Derivative Instruments

9 Months Ended

Sep. 30, 2024

Derivative Instruments

Derivative Instruments

5. 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. Estimates of the fair value of foreign currency and commodity derivative instruments are determined using exchange traded prices and rates. 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 $4 million, $0 and $8 million at September 30, 2024, December 31, 2023 and September 30, 2023, respectively, related to the commodity forward contracts and collars was included in Accumulated other comprehensive income (loss) (“Accumulated OCI”), and will be reclassified into earnings over the next 12 months.

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 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 currency exchange risk.

No unrecognized gains related to cross-currency swaps were included in Accumulated OCI.

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 currency exchange risk. Approximately $0 million, $2 million and $1 million of the components were excluded from the assessment of effectiveness and are included in Accumulated OCI at September 30, 2024, December 31, 2023 and September 30, 2023, respectively.

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.

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.

Balance Sheet Classification

The following table shows the amount and classification (as noted above) of the Company’s derivatives at September 30, 2024, December 31, 2023 and September 30, 2023:

	Fair Value of						Fair Value of
	Hedge Assets						Hedge Liabilities
	September 30,		December 31,		September 30,		September 30,		December 31,		September 30,
	2024		2023		2023		2024		2023		2023
Derivatives designated as hedging instruments:
Commodity forward contracts and collars (a)	$	—	$	—	$	—	$	10	$	14	$	13
Fair value hedges of foreign exchange risk (b)		4		4		7		118		111		72
Net investment hedges (c)		2		4		4		57		56		30
Total derivatives accounted for as hedges	$	6	$	8	$	11	$	185	$	181	$	115
Derivatives not designated as hedges:
Foreign exchange derivative contracts (d)		11		5		3		3		9		14
Total derivatives	$	17	$	13	$	14	$	188	$	190	$	129
Current	$	17	$	13	$	14	$	12	$	17	$	21
Noncurrent								176		173		108
Total derivatives	$	17	$	13	$	14	$	188	$	190	$	129

(a) The notional amount of the commodity forward contracts and collars was approximately 30 million, 38 million, and 40 million British Thermal Units at September 30, 2024, December 31, 2023, and September 30, 2023, respectively. The maximum maturity dates are in 2027 at September 30, 2024, December 31, 2023, and September 30, 2023.

(b) The notional amounts of the fair value hedges of foreign exchange risk were $833 million at September 30, 2024, $833 million at December 31, 2023 and $844 million at September 30, 2023. The maximum maturity dates are in 2030 at September 30, 2024, December 31, 2023 and September 30, 2023.

(c) The notional amounts of the net investment hedges were €483 million at September 30, 2024, €483 million at December 31, 2023 and €483 million at September 30, 2023. The maximum maturity dates are in 2026 at September 30, 2024, December 31, 2023 and September 30, 2023.

(d) The notional amounts of the foreign exchange derivative contracts were $628 million, $407 million and $493 million at September 30, 2024, December 31, 2023 and September 30, 2023, respectively. The maximum maturity dates are in 2024 at September 30, 2024, and in 2023 at December 31, 2023 and September 30, 2023.

	Gain (Loss) Recognized in OCI (Effective Portion)				Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (1)
	Three months ended September 30,				Three months ended September 30,
Derivatives designated as hedging instruments:	2024		2023		2024		2023
Cash Flow Hedges
Commodity forward contracts and collars (a)	$	(2)	$		$	(3)	$	(6)
Cash flow hedges of foreign exchange risk (a)								(2)
Net Investment Hedges
Net Investment Hedges (b)		(21)		12		1		2
	$	(23)	$	12	$	(2)	$	(6)

	Gain (Loss) Recognized in OCI (Effective Portion)				Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) (1)
	Nine months ended September 30,				Nine months ended September 30,
Derivatives designated as hedging instruments:	2024		2023		2024		2023
Cash Flow Hedges
Commodity forward contracts and collars (a)	$	(6)	$	(23)	$	(9)	$	(17)
Cash flow hedges of foreign exchange risk (a)				(3)				(2)
Net Investment Hedges
Net Investment Hedges (b)				2		4		4
	$	(6)	$	(24)	$	(5)	$	(15)

	Amount of Gain (Loss) Recognized in Other expense, net				Amount of Gain (Loss) Recognized in Other expense, net
	Three months ended September 30,				Nine months ended September 30,
Derivatives not designated as hedges:	2024		2023		2024		2023
Foreign exchange derivative contracts	$	13	$	(3)	$	(3)	$	(9)

(1) Gains and losses reclassified from Accumulated OCI and recognized in income are recorded to (a) cost of goods sold or (b) interest expense, net.