Crown Holdings, Inc 10-Q for FY2021 Q1
Crown Holdings, Inc. (CCK)
10-Q
2021-04-23
For: 2021-03-31
View Original
Added on
April 11, 2026
About this 10-Q
Crown Holdings, Inc filed this 10-Q on April 23, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.08B
- up 11.6% from $2.76B a year earlier
- Net income
- $211M
- up 139.8% from net income of $88M a year earlier
- Diluted EPS
- $1.57
- up 141.5% from $0.65 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE QUARTERLY PERIOD ENDED March 31, 2021
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 000-50189
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(registrant’s telephone number, including area code)
____________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Title of each class | Trading Symbols | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒
There were 134,898,957 shares of Common Stock outstanding as of April 21, 2021.
Crown Holdings, Inc.
PART I – FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except per share data)
(Unaudited)
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net sales | $ | $ | |||||||||||||||||||||
| Cost of products sold, excluding depreciation and amortization | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Selling and administrative expense | |||||||||||||||||||||||
| Restructuring and other | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Other pension and postretirement | ( | ||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Interest income | ( | ( | |||||||||||||||||||||
| Foreign exchange | ( | ( | |||||||||||||||||||||
| Income before taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Equity earnings in affiliates | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||
| Net income attributable to Crown Holdings | $ | $ | |||||||||||||||||||||
| Earnings per common share attributable to Crown Holdings: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Crown Holdings, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Other comprehensive (loss) / income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||
| Pension and other postretirement benefits | |||||||||||||||||||||||
| Derivatives qualifying as hedges | ( | ||||||||||||||||||||||
| Total other comprehensive loss | ( | ( | |||||||||||||||||||||
| Total comprehensive income | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||
| Translation adjustments attributable to noncontrolling interests | |||||||||||||||||||||||
| Derivatives qualifying as hedges attributable to noncontrolling interests | ( | ||||||||||||||||||||||
| Comprehensive income / (loss) attributable to Crown Holdings | $ | $ | ( | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Crown Holdings, Inc.
CONSOLIDATED BALANCE SHEETS (Condensed)
(In millions)
(Unaudited)
| March 31, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Other non-current assets | |||||||||||
| Total | $ | $ | |||||||||
| Liabilities and equity | |||||||||||
| Current liabilities | |||||||||||
| Short-term debt | $ | $ | |||||||||
| Current maturities of long-term debt | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Accounts payable | |||||||||||
| Accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, excluding current maturities | |||||||||||
| Non-current portion of operating lease liabilities | |||||||||||
| Postretirement and pension liabilities | |||||||||||
| Other non-current liabilities | |||||||||||
| Noncontrolling interests | |||||||||||
| Crown Holdings shareholders’ equity | |||||||||||
| Total equity | |||||||||||
| Total | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Crown Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
(In millions)
(Unaudited)
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Restructuring and other | |||||||||||
| Pension expense | |||||||||||
| Pension contributions | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Working capital changes and other | ( | ( | |||||||||
| Net cash used for operating activities | ( | ( | |||||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Net investment hedge | |||||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Net cash used for investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Net change in revolving credit facility and short-term debt | ( | ||||||||||
| Proceeds from long-term debt | |||||||||||
| Payments of long-term debt | ( | ( | |||||||||
| Foreign exchange derivatives related to debt | ( | ( | |||||||||
| Payments of finance leases | ( | ( | |||||||||
| Contributions from noncontrolling interests | |||||||||||
| Dividends paid to noncontrolling interests | ( | ( | |||||||||
| Dividends paid to shareholders | ( | ||||||||||
| Common stock issued | |||||||||||
| Common stock repurchased | ( | ( | |||||||||
| Net cash (used for) / provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at January 1 | |||||||||||
| Cash, cash equivalents and restricted cash at March 31 | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Crown Holdings, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In millions)
(Unaudited)
| Crown Holdings, Inc. Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Paid-in Capital | Accumulated Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Crown Equity | Noncontrolling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to shareholders | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awarded | ( | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Dividends paid to noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awarded | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
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Crown Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share and statistical data)
(Unaudited)
A.Statement of Information Furnished
B.Accounting and Reporting Developments
C. Subsequent Event
On April 8, 2021, the Company entered into a Share and Asset Purchase Agreement which provides for the sale (the “Transaction”) of its European Tinplate business (the “Business”) to Kouti B.V., an affiliate of KPS Capital Partners LP. The Business comprises the Company’s European Food segment and its European Aerosol and Promotional Packaging reporting unit which is reported in the Company's other segments. In 2020, the Business had net sales of $2,183 . The Company expects to receive pre-tax proceeds of approximately €1.9 billion ($2.2 billion at March 31, 2021) from the Transaction and retain a 20 % minority interest in the Business.
The completion of the Transaction is subject to the fulfillment of various conditions, including, among others, receipt of approvals from antitrust regulators in certain jurisdictions. Completion of the Transaction is expected to occur during the third quarter of 2021. However, given the number of jurisdictions in which antitrust approval is required, there is no assurance that the Transaction can be completed on that timeframe.
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Crown Holdings, Inc.
D. Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash included in the Company's Consolidated Balance Sheets and Statement of Cash Flows were as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid expenses and other current assets | |||||||||||
| Restricted cash included in other non-current assets | |||||||||||
| Total restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Amounts included in restricted cash primarily represent amounts required to be segregated by certain of the Company's receivables securitization agreements.
E. Receivables
| March 31, 2021 | December 31, 2020 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Less: allowance for credit losses | ( | ( | |||||||||
| Net trade receivables | |||||||||||
| Unbilled receivables | |||||||||||
| Miscellaneous receivables | |||||||||||
| Receivables, net | $ | $ | |||||||||
F. Inventories
Inventories are stated at the lower of cost or market, with cost principally determined under the first-in first-out ("FIFO") or average cost method.
| March 31, 2021 | December 31, 2020 | ||||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
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Crown Holdings, Inc.
G. Intangible Assets
Gross carrying amounts and accumulated amortization of finite-lived intangible assets by major class were as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Gross | Accumulated amortization | Net | Gross | Accumulated amortization | Net | ||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Trade names | ( | ( | |||||||||||||||||||||||||||||||||
| Technology | ( | ( | |||||||||||||||||||||||||||||||||
| Long term supply contracts | ( | ( | |||||||||||||||||||||||||||||||||
| Patents | ( | ( | |||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
Total amortization expense of intangible assets for the three ended March 31, 2021 and 2020 was $47 and $45 .
H. Restructuring and Other
The Company recorded restructuring and other items as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Restructuring | $ | $ | |||||||||||||||||||||
| Other (income) / costs | ( | ||||||||||||||||||||||
| Transaction costs | 2 | — | |||||||||||||||||||||
| Asset impairments and sales | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
I. Asbestos-Related Liabilities
Crown Cork & Seal Company, Inc. (“Crown Cork”) is one of many defendants in a substantial number of lawsuits filed throughout the U.S. by persons alleging bodily injury as a result of exposure to asbestos. These claims arose from the insulation operations of a U.S. company, the majority of whose stock Crown Cork purchased in 1963. Approximately days after the stock purchase, this U.S. company sold its insulation assets and was later merged into Crown Cork.r
Prior to 1998, amounts paid to asbestos claimants were covered by a fund made available to Crown Cork under a 1985 settlement with carriers insuring Crown Cork through 1976, when Crown Cork became self-insured. The fund was depleted in 1998 and the Company has no remaining coverage for asbestos-related costs.
In December 2001, the Commonwealth of Pennsylvania enacted legislation that limits the asbestos-related liabilities of Pennsylvania corporations that are successors by corporate merger to companies involved with asbestos. The legislation limits the successor’s liability for asbestos to the acquired company’s asset value adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the acquired company’s adjusted asset value. In November 2004, the legislation was amended to address a Pennsylvania Supreme Court decision (Ieropoli v. AC&S Corporation, et. al., No. 117 EM 2002) which held that the statute violated the Pennsylvania Constitution due to retroactive application. The Company cautions that the limitations of the statute, as amended, are subject to litigation and may not be upheld.
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Crown Holdings, Inc.
In June 2003, the state of Texas enacted legislation that limits the asbestos-related liabilities in Texas courts of companies such as Crown Cork that allegedly incurred these liabilities because they are successors by corporate merger to companies that had been involved with asbestos. The Texas legislation, which applies to future claims and pending claims, caps asbestos-related liabilities at the total gross value of the predecessor’s assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total adjusted value of its predecessor’s assets.
In October 2010, the Texas Supreme Court held that the Texas legislation was unconstitutional under the Texas Constitution when applied to asbestos-related claims pending against Crown Cork when the legislation was enacted in June 2003. The Company believes that the decision of the Texas Supreme Court is limited to retroactive application of the Texas legislation to asbestos-related cases that were pending against Crown Cork in Texas on June 11, 2003 and therefore, in its accrual, continues to assign no value to claims filed after June 11, 2003.
In recent years, the states of Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Michigan, Mississippi, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Utah, West Virginia, Wisconsin and Wyoming enacted legislation that limits asbestos-related liabilities under state law of companies such as Crown Cork that allegedly incurred these liabilities because they are successors by corporate merger to companies that had been involved with asbestos. The legislation, which applies to future and, with the exception of Arkansas, Georgia, South Carolina, South Dakota, West Virginia and Wyoming, pending claims, caps asbestos-related liabilities at the fair market value of the predecessor's total gross assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total value of its predecessor's assets adjusted for inflation. Crown Cork has integrated the legislation into its claims defense strategy.
The Company further cautions that an adverse ruling in any litigation relating to the constitutionality or applicability to Crown Cork of one or more statutes that limits the asbestos-related liability of alleged defendants like Crown Cork could have a material impact on the Company.
During the three months ended March 31, 2021, the Company paid $2 to settle asbestos claims and pay related legal and defense costs and had claims activity as follows:
| Beginning claims | |||||
| New claims | |||||
| Settlements or dismissals | ( | ||||
| Ending claims | |||||
In the fourth quarter of each year, the Company performs an analysis of outstanding claims and categorizes these claims by year of exposure and state filed. As of December 31, 2020, the Company's outstanding claims were:
| Claimants alleging first exposure after 1964 | |||||
| Claimants alleging first exposure before or during 1964 filed in: | |||||
| Texas | |||||
| Pennsylvania | |||||
| Other states that have enacted asbestos legislation | |||||
| Other states | |||||
| Total claims outstanding | |||||
The outstanding claims in each period exclude approximately 19,000 inactive claims. Due to the passage of time, the Company considers it unlikely that the plaintiffs in these cases will pursue further action against the Company. The exclusion of these inactive claims had no effect on the calculation of the Company’s accrual as the claims were filed in states, as described above, where the Company’s liability is limited by statute.
With respect to claimants alleging first exposure to asbestos before or during 1964, the Company does not include in its accrual any amounts for settlements in states where the Company’s liability is limited by statute except for certain pending claims in Texas as described earlier.
With respect to post-1964 claims, regardless of the existence of asbestos legislation, the Company does not include in its accrual any amounts for settlement of these claims because of increased difficulty of establishing identification of
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Crown Holdings, Inc.
relevant insulation products as the cause of injury. Given the Company's settlement experience with post-1964 claims, it does not believe that an adverse ruling in the Texas or Pennsylvania asbestos litigation cases, or in any other state that has enacted asbestos legislation, would have a material impact on the Company with respect to such claims.
As of December 31, the percentage of outstanding claims related to claimants alleging serious diseases (primarily mesothelioma and other malignancies) were as follows:
| 2020 | 2019 | ||||||||||||||||
| Total claims | % | % | |||||||||||||||
| Pre-1964 claims in states without asbestos legislation | % | % | |||||||||||||||
Crown Cork has entered into arrangements with plaintiffs’ counsel in certain jurisdictions with respect to claims which are not yet filed, or asserted, against it. However, Crown Cork expects claims under these arrangements to be filed or asserted against Crown Cork in the future. The projected value of these claims is included in the Company’s estimated liability as of March 31, 2021.
As of March 31, 2021, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $249 , including $207 for unasserted claims. The Company determines its accrual without limitation to a specific time period.
It is reasonably possible that the actual loss could be in excess of the Company’s accrual. However, the Company is unable to estimate the reasonably possible loss in excess of its accrual due to uncertainty in the following assumptions that underlie the Company’s accrual and the possibility of losses in excess of such accrual: the amount of damages sought by the claimant (which was not specified for approximately 81 % of the claims outstanding at the end of 2020), the Company and claimant’s willingness to negotiate a settlement, the terms of settlements of other defendants with asbestos-related liabilities, the bankruptcy filings of other defendants (which may result in additional claims and higher settlements for non-bankrupt defendants), the nature of pending and future claims (including the seriousness of alleged disease, whether claimants allege first exposure to asbestos before or during 1964 and the claimant’s ability to demonstrate the alleged link to Crown Cork), the volatility of the litigation environment, the defense strategies available to the Company, the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, and the effect of state asbestos legislation (including the validity and applicability of the Pennsylvania legislation to non-Pennsylvania jurisdictions, where the substantial majority of the Company’s asbestos cases are filed).
J. Commitments and Contingent Liabilities
The Company, along with others in most cases, has been identified by the U.S. Environmental Protection Agency or a comparable state environmental agency as a Potentially Responsible Party (“PRP”) at a number of sites and has recorded aggregate accruals of $8 for its share of estimated future remediation costs at these sites. The Company has been identified as having either directly or indirectly disposed of commercial or industrial waste at the sites subject to the accrual, and where appropriate and supported by available information, generally has agreed to be responsible for a percentage of future remediation costs based on an estimated volume of materials disposed in proportion to the total materials disposed at each site. The Company has not had monetary sanctions imposed nor has the Company been notified of any potential monetary sanctions at any of the sites.
The Company has also recorded aggregate accruals of $7 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.
In March 2015, the Bundeskartellamt, or German Federal Cartel Office (“FCO”), conducted unannounced inspections of the premises of several metal packaging manufacturers, including a German subsidiary of the Company. The local court order authorizing the inspection cited FCO suspicions of anti-competitive agreements in the German market for the supply of metal packaging products. The Company conducted an internal investigation into the matter and discovered instances of inappropriate conduct by certain employees of German subsidiaries of the Company. The
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Crown Holdings, Inc.
Company cooperated with the FCO and submitted a leniency application with the FCO which disclosed the findings of its internal investigation to date. In April 2018, the FCO discontinued its national investigation and referred the matter to the European Commission (the “Commission”). Following the referral, Commission officials conducted unannounced inspections of the premises of several metal packaging manufacturers, including Company subsidiaries in Germany, France and the United Kingdom.
The Commission's investigation is ongoing and, to date, the Commission has not officially charged the Company or any of its subsidiaries with violations of competition law. The Company is cooperating with the Commission and submitted a leniency application with the Commission with respect to the findings of the investigation in Germany referenced above. This application may lead to the reduction of possible future penalties. At this stage of the investigation the Company believes that a loss is probable but is unable to predict the ultimate outcome of the Commission’s investigation and is unable to estimate the loss or possible range of losses that could be incurred, and has therefore not recorded a charge in connection with the actions by the Commission. If the Commission finds that the Company or any of its subsidiaries violated competition law, fines levied by the Commission could be material to the Company's operating results and cash flows for the periods in which they are resolved or become reasonably estimable.
In March 2017, U.S. Customs and Border Protection (“CBP”) at the Port of Milwaukee issued a penalty notification alleging that certain of the Company’s subsidiaries intentionally misclassified the importation of certain goods into the U.S. during the period 2004-2009. CBP initially assessed a penalty of $18 and subsequently mitigated to $6 . The Company has acknowledged to CBP that the goods were misclassified and has paid all related duties. The Company has asserted that the misclassification was unintentional and disputes the penalty assessment. At the present time, based on the information available, the Company does not believe that a loss for the alleged intentional misclassification is probable. There can be no assurance the Company will be successful in contesting the assessed penalty.
The Company and its subsidiaries are also subject to various other lawsuits and claims with respect to governmental, labor, environmental, securities, vendor and other matters arising out of the Company’s normal course of business. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management believes that the ultimate liabilities resulting from such lawsuits and claims will not materially affect the Company’s consolidated earnings, financial position or cash flow.
The Company has various commitments to purchase materials, supplies and utilities as part of the ordinary course of business. The Company’s basic raw materials for its products are steel and aluminum, both of which are purchased from multiple sources. The Company is subject to fluctuations in the cost of these raw materials (including in connection with tariffs recently imposed in the U.S., which may increase costs) and has periodically adjusted its selling prices to reflect these movements. There can be no assurance that the Company will be able to fully recover any increases or fluctuations in raw material costs from its customers. The Company also has commitments for standby letters of credit and for purchases of capital assets.
K. Derivative and Other Financial Instruments
Fair Value Measurements
Under GAAP a framework exists for measuring fair value, providing a three-tier hierarchy of pricing inputs used to report assets and liabilities that are adjusted to fair value. Level 1 includes inputs such as quoted prices which are available in active markets for identical assets or liabilities as of the report date. Level 2 includes inputs other than those available in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3 includes unobservable pricing inputs that are not corroborated by market data or other objective sources. The Company has no recurring items valued using Level 3 inputs other than certain pension plan assets.
The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment
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Crown Holdings, Inc.
and may affect the valuation of assets and liabilities measured at fair value and their placement within the fair value hierarchy.
The Company applies a market approach to value its commodity price hedge contracts. Prices from observable markets are used to develop the fair value of these financial instruments and they are reported under Level 2. The Company uses an income approach to value its foreign exchange forward contracts. These contracts are valued using a discounted cash flow model that calculates the present value of future cash flows under the terms of the contracts using market information as of the reporting date, such as foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy.
Fair value disclosures for financial assets and liabilities that were accounted for at fair value on a recurring basis are provided later in this note. In addition, see Note L for fair value disclosures related to debt.
Derivative Financial Instruments
In the normal course of business the Company is subject to risk from adverse fluctuations in currency exchange rates, interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes.
For derivative financial instruments accounted for in hedging relationships, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the manner in which effectiveness will be assessed. The Company formally assesses, both at inception and at least quarterly thereafter, whether the hedging relationships are effective in offsetting changes in fair value or cash flows of the related underlying exposures. When a hedge no longer qualifies for hedge accounting, the change in fair value from the date of the last effectiveness test is recognized in earnings. Any gain or loss which has accumulated in other comprehensive income at the date of the last effectiveness test is reclassified into earnings at the same time of the underlying exposure.
Cash Flow Hedges
The Company designates certain derivative financial instruments as cash flow hedges. No components of the hedging instruments are excluded from the assessment of hedge effectiveness. Changes in fair value of outstanding derivatives accounted for as cash flow hedges are recorded in accumulated other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon reclassification from accumulated comprehensive income is the same as that of the underlying exposure. Contracts outstanding at March 31, 2021 mature between and twenty-two months .
When the Company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally specified period, changes to the fair value accumulated in other comprehensive income are recognized immediately in earnings.
The Company uses commodity forward contracts to hedge anticipated purchases of various commodities, including aluminum, fuel oil and natural gas, and these exposures are hedged by a central treasury unit.
The Company also designates certain foreign exchange contracts as cash flow hedges of anticipated foreign currency denominated sales or purchases. The Company manages these risks at the operating unit level. Foreign currency risk is generally hedged with the related commodity price risk.
The Company also uses interest rate swaps to convert interest on floating rate debt to a fixed-rate.
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Crown Holdings, Inc.
The following tables set forth financial information about the impact on other comprehensive income ("OCI"), accumulated other comprehensive income (“AOCI”) and earnings from changes in the fair value of derivative instruments.
| Amount of gain/(loss) recognized in OCI | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| Derivatives in cash flow hedges | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Foreign exchange | $ | ( | $ | |||||||||||||||||||||||||||||
| Interest Rate | ( | |||||||||||||||||||||||||||||||
| Commodities | ( | |||||||||||||||||||||||||||||||
| $ | $ | ( | ||||||||||||||||||||||||||||||
| Amount of gain/(loss) reclassified from AOCI into income | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| Derivatives in cash flow hedges | 2021 | 2020 | Affected line items in the Statement of Operations | |||||||||||||||||||||||||||||
| Foreign exchange | $ | $ | ( | Net sales | ||||||||||||||||||||||||||||
| Commodities | Net sales | |||||||||||||||||||||||||||||||
| Foreign exchange | ( | Cost of products sold | ||||||||||||||||||||||||||||||
| Commodities | ( | ( | Cost of products sold | |||||||||||||||||||||||||||||
| ( | ( | Income before taxes | ||||||||||||||||||||||||||||||
| Provision for income taxes | ||||||||||||||||||||||||||||||||
| Total reclassified | $ | ( | $ | ( | Net income | |||||||||||||||||||||||||||
For the twelve-month period ending March 31, 2022, a net gain of $49 ($39 , net of tax) is expected to be reclassified to earnings for commodity and foreign exchange contracts. No
Fair Value Hedges and Contracts Not Designated as Hedges
The Company designates certain derivative financial instruments as fair value hedges of recognized foreign-denominated assets and liabilities, generally trade accounts receivable and payable and unrecognized firm commitments. The notional values and maturity dates of the derivative instruments coincide with those of the hedged items. Changes in fair value of the derivative financial instruments, excluding time value, are offset by changes in fair value of the related hedged items.
For the three months ended March 31, 2021 and 2020, the Company recorded a gain of $7 and loss of less than $1 from foreign exchange contracts designated as fair value hedges. These adjustments were reported within foreign exchange in the Consolidated Statements of Operations.
Certain derivative financial instruments, including foreign exchange contracts related to intercompany debt, were not designated or did not quality for hedge accounting; however, they are effective economic hedges as the changes in their fair value, except for time value, are offset by changes arising from re-measurement of the related hedged items. The Company’s primary use of these derivative instruments is to offset the earnings impact that fluctuations in foreign exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies. Changes in fair value of these derivative instruments are immediately recognized in earnings as foreign exchange adjustments.
14
Crown Holdings, Inc.
The following table sets forth the impact on earnings from derivatives not designated as hedges.
| Pre-tax amounts of gain/(loss) recognized in income on derivative | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| Derivatives not designated as hedges | 2021 | 2020 | Affected line item in the Statement of Operations | |||||||||||||||||||||||||||||
| Foreign exchange | $ | ( | $ | ( | Net sales | |||||||||||||||||||||||||||
| Foreign exchange | Cost of products sold | |||||||||||||||||||||||||||||||
| Foreign exchange | ( | Foreign exchange | ||||||||||||||||||||||||||||||
| $ | ( | $ | ||||||||||||||||||||||||||||||
Net Investment Hedges
The Company designates certain debt and derivative instruments as net investment hedges to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows.
During the three months ended March 31, 2021 and 2020, the Company recorded a gain of $54 54 26 ($26 , net of tax) in other comprehensive income for certain debt instruments that are designated as hedges of its net investment in a euro-based subsidiary. As of March 31, 2021 and December 31, 2020, cumulative gains of $21 ($44 , net of tax) and losses of $33 ($10 , net of tax) were recognized in accumulated other comprehensive income related to these net investment hedges and the carrying amount of the hedged net investment was €1,115 ($1,308 ) at March 31, 2021.
The following tables set forth the impact on AOCI from changes in the fair value of derivative instruments designated as net investment hedges.
| Amount of gain / (loss) recognized in AOCI | ||||||||||||||||||||||||||||||||
| Three months ended March 31, | ||||||||||||||||||||||||||||||||
| Derivatives designated as net investment hedges | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Foreign exchange | $ | $ | ||||||||||||||||||||||||||||||
Gains and losses representing components excluded from the assessment of effectiveness on derivatives designated as net investment hedges are recognized in accumulated other comprehensive income.
Gains or losses on net investment hedges remain in accumulated other comprehensive income until disposal of the underlying assets.
Fair Values of Derivative Financial Instruments and Valuation Hierarchy
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Crown Holdings, Inc.
| Balance Sheet classification | March 31, 2021 | December 31, 2020 | Balance Sheet classification | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts cash flow | Other current assets | $ | $ | Accrued liabilities | $ | $ | ||||||||||||||||||||||||||||||||
| Other non-current assets | Other non-current liabilities | |||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts fair value | Other current assets | Accrued liabilities | ||||||||||||||||||||||||||||||||||||
| Commodities contracts cash flow | Other current assets | Accrued liabilities | ||||||||||||||||||||||||||||||||||||
| Other non-current assets | Other non-current liabilities | |||||||||||||||||||||||||||||||||||||
| Interest rate contracts cash flow | Other non-current assets | Other non-current liabilities | ||||||||||||||||||||||||||||||||||||
| Net investment hedge | Other non-current assets | Other non-current liabilities | ||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | Other current assets | $ | $ | Accrued liabilities | $ | $ | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Total derivatives | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Fair Value Hedge Carrying Amounts
| Carrying amount of the hedged assets / liabilities | |||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Line item in the Balance Sheet in which the hedged item is included | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||||||||
| Receivables, net | |||||||||||||||||||||||
| Accounts payable | |||||||||||||||||||||||
As of March 31, 2021, the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedge assets and liabilities was a loss of $3 . As of December 31, 2020, the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedge assets and liabilities was a gain of $4 .
Offsetting of Derivative Assets and Liabilities
Certain derivative financial instruments are subject to agreements with counterparties similar to master netting arrangements and are eligible for offset. The Company has made an accounting policy election not to offset the fair values of these instruments within the statement of financial position. In the table below, the aggregate fair values of the Company's derivative assets and liabilities are presented on both a gross and net basis, where appropriate.
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Crown Holdings, Inc.
| Gross amounts recognized in the Balance Sheet | Gross amounts not offset in the Balance Sheet | Net amount | |||||||||
| Balance at March 31, 2021 | |||||||||||
| Derivative assets | $ | $ | $ | ||||||||
| Derivative liabilities | |||||||||||
| Balance at December 31, 2020 | |||||||||||
| Derivative assets | |||||||||||
| Derivative liabilities | |||||||||||
Notional Values of Outstanding Derivative Instruments
The aggregate U.S. dollar-equivalent notional values of outstanding derivative instruments in the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020 were:
| March 31, 2021 | December 31, 2020 | ||||||||||
| Derivatives designated as cash flow hedges: | |||||||||||
| Foreign exchange | $ | $ | |||||||||
| Commodities | |||||||||||
| Interest rate | |||||||||||
| Derivatives designated as fair value hedges: | |||||||||||
| Foreign exchange | |||||||||||
| Derivatives designated as net investment hedges: | |||||||||||
| Foreign exchange | |||||||||||
| Derivatives not designated as hedges: | |||||||||||
| Foreign exchange | |||||||||||
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Crown Holdings, Inc.
L. Debt
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Principal | Carrying | Principal | Carrying | ||||||||||||||||||||
| outstanding | amount | outstanding | amount | ||||||||||||||||||||
| Short-term debt | $ | $ | $ | $ | |||||||||||||||||||
| Long-term debt | |||||||||||||||||||||||
| Senior secured borrowings: | |||||||||||||||||||||||
| Revolving credit facilities | |||||||||||||||||||||||
| Term loan facilities | |||||||||||||||||||||||
U.S. dollar at LIBOR + | |||||||||||||||||||||||
Euro at EURIBOR + | |||||||||||||||||||||||
| Senior notes and debentures: | |||||||||||||||||||||||
€ | |||||||||||||||||||||||
U. S. dollar at | |||||||||||||||||||||||
€ | |||||||||||||||||||||||
€ | |||||||||||||||||||||||
€ | |||||||||||||||||||||||
€ | |||||||||||||||||||||||
U.S. dollar at | |||||||||||||||||||||||
U.S. dollar at | |||||||||||||||||||||||
U.S. dollar at | |||||||||||||||||||||||
€ | |||||||||||||||||||||||
U.S. dollar at | |||||||||||||||||||||||
| Other indebtedness in various currencies | |||||||||||||||||||||||
| Total long-term debt | |||||||||||||||||||||||
| Less current maturities | ( | ( | ( | ( | |||||||||||||||||||
| Total long-term debt, less current maturities | $ | $ | $ | $ | |||||||||||||||||||
(1) €314 and €317 at March 31, 2021 and December 31, 2020
M. Pension and Other Postretirement Benefits
The components of net periodic pension and other postretirement benefits costs for the three months ended March 31, 2021 and 2020 were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| Pension benefits – U.S. plans | 2021 | 2020 | |||||||||||||||||||||
| Service cost | $ | $ | |||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Recognized net loss | |||||||||||||||||||||||
| Net periodic cost | $ | $ | |||||||||||||||||||||
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Crown Holdings, Inc.
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| Pension benefits – Non-U.S. plans | 2021 | 2020 | |||||||||||||||||||||
| Service cost | $ | $ | |||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Settlement loss | |||||||||||||||||||||||
| Recognized net loss | |||||||||||||||||||||||
| Net periodic cost | $ | $ | |||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| Other postretirement benefits | 2021 | 2020 | |||||||||||||||||||||
| Interest cost | $ | $ | |||||||||||||||||||||
| Recognized prior service credit | ( | ( | |||||||||||||||||||||
| Recognized net loss | |||||||||||||||||||||||
| Net periodic benefit | $ | ( | $ | ( | |||||||||||||||||||
In the three months ended March 31, 2020, the Company recorded settlement charges related to the payment of lump sum buy-outs to settle certain non-U.S. pension obligations using plan assets.
The components of net periodic cost / (benefit) other than the service cost component are included in other pension and postretirement in the Consolidated Statement of Operations.
| Three Months Ended | ||||||||||||||||||||||||||||||||
| March 31, | ||||||||||||||||||||||||||||||||
| Details about accumulated other comprehensive income components | 2021 | 2020 | Affected line items in the statement of operations | |||||||||||||||||||||||||||||
| Actuarial losses | $ | $ | Other pension and postretirement | |||||||||||||||||||||||||||||
| Settlements | Other pension and postretirement | |||||||||||||||||||||||||||||||
| Prior service credit | ( | ( | Other pension and postretirement | |||||||||||||||||||||||||||||
| Income before taxes | ||||||||||||||||||||||||||||||||
| ( | ( | Provision for income taxes | ||||||||||||||||||||||||||||||
| Total reclassified | $ | $ | Net income | |||||||||||||||||||||||||||||
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Crown Holdings, Inc.
N. Accumulated Other Comprehensive Income
The following table provides information about the changes in each component of accumulated other comprehensive income.
| Defined benefit plans | Foreign currency translation | Gains and losses on cash flow hedges | Total | |||||||||||||||||||||||
| Balance at January 1, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Other comprehensive income / (loss) before reclassifications | ( | ( | ( | |||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ||||||||||||||||||||||||||
| Other comprehensive income / (loss) | ( | ( | ( | |||||||||||||||||||||||
| Balance at March 31, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Balance at January 1, 2021 | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
| Other comprehensive (loss) / income before reclassifications | ( | ( | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | ( | |||||||||||||||||||||||||
| Other comprehensive income / (loss) | ( | ( | ||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
O. Revenue
For the three months ended March 31, 2021 and 2020, the Company recognized revenue as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Revenue recognized over time | $ | $ | |||||||||||||||||||||
| Revenue recognized at a point in time | |||||||||||||||||||||||
| Total revenue | $ | $ | |||||||||||||||||||||
The Company has applied the practical expedient to exclude disclosure of remaining performance obligations as its binding orders typically have a term of one year or less.
Contract Assets
The Company recorded contract assets of $52 and $37 in prepaid and other current assets as of March 31, 2021 and December 31, 2020. For the three months ended March 31, 2021, the Company recorded new contract assets related to customized work-in-process inventory in the Company's equipment business.
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Crown Holdings, Inc.
P. Earnings Per Share
The following table summarizes the computations of basic and diluted earnings per share attributable to the Company.
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net income attributable to Crown Holdings | $ | $ | |||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Dilutive restricted stock | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | |||||||||||||||||||||
| Diluted earnings per share | $ | $ | |||||||||||||||||||||
For the three months ended March 31, 2020, 0.4 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.
The Company declared and paid cash dividends of $.20 per share for the three months ended March 31, 2021. Additionally, on April 22, 2021, the Company's Board of Directors declared a dividend of $.20 per share payable on May 20, 2021 to shareholders of record on May 6, 2021.
Q. Segment Information
The Company evaluates performance and allocates resources based on segment income, which is not a defined term under GAAP. The Company defines segment income as income from operations adjusted to exclude intangibles amortization charges, provisions for asbestos and restructuring and other, and the impact of fair value adjustments to inventory acquired in an acquisition.
Segment income should not be considered in isolation or as a substitute for net income prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies.
The tables below present information about the Company's operating segments.
| External Sales | |||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Americas Beverage | $ | $ | |||||||||||||||||||||
| European Beverage | |||||||||||||||||||||||
| European Food | |||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Transit Packaging | |||||||||||||||||||||||
| Total reportable segments | |||||||||||||||||||||||
| Other segments | |||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
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Crown Holdings, Inc.
| Intersegment Sales | ||||||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||
| March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Americas Beverage | $ | $ | ||||||||||||||||||||||||
| European Beverage | ||||||||||||||||||||||||||
| European Food | ||||||||||||||||||||||||||
| Transit Packaging | ||||||||||||||||||||||||||
| Total reportable segments | ||||||||||||||||||||||||||
| Other segments | ||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||
Intersegment sales primarily include sales of ends and components used to manufacture cans, such as printed and coated metal, as well as parts and equipment used in the manufacturing process.
| Segment Income | ||||||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||
| March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Americas Beverage | $ | $ | ||||||||||||||||||||||||
| European Beverage | ||||||||||||||||||||||||||
| European Food | ||||||||||||||||||||||||||
| Asia Pacific | ||||||||||||||||||||||||||
| Transit Packaging | ||||||||||||||||||||||||||
| Total reportable segments | $ | $ | ||||||||||||||||||||||||
A reconciliation of segment income of reportable segments to income before income taxes is as follows:
| Three Months Ended | ||||||||||||||||||||||||||
| March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Segment income of reportable segments | $ | $ | ||||||||||||||||||||||||
| Segment income of other segments | ||||||||||||||||||||||||||
| Corporate and unallocated items | ( | ( | ||||||||||||||||||||||||
| Restructuring and other | ( | ( | ||||||||||||||||||||||||
| Amortization of intangibles | ( | ( | ||||||||||||||||||||||||
| Other pension and postretirement | ( | |||||||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Foreign exchange | ||||||||||||||||||||||||||
| Income before income taxes | $ | $ | ||||||||||||||||||||||||
For the three months ended March 31, 2021 and 2020, intercompany profits of $2 and less than $1 were eliminated within segment income of other segments.
Corporate and unallocated items includes corporate and division administrative costs, technology costs, and unallocated items such as stock-based compensation.
22
Crown Holdings, Inc.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(dollars in millions)
Introduction
The following discussion presents management's analysis of the results of operations for the three months ended March 31, 2021 compared to 2020 and changes in financial condition and liquidity from December 31, 2020. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, along with the consolidated financial statements and related notes included in and referred to within this report.
Business Strategy and Trends
The Company's strategy is to grow its businesses in targeted growth markets, while improving operations and results in more mature markets through disciplined pricing, cost control and careful capital allocation.
The Company's global beverage can business continues to be a major strategic focus for organic growth. Beverage cans are the world’s most sustainable and recycled beverage packaging and continue to gain market share in new beverage product launches. The Company continues to drive brand differentiation by increasing its ability to offer multiple product sizes.
For several years, global industry demand for beverage cans has been growing. In North America, beverage can growth has accelerated in recent years mainly due to the outsized portion of new beverage products being introduced in cans versus other packaging formats. In addition, markets such as Brazil, Europe, Mexico and Southeast Asia have also experienced higher volumes and market expansion, although volumes in certain of those markets were negatively affected by the impact of the coronavirus pandemic in 2020. The Company continues to invest in capacity expansion to meet the accelerating demand.
The Company's primary capital allocation focus has been to reduce leverage, as was successfully accomplished following previous acquisitions, and to begin to return capital to its shareholders. In April 2021, the Company announced an agreement to sell its European Tinplate business (the "Business"). The Business comprises the Company’s European Food segment and its European Aerosol and Promotional Packaging reporting unit which is reported in the Company's other segments. The Company will receive pre-tax proceeds of approximately €1.9 billion ($2.2 billion at March 31, 2021) from the transaction and retain a 20% ownership stake in the business. The Company expects to use the net proceeds, after closing working capital adjustments, taxes and other transaction related costs, to further reduce debt, fund capital projects and repurchase shares over time under the $1.5 billion share repurchase program approved by its Board in February 2021.
Beginning with the quarterly period ended June 30, 2021, the results of operations will be reported as discontinued operations in the Consolidated Statement of Operations. In connection with the sale, it is possible that the Company records additional charges that could be material.
In response to the ongoing coronavirus pandemic, the Company continues to take actions to ensure the safety of its employees. The Company has increased safety measures in its manufacturing facilities to protect the safety of its employees and the products they produce. In addition, as many employees as possible are working remotely.
The Company’s products are a vital part of the support system to its customers and consumers. In addition to manufacturing containers that provide protection for food and beverages, the Company also produces closures for baby food, aerosol containers for cleaning and sanitizing products and numerous other products that provide for the safe and secure transportation of goods in transit.
The Company is working to keep its manufacturing facilities around the world operational and equipped with the resources required to meet continually evolving customer demand by delivering high quality products in a safe and timely manner. The Company is actively monitoring and managing supply chain challenges, including coordinating with its suppliers to identify and mitigate potential areas of risk and manage inventories.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
The Company continues to actively elevate its industry-leading commitment to sustainability, which is a core value of the Company. In 2020, the Company debuted Twentyby30, a robust program that outlines twenty measurable environmental, social and governance goals to be completed by 2030 or sooner.
Results of Operations
In assessing performance, the key performance measure used by the Company is segment income, a non-GAAP measure generally defined by the Company as income from operations adjusted to exclude intangibles amortization charges, provisions for asbestos and restructuring and other, and the impact of fair value adjustments to inventory acquired in an acquisition.
The foreign currency translation impacts referred to in the discussion below were primarily due to changes in the euro and pound sterling in the Company's European and Transit Packaging segments and the Canadian dollar and Mexican peso in the Company's Americas Beverage segment. The Company calculates the impact of foreign currency translation by multiplying or dividing, as appropriate, current year U.S. dollar results by the current year average foreign exchange rates and then multiplying or dividing, as appropriate, those amounts by the applicable prior year average exchange rates.
Net Sales and Segment Income
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net sales | $ | 3,078 | $ | 2,757 | |||||||||||||||||||
Three months ended March 31, 2021 compared to 2020
Net sales increased primarily due to higher sales unit volumes across each of the Company's businesses and $92 from the impact of foreign currency translation.
Americas Beverage
The Americas Beverage segment manufactures aluminum beverage cans and ends, steel crowns, glass bottles and aluminum closures and supplies a variety of customers from its operations in the U.S., Brazil, Canada, Colombia and Mexico. The U.S. and Canadian beverage can markets have experienced recent growth due to the introduction of new beverage products in cans versus other packaging formats. To meet volume requirements in these markets, the Company began commercial production on a new beverage can line at its Toronto, Ontario plant in January 2020 and on the third line at its Nichols, NY facility in June 2020. Additionally, the Company has announced a new beverage can facility in Bowling Green, Kentucky, with the first line expected to begin production in the second quarter of 2021 and a second line scheduled for a late third quarter 2021 start-up. To meet the expanding requirements of specialty cans in the Pacific Northwest, the Company will construct a third line in its Olympia, Washington plant which is scheduled to begin production during the third quarter of 2021. The Company also announced construction of a new facility in Henry County, Virginia which is expected to commence operations during the second quarter of 2022.
In Brazil and Mexico, the Company's sales unit volumes have increased in recent years primarily due to market growth driven by increased per capita incomes and consumption, combined with an increased preference for cans over other forms of beverage packaging. The Company will construct a second line at its Rio Verde, Brazil facility that is expected to commence operations during the fourth quarter of 2021. The Company has also begun construction of a two-line facility in Minas Gerais, Brazil, with the first line expected to begin production during the second quarter of 2022 and the second line scheduled to start up during the fourth quarter of 2022.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net sales and segment income in the Americas Beverage segment were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net sales | $ | 993 | $ | 871 | |||||||||||||||||||
| Segment income | 188 | 134 | |||||||||||||||||||||
Three months ended March 31, 2021 compared to 2020
Net sales increased primarily due to 9% higher sales unit volumes and the pass-through of higher aluminum costs.
Segment income increased primarily due to higher sales unit volumes and improved pricing.
European Beverage
The Company's European Beverage segment manufactures steel and aluminum beverage cans and ends and supplies a variety of customers from its operations throughout Europe, the Middle East and North Africa. In recent years, the Western European beverage can markets have been growing. In the second quarter of 2020, two beverage can lines in the Seville, Spain plant began commercial production of aluminum cans.
Net sales and segment income in the European Beverage segment were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net sales | $ | 389 | $ | 346 | |||||||||||||||||||
| Segment income | 62 | 39 | |||||||||||||||||||||
Three months ended March 31, 2021 compared to 2020
Net sales increased due to $21 from the impact of foreign currency translation, 6% higher sales unit volumes and the pass-through of higher aluminum costs.
Segment income increased primarily due to higher sales unit volumes and improved cost performance.
European Food
The European Food segment manufactures steel and aluminum food cans and ends and metal vacuum closures, and supplies a variety of customers from its operations throughout Europe and Africa. The European food can market is a mature market where consumer preference continues to favor the can due to product protection and food preservation.
Net sales and segment income in the European Food segment were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net sales | $ | 460 | $ | 402 | |||||||||||||||||||
| Segment income | 63 | 33 | |||||||||||||||||||||
Three months ended March 31, 2021 compared to 2020
Net sales increased primarily due to $36 from the impact of foreign currency translation and 6% higher sales unit volumes.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Segment income increased as the three months ended March 31, 2020 included charges of $18 from the carryover of higher tinplate costs from the prior year that did not recur in 2021. Additionally, segment income increased due to higher sales unit volumes and $5 from the impact of foreign currency translation.
Asia Pacific
The Company's Asia Pacific segment consists of beverage can operations in Cambodia, China, Indonesia, Malaysia, Myanmar, Singapore, Thailand and Vietnam and non-beverage can operations, primarily food cans and specialty packaging. In recent years, the beverage can market in Southeast Asia has been growing. In 2020, however, industry volumes decreased due to the impact of the coronavirus pandemic. The Company began commercial production at a one-line beverage can plant in Nong Khae, Thailand in July 2020. Additionally, the Company has begun construction of a one-line beverage can plant in Vung Tao, Vietnam, that is expected to begin commercial production in September 2021.
Net sales and segment income in the Asia Pacific segment were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net sales | $ | 331 | $ | 301 | |||||||||||||||||||
| Segment income | 52 | 45 | |||||||||||||||||||||
Three months ended March 31, 2021 compared to 2020
Net sales increased due to 8% higher sales unit volumes and $6 from the impact of foreign currency translation.
Segment income increased primarily due to higher sales unit volumes.
Transit Packaging
The Transit Packaging segment includes the Company's global consumables and equipment and tools businesses. Consumables include steel strap, plastic strap and industrial film and other related products that are used in a wide range of industries, and transit protection products that help prevent movement during transport for a wide range of industrial and consumer products. Equipment and tools includes manual, semi-automatic and automatic equipment and tools used in end-of-line operations to apply industrial solutions consumables.
Net sales and segment income in the Transit Packaging segment were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net sales | $ | 557 | $ | 522 | |||||||||||||||||||
| Segment income | 70 | 66 | |||||||||||||||||||||
Three months ended March 31, 2021 compared to 2020
Net sales increased primarily due to $17 from the impact of foreign currency translation, higher sales unit volumes and the pass-through of higher raw material prices.
Segment income increased primarily due to higher sales unit volumes.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Other Segments
The Company's other segments include its food can and closures businesses in North America, its aerosol can businesses in North America and Europe, and its tooling and equipment operations in the U.S. and U.K.
Net sales and segment income in non-reportable segments were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net sales | $ | 348 | $ | 315 | |||||||||||||||||||
| Segment income | 37 | 19 | |||||||||||||||||||||
Three months ended March 31, 2021 compared to 2020
Net sales increased primarily due to higher sales in the Company's beverage can equipment operations, the pass-through of higher tinplate costs and $8 from the impact of foreign currency translation.
Segment income increased due to higher sales in the Company's beverage can equipment operations and lower tinplate carryover costs as compared to the three months ended March 31, 2020.
Corporate and Unallocated Expense
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Corporate and unallocated expense | $ | (39) | $ | (38) | |||||||||||||||||||
Corporate and unallocated expenses were comparable for the three months ended March 31, 2021 compared to 2020.
Interest Expense
For the three months ended March 31, 2021 compared to 2020, interest expense decreased from $80 to $71 due to lower interest rates and outstanding debt balances.
Net Income Attributable to Noncontrolling Interests
For the three months ended March 31, 2021 compared to 2020, net income attributable to noncontrolling interests increased from $26 to $34 due to higher earnings in the Company's beverage can operations in Brazil.
Liquidity and Capital Resources
Cash from Operations
Cash used for operating activities decreased from $607 for the three months ended March 31, 2020 to $385 for the three months ended March 31, 2021. The decrease in cash used for operating activities was primarily due to higher earnings and changes in working capital.
Days sales outstanding for trade receivables, excluding the impact of unbilled receivables, was 36 days as of March 31, 2020 compared to 37 days as of March 31, 2021.
Inventory turnover was 65 days at March 31, 2020 compared to 63 days at March 31, 2021. Inventory turnover at March 31, 2021 was comparable to 64 days at December 31, 2020.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
The food can business is seasonal with the first quarter tending to be the slowest period as the autumn packaging period in the Northern Hemisphere has ended and new crops are not yet planted. The industry enters its busiest period in the third quarter when the majority of fruits and vegetables in the Northern Hemisphere are harvested. Due to this seasonality, inventory levels increase in the first half of the year to meet peak demand in the second and third quarters. The beverage can business is also seasonal with inventory levels generally increasing in the first half of the year to meet peak demand in the summer months in the Northern Hemisphere.
Days outstanding for trade payables was 85 days at March 31, 2020 compared to 88 days at March 31, 2021.
Investing Activities
Cash used for investing activities increased from $96 for the three months ended March 31, 2020 to $120 for the three months ended March 31, 2021 primarily due to increased capital expenditures related to capacity expansion projects in the Americas Beverage segment.
The Company currently expects capital expenditures in 2021 to be approximately $900.
Financing Activities
Financing activities provided cash of $882 for the three months ended March 31, 2020 and used cash of $55 for the three months ended March 31, 2021. The Company had higher net borrowings and repurchased $57 of capital stock in 2020. During the three months ended March 31, 2021, the Company paid dividends to stockholders of $27.
Liquidity
As of March 31, 2021, $525 of the Company's $588 of cash and cash equivalents was located outside the U.S. The Company funds its cash needs in the U.S. through cash flows from operations in the U.S., distributions from certain foreign subsidiaries, borrowings under its revolving credit facility and the acceleration of cash receipts under its receivable securitization facilities. Of the cash and cash equivalents located outside the U.S., $447 was held by subsidiaries for which earnings are considered indefinitely reinvested. While based on current operating plans the Company does not foresee a need to repatriate these funds, if such earnings were repatriated the Company would be required to record any incremental taxes on the repatriated funds.
As of March 31, 2021, the Company had $1,561 of borrowing capacity available under its revolving credit facility, equal to the total facility of $1,650 less borrowings of $26 and outstanding standby letters of credit of $63. The Company could have borrowed this amount at March 31, 2021 and still have been in compliance with its leverage ratio covenants. The Company's net total leverage ratio, as defined by the credit agreement, of 3.71 to 1.0 at March 31, 2021 was in compliance with the covenant requiring a ratio of no greater than 5.0 to 1.0. The required net total leverage ratio under the agreement reduces to 4.5 to 1.0 at December 31, 2022.
Capital Resources
As of March 31, 2021, the Company had approximately $215 of capital commitments primarily related to its Americas Beverage segment. The Company expects to fund these commitments primarily through cash flows from operations and proceeds from the sale of its European Tinplate business.
Contractual Obligations
During the three months ended March 31, 2021 there were no material changes to the Company's contractual obligations provided within Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the year ended December 31, 2020, which information is incorporated herein by reference.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Supplemental Guarantor Financial Information
As disclosed in Note L, the Company and certain of its 100% directly or indirectly owned subsidiaries provide guarantees of senior notes and debentures issued by other 100% directly or indirectly owned subsidiaries. These senior notes and debentures are fully and unconditionally guaranteed by the Company and substantially all of its subsidiaries in the United States, except in the case of the Company’s outstanding senior notes issued by Crown Cork & Seal Company, Inc., which are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt and the guarantees are made on a joint and several basis.
The following tables present summarized financial information related to the senior notes issued by the Company’s subsidiary debt issuers and guarantors on a combined basis for each issuer and its guarantors (together, an “obligor group”) after elimination of (i) intercompany transactions and balances among the Parent and the guarantors and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor. Crown Cork Obligor group consists of Crown Cork & Seal Company, Inc. and the Parent. Crown Americas Obligor group consists of Crown Americas LLC, Crown Americas Capital Corp. IV, Crown Americas Capital Corp. V, Crown Americas Capital Corp. VI, the Parent, and substantially all of the Company’s subsidiaries in the United States.
Crown Cork Obligor Group
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2021 | |||||||||||||||||||||||
| Net sales | $ | — | |||||||||||||||||||||
| Gross Profit | — | ||||||||||||||||||||||
| Income from operations | (3) | ||||||||||||||||||||||
Net income1 | (18) | ||||||||||||||||||||||
Net income attributable to Crown Holdings1 | (18) | ||||||||||||||||||||||
(1) Includes $9 of expense related to intercompany interest with non-guarantor subsidiaries
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Current assets | $ | 14 | $ | 12 | |||||||||||||||||||
| Non-current assets | 104 | 118 | |||||||||||||||||||||
| Current liabilities | 53 | 63 | |||||||||||||||||||||
Non-current liabilities1 | 4,345 | 4,305 | |||||||||||||||||||||
(1) Includes payables of $3,663 and $3,623 due to non-guarantor subsidiaries as of March 31, 2021 and December 31, 2020
Crown Americas Obligor Group
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2021 | |||||||||||||||||||||||
Net sales1 | $ | 1,017 | |||||||||||||||||||||
Gross profit2 | 172 | ||||||||||||||||||||||
Income from operations2 | 64 | ||||||||||||||||||||||
Net income3 | 8 | ||||||||||||||||||||||
Net income attributable to Crown Holdings3 | 8 | ||||||||||||||||||||||
(1) Includes $110 of sales to non-guarantor subsidiaries
(2) Includes $11 of gross profit related to sales to non-guarantor subsidiaries
(3) Includes $17 of income related to intercompany interest and technology royalties with non-guarantor subsidiaries
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
Current assets1 | $ | 921 | $ | 917 | |||||||||||||||||||
Non-current assets2 | 3,307 | 3,248 | |||||||||||||||||||||
Current liabilities3 | 1,028 | 1,081 | |||||||||||||||||||||
Non-current liabilities4 | 4,561 | 4,491 | |||||||||||||||||||||
(1) Includes receivables of $42 and $45 due from non-guarantor subsidiaries as of March 31, 2021 and December 31, 2020
(2) Includes receivables of $157 and $142 due from non-guarantor subsidiaries as of March 31, 2021 and December 31, 2020
(3) Includes payables of $46 and $54 due to non-guarantor subsidiaries as of March 31, 2021 and December 31, 2020
(4) Includes payables of $130 and $31 due to non-guarantor subsidiaries as of March 31, 2021 and December 31, 2020
Commitments and Contingent Liabilities
Information regarding the Company's commitments and contingent liabilities appears in Part I within Item 1 of this report under Note J, entitled “Commitments and Contingent Liabilities,” to the consolidated financial statements, and in Part II within Item 1A of this report which information is incorporated herein by reference.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. which require that management make numerous estimates and assumptions.
Actual results could differ from these estimates and assumptions, impacting the reported results of operations and financial condition of the Company. Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Note A to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 describe the significant accounting estimates and policies used in the preparation of the consolidated financial statements. Updates to the Company's accounting policies related to new accounting pronouncements are included in Note B to the consolidated financial statements included in this Quarterly Report on Form 10-Q.
Forward Looking Statements
Statements included herein, including, but not limited to, those in “Management's Discussion and Analysis of Financial Condition and Results of Operations” (such as statements regarding the Company's expectation and ability to pay quarterly dividends in the future or statements regarding the Company's initiation of a share repurchase program) and in the discussions of asbestos in Note I and commitments and contingencies in Note J to the consolidated financial statements included in this Quarterly Report on Form 10-Q, and also in Part I, Item 1, “Business” and Item 3, “Legal Proceedings” and in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” within the Company's Annual Report on Form 10-K for the year ended December 31, 2020, which are not historical facts (including any statements concerning the direct or indirect impact of coronavirus, plans, the sale of the Company's European tinplate business (including whether the sale will ultimately be consummated within the expected timeframe or at all and whether the sale will ultimately prove to be beneficial to the Company) and objectives of management for capacity additions, share repurchases, dividends, future operations or economic performance, or assumptions related thereto), are “forward-looking statements” within the meaning of the federal securities laws. In addition, the Company and its representatives may, from time to time, make oral or written statements which are also “forward-looking statements.”
These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company and, therefore, involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with the preparation of “Management's Discussion and Analysis of Financial Condition and Results of Operations” and certain other sections contained in the Company's quarterly, annual or other reports filed with the Securities and Exchange Commission (“SEC”), the Company does not intend to review or revise any particular forward-looking statement in light of future events.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
A discussion of important factors that could cause the actual results of operations or financial condition of the Company to differ from expectations has been set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 within Part II, Item 7: “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward Looking Statements” and is incorporated herein by reference. Some of the factors are also discussed elsewhere in this Form 10-Q (including under Item 1A of Part II below) and in prior Company filings with the SEC. In addition, other factors have been or may be discussed from time to time in the Company's SEC filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange and interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by the counterparties. These instruments are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success in using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales arrangements that permit the pass-through of commodity prices and foreign exchange rate risks to customers. The Company's objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. For further discussion of the Company's use of derivative instruments and their fair values at March 31, 2021, see Note K to the consolidated financial statements included in this Quarterly Report on Form 10-Q.
As of March 31, 2021, the Company had $1.5 billion principal floating interest rate debt. A change of 0.25% in these floating interest rates would change annual interest expense by approximately $4 million before tax.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation and as of the end of the quarter for which this report is made, the Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective. Disclosure controls and procedures ensure that information to be disclosed in reports that the Company files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and terms of the SEC, and ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There has been no change in internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding the Company's potential asbestos-related liabilities and other litigation, see Note I entitled “Asbestos-Related Liabilities” and Note J entitled “Commitments and Contingent Liabilities” to the consolidated financial statements within Part I, Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
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Crown Holdings, Inc.
Item 1A. Risk Factors
The information set forth in this report should be read in conjunction with the risk factors discussed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Such risks are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may also materially adversely affect the Company's business, financial condition and/or operating results.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
The following table provides information about the Company's purchases of equity securities during the three months ended March 31, 2021. The table excludes 117,296 shares surrendered to cover taxes on the vesting of restricted stock during the three months ended March 31, 2021.
| Total number of shares purchased | Average price per share | Total number of shares purchased as part of publicly announced programs | Approximate dollar value of shares that may yet be purchased under the programs as of the end of the period (millions of dollars) | ||||||||||||||||||||
| February | — | — | — | $ | 1,500 | ||||||||||||||||||
| March | — | — | — | 1,500 | |||||||||||||||||||
| — | — | ||||||||||||||||||||||
In February 2021, the Company's Board of Directors authorized the repurchase of an aggregate amount of $1.5 billion of Company common stock through the end of 2023. Share repurchases under the Company's program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as management deems appropriate.
Item 3. Defaults Upon Senior Securities
There were no events required to be reported under Item 3 for the three months ended March 31, 2021.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
On April 21, 2021, the Company entered into Amendment No. 1 to the Senior Executive Retirement Agreement with Didier Sourisseau, dated April 1, 2017 (the “SERP Amendment”). The SERP Amendment provides that Mr. Sourisseau’s retirement benefit under the Company’s Senior Executive Retirement Plan will become fully vested upon the completion of the sale of the Company’s European tinplate business (the “Transaction”), provided that Mr. Sourisseau remains in continuous employment with the Company through the completion of the Transaction. The SERP Amendment is attached as an exhibit to this Form 10-Q and is incorporated herein by reference.
Submission of Matters to a Vote of Security Holders
(a) Crown Holdings, Inc. (the “Company”) held its Annual Meeting of Shareholders on April 22, 2021 (the “Annual Meeting”). As of March 2, 2021, the record date for the meeting, 134,912,097 shares of Common Stock, par value $5.00 per share, of the Company (“Common Stock”) were issued and outstanding. A quorum of 116,307,905 shares of Common Stock were present or represented at the meeting.
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Crown Holdings, Inc.
(b) The following individuals were nominated and elected to serve as directors:
John W. Conway, Timothy J. Donahue, Richared H. Fearon, Andrea J. Funk, Stephen J. Hagge, Rose Lee, James H. Miller, Josef M. Müller, B. Craig Owens, Caesar F. Sweitzer, Jim L. Turner, William S. Urkiel and Dwayne A. Wilson.
At the Annual Meeting, the Company’s shareholders voted on the three matters below as follows:
1)The Company's shareholders elected the following directors pursuant to the following vote:
| Directors | Votes For | Votes Withheld | Broker Non-Vote | |||||||||||||||||
| John W. Conway | 109,708,730 | 2,045,739 | 4,553,436 | |||||||||||||||||
| Timothy J. Donahue | 110,698,696 | 1,055,773 | 4,553,436 | |||||||||||||||||
| Richard H. Fearon | 110,582,131 | 1,172,338 | 4,553,436 | |||||||||||||||||
| Andrea J. Funk | 110,805,454 | 949,015 | 4,553,436 | |||||||||||||||||
| Stephen J. Hagge | 110,663,553 | 1,090,916 | 4,553,436 | |||||||||||||||||
| Rose Lee | 110,623,770 | 1,130,699 | 4,553,436 | |||||||||||||||||
| James H. Miller | 105,149,913 | 6,604,556 | 4,553,436 | |||||||||||||||||
| Josef M. Müller | 110,284,493 | 1,469,976 | 4,553,436 | |||||||||||||||||
| B. Craig Owens | 111,066,059 | 688,410 | 4,553,436 | |||||||||||||||||
| Caesar F. Sweitzer | 110,346,109 | 1,408,360 | 4,553,436 | |||||||||||||||||
| Jim L. Turner | 106,250,758 | 5,503,711 | 4,553,436 | |||||||||||||||||
| William S. Urkiel | 107,682,585 | 4,071,884 | 4,553,436 | |||||||||||||||||
| Dwayne A. Wilson | 111,361,209 | 393,260 | 4,553,436 | |||||||||||||||||
2)The Company's shareholders ratified the appointment of PricewaterhouseCoopers LLP as the Company's independent auditor for the fiscal year ending December 31, 2021 pursuant to the following vote:
| Votes For | Votes Against | Votes Abstaining | Broker Non-Vote | |||||||||||||||||
| 108,816,878 | 7,355,330 | 135,697 | — | |||||||||||||||||
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Crown Holdings, Inc.
3)The Company's shareholders approved by non-binding advisory vote, the resolution on executive compensation (as further described in the Company's 2021 Proxy Statement) pursuant to the following vote:
| Votes For | Votes Against | Votes Abstaining | Broker Non-Vote | |||||||||||||||||
| 103,795,888 | 7,776,515 | 182,066 | 4,553,436 | |||||||||||||||||
Item 6. Exhibits
| 10.w | |||||
| 10(d) (11) | |||||
| 22 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32 | |||||
| 101 | The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, (ii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020, (iii) Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020, (v) Consolidated Statements of Changes in Equity for the three months ended March 31, 2021 and 2020 and (vi) Notes to Consolidated Financial Statements. | ||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | ||||
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Crown Holdings, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Crown Holdings, Inc. Registrant | ||||||||
| By: | /s/ David A. Beaver | |||||||
| David A. Beaver | ||||||||
| Vice President and Corporate Controller | ||||||||
| (Chief Accounting Officer) | ||||||||
Date: April 23, 2021
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