O-I Glass, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. O-I Glass manufactures glass containers for food and beverage customers, operating 70 plants in 19 countries, principally in the Americas and Europe. Comparisons below are with FY2020 unless stated otherwise.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $6.357 billion | $6.091 billion |
| Gross profit | $1.091 billion | $972 million |
| Earnings from continuing operations before tax | $332 million | $353 million |
| Net earnings attributable to O-I Glass | $149 million | $249 million |
| Diluted EPS from continuing operations | $0.88 | $1.57 |
| Cash from continuing operating activities | $680 million | $457 million |
| Capital expenditures | $398 million | $311 million |
| Total debt, including finance leases | $4.791 billion | $5.087 billion |
| Cash and cash equivalents at year-end | $725 million | $563 million |
- Gross margin was approximately 17.2%, versus 16.0% in 2020, calculated from reported sales and gross profit.
- Reportable-segment operating profit rose 22% to $827 million; segment operating profit is a non-GAAP measure. Americas contributed $456 million and Europe $371 million.
- Year-end current assets were $2.519 billion and current liabilities $1.846 billion. The company reported $1.490 billion of unused credit under its secured credit agreement and said it was covenant-compliant.
- Net interest expense declined to $216 million from $265 million. The effective tax rate from operations increased to 50.3% from 25.2%, reflecting, among other items, the Paddock-related charge without a tax benefit.
Changes versus FY2020
- Sales increased 4%. Higher selling prices added $179 million, shipment volume and mix added $304 million, and foreign exchange added $99 million; divestitures reduced sales by $305 million. Total glass-container shipments rose less than 1%, but increased about 5% excluding divested operations.
- Segment operating profit increased $149 million, primarily from higher sales and production, operating performance and margin initiatives. Cost inflation exceeded net pricing overall by $49 million.
- O-I Glass recorded lower attributable earnings despite stronger segment results, in part because the prior year included a $275 million gain on the ANZ sale. FY2021 also included a $154 million Paddock support-agreement charge and $74 million of pension settlement charges.
- Cash from continuing operating activities increased by $223 million, helped by a lower working-capital cash use ($13 million versus $181 million). Reported factoring programs contributed $45 million to 2021 operating cash flow; the comparable 2020 impact was a $103 million reduction.
- Debt declined by approximately $296 million. In November 2021, the company issued $400 million of 4.75% notes due 2030 and used proceeds with cash on hand to redeem $310 million of 4.00% notes due 2023 and repay about $128 million of term loans.
Outlook, commentary and material risks
- For 2022, management expected shipment growth of up to 1% in tons, with selling prices and margin initiatives expected to more than offset cost inflation. It forecast at least $725 million of cash from continuing operating activities and approximately $600 million of capital expenditures.
- The company planned approximately $1.95 billion of capital spending over 2022–2024, including about $680 million for capacity expansion and MAGMA technology. Management expected approximately $500 million of additional non-core divestitures and sale-leasebacks in 2022, with proceeds intended for investment and debt reduction.
- Management expected to fund $610 million to a Section 524(g) asbestos trust in 2022, primarily with long-term debt. The plan was proposed in January 2022 but remained subject to claimant approval, court approval and other conditions. The recorded Paddock support-agreement liability was $625 million at year-end.
- COVID-19, supply-chain constraints, labor availability, raw-material and energy inflation, weather disruptions, foreign exchange and competition remain risks. Severe February 2021 weather reduced Americas segment operating profit by an estimated $38 million; insurance recovery was uncertain.
- The Portland, Oregon facility faced a permit decision: by June 30, 2022, the company had to apply to install pollution-control equipment, estimated to cost up to $10 million, or cease operations. Closure could trigger a material restructuring and impairment charge.
- Goodwill totaled $1.84 billion. No impairment was recorded in 2021, but North America was identified as most exposed: its estimated business enterprise value exceeded carrying value by 28%, and by less than 3% under a stated adverse sensitivity scenario.
- The company incurred $22 million of European emissions-allowance expense and $2 million of Americas emissions-credit expense in 2021. Changes in emissions rules, recycling requirements and recycled-glass availability could affect costs and demand.
- The dividend remained suspended. The board authorized a $150 million anti-dilutive repurchase plan; $40 million was repurchased in 2021 and approximately $40 million was planned for 2022.
- Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Progress and final approval of the Paddock Chapter 11 plan, the $610 million trust funding, and whether the injunction protects the company and its affiliates as anticipated.
- Delivery of 2022 cash-flow and shipment guidance while absorbing inflation, supply-chain constraints and planned capital spending.
- Execution, timing and proceeds of planned divestitures and sale-leasebacks, and their effect on debt and future earnings.
- Whether MAGMA deployments meet development and commercialization milestones and generate the expected capacity, cost and sustainability benefits.
- Resolution of the Portland facility permit requirements and any resulting equipment, closure or impairment costs; also track severe-weather insurance recovery.
- North America goodwill valuation sensitivities, available borrowing capacity, debt maturities and compliance with leverage covenants.