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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, 2022

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

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, 2022 was 155,716,434.

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, 2021.

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 10) 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,

2022

    

2021

    

2022

    

2021

    

 

Net sales

$

1,778

$

1,660

$

3,469

$

3,161

Cost of goods sold

 

(1,453)

 

(1,354)

 

(2,841)

 

(2,609)

Gross profit

 

325

306

628

552

Selling and administrative expense

 

(123)

(116)

(243)

(218)

Research, development and engineering expense

 

(20)

(19)

(42)

(37)

Interest expense, net

 

(46)

(52)

(112)

(103)

Equity earnings

 

24

22

47

40

Other income (expense), net

 

168

57

220

(101)

Earnings before income taxes

 

328

 

198

 

498

 

133

Provision for income taxes

 

(72)

(75)

(120)

(100)

Net earnings

 

256

 

123

 

378

 

33

Net earnings attributable to non-controlling interests

 

(4)

(5)

(38)

(12)

Net earnings attributable to the Company

$

252

$

118

$

340

$

21

Basic earnings per share:

Net earnings attributable to the Company

$

1.62

$

0.75

$

2.18

$

0.13

Weighted average shares outstanding (thousands)

155,683

157,902

155,765

157,737

Diluted earnings per share:

Net earnings attributable to the Company

$

1.59

$

0.73

$

2.14

$

0.13

Weighted average diluted shares outstanding (thousands)

158,951

160,791

158,874

160,459

See accompanying notes.

2

O-I GLASS, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME

(Dollars in millions)

(Unaudited)

Three months ended

Six months ended

June 30,

June 30,

    

2022

    

2021

    

2022

    

2021

    

 

Net earnings

$

256

$

123

$

378

$

33

Other comprehensive income (loss):

Foreign currency translation adjustments

 

(123)

125

12

38

Pension and other postretirement benefit adjustments, net of tax

 

26

17

44

37

Change in fair value of derivative instruments, net of tax

 

20

23

13

Other comprehensive income (loss)

(77)

142

79

88

Total comprehensive income

179

265

457

121

Comprehensive (income) loss attributable to non-controlling interests

 

4

(7)

(35)

(8)

Comprehensive income attributable to the Company

$

183

$

258

$

422

$

113

See accompanying notes.

3

O-I GLASS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)

June 30,

December 31,

June 30,

2022

2021

2021

Assets

Current assets:

Cash and cash equivalents

$

661

$

725

$

531

Trade receivables, net of allowance of $29 million, $28 million, and $32 million at June 30, 2022, December 31, 2021 and June 30, 2021

 

957

 

692

 

855

Inventories

 

775

 

816

 

796

Prepaid expenses and other current assets

 

224

 

237

 

217

Assets held for sale

49

Total current assets

 

2,617

 

2,519

 

2,399

Property, plant and equipment, net

2,758

2,817

2,842

Goodwill

1,792

1,840

1,932

Intangibles, net

272

286

309

Other assets

1,434

1,370

1,392

Total assets

$

8,873

$

8,832

$

8,874

Liabilities and share owners’ equity

Current liabilities:

Accounts payable

$

1,190

$

1,210

$

1,038

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

65

72

85

Other liabilities

530

551

564

Liabilities held for sale

13

Total current liabilities

 

1,785

 

1,846

 

1,687

Long-term debt

4,427

4,753

4,977

Paddock support agreement liability

625

625

625

Other long-term liabilities

777

781

1,083

Share owners' equity

1,259

827

502

Total liabilities and share owners’ equity

$

8,873

$

8,832

$

8,874

See accompanying notes.

4

O-I GLASS, INC.

CONDENSED CONSOLIDATED CASH FLOWS

(Dollars in millions)

(Unaudited)

Six months ended June 30,

    

2022

    

2021

 

 

Cash flows from operating activities:

Net earnings

$

378

$

33

Non-cash charges

Depreciation and amortization

 

232

232

Pension expense

 

16

16

Charge related to Paddock support agreement liability

154

Brazil indirect tax credit

(69)

Restructuring, asset impairment and related charges

 

11

8

Gain on sale of divested business

(55)

Gain on sale leaseback

(182)

Cash payments

Pension contributions

 

(12)

(24)

Cash paid for restructuring activities

 

(8)

(10)

Change in components of working capital

 

(250)

(229)

Other, net (a)

(10)

32

Cash provided by operating activities

 

120

 

143

Cash flows from investing activities:

Cash payments for property, plant and equipment

 

(199)

(175)

Contributions and advances to joint ventures

(11)

Cash proceeds on disposal of other businesses and misc. assets

96

8

Cash proceeds on sale leaseback

190

Cash proceeds on sale of ANZ businesses, net of transaction costs

58

Other

(10)

Cash provided by (utilized in) investing activities

 

66

 

(109)

Cash flows from financing activities:

Changes in borrowings, net

(213)

(26)

Payment of finance fees

(20)

Shares repurchased

(20)

(20)

Net cash receipts (payments) for hedging activity

38

(10)

Distributions to non-controlling interests

(26)

(10)

Issuance of common stock and other

(2)

(2)

Cash utilized in financing activities

 

(243)

 

(68)

Effect of exchange rate fluctuations on cash

 

(7)

2

Change in cash

 

(64)

 

(32)

Cash at beginning of period

 

725

563

Cash at end of period

$

661

$

531

(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 two reportable segments and two operating segments based on its geographic locations: the Americas and Europe. These two 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 segments or to glass manufacturing are reported with Retained corporate costs and other. These include licensing, equipment manufacturing, global engineering, certain equity investments and the remaining businesses in the Asia Pacific region that do not meet the criteria of an individually reportable segment after the sale of the Company’s Australia and New Zealand businesses in 2020. 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 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 and other adjustments, as well as certain retained corporate costs. The Company’s management, including the chief operating decision maker (defined as our chief executive officer), 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 accounting principles generally accepted in the United States (“U.S. GAAP”) and, therefore, does not purport to be an alternative to earnings 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, 2022 and 2021 regarding the Company’s reportable segments is as follows:

    

Three months ended June 30,

Six months ended June 30,

2022

    

2021

    

2022

 

2021

 

Net sales:

Americas

$

971

$

890

$

1,912

$

1,727

Europe

 

765

 

745

 

1,474

1,384

Reportable segment totals

 

1,736

 

1,635

 

3,386

 

3,111

Other

 

42

25

83

50

Net sales

$

1,778

$

1,660

$

3,469

$

3,161

6

Three months ended June 30,

Six months ended June 30,

    

2022

    

2021

    

2022

    

2021

 

Earnings before income taxes

$

328

$

198

$

498

$

133

Items excluded from segment operating profit:

Retained corporate costs and other

53

42

103

77

Gain on sale of divested business

(55)

Gain on sale leaseback

(182)

(182)

Restructuring, asset impairment and other charges

12

9

12

9

Brazil indirect tax credit

(69)

(69)

Charge related to Paddock support agreement liability

154

Interest expense, net

46

52

112

103

Segment operating profit

$

257

$

232

$

488

$

407

Americas

$

130

$

124

$

258

$

224

Europe

127

108

230

183

Reportable segment totals

$

257

$

232

$

488

$

407

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

June 30,

December 31,

June 30,

    

2022

2021

2021

Total assets:

Americas

 

$

5,028

 

$

4,853

 

$

4,972

Europe

 

3,325

 

3,513

 

3,502

Reportable segment totals

 

8,353

 

8,366

 

8,474

Other

 

520

466

400

Consolidated totals

 

$

8,873

 

$

8,832

 

$

8,874

2. Revenue

Revenue is recognized at a 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, 2022 and June 30, 2021, 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.

7

The following tables for the three months ended June 30, 2022 and 2021 disaggregate the Company’s revenue by customer end use:

Three months ended June 30, 2022

    

Americas

Europe

Total

Alcoholic beverages (beer, wine, spirits)

 

$

613

 

$

576

 

$

1,189

Food and other

 

199

 

122

 

321

Non-alcoholic beverages

 

159

 

67

 

226

Reportable segment totals

$

971

$

765

$

1,736

Other

 

42

Net sales

 

$

1,778

Three months ended June 30, 2021

    

Americas

Europe

Total

Alcoholic beverages (beer, wine, spirits)

 

$

546

$

564

$

1,110

Food and other

 

204

123

 

327

Non-alcoholic beverages

 

140

58

 

198

Reportable segment totals

$

890

$

745

$

1,635

Other

 

25

Net sales

 

$

1,660

The following tables for the six months ended June 30, 2022 and 2021 disaggregate the Company’s revenue by customer end use:

Six months ended June 30, 2022

    

Americas

Europe

Total

Alcoholic beverages (beer, wine, spirits)

 

$

1,189

 

$

1,113

 

$

2,302

Food and other

 

413

 

232

 

645

Non-alcoholic beverages

 

310

 

129

 

439

Reportable segment totals

$

1,912

$

1,474

$

3,386

Other

 

83

Net sales

 

$

3,469

Six months ended June 30, 2021

    

Americas

Europe

Total

Alcoholic beverages (beer, wine, spirits)

 

$

1,049

$

1,040

$

2,089

Food and other

 

413

242

 

655

Non-alcoholic beverages

 

265

102

 

367

Reportable segment totals

$

1,727

$

1,384

$

3,111

Other

 

50

Net sales

 

$

3,161


8

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, 2022 and June 30, 2021, the Company reported $957 million and $855 million of accounts receivable, respectively, net of allowances of $29 million and $32 million, respectively. Changes in the allowance were not material for each of the three and six months ended June 30, 2022 and June 30, 2021.

4. Inventories

Major classes of inventory at June 30, 2022, December 31, 2021 and June 30, 2021 are as follows:

June 30,

December 31,

June 30,

    

2022

    

2021

    

2021

Finished goods

$

618

$

659

$

636

Raw materials

 

115

 

119

 

122

Operating supplies

 

42

 

38

 

38

$

775

$

816

$

796

5. Derivative Instruments

The Company has certain derivative assets and liabilities, which consist of natural gas forwards and collars, foreign exchange option and forward contracts, interest rate swaps and cross-currency swaps. The valuation of these instruments is determined primarily using the income approach, including discounted cash flow analysis on the expected cash flows of each derivative. Natural gas prices, foreign exchange rates and interest rates are the significant inputs into the valuation models. The Company also evaluates counterparty risk in determining fair values. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. Estimates of the fair value of foreign currency and commodity derivative instruments are determined using exchange traded prices and rates. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These inputs are observable in active markets over the terms of the instruments the Company holds, and, accordingly, the Company classifies its derivative assets and liabilities as Level 2 in the hierarchy.

Commodity Forward Contracts and Collars Designated as Cash Flow Hedges

The Company has entered into commodity forward contracts and collars related to forecasted natural gas requirements, the objective of which are to limit the effects of fluctuations in future market prices of natural gas and the related volatility in cash flows.

9

An unrecognized loss of $1 million at June 30, 2022 related to the commodity forward contracts and collars was included in Accumulated other comprehensive income (“Accumulated OCI”), and will be reclassified into earnings in the period when the commodity forward contracts expire.

Cash Flow Hedges of Foreign Exchange Risk

The Company has variable-interest rate borrowings denominated in currencies other than the functional currency of the borrowing subsidiaries. As a result, the Company is exposed to fluctuations in the currency of the borrowing against the subsidiaries’ functional currency.  In addition, one of the Company’s non-U.S. dollar-functional-currency subsidiaries purchases a raw material in the normal course of business for use in glass container production that is priced in U.S. dollars. Such purchases expose the Company to exchange rate fluctuations. The Company uses derivatives to manage these exposures and designates these derivatives as cash flow hedges of foreign exchange risk.

An unrecognized gain of $1 million at June 30, 2022, an unrecognized gain of $6 million at December 31, 2021 and an unrecognized gain of $9 million at June 30, 2021, related to these cross-currency swaps, was included in Accumulated OCI, and will be reclassified into earnings within the next 12 months.

Fair Value Hedges of Foreign Exchange Risk

The Company has fixed interest rate borrowings denominated in currencies other than the functional currency of the borrowing subsidiaries. As a result, the Company is exposed to fluctuations in the currency of the borrowing against the subsidiaries’ functional currency.  The Company uses derivatives to manage these exposures and designates these derivatives as fair value hedges of foreign exchange risk. Approximately $6 million of the components were excluded from the assessment of effectiveness and are included in Accumulated OCI at June 30, 2022 and December 31, 2021.

Interest Rate Swaps Designated as Fair Value Hedges

The Company enters into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. The Company’s fixed-to-variable interest rate swaps are accounted for as fair value hedges. The relevant terms of the swap agreements match the corresponding terms of the notes, and therefore, there is no hedge ineffectiveness. The Company recorded the net of the fair market values of the swaps as a long-term liability and short-term asset, along with a corresponding net decrease in the carrying value of the hedged debt.

Net Investment Hedges

The Company is exposed to fluctuations in foreign exchange rates on investments it holds in non-U.S. subsidiaries and uses cross-currency swaps to partially hedge this exposure.  

Foreign Exchange Derivative Contracts Not Designated as Hedging Instruments

The Company uses short-term forward exchange or option agreements to purchase foreign currencies at set rates in the future. These agreements are used to limit exposure to fluctuations in foreign currency exchange rates for significant planned purchases of fixed assets or commodities that are denominated in currencies other than the subsidiaries’ functional currency. The Company also uses foreign exchange agreements to offset the foreign currency exchange rate risk for receivables and payables, including intercompany receivables, payables, and loans, not denominated in, or indexed to, their functional currencies.

10

Balance Sheet Classification

The following table shows the amount and classification (as noted above) of the Company’s derivatives at June 30, 2022, December 31, 2021 and June 30, 2021:

Fair Value of

Fair Value of

Hedge Assets

Hedge Liabilities

June 30,

December 31,

June 30,

June 30,

December 31,

June 30,

    

2022

    

2021

    

2021

    

2022

    

2021

    

2021

Derivatives designated as hedging instruments:

    

    

    

    

    

    

Commodity forward contracts and collars (a)

$

2

$

$

$

6

$

$

Interest rate swaps - fair value hedges (b)

4

11

28

2

1

Cash flow hedges of foreign exchange risk (c)

2

6

1

23

75

Fair value hedges of foreign exchange risk (d)

17

9

2

Net investment hedges (e)

16

3

2

17

40

Total derivatives accounted for as hedges

$

35

$

18

$

19

$

37

$

42

$

116

Derivatives not designated as hedges:

Foreign exchange derivative contracts (f)

2

1

1

2

2

Total derivatives

$

37

$

19

$

20

$

37

$

44

$

118

Current

$

14

$

14

$

13

$

12

$

2

$

3

Noncurrent

23

5

7

25

42

115

Total derivatives

$

37

$

19

$

20

$

37

$

44

$

118

(a) The notional amount of the commodity forward contracts and collars was approximately 44 million British Thermal Units (“BTUs”) at June 30, 2022. The maximum maturity dates were in 2027 at June 30, 2022.

(b) The notional amounts of the interest rate swaps designated as fair value hedges were €725 million at June 30, 2022, December 31, 2021 and June 30, 2021. The maximum maturity dates were in 2024 at June 30, 2022, December 31, 2021 and June 30, 2021.

(c) The notional amounts of the cash flow hedges of foreign exchange risk were 514 million Mexican pesos at June 30, 2022, $422 million at December 31, 2021 and $878 million at June 30, 2021. The maximum maturity dates were in 2022 at June 30, 2022 and in 2023 at December 31, 2021 and June 30, 2021.

(d) The notional amounts of the fair value hedges of foreign exchange risk were $850 million at June 30, 2022 and $400 million at December 31, 2021. The maximum maturity dates were in 2030 at June 30, 2022 and December 31, 2021.

(e) The notional amounts of the net investment hedges were €324 million at June 30, 2022 and €311 million at December 31, 2021 and June 30, 2021. The maximum maturity dates were in 2026 for June 30, 2022, 2027 for December 31, 2021 and 2027 for June 30, 2021.

(f) The notional amounts of the foreign exchange derivative contracts were $334 million, $202 million and $305 million at June 30, 2022, December 31, 2021 and June 30, 2021, respectively. The maximum maturity dates were in 2023 for June 30, 2022 and in 2022 for December 31, 2021 and June 30, 2021.

11