Crown Holdings, Inc. Reports Second Quarter 2019 Results

Consolidated Statements of Operations (Unaudited)

(in millions, except share and per share data)

Six Months Ended

June 30,

2018

2019

2018

Net sales

$3,035

$3,046

$5,790

$5,243

Cost of products sold

2,417

2,466

4,627

4,274

Depreciation and amortization

123

113

245

178

Selling and administrative expense

157

159

314

249

Restructuring and other

(41)

29

Income from operations ⁽¹⁾

383

292

645

513

Pension settlements and curtailments

31

17

Other pension and postretirement

(2)

(17)

(6)

(34)

Foreign exchange

1

10

2

28

Earnings before interest and taxes

353

299

632

519

Interest expense

97

103

195

177

Interest income

(4)

(5)

(7)

(11)

Loss from early extinguishment of debt

6

Income before income taxes

201

438

353

Provision for income taxes

88

55

136

94

Equity earnings

2

1

3

1

Net income

174

147

305

260

Net income attributable to noncontrolling interests

(37)

(15)

(65)

(38)

Net income attributable to Crown Holdings

$132

$240

$222

Earnings per share attributable to Crown Holdings

     common shareholders:

     Basic   

$1.02

$0.99

$1.79

$1.66

     Diluted

$1.02

$0.99

$1.78

$1.66

Weighted average common shares outstanding:

      Basic

133,865,669

133,612,348

133,827,567

133,546,223

      Diluted

134,777,236

133,844,185

134,636,935

133,814,394

Actual common shares outstanding

135,434,877

135,174,989

135,434,877

135,174,989

(1)  A reconciliation from income from operations to segment income follows.

Consolidated Supplemental Financial Data (Unaudited)

(in millions)

Reconciliation from Income from Operations to Segment Income

The Company views segment income, as defined below, as a principal measure of performance of its operations and for the allocation of resources.  Segment income is 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.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Income from operations                              

$

383

$

292

$

645

$

513

Intangibles amortization

48

41

97

52

Fair value adjustment to inventory ⁽¹⁾

40

40

Provision for restructuring and other

(45)

16

(41)

29

Segment income

$

386

$

389

$

701

$

634

(1)

Included in cost of products sold

Segment Information

Net Sales

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Americas Beverage

$

890

$

848

$

1,678

$

1,606

European Beverage

410

405

749

776

European Food

483

514

906

942

Asia Pacific

319

332

640

669

Transit Packaging

592

620

1,161

620

     Total reportable segments

2,694

2,719

5,134

4,613

Non-reportable segments ⁽²⁾

341

327

656

630

       Total net sales

$

3,035

$

3,046

$

5,790

$

5,243

Segment Income 

Americas Beverage

$

139

$

113

$

252

$

211

European Beverage

60

59

99

114

European Food

62

85

110

141

Asia Pacific

51

47

96

91

Transit Packaging

80

94

153

94

     Total reportable segments

392

398

710

651

Non-reportable segments ⁽²⁾

33

31

69

62

Corporate and other unallocated items

(39)

(40)

(78)

(79)

       Total segment income

$

386

$

389

$

701

$

634

(2)

Includes the Company's food can and closures businesses in North America, aerosol can businesses in North America and Europe, promotional packaging business in Europe, and tooling and equipment operations in the U.S. and United Kingdom.

Consolidated Supplemental Data (Unaudited)

(in millions, except per share data)

Reconciliation from Net Income and Diluted Earnings Per Share to Adjusted Net Income and Adjusted Diluted Earnings Per Share

The following table reconciles reported net income and diluted earnings per share attributable to the Company to adjusted net income and adjusted diluted earnings per share, as used elsewhere in this release.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Net income/diluted earnings per share

  attributable to Crown Holdings, as reported

$137

$1.02

$132

$0.99

$240

$1.78

$222

$1.66

    Intangibles amortization ⁽¹⁾

48

0.36

41

0.31

97

0.72

52

0.39

    Fair value adjustment to inventory ⁽²⁾

40

0.30

40

0.30

    Restructuring and other  ⁽³⁾

(0.33)

16

0.12

(41)

(0.30)

29

0.22

    Pension settlements and curtailments ⁽⁴⁾

31

0.23

17

0.13

      Acquisition costs ⁽⁵⁾

24

0.18

    Loss from early extinguishment of debt ⁽⁶⁾

6

0.04

    Income taxes ⁽⁷⁾

12

0.08

(21)

(0.16)

2

0.01

(33)

(0.25)

    Noncontrolling interests ⁽⁸⁾

14

0.10

(0.01)

17

0.13

(1)

(0.01)

Adjusted net income/diluted earnings per
share

$197

$1.46

$207

$1.55

$338

$2.51

$333

$2.49

Effective tax rate as reported

33.8%

27.4%

31.1%

26.6%

Adjusted effective tax rate ⁽⁹⁾

25.9%

25.5%

25.9%

25.5%

Adjusted net income, adjusted diluted earnings per share and the adjusted effective tax rate are non-GAAP measures and are not meant to be considered in isolation or as a substitute for net income, diluted earnings per share and effective tax rates determined in accordance with U.S. generally accepted accounting principles.  The Company believes these non-GAAP measures provide useful information to evaluate the performance of the Company's ongoing business.

(1)

In the second quarter and first six months of 2019, the Company recorded charges of $47 million ($35 million net of tax) and $94 million ($70 million net of tax) for intangibles arising from acquisitions.  Also in the second quarter and first six months of 2019, the Company recorded charge of $1million ($1 million net of tax) and $3 million ($3 million net of tax) for accelerated depreciation related to the planned shutdown of a steel beverage can operation in Spain.  In the second quarter and first six months of 2018, the Company recorded charges of $41 million ($30 million net of tax) and $52 million ($38 million net of tax) for intangibles amortization.

(2)

In the second quarter of 2018, the Company recorded a charge of $40 million ($29 million net of tax) in cost of products sold for fair value adjustment related to the sale of inventory acquired in its acquisition of Signode.

(3)

In the second quarter and first six months of 2019, the Company recorded net restructuring and other gains of $45 million ($31 million net of tax) and $41 million ($26 million net of tax).  The second quarter included a gain of $41 million arising from a favorable court ruling in a lawsuit brought by one of the Company's Brazilian subsidiaries claiming it was overcharged by the local tax authorities for indirect taxes paid in prior years, and other net gains of $4 million primarily related to asset sales. The first six months of 2019 included gains of $50 million related to the favorable court rulings in Brazil, offset by other net charges of $9 million primarily related to restructuring actions and asset sales. In the second quarter and first six months of 2018, the Company recorded net restructuring and other charges of $16 million ($13 million net of tax) and $29 million ($24 million net of tax) including $19 million and $22 million of transaction costs in connection with its acquisition of Signode.

(4)

In the second quarter of 2019, the Company recorded a charge of $31 million ($26 million net of tax) arising from a pension plan settlement.  In the first quarter of 2019, the Company recorded a curtailment gain of $14 million ($12 million net of tax) in connection with the closure of a defined pension plan to future accrual for active members.

(5)

In the first quarter of 2018, the Company recorded a charge of $15 million ($10 million net of tax) for net losses arising from its hedge of the U.S. dollar purchase price of its acquisition of Signode.  Also in the first quarter, the Company incurred net charges of $9 million ($7 million net of tax) for pre-acquisition interest carrying costs on borrowings to finance the acquisition.

(6)

In the first quarter of 2019, the Company recorded a charge of $6 million ($5 million net of tax) for the write off of deferred financing fees in connection with the repayment of a portion of its term loan.

(7)

In the second quarter and first six months of 2019, the Company recorded income tax benefits of $3 million and $13 million related to the items described above. Also in the second quarter of 2019, the Company recorded a charge of $15 million to settle a tax contingency arising from a transaction that occurred prior to its acquisition of Signode.  In the second quarter and first six months of 2018, the Company recorded income tax benefits of $21 million and $33 million related to the items described above.

(8)

In the second quarter and first six months of 2019, the Company recorded noncontrolling interest expense of $14 million and $17 million related to the items described above.  In the second quarter and first six months of 2018, the Company recorded noncontrolling interest benefits of $1 million and $1 million related to the items described above. 

(9)

Income tax effects on adjusted net income were calculated using the applicable tax rates of the underlying jurisdictions.

June 30,

    2019 ⁽¹⁾

2018

Assets

Current assets

    Cash and cash equivalents

$

342

$

298

    Receivables, net

1,830

1,790

    Inventories

1,837

1,737

    Prepaid expenses and other current assets

205

330

            Total current assets

4,214

4,155

Goodwill and intangible assets, net

6,554

6,741

Property, plant and equipment, net

3,761

3,688

Other non-current assets

1,043

776

            Total

$

15,572

$

15,360

Liabilities and equity

Current liabilities

    Short-term debt

$

135

$

31

    Current maturities of long-term debt

88

84

    Accounts payable and accrued liabilities

3,385

3,414

            Total current liabilities

3,608

3,529

Long-term debt, excluding current maturities

8,549

9,236

Other non-current liabilities

1,709

1,458

Noncontrolling interests

406

353

Crown Holdings shareholders' equity

1,300

784

Total equity

1,706

1,137

            Total

$

15,572

$

15,360

⁽¹⁾

On January 1, 2019, the Company adopted new lease accounting guidance resulting in increases in other non-current assets and other non-current liabilities of $220.  Prior period amounts have not been recast and continue to be reported in accordance with accounting guidance in effect for those periods.

Consolidated Statements of Cash Flows (Condensed & Unaudited)

(in millions)

Six months ended June 30,

2019

2018

Cash flows from operating activities

     Net income

$

305

$

260

     Depreciation and amortization 

245

178

     Restructuring and other

(41)

29

     Pension expense

40

3

     Pension contributions

(9)

(10)

     Stock-based compensation

16

11

     Working capital changes and other

(783)

(963)

           Net cash used for operating activities ⁽¹⁾ 

(227)

(492)

Cash flows from investing activities

     Capital expenditures

(154)

(200)

     Beneficial interest in transferred receivables

335

     Acquisition of business, net of cash acquired

(3,907)

     Proceeds from sale of assets

11

5

     Other

6

(25)

           Net cash used for investing activities

(137)

(3,792)

Cash flows from financing activities

     Net change in debt

130

4,246

     Dividends paid to noncontrolling interests

(11)

(6)

     Common stock repurchased

(2)

(4)

     Debt issue costs

(70)

     Other, net

(18)

(4)

           Net cash provided by financing activities

99

4,162

Effect of exchange rate changes on cash and cash equivalents

3

(6)

Net change in cash and cash equivalents

(262)

(128)

Cash and cash equivalents at January 1

659

435

Cash and cash equivalents at June 30 ⁽²⁾

$

397

$

307

(1)

Adjusted free cash flow is defined by the Company as net cash used for operating activities plus beneficial interest in transferred receivables less capital expenditures and certain other items.  A reconciliation from net cash used for operating activities to adjusted free cash flow for the three and six months ended June 30, 2019 and 2018 follows.

(2)

Cash and cash equivalents includes $55 and $9 of restricted cash at June 30, 2019 and 2018.

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Net cash from operating activities

$439

$259

$(227)

$(492)

Beneficial interest in transferred receivables ⁽³⁾

160

335

Acquisition costs

19

22

Adjusted cash used for operating activities

439

438

(227)

(135)

Interest included in investing activities ⁽⁴⁾

6

Capital expenditures

(79)

(108)

(154)

(200)

Adjusted free cash flow

$360

$330

$(335)

(3)

Subsequent to amendments to the Company's receivables securitization program during the third quarter of 2018, certain activity that was previously reported as investing activity is now reported as operating activity. 

(4)

Interest benefit of cross currency swaps included in investing activities.

⁽¹⁾

The impact of foreign currency translation represents the difference between actual current year U.S. dollar results and pro forma amounts assuming constant foreign currency exchange rates for translation in both periods.  In order to compute the difference, the Company compares actual U.S. dollar results to an amount calculated by multiplying or dividing, as appropriate, the current U.S. dollar results by current year average foreign exchange rates and then multiplying or dividing, as appropriate, those amounts by the applicable prior year average foreign exchange rates.

Comparative Results for Transit Packaging

Revenue

Segment Income

Depreciation ⁽²⁾

2019

2018

2017

2019

2018

2017

2019

2018

2017

Q1

$569

$588

$526

$73

$79

$76

$15

$13

$12

Q2

592

620

575

80

94

80

14

14

13

Q3

585

565

81

82

15

12

Q4

595

566

80

82

14

13

$2,388

$2,232

$334

$320

$56

$50

⁽²⁾  Amount of depreciation expense included in segment income.

Reconciliation of Adjusted EBITDA

June YTD
2019

June YTD
2018

Full Year
2018

Twelve Months
ended June 30, 2019

Income from operations

$645

$513

$1,096

$1,228

Add:

   Intangibles amortization

97

52

148

193

   Fair value adjustment to inventory

40

40

   Provision for restructuring and other

(41)

29

44

(26)

Segment income

701

634

1,328

1,395

Other pension and postretirement

6

34

67

39

Depreciation

148

126

277

299

Adjusted EBITDA

$855

$794

$1,672

$1,733