O-I Glass (Owens-Illinois, Inc.) — FY 2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013, with quarterly data including Q4. The registrant was the world’s largest glass-container manufacturer, operating 77 plants in 21 countries across Europe, North America, South America and Asia Pacific. Approximately 74% of 2013 sales came from outside the U.S.
Key financial metrics
| Metric (US$ millions, except per-share data and ratios) | 2013 | 2012 |
|---|---|---|
| Net sales | 6,967 | 7,000 |
| Gross profit | 1,331 | 1,374 |
| Gross margin | 19.1% | 19.6% |
| Segment operating profit (non-GAAP) | 947 | 935 |
| Earnings from continuing operations attributable to the Company | 202 | 186 |
| Net earnings attributable to the Company | 184 | 184 |
| Diluted EPS from continuing operations | $1.22 | $1.12 |
| Cash provided by continuing operating activities | 700 | 580 |
| Capital expenditures | 361 | 290 |
| Free cash flow (company-defined, non-GAAP) | 339 | 290 |
| Cash at year-end | 383 | 431 |
| Total debt | 3,567 | 3,773 |
| Working capital | 296 | 486 |
| Net debt / Credit Agreement EBITDA | 2.6x | 2.7x |
At December 31, 2013, the company had $816 million of unused revolving-credit availability and reported compliance with its debt covenants. Current assets were $2,550 million and current liabilities were $2,254 million. The filing reports that about 25% of total debt was variable-rate.
Q4 2013: Net sales were $1,761 million and gross profit was $291 million. Earnings from continuing operations attributable to the Company were a loss of $144 million; net loss attributable to the Company was $147 million. The quarter included a $145 million asbestos accrual charge and $109 million of restructuring, asset impairment and related charges, which together reduced attributable earnings by $229 million after tax.
Material changes versus the prior comparable period
- Sales declined $33 million (0.5%). Higher prices added $118 million, offset by a $48 million volume decline and a $92 million unfavorable foreign-exchange effect. Glass shipments were slightly lower overall.
- Segment operating profit increased $12 million (1%), as better pricing and global cost controls more than offset $134 million of cost inflation and adverse currency effects.
- Continuing operating cash flow rose $120 million; management attributed much of the increase to pension contributions falling to $96 million from $219 million. Free cash flow improved by $49 million despite higher capital spending.
- Total debt declined $206 million and interest expense fell $9 million. Working capital decreased $190 million, while cash declined $48 million.
- Regional segment profit was mixed: North America rose to $307 million from $288 million and Asia Pacific to $131 million from $113 million; Europe eased to $305 million from $307 million and South America fell to $204 million from $227 million.
Outlook, commentary, risks and unusual items
- Management emphasized structural cost reduction, footprint optimization, selective growth and product and process innovation. The European Asset Optimization program is expected to continue in phases over several years.
- The filing provides no specific sales or earnings guidance. Management expected 2014 pension contributions of approximately $50 million, including possible discretionary contributions, and stated it expected operating cash flow and available credit to fund working capital, debt service and other obligations.
- Asbestos: The company recorded a $145 million Q4 charge and paid $158 million during 2013. Approximately 2,600 claims were pending at year-end. Management says ultimate liability cannot reasonably be estimated; future accruals and cash payments could materially affect results and liquidity.
- Debt and liquidity: The $900 million secured revolver and term loans mature in May 2016. Scheduled debt maturities include $984 million in 2015 and $877 million in 2016. Debt covenants and refinancing needs remain relevant risks.
- Foreign tax assessment: A foreign authority’s assessment was approximately $90 million, including interest and penalties. The company had paid $43 million in installments and had not accrued the assessment, believing it likely to be overturned on appeal. An unfavorable outcome could result in a charge of approximately $60 million and a $30 million tax refund.
- Other contingencies: The DOJ closed its inquiry into disclosed potential FCPA issues without enforcement action; a possible SEC investigation or action remained unresolved. The company is pursuing arbitration over Venezuela’s 2010 expropriation; potential compensation and timing are uncertain.
- Other notable items included $119 million in 2013 restructuring and impairment charges, including a $22 million Argentina asset impairment. No goodwill impairment was identified in 2013; goodwill was $2.1 billion at year-end. The 2011 Asia Pacific goodwill impairment was $641 million.
- Management and Ernst & Young reported effective internal control over financial reporting as of year-end; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Track asbestos claim trends, annual accrual assumptions, cash payments and possible effects on borrowing costs.
- Review the 2015–2016 debt maturities, refinancing plans, covenant headroom and the availability of the revolving facility.
- Monitor operating cash flow and free cash flow alongside higher capital spending, pension funding and restructuring cash payments.
- Assess whether pricing and cost-control gains can offset inflation, modestly lower volumes and foreign-exchange pressure across regions.
- Follow the foreign tax assessment appeal, any SEC developments relating to the FCPA matter, and the Venezuela arbitration.
- Consider the Q4 loss separately from full-year results and distinguish company-defined segment profit and free cash flow from GAAP measures.