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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, 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 33-13061

OWENS-ILLINOIS GROUP, INC.

(Exact name of registrant as specified in its charter)


Delaware		34-1559348
(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: 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 Group, Inc. outstanding as of September 30, 2019 was 100.

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements.

The Condensed Consolidated Financial Statements of Owens-Illinois Group, 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.

OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions)

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
Net sales	$	1,670	$	1,734	$	5,063	$	5,242
Cost of goods sold		(1,371)		(1,410)		(4,131)		(4,253)

Gross profit		299		324		932		989

Selling and administrative expense		(108)		(115)		(339)		(367)
Research, development and engineering expense		(16)		(17)		(50)		(50)
Interest expense, net		(83)		(63)		(215)		(199)
Equity earnings		17		19		55		57
Other income (expense), net (incl. goodwill impairment)		(645)		20		(709)		(49)

Earnings (loss) from continuing operations before income taxes		(536)		168		(326)		381
Provision for income taxes		(31)		(41)		(86)		(95)

Earnings (loss) from continuing operations		(567)		127		(412)		286
Loss from discontinued operations						(1)		(1)

Net earnings (loss)		(567)		127		(413)		285
Net earnings attributable to noncontrolling interests		(8)		(7)		(17)		(18)
Net earnings (loss) attributable to the Company	$	(575)	$	120	$	(430)	$	267

Amounts attributable to the Company:
Earnings (loss) from continuing operations	$	(575)	$	120	$	(429)	$	268
Loss from discontinued operations						(1)		(1)
Net earnings (loss)	$	(575)	$	120	$	(430)	$	267

See accompanying notes.

OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
Net earnings (loss)	$	(567)	$	127	$	(413)	$	285
Other comprehensive income (loss):
Foreign currency translation adjustments		(118)		32		(67)		(110)
Pension and other postretirement benefit adjustments, net of tax		27		15		49		51
Change in fair value of derivative instruments, net of tax		5		(1)		1		(7)
Other comprehensive income (loss)		(86)		46		(17)		(66)
Total comprehensive income (loss)		(653)		173		(430)		219
Comprehensive income (loss) attributable to noncontrolling interests		14		1		13
Comprehensive income (loss) attributable to the Company	$	(639)	$	174	$	(417)	$	219

See accompanying notes.

OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)


	September 30,		December 31,		September 30,
	2019		2018		2018
Assets
Current assets:
Cash and cash equivalents	$	273	$	512	$	440
Trade receivables, net of allowance of $31 million, $35 million, and $35 million at September 30, 2019, December 31, 2018 and September 30, 2018		968		549		992
Inventories		1,015		1,018		973
Prepaid expenses and other current assets		278		278		259
Total current assets		2,534		2,357		2,664

Property, plant and equipment, net		3,104		3,085		3,044
Goodwill		1,893		2,513		2,549
Intangibles, net		404		400		422
Other assets		1,613		1,344		1,261
Total assets	$	9,548	$	9,699	$	9,940

Liabilities and Share owners' equity
Current liabilities:
Accounts payable	$	1,064	$	1,321	$	1,048
Short-term loans and long-term debt due within one year		376		160		152
Other liabilities		630		566		604
Other liabilities - discontinued operations						115
Total current liabilities		2,070		2,047		1,919

Long-term debt		5,512		5,181		5,487
Other long-term liabilities		1,063		969		925
Share owners' equity		903		1,502		1,609
Total liabilities and share owners' equity	$	9,548	$	9,699	$	9,940

See accompanying notes.

OWENS-ILLINOIS GROUP, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

(Unaudited)


	Nine months ended September 30,
	2019		2018
Cash flows from operating activities:
Net earnings (loss)	$	(413)	$	285
Loss from discontinued operations		1		1
Non-cash charges
Depreciation and amortization		380		384
Pension expense		24		25
Restructuring, asset impairment and related charges		56		70
Pension settlement charges		13
Goodwill impairment charge		595
Cash payments
Pension contributions		(29)		(26)
Cash paid for restructuring activities		(41)		(21)
Change in components of working capital		(661)		(545)
Other, net (a)		(36)		(34)
Cash provided by (utilized in) continuing operating activities		(111)		139
Cash utilized in discontinued operating activities		(1)		(1)
Total cash provided by (utilized in) operating activities		(112)		138
Cash flows from investing activities:
Cash payments for property, plant and equipment		(333)		(383)
Acquisitions, net of cash acquired		(157)
Contributions and advances to joint ventures		(22)		(48)
Net cash proceeds on disposal of assets		2		10
Other, net		5
Cash utilized in investing activities		(505)		(421)
Cash flows from financing activities:
Changes in borrowings, net		593		413
Distributions to parent		(200)		(146)
Payment of finance fees and note repurchase premiums		(31)		(13)
Distributions to noncontrolling interests		(7)		(9)
Net cash proceeds for hedging activity		28
Cash provided by financing activities		383		245
Effect of exchange rate fluctuations on cash		(5)		(14)
Decrease in cash		(239)		(52)
Cash at beginning of period		512		492
Cash at end of period	$	273	$	440

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

See accompanying notes.

OWENS-ILLINOIS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular data dollars in millions

1. Basis of Presentation

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

2. 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 and nine months ended September 30, 2019 and 2018 regarding the Company’s reportable segments is as follows:


	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Net sales:
Americas	$	918	$	939	$	2,733	$	2,777
Europe		588		613		1,834		1,930
Asia Pacific		152		165		455		491
Reportable segment totals		1,658		1,717		5,022		5,198
Other		12		17		41		44
Net sales	$	1,670	$	1,734	$	5,063	$	5,242


	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Segment operating profit:
Americas	$	123	$	158	$	380	$	458
Europe		79		87		248		260
Asia Pacific		3		10		13		16
Reportable segment totals		205		255		641		734
Items excluded from segment operating profit:
Retained corporate costs and other		(20)		(24)		(71)		(81)
Charge for goodwill impairment		(595)				(595)
Restructuring, asset impairment, pension settlement and other charges		(43)				(86)		(73)
Interest expense, net		(83)		(63)		(215)		(199)
Earnings (loss) from continuing operations before income taxes	$	(536)	$	168	$	(326)	$	381

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


	September 30,		December 31,		September 30,
	2019		2018		2018
Total assets:
Americas	$	5,241	$	5,497	$	5,455
Europe		3,053		3,036		3,220
Asia Pacific		1,021		918		999

Reportable segment totals		9,315		9,451		9,674
Other		233		248		266
Consolidated totals	$	9,548	$	9,699	$	9,940

3. 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 and nine month periods ended September 30, 2019 and September 30, 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 and nine month periods ended September 30, 2019 and September 30, 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 September 30, 2019 and 2018 disaggregates the Company’s revenue by customer end use:


	Three months ended September 30, 2019
	Americas		Europe		Asia Pacific		Total

Alcoholic beverages (beer, wine, spirits)	$	591	$	409	$	106	$	1,106
Food and other		192		119		26		337
Non-alcoholic beverages		135		60		20		215
Reportable segment totals	$	918	$	588	$	152	$	1,658
Other								12
Net sales							$	1,670


	Three months ended September 30, 2018
	Americas		Europe		Asia Pacific		Total

Alcoholic beverages (beer, wine, spirits)	$	582	$	419	$	121	$	1,122
Food and other		209		127		24		360
Non-alcoholic beverages		148		67		20		235
Reportable segment totals	$	939	$	613	$	165	$	1,717
Other								17
Net sales							$	1,734

The following tables for the nine months ended September 30, 2019 and 2018 disaggregates the Company’s revenue by customer end use:


	Nine months ended September 30, 2019
	Americas		Europe		Asia Pacific		Total

Alcoholic beverages (beer, wine, spirits)	$	1,744	$	1,315	$	320	$	3,379
Food and other		564		331		80		975
Non-alcoholic beverages		425		188		55		668
Reportable segment totals	$	2,733	$	1,834	$	455	$	5,022
Other								41
Net sales							$	5,063

	Nine months ended September 30, 2018
	Americas		Europe		Asia Pacific		Total

Alcoholic beverages (beer, wine, spirits)	$	1,743	$	1,383	$	361	$	3,487
Food and other		594		351		72		1,017
Non-alcoholic beverages		440		196		58		694
Reportable segment totals	$	2,777	$	1,930	$	491	$	5,198
Other								44
Net sales							$	5,242

4. Inventories

Major classes of inventory at September 30, 2019, December 31, 2018 and September 30, 2018 are as follows:


	September 30,		December 31,		September 30,
	2019		2018		2018
Finished goods	$	836	$	849	$	808
Raw materials		134		125		119
Operating supplies		45		44		46
	$	1,015	$	1,018	$	973

5. Goodwill

The changes in the carrying amount of goodwill as of September 30, 2018, December 31, 2018, and September 30, 2019 are as follows:


	Europe		Americas		Other		Total
Balance as of September 30, 2018	$	889	$	1,655	$	5	$	2,549
Translation effects		(15)		(21)				(36)
Balance as of December 31, 2018		874		1,634		5		2,513
Translation effects		(36)		(9)				(45)
Acquisition related adjustments				20				20
Impairment				(595)				(595)
Balance as of September 30, 2019	$	838	$	1,050	$	5	$	1,893

As part of its on-going assessment of goodwill, the Company determined that indicators of impairment had occurred during the the third quarter of 2019. The triggering events were management’s update to its long-range plan, which indicated lower projected future cash flows for its North American reporting unit (in the Americas segment) as compared to the projections used in the most recent goodwill impairment test performed as of October 1, 2018, and a significant reduction in the Company’s share price. The Company’s business in North America has experienced declining shipments to its alcoholic beverage customers, primarily in the beer category, and this trend is likely to continue into the foreseeable future. These factors, combined with the narrow difference between the estimated fair value and carrying

value of the North American reporting unit as of December 31, 2018, resulted in the Company performing an interim impairment analysis during the third quarter of 2019. As a result, the Company recorded a non-cash impairment charge of $595 million in the third quarter of 2019, which was equal to the excess of the North American reporting unit's carrying value over its fair value. Goodwill related to the Company’s other reporting units was determined to not be impaired as a result of the interim impairment analysis.

When performing its test for goodwill impairment, the Company compares the business enterprise value (“BEV”) of each reporting unit with its carrying value. The BEV is computed based on estimated future cash flows, discounted at the weighted average cost of capital of a hypothetical third-party buyer. If the BEV is less than the carrying value for any reporting unit, then any excess of the carrying value over the BEV is recorded as an impairment loss. The calculations of the BEV are based on significant internal and external inputs, such as projected future cash flows of the reporting units, discount rates, terminal business value, among other assumptions. The valuation approach utilized by management represents a Level 3 fair value measurement measured on a non-recurring basis in the fair value hierarchy due to the Company’s use of unobservable inputs. The Company’s projected future cash flows incorporates management’s best estimates of the expected future results including, but not limited to, price trends, customer demand, material costs, asset replacement costs and any other known factors.

The remaining balances of goodwill remain susceptible to future impairment charges. If the Company’s projected future cash flows were substantially lower, or if the assumed weighted average cost of capital were substantially higher, the testing performed during the third quarter of 2019 may have indicated an impairment in one of the Company’s other reporting units or additional impairment of the North American reporting unit’s goodwill. Any impairment charges that the Company may take in the future could be material to its consolidated results of operations and financial condition.

The acquisition-related adjustment in 2019 relates to the Nueva Fanal acquisition that the Company completed on June 28, 2019. See Note 19 for additional details.

Goodwill for the Asia Pacific segment is $0 and net of accumulated impairment losses of $1,135 million as of September 30, 2018, December 31, 2018, and September 30, 2019.

6. 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 $1 million at September 30, 2019, an unrecognized gain of $1 million at December 31, 2018 and an unrecognized loss of $8 million at September 30, 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 second quarter of 2019, the Company terminated a portion of its cross-currency swaps, which resulted in a $15 million cash inflow recognized in the Cash flows from financing activities section of the Condensed Consolidated Cash Flows.

An unrecognized loss of $19 million at September 30, 2019, an unrecognized loss of $9 million at December 31, 2018 and an unrecognized loss of $9 million at September 30, 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.

During the second quarter of 2019, the Company terminated a portion of its interest rate swaps, which resulted in a $13 million cash inflow recognized in the Cash flows from financing activities section of the Condensed Consolidated Cash Flows.

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 $2 million at September 30, 2019, an unrecognized loss of less than $1 million at December 31, 2018 and an unrecognized gain of less than $1 million at September 30, 2018 related to these interest rate swaps, were 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.

An unrecognized gain of $12 million at September 30, 2019, an unrecognized gain of $4 million at year ended December 31, 2018 and an unrecognized loss of less than $1 million at September 30, 2018, related to these net investment hedges, were included in Accumulated OCI, and will be reclassified into earnings within the next twelve months.

Balance Sheet Classification

The following table shows the amount and classification (as noted above) of the Company’s derivatives at September 30, 2019, December 31, 2018 and September 30, 2018:


	Fair Value of						Fair Value of
	Hedge Assets						Hedge Liabilities
	September 30,		December 31,		September 30,		September 30,		December 31,		September 30,
	2019		2018		2018		2019		2018		2018
Derivatives designated as hedging instruments:
Commodity forward contracts (a)	$	1	$	1	$	8	$	—	$	—	$	—
Interest rate swaps - fair value hedges (b)		17		6		4				1		11
Cash flow hedges of foreign exchange risk (c)		36		10		11				1		12
Interest rate swaps - cash flow hedges (d)								1
Net investment hedges (e)		7		6		5				8		5
Total derivatives accounted for as hedges	$	61	$	23	$	28	$	1	$	10	$	28
Derivatives not designated as hedges:
Foreign exchange derivative contracts (f)		2		2		2		3		2		1
Total derivatives	$	63	$	25	$	30	$	4	$	12	$	29


Current	$	34	$	19	$	18	$	3	$	3	$	1
Noncurrent		29		6		12		1		9		28
Total derivatives	$	63	$	25	$	30	$	4	$	12	$	29

(a) The notional amounts of the commodity forward contracts were $19 million, $21 million and $21 million at September 30, 2019, December 31, 2018 and September 30, 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 September 30, 2019, December 31, 2018 and September 30, 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 $1.210 billion, $587 million and $590 million at September 30, 2019, December 31, 2018 and September 30, 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 at September 30, 2019, December 31, 2018 and September 30, 2018, respectively. Maximum maturity dates were 2021 at September 30, 2019 and 2020 at September 30, 2018 and December 31, 2018, respectively.

(e) The notional amounts of the net investment hedges were €160 million and maximum maturity dates were 2020 at September 30, 2019 and December 31, 2018.

(f) The notional amounts of the foreign exchange derivative contracts were $169 million, $470 million and $410 million and maximum maturity dates were 2020, 2019, and 2018 at September 30, 2019, December 31, 2018 and September 30, 2018, respectively.


	Gain (Loss) Recognized in OCI (Effective Portion)				Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (1)
	Three months ended September 30,				Three months ended September 30,
Derivatives designated as hedging instruments:	2019		2018		2019		2018
Cash Flow Hedges
Commodity forward contracts (a)	$	(1)	$	1	$	—	$	—
Cash flow hedges of foreign exchange risk (b)		(52)		7		(54)		(9)
Cash flow hedges of interest rate risk (c)
Net Investment Hedges
Net Investment Hedges		8				2
	$	(45)	$	8	$	(52)	$	(9)

	Gain (Loss) Recognized in OCI (Effective Portion)				Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (1)
	Nine months ended September 30,				Nine months ended September 30,
Derivatives designated as hedging instruments:	2019		2018		2019		2018
Cash Flow Hedges
Commodity forward contracts (a)	$	—	$	6	$	(1)	$	(1)
Cash flow hedges of foreign exchange risk (b)		(50)		8		(66)		1
Cash flow hedges of interest rate risk (c)		(1)
Net Investment Hedges
Net Investment Hedges		13				(2)
	$	(38)	$	14	$	(69)	$	—

	Amount of Gain (Loss) Recognized in Other income (expense), net				Amount of Gain (Loss) Recognized in Other income (expense), net
	Three months ended September 30,				Nine months ended September 30,
Derivatives not designated as hedges:	2019		2018		2019		2018
Foreign exchange derivative contracts	$	1	$	—	$	8	$	(1)

(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.

7. Restructuring Accruals

Selected information related to the restructuring accruals for the three months ended September 30, 2019 and 2018 is as follows:


	Employee		Asset		Other		Total
	Costs		Impairment		Exit Costs		Restructuring
Balance at July 1, 2019	$	50	$		$	20	$	70
Charges		5		17		2		24
Write-down of assets to net realizable value				(17)				(17)
Net cash paid, principally severance and related benefits		(6)				(6)		(12)
Other, including foreign exchange translation						(1)		(1)
Balance at September 30, 2019	$	49	$	—	$	15	$	64


	Employee		Asset		Other		Total
	Costs		Impairment		Exit Costs		Restructuring
Balance at July 1, 2018	$	71	$		$	16	$	87
Net cash paid, principally severance and related benefits		(8)				(1)		(9)
Other, including foreign exchange translation		(1)				(2)		(3)
Balance at September 30, 2018	$	62	$	—	$	13	$	75

Selected information related to the restructuring accruals for the nine months ended September 30, 2019 and 2018 is as follows:


	Employee		Asset		Other		Total
	Costs		Impairment		Exit Costs		Restructuring
Balance at January 1, 2019	$	47	$		$	22	$	69
Charges		32		17		7		56
Write-down of assets to net realizable value				(17)				(17)
Net cash paid, principally severance and related benefits		(30)				(11)		(41)
Other, including foreign exchange translation						(3)		(3)
Balance at September 30, 2019	$	49	$	—	$	15	$	64


	Employee		Asset		Other		Total
	Costs		Impairment		Exit Costs		Restructuring
Balance at January 1, 2018	$	67	$		$	18	$	85
Charges		15		53		2		70
Write-down of assets to net realizable value				(53)				(53)
Net cash paid, principally severance and related benefits		(18)				(3)		(21)
Other, including foreign exchange translation		(2)				(4)		(6)
Balance at September 30, 2018	$	62	$	—	$	13	$	75

When a decision is made to take restructuring actions, the Company manages and accounts for them programmatically apart from the on-going operations of the business. Information related to major programs is presented separately while minor initiatives are presented on a combined basis. As of September 30, 2019 and 2018, no major restructuring programs were in effect.

In the three and nine months ended September 30, 2019, the Company implemented several discrete restructuring initiatives and recorded restructuring and other charges of $24 million and $56 million, respectively. These charges consisted of employee costs such as severance and benefit-related costs, write-down of assets and other exit costs primarily related to a severance program for certain salaried employees at the Company’s corporate and America’s headquarters and a furnace closure in the Americas. These restructuring charges were discrete actions and are expected to approximate the total cumulative costs for those actions as no significant additional costs are expected to be incurred. For the three months ended September 30, 2019, these charges were recorded to Other expense, net on the Condensed Consolidated Results of Operations. For the nine months ended September 30, 2019, these charges were recorded to Selling and administrative expense ($2 million) and Other expense, net ($54 million) on the Condensed Consolidated Results of Operations. The Company expects that the majority of the remaining cash expenditures related to the accrued employee costs will be paid out by the end of 2019.

In the nine months ended September 30, 2018, the Company implemented several discrete restructuring initiatives and recorded restructuring, asset impairment and other charges of $70 million. These charges consisted of employee costs, write-down of assets and other exit costs primarily related to a plant closure in the Americas region. These restructuring charges were discrete actions and are expected to approximate the total cumulative costs for those actions as no significant additional costs are expected to be incurred. These restructuring actions primarily relate to capacity curtailments and the Company plans to reallocate the products produced to other facilities. These charges were recorded to Cost of goods sold ($5 million) and Other expense, net ($65 million) on the Condensed Consolidated Results of Operations. The Company expects that the majority of the remaining cash expenditures related to the above charges will be paid out by the end of 2019.

The Company’s decisions to curtail selected production capacity have resulted in write downs of certain long-lived assets to the extent their carrying value exceeded fair value or fair value less cost to sell. The Company classified the assumptions used to determine the fair value of the impaired assets in the period that the measurement was taken as Level 3 (third party appraisal) in the fair value hierarchy as set forth in the general accounting principles for fair value measurements. For the asset impairments recorded through September 30, 2019 and 2018, the remaining carrying value of the impaired assets was approximately $0 and $3 million, respectively.

8. Pension Benefit Plans

The components of the net periodic pension cost for the three months ended September 30, 2019 and 2018 are as follows:


	U.S.				Non-U.S.
	2019		2018		2019		2018
Service cost	$	3	$	4	$	3	$	4
Interest cost		15		15		7		7
Expected asset return		(22)		(25)		(11)		(13)
Amortization of actuarial loss		10		13		3		3
Net periodic pension cost	$	6	$	7	$	2	$	1

The components of the net periodic pension cost for the nine months ended September 30, 2019 and 2018 are as follows:


	U.S.				Non-U.S.
	2019		2018		2019		2018
Service cost	$	9	$	11	$	9	$	11
Interest cost		45		45		22		23
Expected asset return		(65)		(74)		(33)		(40)
Amortization of actuarial loss		30		39		7		10
Net periodic pension cost	$	19	$	21	$	5	$	4

In addition to the above, the Company recorded pension settlement charges in the United States of $11 million and $13 million for the three and nine months ended September 30, 2019, respectively. These charges were a result of restructuring actions taken for a severance program for salaried employees at the Company’s corporate and Americas headquarters.

9. Leases

In the first quarter of 2019, the Company adopted ASC 842, Leases, and selected the modified retrospective transition as of the effective date of January 1, 2019 (the effective date method). Under the effective date method, financial results reported in periods prior to 2019 are unchanged.

The Company determines if an arrangement is a lease at inception. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company uses an estimated incremental borrowing rate at the lease commencement date to determine the present value of lease payments when the implicit rate is not readily determinable in the lease. The Company’s incremental borrowing rate reflects a fully secured rate based on recent debt issuances, the credit rating of the Company, changes in currency and repayment timing of the lease, as well as publicly available data for instruments with similar characteristics when calculating incremental borrowing rates.

Certain lease agreements include terms with options to extend the lease, however none of these have been recognized in the Company’s right-of-use assets or lease liabilities since those options were not reasonably certain to be exercised. Leases with a term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. The Company’s lease agreements include lease payments that are largely fixed and do not contain material residual value guarantees or variable lease payments and no lease transactions with related parties. For the three and nine months ended September 30, 2019, the Company’s lease costs associated with leases with terms less than 12 months or variable lease costs were immaterial. Certain leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s leases do not contain restrictions or covenants that restrict the Company from incurring other financial obligations.

The Company leases warehouses, office buildings and equipment under both operating and finance lease arrangements. Information related to leases is as follows:


	Three months ended		Nine months ended
	September 30,		September 30,
	2019		2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets (included in Cost of goods sold and Selling and administrative expense)	$	2	$	5
Interest on lease liabilities (included in Interest expense, net)				1
Operating lease cost (included in Cost of goods sold and Selling and administrative expense)		21		63
Total lease cost	$	23	$	69


	Nine months ended
	September 30,
	2019
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	63
Operating cash flows from finance leases		1
Financing cash flows from finance leases		5
Right-of-use assets obtained in exchange for new operating lease liabilities		31

	September 30, 2019
Supplemental balance sheet information
Operating leases:
Operating lease right-of-use assets (included in Other assets)	$	186

Current operating lease liabilities (included in Other current liabilities)		63
Noncurrent operating lease liabilities (included in Other long-term liabilities)		123
Total operating lease liabilities	$	186

Finance leases:
Property, plant and equipment	$	77
Accumulated amortization		(31)
Property, plant and equipment, net		46

Current finance lease liabilities (included in Long-term debt due within one year)		6
Noncurrent finance lease liabilities (included in Long-term debt)		37
Total finance lease liabilities	$	43

Weighted-average remaining lease term (in years):
Operating leases		4.8
Finance leases		6.0
Weighted-average discount rate:
Operating leases		3.8	%
Finance leases		4.6	%


Maturity of lease liabilities		Operating leases		Finance leases
2019	$	19	$	2
2020		64		9
2021		40		8
2022		30		8
2023		19		7
2024 and thereafter		32		19
Total lease payments		204		53
Less: imputed interest		(18)		(10)
Total lease obligations	$	186	$	43

Minimum payments related to leases not yet commenced as of September 30, 2019	$	-	$	130

10. Income Taxes

The Company calculates its interim tax provision using the estimated annual effective tax rate (“EAETR”) methodology in accordance with ASC 740-270. The EAETR is applied to the year-to-date ordinary income, exclusive of discrete items. The tax effect of discrete items is then included to arrive at the total reported interim tax provision. The determination of the EAETR is based upon a number of estimates, including the estimated annual pretax ordinary income or loss in each tax jurisdiction in which the Company operates. The tax effects of discrete items are recognized in the tax provision in the quarter they occur in accordance with GAAP. Depending on various factors such as the item’s significance in relation to total income and the rate of tax applicable in the jurisdiction to which it relates, discrete items in any quarter can materially impact the reported effective tax rate. The Company’s annual effective tax rate may be affected by the mix of earnings in the U.S. and foreign jurisdictions and such factors as changes in tax laws, tax rates or regulations, changes in business, changing interpretation of existing tax laws or regulations, the finalization of tax audits and reviews, as well as other factors. As such, there can be significant volatility in interim tax provisions. The annual effective tax rate differs from the statutory U.S. Federal tax rate of 21% primarily because of varying non-U.S. tax rates.

The effective tax rates for the three and nine months ended September 30, 2019, were lower than the same periods in 2018 primarily due to a goodwill impairment charge recorded in 2019, which was not deductible for income tax purposes, as well as due to the geographic mix of earnings.

The Company is currently under examination in various tax jurisdictions in which it operates, including Bolivia, Brazil, Canada, China, Colombia, France, Germany, Indonesia, Italy and Peru. The years under examination range from 2004 through 2017. The Company has received tax assessments in excess of established reserves. The Company is contesting these tax assessments, and will continue to do so, including pursuing all available remedies such as appeals and litigation, if necessary. The Company believes that adequate provisions for all income tax uncertainties have been made. However, if tax assessments are settled against the Company at amounts in excess of established reserves, it could have a material impact on the Company’s results of operations, financial position or cash flows.

11. Debt

The following table summarizes the long-term debt of the Company:


	September 30,		December 31,		September 30,
	2019		2018		2018
Secured Credit Agreement:
Revolving Credit Facility:
Revolving Loans	$	265	$	—	$	—
Term Loans:
Term Loan A		1,496
Previous Secured Credit Agreement:
Revolving Credit Facility:
Revolving Loans						335
Term Loans:
Term Loan A				897		908
Other secured debt		454		404		329
Senior Notes:
6.75%, due 2020 (€250 million at September 30, 2019 and €500 million at December 31, 2018 and September 30, 2018)		273		570		580
4.875%, due 2021 (€330 million)		360		376		382
5.00%, due 2022		498		497		497
4.00%, due 2023		307		306		306
5.875%, due 2023		690		688		687
3.125%, due 2024 (€725 million)		818		825		828
6.375%, due 2025		296		295		295
5.375%, due 2025		298		297		297
Finance leases		43		45		48
Other		16		14		16
Total long-term debt		5,814		5,214		5,508
Less amounts due within one year		302		33		21
Long-term debt	$	5,512	$	5,181	$	5,487

The Company presents debt issuance costs in the balance sheet as a deduction of the carrying amount of the related debt liability.

On June 25, 2019, certain of the Company’s subsidiaries entered into a new Senior Secured Credit Facility (the “Agreement”), which amended and restated the previous credit agreement (the “Previous Agreement”). The proceeds from the Agreement were used to repay all outstanding amounts under the Previous Agreement. The Company recorded $2 million of additional interest charges for third party fees and the write-off of unamortized fees in the second quarter of 2019.

The Agreement provides for up to $3.0 billion of borrowings pursuant to term loans and revolving credit facilities. The term loans mature, and the revolving credit facilities terminate, in June 2024. At September 30, 2019, the Agreement includes a $300 million revolving credit facility, a $1.2 billion multicurrency revolving credit facility, and a $1.5 billion term loan A facility ($1,496 million net of debt issuance costs). At September 30, 2019, the Company had unused credit

of $1.2 billion available under the Agreement. The weighted average interest rate on borrowings outstanding under the Agreement at September 30, 2019 was 3.26%.

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

The Agreement also contains one financial maintenance covenant, a Total Leverage Ratio (the “Leverage Ratio”), that requires the Company not to exceed a ratio of 5.0x calculated by dividing consolidated total debt, less cash and cash equivalents, by Consolidated EBITDA, with such Leverage Ratio decreasing to 4.50x for the quarter ending December 31, 2020 and thereafter, as defined and described in the Agreement. The maximum Leverage Ratio is subject to an increase of 0.5x for (i) any fiscal quarter during which certain qualifying acquisitions (as specified in the Agreement) are consummated and (ii) the following three fiscal quarters, provided that the Leverage Ratio shall not exceed 5.0x. The Leverage Ratio could restrict the ability of the Company to undertake additional financing or acquisitions to the extent that such financing or acquisitions would cause the Leverage Ratio to exceed the specified maximum.

Failure to comply with these covenants and other customary restrictions could result in an event of default under the Agreement. In such an event, the Company could not request borrowings under the revolving facilities, and all amounts outstanding under the Agreement, together with accrued interest, could then be declared immediately due and payable. Upon the occurrence and for the duration of a payment event of default, an additional default interest rate equal to 2.0% per annum will apply to all overdue obligations under the Agreement. If an event of default occurs under the Agreement and the lenders cause all of the outstanding debt obligations under the Agreement to become due and payable, this would result in a default under a number of other outstanding debt securities and could lead to an acceleration of obligations related to these debt securities. As of September 30, 2019, the Company was in compliance with all covenants and restrictions in the Agreement. In addition, the Company believes that it will remain in compliance and that its ability to borrow funds under the Agreement will not be adversely affected by the covenants and restrictions.

The Leverage Ratio also determines pricing under the Agreement. The interest rate on borrowings under the Agreement is, at the Company’s option, the Base Rate or the Eurocurrency Rate, as defined in the Agreement, plus an applicable margin. The applicable margin is linked to the Leverage Ratio. The margins range from 1.00% to 1.50% for Eurocurrency Loans and from 0.00% to 0.50% for Base Rate Loans. In addition, a commitment fee is payable on the unused revolving credit facility commitments ranging from 0.20% to 0.30% per annum linked to the Leverage Ratio.

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

In July 2019, the Company’s wholly owned subsidiary, OI European Group B.V., redeemed €250 million aggregate principal amount of its outstanding 6.75% senior notes due 2020 (the “Notes”). Following the redemption, €250 million aggregate principal amount of the Notes remain outstanding at September 30, 2019. The Company recorded $24 million of additional interest charges for note repurchase premiums and the write-off of unamortized finance fees related to this redemption.

In order to maintain a capital structure containing appropriate amounts of fixed and floating-rate debt, the Company has entered into a series of interest rate swap agreements. These interest rate swap agreements were accounted for as either fair value hedges or cash flow hedges (see Note 6).

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

The carrying amounts reported for certain long-term debt obligations subject to frequently redetermined interest rates, approximate fair value. Fair values for the Company’s significant fixed rate debt obligations are based on published market quotations, and are classified as Level 1 in the fair value hierarchy.

Fair values at September 30, 2019 of the Company’s significant fixed rate debt obligations are as follows:


	Principal		Indicated
	Amount		Market Price		Fair Value
Senior Notes:
6.75%, due 2020 (€250 million)	$	273	$	106.20	$	290
4.875%, due 2021 (€330 million)		361		106.99		386
5.00%, due 2022		500		103.38		517
5.875%, due 2023		700		106.66		747
4.00%, due 2023		310		100.79		312
3.125%, due 2024 (€725 million)		793		105.41		836
6.375%, due 2025		300		106.93		321
5.375%, due 2025		300		103.84		312

12. Contingencies

Asbestos

From 1948 to 1958, one of OI Inc.'s former business units commercially produced and sold approximately $40 million of a high-temperature, calcium-silicate based pipe and block insulation material containing asbestos. OI Inc. sold its insulation business unit in April 1958. OI Inc. receives claims from individuals alleging bodily injury and death as a result of exposure to asbestos from this product (“Asbestos Claims”). Some Asbestos Claims are brought as personal injury lawsuits that typically allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and, in some cases, punitive damages.

Predominantly, however, Asbestos Claims are presented to OI Inc. under administrative claims-handling agreements, which OI Inc. has in place with many plaintiffs’ counsel throughout the country (“Administrative Claims”). Administrative Claims require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by the related claims-handling agreements. The criteria for Administrative Claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by OI Inc.’s former business unit during its manufacturing period ending in 1958. Plaintiffs’ counsel present, and OI Inc. negotiates, Administrative Claims under these various agreements in differing quantities, at different times, and under a variety of conditions.

As of September 30, 2019, OI Inc. had approximately 890 asbestos lawsuits pending. These pending lawsuits do not include an estimate of potential Administrative Claims that may be presented under a claims-handling agreement due to the uncertainties around presentation timing, quantities, or qualification rates. OI Inc. considers Administrative Claims to be filed and disposed when they are accepted for payment.

The lack of uniform rules in lawsuit pleading practice, technical pleading requirements in some jurisdictions, local rules, and other factors cause considerable variation in the specific amounts of monetary damages asserted. In OI Inc.’s experience, the monetary relief alleged in a lawsuit bears little relationship to an Asbestos Claim’s merits or its disposition value. Rather, several variables, including but not limited to, the type and severity of the asbestos disease, medical history, and exposure to other disease-causing agents; the product identification evidence against OI Inc. and other co-defendants; the defenses available to OI Inc. and other co-defendants; the specific jurisdiction in which the claim is made; the applicable law; and the law firm representing the claimant, affect the value.

OI Inc. has also been a defendant in other Asbestos Claims involving maritime workers, medical monitoring, co-defendants’ third-party actions, and property damage allegations. Based upon its experience, OI Inc. believes that these categories of Asbestos Claims will not involve any material liability. Therefore, they are not included in the description of pending or disposed matters.

Since receiving its first Asbestos Claim, as of September 30, 2019, OI Inc. in the aggregate has disposed of approximately 401,100 Asbestos Claims at an average indemnity payment of approximately $10,000 per claim. During the three months ended September 30, 2019, OI Inc. disposed of approximately 300 Asbestos Claims. OI Inc.’s asbestos indemnity payments have varied on a per-claim basis and are expected to continue to vary considerably over time. Asbestos-related cash payments for 2018, 2017, and 2016 were $105 million, $110 million, and $125 million,

respectively. OI Inc.’s cash payments per claim disposed (inclusive of legal costs) were approximately $86,000, $83,000 and $71,000 for the years ended December 31, 2018, 2017, and 2016, respectively.

OI Inc.’s objective is to achieve, where possible, resolution of Asbestos Claims pursuant to claims-handling agreements. Failure of claimants to meet certain medical and product exposure criteria in claims-handling agreements generally has reduced the number of claims that would otherwise have been received by OI Inc. in the tort system. In addition, changes in jurisdictional dynamics, legislative acts, asbestos docket management and procedures, the substantive law, the co-defendant pool, and other external factors have affected lawsuit volume, claim volume, qualification rates, claim values, and related matters. Collectively, these variables generally have had the effect of increasing OI Inc.’s per-claim average indemnity payment over time.

Beginning with the initial liability of $975 million established in 1993, OI Inc. has accrued a total of approximately $5.0 billion through September 30, 2019, before insurance recoveries, for its asbestos-related liability. OI Inc.’s estimates of its liability have been significantly affected by, among other factors, the volatility of asbestos-related litigation in the United States, the significant number of co-defendants that have filed for bankruptcy, changes in mortality rates, the inherent uncertainty of future disease incidence and claiming patterns against OI Inc., the significant expansion of the types of defendants that are now sued in this litigation, and the continuing changes in the extent to which these defendants participate in the resolution of cases in which OI Inc. is also a defendant.

OI Inc. continues to monitor trends that may affect its ultimate liability and analyze the developments and variables likely to affect the resolution of Asbestos Claims against OI Inc. The material components of OI Inc.’s total accrued liability are determined by OI Inc. in connection with its annual comprehensive legal review and consist of the following estimates, to the extent it is probable that such liabilities have been incurred and can be reasonably estimated: (i) the liability for Asbestos Claims already asserted against OI Inc.; (ii) the liability for Asbestos Claims not yet asserted against OI Inc.; and (iii) the legal defense costs estimated to be incurred in connection with the Asbestos Claims already asserted and those Asbestos Claims OI Inc. believes will be asserted.

OI Inc. conducts an annual comprehensive legal review of its asbestos-related liabilities and costs in connection with finalizing and reporting its annual results of operations, unless significant changes in trends or new developments warrant an earlier review. As part of its annual comprehensive legal review, OI Inc. provides historical Asbestos Claims’ data to a third party with expertise in determining the impact of disease incidence and mortality on future filing trends to develop information to assist OI Inc. in estimating the total number of future Asbestos Claims likely to be asserted against OI Inc. OI Inc. uses this estimate, along with an estimation of disposition costs and related legal costs, as inputs to develop its best estimate of its total probable liability. If the results of the annual comprehensive legal review indicate that the existing amount of the accrued liability is lower (higher) than its reasonably estimable asbestos-related costs, then OI Inc. will record an appropriate charge (credit) to OI Inc.’s results of operations to increase (decrease) the accrued liability.

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

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

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

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

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

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

f) co-defendants with substantial resources and assets continue to participate significantly in the resolution of future Asbestos Claims.

For the years ended December 31, 2018 and 2017, OI Inc. concluded that accruals in the amounts of $602 million and $582 million, respectively, were required. These amounts have not been discounted for the time value of money. OI Inc.’s comprehensive legal reviews resulted in charges of $125 million, $0 million and $0 million for the years ended

December 31, 2018, 2017 and 2016, respectively. As previously disclosed, OI Inc. anticipated that adjustments to its asbestos-related accruals were possible given the inherent uncertainties involved in asbestos litigation. In the fourth quarter of 2018, OI Inc. determined that it was advantageous to accelerate the disposition of certain claims in light of additional information OI Inc. obtained about higher estimated future claim volumes and values in certain of the affected discrete streams of potential liability. Factors impacting the increased likelihood of these additional losses included changes in the law, procedure, the expansion of judicial resources in certain jurisdictions, and renewed attention to dockets of non-mesothelioma cases. OI Inc. also obtained new information about other Asbestos Claims, which had the effect of reducing its asbestos-related liability. The combined effect of these items resulted in a change in estimate of OI Inc.’s asbestos-related liability.

OI Inc. believes that it is reasonably possible that it will incur a loss for its asbestos-related liabilities in excess of the amount currently recognized, which was $602 million as of December 31, 2018. OI Inc. estimated that reasonably possible losses could result in asbestos-related liabilities of approximately $722 million. This estimate of additional reasonably possible loss reflects a qualitative judgment regarding the nature of contingencies that could impact future Asbestos Claims and legal costs, which include, but are not limited to, successful attempts by plaintiffs to challenge existing legal barriers to entry, enact plaintiff-oriented procedural rules or liability or damage-related legislation, establish new theories of liability, revive long-dormant inventories of non-mesothelioma cases, or leverage changing jurisdictional dynamics and a changing litigation environment to increase the volume of Asbestos Claims presented or per-claim indemnity values. However, it is also possible that the ultimate amount of asbestos-related liabilities could be above this estimate.

OI Inc. expects a significant majority of the total number of Asbestos Claims to be received in the next five to seven years. This timeframe appropriately reflects the mortality of current and expected claimants in light of OI Inc.’s sale of its insulation business unit in 1958. OI Inc. may continue to experience increased year-over-year variability with regard to the annual quantity of Asbestos Claims presented to and disposed by OI Inc. This increased variability, jurisdictional dynamics, a changing litigation environment, the size of the remaining pool of claimants, and the expected increase in mortality over the next five to seven years may present OI Inc. with further opportunities to accelerate disposition of discrete parts of its claimant pool. These influences may create increased variability in the annual cash payments year-over-year.

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

Other Matters

Other litigation is pending against the Company, in many cases involving ordinary and routine claims incidental to the business of the Company and in others presenting allegations that are non-routine and involve compensatory, punitive or treble damage claims as well as other types of relief. The Company records a liability for such matters when it is probable that both the liability has been incurred and the amount of the liability can be reasonably estimated. Recorded amounts are reviewed and adjusted to reflect changes in the factors upon which the estimates are based, including additional information, negotiations, settlements and other events.

13. Share Owners’ Equity

The activity in share owners’ equity for the three months ended September 30, 2019 and 2018 is as follows:


	Share Owners’ Equity of the Company
					Accumulated
	Other				Other		Non-		Total Share
	Contributed		Retained		Comprehensive		controlling		Owners'
	Capital		Earnings		Loss		Interests		Equity
Balance on July 1, 2019	$	176	$	3,149	$	(1,850)	$	115	$	1,590
Net distribution to parent		(34)								(34)
Net earnings (loss)				(575)				8		(567)
Other comprehensive loss						(64)		(22)		(86)
Balance on September 30, 2019	$	142	$	2,574	$	(1,914)	$	101	$	903


	Share Owners’ Equity of the Company
					Accumulated
	Other				Other		Non-		Total Share
	Contributed		Retained		Comprehensive		controlling		Owners'
	Capital		Earnings		Loss		Interests		Equity
Balance on July 1, 2018	$	452	$	2,770	$	(1,888)	$	121	$	1,455
Net distribution to parent		(18)								(18)
Net earnings				120				7		127
Other comprehensive income (loss)						54		(9)		45
Balance on September 30, 2018	$	434	$	2,890	$	(1,834)	$	119	$	1,609

The activity in share owners’ equity for the nine months ended September 30, 2019 and 2018 is as follows:


	Share Owners’ Equity of the Company
					Accumulated
	Other				Other		Non-		Total Share
	Contributed		Retained		Comprehensive		controlling		Owners'
	Capital		Earnings		Loss		Interests		Equity
Balance on January 1, 2019	$	311	$	3,004	$	(1,927)	$	114	$	1,502
Net distribution to parent		(169)								(169)
Net earnings (loss)				(430)				17		(413)
Other comprehensive income (loss)						13		(30)		(17)
Balance on September 30, 2019	$	142	$	2,574	$	(1,914)	$	101	$	903


	Share Owners’ Equity of the Company
					Accumulated
	Other				Other		Non-		Total Share
	Contributed		Retained		Comprehensive		controlling		Owners'
	Capital		Earnings		Loss		Interests		Equity
Balance on January 1, 2018	$	553	$	2,623	$	(1,786)	$	119	$	1,509
Net distribution to parent		(119)								(119)
Net earnings				267				18		285
Other comprehensive loss						(48)		(18)		(66)
Balance on September 30, 2018	$	434	$	2,890	$	(1,834)	$	119	$	1,609

14. Accumulated Other Comprehensive Loss

The activity in accumulated other comprehensive loss for the three months ended September 30, 2019 and 2018 is as follows:

OWENS-ILLINOIS GROUP INC 10-Q