Crown Holdings, Inc. Reports Third Quarter 2018 Results

(in millions, except share and per share data)

Nine Months Ended

September 30,

2018

2017 ⁽¹⁾

Net sales

$3,174

$2,468

$8,417

$6,530

Cost of products sold

2,530

1,972

6,804

5,235

Depreciation and amortization

127

63

305

183

Selling and administrative expense

153

89

402

270

Restructuring and other

28

30

Income from operations ⁽²⁾

365

328

878

812

Other pension and postretirement

(13)

(19)

(47)

(43)

Foreign exchange

(14)

14

4

Earnings before interest and taxes

392

347

911

851

Interest expense

105

64

282

187

Interest income

(6)

(4)

(17)

(10)

Loss from early extinguishment of debt

7

Income before income taxes

287

646

667

Provision for income taxes

102

79

196

178

Equity earnings

2

3

Net income

193

208

453

489

Net income attributable to noncontrolling interests

(29)

(31)

(67)

(77)

Net income attributable to Crown Holdings

$164

$177

$386

$412

Earnings per share attributable to Crown Holdings

     common shareholders:

     Basic   

$1.23

$1.32

$2.89

$3.03

     Diluted

$1.23

$1.32

$2.88

$3.02

Weighted average common shares outstanding:

      Basic

133,729,731

134,020,310

133,608,065

135,906,571

      Diluted

133,849,368

134,415,656

133,816,005

136,394,239

Actual common shares outstanding

135,190,167

134,274,620

135,190,167

134,274,620

(1)     Prior year results have been restated to reflect new accounting guidance on the presentation of pension and 
          postretirement expense in the statement of operations.

(2)     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, the impact of fair value adjustments to inventory acquired in an acquisition, and the timing impact of hedge ineffectiveness.

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018

2017

2018

2017

Income from operations                              

$

365

$

328

$

878

$

812

Intangibles amortization

51

9

103

29

Fair value adjustment to inventory ⁽¹⁾

40

Provision for restructuring and other

(1)

16

28

30

Impact of hedge ineffectiveness ⁽¹⁾

(1)

2

Segment income

$

415

$

352

$

1,049

$

873

Segment Information

Net Sales

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Americas Beverage

$

872

$

763

$

2,478

$

2,166

European Beverage

418

428

1,194

1,133

European Food

623

639

1,565

1,477

Asia Pacific

321

300

990

865

Transit Packaging

585

1,205

     Total reportable segments

2,819

2,130

7,432

5,641

Non-reportable segments ⁽²⁾

355

338

985

889

       Total net sales

$

3,174

$

2,468

$

8,417

$

6,530

Segment Income ⁽³⁾

Americas Beverage

$

125

$

129

$

336

$

342

European Beverage

66

77

180

198

European Food

90

100

231

222

Asia Pacific

46

40

137

124

Transit Packaging

81

175

     Total reportable segments

408

346

1,059

886

Non-reportable segments ⁽²⁾

40

39

102

101

Corporate and other unallocated items

(33)

(33)

(112)

(114)

       Total segment income

$

415

$

352

$

1,049

$

873

(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.

(3)      Prior year segment income has been restated to reflect new accounting guidance on the presentation of pension and postretirement expense and the 
          Company's revised policy to exclude intangibles amortization charges from segment income.  A reconciliation from 2017 segment income to 
          amounts previously reported is included below.

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

September 30,

Nine Months Ended

September 30,

2018

2017

2018

2017

Net income/diluted earnings per share

  attributable to Crown Holdings, as reported

$164

$1.23

$177

$1.32

$386

$2.88

$412

$3.02

    Intangibles amortization ⁽¹⁾

51

0.38

9

0.07

103

0.77

29

0.21

    Fair value adjustment to inventory ⁽²⁾

40

0.30

    Restructuring and other  ⁽³⁾

(0.01)

12

0.09

28

0.21

26

0.19

    Impact of hedge ineffectiveness ⁽⁴⁾

(1)

(0.01)

2

0.01

      Acquisition costs ⁽⁵⁾

24

0.18

    Loss from early extinguishment of debt ⁽⁶⁾

7

0.05

    Income taxes and noncontrolling interests ⁽⁷⁾

15

0.11

(0.01)

(19)

(0.14)

(14)

(0.09)

Adjusted net income/diluted earnings per share

$229

$1.71

$196

$1.46

$562

$4.20

$462

$3.39

Effective tax rate as reported

34.8%

27.5%

30.3%

26.7%

Adjusted effective tax rate ⁽⁸⁾

25.4%

26.1%

25.4%

26.3%

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 third quarter and first nine months of 2018, the Company recorded charges of $51 million ($38 million net of tax) and $103 million 
               ($76 million net of tax) for intangibles amortization arising from acquisitions, including its acquisition of Signode in the second quarter of 
               2018.  In the third quarter and first nine months of 2017, the Company recorded charges of $9 million ($7 million net of tax) and $29 
               million ($21 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 third quarter and first nine months of 2018, the Company recorded net restructuring and other charges of $12 million ($10 million 
               net of tax) and $34 million ($31 million net of tax) including $22 million of transaction costs for the nine months in connection with its 
               acquisition of Signode.  In the third quarter and first nine months of 2017, the Company recorded restructuring and other charges of $3 
               million ($3 million net of tax) and $23 million ($18 million net of tax) primarily due to the settlement of a litigation matter related to Mivisa 
               that arose prior to its acquisition by Crown in 2014, and $4 million of curtailment gain reported in other pension and postretirement.   

               In the third quarter and first nine months of 2018, the Company recorded gains of $13 million ($11 million net of tax) and $6 million ($5 
               million net of tax) for asset sales and impairments.  In the third quarter and first nine months of 2017, the Company recorded charges of 
               $9 million ($9 million net of tax) and $3 million ($4 million net of tax) for asset sales and impairments.

(4)           In the third quarter and first nine months of 2017, the Company recorded benefits of $1 million (less than $1 million net of tax) and 
               charges of $2 million ($2 million net of tax) in cost of products sold related to the timing impact of hedge ineffectiveness caused primarily 
               by volatility in the metal premium component of aluminum prices.

(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 second quarter of 2017, the Company recorded a charge of $7 million ($5 million net of tax) for the write off of deferred financing 
               fees in connection with the refinancing of its term loan and revolving credit facilities.

(7)           In the third quarter and first nine months of 2018, the Company recorded income tax and noncontrolling interest benefits of $13 million 
               and $47 million related to the items described above.  Also in the third quarter of 2018, the Company recorded charges of $28 million 
               related to taxes on the distribution of foreign earnings, including an adjustment for the impact of the "Tax Cut and Jobs Act".  In the third 
               quarter and first nine months of 2017, the Company recorded income tax benefits of $1 million and $14 million related to the items 
               described above.

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

September 30,

2018

2017

Assets

Current assets

    Cash and cash equivalents

$

298

$

374

    Receivables, net

1,968

1,098

    Inventories

1,639

1,430

    Prepaid expenses and other current assets

193

251

            Total current assets

4,098

3,153

Goodwill and intangible assets, net

6,753

3,562

Property, plant and equipment, net

3,722

3,066

Other non-current assets

762

715

            Total

$

15,335

$

10,496

Liabilities and equity

Current liabilities

    Short-term debt

$

53

$

50

    Current maturities of long-term debt

89

68

    Accounts payable and accrued liabilities

3,459

2,919

            Total current liabilities

3,601

3,037

Long-term debt, excluding current maturities

8,928

5,114

Other non-current liabilities

1,496

1,233

Noncontrolling interests

369

314

Crown Holdings shareholders' equity

941

798

Total equity

1,310

1,112

            Total

$

15,335

$

10,496

Consolidated Statements of Cash Flows (Condensed & Unaudited)

(in millions)

Nine months ended September 30,

2018

2017

Cash flows from operating activities

     Net income

$

453

$

489

     Depreciation and amortization 

305

183

     Restructuring and other

28

30

     Pension expense

8

14

     Pension contributions

(14)

(46)

     Stock-based compensation

17

16

     Working capital changes and other

(1,029)

(956)

           Net cash used for operating activities ⁽¹⁾ 

(232)

(270)

Cash flows from investing activities

     Capital expenditures

(305)

(282)

     Beneficial interest in transferred receivables

490

758

     Acquisition of business, net of cash acquired

(3,912)

     Proceeds from sale of assets

27

     Other

(19)

(12)

           Net cash provided by/(used for) investing activities

(3,719)

464

Cash flows from financing activities

     Net change in debt

3,999

(24)

     Dividends paid to noncontrolling interests

(18)

(68)

     Common stock repurchased

(4)

(339)

     Debt issue costs

(70)

(15)

     Other, net

(5)

46

           Net cash provided by/(used for) financing activities

3,902

(400)

Effect of exchange rate changes on cash and cash equivalents

(32)

16

Net change in cash and cash equivalents

(81)

(190)

Cash and cash equivalents at January 1

435

576

Cash and cash equivalents at September 30 ⁽²⁾

$

354

$

386

(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 nine months ended September 30, 2018 and 2017 follows.

(2)     Cash and cash equivalents includes $56 and $12 of restricted cash at September 30, 2018 and 2017.

Three Months Ended

September 30,

Nine Months Ended

September 30,

2018

2017

2018

2017

Net cash from operating activities

$260

$205

$(232)

$(270)

Beneficial interest in transferred receivables ⁽³⁾

155

251

490

758

Acquisition costs

22

Adjusted cash used for operating activities

415

456

280

488

Capital expenditures

(105)

(82)

(305)

(282)

Adjusted free cash flow

$310

$374

$206

Consolidated Supplemental Data (Unaudited)

Reconciliation of 2017 Segment Income to Amounts Previously Reported

Third Quarter 2017 Segment Income ⁽¹⁾

Segment

As Previously Reported

Pension and Postretirement

Intangibles Amortization

As Currently Reported

Americas Beverage

$131

$(6)

$4

$129

European Beverage

78

(1)

77

European Food

96

4

100

Asia Pacific

40

40

Non-reportable

43

(5)

1

39

Corporate and unallocated

(30)

(3)

(33)

Total segment income

$358

$(15)

$9

$352

YTD 2017 Segment Income ⁽¹⁾

Segment

As Previously Reported

Pension and Postretirement

Intangibles Amortization

As Currently Reported

Americas Beverage

$345

$(18)

$15

$342

European Beverage

201

(3)

198

European Food

210

12

222

Asia Pacific

124

124

Non-reportable

113

(14)

2

101

Corporate and unallocated

(110)

(4)

(114)

Total segment income

$883

$(39)

$29

$873

(1)  Prior year segment income has been restated to reflect new accounting guidance on the presentation of pension and 
       postretirement expense and the Company's revised policy to exclude intangibles amortization charges from segment 
       income.

Consolidated Supplemental Data (Unaudited)

(in millions, except per share data)

Comparative Results for Signode

Revenue

Segment Income

Depreciation ⁽¹⁾

2018

2017

2018

2017

2018

2017

Q1

$588

$526

$79

$76

$13

$12

Q2

620

575

94

80

14

13

Q3

585

565

81

82

15

12

Q4

566

82

13

$2,232

$320

$50

(1)     Amount of depreciation expense included in segment income, including acquisition step-up depreciation in 2018.