CROWN HOLDINGS INC - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2020


☐			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
(Address of principal executive offices)			(Zip Code)

215-698-5100

(registrant’s telephone number, including area code)

____________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock $5.00 Par Value	CCK	New York Stock Exchange
7 3/8% Debentures Due 2026	CCK26	New York Stock Exchange
7 1/2% Debentures Due 2096	CCK96	New York Stock Exchange

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 filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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. (Check one)


Large Accelerated Filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒

There were 134,762,595 shares of Common Stock outstanding as of October 22, 2020.

Crown Holdings, Inc.

PART I – FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except per share data)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	3,167	$	3,084	$	8,613	$	8,874
Cost of products sold, excluding depreciation and amortization	2,478		2,455		6,853		7,082
Depreciation and amortization	121		121		360		366
Selling and administrative expense	152		156		453		470
Restructuring and other	10		—		20		(41)
Income from operations	406		352		927		997
Loss from early extinguishments of debt	—		—		—		6
Other pension and postretirement	(1)		1		43		12
Interest expense	72		95		228		290
Interest income	(2)		(5)		(7)		(12)
Foreign exchange	2		4		(15)		6
Income before income taxes	335		257		678		695
Provision for income taxes	91		54		182		190
Equity earnings in affiliates	1		1		4		4
Net income	245		204		500		509
Net income attributable to noncontrolling interests	(31)		(21)		(72)		(86)
Net income attributable to Crown Holdings	$	214	$	183	$	428	$	423

Earnings per common share attributable to Crown Holdings:
Basic	$	1.61	$	1.37	$	3.20	$	3.16
Diluted	$	1.59	$	1.36	$	3.18	$	3.14

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

Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net income	$	245	$	204	$	500	$	509

Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustments	4		(12)		(293)		38
Pension and other postretirement benefits	(156)		148		81		195
Derivatives qualifying as hedges	27		(4)		15		(1)
Total other comprehensive (loss) / income	(125)		132		(197)		232

Total comprehensive income	120		336		303		741
Net income attributable to noncontrolling interests	(31)		(21)		(72)		(86)
Translation adjustments attributable to noncontrolling interests	(1)		2		—		2
Derivatives qualifying as hedges attributable to noncontrolling interests	(2)		—		(1)		—
Comprehensive income attributable to Crown Holdings	$	86	$	317	$	230	$	657

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

Crown Holdings, Inc.

CONSOLIDATED BALANCE SHEETS (Condensed)

(In millions)

(Unaudited)


	September 30, 2020		December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	613	$	607
Receivables, net	1,821		1,528
Inventories	1,642		1,626
Prepaid expenses and other current assets	254		241
Total current assets	4,330		4,002

Goodwill	4,416		4,430
Intangible assets, net	1,864		2,015
Property, plant and equipment, net	3,889		3,887
Operating lease right-of-use assets, net	209		204
Other non-current assets	921		967
Total	$	15,629	$	15,505

Liabilities and equity
Current liabilities
Short-term debt	$	132	$	75
Current maturities of long-term debt	72		62
Current portion of operating lease liabilities	53		51
Accounts payable	2,320		2,646
Accrued liabilities	1,047		1,065
Total current liabilities	3,624		3,899

Long-term debt, excluding current maturities	8,039		7,818
Non-current portion of operating lease liabilities	160		156
Postretirement and pension liabilities	652		683
Other non-current liabilities	836		857
Commitments and contingent liabilities (Note I)
Noncontrolling interests	409		379
Crown Holdings shareholders’ equity	1,909		1,713
Total equity	2,318		2,092
Total	$	15,629	$	15,505

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

Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)

(In millions)

(Unaudited)


	Nine Months Ended
	September 30,
	2020		2019
Cash flows from operating activities
Net income	$	500	$	509
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	360		366
Restructuring and other	20		(41)
Pension expense	80		52
Pension contributions	(16)		(14)

Stock-based compensation	23		23




Working capital changes and other	(658)		(694)
Net cash provided by operating activities	309		201
Cash flows from investing activities
Capital expenditures	(333)		(242)
Acquisition of business, net of cash acquired	—		(11)
Proceeds from sale of property, plant and equipment	8		17
Net investment hedge	28		21
Other, net	(12)		(1)
Net cash used for investing activities	(309)		(216)
Cash flows from financing activities
Proceeds from long-term debt	113		—
Payments of long-term debt	(63)		(323)
Net change in revolving credit facility and short-term debt	42		131
Payments of finance leases	(2)		(15)

Common stock issued	1		4
Common stock repurchased	(58)		(2)

Contributions from noncontrolling interests	2		5
Dividends paid to noncontrolling interests	(43)		(36)
Foreign exchange derivatives related to debt	34		(9)
Net cash provided by / (used for) financing activities	26		(245)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		(1)
Net change in cash, cash equivalents and restricted cash	25		(261)
Cash, cash equivalents and restricted cash at January 1	663		659
Cash, cash equivalents and restricted cash at September 30	$	688	$	398

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

Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In millions)

(Unaudited)


	Crown Holdings, Inc. Shareholders’ Equity
	Common Stock		Paid-in Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Crown Equity		Noncontrolling Interests		Total Shareholders' Equity

Balance at January 1, 2020	$	929	$	207	$	3,959	$	(3,131)	$	(251)	$	1,713	$	379	$	2,092

Net income					88						88		26		114
Other comprehensive loss							(91)				(91)		(5)		(96)
Dividends paid to noncontrolling interests											—		(11)		(11)

Restricted stock awarded			(1)						1		—				—
Stock-based compensation			10								10				10
Common stock issued			1								1				1
Common stock repurchased			(52)						(5)		(57)				(57)


Balance at March 31, 2020	$	929	$	165	$	4,047	$	(3,222)	$	(255)	$	1,664	$	389	$	2,053

Net income					126						126		15		141
Other comprehensive income							21				21		3		24
Dividends paid to noncontrolling interests											—		(1)		(1)

Restricted stock awarded			(1)						1		—				—
Stock-based compensation			5								5				5

Common stock repurchased									(1)		(1)				(1)


Balance at June 30, 2020	$	929	$	169	$	4,173	$	(3,201)	$	(255)	$	1,815	$	406	$	2,221

Net income					214						214		31		245
Other comprehensive income (loss)							(128)				(128)		3		(125)
Dividends paid to noncontrolling interests											—		(31)		(31)


Stock-based compensation			8								8				8




Balance at September 30, 2020	$	929	$	177	$	4,387	$	(3,329)	$	(255)	$	1,909	$	409	$	2,318

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

Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued)

(In millions)

(Unaudited)


	Crown Holdings, Inc. Shareholders’ Equity
	Common Stock		Paid-in Capital		Accumulated Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Crown Equity		Noncontrolling Interests		Total Shareholders' Equity
Balance at January 1, 2019	$	929	$	186	$	3,449	$	(3,374)	$	(253)	$	937	$	349	$	1,286

Net income					103						103		28		131
Other comprehensive income							85				85				85
Dividends paid to noncontrolling interests											—		(9)		(9)

Restricted stock awarded			(1)						1		—				—
Stock-based compensation			8								8				8
Common stock issued			2								2				2
Common stock repurchased			(1)								(1)				(1)


Balance at March 31, 2019	$	929	$	194	$	3,552	$	(3,289)	$	(252)	$	1,134	$	368	$	1,502

Net income					137						137		37		174
Other comprehensive loss							15				15				15
Dividends paid to noncontrolling interests											—		(2)		(2)
Contribution from noncontrolling interests											—		3		3

Stock-based compensation			8								8				8
Common stock issued			1								1				1
Common stock repurchased			(1)								(1)				(1)


Balance at June 30, 2019	$	929	$	202	$	3,689	$	(3,274)	$	(252)	$	1,294	$	406	$	1,700

Net income					183						183		21		204
Other comprehensive loss							134				134		(2)		132
Dividends paid to noncontrolling interests											—		(25)		(25)
Contribution from noncontrolling interests											—		2		2
Restricted stock awarded			(1)						1		—				—
Stock-based compensation			7								7				7
Common stock issued			1								1				1



Balance at September 30, 2019	$	929	$	209	$	3,872	$	(3,140)	$	(251)	$	1,619	$	402	$	2,021

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

Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share and statistical data)

(Unaudited)

A.Statement of Information Furnished

The consolidated financial statements include the accounts of Crown Holdings, Inc. and its consolidated subsidiaries (the “Company”). The accompanying unaudited interim consolidated financial statements have been prepared in accordance with Form 10-Q instructions. In the opinion of management, these consolidated financial statements contain all adjustments of a normal and recurring nature necessary for a fair statement of the financial position of the Company as of September 30, 2020 and the results of its operations for the three and nine months ended September 30, 2020 and 2019 and of its cash flows for the nine months ended September 30, 2020 and 2019. The results reported in these consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year including the extent and duration of the impact of the coronavirus pandemic. These results have been determined on the basis of accounting principles generally accepted in the United States of America (“GAAP”), the application of which requires management’s utilization of estimates, and actual results may differ materially from the estimates utilized.

Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

B.Accounting and Reporting Developments

Recently Adopted Accounting Standards

On January 1, 2020, the Company adopted new guidance on the accounting for credit losses on financial instruments. The new guidance introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. The new approach to estimating credit losses 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 operating leases and off-balance-sheet credit exposures. The guidance did not have a material impact on the Company's consolidated financial statements.

On January 1, 2020, the Company adopted new guidance, on a prospective basis, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service arrangement (i.e. hosting arrangement) with the guidance on capitalizing costs for internal use software. The guidance did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Standards

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by, among other things, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws. The guidance is effective for the Company on January 1, 2021. The Company is currently evaluating the impact of adopting this standard and does not expect the guidance to have a material impact on its consolidated financial statements.

In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying GAAP to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and can be applied through December 31, 2022. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Crown Holdings, Inc.

C. Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash included in the Company's Consolidated Balance Sheets and Statement of Cash Flows were as follows:


	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	613	$	607

Restricted cash included in prepaid expenses and other current assets	73		50
Restricted cash included in other non-current assets	2		6
Total restricted cash	75		56

Total cash, cash equivalents and restricted cash	$	688	$	663

Amounts included in restricted cash primarily represent amounts required to be segregated by certain of the Company's receivables securitization agreements.

D. Receivables


	September 30, 2020		December 31, 2019
Accounts receivable	$	1,412	$	1,162
Less: allowance for credit losses	(59)		(62)
Net trade receivables	1,353		1,100
Unbilled receivables	252		226
Miscellaneous receivables	216		202
Receivables, net	$	1,821	$	1,528

E. Inventories

Inventories are stated at the lower of cost or market, with cost principally determined under the first-in first-out ("FIFO") or average cost method.


	September 30, 2020		December 31, 2019
Raw materials and supplies	$	953	$	905
Work in process	165		151
Finished goods	524		570
	$	1,642	$	1,626

Crown Holdings, Inc.

F. Intangible Assets

Gross carrying amounts and accumulated amortization of finite-lived intangible assets by major class were as follows:


	September 30, 2020										December 31, 2019
	Gross		Accumulated amortization		Net		Gross		Accumulated amortization		Net
Customer relationships	$	1,605	$	(421)	$	1,184	$	1,621	$	(331)	$	1,290
Trade names	553		(58)		495		541		(40)		501
Technology	162		(60)		102		158		(41)		117
Long term supply contracts	126		(47)		79		150		(48)		102
Patents	14		(10)		4		14		(9)		5
	$	2,460	$	(596)	$	1,864	$	2,484	$	(469)	$	2,015

Total amortization expense of intangible assets for the three and nine months ended September 30, 2020 and 2019 was $45 and $134 and $43 and $140.

G. Restructuring and Other

The Company recorded restructuring and other charges / (benefits) as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Asset impairments and sales	$	3	$	(3)	$	4	$	(8)
Restructuring	7		3		13		17

Other costs / (income)	—		—		3		(50)
	$	10	$	—	$	20	$	(41)

For the three and nine months ended September 30, 2020, restructuring included charges related to internal reorganizations within the Transit Packaging division, including headcount reductions. For the nine months ended September 30, 2019, restructuring included a charge of $8 related to headcount reductions in the Company's European Division.

For the nine months ended September 30, 2019, asset impairments and sales included gains on asset sales related to prior restructuring actions and a charge of $6 related to a fire at a production facility in Asia.

For the nine months ended September 30, 2019, other income related to gains arising from favorable court rulings related to the recovery of indirect taxes paid in prior years by certain of the Company's Brazilijean subsidiaries.

At September 30, 2020, the Company had restructuring accruals of $18, primarily related to current and prior year actions to reduce manufacturing capacity and headcount in its European businesses. The Company expects to pay these amounts over the next twelve months. The Company continues to review its supply and demand profile and long-term plans in its businesses, and it is possible that the Company may record additional restructuring charges in the future.

H. Asbestos-Related Liabilities

Crown Cork & Seal Company, Inc. (“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.

Crown Holdings, Inc.

Prior to 1998, amounts paid to asbestos claimants were covered by a fund made available to Crown Cork under a 1985 settlement with carriers insuring Crown Cork through 1976, when Crown Cork became self-insured. The fund was depleted in 1998 and the Company has no remaining coverage for asbestos-related costs.

In December 2001, the Commonwealth of Pennsylvania enacted legislation that limits the asbestos-related liabilities of Pennsylvania corporations that are successors by corporate merger to companies involved with asbestos. The legislation limits the successor’s liability for asbestos to the acquired company’s asset value adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the acquired company’s adjusted asset value. In November 2004, the legislation was amended to address a Pennsylvania Supreme Court decision (Ieropoli v. AC&S Corporation, et. al., No. 117 EM 2002) which held that the statute violated the Pennsylvania Constitution due to retroactive application. The Company cautions that the limitations of the statute, as amended, are subject to litigation and may not be upheld.

In June 2003, the state of Texas enacted legislation that limits the asbestos-related liabilities in Texas courts of companies such as Crown Cork that allegedly incurred these liabilities because they are successors by corporate merger to companies that had been involved with asbestos. The Texas legislation, which applies to future claims and pending claims, caps asbestos-related liabilities at the total gross value of the predecessor’s assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total adjusted value of its predecessor’s assets.

In October 2010, 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 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, in its accrual, continues to assign no value to claims filed after June 11, 2003.

In recent years, the states of Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Michigan, Mississippi, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Utah, West Virginia, Wisconsin and Wyoming enacted legislation that limits asbestos-related liabilities under state law of companies such as Crown Cork that allegedly incurred these liabilities because they are successors by corporate merger to companies that had been involved with asbestos. The legislation, which applies to future and, with the exception of Arkansas, Georgia, South Carolina, South Dakota, West Virginia and Wyoming, pending claims, caps asbestos-related liabilities at the fair market value of the predecessor's total gross assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total value of its predecessor's assets adjusted for inflation. Crown Cork has integrated the legislation into its claims defense strategy.

The Company further cautions that an adverse ruling in any litigation relating to the constitutionality or applicability to Crown Cork of one or more statutes that limits the asbestos-related liability of alleged defendants like Crown Cork could have a material impact on the Company.

During the nine months ended September 30, 2020, the Company paid $7 to settle outstanding claims and had claims activity as follows:


Beginning claims			56,000
New claims			1,000
Settlements or dismissals			(1,000)
Ending claims			56,000

In the fourth quarter of each year, the Company performs an analysis of outstanding claims and categorizes these claims by year of exposure and state filed. As of December 31, 2019, the Company's outstanding claims were:

Crown Holdings, Inc.


Claimants alleging first exposure after 1964			16,500
Claimants alleging first exposure before or during 1964 filed in:
Texas			13,000
Pennsylvania			1,500
Other states that have enacted asbestos legislation			6,000
Other states			19,000
Total claims outstanding			56,000

The outstanding claims in each period 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 against the Company. The exclusion of these inactive claims had no effect on the calculation of the Company’s accrual as the claims were filed in states, as described above, where the Company’s liability is limited by statute.

With respect to claimants alleging first exposure to asbestos before or during 1964, the Company does not include in its accrual any amounts for settlements in states where the Company’s liability is limited by statute except for certain pending claims in Texas as described earlier.

With respect to post-1964 claims, regardless of the existence of asbestos legislation, the Company does not include in its accrual any amounts for settlement of these claims because of increased difficulty of establishing identification of relevant insulation products as the cause of injury. Given the Company's settlement experience with post-1964 claims, it does not believe that an adverse ruling in the Texas or Pennsylvania asbestos litigation cases, or in any other state that has enacted asbestos legislation, would have a material impact on the Company with respect to such claims.

As of December 31, the percentage of outstanding claims related to claimants alleging serious diseases (primarily mesothelioma and other malignancies) were as follows:


	2019		2018
Total claims	22	%	22	%
Pre-1964 claims in states without asbestos legislation	41	%	41	%

Crown Cork has entered into arrangements with plaintiffs’ counsel in certain jurisdictions with respect to claims which are not yet filed, or asserted, against it. However, Crown Cork expects claims under these arrangements to be filed or asserted against Crown Cork in the future. The projected value of these claims is included in the Company’s estimated liability as of September 30, 2020.

As of September 30, 2020, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $261, including $215 for unasserted claims. The Company determines its accrual without limitation to a specific time period.

It is reasonably possible that the actual loss could be in excess of the Company’s accrual. However, the Company is unable to estimate the reasonably possible loss in excess of its accrual due to uncertainty in the following assumptions that underlie the Company’s accrual and the possibility of losses in excess of such accrual: the amount of damages sought by the claimant (which was not specified for approximately 81% of the claims outstanding at the end of 2019), the Company and claimant’s willingness to negotiate a settlement, the terms of settlements of other defendants with asbestos-related liabilities, the bankruptcy filings of other defendants (which may result in additional claims and higher settlements for non-bankrupt defendants), the nature of pending and future claims (including the seriousness of alleged disease, whether claimants allege first exposure to asbestos before or during 1964 and the claimant’s ability to demonstrate the alleged link to Crown Cork), the volatility of the litigation environment, the defense strategies available to the Company, the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, 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).

Crown Holdings, Inc.

I. Commitments and Contingent Liabilities

The Company, along with others in most cases, has been identified by the U.S. Environmental Protection Agency or a comparable state environmental agency as a Potentially Responsible Party (“PRP”) at a number of sites and has recorded aggregate accruals of $8 for its share of estimated future remediation costs at these sites. The Company has been identified as having either directly or indirectly disposed of commercial or industrial waste at the sites subject to the accrual, and where appropriate and supported by available information, generally has agreed to be responsible for a percentage of future remediation costs based on an estimated volume of materials disposed in proportion to the total materials disposed at each site. The Company has not had monetary sanctions imposed nor has the Company been notified of any potential monetary sanctions at any of the sites.

The Company has also recorded aggregate accruals of $7 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.

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

In March 2017, U.S. Customs and Border Protection (“CBP”) at the Port of Milwaukee issued a penalty notification alleging that certain of the Company’s subsidiaries intentionally misclassified the importation of certain goods into the U.S. during the period 2004-2009. CBP initially assessed a penalty of $18 and subsequently mitigated to $6. The Company has acknowledged to CBP that the goods were misclassified and has paid all related duties. The Company has asserted that the misclassification was unintentional and disputes the penalty assessment. At the present time, based on the information available, the Company does not believe that a loss for the alleged intentional misclassification is probable. There can be no assurance the Company will be successful in contesting the assessed penalty.

The Company and its subsidiaries are also subject to various other lawsuits and claims with respect to governmental, labor, environmental, securities, vendor and other matters arising out of the Company’s normal course of business. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management believes that the ultimate liabilities resulting from such lawsuits and claims will not materially affect the Company’s consolidated earnings, financial position or cash flow.

The Company has various commitments to purchase materials, supplies and utilities as part of the ordinary course of business. The Company’s basic raw materials for its products are steel and aluminum, both of which are purchased from multiple sources. The Company is subject to fluctuations in the cost of these raw materials (including in

Crown Holdings, Inc.

connection with tariffs recently imposed in the U.S., which may increase costs) and has periodically adjusted its selling prices to reflect these movements. There can be no assurance that the Company will be able to fully recover any increases or fluctuations in raw material costs from its customers. The Company also has commitments for standby letters of credit and for purchases of capital assets.

At September 30, 2020, the Company was party to certain indemnification agreements covering environmental remediation, lease payments and other potential costs associated with properties sold or businesses divested. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated.

J. Derivative and Other Financial Instruments

Fair Value Measurements

Under GAAP a framework exists for measuring fair value, providing a three-tier hierarchy of pricing inputs used to report assets and liabilities that are adjusted to fair value. Level 1 includes inputs such as quoted prices which are available in active markets for identical assets or liabilities as of the report date. Level 2 includes inputs other than those available in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3 includes unobservable pricing inputs that are not corroborated by market data or other objective sources. The Company has no recurring items valued using Level 3 inputs other than certain pension plan assets.

The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities measured at fair value and their placement within the fair value hierarchy.

The Company applies a market approach to value its commodity price hedge contracts. Prices from observable markets are used to develop the fair value of these financial instruments and they are reported under Level 2. The Company uses an income approach to value its foreign exchange forward contracts. These contracts are valued using a discounted cash flow model that calculates the present value of future cash flows under the terms of the contracts using market information as of the reporting date, such as foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy.

Fair value disclosures for financial assets and liabilities that were accounted for at fair value on a recurring basis are provided later in this note. In addition, see Note K for fair value disclosures related to debt.

Derivative Financial Instruments

In the normal course of business the Company is subject to risk from adverse fluctuations in currency 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. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes.

The Company’s objective in managing exposure to market and interest rate risk is to limit the impact on earnings and cash flow. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk, using sales agreements that permit the pass-through of commodity price and foreign exchange rate risk to customers and borrowing both fixed and floating debt instruments to manage interest rate risk.

For derivative financial instruments accounted for in hedging relationships, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the manner in which effectiveness will be assessed. The Company formally assesses, both at inception and at least quarterly thereafter, whether the hedging relationships are effective in offsetting changes in fair value or cash flows of the related underlying exposures. When a hedge no longer qualifies for hedge accounting, the change in fair value from the date of the last effectiveness test is recognized in earnings. Any gain or loss which has accumulated in other comprehensive income at the date of the last effectiveness test is reclassified into earnings at the same time of the underlying exposure.

Crown Holdings, Inc.

Cash Flow Hedges

The Company designates certain derivative financial instruments as cash flow hedges. No components of the hedging instruments are excluded from the assessment of hedge effectiveness. Changes in fair value of outstanding derivatives accounted for as cash flow hedges are recorded in accumulated other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon reclassification from accumulated comprehensive income is the same as that of the underlying exposure. Contracts outstanding at September 30, 2020 mature between one and twenty-six months.

When the Company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally specified period, changes to the fair value accumulated in other comprehensive income are recognized immediately in earnings.

The Company uses commodity forward contracts to hedge anticipated purchases of various commodities, including aluminum, fuel oil and natural gas, and these exposures are hedged by a central treasury unit.

The Company also designates certain foreign exchange contracts as cash flow hedges of anticipated foreign currency denominated sales or purchases. The Company manages these risks at the operating unit level. Foreign currency risk is generally hedged with the related commodity price risk.

The Company also uses interest rate swaps to convert interest on floating rate debt to a fixed-rate.

The following tables set forth financial information about the impact on other comprehensive income ("OCI"), accumulated other comprehensive income (“AOCI”) and earnings from changes in the fair value of derivative instruments.


	Amount of gain/(loss)						Amount of gain/(loss)
	recognized in OCI						recognized in OCI
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Derivatives in cash flow hedges	2020		2019		2020		2019
Foreign exchange	$	(2)	$	(2)	$	1	$	(4)
Interest Rate	—		(1)		(1)		(1)
Commodities	16		(11)		(21)		(19)
	$	14	$	(14)	$	(21)	$	(24)

	Amount of gain/						Amount of gain/
	(loss) reclassified from						(loss) reclassified from
	AOCI into income						AOCI into income
	Three Months Ended						Nine Months Ended
	September 30,						September 30,			Affected line items in the
Derivatives in cash flow hedges	2020		2019		2020		2019		Statement of Operations
Foreign exchange	$	—	$	(2)	$	(3)	$	(3)	Net sales
Commodities	7		4		17		10		Net sales
Foreign exchange	—		1		—		—		Cost of products sold
Commodities	(21)		(16)		(61)		(37)		Cost of products sold
	(14)		(13)		(47)		(30)		Income before taxes
	3		3		12		7		Provision for income taxes
Total reclassified	$	(11)	$	(10)	$	(35)	$	(23)	Net income

For the twelve-month period ending September 30, 2021, a net gain of $3 ($2, net of tax) is expected to be reclassified to earnings for commodity and foreign exchange contracts. No amounts were reclassified during the nine months

Crown Holdings, Inc.

ended September 30, 2020 and 2019 in connection with anticipated transactions that were no longer considered probable.

Fair Value Hedges and Contracts Not Designated as Hedges

The Company designates certain derivative financial instruments as fair value hedges of recognized foreign-denominated assets and liabilities, generally trade accounts receivable and payable and unrecognized firm commitments. The notional values and maturity dates of the derivative instruments coincide with those of the hedged items. Changes in fair value of the derivative financial instruments, excluding time value, are offset by changes in fair value of the related hedged items.

For the three and nine months ended September 30, 2020, the Company recorded a gain of $3 and gain of $26 from foreign exchange contracts designated as fair value hedges. For the three and nine months ended September 30, 2019, the Company recorded a gain $2 related to these contracts. These adjustments were reported within foreign exchange in the Consolidated Statements of Operations.

Certain derivative financial instruments, including foreign exchange contracts related to intercompany debt, were not designated or did not quality for hedge accounting; however, they are effective economic hedges as the changes in their fair value, except for time value, are offset by changes arising from re-measurement of the related hedged items. The Company’s primary use of these derivative instruments is to offset the earnings impact that fluctuations in foreign exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies. Changes in fair value of these derivative instruments are immediately recognized in earnings as foreign exchange adjustments.

The following table sets forth the impact on earnings from derivatives not designated as hedges.


	Pre-tax amount of gain/						Pre-tax amount of gain/
	(loss) recognized in income						(loss) recognized in
	on derivative						income on derivative
	Three Months Ended						Nine Months Ended
	September 30,						September 30,			Affected line item in the
Derivatives not designated as hedges	2020		2019		2020		2019		Statement of Operations





Foreign exchange	$	—	$	(2)	$	—	$	(3)	Net sales
Foreign exchange	(1)		1		—		3		Cost of products sold

Foreign exchange	13		(14)		19		(25)		Foreign exchange

	$	12	$	(15)	$	19	$	(25)

Net Investment Hedges

The Company designates certain debt and derivative instruments as net investment hedges to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows.

During the three and nine months ended September 30, 2020, the Company recorded a loss of $61 ($61, net of tax) in other comprehensive income for certain debt instruments that are designated as hedges of its net investment in a euro-based subsidiary. For the three and nine months ended September 30, 2019, the Company recorded a gain of $58 ($58, net of tax) and a gain of $67 ($67, net of tax). As of September 30, 2020 and December 31, 2019, cumulative losses of $93 ($70, net of tax) and $32 ($9, net of tax) were recognized in accumulated other comprehensive income related to these net investment hedges and the carrying amount of the hedged net investment was €1,164 ($1,364 at September 30, 2020).

The following tables set forth the impact on OCI from changes in the fair value of derivative instruments designated as net investment hedges.

Crown Holdings, Inc.


	Amount of gain/(loss)						Amount of gain/(loss)
	recognized in OCI						recognized in OCI
	Three months ended						Nine months ended
	September 30,						September 30,
Derivatives designated as net investment hedges	2020		2019		2020		2019
Foreign exchange	$	(43)	$	40	$	(4)	$	47

Gains and losses representing components excluded from the assessment of effectiveness on derivatives designated as net investment hedges are recognized in accumulated other comprehensive income.

Gains or losses on net investment hedges remain in accumulated other comprehensive income until disposal of the underlying assets.

Fair Values of Derivative Financial Instruments and Valuation Hierarchy

The following table sets forth the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, respectively. The fair values of these financial instruments were reported under Level 2 of the fair value hierarchy.


	Balance Sheet classification	September 30, 2020		December 31, 2019		Balance Sheet classification		September 30, 2020		December 31, 2019
Derivatives designated as hedging instruments
Foreign exchange contracts cash flow	Other current assets	$	6	$	10	Accrued liabilities		$	7	$	15
	Other non-current assets	1		1		Other non-current liabilities		—		1
Foreign exchange contracts fair value	Other current assets	4		1		Accrued liabilities		1		3

Commodities contracts cash flow	Other current assets	15		11		Accrued liabilities		12		21
	Other non-current assets	4		—		Other non-current liabilities		1		—
Interest rate contracts cash flow	Other non-current assets	—		—		Other non-current liabilities		3		1
Net investment hedge	Other non-current assets	56		51		Other non-current liabilities		11		2
				$	86	$	74			$	35	$	43
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	$	10	$	7	Accrued liabilities		$	7	$	5
	Other non-current assets	—		2		Other non-current liabilities		—		1




				$	10	$	9			$	7	$	6

Total derivatives		$	96	$	83			$	42	$	49

Crown Holdings, Inc.

Fair Value Hedge Carrying Amounts

Carrying amount of the hedged

assets/(liabilities)

September 30,
2020

December 31,
2019

Line item in the Balance Sheet in which the hedged item is included

Receivables, net

Accounts payable

(82)

(83)

As of September 30, 2020, the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedge assets and liabilities was a gain of $3. As of December 31, 2019, the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedge assets and liabilities was a loss of $2.

Offsetting of Derivative Assets and Liabilities

Certain derivative financial instruments are subject to agreements with counterparties similar to master netting arrangements and are eligible for offset. The Company has made an accounting policy election not to offset the fair values of these instruments within the statement of financial position. In the table below, the aggregate fair values of the Company's derivative assets and liabilities are presented on both a gross and net basis, where appropriate.


	Gross amounts recognized in the Balance Sheet	Gross amounts not offset in the Balance Sheet	Net amount
Balance at September 30, 2020
Derivative assets	$96	$12	$84
Derivative liabilities	42	12	30

Balance at December 31, 2019
Derivative assets	83	16	67
Derivative liabilities	49	16	33

Notional Values of Outstanding Derivative Instruments

The aggregate U.S. dollar-equivalent notional values of outstanding derivative instruments in the Consolidated Balance Sheets at September 30, 2020 and December 31, 2019 were:


	September 30, 2020		December 31, 2019
Derivatives designated as cash flow hedges:
Foreign exchange	$	410	$	1,030
Commodities	287		334
Interest rate	200		200
Derivatives designated as fair value hedges:
Foreign exchange	165		142
Derivatives designated as net investment hedges:
Foreign exchange	1,075		1,075
Derivatives not designated as hedges:
Foreign exchange	990		1,017

Crown Holdings, Inc.

K. Debt

The Company's outstanding debt was as follows:


	September 30, 2020						December 31, 2019
	Principal		Carrying		Principal		Carrying
	outstanding		amount		outstanding		amount
Short-term debt	$	132	$	132	$	75	$	75

Long-term debt
Senior secured borrowings:
Revolving credit facilities	—		—		—		—
Term loan facilities
U.S. dollar at LIBOR + 1.5% due 2024	1,079		1,073		1,100		1,094

Euro at EURIBOR + 1.5% due 2024¹	517		517		505		504

Senior notes and debentures:
€650 at 4.0% due 2022	762		759		729		725
U. S. dollar at 4.50% due 2023	1,000		996		1,000		995
€335 at 2.25% due 2023	393		390		376		372
€500 at 0.75% due 2023	645		640		617		610
€600 at 2.625% due 2024	703		699		673		668
€600 at 3.375% due 2025	703		698		673		667
U.S. dollar at 4.25% due 2026	400		396		400		395
U.S. dollar at 4.75% due 2026	875		864		875		863
U.S. dollar at 7.375% due 2026	350		348		350		348
€500 at 2.875% due 2026	586		579		561		554
U.S. dollar at 7.50% due 2096	40		40		40		40
Other indebtedness in various currencies	112		112		45		45

Total long-term debt	8,165		8,111		7,944		7,880
Less current maturities	(72)		(72)		(62)		(62)
Total long-term debt, less current maturities	$	8,093	$	8,039	$	7,882	$	7,818

(1) €442 and €450 at September 30, 2020 and December 31, 2019

The estimated fair value of the Company’s long-term borrowings, using a market approach incorporating Level 2 inputs such as quoted market prices for the same or similar issues, was $8,548 at September 30, 2020 and $8,410 at December 31, 2019.

L. Pension and Other Postretirement Benefits

The components of net periodic pension and other postretirement benefits costs for the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Pension benefits – U.S. plans	2020		2019		2020		2019
Service cost	$	4	$	2	$	14	$	10
Interest cost	9		13		28		39
Expected return on plan assets	(18)		(17)		(55)		(52)
Recognized prior service cost	1		1		1		1
Recognized net loss	14		14		42		42
Net periodic cost	$	10	$	13	$	30	$	40

Crown Holdings, Inc.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Pension benefits – Non-U.S. plans	2020		2019		2020		2019
Service cost	$	3	$	2	$	9	$	10
Interest cost	14		15		41		54
Expected return on plan assets	(26)		(31)		(79)		(100)
Curtailment gain	—		—		—		(14)
Settlement loss	5		6		61		37
Recognized prior service credit	—		—		—		(1)
Recognized net loss	5		7		18		26

Net periodic cost / (benefit)	$	1	$	(1)	$	50	$	12


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Other postretirement benefits	2020		2019		2020		2019

Interest cost	$	—	$	1	$	2	$	3
Recognized prior service credit	(6)		(8)		(19)		(25)
Recognized net loss	1		—		3		2
Net periodic benefit	$	(5)	$	(7)	$	(14)	$	(20)

In the three and nine months ended September 30, 2020, the Company recorded settlement charges related to the payment of lump sum buy-outs to settle certain non-U.S. pension obligations using plan assets. The Company may incur additional settlement charges in 2020.

In the nine months ended September 30, 2019, the Company recorded a curtailment gain to recognize prior service credits that were previously recorded in accumulated other comprehensive income in connection with the closure of a non-U.S. defined benefit pension plan.

The components of net periodic cost / (benefit) other than the service cost component are included in other pension and postretirement in the Consolidated Statement of Operations.

The following table provides information about amounts reclassified from accumulated other comprehensive income.


	Three Months Ended						Nine Months Ended
Details about accumulated other	September 30,						September 30,			Affected line item in the
comprehensive income components	2020		2019		2020		2019		statement of operations
Actuarial losses	$	20	$	21	$	63	$	70	Other pension and postretirement
Settlements	5		6		61		37		Other pension and postretirement
Prior service credit	(5)		(7)		(18)		(25)		Other pension and postretirement
Curtailments	—		—		—		(14)		Other pension and postretirement
	20		20		106		68		Income before taxes
	(5)		(5)		(21)		(13)		Provision for income taxes
Total reclassified	$	15	$	15	$	85	$	55	Net income

Crown Holdings, Inc.

M. Accumulated Other Comprehensive Income

The following table provides information about the changes in each component of accumulated other comprehensive income.


	Defined benefit plans			Foreign currency translation			Gains and losses on cash flow hedges			Total
Balance at January 1, 2019	$	(1,533)		$	(1,817)		$	(24)		$	(3,374)

Other comprehensive income / (loss) before reclassifications			140			40			(24)			156
Amounts reclassified from accumulated other comprehensive income			55			—			23			78
Other comprehensive income / (loss)	195			40			(1)			234
Balance at September 30, 2019	$	(1,338)		$	(1,777)		$	(25)		$	(3,140)

Balance at January 1, 2020	$	(1,449)		$	(1,668)		$	(14)		$	(3,131)

Other comprehensive loss before reclassifications			(4)			(293)			(21)			(318)
Amounts reclassified from accumulated other comprehensive income			85			—			35			120
Other comprehensive income / (loss)	81			(293)			14			(198)
Balance at September 30, 2020	$	(1,368)		$	(1,961)		$	—		$	(3,329)

See Note J and Note L for further details of amounts related to cash flow hedges and defined benefit plans.

N. Stock-Based Compensation

A summary of restricted and deferred stock transactions during the nine months ended September 30, 2020 is as follows:


			Number of shares
Non-vested stock awards outstanding at January 1, 2020			2,102,654
Awarded:
Time-vesting shares			284,093
Performance-based shares			166,018
Released:
Time-vesting shares			(142,481)
Performance-based shares			(181,705)
Forfeitures:
Time-vesting shares			(80,421)
Performance-based shares			(7,651)
Non-vested stock awards outstanding at September 30, 2020			2,140,507

The performance-based share awards are subject to either a market condition or a performance condition. For awards subject to a market condition, the performance metric is the Company's total shareholder return, which includes share price appreciation and dividends paid during the three-year term of the award, measured against a peer group of companies. These awards cliff vest at the end of three years. The number of performance-based shares that will ultimately vest is based on the level of market performance achieved, ranging between 0% and 200% of the shares originally awarded, and are settled in stock.

For awards subject to a performance condition, the performance metric is the Company's average return on invested capital over the three-year term. These awards cliff vest at the end of three years. The number of performance-based

Crown Holdings, Inc.

shares that will ultimately vest is based on the level of performance achieved, ranging between 0% and 200% of the shares originally awarded, and are settled in stock.

The time-vesting restricted and deferred stock awards vest ratably over three to five years.

The weighted average grant-date fair values of awards issued during the nine months ended September 30, 2020 were $69.85 for the time-vesting stock awards and $72.08 for the performance-based stock awards.

The fair value of the performance-based shares subject to a market condition awarded in 2020 was calculated using a Monte Carlo valuation model, including a weighted average stock price volatility of 22.0%, an expected term of three years, and a weighted average risk-free interest rate of 1.60%.

As of September 30, 2020, unrecognized compensation cost related to outstanding non-vested stock awards was $69. The weighted average period over which the expense is expected to be recognized is 2.7 years. The aggregate market value of the shares released on the vesting dates was $22 for the nine months ended September 30, 2020.

O. Revenue

For the three and nine months ended September 30, 2020 and 2019, the Company recognized revenue as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Revenue recognized over time	$	1,495	$	1,474	$	4,409	$	4,335
Revenue recognized at a point in time	1,672		1,610		4,204		4,539
Total revenue	$	3,167	$	3,084	$	8,613	$	8,874

See Note Q for further disaggregation of the Company's revenue.

The Company has applied the practical expedient to exclude disclosure of remaining performance obligations as its binding orders typically have a term of one year or less.

Contract Assets and Contract Liabilities

Contract assets and liabilities are reported in a net position on a contract-by-contract basis. Net contract assets were as follows:


	September 30, 2020		December 31, 2019
Contract assets included in prepaid and other current assets	$	42	$	30
Contract liabilities included in accrued liabilities	(1)		(5)

Net contract asset	$	41	$	25

Contract assets at September 30, 2020 primarily relates to revenue recognized for customized work-in-process inventory in the Company's equipment business and European three-piece food can product businesses.

During the nine months ended September 30, 2020, the Company recognized revenue of $4 related to contract liabilities at December 31, 2019 for performance obligations satisfied during the period.

Crown Holdings, Inc.

P. Earnings Per Share

The following table summarizes the computations of basic and diluted earnings per share attributable to the Company.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net income attributable to Crown Holdings	$	214	$	183	$	428	$	423
Weighted average shares outstanding:
Basic	133.3		133.9		133.6		133.9
Dilutive restricted stock	1.1		1.1		0.9		0.9
Diluted	134.4		135.0		134.5		134.8
Basic earnings per share	$	1.61	$	1.37	$	3.20	$	3.16
Diluted earnings per share	$	1.59	$	1.36	$	3.18	$	3.14

For the nine months ended September 30, 2020, 0.7 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.

For the three and nine months ended September 30, 2019, 0.2 million and 0.6 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.

Q. Segment Information

The Company evaluates performance and allocates resources based on segment income, which is not a defined term under GAAP. The Company defines segment income as income from operations adjusted to exclude intangibles amortization charges, provisions for asbestos and restructuring and other, and the impact of fair value adjustments to inventory acquired in an acquisition.

Segment income should not be considered in isolation or as a substitute for net income prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies.

The tables below present information about the Company's operating segments.


	External Sales						External Sales
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Americas Beverage	$	960	$	835	$	2,608	$	2,513
European Beverage	418		416		1,094		1,165
European Food	623		581		1,524		1,487
Asia Pacific	281		319		852		959
Transit Packaging	511		564		1,495		1,725
Total reportable segments	2,793		2,715		7,573		7,849
Non-reportable segments	374		369		1,040		1,025
Total	$	3,167	$	3,084	$	8,613	$	8,874

The primary sources of revenue included in non-reportable segments are the Company's food can and closures business in North America, aerosol can businesses in North America and Europe, its promotional packaging business in Europe, and its tooling and equipment operations in the U.S. and U.K.

Crown Holdings, Inc.


	Intersegment Sales						Intersegment Sales
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Americas Beverage	$	—	$	4	$	—	$	10
European Beverage	9		—		11		2
European Food	23		20		66		60

Transit Packaging	3		2		10		6
Total reportable segments	35		26		87		78
Non-reportable segments	18		33		85		99
Total	$	53	$	59	$	172	$	177

Intersegment sales primarily include sales of ends and components used to manufacture cans, such as printed and coated metal, as well as parts and equipment used in the manufacturing process.


	Segment Income						Segment Income
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Americas Beverage	$	193	$	134	$	456	$	386
European Beverage	76		64		152		163
European Food	90		79		191		189
Asia Pacific	41		47		125		143
Transit Packaging	72		74		189		227
Total reportable segments	$	472	$	398	$	1,113	$	1,108

A reconciliation of segment income of reportable segments to income before income taxes is as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Segment income of reportable segments	$	472	$	398	$	1,113	$	1,108
Segment income of non-reportable segments	36		34		86		103
Corporate and unallocated items	(47)		(37)		(118)		(115)
Restructuring and other	(10)		—		(20)		41
Amortization of intangibles	(45)		(42)		(134)		(136)
Accelerated depreciation	—		(1)		—		(4)

Other pension and postretirement	1		(1)		(43)		(12)
Loss from early extinguishments of debt	—		—		—		(6)
Interest expense	(72)		(95)		(228)		(290)
Interest income	2		5		7		12
Foreign exchange	(2)		(4)		15		(6)
Income before income taxes	$	335	$	257	$	678	$	695

For the three and nine months ended September 30, 2020, intercompany profits of less than $1 and $5 were eliminated within segment income of non-reportable segments.

For the three and nine months ended September 30, 2019, intercompany profits of $1 and $5 were eliminated within segment income of non-reportable segments.

Corporate and unallocated items includes corporate and division administrative costs, technology costs, and unallocated items such as stock-based compensation.

Crown Holdings, Inc.

PART I - FINANCIAL INFORMATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

(dollars in millions)

Introduction

The following discussion presents management's analysis of the results of operations for the three and nine months ended September 30, 2020 compared to 2019 and changes in financial condition and liquidity from December 31, 2019. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, along with the consolidated financial statements and related notes included in and referred to within this report.

Business Strategy and Trends

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

The Company's global beverage can business continues to be a major strategic focus for organic growth. Beverage cans are the world’s most sustainable and recycled beverage packaging and continue to gain market share in new beverage product launches. The Company continues to drive brand differentiation by increasing its ability to offer multiple product sizes.

For several years, global industry demand for beverage cans has been growing. In North America, beverage can growth has accelerated mainly due to the outsized portion of new beverage products being introduced in cans versus other packaging formats. In addition, markets such as Brazil, Europe, Mexico and Southeast Asia have also experienced higher volumes and market expansion. While the Company expects beverage can demand to continue to grow in the coming years, the impact of the coronavirus pandemic could weaken demand in the near term in certain areas.

In addition to its beverage can operations, the Company has generated strong returns on invested capital and significant cash flow from its non-beverage can operations including its global food can and transit packaging businesses. Due to the impact of the coronavirus pandemic, the Company expects lower demand in several of the industries served by its transit packaging businesses.

The Company's primary capital allocation focus has been to reduce leverage, as was successfully accomplished following previous acquisitions, and to begin to return capital to its shareholders. In November 2019, the Company announced a Board-led review of the Company's portfolio and capital allocation strategy, which is ongoing. In October 2020, the Company announced that it intends to initiate regular quarterly dividends and a share repurchase program in 2021. The actual amount and timing of these programs will be determined by the Board of Directors.

In direct response to the coronavirus pandemic, the Company has taken specific actions to ensure the safety of its employees. Following the implementation of travel and visitor restrictions in February, the Company continues to update its policies as new information becomes available. The Company has increased safety measures in its manufacturing facilities to protect the safety of its employees and the products they produce. In addition, as many employees as possible are working remotely.

The Company’s products are a vital part of the support system to its customers and consumers. In addition to manufacturing containers that provide protection for food and beverages, the Company also produces closures for baby food, aerosol containers for cleaning and sanitizing products and numerous other products that provide for the safe and secure transportation of goods in transit.

The Company is working to keep its manufacturing facilities around the world operational and equipped with the resources required to meet continually evolving customer demand by delivering high quality products in a safe and timely manner. The Company is actively monitoring and managing supply chain challenges, including coordinating with its suppliers to identify and mitigate potential areas of risk and manage inventories.

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

The Company is also working to actively elevate its industry-leading commitment to sustainability. In July 2020, the Company debuted Twentyby30, a robust program that outlines twenty measurable environmental, social and governance goals to be completed by 2030 or sooner.

Results of Operations

In assessing performance, the key performance measure used by the Company 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, and the impact of fair value adjustments to inventory acquired in an acquisition.

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 and Transit Packaging segments and the Canadian dollar and Mexican peso in the Company's Americas Beverage 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.

Net Sales and Segment Income


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	3,167	$	3,084	$	8,613	$	8,874

Three months ended September 30, 2020 compared to 2019

Net sales increased primarily due to 8% higher beverage can shipments and 9% higher food can shipments partially offset by the pass-through of lower raw material costs.

Nine months ended September 30, 2020 compared to 2019

Net sales decreased primarily due to the pass through of lower raw material costs and $105 from the impact of foreign currency translation, partially offset by 4% higher beverage can shipments and 8% higher food can shipments.

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 have experienced recent market growth due to the introduction of new beverage products in cans versus other packaging formats. To meet volume requirements in the U.S. and Canadian beverage can markets, the Company began commercial production on a new beverage can line at its Toronto, Ontario plant in January 2020 and on the third line at its Nichols, NY facility in June 2020. The Company also announced a new beverage can facility in Bowling Green, Kentucky, which is expected to begin production in the second quarter of 2021. The Company will add a second line to that facility with a late third quarter 2021 planned start-up. Additionally, the Company announced it will construct a third line at its Olympia, Washington plant which is scheduled to begin production during the third quarter of 2021.

In Brazil and Mexico, the Company's beverage can shipments 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 packaging formats. In November 2019, the Company commenced operations at a new one-line beverage can facility in Rio Verde, Brazil. The Company will construct a second line at this facility which is expected to commence operations during the third quarter of 2021.

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

Net sales and segment income in the Americas Beverage segment were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	960	$	835	$	2,608	$	2,513
Segment income	193		134		456		386

Three months ended September 30, 2020 compared to 2019

Net sales increased primarily due to 17% higher beverage can shipments partially offset by $27 from the impact of foreign currency translation.

Segment income increased due to higher beverage can shipments and improved pricing, partially offset by $7 from the impact of foreign currency translation.

Nine months ended September 30, 2020 compared to 2019

Net sales increased primarily due 9% higher beverage can shipments, partially offset by $70 from the impact of foreign currency translation and the pass-through of lower aluminum costs.

Segment income increased primarily due to higher beverage can shipments, improved pricing and lower freight costs in the U.S. and Canada, partially offset by $15 from the impact of foreign currency translation.

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.

In February 2019, the second line at the beverage can plant in Valencia, Spain began operations. In the second quarter of 2020, both beverage can lines in the Seville, Spain plant began commercial production of aluminum cans.

Net sales and segment income in the European Beverage segment were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	418	$	416	$	1,094	$	1,165
Segment income	76		64		152		163

Three months ended September 30, 2020 compared to 2019

Net sales were comparable as $13 from the impact of foreign currency translation and 3% higher beverage can shipments were partially offset by the pass-through of lower aluminum costs.

Segment income increased primarily due to cost reduction initiatives and higher beverage can shipments.

Nine months ended September 30, 2020 compared to 2019

Net sales decreased primarily due to lower beverage can shipments due to the coronavirus pandemic and the pass-through of lower aluminum costs.

Segment income decreased primarily due to lower beverage can shipments partially offset by cost reduction initiatives.

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

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 where consumer preference continues to favor the can due to product protection and food preservation.

Net sales and segment income in the European Food segment were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	623	$	581	$	1,524	$	1,487
Segment income	90		79		191		189

Three months ended September 30, 2020 compared to 2019

Net sales increased primarily due to 10% higher food can shipments and $20 from the impact of foreign currency translation, partially offset by the pass-through of lower raw material costs.

Segment income increased due to higher food can shipments and $3 from the impact of foreign currency translation.

Nine months ended September 30, 2020 compared to 2019

Net sales increased primarily due to 8% higher food can shipments, partially offset by the pass-through of lower raw material costs and $5 from the impact of foreign currency translation.

Segment income was comparable as higher food can shipments and improved cost performance were partially offset by $18 arising from the carryover of higher tinplate costs from prior year-end inventory.

Asia Pacific

The Company's Asia Pacific segment 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 commenced operations at a new beverage can plant in Nong Khae, Thailand in July 2020. In response to market conditions in China, the Company closed its Huizhou facility in early 2019. Following this closure, the Company has three beverage can plants in China with approximately $75 in annual sales.

Net sales and segment income in the Asia Pacific segment were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	281	$	319	$	852	$	959
Segment income	41		47		125		143

Three and nine months ended September 30, 2020 compared to 2019

Net sales decreased primarily due to lower beverage can shipments due to the impact of the coronavirus pandemic and the pass-through of lower aluminum costs.

Segment income decreased primarily due to lower beverage can shipments.

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

Transit Packaging

The Transit Packaging segment includes the Company's global consumables and equipment and tools businesses. Consumables include steel strap, plastic strap and industrial film and other related products that are used in a wide range of industries, and transit protection products that help prevent movement during transport for a wide range of industrial and consumer products. Equipment and tools includes manual, semi-automatic and automatic equipment and tools used in end-of-line operations to apply industrial solutions consumables.

Net sales and segment income in the Transit Packaging segment were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	511	$	564	$	1,495	$	1,725
Segment income	72		74		189		227

Three months ended September 30, 2020 compared to 2019

Net sales decreased primarily due to lower sales unit volumes due to the impact of the coronavirus pandemic and the pass-through of lower raw material prices.

Segment income was comparable as lower sales unit volumes were partially offset by improved product mix and cost performance.

Nine months ended September 30, 2020 compared to 2019

Net sales decreased primarily due to lower sales unit volumes due to the impact of the coronavirus pandemic, the pass-through of lower raw material prices and $18 from the impact of foreign currency translation.

Segment income decreased primarily due to lower sales unit volumes, partially offset by improved product mix and cost performance.

Non-reportable Segments

The Company's non-reportable segments include its food can and closures businesses in North America, its aerosol can businesses in North America and Europe, 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:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Net sales	$	374	$	369	$	1,040	$	1,025
Segment income	36		34		86		103

Three months ended September 30, 2020 compared to 2019

Net sales and segment increased primarily due to higher sales in the Company's beverage can equipment operations and 9% higher shipments in the Company's North America food can business, partially offset by lower shipments in the Company's global aerosol can businesses. Net sales were also unfavorably impacted by the pass-through of lower tinplate costs.

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

Nine months ended September 30, 2020 compared to 2019

Net sales increased as higher sales in the Company's beverage can equipment operations and 11% higher shipments in the Company's North America food can business were partially offset by lower shipments in the Company's global aerosol can businesses, the pass-through of lower tinplate costs and $8 from the impact of foreign currency translation.

Segment income decreased primarily due to $16 arising from the carryover of higher tinplate costs from the prior year-end inventory and lower shipments in the Company's global aerosol can businesses, partially offset by higher sales in the Company's beverage can equipment operations and higher shipments in the Company's North America food can business.

Corporate and Unallocated Expense


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		2020		2019
Corporate and unallocated expense	$	(47)	$	(37)	$	(118)	$	(115)

For the three months ended September 30, 2020 compared to 2019, corporate and unallocated expenses increased primarily due to higher personnel costs and incentive compensation.

For the nine months ended September 30, 2020 compared to 2019, corporate and unallocated expenses increased primarily due higher incentive compensation costs, partially offset by lower personnel and general costs due to the coronavirus pandemic.

Interest Expense

For the three and nine months ended September 30, 2020 compared to 2019, interest expense decreased from $95 to $72 and from $290 to $228 due to lower average outstanding debt and lower interest rates.

Taxes on Income

The Company's effective income tax rate was as follows:


	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2020			2019			2020			2019
Income before income taxes	$	335		$	257		$	678		$	695
Provision for income taxes	91			54			182			190
Effective income tax rate	27		%	21		%	27		%	27		%

The effective tax rate for the three and nine months ended September 30, 2020, included a charge of $8 related to a tax law change in the U.K. The nine months ended September 30, 2020, also included a benefit of $4 arising from a tax law change in India.

The effective tax rate for the nine months ended September 30, 2019 included a charge of $15 to settle a tax contingency arising from a transaction that occurred prior to the Company's acquisition of Signode.

Net Income Attributable to Noncontrolling Interests

For the three months ended September 30, 2020 compared to 2019, net income attributable to noncontrolling interests increased from $21 to $31 due to higher earnings in the Company's beverage can operations in Brazil.

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

For the nine months ended September 30, 2020 compared to 2019, net income attributable to noncontrolling interest decreased from $86 to $72 primarily due to higher income in Brazil in 2019 related to a favorable court ruling for one of the Company's Brazilian subsidiaries related to indirect taxes.

Liquidity and Capital Resources

Cash from Operations

Cash provided by operating activities increased from $201 for the nine months ended September 30, 2019 to $309 for the nine months ended September 30, 2020. The increase was primarily due to higher earnings and changes in working capital.

Days sales outstanding for trade receivables, excluding the impact of unbilled receivables, was 39 days as of September 30, 2019 compared to 38 days as of September 30, 2020.

Inventory turnover was 64 days at September 30, 2019 compared to 63 days at September 30, 2020. Inventory turnover at September 30, 2020 was comparable to 63 days at December 31, 2019.

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 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.

Days outstanding for trade payables was 88 days at September 30, 2019 compared to 89 days at September 30, 2020.

Investing Activities

Cash used for investing activities increased from $216 for the nine months ended September 30, 2019 to $309 for the nine months ended September 30, 2020 primarily due to increased capital expenditures.

The Company currently expects capital expenditures in 2020 to be approximately $600.

Financing Activities

Financing activities used cash of $245 for the nine months ended September 30, 2019 and provided cash of $26 for the nine months ended September 30, 2020. The Company had higher net borrowings in 2019. Additionally, during the nine months ended September 30, 2020, the Company repurchased $58 of capital stock and had an inflow related to foreign exchange derivatives related to debt.

Liquidity

As of September 30, 2020, $538 of the Company's $613 of cash and cash equivalents was located outside the U.S. The Company funds its cash needs in the U.S. through cash flows from operations in the U.S., distributions from certain foreign subsidiaries, borrowings under its revolving credit facility and the acceleration of cash receipts under its receivable securitization facilities. Of the cash and cash equivalents located outside the U.S., $49 was held by subsidiaries for which earnings are considered indefinitely reinvested. While based on current operating plans the Company does not foresee a need to repatriate these funds, if such earnings were repatriated the Company would be required to record any incremental taxes on the repatriated funds.

As of September 30, 2020, the Company had $1,585 of borrowing capacity available under its revolving credit facility, equal to the total facility of $1,650 less outstanding standby letters of credit of $65. The Company did not have any outstanding borrowings under the facility at September 30, 2020. The Company could have borrowed this amount at September 30, 2020 and still been in compliance with its leverage ratio covenants. The Company's net total leverage ratio, as defined by the credit agreement, of 4.38 to 1.0 at September 30, 2020 was in compliance with the covenant

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

requiring a ratio of no greater than 5.75 to 1.0. The required net total leverage ratio under the agreement reduces to 5.0 to 1.0 at December 31, 2020 and 4.5 to 1.0 at December 31, 2022.

Capital Resources

As of September 30, 2020, the Company had approximately $120 of capital commitments primarily related to its Americas Beverage segment. The Company expects to fund these commitments primarily through cash flows from operations.

Contractual Obligations

During the nine months ended September 30, 2020 there were no material changes to the Company's contractual obligations provided within Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, which information is incorporated herein by reference.

Supplemental Guarantor Financial Information

As disclosed in Note K, the Company has senior notes and debentures outstanding, which have various guarantees.

The Company’s outstanding $350 principal amount of 7.375% senior notes due 2026 and $40 principal amount 7.5% senior notes due 2096 were issued by Crown Cork & Seal Company, Inc. (Crown Cork Issuer), a 100% owned subsidiary of the Company and are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt and the guarantees are made on a joint and several basis.

The Company’s $1,000 principal amount 4.5% senior notes due 2023, $400 principal amount of 4.25% senior notes due 2026, and $875 principal amount of 4.75% senior notes due 2026 were issued by Crown Americas LLC and Crown Americas Capital Corp. IV, Crown Americas Capital Corp. V and Crown Americas Capital Corp. VI, respectively (collectively, the Crown Americas Issuer), each a 100% owned subsidiary of the Company, and are fully and unconditionally guaranteed by the Parent and substantially all of its subsidiaries in the United States. Each of the guarantors to these senior notes (collectively, the Crown Americas Guarantors) is a 100% owned subsidiary of the Company and the guarantees are made on a joint and several basis. The other subsidiaries of the Company do not guarantee the debt.

The senior notes described above and issued by the Crown Cork Issuer and the Crown Americas Issuer are collectively referred to as the senior notes, the Crown Cork Issuer and the Crown Americas Issuer are collectively referred to as the issuers, the Parent and the Crown Americas Guarantors are collectively referred to as the guarantors and the subsidiaries of the Company that do not guarantee the senior notes are collectively referred to as the non-guarantors.

Each of the Parent (in the case of the senior notes issued by the Crown Cork Issuer) and the Crown Americas Guarantors (in the case of the senior notes issued by the Crown Americas Issuer) guarantee the payment of the principal and premium, if any, and interest on the senior notes when due, whether at stated maturity of the senior notes, by acceleration, call for redemption or otherwise, together with interest on the overdue principal, if any, and interest on any overdue interest, to the extent lawful, and all other obligations of the Company to the holders of the senior notes and to the trustee under the applicable indenture governing the senior notes.

The senior notes and guarantees are senior unsecured obligations of the issuers and the guarantors, and are

•effectively subordinated to all existing and future secured indebtedness of the issuers and the guarantors to the extent of the value of the assets securing such indebtedness, including any borrowings under the Company’s senior secured credit facilities, to the extent of the value of the assets securing such indebtedness;

•structurally subordinated to all indebtedness of the Company’s non-guarantor subsidiaries, which include all of the Company’s foreign subsidiaries and any U.S. subsidiaries that are neither obligors nor guarantors of the Company’s senior secured credit facilities;

•ranked equal in right of payment to any existing or future senior indebtedness of the issuers and the guarantors; and

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

•ranked senior in right of payment to all existing and future subordinated indebtedness of the issuers and the guarantors.

Each guarantee of a guarantor is limited to an amount not to exceed the maximum amount that can be guaranteed that will not (after giving effect to all other contingent and fixed liabilities of such guarantor and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of all other guarantors in respect of the obligations of such other guarantors under their respective guarantees of the guaranteed obligations) render the guarantee, as it relates to such guarantor, voidable under applicable law relating to fraudulent conveyances or fraudulent transfers.

A guarantee of a guarantor other than the Parent will be unconditionally released and discharged upon any of the following:

•any transfer (including, without limitation, by way of consolidation or merger) by the Parent or any subsidiary of the Parent to any person or entity that is not the Parent or a subsidiary of the Parent of equity interests of such guarantor or any issuance by such guarantor of its equity interests, such that such guarantor ceases to be a subsidiary of the Parent; provided that such guarantor is also released from all of its obligations in respect of indebtedness under the Company’s senior secured credit facilities;

•the release of such guarantor from all obligations of such guarantor in respect of indebtedness under the Company’s senior secured credit facilities, except to the extent such guarantor is otherwise required to provide a guarantee; or

•upon the contemporaneous release or discharge of all guarantees by such guarantor which would have required such guarantor to provide a guarantee under the applicable indenture.

The following tables present summarized financial information related to the senior notes issued by each of Crown Cork and Crown Americas on a combined basis for each issuer and its guarantors after elimination of (i) intercompany transactions and balances among the Parent and the guarantors and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor.

Crown Cork Issuer and Guarantor


	Nine Months Ended
	September 30, 2020
Net sales	$	—
Gross Profit	—
Income from operations	(2)
Net income¹	(56)
Net income attributable to Crown Holdings¹	(56)

(1) Includes $25 of expense related to intercompany interest with non-guarantor subsidiaries


	September 30, 2020		December 31, 2019
Current assets	$	12	$	11
Non-current assets	96		129
Current liabilities	46		57
Non-current liabilities¹	4,296		4,237

(1) Includes payables of $3,602 and $3,538 due to non-guarantor subsidiaries as of September 30, 2020 and December 31, 2019

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

Crown Americas Issuer and Guarantors


	Nine Months Ended
	September 30, 2020
Net sales¹	$	2,944
Gross profit²	474
Income from operations²	162
Net income³	52
Net income attributable to Crown Holdings³	52

(1) Includes $314 of sales to non-guarantor subsidiaries

(2) Includes $31 of gross profit related to sales to non-guarantor subsidiaries

(3) Includes $47 of income related to intercompany interest and technology royalties with non-guarantor subsidiaries


	September 30, 2020		December 31, 2019
Current assets¹	$	763	$	799
Non-current assets²	3,270		3,171
Current liabilities³	950		956
Non-current liabilities⁴	4,712		4,709

(1) Includes receivables of $50 and $55 due from non-guarantor subsidiaries as of September 30, 2020 and December 31, 2019

(2) Includes receivables of $227 and $128 due from non-guarantor subsidiaries as of September 30, 2020 and December 31, 2019

(3) Includes payables of $30 and $21 due to non-guarantor subsidiaries as of September 30, 2020 and December 31, 2019

(4) Includes payables of $268 and $245 due to non-guarantor subsidiaries as of September 30, 2020 and December 31, 2019

The senior notes are structurally subordinated to all indebtedness of the Company’s non-guarantor subsidiaries. The non-guarantors are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the senior notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that the Company or the guarantors have to receive any assets of any of the non-guarantors upon the liquidation or reorganization of any non-guarantor, and the consequent rights of holders of senior notes to realize proceeds from the sale of any of a non-guarantor’s assets, would be effectively subordinated to the claims of such non-guarantor’s creditors, including trade creditors and holders of preferred equity interests, if any, of such non-guarantor. Accordingly, in the event of a bankruptcy, liquidation or reorganization of any of the non-guarantors, the non-guarantors will pay the holders of their debts, holders of preferred equity interests, if any, and their trade creditors before they will be able to distribute any of their assets to the Company or any of the guarantors.

Under U.S. federal bankruptcy laws or comparable provisions of state fraudulent transfer laws, the issuance of the senior note guarantees by the guarantors could be voided, or claims in respect of such obligations could be subordinated to all of their other debts and other liabilities, if, among other things, at the time the guarantors issued the related senior note guarantees, the Company or the applicable guarantor intended to hinder, delay or defraud any present or future creditor, or received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness and either:

•was insolvent or rendered insolvent by reason of such incurrence;

•was engaged in a business or transaction for which the Company’s or such guarantor’s remaining assets constituted unreasonably small capital; or

•intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

Each guarantee provided by a guarantor includes a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer or conveyance. This provision may not be effective to protect those guarantees from being avoided under fraudulent transfer or conveyance law, or it may reduce that guarantor’s obligation to an amount that effectively makes its guarantee worthless, and we cannot predict whether a court will ultimately find it to be effective.

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

On the basis of historical financial information, operating history and other factors, we believe that each of the guarantors, after giving effect to the issuance of its guarantee of the senior notes when such guarantee was issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. The Company cannot assure, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

Commitments and Contingent Liabilities

Information regarding the Company's commitments and contingent liabilities appears in Part I within Item 1 of this report under Note I, entitled “Commitments and Contingent Liabilities,” to the consolidated financial statements, and in Part II within Item 1A of this report which information is incorporated herein by reference.

Critical Accounting Policies

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. which require that management make numerous estimates and assumptions.

Actual results could differ from these estimates and assumptions, impacting the reported results of operations and financial condition of the Company. Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Note A to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 describe the significant accounting estimates and policies used in the preparation of the consolidated financial statements. Updates to the Company's accounting policies related to new accounting pronouncements are included in Note B to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

The discussion below supplements the discussion from the Company's Annual Report on Form 10-K for the year ended December 31, 2019 with respect to goodwill.

Goodwill Impairment

As of October 1, 2019, the estimated fair values of the Equipment & Tools and Consumables reporting units, which are included in the Transit Packaging segment were 9% and 15% higher than their respective carrying values. The reporting units operate in low-growth environments that are expected to experience lower demand in the near term because of the impact of the coronavirus pandemic. If the reporting units' operating results are significantly impacted for an extended period of time, it is possible that the Company may record an impairment charge in the future. As of September 30, 2020, the Equipment and Tools reporting unit had $797 of goodwill and the Consumables reporting unit had $731 of goodwill. As previously disclosed in the Company's Annual Report on Form 10-K for the year-ended December 31, 2019, based upon an internal reorganization, the Protective Packaging reporting unit was merged into the Industrial Solutions reporting unit, effective January 1, 2020, to form the new Consumables reporting unit. The amounts and percentages presented represent the combined Consumables reporting unit.

As of September 30, 2020, the Company considered recent events and circumstances and determined it was more likely than not that fair value was more than carrying amount for all of its reporting units. To the extent future operating results decline it is possible that material impairment charges may be recorded.

Forward Looking Statements

Statements included herein, including, but not limited to, those in “Management's Discussion and Analysis of Financial Condition and Results of Operations” (such as statements regarding the Company's expectation and ability to pay quarterly dividends in the future or statements regarding the Company's initiation of a share repurchase program) and in the discussions of asbestos in Note H and commitments and contingencies in Note I to the consolidated financial statements included in this Quarterly Report on Form 10-Q, and also in Part I, Item 1, “Business” and Item 3, “Legal Proceedings” and in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” within the Company's Annual Report on Form 10-K for the year ended December 31, 2019, which are not historical facts (including any statements concerning the direct or indirect impact of

Crown Holdings, Inc.

Item 2. Management's Discussion and Analysis (Continued)

COVID-19, plans and objectives of management for capacity additions, share repurchases, dividends, 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 oral or written statements which are also “forward-looking statements.”

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.

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 Securities and Exchange Commission (“SEC”), the Company does not intend to review or revise any particular forward-looking statement in light of future events.

A discussion of important factors that could cause the actual results of operations or financial condition of the Company to differ from expectations has been set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 within Part II, Item 7: “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward Looking Statements” and is incorporated herein by reference. Some of the factors are also discussed elsewhere in this Form 10-Q (including under Item 1A below) and in prior Company filings with the SEC. In addition, other factors have been or may be discussed from time to time in the Company's SEC filings.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange and 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. The Company is exposed to credit loss in the event of nonperformance by the counterparties. These instruments are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success in using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales arrangements that permit the pass-through of commodity prices and foreign exchange rate risks to customers. The Company's objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. For further discussion of the Company's use of derivative instruments and their fair values at September 30, 2020, see Note J to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

As of September 30, 2020, the Company had $1.7 billion principal floating interest rate debt. A change of 0.25% in these floating interest rates would change annual interest expense by approximately $4 million before tax.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rate Committee has announced the replacement of U.S. dollar LIBOR rates with a new index calculated by short-term repurchase agreements backed by U.S. Treasury securities called the Secured Overnight Financing Rate (SOFR). The first publication of SOFR was released in April 2018. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR at this time is uncertain. At June 30, 2020, the Company does have contracts that are indexed to LIBOR, including cross-currency swap contracts and certain of its term loan facilities, and continues to monitor this activity and evaluate the related risks. The discontinuation of LIBOR will require these arrangements to be modified in order to replace LIBOR with an alternative reference interest rate, which could impact the Company's cost of funds. The Company’s credit agreement includes a provision for the determination of a successor LIBOR rate when appropriate by reference to the then-prevailing market convention for determining an interest rate for syndicated loans in the United States, subject to a right of the lenders thereunder to reject the application of the determined rate by written notice.

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation and as of the end of the quarter for which this report is made, the Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective. Disclosure controls and procedures ensure that information to be disclosed in reports that the Company files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and terms of the SEC, and ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There has been no change in internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding the Company's potential asbestos-related liabilities and other litigation, see Note H entitled “Asbestos-Related Liabilities” and Note I entitled “Commitments and Contingent Liabilities” to the consolidated financial statements within Part I, Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

Item 1A. Risk Factors

The information set forth in this report should be read in conjunction with the risk factors discussed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1A of the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2020. Such risks are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may also materially adversely affect the Company's business, financial condition and/or operating results.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

There were 355 shares surrendered to cover taxes on the vesting of restricted stock during the three months ended

September 30, 2020.

Item 3. Defaults Upon Senior Securities

There were no events required to be reported under Item 3 for the three months ended September 30, 2020.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On October 21, 2020, the Company entered into Amendment No. 1 to the Amended and Restated Senior Executive Retirement Agreement with Gerard Gifford, dated June 1, 2017 (the "SERP Amendment"). The SERP Amendment provides that Mr. Gifford's retirement benefit under the Company's Senior Executive Retirement Plan will take into account his years of service with the Company after Mr. Gifford reaches his normal retirement date. The SERP Amendment is attached as an exhibit to this Form 10-Q and is incorporated herein by reference.

Crown Holdings, Inc.

Item 6. Exhibits


10.d(10)			Amendment No. 1 to Amend and Restate Senior Executive Retirement Agreement, effective October 21, 2020, between Crown Holdings, Inc. and Gerard Gifford.

22			List of Guarantor Subsidiaries

31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Timothy J. Donahue, President and Chief Executive Officer of Crown Holdings, Inc. and Thomas A. Kelly, Senior Vice President and Chief Financial Officer of Crown Holdings, Inc.

101			The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 formatted in inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iii) Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, (v) Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2020 and 2019 and (vi) Notes to Consolidated Financial Statements.

104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

Crown Holdings, Inc.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



						Crown Holdings, Inc. Registrant

By:						/s/ David A. Beaver
						David A. Beaver
						Vice President and Corporate Controller
						(Chief Accounting Officer)

Date: October 23, 2020