Business News

O-I Reports Improved Year-over-Year Earnings in the Third Quarter 2008

Monday 03. November 2008 - Strong balance sheet provides operating and strategic flexibility

Owens-Illinois, Inc. (NYSE:OI) today reported financial results for the third quarter ending September 30, 2008.

Third Quarter Net Sales Increase 4%


The Company reported net sales of $2.009 billion for the third quarter of 2008, compared with $1.928 billion a year ago, an increase of $81 million, or 4%. Higher prices and improved product mix added $149 million to sales for the quarter, offsetting the decline in volume of $146 million. Favorable currency translation contributed $82 million to the sales increase.

On July 31, 2007, the Company sold its Plastics Packaging business. In accordance with generally accepted accounting principles, amounts related to that business have been classified and reported as discontinued operations.

Third Quarter Earnings Excluding Unusual Items Rise 18%

The Company’s earnings from continuing operations in the third quarter of 2008 were $78.6 million, compared with $75.6 million a year ago. Exclusive of the items listed below in Note 1, 2008 third quarter earnings rose 18% to $153.7 million, compared with $130.6 million in the same quarter last year. The increase in earnings (exclusive of Note 1 items) was driven primarily by an improvement in price and product sales mix in all regions, and additionally by lower net interest expense, lower retained corporate costs and favorable foreign currency translation. These favorable effects were partially offset by inflation in manufacturing and delivery costs, as well as reduced sales volume and lower production volume.

Net earnings for the third quarter of 2008 included an after-tax charge of $79.7 million for restructuring and related asset impairment and a $4.6 million net benefit from foreign tax items. Net earnings for the third quarter of 2007 included an after-tax charge of $55.0 million for restructuring and asset impairment. Management considers these items not representative of ongoing operations and descriptions are shown below in Note 1.

Third Quarter EPS Excluding Unusual Items Increases 15%

The Company earned $0.46 per share (diluted) from continuing operations in the third quarter of 2008, compared with $0.45 (diluted) per share for the third quarter of 2007. Exclusive of the items listed in Note 1, earnings per share increased to $0.90 (diluted) in the third quarter of 2008 from $0.78 (diluted) in the same quarter last year, an increase of 15%. A description of the items management considers not representative of ongoing operations and a reconciliation of the GAAP to non-GAAP earnings and earnings per share can be found in the tables accompanying this release and in charts on the Company’s Web site (www.o-i.com).

“The results of the third quarter are a clear affirmation of our strategic priorities,” said Al Stroucken, Chairman and Chief Executive Officer. “Our ability to react quickly to changing demand patterns and customer inventory corrections in a highly inflationary environment is serving us well. Our employees around the world have done a great job embracing new methodologies and understanding the value that increased operating flexibility brings.”

Operations Generate Free Cash Flow of $195 Million in the Third Quarter

The Company generated cash of $304.2 million from continuing operating activities in the third quarter of 2008, compared with $337.5 million in the same quarter of 2007. Free Cash Flow (defined as cash provided by continuing operating activities less capital expenditures for continuing operations) was $194.7 million in the third quarter of 2008, compared with $274.9 million in the third quarter of 2007. The decline in Free Cash Flow was primarily due to a smaller reduction in working capital compared with the prior year.

Working capital during the third quarter 2008 was a $60.8 million source of cash compared with a source of $205.8 million during the same quarter in 2007. The decline in working capital as a source of cash was driven by an increase in inventory as a result of lower sales volume. At current exchange rates, the Company expects to generate Free Cash Flow for 2008 in the range of $332 million to $400 million, based on capital expenditures in a range of $350 million to $370 million and cash provided by operating activities in a range of $700 million to $750 million.

Reduction in Total Debt Balance Improves Financial Flexibility

As of September 30, 2008, the Company’s total debt balance was $3.458 billion compared with $3.789 billion as of June 30, 2008. The $331 million decrease in debt during the third quarter of 2008 reflected the effect of the strengthening U.S. dollar on the Company’s non-U.S. dollar denominated debt and net debt repayments of approximately $129 million.

At the end of the third quarter, the Company had $745 million of available capacity under its secured revolving credit facility. The Company has no significant maturities of long-term debt until 2010.

Effective Tax Rate Excluding Unusual Items of 25.9%

The Company’s reported tax rate for the third quarter of 2008 was 30.4%, as compared with 33.3% in the prior year quarter. Excluding the tax effect for items listed in Note 1, the comparable tax rates for the third quarter of 2008 and 2007 were 25.9% and 26.5%, respectively. Based on the current earnings mix projection for 2008, the Company expects that the full-year effective tax rate, excluding Note 1 items, will be comparable with last year’s 24.4% effective tax rate.

Asbestos-Related Payments Decrease to $37 Million

Asbestos-related cash payments during the third quarter and first nine months of 2008 were $36.7 million and $140.3 million, respectively. This compares with $132.5 million and $226.2 million for the same periods last year. The year-over-year decrease in cash spending reflects reduced funding for settlements of certain claims on an accelerated basis on terms favorable to the Company. As of September 30, 2008, the deferred amount payable for previously settled lawsuits and claims was approximately $29 million compared with approximately $30 million at the end of the second quarter 2008.

New lawsuits and claims filed during the first nine months of 2008 were 47% lower than the same period last year. At approximately 13,000, the number of pending asbestos-related lawsuits and claims as of September 30, 2008, was unchanged from June 30, 2008.

Nine Months Sales Increase 10% and EPS Increases 40%

For the first nine months of 2008, the Company reported net sales from continuing operations of $6.180 billion compared with $5.609 billion for the same period in 2007, an increase of $571 million, or 10%. The effect of favorable currency translations contributed $470 million. Gains made in improved price and product sales mix totaled $422 million, outweighing the $319 million negative impact from fewer tons of glass sold.

Net earnings from continuing operations for the first nine months of 2008 were $480.1 million or $2.81 per share (diluted), compared with $284.7 million or $1.70 per share (diluted) for the first nine months of 2007. Earnings from continuing operations, exclusive of the items listed in Note 2 that management considers not representative of ongoing operations, were $3.34 per share (diluted) in the first nine months of 2008, compared with $1.95 per share (diluted) in the same period last year. The benefits to earnings from improved price and product sales mix outweighed the negative impact from inflation and lower sales volume. Favorable currency exchange rates, lower interest expense from the reduced debt level and lower retained corporate costs also contributed to the nine months earnings improvement.

Cash provided by continuing operating activities during the first nine months of 2008 was $534.8 million compared with $470.5 million for the same period last year. Free Cash Flow for the first nine months of 2008 was $296.3 million, compared with $305.8 million during the first nine months of 2007. Improved earnings and lower cash spending for asbestos were offset by higher working capital and expenditures on capital improvements year-over-year.

Company is Well-Positioned for the Future

“We have a solid foundation from which to build,” continued Stroucken. “We will focus on recapturing margins that are challenged by continuing high inflation, and we will reset our prices in January accordingly. In addition, our footprint realignment allows us to tailor our capacity and fixed costs to match regional demand, which is a great benefit in the current environment. Earnings in 2008 have already exceeded full year 2007, and we are well- positioned for 2009.”