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O-I continues to build momentum on its Transformational Journey

Owens-Illinois, Inc has announced several significant developments in the transformational journey that the company outlined at investor day earlier this year.

The initial phase of the journey has been focused on enhancing financial flexibility through proactive liability management as well as stabilizing and improving top and bottom line business performance.
The Company has substantially improved its debt profile through the recent issuance of a 500 million euro, eight-year, fixed-rate bond with a very favorable coupon of 3.125 percent. This transaction met all key objectives:  increased the composition of fixed-rate debt to nearly two-thirds, augmented the natural hedge to foreign currency exposure, repaid higher-cost floating-rate debt and extended the Company’s debt maturity profile.
Further, the Company continues to de-risk its pension plans. The Company recently settled approximately $200 million in pension obligations of the Owens-Illinois Hourly Retirement Plan (“Plan”).[1] This transaction occurred via the purchase of a group annuity contract with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (NYSE:PRU) using Plan assets that will transfer payment responsibility for retirement benefits owed to approximately 7,500 U.S. retirees and their beneficiaries. This settlement will reduce the Plan’s pension obligations by 10 to 15 percent.
The Company also continues to reduce its asbestos-related liabilities. The Company reported a total asbestos-related liability of $817 million on its balance sheet at year end 2015. During 2016, asbestos payments of approximately $125 million will reduce this liability to less than $700 million. The Company has preliminarily concluded that there will be no adjustment to the asbestos-related liability in 2016. Next year, expected payments of approximately $115 million will further decrease the liability.
Separately, the Company’s strategic initiatives, particularly those related to manufacturing, remain a strong contributor to year-on-year operating profit gains. The Company continues to pivot towards the benefits of the supply chain and commercial initiatives that will drive incremental improvements in the next phase of the transformational journey. Regarding the top line, the Company launched its key account management effort to positively impact relationships with customers by adopting service levels and integrating Company resources aligned to the needs of key clients. These efforts are paying off. O-I has renewed global agreements with several strategic customers, which fortifies management’s confidence in volume growth in 2017. Collaborative innovation is also taking hold. In Latin America, O-I launched commercial sales of red glass. In North America in the coming year, O-I is expected to launch sales of the Helix screw cork bottle, created in partnership with cork manufacturer Amorim.
Jan Bertsch, chief financial officer, said, “We are very pleased with the progress we are making in achieving our short and long-term financial goals. As we wrap up 2016, we expect to be solidly within our guidance range for adjusted earnings.[2] And, excluding asbestos payments, which relate to a legacy liability and not to the ongoing glass container operations, our adjusted free cash flow2 for full year 2016 would be approximately $425 million. This provides a better view of the cash generation potential of our business segments. Looking into next year and even into 2018, we anticipate the Company’s financial performance will be entirely consistent with the key investor day metrics: continued margin expansion, 10 percent CAGR in adjusted earnings, and solid cash flow generation.”

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