Ceramic Industry

O-I Reports Increase in 4th Qtr Net Sales

February 3, 2010

Owens-Illinois, Inc. (O-I) recently reported financial results for the fourth quarter and full year ending December 31, 2009. Fourth quarter net sales were $1.9 billion in 2009, up from $1.7 billion in the prior year’s fourth quarter. Improved price and mix and a favorable foreign currency translation effect more than offset lower shipments.

The loss from continuing operations in the fourth quarter of 2009 was $159.3 million, or $0.95 per share, compared with a loss from continuing operations of $228.6 million, or $1.38 per share, in the prior year’s quarter. Exclusive of the items not representative of ongoing operations, fourth quarter 2009 adjusted net earnings were $84.2 million, or $0.49 per share (diluted), up from adjusted net earnings of $76.2 million, or $0.45 per share (diluted), in the prior year’s fourth quarter.

“Our business performed very well in the quarter, offsetting expected higher non-operational costs,” said Al Stroucken, chairman and CEO. “While volumes were down modestly from the prior year, glass shipments have gradually recovered and our year-over-year volume comparisons have improved each quarter throughout the year. Our strong cash flow in 2009 allowed us to invest in capital projects, reduce debt and accelerate pension contributions in the fourth quarter, all of which should improve our operating and financial flexibility going forward.”

O-I reported fourth quarter 2009 segment operating profit of $195.6 million, up from $157.0 million in the prior year. Operating profits benefited from a 4% improvement in sales due to price and mix and a $26 million favorable foreign currency translation effect. Glass container shipments, in metric tons, declined 5% from the fourth quarter of 2008, representing the smallest quarterly decline on a year-over-year basis since the onset of the global economic recession.

Continued temporary production curtailments to match supply with lower demand and to reduce inventories primarily resulted in $24 million of additional unabsorbed fixed costs compared to fourth quarter 2008. Proactive efforts to better manage working capital reduced inventory levels, in metric tons, by 11% from December 2008. Non-operational costs increased from the prior year, primarily due to higher year-over-year pension expenses and a higher effective tax rate in the fourth quarter of 2009.

The company continued to implement its strategic footprint alignment initiative, focusing on optimizing global assets. O-I has permanently closed a total of 21 furnaces since the program's inception in 2007, including two furnaces in South America and one furnace in North America during the fourth quarter. Compared to 2008, fixed costs were down $18 million in the fourth quarter and $122 million for the year. In the fourth quarter, O-I recorded a restructuring charge of $100.5 million ($93.8 million after-tax amount attributable to O-I), principally for North American capacity realignment actions in 2010.

Full-year 2009 net sales were $7.1 billion, down from $7.9 billion in the prior year. 2009 net sales benefited from 5% higher price and mix, which was more than offset by unfavorable foreign currency translation effects and 10% lower global shipments.

Earnings from continuing operations for 2009 were $161.8 million, or $0.95 per share (diluted), compared with earnings from continuing operations of $251.5 million, or $1.48 per share (diluted), in the prior year. Exclusive of certain items that management considers not representative of ongoing operations, full-year 2009 adjusted net earnings were $499.5 million, or $2.93 per share (diluted), compared with $645.2 million, or $3.80 per share (diluted), in 2008. Lower 2009 adjusted net earnings reflected the impact of less volume, cost inflation and unfavorable currency translation, despite higher price and mix and benefits from the company’s strategic footprint initiative program.

Asbestos-related cash payments during the fourth quarter and full-year 2009 were $67.9 million and $190.3 million, respectively. This compared with $69.9 million and $210.2 million, respectively, for the same periods last year. The deferred amount payable for previously settled claims was approximately $36.3 million at the end of 2009, up slightly from year-end 2008. New lawsuits and claims filed during 2009 were approximately 6000, compared with approximately 5000 in 2008. The number of pending asbestos-related lawsuits and claims approximated 7000 as of December 31, 2009, compared with approximately 11,000 at year-end 2008.

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 $180.0 million (before- and after-tax amount), compared to the 2008 charge of $250.0 million ($248.8 million after-tax amount). The lower 2009 asbestos charge reflected, in part, the significantly lower level of pending asbestos-related lawsuits at year-end 2009 compared to 2008. The accrued balance for future asbestos-related costs as of December 31, 2009, was $485.1 million.

The company successfully renegotiated several North American customer contracts, effective in 2010. Regarding these new agreements, Stroucken said, “We will earn higher profit margin percentages on this business, and attain greater margin stability in the future. To achieve these objectives, shipment levels in the region will likely decline. As a result, we will incur additional temporary production curtailments in the first half of 2010 until we permanently reduce capacity due to this change in business mix. In 2010, we intend to maintain the strong North American operating profits achieved in 2009, while long-term profits will improve considerably once capacity has been realigned.”

Commenting on the company's outlook for 2010, Stroucken said, “Globally, higher prices should more than offset cost inflation, which we anticipate will remain modest throughout the year. As the economy continues to recover, we expect global glass shipments will improve from the prior year. Results should benefit from lower fixed costs due to the company’s strategic footprint initiative, while non-operational costs will increase primarily due to higher pension expenses. Despite the challenges of the global economic recession during the past two years, O-I enters 2010 well-positioned to drive profitable growth as markets recover and we execute on our strategic priorities.”

For additional details, visit www.o-i.com.

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