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 MARCH 31, 2011

 

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

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 0-50189

CROWN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Pennsylvania

  75-3099507
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
One Crown Way, Philadelphia, PA   19154-4599
(Address of principal executive offices)   (Zip Code)

215-698-5100

(registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X    No        

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes         No   X  

There were 155,940,729 shares of Common Stock outstanding as of April 29, 2011.

 

 

 


Crown Holdings, Inc.

PART I – FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except share and per share data)

(Unaudited)

 

Three months ended March 31    2011     2010  

Net sales

     $1,882        $1,777   
                

Cost of products sold, excluding depreciation and amortization

     1,550        1,483   

Depreciation and amortization

     40        44   
                

Gross profit

     292        250   
                

Selling and administrative expense

     102        79   

Provision for restructuring

     25        22   

Asset impairments and sales

     0        (1

Loss from early extinguishments of debt

     30        0   

Interest expense

     56        47   

Interest income

     (4     (1

Translation and foreign exchange

     0        (2
                

Income before income taxes and equity earnings

     83        106   

Provision for income taxes

     41        39   
                

Net income

     42        67   

Net income attributable to noncontrolling interests

     (26     (26
                

Net income attributable to Crown Holdings

     $16        $41   
                

Earnings per common share attributable to Crown Holdings:

    

Basic

     $0.10        $0.26   
                

Diluted

     $0.10        $0.25   
                

Weighted average common shares outstanding:

    

Basic

     154,610,056        160,714,929   

Diluted

     157,928,690        163,100,074   

 

 

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

 

2


Crown Holdings, Inc.

 

CONSOLIDATED BALANCE SHEETS (Condensed)

(In millions)

(Unaudited)

 

      March 31,
2011
    December 31,
2010
 

Assets

    

Current assets

    

Cash and cash equivalents

     $409        $463   

Receivables, net

     1,104        936   

Inventories

     1,353        1,060   

Prepaid expenses and other current assets

     204        190   
                

Total current assets

     3,070        2,649   
                

Goodwill

     2,047        1,984   

Property, plant and equipment, net

     1,702        1,610   

Other non-current assets

     657        656   
                

Total

     $7,476        $6,899   
                

Liabilities and equity

    

Current liabilities

    

Short-term debt

     $413        $241   

Current maturities of long-term debt

     176        158   

Accounts payable and accrued liabilities

     1,994        1,978   
                

Total current liabilities

     2,583        2,377   
                

Long-term debt, excluding current maturities

     2,884        2,649   

Postretirement and pension liabilities

     1,171        1,159   

Other non-current liabilities

     499        485   

Commitments and contingent liabilities (Note I)

    

Noncontrolling interests

     346        325   

Crown Holdings shareholders’ deficit

     (7     (96
                

Total equity

     339        229   
                

Total

     $7,476        $6,899   
                

 

 

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

 

3


Crown Holdings, Inc.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)

(In millions)

(Unaudited)

 

Three months ended March 31    2011     2010  

Cash flows from operating activities

    

Net income

     $42        $67   

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

    

Depreciation and amortization

     40        44   

Provision for restructuring

     25        22   

Asset impairments and sales

     0        (1

Pension expense

     24        29   

Pension contributions

     (18     (15

Stock-based compensation

     10        7   

Changes in assets and liabilities:

    

Receivables

     (163     (366

Inventories

     (260     (140

Accounts payable and accrued liabilities

     (22     (132

Other, net

     5        69   
                

Net cash used for operating activities

     (317     (416
                

Cash flows from investing activities

    

Capital expenditures

     (103     (32

Other

     2        11   
                

Net cash used for investing activities

     (101     (21
                

Cash flows from financing activities

    

Proceeds from long-term debt

     754        4   

Payments of long-term debt

     (605     (17

Net change in revolving credit facility and short-term debt

     218        409   

Debt issue costs

     (11     0   

Common stock issued

     4        2   

Common stock repurchased

     (6     (5

Dividends paid to noncontrolling interests

     (6     (15

Other

     5        8   
                

Net cash provided by financing activities

     353        386   
                

Effect of exchange rate changes on cash and cash equivalents

     11        (9
                

Net change in cash and cash equivalents

     (54     (60

Cash and cash equivalents at January 1

     463        459   
                

Cash and cash equivalents at March 31

     $409        $399   
                

 

 

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

 

4


Crown Holdings, Inc.

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(In millions) (Unaudited)

 

 

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

Balance at January 1, 2010

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

Comprehensive income:

                 

Net income

          41            41        26        67   

Translation adjustments

            (31       (31     (5     (36

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

            18          18          18   

Derivatives qualifying as hedges

            9          9          9   
                   

Total comprehensive income

                37        21        58   
                   

Dividends paid to noncontrolling interests

                  (15     (15

Restricted stock awarded

        (2         3        1          1   

Stock-based compensation

        7              7          7   

Common stock issued

        1            1        2          2   

Common stock repurchased

        (4         (1     (5       (5
                 

Balance at March 31, 2010

     $929         $1,538        ($53     ($2,259     ($119     $36        $395        $431   

Balance at January 1, 2011

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

Comprehensive income:

                 

Net income

          16            16        26        42   

Translation adjustments

            45          45        4        49   

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

            16          16          16   

Derivatives qualifying as hedges

            5          5        1        6   
                   

Total comprehensive income

                82        31        113   
                   

Dividends paid to noncontrolling interests

                  (6     (6

Restricted stock awarded

        (2         2         

Stock-based compensation

        10              10          10   

Common stock issued

        3            1        4          4   

Common stock repurchased

        (5         (1     (6       (6

Purchase of noncontrolling interests

        (1           (1     (4     (5
                 

Balance at March 31, 2011

     $929         $1,236        $246        ($2,267     ($151     ($7     $346        $339   

 

 

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

 

5


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 March 31, 2011 and the results of its operations for the three month periods ended March 31, 2011 and 2010 and of its cash flows for the three months ended March 31, 2011 and 2010. The results reported in these consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. These results have been determined on the basis of accounting principles generally accepted in the United States of America (“GAAP”).

Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Certain reclassifications of prior years’ data have been made to conform to the current year presentation.

 

B.

Stock-Based Compensation

During the first three months of 2011, the Company awarded 318,607 shares of restricted stock to certain senior executives, including 121,940 shares of restricted stock with time-vesting requirements and 196,667 shares of performance-based stock with a market feature. The time-vesting awards vest ratably over three years and had a grant-date fair value of $33.70 per share. 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 share was calculated as $41.69 using a Monte Carlo valuation model. During the first three months of 2011, 235,313 shares of previously issued time-vested awards and 145,278 shares of previously issued performance-based shares vested. Also during the first three months of 2011, 145,278 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 100%. These shares were issued without restriction. The aggregate market value of the shares released and issued on the vesting dates was approximately $18. At March 31, 2011, unrecognized compensation cost related to unvested restricted stock was approximately $10. The weighted average period over which the expense is expected to be recognized is 1.8 years.

 

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.

 

     March 31,
2011
     December 31,
2010
 

Finished goods

     $577         $365   

Work in process

     169         128   

Raw materials and supplies

     607         567   
                 
     $1,353         $1,060   
                 

 

6


Crown Holdings, Inc.

 

D.

Fair Value Measurements

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

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

 

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

Assets

                 

Derivative instruments:

                 

Foreign exchange

     $25         $26               $25         $26   

Commodities

     63         53         $63         $53         
                                                     

Total

     $88         $79         $63         $53         $25         $26   
                                                     

Liabilities

                 

Derivative instruments:

                 

Foreign exchange

     $15         $15               $15         $15   

Commodities

     1         1         $1         $1         
                                                     

Total

     $16         $16         $1         $1         $15         $15   
                                                     

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

The Company applies a market approach to value its commodity price hedge contracts. Prices from observable markets are used to develop the fair value of these financial instruments and they are reported under Level 1. The Company uses an income approach to value its foreign exchange forward contracts. These contracts are valued using a discounted cash flow model that calculates the present value of future cash flows under the terms of the contracts using market information as of the reporting date, such as foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy.

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

 

E.

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.

 

7


Crown Holdings, Inc.

 

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 March 31, 2011 mature between one and twenty-three 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 aggregate U.S. dollar-equivalent notional value of commodity contracts designated as cash flow hedges at March 31, 2011 and December 31, 2010 was $304 and $326.

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 March 31, 2011 and December 31, 2010 was $636 and $751.

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
Mar. 31, 2011
    Quarter
ended
Mar. 31, 2010
     Quarter
ended
Mar. 31, 2011
    Quarter
ended
Mar. 31, 2010
 

Cross-currency swap

     $0        $17         $0        $17 (1) 

Foreign exchange contracts

     (3     2         (1     1 (2) 

Commodity contracts

     13        10         6        2 (3) 
                                 

Total

     $10        $29         $5        $20   
                                 

 

  (1)

Within the Statement of Operations for the three months ended March 31, 2010, $17 was credited to translation and foreign exchange.

 

  (2)

Within the Statement of Operations for the three months ended March 31, 2011, $1 was charged to cost of products sold. During the three months ended March 31, 2010, $2 was credited to net sales and $1 was charged to cost of products sold.

 

  (3)

Within the Statement of Operations for the three months ended March 31, 2011, $8 was credited to cost of products sold and $2 was charged to income tax expense. For the three months ended March 31, 2010, $2 was credited to cost of products sold.

 

 

8


Crown Holdings, Inc.

 

During the twelve months ending March 31, 2012, a net gain of $51 ($39, net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the three months ended March 31, 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 three months ended March 31, 2011. The U.S. dollar-equivalent notional value of foreign exchange contracts designated as fair value hedges at March 31, 2011 and December 31, 2010 was $273 and $256.

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 March 31, 2011 and December 31, 2010 was $659 and $827.

The impact on earnings of foreign exchange contracts designated as fair value hedges was less than $1 for the three months ended March 31, 2011 and 2010, respectively. The impact on earnings of foreign exchange contracts not designated as hedges were gains of $12 and $17 for the three months ended March 31, 2011 and 2010, respectively. 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 March 31, 2011 and December 31, 2010 were:

 

Assets         March 31,
2011
    December 31,
2010
 
  

Derivatives designated as hedges:

    
  

Foreign exchange

     $14 (4)      $12 (4) 
  

Commodities

     63 (5)      53 (5) 
  

Derivatives not designated as hedges:

    
  

Foreign exchange

     11 (4)      14 (4) 
                   
  

Total

     $88        $79   
                   

Liabilities

       
  

Derivatives designated as hedges:

    
  

Foreign exchange

     $13 (6)      $12 (6) 
  

Commodities

     1 (6)      1 (6) 
  

Derivatives not designated as hedges:

    
  

Foreign exchange

     2 (6)      3 (6) 
                   
  

Total

     $16        $16   
                   

 

  (4) 

Reported in other current assets.

  (5) 

$52 and $40 reported in other current assets at March 31, 2011 and December 31, 2010 and $11 and $13 reported in other non-current assets at March 31, 2011 and December 31, 2010.

  (6) 

Reported in accounts payable and accrued liabilities.

 

9


Crown Holdings, Inc.

 

F.

Restructuring

The components of the outstanding restructuring reserve and movements within these components during the three months ended March 31, 2011 and 2010, respectively, were as follows:

 

     Termination
benefits
    Other exit
costs
    Asset
writedowns
    Total  

Balance at January 1, 2010

     $25        $0        $0        $25   

Provision

     10        2        10        22   

Payments

     (8     (2       (10

Reclassified to other accounts

     (5       (10     (15
                                

Balance at March 31, 2010

     $22        $0        $0        $22   
                                

Balance at January 1, 2011

     $21        $2        $0        $23   

Provision

     4        21          25   

Payments

     (3     (4       (7
                                

Balance at March 31, 2011

     $22        $19        $0        $41   
                                

In the first three months of 2011, the Company recorded a pre-tax charge of $25 for restructuring costs, including $19 related to the relocation of the Company’s European Division headquarters and management to Switzerland, $4 related to severance costs in the Company’s European Specialty Packaging segment and $2 related to prior restructuring actions in the Company’s North America Food segment. The charge of $19 represents the estimated employee compensation costs resulting from an intercompany payment related to the action. The Company expects to pay these costs over the next one to three years.

In the first three months of 2010, the Company recorded a pre-tax charge of $22 for restructuring costs, including $20 related to the closure of a Canadian plant in the Company’s Americas Food segment and $2 for plant maintenance and strip and clean costs from a prior restructuring action. The charge of $20 included $5 for pension and postretirement plan curtailment charges, $5 for severance costs and $10 for asset writedowns.

In connection with the prior restructuring actions in Canada, the Company expects to incur future additional charges of approximately $5 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 of these prior restructuring actions to be $27 including $15 for the pension settlement.

 

G.

Debt

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

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

 

10


Crown Holdings, Inc.

 

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

 

     Mar. 31
2011
    Dec. 31
2010
 

Short-term debt

     $413        $241   
                

Long-term debt

    

Senior secured revolving credit facilities borrowings

     $235        $184   

Senior secured notes:

    

Euro (84 at March 31, 2011) 6.25% first priority due 2011

     118        112   

First priority term loans:

    

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

     147        147   

Euro (108 at March 31, 2011) at EURIBOR plus 1.75% due 2012

     153        145   

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 March 31, 2011) 7.125% due 2018

     708        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

     197        148   

Unamortized discounts

     (12     (12
                

Total long-term debt

     3,060        2,807   

Less: current maturities

     (176     (158
                

Total long-term debt, less current maturities

     $2,884        $2,649   
                

 

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 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 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.

 

11


Crown Holdings, Inc.

 

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

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

At December 31, 2010, 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 (1977-2010), Crown Cork estimates that approximately one-quarter of all asbestos-related claims made against it have been asserted by claimants who claim first exposure to asbestos after 1964.

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

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

Of the approximately 50,000 claims outstanding at the end of 2010, 2009 and 2008 approximately 18%, 16% and 15%, respectively, relate to claims alleging serious diseases (primarily mesothelioma and other malignancies). Of the approximately 15,000 claims related to claimants alleging first exposure to asbestos before or during 1964 that were filed in states that have not enacted asbestos legislation and were outstanding at the end of 2010, 2009 and 2008 approximately 31%, 29% and 25%, respectively, relate to claims alleging serious disease.

During the three months ended March 31, 2011, Crown Cork received approximately 600 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 March 31, 2011 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 March 31, 2011 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 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.

 

12


Crown Holdings, Inc.

 

As of March 31, 2011, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $243, including $192 for unasserted claims. The Company’s accrual includes estimates for probable costs for claims through the year 2020. Potential estimated additional claims costs of $30 beyond 2020 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 with respect to claims which are not yet filed, or asserted, against us. However, Crown Cork expects claims under these arrangements to be filed or asserted against Crown Cork in the future. The projected value of these claims is included in the Company’s estimated liability as of March 31, 2011.

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 adverse effect on the Company’s results of operations, financial position or cash flow.

 

I.

Commitments and Contingent Liabilities

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

The Company has also recorded aggregate accruals of $8 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.

The Company is subject to antitrust investigations in Europe. In August 2010, the Spanish National Antitrust Commission issued a Proposal for Resolution (Propuesta de Resolución) alleging that Crown European Holdings SA, a wholly-owned subsidiary of the Company, and one of its subsidiaries violated Spanish and European competition law by coordinating certain commercial terms and exchanging information with competitors in Spain. The Proposal for Resolution does not constitute a decision on the merits and was replied to by the Company. The investigation phase of the proceeding has now ended and the proceeding has entered the resolution phase before the Board of the Spanish National Antitrust Commission. If the Antitrust Commission finds that the Company’s subsidiaries violated competition law, the Antitrust Commission has the authority to levy fines. The Company believes that the allegations in Spain are without merit and intends to defend its position vigorously. The Company estimates the possible range of loss to be 8 to 12. However, the Company is unable to predict the ultimate outcome of the investigation or its impact on the Company. The Company expects that a final decision from the Board of Spanish National Antitrust Commission will be issued in 2011. This decision would be subject to appeal to the Spanish courts.

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

 

13


Crown Holdings, Inc.

 

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

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

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 within selling and administrative expense.

At March 31, 2011, the Company was party to certain indemnification agreements covering environmental remediation, lease payments and other potential costs associated with properties sold or businesses divested. For agreements with defined liability limits the maximum potential amount of future liability was $14. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated. At March 31, 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 March 31, 2011 and 2010, respectively:

 

     2011      2010  

Net income attributable to Crown Holdings

     $16         $41   
                 

Weighted average shares outstanding:

     

Basic

     154.6         160.7   

Add: dilutive stock options and restricted stock

     3.3         2.4   
                 

Diluted

     157.9         163.1   
                 

Basic earnings per share

     $0.10         $0.26   
                 

Diluted earnings per share

     $0.10         $0.25   
                 

Excluded from the computation of diluted earnings per share were common shares contingently issuable, amounting to 0.1 million shares for the three months ended March 31, 2011 and 3.3 million shares for the same period in 2010 because the effect would have been antidilutive.

 

14


Crown Holdings, Inc.

 

K.

Pension and Other Postretirement Benefits

The components of net periodic pension and other postretirement benefits costs for the three months ended March 31 were as follows:

 

Pension Benefits

   U.S. Plans     Non-U.S. Plans  
     2011     2010     2011     2010  

Service cost

   $ 3      $ 2      $ 6      $ 7   

Interest cost

     18        18        39        39   

Expected return on plan assets

     (20     (20     (48     (45

Recognized prior service cost

     1        1        1        (1

Recognized net loss

     11        17        13        11   
                                

Net periodic cost

   $ 13      $ 18      $ 11      $ 11   
                                

Other Postretirement Benefits

            
     2011     2010        

Service cost

   $ 2      $ 2     

Interest cost

     6        7     

Recognized prior service credit

     (8     (5  

Recognized net loss

     3        2     
                  

Net periodic cost

   $ 3      $ 6     
                  

 

L.

Accelerated Share Repurchase

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

In May 2011, the Company entered into an agreement with Goldman, Sachs & Co. to purchase shares of its common stock under an accelerated share repurchase program. Pursuant to the agreement, the Company may purchase up to an aggregate of $200 of its common stock, subject to a maximum per share purchase price. Repurchases pursuant to the agreement are expected to conclude during the third quarter of 2011. Repurchases under the agreement are subject to provisions that will establish a minimum number of shares to be repurchased based on the volume-weighted average share price of the Company’s common stock over an initial hedge period and a maximum share purchase price. The actual number of shares repurchased will be determined at the completion of the term of the agreement.

 

M.

Income Taxes

During the three months ended March 31, 2011, the Company recorded net tax charges of $41 on pre-tax income of $83 for an effective rate of 49.4%. The difference between pre-tax income at the U.S. statutory rate of 35%, or $29, and the tax charge of $41 is primarily explained as follows: $17 of increase due to tax charges in connection with the relocation of the Company’s European headquarters and management to Switzerland, $10 of increase to valuation allowances, $14 of decrease from lower tax rates in non-U.S. jurisdictions and $1 of decrease from other net differences.

During the three months ended March 31, 2010, the Company recorded net tax charges of $39 on pre-tax income of $106 for an effective rate of 36.8%. The difference of $2 between pre-tax income at the U.S. statutory rate of 35% or $37, and the tax charge of $39, is primarily explained as follows: $7 of increase to recognize the tax impact of the new U.S. health care legislation, $9 of increase to the valuation allowance in Canada for the tax benefit of current year losses that are not expected to be realized and $1 of increase from other net differences, partially offset by $7 of decrease for the nontaxable settlement benefit of a legal dispute unrelated to the Company’s ongoing operations and $8 of decrease from lower tax rates in non-U.S. jurisdictions.

 

15


Crown Holdings, Inc.

 

N.

Segment Information

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

The tables below present information about operating segments for the three months ended March 31, 2011 and 2010:

 

2011

   External
sales
     Segment
Income
 

Americas Beverage

   $ 512       $ 63   

North America Food

     188         28   

European Beverage

     340         45   

European Food

     422         52   

European Specialty Packaging

     100         7   
                 

Total reportable segments

     1,562         195   

Non-reportable segments

     320         57   

Corporate and unallocated items

        (62
                 

Total

   $ 1,882       $ 190   
                 

2010

   External
sales
     Segment
Income
 

Americas Beverage

   $ 480       $ 57   

North America Food

     197         16   

European Beverage

     314         52   

European Food

     404         40   

European Specialty Packaging

     91         3   
                 

Total reportable segments

     1,486         168   

Non-reportable segments

     291         45   

Corporate and unallocated items

        (42
                 

Total

   $ 1,777       $ 171   
                 

A reconciliation of segment income of reportable segments to income before income taxes and equity earnings for the three months ended March 31, 2011 and 2010 follows:

 

     2011     2010  

Segment income of reportable segments

   $ 195      $ 168   

Segment income of non-reportable segments

     57        45   

Corporate and unallocated items

     (62     (42

Provision for restructuring

     (25     (22

Asset impairments and sales

       1   

Loss from early extinguishment of debt

     (30  

Interest expense

     (56     (47

Interest income

     4        1   

Translation and foreign exchange

     0        2   
                

Income before income taxes and equity earnings

   $ 83      $ 106   
                

“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.

 

16


Crown Holdings, Inc.

 

O.

Condensed Combining Financial Information

Crown European Holdings SA (Issuer), a 100% owned subsidiary of the Company, has outstanding first priority senior secured notes and senior unsecured 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), 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 months ended March 31, 2011 and 2010,

 

   

balance sheets as of March 31, 2011 and December 31, 2010, and

 

   

statements of cash flows for the three months ended March 31, 2011 and 2010

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

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2011

(in millions)

 

     Parent      Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

          $1,266        $616          $1,882   

Cost of products sold, excluding depreciation and amortization

        $(1)        1,090        461          1,550   

Depreciation and amortization

          19        21          40   
                                                 

Gross profit

        1        157        134          292   
                                                 

Selling and administrative expense

        (1     79        24          102   

Provision for restructuring

          25            25   

Asset impairments and sales

          (182       $182     

Loss from early extinguishment of debt

          30            30   

Net interest expense

        19        30        3          52   

Technology royalty

          (6     6       
                                                 

Income/(loss) before income taxes

        (17     181        101        (182     83   

Provision for income taxes

        1        1        39          41   

Equity earnings/(loss) in affiliates

     $16         48        (164       100     
                                                 

Net income

     16         30        16        62        (82     42   

Net income attributable to noncontrolling interests

            (26       (26
                                                 

Net income attributable to Crown Holdings

     $16         $30        $16        $36        $(82     $16   
                                                 

 

17


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2010

(in millions)

 

     Parent      Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

          $1,047        $730          $1,777   

Cost of products sold, excluding depreciation and amortization

        $(2     895        590          1,483   

Depreciation and amortization

          22        22          44   
                                                 

Gross profit

        2        130        118          250   
                                                 

Selling and administrative expense

          52        27          79   

Provision for restructuring

          22            22   

Asset impairments and sales

          (1         (1

Net interest expense

        (2     43        5          46   

Technology royalty

          (7     7       

Translation and foreign exchange

          (2         (2
                                                 

Income before income taxes

        4        23        79          106   

Provision for income taxes

          24        15          39   

Equity earnings in affiliates

     $41         32        42          $(115  
                                                 

Net income

     41         36        41        64        (115     67   

Net income attributable to noncontrolling interests

            (26       (26
                                                 

Net income attributable to Crown Holdings

     $41         $36        $41        $38        $(115     $41   
                                                 

 

18


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of March 31, 2011

(in millions)

 

     Parent     Issuer      Guarantors     Non-
Guarantors
     Eliminations     Total
Company
 

Assets

              

Current assets

              

Cash and cash equivalents

          $49        $360           $409   

Receivables, net

       $56         213        835           1,104   

Intercompany receivables

       2         104        70         $(176  

Inventories

          710        643           1,353   

Prepaid expenses and other current assets

     $1        6         163        34           204   
                                                  

Total current assets

     1        64         1,239        1,942         (176     3,070   
                                                  

Intercompany debt receivables

       1,232         3,168        615         (5,015  

Investments

     388        3,249         (559        (3,078  

Goodwill

          1,446        601           2,047   

Property, plant and equipment, net

          633        1,069           1,702   

Other non-current assets

       16         590        51           657   
                                                  

Total

     $389        $4,561         $6,517        $4,278         $(8,269     $7,476   
                                                  

Liabilities and equity

              

Current liabilities

              

Short-term debt

       $58         $158        $197           $413   

Current maturities of long-term debt

       122         5        49           176   

Accounts payable and accrued liabilities

     $10        11         1,115        858           1,994   

Intercompany payables

          70        106         $(176  
                                                  

Total current liabilities

     10        191         1,348        1,210         (176     2,583   
                                                  

Long-term debt, excluding current maturities

       857         1,882        145           2,884   

Long-term intercompany debt

     386        2,281         1,401        947         (5,015  

Postretirement and pension liabilities

          1,152        19           1,171   

Other non-current liabilities

          344        155           499   

Commitments and contingent liabilities

              

Noncontrolling interests

          2        344           346   

Crown Holdings shareholders’ equity/(deficit)

     (7     1,232         388        1,458         (3,078     (7
                                                  

Total equity/(deficit)

     (7     1,232         390        1,802         (3,078     339   
                                                  

Total

     $389        $4,561         $6,517        $4,278         $(8,269     $7,476   
                                                  

 

19


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   
                                                  

 

20


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2011

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net used for operating activities

     $(7     $(23     $(205     $(82       $(317
                                                

Cash flows from investing activities

            

Capital expenditures

         (21     (82       (103

Intercompany investing activities

       6        188        (180     $(14  

Other

         2            2   
                                                

Net cash provided by/(used for) investing activities

       6        169        (262     (14     (101
                                                

Cash flows from financing activities

            

Proceeds from long-term debt

         700        54          754   

Payments of long-term debt

         (600     (5       (605

Net change in revolving credit facility and short-term debt

       12        204        2          218   

Debt issue costs

         (11         (11

Net change in long-term intercompany balances

     9        (5     (273     269       

Common stock issued

     4                4   

Common stock repurchased

     (6             (6

Dividends paid

           (14     14     

Dividends paid to noncontrolling interests

           (6       (6

Other

       10          (5       5   
                                                

Net cash provided by financing activities

     7        17        20        295        14        353   
                                                

Effect of exchange rate changes on cash and cash equivalents

           11          11   
                                                

Net change in cash and cash equivalents

         (16     (38       (54

Cash and cash equivalents at January 1

       0        65        398          463   
                                                

Cash and cash equivalents at March 31

     $0        $0        $49        $360        $0        $409   
                                                

 

21


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2010

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash provided by/(used for) operating activities

     $(7     $20        $(141     $(288       $(416
                                                

Cash flows from investing activities

            

Capital expenditures

         (11     (21       (32

Intercompany investing activities

         7        3        $(10  

Other

           11          11   
                                                

Net cash used for investing activities

         (4     (7     (10     (21
                                                

Cash flows from financing activities

            

Proceeds from long-term debt

           4          4   

Payments of long-term debt

       (14       (3       (17

Net change in revolving credit facility and short-term debt

       164        126        119          409   

Net change in long-term intercompany balances

     10        (170     (12     172       

Common stock issued

     2                2   

Common stock repurchased

     (5             (5

Dividends paid

           (10     10     

Dividends paid to noncontrolling interests

           (15       (15

Other

       (5     13            8   
                                                

Net cash provided by/(used for) financing activities

     7        (25     127        267        10        386   
                                                

Effect of exchange rate changes on cash and cash equivalents

           (9       (9
                                                

Net change in cash and cash equivalents

       (5     (18     (37       (60

Cash and cash equivalents at January 1

       5        49        405          459   
                                                

Cash and cash equivalents at March 31

     $0        $0        $31        $368        $0        $399   
                                                

 

22


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 months ended March 31, 2011 and 2010,

 

   

balance sheets as of March 31, 2011 and December 31, 2010, and

 

   

statements of cash flows for the three months ended March 31, 2011 and 2010

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

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2011

(in millions)

 

     Parent      Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

          $1,882          $1,882   

Cost of products sold, excluding depreciation and amortization

          1,550          1,550   

Depreciation and amortization

          40          40   
                                         

Gross profit

          292          292   
                                         

Selling and administrative expense

        $2        100          102   

Provision for restructuring

          25          25   

Loss from early extinguishment of debt

          30          30   

Net interest expense

        21        31          52   
                                         

Income/(loss) before income taxes

        (23     106          83   

Provision for/(benefit from) income taxes

        (7     48          41   

Equity earnings in affiliates

     $16         32          $(48  
                                         

Net income

     16         16        58        (48     42   

Net income attributable to noncontrolling interests

          (26       (26
                                         

Net income attributable to Crown Holdings

     $16         $16        $32        $(48     $16   
                                         

 

23


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2010

(in millions)

 

     Parent      Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

          $1,777          $1,777   

Cost of products sold, excluding depreciation and amortization

          1,483          1,483   

Depreciation and amortization

          44          44   
                                         

Gross profit

          250          250   
                                         

Selling and administrative expense

        $(18     97          79   

Provision for restructuring

          22          22   

Asset impairments and sales

          (1       (1

Net interest expense

        22        24          46   

Translation and foreign exchange

          (2       (2
                                         

Income/(loss) before income taxes

        (4     110          106   

Provision for income taxes

        2        37          39   

Equity earnings in affiliates

     $41         47          $(88  
                                         

Net income

     41         41        73        (88     67   

Net income attributable to noncontrolling interests

          (26       (26
                                         

Net income attributable to Crown Holdings

     $41         $41        $47        $(88     $41   
                                         

 

24


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of March 31, 2011

(in millions)

 

     Parent     Issuer      Non-
Guarantors
     Eliminations     Total
Company
 

Assets

            

Current assets

            

Cash and cash equivalents

          $409           $409   

Receivables, net

          1,104           1,104   

Inventories

          1,353           1,353   

Prepaid expenses and other current assets

     $1           203           204   
                                          

Total current assets

     1           3,069           3,070   
                                          

Intercompany debt receivables

          1,037         $(1,037  

Investments

     388        $1,226            (1,614  

Goodwill

          2,047           2,047   

Property, plant and equipment, net

          1,702           1,702   

Other non-current assets

       527         130           657   
                                          

Total

     $389        $1,753         $7,985         $(2,651     $7,476   
                                          

Liabilities and equity

            

Current liabilities

            

Short-term debt

          $413           $413   

Current maturities of long-term debt

          176           176   

Accounts payable and accrued liabilities

     $10        $44         1,940           1,994   
                                          

Total current liabilities

     10        44         2,529           2,583   
                                          

Long-term debt, excluding current maturities

       411         2,473           2,884   

Long-term intercompany debt

     386        651            $(1,037  

Postretirement and pension liabilities

          1,171           1,171   

Other non-current liabilities

       259         240           499   

Commitments and contingent liabilities

            

Noncontrolling interests

          346           346   

Crown Holdings shareholders’ equity/(deficit)

     (7     388         1,226         (1,614     (7
                                          

Total equity/(deficit)

     (7     388         1,572         (1,614     339   
                                          

Total

     $389        $1,753         $7,985         $(2,651     $7,476   
                                          

 

25


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           189           190   
                                          

Total current assets

     1           2,648           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

       528         128           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   
                                          

 

26


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2011

(in millions)

 

     Parent     Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash used for operating activities

     $(7     $(17     $(293       $(317
                                        

Cash flows from investing activities

          

Capital expenditures

         (103       (103

Investment dividends

       3          $(3  

Other

         2          2   
                                        

Net cash provided by/(used for) investing activities

       3        (101     (3     (101
                                        

Cash flows from financing activities

          

Proceeds from long-term debt

         754          754   

Payments of long-term debt

         (605       (605

Net change in revolving credit facility and short-term debt

         218          218   

Debt issue costs

         (11       (11

Net change in long-term intercompany balances

     9        14        (23    

Common stock issued

     4              4   

Common stock repurchased

     (6           (6

Dividends paid

         (3     3     

Dividend paid to noncontrolling interests

         (6       (6

Other

         5          5   
                                        

Net cash provided by financing activities

     7        14        329        3        353   
                                        

Effect of exchange rate changes on cash and cash equivalents

         11          11   
                                        

Net change in cash and cash equivalents

         (54       (54

Cash and cash equivalents at January 1

         463          463   
                                        

Cash and cash equivalents at March 31

     $0        $0        $409        $0        $409   
                                        

 

27


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2010

(in millions)

 

     Parent     Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash provided by/(used for) operating activities

     $(7     $10        $(419       $(416
                                        

Cash flows from investing activities

          

Capital expenditures

         (32       (32

Investment dividends

       9          $(9  

Other

         11          11   
                                        

Net cash provided by/(used for) investing activities

       9        (21     (9     (21
                                        

Cash flows from financing activities

          

Proceeds from long-term debt

         4          4   

Payments of long-term debt

         (17       (17

Net change in revolving credit facility and short-term debt

         409          409   

Net change in long-term intercompany balances

     10        (19     9       

Common stock issued

     2              2   

Common stock repurchased

     (5           (5

Dividends paid

         (9     9     

Dividend paid to noncontrolling interests

         (15       (15

Other

         8          8   
                                        

Net cash provided by/(used for) financing activities

     7        (19     389        9        386   
                                        

Effect of exchange rate changes on cash and cash equivalents

         (9       (9
                                        

Net change in cash and cash equivalents

         (60       (60

Cash and cash equivalents at January 1

         459          459   
                                        

Cash and cash equivalents at March 31

     $0        $0        $399        $0        $399   
                                        

 

28


Crown Holdings, Inc.

 

Crown Americas, LLC, Crown Americas Capital Corp. and Crown Americas Capital Corp. II (collectively, the Issuers), 100% owned subsidiaries of the Company, have outstanding senior unsecured notes 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 months ended March 31, 2011 and 2010,

 

   

balance sheets as of March 31, 2011 and December 31, 2010, and

 

   

statements of cash flows for the three months ended March 31, 2011 and 2010

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

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2011

(in millions)

 

     Parent      Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

          $623        $1,259          $1,882   

Cost of products sold, excluding depreciation and amortization

          528        1,022          1,550   

Depreciation and amortization

          10        30          40   
                                                 

Gross profit

          85        207          292   
                                                 

Selling and administrative expense

        $2        36        64          102   

Provision for restructuring

          20        5          25   

Loss from early extinguishment of debt

        30              30   

Net interest expense

        12        22        18          52   

Technology royalty

          (10     10       
                                                 

Income/(loss) before income taxes

        (44     17        110          83   

Provision/(benefit) for income taxes

        (17     17        41          41   

Equity earnings in affiliates

     $16         26        16          $(58  
                                                 

Net income/(loss)

     16         (1     16        69        (58     42   

Net income attributable to noncontrolling interests

            (26       (26
                                                 

Net income/(loss) attributable to Crown Holdings

     $16         $(1     $16        $43        $(58     $16   
                                                 

 

29


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2010

(in millions)

 

     Parent      Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

          $522        $1,255          $1,777   

Cost of products sold, excluding depreciation and amortization

          454        1,029          1,483   

Depreciation and amortization

          10        34          44   
                                                 

Gross profit

          58        192          250   
                                                 

Selling and administrative expense

        $2        15        62          79   

Provision for restructuring

            22          22   

Asset impairments and sales

            (1       (1

Net interest expense

        21        13        12          46   

Technology royalty

          (7     7       

Translation and foreign exchange

            (2       (2
                                                 

Income/(loss) before income taxes

        (23     37        92          106   

Provision/(benefit) for income taxes

        (9     24        24          39   

Equity earnings in affiliates

     $41         28        28          $(97  
                                                 

Net income

     41         14        41        68        (97     67   

Net income attributable to noncontrolling interests

            (26       (26
                                                 

Net income attributable to Crown Holdings

     $41         $14        $41        $42        $(97     $41   
                                                 

 

30


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of March 31, 2011

(in millions)

 

     Parent     Issuer      Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Assets

             

Current assets

             

Cash and cash equivalents

       $33           $376          $409   

Receivables, net

          $(16     1,120          1,104   

Intercompany receivables

          46        13        $(59  

Inventories

          331        1,022          1,353   

Prepaid expenses and other current assets

     $1        2         87        114          204   
                                                 

Total current assets

     1        35         448        2,645        (59     3,070   
                                &nbs