Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

 

¨ 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 0-50189

 

 

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.)

One Crown Way, Philadelphia, PA   19154-4599
(Address of principal executive offices)   (Zip Code)

215-698-5100

(registrant’s telephone number, including area code)

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

There were 151,136,014 shares of Common Stock outstanding as of August 5, 2011.

 

 

 


Crown Holdings, Inc.

PART I – FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except share and per share data)

(Unaudited)

 

Three months ended June 30

   2011     2010  

Net sales

   $ 2,281      $ 2,010   
                

Cost of products sold, excluding depreciation and amortization

     1,865        1,631   

Depreciation and amortization

     45        44   
                

Gross profit

     371        335   
                

Selling and administrative expense

     100        95   

Provision for restructuring

     0        2   

Asset impairments and sales

     0        (6

Loss from early extinguishment of debt

     2        0   

Interest expense

     60        45   

Interest income

     (2     (2

Translation and foreign exchange

     1        0   
                

Income before income taxes and equity earnings

     210        201   

Provision for income taxes

     54        57   
                

Net income

     156        144   

Net income attributable to noncontrolling interests

     (27     (32
                

Net income attributable to Crown Holdings

   $ 129      $ 112   
                

Earnings per common share attributable to Crown Holdings:

    

Basic

   $ 0.85      $ 0.70   
                

Diluted

   $ 0.83      $ 0.69   
                

Weighted average common shares outstanding:

    

Basic

     152,344,400        160,961,879   

Diluted

     155,486,354        163,292,749   

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

 

2


Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except share and per share data)

(Unaudited)

 

Six months ended June 30

   2011     2010  

Net sales

   $ 4,163      $ 3,787   
                

Cost of products sold, excluding depreciation and amortization

     3,415        3,114   

Depreciation and amortization

     85        88   
                

Gross profit

     663        585   
                

Selling and administrative expense

     202        174   

Provision for restructuring

     25        24   

Asset impairments and sales

     0        (7

Loss from early extinguishment of debt

     32        0   

Interest expense

     116        92   

Interest income

     (6     (3

Translation and foreign exchange

     1        (2
                

Income before income taxes and equity earnings

     293        307   

Provision for income taxes

     95        96   
                

Net income

     198        211   

Net income attributable to noncontrolling interests

     (53     (58
                

Net income attributable to Crown Holdings

   $ 145      $ 153   
                

Earnings per share attributable to Crown Holdings common shareholders:

    

Basic

   $ 0.94      $ 0.95   
                

Diluted

   $ 0.93      $ 0.94   
                

Weighted average common shares outstanding:

    

Basic

     153,470,969        160,839,086   

Diluted

     156,607,199        163,197,094   

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

 

3


Crown Holdings, Inc.

CONSOLIDATED BALANCE SHEETS (Condensed)

(In millions)

(Unaudited)

 

     June 30,
2011
    December 31,
2010
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 421      $ 463   

Restricted cash

     125        0   

Receivables, net

     1,323        936   

Inventories

     1,537        1,060   

Prepaid expenses and other current assets

     193        190   
                

Total current assets

     3,599        2,649   
                

Goodwill

     2,069        1,984   

Property, plant and equipment, net

     1,746        1,610   

Other non-current assets

     645        656   
                

Total

   $ 8,059      $ 6,899   
                

Liabilities and equity

    

Current liabilities

    

Short-term debt

   $ 272      $ 241   

Current maturities of long-term debt

     180        158   

Accounts payable and accrued liabilities

     2,258        1,978   
                

Total current liabilities

     2,710        2,377   
                

Long-term debt, excluding current maturities

     3,424        2,649   

Postretirement and pension liabilities

     1,171        1,159   

Other non-current liabilities

     483        485   

Commitments and contingent liabilities (Note I)

    

Noncontrolling interests

     341        325   

Crown Holdings shareholders’ deficit

     (70     (96
                

Total equity

     271        229   
                

Total

   $ 8,059      $ 6,899   
                

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

 

4


Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)

(In millions)

(Unaudited)

 

Six months ended June 30

   2011     2010  

Cash flows from operating activities

    

Net income

   $ 198      $ 211   

Adjustments to reconcile net income to net cash used for operating activities:

    

Depreciation and amortization

     85        88   

Provision for restructuring

     25        24   

Asset impairments and sales

     0        (7

Pension expense

     49        57   

Pension contributions

     (37     (28

Stock-based compensation

     12        15   

Changes in assets and liabilities:

    

Receivables

     (347     (466

Inventories

     (431     (188

Accounts payable and accrued liabilities

     172        66   

Other, net

     27        34   
                

Net cash used for operating activities

     (247     (194
                

Cash flows from investing activities

    

Capital expenditures

     (184     (104

Change in restricted cash

     (125     0   

Proceeds from sale of property, plant and equipment

     2        16   

Other

     0        3   
                

Net cash used for investing activities

     (307     (85
                

Cash flows from financing activities

    

Proceeds from long-term debt

     1,416        47   

Payments of long-term debt

     (922     (426

Net change in revolving credit facility and short-term debt

     248        679   

Debt issue costs

     (16     (14

Common stock issued

     9        4   

Common stock repurchased

     (212     (5

Purchase of noncontrolling interests

     (9     0   

Dividends paid to noncontrolling interests

     (38     (49

Other

     18        20   
                

Net cash provided by financing activities

     494        256   
                

Effect of exchange rate changes on cash and cash equivalents

     18        (24
                

Net change in cash and cash equivalents

     (42     (47

Cash and cash equivalents at January 1

     463        459   
                

Cash and cash equivalents at June 30

   $ 421      $ 412   
                

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

 

5


Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(In millions) (Unaudited)

 

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

Balance at January 1, 2010

   $ 929       $ 1,536      $ (94   $ (2,255   $ (122   $ (6   $ 389      $ 383   

Comprehensive income:

                 

Net income

          153            153        58        211   

Translation adjustments

            (74       (74     (14     (88

Amortization of net loss and prior service cost included in pension and postretirement cost

            36          36          36   

Derivatives qualifying as hedges

            (18       (18     (2     (20
                                   

Total comprehensive income

                97        42        139   
                                   

Dividends paid to noncontrolling interests

                  (49     (49

Restricted stock awarded

        (3         3         

Stock-based compensation

        15              15          15   

Common stock issued

        2            2        4          4   

Common stock repurchased

        (4         (1     (5       (5

Sale of business

                  (9     (9
                                                                 

Balance at June 30, 2010

   $ 929       $ 1,546      $ 59      $ (2,311   $ (118   $ 105      $ 373      $ 478   
                                                                 

Balance at January 1, 2011

   $ 929       $ 1,231      $ 230      $ (2,333   $ (153   $ (96   $ 325      $ 229   

Comprehensive income:

                 

Net income

          145            145        53        198   

Translation adjustments

            61          61        6        67   

Amortization of net loss and prior service cost included in pension and postretirement cost

            32          32          32   

Derivatives qualifying as hedges

            (18       (18     (1     (19
                                   

Total comprehensive income

                220        58        278   
                                   

Dividends paid to noncontrolling interests

                  (38     (38

Contribution from noncontrolling interests

                  2        2   

Restricted stock awarded

        (2         2         

Stock-based compensation

        12              12          12   

Common stock issued

        6            3        9          9   

Common stock repurchased

        (186         (26     (212       (212

Purchase of noncontrolling interests

        (3           (3     (6     (9
                                                                 

Balance at June 30, 2011

   $ 929       $ 1,058      $ 375      $ (2,258   $ (174   $ (70   $ 341      $ 271   
                                                                 

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

 

6


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 by the Company 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 Crown Holdings, Inc. as of June 30, 2011 and the results of its operations for the three and six month periods ended June 30, 2011 and 2010 and of its cash flows for the six months ended June 30, 2011 and 2010. The results reported in these consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. These results have been determined on the basis of accounting principles generally accepted in the United States of America (“GAAP”).

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, 2010. Certain reclassifications of prior years’ data have been made to conform to the current year presentation.

 

B. Stock-Based Compensation

A summary of restricted stock transactions during the six months ended June 30, 2011 follows:

 

     Number of shares  

Nonvested shares outstanding at January 1, 2011

     1,059,481   

Awarded:

  

Time-vesting (grant date fair value of $33.70)

     121,940   

Performance-based (grant date fair value of $41.69)

     196,667   

Performance-based– achieved 200% level (grant date fair value of $33.87)

     145,278   

Released:

  

Time-vesting shares awarded in 2008 through 2010

     (235,313

Performance-based shares awarded in 2008

     (145,278

Performance-based awards – achieved 200% level

     (145,278
  

 

 

 

Nonvested shares outstanding at June 30, 2011

     997,497   
  

 

 

 

The time-vesting awards vest ratably over three years. The performance-based shares cliff vest at the end of three years based on the results of the market criterion. 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 awarded, and will be settled in stock. The estimated grant-date fair value of each performance-based share was calculated using a Monte Carlo valuation model. At June 30, 2011, unrecognized compensation cost related to unvested restricted stock was $8. The weighted average period over which the expense is expected to be recognized is 1.6 years.

The aggregate market value of the shares released and issued on the vesting dates was $18.

 

7


Crown Holdings, Inc.

 

C. Inventories

Inventories are stated at the lower of cost or market, with cost for U.S. inventories principally determined under the first-in, first-out (“FIFO”) method. Non-U.S. inventories are principally determined under the average cost method.

 

     June 30,      December 31,  
     2011      2010  

Finished goods

   $ 599       $ 365   

Work in process

     208         128   

Raw materials and supplies

     730         567   
                 
   $ 1,537       $ 1,060   
                 

 

D. 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 quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the report date. Level 3 includes unobservable pricing inputs that are not corroborated by market data or other objective sources. The Company has no items valued using Level 3 inputs other than certain pension plan assets.

The following table sets forth the fair value hierarchy of the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, respectively.

 

                   Fair value at reporting date using  
                   Level 1      Level 2  
     June 30,
2011
     Dec. 31,
2010
     June 30,
2011
     Dec. 31,
2010
     June 30,
2011
     Dec. 31,
2010
 

Assets

                 

Derivative instruments:

                 

Foreign exchange

   $ 27       $ 26             $ 27       $ 26   

Commodities

     36         53       $ 36       $ 53         
                                                     

Total

   $ 63       $ 79       $ 36       $ 53       $ 27       $ 26   
                                                     

Liabilities

                 

Derivative instruments:

                 

Foreign exchange

   $ 16       $ 15             $ 16       $ 15   

Commodities

     5         1       $ 5       $ 1         
                                                     

Total

   $ 21       $ 16       $ 5       $ 1       $ 16       $ 15   
                                                     

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 1. 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.

Refer to Note E for further discussion of the Company’s use of derivative instruments and their fair values.

 

8


Crown Holdings, Inc.

 

E. 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 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 and using sales agreements that permit the pass-through of commodity price and foreign exchange rate risk to customers.

For derivative financial instruments accounted for as hedging instruments, 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 derivative financial instruments used in hedging transactions are effective in offsetting changes in fair value or cash flows of the related underlying exposures. Any ineffective portion of the change in fair value of the instruments is recognized immediately in earnings.

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, except any ineffective portion, are recorded in other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon release from comprehensive income is the same as that of the underlying exposure. Contracts outstanding at June 30, 2011 mature between one and thirty-one 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 fair value accumulated in other comprehensive income are recognized immediately in earnings.

The Company uses commodity forwards 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. Often the hedging of foreign currency risk is performed in concert with related commodity price hedges.

The following table sets forth financial information about the impact on Accumulated Other Comprehensive Income (“AOCI”) and earnings from changes in fair value related to derivative instruments accounted for as cash flow hedges.

 

     Amount of gain/(loss)     Amount of gain/(loss)  
     recognized in AOCI     reclassified from AOCI  
     (effective portion)     into earnings  
     Quarter     Six months     Quarter     Six months  
     ended     ended     ended     ended  

Derivatives in cash flow hedges

   June 30, 2011     June 30, 2011     June 30, 2011     June 30, 2011  

Foreign exchange contracts

   $ (1   $ (4   $ (1   $ (2 ) (1) 

Commodity contracts

     (13     0        10        16  (2) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ (14   $ (4   $ 9      $ 14   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9


Crown Holdings, Inc.

 

     Amount of gain/(loss)     Amount of gain/(loss)  
     recognized in AOCI     reclassified from AOCI  
     (effective portion)     into earnings  
     Quarter     Six months     Quarter      Six months  
     ended     ended     ended      ended  

Derivatives in cash flow hedges

   June 30, 2010     June 30, 2010     June 30, 2010      June 30, 2010  

Cross-currency swap

   $ 22      $ 39      $ 24       $ 41  (3) 

Foreign exchange contracts

     3        5        2         3  (4) 

Commodity contracts

     (22     (12     4         6  (5) 
  

 

 

   

 

 

   

 

 

    

 

 

 

Total

   $ 3      $ 32      $ 30       $ 50   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) Within the Statement of Operations for the three months ended June 30, 2011, $1 was charged to cost of products sold. During the six months ended June 30, 2011, $1 was credited to net sales and $3 was charged to cost of products sold.
(2) Within the Statement of Operations for the three months ended June 30, 2011, $14 was credited to cost of products sold and $4 was charged to income tax expense. During the six months ended June 30, 2011, $22 was credited to cost of products sold and $6 was charged to income tax expense.
(3) Within the Statement of Operations for the three months ended June 30, 2010, $24 was credited to translation and foreign exchange. During the six months ended June 30, 2010, $41 was credited to translation and foreign exchange.
(4) Within the Statement of Operations for the three months ended June 30, 2010, $2 was credited to cost of goods sold. During the six months ended June 30, 2010, $2 was credited to net sales and $1 was credited to cost of goods sold.
(5) Within the Statement of Operations for the three months ended June 30, 2010, $4 was credited to cost of goods sold. During the six months ended June 30, 2010, $6 was credited to cost of goods sold.

During the twelve months ending June 30, 2012, a net gain of $26 ($19, net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the three and six months ended June 30, 2011 and 2010 in connection with anticipated transactions that were no longer considered probable and the ineffective portion recorded in earnings was less than $1.

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. Other than for firm commitments, amounts related to time value are excluded from the assessment and measurement of hedge effectiveness and are reported in earnings. Less than $1 was reported in earnings for the six months ended June 30, 2011.

Certain derivative financial instruments, including foreign exchange contracts related to intercompany debt, were not designated or did not qualify for hedge accounting; however, they are effective economic hedges as the changes in their fair value, except for time value, are offset by changes in remeasurement 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.

 

10


Crown Holdings, Inc.

 

The impact on earnings from foreign exchange contracts designated as fair value hedges were gains of $3 and $4 for the three and six months ended June 30, 2011 and losses of $6 and $8 for the same periods in 2010. The impact on earnings from foreign exchange contracts not designated as hedges were gains of $7 and $19 for the three and six months ended June 30, 2011 and gains of $8 and $25 for the same periods in 2010. These items were reported as translation and foreign exchange and were offset by changes in the fair values of the hedged items.

The fair values of outstanding derivative instruments in the Consolidated Balance Sheets at June 30, 2011 and December 31, 2010 were:

 

     June 30,
2011
    December 31,
2010
 

Assets

    

Derivatives designated as hedges:

    

Foreign exchange

   $ 15  (6)    $ 12  (6) 

Commodities

     36  (7)      53  (7) 

Derivatives not designated as hedges:

    

Foreign exchange

     12  (6)      14  (6) 
  

 

 

   

 

 

 

Total

   $ 63      $ 79   
  

 

 

   

 

 

 

Liabilities

    

Derivatives designated as hedges:

    

Foreign exchange

   $ 13  (8)    $ 12  (8) 

Commodities

     5  (9)      1  (8) 

Derivatives not designated as hedges:

    

Foreign exchange

     3  (8)      3  (8) 
  

 

 

   

 

 

 

Total

   $ 21      $ 16   
  

 

 

   

 

 

 

 

(6) 

Reported in other current assets.

(7) 

$31 and $40 reported in other current assets at June 30, 2011 and December 31, 2010 and $5 and $13 reported in other non-current assets at June 30, 2011 and December 31, 2010.

(8) 

Reported in accounts payable and accrued liabilities.

(9) 

$3 reported in accounts payable and accrued liabilities and $2 reported in other non-current liabilities at June 30, 2011.

The aggregate U.S. dollar-equivalent notional values of outstanding derivative instruments in the Consolidated Balance Sheets at June 30, 2011 and December 31, 2010 were:

 

     June 30,      December 31,  
     2011      2010  

Derivatives in cash flow hedges:

     

Foreign exchange

   $ 538       $ 751   

Commodities

     370         326   

Derivatives in fair value hedges:

     

Foreign exchange

     277         256   

Derivatives not designated as hedges:

     

Foreign exchange

     670         827   

 

F. Restructuring

During the first six months of 2011, the Company recorded a pre-tax charge of $25 for restructuring costs, including $19 related to the relocation of the Company’s European Division headquarters and management to Switzerland, $4 related to severance costs in the Company’s European Specialty Packaging segment and $2 related to prior restructuring actions in the Company’s North America Food segment.

During the first six months of 2010, the Company recorded a pre-tax charge of $24 for restructuring costs related to plant closures in the Company’s North America Food segment.

 

11


Crown Holdings, Inc.

 

European Division Headquarters

In the third quarter of 2010, the Company determined that it would relocate its European Division headquarters and management to Switzerland effective January 1, 2011 in order to benefit from a more centralized management location and increased efficiencies. The relocation is expected to be completed in 2011.

During the first six months of 2011, the Company recorded a pre-tax charge of $19 related to the relocation which represents the estimated employee compensation costs resulting from an intercompany payment related to the relocation. The Company expects to pay these costs over the next one to three years. As of June 30, 2011, the Company incurred costs of $33 which are expected to be the total costs related to the relocation.

The following table summarizes the restructuring accrual balances and utilization by cost type for the relocation:

 

     Termination     Other exit     Asset         
     benefits     costs     writedowns      Total  

Balance at January 1, 2011

   $ 8      $ 2      $ 0       $ 10   

Provisions

       19           19   

Payments made

     (1     (2        (3

Foreign currency translation

     1             1   
  

 

 

   

 

 

   

 

 

    

 

 

 

Balance at June 30, 2011

   $ 8      $ 19      $ 0       $ 27   
  

 

 

   

 

 

   

 

 

    

 

 

 

North America Food

In 2010 and 2009, the Company closed certain Canadian food plants in an effort to reduce costs through consolidation of its U.S. and Canadian operations. The actions resulted in headcount reductions of approximately 400 and are expected to be completed in 2011.

During the first six months of 2011, the Company recorded a pre-tax charge of $2 for strip and clean costs related to the closures. As of June 30, 2011, the Company incurred total costs of $54 and expects to incur future additional charges of approximately $1 for strip and clean costs and may incur future additional charges for pension settlements of approximately $40 when the Company receives regulatory approval and settles the obligations. The Company expects the total cash cost related to the pension settlements to be approximately $15.

The following table summarizes the restructuring accrual balances and utilization by cost type for these actions:

 

     Termination     Other exit     Asset        
     benefits     costs     writedowns     Total  

Balance at January 1, 2010

   $ 6      $ 0      $ 0      $ 6   

Provisions

     10        4        10        24   

Payments made

     (3     (4       (7

Reclassified to other accounts

     (5       (10     (15
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2010

   $ 8      $ 0      $ 0      $ 8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2011

   $ 3      $ 0      $ 0      $ 3   

Provisions

       2          2   

Payments made

     (1     (2       (3
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   $ 2      $ 0      $ 0      $ 2   
  

 

 

   

 

 

   

 

 

   

 

 

 

European Food

In 2009, the Company initiated a restructuring as part of ongoing cost reduction efforts in its European Food segment. The restructuring resulted in a headcount reduction of approximately 160 and is expected to be completed in 2011. The Company incurred total costs of $14 which are expected to be the total costs related to the restructuring.

 

12


Crown Holdings, Inc.

 

The following table summarizes the restructuring accrual balances and utilization by cost type for this action:

 

     Termination     Other exit      Asset         
     benefits     costs      writedowns      Total  

Balance at January 1, 2010

   $ 14      $ 0       $ 0       $ 14   

Payments made

     (6           (6

Foreign currency translation

     (1           (1
  

 

 

   

 

 

    

 

 

    

 

 

 

Balance at June 30, 2010

   $ 7      $ 0       $ 0       $ 7   
  

 

 

   

 

 

    

 

 

    

 

 

 

Balance at January 1, 2011

   $ 8      $ 0       $ 0       $ 8   

Payments made

     (3           (3

Foreign currency translation

     1              1   
  

 

 

   

 

 

    

 

 

    

 

 

 

Balance at June 30, 2011

   $ 6      $ 0       $ 0       $ 6   
  

 

 

   

 

 

    

 

 

    

 

 

 

Other

In 2009, the Company initiated a restructuring as part of ongoing cost reduction efforts primarily in its European Specialty Packaging segment. The restructuring resulted in a headcount reduction of approximately 90 and is expected to be completed in 2011. The Company incurred costs of $5 which are expected to be the total costs related to the restructuring.

During the first six months of 2011, the Company initiated a restructuring as part of ongoing cost reduction efforts in its European Specialty Packaging segment. The restructuring resulted in a headcount reduction of approximately 32 and is expected to be completed in 2011. The Company incurred costs of $4 which are expected to be the total costs related to the restructuring.

The following table summarizes the restructuring accrual balances and utilization by cost type for these actions:

 

     Termination     Other exit      Asset         
     benefits     costs      writedowns      Total  

Balance at January 1, 2010

   $ 5      $ 0       $ 0       $ 5   

Payments made

     (2           (2
  

 

 

   

 

 

    

 

 

    

 

 

 

Balance at June 30, 2010

   $ 3      $ 0       $ 0       $ 3   
  

 

 

   

 

 

    

 

 

    

 

 

 

Balance at January 1, 2011

   $ 2      $ 0       $ 0       $ 2   

Provisions

     4              4   
  

 

 

   

 

 

    

 

 

    

 

 

 

Balance at June 30, 2011

   $ 6      $ 0       $ 0       $ 6   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

G. Debt

In January, 2011, the Company sold $700 principal amount of 6.25% senior unsecured notes due 2021. The notes were issued at par by Crown Americas LLC and Crown Americas Capital Corp. III, each a subsidiary of the Company, and are unconditionally guaranteed by the Company and substantially all of its U.S. subsidiaries. The Company paid $11 in bond issue costs that will be amortized over the term of the debt.

In addition, concurrently with the offering of the notes, the Company commenced a tender offer for any and all of the $600 outstanding 7.75% senior secured notes due 2015 (the “2015 notes”). At the expiration of the tender offer approximately 90% of the 2015 notes had been repurchased. All 2015 notes that remained outstanding after the expiration of the tender offer were redeemed by the Company in February, 2011. The Company recorded a loss from early extinguishment of debt of $30 including $25 for premiums paid and $5 for the write off of deferred financing fees.

 

13


Crown Holdings, Inc.

 

In June 2011, the Company amended its existing senior secured credit facilities to add a $200 term loan facility and a €274 ($397 at June 30, 2011) term loan facility, each of which will mature in June 2016 and bear interest at LIBOR or EURIBOR plus 1.75%. The Company paid $5 in bond issue costs that will be amortized over the term of the facilities The Company borrowed under the facilities to repay its existing $147 and €108 ($159) term loans, which were scheduled to mature in November 2012. In addition, the Company borrowed $125 under the facilities and irrevocably deposited the funds into an irrevocable trust to be used to redeem all €83 ($121) of the outstanding 6.25% first priority senior secured notes due September 2011 and to pay accrued interest and related fees. The funds were released from the trust in July 2011 to redeem the 2011 notes. As of June 30, 2011, the $125 deposited into the irrevocable trust was reported as restricted cash in the Company’s balance sheet. The Company recorded a loss from early extinguishment of debt of $2.

The Company’s outstanding debt at June 30, 2011 and December 31, 2010 was as follows.

 

     Jun. 30
2011
    Dec. 31
2010
 

Short-term debt

   $ 272      $ 241   

Long-term debt

    

Senior secured borrowings:

    

Revolving credit facilities

   $ 410      $ 184   

Term loan facilities

    

U.S. dollar at LIBOR plus 1.75% due 2012

     0        147   

Euro at EURIBOR plus 1.75% due 2012

     0        145   

U.S. dollar at LIBOR plus 1.75% due 2016

     200        0   

Euro (€274 at June 30, 2011) at EURIBOR plus 1.75% due 2016

     397        0   

Euro (€83 at June 30, 2011) 6.25% first priority notes due 2011

     121        112   

Senior notes and debentures:

    

U.S. dollar 7.75% due 2015

     0        600   

U.S. dollar 7.625% due 2017

     400        400   

Euro (€500 at June 30, 2011) 7.125% due 2018

     725        669   

U.S. dollar 6.25% due 2021

     700        0   

U.S. dollar 7.375% due 2026

     350        350   

U.S. dollar 7.50% due 2096

     64        64   

Other indebtedness in various currencies

     248        148   

Unamortized discounts

     (11     (12
  

 

 

   

 

 

 

Total long-term debt

     3,604        2,807   

Less: current maturities

     (180     (158
  

 

 

   

 

 

 

Total long-term debt, less current maturities

   $ 3,424      $ 2,649   
  

 

 

   

 

 

 

The estimated fair value of the Company’s long-term borrowings, based on quoted market prices for the same or similar issues, was $3,654 at June 30, 2011.

 

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 United States 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.

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.

During 2010 and 2011, the states of Alabama, Nebraska, South Dakota 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.

 

14


Crown Holdings, Inc.

 

Similar legislation was enacted in Florida, Georgia, Indiana, Mississippi, North Dakota, Ohio, Oklahoma, South Carolina and Wisconsin in recent years. The legislation, which applies to future and, with the exception of Georgia, South Carolina and South Dakota, 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 cautions, however, that the legislation may be challenged and there can be no assurance regarding the ultimate effect of the legislation on Crown Cork.

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.

On October 22, 2010, the Texas Supreme Court, in a 6-2 decision, reversed a lower court decision, Barbara Robinson v. Crown Cork & Seal Company, Inc., No. 14-04-00658-CV, Fourteenth Court of Appeals, Texas, which had upheld the dismissal of an asbestos-related case against Crown Cork. The Texas Supreme Court held that the Texas legislation was unconstitutional under the Texas Constitution when applied to asbestos-related claims pending against Crown Cork when the legislation was enacted in June of 2003. In 2010, the Company recorded a pre-tax charge of $15 including estimated legal fees to increase its accrual for asbestos related costs for claims pending in Texas on June 11, 2003. The Company believes that the decision of the Texas Supreme Court is limited to retroactive application of the Texas legislation to asbestos-related cases that were pending against Crown Cork in Texas on June 11, 2003 and therefore continues to assign no value to claims filed after June 11, 2003.

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. Adverse rulings in cases challenging the constitutionality of the Pennsylvania statute could have a material impact on the Company.

During the six months ended June 30, 2011, the Company paid $10 to settle outstanding claims and had claims activity as follows:

 

Beginning claims

     50,000   

New claims

     1,000   

Settlements or dismissals

     (1,000
        

Ending claims

     50,000   
        

As of December 31, 2010, the Company’s outstanding claims by year of exposure and state filed were:

 

     2010      2009  

Claimants alleging first exposure after 1964

     15,000         15,000   

Claimants alleging first exposure before or during 1964 filed in:

     

Texas

     12,000         12,000   

Pennsylvania

     2,000         2,000   

Other states that have enacted asbestos legislation

     6,000         6,000   

Other states

     15,000         15,000   
                 

Total claims outstanding

     50,000         50,000   
                 

 

15


Crown Holdings, Inc.

 

The outstanding claims in each period exclude 3,100 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes will not have a material effect on the Company’s consolidated results of operations, financial position or cash flow. The outstanding claims also exclude approximately 19,000 inactive claims. Due to the passage of time, the Company considers it unlikely that the plaintiffs in these cases will pursue further action 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.

Historically (1977-2010), Crown Cork estimates that approximately one-quarter of all asbestos-related claims made against it have been asserted by claimants who claim first exposure to asbestos after 1964.

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 our settlement experience with post-1964 claims, we do 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, 2010, the percentage of outstanding claims related to claimants alleging serious diseases (primarily mesothelioma and other malignancies) were as follows:

 

     2010     2009     2008  

Total claims

     18     16     15

Pre-1964 claims in states without asbestos legislation

     31     29     25

Crown Cork has entered into arrangements with plaintiffs’ counsel in certain jurisdictions with respect to claims which are not yet filed, or asserted, against us. 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 June 30, 2011.

As of June 30, 2011, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $239, including $189 for unasserted claims. The Company’s accrual includes estimated probable costs for claims through the year 2020. The Company’s accrual excludes potential costs for claims beyond 2020 because the Company believes that the key assumptions underlying its accrual are subject to greater uncertainty as the projection period lengthens.

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 96% of the claims outstanding at the end of 2010), 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).

 

16


Crown Holdings, Inc.

 

I. Commitments and Contingent Liabilities

The Company, along with others in most cases, has been identified by the EPA or a comparable state environmental agency as a Potentially Responsible Party (“PRP”) at a number of sites and has recorded aggregate accruals of $6 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 $9 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.

The Company is subject to antitrust investigations in Europe. In August 2010, the Spanish National Antitrust Commission issued a Proposal for Resolution (Propuesta de Resolución) alleging that Crown European Holdings SA, a wholly-owned subsidiary of the Company, and one of its subsidiaries violated Spanish and European competition law by coordinating certain commercial terms and exchanging information with competitors in Spain. The Proposal for Resolution does not constitute a decision on the merits and was replied to by the Company. In May 2011, the Antitrust Commission concluded that there was no violation and closed the investigation. There can be no assurance that the Antitrust Commission will not re-open its investigation against the Company’s subsidiary in the event new facts or other circumstances justify a new investigation.

In July 2010, a subsidiary of the Company became aware of an investigation by the Netherlands Competition Authority in relation to competition law matters. In April 2011, the Netherlands Competition Authority terminated its investigation having found no evidence to support any charges against the Company’s subsidiary. There can be no assurance that the Netherlands Competition Authority will not re-open its investigation against the Company’s subsidiary in the event new facts or other circumstances justify a new investigation.

The Company’s Italian subsidiaries have received or expect to receive assessments for value added taxes and related income taxes from the Italian tax authorities resulting from certain third party suppliers’ failures to remit required value added tax payments due by those suppliers under Italian law with respect to purchases for resale to the Company. The assessments cover tax periods 2004 and 2005 and additional assessments are expected to cover periods 2006 through 2009. The expected total assessments resulting from these third party suppliers failing to remit the tax payments are approximately €40 ($58 at June 30, 2011) plus any applicable interest and penalties. The Company intends to dispute these assessments and believes that, if necessary, it should be able to successfully demonstrate in the Italian courts that it has no additional liability for the asserted taxes. While the Company intends to dispute the assessments, there can be no assurance that it will be successful in such disputes or regarding the final amount of additional taxes, if any, payable to the Italian tax authorities.

The Company and its subsidiaries are also subject to various other lawsuits and claims with respect to 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 results of operations, financial position or cash flow.

 

17


Crown Holdings, Inc.

 

The Company has various commitments to purchase materials, supplies and utilities as part of the ordinary conduct 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 and has periodically adjusted its selling prices to reflect these movements. There can be no assurance, however, 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.

In January 2010, the Company received a net one time payment of $20 as part of an overall resolution of a long-time dispute unrelated to the Company’s ongoing operations and recorded as a gain in the first quarter of 2010 within selling and administrative expense.

At June 30, 2011, the Company was party to certain indemnification agreements covering environmental remediation, lease payments and other potential costs associated with properties sold or businesses divested. For agreements with defined liability limits the maximum potential amount of future liability was $14. 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. At June 30, 2011, the Company also had guarantees of $16 related to the residual values of leased assets.

 

J. Earnings Per Share

The following table summarizes the computations of basic and diluted earnings per share attributable to Crown Holdings for the periods ended June 30, 2011 and 2010, respectively:

 

     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2011      2010      2011      2010  

Net income attributable to Crown Holdings

   $ 129       $ 112       $ 145       $ 153   
                                   

Weighted average shares outstanding:

           

Basic

     152.3         161.0         153.5         160.8   

Add: dilutive stock options and restricted stock

     3.2         2.3         3.1         2.4   
                                   

Diluted

     155.5         163.3         156.6         163.2   
                                   

Basic earnings per share

   $ 0.85       $ 0.70       $ 0.94       $ 0.95   
                                   

Diluted earnings per share

   $ 0.83       $ 0.69       $ 0.93       $ 0.94   
                                   

For the three and six months ended June 30, 2010, 3.2 million and 3.3 million of contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been antidilutive.

 

K. Pension and Other Postretirement Benefits

The components of net periodic pension and other postretirement benefits costs for the three and six months ended June 30 were as follows:

 

     Three Months Ended     Six Months Ended  
     June 30     June 30  

Pension Benefits – U.S. Plans

   2011     2010     2011     2010  

Service cost

   $ 3      $ 2      $ 6      $ 4   

Interest cost

     18        18        36        36   

Expected return on plan assets

     (20     (20     (40     (40

Recognized prior service cost

         1        1   

Recognized net loss

     13        17        24        34   
                                

Net periodic cost

   $ 14      $ 17      $ 27      $ 35   
                                

 

18


Crown Holdings, Inc.

 

     Three Months Ended     Six Months Ended  
     June 30     June 30  

Pension Benefits – Non-U.S. Plans

   2011     2010     2011     2010  

Service cost

   $ 6      $ 6      $ 12      $ 13   

Interest cost

     40        37        79        76   

Expected return on plan assets

     (49     (43     (97     (88

Recognized prior service (credit)/cost

       (1     1        (2

Recognized net loss

     14        12        27        23   
                                

Net periodic cost

   $ 11      $ 11      $ 22      $ 22   
                                
     Three Months Ended     Six Months Ended  
     June 30     June 30  

Other Postretirement Benefits

   2011     2010     2011     2010  

Service cost

   $ 3      $ 2      $ 5      $ 4   

Interest cost

     5        8        11        15   

Recognized prior service credit

     (9     (6     (17     (11

Recognized net loss

     4        3        7        5   
                                

Net periodic cost

   $ 3      $ 7      $ 6      $ 13   
                                

 

L. Accelerated Share Repurchase

In December 2010, the Company entered into an agreement with Citigroup to purchase shares of its common stock under an accelerated share repurchase program. Pursuant to the agreement, the Company initially purchased 4,354,838 shares for $150. The purchase price of these shares was subject to an adjustment based on the Company’s volume-weighted average stock price during the term of the transaction. The purchase price adjustment was settled in April, 2011 and resulted in an additional cash payment of $6.

In May 2011, the Company entered into an agreement with Goldman, Sachs & Co. to purchase shares of its common stock under an accelerated share repurchase program. Pursuant to the agreement, the Company purchased 5,018,701 shares for $200.

 

M. Income Taxes

The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to pre-tax income as a result of the following items:

 

     Three Months Ended     Six Months Ended  
     June 30     June 30  
     2011     2010     2011     2010  

U.S. statutory rate at 35%

   $ 74      $ 70      $ 103      $ 107   

Tax on foreign income

     (23     (16     (36     (24

Valuation allowance

     2        2        12        11   

Nontaxable settlement of legal dispute

     0        0        0        (7

Tax law changes

     0        0        (3     7   

Other items, net

     1        1        19        2   
                                

Income tax provision

   $ 54      $ 57      $ 95      $ 96   
                                

The other items caption for the six months ended June 30, 2011 includes $20 of increase due to tax charges in connection with the relocation of the Company’s European headquarters and management to Switzerland.

 

19


Crown Holdings, Inc.

 

N. Segment Information

The Company evaluates performance and allocates resources based on segment income. Segment income, which is not a defined term under GAAP, is defined by the Company as gross profit less selling and administrative expenses. Segment income should not be considered in isolation or as a substitute for net income data prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies. Transactions between operating segments are not material.

The tables below present information about operating segments for the three and six months ended June 30, 2011 and 2010:

 

     External Sales      External Sales  
     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2011      2010      2011      2010  

Americas Beverage

   $ 591       $ 549       $ 1,103       $ 1,029   

North America Food

     217         214         405         411   

European Beverage

     500         439         840         753   

European Food

     509         421         931         825   

European Specialty Packaging

     119         97         219         188   
                                   

Total reportable segments

     1,936         1,720         3,498         3,206   

Non-reportable segments

     345         290         665         581   
                                   

Total

   $ 2,281       $ 2,010       $ 4,163       $ 3,787   
                                   

The primary sources of revenue included in non-reportable segments are the Company’s aerosol can businesses in North America, Europe and Thailand, the Company’s beverage can businesses in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam and the Company’s food can and closures business in Thailand.

 

     Intersegment Sales      Intersegment Sales  
     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2011      2010      2011      2010  

Americas Beverage

   $ 26       $ 22       $ 43       $ 37   

North America Food

     3         2         6         3   

European Beverage

     0         0         0         0   

European Food

     34         19         62         37   

European Specialty Packaging

     19         14         37         26   
                                   

Total reportable segments

     82         57         148         103   

Non-reportable segments

     17         14         38         24   
                                   

Total

   $ 99       $ 71       $ 186       $ 127   
                                   

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

 

20


Crown Holdings, Inc.

 

     Segment Income      Segment Income  
     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2011      2010      2011      2010  

Americas Beverage

   $ 77       $ 73       $ 140       $ 130   

North America Food

     38         33         66         49   

European Beverage

     70         75         115         127   

European Food

     63         59         115         99   

European Specialty Packaging

     12         8         19         11   
                                   

Total reportable segments

   $ 260       $ 248       $ 455       $ 416   
                                   

A reconciliation of segment income of reportable segments to income before income taxes and equity earnings for the three and six months ended June 30, 2011 and 2010 follows:

 

     Segment Income     Segment Income  
     Three Months Ended
June 30
    Six Months Ended
June 30
 
     2011     2010     2011     2010  

Segment income of reportable segments

   $ 260      $ 248      $ 455      $ 416   

Segment income of non-reportable segments

     55        47        112        92   

Corporate and unallocated items

     (44     (55     (106     (97

Provision for restructuring

     0        (2     (25     (24

Asset impairments and sales

     0        6        0        7   

Loss from early extinguishment of debt

     (2     0        (32     0   

Interest expense

     (60     (45     (116     (92

Interest income

     2        2        6        3   

Translation and foreign exchange

     (1     0        (1     2   
                                

Income before income taxes and equity earnings

   $ 210      $ 201      $ 293      $ 307   
                                

For the three and six months ended June 30, 2011, intercompany profit of $1 and $2 related to non-reportable segments was eliminated within the segment income of non-reportable segments line. For the three and six months ended June 30, 2010, the intercompany profit elimination was less than $1.

“Corporate and unallocated items” includes corporate and division administrative costs, technology costs, and unallocated items such as the U.S. and U.K. pension plan costs.

 

21


Crown Holdings, Inc.

 

O. Condensed Combining Financial Information

Crown European Holdings SA (Issuer), a 100% owned subsidiary of the Company, has €83 ($121 at June 30, 2011) principal amount of 6.25% first priority notes due 2011 outstanding and €500 ($725 at June 30, 2011) principal amount of 7.125% senior notes due 2018 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and certain subsidiaries. The guarantors are 100% owned by the Company and the guarantees are made on a joint and several basis. The guarantor column includes financial information for all subsidiaries in the United States (except for an insurance subsidiary and a receivable securitization subsidiary), substantially all subsidiaries in Belgium, Canada, France, Germany, Mexico, Switzerland and the United Kingdom, and a subsidiary in the Netherlands. The following condensed combining financial statements:

 

   

statements of operations for the three and six months ended June 30, 2011 and 2010,

 

   

balance sheets as of June 30, 2011 and December 31, 2010, and

 

   

statements of cash flows for the six months ended June 30, 2011 and 2010

are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended June 30, 2011

(in millions)

 

     Parent      Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 1,083      $ 1,198        $ 2,281   

Cost of products sold, excluding depreciation and amortization

      $ 0        851        1,014          1,865   

Depreciation and amortization

          21        24          45   
                                                 

Gross profit

        0        211        160          371   
                                                 

Selling and administrative expense

        0        78        22          100   

Provision for restructuring

          0        0          0   

Asset impairments and sales

          0        0          0   

Loss from early extinguishment of debt

        2              2   

Net interest expense

        20        25        13          58   

Technology royalty

          (9     9       

Translation and foreign exchange

            1          1   
                                                 

Income/(loss) before income taxes

        (22     117        115          210   

Provision for income taxes

          38        16          54   

Equity earnings in affiliates

   $ 129         91        50        $ (270  
                                                 

Net income

     129         69        129        99        (270     156   

Net income attributable to noncontrolling interests

            (27       (27
                                                 

Net income attributable to Crown Holdings

   $ 129       $ 69      $ 129      $ 72      $ (270   $ 129   
                                                 

 

22


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended June 30, 2010

(in millions)

 

     Parent      Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 1,161      $ 849        $ 2,010   

Cost of products sold, excluding depreciation and amortization

      $ (4     956        679          1,631   

Depreciation and amortization

          23        21          44   
                                                 

Gross profit

        4        182        149          335   
                                                 

Selling and administrative expense

        (1     69        27          95   

Provision for restructuring

          2            2   

Asset impairments and sales

        1        (1     (6       (6

Net interest expense

        6        35        2          43   

Technology royalty

          (9     9       
                                                 

Income/(loss) before income taxes

        (2     86        117          201   

Provision for income taxes

          35        22          57   

Equity earnings in affiliates

   $ 112         75        61        $ (248  
                                                 

Net income

     112         73        112        95        (248     144   

Net income attributable to noncontrolling interests

            (32       (32
                                                 

Net income attributable to Crown Holdings

   $ 112       $ 73      $ 112      $ 63      $ (248   $ 112   
                                                 

 

23


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the six months ended June 30, 2011

(in millions)

 

     Parent      Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 2,349      $ 1,814        $ 4,163   

Cost of products sold, excluding depreciation and amortization

      $ (1     1,941        1,475          3,415   

Depreciation and amortization

          40        45          85   
                                                 

Gross profit

        1        368        294          663   
                                                 

Selling and administrative expense

        (1     157        46          202   

Provision for restructuring

          25            25   

Asset impairments and sales

          (182     $ 182     

Loss from early extinguishment of debt

        2        30            32   

Net interest expense

        39        55        16          110   

Technology royalty

          (15     15       

Translation and foreign exchange

            1          1   
                                                 

Income/(loss) before income taxes

        (39     298        216        (182     293   

Provision for income taxes

        1        39        55          95   

Equity earnings/(loss) in affiliates

   $ 145         139        (114       (170  
                                                 

Net income

     145         99        145        161        (352     198   

Net income attributable to noncontrolling interests

            (53       (53
                                                 

Net income attributable to Crown Holdings

   $ 145       $ 99      $ 145      $ 108      $ (352   $ 145   
                                                 

 

24


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the six months ended June 30, 2010

(in millions)

 

     Parent      Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 2,208      $ 1,579        $ 3,787   

Cost of products sold, excluding depreciation and amortization

      $ (6     1,851        1,269          3,114   

Depreciation and amortization

          45        43          88   
                                                 

Gross profit

        6        312        267          585   
                                                 

Selling and administrative expense

        (1     121        54          174   

Provision for restructuring

          24            24   

Asset impairments and sales

        1        (2     (6       (7

Net interest expense

        4        78        7          89   

Technology royalty

          (16     16       

Translation and foreign exchange

          (2         (2
                                                 

Income before income taxes

        2        109        196          307   

Provision for income taxes

          59        37          96   

Equity earnings in affiliates

   $ 153         107        103        $ (363  
                                                 

Net income

     153         109        153        159        (363     211   

Net income attributable to noncontrolling interests

            (58       (58
                                                 

Net income attributable to Crown Holdings

   $ 153       $ 109      $ 153      $ 101      $ (363   $ 153   
                                                 

 

25


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of June 30, 2011

(in millions)

 

     Parent     Issuer      Guarantors     Non-
Guarantors
     Eliminations     Total
Company
 

Assets

              

Current assets

              

Cash and cash equivalents

        $ 62      $ 359         $ 421   

Restricted cash

     $ 125                125   

Receivables, net

       74         311        938           1,323   

Intercompany receivables

       1         68        23       $ (92  

Inventories

          767        770           1,537   

Prepaid expenses and other current assets

   $ 1        6         150        36           193   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     1        206         1,358        2,126         (92     3,599   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Intercompany debt receivables

       1,316         3,443        265         (5,024  

Investments

     525        3,381         (656        (3,250  

Goodwill

          1,455        614           2,069   

Property, plant and equipment, net

          635        1,111           1,746   

Other non-current assets

       15         581        49           645   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 526      $ 4,918       $ 6,816      $ 4,165       $ (8,366   $ 8,059   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities and equity

              

Current liabilities

              

Short-term debt

     $ 16       $ 30      ,$ 226         $ 272   

Current maturities of long-term debt

       121         1        58           180   

Accounts payable and accrued liabilities

   $ 13        28         1,283        934           2,258   

Intercompany payables

          23        69       $ (92  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     13        165         1,337        1,287         (92     2,710   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt, excluding current maturities

       1,123         2,114        187           3,424   

Long-term intercompany debt

     583        2,337         1,358        746         (5,024  

Postretirement and pension liabilities

          1,152        19           1,171   

Other non-current liabilities

          329        154           483   

Commitments and contingent liabilities

              

Noncontrolling interests

          1        340           341   

Crown Holdings shareholders’ equity/(deficit)

     (70     1,293         525        1,432         (3,250     (70
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total equity/(deficit)

     (70     1,293         526        1,772         (3,250     271   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 526      $ 4,918       $ 6,816      $ 4,165       $ (8,366   $ 8,059   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

26


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of December 31, 2010

(in millions)

 

     Parent     Issuer      Guarantors     Non-
Guarantors
     Eliminations     Total
Company
 

Assets

              

Current assets

              

Cash and cash equivalents

        $ 65      $ 398         $ 463   

Receivables, net

     $ 66         111        759           936   

Intercompany receivables

       1         101        64       $ (166  

Inventories

          575        485           1,060   

Prepaid expenses and other current assets

   $ 1        12         148        29           190   
                                                  

Total current assets

     1        79         1,000        1,735         (166     2,649   
                                                  

Intercompany debt receivables

       1,374         2,956        373         (4,703  

Investments

     308        3,039         (350        (2,997  

Goodwill

          1,411        573           1,984   

Property, plant and equipment, net

          626        984           1,610   

Other non-current assets

       16         590        50           656   
                                                  

Total

   $ 309      $ 4,508       $ 6,233      $ 3,715       $ (7,866   $ 6,899   
                                                  

Liabilities and equity

              

Current liabilities

              

Short-term debt

     $ 48       $ 5      $ 188         $ 241   

Current maturities of long-term debt

       116         5        37           158   

Accounts payable and accrued liabilities

   $ 28        26         1,085        839           1,978   

Intercompany payables

       2         62        102       $ (166  
                                                  

Total current liabilities

     28        192         1,157        1,166         (166     2,377   
                                                  

Long-term debt, excluding current maturities

       810         1,731        108           2,649   

Long-term intercompany debt

     377        2,362         1,556        408         (4,703  

Postretirement and pension liabilities

          1,149        10           1,159   

Other non-current liabilities

          331        154           485   

Commitments and contingent liabilities

              

Noncontrolling interests

          1        324           325   

Crown Holdings shareholders’ equity/(deficit)

     (96     1,144         308        1,545         (2,997     (96
                                                  

Total equity/(deficit)

     (96     1,144         309        1,869         (2,997     229   
                                                  

Total

   $ 309      $ 4,508       $ 6,233      $ 3,715       $ (7,866   $ 6,899   
                                                  

 

27


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the six months ended June 30, 2011

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net used for operating activities

   $ (3   $ (43   $ (103   $ (98     $ (247
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

            

Capital expenditures

         (31     (153       (184

Change in restricted cash

       (125           (125

Intercompany investing activities

       6        230        (180   $ (56  

Proceeds from sale of property, plant and equipment

         2            2   

Other

               0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used for) investing activities

       (119     201        (333     (56     (307
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

            

Proceeds from long-term debt

       400        900        116          1,416   

Payments of long-term debt

       (159     (747     (16       (922

Net change in revolving credit facility and short-term debt

       (29     250        27          248   

Debt issue costs

         (16         (16

Net change in long-term intercompany balances

     206        (63     (488     345       

Common stock issued

     9                9   

Common stock repurchased

     (212             (212

Dividends paid

           (56     56     

Purchase of noncontrolling interests

           (9       (9

Dividends paid to noncontrolling interests

           (38       (38

Other

       13          5          18   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used for) financing activities

     3        162        (101     374        56        494   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

           18          18   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

         (3     (39       (42

Cash and cash equivalents at January 1

         65        398          463   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at June 30

   $ 0      $ 0      $ 62      $ 359      $ 0      $ 421   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the six months ended June 30, 2010

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash provided by/(used for) operating activities

   $ 4        $ 12      $ (210     $ (194
                                                

Cash flows from investing activities

            

Capital expenditures

         (31     (73       (104

Intercompany investing activities

     $ (193     231        3      $ (41  

Proceeds from sale of property, plant and equipment

         5        11          16   

Other

         1        2          3   
                                                

Net cash provided by/(used for) investing activities

       (193     206        (57     (41     (85
                                                

Cash flows from financing activities

            

Proceeds from long-term debt

           47          47   

Payments of long-term debt

       (215     (201     (10       (426

Net change in revolving credit facility and short-term debt

       255        257        167          679   

Net change in long-term intercompany balances

     (3     134        (274     143       

Common stock issued

     4                4   

Common stock repurchased

     (5             (5

Dividends paid

           (41     41     

Dividends paid to noncontrolling interests

           (49       (49

Other

       14        (8         6   
                                                

Net cash provided by/(used for) financing activities

     (4     188        (226     257        41        256   
                                                

Effect of exchange rate changes on cash and cash equivalents

         (2     (22       (24
                                                

Net change in cash and cash equivalents

       (5     (10     (32       (47

Cash and cash equivalents at January 1

       5        49        405          459   
                                                

Cash and cash equivalents at June 30

   $ 0      $ 0      $ 39      $ 373      $ 0      $ 412   
                                                

 

29


Crown Holdings, Inc.

 

Crown Cork & Seal Company, Inc. (Issuer), a 100% owned subsidiary, has $350 principal amount of 7.375% senior notes due 2026 and $64 principal amount of 7.5% senior notes due 2096 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt. The following condensed combining financial statements:

 

   

statements of operations for the three and six months ended June 30, 2011 and 2010,

 

   

balance sheets as of June 30, 2011 and December 31, 2010, and

 

   

statements of cash flows for the six months ended June 30, 2011 and 2010

are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended June 30, 2011

(in millions)

 

     Parent      Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 2,281        $ 2,281   

Cost of products sold, excluding depreciation and amortization

          1,865          1,865   

Depreciation and amortization

          45          45