10-K 1 cck-12312018x10xk.htm 2018 FORM 10-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
 
[ ]
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
CROWN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
 
75-3099507
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
770 Township Line Road, Yardley, PA
 
19067-4232
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 215-698-5100
____________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
 
Name of each exchange on which registered
Common Stock $5.00 Par Value
 
New York Stock Exchange
7  3/8% Debentures Due 2026
 
New York Stock Exchange
 1/2% Debentures Due 2096
 
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
(Title of Class)
 ____________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  [X]    No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes [ ]    No  [X]

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 filings requirements for the past 90 days.    Yes  [X]    No  [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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  [X]    No  [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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.
 
Large accelerated filer
 
[X]
  
Accelerated filer
 
[ ]
Non-accelerated filer
 
[ ] 
  
Smaller reporting company
 
[ ]
 
 
 
 
Emerging growth company
 
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [X]
As of June 30, 2018, 135,174,989 shares of the Registrant’s Common Stock, excluding shares held in Treasury, were issued and outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant on such date was $6,050,432,508 based on the New York Stock Exchange closing price for such shares on that date.
As of February 28, 2019, 135,338,085 shares of the Registrant’s Common Stock were issued and outstanding. 

DOCUMENTS INCORPORATED BY REFERENCE
Document
 
Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2019
 
Part III to the extent described therein




Crown Holdings, Inc.


2018 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS
 
 
PART I
 
 
 
 
1

 
 
 
7

 
 
 
21

 
 
 
21

 
 
 
23

 
 
 
23

 
 
 
 
PART II
 
 
 
 
24

 
 
 
26

 
 
 
27

 
 
 
41

 
 
 
42

 
 
 
108

 
 
 
108

 
 
 
109

 
 
 
 
PART III
 
 
 
 
109

 
 
 
109

 
 
 
110

 
 
 
110

 
 
 
110

 
 
 
 
PART IV
 
 
 
 
111

 
 
 
117

 
 
 
118





Crown Holdings, Inc.

PART I
ITEM 1.
BUSINESS

Crown Holdings, Inc. (the “Company” or the “Registrant”) (where the context requires, the “Company” shall include reference to the Company and its consolidated subsidiary companies) is a Pennsylvania corporation.

The Company is a worldwide leader in the design, manufacture and sale of packaging products and equipment for consumer goods and industrial products. The Company’s packaging for consumer goods include steel and aluminum cans for food, beverage, household and other consumer products, glass bottles for beverage products, metal vacuum closures and steel crowns sold through the Company's sales organization to the soft drink, food, citrus, brewing, household products, personal care and various other industries. The Company's packaging for industrial products includes steel and plastic strap consumables and equipment, paper-based protective packaging, and plastic film consumables and equipment, which are sold into the metals, food and beverage, construction, agricultural, corrugated and general industries.

At December 31, 2018, the Company operated 241 plants along with sales and service facilities throughout 47 countries and had approximately 33,000 employees. Consolidated net sales for the Company in 2018 were $11.2 billion with 73% derived from operations outside the U.S.

DIVISIONS AND OPERATING SEGMENTS

The Company's business is generally organized by product line and geography within four divisions: Americas, Europe, Asia Pacific and Transit Packaging. See below for further information regarding the Company's divisions and reportable segments within each division. The Company's non-reportable segments include its North American food can business, its European aerosol and promotional packaging business, its North American aerosol can business and its tooling and equipment operations in the U.S. and U.K.

Additional financial information concerning the Company’s operating segments is set forth within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report and under Note X to the consolidated financial statements.

AMERICAS DIVISION

The Americas Division includes operations in the U.S., Brazil, Canada, the Caribbean, Colombia and Mexico. These operations manufacture beverage, food and aerosol cans and ends, glass bottles, specialty packaging, metal vacuum closures, steel crowns and caps. At December 31, 2018, the division operated 48 plants in seven countries and had approximately 7,500 employees. In 2018, the Americas Division had net sales of $4.2 billion.

Americas Beverage

The Americas Beverage segment manufactures aluminum beverage cans and ends, glass bottles, steel crowns and aluminum caps. Manufacturing facilities are located in the U.S., Brazil, Canada, Colombia and Mexico. Americas Beverage had net sales in 2018 of $3.3 billion and segment income (as defined under Note X to the consolidated financial statements) of $454 million.


 EUROPEAN DIVISION

The European Division includes operations in Europe, the Middle East and Africa. These operations manufacture beverage, food and aerosol cans and ends, promotional packaging and metal vacuum closures and caps. At December 31, 2018, the division operated 61 plants in 22 countries and had approximately 11,500 employees. Net sales in 2018 were $3.7 billion.

European Beverage

The European Beverage segment manufactures steel and aluminum beverage cans and ends in Europe, the Middle East and North Africa. European Beverage had net sales in 2018 of $1.5 billion and segment income (as defined under Note X to the consolidated financial statements) of $193 million.





Crown Holdings, Inc.




European Food

The European Food segment manufactures steel and aluminum food cans and ends, and metal vacuum closures, in Europe, Africa and the Middle East. European Food had net sales in 2018 of $2.0 billion and segment income (as defined under Note X to the consolidated financial statements) of $257 million.

ASIA PACIFIC DIVISION

The Asia Pacific Division is a reportable segment which primarily consists of beverage can operations in Cambodia, China, Indonesia, Malaysia, Myanmar, Singapore, Thailand and Vietnam and also includes the Company's non-beverage can operations, primarily food cans and specialty packaging. At December 31, 2018, the division operated 30 plants in eight countries and had approximately 4,500 employees.

The Asia Pacific segment had net sales in 2018 of $1.3 billion and segment income (as defined under Note X to the consolidated financial statements) of $186 million.

TRANSIT PACKAGING DIVISION

The Company's Transit Packaging Division is a reportable segment which includes the Company’s industrial and protective solutions and equipment and tools businesses. Industrial solutions include steel strap, plastic strap, industrial film and other related products that are used in a wide range of industries, including steel, lumber, brick/block, corrugated boxes, food and beverage goods, agriculture products, and a large variety of other goods. Protective solutions include transit protection products, such as airbags, edge protectors, and honeycomb products that help prevent movement of, and/or damage to, a wide range of industrial and consumer goods during transport. Equipment and tools includes manual, semi-automatic and automatic equipment and tools, which are primarily used in “end of line” manufacturing applications to apply consumables such as strap and film.

At December 31, 2018, the division operated 99 plants in 23 countries, including, Belgium, Germany, India, Sweden, Switzerland and the U.S. The division had approximately 9,000 employees at December 31, 2018.

The Transit Packaging segment had net sales of $1.8 billion and segment income (as defined under Note X to the consolidated financial statements) of $255 million for the period April 3, 2018 through December 31, 2018.

PRODUCTS

Beverage Cans and Glass Bottles

The Company supplies beverage cans and ends and other packaging products to a variety of beverage and beer companies, including Anheuser-Busch InBev, Coca-Cola, Keurig Dr Pepper, Heineken, Molson Coors, Pepsi-Cola and Refresco, among others. The Company’s beverage can business is built around local, regional and global markets, which has served to develop the Company’s understanding of global customer and consumer expectations. The Company's glass bottle business is based in Mexico and serves customers in the local market.

The beverage market is dynamic and highly competitive, with each packaging manufacturer working together with its customers to satisfy consumers’ ever-changing needs. The Company competes by offering its customers broad market knowledge, resources at all levels of its worldwide organization and extensive research and development capabilities that have enabled the Company to provide its customers with innovative products. The Company meets its customers’ beverage packaging needs with an array of two-piece beverage cans and ends and metal bottle caps. Innovations include the SuperEnd® and 360 End™ beverage can ends, and size variations. Size variations include slim and sleek cans for portion control, low calorie products or other product differentiation, as well as larger sizes for high volume consumption. The Company expects to continue to add capacity in many of the growth markets around the world.

Beverage can and glass bottle manufacturing is capital intensive, requiring significant investment in tools and machinery. The Company seeks to effectively manage its invested capital and is continuing its efforts to reduce the metal content of its cans and reduce non-metal costs, including water and energy usage, while improving production processes.




2

Crown Holdings, Inc.


Food Cans and Closures

The Company manufactures a variety of food cans and ends, including two-piece and three-piece cans in assorted shapes and sizes, and sells food cans to food marketers such as Abbott Laboratories, Bonduelle, Morgan Foods, Nestlé, Princes Group and Simmons Foods, among others. The Company offers a wide variety of metal vacuum closures and sealing equipment solutions to leading marketers such as Abbott Laboratories, Danone, H. J. Heinz, Nestlé and Unilever, among others, from a network of metal vacuum closure plants around the world. The Company supplies total packaging solutions, including metal and composite closures, capping systems and services while working closely with customers, retailers and glass and plastic container manufacturers to develop innovative closure solutions and meet customer requirements.

Technologies used to produce food cans include three-piece welded, two-piece drawn and wall-ironed and two-piece drawn and redrawn. The Company also offers its LIFTOFF™ series of food ends, including its Easylift™ full aperture steel food can ends, and PeelSeam™ and PeelFit™ flexible aluminum foil laminated ends. The Company offers expertise in closure design and decoration, ranging from quality printing of the closure in up to nine colors, to inside-the-cap printing, which offers customers new promotional possibilities, to better product protection through Ideal Closures™, Orbit™ and Superplus™. The Company’s commitment to innovation has led to developments in packaging materials, surface finishes, can shaping, lithography, filling, retorting, sealing and opening techniques and environmental performance. The Company manufactures easy open, vacuum and conventional ends for a variety of heat-processed and dry food products including fruits and vegetables, meat and seafood, soups, ready-made meals, infant formula, coffee and pet food.

Transit Packaging

The Company's products are used to contain, unitize, and protect goods during manufacturing, transport, and warehousing and are sold around the world under a broad array of well-known brand names such as Signode, Strapex, Orgapack, Shippers Airbags, Angleboard, and MIMA. The Company serves diverse end markets, including metals, food and beverage, construction, agricultural, corrugated and general industrial. The Company's long operational history has resulted in a large base of equipment, which drives recurring revenue through the sale of consumables, parts and service offerings and future equipment replacement sales. The Company's customer concentration is low.

Aerosol Cans

The Company’s customers for aerosol cans and ends include manufacturers of personal care, food, household and industrial products, including Friesland Campina, Procter & Gamble, SC Johnson and Unilever, among others. The aerosol can business is highly competitive. The Company competes by offering its customers a broad range of products including multiple sizes, multiple color schemes and shaped packaging.

Promotional and Specialty Packaging

The Company’s promotional and specialty packaging businesses are primarily located in Europe and Asia. The Company produces a wide range of promotional and specialty packaging containers with numerous lid and closure variations. The Company’s customers include Britvic and Nestlé among others.

SALES AND DISTRIBUTION

Global marketers qualify suppliers on the basis of their ability to provide global service, innovative designs and technologies in a cost-effective manner.

With its global reach, the Company markets and sells products to customers through its own sales and marketing staffs. In some instances, contracts with customers are centrally negotiated, but products are ordered through and distributed directly by the Company’s local facilities. The Company’s facilities are generally located in proximity to their respective major customers. The Company works closely with customers in order to develop new business and to extend the duration of its existing contracts.

Many customers provide the Company with quarterly or annual estimates of product requirements along with related quantities pursuant to which periodic commitments are given. Such estimates assist the Company in managing production and controlling use of working capital. The Company schedules its production to meet customer requirements. Because the production time for the Company’s products is short, any backlog of customer orders in relation to overall sales is not significant.




3

Crown Holdings, Inc.


SEASONALITY

The food packaging business is somewhat seasonal with the first quarter tending to be the slowest period as the autumn packing period in the Northern Hemisphere has ended and new crops are not yet planted. The industry generally enters its busiest period in the third quarter when the majority of fruits and vegetables are harvested and immediately canned. Due to this seasonality, inventory levels increase in the first half of the year to meet peak demand in the second and third quarters. Weather represents a substantial uncertainty in the yield of food products and is a major factor in determining the demand for food cans in any given year. Generally, beverage products are consumed in greater amounts during the warmer months of the year and sales have generally been higher in the second and third quarters of the calendar year.

The Company’s other businesses tend not to be as significantly affected by seasonal variations.

COMPETITION

Most of the Company’s packaging products for consumer goods are sold in highly competitive markets, primarily based on price, quality, service and performance. The Company competes with other packaging manufacturers as well as with fillers, food processors and packers, some of whom manufacture containers for their own use and for sale to others. The Company’s competitors include, but are not limited to, Ardagh Group, Ball Corporation, BWAY Corporation, Can-Pack S.A., Metal Container Corporation and Silgan Holdings Inc.

The Transit Packaging Division also faces substantial competition from many regional and local competitors of various sizes in the manufacture, distribution and sale of its products. The division differentiates itself from the competition by leveraging its global scale, broad product portfolio and established brand reputation. The division's products compete, to some extent, with various other packaging materials, including other products made of paper, plastics, wood and various types of metal.

CUSTOMERS

The Company’s largest customers consist of many of the leading manufacturers and marketers of packaged consumer products in the world. Consolidation trends among beverage and food marketers have led to a concentrated customer base. The Company’s top ten global customers represented in the aggregate approximately 29% of its 2018 net sales. In each of the years in the period 2016 through 2018, no one customer accounted for more than ten percent of the Company’s net sales. Each operating segment, with the exception of the Transit Packaging Segment, has major customers and the loss of one or more of these major customers could have a material adverse effect on an individual segment or the Company as a whole. Major customers include those listed above under the caption "Products". In addition to sales to Coca-Cola and Pepsi-Cola, the Company also supplies independent licensees of Coca-Cola and Pepsi-Cola.

RESEARCH AND DEVELOPMENT

The Company's principal Research, Development & Engineering ("RD&E") Centers for packaging products for consumer goods are located in Alsip, Illinois and Wantage, United Kingdom. The Company utilizes its centralized RD&E capabilities to advance and deliver technologies for the Company's worldwide packaging activities that (1) promote development of value-added metal packaging systems for its customers, (2) design cost-efficient manufacturing processes, systems and materials and material-efficient container designs that further the sustainability of metal packaging, (3) provide continuous quality and/or production efficiency improvements in its manufacturing facilities, (4) advance customer and supplier relationships, and (5) provide value-added engineering services and technical support. These capabilities facilitate (1) the identification of new and/or expanded market opportunities by working directly with customers to develop new packaging products or enhance existing packaging products through the application of new technologies that better differentiate customers' products in the retail environment (for example, the creation of new packaging shapes, novel decoration methods, or the addition of digital content through unique codes) and/or the incorporation of consumer-valued features (for example, improved openability and/or ease of use) and (2) the reduction of manufacturing costs by reducing the material content of the Company's products (while retaining necessary performance characteristics), reducing spoilage, and increasing operating efficiencies in manufacturing facilities.

The Company maintains a substantial portfolio of patents and other intellectual property ("IP") in the field of metal packaging systems and seeks strategic partnerships to extend its IP in existing and emerging markets. As a result, the Company has licensed IP in geographic regions where the Company has a limited market presence today. Existing technologies such as SuperEnd® beverage ends, 360 End™ beverage ends, Easy-Flow™ beverage ends, Eole™ easy-open food ends and can shaping have been licensed in Australia, Japan, and Africa to provide customers with global access to Crown's brand building innovations.


4

Crown Holdings, Inc.


The Transit Packaging Division has a distributed RD&E model and is well known throughout its markets for its ability to drive product innovation and leadership in new technologies. The division focuses on market driven innovation and has a long history of creating product and service solutions that solve problems and create value for its customers. The division's individual business units are primarily responsible for designing and executing their own research and development projects and the division's development process is comprised of a customer-oriented, "outside-in" approach. The division works with customers to determine their most pressing industrial packaging challenges, utilizing a rigorous multi-step product development process to ensure that they shape the ultimate product for both the customer and the broader market. Transit Packaging's track record of new product innovation is due in large part to the success of this model.

The Transit Packaging Division has been an industry leader in industrial packaging innovation over the last 100 years as evidenced by their introduction of the first strap packaging product (1913), the first fully-automatic strapping machine (1946), the industry's first battery operated plastic strap hand tools (1995), and most recently the industry's first battery-operated steel strap hand tools (2013). At the core of its intellectual property strategy is a focus on obtaining quality patents that cover key products and technologies, in alignment with its business objectives. The Transit Packaging Division has grown its global patent portfolio to over 380 United States issued patents or pending patent applications and over 1,300 foreign issued patents or pending patent applications. The portfolio broadly covers about 400 customized technologies and spans diverse business platforms, as well as the different countries in which it operates. The division continues to grow its patent base and has filed 170 new patent applications since the beginning of 2010.

The Company spent $51 million in 2018, $39 million in 2017, and $41 million in 2016 in its RD&E activities. Certain of these activities are expected to improve and expand the Company's product lines in the future. These expenditures include projects to improve manufacturing efficiencies, reduce unit costs, and develop new and improved value-added packaging systems.

MATERIALS AND SUPPLIERS

The Company uses various raw materials, primarily aluminum and steel, in its manufacturing operations. The Transit Packaging division also uses materials derived from crude oil and natural gas, such as polyethylene and polypropylene. In general, these raw materials are purchased in highly competitive, price-sensitive markets, which have historically exhibited price and demand cyclicality. These and other materials used in the manufacturing process have historically been available in adequate supply from multiple sources.

The Company has agreements for what it considers adequate supplies of raw materials. However, sufficient quantities may not be available in the future due to, among other things, shortages due to excessive demand, weather or other factors, including disruptions in supply caused by raw material transportation or production delays. From time to time, some of the raw materials have been in short supply but, to date, these shortages have not had a significant impact on the Company’s operations.

In 2018, consumption of steel and aluminum represented 21% and 36% of consolidated cost of products sold, excluding depreciation and amortization. Due to the significance of these raw materials to the overall cost of products sold, raw material efficiency is a critical cost component of the products manufactured. Supplier consolidations, changes in ownership, government regulations, political unrest and increased demand for raw materials in the packaging and other industries, among other risk factors, could cause uncertainty as to the availability of and the level of prices at which the Company might be able to source such raw materials in the future. Moreover, the prices of aluminum and steel can be subject to significant volatility. The Company’s raw material supply contracts vary as to terms and duration, with steel contracts typically one year in duration with fixed prices or set repricing dates, and aluminum contracts typically multi-year in duration with fluctuating prices based on aluminum ingot costs. The Company generally attempts to mitigate its steel and aluminum price risk by matching its purchase obligations with its sales agreements; however, there can be no assurance that the Company will be able to fully mitigate that risk.

The Company also uses commodity and foreign currency forwards in an attempt to manage its exposure to aluminum price volatility.

There can be no assurance that the Company will be able to fully recover from its customers the impact of aluminum and steel price increases or that the use of derivative instruments will effectively manage the Company’s exposure to price volatility. In addition, if the Company were unable to purchase steel and aluminum for a significant period of time, its operations would be disrupted, and if the Company were unable to fully recover the higher cost of steel and aluminum, its financial results may be adversely affected. As a result of continuing global supply and demand pressures, other commodity-related costs affecting the Company’s business may increase as well, including utility and freight-related costs. The Company will attempt to increase prices on its products accordingly in order to recover these costs.

In response to the volatility of raw material prices, ongoing productivity and cost reduction efforts in recent years have focused on improving raw material cost management.

5

Crown Holdings, Inc.


The Company’s manufacturing facilities are dependent, in varying degrees, upon the availability of water and processed energy, such as natural gas and electricity. Certain of these may become difficult or impossible to obtain on acceptable terms due to external factors, which could increase the Company’s costs or interrupt its business.

Aluminum and steel, by their very nature, can be recycled at high effectiveness and can be repeatedly reused to form new consumer packaging with minimal or no degradation in performance, quality or safety. By recycling these metals, large amounts of energy can be saved and significant water use and carbon dioxide emissions avoided.

SUSTAINABILITY AND ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

The Company’s operations are subject to numerous laws and regulations governing the protection of the environment, disposal of waste, discharges into water, emissions into the atmosphere and the protection of employee health and safety. Future regulations may impose stricter environmental requirements on the packaging industry and may require additional capital investment. Anticipated future restrictions in some jurisdictions on the use of certain coatings may require the Company to employ additional control equipment or process modifications. The Company has a Corporate Sustainability Policy and a Corporate Environmental Protection Policy. Environmental awareness is a key component of sustainability. Environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases. The Company is committed to continuous improvement in product design and manufacturing practices to provide the best outcome for the human and natural environment, both now and in the future. By reducing the per-unit amount of raw materials used in manufacturing its products, the Company can significantly reduce the amount of energy, water and other resources and associated emissions necessary to manufacture metal containers. The Company aims to continue that process of improvement in its manufacturing process to assure that consumers and the environment are best served through the use of metal packaging. The Company is also committed to providing a safe work environment for its employees through programs that emphasize safety awareness and the elimination of injuries and incidents. There can be no assurance that current or future environmental laws or liabilities will not have a material effect on the Company’s financial condition, liquidity or results of operations. Discussion of the Company’s environmental matters is contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report under the caption “Environmental Matters,” and under Note P to the consolidated financial statements.
 
WORKING CAPITAL

The Company generally uses cash during the first nine months of the year to finance seasonal working capital needs. The Company’s working capital requirements are funded by cash flows from operations, revolving credit facilities and receivables securitization and factoring programs.

Further information relating to the Company’s liquidity and capital resources is set forth within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report under the caption “Liquidity” and under Note M to the consolidated financial statements.

EMPLOYEES

At December 31, 2018, the Company had approximately 33,000 employees. Collective bargaining agreements with varying terms and expiration dates cover approximately 17,000 employees. The Company does not expect that renegotiation of the agreements expiring in 2018 will have a material adverse effect on its consolidated results of operations, financial position or cash flow.

AVAILABLE INFORMATION

The Company’s website address is www.crowncork.com. Information on the Company’s website is not incorporated by reference in this Annual Report on Form 10-K. The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed by the Company with the U.S. Securities and Exchange Commission pursuant to sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are accessible free of charge through the Company’s website as soon as reasonably practicable after the documents are filed with, or otherwise furnished to, the U. S. Securities and Exchange Commission ("SEC"). The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov.

The Company’s Code of Business Conduct and Ethics, its Corporate Governance Guidelines, and the charters of its Audit, Compensation and Nominating and Corporate Governance committees are available on the Company’s website. These documents are also available in print to any shareholder who requests them. Amendments to and waivers of the Code of Business Conduct and Ethics requiring disclosure under applicable SEC rules will be disclosed on the Company's website.

6

Crown Holdings, Inc.



ITEM 1A.
RISK FACTORS

In addition to factors discussed elsewhere in this Annual Report and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the following are some of the important factors that could materially and adversely affect the Company’s business, financial condition and results of operations.

The Company's international operations, which generated approximately 73% of its consolidated net sales in 2018, are subject to various risks that may lead to decreases in its financial results.

The Company is an international company, and the risks associated with operating in foreign countries may have a negative impact on the Company's liquidity and net income. The Company's international operations generated approximately 73% of its consolidated net sales in the year ended 2018, 78% of its consolidated net sales in 2017, and 77% of its consolidated net sales in 2016. In addition, the Company's business strategy includes continued expansion of international activities, including within developing markets and areas, such as the South America, Eastern Europe and Asia (including India), that may pose greater risk of political or economic instability. Approximately 35% of the Company's consolidated net sales in the year ended 2018 and approximately 38% of the Company's consolidated net sales in the years ended 2017 and 2016 were generated outside of the developed markets in Western Europe, the United States and Canada. Furthermore, if economic conditions in Europe deteriorate, there will likely be a negative effect on the Company's European business, as well as the businesses of the Company's European customers and suppliers. If a further downturn in European economic conditions ultimately leads to a significant devaluation of the euro, the value of the Company's financial assets that are denominated in euro would be significantly reduced when translated to U.S. dollars for financial reporting purposes. Any of these conditions could ultimately harm the Company's overall business, prospects, operating results, financial condition and cash flows.

Emerging markets are a focus of the Company's international growth strategy. The developing nature of these markets and the nature of the Company's international operations generally are subject to various risks, including:

foreign governments' restrictive trade policies;
inconsistent product regulation or policy changes by foreign agencies or governments;
duties, taxes or government royalties, including the imposition or increase of withholding and other taxes on remittances and other payments by non-U.S. subsidiaries;
customs, import/export and other trade compliance regulations;
foreign exchange rate risks;
difficulty in collecting international accounts receivable and potentially longer payment cycles;
increased costs in maintaining international manufacturing and marketing efforts;
non-tariff barriers and higher duty rates;
difficulties associated with expatriating cash generated or held abroad in a tax-efficient manner and changes in tax laws;
difficulties in enforcement of contractual obligations and intellectual property rights and difficulties in protecting intellectual property or sensitive commercial and operations data or information technology systems generally;
exchange controls;
national and regional labor strikes;
geographic, language and cultural differences between personnel in different areas of the world;
high social benefit costs for labor, including costs associated with restructurings;
civil unrest or political, social, legal and economic instability;

7

Crown Holdings, Inc.


product boycotts, including with respect to the products of the Company's multi-national customers;
customer, supplier, and investor concerns regarding operations in areas such as the Middle East;
taking of property by nationalization or expropriation without fair compensation;
imposition of limitations on conversions of foreign currencies into dollars or payment of dividends and other payments by non-U.S. subsidiaries;
hyperinflation and currency devaluation in certain foreign countries where such currency devaluation could affect the amount of cash generated by operations in those countries and thereby affect the Company's ability to satisfy its obligations;
war, civil disturbance, global or regional catastrophic events, natural disasters, including in emerging markets, and acts of terrorism;
geographical concentration of the Company's factories and operations and regional shifts in its customer base;
periodic health epidemic concerns;
the complexity of managing global operations; and
compliance with applicable anti-corruption or anti-bribery laws.

There can be no guarantee that a deterioration of economic conditions in countries in which the Company operates or may seek to operate in the future would not have a material impact on the Company's results of operations.

The Company is subject to the effects of fluctuations in foreign exchange rates, which may reduce its net sales and cash flow.

The Company is exposed to fluctuations in foreign currencies as a significant portion of its consolidated net sales, costs, assets and liabilities, are denominated in currencies other than the U.S. dollar. The Company's international operations generated approximately 73% of its consolidated net sales in the year ended 2018, 78% of its consolidated net sales in the year ended 2017, and 77% of its consolidated net sales in the year ended 2016. Volatility in exchange rates may increase the costs of its products, impair the purchasing power of its customers in different markets, result in significant competitive benefit to certain of its competitors who incur a material part of their costs in other currencies than it does, and increase its hedging costs and limit its ability to hedge exchange rate exposure. In its consolidated financial statements, the Company translates local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period. During times of a strengthening U.S. dollar, its reported international revenue and earnings will be reduced because the local currency will translate into fewer U.S. dollars. Conversely, a weakening U.S. dollar will effectively increase the dollar-equivalent of the Company's expenses and liabilities denominated in foreign currencies. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Market Risk” and "Quantitative and Qualitative Disclosure about Market Risk" in this Annual Report. Although the Company may use financial instruments such as foreign currency forwards from time to time to reduce its exposure to currency exchange rate fluctuations in some cases, it may not elect or have the ability to implement hedges or, if it does implement them, there can be no assurance that such agreements will achieve the desired effect.

For the year-ended December 31, 2018, a 0.10 movement in the average euro rate would have reduced net income by $22 million.

As the Company seeks to expand its business globally, growth opportunities may be impacted by greater political, economic and social uncertainty and the continuing and accelerating globalization of businesses could significantly change the dynamics of the Company's competition, customer base and product offerings.

The Company's efforts to grow its businesses depend to a large extent upon access to, and its success in developing market share and operating profitably in, geographic markets including but not limited to the Middle East, South America, Eastern Europe and Asia (including India). In some cases, countries in these regions have greater political and economic volatility, greater vulnerability to infrastructure and labor disruptions and differing local customer product preferences and requirements than the Company's other markets. Operating and seeking to expand business in a number of different regions and countries exposes the Company to multiple and potentially conflicting cultural practices, business practices and legal and regulatory requirements that are subject to change, including those related to tariffs and trade barriers, investments, property ownership rights, taxation, repatriation of earnings and regulation of advanced technologies. Such expansion efforts may also use capital and other resources of the Company that could be invested in other areas. Expanding business operations globally also increases exposure to currency fluctuations which can materially affect the Company's financial results. As these emerging geographic markets become more important to the Company, its competitors are also seeking to expand their production capacities and sales in these same markets, which may lead to industry overcapacity that could adversely affect pricing, volumes and financial results in such markets. Although the Company is taking measures to adapt to these changing circumstances, the Company's reputation and/or business results could be negatively affected should these efforts prove unsuccessful.


8

Crown Holdings, Inc.


The Company may not be able to manage its anticipated growth, and it may experience constraints or inefficiencies caused by unanticipated acceleration and deceleration of customer demand.

Unanticipated acceleration and deceleration of customer demand for the Company's products may result in constraints or inefficiencies related to the Company's manufacturing, sales force, implementation resources and administrative infrastructure, particularly in emerging markets where the Company is seeking to expand production. Such constraints or inefficiencies may adversely affect the Company as a result of delays, lost potential product sales or loss of current or potential customers due to their
dissatisfaction. Similarly, over-expansion, including as a result of overcapacity due to expansion by the Company's competitors, or investments in anticipation of growth that does not materialize, or develops more slowly than the Company expects, could harm the Company's financial results and result in overcapacity.

To manage the Company's anticipated future growth effectively, the Company must continue to enhance its manufacturing capabilities and operations, information technology infrastructure, and financial and accounting systems and controls. Organizational growth and scale-up of operations could strain its existing managerial, operational, financial and other resources. The Company's growth requires significant capital expenditures and may divert financial resources from other projects, such as
the development of new products or enhancements of existing products or reduction of the Company's outstanding indebtedness. If the Company's management is unable to effectively manage the Company's growth, its expenses may increase more than expected, its revenue could grow more slowly than expected and it may not be able to achieve its research and development and production goals. The Company's failure to manage its anticipated growth effectively could have a material effect on its business, operating results or financial condition.

The Company's profits will decline if the price of raw materials or energy rises and it cannot increase the price of its products, and the Company's financial results could be adversely affected if the Company was not able to obtain sufficient quantities of raw materials.

The Company uses various raw materials, such as steel, aluminum, tin, water, natural gas, electricity and other processed energy, as well as materials derived from crude oil and natural gas, such as polyethylene and polypropylene resins, in its manufacturing operations. Sufficient quantities of these raw materials may not be available in the future or may be available only at increased prices. The Company's raw material supply contracts vary as to terms and duration, with steel contracts typically one year in duration with fixed prices and aluminum contracts typically multi-year in duration with fluctuating prices based on aluminum ingot costs. The availability of various raw materials and their prices depends on global and local supply and demand forces, governmental regulations (including tariffs and duties), level of production, resource availability, transportation, and other factors, including natural disasters such as floods and earthquakes. In particular, in recent years the consolidation of steel suppliers, shortage of raw materials affecting the production of steel and the increased global demand for steel, including in China and other developing countries, have contributed to an overall tighter supply for steel, resulting in increased steel prices and, in some cases, special surcharges and allocated cut backs of products by steel suppliers. In addition, new tariffs and potential limits on steel supply in the United States from certain foreign countries could further negatively impact the Company's ability to obtain sufficient quantities of steel at competitive prices. Moreover, future steel supply contracts may provide for prices that fluctuate or adjust rather than provide a fixed price during a one-year period. As a result of continuing global supply and demand pressures, other commodity-related costs affecting the Company's business may increase as well, including natural gas, electricity and freight-related costs.

The prices of certain raw materials used by the Company, such as steel, aluminum, resins and processed energy, have historically been subject to volatility. In 2018, consumption of steel and aluminum represented 21% and 36% of the Company's consolidated cost of products sold, excluding depreciation and amortization. While certain, but not all, of the Company's contracts pass through raw material costs to customers, the Company may be unable to increase its prices to offset increases in raw material costs without suffering reductions in unit volume, revenue and operating income. In addition, any price increases may take effect after related cost increases, reducing operating income in the near term. Significant increases in raw material costs may increase the Company's working capital requirements, which may increase the Company's average outstanding indebtedness and interest expense and may exceed the amounts available under the Company's senior secured credit facilities and other sources of liquidity. In addition, the Company hedges raw material costs on behalf of certain customers and may suffer losses if such customers are unable to satisfy their purchase obligations.

If the Company is unable to purchase steel, aluminum, resins or other raw materials for a significant period of time, the Company's operations would be disrupted and any such disruption may adversely affect the Company's financial results. If customers believe that the Company's competitors have greater access to raw materials, perceived certainty of supply at the Company's competitors may put the Company at a competitive disadvantage regarding pricing and product volumes.

9

Crown Holdings, Inc.


The substantial indebtedness of the Company could prevent it from fulfilling its obligations under its indebtedness.

The Company has substantial outstanding indebtedness. As a result of the Company's substantial indebtedness, a significant portion of the Company's cash flow will be required to pay interest and principal on its outstanding indebtedness, and the Company may not generate sufficient cash flow from operations, or have future borrowings available under its senior secured credit facilities, to enable it to repay its indebtedness or to fund other liquidity needs. As of December 31, 2018, the Company and its subsidiaries had approximately $8.8 billion of indebtedness.

The Company’s current sources of liquidity includes a securitization facility with a program limit of between $350 and $375 that expires in July 2020, a securitization facility with a program limit of $240 that expires in November 2022, and an uncommitted securitization facility with a program limit of $175 that expires in December 2019. Additional sources of the Company's liquidity include borrowings that mature as follows: its $1.7 billion revolving credit facilities in April 2022; its €650 million ($745 million at December 31, 2018) 4.0% senior notes in July 2022; its $1 billion 4.50% senior notes in January 2023; its €335 million ($384 million at December 31, 2018) 2.25% senior notes in February 2023; its €600 million ($688 million at December 31, 2018) 2.625% senior notes in September 2024; its €600 million ($688 million at December 31, 2018) 3.375% senior notes in May 2025; its $875 million 4.75% senior notes in February 2026; its €500 million ($573 million at December 31, 2018) 2.875% senior notes in February 2026; its $400 million 4.25% senior notes in September 2026; its $350 million 7.375% senior notes in December 2026; its $40 million 7.5% senior notes in December 2096; and its $95 million of other indebtedness in various currencies at various dates through 2036. In addition, the Company’s term loan facilities mature as follows: $60 million in 2019, $67 million in 2020, $67 million in 2021, $956 million in 2022, $8 million in 2023, $8 million in 2024 and $1,692 million in 2025.

The substantial indebtedness of the Company could:
 
increase the Company's vulnerability to general adverse economic and industry conditions, including rising interest rates;
restrict the Company from making strategic acquisitions or exploiting business opportunities, including any planned expansion in emerging markets;
limit the Company's ability to make capital expenditures both domestically and internationally in order to grow the Company's business or maintain manufacturing plants in good working order and repair;
limit, along with the financial and other restrictive covenants under the Company's indebtedness, the Company's ability to obtain additional financing, dispose of assets or pay cash dividends;
require the Company to dedicate a substantial portion of its cash flow from operations to service its indebtedness, thereby reducing the availability of its cash flow to fund future working capital, capital expenditures, research and development expenditures and other general corporate requirements;
require the Company to sell assets used in its business;  
limit the Company's ability to refinance its existing indebtedness, particularly during periods of adverse credit market conditions when refinancing indebtedness may not be available under interest rates and other terms acceptable to the Company or at all;
increase the Company's cost of borrowing;
limit the Company's flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; and
place the Company at a competitive disadvantage compared to its competitors that have less debt.

If its financial condition, operating results and liquidity deteriorate, the Company's creditors may restrict its ability to obtain future financing and its suppliers could require prepayment or cash on delivery rather than extend credit, which could further diminish the Company's ability to generate cash flows from operations sufficient to service its debt obligations. In addition, the Company's ability to make payments on and refinance its debt and to fund its operations will depend on the Company's ability to generate cash in the future.

Some of the Company's indebtedness is subject to floating interest rates, which would result in the Company's interest expense increasing if interest rates rise.

As of December 31, 2018, approximately $3.0 billion of the Company's $8.8 billion of total indebtedness and other outstanding obligations were subject to floating interest rates. Changes in economic conditions could result in higher interest rates, thereby increasing the Company's interest expense and reducing funds available for operations or other purposes. The Company's annual interest expense was $384 million, $252 million and $243 million for 2018, 2017 and 2016, respectively. Based on the amount of variable rate debt outstanding at December 31, 2018, a 0.25% increase in variable interest rates would increase its annual interest expense by approximately $7 million before tax. Accordingly, the Company may experience economic losses and a negative impact

10

Crown Holdings, Inc.


on earnings as a result of interest rate fluctuation. The actual effect of a 0.25% increase in these floating interest rates could be more than $7 million as the Company’s average borrowings on its variable rate debt may be higher during the year than the amount at December 31, 2018. In addition, the cost of the Company’s securitization and factoring facilities would also increase with an increase in floating interest rates. Although the Company may use interest rate protection agreements from time to time to reduce its exposure to interest rate fluctuations in some cases, it may not elect or have the ability to implement hedges or, if it does implement them, there can be no assurance that such agreements will achieve the desired effect. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Market Risk” and “Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report.

Notwithstanding the Company's current indebtedness levels and restrictive covenants, the Company may still be able to incur substantial additional debt or make certain restricted payments, which could exacerbate the risks described above.

The Company may be able to incur additional debt in the future, including in connection with acquisitions or joint ventures. Although the Company's senior secured credit facilities and indentures governing certain of its outstanding notes contain restrictions on the Company's ability to incur indebtedness, those restrictions are subject to a number of exceptions, and, under certain circumstances, indebtedness incurred in compliance with these restrictions could be substantial. The Company may also consider investments in joint ventures or acquisitions or increased capital expenditures, which may increase the Company's indebtedness.
Moreover, although the Company's senior secured credit facilities and indentures governing certain of its outstanding notes contain restrictions on the Company’s ability to make restricted payments, including the declaration and payment of dividends and the repurchase of the Company’s common stock, the Company is able to make such restricted payments under certain circumstances which may increase indebtedness, and the Company may in the future establish a regular dividend on the Company's common stock. Adding new debt to current debt levels or making otherwise restricted payments could intensify the related risks that the Company and its subsidiaries now face.

Restrictive covenants in the debt agreements governing the Company's current or future indebtedness could restrict the Company's operating flexibility.

The indentures and agreements governing the Company's senior secured credit facilities and outstanding notes contain affirmative and negative covenants that limit the ability of the Company and its subsidiaries to take certain actions. These restrictions may limit the Company's ability to operate its businesses and may prohibit or limit its ability to enhance its operations or take advantage of potential business opportunities as they arise. The Company's senior secured credit facilities require the Company to maintain specified financial ratios and satisfy other financial conditions. The agreements or indentures governing the Company's senior secured credit facilities and certain of its outstanding notes restrict, among other things, the ability of the Company and the ability of all or substantially all of its subsidiaries to:

incur additional debt;
pay dividends or make other distributions, repurchase capital stock, repurchase subordinated debt and make certain investments or loans;
create liens and engage in sale and leaseback transactions;
create restrictions on the payment of dividends and other amounts to the Company from subsidiaries;
make loans, investments and capital expenditures;
change accounting treatment and reporting practices;
enter into agreements restricting the ability of a subsidiary to pay dividends to, make or repay loans to, transfer property to, or guarantee indebtedness of, the Company or any of its subsidiaries;
sell or acquire assets, enter into leaseback transactions and merge or consolidate with or into other companies; and
engage in transactions with affiliates.

In addition, the indentures and agreements governing the Company's senior secured credit facilities and certain of its outstanding notes limit, among other things, the ability of the Company to enter into certain transactions, such as mergers, consolidations, joint ventures, asset sales, sale and leaseback transactions and the pledging of assets. Furthermore, if the Company or certain of its subsidiaries experience specific kinds of changes of control, the Company's senior secured credit facilities will be due and payable and the Company will be required to offer to repurchase outstanding notes.

The breach of any of these covenants by the Company or the failure by the Company to meet any of these ratios or conditions could result in a default under any or all of such indebtedness. If a default occurs under any such indebtedness, all of the outstanding obligations thereunder could become immediately due and payable, which could result in a default under the Company's other

11

Crown Holdings, Inc.


outstanding debt and could lead to an acceleration of obligations related to the Company's senior secured credit facilities, outstanding notes and other outstanding debt. The ability of the Company to comply with these covenants or indentures governing other indebtedness it may incur in the future and its outstanding notes can be affected by events beyond its control and, therefore, it may be unable to meet these ratios and conditions.

Pending and future asbestos litigation and payments to settle asbestos-related claims could reduce the Company's cash flow and negatively impact its financial condition.

Crown Cork & Seal Company, Inc. (Crown Cork), a wholly-owned subsidiary of the Company, is one of many defendants in a substantial number of lawsuits filed throughout the United States by persons alleging bodily injury as a result of exposure to asbestos. In 1963, Crown Cork acquired a subsidiary that had two operating businesses, one of which is alleged to have manufactured asbestos-containing insulation products. Crown Cork believes that the business ceased manufacturing such products in 1963.

The Company recorded pre-tax charges of less than $1 million, $3 million and $21 million to increase its accrual for asbestos-related liabilities in 2018, 2017 and 2016. As of December 31, 2018, Crown Cork's accrual for pending and future asbestos-related claims and related legal costs was $295 million, including $251 million for unasserted claims. The Company determines its accrual without limitation to a specific time period. Assumptions underlying the accrual include that claims for exposure to asbestos that occurred after the sale of the subsidiary's insulation business in 1964 would not be entitled to settlement payouts and that state statutes described under Note O to the Company's audited consolidated financial statements included in this Annual Report, including Texas and Pennsylvania statutes, are expected to have a highly favorable impact on Crown Cork's ability to settle or defend against asbestos-related claims in those states and other states where Pennsylvania law may apply.

During the year ended December 31, 2018, Crown Cork received approximately 2,000 new claims, settled or dismissed approximately 1,500 claims, and had approximately 56,000 claims outstanding at the end of the period. Of these outstanding claims, approximately 16,500 claims relate to claimants alleging first exposure to asbestos after 1964 and approximately 39,500 relate to claimants alleging first exposure to asbestos before or during 1964, of which approximately 13,000 were filed in Texas, 1,500 were filed in Pennsylvania, 6,000 were filed in other states that have enacted asbestos legislation and 19,000 were filed in other states. The outstanding claims at December 31, 2018 also 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. The exclusion of these inactive claims had no effect on the calculation of the Company's accrual as the claims were filed in states where the Company's liability is limited by statute. The Company devotes significant time and expense to defend against these various claims, complaints and proceedings, and there can be no assurance that the expenses or distractions from operating the Company's businesses arising from these defenses will not increase materially.

On October 22, 2010, the Texas Supreme Court, in a 6-2 decision, reversed a lower court decision, Barbara Robinson v. Crown Cork & Seal Company, Inc., No. 14-04-00658-CV, Fourteenth Court of Appeals, Texas, which had upheld the dismissal of an asbestos-related case against Crown Cork. 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 of 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 continues to assign no value to claims filed after June 11, 2003.

Crown Cork made cash payments of $21 million in 2018 and $30 million in each of the years, 2017 and 2016 for asbestos-related claims including settlement payments and legal fees. These payments and any such future payments will reduce the cash flow available to Crown Cork for its business operations and debt payments.     

Asbestos-related payments including defense costs may be significantly higher than those estimated by Crown Cork because the outcome of this type of litigation (and, therefore, Crown Cork's reserve) is subject to a number of assumptions and uncertainties, such as the number or size of asbestos-related claims or settlements, the number of financially viable responsible parties, the extent to which state statutes relating to asbestos liability are upheld and/or applied by the courts, Crown Cork's ability to obtain resolution without payment of asbestos-related claims by persons alleging first exposure to asbestos after 1964, and the potential impact of any pending or future asbestos-related legislation. Accordingly, Crown Cork may be required to make payments for claims substantially in excess of its accrual, which could reduce the Company's cash flow and impair its ability to satisfy its obligations.

As a result of the uncertainties regarding its asbestos-related liabilities and its reduced cash flow, the ability of the Company to raise new money in the capital markets is more difficult and more costly, and the Company may not be able to access the capital markets in the future. Further information regarding Crown's Cork's asbestos-related liabilities is presented within “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the headings, “Provision for Asbestos” and

12

Crown Holdings, Inc.


“Critical Accounting Policies” and under Note L to the Company's audited consolidated financial statements included in this Annual Report.

The Company has significant pension plan obligations worldwide and significant unfunded postretirement obligations, which could reduce its cash flow and negatively impact its results of operations and its financial condition.

The Company sponsors various pension plans worldwide, with the largest funded plans in the U.K., U.S. and Canada. In 2018, 2017 and 2016, the Company contributed $20 million, $294 million and $103 million to its pension plans. Pension expense was$45 million, including settlement charges of $38 million, in 2018 and is expected to be $42 million in 2019, using foreign currency exchange rates in effect at December 31, 2018. In addition, the Company may trigger additional settlement charges in 2019 of approximately $50 million. A 0.25% change in the 2019 expected rate of return assumptions would change 2019 pension expense by approximately $11 million. A 0.25% change in the discount rates assumptions as of December 31, 2018 would change 2019 pension expense by approximately $4 million. The Company may be required to accelerate the timing of its contributions under its pension plans. The actual impact of any accelerated funding will depend upon the interest rates required for determining the plan liabilities and the investment performance of plan assets. An acceleration in the timing of pension plan contributions could decrease the Company's cash available to pay its outstanding obligations and its net income and increase the Company's outstanding indebtedness.

Based on current assumptions, the Company expects to make pension contributions of $17 million in 2019, $19 million in 2020, $61 million in 2021, $90 million in 2022 and $100 million in 2023. Future changes in the factors used to determine pension contributions, including investment performance of plan assets, could have a significant impact on the Company’s future contributions and its cash flow available for debt reduction, capital expenditures or other purposes.

The difference between pension plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of the Company's pension plans and the ongoing funding requirements of those plans. Among other factors, significant volatility in the equity markets and in the value of illiquid alternative investments, changes in discount rates, investment returns and the market value of plan assets can substantially increase the Company's future pension plan funding requirements and could have a negative impact on the Company's results of operations and profitability. See Note T to the Company's audited consolidated financial statements in this Annual Report. As long as the Company continues to maintain its various pension plans, the Company will continue to incur additional pension obligations. The Company's pension plan assets consist primarily of common stocks and fixed income securities and also include alternative investments such as interests in private equity and hedge funds. If the performance of plan assets does not meet the Company's assumptions or discount rates decline, the underfunding of the pension plans may increase and the Company may have to contribute additional funds to the pension plan, and its pension expense may increase. In addition, the Company's supplemental executive retirement plan and retiree medical plans are unfunded.

The Company's U.S. funded pension plan is subject to the Employee Retirement Income Security Act of 1974, or ERISA. Under ERISA, the Pension Benefit Guaranty Corporation, or PBGC, has the authority to terminate an underfunded plan under certain circumstances. In the event its U.S. pension plan is terminated for any reason while the plan is underfunded, the Company will incur a liability to the PBGC that may be equal to the entire amount of the underfunding, which under certain circumstances may be senior to the notes. In addition, as of December 31, 2018 the unfunded accumulated postretirement benefit obligation, as calculated in accordance with U.S. generally accepted accounting principles, for retiree medical benefits was approximately $147 million, based on assumptions set forth under Note T to the Company's audited consolidated financial statements in this Annual Report.

Acquisitions or investments that the Company is considering or may pursue could be unsuccessful, consume significant resources and require the incurrence of additional indebtedness.

The Company may consider acquisitions and investments that complement its existing business. These possible acquisitions and investments involve or may involve significant cash expenditures, debt incurrence (including the incurrence of additional indebtedness under the Company's senior secured revolving credit facilities or other secured or unsecured debt), operating losses and expenses that could have a material effect on the Company's financial condition and operating results.

In particular, if the Company incurs additional debt, the Company's liquidity and financial stability could be impaired as a result of using a significant portion of available cash or borrowing capacity to finance an acquisition. Moreover, the Company may face an increase in interest expense or financial leverage if additional debt is incurred to finance an acquisition, which may, among other things, adversely affect the Company's various financial ratios and the Company's compliance with the conditions of its existing indebtedness. In addition, such additional indebtedness may be incurred under the Company's senior secured credit facilities or otherwise secured by liens on the Company's assets.


13

Crown Holdings, Inc.


Acquisitions involve numerous other risks, including:

diversion of management time and attention;
failures to identify material problems and liabilities of acquisition targets or to obtain sufficient indemnification rights to fully offset possible liabilities related to the acquired businesses;
difficulties integrating the operations, technologies and personnel of the acquired businesses;
inefficiencies and complexities that may arise due to unfamiliarity with new assets, businesses or markets;
disruptions to the Company's ongoing business;
inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings;
the inability to obtain required financing for the new acquisition or investment opportunities and the Company's existing business;
the need or obligation to divest portions of an acquired business;
challenges associated with operating in new geographic regions;
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects;
potential loss of key employees, contractual relationships, suppliers or customers of the acquired businesses or of the Company; and
inability to obtain required regulatory approvals.

To the extent the Company pursues an acquisition that causes it to incur unexpected costs or that fails to generate expected returns, the Company's financial position, results of operations and cash flows may be adversely affected, and the Company's ability to service its indebtedness may be negatively impacted.

The Company's principal markets may be subject to overcapacity and intense competition, which could reduce the Company's net sales and net income.

Food and beverage cans are standardized products, allowing for relatively little differentiation among competitors. This could lead to overcapacity and price competition among food and beverage can producers if capacity growth outpaced the growth in demand for food and beverage cans and overall manufacturing capacity exceeded demand. These market conditions could reduce product prices and contribute to declining revenue and net income and increasing debt balances. As a result of industry overcapacity (including in developed markets and certain emerging markets) and price competition, the Company may not be able to increase prices sufficiently to offset higher costs or to generate sufficient cash flow. The North American and Western European food and beverage can markets, in particular, are considered to be mature markets, characterized by slow growth and a sophisticated distribution system. Competitive pricing pressures, overcapacity, the failure to develop new product designs and technologies for products, as well as other factors, such as consolidation among the Company's competitors, could cause the Company to lose existing business or opportunities to generate new business and could result in decreased cash flow and net income.

The Company is subject to competition from substitute products and decreases in demand for its products, which could result in lower profits and reduced cash flows.

The Company is subject to substantial competition from producers of alternative packaging made from glass, paper, flexible materials and plastic. The Company's sales depend heavily on the volumes of sales by the Company's customers in the food and beverage markets. Changes in preferences for products and packaging by consumers of prepackaged food and beverage cans significantly influence the Company's sales. Changes in packaging by the Company's customers may require the Company to re-tool manufacturing operations, which could require material expenditures. In addition, a decrease in the costs of, or a further increase in consumer demand for, alternative packaging could result in lower profits and reduced cash flows for the Company. For example, increases in the price of aluminum and steel and decreases in the price of plastic resin, which is a petrochemical product and may fluctuate with prices in the oil and gas market, may increase substitution of plastic food and beverage containers for metal containers or increases in the price of steel may increase substitution of aluminum packaging for aerosol products. Moreover, due to its high percentage of fixed costs, the Company may be unable to maintain its gross margin at past levels if it is not able to achieve high capacity utilization rates for its production equipment. In periods of low worldwide demand for its products or in situations where industry expansion created excess capacity, the Company experiences relatively low capacity utilization rates in its operations, which can lead to reduced margins during that period and can have an adverse effect on the Company's business.

The Transit Packaging Division also faces substantial competition from many regional and local competitors of various sizes in the manufacture, distribution and sale of its products. Its products compete, to some extent, with various other packaging materials,

14

Crown Holdings, Inc.


including other products made of paper, plastics, wood and various types of metal. Although the division has long-term relationships with many of its customers, these relationships are typically not contractual. As a result, its customers may unilaterally reduce the purchase of its products and the division may not be able to quickly replace the revenue source, which could harm the Company's financial results.

The Company's business results depend on its ability to understand its customers' specific preferences and requirements, and to develop, manufacture and market products that meet customer demand.

The Company's ability to develop new product offerings for a diverse group of global customers with differing preferences, while maintaining functionality and spurring innovation, is critical to its success. This requires a thorough understanding of the Company's existing and potential customers on a global basis, particularly in potential high developing markets, including South America, Eastern Europe and Asia (including India). Failure to deliver quality products that meet customer needs ahead of competitors could have a significant adverse effect on the Company's business.

Loss of third-party transportation providers upon whom the Company depends or increases in fuel prices could increase the Company's costs or cause a disruption in the Company's operations.

The Company depends generally upon third-party transportation providers for delivery of products to customers. Strikes, slowdowns, transportation disruptions or other conditions in the transportation industry, including, but not limited to, shortages of truck drivers, disruptions in rail service, decreases in the availability of vessels or increases in fuel prices, could increase the Company's costs and disrupt Company’s operations and its ability to service customers on a timely basis.

The loss of a major customer and/or customer consolidation could reduce the Company's net sales and profitability.

Many of the Company's largest customers have acquired companies with similar or complementary product lines. This consolidation has increased the concentration of the Company's business with its largest customers. In many cases, such consolidation has been accompanied by pressure from customers for lower prices, reflecting the increase in the total volume of product purchased or the elimination of a price differential between the acquiring customer and the company acquired. Increased pricing pressures from the Company's customers may reduce the Company's net sales and net income.

The majority of the Company's sales are to companies that have leading market positions in the sale of packaged food, beverages and household products to consumers. Although no one customer accounted for more than 10% of its net sales in the years ended 2018, 2017 or 2016, the loss of any of its major customers, a reduction in the purchasing levels of these customers or an adverse change in the terms of supply agreements with these customers could reduce the Company's net sales and net income. A continued consolidation of the Company's customers could exacerbate any such loss.

The Company's business is seasonal and weather conditions could reduce the Company's net sales.

The Company manufactures metal and glass packaging primarily for the food and beverage can market. Its sales can be affected by weather conditions. Due principally to the seasonal nature of the soft drink, brewing, iced tea and other beverage industries, in which demand is stronger during the summer months, sales of the Company's products have varied and are expected to vary by quarter. Shipments in the U.S. and Europe are typically greater in the second and third quarters of the year. Unseasonably cool weather can reduce consumer demand for certain beverages packaged in its containers. In addition, poor weather conditions that reduce crop yields of packaged foods can decrease customer demand for its food containers.

The Company is subject to costs and liabilities related to stringent environmental and health and safety standards.

Laws and regulations relating to environmental protection and health and safety may increase the Company’s costs of operating and reduce its profitability. The Company's operations are subject to numerous U.S. federal and state and non-U.S. laws and regulations governing the protection of the environment, including those relating to operating permit, treatment, storage and disposal of waste, the use of chemicals in the Company's products and manufacturing process, discharges into water, emissions into the atmosphere, remediation of soil and groundwater contamination and protection of employee health and safety. Future regulations may impose stricter environmental or employee safety requirements affecting the Company's operations or may impose additional requirements regarding consumer health and safety, such as potential restrictions on the use of bisphenol-A, a starting material used to produce internal and external coatings for some food, beverage, and aerosol containers and metal closures. Although the U.S. FDA currently permits the use of bisphenol-A in food packaging materials and confirmed in a January 2010 update that studies employing standardized toxicity tests have supported the safety of current low levels of human exposure to bisphenol-A, the FDA in that January 2010 update noted that more research was needed, and further suggested reasonable steps to reduce exposure to bisphenol-A. The FDA subsequently entered into a consent decree under which it agreed to issue, by March 31, 2012,

15

Crown Holdings, Inc.


a final decision on a citizen’s petition requesting the agency take further regulatory steps with regard to bisphenol-A. On March 30, 2012, the FDA denied the request, responding, in part, that the appropriate course of action was to continue scientific study and review of all new evidence regarding the safety of bisphenol-A. In March 2010, the EPA issued an action plan for bisphenol-A, which includes, among other things, consideration of whether to add bisphenol-A to the chemical concern list on the basis of potential environmental effects and use of the EPA’s Design for the Environment program to encourage reductions in bisphenol-A manufacturing and use. Moreover, certain U.S. Congressional bodies, states and municipalities, as well as certain foreign nations and some member states of the European Union, such as Denmark, Belgium and France, have considered, proposed or already passed legislation banning or suspending the use of bisphenol-A in certain products or requiring warnings regarding bisphenol-A. In July 2012, the FDA banned the use of bisphenol-A in baby bottles and children’s drinking cups, and in July 2013, the FDA banned the use of bisphenol-A in epoxy resins that coat infant formula cans. In France, the production, importation, exportation and the placement on the market of baby bottles containing bisphenol-A was suspended by a law of 2010. This suspension was extended in 2013 to packaging and utensils for food intended for children under 3 and in 2015 to packaging and utensils for all other foods. Following a decision of the French Constitutional Court, the suspension is currently limited to the importation and the placement on the market of those packaging and utensils containing bisphenol-A. The law also includes certain product labeling requirements. More generally, France is very attentive to the issue of endocrine disruptors and food safety (e.g. Food Conference in 2017 (Etats généraux de l’alimentation)). In the first quarter of 2014, the European Food Safety Authority recommended that the tolerable daily intake of bisphenol-A be lowered. Further, the U.S. or additional international, federal, state or other regulatory authorities could restrict or prohibit the use of bisphenol-A in the future. For example, in 2015, the State of California declared bisphenol-A a reproductive system hazard and listed BPA as a hazardous chemical under California’s Safe Water and Toxic Environment Act, which may trigger a requirement to include warning labels on consumer items containing bisphenol-A. In addition, recent public reports, litigation and other allegations regarding the potential health hazards of bisphenol-A could contribute to a perceived safety risk about the Company's products and adversely impact sales or otherwise disrupt the Company's business. While the Company is exploring various alternatives to the use of bisphenol-A and conversion to alternatives is underway in some applications, there can be no assurance the Company will be completely successful in its efforts or that the alternatives will not be more costly to the Company.

Also, for example, future restrictions in some jurisdictions on air emissions of volatile organic compounds and the use of certain paint and lacquering ingredients may require the Company to employ additional control equipment or process modifications. The Company’s operations and properties, both in the United States and abroad, must comply with these laws and regulations. In addition, a number of governmental authorities in the United States and abroad have introduced or are contemplating enacting legal requirements, including emissions limitations, cap and trade systems or mandated changes in energy consumption, in response to the potential impacts of climate change. Given the wide range of potential future climate change regulations in the jurisdictions in which the Company operates, the potential impact to the Company's operations is uncertain. In addition, the potential impact of climate change on the Company's operations is highly uncertain. The impact of climate change may vary by geographic location and other circumstances, including weather patterns and any impact to natural resources such as water.

A number of governmental authorities both in the U.S. and abroad also have enacted, or are considering, legal requirements relating to product stewardship, including mandating recycling, the use of recycled materials and/or limitations on certain kinds of packaging materials such as plastics. In addition, some companies with packaging needs have responded to such developments, and/or to perceived environmental concerns of consumers, by using containers made in whole or in part of recycled materials. Such developments may reduce the demand for some of the Company's products, and/or increase its costs.

The Company is subject to certain restrictions that may limit its ability to make payments on its debt out of the cash reserves shown on the Company's consolidated financial statements.

The ability of the Company's subsidiaries and joint ventures to pay dividends, make distributions, provide loans or make other payments to the Company may be restricted by applicable state and foreign laws, potentially adverse tax consequences and their agreements, including agreements governing their debt.

In addition, the equity interests of the Company's joint venture partners or other shareholders in the Company's non-wholly owned subsidiaries in any dividend or other distribution made by these entities would need to be satisfied on a proportionate basis with the Company. As a result, the Company may not be able to access a portion of its cash flow to service the Company's debt.

The Company has a significant amount of goodwill that, if impaired in the future, would result in lower reported net income and a reduction of its net worth.

Impairment of the Company's goodwill would require a write down of goodwill, which would reduce the Company's net income in the period of any such write down. At December 31, 2018, the carrying value of the Company's goodwill was $4.4 billion. The Company is required to evaluate goodwill reflected on its balance sheet at least annually, or when circumstances indicate a potential

16

Crown Holdings, Inc.


impairment. If it determines that the goodwill is impaired, the Company would be required to write off a portion or all of the goodwill.

If the Company fails to retain key management and personnel, the Company may be unable to implement its business plan.

Members of the Company's senior management have extensive industry experience, and it might be difficult to find new personnel with comparable experience. Because the Company's business is highly specialized, the Company believes that it would also be difficult to replace its key technical personnel. The Company believes that its future success depends, in large part, on its experienced senior management team. Losing the services of key members of its management team could limit the Company's ability to implement its business plan. In addition, under the Company's unfunded Senior Executive Retirement Plan certain members of senior management are entitled to lump sum payments upon retirement or other termination of employment and a lump sum death benefit of five times the annual retirement benefit.

A significant portion of the Company's workforce is unionized and labor disruptions could increase the Company's costs and prevent the Company from supplying its customers.

A significant portion of the Company's workforce is unionized and a prolonged work stoppage or strike at any facility with unionized employees could increase its costs and prevent the Company from supplying its customers. In addition, upon the expiration of existing collective bargaining agreements, the Company may not reach new agreements without union action in certain jurisdictions and any such new agreements may not be on terms satisfactory to the Company. If the Company is unable to negotiate acceptable collective bargaining agreements, it may become subject to union-initiated work stoppages, including strikes. Moreover, additional groups of currently non-unionized employees may seek union representation in the future.

Failure by the Company's joint venture partners to observe their obligations could adversely affect the business and operations of the joint ventures and, in turn, the business and operations of the Company.

A portion of the Company's operations, including certain beverage can operations in Asia, the Middle East and South America, is conducted through joint ventures. The Company participates in these ventures with third parties. In the event that the Company's joint venture partners do not observe their obligations or are unable to commit additional capital to the joint ventures, it is possible that the affected joint venture would not be able to operate in accordance with its business plans or that the Company would have to increase its level of commitment to the joint venture.

If the Company fails to maintain an effective system of internal control, the Company may not be able to accurately report financial results or prevent fraud.

Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm the Company's business. The Company must annually evaluate its internal procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management and auditors to assess the effectiveness of internal controls. If the Company fails to remedy or maintain the adequacy of its internal controls, as such standards are modified, supplemented or amended from time to time, the Company could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation.

In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect the Company's financial condition. There can be no assurance that the Company will be able to complete the work necessary to fully comply with the requirements of the Sarbanes-Oxley Act or that the Company's management and external auditors will continue to conclude that the Company's internal controls are effective.

The Company is subject to litigation risks which could negatively impact its operations and net income.

The Company is subject to various lawsuits and claims with respect to matters such as governmental, environmental and employee benefits laws and regulations, securities, labor, and actions arising out of the normal course of business, in addition to asbestos-related litigation described under the risk factor titled “Pending and future asbestos litigation and payments to settle asbestos-related claims could reduce the Company's cash flow and negatively impact its financial condition.” The Company is currently unable to determine the total expense or possible loss, if any, that may ultimately be incurred in the resolution of such legal proceedings. Regardless of the ultimate outcome of such legal proceedings, they could result in significant diversion of time by the Company's management. The results of the Company's pending legal proceedings, including any potential settlements, are uncertain and the outcome of these disputes may decrease its cash available for operations and investment, restrict its operations or otherwise negatively impact its business, operating results, financial condition and cash flow.


17

Crown Holdings, Inc.


Some of the Company's transit packaging products are relied upon by customers or end users in their facilities or operations, or are manufactured for relatively broad industrial, transportation or consumer use. The Company faces an inherent risk of exposure to claims and damage to its reputation or brands in the event that the failure, use or misuse of its products results, or is alleged to result, in death, bodily injury, property damage or economic loss. For instance, certain of these products may fail while being used to transport heavy, industrial equipment. A successful product liability claim or series of claims against the Company, or a significant warranty claim or series of claims, could have a material adverse effect on the Company.

In March 2015, the Bundeskartellamt, or German Federal Cartel Office (“FCO”), conducted unannounced inspections of the premises of several metal packaging manufacturers, including one of the Company’s German subsidiaries. The local court order authorizing the inspection cited FCO suspicions of anti-competitive agreements in the 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 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.

The downturn in certain global economies could have adverse effects on the Company.

The downturn in certain global economies could have significant adverse effects on the Company's operations, including as a result of any the following:

downturns in the business or financial condition of any of the Company's key customers or suppliers, potentially resulting in customers' inability to pay the Company's invoices as they become due, or at all, or suppliers' failure to fulfill their commitments;
potential losses associated with hedging activity by the Company for the benefit of the Company's customers including counterparty risk associated with such hedging activity, or costs associated with changing suppliers;
a decline in the fair value of the Company's pension assets or a decline in discount rates used to measure the Company's pension obligations, potentially requiring the Company to make significant additional contributions to its pension plans to meet prescribed funding levels;
the deterioration of any of the lending parties under the Company's senior secured revolving credit facilities or the creditworthiness of the counterparties to the Company's derivative transactions, which could result in such parties' failure to satisfy their obligations under their arrangements with the Company;
noncompliance with the covenants under the Company's indebtedness as a result of a weakening of the Company's financial position or results of operations; and
the lack of currently available funding sources, which could have a negative impact upon the liquidity of the Company as well as that of its customers and suppliers.

The vote by the United Kingdom to leave the European Union could adversely affect the Company.

The United Kingdom is expected to cease to be a member of the European Union ("E.U.") on March 29, 2019 (commonly referred to as "Brexit"), although it is possible that the effective date of Brexit will be postponed or that Brexit will not occur. There is uncertainty as to the scope, nature and terms of the relationship between the U.K. and the E.U. after Brexit. Brexit could adversely affect economic and market conditions in the U.K., in the E.U. and its member states and elsewhere, and could contribute to uncertainty and instability in global financial markets. In particular, Brexit could significantly impact volatility, liquidity and/or the market value of securities. Accordingly, Brexit could adversely affect the Company's business, results of operations, financial condition and cash flows, particularly if no withdrawal agreement is reached prior to the March 29, 2019

18

Crown Holdings, Inc.


deadline. However, until the terms of the U.K.'s withdrawal from the E.U. are clearer, it is not possible to determine what effect Brexit may have on the Company's business.

The Company relies on its information technology and the failure or disruption of its information technology could disrupt its operations and adversely affect its results of operations.

The Company's business increasingly relies on the successful and uninterrupted functioning of its information technology systems to process, transmit, and store electronic information. A significant portion of the communication between the Company's personnel around the world, customers, and suppliers depends on information technology. As with all large systems, the Company's information technology systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. In addition, security breaches could result in unauthorized disclosure of confidential information.

The concentration of processes in shared services centers means that any disruption could impact a large portion of the Company's business within the operating zones served by the affected service center. If the Company does not allocate, and effectively manage, the resources necessary to build, sustain and protect the proper technology infrastructure, the Company could be subject to transaction errors, processing inefficiencies, loss of customers, business disruptions, the loss of or damage to intellectual property through security breach, as well as potential civil liability and fines under various states' laws in which the Company does business. While the Company has security measures in place designed to protect the integrity of customer information and prevent data loss, misappropriation, and other security breaches, the Company's information technology system could nevertheless be penetrated by outside parties intent on extracting information, corrupting information or disrupting business processes. In addition, if the Company's information technology systems suffer severe damage, disruption or shutdown and the Company's business continuity plans do not effectively resolve the issues in a timely manner, the Company may lose revenue and profits as a result of its inability to timely manufacture, distribute, invoice and collect payments from its customers, and could experience delays in reporting its financial results, including with respect to the Company's operations in emerging markets. Furthermore, if the Company is unable to prevent security breaches, it may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to the Company or to its customers or suppliers. Failure or disruption of these systems, or the back-up systems, for any reason could disrupt the Company's operations and negatively impact the Company's cash flows or financial condition.

The Company may not be able to use all of its foreign tax credit carryforwards in the event it undergoes an ownership change as defined by the U.S. Internal Revenue Code of 1986.

The Company has substantial foreign tax carryforwards that can, subject to complex limitations, reduce U.S. taxes owed on foreign income. In the event the Company undergoes an ownership change as determined, its use of those foreign tax credit carryovers may be severely curtailed under section 383 of the U.S. Internal Revenue Code of 1986. An ownership change may occur if the percentage of the Company's stock owned by one or more 5% shareholders increases by more than 50 percentage points over the lowest percentage of the Company's stock owned by those shareholders, measured over a three year period.

Changes in accounting standards, taxation requirements and other law could negatively affect the Company's financial results.

New accounting standards or pronouncements that may become applicable to the Company from time to time, or changes in the interpretation of existing standards and pronouncements, could have a significant effect on the Company's reported results for the affected periods. The Company is also subject to income tax in the numerous jurisdictions in which the Company operates. Increases in income tax rates or other changes to tax laws could reduce the Company's after-tax income from affected jurisdictions or otherwise affect the Company's tax liability. For example, certain elements of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), including the limitation of tax deductions for interest expense, the treatment of global intangible low-taxed income and foreign-derived intangible income and the allocation of deductions for purposes of computing the foreign tax credit limitation, among others, are pending final regulations from the Internal Revenue Service and the enactment of these final regulations could adversely affect the Company's financial results. 

In addition, the Company's products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions in which it operates. Increases in indirect taxes could affect the Company's products' affordability and therefore reduce demand for its products.


19

Crown Holdings, Inc.


The Company may experience significant negative effects to its business as a result of new federal, state or local taxes, increases to current taxes or other governmental regulations specifically targeted to decrease the consumption of certain types of beverages.

Public health and government officials have become increasingly concerned about the health consequences associated with over-consumption of certain types of beverages, such as sugar-sweetened beverages and including those sold by certain of the Company's significant customers. Possible new federal, state or local taxes, increases to current taxes or other governmental regulations specifically targeted to decrease the consumption of these beverages may significantly reduce demand for the beverages of the Company's customers, which could in turn affect demand of the Company's customers for the Company's products. For example, taxes on certain sugar-sweetened beverages have been enacted in France, the United Kingdom, and Mexico. France has also imposed taxes on energy drinks using certain amounts of taurine and caffeine. Some state and local governments are also considering similar taxes, and Philadelphia, Pennsylvania (where the Company's Americas and Corporate headquarters were located prior to September 2018), Cook County, Illinois (where the Company's Transit Packaging headquarters is located), and several cities in California have enacted taxes on certain sugar-sweetened beverages. The imposition of such taxes may decrease the demand for certain soft drinks and beverages that the Company's customers produce, which may cause the Company's customers to respond by decreasing their purchases from the Company. Consumer tax legislation and future attempts to tax sugar-sweetened or energy drinks by other jurisdictions could reduce the demand for the Company's products, adversely affect the Company's profitability and materially adversely affect the Company's business and financial results.

The Company's senior secured credit facilities provide that certain change of control events constitute an event of default. In the event of a change of control, the Company may not be able to satisfy all of its obligations under the senior secured credit facilities or other indebtedness.

The Company may not have sufficient assets or be able to obtain sufficient third-party financing on favorable terms to satisfy all of its obligations under the Company's senior secured credit facilities or other indebtedness in the event of a change of control. The Company's senior secured credit facilities provide that certain change of control events constitute an event of default under the senior secured credit facilities. Such an event of default entitles the lenders thereunder to, among other things, cause all outstanding debt obligations under the senior secured credit facilities to become due and payable and to proceed against the collateral securing the senior secured credit facilities. Any event of default or acceleration of the senior secured credit facilities will likely also cause a default under the terms of other indebtedness of the Company. In addition, the indentures governing certain of the Company's outstanding notes require that the Company offer to repurchase the notes at an offer price of 101% of principal upon certain change of control repurchase events.

The loss of the Company's intellectual property rights may negatively impact its ability to compete.

If the Company is unable to maintain the proprietary nature of its technologies, its competitors may use its technologies to compete with it. The Company has a number of patents covering various aspects of its products, including its SuperEnd® beverage can end, whose primary patent expired in 2016, Easylift™ full aperture steel food can ends, PeelSeam™ and PeelFit™ flexible lidding and Ideal™ product line. The Company's patents may not withstand challenge in litigation, and patents do not ensure that competitors will not develop competing products or infringe upon the Company's patents. Moreover, the costs of litigation to defend the Company's patents could be substantial and may outweigh the benefits of enforcing its rights under its patents. The Company markets its products internationally and the patent laws of foreign countries may offer less protection than the patent laws of the United States. Not all of the Company's domestic patents have been registered in other countries. The Company also relies on trade secrets, know-how and other unpatented proprietary technology, and others may independently develop the same or similar technology or otherwise obtain access to the Company's unpatented technology. In addition, the Company has from time to time received letters from third parties suggesting that it may be infringing on their intellectual property rights, and third parties may bring infringement suits against the Company, which could result in the Company needing to seek licenses from these third parties or refraining altogether from use of the claimed technology.

Demand for the Company's products could be affected by changes in laws and regulations applicable to food and beverages and changes in consumer preferences.

The Company manufactures and sells metal and glass packaging primarily for the food and beverage can market. As a result, many of the Company's products come into direct contact with food and beverages. Accordingly, the Company's products must comply with various laws and regulations for food and beverages applicable to its customers. Changes in such laws and regulations could negatively impact customers' demand for the Company's products as they comply with such changes and/or require the Company to make changes to its products. Such changes to the Company's products could include modifications to the coatings and compounds that the Company uses, possibly resulting in the incurrence of additional costs. Additionally, because many of the Company's products are used to package consumer goods, the Company is subject to a variety of risks that could influence consumer behavior

20

Crown Holdings, Inc.


and negatively impact demand for the Company's products, including changes in consumer preferences driven by various health-related concerns and perceptions.

 ITEM 1B.
UNRESOLVED STAFF COMMENTS
There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of the Company’s fiscal year relating to its periodic or current reports under the Securities Exchange Act of 1934.

ITEM 2.
PROPERTIES

As of December 31, 2018, the Company operated 241 manufacturing facilities of which 70 were leased. The Company has four divisions, primarily defined geographically, within which it manufactures and markets its products. The Americas Division had 48 operating facilities of which eight were leased. Within the Americas Division, 29 facilities operated in the U.S. of which six were leased. The European Division had 61 operating facilities of which 11 were leased and the Asia Pacific Division had 30 operating facilities of which three were leased. The Transit Packaging Division had 99 operating facilities of which 47 were leased. The Company also had three canmaking equipment and spare part operations in the U.S. and the U.K., one of which was a leased facility. Certain leases provide renewal or purchase options. The principal manufacturing facilities at December 31, 2018 are listed below and are grouped by product and by division.

The Company’s Americas and Corporate headquarters relocated in September 2018 from Philadelphia, Pennsylvania to Yardley, Pennsylvania. Its European headquarters is in Baar, Switzerland, its Asia Pacific headquarters is in Singapore and its Transit Packaging headquarters is in Glenview, Illinois. The Company maintains research facilities in Alsip, Illinois and Wantage, England.

The Company’s manufacturing and support facilities are designed according to the requirements of the products to be manufactured. Therefore, the type of construction may vary from plant to plant. Warehouse space is generally provided at each of the manufacturing locations, although the Company also leases outside warehouses.

Ongoing productivity improvements and cost reduction efforts in recent years have focused on upgrading and modernizing facilities to reduce costs, improve efficiency and productivity and phase out uncompetitive facilities. The Company has also opened new facilities to meet increases in market demand for its products. These actions reflect the Company’s continued commitment to realign manufacturing facilities to maintain its competitive position in its markets. The Company continually reviews its operations and evaluates strategic opportunities. The list below includes a beverage can facility in Asia which will be closed in 2019. Further discussion of the Company’s recent restructuring actions is contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Provision for Restructuring,” and under Note K to the consolidated financial statements.

Utilization of any particular facility varies based upon product demand. While not possible to measure with any degree of certainty or uniformity the productive capacity of these facilities, management believes that, if necessary, production can be increased at several existing facilities through the addition of personnel, capital equipment and, in some facilities, square footage available for production. In addition, the Company may from time to time acquire additional facilities or dispose of existing facilities.

Excluded from the list below are operating facilities in unconsolidated subsidiaries as well as service or support facilities. The service or support facilities include machine shop operations, plant operations dedicated to printing for cans and closures, coil shearing, coil coating and RD&E operations. Some operating facilities produce more than one product but have been presented below under the product with the largest contribution to sales.



21

Crown Holdings, Inc.



  
 
Americas
Europe
Asia Pacific
Beverage
and
Closures
 
Kankakee, IL
Estancia, Brazil
Custines, France
Sevilla, Spain
Phnom Penh, Cambodia (2)
 
Mankato, MN
Manaus, Brazil
Korinthos, Greece
Valencia, Spain
Sihanoukville, Cambodia
 
Batesville, MS
Ponta Grossa, Brazil
Patras, Greece
El Agba, Tunisia
Huizhou, China
 
 
Nichols, NY
Calgary, Canada
Amman, Jordan
Izmit, Turkey
Hangzhou, China
 
 
Dayton, OH
Weston, Canada
Dammam, Saudi Arabia
Osmaniye, Turkey
Heshan, China
 
 
Cheraw, SC
Santafe de Bogota,
Jeddah, Saudi Arabia
Dubai, UAE
Ziyang, China
 
 
Conroe, TX
Colombia
Kosice, Slovakia
Botcherby, U.K.
Karawang, Indonesia
 
 
Fort Bend, TX
Chihuahua, Mexico
Agoncillo, Spain
Braunstone, U.K.
Bangi, Malaysia
 
 
Winchester, VA
Ensenada, Mexico
 
 
Yangon, Myanmar
 
 
Olympia, WA
Guadalajara,
 
 
Singapore
 
 
La Crosse, WI
Mexico
 
 
Nong Khae, Thailand 
 
 
Worland, WY
Monterrey, Mexico (2)
 
 
Danang, Vietnam
 
 
Cabreuva, Brazil
Orizaba, Mexico
 
 
Dong Nai, Vietnam
 
 
Teresina, Brazil
Toluca, Mexico
 
 
Hanoi, Vietnam
 
 
 
 
 
 
Ho Chi Minh City, Vietnam
 
 
 
 
 
 
 
Food
and
Closures 
 
Winter Garden, FL
Hanover, PA
Carpentras, France
Abidjan, Ivory Coast
Bangpoo, Thailand
 
Owatonna, MN
Suffolk, VA
Concarneau, France
Toamasina, Madagascar
Hat Yai, Thailand
 
Omaha, NE
Oshkosh, WI
Laon, France
Agadir, Morocco
Nakhon Pathom, Thailand
 
 
Lancaster, OH
Kingston, Jamaica
Nantes, France
Casablanca, Morocco
Samrong, Thailand
 
 
Massillon, OH
La Villa, Mexico
Outreau, France
Goleniow, Poland
Songkhla, Thailand
 
 
Mill Park, OH
Barbados, West Indies
Perigueux, France
Pruszcz, Poland
 
 
 
Connellsville, PA
 
Lubeck, Germany
Alcochete, Portugal
 
 
 
 
 
Mühldorf, Germany
Novotitarovskaya,
 
 
 
 
 
Seesen, Germany (2)
Russia
 
 
 
 
 
Thessaloniki, Greece
Timashevsk, Russia
 
 
 
 
 
Tema, Ghana
Aldeanueva De Ebro, Spain
 
 
 
 
 
Kornye, Hungary
Las Torres De Cotillas,
 
 
 
 
 
Nagykoros, Hungary
Spain
 
 
 
 
 
Athy, Ireland
Llanera, Spain
 
 
 
 
 
Aprilia, Italy
Merida, Spain
 
 
 
 
 
Battipaglia, Italy
Osuna, Spain
 
 
 
 
 
Calerno S. Ilario d’Enza,
Pontavedra, Spain
 
 
 
 
 
Italy
Sevilla, Spain
 
 
 
 
 
Nocera Superiore, Italy
Karacabey, Turkey
 
 
 
 
 
Parma, Italy
Wisbech, U.K.
 
 
 
 
 
 
 
 
Aerosol
 
Alsip, IL
Faribault, MN
Spilamberto, Italy (2)
Sutton, U.K.
 
 
 
Decatur, IL
Spartanburg, SC
 
 
 
 
 
 
 
 
 
 
Promotional & Specialty Packaging
 
Belcamp, MD
 
Chatillon-sur-Seine, France
Carlisle, U.K.
Henan, China
 
 
 
Hoorn, Netherlands
Mansfield, U.K.
Huizhou, China
 
 
 
 
 
Kunshan, China
 
 
 
 
 
 
Qingdao Chengyan, China
 
 
 
 
 
 
Shanghai, China
 
 
 
 
 
 
Tianjin, China
 
 
 
 
 
 
Tongxiang, China
 
 
 
 
 
 
Singapore
 
 
 
 
 
 
Dong Nai, Vietnam
 
 
 
 
 
 
 
Canmaking
Norwalk, CT
Chippewa Falls, WI
Shipley, U.K. (2)
 
 
Equipment
Trevose, PA
Acayucan, Mexico
 
 
 
and Other
 
 
 
 
 
 

22

Crown Holdings, Inc.


 
  
 
Americas
Europe
Asia Pacific
Transit
 
Benton, AR (2)
Cincinnati, OH
Virton, Belgium
Weischlitz, Germany
Derrimut, Australia
Packaging
 
Fordyce, AR
Cleveland, OH
Kardjali, Bulgaria
Gorey, Ireland
Kurri Kurri, Australia
 
 
Sheridan, AR
Loveland, OH
Noerresundby, Denmark
Kilkenny, Ireland
Qingdao, China
 
 
Phoenix, AZ
Elizabethtown, PA
Soenderborg, Denmark
Nairobi, Kenya
Bangalore, India (3)
 
 
Bay Point, CA
Hazleton, PA
Liljendal, Finland
Heerlen, Netherlands
Dahej, India
 
 
Stockton, CA
South Canaan, PA
Masku, Finland
Nuenen, Netherlands
Dehradun, India
 
 
Denver, CO
East Providence, RI (2)
Castelsarrasin, France
Zwijndrecht, Netherlands
Karnataka, India
 
 
Carrollton, GA
Chapin, SC
Fontaine les Luxeuil,
Kosice, Slovakia
Rudraram, India (2)
 
 
Douglasville, GA
Darlington, SC (2)
France
Burseryd, Sweden
Silvassa, India (2)
 
 
LaGrange, GA
Greer, SC
Manneville sur Risle,
Hjo, Sweden
Pohang, South Korea
 
 
Macon, GA
Latta, SC
France
Sandared, Sweden
Sriracha, Thailand
 
 
Bridgeview, IL
Orange, TX
Tournus, France
Ystad, Sweden
 
 
 
Dixmoor, IL
San Antonio, TX
Dinslaken, Germany (2)
Dietikon, Switzerland (2)
 
 
 
Glenview, IL
Danville, VA
Goldkronach, Germany
Merenschwand, Switzerland
 
 
 
Kankakee, IL (2)
Martinsville, VA
Hilden, Germany
Izmir, Turkey
 
 
 
Elkhart, IN
Woodland, WA
Nurnberg, Germany
Dudley, U.K.
 
 
 
Gary, IN
Weirton, WV
 
 
 
 
 
Florence, KY
Cabreuva, Brazil
 
 
 
 
 
Monroe, LA
Cambridge Ontario,
 
 
 
 
 
West Monroe, LA
Canada
 
 
 
 
 
Brighton, MI
Amatlan de los Reyes,
 
 
 
 
 
Eden, NC
Mexico
 
 
 
 
 
Salisbury, NC (2)
Cinega de Flores,
 
 
 
 
 
Irvington, NJ
Mexico
 
 
 
 
 
Newark, NJ
Toluca, Mexico
 
 
 
 
 
 
 
 
 
 
ITEM 3.
LEGAL PROCEEDINGS

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 ninety days after the stock purchase, this U.S. company sold its insulation assets and was later merged into Crown Cork. At December 31, 2018, the accrual for pending and future asbestos claims and related legal costs that are probable and estimable was $295 million.

The Company has been identified by the Environmental Protection Agency as a potentially responsible party (along with others, in most cases) at a number of sites.
Further information on these matters and other legal proceedings is presented within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the captions “Provision for Asbestos” and “Environmental Matters,” within the risk factor titled "The Company is subject to litigation risks which could negatively impact its operations and net income" and under Note O and Note P to the consolidated financial statements.

ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning the principal executive officers of the Company, including their ages and positions, is set forth in “Directors, Executive Officers and Corporate Governance” of this Annual Report.


23

Crown Holdings, Inc.


PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Registrant’s common stock is listed on the New York Stock Exchange under ticker symbol CCK. On February 27, 2019 there were 3,786 registered shareholders of the Registrant’s common stock, including 1,220 participants in the Company’s Employee Stock Purchase Plan. The market price of the Registrant’s common stock at December 31, 2018 is set forth in Part II of this Annual Report under Quarterly Data (unaudited). The foregoing information regarding the number of registered shareholders of common stock does not include persons holding stock through clearinghouse systems. Details regarding the Company’s policy as to payment of cash dividends and repurchase of shares are set forth under Note T to the consolidated financial statements included in this Annual Report. Information with respect to shares of common stock that may be issued under the Company’s equity compensation plans is set forth in “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report.

Issuer Purchases of Equity Securities

There were no purchases of Company's equity securities or shares surrendered to cover taxes on the vesting of restricted stock during the three months ended December 31, 2018.

In December 2016, the Company's Board of Directors authorized the repurchase of an aggregate amount of $1 billion of the Company's common stock through the end of 2019. Share repurchases under the Company's programs may be made in the open market or through privately negotiated transactions, and at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. As of December 31, 2018, $669 million of the Company’s outstanding common stock may be repurchased under the program.


24

Crown Holdings, Inc.


COMPARATIVE STOCK PERFORMANCE (a)
Comparison of Five-Year Cumulative Total Return (b)
Crown Holdings, S&P 500 Index, Dow Jones U.S. Containers & Packaging Index (c)

stockperformancechart18.jpg
December 31,
 
2013
 
2014
 
2015
 
2016
 
2017
 
2018
Crown Holdings
 
$
100

 
$
114

 
$
114

 
$
118

 
$
126

 
$
93

S&P 500 Index
 
100

 
114

 
115

 
129

 
157

 
150

Dow Jones U.S. Containers & Packaging Index
 
100

 
115

 
110

 
131

 
156

 
127



(a)
The preceding Comparative Stock Performance Graph is not deemed filed with the SEC and shall not be incorporated by reference in any of the Company's filings under the Security Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

(b)
Assumes that the value of the investment in Crown Holdings common stock and each index was $100 on December 31, 2013 and that all dividends were reinvested.

(c) Industry index is weighted by market capitalization and, as of December 31, 2018, was composed of Crown Holdings, AptarGroup, Avery Dennison, Ball, Bemis, Berry Plastics, Graphic Packaging, International Paper, Owens-Illinois, Packaging Corp. of America, Sealed Air, Silgan, Sonoco and WestRock.


25

Crown Holdings, Inc.


ITEM 6.
SELECTED FINANCIAL DATA

 
(in millions, except per share, ratios and other statistics)
 
2018 (a) (b)
 
2017
 
2016
 
2015 (c)
 
2014 (d)
Summary of Operations
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
11,151

 
$
8,698

 
$
8,284

 
$
8,762

 
$
9,097

Cost of products sold, excluding depreciation and amortization
 
9,028

 
7,006

 
6,623

 
7,140

 
7,529

Depreciation and amortization
 
425

 
247

 
247

 
237

 
190

Selling and administrative expense
 
558

 
367

 
366

 
382

 
390

Provision for asbestos
 

 
3

 
21

 
26

 
40

Restructuring and other
 
44

 
51

 
30

 
64

 
121

Loss from early extinguishments of debt
 

 
7

 
37

 
9

 
34

Other pension and postretirement
 
(25
)
 
(53
)
 
(24
)
 
(14
)
 
12

Interest expense, net of interest income
 
363

 
237

 
231

 
259

 
246

Foreign exchange
 
18

 
4

 
(16
)
 
20

 
14

Income before income taxes and equity earnings
 
740

 
829

 
769

 
639

 
521

Provision for income taxes
 
216

 
401

 
186

 
178

 
43

Equity in net earnings of affiliates
 
4

 

 

 

 

Net income
 
528

 
428

 
583

 
461

 
478

Net income attributable to noncontrolling interests
 
(89
)
 
(105
)
 
(87
)
 
(68
)
 
(88
)
Net income attributable to Crown Holdings
 
$
439

 
$
323

 
$
496

 
$
393

 
$
390

 
 
 
 
 
 
 
 
 
 
 
Financial Position at December 31
 
 
 
 
 
 
 
 
 
 
Working capital
 
$
166

 
$
(176
)
 
$
(55
)
 
$
141

 
$
695

Total assets
 
15,262

 
10,663

 
9,599

 
10,050

 
9,673

Total cash and cash equivalents
 
607

 
424

 
559

 
717

 
965

Total debt
 
8,692

 
5,343

 
4,911

 
5,518

 
5,194

Total equity
 
1,286

 
923

 
668

 
385

 
337

 
 
 
 
 
 
 
 
 
 
 
Common Share Data (dollars per share)
 
 
 
 
 
 
 
 
 
 
Earnings:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
3.28

 
$
2.39

 
$
3.58

 
$
2.85

 
$
2.84

Diluted
 
3.28

 
2.38

 
3.56

 
2.82

 
2.82

 
 
 
 
 
 
 
 
 
 
 
Market price on December 31
 
41.57

 
56.25

 
52.57

 
50.70

 
50.90

 
 
 
 
 
 
 
 
 
 
 
Number of shares outstanding at year-end
 
135.2

 
134.3

 
139.8

 
139.4

 
139.0

Average shares outstanding
 
 
 
 
 
 
 
 
 
 
Basic
 
133.6

 
135.3

 
138.5

 
137.9

 
137.2

Diluted
 
133.9

 
135.6

 
139.3

 
139.1

 
138.5

 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
462

 
$
498

 
$
473

 
$
354

 
$
328


(a) On January 1 2018, the Company adopted new accounting guidance on accounting for revenue recognition. This guidance
was applied on a modified retrospective basis. Prior period amounts have not been recast and continue to be reported in
accordance with accounting guidance in effect for those periods.
(b) Includes the results of the Signode acquisition from April 3, 2018 through December 31, 2018.
(c) Includes the results of the Empaque acquisition from February 18, 2015 through December 31, 2015.
(d) Includes the results of the Mivisa acquisition from April 23, 2014 through December 31, 2014.


26

Crown Holdings, Inc.


ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in millions, except per share, average settlement cost per asbestos claim, employee, shareholder and statistical data)

INTRODUCTION

The following discussion summarizes the significant factors affecting the results of operations and financial condition of Crown Holdings, Inc. (the "Company") as of and during the three-year period ended December 31, 2018. This discussion should be read in conjunction with the consolidated financial statements included in this Annual Report.

BUSINESS STRATEGY AND TRENDS

The Company's strategy is to grow its businesses in targeted international growth markets, while improving operations and results in more mature markets through disciplined pricing, cost control and careful capital allocation.

In April 2018, the Company completed its acquisition of Signode Industrial Group, a leading global provider of transit packaging systems and solutions, for consideration of $3.9 billion. With the acquisition, the Company added a portfolio of premier transit and protective packaging franchises to its existing metal packaging businesses, thereby broadening and diversifying its customer base and product offerings and significantly increasing cash flow.

The Company's global beverage can business continues to be a major strategic focus for organic growth. For several years, global industry demand for beverage cans has been growing and this is expected to continue in the coming years. While emerging markets such as Southeast Asia and Mexico have experienced higher growth rates due to rising per capita incomes and accompanying increases in beverage consumption, the more mature economies in Europe and North America have also seen market expansion. Beverage cans are the world’s most sustainable and recycled beverage packaging and continue to gain market share in carbonated soft drinks, sparkling waters, energy drinks, nutritional beverages, teas, coffees, craft beers, cocktails and wines. One of the Company’s key initiatives to drive brand differentiation has been to increase its ability to offer a number of different can sizes.

While the opportunity for organic volume growth in the Company's mature markets is not comparable to that in targeted international growth markets, the Company continues to generate strong returns on invested capital and significant cash flow from these businesses. The Company monitors capacity across all of its businesses and, where necessary, may take action such as closing a plant or reducing headcount to better manage its costs. Any or all of these actions may result in additional restructuring charges in the future which may be material.

Aluminum and steel prices can be subject to significant volatility and there has not been a consistent and predictable trend in pricing. As part of the Company's efforts to manage cost, it attempts to pass-through increases in the cost of aluminum and steel to its customers. The Company's ability to pass-through aluminum premium costs to its customers varies by market. There can be no assurance that the Company will be able to recover from its customers the impact of any such increased costs.

Through 2020, the Company's primary capital allocation focus will be to reduce leverage, as was successfully accomplished following the Mivisa and Empaque acquisitions in 2014 and 2015.

RESULTS OF OPERATIONS

The key measure used by the Company in assessing performance 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, the impact of fair value adjustments to inventory acquired in an acquisition and the timing impact of hedge ineffectiveness. Effective January 1, 2018, the Company made changes to its segment reporting to reflect refinements to its internal reporting. The Company classified the North America Food segment as a non-reportable segment. Additionally, the Company revised its definition of segment income to exclude intangibles amortization charges. Prior period segment income amounts have been recast to conform to current year presentation, including the new guidance related to the presentation of pension and other postretirement benefit costs discussed in Note A.

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 segments, the Canadian dollar and Mexican peso in the Company's Americas segments and the Chinese renminbi, Malaysian ringgit and Thai baht in the Company's Asia Pacific 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.

27

Crown Holdings, Inc.


NET SALES AND SEGMENT INCOME    
 
2018
 
2017
 
2016
Net sales
$
11,151

 
$
8,698

 
$
8,284


Year ended December 31, 2018 compared to 2017

Net sales increased primarily due to $1,800 from the acquisition of Signode, pass-through of higher raw material costs, 4% higher global beverage sales unit volumes, $134 from the impact of foreign currency translation and $27 from the impact of new accounting guidance adopted during the year which accelerated the timing of revenue recognition on certain products.

Year ended December 31, 2017 compared to 2016

Net sales increased primarily due to the pass-through of higher raw material costs, higher global beverage and food can sales unit volumes and $19 related to the impact of foreign currency translation.

Discussion and analysis of net sales and segment income by segment follows.

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 are mature markets which experienced increased volumes in 2018. 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.

In December 2016, the Company began commercial production at a new beverage can plant in Monterrey, Mexico that is capable of producing multiple can sizes. Additionally, in the first half of 2017, the Company began commercial shipments from its new beverage can plant in Nichols, New York. In addition to enhancing the Company's presence in specialty beverage can sizes, the plant provides an attractive cost platform from which to serve customers in the northeastern region of the U.S. and the eastern region of Canada. In January 2018, the Company commenced operations in a new glass bottle facility in Chihuahua, Mexico to serve the expanding beer market in the northern part of the country. During the fourth quarter of 2019, the Company will begin operations at a new one-line beverage can plant in Rio Verde, Brazil. Additionally, in January 2018, the Company closed a U.S. beverage can facility in an effort to consolidate manufacturing processes. The Company continues to review its supply and demand profile and long-term plans and it is possible that the Company may record additional charges in the future.

Net sales and segment income in the Americas Beverage segment were as follows:
 
2018
 
2017
 
2016
Net sales
$
3,282

 
$
2,928

 
$
2,757

Segment income
454

 
470

 
456


Year ended December 31, 2018 compared to 2017

Net sales increased primarily due to 6% higher sales unit volumes and the pass-through of higher aluminum costs of $167 partially offset by $11 related to the impact of foreign currency translation.

Segment income decreased primarily due to higher freight costs in North America, which offset the impact of higher sales unit volumes.

Year ended December 31, 2017 compared to 2016

Net sales increased primarily due to the pass-through of higher aluminum costs of $135 and a 3% increase in sales unit volumes.

Segment income increased primarily due to higher sales unit volumes and geographic mix, partially offset by $10 of incremental start-up costs associated with the Company's new facility in Nichols, New York.



28

Crown Holdings, Inc.


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, whereas sales unit volumes in the Middle East beverage can markets have declined.

The Company completed the conversion of its plant in Custines, France, from steel to aluminum with the start-up of the second high-speed line in April 2017. The first line of a new beverage can plant in Valencia, Spain began operations in October 2018, with the second line to begin in February 2019. The new plant will facilitate the conversion from steel to aluminum beverage cans in that region. Additionally, in December 2018, the Company commenced operations at a new plant in Parma, Italy.

Net sales and segment income in the European Beverage segment were as follows:
 
2018
 
2017
 
2016
Net sales
$
1,489

 
$
1,457

 
$
1,420

Segment income
193

 
235

 
240


Year ended December 31, 2018 compared to 2017

Net sales increased primarily due to $34 related to the impact of foreign currency translation and the pass-through of higher raw material costs, partially offset by 10% lower sales unit volumes in the Middle East.

Segment income decreased primarily due to lower sales in the Middle East and higher startup costs at new operations.

Year ended December 31, 2017 compared to 2016

Net sales increased primarily due to 2% higher sales unit volumes, with higher volumes in Europe partially offset by lower volumes in the Middle East, and the pass-through of higher aluminum costs.

Segment income decreased primarily due to lower sales in the Middle East being partially offset by higher sales unit volumes in Europe.

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 which has experienced stable to slightly declining volumes in recent years.

Net sales and segment income in the European Food segment were as follows:
 
2018
 
2017
 
2016
Net sales
$
1,982

 
$
1,935

 
$
1,855

Segment income
257

 
264

 
260


Year ended December 31, 2018 compared to 2017

Net sales increased primarily due to the pass-through of higher tinplate costs and $78 related to the impact of foreign currency translation partially offset by 6% lower sales unit volumes. Lower sales unit volumes were primarily the result of lower demand due to challenging weather conditions which resulted in poor harvest yields.

Segment income decreased primarily due to lower sales unit volumes, partially offset by improved cost performance and $10 related to the impact of foreign currency translation.

Year ended December 31, 2017 compared to 2016

Net sales increased primarily due to the pass-through of higher tinplate costs and $26 related to the impact of foreign currency translation partially offset by the negative impact of product mix.


29

Crown Holdings, Inc.


Segment income was comparable to 2016 as benefits of $5 related to foreign currency translation, prior year restructuring actions and improved cost performance offset the negative impact of product mix.

Asia Pacific

The Company's Asia Pacific segment primarily 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. The Company's new beverage can facility in Jakarta, Indonesia, and a second line at its beverage can plant in Danang, Vietnam, began operations in June and October 2017. In addition, production began at a new beverage can plant in Yangon, Myanmar in July 2018. A third beverage can line at the Phnom Penh, Cambodia plant commenced operations in January 2019. In response to recent market conditions in China, the Company closed its Shanghai facility in 2016, its Beijing facility in 2017, its Putian facility in 2018 and announced plans to close it Huizhou facility in early 2019. After these closures, the Company will have three beverage can plants in China with approximately $100 in sales.

Net sales and segment income in the Asia Pacific segment were as follows:
 
2018
 
2017
 
2016
Net sales
$
1,316

 
$
1,177

 
$
1,116

Segment income
186

 
168

 
152


Year ended December 31, 2018 compared to 2017

Net sales increased primarily due to 13% higher sales unit volume in Southeast Asia and $21 related to the impact of foreign currency translation, partially offset by lower sales related to the closure of the Beijing beverage can facility in 2017.

Segment income increased primarily due to higher sales unit volumes.

Year ended December 31, 2017 compared to 2016

Net sales increased primarily due to 11% higher sales unit volume in Southeast Asia partially offset by a sales unit volume decrease related to the closure of the Shanghai and Beijing beverage can facilities.

Segment income increased primarily due to increased sales unit volumes and cost reductions related to the closure of the Shanghai and Beijing beverage can facilities, partially offset by higher raw material costs.

Transit Packaging

On April 3, 2018, the Company completed its acquisition of Signode, which is reported as the Company's Transit Packaging segment. The integration of Signode is progressing as planned. Transit Packaging contributed net sales of $1,800 and segment income of $255, including a charge of $40 for fair value adjustments related to the sale of inventory, for the period April 3, 2018 through December 31, 2018.

Non-reportable Segments

The Company's non-reportable segments include its North American food can business, its European aerosol can and promotional packaging business, its North American aerosol can business 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:
 
2018
 
2017
 
2016
Net sales
$
1,282

 
$
1,201

 
$
1,136

Segment income
122

 
123

 
123


Year ended December 31, 2018 compared to 2017

Net sales increased primarily due to $67 related to the pass-through of higher tinplate costs in the North America food can business and global aerosol businesses and $12 related to the impact of foreign currency translation. Higher sales volumes in the Company's

30

Crown Holdings, Inc.


North America food can business and equipment operations were offset by lower sales unit volumes in the Company's global aerosol businesses.

Segment income was comparable as the impact of higher sales unit volumes in the North America food can business and the Company's equipment operations were partially offset by higher freight costs in the North America food can business.

Year ended December 31, 2017 compared to 2016

Net sales increased primarily due to the pass-through of higher tinplate costs in the Company's North America food can business and global aerosol businesses and 5% higher sales unit volumes in the Company's North America food can business. Segment income was comparable.

Corporate and unallocated
 
2018
 
2017
 
2016
Corporate and unallocated
$
(139
)
 
$
(143
)
 
$
(142
)

Corporate and unallocated costs were comparable in each year presented.

COST OF PRODUCTS SOLD (EXCLUDING DEPRECIATION AND AMORTIZATION)

Cost of products sold (excluding depreciation and amortization) increased from $7,006 in 2017 to $9,028 in 2018 primarily due to the acquisition of Signode, the impact of higher raw material costs and $115 from the impact of foreign currency translation.

Cost of products sold (excluding depreciation and amortization) increased from $6,623 in 2016 to $7,006 in 2017 primarily due to the impact of higher raw material costs.

Cost of products sold (excluding depreciation and amortization) as a percentage of net sales was 81% in 2018 and 2017 and 80% in 2016.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense increased from $247 in 2017 to $425 in 2018 primarily due to the impact of the Signode acquisition. Depreciation and amortization expense was $247 in 2016.

SELLING AND ADMINISTRATIVE EXPENSE

Selling and administrative expense increased from $367 in 2017 to $558 in 2018 primarily due to the acquisition of Signode partially offset by lower general corporate costs.

Selling and administrative expense was comparable in 2016 and 2017.

PROVISION FOR ASBESTOS

Crown Cork & Seal Company, Inc. 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. During 2018, 2017 and 2016 the Company recorded charges of less than $1, $3 and $21 to increase its accrual for asbestos-related costs and made asbestos-related payments of $21, $30, and $30 respectively. The Company currently expects 2019 payments to be approximately $25. See Note O to the consolidated financial statements for additional information regarding the provision for asbestos-related costs. Also, see the Critical Accounting Policies section of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the Company’s policies with respect to asbestos liabilities.

INTEREST EXPENSE

For the year ended December 31, 2018 compared to 2017, interest expense increased from $252 to $384 primarily due to higher outstanding debt from borrowings incurred to finance the Signode acquisition.

For the year ended December 31, 2017 compared to 2016, interest expense increased from $243 to $252 primarily due to increased average borrowing rates.

31

Crown Holdings, Inc.


TAXES ON INCOME
    
The Company's effective income tax rates were as follows:
 
2018
 
2017
 
2016
Income before income taxes
$
740

 
$
829

 
$
769

Provision for income taxes
216

 
401

 
186

Effective income tax rate
29.2
%
 
48.4
%
 
24.1
%

The effective rate in 2018 included $24 related to taxes on the distributions of foreign earnings, which were previously asserted to be indefinitely reinvested. This change in assertion is expected to impact the annual provision for income taxes by approximately $8 in 2019.

The higher effective tax rate in 2017 was primarily due to a net charge of $177 to recognize the provisional impact of the new U.S. federal tax reform legislation. The Tax Act reduced the U.S. corporate tax rate from 35% to 21%, imposed a limitation on the tax deduction for interest expense, net of interest income, to 30% of a U.S. corporation's adjusted taxable income and also changed certain provisions related to the taxation of non-U.S. subsidiary earnings. As a result, beginning in 2018, the Company no longer records U.S. federal income tax on its share of certain foreign subsidiaries (except for certain categories of passive and intangible income), nor does the Company record a benefit for foreign tax credits related to that income.

The low effective tax rate in 2016 was primarily due to a benefit of $31 from the release of a valuation allowance against the Company's net deferred tax assets in Canada.

For additional information regarding income taxes, see Note S to the consolidated financial statements and the Critical Accounting Policies section of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the Company’s policies with respect to valuation allowances.

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Net income attributable to noncontrolling interest decreased from $105 in 2017 to $89 in 2018 primarily due to lower earnings in the Company's beverage can operations in Brazil and the Middle East.

Net income attributable to noncontrolling interests increased from $87 in 2016 to $105 in 2017 primarily due to higher earnings in the Company's beverage can operations in Brazil.


LIQUIDITY AND CAPITAL RESOURCES

OPERATING ACTIVITIES

Operating activities used cash of $251 in 2017 and provided cash of $571 in 2018 primarily due to higher proceeds from the Company's securitization programs. See Note A and Note D to the consolidated financial statements for a discussion of the Company's securitization programs and the impact of new accounting guidance on the Company's presentation of these programs in its Consolidated Statements of Cash Flows. In 2017, operating activities also included a voluntary contribution of $241 to the Company's U.K. defined benefit pension plan.

Receivables increased from $1,041 in 2017 to $1,602 in 2018 primarily due to the impact of the Signode acquisition and $181 related to the impact of newly adopted revenue guidance. Days sales outstanding for trade receivables, excluding the impact of unbilled receivables recognized under the new revenue guidance, increased from 34 in 2017 to 41 in 2018, primarily related to the impact of the Signode acquisition.

Inventories increased from $1,385 in 2017 to $1,690 in 2018 primarily due to the impact of the Signode acquisition, expected higher sales unit volumes in certain geographies and higher raw material costs partially offset by $155 related to the impact of newly adopted revenue guidance. Inventory turnover, excluding the impact of the derecognition of inventory under the new revenue guidance, was 67 days at December 31, 2017 compared to 64 days at December 31, 2018.

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

32

Crown Holdings, Inc.


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.

Accounts payable increased from $2,367 in 2017 to $2,732 in 2018 primarily due to the impact of the Signode acquisition and higher raw material costs partially offset by the impact of foreign currency translation. Days outstanding for trade payables decreased from 119 days at December 31, 2017 to 107 days at December 31, 2018 primarily due to the impact of the Signode acquisition.

INVESTING ACTIVITIES

Investing activities provided cash of $496 in 2017 and used cash of $3,843 in 2018. In 2018, the Company paid $3,912 to acquire Signode and $25 for the settlement of a foreign exchange contract related to the acquisition. In 2018, the Company also had lower cash collections on beneficial interests in transferred receivables as compared to 2017.

The Company currently expects capital expenditures in 2019 to be in the range of $400 to $425.

At December 31, 2018, the Company had approximately $70 of capital commitments. The Company expects to fund these commitments primarily through cash generated from operations.

FINANCING ACTIVITIES

Financing activities provided cash of $3,533 primarily due to proceeds from borrowings incurred to finance the Signode acquisition.

Financing activities used cash of $400 in 2017 primarily due to purchases of the Company's common stock.

LIQUIDITY

As of December 31, 2018, $465 of the Company's $607 in 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., $316 was held by subsidiaries for which earnings are considered indefinitely reinvested, if such earnings were repatriated the Company may be required to record incremental foreign taxes on the repatriated funds.

Effective April 2018, the Company amended its revolving credit agreements to provide capacity of $1,650 under the revolving credit facility upon completion of the Signode acquisition, increase total leverage ratios and extend the timetable for compliance with total leverage ratios. As of December 31, 2018, the Company had available capacity of $1,582 under its revolving credit facilities. The Company could have borrowed this amount at December 31, 2018 and would still be in compliance with its leverage ratio covenants.

The ratio of total debt, less cash and cash equivalents, to total capitalization was 86.3% and 84.2% at December 31, 2018 and 2017. Total capitalization is defined by the Company as total debt plus total equity, less cash and cash equivalents.

The Company's debt agreements contain covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional debt, pay dividends or repurchase capital stock, make certain other restricted payments, create liens and engage in sale and leaseback transactions. These restrictions are subject to a number of exceptions, however, which allow the Company to incur additional debt, create liens or make otherwise restricted payments.

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 4.45 to 1.0 at December 31, 2018 was in compliance with the covenant requiring a ratio no greater than 6.50 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.

33

Crown Holdings, Inc.


The Company’s current sources of liquidity include a securitization facility with a program limit of between $350 and $375 that expires in July 2020, a securitization facility with a program limit of $240 that expires in November 2022, and an uncommitted securitization facility with a program limit of $175 that expires in December 2019. Additional sources of the Company's liquidity include borrowings that mature as follows: its $1,700 revolving credit facilities in April 2022; its €650 ($745 at December 31, 2018) 4.0% senior notes in July 2022; its $1,000 4.50% senior notes in January 2023; its €335 ($384 at December 31, 2018) 2.25% senior notes in February 2023; its €600 ($688 at December 31, 2018) 2.625% senior notes in September 2024; its €600 ($688 at December 31, 2018) 3.375% senior notes in May 2025; its $875 4.75% senior notes in February 2026; its €500 ($573 at December 31, 2018) 2.875% senior notes in February 2026; its $400 4.25% senior notes in September 2026; its $350 7.375% senior notes in December 2026; its $40 7.5% senior notes in December 2096; and its $95 of other indebtedness in various currencies at various dates through 2036. In addition, Crown’s term loan facilities mature as follows: $60 in 2019, $67 in 2020, $67 in 2021, $956 in 2022, $8 in 2023, $8 in 2024 and $1,692 in 2025.

CONTRACTUAL OBLIGATIONS

Contractual obligations as of December 31, 2018 are summarized in the table below. 
 
 
Payments Due by Period
 
 
2019
 
2020
 
2021
 
2022
 
2023
 
2024 &
after
 
Total
Long-term debt
 
$
86

 
$
88

 
$
76

 
$
1,711

 
$
1,400

 
$
5,335

 
$
8,696

Interest on long-term debt
 
318

 
315

 
312

 
281

 
207

 
197

 
1,630

Operating leases
 
54

 
42

 
34

 
26

 
21

 
117

 
294

Projected pension contributions
 
17

 
19

 
61

 
90

 
100

 

 
287

Postretirement obligations
 
14

 
13

 
13

 
12

 
12

 
52

 
116

Purchase obligations
 
3,332

 
1,499

 
1,030

 
20

 

 

 
5,881

Total contractual cash obligations
 
$
3,821

 
$
1,976

 
$
1,526

 
$
2,140

 
$
1,740

 
$
5,701

 
$
16,904


All amounts due in foreign currencies are translated at exchange rates as of December 31, 2018.

The Company expects to fund its obligations through a combination of cash flows from operations, borrowings under its revolving credit facilities and the acceleration of cash receipts under its receivables securitization and factoring programs.

Aggregate maturities of long-term debt, including capital lease obligations, for the five years subsequent to 2018 exclude unamortized discounts and debt issuance costs.

Interest on long-term debt is presented through 2024 only and represents the interest that will accrue by year based on debt outstanding and interest rates in effect as of December 31, 2018.

Projected pension contributions represent the Company's expected funding contributions for the next five years.

Postretirement obligations represent expected payments to retirees for medical and life insurance coverage for the next ten years. Pension and postretirement obligation projections require the use of numerous estimates and assumptions such as discount rates, rates of return on plan assets, compensation increases, health care cost increases, mortality and employee turnover and have therefore been provided for only five years for pension and ten years for postretirement.

Purchase obligations include commitments for raw materials and utilities at December 31, 2018. These commitments specify significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of transactions.

The table above excludes $37 of liabilities for unrecognized tax benefits because the Company is unable to estimate when these amounts may be paid, if at all. See Note S to the consolidated financial statements for additional information on the Company’s unrecognized tax benefits.

In order to reduce leverage and future interest payments, the Company may from time to time repurchase outstanding notes and debentures with cash, exchange shares of its common stock for the Company’s outstanding notes and debentures, or seek to refinance its existing credit facilities and other indebtedness. The Company will evaluate any such transactions in light of then existing market conditions and may determine not to pursue such transactions.




34

Crown Holdings, Inc.


MARKET RISK

In the normal course of business the Company is subject to risk from adverse fluctuations in foreign 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. These instruments are viewed as risk management tools, involve little complexity, and are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to them in the financial markets and its use of other methods, such as netting exposures for foreign exchange risk and establishing sales arrangements that permit the pass-through to customers of changes in commodity prices and foreign exchange rates, to effectively achieve its goal of risk reduction. The Company’s objective in managing its exposure to market risk is to limit the impact on earnings and cash flow.

The Company manages foreign currency exposures at the operating unit level. Exposures that cannot be naturally offset within an operating unit may be hedged with derivative financial instruments where possible and cost effective in the Company’s judgment. Foreign exchange contracts generally mature within twelve months.

The table below provides information in U.S. dollars as of December 31, 2018 about the Company’s forward currency exchange contracts. The contracts primarily hedge anticipated transactions, unrecognized firm commitments and intercompany debt. The contracts with no amounts in the fair value column have a fair value of less than $1.
Buy/Sell
 
Contract
amount
 
Contract
fair value
gain/(loss)
 
Average
contractual
exchange rate
Euro/Sterling
 
$
603

 
$
6

 
1.12

Sterling/Euro
 
245

 
(4
)
 
0.89

Euro/U.S. dollars
 
198

 

 
0.86

U.S. dollars/Euro
 
76

 
2

 
1.24

Euro/Swiss francs
 
112

 

 
0.89

Singapore dollars/U.S. dollars
 
76

 
1

 
1.37

Euro/Singapore dollars
 
78

 
(1
)
 
0.63

Euro/Polish zloty
 
64

 

 
0.23

Polish zloty/Euro
 
19

 

 
4.31

Euro/Swedish krona
 
44

 
(1
)
 
0.10

U.S. dollars/Thai baht
 
39

 
(1
)
 
0.03

Euro/Danish krone
 
42

 

 
0.13

 
 
$
1,596

 
$
2

 
 

At December 31, 2018, the Company had additional contracts with an aggregate notional value of $94 to purchase or sell other currencies, primarily Asian currencies, including the Malaysian ringgit, Thai baht, Japanese yen, and Hong Kong dollar; European currencies, including the Hungarian florint; the South African rand; and the Canadian dollar. The aggregate fair value of these contracts was a loss of less than $1.

At December 31, 2018, the Company had cross-currency swaps with an aggregate notional of $875 (€768). The swaps are designated as hedges of the Company's net investment in a euro-based subsidiary and matures in 2026. Under the cross-currency swaps, the Company will receive semi-annual fixed U.S. dollar payments at a rate of 4.75% of the U.S. notional value and pay 1.84% on the euro notional value. The fair value of these contracts at December 31, 2018 was a gain of $14.

The Company, from time to time, may manage its interest rate risk associated with fluctuations in variable interest rates through interest rate swaps. The use of interest rate swaps and other methods of mitigating interest rate risk may increase overall interest expense.

The table below presents principal cash flows and related interest rates by year of maturity for the Company’s long-term debt obligations as of December 31, 2018. Interest rates represent the rates in effect as of December 31, 2018.


35

Crown Holdings, Inc.


 
 
Year of Maturity
Debt
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Fixed rate
 
$
21

 
$
16

 
$
3

 
$
748

 
$
1,388

 
$
3,629

Average interest rate
 
6.0
%
 
5.6
%
 
7.0
%
 
4.0
%
 
3.9
%
 
4.0
%
Variable rate
 
$
65

 
$
72

 
$
73

 
$
963

 
$
12

 
$
1,706

Average interest rate
 
2.6
%
 
2.6
%
 
2.6
%
 
2.6
%
 
2.3
%
 
3.2
%

Total future payments of long-term debt obligations at December 31, 2018 include $4,443 of U.S. dollar-denominated debt, $4,248 of euro-denominated debt and $5 of debt denominated in other currencies.

The Company uses various raw materials, such as steel and aluminum in its manufacturing operations, which expose it to risk from adverse fluctuations in commodity prices. In 2018, consumption of steel and aluminum represented 21% and 36% of the Company’s consolidated cost of products sold, excluding depreciation and amortization. The Company primarily manages its risk to adverse commodity price fluctuations and surcharges through contracts that pass through raw material costs to customers. The Company may, however, be unable to increase its prices to offset increases in raw material costs without suffering reductions in unit volume, revenue and operating income, and any price increases may take effect after related cost increases, reducing operating income in the near term. As of December 31, 2018, the Company had forward commodity contracts to hedge aluminum price fluctuations with a notional value of $409 and a net loss of $31. The maturities of the commodity contracts closely correlate to the anticipated purchases of those commodities.

In addition, the Company's manufacturing facilities are dependent, to varying degrees, upon the availability of water and processed energy, such as natural gas and electricity.

See Note N to the consolidated financial statements for further information on the Company’s derivative financial instruments.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has certain guarantees and indemnification agreements that could require the payment of cash upon the occurrence of certain events. The guarantees and agreements are further discussed under Note P to the consolidated financial statements. The Company also utilizes receivables securitization and factoring facilities and derivative financial instruments as further discussed under Note D and Note N to the consolidated financial statements.

ENVIRONMENTAL MATTERS

Compliance with the Company’s Environmental Protection Policy is mandatory and the responsibility of each employee of the Company. The Company is committed to the protection of human health and the environment and is operating within the increasingly complex laws and regulations of national, state, and local environmental agencies or is taking action to achieve compliance with such laws and regulations. Environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases.
 
The Company is dedicated to a long-term environmental protection program and has initiated and implemented many pollution prevention programs with an emphasis on source reduction. The Company continues to reduce the amount of metal used in the manufacture of steel and aluminum containers through “lightweighting” programs. The Company recycles nearly 100% of scrap aluminum, steel and copper used in its manufacturing processes. Many of the Company’s programs for pollution prevention reduce operating costs and improve operating efficiencies.

The potential impact on the Company’s operations of climate change and potential future climate change regulation in the jurisdictions in which the Company operates is highly uncertain. See the risk factor entitled “The Company is subject to costs and liabilities related to stringent environmental and health and safety standards” in Part I, Item 1A of this Annual Report.

See Note P to the consolidated financial statements for additional information on environmental matters including the Company's accrual for environmental remediation costs.







36

Crown Holdings, Inc.


INFLATION

Certain of the Company's sales contracts contain non-metal pass-through provisions that include annual selling price adjustments based on a producer price index. In certain years the referenced index would be negative, requiring the Company to reduce its selling prices while its actual costs may have increased.

CRITICAL ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which require that management make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, impacting the reported results of operations and financial position of the Company. The Company’s significant accounting policies are more fully described under Note A to the consolidated financial statements. Certain accounting policies, however, are considered to be critical in that (i) they are most important to the depiction
of the Company’s financial condition and results of operations and (ii) their application requires management’s most subjective judgment in making estimates about the effect of matters that are inherently uncertain.

Asbestos Liabilities

The Company’s potential liability for asbestos cases is highly uncertain due to the difficulty of forecasting many factors, including the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, the nature of future claims (including the seriousness of alleged disease, whether claimants allege first exposure to asbestos before or during 1964 and the alleged link to Crown Cork), the terms of settlements of other defendants with asbestos-related liabilities, bankruptcy filings of other defendants (which may result in additional claims and higher settlement demands for non-bankrupt defendants) 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). See Note O to the consolidated financial statements for additional information regarding the provision for asbestos-related costs.

At the end of each quarter, the Company considers whether there have been any material developments that would cause it to update its asbestos accrual calculations. Absent any significant developments in the asbestos litigation environment in general or with respect to the Company specifically, the Company updates its accrual calculations in the fourth quarter of each year. The
Company estimates its liability without limitation to a specified time period and provides for the estimated amounts expected to be paid related to outstanding claims, projected future claims and legal costs.

Outstanding claims used in the accrual calculation are adjusted for factors such as claims filed in those states where the Company’s liability is limited by statute, claims alleging first exposure to asbestos after 1964 which are assumed to have no value and claims which are unlikely to ever be paid and are assumed to have a reduced or nominal value based on the length of time outstanding. Projected future claims are calculated based on actual data for the most recent five years and are adjusted to account for the expectation that a percentage of these claims will never be paid. Outstanding and projected claims are multiplied by the average settlement cost of claims for the most recent five years. As claims are not submitted or settled evenly throughout the year, it is difficult to predict at any time during the year whether the number of claims or average settlement cost over the five year period ending December 31 of such year will increase compared to the prior five year period.

In 2018, the Company recorded a charge of less than $1 to increase its asbestos liability compared to charges of $3 in 2017 and $21 in 2016. The five year average settlement cost per claim increased from $13,800 in 2016 and 2017 to $14,900 in 2018. While the average settlement cost per claim increased in 2018, the increase was offset in the Company's accrual calculation by a decrease in projected future claim settlements.

Crown Cork's experience continues to be settling a higher percentage of claims alleging serious disease (primarily mesothelioma) which are settled at higher dollar amounts. Accordingly, a higher percentage of claims projected into the future continue to relate to serious diseases and are therefore valued at higher dollar amounts. For example, in each of the years 2018, 2017 and 2016, of
the projected claims related to claimants alleging first exposure to asbestos before or during 1964 and filed in states that have not enacted asbestos legislation, approximately 60% relate to claims alleging serious diseases such as mesothelioma.

If the trend of settling a higher percentage of claims alleging serious disease (primarily mesothelioma) at higher dollar amounts
continues, average settlement costs per claim are likely to increase and, if not offset by a reduction in overall claims and settlements, the Company may record additional charges in the future. A 10% change in either the average cost per claim or the number of projected claims would increase or decrease the estimated liability at December 31, 2018 by $29. A 10% increase in these two factors at the same time would increase the estimated liability at December 31, 2018 by $62. A 10% decrease in these two factors at the same time would decrease the estimated liability at December 31, 2018 by $56.

37

Crown Holdings, Inc.


Goodwill Impairment

The Company performs a goodwill impairment review in the fourth quarter of each year or when facts and circumstances indicate goodwill may be impaired. In accordance with the accounting guidance, the Company may first perform a qualitative assessment on none, some, or all of its reporting units to determine whether further quantitative impairment testing is necessary. Factors that the Company may consider in its qualitative assessment include, but are not limited to, general economic conditions, changes in the markets in which the Company operates, changes in input costs that may affect earnings and cash flows, trends over multiple periods and the difference between the reporting unit's fair value and carrying amount as determined in the most recent fair value calculation.
The quantitative impairment test involves a number of assumptions and judgments, including the calculation of fair value for the Company’s identified reporting units. The Company determines the estimated fair value for each reporting unit based on an average of the estimated fair values calculated using an income and a market approach. The Company uses an average of the two methods in estimating fair value because it believes they both provide an appropriate fair value for the reporting units. The Company’s estimates of future cash flows include assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. Under the market approach, the Company obtains available information regarding multiples used in recent transactions, if any, involving transfers of controlling interests in the consumer and industrial packaging industry. The Company also reviews publicly available trading multiples based on the enterprise value of companies in the consumer and industrial packaging industry whose shares are publicly traded. The appropriate multiple is applied to the respective financial results of the reporting unit to obtain an estimated fair value. Under the income approach, fair value is calculated as the sum of the projected discounted cash flows of the reporting unit over the next five years and the terminal value at the end of those five years. The projected cash flows generally include moderate to no growth assumptions, depending on the reporting unit, unless there has recently been a material change in the business or a material change is forecasted. The discount rate used is based on the average weighted-average cost of capital of companies in the consumer and industrial packaging industry, which information is available through various sources.
The Company completed its annual review for 2018 and determined that no adjustments to the carrying value of goodwill were necessary. Although no goodwill impairment was recorded, there can be no assurances that future goodwill impairments will not occur.
As of October 1, 2018, the estimated fair value of the European Aerosols and Promotional Packaging reporting unit, using the methods and assumptions described above, an EBITDA multiple of 8.0 times and a discount rate of 7.25%, was 29% higher than its carrying value. The maximum potential effect of weighting the two valuation methods other than equally would have been to increase or decrease the estimated fair value by $2. Assuming all other factors remain the same, a $1 change in forecasted annual Adjusted EBITDA (a non-GAAP item defined by the Company as net customer sales, less cost of products sold excluding depreciation and amortization, less selling and administrative expenses) changes the excess of estimated fair value over carrying value by $8; a change of 0.5 in the assumed EBITDA multiple changes the excess of estimated fair value over carrying value by $10; and an increase in the discount rate from 7.25% to 8.25% changes the excess of estimated fair value over carrying value by $4. Under each of these scenarios, the reporting unit's fair value exceeded its carrying value. If Adjusted EBITDA decreased by 21% the fair value of the reporting unit would approximate carrying value.
As of October 1, 2018, the estimated fair value of the North America Food reporting unit, using the methods and assumptions described above, an EBITDA multiple of 8.0 times and a discount rate of 7.25%, was 41% higher than its carrying value. The maximum potential effect of weighting the two valuation methods other than equally would have been to increase or decrease the estimated fair value by $4. Assuming all other factors remain the same, a $1 change in forecasted annual Adjusted EBITDA changes the excess of estimated fair value over carrying value by $8; a change of 0.5 in the assumed EBITDA multiple changes the excess of estimated fair value over carrying value by $18; and an increase in the discount rate from 7.25% to 8.25% changes the excess of estimated fair value over carrying value by $8. Under each of these scenarios, the reporting unit's fair value exceeded its carrying value. If Adjusted EBITDA decreased by 26% the fair value of the reporting unit would approximate carrying value.
These reporting units operate in low-growth environments with multiple competitors, which could result in lower selling prices. In addition, shifts in consumer demand could result in lower volumes. While the Company believes current Adjusted EBITDA projections are reasonable, the reporting units' ability to maintain or grow Adjusted EBITDA could be negatively impacted by the above factors. To the extent future operating results were to decline causing the estimated fair value to fall below carrying value, it is possible that an impairment charge of up to $90 for European Aerosols and Promotional Packaging and $113 for North America Food could be recorded.
In addition, as described in Note B, the Company recorded an additional $1,552 of goodwill in 2018 in connection with the acquisition of Signode.

38

Crown Holdings, Inc.


Long-lived Assets Impairment

The Company performs an impairment review of its long-lived assets, including definite-lived intangible assets and property, plant and equipment, when facts and circumstances indicate the carrying value may not be recoverable from its undiscounted cash flows. Any impairment loss is measured by comparing the carrying amount of the asset to its fair value. The Company’s estimates of future cash flows involve assumptions concerning future operating performance, economic conditions and technological changes that may affect the future useful lives of the assets. These estimates may differ from actual cash flows or useful lives.

Tax Valuation Allowance

The Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that a portion of the tax assets will not be realized. The estimate of the amount that will not be realized requires the use of assumptions concerning the Company’s future taxable income. These estimates are projected through the life of the related deferred tax assets based on assumptions that management believes are reasonable. The Company considers all sources of taxable income in estimating its
valuation allowances, including taxable income in any available carry back period; the reversal of taxable temporary differences; tax-planning strategies; and taxable income expected to be generated in the future other than from reversing temporary differences.
Should the Company change its estimate of the amount of deferred tax assets that it would be able to realize, an adjustment to the valuation allowance would result in an increase or decrease in tax expense in the period such a change in estimate was made.

See Note S to the consolidated financial statements for additional information on the Company’s valuation allowances.

Pension and Postretirement Benefits

Accounting for pensions and postretirement benefit plans requires the use of estimates and assumptions regarding numerous factors, including discount rates, rates of return on plan assets, compensation increases, health care cost increases, future rates of inflation, mortality and employee turnover. Actual results may differ from the Company’s actuarial assumptions, which may have an impact on the amount of reported expense or liability for pensions or postretirement benefits. The Company recorded pension expense of $45, including settlement charges of $38, in 2018 and currently projects its 2019 pension expense to be $42, using foreign currency exchange rates in effect at December 31, 2018. In addition, the Company may incur additional settlement charges of approximately $50 in 2019. The Company uses the spot yield curve approach to estimate the service and interest cost components of pension and postretirement benefits expense by applying the specific spot rates along the yield curve used to determine the benefit plan obligations to relevant projected cash outflows. The expected long-term rate of return on plan assets is determined by taking into consideration expected long-term returns associated with each major asset class based on long-term historical ranges, inflation assumptions and the expected net value from active management of the assets based on actual results.

The U.S. plan’s assumed rate of return was 7.25 % in 2018 and is 7.25% in 2019. The U.K. plan’s assumed rate of return was 4.25% in 2018 and is 4.25% in 2019. A 0.25% change in the expected rates of return would change 2019 pension expense by approximately $11.

Discount rates were selected using a method that matches projected payouts from the plans to an actuarially determined yield curve based on market observable AA bond yields in the respective plan jurisdictions and currencies. In certain jurisdictions, government securities were used along with corporate bonds to develop country-specific yield curves the extent that the underlying markets were not deemed sufficiently developed. A 0.25% change in the discount rates from those used at December 31, 2018 would change 2019 pension expense by approximately $4 and postretirement expense by less than $1. A 0.25% change in the discount rates from those used at December 31, 2018 would have changed the pension benefit obligation by approximately $155 and the postretirement benefit obligation approximately $4 as of December 31, 2018. See Note T to the consolidated financial statements for additional information on pension and postretirement benefit obligations and assumptions.

As of December 31, 2018, the Company had pre-tax unrecognized net losses in other comprehensive income of $1,962 related to its pension plans and $31 related to its other postretirement benefit plans. Unrecognized gains and losses arise each year primarily due to changes in discount rates, differences in actual plan asset returns compared to expected returns, and changes in actuarial assumptions such as mortality. For example, the unrecognized net loss in the Company’s pension plans included a current year loss of $291 primarily due to actual asset returns lower than expected returns, partially offset by a gain of $188 primarily due to lower discount rates at the end of 2018 compared to 2017. Unrecognized gains and losses are accumulated in other comprehensive income and the portion in each plan that exceeds 10% of the greater of that plan’s assets or projected benefit obligation is amortized to income over future periods. The Company’s pension expense for the year ended December 31, 2018 included charges of $96 for the amortization of unrecognized net losses, and the Company estimates charges of $96 in 2019. Amortizable losses are being recognized over either the average expected life of inactive employees or the remaining service life of active participants depending on the status of the individual plans. The weighted average amortization periods range between 8 - 19 years. An increase of 10%

39

Crown Holdings, Inc.


in the number of years used to amortize unrecognized losses in each plan would decrease estimated charges for 2019 by $9. A decrease of 10% in the number of years would increase the estimated 2019 charge by $11.

The unrecognized net losses in the Company’s postretirement benefit plans are being recognized over the average remaining service life of active participants of 10 years. The Company’s postretirement benefits expense for the year ended December 31, 2018 included a loss of $4 for the amortization of unrecognized net losses, and the Company estimates losses of $3 in 2019.

RECENT ACCOUNTING GUIDANCE

In February 2016, the FASB issued new guidance on lease accounting. Under the new guidance, lease classification criteria and income statement recognition are similar to current guidance; however, all leases with a term longer than one year will be recorded on the balance sheet through a right-of-use asset and a corresponding lease liability. The Company is in the process of implementing changes to processes, systems and controls to adopt the standard on a modified retrospective basis on January 1, 2019. The Company plans to elect the package of practical expedients that provides certain relief from reassessing prior lease accounting conclusions and will not apply the recognition requirements to short-term leases. Although the Company continues to evaluate the effect on the Company's Consolidated Balance Sheet, the Company currently anticipates that the impact of adoption will result in an insignificant cumulative effect of adoption and the recognition of material right of use assets and operating lease liabilities. The Company does not expect a material impact on its Consolidated Statement of Operations or Cash Flows.

In June 2016, the FASB issued revised guidance for the accounting for credit losses on financial instruments. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This guidance is effective for the Company on January 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard.

See Note A to the consolidated financial statements for information on recently adopted accounting guidance.

FORWARD LOOKING STATEMENTS

Statements in this Annual Report, including those in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the discussions of the provision for asbestos under Note O and other contingencies under Note P to the consolidated financial statements included in this Annual Report and in discussions incorporated by reference into this Annual Report (including, but not limited to, those in the section titled “Compensation Discussion and Analysis” in the Company’s Proxy Statement), which are not historical facts (including any statements concerning plans and objectives of management for 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 other oral or written statements which are also “forward-looking statements.” Forward-looking statements can be identified by words, such as “believes,” “estimates,” “anticipates,” “expects” and other words of similar meaning in connection with a discussion of future operating or financial performance. These may include, among others, statements relating to (i) the Company’s plans or objectives for future operations, products or financial performance, (ii) the Company’s indebtedness and other contractual obligations, (iii) the impact of an economic downturn or growth in particular regions, (iv) anticipated uses of cash, (v) cost reduction efforts and expected savings, (vi) the Company’s policies with respect to executive compensation and (vii) the expected outcome of contingencies, including with respect to asbestos-related litigation and pension and postretirement liabilities.

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.

Important factors that could cause the actual results of operations or financial condition of the Company to differ include, but are not necessarily limited to, the ability of the Company to expand successfully in international and emerging markets; whether the acquisition of Signode will be accretive to the Company’s earnings; whether sales and profits of Signode will continue to grow;
whether the combination of the Company and Signode will provide benefits to customers and shareholders; whether the operations of Signode can be successfully integrated into the Company’s operations; the ability of the Company to repay, refinance or restructure its short and long-term indebtedness on adequate terms and to comply with the terms of its agreements relating to debt; the impact of Brexit; the Company’s ability to generate significant cash to meet its obligations and invest in its business and to maintain appropriate debt levels; restrictions on the Company’s use of available cash under its debt agreements; changes or differences in U.S. or international economic or political conditions, such as inflation or fluctuations in interest or foreign exchange rates (and

40

Crown Holdings, Inc.


the effectiveness of any currency or interest rate hedges), tax rates, the Tax Act and other tax laws (including with respect to taxation of unrepatriated non-U.S. earnings or as a result of the depletion of net loss or foreign tax credit carryforwards); the impact of foreign trade laws and practices; the collectability of receivables; war or acts of terrorism that may disrupt the Company’s production or the supply or pricing of raw materials, including in the Company’s Middle East operations, impact the financial condition of customers or adversely affect the Company’s ability to refinance or restructure its remaining indebtedness; changes in the availability and pricing of raw materials (including aluminum can sheet, steel tinplate, energy, water, inks and coatings) and the Company’s ability to pass raw material, energy and freight price increases and surcharges through to its customers or to otherwise manage these commodity pricing risks; the Company’s ability to obtain and maintain adequate pricing for its products, including the impact on the Company’s revenue, margins and market share and the ongoing impact of price increases; energy and natural resource costs; the cost and other effects of legal and administrative cases and proceedings, settlements and investigations; the outcome of asbestos-related litigation (including the number and size of future claims and the terms of settlements, and the impact of bankruptcy filings by other companies with asbestos-related liabilities, any of which could increase Crown Cork’s asbestos-related costs over time, the adequacy of reserves established for asbestos-related liabilities, Crown Cork’s ability to obtain resolution without payment of asbestos-related claims by persons alleging first exposure to asbestos after 1964, and the impact of state legislation dealing with asbestos liabilities and any litigation challenging that legislation and any future state or federal legislation dealing with asbestos liabilities); the Company’s ability to realize deferred tax benefits; changes in the Company’s critical or other accounting policies or the assumptions underlying those policies; labor relations and workforce and social costs, including the Company’s pension and postretirement obligations and other employee or retiree costs; investment performance of the Company’s pension plans; costs and difficulties related to the acquisition of a business and integration of acquired businesses; the impact of any potential dispositions, acquisitions or other strategic realignments, which may impact the Company’s operations, financial profile, investments or levels of indebtedness; the Company’s ability to realize efficient capacity utilization and inventory levels and to innovate new designs and technologies for its products in a cost-effective manner; competitive pressures, including new product developments, industry overcapacity, or changes in competitors’ pricing for products; the Company’s ability to achieve high capacity utilization rates for its equipment; the Company’s ability to maintain, develop and capitalize on competitive technologies for the design and manufacture of products and to withstand competitive and legal challenges to the proprietary nature of such technology; the Company’s ability to protect its information technology systems from attacks or catastrophic failure; the strength of the Company’s cyber-security (including with respect to human vulnerabilities associated with cyber-security risks); the Company’s ability to generate sufficient production capacity; the Company’s ability to improve and expand its existing product and product lines; the impact of overcapacity on the end-markets the Company serves; loss of customers, including the loss of any significant customers; changes in consumer preferences for different packaging products; the financial condition of the Company’s vendors and customers; weather conditions, including their effect on demand for beverages and on crop yields for fruits and vegetables stored in food containers; the impact of natural disasters, including in emerging markets; changes in governmental regulations or enforcement practices, including with respect to environmental, health and safety matters and restrictions as to foreign investment or operation; the impact of increased governmental regulation on the Company and its products, including the regulation or restriction of the use of bisphenol-A; the impact of the Company’s recent initiatives to generate additional cash, including the reduction of working capital levels and capital spending; the ability of the Company to realize cost savings from its restructuring programs; the Company’s ability to maintain adequate sources of capital and liquidity; costs and payments to certain of the Company’s executive officers in connection with any termination of such executive officers or a change in control of the Company; the impact of existing and future legislation regarding refundable mandatory deposit laws in Europe for non-refillable beverage containers and the implementation of an effective return system; the impact of existing and future legislation regarding the taxation of sugar-sweetened beverages or energy drinks, the impact of new tariffs and potential limits on steel supply in the U.S. from certain foreign countries; and changes in the Company’s strategic areas of focus, which may impact the Company’s operations, financial profile or levels of indebtedness.

Some of the factors noted above are discussed elsewhere in this Annual Report and prior Company filings with the SEC, including within Part I, Item 1A, “Risk Factors” in this Annual Report. In addition, other factors have been or may be discussed from time to time in the Company’s SEC filings.

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 SEC, the Company does not intend to review or revise any particular forward-looking statement in light of future events.

ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

41

Crown Holdings, Inc.


The information set forth within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Market Risk” in this Annual Report is incorporated herein by reference.

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEX TO FINANCIAL STATEMENTS
 
 
 
Financial Statements
 
 
 
Management’s Report on Internal Control Over Financial Reporting
43

 
 
Report of Independent Registered Public Accounting Firm
44

 
 
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
46

 
 
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
47

 
 
Consolidated Balance Sheets as of December 31, 2018 and 2017
48

 
 
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
49

 
 
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2018, 2017 and 2016
50

 
 
Notes to Consolidated Financial Statements
51

 
 
Supplementary Information
107

 
 
Financial Statement Schedule
 
 
 
Schedule II – Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2018, 2017 and 2016
108




42

Crown Holdings, Inc.



Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of the inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on its assessment, management has concluded that, as of December 31, 2018, the Company’s internal control over financial reporting was effective based on those criteria.
The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of the Company's consolidated operations except for the operations of Signode Industrial Group Holdings (Bermuda) Ltd. (“Signode”), which the Company acquired through a purchase business combination during the year ended December 31, 2018. Signode represents approximately 16% of the Company's consolidated revenues for the year ended December 31, 2018 and 7% of the Company's consolidated total assets as of December 31, 2018.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.




43

Crown Holdings, Inc.



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Crown Holdings, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Crown Holdings, Inc. and its subsidiaries (“the Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Signode Industrial Group Holdings (Bermuda) Ltd. (“Signode”) from its assessment of internal control over financial reporting as of December 31, 2018 because it was acquired by the Company in a purchase business combination during 2018. We have also excluded Signode from our audit of internal control over financial reporting. Signode is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 7% and 16%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018.

44

Crown Holdings, Inc.



Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
February 28, 2019


We have served as the Company’s auditor since 1928.  




45

Crown Holdings, Inc.


CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share data)


For the Years Ended December 31
2018
 
2017
 
2016
Net sales
$
11,151

 
$
8,698

 
$
8,284

Cost of products sold, excluding depreciation and amortization
9,028

 
7,006

 
6,623

Depreciation and amortization
425

 
247

 
247

Selling and administrative expense
558

 
367

 
366

Provision for asbestos

 
3

 
21

Restructuring and other
44

 
51

 
30

Income from operations
1,096

 
1,024

 
997

Loss from early extinguishments of debt

 
7

 
37

Other pension and postretirement
(25
)
 
(53
)
 
(24
)
Interest expense
384

 
252

 
243

Interest income
(21
)
 
(15
)
 
(12
)
Foreign exchange
18

 
4

 
(16
)
Income before income taxes
740

 
829

 
769

Provision for income taxes
216

 
401

 
186

Equity in net earnings of affiliates
4

 

 

Net income
528

 
428

 
583

Net income attributable to noncontrolling interests
(89
)
 
(105
)
 
(87
)
Net income attributable to Crown Holdings
$
439

 
$
323

 
$
496

 
 
 
 
 
 
Earnings per common share attributable to Crown Holdings:
 
 
 
 
 
Basic
$
3.28

 
$
2.39

 
$
3.58

Diluted
$
3.28

 
$
2.38

 
$
3.56


The accompanying notes are an integral part of these consolidated financial statements.


46


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)


For the Years Ended December 31
2018
 
2017
 
2016
Net income
$
528

 
$
428

 
$
583

Other comprehensive income / (loss), net of tax
 
 
 
 
 
Foreign currency translation adjustments
(137
)
 
201

 
(435
)
Pension and other postretirement benefits
50

 
(59
)
 
166

Derivatives qualifying as hedges
(52
)
 
20

 
23

Total other comprehensive income / (loss)
(139
)
 
162

 
(246
)
Total comprehensive income
389

 
590

 
337

Net income attributable to noncontrolling interests
(89
)
 
(105
)
 
(87
)
Translation adjustments attributable to noncontrolling interests
1

 
(3
)
 
2

Derivatives qualifying as hedges attributable to noncontrolling interests
2

 

 
(2
)
Comprehensive income attributable to Crown Holdings
$
303

 
$
482

 
$
250


The accompanying notes are an integral part of these consolidated financial statements.


47

Crown Holdings, Inc.


CONSOLIDATED BALANCE SHEETS
(in millions, except share data)


December 31
2018
 
2017
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
607

 
$
424

Receivables, net
1,602

 
1,041

Inventories
1,690

 
1,385

Prepaid expenses and other current assets
180

 
224

Total current assets
4,079

 
3,074

 
 
 
 
Goodwill
4,442

 
3,046

Intangible assets
2,193

 
472

Property, plant and equipment, net
3,745

 
3,239

Other non-current assets
803

 
832

Total
$
15,262

 
$
10,663

 
 
 
 
Liabilities and equity
 
 
 
Current liabilities
 
 
 
Short-term debt
$
89

 
$
62

Current maturities of long-term debt
86

 
64

Accounts payable
2,732

 
2,367

Accrued liabilities
1,006

 
757

Total current liabilities
3,913

 
3,250

 
 
 
 
Long-term debt, excluding current maturities
8,517

 
5,217

Postretirement and pension liabilities
683

 
588

Other non-current liabilities
863

 
685

Commitments and contingent liabilities (Note P)

 

 
 
 
 
Equity
 
 
 
 
 
 
 
Noncontrolling interests
349

 
322

 
 
 
 
Preferred stock, authorized: 30,000,000; none issued (Note T)

 

Common stock, par value: $5.00; authorized: 500,000,000 shares; issued:
 
 
 
    185,744,072 shares (Note T)
929

 
929

Additional paid-in capital
186

 
167

Accumulated earnings
3,449

 
3,004

Accumulated other comprehensive loss
(3,374
)
 
(3,241
)
Treasury stock at par value (2018 - 50,570,124 shares; 2017 - 51,468,463 shares)
(253
)
 
(258
)
Crown Holdings