0001558370-16-008747.txt : 20161026 0001558370-16-008747.hdr.sgml : 20161026 20161026164451 ACCESSION NUMBER: 0001558370-16-008747 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 80 CONFORMED PERIOD OF REPORT: 20160930 FILED AS OF DATE: 20161026 DATE AS OF CHANGE: 20161026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS ILLINOIS INC /DE/ CENTRAL INDEX KEY: 0000812074 STANDARD INDUSTRIAL CLASSIFICATION: GLASS CONTAINERS [3221] IRS NUMBER: 222781933 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09576 FILM NUMBER: 161953085 BUSINESS ADDRESS: STREET 1: ONE MICHAEL OWENS WAY CITY: PERRYSBURG STATE: OH ZIP: 43551-2999 BUSINESS PHONE: 5673365000 MAIL ADDRESS: STREET 1: ONE MICHAEL OWENS WAY CITY: PERRYSBURG STATE: OH ZIP: 43551-2999 FORMER COMPANY: FORMER CONFORMED NAME: OWENS-ILLINOIS INC /DE/ DATE OF NAME CHANGE: 20100601 FORMER COMPANY: FORMER CONFORMED NAME: OWENS ILLINOIS INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OWENS ILLINOIS HOLDINGS CORP DATE OF NAME CHANGE: 19870512 10-Q 1 oi-20160930x10q.htm 10-Q oi_Current Folio_10Q

mple

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

(Mark one)

 

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

 

For the quarterly period ended

September 30, 2016

 

or

 

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

 

For the transition period from        to       

 

Commission file number 1-9576

 

Picture 1

 

OWENS-ILLINOIS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

22-2781933

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

Identification No.)

 

 

 

 

 

One Michael Owens Way, Perrysburg, Ohio

 

43551

(Address of principal executive offices)

 

(Zip Code)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

 

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

 

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

 

 

(Do not check if a

 

 

 

smaller reporting company)

 

 

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

 

The number of shares of common stock, par value $.01, of Owens-Illinois, Inc. outstanding as of September 30, 2016 was 162,196,998.

 

 

 


 

 

Part I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

The Condensed Consolidated Financial Statements of Owens-Illinois, Inc. (the “Company”) presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated.  All adjustments are of a normal recurring nature. Because the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Company’s Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2015.

1


 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Nine months ended

 

 

 

 

September 30,

    

September 30,

 

 

 

 

2016

    

2015

    

2016

    

2015

    

 

Net sales

 

$

1,712

 

$

1,566

 

$

5,060

 

$

4,530

 

 

Cost of goods sold

 

 

(1,376)

 

 

(1,290)

 

 

(4,063)

 

 

(3,712)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

336

 

 

276

 

 

997

 

 

818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expense

 

 

(121)

 

 

(109)

 

 

(375)

 

 

(351)

 

 

Research, development and engineering expense

 

 

(16)

 

 

(15)

 

 

(48)

 

 

(46)

 

 

Interest expense, net

 

 

(66)

 

 

(67)

 

 

(199)

 

 

(188)

 

 

Equity earnings

 

 

15

 

 

17

 

 

44

 

 

46

 

 

Other income (expense), net

 

 

5

 

 

(44)

 

 

(24)

 

 

(59)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

 

153

 

 

58

 

 

395

 

 

220

 

 

Provision for income taxes

 

 

(36)

 

 

(33)

 

 

(93)

 

 

(73)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

 

117

 

 

25

 

 

302

 

 

147

 

 

Loss from discontinued operations

 

 

(3)

 

 

(1)

 

 

(6)

 

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

114

 

 

24

 

 

296

 

 

144

 

 

Net earnings attributable to noncontrolling interests

 

 

(6)

 

 

(7)

 

 

(16)

 

 

(16)

 

 

Net earnings attributable to the Company

 

$

108

 

$

17

 

$

280

 

$

128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

111

 

$

18

 

$

286

 

$

131

 

 

Loss from discontinued operations

 

 

(3)

 

 

(1)

 

 

(6)

 

 

(3)

 

 

Net earnings

 

$

108

 

$

17

 

$

280

 

$

128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.68

 

$

0.11

 

$

1.76

 

$

0.81

 

 

Loss from discontinued operations

 

 

(0.02)

 

 

(0.01)

 

 

(0.04)

 

 

(0.02)

 

 

Net earnings

 

$

0.66

 

$

0.10

 

$

1.72

 

$

0.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted averages shares outstanding (thousands)

 

 

162,080

 

 

160,730

 

 

161,744

 

 

161,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.68

 

$

0.11

 

$

1.75

 

$

0.81

 

 

Loss from discontinued operations

 

 

(0.02)

 

 

(0.01)

 

 

(0.04)

 

 

(0.02)

 

 

Net earnings

 

$

0.66

 

$

0.10

 

$

1.71

 

$

0.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding (thousands)

 

 

163,204

 

 

161,612

 

 

162,607

 

 

162,264

 

 

 

See accompanying notes.

2


 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

 

September 30,

 

September 30,

 

 

 

    

2016

    

2015

    

2016

    

2015

    

 

Net earnings

 

$

114

 

$

24

 

$

296

 

$

144

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(79)

 

 

(265)

 

 

(93)

 

 

(499)

 

 

Pension and other postretirement benefit adjustments, net of tax

 

 

21

 

 

25

 

 

5

 

 

70

 

 

Change in fair value of derivative instruments, net of tax

 

 

(1)

 

 

(3)

 

 

5

 

 

(5)

 

 

Other comprehensive income (loss)

 

 

(59)

 

 

(243)

 

 

(83)

 

 

(434)

 

 

Total comprehensive income (loss)

 

 

55

 

 

(219)

 

 

213

 

 

(290)

 

 

Comprehensive (income) loss attributable to noncontrolling interests

 

 

(4)

 

 

1

 

 

(6)

 

 

 

 

 

Comprehensive income (loss) attributable to the Company

 

$

51

 

$

(218)

 

$

207

 

$

(290)

 

 

 

See accompanying notes.

3


 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

September 30,

 

 

    

2016

    

2015

    

2015

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

294

 

$

399

 

$

270

 

Trade receivables, net of allowance of $32 million, $29 million, and $29 million at September 30, 2016, December 31, 2015 and September 30, 2015

 

 

857

 

 

562

 

 

753

 

Inventories

 

 

1,057

 

 

1,007

 

 

1,023

 

Prepaid expenses and other current assets

 

 

234

 

 

366

 

 

442

 

Total current assets

 

 

2,442

 

 

2,334

 

 

2,488

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

2,917

 

 

2,961

 

 

2,874

 

Goodwill

 

 

2,534

 

 

2,489

 

 

2,797

 

Intangibles, net

 

 

490

 

 

597

 

 

404

 

Other assets

 

 

1,114

 

 

1,040

 

 

991

 

Total assets

 

$

9,497

 

$

9,421

 

$

9,554

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Share Owners' Equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

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

 

$

262

 

$

228

 

$

250

 

Current portion of asbestos-related liabilities

 

 

130

 

 

130

 

 

143

 

Accounts payable

 

 

1,059

 

 

1,212

 

 

1,004

 

Other liabilities

 

 

582

 

 

552

 

 

527

 

Total current liabilities

 

 

2,033

 

 

2,122

 

 

1,924

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

5,333

 

 

5,345

 

 

5,609

 

Asbestos-related liabilities

 

 

643

 

 

687

 

 

738

 

Other long-term liabilities

 

 

973

 

 

988

 

 

909

 

Share owners' equity

 

 

515

 

 

279

 

 

374

 

Total liabilities and share owners' equity

 

$

9,497

 

$

9,421

 

$

9,554

 

 

See accompanying notes.

4


 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

September 30,

 

 

 

    

2016

    

2015

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings

 

$

296

 

$

144

 

 

Loss from discontinued operations

 

 

6

 

 

3

 

 

Non-cash charges

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

372

 

 

296

 

 

Pension expense

 

 

22

 

 

22

 

 

Restructuring, asset impairment and related charges

 

 

19

 

 

57

 

 

Cash payments

 

 

 

 

 

 

 

 

Pension contributions

 

 

(15)

 

 

(13)

 

 

Asbestos-related payments

 

 

(45)

 

 

(58)

 

 

Cash paid for restructuring activities

 

 

(20)

 

 

(20)

 

 

Change in components of working capital

 

 

(320)

 

 

(326)

 

 

Other, net (a)

 

 

(89)

 

 

1

 

 

Cash provided by continuing operating activities

 

 

226

 

 

106

 

 

Cash utilized in discontinued operating activities

 

 

(6)

 

 

(3)

 

 

Total cash provided by operating activities

 

 

220

 

 

103

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(310)

 

 

(299)

 

 

Acquisitions, net of cash acquired

 

 

(45)

 

 

(2,342)

 

 

Net cash proceeds related to sale of assets

 

 

57

 

 

1

 

 

Net foreign exchange derivative activity

 

 

16

 

 

2

 

 

  Cash utilized in investing activities

 

 

(282)

 

 

(2,638)

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Changes in borrowings, net

 

 

(31)

 

 

2,522

 

 

Issuance of common stock

 

 

5

 

 

1

 

 

Treasury shares purchased

 

 

 

 

 

(100)

 

 

Distributions to noncontrolling interests

 

 

(10)

 

 

(13)

 

 

Payment of finance fees

 

 

(3)

 

 

(88)

 

 

Cash provided by (utilized in) financing activities

 

 

(39)

 

 

2,322

 

 

Effect of exchange rate fluctuations on cash

 

 

(4)

 

 

(29)

 

 

Decrease in cash

 

 

(105)

 

 

(242)

 

 

Cash at beginning of period

 

 

399

 

 

512

 

 

Cash at end of period

 

$

294

 

$

270

 

 

 


(a)

Other, net includes other non-cash charges plus other changes in non-current assets and liabilities.

 

See accompanying notes.

5


 

OWENS-ILLINOIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular data dollars in millions, except per share amounts

 

1.  Segment Information

 

The Company has four reportable segments based on its geographic locations:  Europe, North America, Latin America and Asia Pacific.  These four segments are aligned with the Company’s internal approach to managing, reporting, and evaluating performance of its global glass operations.  Certain assets and activities not directly related to one of the regions or to glass manufacturing are reported with Retained corporate costs and other.  These include licensing, equipment manufacturing, global engineering, and certain equity investments.  Retained corporate costs and other also includes certain headquarters administrative and facilities costs and certain incentive compensation and other benefit plan costs that are global in nature and are not allocable to the reportable segments.

 

The Company’s measure of profit for its reportable segments is segment operating profit, which consists of consolidated earnings from continuing operations before interest income, interest expense, and provision for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations as well as certain retained corporate costs.  The Company’s management uses segment operating profit, in combination with selected cash flow information, to evaluate performance and to allocate resources.  Segment operating profit for reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided.

 

Financial information for the three and nine months ended September 30, 2016 and 2015 regarding the Company’s reportable segments is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended

September 30,

 

Nine months ended September 30,

 

 

 

2016

    

2015

    

2016

 

2015

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

586

 

$

605

 

$

1,795

 

$

1,809

 

North America

 

 

578

 

 

520

 

 

1,709

 

 

1,520

 

Latin America

 

 

365

 

 

265

 

 

1,022

 

 

677

 

Asia Pacific

 

 

170

 

 

162

 

 

487

 

 

478

 

Reportable segment totals

 

 

1,699

 

 

1,552

 

 

5,013

 

 

4,484

 

Other

 

 

13

 

 

14

 

 

47

 

 

46

 

Net sales

 

$

1,712

 

$

1,566

 

$

5,060

 

$

4,530

 

 

 

6


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

September 30,

 

Nine months ended September 30,

 

 

    

2016

    

2015

    

2016

    

2015

 

Segment operating profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

64

 

$

68

 

$

192

 

$

181

 

North America

 

 

79

 

 

61

 

 

247

 

 

214

 

Latin America

 

 

74

 

 

51

 

 

194

 

 

108

 

Asia Pacific

 

 

20

 

 

19

 

 

48

 

 

51

 

Reportable segment totals

 

 

237

 

 

199

 

 

681

 

 

554

 

Items excluded from segment operating profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained corporate costs and other

 

 

(18)

 

 

(10)

 

 

(75)

 

 

(49)

 

Restructuring, asset impairment and other

 

 

 

 

 

(41)

 

 

(12)

 

 

(68)

 

Strategic transaction costs

 

 

 

 

 

(13)

 

 

 

 

 

(19)

 

Acquisition-related fair value inventory adjustments

 

 

 

 

 

(10)

 

 

 

 

 

(10)

 

Interest expense, net

 

 

(66)

 

 

(67)

 

 

(199)

 

 

(188)

 

Earnings from continuing operations before income taxes

 

$

153

 

$

58

 

$

395

 

$

220

 

 

Financial information regarding the Company’s total assets is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

September 30,

 

    

    

2016

    

2015

    

2015

Total assets:

 

 

 

 

 

 

 

 

 

 

Europe

 

$

2,972

 

$

2,902

 

$

3,030

 

North America

 

 

2,536

 

 

2,500

 

 

2,028

 

Latin America

 

 

2,629

 

 

2,807

 

 

3,297

 

Asia Pacific

 

 

1,025

 

 

917

 

 

894

 

 

 

 

 

 

 

 

 

 

 

 

Reportable segment totals

 

 

9,162

 

 

9,126

 

 

9,249

 

Other

 

 

335

 

 

295

 

 

305

 

Consolidated totals

 

$

9,497

 

$

9,421

 

$

9,554

 

 

 

2.  Inventories

Major classes of inventory at September 30, 2016, December 31, 2015 and September 30, 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

September 30,

 

 

 

    

2016

    

2015

    

2015

    

 

Finished goods

 

$

892

 

$

858

 

$

873

 

 

Raw materials

 

 

127

 

 

113

 

 

114

 

 

Operating supplies

 

 

38

 

 

36

 

 

36

 

 

 

 

$

1,057

 

$

1,007

 

$

1,023

 

 

 

 

 

 

7


 

3.  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets at September 30, 2016, December 31, 2015 and September 30, 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

September 30,

 

    

2016

    

2015

    

2015

Prepaid expenses

 

$

61

 

$

52

 

$

50

Value added taxes

 

 

42

 

 

195

 

 

224

Other

 

 

131

 

 

119

 

 

168

 

 

$

234

 

$

366

 

$

442

In conjunction with the Vitro Acquisition in September of 2015, part of the total consideration paid by the Company included a value added tax receivable, which is included above as of December 31, 2015 and September 30, 2015. In the third quarter of 2016, approximately $127 million of this receivable was collected by the Company. The remaining $6 million of this receivable is expected to be refunded to the Company within the next twelve months.

 

4.  Derivative Instruments

The Company has certain derivative assets and liabilities which consist of natural gas forwards and foreign exchange option and forward contracts. The Company uses an income approach to value these contracts.  Natural gas forward rates and foreign exchange rates are the significant inputs into the valuation models.  These inputs are observable in active markets over the terms of the instruments the Company holds, and accordingly, the Company classifies its derivative assets and liabilities as Level 2 in the hierarchy.  The Company also evaluates counterparty risk in determining fair values.

Commodity Forward Contracts Designated as Cash Flow Hedges

In several regions, the Company enters into commodity forward contracts related to forecasted natural gas requirements, the objectives of which are to limit the effects of fluctuations in the future market price paid for natural gas and the related volatility in cash flows.  In North America, the majority of its customer contracts contain provisions that pass the price of natural gas to its customers.  In certain of these contracts, the customer has the option of fixing the natural gas price component for a specified period of time.  To limit the effects of fluctuations in cash flows resulting from these customer contracts, the Company enters into commodity forward contracts related to forecasted natural gas requirements.  In Asia Pacific, the Company implemented a hedging program in the first quarter of 2016, which included the execution of commodity forward contracts for certain contracted natural gas requirements.  At September 30, 2016 and 2015, the Company had entered into commodity forward contracts covering approximately 12,400,000 MM BTUs and 6,300,000 MM BTUs, respectively.

The Company accounts for the above forward contracts as cash flow hedges at September 30, 2016 and recognizes them on the balance sheet at fair value.  The effective portion of changes in the fair value of a derivative that is designated as, and meets the required criteria for, a cash flow hedge is recorded in the Accumulated Other Comprehensive Income component of share owners’ equity (“OCI”) and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings.  An unrecognized gain of $2 million at September 30, 2016, an unrecognized loss of $4 million at December 31, 2015 and an unrecognized gain of $2 million at September 30 2015, respectively, related to the commodity forward contracts was included in Accumulated OCI, and will be reclassified into earnings in the period when the commodity forward contracts expire.  Any material portion of the change in the fair value of a derivative designated as a cash flow hedge that is deemed to be ineffective is recognized in current earnings.  The ineffectiveness related to these natural gas hedges for the three and nine months ended September 30, 2016 and 2015 was not material.

8


 

The effect of the commodity forward contracts on the results of operations for the three months ended September 30, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain Reclassified from

 

Amount of Gain (Loss) Recognized in OCI on

 

Accumulated OCI into Income

 

Commodity Forward Contracts

 

(reported in cost of goods sold)

 

(Effective Portion)

 

(Effective Portion)

 

2016

    

2015

    

2016

    

2015

 

$

(1)

 

$

 2

 

$

 —

 

$

 4

 

 

The effect of the commodity forward contracts on the results of operations for the nine months ended September 30, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain Reclassified from

 

Amount of Gain Recognized in OCI on

 

Accumulated OCI into Income

 

Commodity Forward Contracts

 

(reported in cost of goods sold)

 

(Effective Portion)

 

(Effective Portion)

 

2016

    

2015

    

2016

    

2015

 

$

 2

 

$

 2

 

$

 —

 

$

 6

 

 

 

Foreign Exchange Derivative Contracts and not Designated as Hedging Instruments

The Company may enter into short-term forward exchange or option agreements to purchase foreign currencies at set rates in the future. These agreements are used to limit exposure to fluctuations in foreign currency exchange rates for significant planned purchases of fixed assets or commodities that are denominated in currencies other than the subsidiaries’ functional currency. The Company may also use foreign exchange agreements to offset the foreign currency risk for receivables and payables, including intercompany receivables, payables, and loans, not denominated in, or indexed to, their functional currencies. The Company records these short-term foreign exchange agreements on the balance sheet at fair value and changes in the fair value are recognized in current earnings.

At September 30, 2016 and 2015, the Company had outstanding foreign exchange and option agreements denominated in various currencies covering the equivalent of approximately $580 million and $600 million, respectively, related primarily to intercompany transactions and loans.

The effect of the foreign exchange derivative contracts on the results of operations for the three months ended September 30, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

Location of Gain (Loss)

 

Recognized in Income on

 

Recognized in Income on

 

Foreign Exchange Contracts

 

Foreign Exchange Contracts

 

2016

 

2015

 

Other expense

    

$

 4

    

$

(4)

 

The effect of the foreign exchange derivative contracts on the results of operations for the nine months ended September 30, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain

 

Location of Gain

 

Recognized in Income on

 

Recognized in Income on

 

Foreign Exchange Contracts

 

Foreign Exchange Contracts

 

2016

 

2015

 

Other expense

    

$

6

    

$

2

 

 

9


 

Balance Sheet Classification

The Company records the fair values of derivative financial instruments on the balance sheet as follows: (a) receivables if the instrument has a positive fair value and maturity within one year, (b) deposits, receivables, and other assets if the instrument has a positive fair value and maturity after one year, and (c) other accrued liabilities or other liabilities (current) if the instrument has a negative fair value and maturity within one year.

The following table shows the amount and classification (as noted above) of the Company’s derivatives at September 30, 2016, December 31, 2015 and September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

 

Balance Sheet

 

September 30,

 

December 31,

 

September 30,

 

 

 

    

Location

    

2016

    

2015

    

2015

 

 

Asset derivatives:

    

    

    

 

    

    

 

    

 

 

    

    

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity forwards contracts

 

a

 

$

2

 

$

 —

 

$

 —

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivative contracts

 

a

 

 

8

 

 

14

 

 

16

 

 

Total asset derivatives

 

 

 

$

10

 

$

14

 

$

16

 

 

Liability derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity forwards contracts

 

c

 

$

 —

 

$

3

 

$

2

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivative contracts

 

c

 

 

2

 

 

2

 

 

4

 

 

Total liability derivatives

 

 

 

$

2

 

$

5

 

$

6

 

 

 

 

 

10


 

5.  Restructuring Accruals

Selected information related to the restructuring accruals for the three months ended September 30, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Other

    

 

 

 

 

 

Asia Pacific

 

Restructuring

 

Total

 

 

    

Restructuring

    

Actions

    

Restructuring

 

Balance at July 1, 2016

 

$

6

 

$

28

 

$

34

 

Net cash paid, principally severance and related benefits

 

 

(1)

 

 

(2)

 

 

(3)

 

Other, including foreign exchange translation

 

 

 

 

 

(2)

 

 

(2)

 

Balance at September 30, 2016

 

$

5

 

$

24

 

$

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

European

 

 

 

 

Other

 

 

 

 

 

 

Asset

 

Asia Pacific

 

Restructuring

 

Total

 

 

 

Optimization

 

Restructuring

    

Actions

    

Restructuring

 

Balance at July 1, 2015

 

$

11

 

$

8

 

$

33

 

$

52

 

Charges

 

 

 

 

 

 

 

 

35

 

 

35

 

Write-down of assets to net realizable value

 

 

 

 

 

 

 

 

(19)

 

 

(19)

 

Net cash paid, principally severance and related benefits

 

 

 

 

 

(1)

 

 

(4)

 

 

(5)

 

Other, including foreign exchange translation

 

 

 

 

 

 

 

 

(1)

 

 

(1)

 

Balance at September 30, 2015

 

$

11

 

$

7

 

$

44

 

$

62

 

 

Selected information related to the restructuring accruals for the nine months ended September 30, 2016 and 2015 is as follows: