Packaging
O-I REPORTS FULL YEAR AND FOURTH QUARTER 2010 RESULTS
Thursday 27. January 2011 - Expansion in emerging markets positions O-I well for future profitable growth
2011 free cash flow expected to approximate $300 million
Owens-Illinois, Inc. (NYSE: OI) today reported financial results for the full year and fourth quarter ending December 31, 2010.
Highlights:
Full Year 2010: O-I reported full-year 2010 earnings from continuing operations attributable to the Company of $1.55 per share (diluted), compared to $0.65 per share (diluted) in 2009. Adjusted net earnings (non-GAAP) were $2.60 per share, compared to $2.61 per share in 2009.
· Segment Operating Profit: Strong organic growth in South America, acquisitions in emerging markets and improved manufacturing productivity on a global basis drove a $73 million increase in segment operating profit compared to 2009. Non-operating costs increased, including higher pension and net interest expense.
· Acquisitions Drive Future Profitable Growth: O-I added 10 plants in rapidly growing emerging markets through acquisitions and joint ventures. The Company also built three new furnaces to support future growth.
Fourth Quarter 2010: O-I reported a fourth-quarter 2010 loss from continuing operations attributable to the Company of $0.51 per share, compared to a $1.01 per share loss in the prior year. These results include a non-cash charge for the annual adjustment of the Company’s asbestos-related liability. Adjusted net earnings (non-GAAP) were $0.45 per share, compared to $0.43 per share in the fourth quarter of 2009.
· Improved Operating Performance: Higher capacity utilization drove a $47 million improvement in segment operating profit from the prior year fourth quarter. Price and shipment levels were both flat with the prior year. Higher segment results were partially offset by additional pension and net interest expense.
· Strategic Events: O-I purchased three plants in China and began production at a new furnace in New Zealand during the fourth quarter. Due to the expropriation of the assets of its Venezuelan operations, the Company has reflected this business as discontinued operations.
Full Year 2010:
Full-year 2010 net sales from continuing operations were $6.63 billion, compared to $6.65 billion in 2009.
Earnings from continuing operations attributable to the Company for full year 2010 were $258 million, or $1.55 per share (diluted), compared to $110 million, or $0.65 per share (diluted), in the prior year. Exclusive of the items listed in Note 1, full-year 2010 adjusted net earnings were $434 million, or $2.60 per share (diluted) compared with $444 million, or $2.61 per share (diluted) in 2009. 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/investorrelations.
Segment operating profit in 2010 was $964 million, compared to $891 million in 2009, and included a $16 million benefit from favorable currency translation. Price and product mix were consistent with the prior year, while total shipments, in tonnes, declined 1 percent. Excluding the net effect of additional volume from acquisitions and volume loss tied to contract renegotiations effective in 2010, shipments were up approximately 2 percent from 2009, which is more reflective of underlying consumer trends. Manufacturing and delivery costs declined $38 million from 2009, mostly due to benefits from the Company’s strategic footprint alignment initiative and despite modest cost inflation. Non-operational costs increased from the prior year, primarily the result of additional year-over-year pension and net interest expense. Higher net interest expense reflected additional debt issued to fund various acquisitions during 2010, which are expected to be accretive to earnings in 2011.
Commenting on full-year 2010 results, Chairman and Chief Executive Officer Al Stroucken said,
“Our improved segment operating profit over 2009 reflected excellent profitable growth in South America and the success of our strategic footprint alignment efforts. During 2010, we acquired 10 new plants across South America and Asia Pacific, including a joint venture in Southeast Asia. We also added three new furnaces, one each in Argentina, Peru and New Zealand. Collectively, these investments expand our access to new markets and customers, and they position us well for future growth.”
Fourth Quarter 2010:
Fourth-quarter net sales from continuing operations were $1.73 billion in 2010, flat with the prior year.
The loss from continuing operations attributable to the Company in the fourth quarter of 2010 was $83 million, or $0.51 per share, compared with a loss from continuing operations, in the prior year, of $169 million, or $1.01 per share. Exclusive of the items not representative of ongoing operations listed in Note 1, fourth-quarter 2010 adjusted net earnings were $76 million, or $0.45 per share (diluted), compared to adjusted net earnings in the prior year fourth quarter of $74 million, or $0.43 per share (diluted).
O-I reported fourth-quarter 2010 segment operating profit of $221 million, up from $174 million in the prior year. Price and product mix, as well as total shipment levels, in tonnes, were flat with the fourth quarter of 2009. Manufacturing and delivery costs decreased by $35 million from the prior year, primarily due to higher operating rates. Non-operational costs increased from fourth quarter 2009.
Consistent with the Company’s strategic growth initiative to expand in rapidly growing emerging markets, O-I acquired three plants in China during the fourth quarter, including two near Beijing and one near Guangzhou. The Company also began production at its new furnace in New Zealand.
Financial Highlights:
The Company reported total debt of $4.278 billion and cash of $640 million at December 31, 2010. As a result, net debt was $3.638 billion, an increase of $785 million from year-end 2009. The increase in net debt primarily reflected the funding of several acquisitions in 2010 and approximately $200 million paid to repurchase six million shares of O-I stock. These factors were partially offset by $88 million of foreign currency translation and $100 million of free cash flow from continuing operations. In the fourth quarter of 2010, the Company repaid approximately $70 million of debt due in 2011. Available liquidity on December 31, 2010, was $732 million under the Company’s global revolving credit facility.
O-I has deemed the disposal of its expropriated Venezuelan operations as complete effective December 31, 2010. As a result, the Venezuelan business has been reflected in the Company’s financial statements as discontinued operations, and the Company has taken a one-time charge of approximately $329 million to write-off the Venezuelan net assets and the related cumulative Venezuelan currency translation adjustments recorded in prior years. The Company continues to negotiate with the Venezuelan government with respect to certain aspects of the expropriation, including compensation.
Asbestos-related cash payments during the full year and fourth quarter of 2010 were $179 million and $65 million, respectively. These payments compare with $190 million and $68 million for the same periods last year. New lawsuits and claims filed during full year 2010 were approximately 45 percent lower than in 2009. The number of pending asbestos-related lawsuits and claims approximated 5,900 as of December 31, 2010, compared with approximately 6,900 at year end 2009.
The Company conducted its annual comprehensive review of asbestos-related liabilities in the fourth quarter. As a result of that review, O-I recorded a non-cash charge of $170 million (before and after tax amount) compared to the 2009 charge of $180 million (before and after tax amount). The accrued balance for future asbestos-related costs as of December 31, 2010, was $476 million.
Business Outlook:
Commenting on the Company’s outlook for full year 2011, Stroucken said, “We expect improved financial performance and free cash flow generation in 2011. Shipments should increase due to organic growth and benefits from recent acquisitions. To support future profitable growth, we will invest in our sales, marketing and innovation capabilities. Also, higher selling prices will partially offset additional cost inflation. As capital investments and restructuring payments will decline significantly from 2010 levels, we expect free cash flow will approximate $300 million in 2011.”
Note 1:
The table below describes the items that management considers not representative of ongoing operations.
$ Millions, except per-share amounts
Three months ended December 31
2010
2009
Earnings
EPS
Earnings
EPS
Loss from Continuing Operations Attributable to the Company
$(83)
$(0.51)
$(169)
$(1.01)
Items that management considers not representative of ongoing operations consistent with Segment Operating Profit
Charge for asbestos-related costs
170
1.02
180
1.06
Acquisition-related fair value inventory adjustments and restructuring, transaction and financing costs
18
0.11
Charges for restructuring and asset impairment
3
0.02
94
0.55
Net benefit related to changes in deferred tax valuation allowance
(24)
(0.15)
Charges for currency remeasurement
17
0.10
Non-cash tax benefit transferred from other comprehensive income (equity)
(8)
(0.05)
(48)
(0.28)
Dilutive effect of options and other
0.01
0.01
Adjusted Net Earnings
$76
$0.45
$74
$0.43
$ Millions, except per-share amounts
Twelve months ended December 31
2010
2009
Earnings
EPS
Earnings
EPS
Earnings from Continuing Operations Attributable to the Company
$258
$1.55
$110
$0.65
Items that management considers not representative of ongoing operations consistent with Segment Operating Profit
Charge for asbestos-related costs
170
1.02
180
1.06
Acquisition-related fair value inventory adjustments and restructuring, transaction and financing costs
27
0.16
Charges for restructuring and asset impairment
11
0.07
180
1.05
Net benefit related to changes in deferred tax valuation allowance
(24)
(0.15)
Charges for currency remeasurement
17
0.10
Charges for note repurchase premiums and write-off of finance fees
5
0.03
Non-cash tax benefit transferred from other comprehensive income (equity)
(8)
(0.05)
(48)
(0.28)
Adjusted Net Earnings
$434
$2.60
$444
$2.61