tax credits resulting in a provisional net tax expense of $2 million primarily attributable to state taxes. The Company has not yet completed its calculation of the total post-1986 E&P and associated foreign tax credits for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. The Company anticipates that additional guidance and clarification regarding the implementation of the transition tax will be issued by federal and state taxing authorities and this estimate is, therefore, subject to future refinement.

The Company has elected to treat Global Intangible Low Taxed Income (GILTI) which is effective in 2018 for the Company as a period cost.

At December 31, 2017, before valuation allowance, the Company had unused foreign tax credits of $124 million expiring in 2020 through 2027 and research tax credits of $16 million expiring from 2019 to 2036.  Approximately $160 million of the deferred tax assets related to operating and capital loss carryforwards can be carried over indefinitely, with the remaining $182 million expiring between 2018 and 2037.

The Company maintains its assertion on a provisional basis that it intends to continue to indefinitely reinvest the gross book-tax basis differences in its non-US consolidated subsidiaries.  However, the Company records deferred foreign taxes on gross book-tax basis differences to the extent of foreign distributable reserves for certain foreign subsidiaries.  Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable.

The Company records a liability for unrecognized tax benefits related to uncertain tax positions. The Company accrues interest and penalties associated with unrecognized tax benefits as a component of its income tax expense.

33


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The following is a reconciliation of the Company’s total gross unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Balance at January 1

 

$

74

 

$

74

 

$

77

 

Additions and reductions for tax positions of prior years

 

 

 1

 

 

 

 

 

 1

 

Additions based on tax positions related to the current year

 

 

17

 

 

15

 

 

10

 

Reductions due to the lapse of the applicable statute of limitations

 

 

(7)

 

 

(3)

 

 

(5)

 

Reductions due to settlements

 

 

(9)

 

 

(12)

 

 

(1)

 

Foreign currency translation

 

 

 3

 

 

 

 

 

(8)

 

Balance at December 31

 

$

79

 

$

74

 

$

74

 

Unrecognized tax benefits, which if recognized, would impact the Company’s effective income tax rate

 

$

72

 

$

66

 

$

67

 

Accrued interest and penalties at December 31

 

$

 8

 

$

23

 

$

25

 

Interest and penalties included in tax expense for the years ended December 31

 

$

(14)

 

$

(2)

 

$

(1)

 

Based upon the outcome of tax examinations, judicial proceedings, or expiration of statute of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. The Company believes that it is reasonably possible that the estimated liability could decrease up to $7 million within the next 12 months. This is primarily the result of anticipated audit settlements or statute expirations in several taxing jurisdictions.

The Company is currently under income tax examination in various tax jurisdictions in which it operates, including Bolivia, Brazil, Canada, China, Colombia, France, Germany, and Indonesia. The years under examination range from 2004 through 2015. The Company has received tax assessments in excess of established reserves. The Company is contesting these tax assessments, and will continue to do so, including pursuing all available remedies such as appeals and litigation, if necessary.

The Company believes that adequate provisions for all income tax uncertainties have been made. However, if tax assessments are settled against the Company at amounts in excess of established reserves, it could have a material impact to the Company’s results of operations, financial position or cash flows. During 2017, the Company concluded income tax audits in several jurisdictions, including Canada, Ecuador, France, and Italy.

 

34


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

11. Debt

The following table summarizes the long-term debt of the Company at December 31, 2017 and 2016:

 

 

 

 

 

 

 

 

 

2017

    

2016

Secured Credit Agreement:

 

 

 

 

 

 

Revolving Credit Facility:

 

 

 

 

 

 

Revolving Loans

 

$

 —

 

$

 —

Term Loans:

 

 

 

 

 

 

Term Loan A

 

 

1,148

 

 

1,395

Term Loan A (€279 million at December 31, 2016)

 

 

 

 

 

282

Senior Notes:

 

 

 

 

 

 

6.75%, due 2020 (€500 million)

 

 

594

 

 

523

4.875%, due 2021 (€330 million)

 

 

392

 

 

345

5.00%, due 2022

 

 

496

 

 

495

4.00%, due 2023

 

 

305

 

 

 

5.875%, due 2023

 

 

685

 

 

682

3.125%, due 2024 (€725 million at December 31, 2017 and €500 million at December 31, 2016)

 

 

849

 

 

520

5.375%, due 2025

 

 

297

 

 

297

6.375%, due 2025

 

 

295

 

 

294

Payable to OI Inc.

 

 

 

 

 

250

Capital leases

 

 

54

 

 

57

Other

 

 

17

 

 

26

Total long-term debt

 

 

5,132

 

 

5,166

Less amounts due within one year

 

 

11

 

 

33

Long-term debt

 

$

5,121

 

$

5,133

On April 22, 2015, the Company entered into a Senior Secured Credit Facility, which subsequently has been amended several times with the most recent amendment being entered into on September 28, 2017 (the “Amended Agreement”).

At December 31, 2017, the Amended Agreement includes a $300 million revolving credit facility, a $600 million multicurrency revolving credit facility, and a $1,575 million term loan A facility ($1,148 million net of debt issuance costs), each of which has a final maturity date of April 22, 2020.  At December 31, 2017, the Company had unused credit of $888 million available under the Amended Agreement. The weighted average interest rate on borrowings outstanding under the Amended Agreement at December 31, 2017 was 3.17%.

The Amended Agreement contains various covenants that restrict, among other things and subject to certain exceptions, the ability of the Company to incur certain liens, make certain investments, become liable under contingent obligations in certain defined instances only, make restricted payments, make certain asset sales within guidelines and limits, engage in certain affiliate transactions, participate in sale and leaseback financing arrangements, alter its fundamental business, and amend certain subordinated debt obligations.

The Amended Agreement also contains one financial covenant, a Total Leverage Ratio, that requires the Company not to exceed a ratio calculated by dividing consolidated total debt, less cash and cash equivalents (“Net Indebtedness”), by consolidated EBITDA, as defined in the Amended Agreement. The Total Leverage Ratio could restrict the ability of the Company to undertake additional financing or acquisitions to the extent that such financing or acquisitions would cause the Total Leverage Ratio to exceed the specified maximum of 4.0x for the fiscal quarter ending December 31, 2017 and each fiscal quarter thereafter.

35


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

On September 28, 2017, the Company entered into Amendment No. 5 (“Amendment No. 5”) to the Amended Agreement.  Amendment No. 5 changes the calculation of the Total Leverage Ratio by excluding from the calculation of Net Indebtedness ordinary course revolver borrowings (except to the extent such borrowings existed at the prior year end) and non-recourse factoring or securitization debt.

Failure to comply with these covenants and restrictions could result in an event of default under the Amended Agreement.  In such an event, the Company would be unable to request borrowings under the revolving facility, and all amounts outstanding under the Amended Agreement, together with accrued interest, could then be declared immediately due and payable.  If an event of default occurs under the Amended Agreement and the lenders cause all of the outstanding debt obligations under the Amended Agreement to become due and payable, this would result in a default under a number of other outstanding debt securities and could lead to an acceleration of obligations related to these debt securities.  As of December 31, 2017, the Company was in compliance with all covenants and restrictions in the Amended Agreement.  In addition, the Company believes that it will remain in compliance and that its ability to borrow funds under the Amended Agreement will not be adversely affected by the covenants and restrictions.

The interest rates on borrowings under the Amended Agreement are, at the Company’s option, the Base Rate or the Eurocurrency Rate, as defined in the Amended Agreement, plus an applicable margin.  The applicable margin for the term loan A facility and the revolving credit facility is linked to the Company’s Total Leverage Ratio and ranges from 1.25% to 1.75% for Eurocurrency Rate loans and from 0.25% to 0.75% for Base Rate loans.  In addition, a facility fee is payable on the revolving credit facility commitments ranging from 0.20% to 0.30% per annum linked to the Total Leverage Ratio.

Borrowings under the Amended Agreement are secured by substantially all of the assets, excluding real estate and certain other excluded assets, of certain of the Company’s domestic subsidiaries and certain foreign subsidiaries.  Borrowings are also secured by a pledge of intercompany debt and equity investments in certain of the Company’s domestic subsidiaries and, in the case of foreign borrowings, of stock of certain foreign subsidiaries.  All borrowings under the Amended Agreement are guaranteed by certain domestic subsidiaries of the Company.

During November 2016, the Company issued senior notes with a face value of €500 million that bear interest at 3.125% and are due November 15, 2024 (the “Senior Notes due 2024”).  The notes were issued via a private placement and are guaranteed by certain of the Company’s domestic subsidiaries.  The net proceeds, after deducting debt issuance costs, totaled approximately $520 million and were used to repay the term loan B facility under the Amended Agreement.  In March 2017, the Company expanded its borrowings under the Senior Notes due 2024 by issuing €225 million of additional notes that bear interest at 3.125% and are due November 15, 2024.  The notes were issued via a private placement and are guaranteed by certain of the Company’s domestic subsidiaries.  The net proceeds, after deducting debt issuance costs, totaled approximately $237 million and were used to repay a portion of the Company’s revolving credit facility.

During March 2017, OI Inc. purchased in a tender offer approximately $228 million aggregate principal amount of its 7.80% Senior Debentures due in 2018.  In November 2017, the remaining $22 million of the 7.80% Senior Debentures were repurchased by OI Inc., the indenture relating thereto was discharged, and all collateral and guarantees thereunder were released. The Company recorded $18 million of additional interest charges for note repurchase premiums and the write-off of unamortized finance fees related to these actions.

During December 2017, the Company issued senior notes with a face value of $310 million that bear interest at 4.00% and are due March 15, 2023.  The notes were issued via a private placement and are guaranteed by certain of the Company‘s domestic subsidiaries.  The net proceeds, after deducting debt issuance costs, totaled approximately $305 million and were used to repay a portion of the term loan A facility under the Amended Agreement. 

36


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

In order to maintain a capital structure containing appropriate amounts of fixed and floating-rate debt, the Company has entered into a series of interest rate swap agreements. These swap agreements were accounted for as fair value hedges (see Note 7).

The Company assesses its capital raising and refinancing needs on an ongoing basis and may enter into additional credit facilities and seek to issue equity and/or debt securities in the domestic and international capital markets if market conditions are favorable. Also, depending on market conditions, the Company may elect to repurchase portions of its debt securities in the open market.

The Company has a €185 million European accounts receivable securitization program, which extends through March 2019, subject to periodic renewal of backup credit lines.

Information related to the Company’s accounts receivable securitization program as of December 31, 2017 and 2016 is as follows:

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Balance (included in short-term loans)

 

$

133

 

$

152

 

Weighted average interest rate

 

 

0.76

%  

 

0.74

%  

The carrying amounts reported for the accounts receivable securitization program, 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 based on published market quotations, and are classified as Level 1 in the fair value hierarchy.

Annual maturities for all of the Company’s long-term debt through 2022 are as follows: 2018, $11 million; 2019, $11 million; 2020, $1,753 million; 2021, $401 million, 2022, $503 million and 2023 and thereafter $2,453 million.

Fair values at December 31, 2017, of the Company’s significant fixed rate debt obligations are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

Indicated

 

 

 

    

Amount

    

Market Price

    

Fair Value

Senior Notes:

 

 

 

 

 

 

 

 

 

6.75%, due 2020 (€500 million)

 

$

597

 

$

116.99

 

$

699

4.875%, due 2021 (€330 million)

 

 

394

 

 

113.43

 

 

447

5.00%, due 2022

 

 

500

 

 

104.24

 

 

521

5.875%, due 2023

 

 

700

 

 

108.15

 

 

757

4.00%, due 2023

 

 

310

 

 

100.21

 

 

311

3.125%, due 2024 (€725 million)

 

 

866

 

 

105.34

 

 

912

6.375%, due 2025

 

 

300

 

 

112.62

 

 

338

5.375%, due 2025

 

 

300

 

 

105.31

 

 

316

 

 

12. Contingencies

Asbestos

OI Inc. is a defendant in numerous lawsuits alleging bodily injury and death as a result of exposure to asbestos.  From 1948 to 1958, one of OI Inc.'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.  OI Inc. sold its insulation business unit at the end of April 1958.  The typical asbestos personal injury lawsuit alleges various theories of liability, including negligence, gross negligence and strict

37


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

liability and seeks compensatory and, in some cases, punitive damages in various amounts (herein referred to as "asbestos claims").

The following table shows the approximate number of plaintiffs and claimants who had asbestos claims pending against OI Inc. at the beginning of each listed year, the number of claims disposed of during that year, the year’s filings and the claims pending at the end of each listed year (eliminating duplicate filings):

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Pending at beginning of year

 

1,400

 

2,080

 

2,260

 

Disposed

 

1,320

 

1,750

 

1,460

 

Filed

 

1,250

 

1,070

 

1,280

 

Pending at end of year

 

1,330

 

1,400

 

2,080

 

Based on an analysis of the lawsuits pending as of December 31, 2017, approximately 89% 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 8% of plaintiffs specifically plead damages above the jurisdictional minimum up to, and including, $15 million or less, and 3% of plaintiffs specifically plead damages greater than $15 million but less than or equal to $100 million. 

As indicated by the foregoing summary, current pleading practice permits considerable variation in the assertion of monetary damages.  OI Inc.’s experience resolving hundreds of thousands of asbestos claims and lawsuits over an extended period demonstrates that the monetary relief 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 type and severity of the plaintiff’s asbestos disease, the plaintiff’s medical history and exposure to other disease-causing agents, the product identification evidence against OI Inc. and other co-defendants, the defenses available to OI Inc. and other co-defendants, the specific jurisdiction in which the claim is made, and the plaintiff’s firm representing the claimant. 

In addition to the pending claims set forth above, OI Inc. 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 OI Inc.'s former business unit during its manufacturing period ending in 1958. 

OI Inc. has also been 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, OI Inc. 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, OI Inc. as of December 31, 2017, has disposed of the asbestos claims of approximately 399,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $9,600.  OI Inc.’s asbestos indemnity payments have varied on a per claim basis, and are expected to continue to vary considerably over time.  Asbestos-related cash payments for 2017, 2016, and 2015 were $110 million, $125 million, and $138 million, respectively.  OI Inc.’s cash payments per claim disposed (inclusive of legal costs) were approximately $83,000, $71,000 and $95,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

As discussed above, OI Inc.’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 OI Inc.’s administrative claims handling agreements has generally reduced the number of claims that would otherwise have been received by OI Inc. in the tort system. In addition, certain court orders and legislative acts have reduced or eliminated the number of claims that OI Inc. otherwise would have received by OI Inc. in the tort

38


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

system.  These developments generally have had the effect of increasing OI Inc.’s per-claim average indemnity payment over time.

Beginning with the initial liability of $975 million established in 1993, OI Inc. has accrued a total of approximately $4.9 billion through 2017, before insurance recoveries, for its asbestos-related liability.  OI Inc.’s estimates of its liability have been significantly affected by, among other factors, the volatility of asbestos-related litigation in the United States, the significant number of co-defendants that have filed for bankruptcy, the inherent uncertainty of future disease incidence and claiming patterns against OI Inc., the significant expansion of the defendants that are now sued in this litigation, and the continuing changes in the extent to which these defendants participate in the resolution of cases in which OI Inc. is also a defendant.

OI Inc. continues to monitor trends that may affect its ultimate liability and analyze the developments and variables likely to affect the resolution of pending and future asbestos claims against OI Inc.  The material components of OI Inc.’s total accrued liability are determined by OI Inc. in connection with its annual comprehensive legal 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 OI Inc.; (ii) the liability for asbestos claims not yet asserted against OI Inc., and (iii) the legal defense costs estimated to be incurred in connection with the claims already asserted and those claims OI Inc. believes will be asserted.

As noted above, OI Inc. conducts a comprehensive legal 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.  As part of its current annual comprehensive legal review, OI Inc. provides historical claims filing data to a third party with expertise in determining the impact of disease incidence and mortality on future filing trends to develop information to assist it in estimating the total number of future claims to be filed.  OI Inc. uses this estimate of its total future claims, along with an estimation of disposition costs and related legal costs, as inputs to develop its best estimate of OI Inc.’s total probable liability. If the results of the annual comprehensive legal review indicate that the existing amount of the accrued liability is lower (higher) than its reasonably estimable asbestos-related costs, then OI Inc. will record an appropriate charge (credit) to OI Inc.’s results of operations to increase (decrease) the accrued liability.

The significant assumptions underlying the material components of OI Inc.’s accrual are:

a)

settlements will continue to be limited almost exclusively to claimants who were exposed to OI Inc.’s asbestos‑containing insulation prior to its exit from that business in 1958;

b)

claims will continue to be resolved primarily under OI Inc.’s administrative claims agreements or on terms comparable to those set forth in those agreements;

c)

the incidence of serious asbestos‑related disease cases and claiming patterns against OI Inc. for such cases do not change materially;

d)

OI Inc. is substantially able to defend itself successfully at trial and on appeal;

e)

the number and timing of additional co‑defendant bankruptcies do not change significantly the assets available to participate in the resolution of cases in which OI Inc. is a defendant; and

f)

co‑defendants with substantial resources and assets continue to participate significantly in the resolution of future asbestos lawsuits and claims.

For the years ended December 31, 2017 and 2016, OI Inc. concluded that accruals in the amounts of $582 million and $692 million, respectively, were required.  These amounts have not been discounted for the time value of money.  OI Inc.’s comprehensive legal reviews resulted in charges of $0, $0 and $16 million for the years ended December 31, 2017, 2016, and 2015, respectively.

39


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

OI Inc. believes it is reasonably possible that it will incur a loss for its asbestos-related liabilities in excess of the amount currently recognized, which is $582 million as of December 31, 2017.  OI Inc. estimates that reasonably possible losses could result in asbestos-related liabilities up to $725 million.  This estimate of additional reasonably possible loss reflects a qualitative legal judgment regarding the nature of contingencies that could impact future claims and legal costs, which include, but are not limited to, successful attempts by plaintiffs to challenge existing legal barriers to liability, enact plaintiff-oriented liability or damage-related legislation, establish new theories of liability, or revive long-dormant inventories of non-mesothelioma cases. However, it is also possible that the ultimate amount of asbestos-related liabilities could be above this estimate.

OI Inc. expects a significant majority of the total number of claims to be received in the next ten years.  This timeframe appropriately reflects the mortality of current and expected claimants in light of OI Inc.’s sale of its insulation business unit in 1958.

As noted above, OI Inc.’s asbestos-related liability is based on a projection of new claims that will eventually be filed against OI Inc. and the estimated average disposition cost of these claims and related legal costs. Changes in these projections, and estimates, as well as changes in the significant assumptions noted above, have the potential to significantly impact the estimation of OI Inc.’s asbestos-related liability.

Other Matters

On July 5, 2016, OI Inc. learned that the Enforcement Division of the SEC is conducting an investigation into certain accounting and control matters pertaining to OI Inc.’s determination of its asbestos-related liabilities.  On May 13, 2016, OI Inc. restated its consolidated financial statements for the years ended December 31, 2015, 2014 and 2013 in order to correct an error related to its method for estimating its future asbestos-related liabilities. OI Inc. is cooperating with the SEC’s investigation.  At this time, OI Inc. is unable to predict the outcome of this matter or provide meaningful quantification of how the final resolution of this matter may impact its future consolidated financial statements, results of operations, or cash flows.

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.

 

13. Accumulated Other Comprehensive Income (Loss)

The components of comprehensive income are: (a) net earnings; (b) change in fair value of certain derivative instruments; (c) pension and other postretirement benefit adjustments; and (d) foreign currency translation adjustments.  The net effect of exchange rate fluctuations generally reflects changes in the relative strength of the U.S. dollar against major foreign currencies between the beginning and end of the year.

40


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The following table lists the beginning balance, annual activity and ending balance of each component of accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

 

 

 

Total Accumulated

 

 

 

Net Effect of

 

Change in Certain

 

 

 

Other

 

 

 

Exchange Rate

 

Derivative

 

Employee

 

Comprehensive

 

 

   

Fluctuations

   

Instruments

   

Benefit Plans

   

Income (Loss)

 

Balance on January 1, 2016

 

$

(568)

 

$

(10)

 

$

(1,398)

 

$

(1,976)

 

Change before reclassifications

 

 

(220)

 

 

 7

 

 

(2)

 

 

(215)

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

 

 6

(a)  

 

72

(b)  

 

78

 

Translation effect

 

 

 

 

 

 

 

 

(25)

 

 

(25)

 

Tax effect

 

 

 

 

 

 

 

 

15

 

 

15

 

Intraperiod tax allocation

 

 

 

 

 

 

 

 

(8)

 

 

(8)

 

Other comprehensive income (loss) attributable to the Company

 

 

(220)

 

 

13

 

 

52

 

 

(155)

 

Balance on December 31, 2016

 

 

(788)

 

 

 3

 

 

(1,346)

 

 

(2,131)

 

Change before reclassifications

 

 

65

 

 

(3)

 

 

(8)

 

 

54

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

 

(6)

(a)  

 

285

(b)  

 

279

 

Translation effect

 

 

 

 

 

 

 

 

32

 

 

32

 

Tax effect

 

 

 

 

 

 1

 

 

(20)

 

 

(19)

 

Other comprehensive income (loss) attributable to the Company

 

 

65

 

 

(8)

 

 

289

 

 

346

 

Balance on December 31, 2017

 

$

(723)

 

$

(5)

 

$

(1,057)

 

$

(1,785)

 


(a)

Amount is included in Cost of goods sold on the Consolidated Results of Operations (see Note 7 for additional information).

(b)

Amount is included in the computation of net periodic pension cost and net postretirement benefit cost (see Note 9 for additional information).

 

14. Stock Based Compensation

The Company participates in OI Inc.’s various nonqualified plans approved by share owners under which OI Inc. has granted stock options, restricted shares and performance vested restricted share units. Starting with the 2017 equity awards, OI Inc. has allocated these awards solely in the form of restricted shares and performance vested restricted share units. As such, the Company’s annual compensation expense related to stock option awards is immaterial.  At December 31, 2017, there were 5,620,022 shares available for grants under these plans.  Total compensation cost for all grants of shares and units under these plans was $18 million, $11 million and $15 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Restricted Shares and Restricted Share Units

Restricted share units granted to employees vest 25% per year beginning on the first anniversary. Granted but unvested restricted share units are forfeited upon termination, unless certain retirement criteria are met. Holders of vested restricted share units receive one share of OI Inc.’s common stock for each unit as units vest.  Restricted share units granted to directors vest after one year.

The fair value of the restricted shares and restricted share units is equal to the market price of OI Inc.’s common stock on the date of the grant.  The fair value of restricted shares and restricted share units is amortized over the vesting periods which range from one to four years.

41


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

The activity of restricted shares and restricted share units is as follows:

 

 

 

 

 

 

 

 

    

 

    

Weighted

 

 

 

Number of

 

Average

 

 

 

Restricted

 

Grant-Date

 

 

 

Shares

 

Fair Value

 

 

 

(thousands)

 

(per share)

 

Nonvested at January 1, 2017

 

836

 

$

19.44

 

Granted

 

601

 

 

20.01

 

Vested

 

(255)

 

 

21.30

 

Forfeited

 

(74)

 

 

18.31

 

Nonvested at December 31, 2017

 

1,108

 

 

19.39

 

Awards granted during 2016

 

 

 

$

15.70

 

Awards granted during 2015

 

 

 

$

22.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Total fair value of shares vested

 

$

 5

 

$

 6

 

$

 4

 

Performance Vested Restricted Share Units

Performance vested restricted share units vest on January 1 of the third year following the year in which they are granted.  Holders of vested units may receive up to 2 shares of OI Inc.’s common stock for each unit, depending upon the attainment of consolidated performance goals established by the Compensation Committee of OI Inc.’s Board of Directors.  If minimum goals are not met, no shares will be issued.  Granted but unvested restricted share units are forfeited upon termination of employment, unless certain retirement criteria are met.

The fair value of each performance vested restricted share unit is equal to the product of the fair value of OI Inc.’s common stock on the date of grant and the estimated number of shares into which the performance vested restricted share unit will be converted.  The fair value of performance vested restricted share units is amortized ratably over the vesting period.  Should the estimated number of shares into which the performance vested restricted share unit will be converted change, an adjustment will be recorded to recognize the accumulated difference in amortization between the revised and previous estimates.

Performance vested restricted share unit activity is as follows:

 

 

 

 

 

 

 

 

    

Number of Performance

    

Weighted Average

 

 

 

Vested Restricted Shares

 

Grant-Date Fair Value

 

 

 

Units (thousands)

 

(per unit)

 

Nonvested at January 1, 2017

 

1,355

 

$

20.76

 

Granted

 

528

 

 

19.57

 

Vested

 

(66)

 

 

33.39

 

Forfeited/Cancelled

 

(223)

 

 

29.23

 

Nonvested at December 31, 2017

 

1,594

 

 

18.66

 

Awards granted during 2016

 

 

 

$

15.10

 

Awards granted during 2015

 

 

 

$

23.63

 

Approximately 66,000 shares were issued in 2017 with a fair value at issuance date of $2 million related to performance vested restricted share units.

As of December 31, 2017, there was $19 million of total unrecognized compensation cost related to all unvested stock options, restricted shares, restricted share units and performance vested restricted share units.  That cost is expected to be recognized over a weighted average period of approximately two years.

 

42


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

15. Other Expense, net

Other expense, net for the years ended December 31, 2017, 2016, and 2015 included the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

2016

 

2015

 

Restructuring, asset impairment and other charges

 

$

77

 

$

104

 

$

75

 

Intangible amortization expense

 

 

41

 

 

39

 

 

21

 

Impairment of equity investment

 

 

 

 

 

25

 

 

 

 

Gain on China land compensation

 

 

 

 

 

(71)

 

 

 

 

Royalty income

 

 

(11)

 

 

(13)

 

 

(12)

 

Strategic transaction costs

 

 

 

 

 

 

 

 

23

 

Acquisition-related fair value intangible adjustments

 

 

 

 

 

 

 

 

10

 

Foreign currency exchange loss (gain)

 

 

 5

 

 

 6

 

 

(10)

 

Other expense (income)

 

 

(7)

 

 

(14)

 

 

(12)

 

 

 

$

105

 

$

76

 

$

95

 

In 2016, the Company evaluated the future estimated earnings and cash flow of an equity investment and determined that it was other-than-temporarily impaired. As such, the Company recorded an impairment charge of $25 million to reduce its carrying value down to its estimated fair value. The Company classified the significant assumptions used to determine the fair value of the impaired assets as Level 3 in the fair value hierarchy as set forth in the general accounting principles for fair value measurements.

 

16. Operating Leases

Rent expense attributable to all warehouse, office buildings and equipment operating leases was $84 million in 2017, $80 million in 2016, and $72 million in 2015.  Minimum future rentals under operating leases are as follows: 2018, $73 million; 2019, $55 million; 2020, $40 million; 2021, $29 million; 2022, $24 million; and 2023 and thereafter, $37 million.

17. Supplemental Cash Flow Information

Changes in the components of working capital related to operations (net of the effects related to acquisitions and divestitures) were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

 

Decrease (increase) in current assets:

 

 

 

 

 

 

 

 

 

 

Receivables

 

$

(37)

 

$

(32)

 

$

(14)

 

Inventories

 

 

 2

 

 

16

 

 

(13)

 

Prepaid expenses and other

 

 

(10)

 

 

145

 

 

(4)

 

Increase (decrease) in current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

69

 

 

(58)

 

 

100

 

Accrued liabilities

 

 

(49)

 

 

(31)

 

 

21

 

Salaries and wages

 

 

(21)

 

 

32

 

 

12

 

U.S. and foreign income taxes

 

 

(43)

 

 

18

 

 

(14)

 

 

 

$

(89)

 

$

90

 

$

88

 

The Company uses various factoring programs to sell certain receivables to financial institutions as part of managing its cash flows. At December 31, 2017 and 2016, the amount of receivables sold by the Company was $454 million and $318 million, respectively. Any continuing involvement with the sold receivables is immaterial.

43


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

Income taxes paid in cash were as follows:

 

 

 

 

 

 

 

 

 

 

 

    

2017

    

2016

    

2015

U.S.

 

$

 4

 

$

 —

 

$

 —

Non-U.S.

 

 

127

 

 

99

 

 

101

Total income taxes paid in cash

 

$

131

 

$

99

 

$

101

Interest paid in cash, including note repurchase premiums, for the years ended December 31, 2017, 2016 and 2015 was $261 million, $261 million and $227 million, respectively. Cash interest for the years ended December 31, 2017, 2016 and 2015 included $18 million, $9 million and $32 million of note repurchase premiums, respectively.

 

18. Business Combinations and Pro Forma Information

On September 1, 2015, the Company completed the Vitro Acquisition in a cash transaction valued at approximately $2.297 billion in cash, subject to a working capital adjustment and certain other adjustments.  The Vitro Business in Mexico is the largest supplier of glass containers in that country manufacturing glass containers across multiple end uses, including food, soft drinks, beer, wine and spirits. The Vitro Acquisition included five food and beverage glass container plants in Mexico, a plant in Bolivia and a North American distribution business, and provided the Company with a competitive position in the glass packaging market in Mexico.  The results of the Vitro Business have been included in the Company’s consolidated financial statements since September 1, 2015 and contributed approximately $608 million of incremental net sales and $122 million of incremental segment operating profit in the year ended December 31, 2016.  Vitro’s food and beverage glass container operations in Mexico and Bolivia are included in the Latin American operating segment while its distribution business is included in the North American operating segment.

Had the Vitro Acquisition occurred at the beginning of 2015, unaudited pro forma consolidated net sales and earnings from continuing operations would have been as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ending December 31, 2015

 

 

 

As

 

Acquisition

 

Financing

 

Pro Forma

 

 

    

Reported

    

Adjustments

    

Adjustments

    

As Adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

6,156

 

$

574

 

$

 —

 

$

6,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations attributable to the Company

 

$

155

 

$

79

 

$

(46)

 

$

188

 

 

 

19.  Discontinued Operations

On April 4, 2016, the annulment committee formed by the World Bank’s International Centre for Settlement of Investment Disputes (“ICSID”) ruled that OI European Group B.V. (“OIEG”), a subsidiary of the Company, is free to pursue the enforcement of a prior arbitration award (the “Award”) against Venezuela. As of December 31, 2017, that Award amounts to more than $500 million, including reimbursement of expenses and accrued interest. Venezuela’s application to annul the Award was heard by an ad hoc committee of the ICSID in September 2017, but no decision has been rendered yet.

On July 31, 2017, OIEG sold its right, title and interest in amounts due under the Award to an Ireland-domiciled investment fund.  Under the terms of the sale, OIEG received a payment, in cash, at closing equal to $115 million (the “Cash Payment”).  OIEG may also receive additional payments in the future (“Deferred Amounts”) calculated based on the total compensation that is received from Venezuela as a result of collection

44


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

efforts or as settlement of the Award with Venezuela.  In the event that the Award is partially or completely annulled by the ICSID ad hoc annulment committee, OIEG may be required to repay to the purchaser up to the entire amount of the Cash Payment based on a formula tied to the amount of the Award (if any) that is annulled.  In addition, OIEG’s right to receive any Deferred Amounts is subject to the limitations described below.

OIEG’s interest in any amounts received in the future from Venezuela in respect of the Award is limited to a percentage of such recovery after taking into account reimbursement of the Cash Payment to the purchaser and reimbursement of legal fees and expenses incurred by the Company and the purchaser. OIEG’s percentage of such recovery will also be reduced over time.  Because the Award has yet to be satisfied, the annulment proceeding is pending, and the ability to successfully enforce the Award in countries that are party to the ICSID Convention is subject to significant challenges, the Company is unable to reasonably predict the amount of recoveries from the Award, if any, to which the Company may be entitled in the future.  Any future amounts that the Company may receive from the Award are highly speculative and the timing of any such future payments, if any, is highly uncertain.  As such, there can be no assurance that the Company will receive any future payments under the Award beyond the Cash Payment.  Except as noted above in connection with the annulment proceeding that is pending before the ICSID ad hoc committee, the Cash Payment is not subject to any forfeiture or future adjustment.

A separate arbitration involving other subsidiaries of the Company was initiated in 2012 to obtain compensation primarily for third-party minority shareholders’ lost interests in the two expropriated plants.  However, in November 2017, ICSID issued an award that dismissed this arbitration on jurisdiction grounds. The Company is currently exploring potential next steps.

As of December 31, 2017, the Company deferred the gain contingency on the sale of its rights in amounts due under the Award pending the ad hoc committee of the ICSID rendering its decision regarding Venezuela’s application to annul the Award.

The loss from discontinued operations of $3 million and $7 million, for the years ended December 31, 2017 and 2016, respectively, relates to ongoing costs for the Venezuelan expropriation.

45


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

20.  Financial Information for Subsidiary Guarantors and Non-Guarantors

The following presents condensed consolidating financial information for the Company, segregating:  (1) Owens-Illinois Group, Inc. (the “Parent”); (2) Owens-Brockway Glass Container Inc. (the “Issuer”); (3) those domestic subsidiaries that guarantee the 5.00% Senior Notes, the 5.875% Senior Notes, the 5.375% Senior Notes and the 6.375% Senior Notes of the Issuer (the “Guarantor Subsidiaries”); and (4) all other subsidiaries (the “Non-Guarantor Subsidiaries”).  The Guarantor Subsidiaries are 100% owned direct and indirect subsidiaries of the Parent and their guarantees are full, unconditional and joint and several.  The Parent is also a guarantor, and its guarantee is full, unconditional and joint and several.

Subsidiaries of the Parent and of the Issuer 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.

46


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

  

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

 

    

 

 

    

 

    

Guarantor

    

Guarantor

    

 

 

    

 

 

 

Balance Sheet

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

 —

 

$

41

 

$

451

 

$

 —

 

$

492

 

Trade receivables, net

 

 

 

 

 

79

 

 

17

 

 

567

 

 

 

 

 

663

 

Inventories

 

 

 

 

 

208

 

 

31

 

 

797

 

 

 

 

 

1,036

 

Prepaid expenses and other current assets

 

 

 

 

 

16

 

 

35

 

 

178

 

 

 

 

 

229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

 —

 

 

303

 

 

124

 

 

1,993

 

 

 —

 

 

2,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in and advances to subsidiaries

 

 

1,390

 

 

2,916

 

 

1,150

 

 

 

 

 

(5,456)

 

 

 —

 

Property, plant and equipment, net

 

 

 

 

 

730

 

 

 5

 

 

2,396

 

 

 

 

 

3,131

 

Goodwill

 

 

 

 

 

581

 

 

332

 

 

1,677

 

 

 

 

 

2,590

 

Intangibles

 

 

 

 

 

 

 

 

 

 

 

439

 

 

 

 

 

439

 

Other assets

 

 

 

 

 

100

 

 

220

 

 

856

 

 

 

 

 

1,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,390

 

$

4,630

 

$

1,831

 

$

7,361

 

$

(5,456)

 

$

9,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term loans and long-term debt due within one year

 

$

 

 

$

12

 

$

 

 

$

150

 

$

 

 

$

162

 

Accounts payable and accrued liabilities

 

 

 

 

 

178

 

 

24

 

 

1,122

 

 

 

 

 

1,324

 

Other liabilities

 

 

 

 

 

114

 

 

45

 

 

420

 

 

 

 

 

579

 

Other liabilities-disc ops

 

 

 

 

 

 

 

 

 

 

 

115

 

 

 

 

 

115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

 —

 

 

304

 

 

69

 

 

1,807

 

 

 —

 

 

2,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

 

2,927

 

 

 

 

 

2,194

 

 

 

 

 

5,121

 

Other non-current liabilities

 

 

 

 

 

 9

 

 

373

 

 

564

 

 

 

 

 

946

 

Investments by and advances from parent

 

 

 

 

 

1,390

 

 

1,389

 

 

2,677

 

 

(5,456)

 

 

 —

 

Total share owner's equity of the Company

 

 

1,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,390

 

Noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

119

 

 

 

 

 

119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and share owner's equity

 

$

1,390

 

$

4,630

 

$

1,831

 

$

7,361

 

$

(5,456)

 

$

9,756

 

 

 

47


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

    

 

 

    

 

    

Guarantor

    

Guarantor

    

 

 

    

 

 

Balance Sheet

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

 —

 

$

33

 

$

459

 

$

 —

 

$

492

Trade receivables, net

 

 

 

 

 

64

 

 

14

 

 

502

 

 

 

 

 

580

Inventories

 

 

 

 

 

202

 

 

27

 

 

754

 

 

 

 

 

983

Prepaid expenses and other current assets

 

 

 

 

 

27

 

 

16

 

 

156

 

 

 

 

 

199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

 —

 

 

293

 

 

90

 

 

1,871

 

 

 —

 

 

2,254

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in and advances to subsidiaries

 

 

1,196

 

 

2,980

 

 

1,028

 

 

 

 

 

(5,204)

 

 

 —

Property, plant and equipment, net

 

 

 

 

 

721

 

 

 6

 

 

2,153

 

 

 

 

 

2,880

Goodwill

 

 

 

 

 

582

 

 

332

 

 

1,548

 

 

 

 

 

2,462

Intangibles

 

 

 

 

 

 

 

 

 

 

 

464

 

 

 

 

 

464

Other assets

 

 

 

 

 

111

 

 

237

 

 

727

 

 

 

 

 

1,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,196

 

$

4,687

 

$

1,693

 

$

6,763

 

$

(5,204)

 

$

9,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

 

 

$

177

 

$

22

 

$

936

 

$

 

 

$

1,135

Short-term loans and long-term debt due within one year

 

 

 

 

 

12

 

 

 

 

 

183

 

 

 

 

 

195

Other liabilities

 

 

 

 

 

129

 

 

68

 

 

418

 

 

 

 

 

615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

 —

 

 

318

 

 

90

 

 

1,537

 

 

 —

 

 

1,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

250

 

 

3,163

 

 

 

 

 

1,720

 

 

 

 

 

5,133

Other non-current liabilities

 

 

 

 

 

11

 

 

408

 

 

583

 

 

 

 

 

1,002

Investments by and advances from parent

 

 

 

 

 

1,195

 

 

1,195

 

 

2,814

 

 

(5,204)

 

 

 —

Total share owner's equity of the Company

 

 

946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

946

Noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

109

 

 

 

 

 

109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and share owner's equity

 

$

1,196

 

$

4,687

 

$

1,693

 

$

6,763

 

$

(5,204)

 

$

9,135

 

48


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Results of Operations

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net sales

 

$

 —

 

$

1,883

 

$

259

 

 

4,882

 

 

(155)

 

$

6,869

 

Cost of goods sold

 

 

 

 

 

(1,585)

 

 

(350)

 

 

(3,956)

 

 

155

 

 

(5,736)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

298

 

 

(91)

 

 

926

 

 

 —

 

 

1,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research, engineering, selling, administrative and other

 

 

 

 

 

(111)

 

 

(121)

 

 

(330)

 

 

 

 

 

(562)

 

Net intercompany interest

 

 

23

 

 

(25)

 

 

 

 

 

 2

 

 

 

 

 

 —

 

Interest expense, net

 

 

(23)

 

 

(153)

 

 

(1)

 

 

(91)

 

 

 

 

 

(268)

 

Equity earnings from subsidiaries

 

 

180

 

 

325

 

 

 

 

 

 

 

 

(505)

 

 

 —

 

Other equity earnings

 

 

 

 

 

15

 

 

 

 

 

62

 

 

 

 

 

77

 

Other expense, net

 

 

 

 

 

129

 

 

(12)

 

 

(222)

 

 

 

 

 

(105)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

 

180

 

 

478

 

 

(225)

 

 

347

 

 

(505)

 

 

275

 

Provision for income taxes

 

 

 

 

 

(11)

 

 

10

 

 

(69)

 

 

 0

 

 

(70)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

 

180

 

 

467

 

 

(215)

 

 

278

 

 

(505)

 

 

205

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

(3)

 

 

 

 

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

180

 

 

467

 

 

(215)

 

 

275

 

 

(505)

 

 

202

 

Net earnings attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(22)

 

 

 

 

 

(22)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to the Company

 

$

180

 

$

467

 

$

(215)

 

$

253

 

$

(505)

 

$

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Comprehensive Income

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net earnings

 

$

180

 

$

467

 

$

(215)

 

$

275

 

$

(505)

 

$

202

 

Other comprehensive income (loss)

 

 

351

 

 

(5)

 

 

 

 

 

126

 

 

(121)

 

 

351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

531

 

 

462

 

 

(215)

 

 

401

 

 

(626)

 

 

553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(27)

 

 

 

 

 

(27)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to the Company

 

$

531

 

$

462

 

$

(215)

 

$

374

 

$

(626)

 

$

526

 

 

 

49


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2016

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Results of Operations

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net sales

 

$

 —

 

$

1,919

 

$

276

 

$

4,676

 

$

(169)

 

$

6,702

 

Cost of goods sold

 

 

 

 

 

(1,609)

 

 

(319)

 

 

(3,731)

 

 

169

 

 

(5,490)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

310

 

 

(43)

 

 

945

 

 

 —

 

 

1,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research, engineering, selling, administrative and other

 

 

 

 

 

(123)

 

 

(105)

 

 

(340)

 

 

 

 

 

(568)

 

Net intercompany interest

 

 

20

 

 

(21)

 

 

 

 

 

 1

 

 

 

 

 

 —

 

Interest expense, net

 

 

(20)

 

 

(182)

 

 

 

 

 

(70)

 

 

 

 

 

(272)

 

Equity earnings from subsidiaries

 

 

209

 

 

336

 

 

 

 

 

 

 

 

(545)

 

 

 —

 

Other equity earnings

 

 

 

 

 

11

 

 

 

 

 

49

 

 

 

 

 

60

 

Other expense, net

 

 

 

 

 

107

 

 

(26)

 

 

(157)

 

 

 

 

 

(76)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

 

209

 

 

438

 

 

(174)

 

 

428

 

 

(545)

 

 

356

 

Provision for income taxes

 

 

 

 

 

(7)

 

 

 4

 

 

(116)

 

 

 

 

 

(119)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

 

209

 

 

431

 

 

(170)

 

 

312

 

 

(545)

 

 

237

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

(7)

 

 

 

 

 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

209

 

 

431

 

 

(170)

 

 

305

 

 

(545)

 

 

230

 

Net earnings attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(21)

 

 

 

 

 

(21)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to the Company

 

$

209

 

$

431

 

$

(170)

 

$

284

 

$

(545)

 

$

209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2016

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Comprehensive Income

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net earnings

 

$

209

 

$

431

 

$

(170)

 

$

305

 

$

(545)

 

$

230

 

Other comprehensive income (loss)

 

 

(162)

 

 

10

 

 

 

 

 

(169)

 

 

162

 

 

(159)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

47

 

 

441

 

 

(170)

 

 

136

 

 

(383)

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(17)

 

 

 

 

 

(17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to the Company

 

$

47

 

$

441

 

$

(170)

 

$

119

 

$

(383)

 

$

54

 

 

 

50


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2015

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Results of Operations

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net sales

 

$

 —

 

$

1,891

 

$

80

 

$

4,249

 

$

(64)

 

$

6,156

 

Cost of goods sold

 

 

 

 

 

(1,592)

 

 

(68)

 

 

(3,450)

 

 

64

 

 

(5,046)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

299

 

 

12

 

 

799

 

 

 —

 

 

1,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research, engineering, selling, administrative and other

 

 

 

 

 

(138)

 

 

(83)

 

 

(319)

 

 

 

 

 

(540)

 

Net intercompany interest

 

 

20

 

 

(21)

 

 

 

 

 

 1

 

 

 

 

 

 —

 

Interest expense, net

 

 

(20)

 

 

(165)

 

 

(1)

 

 

(65)

 

 

 

 

 

(251)

 

Equity earnings from subsidiaries

 

 

151

 

 

195

 

 

 

 

 

 

 

 

(346)

 

 

 —

 

Other equity earnings

 

 

 

 

 

19

 

 

 

 

 

41

 

 

 

 

 

60

 

Other expense, net

 

 

 

 

 

93

 

 

(27)

 

 

(161)

 

 

 

 

 

(95)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

 

151

 

 

282

 

 

(99)

 

 

296

 

 

(346)

 

 

284

 

Provision for income taxes

 

 

 

 

 

(16)

 

 

(4)

 

 

(86)

 

 

 

 

 

(106)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

 

151

 

 

266

 

 

(103)

 

 

210

 

 

(346)

 

 

178

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

(4)

 

 

 

 

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

151

 

 

266

 

 

(103)

 

 

206

 

 

(346)

 

 

174

 

Net earnings attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(23)

 

 

 

 

 

(23)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to the Company

 

$

151

 

$

266

 

$

(103)

 

$

183

 

$

(346)

 

$

151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2015

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Comprehensive Income

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net earnings

 

$

151

 

$

266

 

$

(103)

 

$

206

 

$

(346)

 

$

174

 

Other comprehensive income (loss)

 

 

(539)

 

 

(4)

 

 

 

 

 

(529)

 

 

533

 

 

(539)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

(388)

 

 

262

 

 

(103)

 

 

(323)

 

 

187

 

 

(365)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(7)

 

 

 

 

 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to the Company

 

$

(388)

 

$

262

 

$

(103)

 

$

(330)

 

$

187

 

$

(372)

 

 

 

51


 

 

Owens‑Illinois Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tabular data dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Cash Flows

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Cash provided by continuing operating activities

 

$

 —

 

 

347

 

$

11

 

$

476

 

$

 —

 

$

834

 

Cash utilized in discontinued operating activities

 

 

 

 

 

 

 

 

 

 

 

(3)

 

 

 

 

 

(3)

 

Cash utilized in investing activities

 

 

 

 

 

(106)

 

 

(1)

 

 

(244)

 

 

 

 

 

(351)

 

Cash utilized in financing activities

 

 

 

 

 

(241)

 

 

 

 

 

(261)

 

 

 

 

 

(502)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate change on cash

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

 —

 

 

 —

 

 

10

 

 

(10)

 

 

 —

 

 

 —

 

Cash at beginning of period

 

 

 

 

 

 

 

 

35

 

 

457

 

 

 

 

 

492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at end of period

 

$

 —

 

$

 —

 

$

45

 

$

447

 

$

 —

 

$

492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2016

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Cash Flows

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Cash provided by continuing operating activities

 

$

 —

 

 

168

 

$

27

 

$

688

 

$

 —

 

$

883

 

Cash utilized in discontinued operating activities

 

 

 

 

 

 

 

 

 

 

 

(7)

 

 

 

 

 

(7)

 

Cash utilized in investing activities

 

 

 

 

 

(92)

 

 

(1)

 

 

(324)

 

 

 

 

 

(417)

 

Cash utilized in financing activities

 

 

 

 

 

(76)

 

 

 

 

 

(277)

 

 

 

 

 

(353)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate change on cash

 

 

 

 

 

 

 

 

 

 

 

(13)

 

 

 

 

 

(13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

 —

 

 

 —

 

 

26

 

 

67

 

 

 —

 

 

93

 

Cash at beginning of period

 

 

 

 

 

 

 

 

 9

 

 

390

 

 

 

 

 

399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at end of period

 

$

 —

 

$

 —

 

$

35

 

$

457

 

$

 —

 

$

492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2015

 

 

    

 

 

    

 

 

    

 

 

    

Non-

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

Guarantor

 

Guarantor

 

 

 

 

 

 

 

Cash Flows

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Cash provided by continuing operating activities

 

$

 —

 

 

318

 

$

218

 

$

194

 

$

20

 

$

750

 

Cash utilized in discontinued operating activities

 

 

 

 

 

 

 

 

 

 

 

(4)

 

 

 

 

 

(4)

 

Cash provided by (utilized in) investing activities

 

 

 

 

 

(2,416)

 

 

(566)

 

 

(2,047)

 

 

2,281

 

 

(2,748)

 

Cash provided by (utilized in) financing activities

 

 

 

 

 

2,098

 

 

328

 

 

1,794

 

 

(2,301)

 

 

1,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate change on cash

 

 

 

 

 

 

 

 

 

 

 

(30)

 

 

 

 

 

(30)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

 —

 

 

 —

 

 

(20)

 

 

(93)

 

 

 —

 

 

(113)

 

Cash at beginning of period

 

 

 

 

 

 

 

 

29

 

 

483

 

 

 

 

 

512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at end of period

 

$

 —

 

$

 —

 

$

 9

 

$

390

 

$

 —

 

$

399

 

 

 

 

52


 

 

 

Selected Quarterly Financial Data (unaudited)

The following tables present selected financial data by quarter for the years ended December 31, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2017

 

 

 

First

 

Second

 

Third

 

Fourth

 

Total

 

 

 

Quarter 

 

Quarter 

 

Quarter 

 

Quarter 

 

Year

 

Net sales

 

$

1,615

 

$

1,751

 

$

1,791

 

$

1,712

 

$

6,869

 

Gross profit

 

$

315

 

$

346

 

$

353

 

$

120

 

$

1,133

 

Earnings (loss) from continuing operations attributable to the Company (a)

 

$

49

 

$

140

 

$

128

 

$

(133)

 

$

183

 

Loss from discontinued operations attributable to the Company

 

 

 

 

 

 

 

 

(2)

 

 

 

 

 

(3)

 

Net earnings (loss) attributable to the Company

 

$

49

 

$

140

 

$

126

 

$

(133)

 

$

180

 


(a)

Amounts management considers not representative of ongoing operations include:

For the first quarter, included net charges totaling $46 million after-tax amount attributable to the Company.

For the second quarter, included net benefits totaling $16 million after-tax amount attributable to the Company.

For the fourth quarter, included net charges totaling $224 million after-tax amount attributable to the Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

 

 

 

First

 

Second

 

Third

 

Fourth

 

Total

 

 

 

Quarter 

 

Quarter 

 

Quarter 

 

Quarter 

 

Year

 

Net sales

 

$

1,588

 

$

1,760

 

$

1,712

 

$

1,642

 

$

6,702

 

Gross profit

 

$

319

 

$

342

 

$

336

 

$

215

 

$

1,212

 

Earnings (loss) from continuing operations attributable to the Company (c)

 

$

68

 

$

107

 

$

111

 

$

(70)

 

$

216

 

Loss from discontinued operations attributable to the Company

 

 

(1)

 

 

(2)

 

 

(3)

 

 

(1)

 

 

(7)

 

Net earnings (loss) attributable to the Company

 

$

67

 

$

105

 

$

108

 

$

(71)

 

$

209

 


(a)

Amounts management considers not representative of ongoing operations include:

For the first quarter, included net charges totaling $10 million after-tax amount attributable to the Company.

For the fourth quarter, included net charges totaling $150 million after-tax amount attributable to the Company.

 

53


 

 

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

Index of Financial Statements and Financial Statement Schedules Covered by Report of Independent Auditors.

 

(b)

DOCUMENTS FILED AS PART OF THIS REPORT

1.

See Index to Consolidated Financial Statements on page 1 of this report.

2.

See Quarterly Results (Unaudited) beginning on page 53 of this report.

3.

Financial Statement Schedule.

 

    

10‑K/A Page

 

For the years ended December 31, 2017, 2016, and 2015:

 

 

 

II—Valuation and Qualifying Accounts (Consolidated) 

 

S-1

 

All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule.

 

 

 

4.

See Exhibit Index beginning on page 55 of this report.

54


 

 

EXHIBIT INDEX

 

 

 

 

 

S-K Item 601 No.

 

 

 

Document

2.1

 

 

Stock Purchase Agreement, dated as of May 12, 2015, by and between Owens-Brockway Glass Container Inc. and Vitro, S.A.B. de C.V., Distribuidora Alcali, S.A. de C.V. and Vitro Packaging, LLC (filed as Exhibit 2.1 to the Owens-Illinois Group, Inc.’s  Form 8-K/A filed on May 13, 2015, File No. 33-13061, and incorporated herein by reference).

3.1

 

 

Certificate of Incorporation of OI Group, Inc., dated as of March 10, 1987 (filed as Exhibit 3.95 to Owens-Illinois Group, Inc.’s Form S-4 filed May 30, 2002, File No. 333-85690, and incorporated herein by reference).

3.2

 

 

Certificate of Amendment of Certificate of Incorporation of OI Group, Inc., dated as of March 24, 1987 (filed as Exhibit 3.96 to Owens-Illinois Group, Inc.’s Form S-4 filed May 30, 2002, File No. 333-85690, and incorporated herein by reference).

3.3

 

 

Certificate of Ownership Merging OIB Consumers Glass Inc. into Owens-Illinois Group, Inc., dated as of June 29, 1990 (filed as Exhibit 3.97 to Owens-Illinois Group, Inc.’s Form S-4 filed May 30, 2002, File No. 333-85690, and incorporated herein by reference).

3.4

 

 

Certificate of Ownership and Merger Merging OIB Finance FTS Inc. into Owens-Illinois Group, Inc., dated as of December 30, 1991 (filed as Exhibit 3.98 to Owens-Illinois Group, Inc.’s Form S-4 filed May 30, 2002, File No. 333-85690, and incorporated herein by reference).

3.5

 

 

Form of Bylaws for Owens-Illinois Group, Inc. (filed as Exhibit 3.117 to Owens-Illinois Group, Inc.’s Amendment No. 2 to Form S-4 filed May 30, 2002, File No. 333-85690, and incorporated herein by reference).

4.1

 

 

Indenture dated as of May 20, 1998, between Owens-Illinois, Inc. and The Bank of New York, as Trustee (filed as Exhibit 4.1 to Owens-Illinois, Inc.’s Form 8-K dated May 20, 1998, File No. 1-9576, and incorporated herein by reference).

4.2

 

 

Officers’ Certificate, dated May 20, 1998, establishing the terms of the 7.80% Senior Notes due 2018; including the Form of 7.80% Senior Note due 2018 (filed as Exhibits 4.5 and 4.9, respectively, to Owens-Illinois, Inc.’s Form 8-K dated May 20, 1998, File No. 1-9576, and incorporated herein by reference).

4.3

 

 

Supplemental Indenture, dated as of June 26, 2001, to the Indenture dated May 20, 1998, among Owens-Illinois, Inc., Owens-Illinois Group, Inc., Owens-Brockway Packaging, Inc. and The Bank of New York, as Trustee (filed as Exhibit 4.1 to Owens-Illinois Inc.’s Form 10-Q for the quarter ended September 30, 2001, File No. 1-9576, and incorporated herein by reference).

4.4

 

 

Indenture, dated as of September 15, 2010, by and among OI European Group B.V.; the guarantors party thereto; Deutsche Trustee Company Limited as trustee; Deutsche Bank AG, London Branch as principal paying agent and transfer agent; and Deutsche Bank Luxembourg S.A. as the registrar, Luxembourg paying agent and transfer agent, including the form of the Senior Notes (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.’s Form 8-K dated September 10, 2010, File No. 33-13061, and incorporated herein by reference).

4.5

 

 

Indenture dated as of March 22, 2013, by and among OI European Group B.V.; the guarantors party thereto; Deutsche Trustee Company Limited as trustee; Deutsche Bank AG, London Branch as principal paying agent and transfer agent; and Deutsche Bank Luxembourg S.A. as the registrar and Luxembourg transfer agent, including the form of Notes (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.’s Form 8-K dated March 22, 2013, File No. 33-13061, and incorporated herein by reference).

55


 

 

 

 

 

 

 

S-K Item 601 No.

 

 

 

Document

4.6

 

 

Indenture dated as of December 3, 2014, by and among Owens-Brockway Glass Container Inc., the guarantors party thereto and U.S. Bank National Association, as trustee, including the form of 2022 Senior Notes and the form of 2025 Senior Notes (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.’s Form 8-K dated December 3, 2014, File No. 33-13061, and incorporated herein by reference).

4.7

 

 

Indenture dated as of August 24, 2015, by and among Owens-Brockway Glass Container Inc., the guarantors party thereto and U.S. Bank National Association, as trustee, including the form of 2023 Senior Notes and the form of 2025 Senior Notes (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.’s Form 8-K dated August 24, 2015, File No. 33-13061, and incorporated herein by reference).

4.8

 

 

Indenture, dated as of November 3, 2016, by and among OI European Group B.V., the guarantors party thereto, Deutsche Trustee Company Limited, as trustee, Deutsche Bank AG, London Branch, as principal paying agent and transfer agent, and Deutsche Bank Luxembourg S.A., as Luxembourg transfer agent and registrar, including the form of Notes (filed as Exhibit 4.1 to Owens-Illinois, Inc.’s and Owens-Illinois Group, Inc.’s combined Form 8-K dated November 3, 2016, File Nos. 1-9576 and 33-13061,  and incorporated herein by reference).

4.9

 

 

Amended and Restated Credit Agreement and Syndicated Facility Agreement, dated as of April 22, 2015, by and among the Borrowers named therein, Owens-Illinois General, Inc., as Borrowers’ Agent, Deutsche Bank AG, New York Branch, as Administrative Agent, and the other Agents, Arrangers and Lenders named therein (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.’s Form 8-K dated April 22, 2015, File No. 33-13061, and incorporated herein by reference).

4.10

 

 

Amendment No. 1, dated July 24, 2015, to the Amended and Restated Credit Agreement and Syndicated Facility Agreement, dated April 22, 2015, by and among the Borrowers named therein, Owens-Illinois General Inc., as Borrowers’ Agent, Deutsche Bank AG, New York Branch, as Administrative Agent, and the other Agents, Arrangers and Lenders named therein (filed as Exhibit 4.2 to Owens-Illinois Group, Inc.’s Form 10-Q for the quarter ended September 30, 2015, File No. 33-13061, and incorporated herein by reference).

4.11

 

 

Amendment No. 2, dated September 1, 2015, to the Amended and Restated Credit Agreement and Syndicated Facility Agreement, dated April 22, 2015, by and among the Borrowers named therein, Owens-Illinois General Inc., as Borrowers’ Agent, Deutsche Bank AG, New York Branch, as Administrative Agent, and the other Agents, Arrangers and Lenders named therein (filed as Exhibit 10.1 to Owens-Illinois Group, Inc.’s Form 8-K dated September 1, 2015, File No. 33-13061, and incorporated herein by reference).

4.12

 

 

Amendment No. 3, dated September 29, 2015, to the Amended and Restated Credit Agreement and Syndicated Facility Agreement, dated April 22, 2015, by and among the Borrowers named therein, Owens-Illinois General Inc., as Borrowers’ Agent, Deutsche Bank AG, New York Branch, as Administrative Agent, and the other Agents, Arrangers and Lenders named therein (filed as Exhibit 4.4 to Owens-Illinois Group, Inc.’s Form 10-Q for the quarter ended September 30, 2015, File No. 33-13061, and incorporated herein by reference).

56


 

 

 

 

 

 

 

S-K Item 601 No.

 

 

 

Document

4.13

 

 

Amendment No. 4, dated February 3, 2016, to the Amended and Restated Credit Agreement and Syndicated Facility Agreement, dated as of April 22, 2015, by and among the Borrowers named therein, Owens-Illinois General Inc., as Borrowers’ Agent, Deutsche Bank AG, New York Branch, as Administrative Agent, and the other Agents, Arrangers and Lenders named therein (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.’s Form 8-K dated February 3, 2016,  File No. 33-13061, and incorporated herein by reference).

4.14

 

 

Amendment No. 5, dated September 28, 2017, to the Amended and Restated Credit Agreement and Syndicated Facility Agreement, dated as of April 22, 2015, by and among the Borrowers named therein, Owens-Illinois General Inc., as Borrowers’ Agent, Deutsche Bank AG, New York Branch, as Administrative Agent, and the other Agents, Arrangers and Lenders named therein (filed as Exhibit 4.1 to Owens-Illinois Group, Inc.’s Form 8-K dated September 29, 2017, File No. 33-13061, and incorporated herein by reference).

4.15

 

 

First Incremental Amendment, dated September 1, 2015, to the Amended and Restated Credit Agreement and Syndicated Facility Agreement, dated April 22, 2015, by and among the Borrowers named therein, Owens-Illinois General Inc., as Borrowers’ Agent, Deutsche Bank AG, New York Branch, as Administrative Agent, and the other Agents, Arrangers and Lenders named therein (filed as Exhibit 10.2 to Owens-Illinois Group, Inc.’s  Form 8-K dated September 1, 2015, File No. 33-13061, and incorporated herein by reference).

4.16

 

 

Third Amended and Restated Intercreditor Agreement, dated as of May 19, 2011, by and among Deutsche Bank AG, New York Branch, as Administrative Agent for the lenders party to the Credit Agreement (as defined therein) and Deutsche Bank Trust Company Americas, as Collateral Agent (as defined therein) and any other parties thereto (filed as Exhibit 4.2 to Owens-Illinois Group, Inc.’s Form 8-K dated May 19, 2011, File No. 33-13061, and incorporated herein by reference).

4.17

 

 

Fourth Amended and Restated Pledge Agreement, dated as of April 22, 2015, between Owens-Illinois Group, Inc., Owens-Brockway Packaging, Inc., and Deutsche Bank AG, New York Branch, as Collateral Agent (as defined therein) and any other parties thereto (filed as Exhibit 4.2 to Owens-Illinois Group, Inc.’s Form 8-K dated April 22, 2015, File No. 33-13061, and incorporated herein by reference).

4.18

 

 

Amended and Restated Security Agreement, dated as of April 22, 2015, between Owens-Illinois Group, Inc., each of the direct and indirect subsidiaries of Owens-Illinois Group, Inc. signatory thereto, and Deutsche Bank AG, New York Branch, as Collateral Agent (as defined therein) (filed as Exhibit 4.3 to Owens-Illinois Group, Inc.’s Form 8-K dated April 22, 2015, File No. 33-13061, and incorporated herein by reference).

4.19

 

 

Indenture, dated as of December 12, 2017, by and among OI European Group B.V., the guarantors party thereto, and Deutsche Bank Trust Company Americas, as Trustee (filed as Exhibit 4.1 to Owens-Illinois, Inc.’s and Owens-Illinois Group, Inc.’s combined Form 8-K dated December 12, 2017, File Nos. 1-9576 and 33-13061, and incorporated herein by reference).

10.1*

 

 

Amended and Restated Owens-Illinois Supplemental Retirement Benefit Plan (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 10-Q for the quarter ended June 30, 1998, File No. 1-9576, and incorporated herein by reference).

10.2*

 

 

First Amendment to Amended and Restated Owens-Illinois Supplemental Retirement Benefit Plan (filed as Exhibit 10.3 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 2000, File No. 1-9576, and incorporated herein by reference).

57


 

 

 

 

 

 

 

S-K Item 601 No.

 

 

 

Document

10.3*

 

 

Second Amendment to Amended and Restated Owens-Illinois Supplemental Retirement Benefit Plan (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 10-Q for the quarter ended March 31, 2002, File No. 1-9576, and incorporated herein by reference).

10.4*

 

 

Third Amendment to Amended and Restated Owens-Illinois Supplemental Retirement Benefit Plan (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 10-Q for the quarter ended March 31, 2003, File No. 1-9576, and incorporated herein by reference).

10.5*

 

 

Owens-Illinois, Inc. Directors Deferred Compensation Plan (filed as Exhibit 10.26 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 1995, File No. 1-9576, and incorporated herein by reference).

10.6*

 

 

First Amendment to Owens-Illinois, Inc. Directors Deferred Compensation Plan (filed as Exhibit 10.27 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 1995, File No. 1-9576, and incorporated herein by reference).

10.7*

 

 

Second Amendment to Owens-Illinois, Inc. Directors Deferred Compensation Plan (filed as Exhibit 10.2 to Owens-Illinois, Inc.’s Form 10-Q for the quarter ended March 31, 1997, File No. 1-9576, and incorporated herein by reference).

10.8*

 

 

Amended and Restated 1997 Equity Participation Plan of Owens-Illinois, Inc. (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 10-Q for the quarter ended June 30, 1999, File No. 1-9576, and incorporated herein by reference).

10.9*

 

 

First Amendment to Amended and Restated 1997 Equity Participation Plan of Owens-Illinois, Inc. (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 10-Q for the quarter ended June 30, 2002, File No. 1-9576, and incorporated herein by reference).

10.10*

 

 

Owens-Illinois, Inc. Executive Deferred Savings Plan (filed as Exhibit 10.10 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 2016, File No. 1-9576, and incorporated herein by reference).

10.11*

 

 

2004 Equity Incentive Plan for Directors of Owens-Illinois, Inc. (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 10-Q for the quarter ended June 30, 2004, File No. 1-9576, and incorporated herein by reference).

10.12*

 

 

Owens-Illinois 2004 Executive Life Insurance Plan (filed as Exhibit 10.32 to Owens-Illinois Group, Inc.’s Form 10-K for the year ended December 31, 2004, File No. 33-13061, and incorporated herein by reference).

10.13*

 

 

Owens-Illinois 2004 Executive Life Insurance Plan for Non-U.S. Employees (filed as Exhibit 10.33 to Owens-Illinois Group, Inc.’s Form 10-K for the year ended December 31, 2004, File No. 33-13061, and incorporated herein by reference).

10.14*

 

 

Amended and Restated Owens-Illinois, Inc. 2005 Incentive Award Plan dated as of April 24, 2009 (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 10-Q for the quarter ended March 31, 2009, File No. 1-9576, and incorporated herein by reference).

10.15*

 

 

Form of Non-Qualified Stock Option Agreement for use under the Owens-Illinois, Inc. 2005 Incentive Award Plan (filed as Exhibit 10.25 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 2011, File No. 1-9576, and incorporated herein by reference).

10.16*

 

 

Form of Restricted Stock Agreement for use under the Owens-Illinois, Inc. 2005 Incentive Award Plan (filed as Exhibit 10.30 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 2005, File No. 1-9576, and incorporated herein by reference).

58


 

 

 

 

 

 

 

S-K Item 601 No.

 

 

 

Document

10.17*

 

 

Form of Phantom Stock Agreement for use under the Owens-Illinois, Inc. 2005 Incentive Award Plan (filed as Exhibit 10.31 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 2005, File No. 1-9576, and incorporated herein by reference).

 

 

 

 

 

   

 

 

 

 

10.18*

 

 

Form of Restricted Stock Unit Agreement for use under the Owens-Illinois, Inc. 2005 Incentive Award Plan (filed as Exhibit 10.28 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 2011, File No. 1-9576, and incorporated herein by reference).

10.19*

 

 

Form of Performance Share Unit Agreement for use under the Owens-Illinois, Inc. 2005 Incentive Award Plan (filed as Exhibit 10.29 to Owens-Illinois, Inc.’s Form 10-K for the year ended December 31, 2011, File No. 1-9576, and incorporated herein by reference).

10.20*

 

 

Second Amended and Restated Owens-Illinois, Inc. 2005 Incentive Award Plan (filed as Appendix B to Owens-Illinois, Inc.’s Definitive Proxy Statement on Schedule 14A filed March 31, 2014, File No. 1-9576, and incorporated herein by reference).

10.21*

 

 

Form of Non-Qualified Stock Option Agreement for use under Owens-Illinois, Inc.’s Second Amended and Restated 2005 Incentive Award Plan (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 8-K dated March 7, 2015, File No. 1-9576, and incorporated herein by reference).

10.22*

 

 

Form of Restricted Stock Unit Agreement for use under Owens-Illinois, Inc.’s Second Amended and Restated 2005 Incentive Award Plan (filed as Exhibit 10.2 to Owens-Illinois Group, Inc.’s Form 10-Q for the quarter ended March 31, 2017, File No. 33-13061, and incorporated herein by reference).

10.23*

 

 

Form of Performance Stock Unit Agreement for use under Owens-Illinois, Inc.’s Second Amended and Restated 2005 Incentive Award Plan (filed as Exhibit 10.1 to Owens- Illinois Group, Inc.’s Form 10-Q for the quarter ended March 31, 2017, File No. 33-13061, and incorporated herein by reference).

10.24*

 

 

Owens-Illinois, Inc. 2017 Incentive Award Plan (filed as Appendix B to Owens-Illinois, Inc.’s Definitive Proxy Statement on Schedule 14A filed March 30, 2017, File No. 1-9576, and incorporated herein by reference).

10.25*

 

 

Owens-Illinois, Inc. Executive Severance Policy (filed as Exhibit 10.4 to Owens-Illinois, Inc.’s Form 8-K dated March 7, 2015, File No. 1-9576, and incorporated herein by reference).

10.26*

 

 

Amended and Restated Letter Agreement between Owens-Illinois, Inc. and Albert P.L. Stroucken (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 8-K dated October 26, 2011, File No. 1-9576, and incorporated herein by reference).

10.27*

 

 

Letter Agreement dated March 7, 2015, between Owens-Illinois, Inc. and Stephen P. Bramlage, Jr. (filed as Exhibit 10.5 to Owens-Illinois, Inc.’s Form 8-K dated March 7, 2015, File No. 1-9576, and incorporated herein by reference).

10.28*

 

 

Letter Agreement signed November 20, 2015, between Owens-Illinois, Inc. and Jan Bertsch (filed as Exhibit 10.1 to Owens-Illinois, Inc.’s Form 8-K dated November 23, 2015, File No. 1-9576, and incorporated herein by reference).

10.29*

 

 

Letter Agreement dated March 7, 2016, between Owens-Illinois, Inc. and James W. Baehren (filed as Exhibit 99.1 to Owens-Illinois, Inc.’s Form 8-K dated March 7, 2016, File No. 1-9576, and incorporated herein by reference).

12

 

 

Computation of Ratio of Earnings to Fixed Charges (filed with Original Filing).

21

 

 

Subsidiaries of Owens-Illinois Group, Inc. (filed with Original Filing).

59


 

 

 

 

 

 

 

S-K Item 601 No.

 

 

 

Document

24

 

 

Owens-Illinois Group, Inc. Power of Attorney (filed with Original Filing).

31.1

 

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 (filed herewith).

31.2

 

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 (filed herewith).

32.1**

 

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 (furnished herewith).

32.2**

 

 

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (furnished herewith).

101

 

 

Financial statements from the Annual Report on Form 10-K of Owens-Illinois Group, Inc. for the year ended December 31, 2017, formatted in XBRL (filed with Original Filing): (i) the Consolidated Results of Operations, (ii) the Consolidated Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Share Owner’s Equity, (v) the Consolidated Cash Flows and (vi) the Notes to Consolidated Financial Statements.


*Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(c).

**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.

 

 

60


 

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

OWENS-ILLINOIS GROUP, INC.

 

 

(Registrant)

 

 

 

 

By:

/s/ Mary Beth Wilkinson

 

 

Mary Beth Wilkinson

 

 

Attorney‑in‑fact

 

 

 

Date: February 20, 2018

 

 

 

61


 

 

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

Signatures

 

Title

 

 

 

Andres A. Lopez

 

Chairman and Chief Executive Officer (Principal Executive Officer)

 

 

 

Jan A. Bertsch

 

President and Chief Financial Officer (Principal Financial Officer; Principal Accounting Officer); Director

 

 

 

Mary Beth Wilkinson

 

Vice President; Secretary

 

 

 

John A. Haudrich

 

Vice President; Director

 

 

 

 

 

 

 

By:

/s/ Mary Beth Wilkinson

 

 

 

Mary Beth Wilkinson

 

 

 

Attorney‑in‑fact

 

 

 

 

Date: February 20, 2018

 

 

 

 

 

62


 

 

INDEX TO FINANCIAL STATEMENT SCHEDULE

Financial Statement Schedule of Owens‑Illinois Group, Inc. and Subsidiaries:

For the years ended December 31, 2017, 2016, and 2015:

 

 

 

 

    

PAGE

II—Valuation and Qualifying Accounts (Consolidated) 

 

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63


 

 

OWENS-ILLINOIS GROUP, INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS (CONSOLIDATED)

Years ended December 31, 2017, 2016, and 2015

(Millions of Dollars)

Reserves deducted from assets in the balance sheets:

Allowances for losses and discounts on receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions

 

 

 

 

 

 

 

 

    

Balance at

    

Charged to

    

    

 

    

    

 

    

Balance

 

 

 

beginning

 

costs and

 

 

 

 

Deductions

 

at end of

 

 

 

of period

 

expenses

 

Other

 

(Note 1)

 

period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

32

 

$

12

 

$

(2)

 

$

(8)

 

$

34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

$

29

 

$

15

 

$

(2)

 

$

(10)

 

$

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

$

34

 

$

12

 

$

(5)

 

$

(12)

 

$

29

 


1)

Deductions from allowances for losses and discounts on receivables represent uncollectible notes and accounts written off.

 

Valuation allowance on net deferred tax assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance at

    

 

 

    

Charged to other

    

 

 

    

 

 

    

Balance at

 

 

 

beginning of

 

Charged to

 

comprehensive

 

Foreign currency

 

Other

 

end of

 

 

 

period

 

income

 

income

 

translation

 

(Note 1)

 

period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

838

 

$

15

 

$

(79)

 

$

 4

 

$

(372)

 

$

406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

$

833

 

$

 3

 

$

(32)

 

$

(3)

 

$

37

 

$

838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

$

884

 

$

 1

 

$

 5

 

$

(20)

 

$

(37)

 

$

833

 

2)

The Tax Cut and Jobs Act ("the Act") was enacted on December 22, 2017.  The Act reduces the U.S. federal corporate tax rate from 35% to 21%. The reduction in tax rates reduced certain U.S. deferred tax assets by $80 million, with an offsetting impact to valuation allowance.  In 2017, $327 million of foreign tax credits expired, against which a valuation allowance had previously been asserted.

 

 

S-1