Derivative Instruments

12 Months Ended

Dec. 31, 2022

Derivative Instruments

Derivative Instruments

9. Derivative Instruments

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

Commodity Forward Contracts and Collars Designated as Cash Flow Hedges

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

An unrecognized loss of $1 million at December 31, 2022 related to the commodity forward contracts and collars was included in Accumulated other comprehensive income (“Accumulated OCI”), and will be reclassified into earnings in the period when the commodity forward contracts expire.

Cash Flow Hedges of Foreign Exchange Risk

The Company has variable-interest rate borrowings denominated in currencies other than the functional currency of the borrowing subsidiaries. As a result, the Company is exposed to fluctuations in the currency of the borrowing against the subsidiaries’ functional currency.  In 2021, the Company used derivatives to manage these exposures and designated those derivatives as cash flow hedges of foreign exchange risk. In addition, one of the Company’s non-U.S. dollar-functional-currency subsidiaries purchases a raw material in the normal course of business for use in glass container production that is priced in U.S. dollars. Such purchases expose the Company to exchange rate fluctuations. The Company uses derivatives to manage these exposures and designates these derivatives as cash flow hedges of foreign exchange risk.

The Company terminated a portion of its cross-currency swaps, which resulted in a $7 million outflow for 2022 and outflows of $15 million and $3 million for 2021 and 2020, respectively, as disclosed in the cash flows from financing activities section of the Consolidated Cash Flows.

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

Fair Value Hedges of Foreign Exchange Risk

The Company has fixed and variable interest rate borrowings denominated in currencies other than the functional currency of the borrowing subsidiaries. As a result, the Company is exposed to fluctuations in the

currency of the borrowing against the subsidiaries’ functional currency.  The Company uses derivatives to manage these exposures and designates these derivatives as fair value hedges of foreign exchange risk. Approximately $16 million and $4 million of the components were excluded from the assessment of effectiveness and are included in Accumulated OCI at December 31, 2022 and December 31, 2021, respectively.

The Company terminated a portion of its cross-currency swaps, which resulted in a $107 million inflow for 2022, as disclosed in the cash flows from financing activities section of the Consolidated Cash Flows.

Interest Rate Swaps Designated as Fair Value Hedges

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

Net Investment Hedges

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

In each of 2022 and 2020, the Company terminated a portion of its cross-currency swaps designated as net investment hedges, which resulted in a $33 million inflow and a $5 million outflow, respectively, recognized in the cash flows from financing activities section of the Consolidated Cash Flows.

Foreign Exchange Derivative Contracts Not Designated as Hedging Instruments

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

In 2022, the Company paid approximately $24 million to settle related hedges and recognized these payments in the cash flows from investing activities section of the Consolidated Cash Flows.

Balance Sheet Classification

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

	Fair Value of
	Hedge Assets				Hedge Liabilities
	2022		2021		2022		2021
Derivatives designated as hedging instruments:
Commodity forward contracts and collars (a)	$	3	$	—	$	9	$	—
Interest rate swaps - fair value hedges (b)				4		44		2
Cash flow hedges of foreign exchange risk (c)				2				23
Fair value hedges of foreign exchange risk (d)		7		9		62
Net investment hedges (e)		3		3		28		17
Total derivatives accounted for as hedges	$	13	$	18	$	143	$	42
Derivatives not designated as hedges:
Foreign exchange derivative contracts (f)		5		1		2		2
Total derivatives	$	18	$	19	$	145	$	44
Current	$	15	$	14	$	32	$	2
Noncurrent		3		5		113		42
Total derivatives	$	18	$	19	$	145	$	44

(a) The notional amount of the commodity forward contracts and collars was approximately 46 million British Thermal Units (“BTUs”) at December 31, 2022. The maximum maturity dates are in 2027 at December 31, 2022.

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

(c) The notional amounts of the cash flow hedges of foreign exchange risk were $0 and $422 million at December 31, 2022 and December 31, 2021, respectively. The maximum maturity dates are in 2023 at December 31, 2021.

(d) The notional amounts of the fair value hedges of foreign exchange risk were $844 million and $400 million at December 31, 2022 and December 31, 2021, respectively. The maximum maturity dates were in 2030 at December 31, 2022.

(e) The notional amounts of the net investment hedges were €358 million and €311 million at December 31, 2022 and December 31, 2021, respectively. The maximum maturity dates are in 2026 at December 31, 2022 and 2027 at December 31, 2021.

(f) The notional amounts of the foreign exchange derivative contracts were $245 million and $202 million at December 31, 2022 and December 31, 2021, respectively. The maximum maturity dates are in 2023 at December 31, 2022 and 2022 at December 31, 2022.

The effects of derivative instruments on the Company’s Consolidated Results of Operations and Comprehensive Income (Loss) for OCI for the years ended December 31, 2022, 2021 and 2020 are as follows:

	Gain (Loss) Recognized in OCI (Effective Portion)						Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (1)
Derivatives designated as hedging instruments:	2022		2021		2020		2022		2021		2020
Cash Flow Hedges
Commodity forward contracts and collars (a)	$	(1)	$		$		$	6	$		$
Cash flow hedges of foreign exchange risk (b)		14		75		(99)		15		77		(115)
Cash flow hedges of interest rate risk (c)												(1)
Net Investment Hedges
Net Investment Hedges		30		40		(54)		6		3		4
	$	43	$	115	$	(153)	$	27	$	80	$	(112)
	Amount of Gain (Loss) Recognized in Other income (expense), net
Derivatives not designated as hedges:	2022		2021		2020
Foreign exchange derivative contracts	$	(20)	$	4	$	9
(1) Gains and losses reclassified from accumulated OCI and recognized in income are recorded to (a) cost of goods sold, (b) other income (expense), net or (c) interest expense, net.