Owens-Illinois drops debt by more than $1.7 billion, increases free cash flow generation

By Jennifer Lanning Drey

Portland, Ore., Jan. 31 - Owens-Illinois, Inc. repaid $1.9 billion of debt in 2007, bringing the company's year-end debt balance to $3.714 billion, compared with $5.457 billion at the end of 2006, Al Stroucken, the company's chief executive officer, reported Thursday during Owens-Illinois' fourth-quarter earnings call.

The company used proceeds from the sale of its plastics business and cash generated from operations for the debt repayment. The repayment amounts do not reflect the full amount of cash used for debt repayment due to the unfavorable effect of about $200 million in foreign currency translation on the debt balance.

For the full-year 2007, Owens-Illinois increased its generation of free cash flow to $332.6 million, compared with negative free cash flow of $46.7 million in 2006. The year-over-year increase resulted from improved profit margins and was above the company's previous guidance.

The company expects free cash flow generation to exceed $425 million in 2008.

"We believe the components are in place for continued cash flow improvements in 2008," Ed White, Owens-Illinois' chief financial officer, said during the call.

The company's goal is to drive free cash flow to above 50% of EBIT and reduce debt to below 2 times EBITDA, Stroucken said. "That will give us a financial profile that will allow us the flexibility to navigate difficult market conditions and the freedom to fully participate in future growth opportunities while maintaining a strong capital structure."

The company expects most of its cash flow improvements to occur in the second half of 2008, as asbestos liabilities and capital spending projects are likely to be larger in the first six months of the year.

Owens-Illinois has $250 million of senior notes that will mature in May 2008, which management would prefer to refinance, but will use operating cash flow to retire if market conditions are unfavorable, White said.

Owens-Illinois had more than $800 million of available capacity under its secured revolving credit facility at the end of 2007.

Sales up $258 million

For the fourth quarter, Owens-Illinois reported net sales from continuing operations of $1.957 billion, compared with $1.699 billion in the 2006 fourth quarter. The $258 million sales increase was the result of favorable currency translation and improved prices and product sales mix, White said.

Owens-Illinois expects the positive momentum to continue into 2008 with pricing increases continuing to outpace inflation during the year.

"We expect 2008 will be a good year for our company and a period in which we begin looking further into the future and strengthening our role as a global industry leader," Stroucken said.

Owens-Illinois intends to concentrate its use of capital resources on countries and regions that have promising growth potential and provide opportunities for geographic expansion, including China, Mexico, Argentina and Eastern Europe, he said.

Owens-Illinois is a Perrysburg, Ohio-based manufacturer of recyclable glass containers.

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