CROWN HOLDINGS INC

Previous wording

The following discussion presents management's analysis of the results of operations for the three months ended March 31, 2024 compared to 2023 and changes in financial condition and liquidity from December 31, 2023. 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, 2023, along with the consolidated financial statements and related notes included in and referred to within this report.

Current wording

The following discussion presents management's analysis of the results of operations for the three and six months ended June 30, 2024 compared to 2023 and changes in financial condition and liquidity from December 31, 2023. 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, 2023, along with the consolidated financial statements and related notes included in and referred to within this report.

Previous wording

The Company's strategy is to maximize long-term shareholder value by pursuing profitable organic and inorganic growth opportunities while returning cash to shareholders through dividends and share repurchases.

Current wording

The Company's strategy is to maximize long-term shareholder value by pursuing profitable growth opportunities while returning cash to shareholders through dividends and share repurchases.

Previous wording

The Company's strategy is anchored by strong cash flow generation and a healthy balance sheet with a targeted net leverage ratio in the range of 3.0x to 3.5x adjusted EBITDA (a non-GAAP measure). At the current net leverage level, the Company believes it has the flexibility and resources to fund growth, repay debt and return excess cash flow to shareholders in the future. In December 2021, the Board of Directors authorized the repurchase of $3,000 in Company common stock through the end of 2024.

Current wording

The Company's strategy is anchored by strong cash flow generation and a healthy balance sheet with a long-term net leverage ratio target of 2.5x adjusted EBITDA (a non-GAAP measure). The Company believes it has the flexibility and resources to fund growth, repay debt and return excess cash flow to shareholders in the future. On July 25, 2024, the Company's Board of Directors authorized the repurchase of an aggregate amount of $2,000 of the Company's common stock through the end of 2027. The new authorization supersedes the previous authorization announced in December 2021, which authorized the repurchase of an aggregate amount of $3,000 of Company common stock through the end of 2024.

Previous wording

The foreign currency translation impacts referred to in the discussion below were primarily due to changes in the Mexican peso in the Company's Americas Beverage segment and the Thai baht in the Company's Asia Pacific segment.

Current wording

The foreign currency translation impacts referred to in the discussion below were primarily due to changes in the Mexican peso in the Company's Americas Beverage segment and the Thai baht in the Company's Asia Pacific segment. The Company's Transit Packaging segment is a global business and the foreign currency translation impacts referred to in the discussion below are primarily related to the Indian rupee and the Mexican peso.

Previous wording

Net sales decreased primarily due to $130 from the pass-through of lower aluminum, steel and other commodity costs and lower overall volumes in Asia Pacific, Transit Packaging and Other segments, partially offset by higher beverage can shipments in the Americas and European Beverage segments and favorable foreign currency translation of $10.

Current wording

Net sales decreased primarily due to $94 from the pass-through of lower aluminum, steel and other commodity costs, lower overall volumes in Asia Pacific, Transit Packaging and Other segments and unfavorable foreign currency translation of $13, partially offset by higher beverage can shipments in the Americas and European Beverage segments.

Previous wording

Net sales increased primarily due to 5% higher shipments and favorable foreign currency translation of $6, partially offset by $16 pass-through of lower aluminum costs.

Current wording

Net sales increased primarily due to 10% higher shipments, partially offset by $29 pass-through of lower aluminum costs.

Previous wording

Segment income improved due to higher shipments and lower start up costs compared to 2023.

Current wording

Segment income increased due to higher shipments and lower start-up costs compared to 2023.

Previous wording

Net sales decreased primarily due to the pass-through of $58 lower aluminum costs, partially offset by 7% higher shipments in North America and favorable foreign currency translation of $7.

Current wording

Net sales decreased due to the pass-through of $87 in lower aluminum costs, partially offset by 7% higher shipments and favorable foreign currency translation of $6.

Previous wording

Segment income improved due to higher shipments and lower start up costs compared to 2023.

Current wording

Segment income increased due to higher shipments and lower start-up costs compared to 2023.

Previous wording

The Company's European Beverage segment manufactures 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 European beverage can market has been growing due to a market shift to cans versus other packaging formats. To meet volume requirements, the Company added additional line capacity in Agoncillo, Spain, a new greenfield facility in Peterborough, U.K. and acquired Helvetia Packaging AG, a beverage can and end manufacturing facility in Saarlouis, Germany.

Current wording

The Company's European Beverage segment manufactures 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 European beverage can market has been growing due to a market shift to cans versus other packaging formats. To meet volume requirements, in 2023 the Company added additional line capacity in Agoncillo, Spain, a new greenfield facility in Peterborough, U.K. and acquired Helvetia Packaging AG, a beverage can and end manufacturing facility in Saarlouis, Germany.

Previous wording

In 2023, volume softness was noted across each country in the Asia Pacific segment as the region continues to struggle with the effects of higher inflation and interest rates. In the fourth quarter of 2023, the Company announced the closure of its beverage can facilities in Ho Chi Minh City, Vietnam and Singapore with capacity relocated to the Company's Vung Tau, Vietnam facility.

Current wording

In 2023, volume softness was noted across each country in the Asia Pacific segment as the region continued to struggle with the effects of higher inflation and interest rates. In the fourth quarter of 2023, the Company announced the closure of its beverage can facilities in Ho Chi Minh City, Vietnam and Singapore with capacity relocated to the Company's Vung Tau, Vietnam facility.

Previous wording

In June 2022, the Company's Yangon, Myanmar beverage can plant was temporarily idled due to currency restrictions, which resulted in the inability to source U.S. dollars required to procure U.S. dollar raw materials. The Company began production on a limited basis in 2023 and had net sales of $3 for the three months ended March 31, 2024. Property, plant and equipment in Myanmar as of March 31, 2024 was $51, including $25 of land and buildings and $26 of machinery and equipment. The Company will continue to monitor the economic conditions and the impact to its business in Myanmar, including any alternative uses for its machinery and equipment.

Current wording

In June 2022, the Company's Yangon, Myanmar beverage can plant was temporarily idled due to currency restrictions, which resulted in the inability to source U.S. dollars required to procure U.S. dollar raw materials. The Company began production on a limited basis in 2023 and had net sales of $4 for the six months ended June 30, 2024. Property, plant and equipment in Myanmar as of June 30, 2024 was $50, including $24 of land and buildings and $26 of machinery and equipment. The Company will continue to monitor the economic conditions and the impact to its business in Myanmar, including any alternative uses for its machinery and equipment.

Previous wording

Net sales decreased primarily due to 8% lower shipments, the pass-through of $19 lower aluminum costs and unfavorable foreign currency of $6.

Current wording

Net sales decreased primarily due to 5% lower shipments, the pass-through of $17 lower aluminum costs and unfavorable foreign currency of $6.

Previous wording

Segment income increased primarily due to improved matching of aluminum pass-through provisions as a result of lower inventory in 2024.

Current wording

Segment income increased primarily due to improved matching of aluminum pass-through provisions as a result of lower inventory in 2024, favorable customer mix and cost savings realized as part of prior year restructuring actions.

Previous wording

Other includes the Company's food can, aerosol can and closures businesses in North America, and beverage tooling and equipment operations in the U.S. and U.K. The Company is expected to add a pet food can line to its Dubuque, Iowa plant in 2024.

Current wording

Other includes the Company's food can, aerosol can and closures businesses in North America, and beverage tooling and equipment operations in the U.S. and U.K. The Company added a pet food can line to its Dubuque, Iowa plant in the first half of 2024.

Previous wording

Net sales and segment income decreased primarily due to lower volumes in the food can, aerosol can and equipment businesses. Net sales were also negatively impacted by $11 due to the pass-through of lower steel costs.

Current wording

Net sales and segment income decreased primarily due to lower volumes in the food can, aerosol can and equipment businesses. Net sales were also negatively impacted by $23 due to the pass-through of lower steel costs.

Previous wording

Corporate and unallocated expenses increased for the three months ended March 31, 2024 compared to 2023, primarily due to higher property insurance costs, including $8 incurred during the quarter related to a facility fire, and incentive compensation.

Current wording

Corporate and unallocated expenses increased for the three and six months ended June 30, 2024 compared to 2023, primarily due to higher incentive compensation, including stock compensation.

Previous wording

The Company periodically reviews the useful lives of property, plant and equipment. Based on the Company’s experience with the duration over which equipment and buildings of its aluminum beverage can business can be utilized, the Company engaged a third-party appraiser to assist in this review and, as a result, increased the estimated useful lives of buildings up to 50 years and machinery and equipment up to 23 years effective January 1, 2024. The change in accounting estimate will be applied on a prospective basis. The change in useful lives resulted in a net reduction in depreciation expense of $16 for the three months ended March 31, 2024, as compared to the amount of depreciation expense that would have been recorded by utilizing the prior depreciable lives.

Current wording

The Company periodically reviews the useful lives of property, plant and equipment. Based on the Company’s experience with the duration over which equipment and buildings of its aluminum beverage can business can be utilized, the Company engaged a third-party appraiser to assist in this review and, as a result, increased the estimated useful lives of buildings up to 50 years and machinery and equipment up to 23 years effective January 1, 2024. The change in accounting estimate will be applied on a prospective basis. The change in useful lives resulted in a net reduction in depreciation expense of $16 and $32 for the three and six months ended June 30, 2024, respectively, as compared to the amount of depreciation expense that would have been recorded by utilizing the prior depreciable lives.

Previous wording

For the three months ended March 31, 2024, restructuring and other net charges of $23 primarily included business reorganization activities in the Company's European Beverage segment. The Company continues to review its costs structure and may record additional restructuring charges in the future.

Current wording

For the three and six months ended June 30, 2024, restructuring and other net charges of $17 and $40, respectively, primarily included business reorganization activities in the Company's European Beverage and Other segments. The Company continues to review its costs structure and may record additional restructuring charges in the future.

Previous wording

The increase in the effective tax rate for the three months ended March 31, 2024 compared to 2023, was primarily due to the geographic distribution of the Company's world-wide earnings in higher-tax jurisdictions.

Current wording

The decrease in the effective tax rate for the three and six months ended June 30, 2024 compared to 2023, was primarily due a benefit of $16 taken in 2024 related to the release of a valuation allowance resulting from improved profitability in a European subsidiary, offset by an increase in earnings in higher-tax jurisdictions.

Previous wording

For the three months ended March 31, 2024 compared to 2023, net income from noncontrolling interests increased from $20 to $26 primarily due to higher earnings in the Company's beverage can operations in Brazil.

Current wording

For the three and six months ended June 30, 2024 compared to 2023, net income from noncontrolling interests increased from $30 to $33 and $50 to $59 primarily due to higher earnings in the Company's beverage can operations in Brazil.

Previous wording

Cash used for operating activities decreased from $235 for the three months ended March 31, 2023 to $102 for the three months ended March 31, 2024, primarily due to working capital improvements, partially offset by lower distributions from equity method investments.

Current wording

Cash provided by operating activities increased from $293 for the six months ended June 30, 2023 to $343 for the six months ended June 30, 2024, primarily due to working capital improvements, partially offset by lower distributions from equity method investments.

Previous wording

Days sales outstanding for trade receivables, excluding the impact of unbilled receivables, decreased from 35 days as of March 31, 2023 to 32 days as of March 31, 2024.

Current wording

Days sales outstanding for trade receivables, excluding the impact of unbilled receivables, was 34 days as of June 30, 2023 and June 30, 2024.

Previous wording

Inventory turnover decreased from 74 days at March 31, 2023 to 63 days at March 31, 2024, primarily due to efforts to reduce inventory levels across most businesses.

Current wording

Inventory turnover decreased from 70 days at June 30, 2023 to 60 days at June 30, 2024, primarily due to efforts to reduce inventory levels across most businesses.

Previous wording

Days outstanding for trade payables decreased from 84 days at March 31, 2023 to 83 days at March 31, 2024.

Current wording

Days outstanding for trade payables increased from 81 days at June 30, 2023 to 87 days at June 30, 2024 primarily due to lower purchases in 2023 as a result of prior year inventory builds.

Previous wording

Cash used for investing activities decreased from $161 for the three months ended March 31, 2023 to $81 for the three months ended March 31, 2024, primarily due to lower capital expenditures. Additionally, the three months ended March 31, 2023 included a distribution from an equity method investment of $56.

Current wording

Cash used for investing activities decreased from $378 for the six months ended June 30, 2023 to $143 for the six months ended June 30, 2024, primarily due to lower capital expenditures. Additionally, the six months ended June 30, 2023 included a distribution from an equity method investment of $56.

Previous wording

As of March 31, 2024, $634 of the Company's $1,123 of cash and cash equivalents was located outside the U.S. The Company is not currently aware of any legal restrictions under foreign law that materially impact its access to cash held outside the U.S. The Company funds its cash needs in the U.S. through a combination of cash flows from operations, dividends from certain foreign subsidiaries, borrowings under its revolving credit facility and the acceleration of cash receipts under its receivable securitization and factoring facilities. Of the cash and cash equivalents located outside the U.S., $382 was held by subsidiaries for which earnings are considered indefinitely reinvested.

Current wording

As of June 30, 2024, $836 of the Company's $1,414 of cash and cash equivalents was located outside the U.S. The Company is not currently aware of any legal restrictions under foreign law that materially impact its access to cash held outside the U.S. The Company funds its cash needs in the U.S. through a combination of cash flows from operations, dividends from certain foreign subsidiaries, borrowings under its revolving credit facility and the acceleration of cash receipts under its receivable securitization and factoring facilities. Of the cash and cash equivalents located outside the U.S., $505 was held by subsidiaries for which earnings are considered indefinitely reinvested.

Previous wording

The Company’s revolving credit facilities and term loan facilities also contain a total leverage ratio covenant. The leverage ratio is calculated as total net debt divided by Consolidated EBITDA (as defined in the credit agreement). Total net debt is defined in the credit agreement as total debt less cash and cash equivalents. Consolidated EBITDA is calculated as the sum of, among other things, net income attributable to Crown Holdings, net income attributable to certain of the Company's subsidiaries, income taxes, interest expense, depreciation and amortization, and certain non-cash charges. The Company’s total net leverage ratio of 3.3 to 1.0 at March 31, 2024 was in compliance with the covenant requiring a ratio no greater than 4.5 to 1.0. The ratio is calculated at the end of each quarter using debt and cash balances as of the end of the quarter and Consolidated EBITDA for the most recent twelve months. Failure to meet the financial covenant could result in the acceleration of any outstanding amounts due under the revolving credit facilities and term loan facilities.

Current wording

The Company’s revolving credit facilities and term loan facilities also contain a total leverage ratio covenant. The leverage ratio is calculated as total net debt divided by Consolidated EBITDA (as defined in the credit agreement). Total net debt is defined in the credit agreement as total debt less cash and cash equivalents. Consolidated EBITDA is calculated as the sum of, among other things, net income attributable to Crown Holdings, net income attributable to certain of the Company's subsidiaries, income taxes, interest expense, depreciation and amortization, and certain non-cash charges. The Company’s total net leverage ratio of 3.1 to 1.0 at June 30, 2024 was in compliance with the covenant requiring a ratio no greater than 4.5 to 1.0. The ratio is calculated at the end of each quarter using debt and cash balances as of the end of the quarter and Consolidated EBITDA for the most recent twelve months. Failure to meet the financial covenant could result in the acceleration of any outstanding amounts due under the revolving credit facilities and term loan facilities.

Previous wording

Based on market conditions and interest rates, the Company may consider various opportunistic strategies to manage its pension obligations, including lump sum payments and the purchase of annuity insurance contracts, which may require additional pension contributions and the use of plan assets. These strategies could be significant and result in the Company recording pension settlement charges to accelerate the timing of recognition of actuarial losses recorded in accumulated other comprehensive income. As of March 31, 2024, the Company had $674 of net losses related to pension benefit obligations recorded in accumulated other comprehensive income.

Current wording

pension obligation, through lump sum payments and the purchase of annuity insurance contracts which may require additional pension contributions and the use of plan assets. These strategies could be significant and result in the Company making cash contributions to the plan or recording pension settlement charges to accelerate the timing of recognition of actuarial losses recorded in accumulated other comprehensive income. As of June 30, 2024, the Company had $661 of net losses related to pension benefit obligations recorded in accumulated other comprehensive income.

Previous wording

As of March 31, 2024, the Company had approximately $112 of capital commitments primarily related to Americas Beverage and European Beverage. The Company expects to fund these commitments primarily through cash flows from operations.

Current wording

As of June 30, 2024, the Company had approximately $111 of capital commitments primarily related to Americas Beverage and European Beverage. The Company expects to fund these commitments primarily through cash flows from operations.

Previous wording

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.

Current wording

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. V, Crown Americas Capital Corp. VI, the Parent, and substantially all of the Company’s subsidiaries in the United States.

Previous wording

(1) Includes $14 of expense related to intercompany interest with non-guarantor subsidiaries

Current wording

(1) Includes $28 of expense related to intercompany interest with non-guarantor subsidiaries

Previous wording

(1) Includes payables of $5,539 and $5,514 due to non-guarantor subsidiaries as of March 31, 2024 and December 31, 2023

Current wording

(1) Includes payables of $5,548 and $5,514 due to non-guarantor subsidiaries as of June 30, 2024 and December 31, 2023

Previous wording

(1) Includes $102 of sales to non-guarantor subsidiaries

Current wording

(1) Includes $219 of sales to non-guarantor subsidiaries

Previous wording

(2) Includes $10 of gross profit related to sales to non-guarantor subsidiaries

Current wording

(2) Includes $22 of gross profit related to sales to non-guarantor subsidiaries

Previous wording

(3) Includes $6 of income related to intercompany interest and technology royalties with non-guarantor subsidiaries

Current wording

(3) Includes $12 of income related to intercompany interest and technology royalties with non-guarantor subsidiaries

Previous wording

(2) Includes receivables of $165 and $189 due from non-guarantor subsidiaries as of March 31, 2024 and December 31, 2023

Current wording

(2) Includes receivables of $201 and $189 due from non-guarantor subsidiaries as of March 31, 2024 and December 31, 2023

Previous wording

(3) Includes payables of $29 and $35 due to non-guarantor subsidiaries as of March 31, 2024 and December 31, 2023

Current wording

(3) Includes payables of $25 and $35 due to non-guarantor subsidiaries as of March 31, 2024 and December 31, 2023

Previous wording

(4) Includes payables of $2,087 and $2,134 due to non-guarantor subsidiaries as of March 31, 2024 and December 31, 2023

Current wording

(4) Includes payables of $2,090 and $2,134 due to non-guarantor subsidiaries as of March 31, 2024 and December 31, 2023

Previous wording

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, 2023 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.

Current wording

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, 2023 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.