Crown Holdings, Inc. Reports First Quarter 2018 Results

Consolidated Statements of Operations (Unaudited)

(in millions, except share and per share data)

  Three Months Ended March 31,

2018

2017 ⁽¹⁾

Net sales

$2,197

$1,901

Cost of products sold

1,808

1,531

Depreciation and amortization

65

59

Selling and administrative expense

90

90

Restructuring and other

13

(4)

Income from operations ⁽²⁾

221

225

Other pension and postretirement

(17)

(12)

Foreign exchange

18

(1)

Earnings before interest and taxes

220

238

Interest expense

74

62

Interest income

(6)

(3)

Income before income taxes

152

179

Provision for income taxes

39

46

Net income

113

133

Net income attributable to noncontrolling interests

(23)

(26)

Net income attributable to Crown Holdings

$90

$107

Earnings per share attributable to Crown Holdings

     common shareholders:

     Basic

$0.67

$0.77

     Diluted

$0.67

$0.77

Weighted average common shares outstanding:

      Basic

133,479,364

138,475,013

      Diluted

133,806,636

138,956,825

Actual common shares outstanding at quarter end

134,299,633

137,758,282

(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 March 31,

2018

     Income from operations      

$

221

$

225

     Intangibles amortization

11

10

     Provision for restructuring and other

13

(4)

     Impact of hedge ineffectiveness ⁽¹⁾

(5)

     Segment Income

$

245

$

226

(1)

Included in cost of products sold

(2)

Prior year results have 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.

Segment Information

     Net Sales

2018

2017

Actual

Actual

     Americas Beverage

$

758

$

674

     European Beverage

371

303

     European Food

428

379

     Asia Pacific

337

278

          Total reportable segments

1,894

1,634

     Non-reportable segments ⁽³⁾

303

267

            Total net sales

$

2,197

$

1,901

     Segment Income ⁽⁴⁾

     Americas Beverage

$

98

$

104

     European Beverage

55

50

     European Food

56

51

     Asia Pacific

44

39

          Total reportable segments

253

244

     Non-reportable segments ⁽³⁾

31

28

     Corporate and other unallocated items

(39)

(46)

            Total segment income

$

245

$

226

(3)

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

(4)

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.

Net income/diluted earnings per share attributable to

 Crown Holdings, as reported

$90

$0.67

$107

$0.77

     Intangibles amortization ⁽¹⁾

11

.08

10

.07

     Restructuring and other  ⁽²⁾

13

.10

(4)

(.03)

     Impact of hedge ineffectiveness ⁽³⁾

(5)

(.03)

     Acquisition costs ⁽⁴⁾

24

.18

     Income taxes ⁽⁵⁾

(12)

(.09)

(1)

(.01)

Adjusted net income/diluted earnings per share

$126

$0.94

$107

$0.77

Effective tax rate as reported

25.7%

25.7%

Adjusted effective tax rate

25.5%

26.1%

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 first quarters of 2018 and 2017, the Company recorded charges of $11 million ($8 million net of tax) and $10 million ($7 million net of tax) for intangibles amortization arising from its acquisitions of Mivisa in 2014 and Empaque in 2015.

(2)

In the first quarter of 2018, the Company recorded restructuring and other charges of $6 million ($5 million net of tax) including $3 million of transaction costs.  In the first quarter of 2017, the Company recorded restructuring and other charges of $2 million ($2 million net of tax) related to previously announced restructuring projects.    

In the first quarter of 2018, the Company recorded charges of $7 million ($6 million net of tax) for asset sales and impairments.  In the first quarter of 2017, the Company recorded net gains of $6 million ($5 million net of tax) for asset sales and impairments.      

(3)

In the first quarter of 2017, the Company recorded a benefit of $5 million ($4 million net of tax) in cost of products sold related to hedge ineffectiveness caused primarily by volatility in the metal premium component of aluminum prices.   

(4)

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 for its acquisition of Signode.  In addition, the Company incurred net charges of $9 million ($7 million net of tax) for pre-acquisition interest carrying costs on borrowings to finance the transaction.

(5)

In the first quarter of 2018, the Company recorded income tax benefits of $12 million related to the items described above.  In the first quarter of 2017, the Company recorded income tax benefits of $1 million related to the items described above.    

2018

2017

Assets

Current assets

    Cash and cash equivalents

$

2,201

$

338

    Receivables, net

1,386

899

    Inventories

1,431

1,417

    Prepaid expenses and other current assets

243

234

            Total current assets

5,261

2,888

Goodwill and intangible assets

3,621

3,357

Property, plant and equipment, net

3,322

2,898

Other non-current assets

875

727

            Total

$

13,079

$

9,870

Liabilities and equity

Current liabilities

    Short-term debt

$

32

$

37

    Current maturities of long-term debt

61

57

    Accounts payable and accrued liabilities

2,768

2,402

            Total current liabilities

2,861

2,496

Long-term debt, excluding current maturities

7,778

5,206

Other non-current liabilities

1,328

1,309

Noncontrolling interests

347

316

Crown Holdings shareholders' equity

765

543

Total equity

1,112

859

            Total

$

13,079

$

9,870

Consolidated Statements of Cash Flows (Condensed & Unaudited)

(in millions)

Three months ended March 31,

2018

2017

Cash flows from operating activities

     Net income

$

113

$

133

     Depreciation and amortization 

65

59

     Restructuring and other

13

(4)

     Pension expense

1

5

     Pension contributions

(5)

(13)

     Stock-based compensation

6

4

     Working capital changes and other

(944)

(761)

           Net cash used for operating activities ⁽¹⁾ 

(751)

(577)

Cash flows from investing activities

     Capital expenditures

(92)

(107)

     Beneficial interest in transferred receivables

175

257

     Proceeds from sale of assets

3

     Other

(25)

           Net cash provided by investing activities

58

153

Cash flows from financing activities

     Net change in debt

2,475

343

     Dividends paid to noncontrolling interests

(13)

     Common stock repurchased

(1)

(133)

     Other, net

(19)

2

           Net cash provided by financing activities

2,455

199

Effect of exchange rate changes on cash and cash equivalents

14

4

Net change in cash and cash equivalents

1,776

(221)

Cash and cash equivalents at January 1

435

576

Cash and cash equivalents at March 31 ⁽²⁾

$

2,211

$

355

(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 months ended March 31, 2018 
      and 2017 follows. 

(2)  Cash and cash equivalents includes $10 and $17 of restricted cash at March 31, 2018 and 2017.

Three months ended March 31,

2018

2017

Net cash used for operating activities

($751)

($577)

Beneficial interest in transferred receivables ⁽³⁾

175

257

Acquisition costs

3

Adjusted cash used for operating activities

(  573)

(  320)

Capital expenditures

(    92)

(  107)

Adjusted free cash flow

($665)

($427)

(3)  Prior year cash flow has been restated to reflect new accounting guidance related to the classification of 
      certain cash receipts associated with the Company's receivable securitization programs.  Certain receipts 
      previously reported in cash from operations are now reported in cash from investing activities as 
      "Beneficial interest in transferred receivables".

Consolidated Supplemental Data (Unaudited)

(in millions, except per share data)

Q1
Actual

Full Year
Estimate

Previous adjusted earnings per share guidance

$0.80

(midpoint)

$4.30-$4.50

Mivisa and Empaque amortization ⁽¹⁾

0.06

0.22

Addition of Signode for nine months

0.69

All other

0.08

0.14

Revised actual/estimated adjusted earnings per share

$0.94

(1)

Add-back of amortization charges was not considered in previous guidance.

Impact of Intangibles Amortization Charges Excluded from Adjusted Earnings per Share

The following table provides information on the impact of the Company's revised policy to exclude intangibles amortization charges when calculating adjusted net income and adjusted earnings per share, including the impact on amounts reported in prior periods.

     Acquisition

Q1

2017

Full year

2017

Q1

2018

Full year

2018 ⁽³⁾

     Mivisa and Empaque ⁽²⁾

$10

$39

$11

$42

     Signode

102

     Pre-tax impact

10

39

11

144

     Tax

(3)

(11)

(3)

(38)

     After tax impact

$7

$28

$8

$106

     Shares

139.0

135.6

133.8

134.3

     Per share impact

$0.05

$0.21

$0.06

$0.79

(2)

Prior to this earnings release, intangibles amortization charges for Mivisa and Empaque were not an excluded item when calculating adjusted net income and adjusted earnings per share.  The Company has revised its policy with the acquisition of Signode.

(3)

Full year 2018 amounts for Signode include intangibles amortization charges for the period beginning April 3, 2018 through December 31, 2018.  The amounts for Signode are estimates and subject to change based on the final purchase price allocation.

(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.

Historical Revenue for Signode

The information below presents Signode's revenue for 2017 and the first quarter of 2018 at actual exchange rates prevailing during the periods.