O-I Glass, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. O-I Glass manufactures glass containers for food and beverage markets, operating 72 plants in 20 countries. Figures below are in U.S. dollars; financial amounts are in millions unless noted.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $6,091 | $6,691 |
| Gross profit / gross margin | $972 / 16.0% | $1,208 / 18.1% |
| Segment operating profit / margin on reportable-segment sales | $678 / 11.4% | $856 / 13.1% |
| Continuing-operations earnings (loss) attributable to O-I Glass | $249; $1.57 diluted EPS | $(397); $(2.56) diluted EPS |
| Net earnings (loss) attributable to O-I Glass | $249 | $(400) |
| Cash from continuing operating activities | $457 | $408 |
| Capital expenditures | $311 | $426 |
| Total debt at year-end | Approximately $5.1 billion | Approximately $5.6 billion |
| Cash and cash equivalents at year-end | $563 | $551 |
Gross margin and segment operating margin are calculated from filing figures. Operating cash flow increased in part because asbestos-related payments were stayed during Paddock’s Chapter 11 case; O-I paid $0 in 2020 versus $151 million in 2019. The company reported $1.5 billion of unused credit under its secured credit agreement and was in covenant compliance at year-end. Its current assets were $2,297 million and current liabilities $1,898 million.
Changes versus 2019
- Sales fell $600 million, or about 9%. Shipments were down approximately 7% overall and 4% excluding the Australia and New Zealand (ANZ) businesses sold during the year. Management cited COVID-19, the ANZ divestiture and unfavorable currency movements; higher prices partly offset the decline.
- Reportable-segment operating profit fell $178 million, or 21%, as lower volumes, production curtailments and related operating costs outweighed pricing and cost-control benefits.
- Reported earnings improved primarily because 2020 included a $275 million gain on the ANZ sale and no repeat of the $595 million North America goodwill impairment recorded in 2019. The 2020 result also included restructuring and other charges of $142 million, pension settlement charges of $26 million, and a $14 million Paddock deconsolidation charge.
- Net interest expense declined to $265 million from $311 million, reflecting debt reduction and refinancing, partly offset by refinancing costs. The company issued $700 million of 6.625% senior notes in May 2020 and used proceeds to refinance or repay debt.
- The ANZ sale closed July 31, 2020. Gross proceeds were approximately $677 million; net cash proceeds from the sale were approximately $441 million, with additional sale-leaseback proceeds of $155 million. Proceeds were used to reduce debt and improve financial flexibility.
Outlook, risks and unusual items
- 2021 outlook: Management expected shipment growth of 2%–4% in tons versus 2020, partial recovery toward 2019 levels, and continuing margin-improvement benefits. It forecast continuing operating cash flow of approximately $615 million or higher, assuming about $375 million of capital expenditures and continued suspension of asbestos-related claim payments.
- Asbestos and Paddock: Paddock, a subsidiary holding legacy asbestos and certain other liabilities, filed for Chapter 11 on January 6, 2020; O-I Glass and O-I Group were not included in the filing. O-I Glass recorded a $471 million liability under its support agreement. The ultimate amount and timing of funding required for an asbestos trust remain uncertain, and claims or litigation could potentially extend beyond Paddock.
- Goodwill: Year-end goodwill was $1.951 billion, about 22% of total assets. No impairment was found in 2020 testing, but North America was identified as most exposed: its estimated business enterprise value exceeded carrying value by approximately 19%. A one-percentage-point lower assumed growth rate and one-percentage-point higher discount rate would have implied an estimated $25 million impairment in the test described.
- Leverage and liquidity: Debt remains substantial. The secured-credit-facility leverage limit tightens to 4.75x for the quarter ending June 2021 and 4.50x for the quarter ending December 2021 and thereafter. About 29% of debt, including swaps, was variable-rate; management estimated a one-percentage-point rate change would affect annual net interest expense by $15 million.
- Other risks: COVID-19 uncertainty, competition from glass and alternative packaging, customer and consumer demand, energy and raw-material costs, foreign exchange, pension funding, environmental regulation, cybersecurity, and tax assessments could affect results or cash flows. The company contributed $103 million to defined-benefit pension plans in 2020 and expected approximately $60 million of required contributions in 2021.
- The quarterly dividend was suspended after the first quarter of 2020. In February 2021, the board authorized a $150 million anti-dilutive repurchase program; management expected approximately $35 million of repurchases in 2021.
Important facts for investors to verify
- Progress and potential funding obligations in Paddock’s Chapter 11 case, including whether asbestos exposure or claims could reach O-I Glass or O-I Group.
- Whether 2021 shipment, cash-flow and capital-expenditure expectations were achieved, particularly as asbestos payments resume or remain stayed.
- Debt repayment progress, available revolver capacity and compliance with tightening leverage covenants.
- North America goodwill valuation assumptions and any subsequent impairment indicators.
- How much of the 2020 earnings improvement reflects ongoing operations versus the ANZ gain and the absence of 2019 impairment charges.
- Effects of COVID-19, foreign exchange, energy and input costs, and customer demand on margins and cash generation.
The filing reports unqualified audit opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2020.