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CROWN HOLDINGS INC 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32
Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

 

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

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 0-50189

 

 

CROWN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Pennsylvania   75-3099507

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

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

215-698-5100

(registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

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

 

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

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

There were 162,150,980 shares of Common Stock outstanding as of July 30, 2010.

 

 

 


Crown Holdings, Inc.

PART I – FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except share and per share data)

(Unaudited)

 

Three months ended June 30

   2010     2009  

Net sales

   $ 2,010      $ 2,055   
                

Cost of products sold, excluding depreciation and amortization

     1,631        1,676   

Depreciation and amortization

     44        46   
                

Gross profit

     335        333   
                

Selling and administrative expense

     95        90   

Provision for restructuring

     2        1   

Asset impairments and sales

     (6     (1

Interest expense

     45        62   

Interest income

     (2     (1
                

Income before income taxes and equity earnings

     201        182   

Provision for income taxes

     57        44   

Equity earnings in affiliates

       1   
                

Net income

     144        139   

Net income attributable to noncontrolling interests

     (32     (34
                

Net income attributable to Crown Holdings

   $ 112      $ 105   
                

Earnings per share attributable to Crown Holdings common shareholders:

    

Basic

   $ 0.70      $ 0.66   
                

Diluted

   $ 0.69      $ 0.65   
                

Weighted average common shares outstanding:

    

Basic

     160,961,879        158,920,842   

Diluted

     163,292,749        161,728,278   

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

 

2


Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except share and per share data)

(Unaudited)

 

Six months ended June 30

   2010     2009  

Net sales

   $ 3,787      $ 3,739   
                

Cost of products sold, excluding depreciation and amortization

     3,114        3,068   

Depreciation and amortization

     88        93   
                

Gross profit

     585        578   
                

Selling and administrative expense

     174        179   

Provision for restructuring

     24        2   

Asset impairments and sales

     (7     (1

Interest expense

     92        123   

Interest income

     (3     (3

Translation and foreign exchange

     (2     4   
                

Income before income taxes and equity earnings

     307        274   

Provision for income taxes

     96        68   

Equity loss in affiliates

       (4
                

Net income

     211        202   

Net income attributable to noncontrolling interests

     (58     (57
                

Net income attributable to Crown Holdings

   $ 153      $ 145   
                

Earnings per share attributable to Crown Holdings common shareholders:

    

Basic

   $ 0.95      $ 0.91   
                

Diluted

   $ 0.94      $ 0.90   
                

Weighted average common shares outstanding:

    

Basic

     160,839,086        158,707,472   

Diluted

     163,197,094        161,508,765   

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

 

3


Crown Holdings, Inc.

CONSOLIDATED BALANCE SHEETS (Condensed)

(In millions)

(Unaudited)

 

     June 30,
2010
   December 31,
2009
 

Assets

     

Current assets

     

Cash and cash equivalents

   $ 412    $ 459   

Receivables, net

     1,095      714   

Inventories

     1,076      960   

Prepaid expenses and other current assets

     122      109   
               

Total current assets

     2,705      2,242   
               

Goodwill

     1,884      2,050   

Property, plant and equipment, net

     1,418      1,509   

Other non-current assets

     694      731   
               

Total

   $ 6,701    $ 6,532   
               

Liabilities and equity

     

Current liabilities

     

Short-term debt

   $ 234    $ 30   

Current maturities of long-term debt

     38      29   

Accounts payable and accrued liabilities

     1,819      1,866   
               

Total current liabilities

     2,091      1,925   
               

Long-term debt, excluding current maturities

     2,707      2,739   

Postretirement and pension liabilities

     1,000      1,037   

Other non-current liabilities

     425      448   

Commitments and contingent liabilities (Note K)

     

Noncontrolling interests

     373      389   

Crown Holdings shareholders’ equity/(deficit)

     105      (6
               

Total equity

     478      383   
               

Total

   $ 6,701    $ 6,532   
               

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

 

4


Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)

(In millions)

(Unaudited)

 

Six months ended June 30

   2010     2009  

Cash flows from operating activities

    

Net income

   $ 211      $ 202   

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

    

Depreciation and amortization

     88        93   

Provision for restructuring

     24        2   

Asset impairments and sales

     (7     (1

Pension expense

     57        62   

Pension contributions

     (28     (31

Stock-based compensation

     15        9   

Changes in assets and liabilities:

    

Receivables

     (466     (195

Inventories

     (188     (214

Accounts payable and accrued liabilities

     66        (108

Other, net

     34        18   
                

Net cash used for operating activities

     (194     (163
                

Cash flows from investing activities

    

Capital expenditures

     (104     (75

Proceeds from sale of property, plant and equipment

     16        1   

Other

     3        (4
                

Net cash used for investing activities

     (85     (78
                

Cash flows from financing activities

    

Proceeds from long-term debt

     47        396   

Payments of long-term debt

     (426     (6

Net change in revolving credit facility and short-term debt

     679        (15

Common stock issued

     4        4   

Common stock repurchased

     (5     (4

Dividends paid to noncontrolling interests

     (49     (27

Other

     6        (4
                

Net cash provided by financing activities

     256        344   
                

Effect of exchange rate changes on cash and cash equivalents

     (24     7   
                

Net change in cash and cash equivalents

     (47     110   

Cash and cash equivalents at January 1

     459        596   
                

Cash and cash equivalents at June 30

   $ 412      $ 706   
                

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/(LOSS)

(In millions) (Unaudited)

 

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

Balance at January 1, 2009

   $ 929    $ 1,510      ($ 428   ($ 2,195   ($ 133   ($ 317   $ 353      $ 36   

Comprehensive income:

                 

Net income

          145            145        57        202   

Translation adjustments

            78          78        1        79   

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

            31          31          31   

Derivatives qualifying as hedges

            32          32          32   
                                   

Total comprehensive income

                286        58        344   
                                   

Dividends paid

                  (27     (27

Restricted stock awarded

        (3         3         

Stock-based compensation

        9              9          9   

Common stock issued – benefit plans

        2            2        4          4   

Common stock repurchased

        (3         (1     (4       (4

Acquisition of business

                  2        2   
                                                               

Balance at June 30, 2009

   $ 929    $ 1,515      ($ 283   ($ 2,054   ($ 129   ($ 22   $ 386      $ 364   
                                                               

Balance at January 1, 2010

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

Comprehensive income:

                 

Net income

          153            153        58        211   

Translation adjustments

            (74       (74     (14     (88

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

            36          36          36   

Derivatives qualifying as hedges

            (18       (18     (2     (20
                                   

Total comprehensive income

                97        42        139   
                                   

Dividends paid

                  (49     (49

Restricted stock awarded

        (3         3         

Stock-based compensation

        15              15          15   

Common stock issued – benefit plans

        2            2        4          4   

Common stock repurchased

        (4         (1     (5       (5

Sale of business

                  (9     (9
                                                               

Balance at June 30, 2010

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

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

 

6


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share and statistical data)

(Unaudited)

A. Statement of Information Furnished

The consolidated financial statements include the accounts of Crown Holdings, Inc. and its consolidated subsidiaries (the “Company”). The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with Form 10-Q instructions. In the opinion of management, these consolidated financial statements contain all adjustments of a normal and recurring nature necessary for a fair statement of the financial position of Crown Holdings, Inc. as of June 30, 2010 and the results of its operations for the three and six month periods ended June 30, 2010 and 2009 and of its cash flows for the six months ended June 30, 2010 and 2009. The results reported in these consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. These results have been determined on the basis of accounting principles generally accepted in the United States of America (“GAAP”).

Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Certain reclassifications of prior years’ data have been made to conform to the current year presentation.

B. Recent Accounting and Reporting Pronouncements

Effective January 1, 2010, the Company adopted the FASB’s amended guidance on transfers of financial assets. The guidance removes the concept of a qualifying special-purpose entity, establishes a new “participating interest” definition that must be met for transfers of portions of financial assets to be eligible for sale accounting and clarifies and amends the derecognition criteria for a transfer to be accounted for as a sale. As a result of adopting the guidance, the Company’s current receivables securitization and certain factoring facilities are now accounted for as secured borrowings. The impact of adopting the new guidance on the Company’s Consolidated Balance Sheet was to increase both the Company’s receivables and short-term debt as of June 30, 2010 by $215. The impact of adopting the new guidance on the Company’s Consolidated Statement of Cash Flows was to both increase net cash used for operating activities and net cash provided by financing activities by $215 for the six months ended June 30, 2010. The adoption of the guidance did not materially impact the Company’s results of operations. In accordance with the guidance, prior period amounts have not been restated. See Note D for additional information.

Effective January 1, 2010, the Company adopted the FASB’s amended guidance on the consolidation of variable interest entities (VIEs). The guidance requires an entity to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the entity (1) has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Also, the guidance requires an ongoing reconsideration of the primary beneficiary and amends the events that trigger a reassessment of whether an entity is a VIE. The adoption of the guidance had no impact on the Company’s financial statements.

The FASB provided guidance that requires new disclosures about fair value measurements and clarifies existing disclosure requirements. The new disclosures include (1) transfers in and out of level 1 and level 2 fair value measurements and (2) a gross presentation of activities within level 3 fair value measurements. The clarifications to existing disclosures include a requirement to provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity is also required to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements in either level 2 or level 3. The disclosures were required beginning with our quarter ended March 31, 2010 except for the

 

7


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

requirement to disclose gross presentation of activities within level 3, which is not effective until the first quarter of 2011. The disclosure requirement for transfers in and out of level 1 and level 2 had no impact on the Company. The requirement to disclose gross presentation of activities within level 3 is expected to affect only the Company’s level 3 pension assets. See Note F for additional information.

C. Stock-Based Compensation

During the first six months of 2010, the Company awarded 373,149 shares of restricted stock to certain senior executives, including 143,525 shares with time-vesting requirements and 229,624 shares with a market performance feature. The time-vested awards vest ratably over three years and had a grant-date fair value of $26.80 per share. The performance shares vest at the end of three years based on the results of a market performance criterion. The number of performance shares that will ultimately vest is based on the level of performance achieved, ranging between 0% and 200% of the shares awarded, and will be settled in stock. The estimated fair value of each performance share was calculated as $36.25 using a Monte Carlo valuation model. During the first six months of 2010, 246,693 shares of previously issued service-based awards and 136,003 shares of previously issued performance-based shares vested. The weighted average fair value of these shares on the vesting date was $26.10 per share. Also during the first six months of 2010, 108,177 performance-based shares were issued because the Company exceeded the target level of performance shares established on the original date of the related awards by approximately 80%. These shares were issued without restriction.

As of June 30, 2010, outstanding stock options included 5,368,808 shares that were fully vested or expected to vest of which 3,562,857 were exercisable. The weighted average exercise price of the options that were fully vested or expected to vest was $16.71, the aggregate intrinsic value was $45, and the weighted average remaining contractual life was 5.0 years. The weighted average exercise price of options that were currently exercisable was $13.27, the aggregate intrinsic value was $42, and the weighted average remaining contractual life was 4.2 years.

At June 30, 2010, unrecognized compensation cost related to unvested stock options and restricted stock was $13 and $8, respectively. The weighted average period over which the expense is expected to be recognized is 2.7 years for stock options and 1.4 years for restricted stock.

The Company received cash proceeds of $1 from the exercise of stock options in each of the second quarters of 2010 and 2009 and $3 and $4 in the first six months of 2010 and 2009, respectively.

D. Receivables

The Company utilizes receivable securitization facilities in the normal course of business as part of its management of cash flow activities. Under its committed $200 North American facility, the Company sells receivables, on a revolving basis, to a wholly-owned, bankruptcy-remote subsidiary. The subsidiary was formed for the sole purpose of buying and selling receivables generated by the Company and, in turn, sells undivided percentage ownership interests in the pool of purchased receivables to a syndicate of financial institutions. The Company generally retains an ownership interest in the pool of receivables that is subordinated to the ownership interests in the pool of receivables that are sold to third parties. Accordingly, the Company has determined that transactions under these facilities do not qualify for sale accounting and has therefore accounted for the transactions as secured borrowings.

Under the Company’s committed €120 European securitization facility, certain subsidiaries in the U.K. and France sell receivables to an entity formed in France for the sole purpose of buying receivables from the selling subsidiaries. The buying entity finances the purchase of receivables through the issuance of senior units to a third party. Since the units issued to the third party are senior to the interests retained by the Company, the Company has determined that transactions under these facilities do not qualify for sale accounting and has therefore accounted for the transactions as secured borrowings.

In addition, the Company utilizes receivables factoring arrangements in the normal course of business as part of managing cash flow activities for its European operations. Under the arrangements, the Company sells its entire interest in specified receivables to various third parties. Where the Company has surrendered control over factored receivables, the Company has accounted for the transfers as sales.

 

8


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

The Company’s continuing involvement in factored receivables accounted for as sales is limited to servicing the receivables. The Company receives adequate compensation for servicing the receivables; therefore, no servicing asset or liability was recorded.

At June 30, 2010, included in the Company’s Consolidated Balance Sheet were $215 of receivables that were securitized or factored and $215 of associated liabilities. In addition, at June 30, 2010, the Company derecognized receivables of $109 related to factoring arrangements accounted for as sales. At December 31, 2009, receivables of $392 securitized or factored under the Company’s facilities were accounted for as sales and reflected as a reduction of receivables in the Company’s Consolidated Balance Sheet.

For the three and six month periods ended June 30, 2010, the Company recorded expenses related to securitization and factoring facilities of $3 and $4 as interest expense. For the three and six month periods ended June 30, 2009, the Company recorded expenses related to securitization and factoring facilities of $1 and $2 as interest expense.

Collections from customers on securitized or factored receivables and related fees and costs are included in operating activities in the Consolidated Statements of Cash Flows. Proceeds and repayments from issuances of ownership interests in the consolidated entity that buys and sells the Company’s receivables under its securitization facilities as well as amounts received from factors for transactions that do not qualify for sale accounting are included in financing activities in the Consolidated Statements of Cash Flows.

E. Inventories

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

 

     June 30,
2010
   December  31,
2009

Finished goods

   $ 465    $ 368

Work in process

     135      102

Raw materials and supplies

     476      490
             
   $ 1,076    $ 960
             

F. 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.

 

9


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

The following table sets forth the fair value hierarchy of the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2010 and December 31, 2009, respectively.

 

               Fair value at
reporting date using
     June  30,
2010
   Dec.  31,
2009
   Level 1    Level 2
           2010    2009    2010    2009

Assets

                 

Derivative instruments:

                 

Foreign exchange

   $ 27    $ 14          $ 27    $ 14

Commodities

     18      31    $ 18    $ 31      
                                         

Total

   $ 45    $ 45    $ 18    $ 31    $ 27    $ 14
                                         

Liabilities

                 

Derivative instruments:

                 

Cross-currency swaps

   $ 8    $ 49          $ 8    $ 49

Foreign exchange

     34      17            34      17

Commodities

     13      1    $ 13    $ 1      
                                         

Total

   $ 55    $ 67    $ 13    $ 1    $ 42    $ 66
                                         

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

The Company applies a market approach to value its commodity price hedge contracts. Prices from observable markets are used to develop the fair value of these financial instruments and they are reported under Level 1. The Company uses an income approach to value its outstanding cross-currency swaps and 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 prevailing interest rates and foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy.

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

G. Derivative Financial Instruments

In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange, interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes.

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

For derivative financial instruments accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the manner in which effectiveness will be assessed. The Company formally assesses, both at inception and at least quarterly thereafter, whether the derivative financial instruments used in hedging transactions are effective in offsetting changes in fair value or cash flows of the related underlying exposures. Any ineffective portion of the change in fair value of the instruments is recognized immediately in earnings.

 

10


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

Cash Flow Hedges

The Company designates certain derivative financial instruments as cash flow hedges. No components of the hedging instruments are excluded from the assessment of hedge effectiveness. Changes in fair value of outstanding derivatives accounted for as cash flow hedges, except any ineffective portion, are recorded in other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon release from comprehensive income is the same as that of the underlying exposure. Contracts outstanding at June 30, 2010 mature between one and thirty 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 may use cross-currency and interest rate swaps to manage its portfolio of fixed and variable debt, including foreign-currency denominated intercompany debt, and to manage the impact of debt on local cash flows. Currently the Company has one cross-currency swap outstanding, which matures in November 2010, with a notional value of $235. The swap is effective in mitigating the risk of changes in foreign exchange and interest rates because the critical terms of the swap, including notional amount, interest reset date, maturity date and underlying market index, match those of the foreign currency-denominated debt.

The Company uses commodity forwards to hedge anticipated purchases of various commodities, including aluminum, fuel oil and natural gas. Information about commodity price exposure is derived from supply forecasts submitted by customers and these exposures are hedged by a central treasury unit. The aggregate U.S. dollar-equivalent notional value of commodity contracts designated as cash flow hedges at June 30, 2010 and December 31, 2009 was $284 and $167.

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 aggregate U.S. dollar-equivalent notional value of foreign exchange contracts designated as cash flow hedges at June 30, 2010 and December 31, 2009 was $549 and $283.

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
 

Derivatives in cash flow hedges

   Quarter
Ended
6/30/2010
    Six
Months
Ended
6/30/2010
    Quarter
Ended
6/30/2010
   Six
Months
Ended
6/30/2010
 

Cross-currency swap

   $ 22      $ 39      $ 24    $ 41 (1) 

Foreign exchange contracts

     3        5        2      3 (2) 

Commodity contracts

     (24     (14     4      6 (3) 
                               

Total

   $ 1      $ 30      $ 30    $ 50   
                               

 

11


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

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

Derivatives in cash flow hedges

   Quarter
Ended
6/30/2009
    Six
Months
Ended
6/30/2009
    Quarter
Ended
6/30/2009
    Six
Months
Ended
6/30/2009
 

Cross-currency swap

   ($ 31   ($ 2   ($ 29   $ 2 (4) 

Foreign exchange contracts

     12        6        5        3 (5) 

Commodity contracts

     16        (2     (15     (35 )(6) 
                                

Total

   ($ 3   $ 2      ($ 39   ($ 30
                                

 

(1) Within the Statement of Operations for the six months ended June 30, 2010, $41 was credited to translation and foreign exchange. During the three months ended June 30, 2010, $24 was credited to translation and foreign exchange.
(2) Within the Statement of Operations for the six months ended June 30, 2010, $2 was credited to net sales and $1 was credited to cost of goods sold. During the three months ended June 30, 2010, $2 was credited to cost of goods sold.
(3) Within the Statement of Operations for the six months ended June 30, 2010, $6 was credited to cost of goods sold. During the three months ended June 30, 2010, $4 was credited to cost of goods sold.
(4) Within the Statement of Operations for the six months ended June 30, 2009, $4 was charged to translation and foreign exchange and $6 was credited to interest expense. During the three months ended June 30, 2009, $34 was charged to translation and foreign exchange and $5 was credited to interest expense.
(5) Within the Statement of Operations for the six months ended June 30, 2009, $2 was charged to net sales and $5 was credited to cost of products sold. During the three months ended June 30, 2009, $2 was credited to net sales and $3 was credited to cost of products sold.
(6) Within the Statement of Operations for the six months ended June 30, 2009, $50 was charged to cost of products sold and $15 credited to income tax expense. During the three months ended June 30, 2009, $30 was charged to cost of products sold and $15 credited to income tax expense.

During the twelve months ending June 30, 2011, a net gain of $1 ($1, net of tax) is expected to be reclassified to earnings. The actual amount that will be reclassified may differ from this amount due to changing market conditions. No amounts were reclassified during the three and six months ended June 30, 2010 and 2009 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 three and six months ended June 30, 2010. The U.S. dollar-equivalent notional value of foreign exchange contracts designated as fair value hedges at June 30, 2010 and December 31, 2009 was $292 and $114.

 

12


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

Certain derivative financial instruments, including foreign exchange contracts related to intercompany debt, were not designated or did not qualify for hedge accounting; however, they are effective economic hedges as the changes in their fair value, except for time value, are offset by changes in remeasurement of the related hedged items. The Company’s primary use of these derivative instruments is to offset the earnings impact that fluctuations in foreign exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies. Changes in fair value of these derivative instruments are immediately recognized in earnings as foreign exchange adjustments. The aggregate U.S dollar-equivalent notional value of these contracts at June 30, 2010 and December 31, 2009 was $695 and $575.

The impact on earnings of foreign exchange contracts designated as fair value hedges was losses of $6 and $8 for the three and six months ended June 30, 2010 and $35 and $26 for the three and six months ended June 30, 2009. The impact on earnings of foreign exchange contracts not designated as hedges were gains of $8 and $25 for the three and six months ended June 30, 2010 and a loss of $21 for each of the three and six months ended June 30, 2009. These items were reported as translation and foreign exchange and were offset by changes in the fair value of the related hedged items.

The fair values of outstanding derivative instruments in the Consolidated Balance Sheet at June 30, 2010 and December 31, 2009 were:

 

Assets

   June 30,
2010
    December 31,
2009
 

Derivatives designated as hedges:

    

Foreign exchange

   $ 23 (4)    $ 4 (4) 

Commodities

     18 (5)      31 (5) 

Derivatives not designated as hedges:

    

Foreign exchange

     4 (4)      10 (4) 
                

Total

   $ 45      $ 45   
                

Liabilities

            

Derivatives designated as hedges:

    

Cross-currency swaps

   $ 8 (6)    $ 49 (6) 

Foreign exchange

     20 (6)      4 (6) 

Commodities

     13 (7)      1 (6) 

Derivatives not designated as hedges:

    

Foreign exchange

     14 (6)      13 (6) 
                

Total

   $ 55      $ 67   
                

 

(4)

Reported in other current assets.

(5)

$8 and $14 reported in other current assets in 2010 and 2009 and $10 and $17 reported in other non- current assets in 2010 and 2009.

(6)

Reported in accounts payable and accrued liabilities.

(7)

$9 reported in accounts payable and accrued liabilities and $4 reported in other non-current liabilities.

 

13


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

H. Restructuring

The components of the outstanding restructuring reserve and movements within these components during the six months ended June 30, 2010 and 2009, respectively, were as follows:

 

     Termination
benefits
    Other exit
costs
    Asset
writedowns
    Total  

Balance at January 1, 2009

   $ 11      $ 1        $ 12   

Provision

       2          2   

Payments

     (6     (2       (8
                                

Balance at June 30, 2009

   $ 5      $ 1        $ 6   
                                

Balance at January 1, 2010

   $ 25      $ 0      $ 0      $ 25   

Provision

     10        4        10        24   

Payments

     (11     (4       (15

Reclassify to other accounts

     (5       (10     (15

Other

     (1         (1
                                

Balance at June 30, 2010

   $ 18      $ 0      $ 0      $ 18   
                                

The provision of $24 in 2010 included $10 for asset writedowns, $5 for pension and postretirement plan curtailment charges and $5 for severance costs related to the closure of a Canadian plant in the Company’s Americas Food segment and $4 for strip and clean costs from prior restructuring actions.

The Company expects to incur future additional charges of approximately $21 related to the closure of the Canadian plant including $17 for pension settlements when the Company receives regulatory approval and settles these obligations. The Company expects the total cash cost of the closure to be $16 including $8 for the pension settlement. In addition, the Company expects to incur future additional charges related to prior restructuring actions in Canada of approximately $38 including $33 for pension settlements when the Company receives regulatory approval and settles these obligations and $5 for strip and clean costs. The Company expects the total cash cost of these prior restructuring actions to be $12 including $7 for the pension settlement.

The provision of $1 and $2 for the second quarter and first six months of 2009 related to maintenance and closing costs for a Canadian food can plant that ceased operations in 2008.

I. Debt

In June 2010, the Company amended its existing senior secured credit facilities to extend the maturity date of its revolving facilities and increase from $800 to $1,200 the aggregate principal amount available thereunder. The Company’s amended senior secured credit facilities now include new revolving facilities that mature on June 15, 2015 as well as the existing term loan facilities, that mature on November 15, 2012. The new revolving credit facilities are subject to a pricing grid and have an initial pricing of 2.25% above Libor or Euribor, respectively.

Lenders under the new senior secured revolving credit facilities include certain lenders under the existing senior secured revolving credit facilities who elected to convert their commitments under the existing senior secured revolving credit facilities into commitments under the new senior secured revolving credit facilities, as well as new lenders. To the extent that lenders under the existing senior secured revolving credit facilities did not participate as lenders under the new senior secured revolving credit facilities, the existing senior secured revolving credit facilities remain outstanding, subject to their maturity on May 15, 2011. The available capacity under the existing revolving facilities now consists of $194. Prior to maturity of the existing revolving facilities, borrowings under the existing revolving facilities and the new revolving facilities are limited to $1,200 in the aggregate.

At June 30, 2010 the Company had borrowings of $562 under its revolving credit facilities. The Company used borrowings under the new revolving facilities to repay $200 of the Company’s existing U.S. dollar term loan facility and the equivalent of $200 of the Company’s existing euro term loan facility.

 

14


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

The Company’s outstanding debt at June 30, 2010 and December 31, 2009 was as follows.

 

     2010     2009  
Short-term debt    $ 234      $ 30   
                
Long-term debt     

Revolving credit facility borrowings

   $ 562      $ 113   

Senior secured notes:

    

Euro (€150 at June 30, 2010) 6.25% first priority due 2011

     183        229   

First priority term loans:

    

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

     150        350   

Euro (€111 at June 30, 2010) at EURIBOR plus 1.75% due 2012

     136        394   

Senior notes and debentures:

    

U.S. dollar 7.625% due 2013

     200        200   

U.S. dollar 7.75% due 2015

     600        600   

U.S. dollar 7.625% due 2017

     400        400   

U.S. dollar 7.375% due 2026

     350        350   

U.S. dollar 7.50% due 2096

     64        64   

Other indebtedness in various currencies

     113        82   

Unamortized discounts

     (13     (14
                

Total long-term debt

     2,745        2,768   

Less: current maturities

     (38     (29
                

Total long-term debt, less current maturities

   $ 2,707      $ 2,739   
                

See Note O for subsequent events.

J. 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, the states of Nebraska and South Dakota 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 predecessor’s total gross assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total value of its predecessor’s assets adjusted for inflation. Crown Cork has integrated the legislation into its claims defense strategy. The Company cautions, however, that the legislation may be challenged and there can be no assurance regarding the ultimate effect of the legislation on Crown Cork.

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

asbestos-related claims than the total adjusted value of its predecessor’s assets. In May 2006 the Texas Fourteenth Court of Appeals upheld a grant of summary judgment to Crown Cork and upheld the state constitutionality of the statute

 

15


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

(Barbara Robinson v. Crown Cork & Seal Company, Inc., No. 14-04-00658-CV, Fourteenth Court of Appeals, Texas). The Appeals Court decision has been appealed by the plaintiff to the Texas Supreme Court. A favorable ruling for summary judgment in an asbestos case pending against Crown Cork in the district court of Travis County, Texas (in Re Rosemarie Satterfield as Representative of the Estate of Jerrold Braley Deceased v. Crown Cork & Seal Company, Inc., No. 03-04-00518-CV, Texas Court of Appeals, Third District, at Austin) has been reversed on appeal on state constitutional grounds due to retroactive application of the statute. Although the Company believes that the Texas legislation is constitutional, there can be no assurance that the legislation will be upheld by the Texas Supreme Court on appeal. An adverse ruling by the Texas Supreme Court could have a material impact on the Company.

In December 2001, the Commonwealth of Pennsylvania enacted legislation that limits the asbestos-related liabilities of Pennsylvania corporations that are successors by corporate merger to companies involved with asbestos. The legislation limits the successor’s liability for asbestos to the acquired company’s asset value adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the acquired company’s adjusted asset value. In November 2004, the legislation was amended to address a Pennsylvania Supreme Court decision (Ieropoli v. AC&S Corporation, et. al., No. 117 EM 2002) which held that the statute violated the Pennsylvania Constitution due to retroactive application. On February 6, 2009, the Superior Court of Pennsylvania affirmed, due to the plaintiff’s lack of standing, the Philadelphia Court of Common Pleas’ dismissal of three cases against Crown Cork raising federal and state constitutional challenges to the amended statute (Stea v. A.W. Chesterton, Inc., et. al, No. 2956 EDA 2006). The Pennsylvania Supreme Court has accepted an appeal of this decision. 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.

At December 31, 2009. the Company had 50,000 claims outstanding. Of these claims, approximately 15,000 relate to claimants alleging first exposure to asbestos after 1964 and 35,000 relate to claimants alleging first exposure to asbestos before or during 1964, of which approximately 12,000 were filed in Texas, 2,000 were filed in Pennsylvania, 6,000 were filed in other states that have enacted asbestos legislation and 15,000 were filed in other states. Historically (1977-2009), Crown Cork estimates that approximately one-quarter of all asbestos-related claims made against it have been asserted by claimants who claim first exposure to asbestos after 1964.

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

With respect to post-1964 claims, regardless of the existence of asbestos legislation, the Company does not include in its accrual any amounts for settlements 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 adverse impact on the Company with respect to such claims.

Of the approximately 50,000 claims outstanding at the end of 2009, 2008 and 2007 approximately 16%, 15% and 15%, respectively, relate to claims alleging serious diseases (primarily mesothelioma and other malignancies).

During the six months ended June 30, 2010, Crown Cork received approximately 1,100 new claims, settled or dismissed approximately 500 claims for a total of $4, and had approximately 50,000 claims outstanding at the end of the period. Settlement amounts include amounts committed to be paid in future periods. The outstanding claims at June 30, 2010 exclude 33,000 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes will not have a material effect on the Company’s consolidated results of operations, financial position or cash flow. The outstanding claims at June 30, 2010 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. The

 

16


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

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

As of June 30, 2010, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $222, including $169 for unasserted claims and $1 for committed settlements that will be paid over time. The Company’s accrual includes estimates for probable costs for claims through the year 2019. Potential estimated additional claims costs of $38 beyond 2019 have not been included in the Company’s accrual, as the Company believes cost projections beyond ten years are inherently unreliable due to potential changes in the litigation environment and other factors whose impact cannot be known or reasonably estimated.

Crown Cork has entered into arrangements with plaintiffs’ counsel in certain jurisdictions where claims are not yet filed, or asserted, against us. However, Crown Cork expects claims under these arrangements to be filed or asserted against Crown Cork in the future. The projected value of these claims is included in the Company’s estimated liability as of June 30, 2010.

While it is not possible to predict the ultimate outcome of asbestos-related claims and settlements, the Company believes that resolution of these matters is not expected to have a material adverse effect on the Company’s financial position. The Company cautions, however, that estimates for asbestos cases and settlements are difficult to predict and may be influenced by many factors. In addition, there can be no assurance regarding the validity or correctness of the Company’s assumptions or beliefs underlying its accrual. Unfavorable court decisions or other adverse developments may require the Company to substantially increase its accrual or change its estimate. Accordingly, these matters, if resolved in a manner different from the estimate, could have a material effect on the Company’s results of operations, financial position or cash flow.

K. Commitments and Contingent Liabilities

The Company, along with others in most cases, has been identified by the EPA or a comparable state environmental agency as a Potentially Responsible Party (“PRP”) at a number of sites and has recorded aggregate accruals of $6 for its share of estimated future remediation costs at these sites. The Company has been identified as having either directly or indirectly disposed of commercial or industrial waste at the sites subject to the accrual, and where appropriate and supported by available information, generally has agreed to be responsible for a percentage of future remediation costs based on an estimated volume of materials disposed in proportion to the total materials disposed at each site. The Company has not had monetary sanctions imposed nor has the Company been notified of any potential monetary sanctions at any of the sites.

The Company has also recorded aggregate accruals of $12 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.

The Company is subject to antitrust investigations in Europe. In July 2010, the Spanish National Antitrust Commission issued a Statement of Facts (Pliego de Concreción de Hechos) alleging that Crown European Holdings SA, a wholly-owned subsidiary of the Company, and one of its subsidiaries violated Spanish and European competition law by coordinating certain commercial terms and exchanging information with competitors in Spain. The Statement of Facts does not constitute a decision on the merits and is subject to a reply by the Company. If the Antitrust Commission finds that the Company’s subsidiaries violated competition law, the Antitrust Commission has the authority to levy fines. Also in July 2010, a subsidiary of the Company became aware of an investigation by the Netherlands Competition Authority in relation to competition law matters. No allegations have been made at this stage by the Dutch authorities. The Company believes that the allegations in Spain are without merit and intends to defend its position vigorously. However, the Company is unable to predict the ultimate outcome of the foregoing or their impact on the Company.

 

17


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

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 normal course of business. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management believes that the ultimate liabilities resulting from such lawsuits and claims will not materially affect the Company’s consolidated results of operations, financial position or cash flow.

The Company has various commitments to purchase materials, supplies and utilities as part of the ordinary conduct of business. The Company’s basic raw materials for its products are steel and aluminum, both of which are purchased from multiple sources. The Company is subject to fluctuations in the cost of these raw materials and has periodically adjusted its selling prices to reflect these movements. There can be no assurance, however, that the Company will be able to fully recover any increases or fluctuations in raw material costs from its customers. The Company also has commitments for standby letters of credit and for purchases of capital assets.

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

At June 30, 2010, the Company had 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 $17. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated. At June 30, 2010, the Company also had guarantees of $31 related to the residual values of leased assets.

L. Earnings Per Share

The following table summarizes the computations of basic and diluted earnings per share attributable to Crown Holdings for the periods ended June 30, 2010 and 2009, respectively:

 

     Three Months Ended
June 30
   Six Months Ended
June 30
     2010    2009    2010    2009

Net income attributable to Crown Holdings

   $ 112    $ 105    $ 153    $ 145
                           

Weighted average shares outstanding:

           

Basic

     161.0      158.9      160.8      158.7

Add: dilutive stock options and restricted stock

     2.3      2.8      2.4      2.8
                           

Diluted

     163.3      161.7      163.2      161.5
                           

Basic earnings per share

   $ 0.70    $ 0.66    $ 0.95    $ 0.91
                           

Diluted earnings per share

   $ 0.69    $ 0.65    $ 0.94    $ 0.90
                           

Excluded from the computation of diluted earnings per share were common shares contingently issuable upon the exercise of outstanding stock options, amounting to 3.2 million shares and 3.3 million shares for the three and six months ended June 30, 2010 and 3.4 million shares and 4.1 million shares for the same periods in 2009 because the effect would have been antidilutive.

 

18


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

M. Pension and Other Postretirement Benefits

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

 

     Three Months Ended
June 30
    Six Months Ended
June 30
 

Pension Benefits – U.S. Plans

   2010     2009     2010     2009  

Service cost

   $ 2      $ 2      $ 4      $ 4   

Interest cost

     18        20        36        40   

Expected return on plan assets

     (20     (17     (40     (35

Recognized prior service cost

         1        1   

Recognized net loss

     17        19        34        39   
                                

Net periodic cost

   $ 17      $ 24      $ 35      $ 49   
                                
     Three Months Ended
June 30
    Six Months Ended
June 30
 

Pension Benefits – Non-U.S. Plans

   2010     2009     2010     2009  

Service cost

   $ 6      $ 4      $ 13      $ 9   

Interest cost

     37        36        76        70   

Expected return on plan assets

     (43     (40     (88     (77

Recognized prior service cost

     (1     (2     (2     (3

Recognized net loss

     12        8        23        14   
                                

Net periodic cost

   $ 11      $ 6      $ 22      $ 13   
                                
     Three Months Ended
June 30
    Six Months Ended
June 30
 

Other Postretirement Benefits

   2010     2009     2010     2009  

Service cost

   $ 2      $ 2      $ 4      $ 4   

Interest cost

     8        8        15        15   

Recognized prior service credit

     (6     (5     (11     (11

Recognized net loss

     3        1        5        4   
                                

Net periodic cost

   $ 7      $ 6      $ 13      $ 12   
                                

N. Segment Information

The Company’s business is organized geographically within three divisions, Americas, Europe and Asia-Pacific. Within the Americas and Europe, the Company has determined that it has the following reportable segments organized along a combination of product lines and geographic areas: Americas Beverage and North America Food in the Americas, and European Beverage, European Food and European Specialty Packaging in Europe.

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.

 

19


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

The tables below present information about operating segments for the three and six months ended June 30, 2010 and 2009:

 

     External Sales    External Sales
     Three Months Ended
June 30
   Six Months Ended
June 30
     2010    2009    2010    2009

Americas Beverage

   $ 549    $ 478    $ 1,029    $ 887

North America Food

     214      250      411      447

European Beverage

     439      453      753      792

European Food

     421      466      825      855

European Specialty Packaging

     97      108      188      189
                           

Total reportable segments

     1,720      1,755      3,206      3,170

Non-reportable segments

     290      300      581      569
                           

Total

   $ 2,010    $ 2,055    $ 3,787    $ 3,739
                           
     Segment Income    Segment Income
     Three Months Ended
June 30
   Six Months Ended
June 30
     2010    2009    2010    2009

Americas Beverage

   $ 73    $ 62    $ 130    $ 103

North America Food

     33      29      49      47

European Beverage

     75      88      127      145

European Food

     59      71      99      123

European Specialty Packaging

     8      8      11      9
                           

Total reportable segments

   $ 248    $ 258    $ 416    $ 427
                           

A reconciliation of segment income of reportable segments to income before income taxes and equity earnings for the three and six months ended June 30, 2010 and 2009 follows:

 

     Segment Income     Segment Income  
     Three Months Ended
June 30
    Six Months Ended
June 30
 
     2010     2009     2010     2009  

Segment income of reportable segments

   $ 248      $ 258      $ 416      $ 427   

Segment income of non-reportable segments

     47        46        92        88   

Corporate and unallocated items

     (55     (61     (97     (116

Provision for restructuring

     (2     (1     (24     (2

Asset impairments and sales

     6        1        7        1   

Interest expense

     (45     (62     (92     (123

Interest income

     2        1        3        3   

Translation and foreign exchange

         2        (4
                                

Income before income taxes and equity earnings

   $ 201      $ 182      $ 307      $ 274   
                                

“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.

 

20


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

O. Subsequent Events

In July 2010, the Company sold €500 principal amount of 7.125% senior unsecured notes due 2018. The notes were issued at par by Crown European Holdings SA (the “Issuer”). The notes are senior obligations of the Issuer and will be unconditionally guaranteed on a senior basis by the Company and certain of its subsidiaries. The Company has notified the holders of its senior notes due 2013 that it will redeem all of the $200 outstanding 7.625% senior notes due 2013 in August 2010. In August 2010, the Company commenced a tender offer for any and all of the €150 outstanding 6.25% first priority senior secured notes due 2011.

In August 2010, the Company entered into an agreement with Citigroup Global Markets, Inc. to purchase shares of its common stock under an accelerated share repurchase program. Pursuant to the agreement, the Company initially purchased 3,182,461 shares, currently estimated to be approximately 90 percent of the shares to be repurchased, from Citigroup for $100. The final number of shares to be repurchased and the aggregate cost to the Company will be based on the Company’s volume-weighted average stock price during the term of the transaction, which the Company expects to be completed during the fourth quarter of 2010. At termination of the transaction, the Company may receive additional shares or may be required to pay a price adjustment based on the volume-weighted average stock price. The Company may elect to settle the price adjustment, if any, in shares or in cash.

 

21


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In millions, except per share and statistical data)

(Unaudited)

 

P. Condensed Combining Financial Information

Crown European Holdings SA (Issuer), a 100% owned subsidiary of the Company, has outstanding senior notes 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), and substantially all subsidiaries in Belgium, Canada, France, Germany, Mexico, Switzerland and the United Kingdom, and a subsidiary in the Netherlands. The following condensed combining financial statements:

 

   

statements of operations for the three and six months ended June 30, 2010 and 2009,

 

   

balance sheets as of June 30, 2010 and December 31, 2009, and

 

   

statements of cash flows for the six months ended June 30, 2010 and 2009

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

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended June 30, 2010

(in millions)

 

     Parent    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 1,161      $ 849        $ 2,010   

Cost of products sold, excluding depreciation and amortization

      $ (4     956        679          1,631   

Depreciation and amortization

          23        21          44   
                                               

Gross profit

        4        182        149          335   
                                               

Selling and administrative expense

        (1     69        27          95   

Provision for restructuring

          2            2   

Asset impairments and sales

        1        (1     (6       (6

Net interest expense

        6        35        2          43   

Technology royalty

          (9     9       
                                               

Income/(loss) before income taxes

        (2     86        117          201   

Provision for income taxes

          35        22          57   

Equity earnings in affiliates

   $ 112      75        61        $ (248  
                                               

Net income

     112      73        112        95        (248     144   

Net income attributable to noncontrolling interests

            (32       (32
                                               

Net income attributable to Crown Holdings

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

 

22


Crown Holdings, Inc.

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended June 30, 2009

(in millions)

 

     Parent    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 1,189      $ 866        $ 2,055   

Cost of products sold, excluding depreciation and amortization

      $ (2     983        695          1,676   

Depreciation and amortization

          25        21          46   
                                               

Gross profit

        2        181        150          333   
                                               

Selling and administrative expense

        (1     68        23          90   

Provision for restructuring

          1            1   

Asset impairments and sales

          (1         (1

Net interest expense

        6        50        5          61   

Technology royalty

          (10     10       

Translation and foreign exchange

        4        (3     (1    
                                               

Income/(loss) before income taxes

        (7     76        113          182   

Provision for income taxes

          23        21          44   

Equity earnings in affiliates

   $ 105      76        52        1      $ (233     1   
                                               

Net income

     105      69        105        93        (233     139   

Net income attributable to noncontrolling interests

            (34       (34
                                               

Net income attributable to Crown Holdings

   $ 105    $ 69      $ 105      $ 59      $ (233   $ 105   
                                               

 

23


Crown Holdings, Inc.

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the six months ended June 30, 2010

(in millions)

 

     Parent    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

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

Cost of products sold, excluding depreciation and amortization

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

Depreciation and amortization

          45        43          88   
                                               

Gross profit

        6        312        267          585   
                                               

Selling and administrative expense

        (1     121        54          174   

Provision for restructuring

          24            24   

Asset impairments and sales

        1        (2     (6       (7

Net interest expense

        4        78        7          89   

Technology royalty

          (16     16       

Translation and foreign exchange

          (2         (2
                                               

Income before income taxes

        2        109        196          307   

Provision for income taxes

          59        37          96   

Equity earnings in affiliates

   $ 153      107        103        $ (363  
                                               

Net income

     153      109        153        159        (363     211   

Net income attributable to noncontrolling interests

            (58       (58
                                               

Net income attributable to Crown Holdings

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

 

24


Crown Holdings, Inc.

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the six months ended June 30, 2009

(in millions)

 

     Parent    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 2,179      $ 1,560        $ 3,739   

Cost of products sold, excluding depreciation and amortization

      $ (5     1,819        1,254          3,068   

Depreciation and amortization

          48        45          93   
                                               

Gross profit

        5        312        261          578   
                                               

Selling and administrative expense

        (2     134        47          179   

Provision for restructuring

          2            2   

Asset impairments and sales

          (1         (1

Net interest expense

        14        96        10          120   

Technology royalty

          (17     17       

Translation and foreign exchange

        4        (2     2          4   
                                               

Income/(loss) before income taxes

        (11     100        185          274   

Provision for income taxes

          28        40          68   

Equity earnings/(loss) in affiliates

   $ 145      125        73        $ (347     (4
                                               

Net income

     145      114        145        145        (347     202   

Net income attributable to noncontrolling interests

            (57       (57
                                               

Net income attributable to Crown Holdings

   $ 145    $ 114      $ 145      $ 88      $ (347   $ 145   
                                               

 

25


Crown Holdings, Inc.

CONDENSED COMBINING BALANCE SHEET

As of June 30, 2010

(in millions)

 

     Parent    Issuer    Guarantors     Non-
Guarantors
   Eliminations     Total
Company

Assets

               

Current assets

               

Cash and cash equivalents

         $ 39      $ 373      $ 412

Receivables, net

      $ 74      184        837        1,095

Intercompany receivables

        1      72        37    $ (110  

Inventories

           598        478        1,076

Prepaid expenses and other current assets

   $ 3      1      93        25        122
                                           

Total current assets

     3      76      986        1,750      (110     2,705
                                           

Intercompany debt receivables

        1,445      2,088        312      (3,845  

Investments

     272      2,528      (98        (2,702  

Goodwill

           1,354        530        1,884

Property, plant and equipment, net

           608        810        1,418

Other non-current assets

        1      681        12        694
                                           

Total

   $ 275    $ 4,050    $ 5,619      $ 3,414    $ (6,657   $ 6,701
                                           

Liabilities and equity

               

Current liabilities

               

Short-term debt

      $ 35    $ 10      $ 189      $ 234

Current maturities of long-term debt

        4      4        30        38

Accounts payable and accrued liabilities

   $ 12      13      1,021        773        1,819

Intercompany payables

        3      34        73    $ (110  
                                           

Total current liabilities

     12      55      1,069        1,065      (110     2,091
                                           

Long-term debt, excluding current maturities

        517      2,111        79        2,707

Long-term intercompany debt

     158      2,453      862        372      (3,845  

Postretirement and pension liabilities

           983        17        1,000

Other non-current liabilities

           322        103        425

Commitments and contingent liabilities

               

Noncontrolling interests

             373        373

Crown Holdings shareholders’ equity

     105      1,025      272        1,405      (2,702     105
                                           

Total equity

     105      1,025      272        1,778      (2,702     478
                                           

Total

   $ 275    $ 4,050    $ 5,619      $ 3,414    $ (6,657   $ 6,701
                                           

 

26


Crown Holdings, Inc.

CONDENSED COMBINING BALANCE SHEET

As of December 31, 2009

(in millions)

 

     Parent     Issuer    Guarantors     Non-
Guarantors
   Eliminations     Total
Company
 

Assets

              

Current assets

              

Cash and cash equivalents

     $ 5    $ 49      $ 405      $ 459   

Receivables, net

       77      101        536        714   

Intercompany receivables

       2      59        32    $ (93  

Inventories

          529        431        960   

Prepaid expenses and other current assets

   $ 2           81        26        109   
                                              

Total current assets

     2        84      819        1,430      (93     2,242   
                                              

Intercompany debt receivables

       1,833      2,433        432      (4,698  

Investments

     174        2,571      (69        (2,676  

Goodwill

          1,443        607        2,050   

Property, plant and equipment, net

          671        838        1,509   

Other non-current assets

       2      715        14        731   
                                              

Total

   $ 176      $ 4,490    $ 6,012      $ 3,321    $ (7,467   $ 6,532   
                                              

Liabilities and equity

              

Current liabilities

              

Short-term debt

     $ 2    $ 1      $ 27      $ 30   

Current maturities of long-term debt

       4      6        19        29   

Accounts payable and accrued liabilities

   $ 21        54      1,000        791        1,866   

Intercompany payables

       2      30        61    $ (93  
                                              

Total current liabilities

     21        62      1,037        898      (93     1,925   
                                              

Long-term debt, excluding current maturities

       619      2,063        57        2,739   

Long-term intercompany debt

     161        2,797      1,389        351      (4,698  

Postretirement and pension liabilities

          1,019        18        1,037   

Other non-current liabilities

          330        118        448   

Commitments and contingent liabilities

              

Noncontrolling interests

            389        389   

Crown Holdings shareholders’ equity/(deficit)

     (6     1,012      174        1,490      (2,676     (6
                                              

Total equity/(deficit)

     (6     1,012      174        1,879      (2,676     383   
                                              

Total

   $ 176      $ 4,490    $ 6,012      $ 3,321    $ (7,467   $ 6,532   
                                              

 

27


Crown Holdings, Inc.

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the six months ended June 30, 2010

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash provided by/(used for) operating activities

   $ 4        $ 12      $ (210     $ (194
                                                

Cash flows from investing activities

            

Capital expenditures

         (31     (73       (104

Intercompany investing activities

     $ (193     231        3      $ (41  

Proceeds from sale of property, plant and equipment

         5        11          16   

Other

         1        2          3   
                                                

Net cash provided by/(used for) investing activities

       (193     206        (57     (41     (85
                                                

Cash flows from financing activities

            

Proceeds from long-term debt

           47          47   

Payments of long-term debt

       (215     (201     (10       (426

Net change in revolving credit facility and short-term debt

       255        257        167          679   

Net change in long-term intercompany balances

     (3     134        (274     143       

Common stock issued

     4                4   

Common stock repurchased

     (5             (5

Dividends paid

           (41     41     

Dividends paid to noncontrolling interests

           (49       (49

Other

       14        (8         6   
                                                

Net cash provided by/(used for) financing activities

     (4     188        (226     257        41        256   
                                                

Effect of exchange rate changes on cash and cash equivalents

         (2     (22       (24
                                                

Net change in cash and cash equivalents

       (5     (10     (32       (47

Cash and cash equivalents at January 1

       5        49        405          459   
                                                

Cash and cash equivalents at June 30

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

 

28


Crown Holdings, Inc.

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the six months ended June 30, 2009

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash used for operating activities

   $ (2   $ (7   $ (58   $ (96     $ (163
                                                

Cash flows from investing activities

            

Capital expenditures

         (30     (45       (75

Proceeds from sale of property, plant

and equipment

         1            1   

Intercompany investing activities

         107        (77   $ (30  

Other

           (4       (4
                                                

Net cash provided by/(used for) investing activities

         78        (126     (30     (78
                                                

Cash flows from financing activities

            

Proceeds from long-term debt

         388        8          396   

Payments of long-term debt

         (1     (5       (6

Net change in revolving credit facility and

short-term debt

           (15       (15

Net change in long-term intercompany balances

     2        39        (327     286       

Common stock issued

     4                4   

Common stock repurchased

     (4             (4

Dividends paid

           (30     30     

Dividends paid to noncontrolling interests

           (27       (27

Other

       (17     13            (4
                                                

Net cash provided by financing activities

     2        22        73        217        30        344   
                                                

Effect of exchange rate changes on cash and cash equivalents

         5        2          7   
                                                

Net change in cash and cash equivalents

       15        98        (3       110   

Cash and cash equivalents at January 1

       77        138        381          596   
                                                

Cash and cash equivalents at June 30

   $ 0      $ 92      $ 236      $ 378      $ 0      $ 706   
                                                

 

29


Crown Holdings, Inc.

 

Crown Cork & Seal Company, Inc. (Issuer), a 100% owned subsidiary, has outstanding registered debt that is fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt. The following condensed combining financial statements:

 

   

statements of operations for the three and six months ended June 30, 2010 and 2009,

 

   

balance sheets as of June 30, 2010 and December 31, 2009, and

 

   

statements of cash flows for the six months ended June 30, 2010 and 2009

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

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended June 30, 2010

(in millions)

 

     Parent    Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 2,010        $ 2,010   

Cost of products sold, excluding depreciation and amortization

          1,631          1,631   

Depreciation and amortization

          44          44   
                                       

Gross profit

          335          335   
                                       

Selling and administrative expense

      $ 2        93          95   

Provision for restructuring

          2          2   

Asset impairments and sales

          (6       (6

Net interest expense

        20        23          43   
                                       

Income/(loss) before income taxes

        (22     223          201   

Provision for/(benefit from) income taxes

        (2     59          57   

Equity earnings in affiliates

   $ 112      132        $ (244  
                                       

Net income

     112      112        164        (244     144   

Net income attributable to noncontrolling interests

          (32       (32
                                       

Net income attributable to Crown Holdings

   $ 112    $ 112      $ 132      $ (244   $ 112   
                                       

 

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Crown Holdings, Inc.

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended June 30, 2009

(in millions)

 

     Parent    Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 2,055        $ 2,055   

Cost of products sold, excluding depreciation and amortization

          1,676          1,676   

Depreciation and amortization

          46          46