O-I Glass, Inc. /DE/ (OI) FY 2023 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 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 segment data presented below is prepared in accordance with general accounting principles for segment reporting. The lines titled “reportable segment totals” in both net sales and segment operating profit, however, are non-GAAP measures when presented outside of the financial statement footnotes. Management has included reportable segment totals below to facilitate the discussion and analysis of financial condition and results of operations and believes this information allows the Board of Directors, management, investors and analysts to better understand the Company’s financial performance. The Company’s management, including the chief operating decision maker (defined as the Chief Executive Officer), uses segment operating profit, supplemented by net sales and selected cash flow information, to evaluate segment performance and allocate resources. Segment operating profit is not, however, intended as an alternative measure of operating results as determined in accordance with U.S. GAAP and is not necessarily comparable to similarly titled measures used by other companies.

​

For discussion related to changes in financial condition and the results of operations for 2022 compared to 2021, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 8, 2023.

Financial information regarding the Company’s reportable segments is as follows (dollars in millions):

​

​

31

Table of Contents

Note: all amounts excluded from reportable segment totals are discussed in the following applicable sections.

Executive Overview—Comparison of 2023 with 2022

Net sales in 2023 increased $249 million, or 4%, compared to the prior year, due to higher selling prices and favorable effects of changes in foreign currency exchange rates, partially offset by lower shipments than the prior year. Net sales were also slightly impacted by the sale of the Company’s glass tableware business in Colombia in March 2022.

Earnings before income taxes were $738 million lower in 2023 compared to the prior year. This decrease was due to the $445 million goodwill impairment charge that occurred in 2023, as well as higher restructuring, asset impairment and related charges, higher interest expense and the non-recurrence of a gain on the sale of Cristar TableTop S.A.S. (“Cristar”), the Company’s glass tableware business in Colombia, and gains on sale leaseback transactions related to two plants in the Americas in 2022, partially offset by higher segment operating profit.

Segment operating profit for reportable segments in 2023 was $233 million higher compared to 2022, primarily due to higher net prices, strong operating performance, benefits from margin expansion initiatives and the favorable effects of changes in foreign currency exchange rates, partially offset by lower shipments, higher costs due to lower production volumes, driven by temporary curtailments of production to balance with lower demand, elevated planned asset project activity and the unfavorable impacts from divestitures in 2022.

Net interest expense in 2023 increased $103 million compared to 2022, primarily due to higher interest rates and increased borrowings to fund the Paddock Trust in July 2022, as well as higher note repurchase premiums, the write-off of deferred refinancing fees and related charges.

In 2023, the Company recorded a net loss attributable to the Company of $103 million, or $0.67 per share (diluted), compared to net earnings attributable to the Company of $584 million, or $3.67 per share (diluted), in 2022. As discussed below, net earnings in both periods included items that management considers not representative of ongoing operations and other adjustments. These items decreased net earnings attributable to the Company by $594 million, or $3.76 per share, in 2023 and increased net earnings attributable to the Company by $218 million, or $1.37 per share, in 2022.

​

Results of Operations—Comparison of 2023 with 2022

Net Sales

The Company’s net sales in 2023 were $7,105 million compared with $6,856 million in 2022, an increase of $249 million, or 4%. Higher selling prices increased net sales by $883 million in 2023, driven by the pass through of higher cost inflation. Glass container shipments, in tons, declined approximately 12% in 2023, which in total decreased net sales by approximately $841 million compared to the prior year. This decline was mostly attributed to significant destocking across the value chain, as the Company’s customers, distributors and retailers adjust their inventory management practices to lower levels, and softer consumer consumption activity. Favorable foreign currency exchange rates increased net sales by $235 million in 2023 compared to 2022, primarily driven by the strengthening of the Mexican Peso and the Euro compared to the U.S. dollar. The divestiture of the Cristar glass tableware business in Colombia in March 2022 reduced net sales by approximately $8 million in 2023. Other sales were approximately $20 million lower in 2023 than in the prior year, driven by lower machine parts sales to third parties.

32

Table of Contents

The change in net sales of reportable segments can be summarized as follows (dollars in millions):

​

​

Americas: Net sales in the Americas in 2023 were $3,865 million compared to $3,835 million in 2022, an increase of $30 million, or 1%. Higher selling prices in the region increased net sales by $287 million in 2023, driven by the pass through of higher cost inflation. Glass container shipments in the region were down approximately 10% in 2023 compared to 2022, which decreased net sales by approximately $385 million. Sales volumes (in tons) declined, primarily due to significant destocking activity, especially related to wine, spirits and beer customers, and softer consumer consumption activity. The favorable effects of foreign currency exchange rate changes increased net sales by $136 million in 2023 compared to the prior year, as the Mexican Peso strengthened compared to the U.S. dollar. The divestiture of the Cristar glass tableware business in March 2022 also reduced net sales by approximately $8 million in 2023 compared to 2022.

Europe: Net sales in Europe in 2023 were $3,117 million compared to $2,878 million in 2022, an increase of $239 million, or 8%. Higher selling prices in Europe increased net sales by $596 million in 2023, driven by the pass through of higher cost inflation. Glass container shipments declined by approximately 15% in 2023, primarily due to significant destocking activity, especially related to wine and food customers, softer consumer consumption activity, strikes in France and internal capacity and inventory constraints earlier in 2023. Lower shipments in 2023 decreased net sales by approximately $456 million compared to 2022. Favorable foreign currency exchange rates increased the region’s net sales by approximately $99 million in 2023, as the Euro strengthened in relation to the U.S. dollar.

Earnings before Income Taxes and Segment Operating Profit

Earnings before income taxes were $67 million in 2023 compared to $805 million in 2022, a decrease of $738 million. This decrease was due to the $445 million goodwill impairment charge that occurred in 2023, as well as higher restructuring, asset impairment and related charges, higher interest expense and the non-recurrence of a gain on the sale of Cristar and gains on sale leaseback transactions related to two plants in the Americas in 2022, partially offset by higher segment operating profit in 2023.

Segment operating profit of the reportable segments includes an allocation of some corporate expenses based on a percentage of sales and direct billings based on the costs of specific services provided. Unallocated corporate expenses and certain other expenses not directly related to the reportable segments’ operations are included in Retained corporate costs and other. For further information, see Segment Information included in Note 2 to the Consolidated Financial Statements.

Segment operating profit of reportable segments in 2023 was $1,193 million, compared to $960 million in 2022, an increase of $233 million, or approximately 24%. This increase was primarily due to higher net prices, strong operating performance, benefits from margin expansion initiatives and the favorable effects of changes in foreign currency exchange rates, partially offset by lower shipments, higher costs due to lower production volumes, driven by temporary curtailments of production to balance with lower demand, elevated planned project activity and the unfavorable impacts from divestitures in 2022.

33

Table of Contents

The change in segment operating profit of reportable segments can be summarized as follows (dollars in millions):

​

Americas: Segment operating profit in the Americas in 2023 was $511 million, compared to $472 million in 2022, an increase of $39 million, or 8%. The benefit of higher selling prices exceeded cost inflation resulting in a net $288 million increase to segment operating profit in 2023. The impact of lower shipments discussed above resulted in a $95 million decrease to segment operating profit in 2023 compared to 2022. Operating costs in 2023 were $153 million higher than in the prior year. The increase in operating costs was primarily due to lower production volumes, driven by temporary curtailments of production to balance with lower demand, elevated planned asset project activity and lower income from a joint venture, partially offset by margin expansion initiatives, including approximately $35 million of lower operating costs as a result of the region’s restructuring actions taken between the fourth quarter of 2022 and 2023 (in line with management’s expectations) and approximately $7 million of insurance benefits that related to severe weather impacts in 2021. The effects of foreign currency exchange rates increased segment operating profit by $12 million in the current year.

In order to better match production to customer demand, management has implemented temporary production curtailments in the region. This initiative has resulted in higher operating costs in the fourth quarter of 2023 due to unabsorbed fixed costs.  Temporary production curtailments will continue in to 2024 and this is expected to increase operating costs. In addition, the Company announced the permanent closure of its Waco, Texas plant in September 2023 and two additional furnaces at other plants in North America in the fourth quarter of 2023 and will continue to monitor business trends and consider whether any further permanent capacity closures will be necessary in the future to align its business with demand trends.  Any further permanent capacity closures could result in material restructuring and impairment charges, as well as cash expenditures, in future periods.

In 2022, the Company completed the sale of its land and buildings for two plants in the Americas and simultaneously entered into leaseback transactions for these properties. These transactions and the divestiture of Cristar were part of the Company’s portfolio optimization program to redeploy proceeds from asset sales to help fund attractive growth opportunities, which primarily include capital expenditures related to expansion projects and investments in the Company’s MAGMA innovation, as well as to reduce debt. The divestiture of the glass tableware business and the additional lease expense associated with the sale leaseback transactions reduced segment operating profit by approximately $13 million in 2023 compared to the prior year.

Europe: Segment operating profit in Europe in 2023 was $682 million compared to $488 million in 2022, an increase of $194 million, or 40%. The benefit of higher selling prices exceeded cost inflation and increased segment operating profit by $344 million in 2023 compared to the prior year. The impact of lower shipments discussed above decreased segment operating profit by approximately $110 million. Operating costs in 2023 were $57 million higher than in the prior year. The increase in operating costs was primarily due to lower production volumes, driven by the impact of temporary production curtailments to balance supply with demand, partially offset by benefits from the region’s margin expansion initiatives, higher earnings from joint ventures and approximately $16 million in subsidies received from the Italian government to help mitigate the impact of elevated energy costs, which subsidies are not expected to continue in 2024. The effects of foreign currency exchange rates increased segment operating profit by $17 million in the current year.

34

Table of Contents

In order to better match production to customer demand, management has implemented temporary production curtailments in the region. This initiative has resulted in higher operating costs in the fourth quarter of 2023 due to unabsorbed fixed costs. Temporary production curtailments will continue in to 2024 and this is expected to increase operating costs. In addition, Europe will continue to monitor business trends and consider whether any permanent capacity closures will be necessary in the future to align its business with demand trends.  Any permanent capacity closures could result in material restructuring and impairment charges, as well as cash expenditures, in future periods.

In addition, the current conflict between Russia and Ukraine has caused a significant increase in the price of natural gas and increased price volatility. The Company’s European operations typically purchase natural gas under long-term supply arrangements with terms that range from one to five years and, through these agreements, typically agree on price with the relevant supplier in advance of the period in which the natural gas will be delivered, which shields the Company from the full impact of increased natural gas prices, while such agreements remain in effect. The Company’s energy risk management approach is to have long-term arrangements covering at least 40% of its expected total energy use over a medium-term horizon (generally at least two years), where possible. In most energy markets, the Company currently has more than 50% coverage over such medium-term horizon. Coverage varies by geography with higher coverage in Europe. However, the current conflict between Russia and Ukraine and the resulting sanctions, potential sanctions or other adverse repercussions on energy supplies could cause the Company’s energy suppliers to be unable or unwilling to deliver natural gas at agreed prices and quantities. If this occurs, it will be necessary for the Company to procure natural gas at then-current market prices and subject to market availability and could cause the Company to experience a significant increase in operating costs or result in the temporary or permanent cessation of delivery of natural gas to several of the Company’s manufacturing plants in Europe. In addition, depending on the duration and ultimate outcome of the conflict between Russia and Ukraine, future long-term supply arrangements for natural gas may not be available at reasonable prices or at all.

Interest Expense, Net

Net interest expense in 2023 was $342 million compared to $239 million in 2022. The increase was primarily due to the impact of higher interest rates and increased borrowings to fund the Paddock Trust in July 2022 (see Note 14 to the Consolidated Financial Statements for further information), as well as $13 million of higher note repurchase premiums, the write-off of deferred financing fees and related charges.

Provision for Income Taxes

The Company’s effective tax rate from operations for 2023 was 227% compared to 22.1% for 2022.  The effective tax rate for 2023 differed from 2022 due to a net unfavorable tax rate on the goodwill impairment charge and restructuring charges along with a valuation allowance added for interest deduction carryovers in 2023 compared to a net favorable tax rate on the gain on sale of the Vernon, California and Brampton, Canada land and buildings and the gain on sale of Cristar in 2022, as well as a change in the mix of geographic earnings.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to non-controlling interests for 2023 was $18 million compared to $43 million for 2022. This decrease was primarily due to the nonrecurrence of approximately $29 million of earnings attributable to non-controlling interest recorded in 2022 associated with the gain on the sale of Cristar.

35

Table of Contents

Net Earnings (Loss) Attributable to the Company

For 2023, the Company recorded a net loss attributable to the Company of $103 million, or $0.67 per share (diluted), compared to net earnings attributable to the Company of $584 million, or $3.67 per share (diluted), in 2022. Earnings in 2023 and 2022 included items that management considered not representative of ongoing operations and other adjustments as set forth in the following table (dollars in millions):

​

Foreign Currency Exchange Rates

Given the global nature of its operations, the Company is subject to fluctuations in foreign currency exchange rates. As described above, the Company’s reported revenues and segment operating profit in 2023 were higher due to foreign currency effects compared to 2022.

This trend may not continue into 2024. During times of a strengthening U.S. dollar, the reported revenues and segment operating profit of the Company’s international operations will be reduced because the local currencies will translate into fewer U.S. dollars. The Company uses certain derivative instruments to mitigate a portion of the risk associated with changing foreign currency exchange rates.

Forward Looking Operational and Financial Information

36

Table of Contents

Operational and Financial Impacts due to Environmental Issues

Regulatory Impacts on the Business

As discussed in Item 1, Business, and Item 1A, Risk Factors, above, governments globally are increasingly implementing legislation, regulations and international accords regarding climate change and other ESG-related matters.  These include mandatory regulatory and legal requirements and voluntary initiatives in relation to climate change or other environmental matters with the intent to provide regulatory approaches to reducing greenhouse gas emissions and other environmental impacts.  The Company’s results of operations have been impacted by various regulatory approaches as described below.

For the year ending December 31, 2023, the European segment recognized approximately $37 million of expense related to emissions allowances to comply with the European Union Emissions Trading Scheme. In the Americas, the state of California in the U.S., Mexico, the Canadian federal government and the province of Quebec, among others, have adopted cap-and-trade or carbon pricing legislation aimed at reducing GHG emissions. As a result, the Americas segment recognized approximately $4 million of expense related to emissions credits and fees to comply with various country, state/province, or municipality laws or regulations. New laws or regulations, significant changes in the amount of emissions allowances granted to the Company or the Company’s manufacturing plants or significant fluctuations in the price or availability of these emissions credits could have a significant long-term impact on the Company’s operations that are affected by such regulations and could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

The Company has also been impacted by various fines or penalties as a result of noncompliance with various federal or local environmental statutes, including impacts to the Company’s reputation as it focuses on its sustainability initiatives and targets. For example, in June 2021, the Oregon Department of Environmental Quality (“DEQ”) alleged that the Company’s manufacturing facility in Portland, Oregon exceeded certain permitted air emission limits. To resolve this matter, in August 2021, the Company entered into an Order with the Oregon DEQ and agreed to pay a civil penalty of less than $1 million. The Company also agreed to submit a permit application to install pollution control equipment at its Portland, Oregon manufacturing facility or to cease its operations at that facility by June 30, 2022. In the second quarter of 2022, the Company submitted the permit application to install pollution control equipment, allowing it to continue operations at the Portland facility. The Company expects this pollution control equipment will be implemented in 2024 at an estimated cost of approximately $12 million.

The Company has a near-term emissions reduction target validated by SBTi, which provides an emissions-reduction pathway that aligns with certain carbon-reduction scenarios. The assumptions and estimates used to support the target and pathway are based on existing SBTi frameworks and assumptions, which likely will evolve and change, and on assumptions about the existing and future state of marketplaces and technology, which likely will evolve and change. Also, the Company monitors its operations in relation to climate change risks and environmental impacts and has made, and may continue to make, significant expenditures for environmental improvements at certain of its facilities in recent years and in the future. The Company also generally seeks to invest in environmentally friendly and emissions-reducing projects, none of which have materially impacted the Company’s results of operations or cash flows. However, the Company is unable to predict what private or governmental climate change or environmental criteria or legal requirements may be adopted in the future, how public perception in relation to climate change and other ESG-related issues may change, or the impacts of those changes on its results of operations, access to and cost of capital or cash flows. Significant changes in

37

Table of Contents

regulations, criteria, public perception or legal requirements related to emissions reduction or fossil-fuel use could have a material impact on the Company’s results.

Physical Effects and other Consequences of Climate Change

The Company experiences a variety of impacts due to weather-related events, including severe weather, and events related to climate change, which may include extreme storms, flooding, wildfires, extreme temperatures, and chronic changes in meteorological patterns, across its 68 manufacturing facilities in 19 different countries.  For example, in February 2021, severe weather conditions swept across the southern United States, curtailing access to natural gas and electricity for several of the Company’s facilities.  While the situation was most acute in Texas, access to natural gas in Mexico was also significantly impacted as Texas supplies natural gas to the country.  The Company estimates that segment operating profit in 2021 in the Americas was negatively impacted by approximately $38 million from the severe weather that occurred in February of 2021, which includes surcharges for usage or excess usage of electricity and natural gas during the period of severe weather, as well as the estimated impacts of higher energy costs, lost production downtime, lost sales, and the cost of incremental repairs.  As of December 31, 2023, the Company is pursuing insurance reimbursement related to this event but cannot determine the amount that will be reimbursed. Climate change may increase the frequency or severity of such events.

In addition, there are indirect consequences of climate-related regulation or business trends that affect the Company’s business. For example, a contributor to the Company’s future success is likely to be its ability to improve its glass melting technology and introduce processes that emit less carbon. One of these new technologies, known as the MAGMA program, seeks to reduce the amount of capital required to install, rebuild and operate the Company’s furnaces. It also is focused on the ability of these assets to be more easily turned on and off or adjusted based on seasonality and customer demand, utilize more recycled glass, produce lighter containers and use lower-carbon fuels. The Company is implementing its MAGMA program using a multi-generation development roadmap, which will include various deployment risks and will require the discovery of additional inventions through 2026. If the Company is unable to continue to improve its glass melting technology through research and development or licensing of new technology, including but not limited to MAGMA, the Company may not be able to remain competitive with other packaging manufacturers.

The Company’s customers and suppliers may also be impacted by climate risks, whether physical or transition risks, thus potentially compounding or causing further impacts to the Company’s business and results of operations.

Items Excluded from Reportable Segment Totals

Retained Corporate Costs and Other

Retained corporate costs and other for 2023 were $224 million compared to $232 million in 2022.

The Company has initiated a strategic review of the remaining businesses in the former Asia Pacific region. This review is aimed at exploring options to maximize share owner value, focused on aligning the Company’s business with demand trends and improving the Company’s operating efficiency, cost structure and working capital management. The review is ongoing and may result in divestitures, corporate transactions or similar actions, and could cause the Company to incur restructuring, impairment, disposal or other related charges in future periods.

​

Charge for Goodwill Impairment

During the fourth quarter of 2023, the Company completed its annual impairment testing and determined that the goodwill balance on its North America reporting unit was fully impaired.  The primary driver of this impairment was management’s update to its long-range plan, which indicated lower estimated future cash flows for its North American reporting unit (in the Americas segment) as compared to the projections used in the prior

38

Table of Contents

goodwill impairment test performed as of October 1, 2022.  The Company’s business in North America has experienced declining shipments to its alcoholic beverage customers, especially in the second half of 2023, and this trend is likely to continue for the foreseeable future.  As a result, in the fourth quarter of 2023, the Company has permanently closed a plant and two additional furnaces in the North America reporting unit to better balance its long-term manufacturing supply with lower demand.  The update to management’s long-range plan, combined with the impact of a higher weighted average cost of capital given higher interest rates and the narrow difference between the estimated fair value and carrying value of the North American reporting unit as of October 1, 2022, resulted in the business enterprise value (“BEV”) of the Company’s North American reporting unit declining to less than its carrying value.  As a result, the Company recorded a non-cash impairment charge of $445 million in the fourth quarter of 2023, which was equal to the remaining goodwill balance on its North America reporting unit.

See Note 7 to the Consolidated Financial Statements for further information.

Restructuring, Asset Impairment and Other Charges

​

During 2023, the Company implemented several discrete restructuring initiatives and recorded restructuring and other charges of $100 million.  These charges consisted of employee costs, such as severance and benefit-related costs, write-down of assets and other exit costs in the Americas ($89 million) and Europe ($6 million) segments and Retained Corporate costs and other ($2 million). These restructuring charges were discrete actions and are expected to approximate the total cumulative costs for those actions, as no significant additional costs are expected to be incurred. These charges were recorded to Other income (expense), net on the Consolidated Results of Operations. The Company expects that the majority of the remaining cash expenditures related to the accrued employee costs will be paid out over the next several years. These charges also reflect approximately $3 million of other charges.

During 2022, the Company implemented several discrete restructuring initiatives and recorded restructuring and other charges of $53 million.  These charges reflect $50 million of employee costs, such as severance and benefit-related costs, write-down of assets and other exit costs (including related consulting costs attributed to restructuring of managed services activities) at several of the Company’s facilities primarily in the Americas. The Company expects that the majority of the remaining cash expenditures related to the accrued employee costs will be paid out over the next several years. These charges also reflect approximately $3 million of other charges.

See Note 10 to the Consolidated Financial Statements for further information.

Pension Settlement and Curtailment Charges

In 2023, the Company recorded pension curtailment and settlement charges of approximately $19 million in the United States and Mexico. In 2022, the Company settled a portion of its pension obligations and recorded approximately $20 million of pension settlement charges, in the United States, Canada and Mexico.

Gain on Sale of Divested Businesses and Miscellaneous Assets

​

For the year ended December 31, 2023, the Company recorded a pretax gain of approximately $4 million on the sale of the land and buildings of a previously closed plant in China.

​

In March 2022, the Company completed the sale of its Cristar glass tableware business in Colombia to Vidros Colombia S.A.S, an affiliate of Nadir Figueiredo S.A., a glass tableware producer based in Brazil. The related pretax gain was approximately $55 million (approximately $16 million after tax and noncontrolling interest). The pretax gain was recorded to Other income (expense), net on the Consolidated Results of Operations in 2022.

See Note 21 to the Consolidated Financial Statements for further information.

​

Gain on Sale Leasebacks of Land and Building

​

For the year ended December 31, 2022, the Company recorded a pretax gain of approximately $334 million

39

Table of Contents

on the sale of land and buildings (and subsequent leaseback) at two of its plants in the Americas. Additional details of these transactions are described below.

In August 2022, the Company completed the sale of the land and building related to its Vernon, California (Los Angeles) plant to 2900 Fruitland Avenue Investors LLC and 2901 Fruitland Avenue Investors LLC.  The Company recorded a pretax gain of approximately $153 million (approximately $153 million after tax) on the sale, which is reflected in Other income (expense), net on the Consolidated Results of Operations in 2022.

In May 2022, the Company completed the sale of the land and building related to its Brampton, Ontario, Canada plant to an affiliate of Crestpoint Real Estate Investments Ltd.  The Company recorded a pretax gain of approximately $181 million (approximately $158 million after tax) on the sale, which is reflected in Other income (expense), net on the Consolidated Results of Operations in 2022.

See Note 21 to the Consolidated Financial Statements for further information.

Capital Resources and Liquidity

On March 25, 2022, certain of the Company’s subsidiaries entered into a Credit Agreement and Syndicated Facility Agreement (the “Original Agreement”), which refinanced in full the previous credit agreement. The Original Agreement provided for up to $2.8 billion of borrowings pursuant to term loans, revolving credit facilities and a delayed draw term loan facility. The delayed draw term loan facility allowed for a one-time borrowing of up to $600 million, the proceeds of which were used, in addition to other consideration paid by the Company and/or its subsidiaries, to fund the Paddock Trust. On July 18, 2022, the Company drew down the $600 million delayed draw term loan to fund, together with other consideration, the Paddock Trust (see Note 15 for more information).

On August 30, 2022, certain of the Company’s subsidiaries entered into an Amendment No. 1 to its Credit Agreement and Syndicated Facility Agreement (the “Credit Agreement Amendment”), which amends the Original Agreement (as amended by the Credit Agreement Amendment, the “Credit Agreement”). The Credit Agreement Amendment provides for up to $500 million of additional borrowings in the form of term loans. The proceeds of such term loans were used, together with cash, to retire the $600 million delayed draw term loan. The term loans mature, and the revolving credit facilities terminate, in March 2027. The term loans borrowed under the Credit Agreement Amendment are secured by certain collateral of the Company and certain of its subsidiaries. In addition, the Credit Agreement Amendment makes modifications to certain loan documents, in order to give the Company increased flexibility to incur secured debt in the future.

The Company recorded approximately $1 million of additional interest charges for third-party fees and the write-off of unamortized fees related to the Credit Agreement Amendment in the third quarter of 2022. The Company recorded approximately $2 million of additional interest charges for third-party fees incurred in connection with the execution of the Original Agreement and the write-off of unamortized fees related to the previous credit agreement in the first quarter of 2022.

At December 31, 2023, the Credit Agreement includes a $300 million revolving credit facility, a $950 million multicurrency revolving credit facility and $1.45 billion in term loan A facilities ($1.39 billion outstanding balance at December 31, 2023, net of debt issuance costs). At December 31, 2023, the Company had unused credit of $1.24 billion available under the revolving credit facilities as part of the Credit Agreement. The weighted average interest rate on borrowings outstanding under the Credit Agreement at December 31, 2023 was 6.71%.

The Credit Agreement contains various covenants that restrict, among other things and subject to certain exceptions, the ability of the Company to incur certain indebtedness and liens, make certain investments, become liable under contingent obligations in certain defined instances only, make restricted payments, make certain

40

Table of Contents

asset sales within guidelines and limits, engage in certain affiliate transactions, participate in sale and leaseback financing arrangements, alter its fundamental business, and amend certain subordinated debt obligations.

The Credit Agreement also contains one financial maintenance covenant, a Secured Leverage Ratio (as defined in the Credit Agreement), that requires the Company not to exceed a ratio of 2.50x calculated by dividing consolidated Net Indebtedness that is then secured by Liens on property or assets of the Company and certain of its subsidiaries by Consolidated EBITDA, as each term is defined and as described in the Credit Agreement. The Secured Leverage Ratio could restrict the ability of the Company to undertake additional financing or acquisitions to the extent that such financing or acquisitions would cause the Secured Leverage Ratio to exceed the specified maximum.

Failure to comply with these covenants and restrictions could result in an event of default under the Credit Agreement. In such an event, the Company could not request additional borrowings under the revolving facilities, and all amounts outstanding under the Credit Agreement, together with accrued interest, could then be declared immediately due and payable. Upon the occurrence and for the duration of a payment event of default, an additional default interest rate equal to 2.0% per annum will apply to all overdue obligations under the Credit Agreement. If an event of default occurs under the Credit Agreement and the lenders cause all of the outstanding debt obligations under the Credit Agreement to become due and payable, this would result in a default under the indentures governing the Company’s outstanding debt securities and could lead to an acceleration of obligations related to these debt securities. As of December 31, 2023, the Company was in compliance with all covenants and restrictions in the Credit Agreement.  In addition, the Company believes that it will remain in compliance for the term of the Credit Agreement and that its ability to borrow additional funds under the Credit Agreement will not be adversely affected by the covenants and restrictions.

The Total Leverage Ratio (as defined in the Credit Agreement) determines pricing under the Credit Agreement. The interest rate on borrowings under the Credit Agreement is, at the Company’s option, the Base Rate, Term SOFR or, for non-U.S. dollar borrowings only, the Eurocurrency Rate (each as defined in the Credit Agreement), plus an applicable margin. The applicable margin is linked to the Total Leverage Ratio. The margins range from 1.00% to 2.25% for Term SOFR loans and Eurocurrency Rate loans and from 0.00% to 1.25% for Base Rate loans. In addition, a commitment fee is payable on the unused revolving credit facility commitments ranging from 0.20% to 0.35% per annum linked to the Total Leverage Ratio.

Obligations under the Credit Agreement are secured by substantially all of the assets, excluding real estate and certain other excluded assets, of certain of the Company’s domestic subsidiaries and certain foreign subsidiaries. Such obligations are also secured by a pledge of intercompany debt and equity investments in certain of the Company’s domestic subsidiaries and, in the case of foreign obligations, of stock of certain foreign subsidiaries. All obligations under the Credit Agreement are guaranteed by certain domestic subsidiaries of the Company, and certain foreign obligations under the Credit Agreement are guaranteed by certain foreign subsidiaries of the Company.

On February 10, 2022, the Company announced the commencement, by an indirect wholly owned subsidiary of the Company, of a tender offer to purchase for cash up to $250.0 million aggregate purchase price of its outstanding (i) 5.875% Senior Notes due 2023, (ii) 5.375% Senior Notes due 2025, (iii) 6.375% Senior Notes due 2025 and (iv) 6.625% Senior Notes due 2027. On February 28, 2022, the Company repurchased $150.0 million aggregate principal amount of the outstanding 5.875% Senior Notes due 2023 and $88.2 million aggregate principal amount of the outstanding 6.625% Senior Notes due 2027. Following the repurchase, $550.0 million and $611.8 million aggregate principal amounts of the 5.875% Senior Notes due 2023 and 6.625% Senior Notes due 2027, respectively, remained outstanding. The repurchases were funded with cash on hand. The Company recorded approximately $16 million of additional interest charges for note repurchase premiums and the write-off of unamortized finance fees related to the senior note repurchases conducted in the first quarter of 2022.

In August 2022, the Company redeemed $300 million aggregate principal amount of its 5.875% Senior Notes due 2023. Following the redemption, $250.0 million aggregate principal amount of the 5.875% Senior

41

Table of Contents

Notes due 2023 remained outstanding. The redemption was funded with cash on hand. The Company recorded approximately $7 million of additional interest charges for note repurchase premiums and the write-off of unamortized finance fees related to this redemption.

On May 11, 2023, the Company announced the commencement, by two indirect, wholly owned subsidiaries of the Company, of tender offers to purchase any and all of its outstanding (i) 5.875% Senior Notes due 2023, of which $250 million aggregate principal amount was outstanding, and (ii) 3.125% Senior Notes due 2024, of which €725 million aggregate principal amount was outstanding. On May 15, 2023, the Company announced the commencement, by an indirect wholly owned subsidiary of the Company, of a tender offer to purchase any and all of its outstanding 5.375% Senior Notes due 2025, of which $300 million aggregate principal amount was outstanding.

On May 26, 2023, the Company repurchased $142 million aggregate principal amount of the outstanding 5.875% Senior Notes due 2023, €666.7 million aggregate principal amount of the outstanding 3.125% Senior Notes due 2024, and $282.8 million aggregate principal amount of the outstanding 5.375% Senior Notes due 2025. The repurchases were funded with the proceeds from the May 2023 senior notes issuances described below. The Company recorded approximately $39 million of additional interest charges related to the senior note repurchases conducted in the second quarter of 2023 for note repurchase premiums, the write-off of unamortized finance fees and the settlement of a related interest rate swap. In August 2023, the Company redeemed approximately $108 million aggregate principal amount of its 5.875% Senior Notes due 2023. At December 31, 2023, approximately €58 million and $17 million aggregate principal amounts of the 3.125% Senior Notes due 2024 and 5.375% Senior Notes due 2025, respectively, remained outstanding.

In May 2023, the Company issued €600 million aggregate principal amount of senior notes that bear interest at a rate of 6.250% per annum and mature on May 15, 2028. Also, in May 2023, the Company issued $690 million aggregate principal amount of senior notes that bear interest at a rate of 7.250% per annum and mature on May 15, 2031.  The senior notes were issued via a private placement and are guaranteed by certain of the Company’s subsidiaries. The net proceeds, after deducting debt issuance costs, totaled approximately €593 million and $682 million, respectively, were used to redeem the aggregate principal amounts described in the May 2023 tender offers above.

In order to maintain a capital structure containing appropriate amounts of fixed and floating-rate debt, the Company has entered into a series of interest rate swap agreements. These interest rate swap agreements were accounted for as fair value hedges (see Note 9 for more information).

The Company assesses its capital raising and refinancing needs on an ongoing basis and may enter into additional credit facilities and seek to issue equity and/or debt securities in the domestic and international capital markets if market conditions are favorable. Also, depending on market conditions, the Company may elect to repurchase portions of its debt securities in the open market.

Material Cash Requirements

The Company’s material cash requirements include the following:

42

Table of Contents

Cash Flows

Operating activities: Cash provided by operating activities was $818 million for 2023, compared to $154 million of cash provided by operating activities for 2022. The increase in cash provided by operating activities in 2023 was primarily due to the non-recurrence of the $621 million cash outflow that the Company paid in 2022 to fund the Paddock Trust and related expenses and the non-recurrence of the gains from the sale of divested business and sale leaseback in 2022, partially offset by a higher use of cash from working capital and lower net earnings in 2023 compared to 2022. See Note 15 to the Consolidated Financial Statements for additional information on Paddock.

Working capital was a use of cash of $148 million in 2023, compared to a source of cash of $95 million in 2022. The use of cash from working capital was higher in 2023 primarily due to higher inventories compared to 2022. The Company’s use of its accounts receivable factoring programs resulted in an increase in cash provided by operating activities of approximately $7 million and $54 million for 2023 and 2022, respectively. See Note 20 to the Consolidated Financial Statements for additional information. Excluding the impact of accounts receivable factoring, the Company’s days sales outstanding as of December 31, 2023 were comparable to December 31, 2022.

Cash payments for restructuring activities increased to $26 million in 2023 from $20 million in 2022 due to higher payments associated with the closure of a plant in the Americas. For 2023, other cash flows from operating activities decreased to a use of cash of approximately $40 million compared to a use of cash of approximately $136 million in the prior year, primarily due to higher dividends received from equity affiliates and the non-recurrence of a $38 million tax audit settlement paid in Mexico in 2022. In 2024, the Company expects to settle and pay a one-time tax settlement of approximately $30 million in a jurisdiction.

Investing activities: Cash utilized in investing activities was $683 million for 2023, compared to $97 million of cash utilized in investing activities for 2022. Capital spending for property, plant and equipment was $688 million in 2023, compared to $539 million in 2022. The Company estimates that its full year 2024 capital expenditures will be approximately $550 million to $600 million.

The Company received approximately $11 million of net cash proceeds for the sale of miscellaneous businesses and other assets in 2023 compared to $98 million received in 2022, which primarily related to its Cristar glass tableware business in Colombia. Net cash proceeds from sale leasebacks approximated $368 million in 2022, which included proceeds on the sales of the land and buildings of the Company’s plants in

43

Table of Contents

Brampton, Ontario, Canada and Vernon, California. The Company contributed $10 million to its joint ventures in 2023 compared to $12 million contributed in the same period in 2022. The Company received $4 million and paid $24 million related to hedge activity in 2023 and 2022, respectively.

As a result of the funding of the Paddock Trust and the cancellation of the pledge of equity interests in reorganized Paddock, on July 20, 2022, the Company regained exclusive control over reorganized Paddock’s activities.  Therefore, at that date in the third quarter of 2022, reorganized Paddock was reconsolidated, and its remaining assets, including $12 million of cash and cash equivalents were recognized in the Company’s Consolidated Statement of Cash Flows.

Financing activities: Cash utilized in financing activities was $27 million for 2023 compared to $6 million of cash provided by financing activities in 2022.  Financing activities in 2023 included additions to long-term debt of $1,332 million, which included the issuance of €600 million of 6.250% senior notes due 2028 and $690 million of 7.250% senior notes due 2031.  Financing activities in 2023 also included the repayment of long-term debt of $1,298 million, which included the redemption of $250 million of the Company’s outstanding 5.875% Senior Notes due 2023, €666.7 million of the Company’s outstanding 3.125% Senior Notes due 2024, and $282.8 million of the Company’s outstanding 5.375% Senior Notes due 2025.  Financing activities in 2022 included additions to long-term debt of $2,852 million, which included the refinancing of the Company’s bank credit agreement.  Financing activities in 2022 also included the repayment of long-term debt of $2,897 million, which included the refinancing of the Company’s bank credit agreement, the redemption of $450 million aggregate principal amount of the Company’s outstanding 5.875% senior notes due 2023 and the repayment of $88.2 million aggregate principal amount of the Company’s outstanding 6.625% Senior Notes due 2027.  As a result of financing activities, the Company paid finance fees and premiums of $22 million and $29 million for 2023 and 2022, respectively.  Borrowings under short-term loans were $47 million and $16 million in 2023 and 2022, respectively.

Also, the Company paid approximately $40 million and received approximately $133 million related to hedging activity in 2023 and 2022, respectively. Distributions to noncontrolling interests decreased from $27 million in 2022 to $6 million in 2023 due to the non-recurrence of the distribution on the gain on the sale of the Cristar glass tableware business in Colombia in 2022.

In February 2021, the Company’s Board of Directors authorized a $150 million anti-dilutive share repurchase program for the Company’s common stock that the Company intends to use to offset stock-based compensation provided to the Company’s directors, officers, and employees.  In each of 2023 and 2022, the Company repurchased $40 million of shares of the Company’s common stock under this program.  The Company intends to repurchase at least $30 million of shares of the Company’s common stock in 2024.

The Company anticipates that cash flows from its opera­tions and from utiliza­tion of credit available under the Agreement will be sufficient to fund its operating and seasonal working capital needs, debt service and other obligations on a short-term (the next 12 months) and long-term basis (beyond the next 12 months). However, as the Company cannot predict the conflict between Russia and Ukraine and its impact on the Company’s customers and suppliers, the negative financial impact to the Company’s results cannot be reasonably estimated but could be material. In addition, cash and cash equivalents held by foreign subsidiaries may be subject to foreign withholding taxes upon repatriation to the U.S. At December 31, 2023 and December 31, 2022, the Company had approximately $810 million and $606 million, respectively, in cash and cash equivalents in certain of its foreign subsidiaries. The Company accrues withholding taxes for planned remittances in accordance with assertions under ASC 740 in regards to unremitted earnings. The Company is actively managing its business to maintain cash flow, and it has significant liquidity. The Company believes that these factors will allow it to meet its anticipated funding requirements.

Critical Accounting Estimates

The Company’s analysis and discussion of its financial condition and results of operations are based upon its Consolidated Financial Statements that have been prepared in accordance with accounting principles generally

44

Table of Contents

accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The Company evaluates these estimates and assumptions on an ongoing basis. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances at the time the financial statements are issued. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ from estimates.

The impact of, and any associated risks related to, estimates and assumptions are discussed within Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as in the Notes to the Consolidated Financial Statements, if applicable, where estimates and assumptions affect the Company’s reported and expected financial results.

The Company believes that accounting for the impairment of long-lived assets, pension benefit plans, and income taxes involves the more significant judgments and estimates used in the preparation of its Consolidated Financial Statements.

Impairment of Long-Lived Assets

Property, Plant and Equipment (PP&E) - The Company tests for impairment of PP&E whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. PP&E held for use in the Company’s business is grouped for impairment testing at the lowest level for which cash flows can reasonably be identified, typically a segment or a component of a segment. If an impairment indicator exists, the Company first evaluates the recoverability of PP&E based on undiscounted projected cash flows, excluding interest and taxes. If an asset group is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset group’s carrying amount exceeds its fair value. Historically, most of the Company’s PP&E impairments have been due to restructuring activities that result in the closure of plant sites or disposal of furnaces or other PP&E.  All PP&E impairments recorded during 2023, 2022 and 2021 were due to restructuring activities. In these cases, the asset group’s carrying values are reduced to their fair values, which is their expected sale values of the real property less costs to sell.

Impairment testing on asset groups that are held for use requires estimation of projected future cash flows generated by the asset group. The assumptions underlying cash flow projections represent management’s best estimates at the time of the impairment review. Factors that management must estimate include, among other things: industry and market conditions, sales volume and prices, production costs and inflation. Changes in key assumptions or actual conditions which differ from estimates could result in an impairment charge. The Company uses reasonable and supportable assumptions when performing impairment reviews and cannot predict the occurrence of future events and circumstances that could result in impairment charges. During 2023, 2022 and 2021, no impairment indicators were identified, and no impairment testing has been required related to PP&E asset groups that are held for use.

Goodwill – Goodwill is tested for impairment annually as of October 1 (or more frequently if impairment indicators arise).  When performing a quantitative test for goodwill impairment, the Company compares the business enterprise value (“BEV”) of each reporting unit with 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 are based on internal and external inputs, such as projected future cash flows of the reporting units, discount rates and terminal business value, among other assumptions. The valuation approach utilized by management represents a Level 3 fair value measurement measured on a non-recurring basis in the fair value hierarchy due to the Company’s use of unobservable inputs. The Company’s projected future cash flows incorporate management’s best estimates of the

45

Table of Contents

expected future results including, but not limited to, price trends, customer demand, material costs, asset replacement costs and any other known factors.

Goodwill is tested for impairment at the reporting unit level, which is the operating segment or one level below the operating segment, also known as a component. Two or more components of an operating segment shall be aggregated into a single reporting unit based on an assessment of various factors. The aggregation of the components of the Company’s reporting units was based on their economic similarity as determined by the Company using a number of quantitative and qualitative factors, including gross margins, the manner in which the Company operates the business, the consistent nature of products, services, production processes, customers and methods of distribution, as well as the level of shared resources and assets between the components. The Americas reportable segment is comprised of two reporting units – North America and Latin America. The Company has determined that the Europe segment is also a reporting unit.

During the fourth quarter of 2023, the Company completed its annual impairment testing and determined that the goodwill balance on its North America reporting unit was fully impaired. The primary driver of this impairment was management’s update to its long-range plan, which indicated lower estimated future cash flows for its North America reporting unit (in the Americas segment) as compared to the projections used in the prior goodwill impairment test performed as of October 1, 2022. The Company’s business in North America has experienced declining shipments to its alcoholic beverage customers, especially in the second half of 2023, and this trend is likely to continue for the foreseeable future. As a result, in the fourth quarter of 2023, the Company permanently closed a plant and two additional furnaces in the North America reporting unit to better balance its long-term manufacturing supply with lower demand. The update to management’s long-range plan, combined with the impact of a higher weighted average cost of capital given higher interest rates and the narrow difference between the estimated fair value and carrying value of the North America reporting unit as of October 1, 2022, resulted in the BEV of the Company’s North American reporting unit declining to less than its carrying value. As a result, the Company recorded a non-cash impairment charge of $445 million in the fourth quarter of 2023, which was equal to the remaining goodwill balance on its North America reporting unit.

Goodwill at December 31, 2023 totaled approximately $1.47 billion, representing approximately 15% of total assets. As of December 31, 2023, the Company has three reporting units and includes $848 million of recorded goodwill to the Company’s Europe reporting unit, $625 million of recorded goodwill to the Company’s Latin America reporting unit and $0 of recorded goodwill to the Company’s North America reporting unit (subsequent to the 2023 impairment). There can be no assurance that anticipated financial results will be achieved, and the goodwill balances remain susceptible to future impairment charges. Future changes in the Company’s cost of capital or expected cash flows may cause the Company’s goodwill to become impaired, resulting in a non-cash charge against the Company’s results of operations. The BEVs of the Company’s Europe and Latin America reporting units substantially exceeded their carrying values as of October 1, 2023. Any impairment charges that the Company may take in the future could be material to its consolidated results of operations and financial condition.

During the time subsequent to the annual evaluation, and at December 31, 2023, the Company considered whether any events and/or changes in circumstances had resulted in the likelihood that the goodwill of any of its reporting units may have been impaired and has determined that no such events have occurred. The Company will monitor conditions throughout 2024 that might significantly affect the projections and variables used in the impairment test to determine if a review prior to October 1 may be appropriate. If the results of impairment testing confirm that a write-down of goodwill is necessary, then the Company will record a charge at that time. In the event the Company would be required to record a significant write-down of goodwill, the charge would have a material adverse effect on reported results of operations and net worth.

Pension Benefit Plans

Estimates - The determination of pension obligations and the related pension expense or credits to operations involves certain estimations. The most critical estimates are the discount rate used to calculate the actuarial

46

Table of Contents

present value of benefit obligations and the expected long-term rate of return on plan assets. The Company uses discount rates based on yields of high quality fixed rate debt securities at the end of the year. At December 31, 2023, the weighted average discount rate was 5.18% and 5.12% for U.S. and non-U.S. plans, respectively. The Company uses an expected long-term rate of return on assets that is based on both past performance of the various plans’ assets and estimated future performance of the assets. In developing this assumption, the Company also considers the Plans’ asset mix and evaluates input from its third-party pension plan asset consultants, including their review of asset class return expectations. Due to the nature of the plans’ assets and the volatility of debt and equity markets, actual returns may vary significantly from year to year. For purposes of determining pension charges and credits in 2023, the Company’s estimated weighted average expected long-term rate of return on plan assets is 5.75% for U.S. plans and 4.67% for non-U.S. plans compared to 5.75% for U.S. plans and 4.21% for non-U.S. plans in 2022. The Company recorded pension expense from continuing operations (exclusive of settlement and curtailment charges) of $30 million, $34 million, and $32 million in 2023, 2022, and 2021, respectively. Depending on currency translation rates, the Company expects to record approximately $33 million of total pension expense for the full year of 2024. The 2024 pension expense will reflect a 5.75% and 5.14% expected long-term rate of return for the U.S. assets and non-U.S. assets, respectively.

Future effects on reported results of operations depend on economic conditions and investment performance. For example, a one-half percentage point change in the actuarial assumption regarding discount rates used to calculate plan liabilities or in the expected rate of return on plan assets would result in a change of approximately $4 million and $8 million, respectively, in the pretax pension expense for the full year of 2023.

Recognition of Funded Status - The Company recognizes the funded status of each pension benefit plan on the balance sheet. The funded status of each plan is measured as the difference between the fair value of plan assets and actuarially calculated benefit obligations as of the balance sheet date. Actuarial gains and losses are accumulated in Other Comprehensive Income, and the portion of each plan that exceeds 10% of the greater of that plan’s assets or projected benefit obligation is amortized to income on a straight-line basis over the average remaining service period of employees still accruing benefits or the expected life of participants not accruing benefits if all, or almost all, of the plan’s participants are no longer accruing benefits.

Income Taxes

The Company accounts for income taxes as required by general accounting principles under which management judgment is required in determining income tax expense/(benefit) and the related balance sheet amounts. This judgment includes estimating and analyzing historical and projected future operating results, the reversal of taxable and tax deductible temporary differences, tax planning strategies, and the ultimate outcome of uncertain income tax positions. Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of operations, and the effective settlement of uncertain tax positions. The Company has received tax assessments in excess of established reserves for uncertain tax positions. The Company is contesting these tax assessments, and will continue to do so, including pursuing all available remedies, such as appeals and litigation, if necessary.

The Company believes that adequate provisions for all income tax uncertainties have been made. However, if tax assessments are settled against the Company at amounts in excess of established reserves, it could have a material impact to the Company’s results of operations, financial position or cash flows. Changes in the estimates and assumptions used for calculating income tax expense and potential differences in actual results from estimates could have a material impact on the Company’s results of operations and financial condition.

Deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities measured using enacted tax rates and for tax attributes such as operating losses and tax credit carryforwards. Deferred tax assets and liabilities are determined separately for each tax jurisdiction on a separate or on a consolidated tax filing basis, as applicable, in which the Company conducts its operations or otherwise incurs taxable income or losses. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character within

47

Table of Contents

the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of deferred tax assets:

The assessment regarding whether a valuation allowance is required or whether a change in judgment regarding the valuation allowance has occurred also considers all available positive and negative evidence, including, but not limited to:

The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Accordingly, it is generally difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. The Company uses the actual results for the last two years and current year results as the primary measure of cumulative losses in recent years.

The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events recognized in the financial statements or tax returns and future profitability. The recognition of deferred tax assets represents the Company’s best estimate of those future events. Changes in the current estimates, due to unanticipated events or otherwise, could have a material effect on the Company’s results of operations and financial condition.

In certain tax jurisdictions, the Company’s analysis indicates that it has cumulative losses in recent years. This is considered significant negative evidence, which is objective and verifiable and, therefore, difficult to overcome. However, the cumulative loss position is not solely determinative, and, accordingly, the Company considers all other available positive and negative evidence in its analysis. Based on its analysis, the Company has recorded a valuation allowance for the portion of deferred tax assets where based on the weight of available evidence it is unlikely to realize those deferred tax assets.

Based on the evidence available, including a lack of sustainable earnings, the Company in its judgment previously recorded a valuation allowance against substantially all of its net deferred tax assets in the United States. If a change in judgment regarding this valuation allowance were to occur in the future, the Company would record a potentially material deferred tax benefit, which could result in a favorable impact on the effective tax rate in that period. The utilization of tax attributes to offset taxable income reduces the amount of deferred tax assets subject to a valuation allowance. In addition, based on available evidence and the weighting of factors discussed above, the Company has valuation allowances on certain deferred tax assets in certain international tax jurisdictions.

The Company treats Global Intangible Low Taxed Income (“GILTI”) as a period cost.

Corporate tax reform, anti-base-erosion rules and tax transparency continue to be high priorities in many jurisdictions. The potential for additional global tax legislation changes, such as restrictions on interest deductibility, deductibility of cross-jurisdictional payments, and limitations on the utilization of tax attributes, could have a material adverse impact on net income and cash flow by impacting significant deductions or income inclusions.

​

48

Table of Contents