SEC Filing | O-I Glass, Inc.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 OWENS-ILLINOIS, INC. (Exact name of registrant as specified in its charter) Delaware 1-9576 22-2781933 (State or other jurisdiction of (Commission (IRS Employer incorporation or organization) file number) Identification No.) OWENS-ILLINOIS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 33-13061 34-1559348 (State or other jurisdiction of (Commission (IRS Employer incorporation or organization) file number) Identification No.) One SeaGate, Toledo, Ohio 43666 (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (419) 247-5000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - ------------------------------------------ ------------------------ Common Stock, $.01 par value New York Stock Exchange 11% Senior Debentures due December 1, 2003 New York Stock Exchange 10-1/4% Senior Subordinated Notes due 1999 New York Stock Exchange 10-1/2% Senior Subordinated Notes due 2002 New York Stock Exchange 10% Senior Subordinated Notes due 2002 New York Stock Exchange 9-3/4% Senior subordinated Notes due 2004 New York Stock Exchange 9.95% Senior Subordinated Notes due 2004 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Cover page 1 of 2 pages) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes x No --------------- --------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value (based on the consolidated tape closing price on February 29, 1996) of the voting stock beneficially held by non-affiliates of Owens-Illinois, Inc. was approximately $1,351,770,000. For the sole purpose of making this calculation, the term "non-affiliate" has been interpreted to exclude directors and executive officers of the Company. Such interpretation is not intended to be, and should not be construed to be, an admission by Owens-Illinois, Inc. or such directors or executive officers of the Company that such directors and executive officers of the Company are "affiliates" of Owens-Illinois, Inc., as that term is defined under the Securities Act of 1934. The number of shares of Common Stock, $.01 par value, of Owens-Illinois, Inc. outstanding as of February 29, 1996, was 120,129,973. The number of shares of Common Stock, $.01 par value, of Owens-Illinois, Group, Inc. outstanding as of February 29, 1996, was 100, all of which were owned by Owens-Illinois, Inc. DOCUMENTS INCORPORATED BY REFERENCE Part III Owens-Illinois, Inc. Proxy Statement for The Annual Meeting of Share Owners To Be Held Wednesday, May 8, 1996 ("Proxy Statement"). (Cover page 2 of 2 pages) TABLE OF CONTENTS ----------------- PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . 1 ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . 11 ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . 12 EXECUTIVE OFFICERS OF THE REGISTRANTS. . . . . . . 13 PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ITEM 5. MARKET FOR OWENS-ILLINOIS, INC.'S COMMON STOCK AND RELATED SHARE OWNER MATTERS. . . . . . . . . . 16 ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . 28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . 63 PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS. . . . . . . . . . . . . . . . . . . . 64 ITEMS 11. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS and 13. AND RELATED TRANSACTIONS . . . . . . . . . . . . . 64 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . 64 PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 ITEM 14.(a). EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. . . . . . . . . . . . . . . . . . 65 ITEM 14.(b). REPORTS ON FORM 8-K. . . . . . . . . . . . . 70 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1 EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1 PART I ITEM 1. BUSINESS General Development of Business Owens-Illinois, Inc. (the "Company"), through its subsidiaries, is the successor to a business established in 1903. The Company is one of the world's leading manufacturers of packaging products. Approximately one of every two glass containers made worldwide is made by the Company, its affiliates or licensees. In addition to being the largest manufacturer of glass bottles and containers in the United States and other regions of the world, the Company is a leading manufacturer of plastic containers, plastic closures, plastic prescription containers, labels, and multipack plastic carriers for beverage containers. Over the last few years, the Company has made acquisitions or investments strategic to its core businesses and has divested operations not achieving market leadership or other operating and financial objectives. During 1995, the Company continued implementation of its reengineering program announced in February 1994. Implementation of the program has resulted in reduced costs, improved manufacturing efficiency and productivity, and enhanced customer service. This effort is a key part of the Company's strategy to maintain leadership in glass and plastic packaging and to take advantage of growth opportunities around the world. In November 1995, the Company acquired 100% ownership of the largest glass container manufacturers in Hungary, Estonia and Finland. Combined with the Company's glass container operations in Poland, these acquisitions significantly increase the Company's ability to serve emerging markets in Eastern Europe. In January 1995, the Company also completed the transaction to acquire a majority interest in Owens-BILT Limited, one of the leading glass container manufacturers in India. In the past four years, the Company has acquired controlling interests in eight glass container companies serving emerging foreign markets and added ten companies to the worldwide network of glass container manufacturers that are licensed to use the Company's technology. From December 1994 through mid-December 1995, the Company concluded settlement agreements with certain reinsurers applicable to the Company's asbestos- related personal injury claims. In late December 1995, the Company entered into a settlement agreement involving all remaining insurance coverage issues in the asbestos-related litigation. Pursuant to these settlement agreements, the Company received payments of approximately $80 million in the fourth quarter of 1994 and $107 million in 1995. In addition, the Company expects to receive additional insurance proceeds in 1996 and future years under the agreements. As a result of the settlement agreements, the Company recorded a charge of $40 million and $100 million in the fourth quarter of 1995 and 1994, respectively, to write down the asbestos insurance asset. 1 The principal executive office of the Registrants is located at One SeaGate, Toledo, Ohio 43666; the telephone number is (419) 247-5000. Financial Information about Industry Segments Information as to sales, operating profit, and identifiable assets by industry segment is included on pages 60 - 62. Narrative Description of Business The Company has two industry segments: (1) Glass Containers and (2) Plastics and Closures. Below is a description of these segments and information to the extent material to understanding the Company's business taken as a whole. The Company's former Specialized Glass segment consisted of Kimble Glass, Inc. which manufactures both glass and plastic specialty packaging, scientific and laboratory ware. As a result of the December 31, 1993 sale of 51% of Kimble, the Company began to record its share of Kimble's results of operations on the equity basis beginning in 1994. Products and Services, Customers, Markets and Competitive Conditions, and Methods of Distribution GLASS CONTAINERS INDUSTRY SEGMENT The Company is a leading manufacturer of glass containers throughout the world. In addition to being the largest maker of glass containers in the United States, the Company also is the leading manufacturer of glass packaging in many regions of the world, including certain areas of Latin American and Europe. Worldwide glass container sales represented 66%, 67% and 64% of the Company's consolidated net sales for the years ended December 31, 1995, 1994, and 1993, respectively. The Company believes that its internally developed machines are significantly more efficient and productive than those used by its competitors, making it the low-cost manufacturer and a recognized technological leader in the industry. The Company currently has technical assistance agreements with 36 different companies in 36 countries. These agreements, which cover areas ranging from manufacturing and engineering assistance to support in functions such as marketing, sales, and administration, allow the Company to participate in the worldwide growth of the glass container industry. The Company believes these associations and its technical expertise will afford it opportunities to participate in the glass business in regions of the world where the Company does not currently have a presence. 2 Products and Services - --------------------- Glass containers are produced in a wide range of sizes, shapes and colors for beer, food, tea, fruit juice, soft drinks, liquor, wine, wine coolers and pharmaceuticals. The Company has been a leader in product innovation, introducing products including long neck nonreturnable beer bottles, and in developing containers for teas, juices, food, soft drinks and wine coolers. The Company's product development efforts in glass containers are aimed at providing value added packaging systems to customers and consumers. Product lines designed to complement glass containers include product extensions related to single service packages for teas, juices and soft drinks and innovative secondary packaging systems such as closures, carriers and labeled containers. Customers - --------- Brewers, food (which include juices and teas), liquor (i.e. distilled spirits) and wine producers comprise the majority of industry demand for U.S. glass containers. In addition to the just previously mentioned producers, international glass container customers include soft drink bottlers. In the regions where the Company has operations, it has leading positions within these customer groups, as well as strong positions in smaller customer groups. The Company believes its position gives it the ability to sustain market share and take advantage of new opportunities and areas of growth within each customer group. Most glass production is sold to customers under arrangements with terms varying from several months to several years which specify estimated quantities to be shipped as a percentage of the customers' total annual shipment requirements. Containers are typically scheduled for production in response to customers' orders for their quarterly requirements. Markets and Competitive Conditions - ---------------------------------- The Company has glass container operations located in thirteen countries. The principal markets for the Company's glass products are in the United States, Latin America and Europe. The Company has the leading market share of the glass segment of United States beer and food (including juices and teas) packaging. Excluding E & J Gallo Winery Inc., which manufactures its own containers, the Company believes it is the leading supplier of glass for wine and wine coolers. Internationally, the Company is the leading producer of glass containers in most of the geographic markets in which it is located. The Company's glass products compete on the basis of quality, service and price with other forms of rigid packaging, principally aluminum and steel cans and plastic bottles, as well as glass containers produced by other large, well-established manufacturers. The principal competitors producing glass containers are Ball-Foster Glass Container Co., L.L.C., a joint venture of Ball Corporation and Paris-based Saint-Gobain ("Ball-Foster"), and Anchor Glass Container Corporation, a subsidiary of Vitro, Sociedad Anonima. The principal competitors producing metal containers are American National Can 3 Company (an affiliate of Silgan Corporation), Crown Cork & Seal Company, Inc., Reynolds Metals Company, and Ball Corporation. In the metal container market, no one competitor is dominant. The principal competitors supplying plastic containers are Crown Cork & Seal Company, Inc., and Johnson Controls, Inc. In the plastic containers market, no one competitor is dominant. Methods of Distribution - ----------------------- Due to the significance of transportation costs and the importance of timely delivery, manufacturing facilities are located close to customers. Most of the Company's glass container products are shipped by common carrier to customers within a 250-mile radius of a given production site. In addition to glass container manufacturing facilities, the Company operates two sand plants and three machine shops which manufacture high-productivity glass-making machines. Domestic Glass Operations - ------------------------- The Company has an approximate 40% share of the glass container category of the U.S. rigid packaging market. Domestically, the Company operates 21 glass container manufacturing facilities, a sand plant and two machine shops which manufacture high-productivity glass-making machines. Marketing under the trade name Owens-Brockway, the Company's 1995 U.S. glass container sales were substantially higher than the sales of its nearest U.S. glass container competitor, Ball-Foster. Unit shipments in the U.S. to brewers and food producers, including producers of juices and teas, approximated 87%, 77% and 67% of the Company's total U.S. glass container unit shipments for 1995, 1994 and 1993, respectively. During 1995, total glass container industry shipments within the United States rigid packaging market decreased approximately 6% from 1994 shipments. These shipments declined throughout 1995 as a result of the continuing conversion of soft drink containers from glass to plastic and lower demand for food containers, including tea and juice bottles. Prior to 1995, glass container shipments within the United States rigid packaging market had been relatively constant for several years. The Company's share of the United States glass container market has remained relatively constant during this time, at approximately 40% market share. Overall, the Company expects glass containers' share of the United States rigid packaging market to remain relatively stable compared to 1995 levels and that the Company will maintain its share of the glass container segment due in part to the Company's ongoing improvement in operating efficiencies and its technological leadership. The trend in the United States towards greater recycling of used containers has also changed the Company's glass container business. In each of the last several years, the Company has recycled substantial tonnage of glass containers. The Company believes that the percentage of recycled glass used could increase in the future as recycling becomes more widespread. Glass recycling helps relieve the burden on the nation's landfills, while significantly reducing the need for virgin materials. Recycling also results in energy savings and reductions in air emissions. The Company also believes 4 that, eventually, as recycled glass becomes more available, it may offer a cost advantage over producing new glass. The Company has no technological barriers to using all of the recycled glass it can reasonably expect to obtain from public/private collection programs as long as such glass meets incoming material quality standards. International Glass Operations - ------------------------------ The Company has added to its international operations by acquiring glass container companies with leading positions in growing markets, increasing the capacity of selected foreign affiliates, and expanding the global network of glass container companies that license the Company's technical assistance. The Company has significant ownership positions in fifteen companies located in twelve foreign countries and Puerto Rico. Most of the Company's international glass affiliates are the leading container manufacturers in their respective countries, producing a full line of containers for the soft drink, beer, wine, liquor, food, drug and chemical industries. Some of these companies also produce molds, mold parts, sand and feldspar, limestone, machines and machine parts, rolled glass, sheet glass and glass tableware. The Company's principal international glass affiliates are located in Latin America, Eastern Europe and the United Kingdom. Outside of the United States, unit shipments of glass containers have grown substantially in recent years. International glass operations are benefiting from increased privatization of industry, greater openness to foreign investment, and global expansion programs by major customers. The lowering of trade barriers has resulted in healthier economies, rising standards of living, and growing demand for consumer products and quality packaging in developing countries. The increasing demand for quality packaging products in developing countries, where per capita glass container consumption is low, but rising, continues to create growth opportunities. This is reinforced by the fact that in many developing countries glass has a significant cost advantage over plastic and metal containers. Technologies which have produced productivity improvements in the Company's United States Glass Container operations are also being applied to the operations of foreign affiliates. The Company is continuing to pursue additional strategic alliances with international partners whose markets are growing and whose manufacturing operations can be enhanced by the Company's state-of-the-art technology and equipment. Sales growth in countries where the Company does not have a direct ownership position may also provide a benefit to the Company in the form of royalties tied to sales volume of the Company's technical assistance licensees. 5 The Company's significant ownership positions in international glass affiliates are summarized below: Owens-Illinois Company/Country Ownership - --------------- -------------- Karhulan Lasi Oy, Finland 100.0% Oroshaza Glass Manufacturing and Trading, Kft., Hungary 100.0 United Glass Ltd., United Kingdom 100.0 Centro Vidriero de Venezuela, C.A., Venezuela 100.0 Manufacturera de Vidrios Planos, C.A., Venezuela 100.0 Owens-Illinois de Venezuela, C.A., Venezuela 92.2 A/S Jarvakandi Klaas, Estonia 82.0 Owens-Illinois de Puerto Rico, Puerto Rico 80.0 Companhia Industrial Sao Paulo e Rio, Brazil 79.4 Vidrios Industriales, S.A., Peru 77.0 Cristaleria del Ecuador, S.A., Ecuador 65.3 Cristaleria Peldar, S.A., Colombia 57.4 Owens-BILT Limited, India 51.0 Fabrica Boliviana de Vidrios, S. A., Bolivia 50.0 Huta Szkla Jaroslaw S.A., Poland 45.1 PLASTICS AND CLOSURES INDUSTRY SEGMENT The Company is a leading plastic container manufacturer in the United States. The Company is the market leader in all plastic segments in which it competes except for Hi-Cone, in which it is second. Plastic container sales represented 16%, 17% and 16% of the Company's consolidated net sales for the years ended December 31, 1995, 1994, and 1993, respectively. The Company's Plastics and Closures segment operates under the Owens-Brockway trade name and is comprised of four business units. Plastic Products. This unit, with 22 factories, manufactures rigid, semi- rigid, flexible and multi-layer plastic containers for a wide variety of uses, including household products, personal care products, health care products, chemicals and automotive products and food. Closure and Specialty Products. This unit, with 10 manufacturing facilities, develops and produces closures and closure systems which incorporate functional features such as tamper evidence, child resistance and dispensing. In addition, this unit's diverse product line includes trigger sprayers, finger pumps, and lotion pumps, as well as metal closures and finger pumps for the fragrance and cosmetic industry. In the United States, the Company has a sole license for Alcoa's technology for compression molded, tamper evident, thermoplastic closures. This unit also manufactures custom injection molded products, such as deodorant cannisters and toothpaste dispensers. 6 Prescription Products. The Company's Prescription Products unit manufactures prescription containers. These products are sold primarily to drug wholesalers, major drug chains and the government. Containers for prescriptions include plastic and glass ovals, vials, rounds, squares and ointment jars. The only other major producer of such prescription containers is Kerr Group, Inc. Label and Carrier Products. The broad line of labels produced by this unit includes polyethylene labels for in-mold labeling (IML) and laminated labels for beverage containers. Two proprietary carrier lines are also produced by this unit, both of which are predominantly used as six-pack and four-pack carriers for iced teas and other fruit drinks -- Hi-Cone (a registered trademark of Illinois Tool Works Inc.) plastic carriers for cans and Contour- Pak plastic carriers for bottles. Markets. Major markets for these units include the household products, personal care products, health care products, and food and beverage industries. The plastic segment of the rigid packaging market is competitive and fragmented due to generally available technology, low costs of entry and customer emphasis on low package cost. A large number of competitors exists on both a national and regional basis. The Company competes by emphasizing total package supply, diversified market positions, proprietary technology and products, new package development, and packaging innovation. The Company is one of two producers of the Hi-Cone multi-pack carrier (produced under a license agreement with the only other producer, Illinois Tool Works Inc.), and the only producer of the Contour-Pak carrier. The market for closures is divided into various categories in which several suppliers compete for business on the basis of price and product design. The Company's strategy has been to compete in the segments of the plastic packaging market where customers seek to use distinctive packaging to differentiate their products among a growing array of choices offered to consumers. The Company believes it is a leader in technology and development of custom products and has a leading market position for such products. The Company believes its plastic container and closure businesses have a competitive advantage as a result of one of the shortest new product development cycles in the industry, enabling the Company to provide superior service in the service-sensitive custom plastic container market. The Company's product innovations in plastic containers and closures include in- mold labeling for custom molded bottles, Contour-Pak carriers for 4, 6 and 8- pack applications, printed Contour-Pak carriers, multilayer structured bottles containing post consumer recycled resin, Flex-Band and PlasTop tamper- evident closures, Clic Loc child-resistant closures and Pharmacy Mate reversible prescription container closures. The Company believes that unit sales of closure products have benefited from the conversion of soft drink closures from aluminum to plastic in the smaller 28mm size. That conversion is essentially completed and the Company has recently introduced larger compression molded closures for soft drink and sports drink applications. 7 Recycling content legislation, which has been enacted in several states, requires that a certain specified minimum percentage of recycled plastic be included in new plastic products. The Company has met such legislated standards in part due to its material and multilayer process technology. The Company's Plastics and Closures segment currently has technical assistance agreements with 19 companies in 12 countries. These agreements, which cover areas ranging from manufacturing and engineering assistance to support in functions such as marketing, sales, and administration, allow the Company to participate in the worldwide growth of the plastic packaging industry. ADDITIONAL INFORMATION New Products New products and numerous refinements of existing products are developed and introduced in each segment every year. No single new product or refinement, or group of new products and refinements, have been recently introduced or are scheduled for introduction which required the investment of a material amount of the Company's assets or which otherwise would be considered material. Sources and Availability of Raw Materials All of the raw materials the Company uses have historically been available in adequate supply from multiple sources. However, for certain raw materials, there may be temporary shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays; such shortages are not expected to have a material effect on the Company's operations. Patents and Licenses The Company has a large number of patents which relate to a wide variety of products and processes, has pending a substantial number of patent applications, and is licensed under several patents of others. While in the aggregate its patents are of material importance to its business, the Company does not consider that any patent or group of patents relating to a particular product or process is of material importance when judged from the standpoint of any segment or its business as a whole. Seasonality Sales of particular products of the Glass Containers and Plastics and Closures business segments such as beer and certain food containers are seasonal, with shipments typically greater in the second and third quarters of the year. 8 Working Capital In general, the working capital practices followed by the Company are typical of the businesses in which it operates. During the first and second quarters of the year the accumulation of inventories of certain products in advance of expected shipments reflects the seasonal nature of those businesses and may require periodic borrowings. Customers Major customers exist for each of the Company's industry segments, and in each industry segment the loss of a few of these customers might have a material adverse effect on the segment. Major customers of the Company include such companies as Philip Morris Companies Inc., Anheuser-Busch Companies, Inc., The Procter & Gamble Company, Unilever, N.V. and other leading companies which manufacture and market a variety of consumer products. Research and Development Research and development constitutes an important part of the Company's activities. Research and development expenditures for continuing operations were $30.3 million, $31.8 million, and $23.1 million for 1995, 1994, and 1993, respectively. Operating engineering expenditures were $24.5 million, $22.8 million, and $19.2 million for 1995, 1994, and 1993, respectively. In addition to new product development, substantial portions of the technical effort are devoted to increased process control, automatic inspection, and automation. Also, there is continued emphasis on reduction in energy use per unit of production. No material amount of money was spent on customer- sponsored research activities during 1995, 1994, or 1993. Environment The Company's operations, in common with those of the industry generally, are subject to numerous existing and proposed laws and governmental regulations designed to protect the environment, particularly regarding plant wastes and emissions and solid waste disposal. Capital expenditures for property, plant, and equipment for environmental control activities were not material during 1995. A number of states have enacted, or are considering, legislation to promote curbside recycling and recycled content legislation as alternatives to mandatory deposit laws. Although such legislation is not uniformly developed, the Company believes that curbside recycling and recycling content legislation could become more significant during the next five years. Sales of non-refillable glass beverage bottles and other convenience packages are affected by mandatory deposit laws and other types of restrictive legislation. As of January 31, 1996, there are nine states with mandatory deposit laws in effect. 9 Plastic containers have also been the subject of legislation in various states. The Company utilizes recycled plastic resin in its manufacturing processes. During 1995 and 1994, many plastic containers for products other than food, drugs, and cosmetics contained 25% post consumer resin. The Company believes it is the industry leader in such technology. Although the Company is unable to predict what legislation or regulations may be adopted in the future with respect to environmental protection and waste disposal, compliance with existing legislation and regulations has not had, and is not expected to have, a material adverse effect on its capital expenditures, results of operations, or competitive position. Number of Employees The Company's operations employed approximately 30,100 persons at December 31, 1995. A majority of these employees are hourly workers covered by collective bargaining agreements, the principal one of which was renewed early in 1996 for three years. The Company considers its employee relations to be good. The Company has not had any material labor disputes in the last five years, and does not anticipate any material work stoppages in the near term. Financial Information about Foreign and Domestic Operations and Export Sales Information as to net sales, operating profit, and identifiable assets of the Company's operating and geographic segments is included on pages 60 - 62. Export sales, in the aggregate or by geographic area, were not material for the years 1995, 1994, or 1993. 10 ITEM 2. PROPERTIES The principal manufacturing facilities and other material important physical properties of the continuing operations of the Company at December 31, 1995 are listed below and grouped by industry segment. All properties shown are owned in fee except where otherwise noted. Glass Containers Valera, Venezuela Glass Container Plants Atlanta, GA Machine Shops Auburn, NY Brockway, PA Brockway, PA Godfrey, IL Charlotte, MI Manaus, Brazil Chicago Heights, IL (1) Clarion, PA (1) Sand Plants Crenshaw, PA Ione, CA (2) Danville, VA Devilla, United Kingdom Lakeland, FL Lapel, IN Flat Glass Plant Los Angeles, CA La Victoria, Venezuela Muskogee, OK (1) Oakland, CA Plastics and Closures Portland, OR Plastic Container Plants Streator, IL Atlanta, GA Toano, VA Baltimore, MD Tracy, CA Belvidere, NJ Volney, NY Charlotte, NC Waco, TX Chicago, IL Winston-Salem, NC Cincinnati, OH (1) Zanesville, OH Edison, NJ La Paz, Bolivia Findlay, OH (1), (2) Rio de Janeiro, Brazil Florence, KY (1) Sao Paulo, Brazil Greenville, SC Envigado, Colombia Harrisonburg, VA Zipaquira, Colombia Kansas City, MO (2) Guayaquil, Ecuador La Mirada, CA (2) Jarvakandi, Estonia Nashua, NH Karhula, Finland Newburyport, MA Oroshaza, Hungary Rossville, GA (2) Pondicherry, India St. Louis, MO (2) Pune, India Sullivan, IN Rishikesh, India Vandalia, IL (1) Callao, Peru Washington, NJ (2) Jaroslaw, Poland Ryttyla, Finland Vega Alta, Puerto Rico Mexico City, Mexico St. Albans, United Kingdom Alloa, United Kingdom Mold Shop Harlow, United Kingdom Kansas City, MO (2) Peasley, United Kingdom Caracas, Venezuela Label and Carrier Products Plant Guarenas, Venezuela Bardstown, KY (1) Valencia, Venezuela 11 Closure & Specialty Products Plants Corporate Facilities Bridgeport, CT World Headquarters Building Brookville, PA Toledo, OH (2) Chattanooga, TN Constantine, MI (1) Levis Development Park El Paso, TX (2) Perrysburg, OH Erie, PA Hamlet, NC Maumee, OH (2) Waterbury, CT Las Piedras, Puerto Rico Prescription Products Plant Berlin, OH (1) - --------------- (1) This facility is financed in whole or in part under tax-exempt financing agreements. (2) This facility is leased in whole or in part. The Company believes that its facilities are well maintained and currently adequate for its planned production requirements over the next three to five years. ITEM 3. LEGAL PROCEEDINGS See the second through last paragraphs of the section entitled "Contingencies" on pages 52 - 59. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the last quarter of the fiscal year ended December 31, 1995. 12 EXECUTIVE OFFICERS OF THE REGISTRANTS Set forth below are the names and the ages, positions, and offices held (as of the date hereof), and a brief account of the business experience of each executive officer. Each officer listed below holds the same position or positions with Owens-Illinois Group, Inc. as he does with the Company. Officers serve at the discretion of the Board of Directors. Name and Age Position - ------------ -------- Joseph H. Lemieux (65) . . . . . Chairman since 1991; Chief Executive Officer since 1990; President and Chief Operating Officer, 1986-1990; Director since 1984. Member of Class III of the Board of Directors of the Company, with a term expiring in 1997. Lee A. Wesselmann (60) . . . . . Senior Vice President and Chief Financial Officer since 1988; Secretary, 1988-1990; Vice President - Finance, 1988; Director since 1988. Member of Class I of the Board of Directors of the Company, with a term expiring in 1998. R. Scott Trumbull (47) . . . . . Executive Vice President, International Operations since 1993; Vice President and Director of Corporate Planning 1992-1993; Vice President and General Manager of Plastics and Closure Operations, 1986 - 1992. Terry L. Wilkison (54) . . . . . Executive Vice President, Domestic Packaging Operations since 1993; Vice President and General Manager of Plastics, Closures, and Prescription Products 1992-1993; Vice President and General Manager of Specialty Glass Operations 1987-1992. Thomas L. Young (52) . . . . . . Executive Vice President, Administration, General Counsel and Secretary since 1993; Vice President, General Counsel, General Manager - Operations Administration and Secretary 1992-1993; Vice President, General Counsel and Secretary, 1990-1992; Vice President and General Counsel - Operations, 1988-1990. 13 Name and Age Position - ------------ -------- Russell C. Berkoben (54) . . . . Vice President and General Manager of Plastic Operations since 1991; Vice President and Plastic Container Business Unit Manager, 1985-1991. Gary R. Clinard (57) . . . . . . Vice President and General Manager of International Operations since 1990; Vice President of International Operations and Technical Assistance, 1987-1990. Larry A. Griffith (50) . . . . . Vice President since 1990; General Manager of Kimble, 1992-1995; Vice President of Corporate Staff and Director of Corporate Planning, 1988-1990; John L. Hodges (56). . . . . . . Vice President and General Manager of Glass Container Operations since 1993; Vice President of Glass Container Sales and Marketing, 1991-1993; Vice President and General Manager of Glass Container Manufacturing, 1984-1991. Dale W. Leidy (56) . . . . . . . Vice President and Technical Director - Glass Container since 1993; Vice President and General Manager of Glass Container Manufacturing 1991-1993; Vice President and Technical Director - Packaging, 1990-1991; Vice President and Director of Manufacturing and Engineering of Plastic Products, 1989-1990; Vice President and Director of Manufacturing of Plastic Products, 1986-1989. Michael D. McDaniel (47) . . . . Vice President and General Manager of Closure and Specialty Products Operations since 1991; Vice President and Director of Manufacturing and Engineering of Closure Operations, 1990-1991; Vice President and Manufacturing Manager of Closure Operations, 1985-1990. Philip McWeeny (56). . . . . . . Vice President and General Counsel - Corporate since 1988. 14 Name and Age Position - ------------ -------- Ronald H. Pfenning (47). . . . . Vice President of Glass Container Sales and Marketing since 1993; Glass Container Vice President and Industry Manager, Food, 1992-1993; Glass Container Vice President and Industry Manager, Brewing & Liquor, 1989-1991. B. Calvin Philips (54) . . . . . Vice President of International Operations since 1990; Vice President and General Manager of Closure and Specialty Products, 1987-1990. Robert A. Smith (54) . . . . . . Vice President and General Manager of Glass Container Manufacturing since 1993; Vice President and General Manager, West Coast, 1990-1993; Vice President and Area Manufacturing Manager, 1986-1990. David G. Van Hooser (49) . . . . Vice President and General Manager of Plastic Components Operations since 1994; Vice President, Treasurer and Comptroller, 1990-1994; Vice President and Treasurer, 1988-1990. 15 PART II ITEM 5. MARKET FOR OWENS-ILLINOIS, INC.'S COMMON STOCK AND RELATED SHARE OWNER MATTERS The price range for the Company's Common Stock on the New York Stock Exchange, as reported by National Association of Securities Dealers, was as follows: 1995 1994 ------------------ ------------------ High Low High Low ------ ------ ------ ------ First Quarter 11-1/2 10-1/8 13-5/8 10-5/8 Second Quarter 13-1/2 10-7/8 13-3/8 10-3/8 Third Quarter 14-1/4 12-5/8 12-3/4 10-3/8 Fourth Quarter 14-3/4 12 12-1/4 10-1/4 On December 31, 1995, there were 1,242 common share owners of record. No dividends have been declared or paid since the Company's initial public offering in December 1991. For restrictions on payment of dividends on Common Stock, see Restriction on Retained Earnings included on page 47. 16 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below relates to each of the five years in the period ended December 31, 1995. Such data was derived from the Consolidated Financial Statements, of which the most recent three years are included elsewhere in this document and were audited by Ernst & Young LLP, independent auditors, whose report with respect to the financial statements appears elsewhere in this document. See Consolidated Financial Statements -- Statement of Significant Accounting Policies and Financial Review. Years Ended December 31, ---------------------------------------------------- 1995 1994 1993 1992 (b) 1991 (c) -------- -------- -------- -------- -------- Consolidated operating (Dollar amounts in millions) results (a): Net sales. . . . . . $3,763.2 $3,567.3 $3,535.0 $3,392.6 $3,284.3 Other (d). . . . . . 117.8 85.6 127.1 81.6 83.3 -------- -------- -------- -------- -------- 3,881.0 3,652.9 3,662.1 3,474.2 3,367.6 Costs and expenses: Manufacturing, shipping and delivery . . . 2,948.5 2,824.3 2,823.8 2,744.1 2,636.8 Research, engineering, selling, administra- tive and other (e) 322.9 379.1 842.8 260.3 223.6 -------- -------- -------- -------- -------- Earnings (loss) from continuing operations before interest expense and items below. . . . . . . 609.6 449.5 (4.5) 469.8 507.2 Interest expense . . 299.6 278.2 290.0 312.9 452.5 -------- -------- -------- -------- -------- Earnings (loss) from continuing operations before items below. . . . . . . 310.0 171.3 (294.5) 156.9 54.7 Provision (credit) for income taxes . 100.8 68.9 (113.1) 64.0 53.7 Minority share owners' interests in earnings of subsidiaries . . . 40.1 24.1 19.4 14.6 11.8 -------- -------- -------- -------- -------- Earnings (loss) from continuing operations before extraordinary items and cumulative effect of accounting changes. . . . . . 169.1 78.3 (200.8) 78.3 (10.8) Net earnings of discontinued operations . . . . 1.4 18.4 3.8 17 SELECTED FINANCIAL DATA -- continued Years ended December 31, ---------------------------------------------------- 1995 1994 1993 1992 (b) 1991 (c) -------- -------- -------- -------- -------- (Dollar amounts in millions, except per share data) Gain (loss) on sales of discontinued operations, net of applicable income taxes . . . 217.0 (123.1) Extraordinary charges from early extinguishment of debt, net of applicable income taxes. . . . . . . (12.7) (31.5) (143.5) Cumulative effect on prior years of changes in methods of accounting for income taxes and postretirement benefits, net of applicable income taxes (b) . (199.4) -------- -------- -------- -------- -------- Net earnings (loss). $ 169.1 $ 78.3 $ 4.9 $ (134.2) $ (273.6) ======== ======== ======== ======== ======== Earnings (loss) per share of common stock: Earnings (loss) from continuing operations before extraordinary items and cumula- tive effect of accounting changes $ 1.40 $ 0.64 $ (1.70) $ 0.66 $ (0.27) Net earnings of discontinued operations . . . 0.01 0.15 0.09 Gain (loss) on sales of discontinued operations . . . 1.82 (3.07) Extraordinary charges (0.10) (0.26) (3.58) Cumulative effect of accounting changes (b). . . (1.68) -------- -------- -------- -------- -------- Net earnings (loss). $ 1.40 $ 0.64 $ 0.03 $ (1.13) $ (6.83) ======== ======== ======== ======== ======== 18 SELECTED FINANCIAL DATA -- continued Years Ended December 31, ---------------------------------------------------- 1995 1994 1993 1992 (b) 1991 (c) -------- -------- -------- -------- -------- Other data: (Dollar amounts in millions) The following are included in the results from continuing operations: Depreciation . . . $ 188.3 $ 183.3 $ 180.0 $ 181.9 $ 154.0 Amortization of excess cost and intangibles. . . 44.8 45.2 40.8 38.6 36.3 Amortization of deferred finance fees (included in interest expense) . . . . 5.0 5.1 11.5 12.0 13.6 -------- -------- -------- -------- -------- $ 238.1 $ 233.6 $ 232.3 $ 232.5 $ 203.9 ======== ======== ======== ======== ======== Weighted average shares outstanding (in thousands) . . 119,343 119,005 118,978 118,980 40,089 Balance sheet data (at end of period): Working capital. . $ 328 $ 171 $ 234 $ 245 $ 195 Total assets . . . 5,439 5,318 4,901 5,151 4,399 Total debt . . . . 2,833 2,690 2,487 3,107 2,932 Share owners' equity 532 376 295 299 415 (a) Results of operations have been restated to reflect the effects of the sale of the Libbey business, which was consummated on June 24, 1993, and of the Health Care segment, which was consummated on October 24, 1991, as discontinued operations. (b) In the fourth quarter of 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," each as of January 1, 1992. The impact of the changes on 1992 earnings from continuing operations consists of an additional $39.2 million of non-cash expenses partially offset by additional deferred tax credits of $26.3 million. (c) The Company completed a recapitalization in the fourth quarter of 1991, the effects of which are included in the Balance Sheet Data as of December 31, 1991. Assuming the recapitalization had occurred at the beginning of 1991, pro forma earnings from continuing operations for 1991 would have been $78.7 million, or $0.65 per share of common stock. (d) Other revenues in 1993 includes gains of $46.1 million ($34.6 million after tax) from divestitures. 19 (e) In the fourth quarter of 1995, the Company recorded a charge of $40.0 million ($24.7 million after tax) to write down the asbestos insurance asset and a net credit of $40.0 million ($24.7 million after tax) primarily from the reduction of previously established restructuring reserves. In the fourth quarter of 1994, the Company recorded a charge of $100.0 million ($61.7 million after tax) to write down the asbestos insurance asset. In the fourth quarter of 1993, the Company recorded charges totaling $578.2 million ($357.0 million after tax) principally for estimated uninsured future asbestos-related costs and costs associated with its restructuring program. 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Comparison of 1995 with 1994 For the year ended December 31, 1995, the Company recorded net earnings of $169.1 million compared to $78.3 million in 1994. Excluding the effects of the 1994 unusual item discussed below, the Company's 1995 net earnings of $169.1 million increased $29.1 million, or 20.8%, over 1994 earnings of $140.0 million. Consolidated segment operating profit was $565.5 million in 1995 compared to $508.2 million in 1994, excluding the unusual charge. The increase was largely attributable to the Company's international glass business which reported significantly increased unit shipments, dollar sales, and operating profit in 1995. Interest expense, net of interest income, increased $10.7 million due in part to debt assumed in connection with acquisitions. The Company's annual effective tax rate for 1995 was 32.5% compared to 39.5% for 1994 as adjusted for unusual items. The lower 1995 rate is primarily the result of a higher mix of foreign earnings, which benefited from lower effective tax rates in 1995. The increased foreign net earnings also resulted in an increase in minority share owners' interests in earnings of subsidiaries, principally in Brazil, Colombia, and Poland. Capsule segment results (in millions of dollars) for 1995 and 1994 are as follows (a): - ---------------------------------------------------------------------------- Net sales to unaffiliated customers 1995 1994 - ---------------------------------------------------------------------------- Glass Containers $2,744.0 $2,590.1 Plastics and Closures 1,017.7 976.1 Other 1.5 1.1 - ---------------------------------------------------------------------------- Consolidated total $3,763.2 $3,567.3 ============================================================================ - ---------------------------------------------------------------------------- Operating profit 1995 (b) 1994 - ---------------------------------------------------------------------------- Glass Containers $ 482.7 $ 393.0 Plastics and Closures 137.4 140.4 Eliminations and other retained costs (c) (54.6) (125.2) - ---------------------------------------------------------------------------- Consolidated total $ 565.5 $ 408.2 ============================================================================ (a) See Segment Information included on pages 60 - 62. (b) Includes a charge of $40.0 million to write down the asbestos insurance asset and a net credit of $40.0 million primarily from the reduction of previously established restructuring reserves. These items increased (decreased) operating profit as follows: Glass Containers, $45.1 21 million; Plastics and Closures $(5.1) million; and other retained costs $(40.0) million. (c) Includes a charge of $100.0 million in 1994 to write down the asbestos insurance asset. Consolidated net sales for 1995 increased $195.9 million, or 5.5% over the prior year. Net sales of the Glass Containers segment increased $153.9 million, or 5.9%, over 1994. Higher glass container unit shipments by foreign affiliates and recently acquired glass container operations in Poland and India accounted for the increase. Consistent with domestic glass industry trends, the Company's 1995 domestic glass container unit shipments were approximately 6% below 1994. These shipments declined throughout 1995 as a result of the continuing conversion of soft drink containers from glass to plastic. This conversion will also affect comparisons to prior year periods throughout 1996. Higher shipments of glass containers to U.S. brewers as a result of increased consumer demand for premium and specialty beers more than offset lower demand for food containers, including iced tea and juice bottles. In the Plastics and Closures segment, sales increased $41.6 million, or 4.3%, over 1994. Higher unit pricing caused by higher resin costs and increased volumes in the closure and prescription products businesses resulted in higher reported sales. Higher unit shipments of closures and prescription containers were offset by lower shipments of plastic containers, especially bottles used for personal care and household products, due in part to the closing of two plastic bottle manufacturing facilities in late 1994. Consolidated operating profit for 1995 increased $57.3 million, or 11.3%, to $565.5 million from 1994 operating profit of $508.2 million, excluding the unusual 1994 fourth quarter charge. Consolidated operating profit was 15.0% of net sales in 1995 compared to 14.2% in 1994, excluding the 1994 unusual item. Consolidated operating expenses (consisting of selling and administra- tive, engineering, and research and development expenses) as a percentage of net sales decreased to 6.4% in 1995 from 7.0% in 1994. Operating profit of the Glass Containers segment, exclusive of the 1995 unusual item discussed below, was $437.6 million, an increase of $44.6 million, or 11.3%, over 1994. Increased unit shipments at most foreign affiliates, improved market condi- tions for the segment's Venezuelan operations, and higher margins at the Colombian and United Kingdom operations resulted in higher U.S. dollar operating profits. The economic effects of exchange and price controls instituted in Venezuela in June 1994 and the December 1995 devaluation of the bolivar negatively affected the 1995 operating profit. Similar programs and controls instituted in prior years have had a temporary adverse effect on the operating profit of the Company's foreign affiliates; the Company is not able to project the magnitude or duration of such effects on future operating results. The domestic glass container operations were adversely affected in 1995 by the significantly higher cost of corrugated boxes, which are used extensively in packaging and shipping many of the Company's finished products. Also, domestic glass container unit shipments were lower in 1995 due to the continuing conversion of soft drink containers from glass to plastic, which resulted in excess capacity in the industry and increased price competition. Cost reductions and productivity improvements achieved throughout the Glass Containers segment partially offset these effects. Operating profit of the 22 Plastics and Closures segment, exclusive of the 1995 unusual item discussed below, increased slightly to $142.5 million in 1995 from $140.4 million in 1994. The 1995 results benefited from increased unit shipments in both the closures and prescription containers businesses along with productivity improvements achieved in the plastic bottles business. These benefits were partially offset by the effects of lower shipments and margins in the segment's labels and carriers business as a result of higher raw material costs, the soft drink conversion from glass to plastic, and the increasing utilization by customers of other forms of carriers, such as fiberboard cartons and shrink wrap packaging. Excluding the labels and carriers business, the segment's operating profit was up approximately 11% over 1994. Other retained costs, exclusive of the effects of unusual fourth quarter items in both years as discussed below, were $14.6 million in 1995 compared to $25.2 million in 1994 reflecting lower employee benefit costs and higher net financial services income. In December 1995, the Company reached settlements involving all remaining insurance coverage limits (81% of original limits) in the asbestos-related litigation. As a result of the settlement agreements, the Company recorded a charge of $40.0 million ($24.7 million after tax) in the fourth quarter of 1995 to write down the asbestos insurance asset to the approximate coverage amounts expected to be received. For additional information, see Capital Resources and Liquidity on page 27 and Contingencies on page 52. In the fourth quarter of 1995, the Company also recorded an unusual net credit of $40.0 million ($24.7 million after tax), related primarily to the Company's restructuring program, the cost of which was originally estimated and recorded in the fourth quarter of 1993. During 1994 and 1995, the Company completed a number of the initiatives contemplated in the program. Some costs were lower than originally estimated. Additionally, in response to changing business conditions and obtaining additional business, some of the planned actions were modified, eliminated, or are no longer anticipated. As a result of these developments, the reserve was reduced by $45.1 million. Included in the net credit of $40.0 million is a charge of $5.1 million for the restructuring of the Company's labels and carriers business resulting from the conversion of soft drinks from glass to plastic containers. This charge represents the estimated severance and early retirement costs related to workforce reductions and write downs of equipment and inventory. In December 1994, the Company concluded a settlement with certain reinsurers involved in the asbestos-related litigation representing approximately 19% of coverage limits. As a result of the settlement agreement and certain other considerations, including continuing delays in the resolution of the Company's claims for insurance coverage, the Company recorded a charge of $100.0 million ($61.7 million after tax) in the fourth quarter of 1994 to write down the asbestos insurance asset. Comparison of 1994 with 1993 For the year ended December 31, 1994, the Company recorded net earnings from continuing operations of $78.3 million compared with a loss of $200.8 million in 1993. These results include an unusual fourth quarter charge in 1994 of 23 $61.7 million and several unusual fourth quarter charges and gains in 1993 aggregating $322.4 million, which are discussed below. Excluding the effects of the unusual items in both years, the Company reported 1994 earnings from continuing operations of $140.0 million representing an increase of $18.4 million, or 15.1%, over 1993 earnings of $121.6 million. All major operations reported increased unit shipments, dollar sales, and operating profit in 1994. Improved operating results, particularly in the Glass Containers segment, and reduced interest expense more than offset the absence of operating results from the Specialized Glass segment and an increase in other retained costs. The former Specialized Glass segment consisted of the Kimble pharmaceutical and laboratory glassware business. As a result of the December 31, 1993 sale of 51% of the Kimble business, the Company is recording its share of Kimble's results of operations on an equity basis beginning in 1994. Net earnings for 1994 were $78.3 million compared to $4.9 million in 1993. The 1993 results include a net gain from the sale of the Libbey glass tableware business and earnings from the discontinued Libbey business of $217.0 million and $1.4 million, respectively. Extraordinary charges from the early extinguishment of debt amounted to $12.7 million in 1993. Capsule segment results (in millions of dollars) for 1994 and 1993 are as follows (a): - ---------------------------------------------------------------------------- Net sales to unaffiliated customers 1994 1993 - ---------------------------------------------------------------------------- Glass Containers $2,590.1 $2,427.3 Plastics and Closures 976.1 908.6 Specialized Glass 197.9 Other 1.1 1.2 - ---------------------------------------------------------------------------- Consolidated total $3,567.3 $3,535.0 ============================================================================ - ---------------------------------------------------------------------------- Operating profit 1994 1993 (c) - ---------------------------------------------------------------------------- Glass Containers $ 393.0 $ 117.4 Plastics and Closures 140.4 123.3 Specialized Glass 18.9 Eliminations and other retained costs (b) (125.2) (305.0) - ---------------------------------------------------------------------------- Consolidated total $ 408.2 $ (45.4) ============================================================================ (a) See Segment Information included on pages 60 - 62. (b) Includes a charge of $100.0 million in 1994 to write down the asbestos insurance asset. (c) Reflects the net reductions from unusual fourth quarter charges and gains as follows: Glass Containers, $214.0 million; Plastics and Closures, $16.0 million; Specialized Glass, $3.2 million; and other retained costs, $298.9 million. 24 Consolidated net sales for 1994 increased $230.2 million, or 6.9% over the prior year, excluding the former Specialized Glass segment. Net sales of the Glass Containers segment increased $162.8 million, or 6.7%, over 1993. Domestic glass container unit shipments increased 4.8% compared to the prior year. Increased sales of beer containers, partially due to the March 31, 1994 acquisition of a customer's glass container manufacturing facility, more than offset lower soft drink container shipments. The Company believes the trend of soft drink conversions from glass to plastic (polyethylene terephthalate or PET) containers will continue; however, available capacity resulting from such conversions will be used for the production of other containers experiencing increased demand such as beer and iced tea. The Company's domestic glass business also benefited from increased shipments of iced tea and juice containers compared to prior year. Reported U.S. dollar sales of the Company's international affiliates were up 14.4% reflecting improved economic conditions in Brazil and higher unit shipments by the Company's Colombian and United Kingdom affiliates. The economic effects of exchange and price controls instituted in Venezuela in late June 1994 contributed to lower 1994 unit shipments by the Venezuelan affiliates compared to 1993. In the Plastics and Closures segment, sales increased $67.5 million, or 7.4%, over 1993. Increased sales for all business units combined with additional sales reported by the segment's Mexican affiliate, acquired near the end of the third quarter of 1993, accounted for the increase. The plastic bottles and closures businesses benefited from strong demand by makers of personal care and health care products. Consolidated operating profit for 1994, excluding the unusual fourth quarter items in both 1994 and 1993 discussed separately below, and excluding the former Specialized Glass segment, increased $43.6 million, or 9.4%, to $508.2 million from $464.6 million in 1993. Consolidated operating profit, excluding the unusual items and the former Specialized Glass segment was 14.2% of net sales in 1994 compared to 13.9% in 1993. Consolidated operating expenses as a percentage of net sales increased to 7.0% in 1994 from 6.4% in 1993 as a result of higher spending in selected areas to streamline operations and increased research and development expenditures. Operating profit of the Glass Containers segment, exclusive of unusual items, increased $61.6 million, or 18.6%. Approximately two-thirds of the increase was attributable to the domestic glass business as increased shipments of beer, iced tea, and juice containers combined with improvements in machine and labor productivity more than offset continuing lower sales of soft drink containers. Higher combined U.S. dollar operating profit of the segment's international glass business resulted from generally increased unit shipments and higher margins, particularly at the Brazilian and Colombian affiliates. The economic effects of exchange and price controls instituted in Venezuela in June 1994 negatively affected the 1994 operating profit. Similar programs and controls instituted in prior years have had a temporary adverse effect on the operating profit of the Company's affiliates; however, the Company is not able to project the magnitude or duration of such effects on future operating results. Operating profit of the Plastics and Closures segment, exclusive of unusual items, increased slightly to $140.4 million in 1994 from $139.3 million in 1993. The benefit of increased unit shipments for both the plastic bottles and closures businesses was offset by lower margins in the labels and carriers business as a result of lower unit shipments of glass container soft drink labels and 25 carriers, and lower unit selling prices for some plastic bottle product lines. The segment's operations in Mexico have been, and will continue to be, adversely affected by the devaluation of the peso; however, the amount is not expected to be material in relation to segment operating profit. Other retained costs, exclusive of the effects of the unusual items, were $25.2 million in 1994 compared to $6.1 million in 1993 reflecting expenses incurred in 1994 associated with the comprehensive reengineering initiated by the Company in 1993 and changes in other retained costs, principally as a result of previous divestitures. In December 1994, the Company concluded a settlement with certain reinsurers involved in the asbestos-related litigation representing approximately 19% of coverage limits. Pursuant to the settlement agreement, the Company received payments of approximately $80 million in 1994 and approximately $20 million in the first quarter of 1995, representing approximately 78.5 percent of policy limits. As a result of the settlement agreement and certain other considerations, including continuing delays in the resolution of the Company's claims for insurance coverage, the Company recorded a charge of $100 million ($61.7 million after tax) in the fourth quarter of 1994 to write down the asbestos insurance asset. For additional information, see Capital Resources and Liquidity on page 27 and Contingencies on page 52. In the fourth quarter of 1993, the Company recorded several unusual charges and gains as part of continuing operations. Gains from the sales of the Company's remaining interest in the television glass business and the sale of a 51% interest in its Kimble laboratory and pharmaceutical glassware business amounted to $46.1 million pretax ($34.6 million after tax). The Company also recorded charges totaling $578.2 million pretax ($357.0 million after tax), comprised of pretax charges of $325 million ($200.7 million after tax) for estimated uninsured future asbestos-related costs and $253.2 million ($156.3 million after tax) principally for costs related to the Company's restructuring program. During 1994 the Company began implementing its comprehensive restructuring program to reduce costs. Specific actions taken in 1994 include an approximate 10% domestic work force reduction, the shutdown of a glass manufacturing facility, and the shutdown of two plastic manufacturing plants. The severance and early retirement costs of the work force reduction and expected write down to realizable value of production and other factory equipment to be eliminated as a result of restructuring initiatives were estimated to be approximately $165 million and $30 million, respectively, at December 31, 1993. As a result of modifications of the restructuring program throughout 1994, the Company estimated that the aggregate severance and early retirement costs would approximate $90 million, while the costs to write down production and other factory equipment and to realign productive capacity, mainly as a result of manufacturing efficiency and productivity improvements experienced or expected to result from the restructuring program, would approximate $105 million. While implementation of the program will continue over the next several years, the Company expects that actions taken in 1994 will favorably affect operating profit beginning in 1995. 26 Capital Resources and Liquidity The Company's total debt at December 31, 1995 was $2.83 billion compared to $2.69 billion at December 31, 1994. At December 31, 1995, the Company had available credit totaling $1 billion under the Bank Credit Agreement expiring in December 1998, of which $322.0 million had not been utilized. At December 31, 1994, the Company had $400.2 million of credit which had not been utilized under the Agreement. The increased utilization during 1995 resulted from capital expenditures, acquisi- tions, and asbestos-related payments, partially offset by cash provided by operations, including cash received for settlement of a portion of the insurance asset for asbestos-related costs. Cash provided by operating activities was $252.6 million in 1995 compared to $227.4 million in 1994. Capital expenditures for property, plant and equipment were $283.6 million in 1995 and $286.0 million in 1994. During the years ended December 31, 1995 and 1994, cash expenditures related to the fourth quarter 1993 restructuring charge were approximately $30 million for each of those years. Future cash expenditures associated with this charge are not expected to be material. In the twelve-month period commencing January 1, 1996, the Company anticipates that cash flow from its operations and from utilization of available credit under the Bank Credit Agreement will be sufficient to fund its operating and seasonal working capital needs, debt service and other obligations. The Company faces additional demands upon its liquidity for asbestos-related payments. The Company has entered into group settlement agreements which include settlement amounts payable in 1996 and later years. As of December 31, 1995, such deferred payment amounts were approximately $130.1 million. The foregoing amount does not include spending commitments with respect to lawsuits and claims pending against the Company as of December 31, 1995. Based on the Company's expectations regarding favorable trends which should lower its aggregate payments for lawsuits and claims and its expectation of the collection of its insurance coverage and reimbursement for such lawsuits, and also based on the Company's expected operating cash flow, the Company believes that the payment of any deferred amounts of previously settled or otherwise determined lawsuits and claims, and the resolution of presently pending and anticipated future lawsuits and claims associated with asbestos, will not have a material adverse effect upon the Company's liquidity on a short-term or long-term basis. From December 1994 through mid-December 1995, the Company concluded settlement agreements with certain reinsurers involved in the asbestos-related litigation. In late December 1995, the Company entered into a settlement agreement involving all remaining insurance coverage issues in the asbestos- related litigation. Pursuant to these settlement agreements, the Company received payments of approximately $80 million in the fourth quarter of 1994 and $107 million in 1995. In addition, the Company expects to receive additional insurance proceeds in 1996 and future years under the agreements. The Company has and will use the settlement proceeds, when received, to reduce bank debt incurred in paying claims. 27 Over the term of the Bank Credit Agreement ending in December 1998, the Company expects that the utilization of available credit thereunder, combined with cash flows from operations, will be sufficient to fund its operating and seasonal working capital needs, debt service including relatively modest scheduled principal payments, and other obligations. Beyond that, based upon current levels of operations and anticipated growth, the Company anticipates that it will have to refinance existing indebtedness, sell assets and/or otherwise raise funds in either the private or public markets to make all of the principal payments when due under its outstanding debt securities, beginning with principal payments due in 1999 under the 10-1/4% Senior Subordinated Notes. There can be no assurance that the Company will be able to refinance existing indebtedness or otherwise raise funds in a timely manner or that the proceeds therefrom will be sufficient to make all such principal payments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page ---- Report of Independent Auditors 29 Consolidated Balance Sheets at December 31, 1995 and 1994 32-33 For the years ended December 31, 1995, 1994, and 1993: Consolidated Results of Operations 30-31 Consolidated Share Owners' Equity 34 Consolidated Cash Flows 35-36 Statement of Significant Accounting Policies 37-38 Financial Review 39-62 Selected Quarterly Financial Data 63 28 - ------------------------------------------------------------------------------ REPORT OF INDEPENDENT AUDITORS - ------------------------------------------------------------------------------ The Board of Directors and Share Owners Owens-Illinois, Inc. We have audited the accompanying consolidated balance sheets of Owens- Illinois, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of results of operations, share owners' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14.(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing stan- dards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Owens-Illinois, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP --------------------- Ernst & Young LLP Toledo, Ohio February 2, 1996 29 - --------------------------------------------------------------------------- CONSOLIDATED RESULTS OF OPERATIONS Owens-Illinois, Inc. Millions of dollars, except per share amounts Years ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Revenues: Net sales $3,763.2 $3,567.3 $3,535.0 Royalties and net technical assistance 26.8 29.1 29.2 Equity earnings 14.4 22.3 25.3 Interest 29.7 19.0 15.6 Other 46.9 15.2 57.0 - --------------------------------------------------------------------------- 3,881.0 3,652.9 3,662.1 Costs and expenses: Manufacturing, shipping, and delivery 2,948.5 2,824.3 2,823.8 Research and development 30.3 31.8 23.1 Engineering 24.5 22.8 19.2 Selling and administrative 187.8 193.5 182.9 Interest 299.6 278.2 290.0 Other 80.3 131.0 617.6 - --------------------------------------------------------------------------- 3,571.0 3,481.6 3,956.6 - --------------------------------------------------------------------------- Earnings (loss) from continuing operations before items below 310.0 171.3 (294.5) Provision (credit) for income taxes 100.8 68.9 (113.1) - --------------------------------------------------------------------------- 209.2 102.4 (181.4) Minority share owners' interests in earnings of subsidiaries 40.1 24.1 19.4 - --------------------------------------------------------------------------- Earnings (loss) from continuing operations before extraordinary items 169.1 78.3 (200.8) Net earnings of discontinued operations 1.4 Gain on sale of discontinued operations, net of applicable income taxes 217.0 - --------------------------------------------------------------------------- Earnings before extraordinary items 169.1 78.3 17.6 Extraordinary charges from early extinguishment of debt, net of applicable income taxes (12.7) - --------------------------------------------------------------------------- Net earnings $ 169.1 $ 78.3 $ 4.9 =========================================================================== 30 - --------------------------------------------------------------------------- CONSOLIDATED RESULTS OF OPERATIONS Owens-Illinois, Inc. -- Continued Millions of dollars, except per share amounts Years ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------- Earnings per share of common stock: Earnings (loss) from continuing operations before extraordinary items $ 1.40 $ 0.64 $ (1.70) Net earnings of discontinued operations 0.01 Gain on sale of discontinued operations 1.82 - --------------------------------------------------------------------------- Earnings before extraordinary items 1.40 0.64 0.13 Extraordinary charges (0.10) - --------------------------------------------------------------------------- Net earnings $ 1.40 $ 0.64 $ 0.03 =========================================================================== See accompanying Statement of Significant Accounting Policies and Financial Review. 31 - ----------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc. Millions of dollars, except share amounts December 31, 1995 1994 - ----------------------------------------------------------------------------- Assets Current assets: Cash, including time deposits of $58.9 ($56.8 in 1994) $ 109.4 $ 109.4 Short-term investments, at cost which approximates market 52.5 32.2 Receivables, less allowances of $39.7 ($38.7 in 1994) for losses and discounts 423.9 415.5 Inventories 502.2 477.1 Prepaid expenses 128.8 64.9 - ----------------------------------------------------------------------------- Total current assets 1,216.8 1,099.1 Investments and other assets: Domestic investments and advances 22.7 26.7 Foreign investments and advances 61.4 65.2 Repair parts inventories 156.3 137.7 Prepaid pension 615.7 597.9 Insurance for asbestos-related costs 323.5 470.1 Deposits, receivables, and other assets 234.1 235.0 Excess of purchase cost over net assets acquired, net of accumulated amortization of $262.0 ($230.6 in 1994) 1,023.9 1,049.4 - ----------------------------------------------------------------------------- Total investments and other assets 2,437.6 2,582.0 Property, plant, and equipment: Land, at cost 101.3 103.4 Buildings and equipment, at cost: Buildings and building equipment 475.1 459.2 Factory machinery and equipment 2,306.1 2,041.0 Transportation, office, and miscellaneous equipment 77.8 58.1 Construction in progress 126.9 156.7 - ----------------------------------------------------------------------------- 3,087.2 2,818.4 Less accumulated depreciation 1,302.4 1,181.9 - ----------------------------------------------------------------------------- Net property, plant, and equipment 1,784.8 1,636.5 - ----------------------------------------------------------------------------- Total assets $5,439.2 $5,317.6 ============================================================================= 32 - ----------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS Owens-Illinois, Inc. (continued) Millions of dollars, except share amounts December 31, 1995 1994 - ----------------------------------------------------------------------------- Liabilities and Share Owners' Equity Current liabilities: Short-term loans $ 52.6 $ 44.3 Accounts payable 289.5 280.3 Salaries and wages 83.9 84.8 U.S. and foreign income taxes 26.8 20.8 Current portion of asbestos-related liabilities 145.0 145.0 Other accrued liabilities 268.2 332.1 Long-term debt due within one year 22.9 20.7 - ----------------------------------------------------------------------------- Total current liabilities 888.9 928.0 Long-term debt 2,757.7 2,624.7 Deferred taxes 133.4 47.0 Nonpension postretirement benefits 389.1 405.4 Asbestos-related liabilities 235.4 404.4 Other liabilities 335.3 407.0 Commitments and contingencies Minority share owners' interests 167.5 125.2 Share owners' equity: Preferred stock 21.9 26.3 Common stock, par value $.01 per share, 250,000,000 shares authorized, 119,966,191 shares outstanding (119,079,496 in 1994) 1.2 1.2 Capital in excess of par value 1,042.8 1,034.6 Deficit (449.3) (618.4) Cumulative foreign currency translation adjustment (84.7) (67.8) - ----------------------------------------------------------------------------- Total share owners' equity 531.9 375.9 - ----------------------------------------------------------------------------- Total liabilities and share owners' equity $5,439.2 $5,317.6 ============================================================================= See accompanying Statement of Significant Accounting Policies and Financial Review. 33 - ----------------------------------------------------------------------------- CONSOLIDATED SHARE OWNERS' EQUITY Owens-Illinois, Inc. Millions of dollars Years ended December 31, 1995 1994 1993 - ----------------------------------------------------------------------------- Preferred stock Balance at beginning of year $ 26.3 $ 26.3 $ 26.3 Exchange of Series A preferred stock for common stock (4.4) - ----------------------------------------------------------------------------- Balance at end of year 21.9 26.3 26.3 ============================================================================= Common stock Balance at beginning of year 1.2 1.2 1.2 Exchange of Series A preferred stock for common stock Issuance of common stock - ----------------------------------------------------------------------------- Balance at end of year 1.2 1.2 1.2 ============================================================================= Capital in excess of par value Balance at beginning of year 1,034.6 1,033.9 1,034.0 Exchange of Series A preferred stock for common stock 4.4 Issuance of common stock 3.8 .7 Purchase of common stock (.1) - ----------------------------------------------------------------------------- Balance at end of year 1,042.8 1,034.6 1,033.9 ============================================================================= Deficit Balance at beginning of year (618.4) (696.7) (701.6) Net earnings 169.1 78.3 4.9 - ----------------------------------------------------------------------------- Balance at end of year (449.3) (618.4) (696.7) ============================================================================= Cumulative foreign currency translation adjustment Balance at beginning of year (67.8) (69.9) (61.3) Net change for the year (16.9) 2.1 (8.6) - ----------------------------------------------------------------------------- Balance at end of year (84.7) (67.8) (69.9) ============================================================================= Total share owners' equity $ 531.9 $ 375.9 $ 294.8 ============================================================================= See accompanying Statement of Significant Accounting Policies and Financial Review. 34 - ----------------------------------------------------------------------------- CONSOLIDATED CASH FLOWS Owens-Illinois, Inc. Millions of dollars Years ended December 31, 1995 1994 1993 - ----------------------------------------------------------------------------- Operating activities: Earnings (loss) from continuing operations before extraordinary items $ 169.1 $ 78.3 $(200.8) Non-cash charges (credits): Depreciation 188.3 183.3 180.0 Amortization of deferred costs 49.8 50.3 52.3 Asbestos-related insurance 40.0 100.0 Uninsured asbestos-related costs 325.0 Restructuring and other costs (40.0) 253.2 Gains on sales of interests in Kimble and television glass businesses (46.1) Deferred tax provision (credit) 48.7 30.2 (145.6) Other (33.7) (25.4) (8.1) Dividends from equity affiliates 3.7 4.4 5.6 Change in non-current operating assets (33.4) (14.7) 25.7 Asbestos-related payments (169.0) (142.7) (136.2) Asbestos-related insurance proceeds 106.6 79.9 Reduction of non-current liabilities (17.5) (77.5) (55.1) Change in components of working capital (60.0) (38.7) (10.9) - ----------------------------------------------------------------------------- Cash provided by continuing operating activities 252.6 227.4 239.0 Cash utilized in discontinued operating activities (7.3) - ----------------------------------------------------------------------------- Cash provided by operating activities 252.6 227.4 231.7 Investing activities: Additions to property, plant and equipment (283.6) (286.0) (266.2) Acquisitions (58.8) (47.1) (34.0) Net cash proceeds from divestitures 8.1 13.4 727.3 Other (.3) 2.1 - ----------------------------------------------------------------------------- Cash provided by (utilized in) investing activities (334.3) (320.0) 429.2 35 - ----------------------------------------------------------------------------- CONSOLIDATED CASH FLOWS Owens-Illinois, Inc. (continued) Millions of dollars Years ended December 31, 1995 1994 1993 - ----------------------------------------------------------------------------- Financing activities: Additions to long-term debt $164.3 $ 513.7 $ 107.0 Repayments of long-term debt (81.8) (336.8) (712.1) Decrease in short-term loans (5.3) (4.0) (13.7) Issuance of subsidiaries' stock 4.3 Payment of finance fees and debt retirement costs (1.2) (14.9) Issuance of common stock 3.8 .7 - ----------------------------------------------------------------------------- Cash provided by (utilized in) financing activities 81.0 176.7 (633.7) Effect of exchange rate fluctuations on cash .7 (41.8) (41.2) - ----------------------------------------------------------------------------- Increase (decrease) in cash 0.0 42.3 (14.0) Cash at beginning of year 109.4 67.1 81.1 - ----------------------------------------------------------------------------- Cash at end of year $109.4 $ 109.4 $ 67.1 ============================================================================= See accompanying Statement of Significant Accounting Policies and Financial Review. 36 - -------------------------------------------------------------------------------- STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Basis of Consolidated Statements. The consolidated financial statements of Owens-Illinois, Inc. ("Company") include the accounts of its wholly-owned direct subsidiary, Owens-Illinois Group, Inc. ("Group"), and all other major subsidiaries. Substantially all the assets of the Company are represented by its investment in and receivables from Group. Newly acquired subsidiaries have been included in the consolidated financial statements from dates of acquisition. Consolidated foreign subsidiaries are principally reported on the basis of fiscal years ending November 30. The Company uses the equity method of accounting for investments in which it has a significant ownership interest, generally 20% to 50%. Other investments are accounted for at cost. Nature of Operations. The Company is a leading manufacturer of glass container and plastic packaging products operating in two industry segments. The Company's principal product lines in the Glass Containers industry segment are glass containers for the food and beverage industries. The Company's principal product lines in the Plastics and Closures industry segment include plastic containers, plastic closures, plastic prescription containers, labels, and multipack plastic carriers for beverage containers. Sales of the Glass Containers industry segment were 73% of the Company's 1995 consolidated sales. The Company has glass container operations located in thirteen countries, while the plastics and closures operations are predominantly located in the United States. The principal markets and operations for the Company's glass products are in the United States, Latin America and Europe. Major markets for the plastics and closures products include the United States household products, personal care products, health care products, and food and beverage industries. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect certain amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates, at which time the Company would revise its estimates accordingly. For further information on certain of the Company's significant estimates, see Contingencies on page 52. Cash. The Company defines "cash" as cash and time deposits with maturities of three months or less when purchased. Fair Values of Financial Instruments. The carrying amounts reported for cash, short-term investments and short-term loans approximate fair value. In addition, carrying amounts approximate fair value for certain long-term debt obligations subject to frequently redetermined interest rates. Fair values 37 for the Company's significant fixed rate debt obligations are generally based on published market quotations. The Company is not a party to any significant derivative financial instruments. Inventory Valuation. The Company uses the last-in, first-out (LIFO) cost method of inventory valuation for most domestic inventories. Other inventories are valued at the lower of standard costs (which approximate average costs), average costs, or market. Excess of Purchase Cost over Net Assets Acquired. The excess of purchase cost over net assets acquired is being amortized over 40 years. The Company evaluates the recoverability of long-lived assets based on undiscounted projected cash flows, excluding interest and taxes, when factors indicate that an impairment may exist. Property, Plant, and Equipment. In general, depreciation is computed using the straight-line method. Income Taxes on Undistributed Earnings. In general, the Company plans to continue to invest in the business the undistributed earnings of foreign subsidiaries and corporate joint ventures accounted for by the equity method. Accordingly, taxes are provided only on that amount of undistributed earnings in excess of planned reinvestments. Foreign Currency Translation. The assets and liabilities of certain affiliates and associates are translated at current exchange rates and any related translation adjustments are recorded directly in share owners' equity. Certain of the Company's major affiliates which are located in Brazil, Venezuela and Poland operate in "highly inflationary" economies. In such cases, certain assets of these affiliates are translated at historical exchange rates and all translation adjustments are reflected in the statements of Consolidated Results of Operations. Earnings Per Share of Common Stock. Earnings per share of common stock is computed using weighted average shares of common stock outstanding (119,343,048 shares for 1995, 119,004,785 shares for 1994, and 118,978,327 shares for 1993) after deducting dividend requirements for preferred stock. Incremental shares applicable to outstanding stock options and exchangeable preferred stock are not included in the calculation as they would not materially affect the reported amounts. 38 - -------------------------------------------------------------------------------- FINANCIAL REVIEW Tabular data in millions of dollars, except share and per share amounts - -------------------------------------------------------------------------------- Changes in Components of Working Capital Related to Operations. Changes in the components of working capital related to operations (net of the effects related to acquisitions and divestitures) were as follows: - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- Decrease (increase) in current assets: Short-term investments $ (5.5) $ (1.5) $ (3.4) Receivables 21.0 (71.3) (10.9) Inventories 8.4 6.9 (17.3) Prepaid expenses (8.9) (6.0) 3.9 Increase (decrease) in current liabilities: Accounts payable and accrued liabilities (76.6) 26.7 5.0 Salaries and wages .2 4.8 1.2 U.S. and foreign income taxes 1.4 1.7 (6.0) - ---------------------------------------------------------------------------- $(60.0) $(38.7) $(27.5) ============================================================================ Continuing operations $(60.0) $(38.7) $(10.9) Discontinued operations (16.6) - ---------------------------------------------------------------------------- $(60.0) $(38.7) $(27.5) ============================================================================ Inventories. Major classes of inventory are as follows: - ---------------------------------------------------------------------------- 1995 1994 - ---------------------------------------------------------------------------- Finished goods $381.4 $377.4 Work in process 3.2 4.2 Raw materials 80.3 73.0 Operating supplies 37.3 22.5 - ---------------------------------------------------------------------------- $502.2 $477.1 ============================================================================ If the inventories which are valued on the LIFO method had been valued at standard or average costs, which approximate current costs, consolidated inventories would be higher than reported by $21.0 million and $19.6 million at December 31, 1995 and 1994, respectively. Inventories which are valued at the lower of standard costs (which approximate average costs), average costs, or market at December 31, 1995 and 1994 were approximately $185.2 million and $125.7 million, respectively. 39 Investments. Domestic and foreign investments and advances relate principally to equity associates. Summarized information pertaining to the Company's equity associates follows: - ---------------------------------------------------------------------------- 1995 1994 - ---------------------------------------------------------------------------- At end of year: Equity in undistributed earnings: Foreign $ 55.4 $ 50.8 Domestic 8.4 10.8 - ---------------------------------------------------------------------------- Total $ 63.8 $ 61.6 ============================================================================ Equity in cumulative translation adjustment $(15.0) $(14.1) ============================================================================ - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- For the year: Equity in earnings: Foreign $10.1 $12.8 $15.8 Domestic 4.3 9.5 9.5 - ---------------------------------------------------------------------------- Total $14.4 $22.3 $25.3 ============================================================================ Dividends received: Foreign $ 3.7 $ 2.9 $ 4.8 Domestic 1.5 .8 - ---------------------------------------------------------------------------- Total $ 3.7 $ 4.4 $ 5.6 ============================================================================ Summarized combined financial information for equity associates is as follows: - ---------------------------------------------------------------------------- 1995 1994 - ---------------------------------------------------------------------------- At end of year: Current assets $423.4 $378.8 Non-current assets 441.8 427.2 - ---------------------------------------------------------------------------- Total assets 865.2 806.0 - ---------------------------------------------------------------------------- Current liabilities 205.3 192.3 Other liabilities and deferred items 358.6 316.6 - ---------------------------------------------------------------------------- Total liabilities and deferred items 563.9 508.9 - ---------------------------------------------------------------------------- Net assets $301.3 $297.1 ============================================================================ 40 - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- For the year: Net sales $1,099.0 $1,018.6 $1,003.5 ============================================================================ Gross profit $ 178.4 $ 199.3 $ 201.3 ============================================================================ Net earnings $ 56.0 $ 62.2 $ 67.8 ============================================================================ On January 1, 1995, the Company consolidated the operations of its affiliates in Poland and Bolivia. Results of the Polish affiliate for 1994 and balance sheet data at December 31, 1994 are included above. Results of the Bolivian affiliate for 1994 and 1993 and balance sheet data at December 31, 1994 are also included above. During the fourth quarter of 1993, the Company sold the remaining 50% interest in the television glass business, the results of which are included above through the date of sale. On December 31, 1993, the Company sold 51% of its Kimble business. Results of the Kimble business for 1995 and 1994 and balance sheet data at December 31, 1995 and 1994, are included above. At December 31, 1995, the Company's equity in the undistributed earnings of foreign subsidiaries for which income taxes had not been provided approximated $213 million. It is not practicable to estimate the U.S. and foreign tax which would be payable should these earnings be distributed. Discontinued Operations. On June 24, 1993, the Company and Group completed the sale of all the issued and outstanding shares of stock of Group's wholly owned subsidiary, Libbey Inc. ("Libbey"), through an underwritten initial public offering. Libbey operated the glass tableware business of the Company, which is presented as a discontinued operation in the accompanying financial statements. Proceeds from the sale amounted to approximately $445 million. The gain on the sale of the Libbey business amounted to $270.5 million, less applicable income taxes of $53.5 million. Applicable income taxes have been reduced by the previously unrecognized benefit of a capital loss carryover. 41 Summary results of operations information for the Libbey business is as follows: Period ended June 18, 1993 - ----------------------------------------------------------------------------- Total revenues $118.1 Costs and expenses 97.9 - ----------------------------------------------------------------------------- Earnings before interest and taxes 20.2 Interest expense 17.7 - ----------------------------------------------------------------------------- Earnings before income taxes 2.5 Provision for income taxes 1.1 - ----------------------------------------------------------------------------- Net earnings $ 1.4 ============================================================================= Interest expense allocated to discontinued operations is based on the indebtedness expected to be repaid with the proceeds from the sale of the Libbey business at applicable interest rates in effect during the period. Other Accrued Liabilities. At December 31, 1995 and 1994, other accrued liabilities include accruals for interest, consisting principally of interest accrued on domestic obligations of $40.7 million and $39.6 million, respectively. Short-Term Borrowings. At December 31, 1995 and 1994, the weighted average interest rate on outstanding short-term borrowings was 14.0% and 20.7%, respectively. The relatively high weighted average interest rates are reflective of the generally higher short-term borrowing costs incurred by most of the Company's Latin American affiliates. Long-Term Debt. The following table summarizes the long-term debt of the Company at December 31, 1995 and 1994: - ----------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------- Bank Credit Agreement: Revolving Loans $ 549.4 $ 450.3 Bid Rate Loans 61.0 65.0 Senior Debentures, 11%, due 1999 to 2003 1,000.0 1,000.0 Senior Subordinated Notes: 10-1/4%, due 1999 250.0 250.0 10-1/2%, due 2002 150.0 150.0 10%, due 2002 250.0 250.0 9-3/4%, due 2004 200.0 200.0 9.95%, due 2004 100.0 100.0 Other 220.2 180.1 - ----------------------------------------------------------------------------- 2,780.6 2,645.4 Less amounts due within one year 22.9 20.7 - ----------------------------------------------------------------------------- Long-term debt $2,757.7 $2,624.7 ============================================================================= 42 The Company has an agreement with a group of banks ("Bank Credit Agreement" or "Agreement") which provides Revolving Loan Commitments under which the Company may borrow up to $1 billion through December 1998. The Agreement includes Swing Line and Overdraft Account facilities providing for aggregate borrowings up to $50 million which reduce the amount available for borrowing under the Revolving Loan Commitments. In addition, the terms of the Bank Credit Agreement permit the Company to request Bid Rate Loans from banks participating in the Agreement and to issue Commercial Paper notes to other purchasers. Borrowings outstanding under Bid Rate Loans and Commercial Paper notes are limited to $450 million in the aggregate and reduce the amount available for borrowing under the Revolving Loan Commitments. The Revolving Loan Commitments also provide for the issuance of letters of credit totaling up to $300 million. At December 31, 1995, the Company had unused credit available under the Bank Credit Agreement of $322.0 million. Revolving loans bear interest, at the Company's option, at the prime rate or a Eurodollar deposit-based rate plus a margin linked to published ratings of the Company's senior debt instruments. The margin is currently .875% and is limited to a range of .625% to 1%. Swing Line and Overdraft Account loans bear interest at the prime rate minus the commitment fee percentage, defined below. The weighted average interest rate on borrowings outstanding under the Bank Credit Agreement at December 31, 1995, was 6.78%. While no compensating balances are required by the Agreement, the Company must pay a commitment fee on the excess of the Revolving Loan Commitments over the aggregate amount of Revolving Loans outstanding. The commitment fee, currently .375%, is subject to reduction to .25%, also based on changes in published ratings. The capital stock and intercompany debt obligations of most of the Company's domestic subsidiaries are pledged as collateral for borrowings under the Agreement and certain other obligations. While these pledges do not directly encumber the operating assets owned by these subsidiaries, the Agreement restricts the creation of liens on them. The Agreement also requires the maintenance of certain financial ratios, restricts the incurrence of indebtedness and other contingent financial obligations, and restricts certain types of business activities and investments. The Senior Debentures rank pari passu with the obligations of the Company under the Bank Credit Agreement and other senior indebtedness, and senior in right of payment to all existing and future subordinated debt of the Company. The Senior Debentures are guaranteed on a senior basis by Group and most of the Company's domestic subsidiaries and secured by a pledge of the capital stock of, and intercompany indebtedness of, Group and such subsidiaries. Annual maturities for all of the Company's long-term debt through 2000 are as follows: 1996, $22.9 million; 1997, $49.6 million; 1998, $633.3 million; 1999, $463.9 million; and 2000, $229.5 million. Interest paid in cash aggregated $283.1 million for 1995, $259.1 million for 1994, and $284.2 million for 1993. 43 Fair values at December 31, 1995, of the Company's significant fixed rate debt obligations are as follows: - ----------------------------------------------------------------------------- Indicated Principal Market Amount Price Fair Value - ----------------------------------------------------------------------------- 11% Senior Debentures $1,000.0 113 $1,130.0 Senior Subordinated Notes: 10-1/4% 250.0 104 260.0 10-1/2% 150.0 106-7/8 160.3 10% 250.0 104-5/8 261.6 9-3/4% 200.0 105-3/8 210.8 9.95% 100.0 106 106.0 - ----------------------------------------------------------------------------- Operating Leases. Rent expense attributable to all operating leases was $58.5 million in 1995, $53.4 million in 1994, and $54.2 million in 1993. Contingent rental expense was not significant in any period presented. Minimum future rentals under operating leases are as follows: 1996, $31.7 million; 1997, $29.4 million; 1998, $26.5 million; 1999, $23.5 million; 2000, $18.0 million; and 2001 and thereafter, $95.1 million. Foreign Currency Translation. Aggregate foreign currency exchange losses included in other costs and expenses were $10.1 million in 1995, $53.9 million in 1994, and $16.1 million in 1993, and resulted principally from translation of the balance sheets of certain of the Company's major affiliates which are located in Brazil and Venezuela. Earnings on time deposits and short-term investments in those countries typically include an inflationary component, which has substantially offset the exchange losses in those years. Changes in the cumulative foreign currency translation adjustment were as follows: - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- Balance at beginning of year $(67.8) $(69.9) $(61.3) Net effect of exchange rate fluctuations (17.2) 1.6 (10.8) Previous adjustments eliminated in divestitures (.3) Deferred income taxes .3 .5 2.5 - ---------------------------------------------------------------------------- Balance at end of year $(84.7) $(67.8) $(69.9) ============================================================================ 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. 44 Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 1995 and 1994 are as follows: - ---------------------------------------------------------------------------- 1995 1994 - ---------------------------------------------------------------------------- Deferred tax assets: Accrued postretirement benefits $138.4 $143.2 Asbestos-related liabilities 133.2 192.3 Other accrued liabilities 111.6 167.8 U.S. Federal tax loss carryovers 104.3 107.4 Other 79.9 55.5 - ---------------------------------------------------------------------------- Total deferred tax assets 567.4 666.2 Deferred tax liabilities: Prepaid pension costs 216.2 208.1 Property, plant and equipment 193.0 186.1 Insurance for asbestos-related costs 95.2 164.5 Inventory 38.8 45.6 Receivables and other assets 20.6 19.6 Other 31.2 37.8 - ---------------------------------------------------------------------------- Total deferred tax liabilities 595.0 661.7 - ---------------------------------------------------------------------------- Net deferred tax assets (liabilities) $(27.6) $ 4.5 ============================================================================ Deferred taxes are included in the Consolidated Balance Sheets at December 31, 1995 and 1994 as follows: - ---------------------------------------------------------------------------- 1995 1994 - ---------------------------------------------------------------------------- Prepaid expenses $ 105.8 $ 51.5 Deferred tax liabilities (133.4) (47.0) - ---------------------------------------------------------------------------- Net deferred tax assets (liabilities) $ (27.6) $ 4.5 ============================================================================ 45 The provision for income taxes consists of the following: - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- Current: U.S. federal $ 1.5 State .8 $ 2.9 $ 2.0 Foreign 49.8 35.8 31.6 - ---------------------------------------------------------------------------- 52.1 38.7 33.6 - ---------------------------------------------------------------------------- Deferred: U.S. federal 34.7 22.7 (120.8) State 6.6 1.1 (17.0) Foreign 7.4 6.4 (7.8) - ---------------------------------------------------------------------------- 48.7 30.2 (145.6) - ---------------------------------------------------------------------------- Total: U.S. federal 36.2 22.7 (120.8) State 7.4 4.0 (15.0) Foreign 57.2 42.2 23.8 - ---------------------------------------------------------------------------- $100.8 $ 68.9 $(112.0) ============================================================================ The provision for income taxes has been allocated as follows: Continuing operations $100.8 $ 68.9 $(113.1) Discontinued operations 1.1 - ---------------------------------------------------------------------------- $100.8 $ 68.9 $(112.0) ============================================================================ The provision for income taxes was calculated based on the following components of earnings (loss) before income taxes and extraordinary items: - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- Continuing operations: Domestic $100.2 $ 32.4 $(411.6) Foreign 209.8 138.9 117.1 Discontinued operations 2.5 - ---------------------------------------------------------------------------- $310.0 $171.3 $(292.0) ============================================================================ Income taxes paid (refunded) in cash were as follows: - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- Domestic $ 3.1 $ (6.5) $ 1.0 Foreign 35.5 20.2 18.5 - ---------------------------------------------------------------------------- $ 38.6 $ 13.7 $ 19.5 ============================================================================ 46 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: - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- Pretax earnings (loss) at statutory U.S. Federal tax rate $108.5 $60.0 $(102.2) Increase (decrease) in provision for income taxes due to: Amortization of goodwill 10.5 11.5 11.0 State taxes, net of federal benefit 4.8 2.6 (9.7) Foreign earnings at different rates (4.9) 2.5 (1.6) Nontaxable foreign earnings (5.3) Foreign sales corporation and possession tax credits (5.3) (1.5) (0.9) Research and development credits (1.0) (1.8) Equity earnings (2.1) (3.1) (2.6) Divestitures (8.3) Adjustment for enacted change in tax rate 2.4 Other items (4.4) (1.3) (0.1) - ---------------------------------------------------------------------------- Provision (credit) for income taxes $100.8 $68.9 $(112.0) ============================================================================ Effective tax rate 32.5% 40.2% 38.4% ============================================================================ For U.S. Federal income tax purposes, approximately $298 million of net operating loss is available as a carryover at December 31, 1995. Carryovers of the net operating loss expire beginning in 2004. For financial reporting purposes, a valuation reserve was established as of January 1, 1992 for $70 million of the capital loss carryover. The valuation reserve was eliminated in 1993, thereby reducing the tax provision that otherwise would have been required on the gain on the sale of the Libbey business. Additionally, alternative minimum tax credits and research and development credits of approximately $16 million and $3 million, respectively, are available to offset future U.S. federal income tax. The alternative minimum tax credits do not expire while carryovers of the research and development credits expire beginning in 2009. Restriction on Retained Earnings. Under the terms of the Bank Credit Agreement and the various Indentures related to the Company's senior and subordinated notes and debentures (see Long-Term Debt), the Company may not pay dividends with respect to its Preferred or Common Stock and is restricted in the number of shares of its Common Stock which can be redeemed. 47 Preferred Stock. Preferred shares, $.01 par value, $7.00 cumulative dividend, issuable in series, at December 31, 1995 and 1994, were as follows: Number of Shares - ----------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------- Series A Exchangeable Authorized 75,000 75,000 Issued 65,625 65,625 Outstanding 22,397 65,625 Series B Exchangeable Authorized 75,000 75,000 Issued and outstanding 65,625 65,625 Series C Exchangeable Authorized 150,000 150,000 Issued and outstanding 131,250 131,250 The preferred shares, all of which were issued October 30, 1992, are exchangeable for a number of common shares determined by multiplying the total number of exchangeable shares being exchanged by the sum of $100 plus all dividends accumulated and unpaid on each share being exchanged and dividing such amount by the last reported sales price of common shares on the New York Stock Exchange at the close of business on the business day next preceding the day of exchange. The shares are exchangeable at the option of the owners as follows: Series A, from and after the third anniversary of the date of issuance; Series B, from and after the fifth anniversary of the date of issuance; and Series C, from and after the sixth anniversary of the date of issuance. Dividends accumulated and unpaid were approximately $4.8 million and $4.0 million at December 31, 1995 and 1994, respectively. Holders of the preferred shares have no voting rights, except on actions which would affect their rights to exchange shares for common shares, or on actions to increase the authorized number of exchangeable shares. Restrictions on Transfer of Assets. The governments and national banking systems of certain countries in which the Company has consolidated foreign affiliates impose various restrictions on the payment of dividends and transfer of funds out of those countries. Additionally, provisions of credit agreements entered into by certain foreign affiliates presently restrict the payment of dividends. The estimated U.S. dollar value of the foreign net assets included in the Consolidated Balance Sheets that are restricted in some manner as to transfer to the Company was approximately $140 million at December 31, 1995. Stock Options. Nonqualified options to purchase shares of common stock of the Company are outstanding under the Stock Option Plan for Key Employees as amended and restated effective December 18, 1991 and the Stock Option Plan for Directors of Owens-Illinois, Inc. as amended effective May 12, 1994. 48 All options have been granted at prices equal to the market price on the date granted. Accordingly, the Company recognizes no compensation expense related to these options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." In October, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which encourages, but does not require, expense recognition for stock-based awards based on their estimated fair value on the date of grant. The Company presently intends to continue to account for stock-based awards under the provisions of APB No. 25. Stock option activity is as follows: - ---------------------------------------------------------------------------- Shares Under Option Price Range - ---------------------------------------------------------------------------- Outstanding at December 31, 1993 4,912,696 $ 5.00-$12.50 Granted 571,673 11.00- 12.63 Exercised (106,169) 5.00 Canceled (63,800) 11.50- 12.50 - ---------------------------------------------------------------------------- Outstanding at December 31, 1994 5,314,400 5.00- 12.63 Granted 528,450 13.25 Exercised (470,900) 5.00- 11.00 Canceled (40,750) 11.00- 12.50 - ---------------------------------------------------------------------------- Outstanding at December 31, 1995 5,331,200 $ 5.00-$13.25 ============================================================================ - ---------------------------------------------------------------------------- 1995 1994 - ---------------------------------------------------------------------------- At end of year: Shares reserved for option grants 1,574,640 2,062,340 ============================================================================ Share options exercisable 3,272,761 3,497,772 ============================================================================ Price range of options exercisable $5.00-$13.25 $5.00-$12.50 ============================================================================ Pension Benefit Plans. Net credits to continuing operations for all of the Company's pension plans and certain deferred compensation arrangements amounted to $31.5 million in 1995, $28.2 million in 1994, and $26.7 million in 1993. The Company has pension plans covering substantially all domestic employees. Benefits generally are based on compensation for salaried employees and on length of service for hourly employees. The Company's policy is to fund domestic pension plans such that sufficient assets will be available to meet future benefit requirements. 49 The following tables relate to the Company's principal domestic pension plans. The funded status at year-end was as follows: - -------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested $1,651.9 $1,471.9 Nonvested 104.2 88.5 - -------------------------------------------------------------------------- Accumulated benefit obligation 1,756.1 1,560.4 Effect of assumed benefit increases 143.1 112.2 - -------------------------------------------------------------------------- Projected benefit obligation 1,899.2 1,672.6 Plan assets at fair value 2,357.9 2,040.2 - -------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 458.7 367.6 Unrecognized prior service cost 34.3 37.4 Unrecognized net loss 122.7 192.9 - -------------------------------------------------------------------------- Prepaid pension $ 615.7 $ 597.9 ========================================================================== The components of the net pension credit for the year were as follows: - -------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------- Service cost (benefits earned during the period) $ 19.7 $ 27.3 $ 30.8 Interest cost on projected benefit obligation 137.4 133.1 150.5 Actual return on plan assets (504.3) 21.8 (356.6) Net amortization and deferral 300.9 (223.6) 139.4 - -------------------------------------------------------------------------- $ (46.3) $ (41.4) $ (35.9) ========================================================================== The actuarial present value of benefit obligations is based on a discount rate of 7.25% for 1995 and 8.50% for 1994. Future benefits are assumed to increase in a manner consistent with past experience of the plans, which, to the extent benefits are based on compensation, includes assumed salary increases on a scale of 5% for 1995 and 1994. The expected long-term rate of return on assets was 10% for 1995, 1994, and 1993. Amortization included in net pension credits is based on the average remaining service of employees. Plan assets include marketable equity securities which, at December 31, 1995, included 19,099,647 shares of the Company's common stock, government and corporate debt securities, real estate and commingled funds. During 1995 and 1993, the Company transferred $22.0 million and $30.0 million, respectively, of pension plan assets to a special trust for the purpose of funding qualified current retiree health liabilities. 50 Postretirement Benefits Other Than Pensions. The Company provides certain retiree health care and life insurance benefits covering substantially all U.S. salaried and certain hourly employees. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. The components of the net postretirement benefit cost for the year were as follows: - ----------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------- Service cost (benefits earned during the period) $ 1.6 $ 2.1 $ 5.1 Interest cost on accumulated postretirement benefit obligation 23.5 21.9 26.7 Amortization (13.7) (13.3) (15.8) - ----------------------------------------------------------------------------- Net postretirement benefit cost $ 11.4 $ 10.7 $ 16.0 ============================================================================= The components of the accumulated postretirement benefit obligation and amounts accrued at year-end were as follows: - ----------------------------------------------------------------------------- 1995 1994 - ----------------------------------------------------------------------------- Actuarial present value of benefit obligations: Retirees and dependents $264.4 $248.2 Eligible active employees 17.1 12.8 Other active employees 30.5 28.0 - ----------------------------------------------------------------------------- 312.0 289.0 Unamortized prior service credit 114.4 128.1 Unrecognized net loss (37.3) (11.7) - ----------------------------------------------------------------------------- Nonpension postretirement benefits $389.1 $405.4 ============================================================================= Assumed health care cost inflation was based on a rate of 8.50% in 1995 and 9.00% in 1994, declining ratably to an ultimate rate of 6.00%. A one percentage point increase in these rates would have increased the accumulated postretirement benefit obligation at December 31, 1995 by $12.6 million and increased the net postretirement benefit cost for 1995 by $1.2 million. The assumed discount rates used in determining the accumulated postretirement benefit obligation were 7.25% and 8.50% at December 31, 1995 and 1994, respectively. Amortization included in net postretirement benefit cost is based on the average remaining service of employees. Benefits provided by the Company for certain of the hourly retirees are determined by collective bargaining. Most other domestic hourly retirees receive health and life insurance benefits from a multiemployer trust established by collective bargaining. Payments to the trust as required by the bargaining agreements are based upon specified amounts per hour worked and were $7.1 million in 1995, $7.5 million in 1994, and $7.3 million in 1993. Postretirement health and life benefits for retirees of foreign affiliates are 51 generally provided through the national health care programs of the countries in which the affiliates are located. Other Revenues. Other revenues for the year ended December 31, 1993, includes gains totaling $46.1 million (approximately $34.6 million after tax) from the fourth quarter sales of the remaining 50% interest in the television glass business and of 51% of the Kimble business. Other Costs and Expenses. Other costs and expenses for the year ended December 31, 1995, includes $40 million to write down the asbestos insurance asset and a net credit of $40 million primarily from the reduction of previously established restructuring reserves. Other costs and expenses for the year ended December 31, 1994, includes $100 million to write down the asbestos insurance asset. Other costs and expenses for the year ended December 31, 1993, includes $325 million for estimated uninsured future asbestos-related costs and charges totaling $253.2 million, principally for costs related to a restructuring program and including approximately $50 million for costs related to a December 1993 plant shutdown and an increase in estimated future fees and indemnification costs related to various environmental and legal matters. Extraordinary Charges. As a result of the repayment of certain debt obligations prior to their scheduled maturities, the Company recorded extraordinary charges of $20.3 million for the write-off of unamortized finance fees and redemption premiums, less applicable income taxes of $7.6 million, in 1993. Contingencies. The Company was contingently liable at December 31, 1995, under guarantees of loans and lease obligations related to certain divested businesses, equity associates and other third parties in the principal amount of $29.8 million. The Company is one of a number of defendants (typically 10 to 20) in a substantial number of lawsuits filed in numerous state and federal courts by persons alleging bodily injury (including death) as a result of exposure to dust from asbestos fibers. From 1948 to 1958, one of the Company's former business units commercially produced and sold a high-temperature, clay-based insulating material containing asbestos. The insulation material was used in limited industrial applications such as shipyards, power plants and chemical plants. During its ten years in the high-temperature insulation business, the Company's aggregate sales of insulation material containing asbestos were less than $40 million. The Company exited the insulation business in April 1958. The traditional asbestos personal injury lawsuits and claims relating to such production and sale of asbestos material typically allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and punitive damages in various amounts (herein referred to as "asbestos claims"). As of December 31, 1995, the Company estimates that it is a named defendant in asbestos claims involving approximately 19,000 plaintiffs and claimants. 52 The following table shows the approximate number of plaintiffs and claimants involved in asbestos claims pending at the beginning of, disposed of and filed during, and pending at the end of, each of the years listed (eliminating duplicate filings): 1995 1994 1993 ------ ------ ------ Pending at beginning of year 27,000 35,000 51,000 Disposed 23,000 20,000 30,000 Filed 15,000 12,000 14,000 ------ ------ ------ Pending at end of year 19,000 27,000 35,000 ====== ====== ====== Since receiving its first asbestos claim, the Company, as of December 31, 1995, has disposed of the asbestos claims of approximately 187,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $3,900. Certain of these dispositions have included deferred payment amounts payable over periods ranging from one to seven years; such amounts are included in the foregoing average indemnity payment per claim. The Company believes the increased 1995 filings were in part attributable to the efforts of claimants attempting to avoid the impact of various federal and state "tort reform" legislative proposals. The Company's indemnity payments for these claims have varied on a per claim basis, and are expected to continue to vary considerably over time. They are affected by a multitude of factors, including the type and severity of the disease sustained by the claimant; the occupation of the claimant; the extent of the claimant's exposure to asbestos-containing insulation products manufactured or sold by the Company; the extent of the claimant's exposure to asbestos-containing products manufactured or sold by other producers; the number and financial resources of other producer defendants; the jurisdiction of suit; the presence or absence of other possible causes of the claimant's illness; the availability of legal defenses such as the statute of limitations or state of the art; and whether the claim was resolved on an individual basis or as part of a group settlement. Total indemnity, claim disposition and litigation payments and expenses in asbestos claims and related proceedings may also be affected by (i) settlement and judgment payments by other defendants (which may take the form of a judgment credit for such settlements), (ii) claims or cross-claims by other asbestos manufacturers or suppliers seeking indemnity or contribution from the Company, and (iii) the Company's claims or cross-claims for contribution or indemnity from other asbestos manufacturers, suppliers or related parties. Because the scope and extent of all such contribution and indemnity claims vary considerably according to factual circumstances and applicable law, the Company is unable to estimate the precise extent to which such contribution or indemnity claims may affect the Company's total indemnity, claim disposition and litigation payments and expenses, but the Company nonetheless believes that the probable effect of all such claims or cross-claims against the Company will not be material. 53 The Company is also one of a number of defendants (typically 30 to 90) in separate bodily injury lawsuits involving approximately 12,000 plaintiffs who allege that they are or were maritime workers. On March 31, 1995, a class action against the Company was filed in Common Pleas Court in Cuyahoga County, Ohio which purports to consist of all maritime claimants alleging exposure to the Company's asbestos-containing insulation products. The Company believes that class action treatment of such maritime claims is inappropriate and, accordingly, intends to oppose class certification in this suit. These maritime plaintiffs, who are all represented by the same attorney, primarily allege so-called "in-place" exposure to asbestos-containing products while serving aboard merchant marine vessels. Such cases as a group appear to involve significantly less serious disease compared to traditional filings and the vast majority may not involve any medical condition attributable to exposure to the Company's product. Since 1988, approximately 8,000 such lawsuits filed by the same attorney have been dismissed by various courts for procedural deficiencies. Many of these cases have been refiled in other courts and are included with the above total of bodily injury lawsuits involving maritime workers. One thousand of these cases dismissed were "with prejudice," and many of the other dismissals involved the same claimants in duplicate or repetitive suit filings. In view of these factors, the Company presently believes that the probable ultimate disposition of these maritime claims will not involve any material additional indemnity liability and does not include them in the description herein of asbestos claims or in the total number of pending asbestos claims set forth in the table above. The Company is also one of a number of defendants (typically 15 to 30) in a number of lawsuits and claims, some of which are class actions, brought by or on behalf of public or private property owners, alleging damages as a result of the presence of asbestos-containing insulation in various properties. These lawsuits typically assert multiple theories of liability, including negligence, breach of warranty and strict liability, and seek various forms of monetary and equitable relief, including compensatory and punitive monetary damages, restitution and removal of asbestos-containing material. As of December 31, 1995, the Company was a named defendant in 17 such pending property damage lawsuits and claims, one of which is a class action, which are not included in the total number of pending asbestos claims set forth in the table above. The asbestos claims, including both compensatory and punitive damage claims, against the Company and the other defendants in the bodily injury and property damage lawsuits and the other claims referred to above exceed several billion dollars in the aggregate. Additionally, since 1982 a number of former producers and/or miners of asbestos or asbestos-containing products which were or would be co-defendants with the Company in the bodily injury lawsuits and claims and/or in the property damage lawsuits and claims have filed for reorganization under Chapter 11 of the United States Bankruptcy Code ("Co- Defendant Bankruptcies"). Pending lawsuits have been stayed as to all but one of these entities, but continue against the Company and the other defendants. Also, the trust created by the Manville Chapter 11 Reorganization Plan and charged with the responsibility for resolving asbestos bodily injury claims against Manville was found to be a limited fund by the United States District Court for the Eastern District of New York and virtually all proceedings 54 against the trust have been stayed. A mandatory settlement class was certified against the trust resolving all claims by both plaintiffs and co- defendants; however, the United States Court of Appeals for the Second Circuit reversed the decision approving the settlement and remanded the case for further proceedings. In 1994, the District Court approved a settlement fund intended to partially reimburse co-defendants, including the Company, for verdicts and judgments entered against such companies from August 1992 to the date of the settlement. In July 1991, the Judicial Panel on Multidistrict Litigation consolidated in the Eastern District of Pennsylvania virtually all of the federal cases for possible coordinated and aggregate disposition and other processing techniques (the "MDL Case"). Included in the MDL Case is a case in the Eastern District of Texas where a petition had been filed to certify a nationwide litigation class action with respect to all asbestos-related bodily injury claims pending in the United States both in federal and state court. The Company believes that such a nationwide litigation class action is not supported by the existing case law. The number of plaintiffs in the cases pending in the MDL Case in which the Company is a defendant is included in the reported pending plaintiffs and claimants. In 1992, the court entered an order severing and retaining any claims for punitive damages in cases remanded for trial of the compensatory damage claims. The court, through various administrative orders, is giving priority to claims involving malignancies and serious asbestosis both in terms of settlement activity and in terms of remand for trial where a settlement with all defendants is not possible. In addition, in January 1993, in an action in which the Company was not a party, a class action complaint, an answer and a stipulation of settlement of such class action complaint were filed contemporaneously in the United States District Court for the Eastern District of Pennsylvania. The lawsuit and settlement are between a proposed class of persons occupationally or secondarily exposed to asbestos but who did not have bodily injury suits pending as of January 15, 1993, and a group of 20 companies who manufactured or sold asbestos products and whose asbestos claims are managed by the Center for Claims Resolution. The Company and a number of other former producers of asbestos-containing products are not members of the Center for Claims Resolution. The proposed settlement, negotiated between the member companies and class counsel, seeks to create an administrative mechanism to process future asbestos-related claims against such companies. Under the proposed settlement, in order to receive compensation, claimants would be required to satisfy objective medical and product exposure criteria. The class action and proposed settlement raise a number of novel and complex issues, including the potential impact of the proposed settlement on the Company's contribution and settlement credit rights. The trial court has resolved some, but not all of those issues in ruling on the fairness of the proposed settlement to personal injury claimants. Several of the trial court's rulings are currently before the United States Court of Appeals for the Third Circuit pursuant to an interlocutory appeal. In August 1993, another of the Company's co-defendants, Fibreboard Corporation, filed an action, which was thereafter certified by the District Court as a mandatory settlement class of all future asbestos-related claims. This action was integrally related to separate settlements by this co-defendant of all of its non-future asbestos claims and of its insurance 55 coverage claims against its insurers. That settlement has been finally approved at the trial court level and is on appeal to the United States Court of Appeals for the Fifth Circuit. The precise impact on the Company of the Co-Defendant Bankruptcies and other proceedings mentioned above is not determinable. These filings and proceedings have created a substantial number of unprecedented and complex issues. However, the Company believes the Co-Defendant Bankruptcies probably have adversely affected the Company's share of the total liability to plaintiffs in previously settled or otherwise determined lawsuits and claims and also may adversely affect the Company's share of the total liability to plaintiffs in the future. Additionally, the Company believes that the dissemination of the class notices in the Center for Claims Resolution and Fibreboard Corporation class actions described above may have increased the number of claims and lawsuits against the Company or accelerated the filing of such claims. In April 1986, the Company and Aetna Life & Casualty Company ("Aetna") agreed to a final settlement fully resolving asbestos bodily injury and property damage insurance coverage litigation between them (which followed the entry of partial summary judgment in favor of the Company in such litigation). The Company has processed claims which have effectively exhausted its coverage under the Aetna agreement. In 1984, the Company initiated similar litigation in New Jersey against the Company's insurers, agents and related parties for the years 1977 through 1985 in which the Company sought damages and a declaration of coverage for both asbestos bodily injury and property damage claims under insurance policies in effect during those years (Owens-Illinois, Inc. v. United Insurance Co., et al, Superior Court of New Jersey, Middlesex County, November 30, 1984). The total coverage sought in this litigation before deducting the settlements described below and giving consideration to reinsurer insolvencies and, in the Company's opinion, applicable to both bodily injury and property damage was $670 million. In April 1990, the Company obtained summary judgment for the coverage sought in this litigation and Owens Insurance Limited ("OIL"), an affiliate of the Company and one of the defendant insurers, in turn, obtained summary judgment under certain reinsurance contracts. The defendants appealed the summary judgment granted to the Company and in April 1993, the New Jersey Superior Court, Appellate Division affirmed the trial court on all policy interpretation issues but remanded for trial certain other issues. All parties petitioned the New Jersey Supreme Court for review. In December 1994, the New Jersey Supreme Court issued its decision upholding the Appellate Division decision in favor of the Company's position on one issue, but reversing and remanding a second issue to the trial court for further proceedings. Shortly before the issuance of the New Jersey Supreme Court decision, the Company partially settled its coverage claim against OIL to the extent of reinsurance provided to OIL by certain reinsurance companies representing approximately 19% of total United Insurance coverage limits. The settlements resulted in payments totalling approximately $100 million. Subsequently, the Company reached separate settlements with various other reinsurers, and with 56 OIL to the extent of reinsurance provided by such settling reinsurance companies. Such settlements confirmed approximately $140 million of additional coverage for the Company's asbestos-related losses. These settlements also included all of the reinsurers who had continued to participate actively as litigating parties in the United Insurance case. In November 1995, before all the settlements described above were finalized, a reinsurer of OIL during the years affected by the United Insurance case brought a separate suit against OIL seeking a declaratory judgment that it had no reinsurance obligation to OIL due to alleged OIL fraud and also to OIL not having joined non-party reinsurers as parties in the United Insurance case (Employer's Mutual vs Owens-Insurance Limited, Superior Court of New Jersey, Morris County, December 1995). The Company was not a named party to this cause of action but was subsequently joined in it as a necessary party defendant. Following the settlements described above, OIL, through its independent counsel, advised the Company that in view of the number and terms of the prior reinsurer settlements, and further in view of the inclusion in such settlements of all the reinsurers who had previously been participating as litigating parties in the United Insurance case, OIL's independent directors had authorized OIL's counsel to pursue settlement negotiations with the Company. Negotiations thereafter took place between representatives of the Company and OIL's counsel. The negotiation was also aided by the involvement of three professional mediators who had been involved in several of the earlier reinsurer settlements. A settlement agreement (the "OIL Settlement") was ultimately reached, and endorsed by all the mediators and approved by OIL's independent directors, calling for the payment of remaining non-settled reinsurance at 78.5% of applicable reinsurance limits, increasing to 81% and accruing interest at 10% for any amounts not paid at the 78.5% level within 45 days after receipt of notice from OIL of the OIL Settlement. In December 1995, the presiding judge in the United Insurance case entered a Consent Judgment settling the United Insurance case as to all remaining issues and all parties with the single exception of a broker malpractice claim asserted by the Company, which remains pending. In the Consent Judgment Order, the presiding judge specifically found that the OIL Settlement is a good faith and non-collusive settlement and that it is fair and reasonable as to OIL and all of OIL's non-settling reinsurers. Subsequent to the entry of the Consent Judgment Order described above, OIL gave notice of the OIL Settlement to all nonsettling reinsurers affected by the United Insurance case, informing all such reinsurers of the terms of the OIL Settlement and demanding timely payment from such reinsurers pursuant to such terms. Certain previously nonsettling reinsurers made the payments called for under the OIL Settlement or otherwise settled their obligations thereunder. Other nonsettling reinsurers, possibly due to the pendency of the Employers Mutual case described above, did not, however, make the payments called for under the OIL Settlement by the date specified therein. As a result of payments and commitments that have been made by reinsurers in early 1996 pursuant to the OIL Settlement and the earlier settlement 57 agreements described above and certain other available insurance, the Company has to date confirmed coverage for its asbestos-related costs of approximately $284 million. Of the total amount confirmed to date, $186.5 million had been received through December 31, 1995; approximately $33 million was received in early 1996; and the balance of approximately $64.5 million will be received throughout 1996 and the next several years. The insurance asset for asbestos- related costs of $323.5 million at December 31, 1995 included the confirmed amounts of $33 million received in early 1996 and the approximately $64.5 million which will be received later. The remainder of the insurance asset of approximately $226 million relates principally to the reinsurers who have not yet paid their reinsurance obligations under the OIL Settlement. The Company believes, based on the rulings of the trial court, the Appellate Division and the New Jersey Supreme Court, as well as its understanding of the facts and legal precedents (including specifically the legal precedent requiring that reinsurers "follow the fortunes" of and adhere to any good faith, fair and reasonable settlement entered into by the primary carrier which such reinsurers had agreed to reinsure) and based on advice of counsel, McCarter & English, that it is probable substantial additional payments will be received to cover the Company's asbestos-related claim losses, in addition to the amounts already received or to be received as a result of the settlements described above. As a result of Chapter 11 filings, the recent class action filings, and the continuing efforts in various federal and state courts to resolve asbestos lawsuits and claims in nontraditional manners, as well as the continued filings of new lawsuits and claims, the Company believes that its ultimate asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related litigation expenses) is difficult to estimate with certainty. However, the Company has continually monitored the trends of matters which may affect its ultimate liability and continually analyzes the trends, developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against the Company. Based on the trends and developments and their effect on the Company's ability to estimate probable costs of pending and likely future asbestos-related claims, the higher than expected costs of disposing of claims in certain jurisdictions, and taking into account the expected reimbursement principally as a result of the United Insurance case, the Company determined in 1993 that it will likely have probable asbestos-related liabilities and costs which exceed its probable asbestos-related insurance reimbursement in the approximate amount of $325 million. Accordingly, the Company recorded a charge of such amount against its Consolidated Results of Operations for the fourth quarter of 1993 and established a reserve for probable asbestos-related liabilities and costs of $975 million and recorded an insurance asset of $650 million, which amount was principally based on the Company's expected recovery and reimbursement in the United Insurance case. In December 1994, as a result of the settlements described above and other relevant factors including the status of the United Insurance litigation at that time, the Company further determined that the $650 million insurance asset should be reduced by $100 million (in addition to the approximately $100 million of insurance proceeds received as a result of the December 1994 settlements described above). The 58 Company recorded a charge of $100 million in 1994 to reflect this lower insurance asset valuation. Additionally, as a result of the OIL Settlement and analysis of various factors related thereto, the Company has determined that this asset should be reduced further by $40 million (in addition to the approximately $140 million of insurance proceeds received or to be received as a result of the 1995 settlements described above). As a consequence, the Company recorded a pretax charge of $40 million in the fourth quarter of 1995 to reflect this lower valuation. Since first establishing the reserve for probable asbestos-related liabilities and costs, the Company has charged all such payments to the reserve. Accordingly, the amounts of such payments anticipated by this reserve have not and are not expected to be reflected in the Company's Consolidated Results of Operations. In addition to payments made to date, the Company has entered into group settlement agreements which included settlement amounts payable in 1996 and later. As of December 31, 1995, such deferred payment amounts were approximately $130.1 million. The Company intends to charge such deferred payment amounts to the reserve when they are paid by the Company. None of the payments or deferred payment obligations described above represented a spending commitment with respect to lawsuits and claims pending against the Company as of December 31, 1995. Based on all the factors and matters relating to the Company's asbestos- related litigation and claims, the Company believes that its asbestos-related costs and liabilities will not exceed by a material amount the sum of the available insurance reimbursement the Company believes it has and will have principally as a result of the United Insurance case, and the OIL Settlement of that case, as described above, and the amount of such charges described in the second preceding paragraph. Other litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that are nonroutine and involve compensatory, punitive or treble damage claims as well as other types of relief. The ultimate legal and financial liability of the Company in respect to the lawsuits and proceedings referred to above, in addition to other pending litigation, cannot be estimated with certainty. However, the Company believes, based on its examination and review of such matters and experience to date, that such ultimate liability will not be material in relation to the Company's Consolidated Financial Statements. 59 Segment Information. The Company had three industry segments: Glass Containers, Plastics and Closures, and Specialized Glass. As reported herein, the Specialized Glass segment consists only of the Kimble laboratory and pharmaceutical glassware business in which a 51% interest was sold December 31, 1993. Amounts related to the Company's glass tableware business have been reclassified from the Specialized Glass segment to discontinued operations as a result of the June 1993 sale of Libbey. Operating profit includes an allocation of corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided. Transfers between segments and geographic areas are not significant. In arriving at the consolidated totals for segments and geographic areas, eliminations are made as follows: as to sales and transfers, intersegment and intergeographic sales and transfers are eliminated; as to operating profit and identifiable assets, eliminations primarily relate to unrealized profit in inventory. Financial information regarding the Company's geographic segments is as follows: - ---------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------- Sales to unaffiliated customers: United States $2,702.8 $2,773.9 $2,865.3 Other Western Hemisphere 636.7 510.0 413.6 Europe and Asia 423.7 283.4 256.1 - ---------------------------------------------------------------------------- Consolidated total $3,763.2 $3,567.3 $3,535.0 ============================================================================ Operating profit: United States (a) $ 419.5 $ 394.8 $ 137.3 Other Western Hemisphere 151.6 114.0 98.4 Europe and Asia 50.4 26.0 23.9 Eliminations .1 (.8) - ---------------------------------------------------------------------------- Combined segment total $ 621.6 $ 534.0 $ 259.6 ============================================================================ Identifiable assets: United States $2,952.6 $2,944.8 $2,893.0 Other Western Hemisphere 697.4 590.6 428.1 Europe and Asia 525.5 306.2 256.0 Eliminations (1.3) (1.3) - ---------------------------------------------------------------------------- Combined segment total $4,174.2 $3,840.3 $3,577.1 ============================================================================ (a) Operating profit for the United States geographic segment includes charges in 1993 totaling $233.2 million principally related to a restructuring program and a net credit of $40.0 million in 1995 primarily related to an adjustment of such charge. 60 Financial information regarding the Company's worldwide industry segments is as follows: - ---------------------------------------------------------------------------- 1995 (b) 1994 (c) 1993 (d) - ---------------------------------------------------------------------------- Sales to unaffiliated customers (a): Glass Containers $2,744.0 $2,590.1 $2,427.3 Plastics and Closures 1,017.7 976.1 908.6 Specialized Glass 197.9 Other 1.5 1.1 1.2 - ---------------------------------------------------------------------------- Consolidated total $3,763.2 $3,567.3 $3,535.0 ============================================================================ Operating profit: Glass Containers $ 482.7 $ 393.0 $ 117.4 Plastics and Closures 137.4 140.4 123.3 Specialized Glass 18.9 Eliminations 1.5 .6 - ---------------------------------------------------------------------------- Combined segment total 621.6 534.0 259.6 Other retained costs (56.1) (125.8) (305.0) - ---------------------------------------------------------------------------- Consolidated total 565.5 408.2 (45.4) Equity earnings 14.4 22.3 25.3 Interest expense (net) (269.9) (259.2) (274.4) - ---------------------------------------------------------------------------- 310.0 171.3 (294.5) Reconciliation to earnings (loss) from continuing operations before extraordinary items: Credit (provision) for income taxes (100.8) (68.9) 113.1 Minority share owners' interests (40.1) (24.1) (19.4) - ---------------------------------------------------------------------------- Earnings (loss) from continuing operations before extraordinary items $ 169.1 $ 78.3 $ (200.8) ============================================================================ (a) Sales of similar products which contributed 10% or more of consolidated net sales for 1995, 1994, and 1993, and their percentage contribution in each year, respectively, are glass containers with 66%, 67%, and 64%; and plastic containers with 16%, 17%, and 16%. In 1995, sales by both the Glass Containers and Plastics and Closures industry segments to one customer aggregated approximately 11% of consolidated total sales. (b) Operating profit for 1995 includes a charge of $40.0 million to write down the asbestos insurance asset and a net credit of $40.0 million primarily from the reduction of previously established restructuring reserves. These items increased (decreased) operating profit as follows: Glass Containers, $45.1 million; Plastics and Closures, $(5.1) million; and other retained costs, $(40.0) million. (c) Other retained costs for 1994 includes a charge of $100.0 million to write down the asbestos insurance asset. 61 (d) Operating profit for 1993 includes charges of $325.0 million for estimated uninsured future asbestos-related costs, charges totaling $253.2 million principally related to a restructuring program, and gains totaling $46.1 million from the sale of the remaining 50% interest in the television glass business and 51% of the Kimble business. These items decreased operating profit as follows: Glass Containers, $214.0 million, Plastics and Closures, $16.0 million, Specialized Glass, $3.2 million, and other retained costs, $298.9 million. - ----------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------- Identifiable assets: Glass Containers $2,880.6 $2,628.1 $2,372.9 Plastics and Closures 1,295.0 1,215.1 1,207.0 Eliminations (1.4) (2.9) (2.8) - ----------------------------------------------------------------------------- Combined segment total 4,174.2 3,840.3 3,577.1 Investments in and advances to associates 84.1 91.9 102.5 Corporate and other retained assets 1,180.9 1,385.4 1,221.8 - ----------------------------------------------------------------------------- Total $5,439.2 $5,317.6 $4,901.4 ============================================================================= Property, plant and equipment - -- capital expenditures: Glass Containers $ 209.0 $ 174.6 $ 153.1 Plastics and Closures 67.8 110.9 100.3 Specialized Glass 8.8 - ----------------------------------------------------------------------------- Combined segment total 276.8 285.5 262.2 Corporate and other retained assets 6.8 .5 .7 Discontinued operations 3.3 - ----------------------------------------------------------------------------- Total $ 283.6 $ 286.0 $ 266.2 ============================================================================= Property, plant and equipment - -- depreciation: Glass Containers $ 125.5 $ 117.9 $ 110.9 Plastics and Closures 59.2 62.2 54.9 Specialized Glass 10.6 - ----------------------------------------------------------------------------- Combined segment total 184.7 180.1 176.4 Corporate and other retained assets 3.6 3.2 3.6 Discontinued operations 7.3 - ----------------------------------------------------------------------------- Total $ 188.3 $ 183.3 $ 187.3 ============================================================================= 62 Selected Quarterly Financial Data (unaudited). The following tables present selected financial data by quarter for the years ended December 31, 1995 and 1994: - ---------------------------------------------------------------------------- 1995 (a) - ---------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total - ---------------------------------------------------------------------------- Net sales $923.6 $985.0 $962.2 $892.4 $3,763.2 ============================================================================ Gross profit $191.7 $232.0 $214.3 $176.7 $ 814.7 ============================================================================ Net earnings $ 33.3 $ 59.0 $ 56.1 $ 20.7 $ 169.1 ============================================================================ Net earnings per share of common stock $ 0.28 $ 0.49 $ 0.46 $ 0.17 $ 1.40 ============================================================================ (a) In the fourth quarter of 1995, the Company recorded a charge of $40.0 million to write down the asbestos insurance asset and a net credit of $40.0 million primarily from the reduction of previously established restructuring reserves. The net aftertax amounts of each of these offsetting items was $24.7 million, or $0.21 per share. - ---------------------------------------------------------------------------- 1994 (a) - ---------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total - ---------------------------------------------------------------------------- Net sales $839.2 $915.4 $927.9 $884.8 $3,567.3 ============================================================================ Gross profit $165.1 $202.2 $205.8 $169.9 $ 743.0 ============================================================================ Net earnings (loss) $ 28.1 $ 51.4 $ 46.4 $(47.6) $ 78.3 ============================================================================ Net earnings (loss) per share of common stock $ 0.23 $ 0.43 $ 0.39 $(0.41) $ 0.64 ============================================================================ (a) In the fourth quarter of 1994, the Company recorded a charge of $100.0 million to write down the asbestos insurance asset. The net aftertax amount of this charge was $61.7 million, or $0.52 per share. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 63 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Information with respect to non-officer directors is included in the Proxy Statement in the section entitled "Election of Directors" and such information is incorporated herein by reference. Information with respect to executive officers is included herein on pages 13 - 15. ITEMS 11. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS AND RELATED and 13. TRANSACTIONS The section entitled "Director and Executive Compensation and Other Information," exclusive of the subsections entitled "Board Compensation Committee Report on Executive Compensation" and "Performance Graph," which is included in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Security Ownership of Certain Beneficial Owners and Management" which is included in the Proxy Statement is incorporated herein by reference. 64 PART IV ITEM 14.(a). EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Index of Financial Statements and Financial Statement Schedules Covered by Report of Independent Auditors. Page ---- Report of Independent Auditors 29 Consolidated Balance Sheets at December 31, 1995 and 1994 32-33 For the years ended December 31, 1995, 1994 and 1993 Consolidated Results of Operations 30-31 Consolidated Share Owners' Equity 34 Consolidated Cash Flows 35-36 Statement of Significant Accounting Policies 37-38 Financial Review 39-62 Financial Statement Schedule Schedule Page ---------------------------- ------------- For the years ended December 31, 1995, 1994, and 1993: 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. 65 EXHIBIT INDEX S-K Item 601 No. Document - ------------ -------- 3.1 -- Restated Certificate of Incorporation of Owens-Illinois, Inc. (filed as Exhibit 3.1 to the Registrants' Registration Statement, File No. 33-43224, and incorporated herein by reference). 3.2 -- By-laws of Owens-Illinois, Inc., as amended (filed as Exhibit 3.2 to the Registrants' Registration Statement, File No. 33- 43224, and incorporated herein by reference). 3.3 -- Certificate of Incorporation of Owens-Illinois Group, Inc., as amended (filed as Exhibit 3.4 to the Registrants' Registration Statement, File No. 33-13061, and incorporated herein by refer- ence). 3.4 -- By-laws of Owens-Illinois Group, Inc. (filed as Exhibit 3.5 to the Registrants' Registration Statement, File No. 33-13061, and incorporated herein by reference). 3.5 -- Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Series A Exchangeable Preferred Stock, Series B Exchangeable Preferred Stock and Series C Exchangeable Preferred Stock of Owens-Illinois, Inc., dated October 30, 1992 (filed as Exhibit 3.5 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 4.1 -- Note, dated March 17, 1987, to OII Holdings Corporation issued by OII Group, Inc., as amended (filed as Exhibit 4.44 to the Registration Statement, File No. 33-43224, of Owens-Illinois, Inc., and incorporated herein by reference). 4.2 -- Indenture, dated as of December 15, 1991, among Owens-Illinois, Inc., Owens-Illinois Group, Inc., and The Bank of New York related to Senior Debentures of Owens-Illinois, Inc. (filed as Exhibit 4.32 to the Registrants' Registration Statement, File No. 33-34825, and incorporated herein by reference). 4.3 -- Group Exchange Guaranty, dated as of July 10, 1992, by Owens- Illinois Group, Inc., in favor of the Trustee (filed as Exhibit 4.1 to the Registrants' Current Report on Form 8-K dated as of July 15, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 4.4 -- Subsidiary Guaranty, dated as of July 10, 1992, by the Subsidiaries in favor of the Trustee (filed as Exhibit 4.2 to the Registrants' Current Report on Form 8-K dated as of July 15, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 4.5 -- Contribution Agreement, dated as of July 10, 1992, by and among the Company, Owens-Illinois Group, Inc., and the Subsidiaries (filed as Exhibit 4.3 to the Registrants' Current Report on Form 8-K dated as of July 15, 1992, File nos. 1-9576 and 33- 13061, and incorporated herein by reference). S-K Item 601 No. Document - ------------ -------- 4.6 -- Acknowledgment Regarding Additional Secured Debt, dated as of July 10, 1992, by the Pledgors (filed as Exhibit 4.4 to the Registrants' Current Report on Form 8-K dated as of July 15, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 4.7 -- Acknowledgment to Intercreditor Agreement, dated as of July 9, 1992, by the Trustee and the Pledgors (filed as Exhibit 4.5 to the Registrants' Current Report on Form 8-K dated as of July 15, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 4.8 -- Indenture, dated as of April 1, 1992, between the Company and Harris Trust and Savings Bank under which the Company has issued its 10-1/4% Senior Subordinated Notes due April 1, 1999; 10% Senior Subordinated Notes due August 1, 2002; 10-1/2% Senior Subordinated Notes due June 15, 2002; and 9-3/4% Senior Subordinated Notes due August 15, 2004 (filed as Exhibit 4(a) to the Registrants' Current Report on Form 8-K dated as of March 27, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 4.9 -- First Supplemental Indenture, dated as of September 28, 1992, between the Company and Harris Trust and Savings Bank (filed as Exhibit 4(a) to the Registrants' Current Report on Form 8-K dated as of October 1, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 4.10 -- Form of Indenture dated September 28, 1992, Shelf Registration for up to $200 million of Senior Subordinated Debt Securities between the Company and Harris Trust and Savings Bank, under which the Company has issued its 9.95% Senior Subordinated Notes due October 15, 2004 (filed as Exhibit 4.2 to the Registrants' Registration Statement, File no. 33-51982, and incorporated herein by reference). 4.11 -- Refinancing Credit Agreement, dated as of December 15, 1993, among Owens-Illinois, Inc., the lenders listed therein, including those named as lead managers and co-agents and Bankers Trust Company including exhibits thereto (filed as Exhibit 4.11 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993, File nos. 1-9576 and 33- 13061, and incorporated herein by reference). 10.1 -- Lease Agreement, dated as of May 21, 1980, between Owens- Illinois, Inc. and Leyden Associates Limited Partnership (filed as Exhibit 5 to the Registrants' Registration Statement, File No. 2-68022, and incorporated herein by reference). 10.2 -- Owens-Illinois Supplemental Retirement Benefit Plan, dated as of October 1, 1991 (filed as Exhibit 3.5 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 67 S-K Item 601 No. Document - ------------ -------- 10.3 * -- First Amendment to Owens-Illinois, Inc. Supplemental Retirement Benefit Plan (filed as Exhibit 10.19 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.4 * -- Second Amendment to Owens-Illinois, Inc. Supplemental Ratirement Benefit Plan (filed herewith). 10.5 * -- Written description of the Owens-Illinois Senior Executive Life Insurance Plan (filed as Exhibit 3.5 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1992, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.6 * -- Form of Employment Agreement between Owens-Illinois, Inc. and various Employees (filed as Exhibit 10(m) to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1987, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.7 * -- Form of Non-Qualified Stock Option Agreement between Owens- Illinois, Inc. and various Employees (filed as Exhibit 10(1) to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1987, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.8 * -- Form of Subscription Agreement between Owens-Illinois, Inc. and various Purchasers (filed as Exhibit 10(k) to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1987, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.9 * -- Stock Option Plan for Directors of Owens-Illinois, Inc. (filed as Exhibit 4.3 to Registrants' Form S-8, File no. 33-57141, and incorporated herein by reference). 10.10 * -- First Amendment to Stock Option Plan for Directors of Owens- Illinois, Inc. (filed herewith). 10.11 * -- Form of Non-Qualified Stock Option Agreement for Stock Option Plan for Directors of Owens-Illinois, Inc. for use under the Plan (filed as Exhibit 4.4 to Registrants' Form S-8, File no. 33-57141, and incorporated herein by reference). 10.12 * -- Second Amended and Restated Stock Option Plan for Key Employees of Owens-Illinois, Inc. (filed as Exhibit 10.20 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1994, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.13 * -- First Amendment to Second Amended and Restated Stock Option Plan for Key Employees of Owens-Illinois, Inc. (filed herewith). 68 S-K Item 601 No. Document - ------------ -------- 10.14 * -- Form of Non-Qualified Stock Option Agreement for Amended and Restated Stock Option Plan for Key Employees of Owens-Illinois, Inc. for use under the Plan (filed as Exhibit 10.21 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1994, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.15 * -- Form of First Amendment to Subscription Agreement between Owens-Illinois, Inc. and Robert J. Lanigan (filed as Exhibit 10.19 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1990, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.16 * -- Form of Non-Qualified Stock Option Agreement between Owens- Illinois, Inc., and Robert J. Lanigan (filed as Exhibit 10.21 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1990, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.17 * -- Form of First Amendment to Non-Qualified Stock Option Agreement between Owens-Illinois, Inc. and Robert J. Lanigan (filed as Exhibit 10.20 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1990, File nos. 1-9576 and 33- 13061, and incorporated herein by reference). 10.18 * -- Amended and Restated Owens-Illinois, Inc. Senior Management Incentive Plan (filed as Exhibit 10.15 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.19 * -- First Amendment to Amended and Restated Owens-Illinois, Inc. Senior Management Incentive Plan (filed herewith). 10.20 * -- Amended and Restated Owens-Illinois, Inc. Performance Award Plan (filed as Exhibit 10.16 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993, File nos. 1- 9576 and 33-13061, and incorporated herein by reference). 10.21 * -- Owens-Illinois, Inc. Corporate Officers Deferred Compensation Plan (filed as Exhibit 10.17 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993, File nos. 1- 9576 and 33-13061, and incorporated herein by reference). 10.22 * -- First Amendment to Owens-Illinois, Inc. Corporate Officers Deferred Compensation Plan (filed herewith). 10.23 * -- Owens-Illinois, Inc. Executive Savings Plan (filed as Exhibit 10.18 to the Registrants' Annual Report on Form 10-K for the year ended December 31, 1993, File nos. 1-9576 and 33-13061, and incorporated herein by reference). 10.24 * -- First Amendment to Owens-Illinois, Inc. Executive Savings Plan (filed herewith). 10.25 * -- Second Amendment to Owens-Illinois, Inc. Executive Savings Plan (filed herewith). 10.26 * -- Owens-Illinois, Inc. Directors Deferred Compensation Plan (filed herewith). 69 S-K Item 601 No. Document - ------------ -------- 10.27 * -- First Amendment to Owens-Illinois, Inc. Directors Deferred Compensation Plan (filed herewith). 21 -- Subsidiaries of the Registrants (filed herewith). 23.1 -- Consent of Independent Auditors (filed herewith). 23.2 -- Consent of McCarter & English (filed herewith). 24 -- Owens-Illinois, Inc. and Owens-Illinois Group, Inc. Power of Attorney (filed herewith). 27 -- Financial Data Schedule (filed herewith). * Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c). - ------------- ITEM 14.(b). REPORTS ON FORM 8-K On December 21, 1995, the Registrants filed a Form 8-K with the Commission with a press release dated December 21, 1995, announcing settlements totaling $400 million in the Company's asbestos insurance litigation. No other reports on Form 8-K were filed by the Registrants during the last quarter of 1995. 70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. OWENS-ILLINOIS, INC. OWENS-ILLINOIS GROUP, INC. (Registrants) By/s/ Thomas L. Young ------------------------------- Thomas L. Young Executive Vice President -- Administration, General Counsel and Secretary Date: March 29, 1996 71 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Owens- Illinois, Inc. and Owens-Illinois Group, Inc. and in the capacities and on the dates indicated. Signature Title --------- ----- Edward A. Gilhuly Director James H. Greene, Jr. Director Henry R. Kravis Director Robert J. Lanigan Chairman Emeritus of the Board of Directors; Director Joseph H. Lemieux Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer); Director Robert I. MacDonnell Director John J. McMackin, Jr. Director Michael W. Michelson Director George R. Roberts Director Lee A. Wesselmann Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer); Director By/s/ Thomas L. Young ------------------- Thomas L. Young Attorney-in-fact Date: March 29, 1996 72 INDEX TO FINANCIAL STATEMENT SCHEDULE Financial Statement Schedule of Owens-Illinois, Inc. and Subsidiaries: For the years ended December 31, 1995, 1994, and 1993: PAGE ---- II -- Valuation and Qualifying Accounts (Consolidated) . . . . . . . S-1 OWENS-ILLINOIS, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (CONSOLIDATED) Years ended December 31, 1995, 1994, and 1993 (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 --------------------------------------------------------- 1995 . . . . . . . $ 38.7 $ 32.4 $ 0.0 $ 31.4 $ 39.7 ======= ======= ======= ======= ======= 1994 . . . . . . . $ 31.3 $ 32.4 $ 0.0 $ 25.0 $ 38.7 ======= ======= ======= ======= ======= 1993 . . . . . . . $ 31.4 $ 23.0 $ 0.0 $ 23.1 $ 31.3 ======= ======= ======= ======= ======= (1) Deductions from allowances for losses and discounts on receivables represent uncollectible notes and accounts written off. S-1

Exhibit 10.4 SECOND AMENDMENT TO OWENS-ILLINOIS SUPPLEMENTAL RETIREMENT BENEFIT PLAN Pursuant to authority reserved and duly delegated to the Compensation Committee (the "Committee") of the Board of Directors of Owens-Illinois, Inc. (the "Company") under the Owens-Illinois Supplemental Retirement Benefit Plan (the "Plan"), the Committee hereby amends the Plan as follows: 1. Article II of the Plan is amended by the addition thereto of new Sections 2.04 and 2.05, to read, respectively, as follows: Section 2.04 - As used in this Plan, the term "Executive Compensation Committee" means a committee comprised of the Company's Chief Financial Officer, the Company's General Counsel, and the Company's Director of Compensation and Benefits. In the event of a vacancy in any one or more of such offices or positions within the Company, any corresponding vacancy on the Executive Compensation Committee shall be filled by the officer or employee of the Company who succeeds to the duties of such vacant office or position or by another officer or employee of the Company designated by the Board. Section 2.05 - As used in this Plan, the term "Specified Rate" means an annual interest rate equal from time to time to the average annual yield on domestic corporate bonds of Moody's A-rated companies (as most recently reported in the Survey of Current Business published by the United States Department of Commerce or a successor publication) or such other annual interest rate as the Board may at any time and from time to time specify prospectively for purposes of the Plan; provided, however, that no such action taken by the Board after the date on which notice of an installment payment election (or of the modification of any such previous election) is given pursuant to Section 4.03(c) hereof shall operate to reduce the rate of interest on the unpaid balance of the benefit payable pursuant to such election (or modification) to less than the rate which would have been in effect hereunder in the absence of such action by the Board. 2. Section 4.02 of the Plan is amended to read, in its entirety, as follows: Section 4.02 - Upon the death of an Eligible Employee, except to the extent otherwise provided under or pursuant to Section 4.03(e) hereof, a survivor or death benefit shall be payable to the spouse or other Beneficiary of such Eligible Employee in an amount equal to the excess of (i) the amount of comparable benefit which would have been payable under the Salary Plan at the time of his or her death if the limitations, exclusions, and curtailments referred to in Sections 3.01 and 3.02 hereof were not applicable to the 1 Salary Plan, over (ii) the amount of any such comparable benefit actually payable under the Salary Plan. 3. Section 4.03 of the Plan is amended to read, in its entirety, as follows: Section 4.03 - (a) The date (hereinafter referred to as the "payment date") on which payment of any retirement, survivor, or death benefit will be made or commenced under this Plan shall be substantially the same, allowing for differences in administrative procedures, as the date on which payment of such benefit would have been made or commenced under the Salary Plan. The person or persons to whom any such benefit is payable under this Plan shall, except to the extent otherwise provided under or pursuant to Section 4.03(e) hereof, be identical to the person or persons to whom such benefit would have been payable under the Salary Plan. All elections, designations, and determinations with respect to the time at which and person or persons to whom benefits are to be paid under this Plan, but not including any election under Section 4.03(b)(4) hereof as to the form of payment or any designation of a beneficiary or beneficiaries under Section 4.03(e) hereof, shall be made as and when made under the Salary Plan. (b) The form in which any retirement, survivor, or death benefit is payable under this Plan shall be as follows: (1) If the retirement, death, or other termina- tion of employment of the Eligible Employee with respect to whom any such benefit is payable occurred before January 1, 1989, the form of payment under this Plan shall be as permitted or required by the Pre-1989 Owens- Illinois, Inc. Excess Benefit Plan and Supplemental Benefit Plan as both such Plans (the "Pre-1989 Plans") were restated effective January 1, 1989; (2) If the retirement, death, or other termina- tion of employment of the Eligible Employee with respect to whom any such benefit is payable occurred on or after January 1, 1989 but before September 1, 1990, the form of payment under this Plan shall be as permitted or required by the Owens-Illinois, Inc. Excess Benefit Plan and Supplemental Benefit Plan, both of which Plans (the "1989 Plans") became effective January 1, 1989; (3) If the retirement, death, or other termina- tion of employment of the Eligible Employee with respect to whom any such benefit is payable occurred on or after September 1, 1990 but before March 1, 1996, such benefit shall be paid in a lump-sum amount equal to the present value of such benefit, determined in accordance with the Salary Plan, on its payment date; or 2 (4) If the retirement, death, or other termina- tion of employment of the Eligible Employee with respect to whom any such benefit is payable occurs on or after March 1, 1996, such benefit shall be paid in a lump-sum amount equal to the present value of such benefit, determined in accordance with the Salary Plan, on its payment date unless an election of an installment form of payment is in effect on such payment date in accor- dance with Section 4.03(c) hereof, in which event such benefit shall be paid in the installment form so elected. (c) An Eligible Employee to whom Section 4.03(b)(4) hereof applies may elect, by written notice to and, if required as hereinafter provided, with the consent of the Executive Compensation Committee, to have the lump-sum present value of such benefit on its payment date paid in any specified number, not to exceed 15, of substantially equal annual installments commencing on or after such payment date, together with interest on the unpaid balance thereof at the Specified Rate, compounded monthly. Any such Eligible Employee who has made such an election may, before the payment date of such benefit, revoke or modify such election by subsequent written notice to and, if required as hereinafter provided, with the consent of the Executive Compensation Committee. An Eligible Employee's election under this Section 4.03(c), and any subsequent revocation or modification thereof, will be effective without the consent of the Executive Compensation Committee if made at least 12 months before the payment date of such benefit and in no event later than September 30 of the preceding calendar year. If made thereaf- ter, then such election (or any revocation or modification thereof) will be subject to the consent of the Executive Compensation Committee pursuant to Section 4.03(d) hereof, except that an Eligible Employee's initial election under this Section 4.03(c) will be effective without the consent of the Executive Compensation Committee if made no later than one (1) month after the later of (i) the date of adoption of the Second Amendment to the Plan or (ii) the effective date of such Amendment. (d) The Executive Compensation Committee shall grant or deny its consent to an election under Section 4.03(c) hereof, if required, or to a revocation or modification of any such election, if required, as soon as administratively practicable after its receipt of written notice thereof and shall promptly notify the Eligible Employee of its action with respect thereto. In granting or denying such consent the Executive Compensation Committee shall consider and take into account the form in which benefits are payable with respect to the Eligible Employee under the Salary Plan and under any other applicable Company plan or arrangement; the interests of the Eligible Employee and of other Eligible Employees; the effect of such election (or of such revocation or modification of a previous election) on the Company's current and projected future financial condition in the context of other similar elections 3 under this Plan and all other Company plans or arrangements for the benefit of its employees; and such other factors and circumstances as the Executive Compensation Committee, in its discretion, deems relevant. All actions of the Executive Compensation Committee shall be taken by majority vote at a meeting or by majority approval in writing in lieu of a meeting and shall be final and binding on all parties interested therein. (e) In the event of the death of an Eligible Employee with respect to whom an installment payment election is in effect under Section 4.03(c) hereof after his payment date but before all of the installments so elected plus interest have been paid to him in full, all of the remaining unpaid installments, including accrued interest to the date of payment, shall be paid, as and when due under such election, to the beneficiary or beneficiaries named by such Eligible Employee in a written designation filed with the Executive Compensation Committee (or, in the absence of such a designation, to his estate). 4. The last sentence of Section 5.03 of the Plan is amended to read as follows: Each benefit which becomes fixed, fully vested, and nonforfeitable pursuant to this Section 5.03 shall be paid on its payment date, as provided in Section 4.03(a) hereof, in a lump-sum amount equal to the present value of such benefit on such payment date unless an election of an installment form of payment, in accordance with Section 4.03(c) hereof, was in effect on the date of such actual or constructive termination of the Plan and remains in effect, without subsequent modification, on such payment date, in which event such benefit shall be paid in the installment form so elected. 5. This Second Amendment shall be effective on or as of March 1, 1996. In all other respects the Plan shall remain in full force and effect as originally adopted effective October 1, 1991 and as heretofore amended by the First Amendment thereto effective as of December 1, 1993. IN WITNESS WHEREOF, the Committee has caused this Second Amendment to be executed by a duly authorized officer of the Company as of the 15th day of January, 1996. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------- Vice President Attest: /s/ James W. Baehren - ------------------------ Assistant Secretary 4

Exhibit 10.10 FIRST AMENDMENT TO STOCK OPTION PLAN FOR DIRECTORS OF OWENS-ILLINOIS, INC. Pursuant to the authority reserved to the Committee (the "Committee") of the Board of Directors of Owens-Illinois, Inc. (the "Company") appointed to administer the Stock Option Plan for Directors of Owens-Illinois, Inc. (the "Plan") under Section 7.2 of the Plan, the Committee hereby amends the Plan as follows: 1. Article I of the Plan is amended by the addition thereto of a new Section 1.17, to read, in its entirety, as follows: Section 1.17 - Transferable Option "Transferable Option" means an Option which by its terms, as determined by the Committee and set forth in the applica- ble Option Agreement (or an amendment thereto), may be transferred by the Optionee, in writing and with written notice thereof to the Committee, by gift, without the receipt of any consideration, (i) to such Optionee's spouse; (ii) to any child or more remote lineal descendant of such Optionee or to the spouse of any such child or more remote lineal descendant; or (iii) to any trust, custodianship, or other similar fiduciary relationship maintained for the benefit of any one or more of such persons, but is otherwise nontransferable except by will or the applicable laws of descent and distribution. 2. Article I of the Plan is further amended by the addition thereto of a new Section 1.18, to read, in its entirety, as follows: Section 1.18 - Transferee "Transferee" shall mean any person or entity to whom or to which an Optionee has transferred a Transferable Option. 3. Section 3.2(a)(iii) of the Plan is amended to read, in its entirety, as follows: (iii) Determine the terms and conditions of such Options, consistent with the Plan, including, but not limited to such terms and conditions as may be required in order to make an Option a Transferable Option. 1 4. Section 4.1 of the Plan is amended by the addition thereto of the following: Stock Option Agreements evidencing Transferable Options shall contain (or may be amended to contain) such terms and conditions as may be necessary to meet the definition of a Transferable Option under Section 1.17 hereof. 5. Section 5.1 of the Plan is amended to read, in its entirety, as follows: Section 5.1 - Persons Eligible to Exercise During the lifetime of the Optionee, only he or his Transferee, if any, may exercise an Option (or any portion thereof) granted to him. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement, be exercised by his Transferee, if any, or by his personal representative or any other person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. All of the terms and conditions of any Option in the hands of the Optionee during his lifetime shall be and remain fully applicable and binding on his Transferee, if any, and on any other person who may become eligible to exercise such Option. 6. Section 7.1 of the Plan is amended to read, in its entirety, as follows: Section 7.1 - Options Not Transferable No Option or interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encum- brance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 7.1 shall prevent any transfer of a Transferable Option in accordance with its terms or any transfer by will or by the applicable laws of descent and distribution. 7. This First Amendment shall be effective on or as of March 1, 1996. In all other respects the Plan shall remain in full force and effect as originally adopted. 2 IN WITNESS WHEREOF, the Committee has caused this First Amendment to be executed by a duly authorized officer of the Company as of the 15th day of January, 1996. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------- Vice President Attest: /s/ James W. Baehren - ------------------------ Assistant Secretary 3

Exhibit 10.13 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED STOCK OPTION PLAN FOR KEY EMPLOYEES OF OWENS-ILLINOIS, INC. Pursuant to the authority reserved to the Compensation Committee (the "Committee") of the Board of Directors of Owens-Illinois, Inc. (the "Company") under Section 7.2 of the Second Amended and Restated Stock Option Plan for Key Employees of Owens-Illinois, Inc. (the "Plan"), the Committee hereby amends the Plan as follows: 1. Article I of the Plan is amended by the addition thereto of a new Section 1.23, to read, in its entirety, as follows: Section 1.23 - Transferable Option "Transferable Option" means a Non-Qualified Option which by its terms, as determined by the Committee and set forth in the applicable Option Agreement (or an amendment thereto), may be transferred by the Optionee, in writing and with written notice thereof to the Committee, by gift, without the receipt of any consideration, (i) to such Optionee's spouse; (ii) to any child or more remote lineal descendant of such Optionee or to the spouse of any such child or more remote lineal descendant; or (iii) to any trust, custodianship, or other similar fiduciary relationship main- tained for the benefit of any one or more of such persons, but is otherwise nontransferable except by will or the applicable laws of descent and distribution. 2. Article I of the Plan is further amended by the addition thereto of a new Section 1.24, to read, in its entirety, as follows: Section 1.24 - Transferee "Transferee" shall mean any person or entity to whom or to which an Optionee has transferred a Transferable Option. 3. Section 3.3(a)(iii) of the Plan is amended to read, in its entirety, as follows: (iii) Determine the terms and conditions of such Options, consistent with the Plan, including, but not limited to: (A) such terms and conditions as may be required in order for such Options to qualify as performance- 1 based compensation as described in Section 162(m)(4)(C) of the Code if the Committee determines that such Options should so qualify; and/or (B) such terms and conditions as may be required in order to make a Non-Qualified Option a Transferable Option. 4. Section 4.1 of the Plan is amended by the addition thereto of the following: Stock Option Agreements evidencing Transferable Options shall contain (or may be amended to contain) such terms and conditions as may be necessary to meet the definition of a Transferable Option under Section 1.23 hereof. 5. Section 5.1 of the Plan is amended to read, in its entirety, as follows: Section 5.1 - Persons Eligible to Exercise During the lifetime of the Optionee, only he or his Transferee, if any, may exercise an Option (or any portion thereof) granted to him. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement, be exercised by his Transferee, if any, or by his personal representative or any other person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. All of the terms and conditions of any Option in the hands of the Optionee during his lifetime shall be and remain fully applicable and binding on his Transferee, if any, and on any other person who may become eligible to exercise such Option. 6. Section 7.1 of the Plan is amended to read, in its entirety, as follows: Section 7.1 - Options Not Transferable No Option or interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encum- brance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 7.1 shall prevent any transfer of a Transferable 2 Option in accordance with its terms or any transfer by will or by the applicable laws of descent and distribution. 7. This First Amendment shall be effective on or as of March 1, 1996. In all other respects the Plan shall remain in full force and effect as originally adopted. IN WITNESS WHEREOF, the Committee has caused this First Amendment to be executed by a duly authorized officer of the Company as of the 15th day of January, 1996. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------- Vice President Attest: /s/ James W. Baehren - ------------------------ Assistant Secretary 3

Exhibit 10.19 FIRST AMENDMENT TO AMENDED AND RESTATED OWENS-ILLINOIS, INC. SENIOR MANAGEMENT INCENTIVE PLAN Pursuant to the authority reserved to the Board of Directors (the "Board") of Owens-Illinois, Inc. (the "Company") under paragraph 10 of the Amended and Restated Owens-Illinois, Inc. Senior Management Incentive Plan (the "Plan"), the Board hereby amends the Plan as follows: 1. Paragraph 8.2 of the Plan is amended to read as follows: 8.2 If the Company's Operating Results are less than 90 percent, none of the Discretionary or Company Performance Component will be paid as Annual Bonuses. If the Company's Operating Results are exactly 90 percent, 50 percent of the Performance Component will be paid, and up to 50 percent of the Discretionary Component may be paid, as Annual Bonuses. For each percentage point by which the Company's Operating Results exceed 90 percent but not 95 percent, an additional 3- 1/3 percent of the Performance Component will be paid, and up to an additional 3-1/3 percent of the Discretionary Component may be paid, as Annual Bonuses, up to 66-2/3 percent. For each percentage point by which the Company's Operating Results exceed 95 percent but not 105 percent, an additional 6-2/3 percent of the Performance Component will be paid, and up to an additional 6-2/3 percent of the Discretionary Component may be paid, as Annual Bonuses, up to 133-1/3 percent. For each percentage point by which the Company's Operating Results exceed 105 percent but not 110 percent, an additional 3-1/3 percent of the Performance Component will be paid, and up to an additional 3-1/3 percent of the Discretionary Component may be paid, as Annual Bonuses, up to 150 percent. No more than 150 percent of the Discretionary Component or Company Perfor- mance Component shall be paid as Annual Bonuses, regardless of the level of the Company's Operating Results. 2. Paragraph 8.4 of the Plan is amended to read as follows: 8.4 To the extent payable in accordance with paragraph 8.2 hereof, and subject to the last sentence of this paragraph 8.4, the Discretionary Component of the Bonus Pool shall be paid to Executives as Annual Bonuses in the discretion of the CEO or, in the case of the CEO's Annual Bonus, in the discre- tion of the Board. In exercising such discretion, the CEO or the Board may take into consideration, in addition to the Company's or a Unit's Operating Results as defined for purposes of this Plan, the extent of an Executive's contribu- tions to the Company's other financial and non-financial objectives, such as quality of service and products, customer 1 satisfaction, adherence to or furtherance of the Company's legal and ethical policies, product development, market share, improvement in financial indicators of the Company's success other than RONA, and effective response to adverse economic conditions or to unforeseen adverse events beyond the control of the Company or a Unit. The aggregate amount of the Discretionary Components of the Annual Bonuses payable to all Executives for any year shall not exceed the maximum percent- age of the Discretionary Component of the Bonus Pool which, under paragraph 8.2 hereof, may be payable for such year, and the total amount of the Annual Bonus payable to an Executive for any year shall not exceed by more than 10 percent the maximum percentage of such Executive's Target Bonus which, under paragraphs 8.2 and 8.3 hereof, may be payable for such year. 3. This First Amendment shall be effective as of January 1, 1993. In all other respects the Plan shall remain in full force and effect as originally adopted effective January 1, 1993. IN WITNESS WHEREOF, the Board has caused this First Amendment to be executed by a duly authorized officer of the Company as of the 31st day of December, 1993. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------- Vice President Attest: /s/ James W. Baehren - ------------------------ Assistant Secretary 2

Exhibit 10.22 FIRST AMENDMENT TO OWENS-ILLINOIS, INC. CORPORATE OFFICERS DEFERRED COMPENSATION PLAN Pursuant to authority reserved and duly delegated to the Compensation Committee (the "Committee") of the Board of Directors of Owens-Illinois, Inc. (the "Company") under the Owens-Illinois, Inc. Corporate Officers Deferred Compensation Plan (the "Plan"), the Committee hereby amends the Plan as follows: 1. Section 2 of the Plan is amended by the addition thereto of the following new definition: "Executive Compensation Committee" means a committee comprised of the Company's Chief Financial Officer, the Company's General Counsel, and the Company's Director of Compensation and Benefits. In the event of a vacancy in any one or more of such offices or positions within the Company, any corresponding vacancy on the Executive Compensation Committee shall be filled by the officer or employee of the Company who succeeds to the duties of such vacant office or position or by another officer or employee of the Company designated by the Board. 2. Section 6.1 of the Plan is amended to read, in its entirety, as follow: All amounts deferred under the Plan shall be credited by the Company, as of the date such amounts would otherwise be payable to the Officer in the absence of a Deferral Election, to the Officer's Account, and shall, until paid or distributed in full, accrue interest, compounded monthly, at an annual rate equal from time to time to the average annual yield on domestic corporate bonds of Moody's A-rated companies (as most recently reported in the Survey of Current Business published by the United States Department of Commerce or a successor publication) or at such other rate as the Board may at any time and from time to time designate prospectively; provided, however, that no such action taken by the Board after the date of an installment payment election (or of the modification of any such previous election) pursuant to Section 7 hereof shall operate to reduce the rate of interest on the unpaid balance of the amount payable pursuant to such election (or modifica- tion) to less than the rate which would have been in effect hereunder in the absence of such action by the Board. 1 3. Section 7 of the Plan is amended to read, in its entirety, as follows: 7. PAYMENT OF ACCOUNT BALANCES. 7.1 The entire amount credited to an Officer's Account, including accrued interest to the date of payment, shall become payable upon termination of the Officer's employment with the Company for any reason. Amounts so payable shall be paid to the Officer in cash in a lump sum or, if and to the extent the Officer has so elected in writing: (a) at or before the time of his Deferral Elections; or (b) thereafter, but only with the consent of the Executive Compensation Committee pursuant to Section 7.5 hereof, except that an Officer's initial election under this Section 7.1(b) will be effective without the consent of the Executive Compensation Committee if made no later than one (1) month after the later of (i) the date of adoption of the First Amendment to the Plan or (ii) the effective date of such Amendment, in such number, not to exceed 15, of equal annual installments as the Officer has so elected plus interest on the unpaid balance at the rate from time to time called for under Section 6.1 of the Plan. 7.2 In the event of an Officer's death before or after his termination of employment with the Company but before his Account plus interest has been paid to him in full, the entire amount then credited to his Account, including accrued interest to the date of payment, shall be paid, to the benefi- ciary or beneficiaries named by him in a written designation filed with the Company (or, in the absence of such a designa- tion, to his estate), in cash in a lump sum or, if and to the extent the Officer has made an election of installment pay- ments under Section 7.1 hereof, in accordance with such election. 7.3 All payments hereunder shall be made or commenced as soon as practicable after an Officer's termination of employ- ment but in no event later than March 31 of the following year. 7.4 An Officer with respect to whom any amount first becomes payable under this Plan on or after March 1, 1996 may revoke or modify any previous election under Section 7.1 hereof by subsequent written notice to and, if required as hereinafter provided, with the consent of the Executive Compensation 2 Committee. Any such revocation or modification of a previous election will be effective without the consent of the Execu- tive Compensation Committee only to the extent that it applies to amounts credited to the electing Officer's Account there- after. Any such revocation or modification applicable to any other portion of his Account will be subject to the consent of the Executive Compensation Committee pursuant to Section 7.5 hereof. 7.5 The Executive Compensation Committee shall grant or deny its consent to an election under Section 7.1(b) hereof, if required, or to a revocation or modification of a previous election under Section 7.4, if required, as soon as administratively practicable after its receipt of written notice thereof and shall promptly notify the Officer of its action with respect thereto. In granting or denying such consent the Executive Compensation Committee shall consider and take into account the form in which benefits are payable with respect to the Officer under any other applicable Company plan or arrangement; the interests of the Officer and/or his beneficiary or beneficiaries and of other Officers and/or their beneficiaries; the effect of such election (or of such revocation or modification of a previous election) on the Com- pany's current and projected future financial condition in the context of other similar elections under this Plan and all other Company plans or arrangements for the benefit of its em- ployees; and such other factors and circumstances as the Executive Compensation Committee, in its discretion, deems relevant. All actions of the Executive Compensation Committee shall be taken by majority vote at a meeting or by majority approval in writing in lieu of a meeting and shall be final and binding on all parties interested therein. 4. This First Amendment shall be effective on or as of March 1, 1996. In all other respects the Plan shall remain in full force and effect as originally adopted effective December 31, 1993. IN WITNESS WHEREOF, the Committee has caused this First Amendment to be executed by a duly authorized officer of the Company as of the 15th day of January, 1996. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------- Vice President Attest: /s/ James W. Baehren - ------------------------ Assistant Secretary 3

Exhibit 10.24 FIRST AMENDMENT TO OWENS-ILLINOIS, INC. EXECUTIVE SAVINGS PLAN Pursuant to authority reserved and duly delegated to the Compensation Committee (the "Committee") of the Board of Directors of Owens-Illinois, Inc. (the "Company") under the Owens-Illinois, Inc. Executive Savings Plan (the "Plan"), the Committee hereby amends the Plan as follows: 1. Section 5.3 of the Plan is amended to read, in its entirety, as follows: 5.3 The Company shall post a Matching Credit to the Matching Account of each Executive who has made a Deferral Election under Section 5.1 in an amount equal to 50 percent of the amount of such Deferral Election, up to a maximum annual Matching Credit equal to the excess of (a) four percent of the Executive's Current Compensation or, if less, $10,000, over (b) the amount of the annual "Company Matching Contribution" made on his behalf under (and as defined in) SPASP. 2. This First Amendment shall be effective as of January 1, 1995. In all other respects the Plan shall remain in full force and effect as originally adopted effective December 31, 1993. IN WITNESS WHEREOF, the Committee has caused this First Amendment to be executed by a duly authorized officer of the Company this 30th day of June, 1995. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------- Vice President Attest: /s/ James W. Baehren - ------------------------ Assistant Secretary 1

Exhibit 10.25 SECOND AMENDMENT TO OWENS-ILLINOIS, INC. EXECUTIVE SAVINGS PLAN Pursuant to authority reserved and duly delegated to the Compensation Committee (the "Committee") of the Board of Directors of Owens-Illinois, Inc. (the "Company") under the Owens-Illinois, Inc. Executive Savings Plan (the "Plan"), the Committee hereby amends the Plan as follows: 1. Section 2 of the Plan is amended by the addition thereto of the following new definition: "Executive Compensation Committee" means a committee comprised of the Company's Chief Financial Officer, the Company's General Counsel, and the Company's Director of Compensation and Benefits. In the event of a vacancy in any one or more of such offices or positions within the Company, any correspond- ing vacancy on the Executive Compensation Committee shall be filled by the officer or employee of the Company who succeeds to the duties of such vacant office or position or by another officer or employee of the Company designated by the Board. 2. The last sentence of Section 6.1 of the Plan is amended to read as follow: All such amounts so credited to an Executive's Deferral and Matching Accounts shall, until paid or distributed in full, accrue interest, compounded monthly, at an annual rate equal from time to time to the average annual yield on domestic corporate bonds of Moody's A-rated companies (as most recently reported in the Survey of Current Business published by the United States Department of Commerce or a successor publi- cation) or at such other rate as the Board may at any time and from time to time designate prospectively; provided, however, that no such action taken by the Board after the date on which notice of an installment payment election (or of the modifica- tion of any such previous election) is given pursuant to Section 7.5 hereof shall operate to reduce the rate of interest on the unpaid balance of the amount payable pursuant to such election (or modification) to less than the rate which would have been in effect hereunder in the absence of such action by the Board. 3. Section 7.2 of the Plan is amended to read, in its entirety, as follows: 7.2 The entire amount credited to an Executive's Accounts, including accrued interest to the date of payment, shall become payable upon termination of the Executive's employment with the Company by reason of his death, total and permanent 1 disability, normal or early retirement pursuant to any retirement plan sponsored by the Company, or any other reason. Amounts so payable before March 1, 1996 shall be paid to the Executive in cash in a lump sum as soon as practicable after such termination of employment, but in no event later than March 31 of the following year. Amounts so payable on or after March 1, 1996 shall be paid to the Executive in cash in a lump sum as soon as practicable after such termination of employment, but in no event later than March 31 of the follow- ing year, unless an election of an installment form of payment is in effect as provided in Section 7.5 hereof, in which event such amount shall be paid in the installment form so elected. 4. A new Section 7.5 is added to the Plan, to read, in its entirety, as follows: 7.5 An Executive with respect to whom any amount becomes payable under this Plan on or after March 1, 1996 may elect, by written notice to and, if required as hereinafter provided, with the consent of the Executive Compensation Committee, to have such amount or any part thereof paid in any specified number, not to exceed 15, of substantially equal annual in- stallments commencing as soon as practicable after the Execu- tive's termination of employment, but in no event later than March 31 of the following year, together with interest on the unpaid balance thereof at the rate determined under Section 6.1 hereof. Any such Executive who has made such an election may revoke or modify such election by subsequent written notice to and, if required as hereinafter provided, with the consent of the Executive Compensation Committee. An Execu- tive's election under this Section 7.5, or any revocation or modification of a previous election, will be effective without the consent of the Executive Compensation Committee only to the extent that it applies to amounts credited to his Accounts thereafter. Any election, or any revocation or modification of a previous election, applicable to any other portion of his Accounts, will be subject to the consent of the Executive Compensation Committee pursuant to Section 7.6 hereof, except that an Executive's initial election under this Section 7.5 will be effective without the consent of the Executive Compensation Committee if made no later than one (1) month after the later of (i) the date of adoption of the Second Amendment to the Plan or (ii) the effective date of such Amendment. 5. A new Section 7.6 is added to the Plan, to read, in its entirety, as follows: 7.6 The Executive Compensation Committee shall grant or deny its consent to an election under Section 7.5 hereof, if required, or to a revocation or modification of any such 2 election, if required, as soon as administratively practicable after its receipt of written notice thereof and shall promptly notify the Executive of its action with respect thereto. In granting or denying such consent the Executive Compensation Committee shall consider and take into account the form in which benefits are payable with respect to the Executive under SPASP and under any other applicable Company plan or arrange- ment; the interests of the Executive and/or his beneficiary or beneficiaries and of other Executives and/or their beneficia- ries; the effect of such election (or of such revocation or modification of a previous election) on the Company's current and projected future financial condition in the context of other similar elections under this Plan and all other Company plans or arrangements for the benefit of its employees; and such other factors and circumstances as the Executive Compen- sation Committee, in its discretion, deems relevant. All actions of the Executive Compensation Committee shall be taken by majority vote at a meeting or by majority approval in writing in lieu of a meeting and shall be final and binding on all parties interested therein. 6. This Second Amendment shall be effective on or as of March 1, 1996. In all other respects the Plan shall remain in full force and effect as originally adopted effective December 31, 1993. IN WITNESS WHEREOF, the Committee has caused this Second Amendment to be executed by a duly authorized officer of the Company as of the 15th day of January, 1996. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------- Vice President Attest: /s/ James W. Baehren - ------------------------ Assistant Secretary 3

Exhibit 10.26 OWENS-ILLINOIS, INC. DIRECTORS DEFERRED COMPENSATION PLAN 1. PURPOSE. The purpose of this Owens-Illinois, Inc. Directors Deferred Compensation Plan is to permit certain members of the Board of Directors of Owens- Illinois, Inc. to elect to defer receipt of all or part of their compensa- tion. 2. DEFINITIONS. As used herein: "Account" means a deferred compensation memorandum account established and maintained on the books of the Company to reflect a Director's interest in the Plan; "Board" means the Board of Directors of the Company; "CEO" means the Chief Executive Officer of the Company; "Committee" means a committee, composed of officers and directors of the Company who are not eligible to participate in the Plan, appointed by the Board to administer the Plan; "Company" means Owens-Illinois, Inc., a Delaware corporation; "Compensation" means any fees (including meeting attendance fees) and/or other form of current cash remuneration for services rendered to or on behalf of the Company by a Director solely in his capacity as such; "Deferral Election" means an election made by a Director pursuant to and in accordance with Section 5 of the Plan; "Director" means a member of the Board eligible to participate in the Plan pursuant and in accordance with to Section 4 of the Plan; "Early Distribution Date" shall mean the date specified in an Early Distribution Election. "Early Distribution Election" means an election made by a Director pursuant to and in accordance with Section 6 of the Plan. "Plan" means this Owens-Illinois, Inc. Directors Deferred Compensation Plan, as from time to time in effect; and Words of the masculine gender include correlative words of the feminine and neuter genders and vice versa, and words denoting the singular include the plural and vice versa. 1 3. ADMINISTRATION. The Plan shall be administered by the Committee. The administrative powers of the Committee shall include the powers to interpret the Plan and to exercise full and complete discretion to adopt, modify, and/or rescind (or to authorize the CEO to adopt, modify, and/or rescind) any rules, determinations, policies, or procedures deemed necessary or appropriate for the maintenance and administration of the Plan. 4. ELIGIBILITY AND PARTICIPATION. Any member of the Board who is not an employee of the Company shall be eligible to participate in this Plan. 5. DEFERRAL ELECTIONS. 5.1 Each Director may elect from time to time, by written notice to the CEO, to defer his receipt, subject to the provisions of the Plan, of all or any specified part, up to and including 100 percent, of his Compensa- tion to be earned thereafter. 5.2 Each Deferral Election shall be made before the first day of the calendar year or other fiscal period for which the Compensation to which it applies is to be earned and shall be irrevocable with respect to the electing Director's Compensation for such year or other fiscal period. A Director may elect prospectively to change the rate of or revoke his Deferral Election with respect to his Compensation to be earned for any future year or other fiscal period at such times and with such frequency as may be permitted pursuant to rules and procedures of uniform applica- tion adopted by the Committee. Until so changed or revoked, such a Deferral Election shall remain in effect with respect to all Compensation earned by the Director after the date thereof. 5.3 Notwithstanding the foregoing provisions of this Section 5, a Director may make a Deferral Election with respect to all or any specified part of any unpaid Compensation by written notice to the CEO given within one month after the date on which this Plan is initially adopted or, if later, within one month after the date on which such Director first becomes eligible to participate in this Plan. 6. EARLY DISTRIBUTION ELECTION. Prior to the first day of a calendar year or other fiscal period for which a Director is making or has made a Deferral Election, such Director may elect to have such amounts become payable on the first day of the third calendar year following the calendar year or other fiscal period for which such amounts were deferred, or on the first day of any subsequent calendar year, as specified by the Participant (the "Early Distribution Date"). A Director who has made such an Early Distribution Election may elect to defer the payment of the amounts subject to such Early Distribution Election until the termination of the Directors' membership on the Board 2 pursuant to Section 8; provided, however, that such election must be made before the first day of the calendar year immediately preceding the calendar year of the Early Distribution Date specified in such Early Distribution Election. All amounts payable pursuant to an Early Distri- bution Election shall be paid to the Director in cash in a lump sum as soon as practicable after the Early Distribution Date set forth in such election but in no event later than the March 31 following such Early Distribution Date. 7. ACCOUNTS. 7.1 All amounts deferred under the Plan shall be credited by the Company, as of the date such amounts would otherwise be payable to the Director in the absence of a Deferral Election, to the Director's Account and shall, until paid or distributed in full, accrue interest, compounded monthly, at an annual rate equal from time to time to the average annual yield on domestic corporate bonds of Moody's A-rated companies (as most recently reported in the Survey of Current Business published by the United States Department of Commerce or a successor publication) or at such other rate as the Committee may at any time and from time to time designate prospectively. 7.2 The Company shall be under no duty to segregate or set aside any amount credited to any Account from the general assets of the Company, but the Committee may, in its discretion, direct the establishment of any trusteed, insured, or other payment arrangement from which the Company's obligations as to a Director under the Plan may be paid. No Director, beneficiary, estate, or other person claiming through or under a Director shall have any legal or beneficial property interest whatsoever in any assets of the Company or in any such payment arrangement which may be established at the direction of the Committee except as may be expressly provided by such payment arrangement. Neither the establishment of an Account nor the crediting of any amounts thereto nor the establishment of any payment arrangement (except as may be expressly provided by such payment arrangement) shall be deemed to create a trust of any kind, any fiduciary relationship between the Company and any person, or any collateral security for the Company's obligations under the Plan. To the extent that a Director or any other person acquires a right to receive any payment from the Company under this Plan, such right shall be no greater than that of any other unsecured general creditor of the Company. The Company shall provide to each Director who has made any Deferral Election, at least annually, a statement of his Account balance. 8. PAYMENT OF ACCOUNT BALANCES. The entire amount credited to a Director's Account, including accrued interest to the date of payment and including any amounts deferred pursuant to Section 6, shall become payable upon termination of the Director's membership on the Board for any reason. Amounts so payable shall be paid to the Director in cash in a lump sum or, if and to the extent the Director has so elected in writing at the time of his Deferral 3 Elections, in such number, not to exceed 15, of equal annual installments as the Director has so elected plus interest on the unpaid balance at the rate from time to time called for under Section 7.1 of the Plan. In the event of a Director's death before his Account plus interest has been paid to him in full, the entire amount then credited to his Account, including accrued interest to the date of payment, shall be paid in cash in a lump sum to the beneficiary or beneficiaries named by him in a written designation filed with the Company (or, in the absence of such a designation, to his estate). All payments hereunder shall be made or commenced as soon as practicable after a Director's termination of Board membership but in no event later than March 31 of the following year. 9. AMENDMENT AND TERMINATION OF THE PLAN. The Board or the Committee may at any time and from time to time amend, suspend, or terminate the Plan in whole or in part; provided, however, that no such amendment, suspension, or termination may, without the consent of any Director affected thereby, have any adverse retroactive effect on the rights of any such Director (or any person claiming through or under him) under the Plan unless required by applicable law. 10. MISCELLANEOUS. 10.1 At the request of a Director for whom an Account has been estab- lished hereunder or on its own initiative, the Committee may, at any time and in its sole and unlimited discretion, accelerate the payment of all or any part of a Director's Account balance. 10.2 Nothing in the Plan shall confer on any Director any right to continue as a member of the Board. 10.3 Rights under the Plan shall not be assignable or transferable or subject to encumbrance or charge of any nature, other than by designation of beneficiary to take effect at death or, in the absence of such designa- tion, by will or the laws of descent and distribution. 10.4 The Plan shall be binding on and inure to the benefit of the Company, each Director, and every person claiming through or under a Director, and their respective heirs, successors, and assigns. 10.5 Deferral Elections under the Plan are intended to defer Directors' recognition of income, for income tax purposes under the Internal Revenue Code of 1986, as amended, until their actual receipt of payments from their Accounts. The Plan shall be interpreted and administered in a manner consistent with such intent. 10.6 This Plan shall be effective on and after its date of execution. 4 IN WITNESS WHEREOF, the Board has caused this Plan to be executed by a duly authorized officer of the Company as of the 31st day of December, 1993. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------------- Executive Vice President Attest: /s/ James W. Baehren - ------------------------- Assistant Secretary 5

Exhibit 10.27 FIRST AMENDMENT TO OWENS-ILLINOIS, INC. DIRECTORS DEFERRED COMPENSATION PLAN Pursuant to the authority reserved to the Committee (the "Committee") of the Board of Directors of Owens-Illinois, Inc. (the "Company") appointed to administer the Owens-Illinois, Inc. Directors Deferred Compensation Plan (the "Plan") under Section 8 of the Plan, the Committee hereby amends the Plan as follows: 1. Section 2 of the Plan is amended by the addition thereto of the following new definition: "Executive Compensation Committee" means a committee comprised of the Company's Chief Financial Officer, the Company's General Counsel, and the Company's Director of Compensation and Benefits. In the event of a vacancy in any one or more of such offices or positions within the Company, any corresponding vacancy on the Executive Compensation Committee shall be filled by the officer or employee of the Company who succeeds to the duties of such vacant office or position or by another officer or employee of the Company designated by the Board. 2. Section 6.1 of the Plan is amended to read, in its entirety, as follow: All amounts deferred under the Plan shall be credited by the Company, as of the date such amounts would otherwise be payable to the Director in the absence of a Deferral Election, to the Director's Account, and shall, until paid or distrib- uted in full, accrue interest, compounded monthly, at an annual rate equal from time to time to the average annual yield on domestic corporate bonds of Moody's A-rated companies (as most recently reported in the Survey of Current Business published by the United States Department of Commerce or a successor publication) or at such other rate as the Board may at any time and from time to time designate prospectively; provided, however, that no such action taken by the Board after the date of an installment payment election (or of the modification of any such previous election) pursuant to Section 7 hereof shall operate to reduce the rate of interest on the unpaid balance of the amount payable pursuant to such election (or modification) to less than the rate which would have been in effect hereunder in the absence of such action by the Board. 1 3. Section 7 of the Plan is amended to read, in its entirety, as follows: 7. PAYMENT OF ACCOUNT BALANCES. 7.1 The entire amount credited to a Director's Account, including accrued interest to the date of payment, shall become payable upon termination of the Director's membership on the Board for any reason. Amounts so payable shall be paid to the Director in cash in a lump sum or, if and to the extent the Director has so elected in writing: (a) at or before the time of his Deferral Elections; or (b) thereafter, but only with the consent of the Executive Compensation Committee pursuant to Section 7.5 hereof, except that a Director's initial election under this Section 7.1(b) will be effective without the consent of the Executive Compensation Committee if made no later than one (1) month after the later of (i) the date of adoption of the First Amendment to the Plan or (ii) the effective date of such Amendment, in such number, not to exceed 15, of equal annual installments as the Director has so elected plus interest on the unpaid balance at the rate from time to time called for under Section 6.1 of the Plan. 7.2 In the event of a Director's death before or after his termination of Board membership but before his Account plus interest has been paid to him in full, the entire amount then credited to his Account, including accrued interest to the date of payment, shall be paid, to the beneficiary or beneficiaries named by him in a written designation filed with the Company (or, in the absence of such a designation, to his estate), in cash in a lump sum or, if and to the extent the Director has made an election of installment payments under Section 7.1 hereof, in accordance with such election. 7.3 All payments hereunder shall be made or commenced as soon as practicable after a Director's termination of Board membership but in no event later than March 31 of the follow- ing year. 7.4 A Director with respect to whom any amount first becomes payable under this Plan on or after March 1, 1996 may revoke or modify any previous election under Section 7.1 hereof by subsequent written notice to and, if required as hereinafter provided, with the consent of the Executive Compensation Committee. Any such revocation or modification of a previous 2 election will be effective without the consent of the Execu- tive Compensation Committee only to the extent that it applies to amounts credited to the electing Director's Account there- after. Any such revocation or modification applicable to any other portion of his Account will be subject to the consent of the Executive Compensation Committee pursuant to Section 7.5 hereof. 7.5 The Executive Compensation Committee shall grant or deny its consent to an election under Section 7.1(b) hereof, if required, or to a revocation or modification of a previous election under Section 7.4, if required, as soon as administratively practicable after its receipt of written notice thereof and shall promptly notify the Director of its action with respect thereto. In granting or denying such consent the Executive Compensation Committee shall consider and take into account the form in which benefits, if any, are payable with respect to the Director under any other applicable Company plan or arrangement; the interests of the Director and/or his beneficiary or beneficiaries and of other Directors and/or their beneficiaries; the effect of such election (or of such revocation or modification of a previous election) on the Company's current and projected future finan- cial condition in the context of other similar elections under this Plan and all other Company plans or arrangements for the benefit of its Directors and/or employees; and such other factors and circumstances as the Executive Compensation Committee, in its discretion, deems relevant. All actions of the Executive Compensation Committee shall be taken by majority vote at a meeting or by majority approval in writing in lieu of a meeting and shall be final and binding on all parties interested therein. 4. This First Amendment shall be effective on or as of March 1, 1996. In all other respects the Plan shall remain in full force and effect as originally adopted effective December 31, 1993. IN WITNESS WHEREOF, the Committee has caused this First Amendment to be executed by a duly authorized officer of the Company as of the 15th day of January, 1996. OWENS-ILLINOIS, INC. By /s/ Thomas L. Young -------------------- Vice President Attest: /s/ James W. Baehren - ------------------------ Assistant Secretary 3

EXHIBIT 21 OWENS-ILLINOIS, INC. SUBSIDIARIES OF THE REGISTRANTS The Registrants had the following subsidiaries at December 31, 1995 (subsid- iaries are indented following their respective parent companies): State/Country of Incorporation Name or Organization - ---- ------------------------------ OI Health Care Holding Corp. Delaware OI General Finance Inc. Delaware OI Closure FTS Inc. Delaware Specialty Packaging Licensing Company Limited Delaware Owens-Illinois Closure Inc. Delaware Product Design & Engineering, Inc. Minnesota Specialty Packaging Products de Mexico, S.A. de C.V. Mexico OI Plastic Products FTS Inc. Delaware Owens-Illinois Prescription Products Inc. Delaware OI Medical Inc. Delaware Owens-BriGam Medical Company Delaware Owens-Brockway Plastic Products Inc. Delaware Owens-Illinois Labels Inc. Delaware Owens-Illinois Specialty Products Puerto Rico, Inc. Delaware OI Regioplast STS Inc. Delaware Regioplast S.A. de C.V. Mexico OI General FTS Inc. Delaware OI Castalia STS Inc. Delaware OI Levis Park STS Inc. Delaware OI AID STS Inc. Delaware OI UMI STS Inc. Delaware Universal Materials, Inc. Ohio OI MVCURC STS Inc. Delaware Maumee Valley Community Urban Redevelopment Corporation Ohio Owens-Illinois General Inc. Delaware Owens Insurance, Ltd. Bermuda OI Holding Company, Inc. Ohio Owens-Illinois Foreign Sales Corp. Virgin Islands Harbor Capital Advisors, Inc. Delaware HCA Securities, Inc. Delaware Harbor Transfer, Inc. Delaware E-1 Subsidiaries of the Registrants (continued) State/Country of Incorporation Name or Organization - ---- ------------------------------ Owens-Brockway Packaging, Inc. Delaware OI Ione STS Inc. Delaware Owens-Brockway Glass Container Inc. Delaware Brockway Realty Inc. Pennsylvania Brockway Research Inc. Delaware Seagate, Inc. Ohio OIB Produvisa Inc. Delaware OI Consol STS Inc. Delaware OI Puerto Rico STS Inc. Delaware Owens-Illinois de Puerto Rico Ohio OI Venezuela STS Inc. Delaware Owens Brockway Venezuelan Holding Venezuela Centro Vidriero de Venezuela, C.A. Venezuela Manufacturera de Vidrios Planos, C.A. Venezuela Owens-Illinois de Venezuela, C.A. Venezuela Fabrica de Vidrio Los Andes, C.A. Venezuela Owens-Illinois Ventas, S.A. Venezuela OI Peldar STS Inc. Delaware Cristaleria Peldar, S.A. Colombia OI Ecuador STS Inc. Delaware Cristaleria del Ecuador, S.A. Ecuador OI Peru STS Inc. Delaware Vidrios Industriales S.A. Peru Bolivian Investments, Inc. Delaware Fabrica Boliviana de Vidrios S.A. Bolivia OI Brazil Inc. Delaware Owens-Illinois International B. V. Netherlands Sao Raimundo Administracao, Participacoes e Representacoes, Limitada Brazil Companhia Industrial Sao Paulo e Rio Brazil OI Finnish Holdings Oy Finland Ryttylan Muovi Oy Finland Karhulan Lasi Oy Finland A/S Jarvakandi Klaas Estonia OI Machineworks Inc. Delaware O-I Europe (Machinery and Distribution) Limited United Kingdom OI Overseas Management Company Limited Delaware United Glass Group Ltd. United Kingdom United Glass, Limited United Kingdom OI Poland Inc. Delaware Huta Szkla Jaroslaw S.A. Poland OI Hungary Inc. Delaware Oroshaza Glass Manufacturing and Trading Kft. Hungary OI India Inc. Delaware Owens-BILT Limited India E-2

EXHIBIT 23.1 OWENS-ILLINOIS, INC. CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Selected Financial Data." We also consent to the incorporation by reference in the Registration State- ment (Form S-3 No. 33-51982) of Owens-Illinois, Inc. and in the related Prospectus, in the Registration Statements (Forms S-8 Nos. 33-43559 and 33- 57139) pertaining to the Amended and Restated Owens-Illinois, Inc. Stock Purchase and Savings Program; the Amended and Restated Owens-Illinois, Inc., Non-Union Retirement and Savings Plan; the Amended and Restated Owens-Illi- nois, Inc. Supplemental Retirement Plan; and the Amended and Restated Owens- Illinois, Inc. Long-Term Savings Plan, in the Registration Statement (Form S-8 No. 33-44252) pertaining to the Amended and Restated Stock Option Plan for Key Employees of Owens-Illinois, Inc., and in the Registration Statement (Form S-8 No. 33-57141) pertaining to the Stock Option Plan for Directors of Owens- Illinois, Inc. of our report dated February 2, 1996 with respect to the consolidated financial statements and schedule of Owens-Illinois, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ Ernst & Young LLP --------------------- Ernst & Young LLP Toledo, Ohio March 28, 1996 E-3

EXHIBIT 23.2 OWENS-ILLINOIS, INC. CONSENT OF MCCARTER & ENGLISH March 26, 1996 Ladies and Gentlemen: We consent to the incorporation by reference in this Annual Report on Form 10-K of Owens-Illinois, Inc. and Owens-Illinois Group, Inc. for the year ended December 31, 1995, of the reference to our firm under the caption "Legal Proceedings." Very truly yours, /s/McCarter & English --------------------- McCarter & English

EXHIBIT 24 OWENS-ILLINOIS, INC. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each individual whose signature appears below hereby consents to and appoints Thomas L. Young, Lee A. Wesselmann, or either of them, individually, as his true and lawful attorney-in-fact and agent with all power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the 1995 Annual Report on Form 10-K of Owens-Illinois, Inc. and Owens-Illinois Group, Inc., both corporations organized and existing under the laws of the State of Delaware, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission pursuant to the requirements of the Securities and Exchange Act of 1934, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the same as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand on the date set opposite his name. Signature Title Date - --------- ----- -------- Joseph H. Lemieux Chairman of the Board of 3/29/96 - ------------------------- Directors and Chief Executive -------- Joseph H. Lemieux Officer (Principal Executive Officer); Director Lee A. Wesselmann Senior Vice President 3/29/96 - ------------------------- and Chief Financial Officer -------- Lee A. Wesselmann (Principal Financial and Accounting Officer); Director Robert J. Lanigan Chairman Emeritus of 3/29/96 - ------------------------- the Board of Directors; -------- Robert J. Lanigan Director Director - ------------------------- -------- Robert J. Dineen Edward A. Gilhuly Director 3/29/96 - ------------------------- -------- Edward A. Gilhuly James H. Greene, Jr. Director 3/29/96 - ------------------------- -------- James H. Greene, Jr. Signature Title Date - --------- ----- -------- Henry R. Kravis Director 3/29/96 - ------------------------- -------- Henry R. Kravis Robert I. MacDonnell Director 3/29/96 - ------------------------- -------- Robert I. MacDonnell John J. McMackin, Jr. Director 3/29/96 - ------------------------- -------- John J. McMackin, Jr. Michael W. Michelson Director 3/29/96 - ------------------------- -------- Michael W. Michelson George R. Roberts Director 3/29/96 - ------------------------- -------- George R. Roberts

5 This schedule contains summary financial information extracted from the December 31, 1995 consolidated balance sheet, and the consolidated results of operations for the year then ended and is qualified in its entirety by reference to such financial statements. 1 12-MOS DEC-31-1995 DEC-31-1995 161,900,000 0 423,900,000 39,700,000 502,200,000 1,216,800,000 3,087,200,000 1,302,400,000 5,439,200,000 888,900,000 2,780,600,000 0 21,900,000 1,200,000 508,800,000 5,439,200,000 3,763,200,000 3,881,000,000 2,948,500,000 2,948,500,000 0 32,400,000 299,600,000 310,000,000 100,800,000 169,100,000 0 0 0 169,100,000 1.40 1.40