CROWN HOLDINGS, INC. INTRODUCTION
The following discussion summarizes the significant factors affecting the
results of operations and financial condition of
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. InNorth America , beverage can growth has accelerated in recent years mainly due to the outsized portion of new beverage products being introduced in cans versus other packaging formats. In addition, markets such asBrazil ,Europe ,Mexico andSoutheast Asia have also experienced higher volumes and market expansion, although volumes in certain of those markets were negatively affected by the impact of COVID-19 in 2020. The Company continues to invest in capacity expansion to meet the accelerating demand. 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. InNovember 2019 , the Company announced a Board-led review of the Company's portfolio and capital allocation strategy, which is ongoing. The Company is currently marketing its European Tinplate business, which is comprised of its food cans, food closures, aerosol cans and promotional containers operations. There can be no assurances as to the timing, price realized or certainty of such a sale and as a result, a potential sale could result in a future impairment charge. The Company intends to initiate a regularly quarterly dividend beginning in the first quarter of 2021. In addition, the Company anticipates opportunistically repurchasing shares of its common stock in 2021 pursuant to an authorization by the Company's Board of Directors to repurchase up to$1.5 billion of the Company's common stock through the end of 2023. 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. The Company continues to actively elevate its industry-leading commitment to sustainability, which is a core value of the Company. InJuly 2020 , the Company debuted Twentyby30, a robust program that outlines twenty measurable environmental, social and governance goals to be completed by 2030 or sooner. 27
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Crown Holdings, Inc.
RESULTS OF OPERATIONS
The key measure used by the Company in assessing performance is segment income,
a non-GAAP measure generally defined by the Company as income from operations
adjusted to exclude intangibles amortization charges, provisions for asbestos
and restructuring and other, 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 segments, the Mexican peso in the Company's Americas segments, the Thai
baht in the Company's Asia Pacific segment and the Mexican peso, the Indian
rupee and the euro in the Company's Transit Packaging 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
2020 2019 2018
Net sales $11,575 $11,665 $11,151 Year ended
Net sales decreased primarily due to the pass-through of lower raw material costs and$59 from the impact of foreign currency translation, partially offset by 4% higher global beverage can sales unit volumes and 7% higher global food can sales unit volumes.
Year ended
Net sales increased primarily due to$569 from an additional three months ofSignode's operations, following its acquisition inApril 2018 , and 3% higher global beverage sales unit volumes, partially offset by the impact of foreign currency translation. 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 theU.S. ,Brazil ,Canada ,Colombia andMexico . TheU.S. and Canadian beverage can markets have experienced recent growth due to the introduction of new beverage products in cans versus other packaging formats. To meet volume requirements in these markets, the Company began commercial production on a new beverage can line at itsToronto, Ontario plant inJanuary 2020 and on the third line at itsNichols, NY facility inJune 2020 . Additionally, the Company has announced a new beverage can facility inBowling Green, Kentucky , with the first line expected to begin production in the second quarter of 2021 and a second line scheduled for a late third quarter 2021 start-up. To meet the expanding requirements of specialty cans in thePacific Northwest , the Company will construct a third line in itsOlympia, Washington plant which is scheduled to begin production during the third quarter of 2021. The Company also announced construction of a new facility inHenry County, Virginia which is expected to commence operations during the first quarter of 2022. InBrazil andMexico , the Company's sales unit volumes have increased in recent years primarily due to market growth driven by increased per capita incomes and consumption, combined with an increased preference for cans over other forms of beverage packaging. InNovember 2019 , the Company commenced operations at a new one-line beverage can facility inRio Verde ,Brazil . The Company will construct a second line at this facility that is expected to commence operations during the third quarter of 2021. The Company has also begun construction of a two-line facility inMinas Gerais, Brazil , with the first line expected to begin production during the second quarter of 2022 and the second line scheduled to start up during the fourth quarter of 2022. Net sales and segment income in the Americas Beverage segment were as follows: 2020 2019 2018 Net sales$ 3,565 $ 3,369 $ 3,282 Segment income 652 534 454 28
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Crown Holdings, Inc.
Year ended
Net sales increased primarily due to 9% higher sales unit volumes, partially
offset by
Segment income increased primarily due to higher sales unit volumes, partially
offset by
Year ended
Net sales increased primarily due to 2% higher sales unit volumes partially
offset by the pass-through of lower aluminum costs and
Segment income increased primarily due to higher sales unit volumes, lower
freight costs and improved pricing in
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 throughoutEurope , theMiddle East andNorth Africa . In recent years, the Western European beverage can markets have been growing. InOctober 2018 , the first line of a new beverage can plant inValencia, Spain began operations and a second line began operations inFebruary 2019 . Additionally, inDecember 2019 , the Company commenced operations at a new one-line plant inParma, Italy . In the second quarter of 2020, both beverage can lines in theSeville, Spain plant began commercial production of aluminum cans. Net sales and segment income in the European Beverage segment were as follows: 2020 2019 2018 Net sales$ 1,473 $ 1,497 $ 1,489 Segment income 215 190 193
Year ended
Net sales decreased primarily due to the pass-through of lower aluminum costs,
partially offset by
Segment income increased primarily due to improved operational performance and cost savings. Year endedDecember 31, 2019 compared to 2018 Net sales increased primarily due to 6% higher sales unit volumes, partially offset by$56 related to the impact of foreign currency translation and the pass-through of lower aluminum costs. Segment income decreased primarily due to higher depreciation related to recent capacity expansion and line conversions and$5 from the impact of foreign currency translation, partially offset by higher sales unit volumes. 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 throughoutEurope andAfrica . 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:
2020 2019 2018
Net sales $ 1,975 $ 1,887 $ 1,982
Segment income 228 205 257
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Crown Holdings, Inc.
Year ended
Net sales increased primarily due to 7% higher sales unit volumes and$26 from the impact of foreign currency translation, partially offset by the pass-through of lower raw material costs. Higher sales unit volumes were primarily due to improved harvest conditions and crop yields. Segment income increased as higher sales unit volumes and cost reduction initiatives were partially offset by$18 arising from the carryover of higher tinplate costs from prior year-end inventory. Year endedDecember 31, 2019 compared to 2018 Net sales decreased primarily due to$102 from the impact of foreign currency translation, partially offset by the pass-through of higher raw material costs. Segment income decreased primarily due to unfavorable product mix, higher tinplate and other operating costs that were not fully passed through in selling price and$11 from the impact of foreign currency translation.Asia Pacific The Company'sAsia Pacific segment consists of beverage can operations inCambodia ,China ,Indonesia ,Malaysia ,Myanmar ,Singapore ,Thailand andVietnam and non-beverage can operations, primarily food cans and specialty packaging. In recent years, the beverage can market inSoutheast Asia has been growing. In 2020, however, industry volumes decreased due to the impact of the coronavirus pandemic. The Company began commercial production at a new beverage can plant inYangon, Myanmar inJuly 2018 , a third beverage can line at thePhnom Penh, Cambodia plant inJanuary 2019 and one-line plant inNong Khae ,Thailand inJuly 2020 . Additionally, the Company has begun construction of a one-line beverage can plant inVung Tao ,Vietnam , which will begin commercial production inSeptember 2021 . In response to market conditions inChina , the Company closed its Putian facility in 2018 and itsHuizhou facility in early 2019. Following these closures, the Company has three beverage can plants inChina with approximately$75 in annual sales.
Net sales and segment income in the
2020 2019 2018
Net sales $ 1,168 $ 1,290 $ 1,316
Segment income 175 194 186
Year ended
Net sales decreased primarily due to 4% lower beverage can sales unit volumes due to the impact of the coronavirus pandemic and the pass-through of lower aluminum costs.
Segment income decreased due to lower beverage can sales unit volumes, partially offset by cost reduction initiatives.
Year ended
Net sales decreased primarily due to lower sales unit volumes related to plant closures inChina and the pass-through of lower aluminum costs, partially offset by 12% higher sales unit volumes inSoutheast Asia .
Segment income increased due to higher sales unit volumes.
The Company completed its acquisition ofSignode onApril 3, 2018 , which is reported as the Company'sTransit Packaging segment.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. 30 -------------------------------------------------------------------------------- Crown Holdings, Inc. Net sales and segment income in theTransit Packaging segment were as follows: 2020 2019 2018 Net sales$ 2,018 2,274$ 1,800 Segment income 254 290 255
Year ended
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$10 from the impact of foreign currency translation.
Segment income decreased primarily due to lower sales unit volumes, partially offset by the impact of cost reduction initiatives.
Year ended
Net sales and segment income increased primarily due to$569 and$73 from an additional quarter of ownership in 2019 partially offset by lower sales unit volumes due to a slowdown in manufacturing activity in many global markets, unfavorable product mix and$33 and$4 from the impact of foreign currency translation.
Other Segments
The Company's other segments include its food can and closures businesses inNorth America , its aerosol can businesses inNorth America andEurope , and its beverage tooling and equipment operations in theU.S. andU.K.
Net sales and segment income in other segments were as follows:
2020 2019 2018
Net sales $ 1,376 $ 1,348 $ 1,282
Segment income 119 126 122
Year ended
Net sales increased as higher sales in the Company's beverage can equipment operations and 9% higher sales unit volumes in the Company'sNorth 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$5 from the impact of foreign currency translation. The Company'sNorth America food can business benefited from more at-home meal preparation during the coronavirus pandemic. 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 sales unit volumes in the Company'sNorth America food can business.
Year ended
Net sales increased primarily due to the pass-through of higher tinplate costs and 5% higher sales unit volumes in the Company'sNorth America food can business partially offset by lower sales unit volumes in the Company's equipment operations and$17 from the impact of foreign currency translation. Segment income increased primarily due to higher sales unit volumes and lower freight costs in the Company'sNorth America food can business and favorable product mix in the Company's equipment operations, partially offset by higher tinplate and other operating costs in the Company's global aerosol businesses that were not fully passed through in selling price.
Corporate and unallocated
2020 2019 2018
Corporate and unallocated
Corporate and unallocated costs increased from 2019 to 2020 primarily due to higher incentive compensation costs.
31
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Crown Holdings, Inc. Corporate and unallocated costs increased from 2018 to 2019 primarily due to higher incentive compensation and claims activity in 2019.
INTEREST EXPENSE
Interest expense decreased from
Interest expense decreased from
TAXES ON INCOME
The Company's effective income tax rates were as follows:
2020 2019 2018
Income before income taxes $ 926 $ 786 $ 740
Provision for income taxes 244 166 216
Effective income tax rate 26.3 % 21.1 % 29.2 %
The effective tax rate in 2020 was 26.3%. The lower effective tax rate in 2019
included a benefit of $36 from the release of a valuation allowance against the
Company's net deferred tax assets in Luxembourg and a benefit of $9 arising from
tax law changes in India , partially offset by a charge of $15 to settle a tax
contingency arising from a transaction that occurred prior to the acquisition of
Signode in 2018.
The effective tax rate in 2018 included
For additional information regarding income taxes, see Note R to the consolidated financial statements.
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Net income attributable to noncontrolling interest decreased from$115 in 2019 to$109 in 2020 primarily due to higher income inBrazil in 2019 related to a favorable court ruling for one of the Company's Brazilian subsidiaries related to indirect taxes. Net income attributable to noncontrolling interest increased from$89 in 2018 to$115 in 2019 primarily due to higher earnings in the Company's beverage can operations inBrazil , including the impact of a favorable court ruling related to the recovery of indirect taxes paid in prior years. LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Cash provided by operating activities increased from
Receivables increased from$1,528 atDecember 31, 2019 to$1,783 atDecember 31, 2020 primarily due to higher sales unit volumes and the impact of foreign currency translation. Days sales outstanding for trade receivables, excluding the impact of unbilled receivables, increased from 36 atDecember 31, 2019 to 38 atDecember 31, 2020 . Inventories increased from$1,626 atDecember 31, 2019 to$1,673 atDecember 31, 2020 primarily due to the impact of foreign currency translation. Inventory turnover was 63 days atDecember 31, 2019 compared to 64 days atDecember 31, 2020 . 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. 32 --------------------------------------------------------------------------------Crown Holdings, Inc. Accounts payable increased from$2,646 atDecember 31, 2019 to$2,845 atDecember 31, 2020 and days outstanding for trade payables increased from 99 days atDecember 31, 2019 to 108 days atDecember 31, 2020 primarily due to higher sales unit volumes and the impact of foreign currency translation.
INVESTING ACTIVITIES
Cash used for investing activities increased from$374 in 2019 to$535 in 2020 primarily due to increased capital expenditures related to capacity expansion projects in the Americas Beverage segment.
The Company currently expects capital expenditures in 2021 to be approximately
AtDecember 31, 2020 , the Company had approximately$177 of capital commitments primarily related to its Americas Beverage segment. The Company expects to fund these commitments primarily through cash generated from operations.
FINANCING ACTIVITIES
Cash used for financing activities decreased from$786 in 2019 to$239 in 2020 primarily due to lower net debt repayments in 2020. Additionally, in 2020 the Company repurchased$66 of capital stock and had an inflow of$43 from foreign exchange derivatives related to debt compared to an outflow of$16 in 2019.
LIQUIDITY
As ofDecember 31, 2020 ,$1,024 of the Company's$1,173 in cash and cash equivalents was located outside theU.S. The Company is not currently aware of any legal restrictions under foreign law that materially impact its access to cash held outside theU.S. The Company funds its cash needs in theU.S. through a combination of cash flows from operations, dividends from certain foreign subsidiaries, borrowings under its revolving credit facility and the acceleration of cash receipts under its receivable securitization and factoring facilities. Of the cash and cash equivalents located outside theU.S. ,$663 was held by subsidiaries for which earnings are considered indefinitely reinvested. If such earnings were repatriated the Company may be required to record incremental foreign taxes on the repatriated funds.
The Company's revolving credit agreements provide capacity of
The ratio of total debt, less cash and cash equivalents, to total capitalization
was 73.0% and 77.8% at
The Company's debt agreements contain covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional debt, pay dividends or repurchase capital stock, make certain other restricted payments, create liens and engage in sale and leaseback transactions. These restrictions are subject to a number of exceptions, however, which allow the Company to incur additional debt, create liens or make otherwise restricted payments provided that the Company is in compliance with applicable financial and other covenants and meets certain liquidity requirements. The Company's revolving credit facilities and term loan facilities also contain a total leverage ratio covenant. The leverage ratio is calculated as total net debt divided by Consolidated EBITDA (as defined in the credit agreement). Total net debt is defined in the credit agreement as total debt less cash and cash equivalents. Consolidated EBITDA is calculated as the sum of, among other things, net income attributable toCrown Holdings , net income attributable to certain of the Company's subsidiaries, income taxes, interest expense, depreciation and amortization, and certain non-cash charges. The Company's total net leverage ratio of 3.8 to 1.0 atDecember 31, 2020 was in compliance with the covenant requiring a ratio no greater than 5.0 to 1.0. The ratio is calculated at the end of each quarter using debt and cash balances as of the end of the quarter and Consolidated EBITDA for the most recent twelve months. Failure to meet the financial covenant could result in the acceleration of any outstanding amounts due under the revolving credit facilities and term loan facilities. In order to reduce leverage and future interest payments, the Company may from time to time repurchase outstanding notes and debentures with cash or seek to refinance its existing credit facilities and other indebtedness. The Company will evaluate any such transactions in light of any required premiums and then existing market conditions and may determine not to pursue such transactions. 33 -------------------------------------------------------------------------------- Crown Holdings, Inc. The Company's current sources of liquidity also include a securitization facility with a program limit up to a maximum of$375 that expires inJuly 2021 , a securitization facility with a program limit of$282 that expires inNovember 2022 , and an uncommitted securitization facility with a program limit of$175 that expires inDecember 2021 . The Company accounts for transfers under these facilities as sales as further discussed in Note C to the consolidated statements.
The Company utilizes its cash flows from operations, borrowings under its revolving credit facilities and the acceleration of cash receipts under its receivables securitization and factoring programs to primarily fund its operations, capital expenditures and financing obligations.
Cash payments required for purchase obligations, long-term debt maturities and interest payments and projected pension contributions in effect atDecember 31, 2020 , are summarized in the following table: Payments Due by Period 2026 & 2021 2022 2023 2024 2025 after Total Purchase obligations (1)$ 3,894 $ 1,904 $ 1,584 $ 1,190 $ - $ -$ 8,572 Long-term debt 67 901 2,185 1,966 743 2,279 8,141 Interest on long-term debt (2) 273 258 183 170 106 - 990 Projected pension contributions (3) 22 42 68 78 111 - 321 Total$ 4,256 $ 3,105 $ 4,020 $ 3,404 $ 960 $ 2,279 $ 18,024 All amounts due in foreign currencies are translated at exchange rates as ofDecember 31, 2020 . (1) These purchase commitments specify significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of transactions. (2) Interest on long-term debt represents the interest that will accrue by year based on debt outstanding and interest rates in effect as ofDecember 31, 2020 . (3) Pension projections require the use of numerous estimates and assumptions such as discount rates, rates of return on plan assets, compensation increases, health care cost increases, mortality and employee turnover and therefore projected contributions been provided for only five years.
The Company also has certain guarantees and indemnification agreements that could require the payment of cash upon the occurrence of certain events. The guarantees and agreements are further discussed under Note O to the consolidated financial statements.
Supplemental Guarantor Financial Information
As disclosed in Note L , the Company and certain of its 100% directly or indirectly owned subsidiaries provide guarantees of senior notes and debentures issued by other 100% directly or indirectly owned subsidiaries. These senior notes and debentures are fully and unconditionally guaranteed by the Company and substantially all of its subsidiaries inthe United States , except in the case of the Company's outstanding senior notes issued byCrown Cork & Seal Company, Inc. , which are fully and unconditionally guaranteed byCrown Holdings, Inc. (Parent). No other subsidiary guarantees the debt and the guarantees are made on a joint and several basis.
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 anyU.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 •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. 34 --------------------------------------------------------------------------------Crown Holdings, Inc.
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 (1) all of the equity interests of, or all or substantially all of the properties and assets of, such guarantor; or (2) 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 the Company's subsidiary debt issuers and guarantors on a combined basis for each issuer and its guarantors (together, an "obligor group") after elimination of (i) intercompany transactions and balances among the Parent and the guarantors and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor. Crown Cork Obligor group consists ofCrown Cork & Seal Company, Inc. and the Parent. Crown Americas Obligor group consists ofCrown Americas LLC ,Crown Americas Capital Corp. IV,Crown Americas Capital Corp. V ,Crown Americas Capital Corp. VI, the Parent, and substantially all of the Company's subsidiaries inthe United States .Crown Cork Obligor Group December 31, 2020 Net sales $ - Gross Profit - Income from operations (10) Net income1 (91) Net income attributable to Crown Holdings1
(91)
(1) Includes$34 of expense related to intercompany interest with non-guarantor subsidiaries December 31, 2020 Current assets $ 12 Non-current assets 118 Current liabilities 63 Non-current liabilities1 4,305 (1) Includes payables of$3,623 due to non-guarantor subsidiaries as ofDecember 31, 2020 Crown Americas Obligor Group December 31, 2020 Net sales1$ 3,905 Gross profit2 629 Income from operations2 201 Net income3 102 Net income attributable to Crown Holdings3
102
(1) Includes
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Crown Holdings, Inc.
December 31, 2020
Current assets1 $ 917
Non-current assets2 3,248
Current liabilities3 1,081
Non-current liabilities4 4,491
(1) Includes receivables of $45 due from non-guarantor subsidiaries as of
December 31, 2020
(2) Includes receivables of $142 due from non-guarantor subsidiaries as of
December 31, 2020
(3) Includes payables of $54 due to non-guarantor subsidiaries as of December
31, 2020
(4) Includes payables of $31 due to non-guarantor subsidiaries as of December
31, 2020
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
therefore, 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. MARKET RISK In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange rates, interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. These instruments are viewed as risk management tools, involve little complexity, and are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to them in the financial markets and its use of other methods, such as netting exposures for foreign exchange risk and establishing sales arrangements that permit the pass-through to customers of changes in commodity prices and foreign exchange rates, to effectively achieve its goal of risk reduction. The Company's objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. The Company manages foreign currency exposures at the operating unit level. Exposures that cannot be naturally offset within an operating unit may be hedged with derivative financial instruments where possible and cost effective in the Company's judgment. Foreign exchange contracts generally mature within twelve months. The table below provides information inU.S. dollars as ofDecember 31, 2020 about the Company's forward currency exchange contracts. The contracts primarily hedge anticipated transactions, unrecognized firm commitments and intercompany debt. The contracts with no amounts in the fair value column have a fair value of less than$1 . 36 --------------------------------------------------------------------------------
Crown Holdings, Inc.
Contract Average
Contract fair value contractual
Buy/Sell amount gain/(loss) exchange rate
Euro/Sterling $ 547 $ (5) 1.11
Sterling/Euro 234 3 0.91
Euro /U.S. dollars 182 4 0.83
Euro /Polish zloty 167 2 0.22
Polish zloty /Euro 126 (2) 4.52
U.S. dollars /Brazilian real 94 (3) 0.19
U.S. dollars /Euro 92 (1) 1.21
Singapore dollars /U.S. dollars 87 1 1.34
Euro /Swiss francs 85 - 0.92
Sterling/U.S. dollars 67 2 0.75
U.S. dollars /Thai baht 54 (1) 0.03
Euro /Singapore dollars 51 1 0.63
Singapore dollars /Euro 51 - 1.62
Euro /Swedish krona 48 - 0.10
Euro /Danish krone 45 - 0.13
$ 1,930 $ 1
At December 31, 2020 , the Company had additional contracts with an aggregate
notional value of $102 to purchase or sell other currencies, primarily Asian
currencies, including the Malaysian ringgit, Indonesian rupiah, and Hong Kong
dollar; European currencies, including the Hungarian florint; the South African
rand; the Australian dollar; and the Canadian dollar. The aggregate fair value
of these contracts was a gain of less than $1 .
At December 31, 2020 , the Company had cross-currency swaps with aggregate
notional values of $1,075 . The swaps are designated as hedges of the Company's
net investment in a euro-based subsidiary and matures in 2026. The fair value of
these contracts at December 31, 2020 was a net loss of $13 .
The Company, from time to time, may manage its interest rate risk associated
with fluctuations in variable interest rates through interest rate swaps. The
use of interest rate swaps and other methods of mitigating interest rate risk
may increase overall interest expense.
The table below presents principal cash flows and related interest rates by year
of maturity for the Company's long-term debt obligations as of
Year of Maturity
Debt 2021 2022 2023 2024 2025 Thereafter
Fixed rate $ 24 $ 816 $ 2,101 $ 754 $ 741 $ 2,276
Average interest rate 5.8 % 4.0 % 2.9 % 2.7 % 3.4 % 4.6 %
Variable rate $ 43 $ 85 $ 84 $ 1,212 $ 2 $ 3
Average interest rate 2.0 % 1.9 % 1.9 % 2.0 % 2.3 % 2.3 %
Total future payments of long-term debt obligations at December 31, 2020 include
$3,756 of U.S. dollar-denominated debt, $4,337 of euro-denominated debt and $48
of debt denominated in other currencies.
The Company uses various raw materials, such as steel and aluminum in its
manufacturing operations, which expose it to risk from adverse fluctuations in
commodity prices. In 2020, consumption of steel and aluminum represented 16% and
35% of the Company's consolidated cost of products sold, excluding depreciation
and amortization. The Company primarily manages its risk to adverse commodity
price fluctuations and surcharges through contracts that pass through raw
material costs to customers. The Company may, however, be unable to increase its
prices to offset increases in raw material costs without suffering reductions in
unit volume, revenue and operating income, and any price increases may take
effect after related cost increases, reducing operating income in the near term.
As of December 31, 2020 , the Company had forward commodity contracts to hedge
aluminum price fluctuations with a notional value of $243 and a net gain of $36 .
The maturities of the commodity contracts closely correlate to the anticipated
purchases of those commodities.
37
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Crown Holdings, Inc.
In addition, the Company's manufacturing facilities are dependent, to varying
degrees, upon the availability of water and processed energy, such as natural
gas and electricity.
See Note M to the consolidated financial statements for further information on the Company's derivative financial instruments.
ENVIRONMENTAL MATTERS
Compliance with the Company's Environmental Protection Policy is mandatory and the responsibility of each employee of the Company. The Company is committed to the protection of human health and the environment and is operating within the increasingly complex laws and regulations of national, state, and local environmental agencies or is taking action to achieve compliance with such laws and regulations. Environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases. The Company is dedicated to a long-term environmental protection program and has initiated and implemented many pollution prevention programs with an emphasis on source reduction. The Company continues to reduce the amount of metal used in the manufacture of steel and aluminum containers through "lightweighting" programs. The Company recycles nearly 100% of scrap aluminum, steel and copper used in its manufacturing processes. Many of the Company's programs for pollution prevention reduce operating costs and improve operating efficiencies. The potential impact on the Company's operations of climate change and potential future climate change regulation in the jurisdictions in which the Company operates is highly uncertain. See the risk factor entitled "The Company is subject to costs and liabilities related to stringent environmental and health and safety standards" in Part I, Item 1A of this Annual Report.
See Note O to the consolidated financial statements for additional information on environmental matters including the Company's accrual for environmental remediation costs.
CRITICAL ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States of America which require that management make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, impacting the reported results of operations and financial position of the Company. The Company's significant accounting policies are more fully described under Note A to the consolidated financial statements. Certain accounting policies, however, are considered to be critical in that (i) they are most important to the depiction of the Company's financial condition and results of operations and (ii) their application requires management's most subjective judgment in making estimates about the effect of matters that are inherently uncertain.
Asbestos Liabilities
The Company's potential liability for asbestos cases is highly uncertain due to the difficulty of forecasting many factors, including the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, the nature of future claims (including the seriousness of alleged disease, whether claimants allege first exposure to asbestos before or during 1964 and the alleged link to Crown Cork), the terms of settlements of other defendants with asbestos-related liabilities, bankruptcy filings of other defendants (which may result in additional claims and higher settlement demands for non-bankrupt defendants) and the effect of state asbestos legislation (including the validity and applicability of thePennsylvania legislation to non-Pennsylvania jurisdictions, where the substantial majority of the Company's asbestos cases are filed). See Note N to the consolidated financial statements for additional information regarding the provision for asbestos-related costs. At the end of each quarter, the Company considers whether there have been any material developments that would cause it to update its asbestos accrual calculations. Absent any significant developments in the asbestos litigation environment in general or with respect to the Company specifically, the Company updates its accrual calculations in the fourth quarter of each year. The Company estimates its liability without limitation to a specified time period and provides for the estimated amounts expected to be paid related to outstanding claims, projected future claims and legal costs. Outstanding claims used in the accrual calculation are adjusted for factors such as claims filed in those states where the Company's liability is limited by statute, claims alleging first exposure to asbestos after 1964 which are assumed to have no value and claims which are unlikely to ever be paid and are assumed to have a reduced or nominal value based on the length of time outstanding. Projected future claims are calculated based on actual data for the most recent five years and are adjusted to account for the expectation that a percentage of these claims will never be paid. Outstanding and projected claims are multiplied by the average settlement cost of claims for the most recent five years. As claims are not submitted or settled evenly throughout 38 -------------------------------------------------------------------------------- Crown Holdings, Inc. the year, it is difficult to predict at any time during the year whether the number of claims or average settlement cost over the five year period endingDecember 31 of such year will increase compared to the prior five year period. In recent years, a higher percentage of Crown Cork's settlements have related to claims alleging serious disease (primarily mesothelioma) which are settled at higher dollar amounts. Accordingly, a higher percentage of claims projected into the future relate to serious diseases and are therefore valued at higher dollar amounts. As ofDecember 31, 2020 , more than 90% of the projected future claims in the Company's accrual calculation relate to claims alleging serious diseases such as mesothelioma. The five year average settlement cost per claim was$14,900 in 2018,$14,400 in 2019 and$13,100 in 2020. Although the five year average settlement cost per claim decreased in 2020, if Crown Cork continues to settle a high percentage of claims alleging serious disease at higher dollar amounts, average settlement costs per claim are likely to increase and, if not offset by a reduction in overall claims and settlements, the Company may record additional charges in the future. A 10% change in either the average cost per claim or the number of projected claims would increase or decrease the estimated liability atDecember 31, 2020 by$25 . A 10% increase in these two factors at the same time would increase the estimated liability atDecember 31, 2020 by$53 . A 10% decrease in these two factors at the same time would decrease the estimated liability atDecember 31, 2020 by$48 .
Goodwill Impairment
The Company performs a goodwill impairment review in the fourth quarter of each year or when facts and circumstances indicate goodwill may be impaired. In accordance with the accounting guidance, the Company may first perform a qualitative assessment on none, some, or all of its reporting units to determine whether further quantitative impairment testing is necessary. Factors that the Company may consider in its qualitative assessment include, but are not limited to, general economic conditions, changes in the markets in which the Company operates and changes in input costs that may affect revenue growth, gross margin percentages and cash flow trends over multiple periods. The quantitative impairment test involves a number of assumptions and judgments, including the calculation of fair value for the Company's identified reporting units. The Company determines the estimated fair value for each reporting unit based on an average of the estimated fair values calculated using both market and income approaches. The Company uses an average of the two methods in estimating fair value because it believes they both provide an appropriate fair value for the reporting units. The Company's estimates of future cash flows include assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. Under the market approach, the Company obtains available information regarding multiples used in recent transactions, if any, involving transfers of controlling interests in the consumer and industrial packaging industries. The Company also reviews publicly available trading multiples based on the enterprise value and revenue of companies in the consumer and industrial packaging industries whose shares are publicly traded. The appropriate multiple is applied to the respective financial results of the reporting unit to obtain an estimated fair value. Under the income approach, fair value is calculated as the sum of the projected discounted cash flows of the reporting unit over the next five years and the terminal value at the end of those five years. The projected cash flows generally include moderate to no growth assumptions, depending on the reporting unit, unless there has recently been a material change in the business or a material change is forecasted. The discount rate used is based on the average weighted-average cost of capital of companies in the consumer and industrial packaging industries, which information is available through various sources, adjusted for specific risk premiums for each reporting unit The Company completed its annual review for 2020 and determined that no adjustments to the carrying value of goodwill were necessary. Although no goodwill impairment was recorded, there can be no assurances that future goodwill impairments will not occur. The European Aerosol andPromotional Packaging reporting unit operates in a low-growth environment with multiple competitors. As ofOctober 1, 2020 , the fair value of the reporting unit was 9% higher than its carrying value using the methods described above, a discount rate of 8.25% and an EBITDA multiple of 9.0 times. The maximum effect of weighting the Company's valuation approaches other than equally would increase or decrease the estimated fair value by$7 . Assuming all other factors remain the same, a$1 decrease in forecasted annual Adjusted EBITDA would have resulted in an impairment charge of$1 and an increase in the discount rate from 8.25% to 9.25% changes the estimated fair value by$2 . If future cash flows are less than the Company has included in its projections, impairment charges may be recorded. As ofDecember 31, 2020 , the reporting unit had$71 of goodwill. Based upon continued reorganization within theTransit Packaging segment, the Equipment & Tools and Consumable reporting units have been aggregated into a single reporting unit. The Company completed its an annual goodwill impairment test of each reporting unit prior to aggregating and concluded that no adjustments to the carrying value of goodwill were necessary. 39 --------------------------------------------------------------------------------Crown Holdings, Inc.
Long-lived Assets Impairment
The Company performs an impairment review of its long-lived assets, including definite-lived intangible assets and property, plant and equipment, when facts and circumstances indicate the carrying value may not be recoverable from its undiscounted cash flows. Any impairment loss is measured by comparing the carrying amount of the asset to its fair value. The Company's estimates of future cash flows involve assumptions concerning future operating performance, economic conditions and technological changes that may affect the future useful lives of the assets. These estimates may differ from actual cash flows or useful lives.
Pension and Postretirement Benefits
Accounting for pensions and postretirement benefit plans requires the use of estimates and assumptions regarding numerous factors, including discount rates, rates of return on plan assets, compensation increases, health care cost increases, future rates of inflation, mortality and employee turnover. Actual results may differ from the Company's actuarial assumptions, which may have an impact on the amount of reported expense or liability for pensions or postretirement benefits. The Company recorded pension expense of$92 , including settlement charges of$66 , in 2020 and currently projects its 2021 pension expense to be$48 , using foreign currency exchange rates in effect atDecember 31, 2020 . The Company uses the spot yield curve approach to estimate the service and interest cost components of pension and postretirement benefits expense by applying the specific spot rates along the yield curve used to determine the benefit plan obligations to relevant projected cash outflows. The expected long-term rate of return on plan assets is determined by taking into consideration expected long-term returns associated with each major asset class based on long-term historical ranges, projected future outlook of each asset class, inflation assumptions and the expected net value from active management of the assets based on actual results. TheU.S. plan's assumed rate of return was 6.75 % in 2020 and is 5.65% for 2021. TheU.K. plan's assumed rate of return was 3.0% in 2020 and is 2.0% for 2021. A 0.25% change in the expected rates of return would change 2021 pension expense by approximately$12 . Discount rates were selected using a method that matches projected payouts from the plans to an actuarially determined yield curve based on market observable AA bond yields in the respective plan jurisdictions and currencies. In certain jurisdictions, government securities were used along with corporate bonds to develop country-specific yield curves to the extent that the underlying markets were not deemed sufficiently developed. A 0.25% change in the discount rates from those used atDecember 31, 2020 would change 2021 pension expense by approximately$2 and postretirement expense by less than$1 . A 0.25% change in the discount rates from those used atDecember 31, 2020 would have changed the pension benefit obligation by approximately$136 and the postretirement benefit obligation approximately$4 as of December 31, 2020. See Note Q to the consolidated financial statements for additional information on pension and postretirement benefit obligations and assumptions. As ofDecember 31, 2020 , the Company had pre-tax unrecognized net losses in other comprehensive income of$1,802 related to its pension plans and$45 related to its other postretirement benefit plans. Unrecognized gains and losses arise each year primarily due to changes in discount rates, differences in actual plan asset returns compared to expected returns, and changes in actuarial assumptions such as mortality. Unrecognized gains and losses are accumulated in other comprehensive income and the portion in each plan that exceeds 10% of the greater of that plan's assets or projected benefit obligation is amortized to income over future periods. The Company's pension expense for the year endedDecember 31, 2020 included charges of$84 for the amortization of unrecognized net losses, and the Company estimates charges of$96 in 2021. Amortizable losses are being recognized over either the average expected life of inactive employees or the remaining service life of active participants depending on the status of the individual plans. The weighted average amortization periods range between 6 - 16 years. An increase of 10% in the number of years used to amortize unrecognized losses in each plan would decrease estimated charges for 2021 by$8 . A decrease of 10% in the number of years would increase the estimated 2021 charge by$10 . RECENT ACCOUNTING GUIDANCE InDecember 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 onJanuary 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. InMarch 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 throughDecember 31, 2022 . The Company is currently evaluating the impact of this guidance on its consolidated financial statements. 40 -------------------------------------------------------------------------------- Crown Holdings, Inc.
See Note A to the consolidated financial statements for information on recently adopted accounting guidance.
FORWARD LOOKING STATEMENTS
Statements in this Annual Report, including those in "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the discussions of the provision for asbestos under Note N and other contingencies under Note O to the consolidated financial statements included in this Annual Report and in discussions incorporated by reference into this Annual Report (including, but not limited to, those in the section titled "Compensation Discussion and Analysis" in the Company's Proxy Statement), which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto), are "forward-looking statements," within the meaning of the federal securities laws. In addition, the Company and its representatives may from time to time make other oral or written statements which are also "forward-looking statements." Forward-looking statements can be identified by words, such as "believes," "estimates," "anticipates," "expects" and other words of similar meaning in connection with a discussion of future operating or financial performance. These may include, among others, statements relating to (i) the Company's plans or objectives for future operations, products or financial performance, (ii) the Company's indebtedness and other contractual obligations, (iii) the impact of an economic downturn or growth in particular regions, (iv) anticipated uses of cash, (v) cost reduction efforts and expected savings, (vi) the Company's policies with respect to executive compensation and (vii) the expected outcome of contingencies, including with respect to asbestos-related litigation and pension and postretirement liabilities.
These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company and, therefore, involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
Important factors that could cause the actual results of operations or financial condition of the Company to differ include, but are not necessarily limited to, the ability of the Company to expand successfully in international and emerging markets; the ability of the Company to repay, refinance or restructure its short and long-term indebtedness on adequate terms and to comply with the terms of its agreements relating to debt; the impact of Brexit; the Company's ability to generate significant cash to meet its obligations and invest in its business and to maintain appropriate debt levels; restrictions on the Company's use of available cash under its debt agreements; changes or differences inU.S. or international economic or political conditions, such as inflation or fluctuations in interest or foreign exchange rates (and the effectiveness of any currency or interest rate hedges), tax rates, the Tax Act and other tax laws (including with respect to taxation of unrepatriated non-U.S. earnings or as a result of the depletion of net loss or foreign tax credit carryforwards); the impact of foreign trade laws and practices; the collectability of receivables; war or acts of terrorism that may disrupt the Company's production or the supply or pricing of raw materials, including in the Company'sMiddle East operations, impact the financial condition of customers or adversely affect the Company's ability to refinance or restructure its remaining indebtedness; changes in the availability and pricing of raw materials (including aluminum can sheet, steel tinplate, energy, water, inks and coatings) and the Company's ability to pass raw material, energy and freight price increases and surcharges through to its customers or to otherwise manage these commodity pricing risks; the Company's ability to obtain and maintain adequate pricing for its products, including the impact on the Company's revenue, margins and market share and the ongoing impact of price increases; energy and natural resource costs; the cost and other effects of legal and administrative cases and proceedings, settlements and investigations; the outcome of asbestos-related litigation (including the number and size of future claims and the terms of settlements, and the impact of bankruptcy filings by other companies with asbestos-related liabilities, any of which could increase Crown Cork's asbestos-related costs over time, the adequacy of reserves established for asbestos-related liabilities, Crown Cork's ability to obtain resolution without payment of asbestos-related claims by persons alleging first exposure to asbestos after 1964, and the impact of state legislation dealing with asbestos liabilities and any litigation challenging that legislation and any future state or federal legislation dealing with asbestos liabilities); the Company's ability to realize deferred tax benefits; changes in the Company's critical or other accounting policies or the assumptions underlying those policies; labor relations and workforce and social costs, including the Company's pension and postretirement obligations and other employee or retiree costs; investment performance of the Company's pension plans; costs and difficulties related to the acquisition of a business and integration of acquired businesses; the impact of any potential dispositions, acquisitions or other strategic realignments, which may impact the Company's operations, financial profile, investments or levels of indebtedness; the Company's ability to realize efficient capacity utilization and inventory levels and to innovate new designs and technologies for its products in a cost-effective manner; competitive pressures, including new product developments, industry overcapacity, or changes in competitors' pricing for products; the Company's ability to achieve high capacity utilization rates for its equipment; the Company's ability to maintain, develop and capitalize on competitive technologies for the design and manufacture of products and to withstand competitive and legal challenges to the proprietary nature of such technology; the Company's ability to protect its information technology systems from attacks or catastrophic failure; the strength of the Company's cyber-security (including with respect to 41 --------------------------------------------------------------------------------Crown Holdings, Inc. human vulnerabilities associated with cyber-security risks); the Company's ability to generate sufficient production capacity; the Company's ability to improve and expand its existing product and product lines; the impact of overcapacity on the end-markets the Company serves; loss of customers, including the loss of any significant customers; changes in consumer preferences for different packaging products; the financial condition of the Company's vendors and customers; weather conditions, including their effect on demand for beverages and on crop yields for fruits and vegetables stored in food containers; the impact of natural disasters, including in emerging markets; changes in governmental regulations or enforcement practices, including with respect to environmental, health and safety matters and restrictions as to foreign investment or operation; the impact of increased governmental regulation on the Company and its products, including the regulation or restriction of the use of bisphenol-A; the impact of the Company's recent initiatives to generate additional cash, including the reduction of working capital levels and capital spending; the impact of the Company's comprehensive Board-led review of its portfolio and capital allocation/return; the ability of the Company to realize cost savings from its restructuring programs; the Company's ability to maintain adequate sources of capital and liquidity; costs and payments to certain of the Company's executive officers in connection with any termination of such executive officers or a change in control of the Company; the impact of existing and future legislation regarding refundable mandatory deposit laws inEurope for non-refillable beverage containers and the implementation of an effective return system; the impact of existing and future legislation regarding the taxation of sugar-sweetened beverages or energy drinks, the impact of new tariffs and potential limits on steel supply in theU.S. from certain foreign countries; and changes in the Company's strategic areas of focus, which may impact the Company's operations, financial profile or levels of indebtedness. Some of the factors noted above are discussed elsewhere in this Annual Report and prior Company filings with theSEC , including within Part I, Item 1A, " Risk Factors " in this Annual Report. In addition, other factors have been or may be discussed from time to time in the Company'sSEC filings.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with the preparation of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and certain other sections
contained in the Company's quarterly, annual or other reports filed with the
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth within "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the captions "Market Risk" and "Forward Looking Statements" in this Annual Report is incorporated herein by reference. InJuly 2017 , theFinancial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. TheU.S. Federal Reserve , in conjunction with the Alternative Reference Rate Committee has announced the replacement ofU.S. dollar LIBOR rates with a new index calculated by short-term repurchase agreements backed byU.S. Treasury securities called the Secured Overnight Financing Rate (SOFR). The first publication of SOFR was released inApril 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. AtDecember 31, 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. 42 --------------------------------------------------------------------------------Crown Holdings, Inc.
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