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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-9576

Graphic

O-I GLASS, INC.

(Exact name of registrant as specified in its charter)

Delaware

22-2781933

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification No.)

One Michael Owens Way, Perrysburg, Ohio

43551

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (567) 336-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $.01 par value

OI

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The number of shares of common stock, par value $.01, of O-I Glass, Inc. outstanding as of June 30, 2020 was 156,955,838.

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements.

The Condensed Consolidated Financial Statements of O-I Glass, Inc. (the “Company”) presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. All adjustments are of a normal recurring nature. Because the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The term “Company,” as used herein and unless otherwise stated or indicated by context, refers to Owens-Illinois, Inc. (“O-I”) prior to the Corporate Modernization (as defined in Note 11) and to O-I Glass, Inc. (“O-I Glass”) after the Corporate Modernization.

1

O-I GLASS, INC.

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

(Dollars in millions, except per share amounts)
(Unaudited)

Three months ended

Six months ended

June 30,

June 30,

2020

    

2019

    

2020

    

2019

    

 

Net sales

$

1,418

$

1,756

$

2,979

$

3,393

Cost of goods sold

 

(1,255)

 

(1,420)

 

(2,548)

 

(2,760)

Gross profit

 

163

336

431

633

Selling and administrative expense

 

(97)

(116)

(213)

(231)

Research, development and engineering expense

 

(13)

(18)

(29)

(34)

Interest expense, net

 

(98)

(68)

(151)

(132)

Equity earnings

 

13

19

28

38

Other expense, net

 

(87)

(55)

(104)

(65)

Earnings (loss) from continuing operations before income taxes

 

(119)

 

98

 

(38)

 

209

Benefit (provision) for income taxes

 

18

(27)

(8)

(54)

Earnings (loss) from continuing operations

 

(101)

 

71

 

(46)

 

155

Loss from discontinued operations

 

(1)

(1)

Net earnings (loss)

 

(101)

 

70

 

(46)

 

154

Net earnings attributable to non-controlling interests

 

(5)

(5)

(10)

Net earnings (loss) attributable to the Company

$

(101)

$

65

$

(51)

$

144

Amounts attributable to the Company:

Earnings (loss) from continuing operations

$

(101)

$

66

$

(51)

$

145

Loss from discontinued operations

 

(1)

 

(1)

Net earnings (loss)

$

(101)

$

65

$

(51)

$

144

Basic earnings per share:

Net earnings (loss) from continuing operations attributable to the Company

$

(0.64)

$

0.42

$

(0.32)

$

0.94

Loss from discontinued operations

 

 

 

(0.01)

Net earnings (loss)

$

(0.64)

$

0.42

$

(0.32)

$

0.93

Weighted average shares outstanding (thousands)

156,790

155,338

156,435

154,852

Diluted earnings per share:

Net earnings (loss) from continuing operations attributable to the Company

$

(0.64)

$

0.42

$

(0.32)

$

0.93

Loss from discontinued operations

 

 

 

(0.01)

Net earnings (loss)

$

(0.64)

$

0.42

$

(0.32)

$

0.92

Weighted average diluted shares outstanding (thousands)

156,790

156,471

156,435

156,555

See accompanying notes.

2

O-I GLASS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(Unaudited)

Three months ended

Six months ended

June 30,

June 30,

    

2020

    

2019

    

2020

    

2019

    

 

Net earnings (loss)

$

(101)

$

70

$

(46)

$

154

Other comprehensive income (loss):

Foreign currency translation adjustments

 

54

1

(519)

50

Pension and other postretirement benefit adjustments, net of tax

 

19

16

50

22

Change in fair value of derivative instruments, net of tax

 

(13)

(9)

(7)

(4)

Other comprehensive income (loss)

60

8

(476)

68

Total comprehensive income (loss)

(41)

78

(522)

222

Comprehensive (income) loss attributable to non-controlling interests

 

2

7

6

(1)

Comprehensive income (loss) attributable to the Company

$

(39)

$

85

$

(516)

$

221

See accompanying notes.

3

O-I GLASS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)

June 30,

December 31,

June 30,

2020

2019

2019

Assets

Current assets:

Cash and cash equivalents

$

1,067

$

551

$

371

Trade receivables, net of allowance of $30 million, $32 million, and $34 million at June 30, 2020, December 31, 2019 and June 30, 2019

 

696

 

621

 

1,275

Inventories

 

1,004

 

1,045

 

1,015

Prepaid expenses and other current assets

 

245

 

271

 

282

Total current assets

 

3,012

 

2,488

 

2,943

Property, plant and equipment, net

2,976

3,273

3,216

Goodwill

1,806

1,934

2,527

Intangibles, net

314

371

422

Other assets

1,471

1,544

1,615

Total assets

$

9,579

$

9,610

$

10,723

Liabilities and Share owners’ equity

Current liabilities:

Accounts payable

$

916

$

1,276

$

1,074

Short-term loans and long-term debt due within one year

404

124

96

Current portion of asbestos-related liabilities

135

Other liabilities

566

595

624

Total current liabilities

 

1,886

 

1,995

 

1,929

Long-term debt

6,103

5,435

6,235

Asbestos-related liabilities

486

364

Paddock support agreement liability

471

Other long-term liabilities

1,077

1,130

1,105

Share owners' equity

42

564

1,090

Total liabilities and share owners’ equity

$

9,579

$

9,610

$

10,723

See accompanying notes.

4

O-I GLASS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

(Unaudited)

Six months ended June 30,

    

2020

    

2019

 

 

Cash flows from operating activities:

Net earnings (loss)

$

(46)

$

154

Loss from discontinued operations

 

 

1

Non-cash charges

Depreciation and amortization

 

247

253

Pension expense

 

20

16

Restructuring, asset impairment and related charges

 

67

32

Pension settlement charges

8

2

Cash payments

Pension contributions

 

(21)

(19)

Asbestos-related payments

 

(103)

Cash paid for restructuring activities

 

(22)

(29)

Change in components of working capital

 

(415)

(939)

Other, net (a)

28

(30)

Cash utilized in continuing operating activities

 

(134)

 

(662)

Cash utilized in discontinued operating activities

 

 

(1)

Total cash utilized in operating activities

 

(134)

 

(663)

Cash flows from investing activities:

Cash payments for property, plant and equipment

 

(189)

(233)

Acquisitions, net of cash acquired

 

(157)

Contributions and advances to joint ventures

(22)

Net cash proceeds on disposal of assets

2

1

Deconsolidation of Paddock

(47)

Other

1

1

Cash utilized in investing activities

 

(233)

 

(410)

Cash flows from financing activities:

Changes in borrowings, net

922

970

Payment of finance fees

(45)

(8)

Treasury shares repurchased

(38)

Dividends paid

(8)

(16)

Net cash proceeds for hedging activity

42

28

Distributions to non-controlling interests

(4)

(7)

Other, net

(3)

(3)

Cash provided by financing activities

 

904

 

926

Effect of exchange rate fluctuations on cash

 

(21)

6

Increase (Decrease) in cash

 

516

 

(141)

Cash at beginning of period

 

551

512

Cash at end of period

$

1,067

$

371

(a)Other, net includes other non-cash charges plus other changes in non-current assets and liabilities.

See accompanying notes.

5

O-I GLASS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular data dollars in millions, except per share amounts

1. Segment Information

The Company has three reportable segments and three operating segments based on its geographic locations: the Americas, Europe and Asia Pacific. These three segments are aligned with the Company’s internal approach to managing, reporting, and evaluating performance of its global glass operations. Certain assets and activities not directly related to one of the regions or to glass manufacturing are reported with Retained corporate costs and other. These include licensing, equipment manufacturing, global engineering, and certain equity investments. Retained corporate costs and other also includes certain headquarters administrative and facilities costs and certain incentive compensation and other benefit plan costs that are global in nature and are not allocable to the reportable segments.

The Company’s measure of profit for its reportable segments is segment operating profit, which consists of consolidated earnings (loss) from continuing operations before interest income, interest expense, and benefit (provision) for income taxes and excludes amounts related to certain items that management considers not representative of ongoing operations, as well as certain retained corporate costs. The Company’s management uses segment operating profit, in combination with net sales and selected cash flow information, to evaluate performance and to allocate resources. Segment operating profit for reportable segments includes an allocation of some corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided. Segment operating profit is not a recognized term under U.S. GAAP, and therefore, does not purport to be an alternative to earnings (loss) before income taxes. Further, the Company's measure of segment operating profit may not be comparable to similarly titled measures of other companies.

Financial information for the three and six months ended June 30, 2020 and 2019 regarding the Company’s reportable segments is as follows:

    

Three months ended June 30,

Six months ended June 30,

2020

    

2019

    

2020

 

2019

 

Net sales:

Americas

$

724

$

934

$

1,555

$

1,815

Europe

 

555

 

650

 

1,132

1,246

Asia Pacific

 

132

 

152

 

277

303

Reportable segment totals

 

1,411

 

1,736

 

2,964

 

3,364

Other

 

7

20

15

29

Net sales

$

1,418

$

1,756

$

2,979

$

3,393

Three months ended June 30,

Six months ended June 30,

    

2020

    

2019

    

2020

    

2019

 

Segment operating profit:

Americas

$

52

$

144

$

155

$

257

Europe

 

42

 

90

 

103

 

169

Asia Pacific

 

1

 

2

 

6

 

10

Reportable segment totals

 

95

 

236

 

264

 

436

Items excluded from segment operating profit:

Retained corporate costs and other

(33)

(28)

(54)

(53)

Restructuring, asset impairment and other charges

 

(71)

(40)

(71)

(40)

Strategic transaction costs

 

(4)

(4)

Pension settlement charges

 

(8)

(2)

(8)

(2)

Charge for deconsolidation of Paddock

(14)

Interest expense, net

 

(98)

(68)

(151)

(132)

Earnings (loss) from continuing operations before income taxes

$

(119)

$

98

$

(38)

$

209

6

Financial information regarding the Company’s total assets is as follows:

June 30,

December 31,

June 30,

    

2020

2019

2019

Total assets:

Americas

 

$

4,707

 

$

5,264

 

$

5,994

Europe

 

3,315

 

3,127

 

3,342

Asia Pacific

 

915

 

1,012

 

1,045

Reportable segment totals

 

8,937

 

9,403

 

10,381

Other

 

642

207

342

Consolidated totals

 

$

9,579

 

$

9,610

 

$

10,723

2. Revenue

Revenue is recognized at the point in time when obligations under the terms of the Company’s contracts and related purchase orders with its customers are satisfied. This occurs with the transfer of control of glass containers, which primarily takes place when products are shipped from the Company’s manufacturing or warehousing facilities to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimated provisions for rebates, discounts, returns and allowances. Sales, value added, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company’s payment terms are based on customary business practices and can vary by customer type. The term between invoicing and when payment is due is not significant. Also, the Company elected to account for shipping and handling costs as a fulfillment cost at the time of shipment.

For the three- and six-month periods ended June 30, 2020 and June 30, 2019, the Company had no material bad debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheet.

The following tables for the three months ended June 30, 2020 and 2019 disaggregates the Company’s revenue by customer end use:

Three months ended June 30, 2020

    

Americas

Europe

Asia Pacific

Total

Alcoholic beverages (beer, wine, spirits)

 

$

427

 

$

395

 

$

88

$

910

Food and other

 

198

 

117

 

30

 

345

Non-alcoholic beverages

 

99

 

43

 

14

 

156

Reportable segment totals

$

724

$

555

$

132

$

1,411

Other

 

7

Net sales

 

$

1,418

Three months ended June 30, 2019

    

Americas

Europe

Asia Pacific

Total

Alcoholic beverages (beer, wine, spirits)

 

$

590

$

474

$

105

$

1,169

Food and other

 

191

109

29

 

329

Non-alcoholic beverages

 

153

67

18

 

238

Reportable segment totals

$

934

$

650

$

152

$

1,736

Other

 

20

Net sales

 

$

1,756

7

The following tables for the six months ended June 30, 2020 and 2019 disaggregates the Company’s revenue by customer end use:

Six months ended June 30, 2020

    

Americas

Europe

Asia Pacific

Total

Alcoholic beverages (beer, wine, spirits)

 

$

935

 

$

806

 

$

189

$

1,930

Food and other

 

387

 

223

 

53

 

663

Non-alcoholic beverages

 

233

 

103

 

35

 

371

Reportable segment totals

$

1,555

$

1,132

$

277

$

2,964

Other

 

15

Net sales

 

$

2,979

Six months ended June 30, 2019

    

Americas

Europe

Asia Pacific

Total

Alcoholic beverages (beer, wine, spirits)

 

$

1,153

$

907

$

214

$

2,274

Food and other

 

372

211

54

 

637

Non-alcoholic beverages

 

290

128

35

 

453

Reportable segment totals

$

1,815

$

1,246

$

303

$

3,364

Other

 

29

Net sales

 

$

3,393


3. Credit Losses

The Company is exposed to credit losses primarily through its sales of glass containers to customers. The Company’s trade receivables from customers are due within one year or less. The Company assesses each customer’s ability to pay for the glass containers it sells to them by conducting a credit review. The credit review considers the expected billing exposure and timing for payment and the customer’s established credit rating or the Company’s assessment of the customer’s creditworthiness based on an analysis of their financial statements when a credit rating is not available. The Company also considers contract terms and conditions, country and political risk, and business strategy in its evaluation. A credit limit is established for each customer based on the outcome of this review. The Company may require collateralized asset support or a prepayment to mitigate credit risk. The Company monitors its ongoing credit exposure through the active review of customer balances against contract terms and due dates, including timely account reconciliation, dispute resolution and payment confirmation. The Company may employ collection agencies and legal counsel to pursue the recovery of defaulted receivables.

At June 30, 2020, the Company reported $696 million of accounts receivable, net of allowances of $30 million. Changes in the allowance were not material for the three or six months ended June 30, 2020.

4. Inventories

Major classes of inventory at June 30, 2020, December 31, 2019 and June 30, 2019 are as follows:

June 30,

December 31,

June 30,

    

2020

    

2019

    

2019

    

 

Finished goods

$

833

$

872

$

838

Raw materials

 

129

 

128

 

131

Operating supplies

 

42

 

45

 

46

$

1,004

$

1,045

$

1,015

8

5. Goodwill

The Company had Goodwill of approximately $1.8 billion at June 30, 2020, which includes approximately $0.9 billion related to the Company’s Europe reporting unit (in the Europe segment), approximately $0.5 billion related to the Company’s Latin America reporting unit (in the Americas segment) and approximately $0.4 billion related to the Company’s North America reporting unit (in the Americas segment).  The COVID-19 pandemic had a significant adverse impact on the Company’s business during the second quarter of 2020, resulting in a significant decline in revenue and earnings, along with a decline in the Company’s stock price and associated market capitalization. While there is uncertainty about the duration and extent of the impact of the pandemic, the Company expects there will be a negative impact to its future earnings and cash flows. The Company determined that the impact of COVID-19 was a triggering event that required the Company to perform a quantitative interim goodwill impairment test in the second quarter of 2020. 

When performing its test for goodwill impairment, the Company compares the business enterprise value (“BEV”) of each reporting unit to its carrying value. The BEV is computed based on estimated future cash flows, discounted at the weighted average cost of capital of a hypothetical third-party buyer. If the BEV is less than the carrying value for any reporting unit, then any excess of the carrying value over the BEV is recorded as an impairment loss. The calculations of the BEV of the Company’s reporting units were determined based on valuation techniques using the best available information, primarily discounted cash flow projections. The Company makes significant assumptions and estimates about the extent and timing of future cash flows. The outcome of the BEV calculations in the second quarter of 2020 indicated that the BEV of each of the Company’s reporting units exceeded its carrying amount; therefore, no impairment existed.

There can be no assurance that anticipated financial results will be achieved and the goodwill balances remain susceptible to future impairment charges. The goodwill related to the North America reporting unit is determined to have the greatest risk of future impairment charges given the narrow difference (approximately 2%) between the BEV and carrying value of this reporting unit as of the second quarter of 2020.  The BEVs of the Company’s Europe and Latin America reporting units more substantially exceed their carrying values. If the Company’s projected future cash flows were lower, or if the assumed weighted average cost of capital were higher, the testing performed in the second quarter of 2020 may have indicated an impairment of the goodwill related to one or more of the Company’s r