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, 2012
¨ | 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 | o (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 148,970,645 shares of Common Stock outstanding as of August 3, 2012.
Crown Holdings, Inc.
PART I – FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except per share data)
(Unaudited)
Three Months Ended June 30 | 2012 | 2011 | |||||
Net sales | $ | 2,184 | $ | 2,281 | |||
Cost of products sold, excluding depreciation and amortization | 1,799 | 1,865 | |||||
Depreciation and amortization | 45 | 45 | |||||
Gross profit | 340 | 371 | |||||
Selling and administrative expense | 90 | 100 | |||||
Provision for restructuring | 3 | — | |||||
Asset impairments and sales | (10 | ) | — | ||||
Loss from early extinguishments of debt | — | 2 | |||||
Interest expense | 55 | 60 | |||||
Interest income | (1 | ) | (2 | ) | |||
Translation and foreign exchange | (5 | ) | 1 | ||||
Income before income taxes and equity earnings | 208 | 210 | |||||
Provision for income taxes | 51 | 54 | |||||
Net income | 157 | 156 | |||||
Net income attributable to noncontrolling interests | (23 | ) | (27 | ) | |||
Net income attributable to Crown Holdings | $ | 134 | $ | 129 | |||
Earnings per common share attributable to Crown Holdings: | |||||||
Basic | $ | 0.91 | $ | 0.85 | |||
Diluted | $ | 0.89 | $ | 0.83 |
The accompanying notes are an integral part of these consolidated financial statements.
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Crown Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except per share data)
(Unaudited)
Six Months Ended June 30 | 2012 | 2011 | |||||
Net sales | $ | 4,131 | $ | 4,163 | |||
Cost of products sold, excluding depreciation and amortization | 3,417 | 3,415 | |||||
Depreciation and amortization | 87 | 85 | |||||
Gross profit | 627 | 663 | |||||
Selling and administrative expense | 196 | 202 | |||||
Provision for restructuring | 3 | 25 | |||||
Asset impairments and sales | (10 | ) | — | ||||
Loss from early extinguishments of debt | — | 32 | |||||
Interest expense | 113 | 116 | |||||
Interest income | (3 | ) | (6 | ) | |||
Translation and foreign exchange | (2 | ) | 1 | ||||
Income before income taxes and equity earnings | 330 | 293 | |||||
Provision for income taxes | 83 | 95 | |||||
Net income | 247 | 198 | |||||
Net income attributable to noncontrolling interests | (44 | ) | (53 | ) | |||
Net income attributable to Crown Holdings | $ | 203 | $ | 145 | |||
Earnings per common share attributable to Crown Holdings: | |||||||
Basic | $ | 1.37 | $ | 0.94 | |||
Diluted | $ | 1.35 | $ | 0.93 |
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months Ended June 30 | 2012 | 2011 | |||||
Net income | $ | 157 | $ | 156 | |||
Other comprehensive income, net of tax | |||||||
Foreign currency translation adjustments | (39 | ) | 18 | ||||
Pension and other postretirement benefits | 17 | 16 | |||||
Derivatives qualifying as hedges | (24 | ) | (25 | ) | |||
Total other comprehensive income | (46 | ) | 9 | ||||
Total comprehensive income | 111 | 165 | |||||
Net income attributable to noncontrolling interests | (23 | ) | (27 | ) | |||
Translation adjustments attributable to noncontrolling interests | 1 | (2 | ) | ||||
Derivatives qualifying as hedges attributable to noncontrolling interests | 4 | 2 | |||||
Comprehensive income attributable to Crown Holdings | $ | 93 | 138 |
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Six Months Ended June 30 | 2012 | 2011 | |||||
Net income | $ | 247 | $ | 198 | |||
Other comprehensive income, net of tax | |||||||
Foreign currency translation adjustments | — | 67 | |||||
Pension and other postretirement benefits | 33 | 32 | |||||
Derivatives qualifying as hedges | (1 | ) | (19 | ) | |||
Total other comprehensive income | 32 | 80 | |||||
Total comprehensive income | 279 | 278 | |||||
Net income attributable to noncontrolling interests | (44 | ) | (53 | ) | |||
Translation adjustments attributable to noncontrolling interests | 1 | (6 | ) | ||||
Derivatives qualifying as hedges attributable to noncontrolling interests | 1 | 1 | |||||
Comprehensive income attributable to Crown Holdings | $ | 237 | $ | 220 |
The accompanying notes are an integral part of these consolidated financial statements.
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Crown Holdings, Inc.
CONSOLIDATED BALANCE SHEETS (Condensed)
(In millions)
(Unaudited)
June 30, 2012 | December 31, 2011 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 230 | $ | 342 | |||
Receivables, net | 1,194 | 948 | |||||
Inventories | 1,272 | 1,148 | |||||
Prepaid expenses and other current assets | 213 | 165 | |||||
Total current assets | 2,909 | 2,603 | |||||
Goodwill | 1,944 | 1,952 | |||||
Property, plant and equipment, net | 1,800 | 1,751 | |||||
Other non-current assets | 571 | 562 | |||||
Total | $ | 7,224 | $ | 6,868 | |||
Liabilities and equity | |||||||
Current liabilities | |||||||
Short-term debt | $ | 185 | $ | 128 | |||
Current maturities of long-term debt | 113 | 67 | |||||
Accounts payable and accrued liabilities | 1,979 | 2,090 | |||||
Total current liabilities | 2,277 | 2,285 | |||||
Long-term debt, excluding current maturities | 3,493 | 3,337 | |||||
Postretirement and pension liabilities | 946 | 996 | |||||
Other non-current liabilities | 497 | 489 | |||||
Commitments and contingent liabilities (Note J) | |||||||
Noncontrolling interests | 238 | 234 | |||||
Crown Holdings shareholders’ deficit | (227 | ) | (473 | ) | |||
Total equity/(deficit) | 11 | (239 | ) | ||||
Total | $ | 7,224 | $ | 6,868 |
The accompanying notes are an integral part of these consolidated financial statements.
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Crown Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
(In millions)
(Unaudited)
Six Months Ended June 30 | 2012 | 2011 | |||||
Cash flows from operating activities | |||||||
Net income | $ | 247 | $ | 198 | |||
Adjustments to reconcile net income to net cash used for operating activities: | |||||||
Depreciation and amortization | 87 | 85 | |||||
Provision for restructuring | 3 | 25 | |||||
Asset impairments and sales | (10 | ) | — | ||||
Pension expense | 49 | 49 | |||||
Pension contributions | (51 | ) | (37 | ) | |||
Stock-based compensation | 12 | 12 | |||||
Changes in assets and liabilities: | |||||||
Receivables | (296 | ) | (347 | ) | |||
Inventories | (135 | ) | (431 | ) | |||
Accounts payable and accrued liabilities | (121 | ) | 172 | ||||
Other, net | (1 | ) | 27 | ||||
Net cash used for operating activities | (216 | ) | (247 | ) | |||
Cash flows from investing activities | |||||||
Capital expenditures | (139 | ) | (184 | ) | |||
Insurance proceeds | 23 | — | |||||
Change in restricted cash | — | (125 | ) | ||||
Proceeds from sale of property, plant and equipment | 2 | 2 | |||||
Other | (14 | ) | — | ||||
Net cash used for investing activities | (128 | ) | (307 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from long-term debt | 42 | 1,416 | |||||
Payments of long-term debt | (32 | ) | (922 | ) | |||
Net change in revolving credit facility and short-term debt | 274 | 248 | |||||
Debt issue costs | — | (16 | ) | ||||
Common stock issued | 4 | 9 | |||||
Common stock repurchased | (7 | ) | (212 | ) | |||
Purchase of noncontrolling interests | — | (9 | ) | ||||
Dividends paid to noncontrolling interests | (38 | ) | (38 | ) | |||
Other | (5 | ) | 18 | ||||
Net cash provided by financing activities | 238 | 494 | |||||
Effect of exchange rate changes on cash and cash equivalents | (6 | ) | 18 | ||||
Net change in cash and cash equivalents | (112 | ) | (42 | ) | |||
Cash and cash equivalents at January 1 | 342 | 463 | |||||
Cash and cash equivalents at June 30 | $ | 230 | $ | 421 |
The accompanying notes are an integral part of these consolidated financial statements.
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Crown Holdings, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(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, 2011 | $ | 929 | $ | 1,231 | $ | 230 | $ | (2,333 | ) | $ | (153 | ) | $ | (96 | ) | $ | 325 | $ | 229 | ||||||||||||
Net income | 145 | 145 | 53 | 198 | |||||||||||||||||||||||||||
Other comprehensive income | 75 | 75 | 5 | 80 | |||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | (38 | ) | (38 | ) | |||||||||||||||||||||||||||
Contribution from noncontrolling interests | 2 | 2 | |||||||||||||||||||||||||||||
Restricted stock awarded | (2 | ) | 2 | ||||||||||||||||||||||||||||
Stock-based compensation | 12 | 12 | 12 | ||||||||||||||||||||||||||||
Common stock issued | 6 | 3 | 9 | 9 | |||||||||||||||||||||||||||
Common stock repurchased | (186 | ) | (26 | ) | (212 | ) | (212 | ) | |||||||||||||||||||||||
Purchase of noncontrolling interests | (3 | ) | (3 | ) | (6 | ) | (9 | ) | |||||||||||||||||||||||
Balance at June 30, 2011 | $ | 929 | $ | 1,058 | $ | 375 | $ | (2,258 | ) | $ | (174 | ) | $ | (70 | ) | $ | 341 | $ | 271 | ||||||||||||
Balance at January 1, 2012 | $ | 929 | $ | 863 | $ | 512 | $ | (2,590 | ) | $ | (187 | ) | $ | (473 | ) | $ | 234 | $ | (239 | ) | |||||||||||
Net income | 203 | 203 | 44 | 247 | |||||||||||||||||||||||||||
Other comprehensive income | 34 | 34 | (2 | ) | 32 | ||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | (38 | ) | (38 | ) | |||||||||||||||||||||||||||
Restricted stock awarded | (2 | ) | 2 | ||||||||||||||||||||||||||||
Stock-based compensation | 12 | 12 | 12 | ||||||||||||||||||||||||||||
Common stock issued | 3 | 1 | 4 | 4 | |||||||||||||||||||||||||||
Common stock repurchased | (6 | ) | (1 | ) | (7 | ) | (7 | ) | |||||||||||||||||||||||
Balance at June 30, 2012 | $ | 929 | $ | 870 | $ | 715 | $ | (2,556 | ) | $ | (185 | ) | $ | (227 | ) | $ | 238 | $ | 11 |
The accompanying notes are an integral part of these consolidated financial statements.
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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, 2012 and the results of its operations for the three and six months ended June 30, 2012 and 2011 and of its cash flows for the six months ended June 30, 2012 and 2011. 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, 2011.
B. | Recent Accounting and Reporting Pronouncements |
In January 2012, the Company adopted changes issued by the FASB to the presentation of comprehensive income. These changes give companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The changes eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. Other than presentation, these changes had no impact on the Company's consolidated financial statements.
In January 2012, the Company adopted changes issued by the FASB to conform existing guidance regarding fair value measurement and disclosure between GAAP and International Financial Reporting Standards. The FASB's changes clarify many of the existing concepts for measuring fair value and do not result in a change in the Company's application of the FASB's fair value measurement guidance. These changes include enhanced disclosures about recurring Level 3 fair value measurements which did not impact the Company's financial statements. These changes also require additional disclosures for items that are not measured at fair value in the balance sheet but for which the fair value is required to be disclosed.
C. | Stock-Based Compensation |
A summary of restricted stock transactions during the six months ended June 30, 2012 follows:
Number of shares | ||
Non-vested shares outstanding at January 1, 2012 | 997,497 | |
Awarded: | ||
Time-vesting (average grant-date fair value of $33.75) | 126,582 | |
Performance-based (average grant-date fair value of $39.52) | 216,188 | |
Performance-based – achieved 149% level (grant-date fair value of $33.98) | 125,552 | |
Released: | ||
Time-vesting shares awarded in 2009 through 2011 | (185,848 | ) |
Performance-based shares awarded in 2009 | (256,229 | ) |
Performance-based awards – achieved 149% level | (125,552 | ) |
Non-vested shares outstanding at June 30, 2012 | 898,190 |
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Crown Holdings, Inc.
Annually the Company awards shares of restricted stock to certain senior executives. The awards consist of time-vesting awards which vest ratably over three years and performance-based shares which cliff vest at the end of three years. 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 originally awarded, and will be settled in stock. The fair value of the performance-based shares awarded was calculated using a Monte Carlo valuation model. The estimated weighted average grant-date fair value of the 216,188 performance-based shares awarded during the first six months of 2012 was $39.52 using a weighted average stock price volatility of 27.8%, an expected term of three years, and a weighed average risk-free interest rate of 0.36%.
During the first six months of 2012, 125,552 additional performance-based shares were issued under the Company's 2009 award because the Company exceeded the target level (100%) of performance-based shares, established on the original date of the related award, by 49%. These shares were issued without restriction.
At June 30, 2012, unrecognized compensation cost related to outstanding restricted stock was $9. The weighted average period over which the expense is expected to be recognized is 1.7 years. The aggregate market value of the shares released and issued on the vesting dates was $19.
D. | Receivables |
June 30, 2012 | December 31, 2011 | ||||||
Accounts and notes receivable | $ | 1,064 | $ | 834 | |||
Less: allowance for doubtful accounts | (37 | ) | (37 | ) | |||
Net trade receivables | 1,027 | 797 | |||||
Miscellaneous receivables | 167 | 151 | |||||
Receivables, net | $ | 1,194 | $ | 948 |
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, 2012 | December 31, 2011 | ||||||
Raw materials and supplies | $ | 582 | $ | 602 | |||
Work in process | 158 | 136 | |||||
Finished goods | 532 | 410 | |||||
$ | 1,272 | $ | 1,148 |
F. | Derivative and Other Financial Instruments |
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 reporting 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 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
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Crown Holdings, Inc.
as of the reporting date, such as foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy.
Fair value disclosures for financial assets and liabilities that were accounted for at fair value on a recurring basis are provided later in this note. In addition, see Note H for fair value disclosures related to debt.
Derivative Financial Instruments
In the normal course of business the Company is subject to risk from adverse fluctuations in currency exchange rates, interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counter-parties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counter-parties. 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 in hedging relationships, 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 hedging relationships are effective in offsetting changes in fair value or cash flows of the related underlying exposures. Any ineffective portion of the change in fair value of the instruments is recognized immediately in earnings.
Cash Flow Hedges
The Company designates certain derivative financial instruments as cash flow hedges. No components of the hedging instruments are excluded from the assessment of hedge effectiveness. Changes in fair value of outstanding derivatives accounted for as cash flow hedges, except any ineffective portion, are recorded in other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon release from comprehensive income is the same as that of the underlying exposure. Contracts outstanding at June 30, 2012 mature between one and thirty-five months.
When the Company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally specified period, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings.
The Company uses commodity forwards to hedge anticipated purchases of various commodities, including aluminum, fuel oil and natural gas and these exposures are hedged by a central treasury unit.
The Company also designates certain foreign exchange contracts as cash flow hedges of anticipated foreign currency denominated sales or purchases. The Company manages these risks at the operating unit level. Often the hedging of foreign currency risk is performed in concert with related commodity price hedges.
The following table sets forth financial information about the impact on Accumulated Other Comprehensive Income (“AOCI”) and earnings from changes in fair value related to derivative instruments.
Amount of gain/(loss) | Amount of gain/(loss) | ||||||||||||||||
recognized in AOCI | reclassified from AOCI | ||||||||||||||||
(effective portion) | into earnings | ||||||||||||||||
Quarter | Six months | Quarter | Six months | ||||||||||||||
ended | ended | ended | ended | ||||||||||||||
Derivatives in cash flow hedges | June 30, 2012 | June 30, 2012 | June 30, 2012 | June 30, 2012 | |||||||||||||
Foreign exchange | $ | — | $ | 2 | $ | — | $ | (1 | ) | (1) | |||||||
Commodities | (31 | ) | (21 | ) | (11 | ) | (18 | ) | (2) | ||||||||
Total | $ | (31 | ) | $ | (19 | ) | $ | (11 | ) | $ | (19 | ) |
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Crown Holdings, Inc.
Amount of gain/(loss) | Amount of gain/(loss) | ||||||||||||||||
recognized in AOCI | reclassified from AOCI | ||||||||||||||||
(effective portion) | into earnings | ||||||||||||||||
Quarter | Six months | Quarter | Six months | ||||||||||||||
ended | ended | ended | ended | ||||||||||||||
Derivatives in cash flow hedges | June 30, 2011 | June 30, 2011 | June 30, 2011 | June 30, 2011 | |||||||||||||
Foreign exchange | $ | (1 | ) | $ | (4 | ) | $ | (1 | ) | $ | (2 | ) | (3) | ||||
Commodities | (13 | ) | — | 10 | 16 | (4) | |||||||||||
Total | $ | (14 | ) | $ | (4 | ) | $ | 9 | $ | 14 |
(1) Within the Statement of Operations for the three months ended June, 30, 2012, a gain of $3 was recognized in cost of products sold and a loss of $3 was recognized in net sales. During the six months ended June 30, 2012, a gain of $6 was recognized in cost of products sold and a loss of $7 recognized in net sales.
(2) Within the Statement of Operations for the three months ended June, 30, 2012, a loss of $14 was recognized in cost of products sold and a tax benefit of $3 was recognized in income tax expense. During the six months ended June 30, 2012, a loss of $23 was recognized in cost of products sold and a tax benefit of $5 was recognized in income tax expense.
(3) Within the Statement of Operations for the three months ended June 30, 2011, a loss of $1 was recognized in cost of products sold. During the six months ended June 30, 2011, a gain of $1 was recognized in net sales and a loss of $3 was recognized in cost of products sold.
(4) Within the Statement of Operations for the three months ended June 30, 2011, a gain of $14 was recognized in cost of products sold and $4 was recognized as additional income tax expense. During the six months ended June 30, 2011, a gain of $22 was recognized in cost of products sold and $6 was recognized as additional income tax expense.
For the twelve month period ending June 30, 2013, a net loss of $56 ($43, net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the six months ended June 30, 2012 and 2011 in connection with anticipated transactions that were no longer considered probable and the ineffective portion recorded in earnings was less than $1.
Fair Value Hedges and Contracts Not Designated as Hedges
The Company designates certain derivative financial instruments as fair value hedges of recognized foreign-denominated assets and liabilities, generally trade accounts receivable and payable and unrecognized firm commitments. The notional values and maturity dates of the derivative instruments coincide with those of the hedged items. Changes in fair value of the derivative financial instruments, excluding time value, are offset by changes in fair value of the related hedged items. Other than for firm commitments, amounts related to time value are excluded from the assessment and measurement of hedge effectiveness and are reported in earnings. Less than $1 was reported in earnings for the six months ended June 30, 2012.
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 re-measurement 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 impact on earnings from foreign exchange contracts designated as fair value hedges was a loss of less than $1 and a gain of $1 for the three and six months ended June 30, 2012 and gains of $3 and $4 for the three and six months ended June 30, 2011. The impact on earnings from foreign exchange contracts not designated as hedges were losses of $4 and $3 for the three and six months ended June 30, 2012 and gains of $7 and $19 for the same periods in 2011. These adjustments were reported within translation and foreign exchange in the Consolidated Statements of Operations and were offset by changes in the fair values of the related hedged item.
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Crown Holdings, Inc.
Net Investment Hedges
During the first half of 2012, the Company designated certain derivative and non-derivative financial instruments (debt) as hedges of its net investment in a euro-based subsidiary to offset €277 ($350 as of June 30, 2012) of foreign currency exposure related to the investment. The change in value of the hedging instruments is reported in accumulated other comprehensive income within shareholders' equity. The net assets of the Company's euro-based subsidiary are re-measured using the foreign currency exchange rate in effect at the balance sheet date with any adjustment reported in cumulative translation adjustments within accumulated other comprehensive income. As of June 30, 2012, the unrealized foreign currency transaction gain from the re-measurement of the non-derivative financial instruments was a gain of $14 ($9, net of tax) and the aggregate fair value of the derivative financial instruments was a loss of $1 with both amounts reported in accumulated other comprehensive income.
The following table sets forth the fair value hierarchy for the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2012 and December 31, 2011, respectively.
Derivative Assets | Balance Sheet Classification | Fair Value Hierarchy | June 30, 2012 | December 31, 2011 | |||||
Derivatives designated as hedges: | |||||||||
Foreign exchange | Other current assets | 2 | $ | 19 | $9 | ||||
Commodities | Other current assets | 1 | 6 | 4 | |||||
Commodities | Other non-current assets | 1 | — | — | |||||
Derivatives not designated as hedges: | |||||||||
Foreign exchange | Other current assets | 2 | 2 | 6 | |||||
Total | $ | 27 | $ | 19 | |||||
Derivative Liabilities | Balance Sheet Classification | ||||||||
Derivatives designated as hedges: | |||||||||
Foreign exchange | Accounts payable and accrued liabilities | 2 | $ | 18 | $10 | ||||
Commodities | Accounts payable and accrued liabilities | 1 | 57 | 56 | |||||
Commodities | Other non-current liabilities | 1 | 12 | 6 | |||||
Derivatives not designated as hedges: | |||||||||
Foreign exchange | Accounts payable and accrued liabilities | 2 | 1 | 10 | |||||
Total | $ | 88 | $82 |
The aggregate U.S. dollar-equivalent notional values of outstanding derivative instruments in the Consolidated Balance Sheets at June 30, 2012 and December 31, 2011 were:
June 30, 2012 | December 31, 2011 | ||||||
Derivatives in cash flow hedges: | |||||||
Foreign exchange | $ | 650 | $ | 480 | |||
Commodities | 528 | 528 | |||||
Derivatives in fair value hedges: | |||||||
Foreign exchange | 117 | 123 | |||||
Derivatives in net investment hedges: | |||||||
Foreign exchange | 38 | ||||||
Derivatives not designated as hedges: | |||||||
Foreign exchange | 371 | 965 |
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Crown Holdings, Inc.
G. | Restructuring |
The Company recorded restructuring charges as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
European Division Headquarters | $ | — | $ | — | $ | — | $ | 19 | |||||||
North America Food | 1 | — | 1 | 2 | |||||||||||
European Food | 1 | — | 1 | — | |||||||||||
Other European operations | 1 | — | 1 | 4 | |||||||||||
3 | — | 3 | 25 |
Restructuring charges by type are as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Termination benefits | $ | 1 | $ | — | $ | 1 | $ | 4 | |||||||
Other exit costs | 2 | — | 2 | 21 | |||||||||||
$ | 3 | $ | — | $ | 3 | $ | 25 |
European Division Headquarters
As of June 30, 2012, the Company incurred costs of $34 which are expected to be the total costs related to the relocation of its European Division headquarters and management to Switzerland in order to benefit from a more centralized management location.
The following table summarizes the restructuring accrual balances and utilization by cost type for the relocation:
Termination benefits | Other exit costs | Total | |||||||||
Balance at January 1, 2012 | $ | — | $ | 19 | $ | 19 | |||||
Foreign currency translation | — | (1 | ) | (1 | ) | ||||||
Balance at June 30, 2012 | $ | — | $ | 18 | $ | 18 |
Other exit costs represent the estimated employee compensation costs resulting from an intercompany payment related to the relocation. The Company expects to pay these costs over the next 3 years.
North America Food
As of June 30, 2012, the Company incurred total costs of $56 related to the closure of certain Canadian plants as part of restructuring actions to reduce costs through consolidation of certain U.S. and Canadian operations. These actions are expected to be completed in 2012.
The following table summarizes the restructuring accrual balances and utilization by cost type for these actions:
Termination benefits | Other exit costs | Total | |||||||||
Balance at January 1, 2012 | $ | 2 | $ | — | $ | 2 | |||||
Provisions | — | 1 | 1 | ||||||||
Payments | (1 | ) | (1 | ) | (2 | ) | |||||
Balance at June 30, 2012 | $ | 1 | $ | — | $ | 1 |
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Crown Holdings, Inc.
European Food
In the fourth quarter of 2011, the Company reviewed its existing supply and demand profile and long-term plans in Europe. The Company identified additional restructuring actions to improve profitability, including in its European Food business, by consolidating operations through reducing capacity and headcount. In December 2011, the Company approved these actions and recorded a charge of $9. The action is expected to reduce headcount by approximately 121. The Company expects to incur future additional charges of $2 related to the action which it expects to complete in 2012 at an estimated aggregate cost of $11. The table below summarizes the restructuring accrual balances and utilization by cost type for this action.
Termination benefits | Other exit costs | Total | |||||||||
Balance at January 1, 2012 | $ | 10 | $ | — | $ | 10 | |||||
Provisions | — | 1 | 1 | ||||||||
Payments | (4 | ) | (1 | ) | (5 | ) | |||||
Balance at June 30, 2012 | $ | 6 | $ | — | $ | 6 |
Other European operations
In the first quarter of 2011, the Company recorded a charge of $4 to reduce headcount in its European Specialty Packaging segment. In the fourth quarter of 2011, the Company reviewed its existing supply and demand profile and long-term plans in Europe. The Company identified additional restructuring actions to improve profitability, primarily in its European Aerosols and Specialty Packaging businesses, by consolidating operations through reducing capacity and headcount. In December 2011, the Company approved these actions and recorded an additional charge of $41. These actions are expected to reduce headcount by approximately 360 and to eliminate approximately 14% of the businesses' capacity. The Company currently expects to incur future additional charges of $8 related to the actions and to complete the actions in 2013 at an estimated aggregate cost of $53.
The table below summarizes the restructuring accrual balances and utilization by cost type for this action.
Termination benefits | Other exit costs | Total | |||||||||
Balance at January 1, 2012 | $ | 46 | $ | — | $ | 46 | |||||
Provision | 1 | — | 1 | ||||||||
Payments | (5 | ) | — | (5 | ) | ||||||
Foreign currency translation | (1 | ) | — | (1 | ) | ||||||
Balance at June 30, 2012 | $ | 41 | $ | — | $ | 41 |
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Crown Holdings, Inc.
H. | Debt |
The Company’s outstanding debt at June 30, 2012 and December 31, 2011 was as follows.
June 30, 2012 | December 31, 2011 | ||||||
Short-term debt | $ | 185 | $ | 128 | |||
Long-term debt | |||||||
Senior secured borrowings: | |||||||
Revolving credit facilities | $ | 335 | $ | 119 | |||
Term loan facilities | |||||||
U.S. dollar at LIBOR plus 1.75% due 2016 | 550 | 550 | |||||
Euro (€274 at June 30, 2012) at EURIBOR plus 1.75% due 2016 | 347 | 355 | |||||
Senior notes and debentures: | |||||||
U.S. dollar 7.625% due 2017 | 400 | 400 | |||||
Euro (€500 at June 30, 2012) 7.125% due 2018 | 633 | 647 | |||||
U.S. dollar 6.25% due 2021 | 700 | 700 | |||||
U.S. dollar 7.375% due 2026 | 350 | 350 | |||||
U.S. dollar 7.50% due 2096 | 64 | 64 | |||||
Other indebtedness in various currencies | 237 | 230 | |||||
Unamortized discounts | (10 | ) | (11 | ) | |||
Total long-term debt | 3,606 | 3,404 | |||||
Less: current maturities | (113 | ) | (67 | ) | |||
Total long-term debt, less current maturities | $ | 3,493 | $ | 3,337 |
The estimated fair value of the Company’s long-term borrowings, using a market approach incorporating level 2 inputs such as quoted market prices for the same or similar issues, was $3,969 at June 30, 2012.
I. | 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.
In recent years, the states of Alabama, Arizona, Florida, Georgia, Idaho, Indiana, Michigan, Mississippi, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Utah, Wisconsin 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. The legislation, which applies to future and, with the exception of Georgia, South Carolina, South Dakota and Wyoming, 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.
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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. 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, in its accrual, continues to assign no value to claims filed after June 11, 2003.
In December 2001, the Commonwealth of Pennsylvania enacted legislation that limits the asbestos-related liabilities of Pennsylvania corporations that are successors by corporate merger to companies involved with asbestos. The legislation limits the successor’s liability for asbestos to the acquired company’s asset value adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the acquired company’s adjusted asset value. In November 2004, the legislation was amended to address a Pennsylvania Supreme Court decision (Ieropoli v. AC&S Corporation, et. al., No. 117 EM 2002) which held that the statute violated the Pennsylvania Constitution due to retroactive application. The Company cautions that the limitations of the statute, as amended, are subject to litigation and may not be upheld. Adverse rulings in cases challenging the constitutionality of the Pennsylvania statute could have a material impact on the Company.
During the six months ended June 30, 2012, the Company paid $10 to settle outstanding claims and had claims activity as follows:
Beginning claims | 50,000 | |
New claims | 1,500 | |
Settlements or dismissals | (1,000 | ) |
Ending claims | 50,500 |
As of December 31, the Company’s outstanding claims by year of exposure and state filed were:
2011 | 2010 | ||||
Claimants alleging first exposure after 1964 | 15,000 | 15,000 | |||
Claimants alleging first exposure before or during 1964 filed in: | |||||
Texas | 12,000 | 12,000 | |||
Pennsylvania | 2,000 | 2,000 | |||
Other states that have enacted asbestos legislation | 6,000 | 6,000 | |||
Other states | 15,000 | 15,000 | |||
Total claims outstanding | 50,000 | 50,000 |
The outstanding claims in each period exclude 3,100 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes will not have a material effect on the Company’s consolidated results of operations, financial position or cash flow. The outstanding claims also exclude approximately 19,000 inactive claims. Due to the passage of time, the Company considers it unlikely that the plaintiffs in these cases will pursue further action against the Company. The exclusion of these inactive claims had no effect on the calculation of the Company’s accrual as the claims were filed in states, as described above, where the Company’s liability is limited by statute.
Historically (1977-2011), Crown Cork estimates that approximately one-quarter of all asbestos-related claims made against it have been asserted by claimants who claim first exposure to asbestos after 1964.
With respect to claimants alleging first exposure to asbestos before or during 1964, the Company does not include in its accrual any amounts for settlements in states where the Company’s liability is limited by statute except for certain pending claims in Texas as described earlier.
With respect to post-1964 claims, regardless of the existence of asbestos legislation, the Company does not include in its accrual any amounts for settlement of these claims because of increased difficulty of establishing identification of relevant insulation products as the cause of injury. Given our settlement experience with post-1964 claims, we do not believe that an adverse ruling in the Texas or Pennsylvania asbestos litigation cases, or in any other state that has enacted asbestos legislation, would have a material impact on the Company with respect to such claims.
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Crown Holdings, Inc.
As of December 31, the percentage of outstanding claims related to claimants alleging serious diseases (primarily
mesothelioma and other malignancies) were as follows:
2011 | 2010 | 2009 | ||||||
Total claims | 18 | % | 18 | % | 16 | % | ||
Pre-1964 claims in states without asbestos legislation | 33 | % | 31 | % | 29 | % |
Crown Cork has entered into arrangements with plaintiffs’ counsel in certain jurisdictions with respect to claims which are not yet filed, or asserted, against it. 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, 2012.
As of June 30, 2012, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $239, including $186 for unasserted claims. The Company’s accrual includes estimated probable costs for claims through the year 2021. The Company’s accrual excludes potential costs for claims beyond 2021 because the Company believes that the key assumptions underlying its accrual are subject to greater uncertainty as the projection period lengthens.
It is reasonably possible that the actual loss could be in excess of the Company’s accrual. However, the Company is unable to estimate the reasonably possible loss in excess of its accrual due to uncertainty in the following assumptions that underlie the Company’s accrual and the possibility of losses in excess of such accrual: the amount of damages sought by the claimant (which was not specified for approximately 88% of the claims outstanding at the end of 2011), the Company and claimant’s willingness to negotiate a settlement, the terms of settlements of other defendants with asbestos-related liabilities, the bankruptcy filings of other defendants (which may result in additional claims and higher settlements for non-bankrupt defendants), the nature of pending and future claims (including the seriousness of alleged disease, whether claimants allege first exposure to asbestos before or during 1964 and the claimant’s ability to demonstrate the alleged link to Crown Cork), the volatility of the litigation environment, the defense strategies available to the Company, the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, and the effect of state asbestos legislation (including the validity and applicability of the Pennsylvania legislation to non-Pennsylvania jurisdictions, where the substantial majority of the Company’s asbestos cases are filed).
J. | 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's Italian subsidiaries have received and expect to receive additional 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, 2005 and 2006 and additional assessments are expected to cover periods 2007 through 2009. The expected total assessments resulting from these third party suppliers failing to remit the tax payments are approximately €40 ($51 at June 30, 2012) plus any applicable interest and penalties which the Company estimates may be up to approximately €55 ($70 at June 30, 2012) . In early 2012, the Company received one favorable ruling and two unfavorable rulings from lower level Italian courts related to these assessments. The Company expects these rulings
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Crown Holdings, Inc.
to be appealed. The Company continues to believe that, if necessary, it should be able to successfully dispute the assessments and demonstrate in the appropriate Italian courts that it has no additional liability for the asserted taxes and related interest and penalties. 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 any additional taxes and related interest and penalties 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 earnings, 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.
At June 30, 2012, 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 $11. 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, 2012, the Company also had guarantees of $29 related to the residual values of leased assets.
K. | 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, 2012 and 2011, respectively:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net income attributable to Crown Holdings | $ | 134 | $ | 129 | $ | 203 | $ | 145 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 148.0 | 152.3 | 147.9 | 153.5 | |||||||||||
Add: dilutive stock options and restricted stock | 2.5 | 3.2 | 2.4 | 3.1 | |||||||||||
Diluted | 150.5 | 155.5 | 150.3 | 156.6 | |||||||||||
Basic earnings per share | $ | 0.91 | $ | 0.85 | $ | 1.37 | $ | 0.94 | |||||||
Diluted earnings per share | $ | 0.89 | $ | 0.83 | $ | 1.35 | $ | 0.93 |
For the three months ended June 30, 2012 and 2011, 0.1 million and 0.0 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive. For the six months ended June 30, 2012 and 2011, 0.2 million and 0.0 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive.
L. | 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:
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Crown Holdings, Inc.
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
Pension Benefits – U.S. Plans | 2012 | 2011 | 2012 | 2011 | |||||||||||
Service cost | $ | 3 | $ | 3 | $ | 6 | $ | 6 | |||||||
Interest cost | 17 | 18 | 34 | 36 | |||||||||||
Expected return on plan assets | (23 | ) | (20 | ) | (46 | ) | (40 | ) | |||||||
Recognized prior service cost | — | — | — | 1 | |||||||||||
Recognized net loss | 14 | 13 | 28 | 24 | |||||||||||
Net periodic cost | $ | 11 | $ | 14 | $ | 22 | $ | 27 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
Pension Benefits – Non-U.S. Plans | 2012 | 2011 | 2012 | 2011 | |||||||||||
Service cost | $ | 7 | $ | 6 | $ | 14 | $ | 12 | |||||||
Interest cost | 38 | 40 | 76 | 79 | |||||||||||
Expected return on plan assets | (46 | ) | (49 | ) | (92 | ) | (97 | ) | |||||||
Recognized prior service cost | 1 | — | 1 | 1 | |||||||||||
Recognized net loss | 14 | 14 | 28 | 27 | |||||||||||
Net periodic cost | $ | 14 | $ | 11 | $ | 27 | $ | 22 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
Other Postretirement Benefits | 2012 | 2011 | 2012 | 2011 | |||||||||||
Service cost | $ | 1 | $ | 3 | $ | 2 | $ | 5 | |||||||
Interest cost | 4 | 5 | 8 | 11 | |||||||||||
Recognized prior service credit | (11 | ) | (9 | ) | (22 | ) | (17 | ) | |||||||
Recognized net loss | 4 | 4 | 8 | 7 | |||||||||||
Net periodic cost | $ | (2 | ) | $ | 3 | $ | (4 | ) | $ | 6 |
M. | Accelerated Share Repurchase |
In December 2011, the Company entered into an agreement to repurchase shares of its common stock under an accelerated share repurchase program. Pursuant to the agreement, the Company initially purchased 2,771,004 shares for $100. In April 2012, the Company received an additional 4,653 shares based on its volume-weighted average stock price during the term of the transaction.
In July 2012, the Company entered into an agreement to purchase an aggregate of $200 shares of its common stock under an accelerated repurchase program. The actual number of shares repurchased will be determined at the completion of the term of the agreement subject to provisions that 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.
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Crown Holdings, Inc.
N. | Income Taxes |
The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to pre-tax income as a result of the following items:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
U.S. statutory rate at 35% | $ | 73 | $ | 74 | $ | 116 | $ | 103 | |||||||
Tax on foreign income | (22 | ) | (23 | ) | (33 | ) | (36 | ) | |||||||
Valuation allowance | 1 | 2 | 3 | 12 | |||||||||||
Tax law changes | — | — | — | (3 | ) | ||||||||||
Other items, net | (1 | ) | 1 | (3 | ) | 19 | |||||||||
Income tax provision | $ | 51 | $ | 54 | $ | 83 | $ | 95 |
The other items caption for the six months ended June 30, 2011 includes $20 of increase due to tax charges in connection with the relocation of the Company’s European headquarters and management to Switzerland.
O. | Asset Impairments and Sales |
For the three and six months ended June 30, 2012, the Company recognized a gain of $10 related to insurance proceeds received for property damage incurred in the 2011 flooding of the Company's beverage can plant in Thailand.
P. | Segment Information |
The Company evaluates performance and allocates resources based on segment income. Segment income, which is not a defined term under GAAP, is defined by the Company as gross profit less selling and administrative expenses. Segment income should not be considered in isolation or as a substitute for net income data prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies. Transactions between operating segments are not material.
The tables below present information about operating segments for the three and six months ended June 30, 2012 and 2011:
External Sales | External Sales | ||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Americas Beverage | $ | 593 | $ | 591 | $ | 1,127 | $ | 1,103 | |||||||
North America Food | 213 | 217 | 413 | 405 | |||||||||||
European Beverage | 472 | 500 | 834 | 840 | |||||||||||
European Food | 434 | 509 | 836 | 931 | |||||||||||
European Specialty Packaging | 97 | 119 | 187 | 219 | |||||||||||
Total reportable segments | 1,809 | 1,936 | 3,397 | 3,498 | |||||||||||
Non-reportable segments | 375 | 345 | 734 | 665 | |||||||||||
Total | $ | 2,184 | $ | 2,281 | $ | 4,131 | $ | 4,163 |
The primary sources of revenue included in non-reportable segments are the Company's aerosol can businesses in North America, Europe and Thailand, the Company's beverage can businesses in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam, the Company's food can and closures business in Thailand and the Company's tooling and equipment operations in the U.S. and United Kingdom.
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Crown Holdings, Inc.
Intersegment Sales | Intersegment Sales | ||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Americas Beverage | $ | 25 | $ | 26 | $ | 47 | $ | 43 | |||||||
North America Food | 2 | 3 | 5 | 6 | |||||||||||
European Beverage | 6 | — | 12 | — | |||||||||||
European Food | 29 | 34 | 55 | 62 | |||||||||||
European Specialty Packaging | 11 | 19 | 22 | 37 | |||||||||||
Total reportable segments | 73 | 82 | 141 | 148 | |||||||||||
Non-reportable segments | 12 | 17 | 27 | 38 | |||||||||||
Total | $ | 85 | $ | 99 | $ | 168 | $ | 186 |
Intersegment sales primarily include sales of ends and components used to manufacture cans, such as printed and coated
metal, as well as parts and equipment used in the manufacturing process.
Segment Income | Segment Income | ||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Americas Beverage | $ | 78 | $ | 77 | $ | 147 | $ | 140 | |||||||
North America Food | 41 | 38 | 73 | 66 | |||||||||||
European Beverage | 64 | 70 | 106 | 115 | |||||||||||
European Food | 47 | 63 | 87 | 115 | |||||||||||
European Specialty Packaging | 10 | 12 | 11 | 19 | |||||||||||
Total reportable segments | $ | 240 | $ | 260 | $ | 424 | $ | 455 |
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, 2012 and 2011 follows:
Segment Income | Segment Income | ||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Segment income of reportable segments | $ | 240 | $ | 260 | $ | 424 | $ | 455 | |||||||
Segment income of non-reportable segments | 54 | 55 | 107 | 112 | |||||||||||
Corporate and unallocated items | (44 | ) | (44 | ) | (100 | ) | (106 | ) | |||||||
Provision for restructuring | (3 | ) | — | (3 | ) | (25 | ) | ||||||||
Asset impairments and sales | 10 | — | 10 | — | |||||||||||
Loss from early extinguishments of debt | — | (2 | ) | — | (32 | ) | |||||||||
Interest expense | (55 | ) | (60 | ) | (113 | ) | (116 | ) | |||||||
Interest income | 1 | 2 | 3 | 6 | |||||||||||
Translation and foreign exchange | 5 | (1 | ) | 2 | (1 | ) | |||||||||
Income before income taxes and equity earnings | $ | 208 | $ | 210 | $ | 330 | $ | 293 |
For the six months ended June 30, 2012, intercompany profit of $1 was eliminated within segment income of non-reportable segments. For the three and six months ended June 30, 2011, intercompany profit of $1 and $2 was eliminated.
“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.
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Crown Holdings, Inc.
Q. | Condensed Combining Financial Information |
Crown European Holdings SA (Issuer), a wholly owned subsidiary of the Company, has €500 ($633 at June 30, 2012) principal amount of 7.125% senior notes due 2018 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and certain subsidiaries. The guarantors are wholly 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 comprehensive income for the three and six months ended June 30, 2012 and 2011,
•balance sheets as of June 30, 2012 and December 31, 2011, and
•statements of cash flows for the six months ended June 30, 2012 and 2011
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.
During the second quarter of 2012, the Company revised its presentation of the condensed combining balance sheet at December 31, 2011 to reclassify a consolidation entry to net certain value added tax receivables and payables from non-guarantor subsidiaries to guarantor subsidiaries. The impact was a $226 decrease to both receivables and accounts payable and accrued liabilities of guarantor subsidiaries with a corresponding increase to non-guarantor subsidiaries. The Company deemed the revision to be immaterial for the previously issued financial statements and therefore, revised the condensed combining balance sheet included in this filing.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2012
(in millions)
23
Crown Holdings, Inc.
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net sales | $ | 1,188 | $ | 996 | $ | 2,184 | |||||||||||||||||
Cost of products sold, excluding depreciation and amortization | 972 | 827 | 1,799 | ||||||||||||||||||||
Depreciation and amortization | 20 | 25 | 45 | ||||||||||||||||||||
Gross profit | 196 | 144 | 340 | ||||||||||||||||||||
Selling and administrative expense | $ | (1 | ) | 67 | 24 | 90 | |||||||||||||||||
Provision for restructuring | 2 | 1 | 3 | ||||||||||||||||||||
Asset impairments and sales | (1 | ) | (9 | ) | (10 | ) | |||||||||||||||||
Net interest expense | 13 | 32 | 9 | 54 | |||||||||||||||||||
Technology royalty | (12 | ) | 12 | — | |||||||||||||||||||
Translation and foreign exchange | (2 | ) | (3 | ) | (5 | ) | |||||||||||||||||
Income/(loss) before income taxes | (12 | ) | 110 | 110 | 208 | ||||||||||||||||||
Provision for income taxes | 36 | 15 | 51 | ||||||||||||||||||||
Equity earnings in affiliates | $ | 134 | 65 | 60 | $ | (259 | ) | — | |||||||||||||||
Net income | 134 | 53 | 134 | 95 | (259 | ) | 157 | ||||||||||||||||
Net income attributable to noncontrolling interests | (23 | ) | (23 | ) | |||||||||||||||||||
Net income attributable to Crown Holdings | $ | 134 | $ | 53 | $ | 134 | $ | 72 | $ | (259 | ) | $ | 134 | ||||||||||
Comprehensive income | $ | 93 | $ | 6 | $ | 93 | $ | 16 | $ | (97 | ) | $ | 111 | ||||||||||
Comprehensive income attributable to noncontrolling interests | (18 | ) | (18 | ) | |||||||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 93 | $ | 6 | $ | 93 | $ | (2 | ) | $ | (97 | ) | $ | 93 |
24
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net sales | $ | 1,083 | $ | 1,198 | $ | 2,281 | |||||||||||||||||
Cost of products sold, excluding depreciation and amortization | — | 851 | 1,014 | 1,865 | |||||||||||||||||||
Depreciation and amortization | 21 | 24 | 45 | ||||||||||||||||||||
Gross profit | — | 211 | 160 | 371 | |||||||||||||||||||
Selling and administrative expense | — | 78 | 22 | 100 | |||||||||||||||||||
Loss from early extinguishment of debt | $ | 2 | — | 2 | |||||||||||||||||||
Net interest expense | 20 | 25 | 13 | 58 | |||||||||||||||||||
Technology royalty | (9 | ) | 9 | — | |||||||||||||||||||
Translation and foreign exchange | 1 | 1 | |||||||||||||||||||||
Income/(loss) before income taxes | (22 | ) | 117 | 115 | — | 210 | |||||||||||||||||
Provision for income taxes | — | 38 | 16 | 54 | |||||||||||||||||||
Equity earnings/(loss) in affiliates | $ | 129 | 91 | 50 | $ | (270 | ) | — | |||||||||||||||
Net income | 129 | 69 | 129 | 99 | (270 | ) | 156 | ||||||||||||||||
Net income attributable to noncontrolling interests | (27 | ) | (27 | ) | |||||||||||||||||||
Net income attributable to Crown Holdings | $ | 129 | $ | 69 | $ | 129 | $ | 72 | $ | (270 | ) | $ | 129 | ||||||||||
Comprehensive income | $ | 138 | $ | 80 | $ | 138 | $ | 114 | $ | (305 | ) | $ | 165 | ||||||||||
Comprehensive income attributable to noncontrolling interests | — | — | — | (27 | ) | — | (27 | ) | |||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 138 | $ | 80 | $ | 138 | $ | 87 | $ | (305 | ) | $ | 138 |
25
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME For the six months ended June 30, 2012 (in millions) | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net sales | $ | 2,277 | $ | 1,854 | $ | 4,131 | |||||||||||||||||
Cost of products sold, excluding depreciation and amortization | 1,883 | 1,534 | 3,417 | ||||||||||||||||||||
Depreciation and amortization | 38 | 49 | 87 | ||||||||||||||||||||
Gross profit | 356 | 271 | 627 | ||||||||||||||||||||
Selling and administrative expense | $ | (1 | ) | 150 | 47 | 196 | |||||||||||||||||
Provision for restructuring | 2 | 1 | 3 | ||||||||||||||||||||
Asset impairments and sales | (1 | ) | (9 | ) | (10 | ) | |||||||||||||||||
Net interest expense | 28 | 63 | 19 | 110 | |||||||||||||||||||
Technology royalty | (19 | ) | 19 | — | |||||||||||||||||||
Translation and foreign exchange | — | (2 | ) | (2 | ) | ||||||||||||||||||
Income/(loss) before income taxes | (27 | ) | 161 | 196 | 330 | ||||||||||||||||||
Provision for income taxes | — | 54 | 29 | 83 | |||||||||||||||||||
Equity earnings in affiliates | $ | 203 | 114 | 96 | $ | (413 | ) | — | |||||||||||||||
Net income | 203 | 87 | 203 | 167 | (413 | ) | 247 | ||||||||||||||||
Net income attributable to noncontrolling interests | (44 | ) | (44 | ) | |||||||||||||||||||
Net income attributable to Crown Holdings | $ | 203 | $ | 87 | $ | 203 | $ | 123 | $ | (413 | ) | $ | 203 | ||||||||||
Comprehensive income | $ | 237 | $ | 104 | $ | 237 | $ | 159 | $ | (458 | ) | $ | 279 | ||||||||||
Comprehensive income attributable to noncontrolling interests | (42 | ) | (42 | ) | |||||||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 237 | $ | 104 | $ | 237 | $ | 117 | $ | (458 | ) | $ | 237 |
26
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME For the six months ended June 30, 2011 (in millions) | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net sales | $ | 2,349 | $ | 1,814 | $ | 4,163 | |||||||||||||||||
Cost of products sold, excluding depreciation and amortization | $ | (1 | ) | 1,941 | 1,475 | 3,415 | |||||||||||||||||
Depreciation and amortization | 40 | 45 | 85 | ||||||||||||||||||||
Gross profit | 1 | 368 | 294 | 663 | |||||||||||||||||||
Selling and administrative expense | (1 | ) | 157 | 46 | 202 | ||||||||||||||||||
Provision for restructuring | 25 | 25 | |||||||||||||||||||||
Asset impairments and sales | (182 | ) | — | $ | 182 | — | |||||||||||||||||
Loss from early extinguishment of debt | 2 | 30 | 32 | ||||||||||||||||||||
Net interest expense | 39 | 55 | 16 | 110 | |||||||||||||||||||
Technology royalty | (15 | ) | 15 | — | |||||||||||||||||||
Translation and foreign exchange | — | 1 | 1 | ||||||||||||||||||||
Income/(loss) before income taxes | (39 | ) | 298 | 216 | (182 | ) | 293 | ||||||||||||||||
Provision for income taxes | 1 | 39 | 55 | 95 | |||||||||||||||||||
Equity earnings/(loss) in affiliates | $ | 145 | 139 | (114 | ) | (170 | ) | — | |||||||||||||||
Net income | 145 | 99 | 145 | 161 | (352 | ) | 198 | ||||||||||||||||
Net income attributable to noncontrolling interests | (53 | ) | (53 | ) | |||||||||||||||||||
Net income attributable to Crown Holdings | $ | 145 | $ | 99 | $ | 145 | $ | 108 | $ | (352 | ) | $ | 145 | ||||||||||
Comprehensive income | $ | 220 | $ | 157 | $ | 220 | $ | 262 | $ | (581 | ) | $ | 278 | ||||||||||
Comprehensive income attributable to noncontrolling interests | (58 | ) | (58 | ) | |||||||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 220 | $ | 157 | $ | 220 | $ | 204 | $ | (581 | ) | $ | 220 |
27
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of June 30, 2012
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | 35 | $ | 195 | $ | 230 | |||||||||||||||||
Receivables, net | 326 | 868 | 1,194 | ||||||||||||||||||||
Intercompany receivables | $ | 1 | 78 | 31 | $ | (110 | ) | ||||||||||||||||
Inventories | 657 | 615 | 1,272 | ||||||||||||||||||||
Prepaid expenses and other current assets | $ | 2 | 5 | 149 | 57 | 213 | |||||||||||||||||
Total current assets | 2 | 6 | 1,245 | 1,766 | (110 | ) | 2,909 | ||||||||||||||||
Intercompany debt receivables | 1,678 | 3,711 | 377 | (5,766 | ) | ||||||||||||||||||
Investments | 453 | 3,084 | (440 | ) | (3,097 | ) | |||||||||||||||||
Goodwill | 1,396 | 548 | 1,944 | ||||||||||||||||||||
Property, plant and equipment, net | 595 | 1,205 | 1,800 | ||||||||||||||||||||
Other non-current assets | 25 | 466 | 80 | 571 | |||||||||||||||||||
Total | $ | 455 | $ | 4,793 | $ | 6,973 | $ | 3,976 | $ | (8,973 | ) | $ | 7,224 | ||||||||||
Liabilities and equity | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Short-term debt | $ | 10 | $ | 8 | $ | 167 | $ | 185 | |||||||||||||||
Current maturities of long-term debt | 17 | 28 | 68 | 113 | |||||||||||||||||||
Accounts payable and accrued liabilities | $ | 12 | 21 | 1,087 | 859 | 1,979 | |||||||||||||||||
Intercompany payables | — | 31 | 79 | $ | (110 | ) | |||||||||||||||||
Total current liabilities | 12 | 48 | 1,154 | 1,173 | (110 | ) | 2,277 | ||||||||||||||||
Long-term debt, excluding current maturities | 962 | 2,362 | 169 | 3,493 | |||||||||||||||||||
Long-term intercompany debt | 670 | 2,549 | 1,754 | 793 | (5,766 | ) | |||||||||||||||||
Postretirement and pension liabilities | 928 | 18 | 946 | ||||||||||||||||||||
Other non-current liabilities | 322 | 175 | 497 | ||||||||||||||||||||
Commitments and contingent liabilities | |||||||||||||||||||||||
Noncontrolling interests | — | 238 | 238 | ||||||||||||||||||||
Crown Holdings shareholders’ equity/(deficit) | (227 | ) | 1,234 | 453 | 1,410 | (3,097 | ) | (227 | ) | ||||||||||||||
Total equity/(deficit) | (227 | ) | 1,234 | 453 | 1,648 | (3,097 | ) | 11 | |||||||||||||||
Total | $ | 455 | $ | 4,793 | $ | 6,973 | $ | 3,976 | $ | (8,973 | ) | $ | 7,224 |
28
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of December 31, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | 54 | $ | 288 | $ | 342 | |||||||||||||||||
Receivables, net | 230 | 718 | 948 | ||||||||||||||||||||
Intercompany receivables | $ | 2 | 60 | 23 | $ | (85 | ) | ||||||||||||||||
Inventories | 615 | 533 | 1,148 | ||||||||||||||||||||
Prepaid expenses and other current assets | 7 | 129 | 29 | 165 | |||||||||||||||||||
Total current assets | — | 9 | 1,088 | 1,591 | (85 | ) | 2,603 | ||||||||||||||||
Intercompany debt receivables | 1,590 | 3,514 | 327 | (5,431 | ) | ||||||||||||||||||
Investments | $ | 215 | 3,007 | (577 | ) | (2,645 | ) | ||||||||||||||||
Goodwill | 1,396 | 556 | 1,952 | ||||||||||||||||||||
Property, plant and equipment, net | 604 | 1,147 | 1,751 | ||||||||||||||||||||
Other non-current assets | 13 | 491 | 58 | 562 | |||||||||||||||||||
Total | $ | 215 | $ | 4,619 | $ | 6,516 | $ | 3,679 | $ | (8,161 | ) | $ | 6,868 | ||||||||||
Liabilities and equity | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Short-term debt | $ | 6 | $ | 14 | $ | 108 | $ | 128 | |||||||||||||||
Current maturities of long-term debt | 1 | 66 | 67 | ||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 20 | 20 | 1,124 | 926 | 2,090 | |||||||||||||||||
Intercompany payables | 1 | 22 | 62 | $ | (85 | ) | |||||||||||||||||
Total current liabilities | 20 | 27 | 1,161 | 1,162 | (85 | ) | 2,285 | ||||||||||||||||
Long-term debt, excluding current maturities | 1,002 | 2,173 | 162 | 3,337 | |||||||||||||||||||
Long-term intercompany debt | 668 | 2,481 | 1,664 | 618 | (5,431 | ) | |||||||||||||||||
Postretirement and pension liabilities | 986 | 10 | 996 | ||||||||||||||||||||
Other non-current liabilities | 321 | 168 | 489 | ||||||||||||||||||||
Commitments and contingent liabilities | |||||||||||||||||||||||
Noncontrolling interests | (4 | ) | 238 | 234 | |||||||||||||||||||
Crown Holdings shareholders’ equity/(deficit) | (473 | ) | 1,109 | 215 | 1,321 | (2,645 | ) | (473 | ) | ||||||||||||||
Total equity/(deficit) | (473 | ) | 1,109 | 211 | 1,559 | (2,645 | ) | (239 | ) | ||||||||||||||
Total | $ | 215 | $ | 4,619 | $ | 6,516 | $ | 3,679 | $ | (8,161 | ) | $ | 6,868 |
29
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2012
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net cash provided by/(used for) operating activities | $ | 1 | $ | (26 | ) | $ | (95 | ) | $ | (96 | ) | $ | (216 | ) | |||||||||
Cash flows from investing activities | |||||||||||||||||||||||
Capital expenditures | (29 | ) | (110 | ) | (139 | ) | |||||||||||||||||
Intercompany investing activities | 34 | 55 | $ | (89 | ) | — | |||||||||||||||||
Insurance proceeds | 23 | 23 | |||||||||||||||||||||
Proceeds from sale of property, plant and equipment | 2 | 2 | |||||||||||||||||||||
Other, net | (14 | ) | (14 | ) | |||||||||||||||||||
Net cash provided by/(used for) investing activities | — | 34 | 28 | (101 | ) | (89 | ) | (128 | ) | ||||||||||||||
Cash flows from financing activities | |||||||||||||||||||||||
Proceeds from long-term debt | 42 | 42 | |||||||||||||||||||||
Payments of long-term debt | (32 | ) | (32 | ) | |||||||||||||||||||
Net change in revolving credit facility and short-term debt | 4 | 210 | 60 | 274 | |||||||||||||||||||
Net change in long-term intercompany balances | 2 | (20 | ) | (115 | ) | 133 | — | ||||||||||||||||
Common stock issued | 4 | 4 | |||||||||||||||||||||
Common stock repurchased | (7 | ) | (7 | ) | |||||||||||||||||||
Dividends paid | (34 | ) | (55 | ) | 89 | ||||||||||||||||||
Dividends paid to noncontrolling interests | (38 | ) | (38 | ) | |||||||||||||||||||
Other | 8 | (13 | ) | — | (5 | ) | |||||||||||||||||
Net cash provided by/(used for) financing activities | (1 | ) | (8 | ) | 48 | 110 | 89 | 238 | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (6 | ) | (6 | ) | |||||||||||||||||||
Net change in cash and cash equivalents | — | — | (19 | ) | (93 | ) | — | (112 | ) | ||||||||||||||
Cash and cash equivalents at January 1 | 54 | 288 | 342 | ||||||||||||||||||||
Cash and cash equivalents at June 30 | $ | — | $ | — | $ | 35 | $ | 195 | $ | — | $ | 230 |
30
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net cash provided by/(used for) operating activities | $ | (3 | ) | $ | (43 | ) | $ | (103 | ) | $ | (98 | ) | $ | (247 | ) | ||||||||
Cash flows from investing activities | |||||||||||||||||||||||
Capital expenditures | (31 | ) | (153 | ) | (184 | ) | |||||||||||||||||
Change in restricted cash | (125 | ) | (125 | ) | |||||||||||||||||||
Intercompany investing activities | 6 | 230 | (180 | ) | $ | (56 | ) | ||||||||||||||||
Other | 2 | 2 | |||||||||||||||||||||
Net cash provided by/(used for) investing activities | (119 | ) | 201 | (333 | ) | (56 | ) | (307 | ) | ||||||||||||||
Cash flows from financing activities | |||||||||||||||||||||||
Proceeds from long-term debt | 400 | 900 | 116 | 1,416 | |||||||||||||||||||
Payments of long-term debt | (159 | ) | (747 | ) | (16 | ) | (922 | ) | |||||||||||||||
Net change in revolving credit facility and short-term debt | (29 | ) | 250 | 27 | 248 | ||||||||||||||||||
Net change in long-term intercompany balances | 206 | (63 | ) | (488 | ) | 345 | |||||||||||||||||
Debt issue costs | (16 | ) | (16 | ) | |||||||||||||||||||
Common stock issued | 9 | 9 | |||||||||||||||||||||
Common stock repurchased | (212 | ) | (212 | ) | |||||||||||||||||||
Dividends paid | (56 | ) | 56 | ||||||||||||||||||||
Purchase of noncontrolling interests | (9 | ) | (9 | ) | |||||||||||||||||||
Dividends paid to noncontrolling interests | (38 | ) | (38 | ) | |||||||||||||||||||
Other | 13 | 5 | 18 | ||||||||||||||||||||
Net cash provided by/(used for) financing activities | 3 | 162 | (101 | ) | 374 | 56 | 494 | ||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 18 | 18 | |||||||||||||||||||||
Net change in cash and cash equivalents | — | — | (3 | ) | (39 | ) | — | (42 | ) | ||||||||||||||
Cash and cash equivalents at January 1 | — | 65 | 398 | 463 | |||||||||||||||||||
Cash and cash equivalents at June 30 | $ | — | $ | — | $ | 62 | $ | 359 | $ | — | $ | 421 |
31
Crown Holdings, Inc.
Crown Cork & Seal Company, Inc. (Issuer), a wholly owned subsidiary, has $350 principal amount of 7.375% senior notes due 2026 and $64 principal amount of 7.5% senior notes due 2096 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt. The following condensed combining financial statements:
•statements of comprehensive income for the three and six months ended June 30, 2012 and 2011,
•balance sheets as of June 30, 2012 and December 31, 2011, and
•statements of cash flows for the six months ended June 30, 2012 and 2011
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 COMPREHENSIVE INCOME
For the three months ended June 30, 2012
(in millions)
Parent | Issuer | Non- Guarantors | Eliminations | Total Company | |||||||||||||||
Net sales | $ | 2,184 | $ | 2,184 | |||||||||||||||
Cost of products sold, excluding depreciation and amortization | 1,799 | 1,799 | |||||||||||||||||
Depreciation and amortization | 45 | 45 | |||||||||||||||||
Gross profit | 340 | 340 | |||||||||||||||||
Selling and administrative expense | $ | 2 | 88 | 90 | |||||||||||||||
Provision for restructuring | 3 | 3 | |||||||||||||||||
Asset impairments and sales | (10 | ) | (10 | ) | |||||||||||||||
Net interest expense | 22 | 32 | 54 | ||||||||||||||||
Translation and foreign exchange | (5 | ) | (5 | ) | |||||||||||||||
Income/(loss) before income taxes | (24 | ) | 232 | 208 | |||||||||||||||
Provision for/(benefit from) income taxes | (3 | ) | 54 | 51 | |||||||||||||||
Equity earnings in affiliates | $ | 134 | 155 | $ | (289 | ) | — | ||||||||||||
Net income | 134 | 134 | 178 | (289 | ) | 157 | |||||||||||||
Net income attributable to noncontrolling interests | (23 | ) | (23 | ) | |||||||||||||||
Net income attributable to Crown Holdings | $ | 134 | $ | 134 | $ | 155 | $ | (289 | ) | $ | 134 | ||||||||
Comprehensive income | $ | 93 | $ | 93 | $ | 133 | $ | (208 | ) | $ | 111 | ||||||||
Comprehensive income attributable to noncontrolling interests | (18 | ) | (18 | ) | |||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 93 | $ | 93 | $ | 115 | $ | (208 | ) | $ | 93 |
32
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2011
(in millions)
Parent | Issuer | Non- Guarantors | Eliminations | Total Company | |||||||||||||||
Net sales | $ | 2,281 | $ | 2,281 | |||||||||||||||
Cost of products sold, excluding depreciation and amortization | 1,865 | 1,865 | |||||||||||||||||
Depreciation and amortization | 45 | 45 | |||||||||||||||||
Gross profit | 371 | 371 | |||||||||||||||||
Selling and administrative expense | $ | 3 | 97 | 100 | |||||||||||||||
Loss from early extinguishment of debt | 2 | 2 | |||||||||||||||||
Net interest expense | 21 | 37 | 58 | ||||||||||||||||
Translation and foreign exchange | 1 | 1 | |||||||||||||||||
Income/(loss) before income taxes | (24 | ) | 234 | 210 | |||||||||||||||
Provision for/(benefit from) income taxes | 2 | 52 | 54 | ||||||||||||||||
Equity earnings in affiliates | $ | 129 | 155 | $ | (284 | ) | — | ||||||||||||
Net income | 129 | 129 | 182 | (284 | ) | 156 | |||||||||||||
Net income attributable to noncontrolling interests | (27 | ) | (27 | ) | |||||||||||||||
Net income attributable to Crown Holdings | $ | 129 | $ | 129 | $ | 155 | $ | (284 | ) | $ | 129 | ||||||||
Comprehensive income | $ | 138 | $ | 138 | $ | 190 | $ | (301 | ) | $ | 165 | ||||||||
Comprehensive income attributable to noncontrolling interests | (27 | ) | (27 | ) | |||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 138 | $ | 138 | $ | 163 | $ | (301 | ) | $ | 138 |
33
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME For the six months ended June 30, 2012 (in millions) | |||||||||||||||||||
Parent | Issuer | Non- Guarantors | Eliminations | Total Company | |||||||||||||||
Net sales | $ | 4,131 | $ | 4,131 | |||||||||||||||
Cost of products sold, excluding depreciation and amortization | 3,417 | 3,417 | |||||||||||||||||
Depreciation and amortization | 87 | 87 | |||||||||||||||||
Gross profit | — | — | 627 | — | 627 | ||||||||||||||
Selling and administrative expense | $ | 5 | 191 | 196 | |||||||||||||||
Provision for restructuring | 3 | 3 | |||||||||||||||||
Asset impairments and sales | (10 | ) | (10 | ) | |||||||||||||||
Net interest expense | 45 | 65 | 110 | ||||||||||||||||
Translation and foreign exchange | (2 | ) | (2 | ) | |||||||||||||||
Income/(loss) before income taxes | (50 | ) | 380 | 330 | |||||||||||||||
Provision for/(benefit from) income taxes | (7 | ) | 90 | 83 | |||||||||||||||
Equity earnings in affiliates | $ | 203 | 246 | $ | (449 | ) | — | ||||||||||||
Net income | 203 | 203 | 290 | (449 | ) | 247 | |||||||||||||
Net income attributable to noncontrolling interests | (44 | ) | (44 | ) | |||||||||||||||
Net income attributable to Crown Holdings | $ | 203 | $ | 203 | $ | 246 | $ | (449 | ) | $ | 203 | ||||||||
Comprehensive income | $ | 237 | $ | 237 | $ | 323 | $ | (518 | ) | $ | 279 | ||||||||
Comprehensive income attributable to noncontrolling interests | (42 | ) | (42 | ) | |||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 237 | $ | 237 | $ | 281 | $ | (518 | ) | $ | 237 |
34
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME For the six months ended June 30, 2011 (in millions) | |||||||||||||||||||
Parent | Issuer | Non- Guarantors | Eliminations | Total Company | |||||||||||||||
Net Sales | $ | 4,163 | $ | 4,163 | |||||||||||||||
Cost of products sold, excluding depreciation and amortization | 3,415 | 3,415 | |||||||||||||||||
Depreciation and amortization | 85 | 85 | |||||||||||||||||
Gross profit | 663 | 663 | |||||||||||||||||
Selling and administrative expense | $ | 5 | 197 | 202 | |||||||||||||||
Provision for restructuring | 25 | 25 | |||||||||||||||||
Loss from early extinguishment of debt | 32 | 32 | |||||||||||||||||
Net interest expense | 42 | 68 | 110 | ||||||||||||||||
Translation and foreign exchange | 1 | 1 | |||||||||||||||||
Income/(loss) before income taxes | (47 | ) | 340 | 293 | |||||||||||||||
Provision for/(benefit from) income taxes | (5 | ) | 100 | 95 | |||||||||||||||
Equity earnings in affiliates | $ | 145 | 187 | $ | (332 | ) | — | ||||||||||||
Net income | 145 | 145 | 240 | (332 | ) | 198 | |||||||||||||
Net income attributable to noncontrolling interests | (53 | ) | (53 | ) | |||||||||||||||
Net income attributable to Crown Holdings | $ | 145 | $ | 145 | $ | 187 | $ | (332 | ) | $ | 145 | ||||||||
Comprehensive income | $ | 220 | $ | 220 | $ | 319 | $ | (481 | ) | $ | 278 | ||||||||
Comprehensive income attributable to noncontrolling interests | (58 | ) | (58 | ) | |||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 220 | $ | 220 | $ | 261 | $ | (481 | ) | $ | 220 |
35
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of June 30, 2012
(in millions)
Parent | Issuer | Non- Guarantors | Eliminations | Total Company | |||||||||||||||
Assets | |||||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $ | 230 | $ | 230 | |||||||||||||||
Receivables, net | 1,194 | 1,194 | |||||||||||||||||
Inventories | 1,272 | 1,272 | |||||||||||||||||
Prepaid expenses and other current assets | $ | 2 | $ | 76 | 135 | 213 | |||||||||||||
Total current assets | 2 | 76 | 2,831 | 2,909 | |||||||||||||||
Intercompany debt receivables | 1,400 | $ | (1,400 | ) | |||||||||||||||
Investments | 453 | 1,445 | (1,898 | ) | |||||||||||||||
Goodwill | 1,944 | 1,944 | |||||||||||||||||
Property, plant and equipment, net | 1,800 | 1,800 | |||||||||||||||||
Other non-current assets | 366 | 205 | 571 | ||||||||||||||||
Total | $ | 455 | $ | 1,887 | $ | 8,180 | $ | (3,298 | ) | $ | 7,224 | ||||||||
Liabilities and equity | |||||||||||||||||||
Current liabilities | |||||||||||||||||||
Short-term debt | $ | 185 | $ | 185 | |||||||||||||||
Current maturities of long-term debt | 113 | 113 | |||||||||||||||||
Accounts payable and accrued liabilities | $ | 12 | $ | 28 | 1,939 | 1,979 | |||||||||||||
Total current liabilities | 12 | 28 | 2,237 | 2,277 | |||||||||||||||
Long-term debt, excluding current maturities | 411 | 3,082 | 3,493 | ||||||||||||||||
Long-term intercompany debt | 670 | 730 | $ | (1,400 | ) | ||||||||||||||
Postretirement and pension liabilities | 946 | 946 | |||||||||||||||||
Other non-current liabilities | 265 | 232 | 497 | ||||||||||||||||
Commitments and contingent liabilities | |||||||||||||||||||
Noncontrolling interests | 238 | 238 | |||||||||||||||||
Crown Holdings shareholders’ equity/(deficit) | (227 | ) | 453 | 1,445 | (1,898 | ) | (227 | ) | |||||||||||
Total equity/(deficit) | (227 | ) | 453 | 1,683 | (1,898 | ) | 11 | ||||||||||||
Total | $ | 455 | $ | 1,887 | $ | 8,180 | $ | (3,298 | ) | $ | 7,224 |
36
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of December 31, 2011
(in millions)
Parent | Issuer | Non- Guarantors | Eliminations | Total Company | |||||||||||||||
Assets | |||||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $ | 342 | $ | 342 | |||||||||||||||
Receivables, net | 948 | 948 | |||||||||||||||||
Inventories | 1,148 | 1,148 | |||||||||||||||||
Prepaid expenses and other current assets | $ | 76 | 89 | 165 | |||||||||||||||
Total current assets | — | 76 | 2,527 | 2,603 | |||||||||||||||
Intercompany debt receivables | 1,391 | $ | (1,391 | ) | |||||||||||||||
Investments | $ | 215 | 1,208 | (1,423 | ) | ||||||||||||||
Goodwill | 1,952 | 1,952 | |||||||||||||||||
Property, plant and equipment, net | 1,751 | 1,751 | |||||||||||||||||
Other non-current assets | 376 | 186 | 562 | ||||||||||||||||
Total | $ | 215 | $ | 1,660 | $ | 7,807 | $ | (2,814 | ) | $ | 6,868 | ||||||||
Liabilities and equity | |||||||||||||||||||
Current liabilities | |||||||||||||||||||
Short-term debt | $ | 128 | $ | 128 | |||||||||||||||
Current maturities of long-term debt | 67 | 67 | |||||||||||||||||
Accounts payable and accrued liabilities | $ | 20 | $ | 40 | 2,030 | 2,090 | |||||||||||||
Total current liabilities | 20 | 40 | 2,225 | 2,285 | |||||||||||||||
Long-term debt, excluding current maturities | 411 | 2,926 | 3,337 | ||||||||||||||||
Long-term intercompany debt | 668 | 723 | $ | (1,391 | ) | ||||||||||||||
Postretirement and pension liabilities | 996 | 996 | |||||||||||||||||
Other non-current liabilities | 271 | 218 | 489 | ||||||||||||||||
Commitments and contingent liabilities | |||||||||||||||||||
Noncontrolling interests | 234 | 234 | |||||||||||||||||
Crown Holdings shareholders’ equity/(deficit) | (473 | ) | 215 | 1,208 | (1,423 | ) | (473 | ) | |||||||||||
Total equity/(deficit) | (473 | ) | 215 | 1,442 | (1,423 | ) | (239 | ) | |||||||||||
Total | $ | 215 | $ | 1,660 | $ | 7,807 | $ | (2,814 | ) | $ | 6,868 |
37
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2012
(in millions)
Parent | Issuer | Non- Guarantors | Eliminations | Total Company | |||||||||||||||
Net cash provide by/(used for) operating activities | $ | 1 | $ | (51 | ) | $ | (166 | ) | $ | (216 | ) | ||||||||
Cash flows from investing activities | |||||||||||||||||||
Capital expenditures | (139 | ) | (139 | ) | |||||||||||||||
Intercompany investing activities | 43 | $ | (43 | ) | — | ||||||||||||||
Insurance proceeds | 23 | 23 | |||||||||||||||||
Proceeds from sale of property, plant and equipment | 2 | 2 | |||||||||||||||||
Other | (14 | ) | (14 | ) | |||||||||||||||
Net cash provided by/(used for) investing activities | — | 43 | (128 | ) | (43 | ) | (128 | ) | |||||||||||
Cash flows from financing activities | |||||||||||||||||||
Proceeds from long-term debt | 42 | 42 | |||||||||||||||||
Payments of long-term debt | (32 | ) | (32 | ) | |||||||||||||||
Net change in revolving credit facility and short-term debt | 274 | 274 | |||||||||||||||||
Net change in long-term intercompany balances | 2 | 8 | (10 | ) | — | ||||||||||||||
Common stock issued | 4 | 4 | |||||||||||||||||
Common stock repurchased | (7 | ) | (7 | ) | |||||||||||||||
Dividends paid | (43 | ) | 43 | ||||||||||||||||
Dividend paid to noncontrolling interests | (38 | ) | (38 | ) | |||||||||||||||
Other | (5 | ) | (5 | ) | |||||||||||||||
Net cash provided by/(used for) financing activities | (1 | ) | 8 | 188 | 43 | 238 | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (6 | ) | (6 | ) | |||||||||||||||
Net change in cash and cash equivalents | — | — | (112 | ) | — | (112 | ) | ||||||||||||
Cash and cash equivalents at January 1 | 342 | 342 | |||||||||||||||||
Cash and cash equivalents at June 30 | $ | — | $ | — | $ | 230 | $ | — | $ | 230 |
38
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2011
(in millions)
Parent | Issuer | Non- Guarantors | Eliminations | Total Company | |||||||||||||||
Net cash provided by/(used for) operating activities | $ | (3 | ) | $ | (43 | ) | $ | (201 | ) | $ | (247 | ) | |||||||
Cash flows from investing activities | |||||||||||||||||||
Capital expenditures | (184 | ) | (184 | ) | |||||||||||||||
Change in restricted cash | (125 | ) | (125 | ) | |||||||||||||||
Intercompany investing activities | 31 | $ | (31 | ) | |||||||||||||||
Proceeds from sale of property, plant and equipment | 2 | 2 | |||||||||||||||||
Net cash provided by/(used for) investing activities | 31 | (307 | ) | (31 | ) | (307 | ) | ||||||||||||
Cash flows from financing activities | |||||||||||||||||||
Proceeds from long-term debt | 1,416 | 1,416 | |||||||||||||||||
Payments of long-term debt | (922 | ) | (922 | ) | |||||||||||||||
Net change in revolving credit facility and short-term debt | 248 | 248 | |||||||||||||||||
Net change in long-term intercompany balances | 206 | 12 | (218 | ) | |||||||||||||||
Debt issue costs | (16 | ) | (16 | ) | |||||||||||||||
Common stock issued | 9 | 9 | |||||||||||||||||
Common stock repurchased | (212 | ) | (212 | ) | |||||||||||||||
Dividends paid | (31 | ) | 31 | ||||||||||||||||
Purchase of noncontrolling interests | (9 | ) | (9 | ) | |||||||||||||||
Dividend paid to noncontrolling interests | (38 | ) | (38 | ) | |||||||||||||||
Other | 18 | 18 | |||||||||||||||||
Net cash provided by/(used for) financing activities | 3 | 12 | 448 | 31 | 494 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 18 | 18 | |||||||||||||||||
Net change in cash and cash equivalents | — | — | (42 | ) | — | (42 | ) | ||||||||||||
Cash and cash equivalents at January 1 | 463 | 463 | |||||||||||||||||
Cash and cash equivalents at June 30 | $ | — | $ | — | $ | 421 | $ | — | $ | 421 |
39
Crown Holdings, Inc.
Crown Americas, LLC, Crown Americas Capital Corp. II and Crown Americas Capital Corp. III (collectively, the Issuers), wholly owned subsidiaries of the Company, have outstanding $400 principal amount of 7.625% senior notes due 2017 and $700 principal amount of 6.25% senior notes due 2021, all of which are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and substantially all subsidiaries in the United States. The guarantors are wholly owned by the Company and the guarantees are made on a joint and several basis. The following condensed combining financial statements:
• | statements of comprehensive income for the three and six months ended June 30, 2012 and 2011, |
• | balance sheets as of June 30, 2012 and December 31, 2011, and |
• | statements of cash flows for the six months ended June 30, 2012 and 2011 |
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 COMPREHENSIVE INCOME
For the three months ended June 30, 2012
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net sales | $ | 600 | $ | 1,584 | $ | 2,184 | |||||||||||||||||
Cost of products sold, excluding depreciation and amortization | 473 | 1,326 | 1,799 | ||||||||||||||||||||
Depreciation and amortization | 10 | 35 | 45 | ||||||||||||||||||||
Gross profit | 117 | 223 | 340 | ||||||||||||||||||||
Selling and administrative expense | $ | 1 | 32 | 57 | 90 | ||||||||||||||||||
Provision for restructuring | 1 | 2 | 3 | ||||||||||||||||||||
Asset impairments and sales | (1 | ) | (9 | ) | (10 | ) | |||||||||||||||||
Net interest expense | 13 | 23 | 18 | 54 | |||||||||||||||||||
Technology royalty | (10 | ) | 10 | ||||||||||||||||||||
Translation and foreign exchange | (5 | ) | (5 | ) | |||||||||||||||||||
Income/(loss) before income taxes | (14 | ) | 72 | 150 | 208 | ||||||||||||||||||
Provision for/(benefit from) income taxes | (5 | ) | 34 | 22 | 51 | ||||||||||||||||||
Equity earnings in affiliates | $ | 134 | 61 | 96 | $ | (291 | ) | — | |||||||||||||||
Net income | 134 | 52 | 134 | 128 | (291 | ) | 157 | ||||||||||||||||
Net income attributable to noncontrolling interests | (23 | ) | (23 | ) | |||||||||||||||||||
Net income attributable to Crown Holdings | $ | 134 | $ | 52 | $ | 134 | $ | 105 | $ | (291 | ) | $ | 134 | ||||||||||
Comprehensive income | $ | 93 | $ | 59 | $ | 93 | $ | 75 | $ | (209 | ) | $ | 111 | ||||||||||
Comprehensive income attributable to noncontrolling interests | (18 | ) | (18 | ) | |||||||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 93 | $ | 59 | $ | 93 | $ | 57 | $ | (209 | ) | $ | 93 |
40
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net sales | $ | 513 | $ | 1,768 | $ | 2,281 | |||||||||||||||||
Cost of products sold, excluding depreciation and amortization | 398 | 1,467 | 1,865 | ||||||||||||||||||||
Depreciation and amortization | 9 | 36 | 45 | ||||||||||||||||||||
Gross profit | 106 | 265 | 371 | ||||||||||||||||||||
Selling and administrative expense | $ | 1 | 34 | 65 | 100 | ||||||||||||||||||
Loss from early extinguishment of debt | — | 2 | 2 | ||||||||||||||||||||
Net interest expense | 14 | 18 | 26 | 58 | |||||||||||||||||||
Technology royalty | (13 | ) | 13 | ||||||||||||||||||||
Translation and foreign exchange | 1 | 1 | |||||||||||||||||||||
Income/(loss) before income taxes | (15 | ) | 65 | 160 | 210 | ||||||||||||||||||
Provision for/(benefit from) income taxes | (5 | ) | (17 | ) | 76 | 54 | |||||||||||||||||
Equity earnings in affiliates | $ | 129 | 90 | 47 | $ | (266 | ) | ||||||||||||||||
Net income | 129 | 80 | 129 | 84 | (266 | ) | 156 | ||||||||||||||||
Net income attributable to noncontrolling interests | (27 | ) | (27 | ) | |||||||||||||||||||
Net income attributable to Crown Holdings | $ | 129 | $ | 80 | $ | 129 | $ | 57 | $ | (266 | ) | $ | 129 | ||||||||||
Comprehensive income | $ | 138 | $ | 85 | $ | 138 | $ | 59 | $ | (255 | ) | $ | 165 | ||||||||||
Comprehensive income attributable to noncontrolling interests | — | — | — | (27 | ) | — | (27 | ) | |||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 138 | $ | 85 | $ | 138 | $ | 32 | $ | (255 | ) | $ | 138 |
41
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME For the six months ended June 30, 2012 (in millions) | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net sales | $ | 1,140 | $ | 2,991 | $ | 4,131 | |||||||||||||||||
Cost of products sold, excluding depreciation and amortization | 913 | 2,504 | 3,417 | ||||||||||||||||||||
Depreciation and amortization | 20 | 67 | 87 | ||||||||||||||||||||
Gross profit | 207 | 420 | 627 | ||||||||||||||||||||
Selling and administrative expense | $ | 3 | 71 | 122 | 196 | ||||||||||||||||||
Provision for restructuring | 1 | 2 | 3 | ||||||||||||||||||||
Asset impairments and sales | (1 | ) | (9 | ) | (10 | ) | |||||||||||||||||
Net interest expense | 26 | 45 | 39 | 110 | |||||||||||||||||||
Technology royalty | (20 | ) | 20 | ||||||||||||||||||||
Translation and foreign exchange | (2 | ) | (2 | ) | |||||||||||||||||||
Income/(loss) before income taxes | (29 | ) | 111 | 248 | 330 | ||||||||||||||||||
Provision for/(benefit from) income taxes | (11 | ) | 55 | 39 | 83 | ||||||||||||||||||
Equity earnings in affiliates | $ | 203 | 116 | 147 | $ | (466 | ) | — | |||||||||||||||
Net income | 203 | 98 | 203 | 209 | (466 | ) | 247 | ||||||||||||||||
Net income attributable to noncontrolling interests | (44 | ) | (44 | ) | |||||||||||||||||||
Net income attributable to Crown Holdings | $ | 203 | $ | 98 | $ | 203 | $ | 165 | $ | (466 | ) | $ | 203 | ||||||||||
Comprehensive income | $ | 237 | $ | 105 | $ | 237 | $ | 234 | $ | (534 | ) | $ | 279 | ||||||||||
Comprehensive income attributable to noncontrolling interests | (42 | ) | (42 | ) | |||||||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 237 | $ | 105 | $ | 237 | $ | 192 | $ | (534 | ) | $ | 237 |
42
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME For the six months ended June 30, 2011 (in millions) | |||||||||||||||||||||||
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net sales | $ | 1,136 | $ | 3,027 | $ | 4,163 | |||||||||||||||||
Cost of products sold, excluding depreciation and amortization | 926 | 2,489 | 3,415 | ||||||||||||||||||||
Depreciation and amortization | 19 | 66 | 85 | ||||||||||||||||||||
Gross profit | 191 | 472 | 663 | ||||||||||||||||||||
Selling and administrative expense | $ | 3 | 70 | 129 | 202 | ||||||||||||||||||
Provision for restructuring | 25 | 25 | |||||||||||||||||||||
Loss from early extinguishment of debt | 30 | 2 | — | 32 | |||||||||||||||||||
Net interest expense | 26 | 40 | 44 | 110 | |||||||||||||||||||
Technology royalty | (23 | ) | 23 | ||||||||||||||||||||
Translation and foreign exchange | 1 | 1 | |||||||||||||||||||||
Income/(loss) before income taxes | (59 | ) | 102 | 250 | 293 | ||||||||||||||||||
Provision for/(benefit from) income taxes | (22 | ) | — | 117 | 95 | ||||||||||||||||||
Equity earnings in affiliates | $ | 145 | 116 | 43 | $ | (304 | ) | — | |||||||||||||||
Net income | 145 | 79 | 145 | 133 | (304 | ) | 198 | ||||||||||||||||
Net income attributable to noncontrolling interests | (53 | ) | (53 | ) | |||||||||||||||||||
Net income attributable to Crown Holdings | $ | 145 | $ | 79 | $ | 145 | $ | 80 | $ | (304 | ) | $ | 145 | ||||||||||
Comprehensive income | $ | 220 | $ | 89 | $ | 220 | $ | 196 | $ | (447 | ) | $ | 278 | ||||||||||
Comprehensive income attributable to noncontrolling interests | (58 | ) | (58 | ) | |||||||||||||||||||
Comprehensive income attributable to Crown Holdings | $ | 220 | $ | 89 | $ | 220 | $ | 138 | $ | (447 | ) | $ | 220 |
43
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of June 30, 2012
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | 25 | $ | 1 | $ | 204 | $ | 230 | |||||||||||||||
Receivables, net | 1 | 13 | 1,180 | 1,194 | |||||||||||||||||||
Intercompany receivables | 43 | 15 | $ | (58 | ) | ||||||||||||||||||
Inventories | 294 | 978 | 1,272 | ||||||||||||||||||||
Prepaid expenses and other current assets | $ | 2 | 2 | 88 | 121 | 213 | |||||||||||||||||
Total current assets | 2 | 28 | 439 | 2,498 | (58 | ) | 2,909 | ||||||||||||||||
Intercompany debt receivables | 2,258 | 1,916 | 340 | (4,514 | ) | ||||||||||||||||||
Investments | 453 | 1,492 | 775 | (2,720 | ) | ||||||||||||||||||
Goodwill | 453 | 1,491 | 1,944 | ||||||||||||||||||||
Property, plant and equipment, net | 1 | 300 | 1,499 | 1,800 | |||||||||||||||||||
Other non-current assets | 28 | 344 | 199 | 571 | |||||||||||||||||||
Total | $ | 455 | $ | 3,807 | $ | 4,227 | $ | 6,027 | $ | (7,292 | ) | $ | 7,224 | ||||||||||
Liabilities and equity | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Short-term debt | $ | 185 | $ | 185 | |||||||||||||||||||
Current maturities of long-term debt | $ | 28 | — | 85 | 113 | ||||||||||||||||||
Accounts payable and accrued liabilities | $ | 12 | 34 | $ | 314 | 1,619 | 1,979 | ||||||||||||||||
Intercompany payables | 15 | 43 | $ | (58 | ) | ||||||||||||||||||
Total current liabilities | 12 | 62 | 329 | 1,932 | (58 | ) | 2,277 | ||||||||||||||||
Long-term debt, excluding current maturities | 1,895 | 412 | 1,186 | 3,493 | |||||||||||||||||||
Long-term intercompany debt | 670 | 1,193 | 2,211 | 440 | (4,514 | ) | |||||||||||||||||
Postretirement and pension liabilities | 528 | 418 | 946 | ||||||||||||||||||||
Other non-current liabilities | 294 | 203 | 497 | ||||||||||||||||||||
Commitments and contingent liabilities | |||||||||||||||||||||||
Noncontrolling interests | 238 | 238 | |||||||||||||||||||||
Crown Holdings shareholders’ equity/(deficit) | (227 | ) | 657 | 453 | 1,610 | (2,720 | ) | (227 | ) | ||||||||||||||
Total equity/(deficit) | (227 | ) | 657 | 453 | 1,848 | (2,720 | ) | 11 | |||||||||||||||
Total | $ | 455 | $ | 3,807 | $ | 4,227 | $ | 6,027 | $ | (7,292 | ) | $ | 7,224 |
44
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of December 31, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | 21 | $ | 1 | $ | 320 | $ | 342 | |||||||||||||||
Receivables, net | 1 | 37 | 910 | 948 | |||||||||||||||||||
Intercompany receivables | 40 | 17 | $ | (57 | ) | ||||||||||||||||||
Inventories | 285 | 863 | 1,148 | ||||||||||||||||||||
Prepaid expenses and other current assets | 2 | 58 | 105 | 165 | |||||||||||||||||||
Total current assets | — | 24 | 421 | 2,215 | (57 | ) | 2,603 | ||||||||||||||||
Intercompany debt receivables | 1,833 | 1,354 | 525 | (3,712 | ) | ||||||||||||||||||
Investments | $ | 215 | 1,386 | 632 | (2,233 | ) | |||||||||||||||||
Goodwill | 453 | 1,499 | 1,952 | ||||||||||||||||||||
Property, plant and equipment, net | 1 | 298 | 1,452 | 1,751 | |||||||||||||||||||
Other non-current assets | 30 | 382 | 150 | 562 | |||||||||||||||||||
Total | $ | 215 | $ | 3,274 | $ | 3,540 | $ | 5,841 | $ | (6,002 | ) | $ | 6,868 | ||||||||||
Liabilities and equity | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Short-term debt | $ | 128 | $ | 128 | |||||||||||||||||||
Current maturities of long-term debt | $ | 1 | 66 | 67 | |||||||||||||||||||
Accounts payable and accrued liabilities | $ | 20 | $ | 34 | 323 | 1,713 | 2,090 | ||||||||||||||||
Intercompany payables | 17 | 40 | $ | (57 | ) | ||||||||||||||||||
Total current liabilities | 20 | 34 | 341 | 1,947 | (57 | ) | 2,285 | ||||||||||||||||
Long-term debt, excluding current maturities | 1,732 | 412 | 1,193 | 3,337 | |||||||||||||||||||
Long-term intercompany debt | 668 | 956 | 1,726 | 362 | (3,712 | ) | |||||||||||||||||
Postretirement and pension liabilities | 550 | 446 | 996 | ||||||||||||||||||||
Other non-current liabilities | 296 | 193 | 489 | ||||||||||||||||||||
Commitments and contingent liabilities | |||||||||||||||||||||||
Noncontrolling interests | 234 | 234 | |||||||||||||||||||||
Crown Holdings shareholders’ equity/(deficit) | (473 | ) | 552 | 215 | 1,466 | (2,233 | ) | (473 | ) | ||||||||||||||
Total equity/(deficit) | (473 | ) | 552 | 215 | 1,700 | (2,233 | ) | (239 | ) | ||||||||||||||
Total | $ | 215 | $ | 3,274 | $ | 3,540 | $ | 5,841 | $ | (6,002 | ) | $ | 6,868 |
45
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2012
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net provided by/(used for) operating activities | $ | 1 | $ | (15 | ) | $ | 69 | $ | (271 | ) | $ | (216 | ) | ||||||||||
Cash flows from investing activities | |||||||||||||||||||||||
Capital expenditures | (13 | ) | (126 | ) | (139 | ) | |||||||||||||||||
Intercompany investing activities | 7 | 43 | $ | (50 | ) | ||||||||||||||||||
Insurance proceeds | 23 | 23 | |||||||||||||||||||||
Proceeds from sale of property, plant and equipment | 1 | 1 | 2 | ||||||||||||||||||||
Other | (14 | ) | (14 | ) | |||||||||||||||||||
Net cash provided by/(used for) investing activities | 7 | 31 | (116 | ) | (50 | ) | (128 | ) | |||||||||||||||
Cash flows from financing activities | |||||||||||||||||||||||
Proceeds from long-term debt | 42 | 42 | |||||||||||||||||||||
Payments of long-term debt | (32 | ) | (32 | ) | |||||||||||||||||||
Net change in revolving credit facility and short-term debt | 191 | 83 | 274 | ||||||||||||||||||||
Net change in long-term intercompany balances | 2 | (179 | ) | (100 | ) | 277 | |||||||||||||||||
Common stock issued | 4 | 4 | |||||||||||||||||||||
Common stock repurchased | (7 | ) | (7 | ) | |||||||||||||||||||
Dividends paid | (50 | ) | 50 | ||||||||||||||||||||
Dividends paid to noncontrolling interests | (38 | ) | (38 | ) | |||||||||||||||||||
Other | (5 | ) | (5 | ) | |||||||||||||||||||
Net cash provided by/(used for) financing activities | (1 | ) | 12 | (100 | ) | 277 | 50 | 238 | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (6 | ) | (6 | ) | |||||||||||||||||||
Net change in cash and cash equivalents | — | 4 | — | (116 | ) | — | (112 | ) | |||||||||||||||
Cash and cash equivalents at January 1 | 21 | 1 | 320 | 342 | |||||||||||||||||||
Cash and cash equivalents at June 30 | $ | — | $ | 25 | $ | 1 | $ | 204 | $ | — | $ | 230 |
46
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2011
(in millions)
Parent | Issuer | Guarantors | Non- Guarantors | Eliminations | Total Company | ||||||||||||||||||
Net provided by/(used for) operating activities | $ | (3 | ) | $ | (16 | ) | $ | 48 | $ | (276 | ) | $ | (247 | ) | |||||||||
Cash flows from investing activities | |||||||||||||||||||||||
Capital expenditures | (9 | ) | (175 | ) | (184 | ) | |||||||||||||||||
Change in restricted cash | (125 | ) | (125 | ) | |||||||||||||||||||
Proceeds from sale of property, plant and equipment | — | 2 | 2 | ||||||||||||||||||||
Intercompany investing activities | 32 | — | $ | (32 | ) | ||||||||||||||||||
Other | — | — | |||||||||||||||||||||
Net cash provided by/(used for) investing activities | — | — | 23 | (298 | ) | (32 | ) | (307 | ) | ||||||||||||||
Cash flows from financing activities | |||||||||||||||||||||||
Proceeds from long-term debt | 900 | 516 | 1,416 | ||||||||||||||||||||
Payments of long-term debt | (746 | ) | (1 | ) | (175 | ) | (922 | ) | |||||||||||||||
Net change in revolving credit facility and short-term debt | 225 | 23 | 248 | ||||||||||||||||||||
Net change in long-term intercompany balances | 206 | (350 | ) | (70 | ) | 214 | |||||||||||||||||
Debt issue costs | (16 | ) | (16 | ) | |||||||||||||||||||
Common stock issued | 9 | 9 | |||||||||||||||||||||
Common stock repurchased | (212 | ) | (212 | ) | |||||||||||||||||||
Dividends paid | (32 | ) | 32 | ||||||||||||||||||||
Purchase of noncontrolling interests | — | (9 | ) | (9 | ) | ||||||||||||||||||
Dividends paid to noncontrolling interests | (38 | ) | (38 | ) | |||||||||||||||||||
Other | 18 | 18 | |||||||||||||||||||||
Net cash provided by/(used for) financing activities | 3 | 13 | (71 | ) | 517 | 32 | 494 | ||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 18 | 18 | |||||||||||||||||||||
Net change in cash and cash equivalents | — | (3 | ) | — | (39 | ) | — | (42 | ) | ||||||||||||||
Cash and cash equivalents at January 1 | 38 | 1 | 424 | 463 | |||||||||||||||||||
Cash and cash equivalents at June 30 | $ | — | $ | 35 | $ | 1 | $ | 385 | $ | — | $ | 421 |
47
Crown Holdings, Inc.
PART I – FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(dollars in millions)
Introduction
The following discussion presents management's analysis of the results of operations for the three and six months ended June 30, 2012 compared to the corresponding period in 2011 and the changes in financial condition and liquidity from December 31, 2011. This discussion 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, 2011, along with the consolidated financial statements and related notes included in and referred to within this report.
Business Strategy and Trends
The Company's strategy is to grow its businesses in targeted international growth markets, while improving operations and results in more mature markets through disciplined pricing, cost control and careful capital allocation.
In recent years, the Company has expanded its beverage can businesses in Brazil, China and Southeast Asia in response to increased unit volume demand driven by increased per capita incomes and consumption, combined with a shift in packaging mix to two-piece aluminum beverage cans from other packages. The Company continues to focus its capital deployment in these markets. When currently announced expansion projects are completed, the Company expects to have added approximately 7.1 billion units of incremental beverage can capacity to its year-end 2011 levels. There can be no assurance, however, that the Company will be able to implement its expansion plans according to the Company's announced schedule or at all. The Company continuously monitors these markets and, where necessary, may adjust capital deployment based on economic developments and market-by-market conditions.
Beverage can sales unit volumes in the Company's mature markets have been stable to slightly declining in North America and slightly increasing in Europe. Global food and aerosol can sales unit volumes have been stable to declining in recent years primarily due to lower consumer spending. While the opportunity for organic volume growth in the Company's mature markets is not comparable to that in targeted international growth markets, the Company continues to generate strong returns on invested capital and significant cash flow from these businesses. The Company monitors capacity across all of its businesses and, where necessary, may take action such as closing a plant or reducing headcount to better manage its costs which may result in additional restructuring charges in the future which may be material.
In addition, as part of the Company's efforts to manage cost, it attempts to pass-through the cost of aluminum and steel to its customers. There can be no assurance that the Company will be able to recover from its customers the impact of any such increased costs. Aluminum and steel prices can be subject to significant volatility and there does not appear to be a consistent and predictable trend in pricing.
The Company seeks to increase shareholder value by maximizing operating cash flows which can be reinvested in the business, used for acquisitions, used to repay debt or returned to shareholders through share repurchases. In assessing the Company's performance, the key performance measure used is segment income, a non-GAAP measure defined by the Company as gross profit less selling and administrative expenses.
Results of Operations
The foreign currency translation impacts referred to below were primarily due to changes in the euro and pound sterling in the Company's European segments, the Canadian dollar in the Company's Americas segments and the Chinese renminbi and Thai baht in the Company's Asian businesses included in non-reportable segments.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net Sales and Segment Income
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net sales | $ | 2,184 | $ | 2,281 | $ | 4,131 | $ | 4,163 | |||||||
Beverage cans and ends as a percentage of net sales | 57 | % | 54 | % | 56 | % | 53 | % | |||||||
Food cans, ends and metal vacuum closures as a percentage of net sales | 27 | % | 29 | % | 27 | % | 29 | % |
Three months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to $101 from the impact of foreign currency translation.
Six months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to $137 from the impact of foreign currency translation partially offset by $94 from increased global sales unit volumes. Overall, sales unit volumes in the Company's beverage can businesses were higher than in the prior year offsetting declines in the Company's food can and closures, aerosol can and specialty packaging businesses.
Discussion and analysis of net sales and segment income by segment follows.
Americas Beverage
The Americas Beverage segment manufactures aluminum beverage cans and ends and steel crowns, commonly referred to as “bottle caps”, and supplies a variety of customers from its operations in the U.S., Brazil, Canada, Colombia and Mexico. The North American beverage can market is a mature market which has experienced slightly declining volumes in recent years. In Brazil, the Company's sales unit volumes have increased in recent years primarily due to market growth. In 2011, the Company completed construction of a new plant in Ponta Grossa, Brazil with the first line commencing commercial operations in the first quarter of 2011 and a second line commencing commercial operations in the second quarter of 2011. Also in the second quarter of 2011, the Company commenced commercial operations of a second line in its plant in Estancia, Brazil. At full capacity and efficiency, these additions are expected to add annual capacity of more than 2.5 billion beverage cans, resulting in approximately 10% higher capacity than in the Americas Beverage segment in 2010.
Net sales and segment income in the Americas Beverage segment are as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net sales | $ | 593 | $ | 591 | $ | 1,127 | $ | 1,103 | |||||||
Segment income | 78 | 77 | 147 | 140 |
Three months ended June 30, 2012 compared to 2011
Net sales increased primarily due to $9 from increased sales with an increase in Brazil offsetting lower sales unit volumes in the U.S. partially offset by $7 from the impact of foreign currency translation. The increase in sales unit volumes in Brazil is primarily from recent capacity additions in Ponta Grossa and Estancia. Sales unit volumes in Brazil are higher due to various factors; including its growing middle class and increasing disposable income and shift in packaging mix to two-piece aluminum beverage cans from other packages.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Segment income increased primarily due to $12 from higher sales unit volumes in Brazil as described above partially offset by $10 from lower selling prices primarily due to competitive pricing pressure.
Six months ended June 30, 2012 compared to 2011
Net sales increased primarily due to $33 from increased sales with an increase in Brazil offsetting lower sales unit volumes in the U.S. partially offset by $9 from the impact of foreign currency translation. The increase in sales unit volumes in Brazil is primarily from recent capacity additions in Ponta Grossa and Estancia. Sales unit volumes in Brazil are higher due to various factors; including its growing middle class and increasing disposable income and shift in packaging mix to two-piece aluminum beverage cans from other packages.
Segment income increased primarily due to $17 from higher sales unit volumes in Brazil as described above partially offset by $9 from lower selling prices primarily due to competitive pricing pressure.
North America Food
The North America Food segment manufactures steel and aluminum food cans and ends and metal vacuum closures and supplies a variety of customers from its operations in the U.S. and Canada. The North American food can and closures market is a mature market which has experienced stable to slightly declining volumes in recent years.
Net sales and segment income in the North America Food segment are as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net sales | $ | 213 | $ | 217 | $ | 413 | $ | 405 | |||||||
Segment income | 41 | 38 | 73 | 66 |
Three months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to lower sales unit volumes including the impact of certain customers accelerating shipments into the first quarter of 2012 that in 2011 occurred in the second quarter and $2 from the impact of foreign currency translation.
Segment income increased primarily due to lower operating costs including improved manufacturing performance and reduced post-retirement benefits in the U.S. resulting from plan amendments in 2011.
Six months ended June 30, 2012 compared to 2011
Net sales increased primarily due to $9 from the pass-through of higher costs partially offset by $3 from the impact of foreign currency translation.
Segment income increased primarily due to $7 from lower operating costs including improved manufacturing performance and $3 from reduced post-retirement benefits in the U.S. resulting from plan amendments in 2011, partially offset by $5 from inventory holding gains in 2011 that did not recur in 2012.
European Beverage
The Company's European Beverage segment manufactures steel and aluminum beverage cans and ends and supplies a variety of customers from its operations throughout Eastern and Western Europe, the Middle East and North Africa. In recent years, the European beverage can market has been growing. In the second quarter of 2011, the Company commenced commercial operations of the second line at its plant in Kechnec, Slovakia which is expected to add full annualized capacity of approximately 750 million cans. In the second quarter of 2012, the Company commenced commercial operations of a new plant in Osmaniye, Turkey which is expected to add full annualized capacity of approximately 700 million cans.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net sales and segment income in the European Beverage segment are as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net sales | $ | 472 | $ | 500 | $ | 834 | $ | 840 | |||||||
Segment income | 64 | 70 | 106 | 115 |
Three months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to $30 from the impact of foreign currency translation. Sales unit volumes did not change significantly as increased volumes in the UK, Dubai and Saudi Arabia were offset by lower volumes in France and Spain resulting from ongoing economic uncertainty in Europe and adverse weather conditions.
Segment income decreased primarily due to lower levels of manufacturing activity which resulted in costs being absorbed across fewer units, $1 from start-up costs at the Company's plant in Osmaniye, Turkey and $2 from the impact of foreign currency translation.
Six months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to $41 from the impact of foreign currency translation partially offset by $27 from increased sales unit volumes in the UK, Dubai and Saudi Arabia and $8 from the pass-through of higher costs.
Segment income decreased primarily due to lower levels of manufacturing activity which resulted in costs being absorbed across fewer units, $2 from start-up costs at the Company's plant in Osmaniye, Turkey and $3 from the impact of foreign currency translation.
European Food
The European Food segment manufactures steel and aluminum food cans and ends, and metal vacuum closures and supplies a variety of customers from its operations throughout Europe and Africa. The European food can market is a mature market which has experienced stable to slightly declining volumes in recent years. The Company is currently evaluating certain plans which, if approved, may result in additional restructuring charges in its European Food which could be material.
Net sales and segment income in the European Food segment are as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net sales | $ | 434 | $ | 509 | $ | 836 | $ | 931 | |||||||
Segment income | 47 | 63 | 87 | 115 |
Three months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to $23 from lower sales unit volumes due to ongoing economic uncertainty in Europe and adverse weather conditions and $47 from the impact of foreign currency translation.
Segment income decreased primarily due to unfavorable sales unit volumes and product mix, lower levels of manufacturing activity which resulted in costs being absorbed across fewer units and $5 from the impact of foreign currency translation.
51
Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Six months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to $39 from lower sales unit volumes due to ongoing economic uncertainty in Europe and adverse weather conditions and $65 from the impact of foreign currency translation.
Segment income decreased primarily due to unfavorable sales unit volumes and product mix, lower levels of manufacturing activity which resulted in costs being absorbed across fewer units, $5 from inventory holding gains in 2011 that did not recur in 2012 and $6 from the impact of foreign currency translation.
As of March 31, 2012, the Company had a receivable of $27 with a customer in its European Food business that was experiencing financial difficulty. In the second quarter of 2012, the customer completed a reorganization which included receiving additional capital from new investors and merging with a competitor. In connection with the reorganization, the Company agreed to settlement terms with the customer and expects the receivable to be fully paid.
European Specialty Packaging
The European Specialty Packaging segment manufactures a wide variety of specialty containers, with numerous lid and closure variations and supplies a variety of customers throughout Europe.
Net sales and segment income in the European Specialty Packaging segment are as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net sales | $ | 97 | $ | 119 | $ | 187 | $ | 219 | |||||||
Segment income | 10 | 12 | 11 | 19 |
Three months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to $12 from lower sales unit volumes reflecting ongoing economic uncertainty in Europe and $10 from the impact of foreign currency translation.
Segment income decreased primarily due to lower sales unit volumes and $1 from the impact of foreign currency translation.
Six months ended June 30, 2012 compared to 2011
Net sales decreased primarily due to $21 from lower sales unit volumes reflecting ongoing economic uncertainty in Europe and $13 from the impact of foreign currency translation.
Segment income decreased primarily due to lower sales unit volumes, $2 from inventory holding gains in 2011 that did not recur in 2012 and $1 from the impact of foreign currency translation.
Non-reportable Segments
The Company's non-reportable segments include its aerosol can businesses in North America, Europe and Thailand, its beverage can businesses in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam, its food can and closures business in Thailand and its tooling and equipment operations in the U.S. and United Kingdom. In recent years, the Company's businesses in Asia have experienced significant growth whereas its aerosol can businesses have experienced slightly declining volumes.
52
Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
In the first quarter of 2012, the Company commenced commercial operations at its new beverage can plant in Putian, China. In the second quarter of 2012, the Company commenced commercial operations at its new beverage can plant in Ziyang, China, completed capacity expansion at its plant in Ho Chi Minh City, Vietnam and began commercial production of beverage can ends at its new plant in Heshan, China. In the third quarter of 2012, the Company expects to begin commercial production of beverage cans in Heshan, China. In 2013, the Company has announced plans to complete new beverage can plants in Sihanoukville, Cambodia, Nanning, China and Danang, Vietnam and to expand capacity in Malaysia and Putian. Once the projects are complete, the Company expects to have 18 beverage can plants in Asia with nine strategically located across China, four in Vietnam, two in Cambodia and one each in Malaysia, Singapore and Thailand.
Net sales and segment income in non-reportable segments are as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net sales | $ | 375 | $ | 345 | $ | 734 | $ | 665 | |||||||
Segment income | 54 | 55 | 107 | 112 |
Three months ended June 30, 2012 compared to 2011
Net sales increased primarily due to $41 from increased beverage can sales in Cambodia, China, Malaysia and Vietnam as a result of increased regional demand driven by macroeconomic factors such as GDP growth and increased consumer spending partially offset by $8 from lower sales in the Company's North American and European aerosol businesses primarily due to lower consumer spending partly due to ongoing economic uncertainty in Europe and $5 from the impact of foreign currency translation.
Segment income remained relatively unchanged as $5 of decrease from the Company's North American and European aerosol businesses was offset by $6 from increased beverage can sales in Cambodia, China, Malaysia, Thailand and Vietnam partially offset by $3 of start-up costs from recent capacity additions.
The Company recognized income of $6 from proceeds received from its insurer covering incremental costs and lost profits associated with flood damage at the Company's beverage can plant in Thailand that occurred in the fourth quarter of 2011.
Six months ended June 30, 2012 compared to 2011
Net sales increased primarily due to $70 from increased beverage can sales in Cambodia, China, Malaysia and Vietnam as a result of increased regional demand driven by macroeconomic factors such as GDP growth and increased consumer spending. In addition, net sales increased due to $22 from increased beverage equipment sales to can manufacturers partially offset by $16 of lower sales in the Company's North American and European aerosol businesses primarily due to lower consumer spending partly due to ongoing economic uncertainty in Europe and $6 from the impact of foreign currency translation.
Segment income decreased primarily due to $15 from the Company's North American and European aerosol businesses including $5 of inventory holding gains in 2011 that did not recur in 2012. The decrease was partially offset by $8 from the Company's operations in Asia which included $11 from increased beverage can sales in Cambodia, China, Malaysia, Thailand and Vietnam partially offset by $5 of start-up costs from recent capacity additions.
The Company recognized income of $7 from proceeds received from its insurer covering incremental costs and lost profits associated with flood damage at the Company's beverage can plant in Thailand that occurred in the fourth quarter of 2011.
53
Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Corporate and Unallocated Expense
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Corporate and unallocated expense | $ | (44 | ) | $ | (44 | ) | $ | (100 | ) | $ | (106 | ) |
For the six months ended June 30, 2012 compared to 2011, corporate and unallocated expense decreased primarily due to insurance costs related to a fire at a Company warehouse in 2011.
Cost of Products Sold (Excluding Depreciation and Amortization)
For the three months ended June 30, 2012 compared to 2011, cost of products sold (excluding depreciation and amortization) decreased from $1,865 to $1,799 primarily due to $86 from the impact of foreign currency translation partially offset by increased global beverage can sales unit volumes.
For the six months ended June 30, 2012 compared to 2011, cost of products sold (excluding depreciation and amortization) increased from $3,415 to $3,417 as the impact of increased global beverage can sales unit volumes and higher raw material costs was offset by foreign currency translation.
Depreciation and Amortization
For the three months ended June 30, 2012 compared to 2011, depreciation and amortization remained at $45 as the impact of recent capacity expansion offset foreign currency translation.
For the six months ended June 30, 2012 compared to 2011, depreciation and amortization increased from $85 to $87 primarily due to the impact of recent capacity expansion.
Selling and Administrative Expense
For the three months ended June 30, 2012 compared to 2011, selling and administrative expense decreased from $100 to $90 primarily due to $4 from lower legal and professional fees and $4 from the impact of foreign currency translation.
For the six months ended June 30, 2012 compared to 2011, selling and administrative expense decreased from $202 to $196 primarily due to $6 from the impact of foreign currency translation.
Interest Expense
For the three months ended June 30, 2012 compared to 2011, interest expense decreased from $60 to $55 primarily due to lower borrowing rates and $2 from the impact of foreign currency translation.
For the six months ended June 30, 2012 compared to 2011, interest expense decreased from $116 to $113 primarily due to lower borrowing rates and $2 from the impact of foreign currency translation partially offset by higher average debt outstanding.
54
Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Taxes on Income
The Company's effective income tax rate was as follows:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Income before income taxes | $ | 208 | $ | 210 | $ | 330 | $ | 293 | |||||||
Provision for income taxes | 51 | 54 | 83 | 95 | |||||||||||
Effective income tax rate | 24.5 | % | 25.7 | % | 25.2 | % | 32.4 | % |
The effective income tax rate for the six months ended June 30, 2011 was higher than in 2012 primarily due to a net tax charge of $20 in 2011 in connection with the relocation of the Company's European headquarters and management to Switzerland.
Net Income Attributable to Noncontrolling Interests
For the three and six months ended June 30, 2012 compared to 2011 net income attributable to noncontrolling interests decreased from $27 to $23 and from $53 to $44, respectively, primarily due to the acquisition of additional ownership interests in certain operations in China, Dubai, Greece, Jordan, Tunisia and Vietnam in the second half of 2011.
Liquidity and Capital Resources
Cash from Operations
Cash used for operating activities decreased from $247 for the six months ended June 30, 2011 to $216 in 2012 primarily due to lower net working capital as days sales outstanding for working capital decreased from 44 for the three months ended June 30, 2011 to 42 in 2012.
Receivables increased from $948 at December 31, 2011 to $1,194 at June 30, 2012 and used cash of $347 for the six months ended June 30, 2011 compared to $296 in 2012. Sales in June 2012 were higher than in December 2011 as sales generally increase each month of the year until peaking in the third quarter. As a result, receivables generally increase through the third quarter of each year. Days sales outstanding for trade receivables decreased from 45 for three months ended June 30, 2011 to 42 in 2012.
Inventories increased from $1,148 at December 31, 2011 to $1,272 at June 30, 2012 and used cash of $431 for the six months ended June 30, 2011 compared to $135 in 2012. Inventory levels typically increase each month of the year until peaking in the third quarter due to seasonal build primarily in the Company's food can businesses. Inventory levels did not increase as significantly in 2012 as in 2011 due to the Company's efforts to manage lower levels of inventory and lower raw material costs partially offset by the impact of recent capacity expansion.
Investing Activities
Cash used for investing activities decreased from $307 for the six months ended June 30, 2011 to $128 in 2012 primarily due to $45 from lower capital expenditures, $23 from the receipt of insurance proceeds related to flooding at the Company's beverage can plant in Thailand and $125 from an increase in restricted cash in 2011 that did not recur in 2012. Currently, the Company expects capital expenditures of approximately $325 in 2012 excluding the cost to rebuild beverage can capacity lost to flooding which the Company expects will be reimbursed by insurance. Upon reaching an agreement with its insurance provider, the Company may record additional gains for insurance proceeds in excess of losses recorded in its financial statements.
55
Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Financing Activities
Cash provided by financing activities decreased from $494 for the six months ended June 30, 2011 to $238 in 2012 primarily due to higher borrowings in 2011 that were used for share repurchases and to repay $125 of debt in July 2011.
Other financing activities, in each year, represent cash settlements of foreign currency derivatives used to hedge intercompany debt obligations.
Liquidity
As of June 30, 2012, $200 of the Company's $230 cash and cash equivalents was located outside the U.S. The Company is not currently aware of any legal restrictions under foreign law that materially impact its access to cash held outside the U.S.
The Company funds its cash needs in the U.S. through a combination of cash flows from operations in the U.S., dividends from certain foreign subsidiaries, borrowings under its revolving credit facility and the acceleration of cash receipts under its receivable securitization facilities. The Company records current and/or deferred U.S. taxes for the earnings of these foreign subsidiaries. For certain other foreign subsidiaries, the Company considers earnings indefinitely reinvested and has not recorded any U.S. taxes. Of the cash and cash equivalents located outside the U.S., $79 was held by subsidiaries for which earnings are considered indefinitely reinvested. While based on current operating plans the Company does not foresee a need to repatriate these funds, if such earnings were repatriated the Company would be required to record any incremental U.S. taxes on the repatriated funds.
As of June 30, 2012, the Company had $806 of borrowing capacity available under its revolving credit facility, equal to the total facility of $1,200 less $335 of borrowings and $59 of outstanding standby letters of credit.
The Company's debt agreements contain covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional debt, pay dividends or repurchase capital stock, make certain other restricted payments, create liens and engage in sale and leaseback transactions. These restrictions are subject to a number of exceptions, however, which allow the Company to incur additional debt, create liens or make otherwise restricted payments. The amount of restricted payments permitted to be made, including dividends and repurchases of the Company's common stock, is generally limited to the cumulative excess of $200 plus 50% of adjusted net income plus proceeds from the exercise of employee stock options over the aggregate of restricted payments made since July 2004. Adjustments to net income may include, but are not limited to, items such as asset impairments, gains and losses from asset sales and early extinguishments of debt.
During the second quarter of 2012, Congress passed the Moving Ahead for Progress in the 21st Century Act which included pension funding provisions designed to stabilize the discount rate used to determine funding requirements from the effects of interest rate volatility. Currently, the Company does not expect these provisions to have a material impact on its 2012 pension contributions.
Capital Resources
As of June 30, 2012, the Company has approximately $94 of capital commitments primarily related to the Company's expansion in Cambodia, China, Malaysia and Vietnam and rebuilding of its beverage can plant in Thailand which was damaged by severe flooding in 2011. The Company expects to fund these commitments primarily through cash flows generated from operations and to fund any excess needs over available cash through external borrowings.
Contractual Obligations
During the first six months of 2012 there were no material changes to the Company's contractual obligations reported in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the year ended December 31, 2011.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Commitments and Contingent Liabilities
Information regarding the Company's commitments and contingent liabilities appears in Part I within Item 1 of this report under Note J, entitled “Commitments and Contingent Liabilities,” to the consolidated financial statements, which information is incorporated herein by reference.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require that management make numerous estimates and assumptions.
Actual results could differ from these estimates and assumptions, impacting the reported results of operations and financial condition of the Company. Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Note A to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 describe the significant accounting estimates and policies used in the preparation of the consolidated financial statements. There have been no significant changes in the Company's critical accounting policies during the first six months of 2012. The discussion below supplements the discussion from the Company's Annual Report on Form 10-K for the year ended December 31, 2011 with respect to goodwill.
Goodwill Impairment
As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, the estimated fair value of the Company's European Aerosols reporting unit was 35% higher than its carrying value and the reporting unit had $145 of goodwill. In the fourth quarter of 2011, the Company initiated a restructuring action to improve profitability in its European Aerosols reporting unit by consolidating operations through reducing headcount and capacity. During the first six months of 2012, results of operations in the European Aerosols reporting unit were impacted by the economic downturn in Europe. Based on current projections, the Company continues to believe that the estimated fair value of its European Aerosols reporting unit exceeds its carrying value. However, if future operating results continue to decline or if the Company is unable to realize its anticipated savings from the restructuring action, the Company will perform step one of the impairment analysis to assess whether goodwill is potentially impaired. If the Company determines that goodwill is impaired, it is possible that an impairment charge of up to $145 could be recorded.
Forward Looking Statements
Statements included herein in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” including, but not limited to, in the discussions of asbestos in Note I and commitments and contingencies in Note J to the consolidated financial statements included in this Quarterly Report on Form 10-Q and also in Part I, Item 1: “Business” and Item 3: “Legal Proceedings” and in Part II, Item 7: “Management's Discussion and Analysis of Financial Condition and Results of Operations,” within the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto), are “forward-looking statements” within the meaning of the federal securities laws. In addition, the Company and its representatives may, from time to time, make oral or written statements which are also “forward-looking statements.”
These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company and, therefore, involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with the preparation of “Management's Discussion and Analysis of Financial Condition and Results of Operations” and certain other sections contained in the Company's quarterly, annual or other reports filed with the Securities and Exchange Commission (“SEC”), the Company does not intend to review or revise any particular forward-looking statement in light of future events.
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Crown Holdings, Inc.
Item 2. Management's Discussion and Analysis (Continued)
A discussion of important factors that could cause the actual results of operations or financial condition of the Company to differ from expectations has been set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 within Part II, Item 7: “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward Looking Statements” and is incorporated herein by reference. Some of the factors are also discussed elsewhere in this Form 10-Q and in prior Company filings with the SEC. In addition, other factors have been or may be discussed from time to time in the Company's SEC filings.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange and interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by the counterparties. These instruments are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success in using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales arrangements that permit the pass-through of commodity prices and foreign exchange rate risks to customers. The Company's objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. For further discussion of the Company's use of derivative instruments and their fair values at June 30, 2012, see Note F to the consolidated financial statements included in this Quarterly Report on Form 10-Q.
As of June 30, 2012, the Company had $1,475 million principal floating interest rate debt. A change of 0.25% in these floating interest rates would change annual interest expense by approximately $4 million before tax.
Item 4. | Controls and Procedures |
As of the end of the period covered by this Quarterly Report on Form 10-Q, management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation and as of the end of the quarter for which this report is made, the Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective. Disclosure controls and procedures ensure that information to be disclosed in reports that the Company files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and terms of the Securities and Exchange Commission, and ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There has been no change in internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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Crown Holdings, Inc.
PART II – OTHER INFORMATION
Item 1. | Legal Proceedings |
For information regarding the Company's potential asbestos-related liabilities and other litigation, see Note I entitled “Asbestos-Related Liabilities” and Note J entitled “Commitments and Contingent Liabilities,” respectively, to the consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, carefully consider the factors discussed in Item 1A to Part I in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect the Company's business, financial condition or future results. The risks described in the Company's Quarterly Report on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company's business, financial condition and/or operating results.
Item 2. | Unregistered Sale of Equity Securities and Use of Proceeds |
The Company made no purchases of its equity securities during the first six months of 2012.
In December 2011, the Company entered into an agreement to repurchase shares of its common stock under an accelerated share repurchase program. Pursuant to the agreement, the Company initially purchased 2,771,004 shares for $100. In April 2012, the Company received an additional 4,653 shares based on its volume-weighted average stock price during the term of the transaction.
In July 2012, the Company entered into an agreement to purchase an aggregate of $200 shares of its common stock under an accelerated repurchase program. The actual number of shares repurchased will be determined at the completion of the term of the agreement subject to provisions that 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.
On December 9, 2010, the Company's Board of Directors authorized the repurchase of up to $600 million of the Company's common stock through the end of 2012. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. This repurchase authorization replaces all previous authorizations. As of July 31, 2012, $94 million of the Company's outstanding common stock may still be purchased under this program.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None.
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Crown Holdings, Inc.
Item 6. Exhibits
10.1 | Executive Employment Agreement, effective June 1, 2012, between Crown Holdings, Inc. and Gerard Gifford. | |
10.2 | Senior Executive Retirement Agreement, effective June 1, 2012, between Crown Holdings, Inc. and Gerard Gifford. | |
10.3 | Crown Cork & Seal Company, Inc. Restoration Plan, dated July 28, 2010. | |
10.4 | Amendment No. 1, effective July 1, 2011, to the Crown Cork & Seal Company, Inc. Restoration Plan. | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by John W. Conway, Chairman of the Board, President and Chief Executive Officer of Crown Holdings, Inc. and Timothy J. Donahue, Executive Vice President and Chief Financial Officer of Crown Holdings, Inc. | |
101 | The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011, (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011, (iii) Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, (v) Consolidated Statements of Changes in Equity for the six months ended June 30, 2012 and 2011 and (vi) Notes to Consolidated Financial Statements. |
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Crown Holdings, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Crown Holdings, Inc. Registrant | ||
By: | /s/ Kevin C. Clothier | |
Kevin C. Clothier | ||
Vice President and Corporate Controller |
Date: August 9, 2012
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