O-I Glass(OI) - 2022 Q2 - Quarterly Report

Part I — Financial Information This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for O-I Glass, Inc Item 1. Financial Statements This section presents O-I Glass, Inc.'s unaudited condensed consolidated financial statements, including results of operations, comprehensive income, balance sheets, and cash flows, along with detailed explanatory notes for the periods ended June 30, 2022 Condensed Consolidated Results of Operations This section details the Company's condensed consolidated results of operations for the three and six months ended June 30, 2022 and 2021 Condensed Consolidated Results of Operations (Three Months Ended June 30) | Metric | 2022 (Millions $) | 2021 (Millions $) | Change ($M) | Change (%) | | :----------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Net sales | 1,778 | 1,660 | 118 | 7.11% | | Cost of goods sold | (1,453) | (1,354) | (99) | 7.31% | | Gross profit | 325 | 306 | 19 | 6.21% | | Selling and administrative expense | (123) | (116) | (7) | 6.03% | | Research, development and engineering expense | (20) | (19) | (1) | 5.26% | | Interest expense, net | (46) | (52) | 6 | -11.54% | | Equity earnings | 24 | 22 | 2 | 9.09% | | Other income (expense), net | 168 | 57 | 111 | 194.74% | | Earnings before income taxes | 328 | 198 | 130 | 65.66% | | Provision for income taxes | (72) | (75) | 3 | -4.00% | | Net earnings | 256 | 123 | 133 | 108.13% | | Net earnings attributable to non-controlling interests | (4) | (5) | 1 | -20.00% | | Net earnings attributable to the Company | 252 | 118 | 134 | 113.56% | | Basic earnings per share | 1.62 | 0.75 | 0.87 | 116.00% | | Diluted earnings per share | 1.59 | 0.73 | 0.86 | 117.81% | Condensed Consolidated Results of Operations (Six Months Ended June 30) | Metric | 2022 (Millions $) | 2021 (Millions $) | Change ($M) | Change (%) | | :----------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Net sales | 3,469 | 3,161 | 308 | 9.74% | | Cost of goods sold | (2,841) | (2,609) | (232) | 8.89% | | Gross profit | 628 | 552 | 76 | 13.77% | | Selling and administrative expense | (243) | (218) | (25) | 11.47% | | Research, development and engineering expense | (42) | (37) | (5) | 13.51% | | Interest expense, net | (112) | (103) | (9) | 8.74% | | Equity earnings | 47 | 40 | 7 | 17.50% | | Other income (expense), net | 220 | (101) | 321 | -317.82% | | Earnings before income taxes | 498 | 133 | 365 | 274.44% | | Provision for income taxes | (120) | (100) | (20) | 20.00% | | Net earnings | 378 | 33 | 345 | 1045.45% | | Net earnings attributable to non-controlling interests | (38) | (12) | (26) | 216.67% | | Net earnings attributable to the Company | 340 | 21 | 319 | 1519.05% | | Basic earnings per share | 2.18 | 0.13 | 2.05 | 1576.92% | | Diluted earnings per share | 2.14 | 0.13 | 2.01 | 1546.15% | Condensed Consolidated Comprehensive Income This section presents the condensed consolidated comprehensive income for the three and six months ended June 30, 2022 and 2021 Condensed Consolidated Comprehensive Income (Three Months Ended June 30) | Metric | 2022 (Millions $) | 2021 (Millions $) | Change ($M) | Change (%) | | :------------------------------------------ | :---------------- | :---------------- | :---------- | :--------- | | Net earnings | 256 | 123 | 133 | 108.13% | | Other comprehensive income (loss): | | | | | | Foreign currency translation adjustments | (123) | 125 | (248) | -198.40% | | Pension and other postretirement benefit adjustments, net of tax | 26 | 17 | 9 | 52.94% | | Change in fair value of derivative instruments, net of tax | 20 | - | 20 | - | | Other comprehensive income (loss) | (77) | 142 | (219) | -154.23% | | Total comprehensive income | 179 | 265 | (86) | -32.45% | | Comprehensive (income) loss attributable to non-controlling interests | 4 | (7) | 11 | -157.14% | | Comprehensive income attributable to the Company | 183 | 258 | (75) | -29.07% | Condensed Consolidated Comprehensive Income (Six Months Ended June 30) | Metric | 2022 (Millions $) | 2021 (Millions $) | Change ($M) | Change (%) | | :------------------------------------------ | :---------------- | :---------------- | :---------- | :--------- | | Net earnings | 378 | 33 | 345 | 1045.45% | | Other comprehensive income (loss): | | | | | | Foreign currency translation adjustments | 12 | 38 | (26) | -68.42% | | Pension and other postretirement benefit adjustments, net of tax | 44 | 37 | 7 | 18.92% | | Change in fair value of derivative instruments, net of tax | 23 | 13 | 10 | 76.92% | | Other comprehensive income (loss) | 79 | 88 | (9) | -10.23% | | Total comprehensive income | 457 | 121 | 336 | 277.69% | | Comprehensive (income) loss attributable to non-controlling interests | (35) | (8) | (27) | 337.50% | | Comprehensive income attributable to the Company | 422 | 113 | 309 | 273.45% | Condensed Consolidated Balance Sheets This section provides the condensed consolidated balance sheets as of June 30, 2022, December 31, 2021, and June 30, 2021 Condensed Consolidated Balance Sheets (June 30, 2022 vs. December 31, 2021 vs. June 30, 2021) | Metric | June 30, 2022 (Millions $) | December 31, 2021 (Millions $) | June 30, 2021 (Millions $) | | :------------------------------------------ | :------------------------- | :--------------------------- | :------------------------- | | Assets | | | | | Cash and cash equivalents | 661 | 725 | 531 | | Trade receivables, net | 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 | | | | | 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 | Condensed Consolidated Cash Flows This section outlines the condensed consolidated cash flows for the six months ended June 30, 2022 and 2021 Condensed Consolidated Cash Flows (Six Months Ended June 30) | Metric | 2022 (Millions $) | 2021 (Millions $) | Change ($M) | Change (%) | | :------------------------------------------ | :---------------- | :---------------- | :---------- | :--------- | | Cash provided by operating activities | 120 | 143 | (23) | -16.08% | | Cash provided by (utilized in) investing activities | 66 | (109) | 175 | -160.55% | | Cash utilized in financing activities | (243) | (68) | (175) | 257.35% | | Effect of exchange rate fluctuations on cash | (7) | 2 | (9) | -450.00% | | Change in cash | (64) | (32) | (32) | 100.00% | | Cash at beginning of period | 725 | 563 | 162 | 28.77% | | Cash at end of period | 661 | 531 | 130 | 24.48% | Notes to Condensed Consolidated Financial Statements This section provides detailed notes supporting the condensed consolidated financial statements 1. Segment Information The Company operates two reportable segments, Americas and Europe, with segment operating profit serving as the primary performance measure - The Company's reportable segments are Americas and Europe, with segment operating profit used to evaluate performance and allocate resources[18][19] Net Sales by Reportable Segment (Millions $) | Segment | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Americas | 971 | 890 | 1,912 | 1,727 | | Europe | 765 | 745 | 1,474 | 1,384 | | Other | 42 | 25 | 83 | 50 | | Total Net Sales | 1,778 | 1,660 | 3,469 | 3,161 | Segment Operating Profit (Millions $) | Segment | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Americas | 130 | 124 | 258 | 224 | | Europe | 127 | 108 | 230 | 183 | | Reportable segment totals | 257 | 232 | 488 | 407 | 2. Revenue Revenue is recognized upon transfer of control of glass containers, with disaggregation provided by customer end use and geographic segment - Revenue is recognized when control of glass containers transfers to the customer, typically upon shipment from manufacturing or warehousing facilities[22] Disaggregated Revenue by Customer End Use (Three Months Ended June 30, 2022) | Customer End Use | Americas (Millions $) | Europe (Millions $) | Total (Millions $) | | :-------------------------------- | :-------------------- | :------------------ | :----------------- | | 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 | Disaggregated Revenue by Customer End Use (Six Months Ended June 30, 2022) | Customer End Use | Americas (Millions $) | Europe (Millions $) | Total (Millions $) | | :-------------------------------- | :-------------------- | :------------------ | :----------------- | | 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 | 3. Credit Losses The Company manages credit risk through customer creditworthiness assessments and credit limits, with trade receivables at $957 million as of June 30, 2022 - The Company assesses customer creditworthiness and establishes credit limits to mitigate credit risk, monitoring ongoing exposure through active review of customer balances[26] Trade Receivables, Net of Allowance (Millions $) | Date | Trade Receivables, Net | Allowance | | :--------------- | :--------------------- | :-------- | | June 30, 2022 | 957 | 29 | | June 30, 2021 | 855 | 32 | 4. Inventories The Company's inventory, primarily finished goods and raw materials, totaled $775 million at June 30, 2022 Major Classes of Inventory (Millions $) | Category | June 30, 2022 | December 31, 2021 | June 30, 2021 | | :--------------- | :------------ | :---------------- | :------------ | | Finished goods | 618 | 659 | 636 | | Raw materials | 115 | 119 | 122 | | Operating supplies | 42 | 38 | 38 | | Total | 775 | 816 | 796 | 5. Derivative Instruments The Company uses derivative instruments to manage commodity price, foreign exchange, and interest rate exposures, classifying them as Level 2 in the fair value hierarchy - The Company utilizes derivative instruments such as natural gas forwards, foreign exchange contracts, and interest rate swaps to hedge against market risks, classifying them as Level 2 in the fair value hierarchy[29][30][32] Fair Value of Derivative Instruments (Millions $) | Category | June 30, 2022 (Assets) | Dec 31, 2021 (Assets) | June 30, 2021 (Assets) | June 30, 2022 (Liabilities) | Dec 31, 2021 (Liabilities) | June 30, 2021 (Liabilities) | | :------------------------------------------ | :--------------------- | :-------------------- | :--------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Commodity forward contracts and collars | 2 | — | — | 6 | — | — | | Interest rate swaps - fair value hedges | — | 4 | 11 | 28 | 2 | 1 | | Cash flow hedges of foreign exchange risk | — | 2 | 6 | 1 | 23 | 75 | | Fair value hedges of foreign exchange risk | 17 | 9 | — | 2 | — | — | | Net investment hedges | 16 | 3 | 2 | — | 17 | 40 | | Foreign exchange derivative contracts (not hedges) | 2 | 1 | 1 | — | 2 | 2 | | Total derivatives | 37 | 19 | 20 | 37 | 44 | 118 | Gain (Loss) Recognized in OCI (Effective Portion) (Millions $) | Derivative Type | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commodity forward contracts and collars | (3) | — | (3) | — | | Cash flow hedges of foreign exchange risk | — | (16) | 13 | 32 | | Net Investment Hedges | 27 | — | 32 | 15 | | Total | 24 | (16) | 42 | 47 | 6. Restructuring Accruals Restructuring charges of $11 million were recorded for the three and six months ended June 30, 2022, primarily for employee and exit costs - Restructuring charges of $11 million were recorded for the three and six months ended June 30, 2022, mainly for employee and exit costs in the Americas and Europe, with most cash expenditures expected over several years[47][48] Restructuring Accruals (Millions $) | Category | June 30, 2022 | June 30, 2021 | | :---------------- | :------------ | :------------ | | Employee Costs | 17 | 32 | | Asset Impairment | — | — | | Other Exit Costs | 15 | 12 | | Total Restructuring | 32 | 44 | 7. Pension Benefit Plans Net periodic pension costs for U.S. plans decreased in Q2 and H1 2022, while non-U.S. plans saw an increase Net Periodic Pension Cost (Three Months Ended June 30) (Millions $) | Component | U.S. 2022 | U.S. 2021 | Non-U.S. 2022 | Non-U.S. 2021 | | :-------------------- | :-------- | :-------- | :------------ | :------------ | | Service cost | 3 | 3 | 2 | 3 | | Interest cost | 8 | 10 | 6 | 5 | | Expected asset return | (15) | (21) | (8) | (11) | | Amortization of actuarial loss | 10 | 16 | 2 | 3 | | Net periodic pension cost | 6 | 8 | 2 | — | Net Periodic Pension Cost (Six Months Ended June 30) (Millions $) | Component | U.S. 2022 | U.S. 2021 | Non-U.S. 2022 | Non-U.S. 2021 | | :-------------------- | :-------- | :-------- | :------------ | :------------ | | Service cost | 6 | 6 | 5 | 6 | | Interest cost | 17 | 20 | 11 | 10 | | Expected asset return | (30) | (42) | (17) | (23) | | Amortization of actuarial loss | 20 | 32 | 4 | 7 | | Net periodic pension cost | 13 | 16 | 3 | — | 8. Income Taxes The effective tax rate for Q2 2022 was 22.0% and 24.1% for H1 2022, influenced by asset sales and geographic earnings mix - The effective tax rate for Q2 2022 was 22.0%, down from 37.9% in Q2 2021, driven by favorable capital gains tax rates from asset sales and shifts in geographic earnings[134] - For H1 2022, the effective tax rate was 24.1%, significantly lower than 75.2% in H1 2021, primarily due to gains from the tableware business and Brampton plant sales, and the absence of the Paddock support agreement liability charge[157] - The Company settled a tax audit in Mexico for $38 million in Q2 2022, equal to previously established reserves[53] 9. Debt The Company refinanced its credit agreement in March 2022, with total long-term debt decreasing to $4,427 million at June 30, 2022 Long-Term Debt Summary (Millions $) | Debt Type | June 30, 2022 | December 31, 2021 | June 30, 2021 | | :-------------------------------- | :------------ | :---------------- | :------------ | | Secured Credit Agreement: Term Loan A | 946 | — | — | | Previous Secured Credit Agreement: Term Loan A | — | 923 | 1,068 | | Senior Notes: 5.875%, due 2023 | 547 | 695 | 693 | | Senior Notes: 3.125%, due 2024 (€725M) | 734 | 826 | 878 | | Senior Notes: 6.375%, due 2025 | 297 | 297 | 297 | | Senior Notes: 5.375%, due 2025 | 299 | 298 | 298 | | Senior Notes: 2.875%, due 2025 (€500M) | 519 | 561 | 589 | | Senior Notes: 6.625%, due 2027 | 606 | 693 | 692 | | Senior Notes: 4.750%, due 2030 | 395 | 395 | — | | Finance leases | 105 | 98 | 105 | | Other | 4 | 5 | 6 | | Total long-term debt | 4,452 | 4,791 | 5,017 | | Less amounts due within one year | 25 | 38 | 40 | | Long-term debt (net of current portion) | 4,427 | 4,753 | 4,977 | - A new Credit Agreement was entered into on March 25, 2022, refinancing the previous one and providing up to $2.8 billion in borrowings, including a $600 million delayed draw term loan for the Paddock Trust[57] - The Company repurchased $150.0 million of 5.875% Senior Notes due 2023 and $88.2 million of 6.625% Senior Notes due 2027 in Q1 2022, funded by cash on hand[64] 10. Contingencies The Company's asbestos liabilities were transferred to Paddock Enterprises, LLC, with a $610 million Paddock Trust funded in July 2022 to resolve claims - Paddock Enterprises, LLC, a subsidiary, filed for Chapter 11 in January 2020 to resolve asbestos claims, with O-I Glass and O-I Group not included in the filing[74] - An agreement in principle was reached in April 2021 to fund a Paddock Trust with $610 million to resolve all current and future asbestos claims, providing permanent injunctive relief to the Company and its affiliates[77][78] - The Plan became effective on July 8, 2022, and the Paddock Trust was funded with $601.5 million from the Company and $8.5 million from Paddock on July 18, 2022, leading to the reconsolidation of Paddock in Q3 2022[80][85][109][110] - In Q2 2021, the Company recorded a $69 million gain from a favorable court ruling in Brazil regarding indirect tax recovery[86] 11. Share Owners' Equity Total share owners' equity increased to $1,259 million at June 30, 2022, driven by net earnings and other comprehensive income Share Owners' Equity Activity (Three Months Ended June 30, 2022) (Millions $) | Item | Common Stock | Capital in Excess of Par Value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Non-controlling Interests | Total Share Owners' Equity | | :-------------------------------- | :----------- | :----------------------------- | :------------- | :---------------- | :----------------------------------- | :------------------------ | :------------------------- | | Balance on April 1, 2022 | 2 | 3,085 | (699) | 389 | (1,821) | 146 | 1,102 | | Reissuance of common stock | — | (1) | 4 | — | — | — | 3 | | Shares repurchased | — | (10) | — | — | — | — | (10) | | Stock compensation | — | 11 | — | — | — | — | 11 | | Net earnings | — | — | — | 252 | — | 4 | 256 | | Other comprehensive loss | — | — | — | — | (69) | (8) | (77) | | Distribution to noncontrolling interests | — | — | — | — | — | (26) | (26) | | Balance on June 30, 2022 | 2 | 3,085 | (695) | 641 | (1,890) | 116 | 1,259 | Share Owners' Equity Activity (Six Months Ended June 30, 2022) (Millions $) | Item | Common Stock | Capital in Excess of Par Value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Non-controlling Interests | Total Share Owners' Equity | | :-------------------------------- | :----------- | :----------------------------- | :------------- | :---------------- | :----------------------------------- | :------------------------ | :------------------------- | | Balance on January 1, 2022 | 2 | 3,090 | (701) | 301 | (1,972) | 107 | 827 | | Reissuance of common stock | — | (3) | 9 | — | — | — | 6 | | Shares repurchased | — | (20) | — | — | — | — | (20) | | Stock compensation | — | 18 | — | — | — | — | 18 | | Net earnings | — | — | — | 340 | — | 38 | 378 | | Other comprehensive income (loss) | — | — | — | — | 82 | (3) | 79 | | Distributions to noncontrolling interests | — | — | — | — | — | (26) | (26) | | Other | — | — | (3) | — | — | — | (3) | | Balance on June 30, 2022 | 2 | 3,085 | (695) | 641 | (1,890) | 116 | 1,259 | - The Company repurchased 770,710 shares of common stock for approximately $10 million during Q2 2022, as part of a $150 million anti-dilutive share repurchase program, with $90 million remaining available[90] 12. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss increased to $(1,890) million at June 30, 2022, primarily due to exchange rate fluctuations Accumulated Other Comprehensive Loss Activity (Three Months Ended June 30) (Millions $) | Item | Net Effect of Exchange Rate Fluctuations | Change in Certain Derivative Instruments | Employee Benefit Plans | Total Accumulated Other Comprehensive Loss | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------- | :--------------------------------------- | | Balance on April 1, 2022 | (1,160) | (18) | (643) | (1,821) | | Change before reclassifications | (115) | 25 | (1) | (91) | | Amounts reclassified from accumulated other comprehensive loss | — | (4) | 12 | 8 | | Translation effect | — | (1) | 15 | 14 | | Other comprehensive income (loss) attributable to the Company | (115) | 20 | 26 | (69) | | Balance on June 30, 2022 | (1,275) | 2 | (617) | (1,890) | Accumulated Other Comprehensive Loss Activity (Six Months Ended June 30) (Millions $) | Item | Net Effect of Exchange Rate Fluctuations | Change in Certain Derivative Instruments | Employee Benefit Plans | Total Accumulated Other Comprehensive Loss | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------- | :--------------------------------------- | | Balance on January 1, 2022 | (1,290) | (21) | (661) | (1,972) | | Change before reclassifications | 15 | 43 | (1) | 57 | | Amounts reclassified from accumulated other comprehensive income (loss) | — | (19) | 24 | 5 | | Translation effect | — | (1) | 21 | 20 | | Tax effect | — | — | — | — | | Other comprehensive income attributable to the Company | 15 | 23 | 44 | 82 | | Balance on June 30, 2022 | (1,275) | 2 | (617) | (1,890) | 13. Other Income (Expense), Net Other income (expense), net significantly increased in Q2 and H1 2022, driven by gains from asset sales and sale-leaseback transactions Other Income (Expense), Net (Millions $) | Item | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | 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) | | Intangible amortization expense | (8) | (9) | (16) | (17) | | Foreign currency exchange loss | (2) | — | (2) | (2) | | Royalty income | 5 | 6 | 11 | 11 | | Other | 3 | — | 2 | 1 | | Other income (expense), net | 168 | 57 | 220 | (101) | 14. Earnings Per Share Diluted EPS attributable to the Company significantly increased to $1.59 in Q2 2022 and $2.14 in H1 2022, reflecting higher net earnings Earnings Per Share (Three Months Ended June 30) | Metric | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Net earnings attributable to the Company | $252M | $118M | | Basic earnings per share | $1.62 | $0.75 | | Diluted earnings per share | $1.59 | $0.73 | | Weighted average shares outstanding (thousands) | 155,683 | 157,902 | | Weighted average diluted shares outstanding (thousands) | 158,951 | 160,791 | Earnings Per Share (Six Months Ended June 30) | Metric | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Net earnings attributable to the Company | $340M | $21M | | Basic earnings per share | $2.18 | $0.13 | | Diluted earnings per share | $2.14 | $0.13 | | Weighted average shares outstanding (thousands) | 155,765 | 157,737 | | Weighted average diluted shares outstanding (thousands) | 158,874 | 160,459 | 15. Supplemental Cash Flow Information Income taxes paid in cash increased to $99 million in H1 2022, while interest paid also rose to $112 million Income Taxes Paid in Cash (Six Months Ended June 30) (Millions $) | Region | 2022 | 2021 | | :------- | :--- | :--- | | U.S. | 6 | 4 | | Non-U.S. | 93 | 38 | | Total | 99 | 42 | - Interest paid in cash, including note repurchase premiums, increased to $112 million in H1 2022 from $97 million in H1 2021[100] - Receivables sold through factoring programs decreased to $453 million at June 30, 2022, from $481 million at December 31, 2021, resulting in a $28 million decrease in cash from operating activities in H1 2022[101] 16. COVID-19 Impacts The COVID-19 pandemic continued to impact the Company in H1 2022, though with no material effect on critical accounting estimates - The COVID-19 pandemic negatively impacted the Company's business in H1 2022, though to a lesser extent than in 2020 and 2021[102] - No material impact was observed on critical accounting estimates (allowance for doubtful accounts, inventory carrying value, goodwill, and long-lived assets) for the six-month period ended June 30, 2022, due to COVID-19[103][104] 17. Divestitures and Sale Leaseback of Land and Building The Company completed a $190 million sale-leaseback of its Brampton plant and sold its Cristar business for $96 million, generating significant pretax gains - Completed the sale-leaseback of the Brampton, Ontario plant in May 2022 for $190 million, recognizing a $182 million pretax gain[105] - Sold the Cristar TableTop S.A.S. business in Colombia in March 2022 for $96 million, resulting in a $55 million pretax gain[107] - These divestitures and sale-leaseback transactions are part of the Company's portfolio optimization program to fund growth opportunities and reduce debt[130][152] 18. Subsequent Events The Paddock Plan became effective on July 8, 2022, with the Paddock Trust funded on July 18, 2022, leading to reconsolidation - On July 8, 2022, the Paddock Plan became effective, terminating the Paddock support agreement and implementing the channeling injunction for asbestos claims[109] - The Paddock Trust was funded with $601.5 million from the Company (including a $600 million delayed draw term loan) and $8.5 million from Paddock on July 18-20, 2022[109] - Reorganized Paddock was reconsolidated into the Company's financial statements on July 20, 2022, with an estimated $620 million operating cash outflow in Q3 2022 related to the funding and expenses[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the Company's financial condition and results of operations, highlighting key performance drivers and macroeconomic impacts Executive Overview — Quarters ended June 30, 2022 and 2021 This overview summarizes the Company's financial performance for the second quarters of 2022 and 2021, highlighting key changes in sales and earnings - Net sales in Q2 2022 increased by $118 million (7%) year-over-year, primarily due to higher prices, despite negative impacts from foreign currency exchange rates and the sale of the Colombian glass tableware business[116] - Earnings before income taxes rose by $130 million in Q2 2022, driven by higher segment operating profit, a gain on a sale-leaseback transaction, and lower net interest expense, partially offset by the non-recurrence of a Brazilian tax credit gain and higher corporate costs[117] - Segment operating profit increased by $25 million (11%) in Q2 2022, attributed to higher sales and production, strong operating performance, margin expansion initiatives, and higher net prices[118] - Net earnings attributable to the Company for Q2 2022 were $252 million ($1.59 diluted EPS), up from $118 million ($0.73 diluted EPS) in Q2 2021, with non-recurring items increasing earnings by $137 million in 2022[121] Results of Operations — Second Quarter of 2022 Compared with Second Quarter of 2021 This section analyzes the Company's financial results for the second quarter of 2022 compared to the same period in 2021 Net Sales (Q2) Net sales increased by $118 million (7%) to $1,778 million in Q2 2022, driven by higher selling prices despite currency headwinds - Net sales increased by $118 million (7%) to $1,778 million in Q2 2022, driven by $208 million from higher selling prices[122] - Unfavorable foreign currency exchange rates (Euro, Colombian peso) decreased net sales by $95 million, and divestiture of the Colombian glass tableware business reduced sales by $11 million[122] Change in Reportable Segment Net Sales (Q2 2022 vs. Q2 2021) (Millions $) | Factor | Effect on Net Sales | | :-------------------------------- | :------------------ | | Price | 208 | | Sales volume and mix | (1) | | Effects of changing foreign currency rates | (95) | | Divestitures | (11) | | Total effect on reportable segment net sales | 101 | Earnings before Income Taxes and Segment Operating Profit (Q2) Earnings before income taxes increased by $130 million (66%) in Q2 2022, with segment operating profit rising by $25 million (11%) - Earnings before income taxes increased by $130 million (66%) to $328 million in Q2 2022, primarily due to higher segment operating profit and a sale-leaseback gain[126] - Segment operating profit for reportable segments increased by $25 million (11%) to $257 million, driven by higher net prices, sales/production levels, and margin expansion initiatives[128] Change in Reportable Segment Operating Profit (Q2 2022 vs. Q2 2021) (Millions $) | Factor | Effect on Operating Profit | | :-------------------------------- | :----------------------- | | Net price (net of cost inflation) | 42 | | Sales volume and mix | 6 | | Operating costs | (1) | | Effects of changing foreign currency rates | (17) | | Divestitures | (5) | | Total net effect on reportable segment operating profit | 25 | - Europe's segment operating profit increased by $19 million (18%), benefiting from higher selling prices exceeding cost inflation, despite increased engineering project activity and unfavorable foreign currency effects[131] Interest Expense, Net (Q2) Net interest expense decreased by $6 million to $46 million in Q2 2022, driven by lower debt levels despite higher interest rates - Net interest expense decreased by $6 million to $46 million in Q2 2022, driven by lower debt levels, despite higher interest rates[133] Provision for Income Taxes (Q2) The effective tax rate for Q2 2022 was 22.0%, a decrease from 37.9% in Q2 2021, due to favorable capital gains tax rates and geographic earnings mix - The effective tax rate for Q2 2022 was 22.0%, down from 37.9% in Q2 2021, due to favorable capital gains tax rates and changes in geographic earnings mix[134] Net Earnings Attributable to the Company (Q2) Net earnings attributable to the Company significantly increased to $252 million ($1.59 diluted EPS) in Q2 2022, including $137 million in non-recurring items - Net earnings attributable to the Company increased to $252 million ($1.59 diluted EPS) in Q2 2022 from $118 million ($0.73 diluted EPS) in Q2 2021[135] Net Earnings Impact from Non-Recurring Items (Q2) (Millions $) | Description | 2022 | 2021 | | :------------------------------------------ | :--- | :--- | | Gain on sale leaseback | 182 | — | | Restructuring, asset impairment and other charges | (12) | (9) | | Brazil indirect tax credit | — | 69 | | Net provision for income tax on items above | (33) | (28) | | Total | 137 | 32 | Executive Overview — Six months ended June 30, 2022 and 2021 This overview summarizes the Company's financial performance for the first six months of 2022 and 2021, highlighting key changes in sales and earnings - Net sales for H1 2022 increased by $308 million (10%) year-over-year, driven by higher prices and stronger shipments, despite negative impacts from foreign currency and divestitures[136] - Earnings before income taxes rose by $365 million in H1 2022, due to higher segment operating profit, gains from asset sales, and the non-recurrence of the Paddock-related charge from 2021[137] - Segment operating profit increased by $81 million (20%) in H1 2022, reflecting higher sales, strong operating performance, margin expansion, and the non-recurrence of severe weather impacts in the Americas[138] - Net earnings attributable to the Company for H1 2022 were $340 million ($2.14 diluted EPS), a significant increase from $21 million ($0.13 diluted EPS) in H1 2021, with non-recurring items increasing earnings by $135 million in 2022 and decreasing by $122 million in 2021[141] Results of Operations — First six months of 2022 compared with first six months of 2021 This section analyzes the Company's financial results for the first six months of 2022 compared to the same period in 2021 Net Sales (H1) Net sales increased by $308 million (10%) to $3,469 million in H1 2022, driven by higher selling prices and increased shipments - Net sales increased by $308 million (10%) to $3,469 million in H1 2022, primarily due to $348 million from higher selling prices and $72 million from increased glass container shipments[142] - Unfavorable foreign currency exchange rates (Euro) decreased net sales by $130 million, and divestitures reduced sales by $15 million[142][143] Change in Reportable Segment Net Sales (H1 2022 vs. H1 2021) (Millions $) | Factor | Effect on Net Sales | | :-------------------------------- | :------------------ | | Price | 348 | | Sales volume and mix | 72 | | Effects of changing foreign currency rates | (130) | | Divestitures | (15) | | Total effect on reportable segment net sales | 275 | Earnings before Income Taxes and Segment Operating Profit (H1) Earnings before income taxes increased by $365 million to $498 million in H1 2022, with segment operating profit rising by $81 million (20%) - Earnings before income taxes increased by $365 million to $498 million in H1 2022, driven by higher segment operating profit, asset sale gains, and the non-recurrence of the Paddock charge[146] - Segment operating profit for reportable segments increased by $81 million (20%) to $488 million, due to higher sales, strong operating performance, margin expansion, and the absence of severe weather impacts[148][149] Change in Reportable Segment Operating Profit (H1 2022 vs. H1 2021) (Millions $) | Factor | Effect on Operating Profit | | :-------------------------------- | :----------------------- | | Net price (net of cost inflation) | 57 | | Sales volume and mix | 23 | | Operating costs | 25 | | Effects of changing foreign currency rates | (16) | | Divestitures | (8) | | Total net effect on reportable segment operating profit | 81 | - Europe's segment operating profit increased by $47 million (26%), benefiting from higher selling prices exceeding cost inflation and increased shipments[153] Interest Expense, Net (H1) Net interest expense increased by $9 million to $112 million in H1 2022, primarily due to note repurchase premiums and higher interest rates - Net interest expense increased by $9 million to $112 million in H1 2022, primarily due to $18 million in note repurchase premiums and refinancing fees, and higher interest rates[156] Provision for Income Taxes (H1) The effective tax rate for H1 2022 was 24.1%, significantly lower than 75.2% in H1 2021, due to asset sale gains and the non-recurrence of the Paddock charge - The effective tax rate for H1 2022 was 24.1%, down from 75.2% in H1 2021, due to favorable capital gains tax rates on asset sales and the non-recurrence of the Paddock support agreement liability charge without tax benefit[157] Net Earnings Attributable to Non-Controlling Interests (H1) Net earnings attributable to non-controlling interests increased to $38 million in H1 2022, primarily due to a $29 million gain from the Cristar business sale - Net earnings attributable to non-controlling interests increased to $38 million in H1 2022, primarily due to a $29 million gain from the sale of the Cristar glass tableware business[158] Net Earnings Attributable to the Company (H1) Net earnings attributable to the Company substantially increased to $340 million ($2.14 diluted EPS) in H1 2022, including $135 million in non-recurring items - Net earnings attributable to the Company increased to $340 million ($2.14 diluted EPS) in H1 2022 from $21 million ($0.13 diluted EPS) in H1 2021[159] Net Earnings Impact from Non-Recurring Items (H1) (Millions $) | Description | 2022 | 2021 | | :------------------------------------------ | :--- | :--- | | Gain on sale of divested business | 55 | — | | Gain on sale leaseback | 182 | — | | Restructuring, asset impairment and other charges | (12) | (9) | | Charges for note repurchase premiums and write-off of finance fees | (18) | — | | Brazil indirect tax credit | — | 69 | | Charge related to Paddock support agreement liability | — | (154) | | Net provision for income tax on items above | (43) | (28) | | Net impact of noncontrolling interests on items above | (29) | — | | Total | 135 | (122) | Forward Looking Operational and Financial Impacts The Company forecasts approximately 1% sales shipment growth for full-year 2022, with $155 million in operating cash activities and $600 million in capital expenditures - Full year 2022 sales shipment growth (in tons) is expected to increase around 1%, with margin expansion initiatives and higher selling prices offsetting cost inflation[162] - Cash provided by operating activities is expected to be approximately $155 million for 2022, or $775 million excluding the $620 million funding of the Paddock trust and related expenses[162] - Capital expenditures in 2022 are expected to be approximately $600 million, including investments in MAGMA innovation and expansion projects[162] - The Company is installing energy switching capabilities (oil) in Europe, aiming for approximately 50% production capacity coverage by year-end 2022, to mitigate risks from potential Russian natural gas curtailments[162] Items Excluded from Reportable Segment Totals This section details items excluded from reportable segment totals, including corporate costs, asset sale gains, and restructuring charges Retained Corporate Costs and Other Retained corporate costs and other increased to $53 million in Q2 2022 and $103 million in H1 2022, driven by inflation and MAGMA R&D expenses - Retained corporate costs and other increased to $53 million in Q2 2022 and $103 million in H1 2022, primarily due to inflation, MAGMA R&D expenses, and higher management incentive expense[161] Gain on Sale of Divested Business and Sale Leaseback of Land and Building A $182 million pretax gain was recorded from the Brampton plant sale-leaseback, and a $55 million pretax gain from the Cristar business sale - A pretax gain of approximately $182 million was recorded in Q2 2022 from the sale-leaseback of the Brampton, Ontario plant[162] - A pretax gain of approximately $55 million was recorded in Q1 2022 from the sale of the Cristar glass tableware business in Colombia[163] Restructuring, Asset Impairment and Other Charges Charges totaling $12 million were recorded for restructuring, asset impairment, and other costs in H1 2022, primarily for employee and exit expenses - Charges totaling $12 million were recorded for restructuring, asset impairment, and other charges in H1 2022, mainly for employee and exit costs in the Americas and Europe[165] Gain on Brazil Indirect Tax Credit A $69 million gain was recognized in Q2 2021 from a favorable court ruling in Brazil for indirect tax recovery - A $69 million gain was recorded in Q2 2021 from a favorable court ruling in Brazil for the recovery of indirect taxes[167] Charge for Paddock Support Agreement Liability A $154 million charge was recorded in Q1 2021 for the Paddock support agreement liability, reflecting an increased asbestos reserve estimate - A $154 million charge was recorded in Q1 2021 related to the Paddock support agreement liability, reflecting an increased asbestos reserve estimate for the channeling injunction[168] - The Paddock Trust was funded in July 2022, following the Plan becoming effective, to resolve asbestos claims[168] Capital Resources and Liquidity The Company refinanced its credit agreement in March 2022, securing $2.8 billion in borrowings, with $1.24 billion in unused credit available as of June 30, 2022 - A new Credit Agreement was entered into on March 25, 2022, providing up to $2.8 billion in borrowings, including a $600 million delayed draw term loan for the Paddock Trust[170] - As of June 30, 2022, the Company had $1.24 billion in unused credit available under the new Agreement and was in compliance with all debt covenants[172][175] - The Company repurchased $238.2 million of senior notes in Q1 2022 and issued $400 million in new senior notes in November 2021 to manage its capital structure[179][180] Material Cash Requirements No material changes to the Company's cash requirements were reported at June 30, 2022, compared to the 2021 Annual Report on Form 10-K - No material changes to the Company's material cash requirements at June 30, 2022, from those described in the 2021 Annual Report on Form 10-K[183] Cash Flows Cash from operating activities decreased to $120 million in H1 2022, while investing activities provided $66 million, and financing activities utilized $243 million - Cash provided by operating activities decreased to $120 million in H1 2022 from $143 million in H1 2021, primarily due to higher working capital use and lower non-cash charges[184] - Cash provided by investing activities was $66 million in H1 2022, a significant improvement from $109 million utilized in H1 2021, driven by $286 million in proceeds from asset sales[186][188] - Cash utilized in financing activities increased to $243 million in H1 2022 from $68 million in H1 2021, mainly due to a $187 million increase in net debt repayments[189] - The Company anticipates sufficient cash flows from operations and available credit to fund its operating needs, debt service, and other obligations short-term and long-term[191] Critical Accounting Estimates Management's financial statements rely on continuous evaluation of estimates and assumptions, with no material changes reported at June 30, 2022 - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, which are evaluated on an ongoing basis[192][193] - No material changes in critical accounting estimates were reported at June 30, 2022, compared to the 2021 Annual Report on Form 10-K[195] Forward-Looking Statements Forward-looking statements reflect current expectations and projections, involving inherent uncertainties and risks from factors like COVID-19, MAGMA delays, and global economic conditions - Forward-looking statements reflect current expectations and projections, involving uncertainty and risk, and are not guarantees of future performance[196][198] - Key risk factors include the impact of COVID-19, the Company's ability to achieve benefits from Corporate Modernization, cost structure management, MAGMA program implementation delays, foreign currency fluctuations, and global economic and political conditions, including the Russia-Ukraine conflict[197] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in the Company's market risk disclosures were reported at June 30, 2022, compared to the 2021 Annual Report on Form 10-K - No material changes in market risk at June 30, 2022, from those described in the 2021 Annual Report on Form 10-K[200] Item 4. Controls and Procedures The Company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[202] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2022, despite modifications to workplace practices due to the COVID-19 pandemic[203] Part II — Other Information This section provides additional information, including legal proceedings, risk factors, equity security sales, and exhibits Item 1. Legal Proceedings No environmental proceedings with monetary sanctions exceeding $1 million were pending as of June 30, 2022, with asbestos claims referenced in Note 10 - No environmental proceedings with monetary sanctions exceeding $1 million were pending or contemplated as of June 30, 2022[206] Item 1A. Risk Factors Asbestos-related risk factors are modified by the Paddock Trust funding, with new risks including higher energy costs, labor shortages, and MAGMA development delays - The funding of the Paddock Trust in July 2022 modifies asbestos-related risk factors previously disclosed[208] - Higher energy costs and interrupted supplies, particularly natural gas in Europe due to the Russia-Ukraine conflict, pose a material adverse effect on operations, potentially leading to significant cost increases or cessation of delivery[209][211] - Labor shortages, increased compensation costs, and potential disruptions from collective bargaining agreements or competitive labor markets could materially affect consolidated operations[212][214] - Delays in developing and implementing new glass melting technologies, such as the MAGMA program, due to supply chain challenges, could impact competitiveness and the transition to lower-carbon processes[215] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 770,710 shares for approximately $10 million in Q2 2022 under its $150 million anti-dilutive share repurchase program Issuer Purchases of Equity Securities (Three Months Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | | :----------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | April 1 - April 30, 2022 | 770,710 | $12.96 | 770,710 | 90 | | May 1 - May 31, 2022 | — | — | — | 90 | | June 1 - June 30, 2022 | — | — | — | 90 | | Total | 770,710 | $12.96 | 770,710 | | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Incentive Award Plan, officer certifications, and financial statements in iXBRL format - Exhibits include the O-I Glass, Inc. Third Amended and Restated 2017 Incentive Award Plan, certifications of Principal Executive and Financial Officers, and financial statements in iXBRL format[220] Signatures The report was duly signed on behalf of O-I Glass, Inc. by John A. Haudrich, Senior Vice President and Chief Financial Officer, on August 3, 2022 - The report was signed by John A. Haudrich, Senior Vice President and Chief Financial Officer of O-I Glass, Inc. on August 3, 2022[224]