O-I Reports Record Earnings in the Second Quarter 2008

Owens-Illinois, Inc. reported financial results for the second quarter ending June 30, 2008.

Second Quarter Net Sales from Continuing Operations Increase 11%

The Company reported net sales of $2.211 billion for the second quarter of 2008, compared with $1.997 billion a year ago, an increase of $214 million, or 11%. Price and product sales mix added $154 million to the quarterly sales growth, partially offset by a $124 million decrease from fewer tons sold. Favorable currency translation contributed $201 million to the sales increase.

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

Second Quarter Earnings from Continuing Operations Rise 48%

The Company´s earnings from continuing operations in the second quarter of 2008 increased to $227.5 million, compared with $153.8 million a year ago. Net earnings for the quarter included charges of $4.2 million for restructuring and asset impairment. Earnings for the second quarter of 2007 included a $13.5 million gain from the recognition of foreign tax credits. Management considers both of these items not representative of ongoing operations and descriptions are shown below in Note 1. Exclusive of these items, 2008 second quarter earnings were $231.7 million, compared with $140.3 million in the same quarter last year.

The increase in earnings was driven primarily by an improvement in price and product sales mix in all regions, favorable foreign currency translation and lower net interest expense. This improvement was partially offset by higher manufacturing input costs for energy and raw materials, higher transportation costs, reduced sales volume and reduced production volume. Second Quarter EPS from Continuing Operations Increases more than 40% The Company earned $1.33 per share (diluted) from continuing operations in the second quarter of 2008, compared with $0.92 (diluted) per share for the second quarter of 2007. Exclusive of the items listed in Note 1, earnings per share increased to $1.35 (diluted) in the second quarter of 2008 from $0.84 (diluted) in the same quarter last year. 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).

"Our strong results this quarter and for the first half of 2008 are further affirmation of the validity of our strategies and the success with which our employees around the world have implemented them," said Al Stroucken, Chairman and Chief Executive Officer. "Despite the inflationary environment, we are confident that we will continue to improve the efficiency and profitability of our business as we look for opportunities to expand our successful business model in growing markets."

Second Quarter Free Cash Flow Improves by $23 Million

The Company generated cash of $209.9 million from continuing operating activities in the second quarter of 2008, compared with $173.2 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 $126.3 million in the second quarter of 2008, compared with $103.7 million in the second quarter of 2007. The improvement of $22.6 million resulted primarily from improved earnings, partially offset by an increase in working
capital, higher capital spending and a decrease in non-current liabilities compared with the prior year quarter. At current exchange rates, management expects that the Company will generate Free Cash Flow of approximately $500 million in 2008.

During the second quarter of 2008, working capital was a $71.0 million use of cash, compared with a use of $51.0 million during the same period in 2007. The Company reported $83.6 million in capital expenditures for continuing operations in the second quarter of 2008, an increase of $14.1 million compared with the same quarter last year. For the full year, the Company continues to expect maintenance and restructuring capital expenditures for the current manufacturing footprint to be in the range of 80% to 85% of expected depreciation and amortization expense for the year.

Total Debt Balance Reduced to $3.8 Billion

As of June 30, 2008, the Company´s total debt balance was $3.789 billion, compared with $5.625 billion as of June 30, 2007 and $4.028 billion as of March 31, 2008. The $239 million decrease in debt during the second quarter of 2008 included repayment of the 7.35% senior notes that matured in May and was partially offset by an increase in revolver borrowing. At the end of the second quarter of 2008, the Company had more than $650 million of available capacity under its secured revolving credit facility.

Effective Tax Rate 23.7%

The Company´s reported tax rate for the second quarter of 2008 was 23.7%, as compared with 18.5% in the prior year quarter. Excluding the items listed in Note 1, the comparable tax rates for the second quarter 2008 and 2007 were 23.8% and 25.0%, 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 slightly below the 2007 rate of 24.4%.

Asbestos-Related Payments Increase by $11 million

Asbestos-related cash payments during the second quarter of 2008 were $63.4 million, compared with $52.7 million during the second quarter last year. Cash payments increased in part to fund, on an accelerated basis, settlement of certain claims on terms favorable to the Company. Cash payments were also used, in part, to reduce the deferred amount payable for previously settled lawsuits and claims to approximately $30 million as of June 30, 2008, from approximately $32 million as of March 31, 2008. New lawsuits and claims filed during the first half of 2008 were approximately 12% lower than the same period last year. The number of pending asbestos-related lawsuits and claims was approximately 13,000 as of June 30, 2008, compared with approximately 14,000 as of March 31, 2008.

First Half Sales Grow 13% and EPS Doubles

For the first six months of 2008, the Company reported net sales from continuing operations of $4.171 billion compared with $3.681 billion for the same period in 2007, an increase of $490 million. Improved price and product sales mix added $273 million and the effect of favorable foreign currency translations contributed $387 million. Fewer tons of glass sold during the first half year reduced sales by $173 million.

Net earnings from continuing operations for the first six months of 2008 were $401.5 million or $2.35 per share (diluted), compared with $209.1 million or $1.26 per share (diluted) for the first six months of 2007. Earnings from continuing operations, exclusive of the items listed in Note 2 which management considers not representative of ongoing operations, were $2.43 per share (diluted) in the first half of 2008, compared with $1.18 per share (diluted) in the same period last year. Cash provided by continuing operating activities during the first half of 2008 was $230.6 million compared with $133.0 million for the same period last year. 2008 first half Free Cash Flow was $101.6 million, compared with $30.9 million during the first six months of 2007.

Outlook
"Rising input costs and a slower economy will make the second half of 2008 a tougher operating environment for all packaging manufacturers, including O-I," said Stroucken. "In spite of this, we fully expect that 2008 will be a record year for the Company, as we will continue to be aggressive with our pricing, footprint realignment, Lean Six Sigma and productivity improvement initiatives. In this environment our operational decisions will be largely guided by our cash flow objectives for the year and beyond."

Read the full report at: http://www.o-i.com/index.aspx?id=1578