Business News

O-I Reports Strong Earnings and Debt Reduction for 2008

Thursday 29. January 2009 - Owens-Illinois, Inc. (NYSE:OI) today reported financial results for the fourth quarter and full year ending December 31, 2008.

Price Improvements Contribute to Solid Fourth Quarter Results


The Company reported net sales of $1.705 billion for the fourth quarter of 2008, a $252 million decline from $1.957 billion in the fourth quarter of 2007. A stronger U.S. dollar in the fourth quarter of 2008 caused a $195 million reduction in the reported amount of foreign currency sales compared with the fourth quarter of 2007. Higher prices and improved product sales mix across all regions added $152 million to sales for the quarter, a 7% increase over prior year fourth quarter. However, the decline in consumption due to ongoing global economic deterioration resulted in fewer tons shipped, accounting for $197 million of the reduction in sales from the prior year quarter.

Temporary Line Shutdowns Impact Fourth Quarter Earnings

The Company’s loss from continuing operations in the fourth quarter of 2008 was $228.6 million, compared with earnings of $14.6 million a year ago. Exclusive of the items listed below in Note 1 (items management considers not representative of ongoing operations), 2008 fourth quarter earnings were $76.2 million, compared with $167.4 million in the same quarter last year. This decrease in earnings was driven by temporary manufacturing line shutdowns taken to balance capacity with demand and manage inventory levels. Also contributing to the decrease were inflation in manufacturing and delivery costs, lower sales volumes, and unfavorable foreign currency translation. Improved prices and product sales mix partially offset these unfavorable factors.

The Company reported a loss of $1.38 per share (diluted) from continuing operations in the fourth quarter of 2008, compared with earnings of $0.06 (diluted) per share for the fourth quarter of 2007. Exclusive of the items listed in Note 1, earnings per share were $0.45 (diluted) in the fourth quarter of 2008 compared with $1.00 (diluted) in the same quarter last year.

A description of all items in Note 1 that 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 fourth quarter clearly reflect the increased flexibility we have created at O-I in recent years,” said Al Stroucken, Chairman and Chief Executive Officer. “We were able to react quickly to a weakening global economy and temporarily curtail production in the fourth quarter to prevent carrying excess inventory quantities into 2009. We are confident that a strategy to enhance our liquidity in these uncertain times is the correct course for O-I and is in the best interest of our shareholders.”

Full Year 2008 Results Excluding Unusual Items Yield Highest EPS Since 1991 IPO

Net sales from continuing operations increased 4.2% to $7.885 billion in 2008, compared with $7.567 billion in 2007. The $318 million increase was driven by improved prices and product sales mix across all regions, as well as favorable currency translation, principally of the Euro, in the first three quarters of the year. However, a decline in tons shipped partially offset these favorable effects.

For the full year 2008, the Company reported earnings from continuing operations of $251.5 million or $1.48 per share (diluted), compared with earnings from continuing operations of $299.3 million or $1.78 per share last year.

Exclusive of the items listed in Note 2 that management considers not representative of ongoing operations, the Company earned $645.2 million or $3.80 per share (diluted) in 2008, compared with $493.7 million or $2.94 per share (diluted) in 2007. The increase in earnings in 2008 was primarily the result of improved prices and product sales mix, further improvements in glass plant operating efficiencies, and favorable foreign currency translation, partially offset by lower sales volume and inflation in manufacturing and delivery costs.

“I am pleased with the results we achieved in 2008. This is clearly proof of our ability to adapt to a changing environment through improved operating efficiencies and a commitment to margin improvement. Although our strong performance in the first half of the year was dampened by the global economic downturn in the second half, the focus on our strategies allowed us to post the highest annual earnings per share in more than 17 years,” said Stroucken.

Stronger 2008 Free Cash Flow, Supported by Lower Asbestos Spending

Cash provided by continuing operating activities was $172.8 million in the fourth quarter of 2008, compared with $154.6 million in the same quarter of 2007. Free Cash Flow (defined as cash provided by continuing operations, less capital spending for continuing operations) was $49.6 million in the fourth quarter of 2008, compared with $26.8 million during the same quarter in 2007. For the full year 2008, the Company increased its Free Cash Flow to $345.9 million, compared with $332.6 million in 2007. The $13 million year-over-year increase in Free Cash Flow was a result of a balance between lower spending to settle asbestos-related claims and lawsuits, and improved profit margins, offset partially by higher working capital balances.

During the fourth quarter of 2008, working capital was a $25.6 million source of cash for the Company, compared with a $53.9 million source during the same period in 2007. For the full year 2008, working capital was a $201.4 million use of cash for the Company, as compared to a $36.2 million source of cash last year. While finished goods inventories at the end of 2008 were lower in terms of tonnage, the cost of those inventories on a dollar basis was higher than at year-end 2007. This reflects higher inventory costs, which resulted from inflation in input costs in 2008, and was the primary reason for the increased use of cash for the year.

For the year 2008, the Company reported $361.7 million in capital expenditures and $467.8 million of depreciation and amortization expense. The Company expects that capital expenditures for continuing operations in 2009 will increase by approximately $120 million as the Company continues to pursue its organic growth and streamlining strategies. Specifically, the Company will spend approximately $40 million to expand its plant in New Zealand, and presently expects to spend approximately $80 million to upgrade factories that will be absorbing additional volume as the Company consolidates manufacturing capacity in connection with its ongoing global footprint review. Additionally, the Company expects to spend approximately $120 million for severance and other costs in 2009 related to actions resulting from the ongoing footprint review. Excluding these organic growth projects, the Company plans to spend at or below 2008 levels on capital expenditures.

Reduction in Total Debt Improves Financial Flexibility

As of December 31, 2008, the Company’s total debt was $3.334 billion, compared with $3.714 billion at year-end 2007. The $380 million decrease in debt during 2008 reflected net debt repayments of approximately $229 million and the effect of the strengthening U.S. dollar on the Company’s non-U.S. dollar denominated debt.

The Company has no significant maturities of long-term debt until May 2010. In addition, the Company had $768 million of available capacity under its secured revolving credit facility at year-end 2008. This revolving credit facility does not expire until 2012.

2008 Effective Tax Rate Excluding Unusual Items is 24.0%

The Company’s reported tax rate was 42.4% in 2008, compared with 29.2% in 2007. Excluding the items listed in Note 2, the Company’s worldwide effective tax rate from continuing operations was 24.0% in 2008 compared with 24.4% in 2007. Cash tax payments for the full year 2008 amounted to $162.5 million, compared with $152.5 million for 2007. The Company expects that the full-year effective tax rate, excluding Note 2 items, will not change significantly in 2009, while cash taxes are expected to increase to a range of $210 million to $230 million due to higher 2008 earnings in taxable jurisdictions.

Asbestos-Related Results and 2008 Charge

Asbestos-related cash payments during the fourth quarter and full year of 2008 totaled $69.9 million and $210.2 million, respectively. This compares with $120.9 million and $347.1 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. Further, the Company expects 2009 asbestos-related cash payments to decline by $35 million from the 2008 spending level.

New asbestos-related lawsuits and claims reported in 2008 were approximately 5,000, compared with approximately 9,000 during 2007. In addition, the number of pending asbestos-related lawsuits and claims declined more than 20% to approximately 11,000 as of December 31, 2008, compared with approximately 14,000 pending as of year-end 2007.

The Company conducted its annual comprehensive review of asbestos-related liabilities and costs for the full year 2008. As a result of that review, the Company recorded a non-cash charge of $250.0 million ($248.8 after tax) to increase the accrual for future asbestos-related costs. In 2007, the charge was $115.0 million (pretax and after tax). The larger 2008 charge reflects higher filing rates and average disposition costs for 2008 and the next several years than estimated at the end of 2007. The balance of the accrual for future asbestos-related costs as of December 31, 2008, was $495.3 million, an increase of $39.8 million or 8.7% over year-end 2007, and a decrease of $192.3 million or 28.0% over year-end 2006. As of December 31, 2008, the deferred amount payable for previously settled lawsuits and claims was approximately $34 million, unchanged from year-end 2007.

Company Positioned Well for 2009

“Although we will be facing significant business challenges in 2009, we are well positioned – both financially and operationally – to meet those challenges,” continued Stroucken. “We benefited in 2008 from strict adherence to our margin improvement strategy and our focus on retaining financial flexibility. These will continue to serve as powerful drivers in the Company’s long-term growth and profitability goals.”

Note 1:

The table below is a reconciliation of items in the fourth quarter of 2008 and 2007 that management considers not representative of ongoing operations, consistent with Segment Operating Profit.

$ Millions, except per share amounts Three months ended December 31
2008 2007
Earnings EPS Earnings EPS
Earnings (loss) from continuing
operations $(228.6) $(1.38) $14.6 $0.06
Asbestos-related charges, net of tax 248.8 1.47 115.0 0.71
Charges for restructuring and asset
impairment, net of tax and minority
share owners’ interests 16.5 0.09 29.0 0.18
Net charges related to tax
restructuring and other 39.5 0.23
Dilutive effect of options and other 0.04
Note repurchase premiums & write-off
of deferred finance fees 8.8 0.05
Earnings from continuing operations
exclusive of above items $76.2 $0.45 $167.4 $1.00



Note 2:


The table below is a reconciliation of items for the full year 2008 and 2007 that management considers not representative of ongoing operations, consistent with Segment Operating Profit.

$ Millions, except per share amounts Twelve months ended December 31
2008 2007
Earnings EPS Earnings EPS

Earnings from continuing operations $251.5 $1.48 $299.3 $1.78
Asbestos-related charges, net of tax 248.8 1.47 115.0 0.68
Charges for restructuring and asset
impairment, net of tax and minority
share owners’ interests 110.1 0.65 84.1 0.51
Net charge related to tax legislation,
restructuring, and other 34.8 0.20
Gain from recognition of foreign tax
credits (13.5) (0.08)
Note repurchase premiums & write-off
of deferred finance fees 8.8 0.05
Earnings from continuing operations
exclusive of above items $645.2 $3.80 $493.7 $2.94


Regulation G


The information presented above regarding earnings from continuing operations exclusive of items management considers not representative of ongoing operations does not conform to U.S. generally accepted accounting principles (GAAP). It should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the comparability of results of ongoing operations. Management uses this non-GAAP information principally for internal reporting, forecasting, budgeting and calculating bonus payments. Management believes that the excluded items are not reflective of ongoing operations, so the non-GAAP presentation allows the board of directors, management, investors and analysts to better understand the Company’s financial performance in relationship to core operating results and the business outlook.