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Owens Illinois Inc (OI) SEC Filing 10-Q Quarterly report for the period ending Sunday, March 31, 2019

Owens Illinois Inc

CIK: 812074 Ticker: OI

Exhibit 99.1

 

 

FOR IMMEDIATE RELEASE

 

O-I REPORTS FIRST QUARTER 2019 RESULTS

 

PERRYSBURG, Ohio (May 1, 2019)

— Owens-Illinois, Inc. (NYSE: OI) today reported financial results for the first quarter ended March 31, 2019.

 

“Our first quarter results were in-line with our guidance as the Company commissioned new capacity to support future growth,” said Andres Lopez, CEO.  “In addition, we announced future expansion at our Gironcourt, France plant as well as a definitive agreement to acquire the Nueva Fanal(1) operations in Mexico from ABI.  All of these actions support key strategic customers, align O-I to attractive premium segments and will drive future profitable growth.”

 

“Segment profit and margins improved in both Europe and Asia Pacific compared to the prior year.  Profits declined in the Americas reflecting foreign currency headwinds and incremental costs to commission new capacity which was concentrated in this region during the first quarter,” added Lopez.  “Our teams are aligned and energized like never before, executing growth with rigor and discipline.  This, combined with our balanced capital allocation strategy, is expected to create significant value for our shareholders for years to come.”

 

Highlights

 

·                  For the first quarter 2019, the Company recorded earnings from continuing operations of $0.51 per share (diluted), compared to $0.59 per share (diluted) in the same period of the prior year.

 

·                  Net sales were $1.6 billion, compared with $1.7 billion in the prior year.  A continued favorable pricing environment was more than offset by a decline in shipments and unfavorable currency translation.

 

·                  Earnings from continuing operations before income taxes were $111 million, compared with $135 million in the prior year, reflecting $24 million of lower segment operating profit(2).  Europe and Asia Pacific reported higher segment operating profit year-over-year, while the Americas declined primarily due to currency headwinds as well as incremental costs to commission new capacity.

 

·                  The Company announced on April 1, 2019 the acquisition of Nueva Fabrica Nacional de  Vidrio, S. de R.L. de C.V. (“Nueva Fanal”) from Grupo Modelo for approximately $188 million, subject to customary closing conditions, including competition authority approval, and is expected to close in the second half of 2019.  In addition, the Company announced the future expansion at its Gironcourt, France plant. These strategic initiatives are supported by long-term customer supply agreements.

 


The following information was filed by Owens Illinois Inc (OI) on Wednesday, May 1, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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

March 31, 2019

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


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $.01 par value

OI

New York Stock Exchange

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

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 every Interactive Data File required to be submitted 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 such files). Yes ☒  No ☐

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

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

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

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

The number of shares of common stock, par value $.01, of Owens-Illinois, Inc. outstanding as of March 31, 2019 was 155,230,560.

 

 

 


 

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 Annual Report on Form 10-K for the year ended December 31, 2018.

1


 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

March 31,

 

 

 

 

2019

    

2018

    

 

Net sales

 

$

1,638

 

$

1,736

 

 

Cost of goods sold

 

 

(1,340)

 

 

(1,417)

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

298

 

 

319

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expense

 

 

(115)

 

 

(126)

 

 

Research, development and engineering expense

 

 

(16)

 

 

(16)

 

 

Interest expense, net

 

 

(65)

 

 

(62)

 

 

Equity earnings

 

 

19

 

 

17

 

 

Other income (expense), net

 

 

(10)

 

 

 3

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations before income taxes

 

 

111

 

 

135

 

 

Provision for income taxes

 

 

(27)

 

 

(32)

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

 

84

 

 

103

 

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

84

 

 

103

 

 

Net earnings attributable to noncontrolling interests

 

 

(5)

 

 

(5)

 

 

Net earnings attributable to the Company

 

$

79

 

$

98

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to the Company:

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

79

 

$

98

 

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

Net earnings

 

$

79

 

$

98

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.51

 

$

0.60

 

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

Net earnings

 

$

0.51

 

$

0.60

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (thousands)

 

 

154,361

 

 

162,919

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.51

 

$

0.59

 

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

Net earnings

 

$

0.51

 

$

0.59

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding (thousands)

 

 

156,635

 

 

165,186

 

 

 

See accompanying notes.

2


 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME

(Dollars in millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

March 31,

 

 

 

    

2019

    

2018

    

 

Net earnings

 

$

84

 

$

103

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

49

 

 

126

 

 

Pension and other postretirement benefit adjustments, net of tax

 

 

 6

 

 

 7

 

 

Change in fair value of derivative instruments, net of tax

 

 

 5

 

 

(5)

 

 

Other comprehensive income

 

 

60

 

 

128

 

 

Total comprehensive income

 

 

144

 

 

231

 

 

Comprehensive income attributable to noncontrolling interests

 

 

(8)

 

 

(11)

 

 

Comprehensive income attributable to the Company

 

$

136

 

$

220

 

 

 

See accompanying notes.

3


 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

2019

 

2018

 

2018

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

326

 

$

512

 

$

418

Trade receivables, net of allowance of $34 million, $35 million, and $36 million at March 31, 2019, December 31, 2018 and March 31, 2018

 

 

939

 

 

549

 

 

1,045

Inventories

 

 

1,038

 

 

1,018

 

 

1,065

Prepaid expenses and other current assets

 

 

276

 

 

278

 

 

240

Total current assets

 

 

2,579

 

 

2,357

 

 

2,768

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

3,074

 

 

3,085

 

 

3,190

Goodwill

 

 

2,507

 

 

2,513

 

 

2,649

Intangibles, net

 

 

394

 

 

400

 

 

452

Other assets

 

 

1,598

 

 

1,344

 

 

1,222

Total assets

 

$

10,152

 

$

9,699

 

$

10,281

 

 

 

 

 

 

 

 

 

 

Liabilities and Share owners' equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,065

 

$

1,321

 

$

1,115

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

 

 

91

 

 

160

 

 

194

Current portion of asbestos-related liabilities

 

 

160

 

 

160

 

 

100

Other liabilities

 

 

544

 

 

566

 

 

554

Other liabilities - discontinued operations

 

 

 

 

 

 

 

 

115

Total current liabilities

 

 

1,860

 

 

2,207

 

 

2,078

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

5,820

 

 

5,181

 

 

5,640

Asbestos-related liabilities

 

 

372

 

 

442

 

 

475

Other long-term liabilities

 

 

1,090

 

 

969

 

 

969

Share owners' equity

 

 

1,010

 

 

900

 

 

1,119

Total liabilities and share owners' equity

 

$

10,152

 

$

9,699

 

$

10,281

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

4


 

OWENS-ILLINOIS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

 

    

2019

    

2018

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net earnings

 

$

84

 

$

103

 

 

Loss from discontinued operations

 

 

 

 

 

 

 

 

Non-cash charges

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

126

 

 

131

 

 

Pension expense

 

 

 8

 

 

10

 

 

Cash payments

 

 

 

 

 

 

 

 

Pension contributions

 

 

(11)

 

 

(10)

 

 

Asbestos-related payments

 

 

(71)

 

 

(7)

 

 

Cash paid for restructuring activities

 

 

(15)

 

 

(6)

 

 

Change in components of working capital

 

 

(697)

 

 

(622)

 

 

Other, net (a)

 

 

(19)

 

 

31

 

 

Cash utilized in operating activities

 

 

(595)

 

 

(370)

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash payments for property, plant and equipment

 

 

(121)

 

 

(142)

 

 

Contributions and advances to joint ventures

 

 

(15)

 

 

(26)

 

 

Net cash proceeds on disposal of assets

 

 

 1

 

 

 7

 

 

Other, net

 

 

 

 

 

 1

 

 

Cash utilized in investing activities

 

 

(135)

 

 

(160)

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Changes in borrowings, net

 

 

589

 

 

488

 

 

Issuance of common stock and other

 

 

(3)

 

 

 

 

 

Treasury shares repurchased

 

 

(38)

 

 

(45)

 

 

Dividends paid

 

 

(8)

 

 

 

 

 

Cash provided by financing activities

 

 

540

 

 

443

 

 

Effect of exchange rate fluctuations on cash

 

 

 4

 

 

13

 

 

Decrease in cash

 

 

(186)

 

 

(74)

 

 

Cash at beginning of period

 

 

512

 

 

492

 

 

Cash at end of period

 

$

326

 

$

418

 

 


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

Financial information for the three months ended March 31, 2019 and 2018 regarding the Company’s reportable segments is as follows:

 

 

 

 

 

 

 

 

 

    

Three months ended March 31,

 

 

 

2019

 

2018

 

Net sales:

 

 

 

 

 

 

 

Americas

 

$

881

 

$

908

 

Europe

 

 

596

 

 

643

 

Asia Pacific

 

 

151

 

 

173

 

Reportable segment totals

 

 

1,628

 

 

1,724

 

Other

 

 

10

 

 

12

 

Net sales

 

$

1,638

 

$

1,736

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

    

2019

    

2018

 

Segment operating profit:

 

 

 

 

 

 

 

Americas

 

$

113

 

$

147

 

Europe

 

 

79

 

 

72

 

Asia Pacific

 

 

 8

 

 

 5

 

Reportable segment totals

 

 

200

 

 

224

 

Items excluded from segment operating profit:

 

 

 

 

 

 

 

Retained corporate costs and other

 

 

(24)

 

 

(27)

 

Interest expense, net

 

 

(65)

 

 

(62)

 

Earnings from continuing operations before income taxes

 

$

111

 

$

135

 

6


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

    

2019

 

2018

 

2018

 

Total assets:

 

 

 

 

 

 

 

 

 

 

Americas

 

$

5,621

 

$

5,497

 

$

5,637

 

Europe

 

 

3,273

 

 

3,036

 

 

3,387

 

Asia Pacific

 

 

1,012

 

 

918

 

 

1,056

 

 

 

 

 

 

 

 

 

 

 

 

Reportable segment totals

 

 

9,906

 

 

9,451

 

 

10,080

 

Other

 

 

246

 

 

248

 

 

201

 

Consolidated totals

 

$

10,152

 

$

9,699

 

$

10,281

 

 

2.  Revenue

Revenue is recognized when obligations under the terms of the Company’s contracts and related purchase orders with its customers are satisfied.  This occurs with the transfer of control of glass containers, which primarily takes place when products are shipped from the Company’s manufacturing or warehousing facilities to the customer.  Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimated provisions for rebates, discounts, returns and allowances. Sales, value added, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.  The Company’s payment terms are based on customary business practices and can vary by customer type. The term between invoicing and when payment is due is not significant. Also, the Company elected to account for shipping and handling costs as a fulfillment cost at the time of shipment.

For the three month periods ended March 31, 2019 and March 31, 2018, the Company had no material bad debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheet. For the three month periods ended March 31, 2019 and March 31, 2018, revenue recognized from prior periods (for example, due to changes in transaction price) was not material.

The following tables for the three months ended March 31, 2019 and 2018 disaggregates the Company’s revenue by customer end use:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2019

 

    

Americas

 

Europe

 

Asia Pacific

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Alcoholic beverages (beer, wine, spirits)

 

$

564

 

$

432

 

$

109

 

$

1,105

Food and other

 

 

180

 

 

103

 

 

25

 

 

308

Non-alcoholic beverages

 

 

137

 

 

61

 

 

17

 

 

215

Reportable segment totals

 

$

881

 

$

596

 

$

151

 

$

1,628

Other

 

 

 

 

 

 

 

 

 

 

 

10

Net sales

 

 

 

 

 

 

 

 

 

 

$

1,638

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2018

 

    

Americas

 

Europe

 

Asia Pacific

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Alcoholic beverages (beer, wine, spirits)

 

$

576

 

$

471

 

$

127

 

$

1,174

Food and other

 

 

189

 

 

112

 

 

24

 

 

325

Non-alcoholic beverages

 

 

143

 

 

60

 

 

22

 

 

225

Reportable segment totals

 

$

908

 

$

643

 

$

173

 

$

1,724

Other

 

 

 

 

 

 

 

 

 

 

 

12

Net sales

 

 

 

 

 

 

 

 

 

 

$

1,736

 

 

 

7


 

3.  Inventories

Major classes of inventory at March 31, 2019, December 31, 2018 and March 31, 2018 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

    

2019

    

2018

    

2018

    

 

Finished goods

 

$

868

 

$

849

 

$

901

 

 

Raw materials

 

 

126

 

 

125

 

 

120

 

 

Operating supplies

 

 

44

 

 

44

 

 

44

 

 

 

 

$

1,038

 

$

1,018

 

$

1,065

 

 

 

4.  Derivative Instruments

The Company has certain derivative assets and liabilities, which consist of natural gas forwards, foreign exchange option and forward contracts, interest rate swaps and cross currency swaps. The valuation of these instruments is determined primarily using the income approach, including discounted cash flow analysis on the expected cash flows of each derivative.  Natural gas forward rates, foreign exchange rates and interest rates are the significant inputs into the valuation models. The Company also evaluates counterparty risk in determining fair values. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.  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. 

Commodity Forward Contracts Designated as Cash Flow Hedges

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. 

An unrecognized gain of $3 million at March 31, 2019, an unrecognized gain of $1 million at December 31, 2018 and an unrecognized gain of $4 million at March 31, 2018 related to the commodity forward contracts were included in Accumulated OCI, and will be reclassified into earnings in the period when the commodity forward contracts expire. 

Foreign Exchange Derivative Contracts Not Designated as Hedging Instruments

The Company uses 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 also uses 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.

Cash Flow Hedges of Foreign Exchange Risk

The Company has variable-interest rate borrowings denominated in currencies other than the functional currency of the borrowing subsidiaries. As a result, the Company is exposed to fluctuations in the currency of the borrowing against the subsidiaries’ functional currency.  The Company uses derivatives to manage these exposures and designates these derivatives as cash flow hedges of foreign exchange risk.

During the first quarter of 2019, one of the Company’s Euro-functional subsidiaries entered into a cross-currency swap that has a pay fixed notional amount of €184 million and a receive notional amount of $210 million. The swap reaches maturity in the fourth quarter of 2019. During 2018, two of the Company’s subsidiaries, a New Zealand dollar functional currency subsidiary and an Australian dollar functional currency subsidiary, entered into a series of cross-currency swaps to U.S. dollar instruments with a fixed notional amount of $109 million and $168 million, respectively. They reach final maturity in 2022. During 2017, one of the Company’s Euro-functional subsidiaries entered into a series

8


 

of cross-currency swaps that have a pay fixed notional amount of €263 million and a receive notional amount of $310 million. They reach final maturity in 2023.

An unrecognized loss of $11 million at March 31, 2019, an unrecognized loss of $9 million at December 31, 2018 and an unrecognized loss of $6 million at March 31, 2018, related to these cross-currency swaps, were included in Accumulated OCI, and will be reclassified into earnings within the next twelve months.

Interest Rate Swaps Designated as Fair Value Hedges

The Company enters into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. The Company’s fixed-to-variable interest rate swaps are accounted for as fair value hedges. The relevant terms of the swap agreements match the corresponding terms of the notes and therefore there is no hedge ineffectiveness. The Company recorded the net of the fair market values of the swaps as a long-term liability and short-term asset, along with a corresponding net decrease in the carrying value of the hedged debt.

Cash Flow Hedges of Interest Rate Risk

The Company enters into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments. These interest rate swap agreements were used to hedge the variable cash flows associated with variable-rate debt.

An unrecognized loss of less than $1 million at year ended March 31, 2019 and an unrecognized loss of less than $1 million at year ended December 31, 2018, related to these interest rate swaps, was included in Accumulated OCI, and will be reclassified into earnings within the next twelve months.

Net Investment Hedges

The Company is exposed to fluctuations in foreign exchange rates on investments it holds in non-U.S. subsidiaries and uses cross currency swaps to partially hedge this exposure.

9


 

Balance Sheet Classification

The following table shows the amount and classification (as noted above) of the Company’s derivatives at March 31, 2019, December 31, 2018 and March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of

 

Fair Value of

 

 

Hedge Assets

 

Hedge Liabilities

 

 

March 31,

 

December 31,

 

March 31,

 

March 31,

 

December 31,

 

March 31,

 

    

2019

    

2018

    

2018

    

2019

    

2018

    

2018

Derivatives designated as hedging instruments:

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Commodity forward contracts (a)

 

$

3

 

$

 1

 

$

4

 

$

 -

 

$

 -

 

$

 -

Interest rate swaps - fair value hedges (b)

 

 

18

 

 

 6

 

 

 4

 

 

 

 

 

 1

 

 

15

Cash flow hedges of foreign exchange risk (c)

 

 

18

 

 

10

 

 

 6

 

 

 4

 

 

 1

 

 

26

Interest rate swaps - cash flow hedges (d)

 

 

 

 

 

 

 

 

 

 

 

 1

 

 

 

 

 

 

Net investment hedges (e)

 

 

 6

 

 

 6

 

 

 4

 

 

 4

 

 

 8

 

 

 1

Total derivatives accounted for as hedges

 

$

45

 

$

23

 

$

18

 

$

 9

 

$

10

 

$

42

Derivatives not designated as hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivative contracts (f)

 

 

2

 

 

 2

 

 

 

 

 

1

 

 

 2

 

 

 

Total derivatives

 

$

47

 

$

25

 

$

18

 

$

10

 

$

12

 

$

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

$

23

 

$

19

 

$

14

 

$

 3

 

$

 3

 

$

 -

Noncurrent

 

 

24

 

 

 6

 

 

 4

 

 

 7

 

 

 9

 

 

42

Total derivatives

 

$

47

 

$

25

 

$

18

 

$

10

 

$

12

 

$

42

______________________________________

(a) The notional amounts of the commodity forward contracts were $20 million, $21 million and $31 million at March 31, 2019, December 31, 2018 and March 31, 2018, respectively. The maximum maturity dates were in 2020 for all three periods.

(b) The notional amounts of the interest rate swaps designated as fair value hedges were €725 million at March 31, 2019, December 31, 2018 and March 31, 2018, respectively. The maximum maturity dates were in 2024 for all three periods.

(c) The notional amounts of the cash flow hedges of foreign exchange risk were $797 million, $587 million and $310 million at March 31, 2019, December 31, 2018 and March 31, 2018, respectively. The maximum maturity dates were in 2023 for all three periods.

(d) The notional amounts of the interest rate swaps designated as cash flow hedges were $180 million and maximum maturity dates were 2020 at March 31, 2019 and December 31, 2018.

(e) The notional amounts of the net investment hedges were €160 million and maximum maturity dates were 2020 at March 31, 2019 and December 31, 2018.

(f) The notional amounts of the foreign exchange derivative contracts were $625 million, $470 million and $350 million and maximum maturity dates were 2019, 2019, and 2018 at March 31, 2019, December 31, 2018 and March 31, 2018, respectively.

10


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in OCI (Effective Portion)

 

Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (1)

 

 

March 31,

 

March 31,

 

 

March 31,

 

March 31,

 

Derivatives designated as hedging instruments:

 

2019

 

2018

 

 

2019

 

2018

 

Cash Flow Hedges

    

 

 

    

 

 

    

    

 

 

    

 

 

    

Commodity forward contracts (a)

 

$

 2

 

$

1

 

 

$

 —

 

$

 —

 

Cash flow hedges of foreign exchange risk (b)

 

 

 7

 

 

(13)

 

 

 

(10)

 

 

(8)

 

Cash flow hedges of interest rate risk (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Hedges

 

 

 5

 

 

 

 

 

 

(2)

 

 

 

 

 

 

$

14

 

$

(12)

 

 

$

(12)

 

$

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain (Loss) Recognized in Other income (expense), net

 

 

 

 

 

 

 

 

 

March 31,

 

March 31,

 

 

 

 

 

 

 

 

Derivatives not designated as hedges:

 

2019

 

2018

 

 

 

 

 

 

 

 

Foreign exchange derivative contracts

    

$

 6

    

$

 —

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Gains and losses reclassified from accumulated OCI and recognized in income are recorded to (a) cost of goods sold, (b) other expense, net or (c) interest expense, net.

 

 

5.  Restructuring Accruals

Selected information related to the restructuring accruals for the three months ended March 31, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

Other

 

Total

 

    

Costs

 

Exit Costs

 

Restructuring

Balance at January 1, 2019

 

$

47

 

$

22

 

$

69

Net cash paid, principally severance and related benefits

 

 

(13)

 

 

(2)

 

 

(15)

Other, including foreign exchange translation

 

 

 

 

 

(1)

 

 

(1)

Balance at March 31, 2019

 

$

34

 

$

19

 

$

53

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

Other

 

Total

 

 

Costs

 

Exit Costs

 

Restructuring

Balance at January 1, 2018

 

$

52

 

$

33

 

$

85

Net cash paid, principally severance and related benefits

 

 

(5)

 

 

(1)

 

 

(6)

Other, including foreign exchange translation

 

 

 1