Business News

O-I Reports Second Quarter 2009 Results

Thursday 30. July 2009 - Owens-Illinois, Inc. (NYSE:OI) today reported financial results for the second quarter ending June 30, 2009.

Second quarter highlights:
— Reported net earnings were $0.88 per share (diluted)
— Adjusted net earnings (non-GAAP) were $0.94 per share, down from
record earnings of $1.35 per share in the prior year, up from $0.55
per share in first quarter 2009
— Glass shipments were down 12 percent year-over-year, reflecting the
ongoing global recession, but up 14 percent over first quarter due to
seasonal factors and abatement of inventory de-stocking trends
— Improved price and mix contributed four percent to revenue, which more
than offset moderating cost inflation
— Temporary production curtailments reduced inventories by more than six
percent from prior year

— Strong financial flexibility was further improved by the Company’s
successful $600 million bond offering

Second quarter net sales were $1.8 billion in 2009, down from $2.2 billion in the prior year. Improved price and mix were offset by lower shipments and unfavorable foreign currency translation effects.

Earnings from continuing operations in the second quarter of 2009 were $149.3 million, or $0.88 per share (diluted), compared with $227.5 million, or $1.33 per share (diluted), in the prior year. Exclusive of the items not representative of ongoing operations, second quarter 2009 adjusted net earnings were $159.7 million, or $0.94 per share (diluted), down from adjusted net earnings of $231.7 million, or $1.35 per share (diluted), in the prior year second quarter. However, adjusted net earnings for the second quarter exceeded first quarter 2009 adjusted earnings of $92.8 million, or $0.55 per share (diluted). A description of items 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 Note 1 provided below and in charts on the Company’s Web site, www.o-i.com.

Commenting on the Company’s second quarter performance, Chairman and Chief Executive Officer Al Stroucken said, “As expected, earnings improved from the first quarter. While the global recession negatively impacted year-over-year results, seasonally stronger demand and the abatement of inventory de-stocking trends by our customers boosted shipments compared to last quarter. In addition, monthly sales volume comparisons versus the prior year improved throughout the quarter. As we focus on optimizing free cash flow, we continued to manage our production to reduce inventories. Improved price and mix, lower inflation and the benefits from our ongoing strategic footprint alignment initiative also increased our margins.”

Operational highlights: Favorable seasonal and market trends

Second quarter 2009 segment operating profit was $291.9 million, down from $390.1 million in the prior year, but up $100.0 million over the first quarter. Glass container shipments in tonnes declined 12 percent year-over-year, reflecting continued challenging market conditions, while volume in the two largest regions exited the quarter with a mid-single digit decline. Shipments increased 14 percent on a sequential basis as inventory de-stocking subsided and sales reflected seasonally stronger demand. Unabsorbed fixed costs, primarily due to temporary production curtailments, were $95 million higher than the second quarter of last year compared to a $100 million year-over-year increase in the first quarter. The Company’s proactive asset management efforts reduced inventory, as measured in tonnes, by more than six percent on a year-over-year and sequential basis. Improved price and mix of four percent exceeded cost inflation and the net benefit to operating profit was $81 million over the prior year, compared to a $55 million year-over-year improvement to profit in the first quarter.

The company continued to implement its strategic footprint alignment initiative focused on optimizing global assets. O-I has shifted production from higher cost plants to more efficient facilities, shutting a total of 15 furnaces since the program’s inception in 2007. This includes one furnace that was closed in the second quarter. As a result of these efforts, the Company reduced fixed costs by $38 million in the second quarter and $71 million year-to-date, compared to the prior year. Two additional plant closures in Europe were recently announced and should be completed in the second half of 2009.

Financial highlights: Improved financial flexibility with $600 million bond offering

Total debt was $3.642 billion at June 30, 2009, compared to $3.326 billion at March 31, 2009. Debt increased primarily due to the net effect of the Company issuing $600 million of senior notes and using $428 million of proceeds from this transaction to repay other debt. An unfavorable foreign currency translation of $137 million also increased debt. Compared to the first quarter, cash and cash equivalents increased approximately $315 million, principally due to positive free cash flow of $134 million, along with the remaining net proceeds from the notes offering. At the end of the second quarter, O-I had approximately $800 million available under its global revolving credit facility that does not mature until June 2012.

Commenting on the Company’s recent debt refinancing, Ed White, senior vice president and chief financial officer, said, “We were very pleased by the market’s reception to our attractively priced bond offering, which provided O-I with additional liquidity. As a result of this transaction, we extended our debt maturity schedule by using some of the proceeds to repay a substantial portion of our bonds maturing in 2010. Furthermore, we repaid all borrowings under our global revolving credit facility.”

Asbestos-related cash payments during the second quarter of 2009 were $49.4 million, down from $63.4 million during the second quarter of 2008. The deferred amount payable for previously settled claims was approximately $32.2 million at the end of the second quarter and comparable to the first quarter 2009 level. New lawsuits and claims filed during the first half of 2009 were approximately 30 percent lower than the same period last year. The number of pending asbestos-related lawsuits and claims was approximately 7,000 as of June 30, 2009, compared with approximately 11,000 at year end 2008.

Business outlook

Commenting on the Company’s outlook for the third quarter 2009, Stroucken said, “While market conditions have improved considerably in Europe and North America, we expect the global recession will continue to impact our business in all regions, especially South America. Third quarter shipments should be down modestly from the prior year and comparable with the second quarter. We expect additional benefits from our ongoing strategic footprint initiative, and improved price and mix should continue to offset cost inflation. Overall, we are well positioned to drive improved financial performance and achieve our strategic priorities as market conditions recover.”