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 SEPTEMBER 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
(registrants 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 151,168,669 shares of Common Stock outstanding as of November 1, 2011.
Crown Holdings, Inc.
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except share and per share data)
(Unaudited)
Three months ended September 30 |
2011 | 2010 | ||||||
Net sales |
$ | 2,423 | $ | 2,205 | ||||
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Cost of products sold, excluding depreciation and amortization |
1,980 | 1,788 | ||||||
Depreciation and amortization |
47 | 40 | ||||||
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Gross profit |
396 | 377 | ||||||
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Selling and administrative expense |
96 | 82 | ||||||
Provision for asbestos |
0 | 15 | ||||||
Provision for restructuring |
2 | 17 | ||||||
Asset impairments and sales |
(2 | ) | (11 | ) | ||||
Loss from early extinguishments of debt |
0 | 16 | ||||||
Interest expense |
58 | 55 | ||||||
Interest income |
(2 | ) | (3 | ) | ||||
Translation and foreign exchange |
(1 | ) | (2 | ) | ||||
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Income before income taxes and equity earnings |
245 | 208 | ||||||
Provision for income taxes |
87 | 47 | ||||||
Equity earnings in affiliates |
1 | 0 | ||||||
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Net income |
159 | 161 | ||||||
Net income attributable to noncontrolling interests |
(30 | ) | (35 | ) | ||||
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Net income attributable to Crown Holdings |
$ | 129 | $ | 126 | ||||
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Earnings per common share attributable to Crown Holdings: |
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Basic |
$ | 0.86 | $ | 0.79 | ||||
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Diluted |
$ | 0.84 | $ | 0.78 | ||||
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Weighted average common shares outstanding: |
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Basic |
150,138,644 | 159,181,133 | ||||||
Diluted |
152,680,719 | 161,674,329 |
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)
Nine months ended September 30 |
2011 | 2010 | ||||||
Net sales |
$ | 6,586 | $ | 5,992 | ||||
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Cost of products sold, excluding depreciation and amortization |
5,395 | 4,902 | ||||||
Depreciation and amortization |
132 | 128 | ||||||
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Gross profit |
1,059 | 962 | ||||||
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Selling and administrative expense |
298 | 256 | ||||||
Provision for asbestos |
0 | 15 | ||||||
Provision for restructuring |
27 | 41 | ||||||
Asset impairments and sales |
(2 | ) | (18 | ) | ||||
Loss from early extinguishments of debt |
32 | 16 | ||||||
Interest expense |
174 | 147 | ||||||
Interest income |
(8 | ) | (6 | ) | ||||
Translation and foreign exchange |
0 | (4 | ) | |||||
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Income before income taxes and equity earnings |
538 | 515 | ||||||
Provision for income taxes |
182 | 143 | ||||||
Equity earnings in affiliates |
1 | 0 | ||||||
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Net income |
357 | 372 | ||||||
Net income attributable to noncontrolling interests |
(83 | ) | (93 | ) | ||||
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Net income attributable to Crown Holdings |
$ | 274 | $ | 279 | ||||
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Earnings per common share attributable to Crown Holdings: |
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Basic |
$ | 1.80 | $ | 1.74 | ||||
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Diluted |
$ | 1.77 | $ | 1.71 | ||||
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Weighted average common shares outstanding: |
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Basic |
152,347,988 | 160,280,362 | ||||||
Diluted |
155,069,413 | 162,683,432 |
The accompanying notes are an integral part of these consolidated financial statements.
3
Crown Holdings, Inc.
CONSOLIDATED BALANCE SHEETS (Condensed)
(In millions)
(Unaudited)
September 30, 2011 |
December 31, 2010 |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ | 479 | $ | 463 | ||||
Receivables, net |
1,317 | 936 | ||||||
Inventories |
1,339 | 1,060 | ||||||
Prepaid expenses and other current assets |
170 | 190 | ||||||
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Total current assets |
3,305 | 2,649 | ||||||
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Goodwill |
1,977 | 1,984 | ||||||
Property, plant and equipment, net |
1,710 | 1,610 | ||||||
Other non-current assets |
607 | 656 | ||||||
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Total |
$ | 7,599 | $ | 6,899 | ||||
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Liabilities and equity |
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Current liabilities |
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Short-term debt |
$ | 295 | $ | 241 | ||||
Current maturities of long-term debt |
66 | 158 | ||||||
Accounts payable and accrued liabilities |
2,021 | 1,978 | ||||||
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Total current liabilities |
2,382 | 2,377 | ||||||
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Long-term debt, excluding current maturities |
3,396 | 2,649 | ||||||
Postretirement and pension liabilities |
1,142 | 1,159 | ||||||
Other non-current liabilities |
499 | 485 | ||||||
Commitments and contingent liabilities (Note I) |
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Noncontrolling interests |
280 | 325 | ||||||
Crown Holdings shareholders deficit |
(100 | ) | (96 | ) | ||||
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Total equity |
180 | 229 | ||||||
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Total |
$ | 7,599 | $ | 6,899 | ||||
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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)
Nine months ended September 30 |
2011 | 2010 | ||||||
Cash flows from operating activities |
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Net income |
$ | 357 | $ | 372 | ||||
Adjustments to reconcile net income to net cash provided by / (used for) operating activities: |
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Depreciation and amortization |
132 | 128 | ||||||
Provision for restructuring |
27 | 41 | ||||||
Asset impairments and sales |
(2 | ) | (18 | ) | ||||
Pension expense |
74 | 83 | ||||||
Pension contributions |
(56 | ) | (43 | ) | ||||
Stock-based compensation |
15 | 17 | ||||||
Changes in assets and liabilities: |
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Receivables |
(419 | ) | (564 | ) | ||||
Inventories |
(299 | ) | (120 | ) | ||||
Accounts payable and accrued liabilities |
(51 | ) | 48 | |||||
Other, net |
88 | 95 | ||||||
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Net cash provided by/(used for) operating activities |
(134 | ) | 39 | |||||
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Cash flows from investing activities |
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Capital expenditures |
(273 | ) | (187 | ) | ||||
Proceeds from sale of property, plant and equipment |
25 | 20 | ||||||
Other |
0 | 3 | ||||||
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Net cash used for investing activities |
(248 | ) | (164 | ) | ||||
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Cash flows from financing activities |
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Proceeds from long-term debt |
1,421 | 718 | ||||||
Payments of long-term debt |
(1,047 | ) | (714 | ) | ||||
Net change in revolving credit facility and short-term debt |
342 | 448 | ||||||
Debt issue costs |
(17 | ) | (27 | ) | ||||
Common stock issued |
9 | 6 | ||||||
Common stock repurchased |
(212 | ) | (105 | ) | ||||
Purchase of noncontrolling interests |
(48 | ) | (168 | ) | ||||
Dividends paid to noncontrolling interests |
(60 | ) | (77 | ) | ||||
Other |
11 | 5 | ||||||
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Net cash provided by financing activities |
399 | 86 | ||||||
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Effect of exchange rate changes on cash and cash equivalents |
(1 | ) | (5 | ) | ||||
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Net change in cash and cash equivalents |
16 | (44 | ) | |||||
Cash and cash equivalents at January 1 |
463 | 459 | ||||||
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Cash and cash equivalents at September 30 |
$ | 479 | $ | 415 | ||||
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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 | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Accumulated | Other | Total | ||||||||||||||||||||||||||||||
Common | Paid-in | Earnings/ | Comprehensive | Treasury | Crown | Noncontrolling | ||||||||||||||||||||||||||
Stock | Capital | (Deficit) | Loss | Stock | Equity | Interests | Total | |||||||||||||||||||||||||
Balance at January 1, 2010 |
$ | 929 | $ | 1,536 | $ | (94 | ) | $ | (2,255 | ) | $ | (122 | ) | $ | (6 | ) | $ | 389 | $ | 383 | ||||||||||||
Comprehensive income: |
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Net income |
279 | 279 | 93 | 372 | ||||||||||||||||||||||||||||
Translation adjustments |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||
Amortization of net loss and prior service cost included in pension and postretirement cost |
50 | 50 | 50 | |||||||||||||||||||||||||||||
Derivatives qualifying as hedges |
3 | 3 | (2 | ) | 1 | |||||||||||||||||||||||||||
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Total comprehensive income |
332 | 88 | 420 | |||||||||||||||||||||||||||||
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Dividends paid to noncontrolling interests |
(77 | ) | (77 | ) | ||||||||||||||||||||||||||||
Restricted stock awarded |
(3 | ) | 3 | |||||||||||||||||||||||||||||
Stock-based compensation |
17 | 17 | 17 | |||||||||||||||||||||||||||||
Common stock issued |
3 | 3 | 6 | 6 | ||||||||||||||||||||||||||||
Common stock repurchased |
(88 | ) | (17 | ) | (105 | ) | (105 | ) | ||||||||||||||||||||||||
Purchase of noncontrolling interests |
(114 | ) | 9 | (105 | ) | (63 | ) | (168 | ) | |||||||||||||||||||||||
Sale of business |
(9 | ) | (9 | ) | ||||||||||||||||||||||||||||
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Balance at September 30, 2010 |
$ | 929 | $ | 1,351 | $ | 185 | $ | (2,193 | ) | $ | (133 | ) | $ | 139 | $ | 328 | $ | 467 | ||||||||||||||
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Balance at January 1, 2011 |
$ | 929 | $ | 1,231 | $ | 230 | $ | (2,333 | ) | $ | (153 | ) | $ | (96 | ) | $ | 325 | $ | 229 | |||||||||||||
Comprehensive income: |
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Net income |
274 | 274 | 83 | 357 | ||||||||||||||||||||||||||||
Translation adjustments |
(26 | ) | (26 | ) | 2 | (24 | ) | |||||||||||||||||||||||||
Amortization of net loss and prior service cost included in pension and postretirement cost |
49 | 49 | 49 | |||||||||||||||||||||||||||||
Derivatives qualifying as hedges |
(65 | ) | (65 | ) | (4 | ) | (69 | ) | ||||||||||||||||||||||||
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Total comprehensive income |
232 | 81 | 313 | |||||||||||||||||||||||||||||
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Dividends paid to noncontrolling interests |
(60 | ) | (60 | ) | ||||||||||||||||||||||||||||
Contribution from noncontrolling interests |
2 | 2 | ||||||||||||||||||||||||||||||
Restricted stock awarded |
(2 | ) | 2 | |||||||||||||||||||||||||||||
Stock-based compensation |
15 | 15 | 15 | |||||||||||||||||||||||||||||
Common stock issued |
6 | 3 | 9 | 9 | ||||||||||||||||||||||||||||
Common stock repurchased |
(186 | ) | (26 | ) | (212 | ) | (212 | ) | ||||||||||||||||||||||||
Purchase of noncontrolling interests |
(48 | ) | (48 | ) | (68 | ) | (116 | ) | ||||||||||||||||||||||||
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Balance at September 30, 2011 |
$ | 929 | $ | 1,016 | $ | 504 | $ | (2,375 | ) | $ | (174 | ) | $ | (100 | ) | $ | 280 | $ | 180 | |||||||||||||
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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 September 30, 2011 and the results of its operations for the three and nine month periods ended September 30, 2011 and 2010 and of its cash flows for the nine months ended September 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 Companys 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 nine months ended September 30, 2011 follows:
Number of shares | ||||
Nonvested shares outstanding at January 1, 2011 |
1,059,481 | |||
Awarded: |
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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: |
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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 | ) | ||
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Nonvested shares outstanding at September 30, 2011 |
997,497 | |||
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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 September 30, 2011, unrecognized compensation cost related to unvested restricted stock was $7. The weighted average period over which the expense is expected to be recognized is 1.3 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.
September 30, 2011 |
December 31, 2010 |
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Finished goods |
$ | 508 | $ | 365 | ||||
Work in process |
179 | 128 | ||||||
Raw materials and supplies |
652 | 567 | ||||||
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$ | 1,339 | $ | 1,060 | |||||
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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 Companys financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, respectively.
Fair value at reporting date using |
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Level 1 | Level 2 | |||||||||||||||||||||||
Sept. 30, 2011 |
Dec. 31, 2010 |
Sept. 30, 2011 |
Dec. 31, 2010 |
Sept. 30, 2011 |
Dec. 31, 2010 |
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Assets |
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Derivative instruments: |
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Foreign exchange |
$ | 23 | $ | 26 | $ | 23 | $ | 26 | ||||||||||||||||
Commodities |
9 | 53 | $ | 9 | $ | 53 | ||||||||||||||||||
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Total |
$ | 32 | $ | 79 | $ | 9 | $ | 53 | $ | 23 | $ | 26 | ||||||||||||
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Liabilities |
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Derivative instruments: |
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Foreign exchange |
$ | 32 | $ | 15 | $ | 32 | $ | 15 | ||||||||||||||||
Commodities |
45 | 1 | $ | 45 | $ | 1 | ||||||||||||||||||
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Total |
$ | 77 | $ | 16 | $ | 45 | $ | 1 | $ | 32 | $ | 15 | ||||||||||||
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The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The Companys 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 Companys 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 Companys 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 September 30, 2011 mature between one and thirty-five 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) recognized in AOCI (effective portion) |
Amount of
gain/(loss) reclassified from AOCI into earnings |
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Derivatives in cash flow hedges |
Quarter ended Sept. 30, 2011 |
Nine months ended Sept. 30, 2011 |
Quarter ended Sept. 30, 2011 |
Nine months ended Sept. 30, 2011 |
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Foreign exchange contracts |
$ | (1 | ) | $ | (5 | ) | $ | (2 | ) | $ | (3 | )(1) | ||||
Commodity contracts |
(41 | ) | (41 | ) | 6 | 22 | (2) | |||||||||
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Total |
$ | (42 | ) | $ | (46 | ) | $ | 4 | $ | 19 | ||||||
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9
Crown Holdings, Inc.
Amount of gain/(loss) recognized in AOCI (effective portion) |
Amount of
gain/(loss) reclassified from AOCI into earnings |
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Derivatives in cash flow hedges |
Quarter ended Sept. 30, 2010 |
Nine months ended Sept. 30, 2010 |
Quarter ended Sept. 30, 2010 |
Nine months ended Sept. 30, 2010 |
||||||||||||
Cross-currency swap |
$ | (28 | ) | $ | 11 | $ | (27 | ) | $ | 14 | (3) | |||||
Foreign exchange contracts |
(4 | ) | 1 | 3 | (4) | |||||||||||
Commodity contracts |
24 | 12 | (2 | ) | 4 | (5) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (8 | ) | $ | 24 | $ | (29 | ) | $ | 21 | ||||||
|
|
|
|
|
|
|
|
(1) | Within the Statement of Operations for the three months ended September 30, 2011, $1 was credited to cost of products sold and $3 was charged to net sales. During the nine months ended September 30, 2011, $2 was charged to net sales and $1 was charged to cost of products sold. |
(2) | Within the Statement of Operations for the three months ended September 30, 2011, $8 was credited to cost of products sold and $2 was charged to income tax expense. During the nine months ended September 30, 2011, $30 was credited to cost of products sold and $8 was charged to income tax expense. |
(3) | Within the Statement of Operations for the three months ended September 30, 2010, $27 was charged to translation and foreign exchange. During the nine months ended September 30, 2010, $14 was credited to translation and foreign exchange. |
(4) | Within the Statement of Operations for the three months ended September 30, 2010, $1 was charged to net sales and $1 was credited to cost of products sold. During the nine months ended September 30, 2010, $1 was credited to net sales and $2 was credited to cost of products sold. |
(5) | Within the Statement of Operations for the three and nine months ended September 30, 2010 $2 was charged to income tax expense and for the nine months ended September 30, 2010, $6 was credited to cost of products sold. |
For the twelve month period ending September 30, 2012, a net loss of $29 ($23, net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the three and nine months ended September 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 nine months ended September 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 Companys 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 was a loss of $4 for the three months ended September 30, 2011 and gains of $10 and $2 for the three and nine months ended September 30, 2010. The impact on earnings from foreign exchange contracts not designated as hedges were losses of $25 and $6 for the three and nine months ended September 30, 2011 and a loss of $8 and a gain of $17 for the same periods in 2010. These adjustments were reported within translation and foreign exchange in the Consolidated Statements of Operations and were offset by changes in the fair values of the related hedged items.
The fair values of outstanding derivative instruments in the Consolidated Balance Sheets at September 30, 2011 and December 31, 2010 were:
Derivative Assets |
Balance Sheet Classification |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||||
Derivatives designated as hedges: |
||||||||||
Foreign exchange contracts |
Other current assets |
$ | 9 | $ | 12 | |||||
Commodity contracts |
Other current assets |
8 | 40 | |||||||
Commodity contracts |
Other non-current assets |
1 | 13 | |||||||
Derivatives not designated as hedges: |
||||||||||
Foreign exchange contracts |
Other current assets |
14 | 14 | |||||||
|
|
|
|
|||||||
Total |
$ | 32 | $ | 79 | ||||||
|
|
|
|
|||||||
Derivative Liabilities |
Balance Sheet Classification |
|||||||||
Derivatives designated as hedges: |
||||||||||
Foreign exchange contracts |
Accounts payable and accrued liabilities |
$ | 9 | $ | 12 | |||||
Commodity contracts |
Accounts payable and accrued liabilities |
36 | 1 | |||||||
Commodity contracts |
Other non-current liabilities |
9 | 0 | |||||||
Derivatives not designated as hedges: |
||||||||||
Foreign exchange contracts |
Accounts payable and accrued liabilities |
23 | 3 | |||||||
|
|
|
|
|||||||
Total |
$ | 77 | $ | 16 | ||||||
|
|
|
|
The aggregate U.S. dollar-equivalent notional values of outstanding derivative instruments in the Consolidated Balance Sheets at September 30, 2011 and December 31, 2010 were:
September 30, 2011 |
December 31, 2010 |
|||||||
Derivatives in cash flow hedges: |
||||||||
Foreign exchange |
$ | 422 | $ | 751 | ||||
Commodities |
465 | 326 | ||||||
Derivatives in fair value hedges: |
||||||||
Foreign exchange |
157 | 256 | ||||||
Derivatives not designated as hedges: |
||||||||
Foreign exchange |
710 | 827 |
11
Crown Holdings, Inc.
F. | Restructuring |
During the first nine months of 2011, the Company recorded a pre-tax charge of $27 for restructuring costs, including $20 related to the relocation of the Companys European Division headquarters and management to Switzerland, $4 related to severance costs in the Companys European Specialty Packaging segment and $3 related to prior restructuring actions in the Companys North America Food segment.
During the first nine months of 2010, the Company recorded a pre-tax charge of $41 for restructuring costs, including $25 related to plant closures in the Companys North America Food segment and $16 related to the relocation of the Companys European Division headquarters and management to Switzerland.
European Division Headquarters
During the first nine months of 2010, the Company recorded a pre-tax charge of $16 related to the relocation of its European Division headquarters and management to Switzerland in order to benefit from a more centralized management location and increased efficiencies.
During the first nine months of 2011, the Company recorded a pre-tax charge of $20 related to the relocation of which $19 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 four years. As of September 30, 2011, the Company incurred costs of $34 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 benefits |
Other exit costs |
Asset writedowns |
Total | |||||||||||||
Balance at January 1, 2010 |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Provisions |
13 | 3 | 0 | 16 | ||||||||||||
Payments made |
(0 | ) | (1 | ) | 0 | (1 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2010 |
$ | 13 | $ | 2 | $ | 0 | $ | 15 | ||||||||
|
|
|
|
|
|
|
|
Termination benefits |
Other exit costs |
Asset writedowns |
Total | |||||||||||||
Balance at January 1, 2011 |
$ | 8 | $ | 2 | $ | 0 | $ | 10 | ||||||||
Provisions |
1 | 19 | 0 | 20 | ||||||||||||
Payments made |
(3 | ) | (2 | ) | 0 | (5 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2011 |
$ | 6 | $ | 19 | $ | 0 | $ | 25 | ||||||||
|
|
|
|
|
|
|
|
North America Food
In 2010 and 2009, the Company closed certain Canadian food can 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 nine months of 2011, the Company recorded a pre-tax charge of $3 related to the closures. As of September 30, 2011, the Company incurred total costs of $55 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.
12
Crown Holdings, Inc.
The following table summarizes the restructuring accrual balances and utilization by cost type for these actions:
Termination benefits |
Other exit costs |
Asset writedowns |
Total | |||||||||||||
Balance at January 1, 2010 |
$ | 6 | $ | 0 | $ | 0 | $ | 6 | ||||||||
Provision |
10 | 5 | 10 | 25 | ||||||||||||
Payments |
(4 | ) | (5 | ) | 0 | (9 | ) | |||||||||
Reclassified to other accounts |
(5 | ) | 0 | (10 | ) | (15 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2010 |
$ | 7 | $ | 0 | $ | 0 | $ | 7 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at January 1, 2011 |
$ | 3 | $ | 0 | $ | 0 | $ | 3 | ||||||||
Provisions |
1 | 2 | 0 | 3 | ||||||||||||
Payments made |
(2 | ) | (2 | ) | 0 | (4 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 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.
The following table summarizes the restructuring accrual balances and utilization by cost type for this action:
Termination benefits |
Other exit costs |
Asset writedowns |
Total | |||||||||||||
Balance at January 1, 2010 |
$ | 14 | $ | 0 | $ | 0 | $ | 14 | ||||||||
Payments made |
(6 | ) | 0 | 0 | (6 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2010 |
$ | 8 | $ | 0 | $ | 0 | $ | 8 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at January 1, 2011 |
$ | 8 | $ | 0 | $ | 0 | $ | 8 | ||||||||
Payments made |
(3 | ) | 0 | 0 | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2011 |
$ | 5 | $ | 0 | $ | 0 | $ | 5 | ||||||||
|
|
|
|
|
|
|
|
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 nine 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.
13
Crown Holdings, Inc.
The following table summarizes the restructuring accrual balances and utilization by cost type for these actions:
Termination benefits |
Other exit costs |
Asset writedowns |
Total | |||||||||||||
Balance at January 1, 2010 |
$ | 5 | $ | 0 | $ | 0 | $ | 5 | ||||||||
Payments made |
(3 | ) | 0 | 0 | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2010 |
$ | 2 | $ | 0 | $ | 0 | $ | 2 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at January 1, 2011 |
$ | 2 | $ | 0 | $ | 0 | $ | 2 | ||||||||
Provisions |
4 | 0 | 0 | 4 | ||||||||||||
Payments made |
(1 | ) | 0 | 0 | (1 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2011 |
$ | 5 | $ | 0 | $ | 0 | $ | 5 | ||||||||
|
|
|
|
|
|
|
|
G. | Debt |
In January 2011, the Company sold $700 principal amount of 6.25% senior 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 retired all of its $600 outstanding 7.75% senior notes due 2015. 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.
In June 2011, the Company amended its existing senior secured credit facilities to add a $200 term loan facility and a 274 ($367 at September 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 $6 in issuance costs that will be amortized over the term of the facilities The Company used borrowings under the facilities to repay its existing $147 and 108 ($159) term loans, which were scheduled to mature in November 2012, and to redeem all 83 ($121) of its outstanding 6.25% first priority senior secured notes due September 2011 and to pay accrued interest and related fees. The Company recorded a loss from early extinguishment of debt of $2.
14
Crown Holdings, Inc.
The Companys outstanding debt at September 30, 2011 and December 31, 2010 was as follows.
September 30 2011 |
December 31 2010 |
|||||||
Short-term debt |
$ | 295 | $ | 241 | ||||
Long-term debt |
||||||||
Senior secured borrowings: |
||||||||
Revolving credit facilities |
$ | 472 | $ | 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 September 30, 2011) at EURIBOR plus 1.75% due 2016 |
367 | 0 | ||||||
Euro 6.25% first priority notes due 2011 |
0 | 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 September 30, 2011) 7.125% due 2018 |
670 | 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 |
250 | 148 | ||||||
Unamortized discounts |
(11 | ) | (12 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
3,462 | 2,807 | ||||||
Less: current maturities |
(66 | ) | (158 | ) | ||||
|
|
|
|
|||||
Total long-term debt, less current maturities |
$ | 3,396 | $ | 2,649 | ||||
|
|
|
|
The estimated fair value of the Companys long-term borrowings, based on quoted market prices for the same or similar issues, was $3,323 at September 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.
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 predecessors total gross assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total value of its predecessors 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.
15
Crown Holdings, Inc.
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 predecessors assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total adjusted value of its predecessors 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 successors liability for asbestos to the acquired companys asset value adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the acquired companys 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 nine months ended September 30, 2011, the Company paid $14 to settle outstanding claims and had claims activity as follows:
Beginning claims |
50,000 | |||
New claims |
2,000 | |||
Settlements or dismissals |
(2,000 | ) | ||
|
|
|||
Ending claims |
50,000 | |||
|
|
As of December 31, the Companys 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 | ||||||
|
|
|
|
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 Companys 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 Companys accrual as the claims were filed in states, as described above, where the Companys 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.
16
Crown Holdings, Inc.
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 Companys 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, 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 Companys estimated liability as of September 30, 2011.
As of September 30, 2011, the Companys accrual for pending and future asbestos-related claims and related legal costs was $235, including $186 for unasserted claims. The Companys accrual includes estimated probable costs for claims through the year 2020. The Companys 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 Companys 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 Companys 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 claimants 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 claimants 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 Companys asbestos cases are filed).
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.
17
Crown Holdings, Inc.
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 Companys accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.
In 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. In May 2011, the Antitrust Commission concluded that there was no violation and closed the investigation without rendering a formal decision. There can be no assurance that the Antitrust Commission will not re-open its investigation against the Companys 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 Companys subsidiary. There can be no assurance that the Netherlands Competition Authority will not re-open its investigation against the Companys subsidiary in the event new facts or other circumstances justify a new investigation.
The Companys 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 ($54 at September 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 Companys 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 Companys consolidated results of operations, financial position or cash flow.
The Company has various commitments to purchase materials, supplies and utilities as part of the ordinary conduct of business. The Companys 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 Companys ongoing operations and recorded as a gain in the first quarter of 2010 within selling and administrative expense.
18
Crown Holdings, Inc.
At September 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 $13. 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 September 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 September 30, 2011 and 2010, respectively:
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income attributable to Crown Holdings |
$ | 129 | $ | 126 | $ | 274 | $ | 279 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
150.1 | 159.2 | 152.3 | 160.3 | ||||||||||||
Add: dilutive stock options and restricted stock |
2.6 | 2.5 | 2.8 | 2.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
152.7 | 161.7 | 155.1 | 162.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings per share |
$ | 0.86 | $ | 0.79 | $ | 1.80 | $ | 1.74 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings per share |
$ | 0.84 | $ | 0.78 | $ | 1.77 | $ | 1.71 | ||||||||
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2010, 2.3 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been antidilutive. An immaterial amount of antidilutive shares was excluded from the computation in the other periods presented.
K. | Pension and Other Postretirement Benefits |
The components of net periodic pension and other postretirement benefits costs for the three and nine months ended September 30 were as follows:
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
Pension Benefits U.S. Plans |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | 3 | $ | 3 | $ | 9 | $ | 7 | ||||||||
Interest cost |
18 | 18 | 54 | 54 | ||||||||||||
Expected return on plan assets |
(20 | ) | (20 | ) | (60 | ) | (60 | ) | ||||||||
Recognized prior service cost |
1 | 2 | 1 | |||||||||||||
Recognized net loss |
12 | 16 | 36 | 50 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic cost |
$ | 14 | $ | 17 | $ | 41 | $ | 52 | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
Pension Benefits Non-U.S. Plans |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | 7 | $ | 7 | $ | 19 | $ | 20 | ||||||||
Interest cost |
42 | 39 | 121 | 115 | ||||||||||||
Expected return on plan assets |
(50 | ) | (45 | ) | (147 | ) | (133 | ) | ||||||||
Recognized prior service (credit)/cost |
0 | (2 | ) | 1 | (4 | ) | ||||||||||
Recognized net loss |
12 | 10 | 39 | 33 | ||||||||||||
Curtailment |
0 | 0 | 0 | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic cost |
$ | 11 | $ | 9 | $ | 33 | $ | 36 | ||||||||
|
|
|
|
|
|
|
|
19
Crown Holdings, Inc.
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
Other Postretirement Benefits |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | 1 | $ | 2 | $ | 6 | $ | 6 | ||||||||
Interest cost |
5 | 7 | 16 | 22 | ||||||||||||
Recognized prior service credit |
(8 | ) | (5 | ) | (25 | ) | (16 | ) | ||||||||
Recognized net loss |
3 | 10 | 5 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic cost |
$ | 1 | $ | 4 | $ | 7 | $ | 17 | ||||||||
|
|
|
|
|
|
|
|
L. | Accelerated Share Repurchase |
In December 2010, the Company entered into an agreement 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 Companys 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 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 September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
U.S. statutory rate at 35% |
$ | 86 | $ | 73 | $ | 188 | $ | 180 | ||||||||
Tax on foreign income |
(9 | ) | (18 | ) | (44 | ) | (42 | ) | ||||||||
Valuation allowance |
(13 | ) | (10 | ) | (1 | ) | (3 | ) | ||||||||
Nontaxable settlement of legal dispute |
0 | 0 | 0 | (7 | ) | |||||||||||
Tax law changes |
28 | 2 | 25 | 10 | ||||||||||||
Other items, net |
(5 | ) | 0 | 14 | 5 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income tax provision |
$ | 87 | $ | 47 | $ | 182 | $ | 143 | ||||||||
|
|
|
|
|
|
|
|
The other items caption for the nine months ended September 30, 2011 includes $20 of increase due to tax charges in connection with the relocation of the Companys European headquarters and management to Switzerland, partially offset by other net differences.
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.
20
Crown Holdings, Inc.
The tables below present information about operating segments for the three and nine months ended September 30, 2011 and 2010:
External Sales | External Sales | |||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Americas Beverage |
$ | 594 | $ | 547 | $ | 1,697 | $ | 1,576 | ||||||||
North America Food |
271 | 275 | 676 | 686 | ||||||||||||
European Beverage |
451 | 411 | 1,291 | 1,164 | ||||||||||||
European Food |
623 | 558 | 1,554 | 1,383 | ||||||||||||
European Specialty Packaging |
122 | 108 | 341 | 296 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total reportable segments |
2,061 | 1,899 | 5,559 | 5,105 | ||||||||||||
Non-reportable segments |
362 | 306 | 1,027 | 887 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,423 | $ | 2,205 | $ | 6,586 | $ | 5,992 | ||||||||
|
|
|
|
|
|
|
|
The primary sources of revenue included in non-reportable segments are the Companys aerosol can businesses in North America, Europe and Thailand, the Companys beverage can businesses in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam and the Companys food can and closures business in Thailand.
Intersegment Sales | Intersegment Sales | |||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Americas Beverage |
$ | 19 | $ | 25 | $ | 61 | $ | 62 | ||||||||
North America Food |
6 | 4 | 12 | 7 | ||||||||||||
European Beverage |
0 | 0 | 1 | 0 | ||||||||||||
European Food |
27 | 23 | 89 | 60 | ||||||||||||
European Specialty Packaging |
16 | 14 | 53 | 40 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total reportable segments |
68 | 66 | 216 | 169 | ||||||||||||
Non-reportable segments |
24 | 22 | 62 | 45 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 92 | $ | 88 | $ | 278 | $ | 214 | ||||||||
|
|
|
|
|
|
|
|
Intersegment sales primarily include sales of ends and components used to manufacture cans, such as printed and coated metal, as well as parts and equipment used in the manufacturing process.
Segment Income | Segment Income | |||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Americas Beverage |
$ | 77 | $ | 74 | $ | 217 | $ | 204 | ||||||||
North America Food |
49 | 42 | 115 | 91 | ||||||||||||
European Beverage |
61 | 70 | 176 | 197 | ||||||||||||
European Food |
87 | 83 | 202 | 182 | ||||||||||||
European Specialty Packaging |
11 | 12 | 30 | 23 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total reportable segments |
$ | 285 | $ | 281 | $ | 740 | $ | 697 | ||||||||
|
|
|
|
|
|
|
|
21
Crown Holdings, Inc.
A reconciliation of segment income of reportable segments to income before income taxes and equity earnings for the three and nine months ended September 30, 2011 and 2010 follows:
Segment Income | Segment Income | |||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Segment income of reportable segments |
$ | 285 | $ | 281 | $ | 740 | $ | 697 | ||||||||
Segment income of non-reportable segments |
62 | 57 | 174 | 149 | ||||||||||||
Corporate and unallocated items |
(47 | ) | (43 | ) | (153 | ) | (140 | ) | ||||||||
Provision for asbestos |
0 | (15 | ) | 0 | (15 | ) | ||||||||||
Provision for restructuring |
(2 | ) | (17 | ) | (27 | ) | (41 | ) | ||||||||
Asset impairments and sales |
2 | 11 | 2 | 18 | ||||||||||||
Loss from early extinguishments of debt |
0 | (16 | ) | (32 | ) | (16 | ) | |||||||||
Interest expense |
(58 | ) | (55 | ) | (174 | ) | (147 | ) | ||||||||
Interest income |
2 | 3 | 8 | 6 | ||||||||||||
Translation and foreign exchange |
1 | 2 | 0 | 4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes and equity earnings |
$ | 245 | $ | 208 | $ | 538 | $ | 515 | ||||||||
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2011, intercompany profit of $2 and $4 related to non-reportable segments was eliminated within the segment income of non-reportable segments. For the three and nine months ended September 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.
O. | Subsequent Event |
In October 2011, the Companys beverage can plant in Thailand was shut down due to damage caused by severe flooding. The Company has also temporarily suspended operations at its food and aerosol plants in the Bangkok region. The Company expects that operations at the beverage can plant could be suspended for as long as twelve months. The Company is currently evaluating the extent of the damage at the beverage can plant and insurance coverage to assess the impact on the Companys operations and consolidated financial statements. As of September 30, 2011, the net carrying value of property, plant and equipment at the beverage can plant was $29 and inventory was $14. For the nine months ended September 30, 2011, the Companys beverage can sales from this plant were $42.
22
Crown Holdings, Inc.
P. | Condensed Combining Financial Information |
Crown European Holdings SA (Issuer), a 100% owned subsidiary of the Company, has 500 ($670 at September 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 nine months ended September 30, 2011 and 2010, |
| balance sheets as of September 30, 2011 and December 31, 2010, and |
| statements of cash flows for the nine months ended September 30, 2011 and 2010 |
are presented on the following pages to comply with the Companys requirements under Rule 3-10 of Regulation S-X.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the three months ended September 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net sales |
$ | 1,326 | $ | 1,097 | $ | 2,423 | ||||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
1,077 | 903 | 1,980 | |||||||||||||||||||||
Depreciation and amortization |
21 | 26 | 47 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
228 | 168 | 396 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and administrative expense |
$ | (1 | ) | 73 | 24 | 96 | ||||||||||||||||||
Provision for restructuring |
2 | 0 | 2 | |||||||||||||||||||||
Asset impairments and sales |
(2 | ) | (2 | ) | ||||||||||||||||||||
Net interest expense |
20 | 24 | 12 | 56 | ||||||||||||||||||||
Technology royalty |
(10 | ) | 10 | |||||||||||||||||||||
Translation and foreign exchange |
(1 | ) | (1 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before income taxes |
(19 | ) | 142 | 122 | 245 | |||||||||||||||||||
Provision for income taxes |
60 | 27 | 87 | |||||||||||||||||||||
Equity earnings in affiliates |
$ | 129 | 100 | 47 | $ | (275 | ) | 1 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
129 | 81 | 129 | 95 | (275 | ) | 159 | |||||||||||||||||
Net income attributable to noncontrolling interests |
(30 | ) | (30 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Crown Holdings |
$ | 129 | $ | 81 | $ | 129 | $ | 65 | $ | (275 | ) | $ | 129 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
23
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the three months ended September 30, 2010
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net sales |
$ | 1,256 | $ | 949 | $ | 2,205 | ||||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
$ | (4 | ) | 1,027 | 765 | 1,788 | ||||||||||||||||||
Depreciation and amortization |
21 | 19 | 40 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
4 | 208 | 165 | 377 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and administrative expense |
62 | 20 | 82 | |||||||||||||||||||||
Provision for asbestos |
15 | 15 | ||||||||||||||||||||||
Provision for restructuring |
17 | 17 | ||||||||||||||||||||||
Asset impairments and sales |
(1 | ) | (12 | ) | 2 | (11 | ) | |||||||||||||||||
Loss from early extinguishment of debt |
5 | 11 | 16 | |||||||||||||||||||||
Net interest expense |
14 | 34 | 4 | 52 | ||||||||||||||||||||
Technology royalty |
(11 | ) | 11 | |||||||||||||||||||||
Translation and foreign exchange |
(2 | ) | (2 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before income taxes |
(14 | ) | 92 | 130 | 208 | |||||||||||||||||||
Provision for income taxes |
10 | 37 | 47 | |||||||||||||||||||||
Equity earnings in affiliates |
$ | 126 | 92 | 44 | $ | (262 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
126 | 78 | 126 | 93 | (262 | ) | 161 | |||||||||||||||||
Net income attributable to noncontrolling interests |
(35 | ) | (35 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Crown Holdings |
$ | 126 | $ | 78 | $ | 126 | $ | 58 | $ | (262 | ) | $ | 126 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
24
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net sales |
$ | 3,675 | $ | 2,911 | $ | 6,586 | ||||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
$ | (1 | ) | 3,018 | 2,378 | 5,395 | ||||||||||||||||||
Depreciation and amortization |
61 | 71 | 132 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
1 | 596 | 462 | 1,059 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and administrative expense |
(2 | ) | 230 | 70 | 298 | |||||||||||||||||||
Provision for restructuring |
27 | 0 | 27 | |||||||||||||||||||||
Asset impairments and sales |
(184 | ) | $ | 182 | (2 | ) | ||||||||||||||||||
Loss from early extinguishment of debt |
2 | 30 | 32 | |||||||||||||||||||||
Net interest expense |
59 | 79 | 28 | 166 | ||||||||||||||||||||
Technology royalty |
(25 | ) | 25 | |||||||||||||||||||||
Translation and foreign exchange |
(1 | ) | 1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before income taxes |
(58 | ) | 440 | 338 | (182 | ) | 538 | |||||||||||||||||
Provision for income taxes |
1 | 99 | 82 | 182 | ||||||||||||||||||||
Equity earnings/(loss) in affiliates |
$ | 274 | 239 | (67 | ) | (445 | ) | 1 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
274 | 180 | 274 | 256 | (627 | ) | 357 | |||||||||||||||||
Net income attributable to noncontrolling interests |
(83 | ) | (83 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Crown Holdings |
$ | 274 | $ | 180 | $ | 274 | $ | 173 | $ | (627 | ) | $ | 274 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
25
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2010
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net sales |
$ | 3,464 | $ | 2,528 | $ | 5,992 | ||||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
$ | (10 | ) | 2,878 | 2,034 | 4,902 | ||||||||||||||||||
Depreciation and amortization |
66 | 62 | 128 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
10 | 520 | 432 | 962 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and administrative expense |
(1 | ) | 183 | 74 | 256 | |||||||||||||||||||
Provision for asbestos |
15 | 15 | ||||||||||||||||||||||
Provision for restructuring |
41 | 41 | ||||||||||||||||||||||
Asset impairments and sales |
(14 | ) | (4 | ) | (18 | ) | ||||||||||||||||||
Loss from early extinguishment of debt |
5 | 11 | 16 | |||||||||||||||||||||
Net interest expense |
18 | 112 | 11 | 141 | ||||||||||||||||||||
Technology royalty |
(27 | ) | 27 | |||||||||||||||||||||
Translation and foreign exchange |
(2 | ) | (2 | ) | (4 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before income taxes |
(12 | ) | 201 | 326 | 515 | |||||||||||||||||||
Provision for income taxes |
69 | 74 | 143 | |||||||||||||||||||||
Equity earnings in affiliates |
$ | 279 | 199 | 147 | $ | (625 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
279 | 187 | 279 | 252 | (625 | ) | 372 | |||||||||||||||||
Net income attributable to noncontrolling interests |
(93 | ) | (93 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Crown Holdings |
$ | 279 | $ | 187 | $ | 279 | $ | 159 | $ | (625 | ) | $ | 279 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
26
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of September 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 56 | $ | 423 | $ | 479 | ||||||||||||||||||
Receivables, net |
$ | 29 | 400 | 888 | 1,317 | |||||||||||||||||||
Intercompany receivables |
2 | 69 | 18 | $ | (89 | ) | ||||||||||||||||||
Inventories |
697 | 642 | 1,339 | |||||||||||||||||||||
Prepaid expenses and other current assets |
3 | 144 | 23 | 170 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
34 | 1,366 | 1,994 | (89 | ) | 3,305 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Intercompany debt receivables |
1,257 | 3,270 | 265 | (4,792 | ) | |||||||||||||||||||
Investments |
$ | 493 | 3,178 | (586 | ) | (3,085 | ) | |||||||||||||||||
Goodwill |
1,404 | 573 | 1,977 | |||||||||||||||||||||
Property, plant and equipment, net |
595 | 1,115 | 1,710 | |||||||||||||||||||||
Other non-current assets |
15 | 543 | 49 | 607 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 493 | $ | 4,484 | $ | 6,592 | $ | 3,996 | $ | (7,966 | ) | $ | 7,599 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and equity |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Short-term debt |
$ | 19 | $ | 34 | $ | 242 | $ | 295 | ||||||||||||||||
Current maturities of long-term debt |
1 | 65 | 66 | |||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 18 | 9 | 1,222 | 772 | 2,021 | ||||||||||||||||||
Intercompany payables |
18 | 71 | $ | (89 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
18 | 28 | 1,275 | 1,150 | (89 | ) | 2,382 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Long-term debt, excluding current maturities |
1,118 | 2,096 | 182 | 3,396 | ||||||||||||||||||||
Long-term intercompany debt |
575 | 2,108 | 1,271 | 838 | (4,792 | ) | ||||||||||||||||||
Postretirement and pension liabilities |
1,124 | 18 | 1,142 | |||||||||||||||||||||
Other non-current liabilities |
335 | 164 | 499 | |||||||||||||||||||||
Commitments and contingent liabilities |
||||||||||||||||||||||||
Noncontrolling interests |
(2 | ) | 282 | 280 | ||||||||||||||||||||
Crown Holdings shareholders equity/(deficit) |
(100 | ) | 1,230 | 493 | 1,362 | (3,085 | ) | (100 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity/(deficit) |
(100 | ) | 1,230 | 491 | 1,644 | (3,085 | ) | 180 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 493 | $ | 4,484 | $ | 6,592 | $ | 3,996 | $ | (7,966 | ) | $ | 7,599 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
27
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 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
28
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net cash provided by/(used for) operating activities |
$ | 5 | $ | (38 | ) | $ | (72 | ) | $ | (29 | ) | $ | (134 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities |
||||||||||||||||||||||||
Capital expenditures |
(62 | ) | (211 | ) | (273 | ) | ||||||||||||||||||
Intercompany investing activities |
6 | 247 | (180 | ) | $ | (73 | ) | |||||||||||||||||
Proceeds from sale of property, plant and equipment |
25 | 25 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by/(used for) investing activities |
6 | 210 | (391 | ) | (73 | ) | (248 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities |
||||||||||||||||||||||||
Proceeds from long-term debt |
385 | 900 | 136 | 1,421 | ||||||||||||||||||||
Payments of long-term debt |
(277 | ) | (747 | ) | (23 | ) | (1,047 | ) | ||||||||||||||||
Net change in revolving credit facility and short-term debt |
53 | 246 | 43 | 342 | ||||||||||||||||||||
Debt issue costs |
(3 | ) | (14 | ) | (17 | ) | ||||||||||||||||||
Net change in long-term intercompany balances |
198 | (129 | ) | (503 | ) | 434 | ||||||||||||||||||
Common stock issued |
9 | 9 | ||||||||||||||||||||||
Common stock repurchased |
(212 | ) | (212 | ) | ||||||||||||||||||||
Dividends paid |
(73 | ) | 73 | |||||||||||||||||||||
Purchase of noncontrolling interests |
(37 | ) | (11 | ) | (48 | ) | ||||||||||||||||||
Dividends paid to noncontrolling interests |
(60 | ) | (60 | ) | ||||||||||||||||||||
Other |
3 | 8 | 11 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by/(used for) financing activities |
(5 | ) | 32 | (147 | ) | 446 | 73 | 399 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(1 | ) | (1 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net change in cash and cash equivalents |
(9 | ) | 25 | 16 | ||||||||||||||||||||
Cash and cash equivalents at January 1 |
65 | 398 | 463 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at September 30 |
$ | 0 | $ | 0 | $ | 56 | $ | 423 | $ | 0 | $ | 479 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
29
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2010
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net cash provided by/(used for) operating activities |
$ | 14 | $ | (4 | ) | $ | 166 | $ | (137 | ) | $ | 39 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities |
||||||||||||||||||||||||
Capital expenditures |
(43 | ) | (144 | ) | (187 | ) | ||||||||||||||||||
Intercompany investing activities |
(190 | ) | 433 | 35 | $ | (278 | ) | |||||||||||||||||
Proceeds from sale of property, plant and equipment |
9 | 11 | 20 | |||||||||||||||||||||
Other |
1 | 2 | 3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by/(used for) investing activities |
(190 | ) | 400 | (96 | ) | (278 | ) | (164 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities |
||||||||||||||||||||||||
Proceeds from long-term debt |
650 | 68 | 718 | |||||||||||||||||||||
Payments of long-term debt |
(301 | ) | (401 | ) | (12 | ) | (714 | ) | ||||||||||||||||
Net change in revolving credit facility and short-term debt |
31 | 212 | 205 | 448 | ||||||||||||||||||||
Net change in long-term intercompany balances |
85 | 34 | (379 | ) | 260 | |||||||||||||||||||
Common stock issued |
6 | 6 | ||||||||||||||||||||||
Common stock repurchased |
(105 | ) | (105 | ) | ||||||||||||||||||||
Purchase of noncontrolling interests |
(168 | ) | (168 | ) | ||||||||||||||||||||
Dividends paid |
(211 | ) | (67 | ) | 278 | |||||||||||||||||||
Dividends paid to noncontrolling interests |
(77 | ) | (77 | ) | ||||||||||||||||||||
Other |
(14 | ) | (8 | ) | (22 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by/(used for) financing activities |
(14 | ) | 189 | (576 | ) | 209 | 278 | 86 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(5 | ) | (5 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net change in cash and cash equivalents |
(5 | ) | (10 | ) | (29 | ) | (44 | ) | ||||||||||||||||
Cash and cash equivalents at January 1 |
5 | 49 | 405 | 459 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at September 30 |
$ | 0 | $ | 0 | $ | 39 | $ | 376 | $ | 0 | $ | 415 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
30
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 nine months ended September 30, 2011 and 2010, |
| balance sheets as of September 30, 2011 and December 31, 2010, and |
| statements of cash flows for the nine months ended September 30, 2011 and 2010 |
are presented on the following pages to comply with the Companys requirements under Rule 3-10 of Regulation S-X.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the three months ended September 30, 2011
(in millions)
Parent | Issuer | Non- Guarantors |
Eliminations | Total Company |
||||||||||||||||
Net sales |
$ | 2,423 | $ | 2,423 | ||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
1,980 | 1,980 | ||||||||||||||||||
Depreciation and amortization |
47 | 47 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
396 | 396 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Selling and administrative expense |
$ | 3 | 93 | 96 | ||||||||||||||||
Provision for restructuring |
2 | 2 | ||||||||||||||||||
Asset impairments and sales |
(2 | ) | (2 | ) | ||||||||||||||||
Net interest expense |
21 | 35 | 56 | |||||||||||||||||
Translation and foreign exchange |
(1 | ) | (1 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income/(loss) before income taxes |
(24 | ) | 269 | 245 | ||||||||||||||||
Provision for income taxes |
11 | 76 | 87 | |||||||||||||||||
Equity earnings in affiliates |
$ | 129 | 164 | 1 | $ | (293 | ) | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
129 | 129 | 194 | (293 | ) | 159 | ||||||||||||||
Net income attributable to noncontrolling interests |
(30 | ) | (30 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Crown Holdings |
$ | 129 | $ | 129 | $ | 164 | $ | (293 | ) | $ | 129 | |||||||||
|
|
|
|
|
|
|
|
|
|
31
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the three months ended September 30, 2010
(in millions)
Parent | Issuer | Non- Guarantors |
Eliminations | Total Company |
||||||||||||||||
Net sales |
$ | 2,205 | $ | 2,205 | ||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
1,788 | 1,788 | ||||||||||||||||||
Depreciation and amortization |
40 | 40 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
377 | 377 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Selling and administrative expense |
$ | 2 | 80 | 82 | ||||||||||||||||
Provision for asbestos |
15 | 15 | ||||||||||||||||||
Provision for restructuring |
17 | 17 | ||||||||||||||||||
Asset impairments and sales |
(11 | ) | (11 | ) | ||||||||||||||||
Loss from early extinguishment of debt |
16 | 16 | ||||||||||||||||||
Net interest expense |
20 | 32 | 52 | |||||||||||||||||
Translation and foreign exchange |
(2 | ) | (2 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income/(loss) before income taxes |
(37 | ) | 245 | 208 | ||||||||||||||||
Provision for/(benefit from) income taxes |
(2 | ) | 49 | 47 | ||||||||||||||||
Equity earnings in affiliates |
$ | 126 | 161 | $ | (287 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
126 | 126 | 196 | (287 | ) | 161 | ||||||||||||||
Net income attributable to noncontrolling interests |
(35 | ) | (35 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Crown Holdings |
$ | 126 | $ | 126 | $ | 161 | $ | (287 | ) | $ | 126 | |||||||||
|
|
|
|
|
|
|
|
|
|
32
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2011
(in millions)
Parent | Issuer | Non- Guarantors |
Eliminations | Total Company |
||||||||||||||||
Net sales |
$ | 6,586 | $ | 6,586 | ||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
5,395 | 5,395 | ||||||||||||||||||
Depreciation and amortization |
132 | 132 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
1,059 | 1,059 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Selling and administrative expense |
$ | 8 | 290 | 298 | ||||||||||||||||
Provision for restructuring |
27 | 27 | ||||||||||||||||||
Asset impairments and sales |
(2 | ) | (2 | ) | ||||||||||||||||
Loss from early extinguishment of debt |
32 | 32 | ||||||||||||||||||
Net interest expense |
63 | 103 | 166 | |||||||||||||||||
Translation and foreign exchange |
0 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income/(loss) before income taxes |
(71 | ) | 609 | 538 | ||||||||||||||||
Provision for income taxes |
6 | 176 | 182 | |||||||||||||||||
Equity earnings in affiliates |
$ | 274 | 351 | 1 | $ | (625 | ) | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
274 | 274 | 434 | (625 | ) | 357 | ||||||||||||||
Net income attributable to noncontrolling interests |
(83 | ) | (83 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Crown Holdings |
$ | 274 | $ | 274 | $ | 351 | $ | (625 | ) | $ | 274 | |||||||||
|
|
|
|
|
|
|
|
|
|
33
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2010
(in millions)
Parent | Issuer | Non- Guarantors |
Eliminations | Total Company |
||||||||||||||||
Net sales |
$ | 5,992 | $ | 5,992 | ||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
4,902 | 4,902 | ||||||||||||||||||
Depreciation and amortization |
128 | 128 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
962 | 962 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Selling and administrative expense |
$ | (14 | ) | 270 | 256 | |||||||||||||||
Provision for asbestos |
15 | 15 | ||||||||||||||||||
Provision for restructuring |
41 | 41 | ||||||||||||||||||
Asset impairments and sales |
(18 | ) | (18 | ) | ||||||||||||||||
Loss from early extinguishment of debt |
16 | 16 | ||||||||||||||||||
Net interest expense |
62 | 79 | 141 | |||||||||||||||||
Translation and foreign exchange |
(4 | ) | (4 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income/(loss) before income taxes |
(63 | ) | 578 | 515 | ||||||||||||||||
Provision for/(benefit from) income taxes |
(2 | ) | 145 | 143 | ||||||||||||||||
Equity earnings in affiliates |
$ | 279 | 340 | $ | (619 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
279 | 279 | 433 | (619 | ) | 372 | ||||||||||||||
Net income attributable to noncontrolling interests |
(93 | ) | (93 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to Crown Holdings |
$ | 279 | $ | 279 | $ | 340 | $ | (619 | ) | $ | 279 | |||||||||
|
|
|
|
|
|
|
|
|
|
34
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of September 30, 2011
(in millions)
Parent | Issuer | Non- Guarantors |
Eliminations | Total Company |
||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 479 | $ | 479 | ||||||||||||||||
Receivables, net |
1,317 | 1,317 | ||||||||||||||||||
Inventories |
1,339 | 1,339 | ||||||||||||||||||
Prepaid expenses and other current assets |
$ | 79 | 91 | 170 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
79 | 3,226 | 3,305 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Intercompany debt receivables |
1,267 | $ | (1,267 | ) | ||||||||||||||||
Investments |
$ | 493 | 1,398 | (1,891 | ) | |||||||||||||||
Goodwill |
1,977 | 1,977 | ||||||||||||||||||
Property, plant and equipment, net |
1,710 | 1,710 | ||||||||||||||||||
Other non-current assets |
416 | 191 | 607 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 493 | $ | 1,893 | $ | 8,371 | $ | (3,158 | ) | $ | 7,599 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Short-term debt |
$ | 295 | $ | 295 | ||||||||||||||||
Current maturities of long-term debt |
66 | 66 | ||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 18 | $ | 39 | 1,964 | 2,021 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
18 | 39 | 2,325 | 2,382 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Long-term debt, excluding current maturities |
411 | 2,985 | 3,396 | |||||||||||||||||
Long-term intercompany debt |
575 | 692 | $ | (1,267 | ) | |||||||||||||||
Postretirement and pension liabilities |
1,142 | 1,142 | ||||||||||||||||||
Other non-current liabilities |
258 | 241 | 499 | |||||||||||||||||
Commitments and contingent liabilities |
||||||||||||||||||||
Noncontrolling interests |
280 | 280 | ||||||||||||||||||
Crown Holdings shareholders equity/(deficit) |
(100 | ) | 493 | 1,398 | (1,891 | ) | (100 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity/(deficit) |
(100 | ) | 493 | 1,678 | (1,891 | ) | 180 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 493 | $ | 1,893 | $ | 8,371 | $ | (3,158 | ) | $ | 7,599 | |||||||||
|
|
|
|
|
|
|
|
|
|
35
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of December 31, 2010
(in millions)
Parent | Issuer | Non- Guarantors |
Eliminations | Total Company |
||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 463 | $ | 463 | ||||||||||||||||
Receivables, net |
936 | 936 | ||||||||||||||||||
Inventories |
1,060 | 1,060 | ||||||||||||||||||
Prepaid expenses and other current assets |
$ | 1 | $ | 79 | 110 | 190 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
1 | 79 | 2,569 | 2,649 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Intercompany debt receivables |
1,014 | $ | (1,014 | ) | ||||||||||||||||
Investments |
308 | 1,133 | (1,441 | ) | ||||||||||||||||
Goodwill |
1,984 | 1,984 | ||||||||||||||||||
Property, plant and equipment, net |
1,610 | 1,610 | ||||||||||||||||||
Other non-current assets |
449 | 207 | 656 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 309 | $ | 1,661 | $ | 7,384 | $ | (2,455 | ) | $ | 6,899 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Short-term debt |
$ | 241 | $ | 241 | ||||||||||||||||
Current maturities of long-term debt |
158 | 158 | ||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 28 | $ | 42 | 1,908 | 1,978 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
28 | 42 | 2,307 | 2,377 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Long-term debt, excluding current maturities |
411 | 2,238 | 2,649 | |||||||||||||||||
Long-term intercompany debt |
377 | 637 | $ | (1,014 | ) | |||||||||||||||
Postretirement and pension liabilities |
1,159 | 1,159 | ||||||||||||||||||
Other non-current liabilities |
263 | 222 | 485 | |||||||||||||||||
Commitments and contingent liabilities |
||||||||||||||||||||
Noncontrolling interests |
325 | 325 | ||||||||||||||||||
Crown Holdings shareholders equity/(deficit) |
(96 | ) | 308 | 1,133 | (1,441 | ) | (96 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity/(deficit) |
(96 | ) | 308 | 1,458 | (1,441 | ) | 229 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 309 | $ | 1,661 | $ | 7,384 | $ | (2,455 | ) | $ | 6,899 | |||||||||
|
|
|
|
|
|
|
|
|
|
36
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2011
(in millions)
Parent | Issuer | Non- Guarantors |
Eliminations | Total Company |
||||||||||||||||
Net cash provide by/(used for) operating activities |
$ | 5 | $ | (54 | ) | $ | (85 | ) | $ | (134 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities |
||||||||||||||||||||
Capital expenditures |
(273 | ) | (273 | ) | ||||||||||||||||
Proceeds from sale of property, plant and equipment |
25 | 25 | ||||||||||||||||||
Investment dividends |
36 | $ | (36 | ) | ||||||||||||||||
Other |
0 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by/(used for) investing activities |
36 | (248 | ) | (36 | ) | (248 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Proceeds from long-term debt |
1,421 | 1,421 | ||||||||||||||||||
Payments of long-term debt |
(1,047 | ) | (1,047 | ) | ||||||||||||||||
Net change in revolving credit facility and short-term debt |
342 | 342 | ||||||||||||||||||
Debt issue costs |
(17 | ) | (17 | ) | ||||||||||||||||
Net change in long-term intercompany balances |
198 | 55 | (253 | ) | ||||||||||||||||
Common stock issued |
9 | 9 | ||||||||||||||||||
Common stock repurchased |
(212 | ) | (212 | ) | ||||||||||||||||
Dividends paid |
(36 | ) | 36 | |||||||||||||||||
Purchase of noncontrollling interests |
(37 | ) | (11 | ) | (48 | ) | ||||||||||||||
Dividend paid to noncontrolling interests |
(60 | ) | (60 | ) | ||||||||||||||||
Other |
11 | 11 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by/(used for) financing activities |
(5 | ) | 18 | 350 | 36 | 399 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(1 | ) | (1 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
16 | 16 | ||||||||||||||||||
Cash and cash equivalents at January 1 |
463 | 463 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at September 30 |
$ | 0 | $ | 0 | $ | 479 | $ | 0 | $ | 479 | ||||||||||
|
|
|
|
|
|
|
|
|
|
37
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2010
(in millions)
Parent | Issuer | Non- Guarantors |
Eliminations | Total Company |
||||||||||||||||
Net cash provided by operating activities |
$ | 14 | $ | 1 | $ | 24 | $ | 39 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities |
||||||||||||||||||||
Capital expenditures |
(187 | ) | (187 | ) | ||||||||||||||||
Proceeds from sale of property, plant and equipment |
20 | 20 | ||||||||||||||||||
Intercompany investing activities |
46 | $ | (46 | ) | ||||||||||||||||
Other |
3 | 3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by/(used for) investing activities |
46 | (164 | ) | (46 | ) | (164 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Proceeds from long-term debt |
718 | 718 | ||||||||||||||||||
Payments of long-term debt |
(714 | ) | (714 | ) | ||||||||||||||||
Net change in revolving credit facility and short-term debt |
448 | 448 | ||||||||||||||||||
Net change in long-term intercompany balances |
85 | (47 | ) | (38 | ) | |||||||||||||||
Common stock issued |
6 | 6 | ||||||||||||||||||
Common stock repurchased |
(105 | ) | (105 | ) | ||||||||||||||||
Purchase of noncontrolling interests |
(168 | ) | (168 | ) | ||||||||||||||||
Dividends paid |
(46 | ) | 46 | |||||||||||||||||
Dividend paid to noncontrolling interests |
(77 | ) | (77 | ) | ||||||||||||||||
Other |
(22 | ) | (22 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by/(used for) financing activities |
(14 | ) | (47 | ) | 101 | 46 | 86 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(5 | ) | (5 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net change in cash and cash equivalents |
(44 | ) | (44 | ) | ||||||||||||||||
Cash and cash equivalents at January 1 |
459 | 459 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at September 30 |
$ | 0 | $ | 0 | $ | 415 | $ | 0 | $ | 415 | ||||||||||
|
|
|
|
|
|
|
|
|
|
38
Crown Holdings, Inc.
Crown Americas, LLC, Crown Americas Capital Corp. II and Crown Americas Capital Corp. III (collectively, the Issuers), 100% owned subsidiaries of the Company, have $400 principal amount of 7.625% senior notes due 2017 and $700 principal amount of 6.25% senior notes due 2021 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and substantially all subsidiaries in the United States. The guarantors are 100% owned by the Company and the guarantees are made on a joint and several basis. The following condensed combining financial statements:
| statements of operations for the three and nine months ended September 30, 2011 and 2010, |
| balance sheets as of September 30, 2011 and December 31, 2010, and |
| statements of cash flows for the nine months ended September 30, 2011 and 2010 |
are presented on the following pages to comply with the Companys requirements under Rule 3-10 of Regulation S-X.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the three months ended September 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net sales |
$ | 634 | $ | 1,789 | $ | 2,423 | ||||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
505 | 1,475 | 1,980 | |||||||||||||||||||||
Depreciation and amortization |
10 | 37 | 47 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
119 | 277 | 396 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and administrative expense |
$ | 2 | 33 | 61 | 96 | |||||||||||||||||||
Provision for restructuring |
0 | 2 | 2 | |||||||||||||||||||||
Asset impairments and sales |
(2 | ) | (2 | ) | ||||||||||||||||||||
Net interest expense |
10 | 22 | 24 | 56 | ||||||||||||||||||||
Technology royalty |
(16 | ) | 16 | |||||||||||||||||||||
Translation and foreign exchange |
(1 | ) | (1 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before income taxes |
(12 | ) | 80 | 177 | 245 | |||||||||||||||||||
Provision for/(benefit from) income taxes |
(5 | ) | 60 | 32 | 87 | |||||||||||||||||||
Equity earnings in affiliates |
$ | 129 | 69 | 109 | $ | (306 | ) | 1 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
129 | 62 | 129 | 145 | (306 | ) | 159 | |||||||||||||||||
Net income attributable to noncontrolling interests |
(30 | ) | (30 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Crown Holdings |
$ | 129 | $ | 62 | $ | 129 | $ | 115 | $ | (306 | ) | $ | 129 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
39
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the three months ended September 30, 2010
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net sales |
$ | 612 | $ | 1,593 | $ | 2,205 | ||||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
503 | 1,285 | 1,788 | |||||||||||||||||||||
Depreciation and amortization |
10 | 30 | 40 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
99 | 278 | 377 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and administrative expense |
$ | 2 | 28 | 52 | 82 | |||||||||||||||||||
Provision for asbestos |
15 | 15 | ||||||||||||||||||||||
Provision for restructuring |
17 | 17 | ||||||||||||||||||||||
Asset impairments and sales |
(2 | ) | 2 | (11 | ) | (11 | ) | |||||||||||||||||
Loss from early extinguishment of debt |
11 | 5 | 16 | |||||||||||||||||||||
Net interest expense |
10 | 24 | 18 | 52 | ||||||||||||||||||||
Technology royalty |
(13 | ) | 13 | |||||||||||||||||||||
Translation and foreign exchange |
(2 | ) | (2 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before income taxes |
(21 | ) | 43 | 186 | 208 | |||||||||||||||||||
Provision for/(benefit from) income taxes |
(8 | ) | 13 | 42 | 47 | |||||||||||||||||||
Equity earnings in affiliates |
$ | 126 | 59 | 96 | $ | (281 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
126 | 46 | 126 | 144 | (281 | ) | 161 | |||||||||||||||||
Net income attributable to noncontrolling interests |
(35 | ) | (35 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Crown Holdings |
$ | 126 | $ | 46 | $ | 126 | $ | 109 | $ | (281 | ) | $ | 126 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
40
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net sales |
$ | 1,770 | $ | 4,816 | $ | 6,586 | ||||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
1,431 | 3,964 | 5,395 | |||||||||||||||||||||
Depreciation and amortization |
29 | 103 | 132 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
310 | 749 | 1,059 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and administrative expense |
$ | 5 | 103 | 190 | 298 | |||||||||||||||||||
Provision for restructuring |
0 | 27 | 27 | |||||||||||||||||||||
Asset impairments and sales |
(2 | ) | (2 | ) | ||||||||||||||||||||
Loss from early extinguishment of debt |
30 | 2 | 32 | |||||||||||||||||||||
Net interest expense |
36 | 62 | 68 | 166 | ||||||||||||||||||||
Technology royalty |
(39 | ) | 39 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before income taxes |
(71 | ) | 182 | 427 | 538 | |||||||||||||||||||
Provision for/(benefit from) income taxes |
(27 | ) | 104 | 105 | 182 | |||||||||||||||||||
Equity earnings in affiliates |
$ | 274 | 185 | 196 | $ | (654 | ) | 1 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
274 | 141 | 274 | 322 | (654 | ) | 357 | |||||||||||||||||
Net income attributable to noncontrolling interests |
(83 | ) | (83 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Crown Holdings |
$ | 274 | $ | 141 | $ | 274 | $ | 239 | $ | (654 | ) | $ | 274 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
41
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the nine months ended September 30, 2010
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net sales |
$ | 1,731 | $ | 4,261 | $ | 5,992 | ||||||||||||||||||
Cost of products sold, excluding depreciation and amortization |
1,448 | 3,454 | 4,902 | |||||||||||||||||||||
Depreciation and amortization |
30 | 98 | 128 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
253 | 709 | 962 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling and administrative expense |
$ | 3 | 83 | 170 | 256 | |||||||||||||||||||
Provision for asbestos |
15 | 15 | ||||||||||||||||||||||
Provision for restructuring |
41 | 41 | ||||||||||||||||||||||
Asset impairments and sales |
(2 | ) | 2 | (18 | ) | (18 | ) | |||||||||||||||||
Loss from early extinguishment of debt |
11 | 5 | 16 | |||||||||||||||||||||
Net interest expense |
28 | 74 | 39 | 141 | ||||||||||||||||||||
Technology royalty |
(32 | ) | 32 | |||||||||||||||||||||
Translation and foreign exchange |
(4 | ) | (4 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before income taxes |
(40 | ) | 111 | 444 | 515 | |||||||||||||||||||
Provision for/(benefit from) income taxes |
(15 | ) | 57 | 101 | 143 | |||||||||||||||||||
Equity earnings in affiliates |
$ | 279 | 125 | 225 | $ | (629 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
279 | 100 | 279 | 343 | (629 | ) | 372 | |||||||||||||||||
Net income attributable to noncontrolling interests |
(93 | ) | (93 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income attributable to Crown Holdings |
$ | 279 | $ | 100 | $ | 279 | $ | 250 | $ | (629 | ) | $ | 279 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
42
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of September 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 31 | $ | 1 | $ | 447 | $ | 479 | ||||||||||||||||
Receivables, net |
11 | 1,306 | 1,317 | |||||||||||||||||||||
Intercompany receivables |
58 | 17 | $ | (75 | ) | |||||||||||||||||||
Inventories |
311 | 1,028 | 1,339 | |||||||||||||||||||||
Prepaid expenses and other current assets |
1 | 88 | 81 | 170 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
32 | 469 | 2,879 | (75 | ) | 3,305 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Intercompany debt receivables |
1,436 | 1,411 | 222 | (3,069 | ) | |||||||||||||||||||
Investments |
$ | 493 | 1,354 | 814 | (2,661 | ) | ||||||||||||||||||
Goodwill |
453 | 1,524 | 1,977 | |||||||||||||||||||||
Property, plant and equipment, net |
1 | 295 | 1,414 | 1,710 | ||||||||||||||||||||
Other non-current assets |
30 | 388 | 189 | 607 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 493 | $ | 2,853 | $ | 3,830 | $ | 6,228 | $ | (5,805 | ) | $ | 7,599 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and equity |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Short-term debt |
$ | 295 | $ | 295 | ||||||||||||||||||||
Current maturities of long-term debt |
$ | 1 | 65 | 66 | ||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 18 | $ | 32 | 352 | 1,619 | 2,021 | |||||||||||||||||
Intercompany payables |
17 | 58 | $ | (75 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
18 | 32 | 370 | 2,037 | (75 | ) | 2,382 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Long-term debt, excluding current maturities |
1,577 | 411 | 1,408 | 3,396 | ||||||||||||||||||||
Long-term intercompany debt |
575 | 735 | 1,448 | 311 | (3,069 | ) | ||||||||||||||||||
Postretirement and pension liabilities |
816 | 326 | 1,142 | |||||||||||||||||||||
Other non-current liabilities |
292 | 207 | 499 | |||||||||||||||||||||
Commitments and contingent liabilities |
||||||||||||||||||||||||
Noncontrolling interests |
280 | 280 | ||||||||||||||||||||||
Crown Holdings shareholders equity/(deficit) |
(100 | ) | 509 | 493 | 1,659 | (2,661 | ) | (100 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity/(deficit) |
(100 | ) | 509 | 493 | 1,939 | (2,661 | ) | 180 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 493 | $ | 2,853 | $ | 3,830 | $ | 6,228 | $ | (5,805 | ) | $ | 7,599 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
43
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 |
$ | 38 | $ | 1 | $ | 424 | $ | 463 | ||||||||||||||||
Receivables, net |
(6 | ) | 942 | 936 | ||||||||||||||||||||
Intercompany receivables |
28 | 13 | $ | (41 | ) | |||||||||||||||||||
Inventories |
281 | 779 | 1,060 | |||||||||||||||||||||
Prepaid expenses and other current assets |
$ | 1 | 1 | 84 | 104 | 190 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
1 | 39 | 388 | 2,262 | (41 | ) | 2,649 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Intercompany debt receivables |
1,428 | 1,231 | 383 | (3,042 | ) | |||||||||||||||||||
Investments |
308 | 1,197 | 670 | (2,175 | ) | |||||||||||||||||||
Goodwill |
453 | 1,531 | 1,984 | |||||||||||||||||||||
Property, plant and equipment, net |
1 | 301 | 1,308 | 1,610 | ||||||||||||||||||||
Other non-current assets |
26 | 482 | 148 | 656 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 309 | $ | 2,691 | $ | 3,525 | $ | 5,632 | $ | (5,258 | ) | $ | 6,899 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and equity |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Short-term debt |
$ | 241 | $ | 241 | ||||||||||||||||||||
Current maturities of long-term debt |
$ | 4 | $ | 1 | 153 | 158 | ||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 28 | 24 | 316 | 1,610 | 1,978 | ||||||||||||||||||
Intercompany payables |
13 | 28 | $ | (41 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
28 | 28 | 330 | 2,032 | (41 | ) | 2,377 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Long-term debt, excluding current maturities |
1,278 | 413 | 958 | 2,649 | ||||||||||||||||||||
Long-term intercompany debt |
377 | 1,017 | 1,363 | 285 | (3,042 | ) | ||||||||||||||||||
Postretirement and pension liabilities |
816 | 343 | 1,159 | |||||||||||||||||||||
Other non-current liabilities |
295 | 190 | 485 | |||||||||||||||||||||
Commitments and contingent liabilities |
||||||||||||||||||||||||
Noncontrolling interests |
325 | 325 | ||||||||||||||||||||||
Crown Holdings shareholders equity/(deficit) |
(96 | ) | 368 | 308 | 1,499 | (2,175 | ) | (96 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total equity/(deficit) |
(96 | ) | 368 | 308 | 1,824 | (2,175 | ) | 229 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 309 | $ | 2,691 | $ | 3,525 | $ | 5,632 | $ | (5,258 | ) | $ | 6,899 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
44
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net provided by/(used for) operating activities |
$ | 5 | $ | (25 | ) | $ | 139 | $ | (253 | ) | $ | (134 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities |
||||||||||||||||||||||||
Capital expenditures |
(27 | ) | (246 | ) | (273 | ) | ||||||||||||||||||
Proceeds from sale of property, plant and equipment |
25 | 25 | ||||||||||||||||||||||
Intercompany investing activities |
11 | 38 | 24 | $ | (73 | ) | ||||||||||||||||||
Other |
0 | 0 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by/(used for) investing activities |
11 | 11 | (197 | ) | (73 | ) | (248 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities |
||||||||||||||||||||||||
Proceeds from long-term debt |
900 | 521 | 1,421 | |||||||||||||||||||||
Payments of long-term debt |
(746 | ) | (1 | ) | (300 | ) | (1,047 | ) | ||||||||||||||||
Net change in revolving credit facility and short-term debt |
140 | 202 | 342 | |||||||||||||||||||||
Debt issuance costs |
(14 | ) | (3 | ) | (17 | ) | ||||||||||||||||||
Net change in long-term intercompany balances |
198 | (273 | ) | (112 | ) | 187 | ||||||||||||||||||
Common stock issued |
9 | 9 | ||||||||||||||||||||||
Common stock repurchased |
(212 | ) | (212 | ) | ||||||||||||||||||||
Purchase of noncontrolling interests |
(37 | ) | (11 | ) | (48 | ) | ||||||||||||||||||
Dividends paid |
(73 | ) | 73 | |||||||||||||||||||||
Dividends paid to noncontrolling interests |
(60 | ) | (60 | ) | ||||||||||||||||||||
Other |
11 | 11 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by/(used for) financing activities |
(5 | ) | 7 | (150 | ) | 474 | 73 | 399 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(1 | ) | (1 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net change in cash and cash equivalents |
(7 | ) | 23 | 16 | ||||||||||||||||||||
Cash and cash equivalents at January 1 |
38 | 1 | 424 | 463 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at September 30 |
$ | 0 | $ | 31 | $ | 1 | $ | 447 | $ | 0 | $ | 479 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
45
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2010
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors |
Eliminations | Total Company |
|||||||||||||||||||
Net provided by/(used for) operating activities |
$ | 14 | $ | 7 | $ | 167 | $ | (149 | ) | $ | 39 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities |
||||||||||||||||||||||||
Capital expenditures |
(20 | ) | (167 | ) | (187 | ) | ||||||||||||||||||
Proceeds from sale of property, plant and equipment |
1 | 19 | 20 | |||||||||||||||||||||
Intercompany investing activities |
2 | 15 | 35 | $ | (52 | ) | ||||||||||||||||||
Other |
1 | 2 | 3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by/(used for) investing activities |
2 | (3 | ) | (111 | ) | (52 | ) | (164 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities |
||||||||||||||||||||||||
Proceeds from long-term debt |
718 | 718 | ||||||||||||||||||||||
Payments of long-term debt |
(400 | ) | (1 | ) | (313 | ) | (714 | ) | ||||||||||||||||
Net change in revolving credit facility and short-term debt |
205 | 243 | 448 | |||||||||||||||||||||
Net change in long-term intercompany balances |
85 | 189 | (163 | ) | (111 | ) | ||||||||||||||||||
Common stock issued |
6 | 6 | ||||||||||||||||||||||
Common stock repurchased |
(105 | ) | (105 | ) | ||||||||||||||||||||
Purchase of noncontrolling interests |
(168 | ) | (168 | ) | ||||||||||||||||||||
Dividends paid |
(52 | ) | 52 | |||||||||||||||||||||
Dividends paid to noncontrolling interests |
(77 | ) | (77 | ) | ||||||||||||||||||||
Other |
(10 | ) | (12 | ) | (22 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by/(used for) financing activities |
(14 | ) | (16 | ) | (164 | ) | 228 | 52 | 86 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(5 | ) | (5 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net change in cash and cash equivalents |
(7 | ) | (37 | ) | (44 | ) | ||||||||||||||||||
Cash and cash equivalents at January 1 |
27 | 1 | 431 | 459 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at September 30 |
$ | 0 | $ | 20 | $ | 1 | $ | 394 | $ | 0 | $ | 415 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
46
PART I FINANCIAL INFORMATION
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
(in millions)
Introduction
The following discussion presents managements analysis of the results of operations for the three and nine months ended September 30, 2011 compared to the corresponding periods in 2010 and the changes in financial condition and liquidity from December 31, 2010. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010, along with the consolidated financial statements and related notes included in and referred to within this report.
Executive Overview
The Companys focus is to increase shareholder value by maximizing cash flow while investing in promising growth projects in emerging markets and generating sufficient returns which can be used to pay down debt and/or returned to shareholders. The Companys current growth projects include expansion in the emerging markets of Brazil, China, Eastern Europe and Southeast Asia. When the current lineup of expansion projects is completed, the Company will have built nine new beverage can plants and added 16 new production lines with approximately 13 billion units of incremental capacity to its year-end 2010 levels, a 27% increase in annual beverage can capacity. In the mature, developed markets of North America and Western Europe, the Company continues to focus on improving productivity and efficiency while reducing material and resource use and waste.
The key performance measure used by the Company is segment income, which is a non-GAAP measure. Segment income is defined by the Company as gross profit less selling and administrative expenses. Improving segment income is primarily dependent on the Companys ability to increase revenues and manage costs. The Companys key strategies for increasing revenues include investing in geographic markets with growth potential and developing innovative packaging products using proprietary technology. The Companys cost control efforts focus on improving operating efficiencies and managing material and labor costs, including pension and other benefit costs.
The Companys revenues and costs are impacted by the cost of aluminum and steel, the primary raw materials used to manufacture the Companys products, which have been subject to significant volatility in recent years. The Company attempts to pass-through these costs to its customers either through provisions that adjust the selling prices to certain customers based on changes in the market price of the applicable raw material, or through surcharges where no such provision exists. However, there can be no assurance that the Company will be able to fully recover from its customers the impact of any increased aluminum and steel costs. In addition, if the Company is unable to purchase steel or aluminum for a significant period of time, its operations would be disrupted.
Results of Operations
The foreign currency translation impacts referred to below were primarily due to changes in the euro and pound sterling in the Companys European segments, the Canadian dollar in the Companys Americas segments and the Chinese renminbi and Thai baht in the Companys Asian businesses included in non-reportable segments.
Net Sales and Segment Income
Net sales increased from $2,205 for the three months ended September 30, 2010 to $2,423 for the same period in 2011 primarily due to $137 from the pass-through of higher raw material costs and $92 from the impact of foreign currency translation partially offset by $11 from lower sales unit volumes as lower demand in the Companys food can businesses more than offset increased volumes in the Companys beverage can businesses. Net sales increased from $5,992 for the nine months ended September 30, 2010 to $6,586 for the same period in 2011 primarily due to $300 from the pass-through of higher raw material costs, $80 from increased sales unit volumes primarily due to organic growth and increased customer demand and $224 from the impact of foreign currency translation.
47
Item 2. | Managements Discussion and Analysis (Continued) |
Approximately 73% of net sales were generated outside the U.S. in the first nine months of 2011 compared to 71% for the same period in 2010. Sales of beverage cans and ends accounted for 51.6% and sales of food cans and ends accounted for 30.8% of consolidated net sales in the first nine months of 2011 compared to 51.1% and 31.4% for the same period in 2010.
Discussion and analysis of net sales and segment income by segment follows.
Americas Beverage
The Americas Beverage segment manufactures aluminum beverage cans and ends and steel crowns, commonly referred to as bottle caps, and supplies a variety of customers throughout the United States, Brazil, Canada, Colombia and Mexico. The Company recently completed construction of a new plant in Ponta Grossa, Brazil with the first line commencing commercial operations in the first quarter of 2011 and a second line commencing commercial operations in the second quarter of 2011. In addition, the Company commenced commercial operations at a second line in its plant in Estancia, Brazil in the second quarter of 2011. At full capacity and efficiency, these additions are expected to add capacity of 2.7 billion cans. The Company also plans to construct a new beverage can plant in Belem, Brazil which is expected to be completed in the second half of 2012.
Three months ended September 30, 2011
Net sales in the Americas Beverage segment increased from $547 for the three months ended September 30, 2010 to $594 for the same period in 2011. The increase is primarily due to $30 from the pass-through of higher raw material costs, primarily aluminum, $10 from increased sales unit volumes due to market growth in Brazil which offset lower sales unit volumes in North America and $7 from the impact of foreign currency translation. The increase in sales unit volumes is primarily due to the start of operations at the Companys plant in Ponta Grossa, Brazil which began commercial operations in the first quarter of 2011.
Segment income in the Americas Beverage segment increased from $74 for the three months ended September 30, 2010 to $77 for the same period in 2011. The increase is primarily due to favorable product mix.
Nine months ended September 30, 2011
Net sales in the Americas Beverage segment increased from $1,576 for the nine months ended September 30, 2010 to $1,697 for the same period in 2011. The increase is primarily due to $82 from the pass-through of higher raw material costs, primarily aluminum, $19 from increased sales unit volumes and favorable product mix and $20 from the impact of foreign currency translation. The increase in sales unit volumes is primarily due to the Companys plant in Ponta Grossa, Brazil which began commercial operations in 2011.
Segment income in the Americas Beverage segment increased from $204 for the nine months ended September 30, 2010 to $217 for the same period in 2011. The increase is primarily due to $9 from increased sales unit volumes and favorable product mix and $3 from lower operating costs.
North America Food
The North America Food segment manufactures steel and aluminum food cans and ends and metal vacuum closures and supplies a variety of customers in the United States and Canada.
Three months ended September 30, 2011
Net sales in the North America Food segment decreased from $275 for the three months ended September 30, 2010 to $271 for the same period in 2011. The decrease is primarily due to $20 from lower sales unit volumes in the United States partly due to poor weather conditions, partially offset by $13 from the pass-through of higher raw material costs, primarily tinplate, and $3 from the impact of foreign currency translation.
Segment income in the North America Food segment increased from $42 for the three months ended September 30, 2010 to $49 for the same period in 2011 primarily due to lower operating costs including the benefits from prior plant closures in Canada and favorable product mix.
48
Item 2. | Managements Discussion and Analysis (Continued) |
Nine months ended September 30, 2011
Net sales in the North America Food segment decreased from $686 for the nine months ended September 30, 2010 to $676 for the same period in 2011. The decrease is primarily due to $46 from lower sales unit volumes due to decreased customer demand in the United States partially offset by $29 from the pass-through of higher raw material costs, primarily tinplate, and $7 from the impact of foreign currency translation.
Segment income in the North America Food segment increased from $91 for the nine months ended September 30, 2010 to $115 for the same period in 2011. The increase is primarily due to $16 from lower operating costs including the benefits from prior plant closures in Canada and lower post-retirement benefits in the U.S. resulting from plan amendments in 2010 and $5 from inventory holding gains from the sale of inventory on hand at the end of 2010.
European Beverage
The Companys European Beverage segment manufactures steel and aluminum beverage cans and ends and supplies a variety of customers throughout Eastern and Western Europe, the Middle East and North Africa. In the second quarter of 2011, the Company commenced commercial operations of the second line at its plant in Kechnec, Slovakia. The second line is expected to add full annualized capacity of 750 million cans. In 2012, the Company expects to complete construction of a new plant in Osmaniye, Turkey which is expected to add full annualized capacity of 700 million cans.
Three months ended September 30, 2011
Net sales in the European Beverage segment increased from $411 for the three months ended September 30, 2010 to $451 for the same period in 2011. The increase is primarily due to $17 from the pass-through of higher raw material costs, $8 from increased sales unit volumes primarily in Slovakia and $15 from the impact of foreign currency translation.
Segment income in the European Beverage segment decreased from $70 for the three months ended September 30, 2010 to $61 for the same period in 2011 primarily due to increased costs, including lower productivity, which were not fully offset by increases in selling prices.
Nine months ended September 30, 2011
Net sales in the European Beverage segment increased from $1,164 for the nine months ended September 30, 2010 to $1,291 for the same period in 2011. The increase is primarily due to $51 from increased sales unit volumes primarily in Slovakia, $35 from the pass-through of higher raw material costs and $41 from the impact of foreign currency translation.
Segment income in the European Beverage segment decreased from $197 for the nine months ended September 30, 2010 to $176 for the same period in 2011 primarily due to increased costs, including lower productivity, which were not fully offset by increases in selling prices.
European Food
The European Food segment manufactures steel and aluminum food cans and ends, and metal vacuum closures and supplies a variety of customers throughout Europe and Africa.
Three months ended September 30, 2011
Net sales in the European Food segment increased from $558 for the three months ended September 30, 2010 to $623 for the same period in 2011. The increase is primarily due to $55 from the pass-through of higher raw material costs, primarily tinplate, and $42 from the impact of foreign currency translation partially offset by $32 from lower sales unit volumes.
Segment income in the European Food segment increased from $83 for the three months ended September 30, 2010 to $87 for the same period in 2011 primarily due to $7 from the impact of foreign currency translation, partially offset by lower sales unit volumes due to decreased customer demand partly attributable to damp weather conditions across much of Northern Europe.
49
Item 2. | Managements Discussion and Analysis (Continued) |
Nine months ended September 30, 2011
Net sales in the European Food segment increased from $1,383 for the nine months ended September 30, 2010 to $1,554 for the same period in 2011. The increase is primarily due to $98 from the pass-through of higher raw material costs, primarily tinplate, and $95 from the impact of foreign currency translation partially offset by $22 from lower sales unit volumes.
Segment income in the European Food segment increased from $182 for the nine months ended September 30, 2010 to $202 for the same period in 2011. The increase is primarily due to $13 from the impact of foreign currency translation and $12 from lower operating costs partially offset by $5 from lower sales unit volumes.
European Specialty Packaging
The European Specialty Packaging segment manufactures a wide variety of specialty containers, with numerous lid and closure variations and supplies a variety of customers throughout Europe.
Three months ended September 30, 2011
Net sales in the European Specialty Packaging segment increased from $108 for the three months ended September 30, 2010 to $122 for the same period in 2011. The increase is primarily due to $8 from the pass-through of higher raw material costs and $10 from the impact of foreign currency translation partially offset by $4 from lower sales unit volumes.
Segment income in the European Specialty Packaging segment was relatively unchanged in the quarter decreasing from $12 for the three months ended September 30, 2010 to $11 for the same period in 2011.
Nine months ended September 30, 2011
Net sales in the European Specialty Packaging segment increased from $296 for the nine months ended September 30, 2010 to $341 for the same period in 2011. The increase is primarily due to $20 from the pass-through of higher raw material costs and $23 from the impact of foreign currency translation.
Segment income in the European Specialty Packaging segment increased from $23 for the nine months ended September 30, 2010 to $30 for the same period in 2011. The increase is primarily due to $5 from increased sales unit volumes and favorable product mix and $2 from the impact of foreign currency translation.
Non-reportable Segments
The Companys non-reportable segments primarily include its aerosol can businesses in North America, Europe and Thailand, its beverage can businesses in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam, its food can and closures business in Thailand and its tooling and equipment operations in the United States and United Kingdom.
In the second quarter of 2011, the Company commenced commercial operations at its new beverage can plant in Hangzhou, China. In October 2011, the Company began production on the second beverage can line at its plant in Phnom Penh, Cambodia. In 2012, the Company expects to complete new plants in Putian, Ziyang and Heshan, China and to expand capacity in Ho Chi Minh City, Vietnam.
Three months ended September 30, 2011
Net sales in non-reportable segments increased from $306 for the three months ended September 30, 2010 to $362 for the same period in 2011 primarily due to $33 from increased beverage can sales and the pass-through of higher raw material costs in China, Thailand and Vietnam, $9 from increased beverage equipment sales to can manufacturers and $13 from the impact of foreign currency translation. Growth in sales unit volumes in China, Thailand and Vietnam is primarily the result of increased regional demand driven by macroeconomic factors such as GDP growth and increased consumer spending.
Segment income in non-reportable segments increased from $57 for the three months ended September 30, 2010 to $62 for the same period in 2011 primarily due to $3 from increased sales unit volumes in China, Thailand and Vietnam and $2 from the impact of foreign currency translation.
50
Item 2. | Managements Discussion and Analysis (Continued) |
Nine months ended September 30, 2011
Net sales in non-reportable segments increased from $887 for the nine months ended September 30, 2010 to $1,027 for the same period in 2011 primarily due to $79 from increased beverage can sales and the pass-through of higher raw material costs in Cambodia, China, Thailand and Vietnam, $26 from increased beverage equipment sales to can manufacturers and $38 from the impact of foreign currency translation partially offset by $9 from the April 2010 sale of the Companys plastic closures business in Brazil. Growth in sales unit volumes in Cambodia, China, Thailand and Vietnam is primarily the result of increased regional demand driven by macroeconomic factors such as GDP growth and increased consumer spending.
Segment income in non-reportable segments increased from $149 for the nine months ended September 30, 2010 to $174 for the same period in 2011 primarily due to $8 from increased sales unit volumes in Cambodia, China, Thailand and Vietnam, $7 from increased beverage equipment sales and $6 from the impact of foreign currency translation.
Corporate and Unallocated Expense
Corporate and unallocated expenses increased from $43 for the three months ended September 30, 2010 to $47 for the same period in 2011 primarily due to $8 from increased legal and professional fees partially offset by $3 from lower pension expense and $1 from other costs.
Corporate and unallocated expenses increased from $140 for the nine months ended September 30, 2010 to $153 for the same period in 2011 primarily due to a $20 benefit from the settlement of a legal dispute unrelated to the Companys operations in 2010 that did not recur in 2011 and $10 from increased legal and professional fees partially offset by $11 from lower pension expense and $2 from lower stock compensation costs.
Cost of Products Sold (Excluding Depreciation and Amortization)
Cost of products sold, excluding depreciation and amortization, increased from $1,788 for the three months ended September 30, 2010 to $1,980 for the same period in 2011 primarily due to increased aluminum and tinplate costs and $76 from the impact of foreign currency translation.
Cost of products sold, excluding depreciation and amortization, increased from $4,902 for the nine months ended September 30, 2010 to $5,395 for the same period in 2011 primarily due to increased aluminum and tinplate costs and $187 from the impact of foreign currency translation.
Depreciation and Amortization
Depreciation and amortization increased from $40 for the three months ended September 30, 2010 to $47 for the same period in 2011 primarily due to increased depreciation from recently completed expansion projects and $2 from the impact of foreign currency translation. Depreciation and amortization increased from $128 for the nine months ended September 30, 2010 to $132 for the same period in 2011 primarily due to the impact of foreign currency translation.
Selling and Administrative Expense
Selling and administrative expense increased from $82 for the three months ended September 30, 2010 to $96 for the same period in 2011. The increase is primarily due to $8 from increased legal and professional fees and $4 from the impact of foreign currency translation.
Selling and administrative expense increased from $256 for the nine months ended September 30, 2010 to $298 for the same period in 2011 primarily due to the $20 of benefit from the settlement of a legal dispute unrelated to the Companys operations in 2010 that did not recur in 2011, $10 from increased legal and professional fees and $11 from the impact of foreign currency translation.
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Item 2. | Managements Discussion and Analysis (Continued) |
Provision for Restructuring
For the nine months ended September 30, 2011, the Company recorded a pre-tax charge of $27 for restructuring costs; including $20 related to the relocation of its European Division headquarters and management to Switzerland, $4 related to severance costs in its European Specialty Packaging segment and $3 related to prior restructurings in its North America Food segment. The European Division headquarters charge includes $19 for the estimated employee compensation costs resulting from an intercompany payment related to the relocation and is expected to be paid over the next one to four years. The Company expects that the restructuring in its European Specialty Packaging segment and the 2009 and 2010 restructurings in its North America Food segment, when fully implemented, may result in annual pre-tax savings of $3 and $25. However, there can be no assurance that any such pre-tax savings will be realized.
For the nine months ended September 30, 2010, the Company recorded a pre-tax charge of $41 for restructuring costs, including $25 related to plant closures in the Companys North America Food segment and $16 related to the relocation of the Companys European Division headquarters and management to Switzerland.
Loss from Early Extinguishments of Debt
For the nine months ended September 30, 2011, the Company recorded a pre-tax charge of $32 in connection with the repayment of its $600 outstanding 7.75% senior secured notes due 2015 and its 83 ($121) 6.25% first priority senior secured notes due 2011.
For the nine months ended September 30, 2010, the Company recorded a pre-tax charge of $16 in connection with the purchase of 75 ($99) principal amount of its 150 6.25% first priority senior secured notes due 2011 and the redemption of its outstanding $200 principal amount of 7.625% senior notes due 2013.
Interest Expense
Interest expense increased from $55 for the three months ended September 30, 2010 to $58 for the same period in 2011 primarily due to $2 from the impact of foreign currency translation. Interest expense increased from $147 for the nine months ended September 30, 2010 to $174 for the same period in 2011 primarily due to higher borrowings and $4 from the impact of foreign currency translation.
The higher borrowings were primarily to fund the Companys capacity expansion projects, to repurchase shares of the Companys stock and to purchase additional ownership interests from noncontrolling interests.
Provision for Income Taxes
The Companys effective income tax rate increased from 23% for the three months ended September 30, 2010 to 36% for the same period in 2011. The increase is primarily due to $25 of valuation allowance adjustments to recognize the impact of a tax law change in France that limits the amount of tax loss carryforwards that can be used in a year.
The Companys effective income tax rate increased from 28% for the nine months ended September 30, 2010 to 34% for the same period in 2011. The increase is primarily due to the tax law change in France described above and a tax charge of $20 from the relocation of the Companys European Division headquarters and management to Switzerland.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests decreased from $35 for the three months ended September 30, 2010 to $30 for the same period in 2011 and from $93 for the nine months ended September 30, 2010 to $83 for the same period in 2011. For the three and nine months ended September 30, 2011, the decreases included $2 and $6 from the acquisition of additional ownership interests in certain operations in China and Vietnam from the noncontrolling interests.
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Item 2. | Managements Discussion and Analysis (Continued) |
Liquidity and Capital Resources
Operating Activities
Net cash used for operating activities increased from $39 provided by operating activities for the nine months ended September 30, 2010 to $134 used for operating activities for the same period in 2011 primarily due to increased inventories and receivables, as described below.
Inventories increased from $1,060 at December 31, 2010 to $1,339 at September 30, 2011, including a decrease of $20 from the impact of foreign currency translation, and impacted operating cash flows for the nine months ended September 30, 2011 by $299 compared to $120 for the same period in 2010. The increase in inventories is primarily due to $90 from higher raw material costs, $80 from capacity expansion and other increases including seasonal build and lower than anticipated customer demand. Seasonal build includes increased inventory levels for anticipated customer demand in Asia and Brazil which enter their peak periods in the fourth quarter.
Receivables increased from $936 at December 31, 2010 to $1,317 at September 30, 2011, including a decrease of $33 from the impact of foreign currency translation, and impacted operating cash flows for the nine months ended September 30, 2011 by $419 compared to $318 for the same period in 2010 after adjusting 2010 by $246 from the impact of adopting new accounting guidance related to securitizations. The increase in receivables since December 2010 is primarily due to the pass-through of higher raw material costs and increased sales unit volumes. Sales in the month of September 2011 were higher than sales in the month of December 2010. Sales generally increase each month of the year until peaking in the third quarter. As a result, receivables generally increase through the third quarter of each year. Days sales outstanding for trade receivables decreased from 45 for the three months ended September 30, 2010 to 42 for the same period in 2011.
Investing Activities
Net cash used for investing activities increased from $164 for the nine months ended September 30, 2010 to $248 for the same period in 2011 primarily due to an increase in capital expenditures related to the Companys current beverage can capacity expansion projects in Brazil, China, Eastern Europe and Southeast Asia. Currently, the Company expects capital expenditures of approximately $400 in 2011 and $325 in 2012.
Financing activities
Net cash provided by financing activities increased from $86 for the nine months ended September 30, 2010 to $399 for the same period in 2011 primarily to fund the Companys capacity expansion projects and working capital.
For the nine months ended September 30, 2011, the Company repurchased $212 of its common stock pursuant to the program authorized by its Board of Directors to repurchase up to $600 of the Companys common stock through the end of 2012. As of September 30, 2011, $394 of the Companys outstanding common stock may still be purchased under this program.
In September 2011, the Company purchased the remaining public ownership interests in Hellas Can, the Companys public holding company in Greece for $65. The Company recorded a liability for the purchase price, which was included in accounts payable and accrued liabilities, at September 30, 2011 and paid the cash in October 2011.
Liquidity
As of September 30, 2011, the Company had $668 of borrowing capacity available under its revolving credit facility, equal to the total facility of $1,200 less $472 of borrowings and $60 of outstanding standby letters of credit.
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Item 2. | Managements Discussion and Analysis (Continued) |
As of September 30, 2011, $439 of the Companys $479 cash and cash equivalents was located outside the U.S. The Company is not currently aware of any legal restrictions under foreign law that materially impact its access to cash held outside the U.S.
The Company funds its cash needs in the U.S. through a combination of cash flows generated in the U.S. and dividends from certain foreign subsidiaries. The Company records current and/or deferred U.S. taxes for the earnings of these foreign subsidiaries. For certain other foreign subsidiaries, the Company considers earnings indefinitely reinvested and has not recorded any U.S. taxes. Of cash and cash equivalents located outside the U.S., $310 was held by subsidiaries for which earnings are considered indefinitely reinvested. While based on current operating plans the Company does not foresee a need to repatriate these funds, if such earnings were repatriated the Company would be required to record any incremental U.S. taxes on the repatriated funds.
The Companys debt agreements contain covenants that provide limits on 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, allowing the Company to incur additional debt or make otherwise restricted payments. The amount of restricted payments permitted to be made, including dividends and repurchases of the Companys common stock, is generally limited to the cumulative excess of $200 plus 50% of adjusted net income plus proceeds from the exercise of employee stock options over the aggregate of restricted payments made since July 2004. Adjustments to net income may include, but are not limited to, items such as asset impairments, gains and losses from asset sales and early extinguishments of debt. The Companys revolving credit facility and term loans also contain various financial covenants.
Capital Resources
As of September 30, 2011, the Company has approximately $91 of capital commitments primarily related to its expansion projects in Brazil, Cambodia, China, Turkey and Vietnam. The Company expects to fund these commitments primarily through cash flows generated from operations and to fund any excess needs over available cash through external borrowings.
Contractual Obligations
Purchase obligations related to raw materials and utilities increased $374 for 2012, $441 for 2013, $577 for 2014 and $92 for 2015, compared to amounts provided within Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
Commitments and Contingent Liabilities
Information regarding the Companys commitments and contingent liabilities appears in Part I within Item 1 of this report under Note I, entitled Commitments and Contingent Liabilities, to the consolidated financial statements, which information is incorporated herein by reference.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require that management make numerous estimates and assumptions. Actual results could differ from these estimates and assumptions, impacting the reported results of operations and financial condition of the Company. Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations and Note A to the consolidated financial statements contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2010 describe the significant accounting estimates and policies used in the preparation of the consolidated financial statements. There have been no significant changes in the Companys critical accounting policies during the first nine months of 2011.
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Item 2. | Managements Discussion and Analysis (Continued) |
Recently Issued Accounting Guidance
In June 2011, the FASB issued changes to the presentation of comprehensive income. These changes give companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The FASB eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. The FASB did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Additionally, no changes were made to the calculation and presentation of earnings per share. These changes become effective for the Company on January 1, 2012. The Company is currently evaluating these changes to determine which option will be chosen for the presentation of comprehensive income. Other than the change in presentation, the Company has determined these changes will not have an impact on the Consolidated Financial Statements.
In September 2011, the FASB issued changes to the testing of goodwill for impairment. These changes give companies the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, go directly to the two-step quantitative impairment test. These changes become effective for the Company for any goodwill impairment test performed on January 1, 2012 or later, although early adoption is permitted. The Company is currently evaluating whether to early adopt these changes effective for its review of goodwill in the fourth quarter of 2011. As these changes should not affect the outcome of the impairment analysis of a reporting unit, the Company has determined these changes will not have an impact on the Consolidated Financial Statements.
Forward-Looking Statements
Statements included herein in Managements Discussion and Analysis of Financial Condition and Results of Operations, including, but not limited to, in the discussions of asbestos in Note H and commitments and contingencies in Note I to the consolidated financial statements included in this Quarterly Report on Form 10-Q and also in Part I, Item 1: Business and Item 3: Legal Proceedings and in Part II, Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations, within the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2010, 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 oral or written statements which are also forward-looking statements.
These forward-looking statements are made based upon managements expectations and beliefs concerning future events impacting the Company and, therefore, involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
While the Company periodically reassesses material trends and uncertainties affecting the Companys results of operations and financial condition in connection with the preparation of Managements Discussion and Analysis of Financial Condition and Results of Operations and certain other sections contained in the Companys quarterly, annual or other reports filed with the Securities and Exchange Commission (SEC), the Company does not intend to review or revise any particular forward-looking statement in light of future events.
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Item 2. | Managements Discussion and Analysis (Continued) |
A discussion of important factors that could cause the actual results of operations or financial condition of the Company to differ from expectations has been set forth in the Companys Annual Report on Form 10-K for the year ended December 31, 2010 within Part II, Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations under the caption Forward Looking Statements and is incorporated herein by reference. Some of the factors are also discussed elsewhere in this Form 10-Q and in prior Company filings with the SEC. In addition, other factors have been or may be discussed from time to time in the Companys SEC filings.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange and interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by the counterparties. These instruments are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success in using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales arrangements that permit the pass-through of commodity prices and foreign exchange rate risks to customers. The Companys objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. For further discussion of the Companys use of derivative instruments and their fair values at September 30, 2011, see Note E to the consolidated financial statements included in this Quarterly Report on Form 10-Q.
As of September 30, 2011, the Company had approximately $1,388 principal floating interest rate debt. A change of 0.25% in these floating interest rates would change annual interest expense by approximately $3 before tax.
Item 4. | Controls and Procedures |
As of the end of the period covered by this Quarterly Report on Form 10-Q, management, including the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation and as of the end of the quarter for which this report is made, the Companys Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective. Disclosure controls and procedures ensure that information to be disclosed in reports that the Company files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and terms of the Securities and Exchange Commission, and ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There has been no change in internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
For information regarding the Companys potential asbestos-related liabilities and other litigation, see Note H entitled Asbestos-Related Liabilities and Note I entitled Commitments and Contingent Liabilities, respectively, to the consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
Item 1A. | Risk Factors |
In addition to the other information set forth in this report, carefully consider the factors discussed in Item 1A to Part I in the Companys Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect the Companys business, financial condition or future results. The risks described in the Companys Quarterly Report on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Companys business, financial condition and/or operating results.
Item 2. | Unregistered Sale of Equity Securities and Use of Proceeds |
The Company made no purchases of its equity securities during the third quarter of 2011.
The following table provides information about the Companys purchase of equity securities during the nine months ended September 30, 2011:
Total Number of Shares Purchased |
Average Price Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Programs |
Approximate Dollar Value of Shares that May Yet Be Purchased under the Programs As of the end of the period (millions of dollars) |
|||||||||||||
May |
5,018,701 | $ | 39.85 | 5,018,701 | $ | 394 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
5,018,701 | $ | 39.85 | 5,018,701 | $ | 394 | ||||||||||
|
|
|
|
|
|
|
|
In December 2010, the Company entered into an agreement 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 million. The purchase price of these shares was subject to an adjustment based on the Companys 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 million.
In May 2011, the Company entered into an agreement 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 million.
On December 9, 2010, the Companys Board of Directors authorized the repurchase of up to $600 million of the Companys common stock through the end of 2012. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. This repurchase authorization replaces all previous authorizations. As of September 30, 2011, $394 million of the Companys outstanding common stock may still be purchased under this program.
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Item 4. | (Removed and Reserved.) |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by John W. Conway, Chairman of the Board, President and Chief Executive Officer of Crown Holdings, Inc. and Timothy J. Donahue, Executive Vice President and Chief Financial Officer of Crown Holdings, Inc. | |
101 | The following financial information from the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010, (ii) Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, (iv) Consolidated Statements of Changes in Equity and Comprehensive Income for the nine months ended September 30, 2011 and 2010 and (v) Notes to Consolidated Financial Statements. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Crown Holdings, Inc. Registrant | ||
By: | /s/ Kevin C. Clothier | |
Kevin C. Clothier | ||
Vice President and Corporate Controller |
Date: November 7, 2011
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