Crown Holdings, Inc. — 2021 Form 10-K Summary
Business context and reporting period
Crown Holdings designs and manufactures metal and industrial packaging, including beverage and food cans, closures, aerosol containers, transit-protection products, and packaging equipment. The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. The Company operated approximately 200 plants in 40 countries and employed approximately 26,000 people. International operations generated approximately 63% of 2021 consolidated net sales.
Reportable segments were Americas Beverage, European Beverage, Asia Pacific, and Transit Packaging. Beverage cans represented approximately 64% of consolidated net sales.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $11.394 billion | $9.392 billion | Increase of approximately 21% |
| Income from operations | $1.363 billion | $1.048 billion | Increase of approximately 30% |
| Net income attributable to Crown Holdings | $(560) million | $579 million | Decline due primarily to pension settlement and other unusual items |
| Continuing operations attributable to Crown Holdings | $(507) million | $424 million | Decline |
| Basic EPS | $(4.30) | $4.34 | Decline |
| Cash provided by operating activities | $905 million | $1.315 billion | Decrease of $410 million |
| Capital expenditures | $816 million | $587 million | Increase of $229 million |
| Cash and cash equivalents | $531 million | $1.173 billion | Decrease of $642 million |
| Total debt, principal basis | Approximately $6.3 billion | Approximately $8.2 billion | Reduced through debt redemptions and deleveraging |
Income from operations benefited from higher volumes, pricing, and material-cost pass-through. Segment income increased to $1.515 billion for the reportable segments, compared with $1.296 billion in 2020. Segment income was $756 million for Americas Beverage, $259 million for European Beverage, $182 million for Asia Pacific, and $318 million for Transit Packaging.
The reported net loss was dominated by a $1.515 billion other pension and postretirement charge, including a $1.511 billion settlement charge related to the transfer of the U.K. pension plan obligations to an insurer. The Company also recorded a $68 million loss from early debt extinguishment, a $101 million pretax loss on the sale of the European Tinplate business, and $116 million of income taxes related to discontinued operations.
Material changes versus prior comparable period
- Net sales increased primarily from 9% higher beverage-can unit volumes, higher Transit Packaging volumes, and pass-through of higher raw-material costs.
- Americas Beverage sales increased 25% and segment income increased 16%, supported by 8% higher volumes, improved pricing, and capacity additions.
- European Beverage sales increased 25% and segment income increased 20%, primarily from 12% higher volumes and favorable foreign currency translation.
- Asia Pacific sales increased 13% and segment income increased 4% as markets recovered from pandemic-related volume declines, although lockdowns and higher operating costs persisted.
- Transit Packaging sales increased 25% and segment income increased 25%, driven by higher volumes and material-price pass-through.
- The Company completed the sale of its European Tinplate business on August 31, 2021 for approximately €1.9 billion, or $2.3 billion, in pretax proceeds, while retaining a 20% ownership interest. The business was reported as discontinued operations.
- Cash flow from operations declined because of working-capital investment and $236 million of pension contributions, principally related to the U.K. pension settlement.
- The Company redeemed approximately $1.75 billion of senior notes in October 2021 and repurchased $950 million of common stock. The Board authorized an additional $3.0 billion repurchase program through the end of 2024.
- The Company initiated a quarterly dividend in 2021 and paid $105 million of dividends to shareholders.
Liquidity, debt, and capital allocation
At December 31, 2021, the Company had $531 million of cash and cash equivalents, of which $480 million was held outside the United States. Available borrowing capacity under revolving credit facilities was $1.535 billion against total capacity of $1.650 billion. The Company also had receivables securitization and factoring facilities with aggregate program limits of up to $850 million.
Total net leverage was 3.0 times at year-end, compared with a covenant maximum of 5.0 times. The Company was in compliance with its debt covenants. The net debt-to-total-capitalization ratio was 71%, compared with 73% in 2020. Approximately $1.4 billion of debt was subject to floating interest rates; a 0.25% increase in those rates would increase annual pretax interest expense by approximately $4 million based on year-end balances.
Contractual obligations totaled approximately $20.863 billion, including $13.875 billion of purchase obligations, $6.221 billion of long-term debt principal, $652 million of projected interest, and $115 million of projected pension contributions. Expected capital expenditures for 2022 were approximately $1 billion.
Outlook, management commentary, risks, and unusual items
- Management intends to continue investing in global beverage-can capacity to support demand for alcoholic and non-alcoholic beverages. New or expanded facilities and production lines were planned in the United States, Brazil, Mexico, Vietnam, Cambodia, and other markets.
- The Company expected 2022 capital expenditures of approximately $1 billion and expected to fund capital commitments primarily with operating cash flow.
- A tornado damaged the Bowling Green, Kentucky facility in December 2021. Operations were expected to resume in March 2022, with property and business-interruption insurance available.
- Raw-material exposure is significant: aluminum and steel represented 43% and 8%, respectively, of cost of products sold excluding depreciation and amortization. The Company may be unable to fully pass through increases in aluminum, steel, energy, freight, and other costs.
- COVID-19 continued to create risks involving employee availability, customer demand, supply chains, facility operations, transportation, and working capital.
- Customer concentration is material: the top ten global customers represented approximately 47% of 2021 sales, and two customers each represented 11% of consolidated sales.
- Asbestos liabilities were accrued at $237 million, including $198 million for unasserted claims. Approximately 57,000 claims were outstanding at year-end, and 2021 cash payments for settlements and related legal costs were $19 million. Actual losses could exceed the recorded accrual, but the Company could not estimate the excess.
- The European Commission investigation into potential competition-law violations remained unresolved. Management believed a loss was probable but had not recorded a charge because the amount or range of loss could not be estimated. A separate French competition proceeding was also ongoing.
- The Company recorded $18 million of environmental remediation accruals, consisting of $12 million for Superfund or similar sites and $6 million for Company-owned locations.
- The Company identified goodwill of approximately $3.0 billion at year-end. No goodwill impairment was recorded in 2021, but impairment testing depends on assumptions regarding revenue growth, margins, discount rates, and valuation multiples.
- The Company joined The Climate Pledge and committed to achieving net-zero carbon emissions across business operations by 2040. Regulatory restrictions involving climate, recycling, coatings, plastics, and bisphenol-A could increase costs or affect demand.
- Management concluded that internal control over financial reporting was effective, and PricewaterhouseCoopers LLP issued an unqualified audit opinion.
Most important facts for investors to verify
- Reconcile the reported $560 million net loss with operating performance by separately analyzing the $1.511 billion U.K. pension settlement charge, debt-extinguishment loss, discontinued-operations loss, and related tax effects.
- Review the sustainability of operating cash flow after the 2021 working-capital build, pension funding, capital expenditures, dividends, and share repurchases.
- Assess refinancing and liquidity needs for debt maturities of approximately $1.144 billion in 2023, $1.969 billion in 2024, and $2.217 billion in 2026.
- Evaluate whether aluminum, steel, energy, freight, and other inflationary costs can continue to be passed through without reducing volumes or margins.
- Monitor the European Commission and French competition-law proceedings and potential fines, which were not recorded or could not be estimated.
- Assess the adequacy and sensitivity of the $237 million asbestos accrual, including the effect of claim volumes, disease severity, settlement costs, and changes in asbestos legislation.
- Review the execution, utilization, and returns from the Company’s substantial beverage-can capacity expansion program.
- Consider customer concentration, international and foreign-exchange exposure, COVID-19 effects, supply-chain disruptions, and the risk of future goodwill impairment.