10-K 1 f10k2009.htm ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2009 f10k2009.htm
 





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
 
FORM 10-K
 
          (Mark One)
                [  X  ]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934
                                For the fiscal year ended December 31, 2009

                [      ]       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)                                                                        (Employer Identification No.)

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

Registrant’s telephone number, including area code: 215-698-5100
_______________

 
            SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class                                                                                                     Name of each exchange on which registered
Common Stock $5.00 Par Value                                                                              New York Stock Exchange
Common Stock Purchase Rights                                                                               New York Stock Exchange
7 3/8% Debentures Due 2026                                                                                  New York Stock Exchange
7 ½%  Debentures Due 2096                                                                                   New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of Class)
_______________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes [ X ]     No [    ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [   ]     No [ X ]

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 filings requirements for the past 90 days.        Yes [ X ]     No [    ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K  or any amendment to this Form 10-K. [  X ]

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

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

As of June 30, 2009, 160,037,940 shares of the Registrant’s Common Stock, excluding shares held in Treasury, were issued and outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant on such date was $3,863,316 based on the New York Stock Exchange closing price for such shares on that date.

As of February 22, 2010, 161,435,917 shares of the Registrant’s Common Stock were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

                                                      Document                                                                                  Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 2010                           Part III  to the extent described therein
 
 




 
 

 
Crown Holdings, Inc.



2009 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS
 
 

   PART I    
Business 
 
1
       
Risk Factors
 
8
       
Unresolved Staff Comments   
 
21
       
Properties
 
21
       
Legal Proceedings
 
23
       
Item 4
Reserved 
 
23
       
 
PART II
   
       
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
24
       
Selected Financial Data                                                                                                                       
 
26
       
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
28
       
Quantitative and Qualitative Disclosures About Market Risk
 
47
       
Financial Statements and Supplementary Data
 
48
       
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
113
       
Controls and Procedures                                                                                                                       
 
113
       
Other Information                                                                                                                       
 
114
       
 
PART III
   
       
Directors, Executive Officers and Corporate Governance
 
114
       
Executive Compensation                                                                                                                       
 
114
       
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  
115
       
Certain Relationships and Related Transactions, and Director Independence
 
115
       
Principal Accounting Fees and Services  
 
115
       
 
PART IV
   
       
Exhibits and Financial Statement Schedules
 
116
       
 
SIGNATURES                                                                                                                       
 
125
 
 
 

 
 

 
Crown Holdings, Inc.


 
PART I
 
BUSINESS

Crown Holdings, Inc. (the “Company” or the “Registrant”) (where the context requires, the “Company” shall include reference to the Company and its consolidated subsidiary companies) is a Pennsylvania corporation.

The Company is a worldwide leader in the design, manufacture and sale of packaging products for consumer goods. The Company’s primary products include steel and aluminum cans for food, beverage, household and other consumer products and metal vacuum closures and caps.  These products are manufactured in the Company’s plants both within and outside the United States and are sold through the Company’s sales organization to the soft drink, food, citrus, brewing, household products, personal care and various other industries.  At December 31, 2009, the Company operated 136 plants along with sales and service facilities throughout 41 countries and had approximately 20,500 employees. Consolidated net sales for the Company in 2009 were $7.9 billion with 72% of 2009 net sales derived from operations outside the United States, of which 73% of these non-U.S. revenues were derived from operations in the Company’s European Division.

DIVISIONS AND OPERATING SEGMENTS

The Company’s business is organized geographically within three divisions, Americas, European and Asia-Pacific. Within the Americas and European Divisions the Company is generally organized along product lines. The Company’s reportable segments within the Americas Division are Americas Beverage and North America Food. The Company’s reportable segments within the European Division are European Beverage, European Food and European Specialty Packaging. Americas Beverage includes beverage can operations in the U.S., Canada, Mexico and South America.  North America Food includes food can and metal vacuum closure operations in the U.S. and Canada.  European Beverage includes beverage can operations in Europe, the Middle East and North Africa.  European Food includes food can and metal vacuum closure operations in Europe and Africa.  European Specialty Packaging includes specialty packaging operations in Europe.  No operating segments within the Asia-Pacific Division are included as reportable segments.

Financial information concerning the Company’s operating segments, and within selected geographic areas, is set forth within Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report and under Note X to the consolidated financial statements.

AMERICAS DIVISION

The Americas Division includes operations in the United States, Canada, Mexico, South America and the Caribbean. These operations manufacture beverage, food and aerosol cans and ends, specialty packaging and metal vacuum closures and caps.  At December 31, 2009, the division operated 49 plants in 8 countries and had approximately 5,900 employees.  In 2009, the Americas Division had net sales of $3.2 billion.  Approximately 70% of the division’s 2009 net sales were derived  from  within the United  States.  Within the Americas Division the Company has determined that there are two reportable segments: Americas  Beverage  and  North  America  Food. Other operating segments consist of North America Aerosol, a plastic closures operation in Brazil, and food can operations in the Caribbean.
 
Americas Beverage
 
The Americas Beverage segment manufactures aluminum beverage cans and ends and steel crowns, commonly referred to as “bottle caps.”  Americas Beverage had net sales in 2009 of $1.8 billion (22.9% of consolidated net sales) and segment income (as defined under Note X to the consolidated financial statements) of $207 million.
 
 
 
 
 
1

 
Crown Holdings, Inc.
 
 

North America Food

The North America Food segment manufactures steel and aluminum food cans and ends and metal vacuum closures.  North America Food had net sales in 2009 of $1.0 billion (12.7% of consolidated net sales) and segment income (as defined under Note X to the consolidated financial statements) of $140 million.

EUROPEAN DIVISION

The European Division includes operations in Europe, the Middle East and Africa.  These operations  manufacture beverage, food and aerosol cans and ends, specialty packaging, metal vacuum closures and caps, and canmaking equipment. At December 31, 2009, the division operated 73 plants in 27 countries and had approximately 12,000 employees. Net sales in 2009 were $4.2 billion. Net sales in the United Kingdom of $729 million and in France of $686 million represented 17.4% and 16.4% of division net sales in 2009.
 
Within the European Division the Company has determined that there are three reportable segments: European Beverage, European Food and European Specialty Packaging.  European Aerosol is not included as a reportable segment.

European Beverage

The European Beverage segment manufactures steel and aluminum beverage cans and ends and steel crowns. European Beverage had net sales in 2009 of $1.6 billion (19.7% of consolidated net sales) and segment income (as defined under Note X to the consolidated financial statements) of $262 million.

European Food

The European Food segment manufactures steel and aluminum food cans and ends, and metal vacuum closures. European Food had net sales in 2009 of $2.0 billion (24.8% of consolidated net sales) and segment income (as defined under Note X to the consolidated financial statements) of $238 million.

European Specialty Packaging

The European Specialty Packaging segment manufactures a wide variety of specialty containers, with numerous lid and closure variations.  In the consumer market, the Company manufactures a wide variety of steel containers for cookies and cakes, tea and coffee, confectionery, giftware, personal care, tobacco, wine and spirits, as well as non-processed food products. In the industrial market, the Company manufactures steel containers for paints, inks, chemical, automotive and household products.
 
European Specialty Packaging had net sales in 2009 of $404 million (5.1% of consolidated net sales) and segment income (as defined under Note X to the consolidated financial statements) of $18 million.
 
ASIA-PACIFIC DIVISION

The Asia-Pacific Division manufactures aluminum beverage cans and ends, steel food and aerosol cans and ends, and metal caps. At December 31, 2009, the division operated 14 plants in 6 countries and had approximately 2,300 employees. Net sales in 2009 were $629 million (7.9% of consolidated net sales) and beverage can and end sales were approximately 82.0% of division sales. The Asia-Pacific division is not included as a reportable segment.
 
 

 
 
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Crown Holdings, Inc.


 
PRODUCTS
 
Beverage Cans
 
The Company supplies beverage cans and ends and other packaging products to a variety of beverage and beer companies, including Anheuser-Busch InBev, Coca-Cola, Cott Beverages, Dr Pepper Snapple Group, DAMM, Heineken, National Beverage and Pepsi-Cola, among others. The Company’s beverage can business is built around local, regional and global markets, which has served to develop the Company’s understanding of global consumer expectations.

The beverage market is dynamic and highly competitive, with each packaging manufacturer striving to satisfy consumers’ ever-changing needs. The Company competes by offering its customers broad market knowledge, resources at all levels of its worldwide organization and extensive research and development capabilities that have enabled the Company to provide its customers with innovative products. The Company meets its customers’ beverage packaging needs with an array of two-piece beverage cans and ends and metal bottle caps. Innovations include the SuperEnd® beverage can end and shaped beverage cans.  The Company expects to continue to add capacity in many of the growth markets around the world.
 
Beverage can manufacturing is capital intensive, requiring significant investment in tools and machinery. The Company seeks to effectively manage its invested capital and is continuing its efforts to reduce can and end diameter, lighten its cans, reduce non-metal costs and restructure production processes.

Food Cans and Closures

The Company manufactures a variety of food cans and ends, including two-and three-piece cans in numerous shapes and sizes, and sells food cans to food marketers such as Bonduelle, Cecab France, ConAgra, Continentale, Mars, Menu Foods, Morgan Foods, Nestlé and Premier Foods, among others.  The Company offers a wide variety of metal vacuum closures and sealing equipment solutions to leading marketers such as Danone, H. J. Heinz, Kraft, Nestlé, Premier Foods and Unilever, among others, from a network of metal vacuum closure plants around the world.  The Company supplies total packaging solutions, including metal and composite closures, capping systems and services while working closely with customers, retailers and glass and plastic container manufacturers to develop innovative closure solutions and meet customer requirements.

Technologies used to produce food cans include three-piece welded, two-piece drawn and wall-ironed and two-piece drawn and redrawn. The Company also offers its LIFTOFF™ series of food ends, including its Easylift™ full aperture steel food can ends, and PeelSeam™, a flexible aluminum foil laminated end. The Company offers expertise in closure design and decoration, ranging from quality printing of the closure in up to nine colors, to inside-the-cap printing, which offers customers new promotional possibilities, to better product protection through Ideal Closures™ and  Superplus™.  The Company’s commitment to innovation has led to developments in packaging materials, surface finishes, can shaping, lithography, filling, retorting, sealing and opening techniques and environmental performance.
 
The Company manufactures easy open, vacuum and conventional ends for a variety of heat-processed and dry food products including fruits and vegetables, meat and seafood, soups, ready-made meals, infant formula, coffee and pet food.

Aerosol Cans

The Company’s customers for aerosol cans and ends include manufacturers of personal care, food, household and industrial products, including Colep CCL, KIK Custom Products, Procter & Gamble (Gillette), SC Johnson and Unilever, among others.  The aerosol can business, while highly competitive, is marked by its high value-added service to customers.  Such value-added services include, among others, the ability to manufacture multiple sizes and design customer labels, multiple color schemes and shaped packaging.
 

 
 
 
3

 
Crown Holdings, Inc.

 
 
Specialty Packaging
 
The Company’s specialty packaging business is located primarily in Europe and serves many major European and multinational companies. The Company produces a wide variety of specialty containers with numerous lid and closure variations. The Company’s specialty packaging customers include Abbott Laboratories, Akzo Nobel, Cadbury plc, Danone (Sigma), Nestlé, PPG, Teisseire, Tikkurila Oy and United Biscuits, among others.

SALES AND DISTRIBUTION

Global marketers continue to demand the consolidation of their supplier base under long-term arrangements and qualify those suppliers on the basis of their ability to provide global service, innovative designs and technologies in a cost-effective manner.  
 
With its global reach, the Company markets and sells products to customers through its own sales and marketing staff located within each operating segment. Regional sales personnel support the segments’ staffs.  In some instances, contracts with customers are centrally negotiated, but products are ordered through and distributed directly by the Company’s manufacturing facilities.  The Company’s facilities are generally located in proximity to their respective major customers. The Company works closely with customers in order to develop new business and to extend the terms of its existing contracts.
 
Many customers provide the Company with quarterly or annual estimates of product requirements along with related quantities pursuant to which periodic commitments are given. Such estimates assist the Company in managing production and controlling use of working capital. The Company schedules its production to meet customer requirements. Because the production time for the Company’s products is short, any backlog of customer orders in relation to overall sales is not significant.
 
SEASONALITY

The food packaging business is somewhat seasonal with the first quarter tending to be the slowest period as the autumn packing period in the Northern Hemisphere has ended and new crops are not yet planted. The industry enters its busiest period in the third quarter when the majority of fruits and vegetables are harvested. Weather represents a substantial uncertainty in the yield of food products and is a major factor in determining the demand for food cans in any given year.

The Company’s beverage packaging business is predominately located in the Northern Hemisphere. Generally, beverage products are consumed in greater amounts during the warmer months of the year and sales and earnings have generally been higher in the second and third quarters of the calendar year.
 
The Company’s other businesses primarily include aerosol and specialty packaging and canmaking equipment, which tend not to be significantly affected by seasonal variations.
 
COMPETITION

Most of the Company’s products are sold in highly competitive markets, primarily based on price, quality, service and performance. The Company competes with other packaging manufacturers as well as with fillers, food processors and packers, some of whom manufacture containers for their own use and for sale to others. The Company’s  competitors  include,  but  are  not  limited  to, Ball Corporation, BWAY Corporation, Impress Holdings B.V., Metal Container Corporation, Rexam PLC and Silgan Holdings Inc.
 
CUSTOMERS

The Company’s largest customers consist of many of the leading manufacturers and marketers of packaged products in the world. Consolidation trends among beverage and food marketers has led to a concentrated customer base. The Company’s top ten global customers represented in the aggregate approximately 26% of its 2009 net sales.  In  each of the  years in the  period  2007 through  2009, no one customer of the Company accounted for more than ten percent of the Company’s net sales. Each operating  segment of the  Company has  major  customers and the  loss of one or  more  of  these  major customers could have a material adverse effect on an individual segment or the Company as a whole. Major customers include those listed above under the Products discussion. In addition to sales to Coca-Cola and Pepsi-Cola, the Company also supplies independent licensees of Coca-Cola and Pepsi-Cola.

 
 
 
 
4

 
Crown Holdings, Inc.
 
 
 
RESEARCH AND DEVELOPMENT

The Company’s principal Research, Development & Engineering (RD&E) centers are located in Alsip, Illinois and Wantage, England. The Company depends upon its centralized RD&E capabilities to (1) promote development of value-added metal packaging systems for its customers, (2) design cost-efficient manufacturing processes, systems and materials that further promote the sustainability credentials of metal packaging, providing continuous quality and/or production efficiency improvements in its manufacturing facilities globally, (3) apply and develop technologies to advance customer and vendor relationships and provide value-added technical support, and (4) provide engineering services for the Company’s worldwide packaging activities.  These capabilities allow the Company to (1) identify new and/or expanded market opportunities by working directly with customers to develop new products or enhance existing products through the application of new technologies that better differentiate products in the retail environment (for example, the creation of new packaging shapes or novel decoration methods) and/or the incorporation of consumer-valued features (for example, improved openability or greater resealability) and (2) reduce manufacturing costs by reducing the material content in its products (while retaining performance), reducing spoilage, and increasing operating efficiencies.
 
Recent innovations include:

·  
Enhancements to Crown’s proprietary SuperEnd® beverage can end, which requires less metal than existing ends without any reduction in strength, including new designs targeted to European, Middle Eastern, and South African markets.  The SuperEnd® offers improved pourability, drinkability, ease-of-opening and appearance over traditional ends.  This technology is now commercially available through the Company’s efforts and through its licensees to beverage customers on six continents – North and South America, Europe, Africa, Asia, and Australia.  To date, Crown and its licensees have produced more than 250 billion SuperEnd® beverage can ends, saving more than 61,000 metric tons of aluminum, over 1,000 metric tons of coatings, and more than 500,000 metric tons of greenhouse gases (equivalent to the annual emissions from 91,000 automobiles) compared to conventional beverage can ends.
   
·  
Patented Easylift™ full aperture steel food can ends, launched initially with Nestlé Purina Petcare for pet food in Europe.  This revolutionary new end provides improved tab access and openability even compared to the Company’s leading EOLE™ full aperture easy-open end technology.  Certain consumer tests indicate strong preference for this end over those of Crown's competitors, and rollout across Europe and a North American launch was initiated in 2009.  The North American variant is designed to be interchangeable with non-easy-open ends on customer's seaming lines.  The expansion of Crown's award winning Easylift™ easy open end into all other main diameters has created a family of ends for a wide range of ambient food products including ready meals, vegetables and pet food.
   
·  
An expanding family of PeelSeam™ flexible lidding for cans that provides exceptional ease of opening and high quality graphics, and can still be applied by Crown’s customers using their traditional high speed metal can seaming equipment.  In 2008, Crown installed new high speed PeelSeam™ manufacturing equipment and expanded the product range to include new sizes and shapes.  PeelSeam™ advancements now enable the use of flexible lidding with canned foods processed in non-overpressure retorts, expanding the range of applications for this consumer-friendly, easy-to-open end.
   
·  
Patented composite (metal and plastic) closures including the Company’s Ideal™ product line.  These closures offer excellent barrier performance and improved tamper resistance while requiring less strength to open than standard metal vacuum closures.  The Company supplies composite closures to a growing list of customers including Abbott Nutrition, Carriage House Companies, Kerry Americas, LiDestri Foods, Mead Johnson Nutritionals, Planters, and Tree Top, as well as offering the same closure solutions to European customers evaluating the use of plastic containers as an alternative to glass.  Other composite closure applications include Crown’s Preson™ closure for Constellation Wines, Kraft and Pinnacle Foods.  A number of new closure technologies such as special finishes, internal printing, and embossing are allowing brand owners to better differentiate their products in the marketplace, with Crown's matt-finished internally-printed closures recognized at the 2009 Metal Packaging Manufacturers Association's annual packaging awards.
   


 
 
5

 
Crown Holdings, Inc.

 
   
·  
Value-added shaped metal cans for beverage, food and aerosol applications, such as Heineken’s keg can and new beverage cans for EFES and Pepsi, Nescafé Classic for Nestlé Russia and Nestlé Milo food cans, shaped aerosol containers for WD-40, Sara Lee’s new Endust Free product, and new Williams shaving gel, and Wera’s Kraftform Fluid. This technology has the capability of reinforcing brand image, providing enhanced differentiation on the retail shelf, and reducing counterfeiting.

·  
New specialty metal containers, such as for Fortnum & Mason coffee, PMI Snus, Cadbury Easter Eggs, Pokemon Card Collector tins, and award winning sustainability solutions for Nestlé in confectionery.  In addition, an evolution in paint can handles for improved cost efficiency and merchandising on shelf.
   
·  
Process Monitoring and Shop Floor Information Systems.  The development and deployment of hardware and software for real-time monitoring and reporting of process conditions and manufacturing performance is a particular strength.  Crown’s unique Weld Monitor is installed on many 3-piece can lines worldwide.  Our home-grown SmartLine system, a dedicated line awareness tool, is widely deployed in 2-piece operations.  Our QAS database, capturing critical quality records and providing customized reports, has been adopted in a growing number of plants.  And our IntegraTM Double-Seam Monitor enables Crown's food and beverage customers to maintain world-class closing standards and reduce seamer downtime during their high spead filling and seaming operations.  Extending Crown's customer services offerings, and following a successful launch in Europe, IntegraTM has now been successfully introduced into North America.
 
·  
Recent Crown innovations were honored with five “Best In Metal” Awards at the 2009 Metal Packaging Manufacturers Association’s annual packaging awards ceremony, representing another example of how Crown’s creative package design can support brands and provide a powerful platform to differentiate products from the competition.

 
The Toyo Seikan Company joined Showa Aluminum Can Company as a Crown SuperEnd® licensee in Japan in 2008. The Company also has SuperEnd® beverage end technologies, Bi-Can™ aerosol technology, and can shaping licensees in other regions around the world.  The Company has a substantial portfolio of patents and other intellectual property (IP) in the field of metal packaging systems and is seeking additional strategic partnerships to exploit further its IP in existing and emerging markets.

The Company spent $42 million in 2009, $47 million in 2008 and $48 million in 2007 on its centralized RD&E activities. Certain of these activities are expected to improve and expand the Company’s product lines in the future.  
 
These expenditures include methods developed within Crown’s Corporate RD&E facilities to improve manufacturing efficiencies, reduce unit costs, and develop new and/or value-added packaging systems, but do not include product and/or process developments occurring within the Company’s decentralized business units.

MATERIALS AND SUPPLIERS

The Company in its manufacturing operations uses various raw materials, primarily aluminum and steel, for packaging.  In general, these raw materials are purchased in highly competitive, price-sensitive markets which have historically exhibited price and demand cyclicality.  These and other materials used in the manufacturing process have  historically been  available in adequate supply from multiple sources. Generally, the Company’s principal raw materials are obtained from the major suppliers in the countries in which it operates plants. Some plants in less developed countries, which do not have local mills, obtain raw materials from nearby, more developed countries.  The Company has agreements for what it considers adequate supplies of raw materials. However, sufficient quantities may not be available in the future due to, among other things, shortages due to excessive demand, weather or other factors, including disruptions in supply caused by raw material transportation or production delays.   From time to time, some of the raw materials have been in short supply, but to date, these shortages have not had a significant impact on the Company’s operations.
 
 

 
 
6

 
Crown Holdings, Inc.
 
 
 
In 2009, consumption of steel and aluminum represented approximately 30% and 33%, respectively, of consolidated cost of products sold, excluding depreciation and amortization. Due to the significance of these raw materials to overall cost of products sold, raw material efficiency is a critical cost component of the products manufactured. Supplier consolidations, changes in ownership, government regulations, political unrest and increased demand for raw materials in the packaging and other industries, among other risk factors, provide uncertainty as to the level of prices at which the Company might be able to source such raw materials in the future. Moreover, the prices of aluminum and steel have at times been subject to volatility, especially during 2009.  The Company’s raw material supply contracts vary as to terms and duration, with steel contracts typically one year in duration with fixed prices and aluminum contracts typically multi-year in duration with fluctuating prices based on aluminum ingot costs.
 
During 2009, the weighted average market price for steel used in the Company’s global packaging operations increased approximately 26%.  Suppliers indicate that recent shortages in raw materials combined with rising operating costs and reduced demand for their product may require further steel price increases for their customers.  
 
The average price of aluminum ingot on the London Metal Exchange (“LME”) decreased approximately 30% in 2009. The Company generally attempts to mitigate its aluminum ingot risk by matching its purchase obligations with its sales agreements; however, there can be no assurance that the Company will be able to fully mitigate that risk.
 
The Company, in agreement with customers in many cases, also uses commodity and foreign currency forwards in an attempt to manage its exposure to aluminum price volatility.  
 
There can be no assurance that the Company will be able to fully recover from its customers the impact of aluminum and steel price increases or that the use of derivative instruments will effectively manage the Company’s exposure to price volatility.  In addition, if the Company is unable to purchase steel and aluminum for a significant period of time, its metal-consuming operations would be disrupted and if the Company is unable to fully recover the higher cost of steel and aluminum, its financial results may be adversely affected.  The Company continues to monitor this situation and the effect on its operations.  As a result of continuing global supply and demand pressures, other commodity-related costs affecting the Company’s business may increase as well, including natural gas, electricity and freight-related costs.  The Company intends to increase prices on its products accordingly in order to recover these costs.
 
In response to the volatility of raw material prices, ongoing productivity and cost reduction efforts in recent years have focused on improving raw material cost management.
 
The Company’s manufacturing facilities are dependent, in varying degrees, upon the availability of water and processed energy, such as natural gas and electricity. Certain of these sources may become difficult or impossible to obtain on acceptable terms due to external factors which could increase the Company’s costs or interrupt its business.
 
Aluminum and steel, by their very nature, can be recycled at high effectiveness and can be repeatedly reused to form new consumer packaging with minimal or no degradation in performance, quality or safety.  By recycling these metals, large amounts of energy can be saved.
 
SUSTAINABILITY AND ENVIRONMENTAL MATTERS

The Company’s operations are subject to numerous laws and regulations governing the protection of the environment, disposal of waste, discharges into water, emissions into the atmosphere and the protection of employee health and safety. Future regulations may impose stricter environmental requirements on the packaging industry and may require additional capital investment.  Anticipated future restrictions in some jurisdictions on the use of certain coatings may require the Company to employ additional control equipment or process modifications. The Company has a Corporate Sustainability Policy and a Corporate Environmental Protection Policy.  Environmental awareness is a key component of sustainability.  Environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases. The Company is committed to continuous improvement in product design and manufacturing practices to provide the best outcome for the human and natural environment, both now and in the future.  By reducing the per-unit amount of raw materials used in manufacturing its products, the Company can significantly reduce the amount of energy, water and other resources and associated emissions necessary to manufacture metal containers.  The Company aims to continue that process of improvement in its manufacturing process to assure that consumers and the environment are best served through the use of metal packaging.  There can be no assurance that current or future environmental laws or remediation liabilities will not have a material effect on the Company’s financial condition, liquidity or results of operations. Discussion of the Company’s environmental matters is contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report under the caption “Environmental Matters,” and under Note L to the consolidated financial statements.
 
 
 
 
 
7

 
Crown Holdings, Inc.
 
 
 
WORKING CAPITAL

The Company generally uses cash during the first nine months of the year to finance seasonal working capital needs. The Company’s working capital requirements are funded by cash on hand, its revolving credit facility, its receivables securitization and factoring programs, and from operations.

Further information relating to the Company’s liquidity and capital resources is set forth within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Annual Report under the captions “Liquidity” and “Debt Refinancings” and under Note Q to the consolidated financial statements.
 
Collection and payment periods tend to be longer for the Company’s operations located outside the U.S. due to local business practices.
 
EMPLOYEES
 
At December 31, 2009, the Company had approximately 20,500 employees. Collective bargaining agreements with varying terms and expiration dates cover approximately 13,900 employees. The Company does not expect that renegotiations of the agreements expiring in 2010 will have a material adverse effect on its results of operations, financial position or cash flow.
 
AVAILABLE INFORMATION

The Company’s internet website address is www.crowncork.com.  Information on the Company’s website is not incorporated by reference in this Annual Report on Form 10-K.  The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed by the Company with the U.S. Securities and Exchange Commission pursuant to sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are accessible free of charge through the Company’s website as soon as reasonably practicable after the documents are filed with, or otherwise furnished to, the U. S. Securities and Exchange Commission.

The Company’s Code of Business Conduct and Ethics, its Corporate Governance Guidelines, and the charters of its Audit, Compensation and Nominating and Corporate Governance committees are available on the Company’s website. These documents are also available in print to any shareholder who requests them.  The Company intends to disclose amendments to and waivers of the Code of Business Conduct and Ethics on the Company’s website.
 
ITEM 1A.  RISK FACTORS

In addition to factors discussed elsewhere in this report and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the following are some of the important factors that could materially and adversely affect the Company’s business, financial condition and results of operations.
 
 
 
 
8

 
Crown Holdings, Inc.
 
 
 
The substantial indebtedness of the Company could prevent it from fulfilling its obligations.
 
The Company is highly leveraged. As a result of its substantial indebtedness, a significant portion of the Company’s cash flow will be required to pay interest and principal on its outstanding indebtedness and the Company may not generate sufficient cash flow from operations, or have future borrowings available under its senior secured credit facilities, to enable it to repay its indebtedness or to fund other liquidity needs. As of December 31, 2009, the Company had approximately $2.8 billion of total indebtedness and total equity of $383 million. The Company’s ratio of earnings to fixed charges was 2.7 times for 2009 as discussed in Exhibit 12 to this Annual Report. The Company’s €160 million of first priority senior secured notes mature on September 1, 2011 and its $758 million senior secured revolving credit facilities mature on May 15, 2011. The Company had outstanding borrowings of $113 million on its revolving credit facilities as of December 31, 2009.  The Company’s $350 million and €276 million senior secured term loan facilities mature on November 15, 2012.  The Company’s $200 million of senior notes mature on November 15, 2013 and its $600 million of senior notes mature on November 15, 2015. In addition, at December 31, 2009, the Company had $100 million and €92 million outstanding under its committed $225 million North American and €120 million European securitization facilities which mature in March 2010 and June 2010, respectively.
 
The substantial indebtedness of the Company could:
 
 
 
increase the Company’s vulnerability to general adverse economic and industry conditions, including rising interest rates;
 
 
 
restrict the Company from making strategic acquisitions or exploiting business opportunities;

 
 
limit, along with the financial and other restrictive covenants under the Company’s indebtedness, the Company’s ability to obtain additional financing, dispose of assets or pay cash dividends;
 
 
 
require the Company to dedicate a substantial portion of its cash flow from operations to service its indebtedness, thereby reducing the availability of its cash flow to fund future working capital, capital expenditures and other general corporate requirements;
 
 
 
require the Company to sell assets used in its business;
 
 
 
limit the Company’s ability to refinance its existing indebtedness, particularly during periods of adverse credit market conditions when refinancing indebtedness may not be available under interest rates and other terms acceptable to the Company or at all;
 
 
 
limit the Company’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; and
 
 
 
place the Company at a competitive disadvantage compared to its competitors that have less debt.
 
If its financial condition, operating results and liquidity deteriorate, the Company’s creditors may restrict its ability to obtain future financing and its suppliers could require prepayment or cash on delivery rather than extend credit to it. If the Company’s creditors restrict advances, the Company’s ability to generate cash flows from operations sufficient to service its short and long-term debt obligations will be further diminished.  In addition, the Company’s ability to make payments on and refinance its debt and to fund its operations will depend on the Company’s ability to generate cash in the future.
 
Some of the Company’s indebtedness is subject to floating interest rates, which would result in its interest expense increasing if interest rates rise.
 
As of December 31, 2009, approximately $0.9 billion of the Company’s $2.8 billion of total indebtedness was subject to floating interest rates. Changes in economic conditions could result in higher interest rates, thereby increasing the Company’s interest expense and reducing funds available for operations or other purposes. The Company’s annual interest expense was $247 million, $302 million and $318 million for 2009, 2008 and 2007, respectively.  Based on the amount of variable rate debt outstanding as of December 31, 2009, a 1% increase in variable interest rates would increase its annual interest expense by $9 million. Accordingly, the Company may experience economic losses and a negative impact on earnings as a result of interest rate fluctuations.  The actual effect of a 1% increase could be more than $9 million as the Company’s borrowings on its variable rate debt are higher during the year than at the end of the year.  In addition, the cost of the Company’s securitization facilities would also increase with an increase in floating interest rates.  Although the Company may use interest rate protection agreements from time to time to reduce its exposure to interest rate fluctuations in some cases, it may not elect or have the ability to implement hedges or, if it does implement them, they may not achieve the desired effect. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Position—Market Risk” in this Annual Report.  
 
 

 
 
9

 
Crown Holdings, Inc.
 
 
 
Notwithstanding the Company’s current indebtedness levels and restrictive covenants, the Company may still be able to incur substantial additional debt or make certain restricted payments, which could exacerbate the risks described above.

The Company may be able to incur additional debt in the future, including in connection with acquisitions or joint ventures. Although the Company’s senior secured credit facilities and the indentures governing its outstanding secured and unsecured notes contain restrictions on the Company’s ability to incur indebtedness, those restrictions are subject to a number of exceptions.  The Company may also consider investments in joint ventures or acquisitions, which may increase the Company’s indebtedness. Moreover, although the Company’s senior secured credit facilities and the indentures governing its outstanding secured and unsecured notes contain restrictions on the Company’s ability to make restricted payments, including the declaration and payment of dividends and the repurchase of the Company’s common stock, the Company is able to make such restricted payments under certain circumstances.   Adding new debt to current debt levels or making otherwise restricted payments could intensify the related risks that the Company and its subsidiaries now face.
 
Restrictive covenants in its debt agreements could restrict the Company’s operating flexibility.
 
The Company’s credit facilities and the indentures governing its secured and unsecured notes contain affirmative and negative covenants that limit the ability of the Company and its subsidiaries to take certain actions. These restrictions may limit the Company’s ability to operate its businesses and may prohibit or limit its ability to enhance its operations or take advantage of potential business opportunities as they arise. The credit facilities require the Company to maintain specified financial ratios and satisfy other financial conditions.  The Company's senior secured credit  facilities and the agreements or  indentures  governing the  Company’s secured and unsecured notes restrict, among other things and subject to certain exceptions, the ability of the Company to:
 
 
incur additional debt;
 
 
pay dividends or make other distributions, repurchase capital stock, repurchase subordinated debt and make certain investments or loans;
 
 
create liens and engage in sale and leaseback transactions;
 
 
create restrictions on the payment of dividends and other amounts to the Company from subsidiaries;
 
 
change accounting treatment and reporting practices;
 
 
enter into agreements restricting the ability of a subsidiary to pay dividends to, make or repay loans to, transfer property to, or guarantee indebtedness of, the Company or any of its other subsidiaries;
 
 
sell or acquire assets and merge or consolidate with or into other companies; and
 
 
engage in transactions with affiliates.
 
 
 
 
 
10

 
Crown Holdings, Inc.
 
 
 
In addition, the indentures and agreements governing the Company’s outstanding unsecured notes limit, among other things, the ability of the Company to enter into certain transactions, such as mergers, consolidations, joint ventures, asset sales, sale and leaseback transactions and the pledging of assets.  
 
Furthermore, if the Company or certain of its subsidiaries experience specific kinds of changes of control, the Company’s senior secured credit facilities are due and payable and the Company must offer to repurchase outstanding notes.
 
The breach of any of these covenants by the Company or the failure by the Company to meet any of these ratios or conditions could result in a default under any or all of such indebtedness. If a default occurs under any such indebtedness, all of the outstanding obligations thereunder could become immediately due and payable, which could result in a default under the Company’s other outstanding debt and could lead to an acceleration of obligations related to other outstanding debt. The ability of the Company to comply with the provisions of the senior secured credit facilities, the agreements or  indentures  governing other  indebtedness it may incur in  the  future  and  its  outstanding secured and unsecured notes can be affected by events beyond its control and, therefore, it may be unable to meet those ratios and conditions.
 
The Company is subject to the effects of fluctuations in foreign exchange rates, which may reduce its net sales and cash flow.
 
The Company is exposed to fluctuations in foreign currencies as a significant portion of its consolidated net sales, its costs, assets and liabilities, are denominated in currencies other than the U.S. dollar. For the fiscal years ended December 31, 2009, 2008 and 2007, the Company derived approximately 72%, 74% and 73%, respectively, of its consolidated net sales from sales in foreign currencies. In its consolidated financial statements, the Company translates local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period.  During  times of a strengthening U.S. dollar, its reported international revenue and earnings will be reduced because the local currency will translate into fewer U.S. dollars. Conversely, a weakening U.S. dollar will effectively increase the dollar-equivalent of the Company’s expenses and liabilities denominated in foreign currencies.  The Company’s translation and exchange adjustments reduced reported income before tax by $21 million in 2008, $2 million in 2006 and $94 million in 2005, and increased reported income before tax by $6 million in 2009 and $9 million in 2007. Although the Company may use financial instruments such as foreign currency forwards from time to time to reduce its exposure to currency exchange rate fluctuations in some cases, it may not elect or have the ability to implement hedges or, if it does implement them, they may not achieve the desired effect.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Position—Market Risk” in this Annual Report.  

The Company’s international operations, which generated approximately 72% of its consolidated net sales in 2009, are subject to various risks that may lead to decreases in its financial results.
 
The Company is an international company and the risks associated with operating in foreign countries may have a negative impact on the Company’s liquidity and net income. The Company’s international operations generated approximately 72%, 74% and 73% of its consolidated net sales in 2009, 2008 and 2007, respectively. In addition, the business strategy of the Company includes continued expansion of international activities, including within developing markets and areas,  such as Asia, Eastern Europe, the  Middle  East and  South  America that may pose greater risk of political or economic instability.  Approximately 26%, 26% and 24% of the Company’s consolidated net sales in 2009, 2008 and 2007, respectively, were generated outside of the developed markets in Western Europe, the United States and Canada.  The Company’s international operations are subject to various risks associated with operating in foreign countries, including:
 
 
restrictive trade policies;
 
 
inconsistent product regulation or policy changes by foreign agencies or governments;
 
 
duties, taxes or government royalties, including the imposition or increase of withholding and other taxes on remittances and other payments by non-U.S. subsidiaries;
 
 
 
 
 
 
11

 
Crown Holdings, Inc.
 
 
 
 
customs, import/export and other trade compliance regulations;
 
 
foreign exchange rate risks;
 
 
difficulty in collecting international accounts receivable and potentially longer payment cycles;
 
 
increased costs in maintaining international manufacturing and marketing efforts;
 
 
non-tariff barriers and higher duty rates;
 
 
difficulties associated with expatriating cash generated or held abroad in a tax-efficient manner and changes in tax laws;

 
difficulties in enforcement of contractual obligations and intellectual property rights;
 
 
exchange controls;
 
 
national and regional labor strikes;
 
 
language and cultural barriers;
 
 
high social benefit costs for labor, including costs associated with restructurings;
 
 
civil unrest or political, social, legal and economic instability;
 
 
product boycotts, including with respect to the products of the Company’s multi-national customers;

 
customer, supplier, and investor concerns regarding operations in areas such as the Middle East;

 
taking of property by nationalization or expropriation without fair compensation;
 
 
imposition of limitations on conversions of foreign currencies into dollars or payment of dividends and other payments by non-U.S. subsidiaries;
 
 
hyperinflation and currency devaluation in certain foreign countries where such currency devaluation could affect the amount of cash generated by operations in those countries and thereby affect the Company’s ability to satisfy its obligations; and
 
 
war, global or regional catastrophic events, natural disasters, widespread outbreaks of infectious diseases and acts of terrorism.
 
There can be no guarantee that a deterioration of economic conditions in countries in which the Company operates would not have a material impact on the Company.

The Company’s profits will decline if the price of raw materials or energy rises and it cannot increase the price of its products and the Company’s financial results could be adversely affected if the Company was not able to obtain sufficient quantities of raw materials.
 
The Company uses various raw materials, such as steel, aluminum, water, natural gas, electricity and other processed energy, in its manufacturing operations. Sufficient quantities of these raw materials may not be available in the future or may be available only at increased prices. The Company's raw material supply contracts vary as to terms and duration, with steel contracts typically one year in duration with fixed prices and aluminum contracts typically multi-year in duration with fluctuating prices based on aluminum ingot costs. The availability of various raw materials and their prices depends on global and local supply and demand forces, governmental regulations (including tariffs), level of production, resource availability, transportation, and other factors.  In particular, in recent years the consolidation of steel suppliers, shortage of raw materials affecting the production of steel and the increased global demand for steel, including in China and other developing countries, have contributed to an overall tighter supply for steel, resulting in increased steel prices and, in some cases, special surcharges and allocated cut backs of products by steel suppliers.  
 
 

 
 
12

 
Crown Holdings, Inc.
 
 
 
The prices of certain raw materials used by the Company, such as steel, aluminum and processed energy, have historically been subject to volatility. In 2009, consumption of steel and aluminum represented approximately 30% and 33%, respectively, of the Company’s consolidated cost of products sold, excluding depreciation and amortization. For 2009, the weighted average market price for steel used in packaging increased approximately 26% and the average price of aluminum ingot on the London Metal Exchange decreased approximately 30%.  As a result of raw material price increases, in 2008 and 2009 the Company implemented price increases in most of its steel and aluminum product categories.  As a result of continuing global supply and demand pressures, other commodity-related costs affecting the Company’s business may increase as well, including natural gas, electricity and freight-related costs.

While certain, but not all, of the Company’s contracts pass through raw material costs to customers, the Company may be unable to increase its prices to offset increases in raw material costs without suffering reductions in unit volume, revenue and operating income. In addition, any price increases may take effect after related cost increases, reducing operating income in the near term.  Significant increases in raw material costs may increase the Company’s working capital requirements, which may increase the Company’s average outstanding indebtedness and interest expense and may exceed the amounts available under the Company’s senior secured credit facility and other sources of liquidity.  In addition, the Company hedges raw material costs on behalf of certain customers and may suffer losses if such customers are unable to satisfy their purchase obligations.  If the Company is unable to purchase steel, aluminum or other raw materials for a significant period of time, the Company’s operations would be disrupted and any such disruption may adversely affect the Company’s financial results. If customers believe that the Company’s competitors have greater access to raw materials, perceived certainty of supply at the Company’s competitors may put the Company at a competitive disadvantage regarding pricing and product volumes.  
 
The Company is subject to certain restrictions that may limit its ability to make payments on its debt out of the cash reserves shown in its consolidated financial statements.
 
The ability of the Company’s subsidiaries and joint ventures to pay dividends, make distributions, provide loans or make other payments to the Company may be restricted by applicable state and foreign laws, potentially adverse tax consequences and their agreements, including agreements governing their debt. In addition, the equity interests of the Company’s joint venture partners or other shareholders in its non-wholly owned subsidiaries in any dividend or other distribution made by these entities would need to be satisfied on a proportionate basis with the Company. As a result, the Company may not be able to access their cash flow to service its debt.
 
Pending and future asbestos litigation and payments to settle asbestos-related claims could reduce the Company’s cash flow and negatively impact its financial condition.
 
Crown Cork & Seal Company, Inc., a wholly-owned subsidiary of the Company (“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. In 1963, Crown Cork acquired a subsidiary that had two operating businesses, one of which is alleged to have manufactured asbestos-containing insulation products. Crown Cork believes that the business ceased manufacturing such products in 1963.
 
The Company recorded pre-tax charges of $55 million, $25 million, $29 million, $10 million and $10 million to increase its accrual for asbestos-related liabilities in 2009, 2008, 2007, 2006 and 2005, respectively. As of December 31, 2009, Crown Cork’s accrual for pending and future asbestos-related claims was $230 million. Crown Cork’s accrual includes estimates for probable costs for claims through the year 2019.  Potential estimated additional claims costs of $38 million beyond 2019 have not been included in the Company’s liability, as the Company believes cost projections beyond ten years are inherently unreliable due to potential changes in the litigation environment and other factors whose impact cannot be known or reasonably estimated.  Assumptions underlying the accrual include that claims for exposure to  asbestos that occurred  after the sale of the subsidiary’s insulation business in 1964 would not be entitled to settlement payouts and that the state statutes described under Note K to the consolidated financial statements included in this Annual Report are expected to have a highly favorable impact on Crown Cork’s ability to settle or defend against asbestos-related claims in those states and other states where Pennsylvania law may apply.
 

 
 
 
13

 
Crown Holdings, Inc.
 
 
 
Crown Cork made cash payments of $26 million, $25 million, $26 million, $26 million and $29 million in 2009, 2008, 2007, 2006 and 2005, respectively, for asbestos-related claims. These payments have reduced and any such future payments will reduce the cash flow available to Crown Cork for its business operations and debt payments.
 
Asbestos-related payments and defense costs may be significantly higher than those estimated by Crown Cork because the outcome of this type of litigation (and, therefore, Crown Cork’s reserve) is subject to a number of assumptions and uncertainties, such as the number or size of asbestos-related claims or settlements, the number of financially viable responsible parties, the extent to which the state statutes relating to asbestos liability are upheld and/or applied by the courts, Crown Cork’s ability to obtain resolution without payment of asbestos-related claims by persons alleging first exposure to asbestos after 1964, and the potential impact of any pending or future asbestos-related legislation. Accordingly, Crown Cork may be required to make payments for claims substantially in excess of its accrual, which could reduce the Company’s cash flow and  impair  its  ability  to  satisfy  its  obligations.  As a result of the uncertainties regarding its  asbestos-related liabilities and its reduced cash flow, the ability of the Company to raise new money in the capital markets is more difficult and more costly, and the Company may not be able to access the capital markets in the future.  Further information regarding Crown Cork’s asbestos-related liabilities is presented within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings, “Provision for Asbestos” and “Liquidity and Capital Resources” and under Note K to the consolidated financial statements included in this Annual Report.  
 
The Company has significant pension plan obligations worldwide and significant unfunded  postretirement obligations, which could reduce its cash flow and negatively impact its results of operations and its financial condition.
 
The Company sponsors various pension plans worldwide, with the largest funded plans in the U.K., U.S. and Canada. In 2009, 2008, 2007, 2006 and 2005, the Company contributed $74 million, $71 million, $65 million, $90 million and $401 million, respectively, to its pension plans and currently anticipates its 2010 funding to be approximately $75 million. Pension expense in 2010 is expected to decrease to approximately $115 million from $130 million in 2009.  A 0.25% change in the 2010 expected rate of return assumptions would change 2010 pension expense by approximately $9 million. A 0.25% change in the discount rates assumptions as of December 31, 2009 would change 2010 pension expense by approximately $5 million.  The Pension Protection Act of 2006 could require the Company to accelerate the timing of its contributions under its U.S. pension plan and also increase the premiums paid by the Company to the Pension Benefit Guaranty Corporation.  The actual impact of the Pension Protection Act on the Company’s U.S. pension plan funding requirements will depend upon the interest rates required for determining the plan’s liabilities and the investment performance of the plan’s assets. An acceleration in the timing of pension plan contributions and an increase in required premiums could decrease the Company’s cash available to pay its outstanding obligations and its net income.

Based on current assumptions, the Company has no minimum U.S. pension funding requirement in calendar year 2010 for its funded plan, but expects to make contributions of approximately $22 million, including $20 million to its funded plan and $2 million related to its supplemental executive retirement plan.  The difference between pension plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of the Company’s pension plans and the ongoing funding requirements of those plans.  Among other factors, significant volatility in the equity markets and in the value of illiquid alternative investments, changes in discount rates, investment returns and the market value of plan assets can substantially increase the Company’s future pension plan funding requirements.  A significant increase in the Company’s funding requirements could have a negative impact on the Company’s results of operations and profitability.  See Note V to the consolidated financial statements included in this Annual Report.



 
 
14

 
Crown Holdings, Inc.
 
 
 
The Company’s U.S. pension plan was underfunded on a termination basis by approximately $497 million as of December 31, 2009. While its U.S. pension plan continues in effect, the Company continues to incur additional pension obligations. The Company’s pension plan assets consist primarily of common stocks and fixed income securities and also include alternative investments such as interests in private equity or hedge funds. If the performance of investments in the plan does not meet the Company’s assumptions, the underfunding of the pension plan may increase, the Company may have to contribute additional funds to the pension plan, and its pension expense may increase. In addition, its retiree medical plans are unfunded.  

The Company’s U.S. pension plan is subject to the Employee Retirement Income Security Act of 1974, or ERISA. Under ERISA, the Pension Benefit Guaranty Corporation, or PBGC, has the authority to terminate an underfunded plan under certain circumstances. In the event its U.S. pension plan is terminated for any reason while the plan is underfunded, the Company will incur a liability to the PBGC that may be equal to the entire amount of the underfunding. In addition, as of December 31, 2009, the unfunded accumulated postretirement benefit obligation, as calculated in accordance with U.S. generally accepted accounting principles, for retiree medical benefits was approximately $511 million, based on assumptions set forth under Note V to the consolidated financial statements included in this Annual Report.
 
Acquisitions or investments that the Company may pursue could be unsuccessful, consume significant resources and require the incurrence of additional indebtedness.
 
The Company may pursue acquisitions of companies and investments that complement its existing businesses. These acquisitions and investments may involve significant cash expenditures, debt incurrence (including the incurrence of additional indebtedness under the Company’s current revolving credit facilities or other secured or unsecured debt), operating losses and expenses that could have a material effect on the Company’s financial condition and operating results.
 
In particular, if the Company incurs additional debt, the Company’s liquidity and financial stability could be impaired as a result of using a significant portion of available cash or borrowing capacity to finance an acquisition. Moreover, the Company may face an increase in interest expense or financial leverage if additional debt is incurred to finance an acquisition, which may, among other things, adversely affect the Company’s various financial ratios and the Company’s compliance with the conditions of its existing indebtedness. In addition, such additional indebtedness may be incurred under the Company’s existing senior secured credit facility or otherwise secured by liens on the Company’s assets.
 
Acquisitions involve numerous other risks, including:
 
 
 
diversion of management time and attention;
 
 
 
failures to identify material problems and liabilities of acquisition targets or to obtain sufficient indemnification rights to fully offset possible liabilities related to the acquired businesses;
 
 
 
difficulties integrating the operations, technologies and personnel of the acquired businesses;
 
 
 
inefficiencies and complexities that may arise due to unfamiliarity with new assets, businesses or markets;
 
 
 
disruptions to the Company’s ongoing business;
 
 
 
the inability to obtain required financing for the new acquisition or investment opportunities and the Company’s existing business;
 
 
 
potential loss of key employees, contractual relationships or customers of the acquired businesses or of the Company; and
 
 
 
inability to obtain required regulatory approvals.

  

 
 
15

 
Crown Holdings, Inc.
 
 

To the extent the Company pursues an acquisition that causes it to incur unexpected costs or that fails to generate expected returns, the Company’s financial position, results of operations and cash flows may be adversely affected, and the Company’s ability to service its indebtedness may be negatively impacted.
 
The Company’s principal markets may be subject to overcapacity and intense competition, which could reduce the Company’s net sales and net income.
 
Food and beverage cans are standardized products, allowing for relatively little differentiation among competitors. This could lead to overcapacity and price competition among food and beverage can producers, if capacity growth outpaced the growth in demand for food and beverage cans and overall manufacturing capacity exceeded demand.  These market conditions could reduce product prices and contribute to declining revenue and net income and increasing debt balances.  As a result of industry overcapacity and price competition, the Company may not be able to increase prices sufficiently to offset higher costs or to generate sufficient cash flow. The North American food and beverage can market, in particular, is considered to be a mature market, characterized by slow growth and a sophisticated distribution system.
 
Competitive pricing pressures, overcapacity, the failure to develop new product designs and technologies for products, as well as other factors could cause the Company to lose existing business or opportunities to generate new business and could result in decreased cash flow and net income.
 
The Company is subject to competition from substitute products, which could result in lower profits and reduced cash flows.
 
The Company is subject to substantial competition from producers of alternative packaging made from glass, cardboard, and plastic, particularly from producers of plastic food and beverage containers, whose market has grown over the past several years. The Company’s sales depend heavily on the volumes of sales by the Company’s customers in the food and beverage markets. Changes in preferences for products and packaging by consumers of prepackaged food and beverage cans can significantly influence the Company’s sales. Changes in packaging by the Company’s customers may require the Company to re-tool manufacturing operations, which could require material expenditures. In addition, a decrease in the costs of, or a further increase in consumer demand for, alternative packaging could result in lower profits and reduced cash flows for the Company.  For example, increases in the price of aluminum and steel and decreases in the price of plastic resin, which is a petrochemical product and may fluctuate with prices in the oil and gas market, may increase substitution of plastic food and beverage containers for metal containers or increases in the price of steel may increase substitution of aluminum packaging for aerosol products. Moreover, due to its high percentage of fixed costs, the Company may be unable to maintain its gross margin at past levels if it is not able to achieve high capacity utilization rates for its production equipment. In periods of low world-wide demand for its products, the Company experiences relatively low capacity utilization rates in its operations, which can lead to reduced margins during that period and can have an adverse effect on the Company’s business.
  
The loss of a major customer and/or customer consolidation could reduce the Company’s net sales and profitability.
 
Many of the Company’s largest customers have acquired companies with similar or complementary product lines.  This  consolidation  has  increased  the  concentration  of the  Company’s business with its largest customers. In many cases, such consolidation has been accompanied by pressure from customers for lower prices, reflecting the increase in the total volume of product purchased or the elimination of a price differential between the acquiring customer and the company acquired. Increased pricing pressures from the Company’s customers may reduce the Company’s net sales and net income. The majority of the Company’s sales are to companies that have leading market positions in the sale of packaged food, beverages and aerosol products to consumers. Although no one customer accounted for more than 10% of its net sales in 2009, 2008 or 2007, the loss of any of its major customers, a reduction in the purchasing levels of these customers or an adverse change in the terms of supply agreements with these customers could reduce the Company’s net sales and net income. A continued consolidation of the Company’s customers could exacerbate any such loss.
 
 
 
 
 
16

 
Crown Holdings, Inc.
 
 
 
The Company’s business is seasonal and weather conditions could reduce the Company’s net sales.
 
The Company manufactures packaging primarily for the food and beverage can market. Its sales can be affected by weather conditions. Due principally to the seasonal nature of the soft drink, brewing, iced tea and other beverage industries, in which demand is stronger during the summer months, sales of the Company’s products have varied and are expected to vary by quarter. Shipments in the U.S. and Europe are typically greater in the second and third quarters of the year. Unseasonably cool weather can reduce consumer demand for certain beverages packaged in its containers. In addition, poor weather conditions that reduce crop yields of packaged foods can decrease customer demand for its food containers.

The  Company is subject to costs and liabilities related to stringent environmental and health and safety standards.
 
Laws and regulations relating to environmental protection and health and safety may increase the Company’s costs of operating and reduce its profitability. The Company’s operations are subject to numerous U.S. federal and state and non-U.S. laws and regulations governing the protection of the environment, including those relating to treatment, storage and disposal of waste, discharges into water, emissions into the atmosphere, remediation of soil and groundwater contamination and protection of employee health and safety. Future regulations may impose stricter environmental requirements affecting the Company’s operations or may impose additional requirements regarding consumer health and safety, such as potential restrictions on the use of bisphenol-A, which is used in the lining of food and beverage cans.  Although the U.S. FDA currently permits the use of bisphenol-A in food packaging materials, the FDA recently stated that exposure to the chemical is of “some concern” for infants and children and more research was needed, and further suggested reasonable steps to reduce exposure to bisphenol-A. Moreover, certain U.S. states and municipalities, as well as certain non-U.S. nations, have either proposed or already passed legislation banning the use of bisphenol-A in certain products or requiring warnings regarding bisphenol-A. Further, the U.S. or additional international, federal, state or other regulatory authorities could prohibit the use of bisphenol-A in the future. In addition, recent public reports and allegations regarding the potential health hazards of bisphenol-A could contribute to a perceived safety risk about the Company’s products and adversely impact sales or otherwise disrupt the Company’s business.  While the Company is exploring various alternatives to the use of bisphenol-A, there can be no assurance the Company will be successful in its efforts or that the alternative will not be more costly to the Company.

Also, for example, future restrictions in some jurisdictions on air emissions of volatile organic compounds and the use of certain paint and lacquering ingredients may require the Company to employ additional control equipment or process modifications. The Company’s operations and properties, both in the U.S. and abroad, must comply with these laws and regulations. In addition, a number of governmental authorities in the U.S. and abroad have introduced or are contemplating enacting legal requirements, including emissions limitations, cap and trade systems or mandated changes in energy consumption, in response to the potential impacts of climate change.  Given the wide range of potential future climate change regulations in the jurisdictions in which the Company operates, the potential impact to the Company’s operations is uncertain. In addition, the potential impact of climate change on the Company’s operations is highly uncertain.  The impact of climate change may vary by geographic location and other circumstances, including weather patterns and any impact to natural resources such as water.
 
A number of governmental authorities both in the U.S. and abroad also have enacted, or are considering, legal requirements relating to product stewardship, including mandating recycling, the use of recycled materials and/or limitations on certain kinds of packaging materials such as plastics. In addition, some companies with packaging needs have responded to such developments, and/or to perceived environmental concerns of consumers, by using containers made in whole or in part of recycled materials. Such developments may reduce the demand for some of the Company’s products, and/or increase its costs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Position—Environmental Matters” in this Annual Report.
 

 
 
17

 
Crown Holdings, Inc.
 


The Company has written down a significant amount of goodwill, and a further write down of goodwill would result in lower reported net income and a reduction of its net worth.
 
During 2007, the Company recorded a charge of $103 million to write down the value of goodwill in its European metal vacuum closures business due to a decrease in projected operating results. Further impairment of the Company’s goodwill would require additional write down of goodwill, which would reduce the Company’s net income in the period of any such write down. At December 31, 2009, the carrying value of the Company’s goodwill was approximately $2.1 billion.  The Company is required to evaluate goodwill reflected on its balance sheet at least annually, or when circumstances indicate a potential impairment. If it determines that the goodwill is impaired, the Company would be required to write off a portion or all of the goodwill.
 
If the Company fails to retain key management and personnel the Company may be unable to implement its business plan.
 
Members of the Company’s senior management have extensive industry experience, and it would be difficult to find new personnel with comparable experience. Because the Company’s business is highly specialized, we believe that it would also be difficult to replace the Company’s key technical personnel. The Company believes that its future success depends, in large part, on its experienced senior management team. Losing the services of key members of its management team could limit the Company’s ability to implement its business plan.
 
A significant portion of the Company’s workforce is unionized and labor disruptions could increase the Company’s costs and prevent the Company from supplying its customers.
 
A significant portion of the Company’s workforce is unionized and a prolonged work stoppage or strike at any facility with unionized employees could increase its costs and prevent the Company from supplying its customers. In addition, upon the expiration of existing collective bargaining agreements, the Company may not reach new agreements without union action and any such new agreements may not be on terms satisfactory to the Company.  Moreover, additional groups of currently non-unionized employees may seek union representation in the future. If the Company is unable to negotiate acceptable collective bargaining agreements, the Company may become subject to union-initiated work stoppages, including strikes. Additionally, as was expected, the Employee Free Choice Act, which was passed in the U.S. House of Representatives in 2007, was reintroduced in the new Congress in 2009. If reintroduced and enacted in its most recent form, the Employee Free Choice Act could make it significantly easier for union organizing drives to be successful. The Employee Free Choice Act could also give third-party arbitrators the ability to impose terms, which may be harmful to the Company, of collective bargaining agreements upon the Company and a labor union if the Company and such union are unable to agree to the terms of an initial collective bargaining agreement and could increase the penalties the Company may incur if it engages in labor practices in violation of the National Labor Relations Act.
 
Failure by the Company's joint venture partners to observe their obligations could adversely affect the business and operations of the joint ventures and, in turn, the business and operations of the Company.

A portion of the Company’s operations, including certain beverage can operations in Asia, the Middle East and South America, is conducted through joint ventures. The Company participates in these ventures with third parties.  In the event that the Company’s joint venture partners do not observe their obligations, it is possible that the affected joint venture would not be able to operate in accordance with its business plans or that the Company would have to increase its level of commitment to the joint venture.  
 
If the Company fails to maintain an effective system of internal control, the Company may not be able to accurately report financial results or prevent fraud.
 
Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm the Company’s business. The Company must annually evaluate its internal procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management and auditors to assess the effectiveness of internal controls. If the Company fails to remedy or maintain the adequacy of its internal controls, as such standards are modified, supplemented or amended from time to time, the Company could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation.
 
 
 
 
 
18

 
Crown Holdings, Inc.
 
 
 
In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect the Company’s financial condition. There can be no assurance that the Company will be able to complete the work necessary to fully comply with the requirements of the Sarbanes-Oxley Act or that the Company’s management and external auditors will continue to conclude that the Company’s internal controls are effective.
 
The Company is subject to litigation risks which could negatively impact its operations and net income.
 
The Company is subject to various lawsuits and claims with respect to matters such as governmental, environmental and employee benefits laws and regulations, securities, labor, and actions arising out of the normal course of business, in addition to asbestos-related litigation described under the risk factor titled “Pending and future asbestos litigation and payments to settle asbestos-related claims could reduce the  Company’s cash flow and negatively impact its financial condition.”  The Company is currently unable to determine the total expense or possible loss, if any, that may ultimately be incurred in the resolution of such legal proceedings. Regardless of the ultimate outcome of such legal proceedings, they could result in significant diversion of time by the Company’s management. The results of the Company’s pending legal proceedings, including any potential settlements, are uncertain and the outcome of these disputes may decrease its cash available for operations and investment, restrict its operations or otherwise negatively impact its business, operating results, financial condition and cash flow.

The recent global credit and financial crisis could have adverse effects on the Company.

The recent global credit and financial crisis could have significant adverse effects on the Company’s operations, including as a result of any the following:
 
·  
downturns in the business or financial condition of any of the Company’s key customers or suppliers, potentially resulting in customers’ inability to pay the Company’s invoices as they become due or at all;
 
·  
potential losses associated with hedging activity by the Company for the benefit of the Company’s customers, or cost impacts of changing suppliers;
 
·  
a fall in the fair value of the Company’s pension assets, potentially requiring the Company to make significant additional contributions to its pension plans to meet prescribed funding levels;
 
·  
the deterioration of any of the lending parties under the Company’s revolving credit facility or the creditworthiness of the counterparties to the Company’s derivative transactions, which could result in such parties failure to satisfy their obligations under their arrangements with the Company;
 
·  
noncompliance with the covenants under the Company’s indebtedness as a result of a weakening of the Company’s financial position or results of operations; and
 
·  
the lack of currently available funding sources, which could have a negative impact upon the liquidity of the Company as well as that of its customers and suppliers.
 
 
The Company relies on its information technology and the failure or disruption of its information technology could disrupt its operations and adversely affect its results of operations.
 
The Company's business increasingly relies on the successful and uninterrupted functioning of its information technology systems to process, transmit, and store electronic information.  A significant portion of the communication between the Company's personnel, customers, and suppliers depends on information technology. As with all large systems, the Company’s information technology systems could fail on their own accord or may be vulnerable to a variety of interruptions due to events beyond the Company’s control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers or other security issues.
 
 
 
 
 
19

 
Crown Holdings, Inc.
 
 
The concentration of processes in shared services centers means that any disruption could impact a large portion of the Company’s business within the operating zones served by the affected service center. If the Company does not allocate, and effectively manage, the resources necessary to build and sustain the proper technology infrastructure, the Company could be subject to transaction errors, processing inefficiencies, loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. The Company’s information technology system could also be penetrated by outside parties intent on extracting information, corrupting information or disrupting business processes. Failure or disruption of these systems, or the back-up systems, for any reason could disrupt the Company’s operations and negatively impact the Company’s cash flows or financial condition.
 
Potential U.S. tax law changes could increase the Company’s U.S. tax expense on its overseas earnings which could have a negative impact on its after-tax income and cash flow.
 
President Obama’s Budget of the United States Government for 2011 indicates that legislative proposals will be made to reform the deferral of U.S. taxes on non-U.S. earnings, potentially significantly changing the timing and extent of taxation on the Company’s unrepatriated non-U.S earnings. These reforms will include, among other items, a proposal to further limit foreign tax credits and a proposal to defer interest expense deductions allocable to non-U.S earnings until earnings are repatriated. The proposal to defer interest expense deductions could result in the Company not being able to currently deduct a significant portion of its interest expense. The proposal to defer tax deductions allocable to unrepatriated non-U.S. earnings has been set out in various draft Congressional legislative proposals in recent years which were not enacted, and at this juncture it is unclear whether these proposed tax revisions will be enacted, or, if enacted, what the precise scope of the revisions will be. However, depending on their content, such proposals could have a material adverse effect on the Company’s after-tax income and cash flow.
 
Changes in accounting standards and taxation requirements could negatively affect the Company’s financial results.

New accounting standards or pronouncements that may become applicable to the Company from time to time, or changes in the interpretation of existing standards and pronouncements, could have a significant effect on the Company’s reported results for the affected periods. The Company is also subject to income tax in the numerous jurisdictions in which the Company operates. Increases in income tax rates or other changes to tax laws could reduce the Company’s after-tax income from affected jurisdictions or otherwise affect the Company’s tax liability.  In addition, the Company’s products are subject  to  import  and  excise duties and/or sales or value-added taxes in many jurisdictions in which it operates. Increases in indirect taxes could affect the Company’s products’ affordability and therefore reduce demand for its products.  Future changes in U.S. tax law regarding the taxation of unrepatriated non-U.S. earnings could have a negative impact on the Company’s after-tax income and cash flow.  In addition, public health officials and government officials have become increasingly concerned about the public health consequences associated with certain types of beverages, including those sold by certain of our significant customers. Possible new taxes or other governmental regulations specifically targeting the consumption of these beverages may reduce demand for the beverages of the Company’s customers, which could in turn affect demand of the Company’s customers for the Company’s products.
 
The Company’s senior secured credit facilities provide that certain change of control events constitute an event of default. In the event of a change of control, the Company may not be able to satisfy all of its obligations under the senior secured credit facilities, or other indebtedness.
 
The Company may not have sufficient assets or be able to obtain sufficient third party financing on favorable terms to satisfy all of its obligations under the Company’s senior secured credit facilities or other indebtedness in the event of a change of control. The Company’s senior secured credit facilities provide that certain change of control events constitute an event of default under such senior secured credit facilities. Such an event of default entitles the lenders thereunder to, among other things, cause all outstanding debt obligations under the senior secured credit facilities to become due and payable and to proceed against the collateral securing such senior secured credit facilities. Any event of default or acceleration of the senior secured credit facilities will likely also cause a default under the terms of other indebtedness of the Company.
 
 
 
20

 
Crown Holdings, Inc.
 
 

The loss of the Company’s intellectual property rights may negatively impact its ability to compete.

If the Company is unable to maintain the proprietary nature of its technologies, its competitors may use the Company’s technologies to compete with it.  The Company has a number of patents covering various aspects of its products, including its SuperEnd® beverage can end, whose primary patent expires in 2016, Easylift™ full aperture steel food can ends, PeelSeam™ flexible lidding and Ideal™ product line. The Company’s patents may not withstand challenge in litigation, and patents do not ensure that competitors will not develop competing products or infringe upon the Company’s patents.  Moreover, the costs of litigation to defend the Company’s patents  could be substantial and may outweigh the benefits of enforcing its rights under its patents. The Company markets its products internationally and the patent laws of foreign countries may offer less protection than the patent laws of the United States. Not all of the Company’s domestic patents have been registered in other countries.   The Company also relies on trade secrets, know-how and other unpatented proprietary technology, and others may independently develop the same or similar technology or otherwise obtain access to the Company’s unpatented technology.  In addition, the Company has from time to time received letters from third parties suggesting that it may be infringing on their intellectual property rights, and third parties may bring infringement suits against the Company, which could result in the Company needing to seek licenses from these third parties or refraining altogether from use of the claimed technology.
 
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS

There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of the Company’s fiscal year relating to its periodic or current reports under the Securities Exchange Act of 1934.
 

ITEM 2.   PROPERTIES

As of December 31, 2009, the Company operated 136 manufacturing facilities of which 28 were leased. The Company has three divisions, defined geographically, within which it manufactures and markets its products. The Americas Division has 49 operating facilities of which 12 are leased. Within the Americas Division, 33 facilities operate in the United States of which 8 are leased. The European Division has 73 operating facilities of which 13 are leased and the Asia-Pacific Division has 14 operating facilities of which 3 are leased. Some leases provide renewal options as well as various purchase options.  The principal manufacturing facilities at December 31, 2009 are listed below and are grouped by product and by division.

Excluded from the list below are operating facilities in unconsolidated subsidiaries as well as service or support facilities.  The service or support facilities include machine shop operations, plant operations dedicated to printing for cans and closures, coil shearing, coil coating and RD&E operations.  Some operating facilities produce more than one product but have been presented below under the product with the largest contribution to sales.

 
 
 
 
21

 
Crown Holdings, Inc.
 

 
 
 
Americas
 
Europe
 
Asia-Pacific
Beverage
Lawrence, MA
La Crosse, WI
 
Custines, France
Agoncillo, Spain
 
Phnom Penh, Cambodia
and
Kankakee, IL
Worland, WY
 
Korinthos, Greece
Sevilla, Spain
 
Beijing, China
Closures
Crawfordsville, IN
Cabreuva, Brazil
 
Patras, Greece
El Agba, Tunisia
 
Foshan, China
    
Mankato, MN
Estancia, Brazil
 
Amman, Jordan
Izmit, Turkey
 
Huizhou, China
    
Batesville, MS
Manaus, Brazil
 
Dammam, Saudi Arabia
Dubai, UAE
 
Shanghai, China
 
Dayton, OH
Calgary, Canada
 
Jeddah, Saudi Arabia
Botcherby, UK
 
Selangor, Malaysia
 
Cheraw, SC
Weston, Canada
 
Kosice, Slovakia
Braunstone, UK   
Singapore
 
Conroe, TX
Santafe de Bogota,  Colombia
       
Bangkadi, Thailand
 
Fort Bend, TX
Guadalajara, Mexico
       
Dong Nai, Vietnam
 
Winchester, VA
Carolina, Puerto Rico
       
Hanoi, Vietnam
  Olympia, WA           Ho Chi Minh City, Vietnam 
 
 
           
Food
Winter Garden, FL
Suffolk, VA
 
Brive, France
Abidjan, Ivory Coast
 
Bangpoo, Thailand
and
Pulaski Park, MD
Seattle, WA
 
Carpentras, France
Toamasina, Madagascar
 
Haadyai, Thailand
Closures
Owatonna, MN
Oshkosh, WI
 
Concarneau, France  
Agadir, Morocco
 
Samrong, Thailand
 
Omaha, NE
Chatham, Canada
 
Laon, France
Casablanca, Morocco
   
 
Lancaster, OH
Concord, Canada
 
Nantes, France
Goleniow, Poland
   
 
Massillon, OH
Kingston, Jamaica
 
Outreau, France
Pruszcz, Poland
   
 
Mill Park, OH
La Villa, Mexico
 
Perigueux, France
Alcochete, Portugal
   
 
Portland, OR
Barbados, West Indies
 
Lubeck, Germany
Timashevsk, Russia
   
 
Connellsville, PA
Trinidad, West Indies
 
Mühldorf, Germany
Dakar, Senegal
   
 
Hanover, PA
 
 
Seesen, Germany (2)
Dunajska, Slovakia
   
 
 
 
 
Tema, Ghana
Bellville, South Africa
   
       
Thessaloniki, Greece
Agoncillo, Spain
   
       
Nagykoros, Hungary
Molina de Segura, Spain
   
       
Athy, Ireland
Sevilla, Spain
   
       
Aprilia, Italy (2)
Vigo, Spain
   
       
Battipaglia, Italy
Neath, UK
   
       
Calerno S. Ilario d’Enza, Italy
Poole, UK
   
       
Nocera Superiore, Italy
Wisbech, UK
   
       
Parma, Italy
Worcester, UK    
               
Aerosol
Alsip, IL
Faribault, MN
 
Deurne, Belgium
Mijdrecht, Netherlands
   
 
Decatur, IL
Spartenburg, SC
 
Spilamberto, Italy
Sutton, UK
   
               
Specialty
Belcamp, MD
   
Hoboken, Belgium
Hoorn, Netherlands
   
Packaging
St. Laurent, Canada
   
Helsinki, Finland
Miravalles, Spain
   
       
Chatillon-sur-Seine, France
Montmelo, Spain
   
       
Rouen, France
Aesch, Switzerland
   
       
Vourles, France
Aintree, UK
   
       
Hilden, Germany
Carlisle, UK
   
       
Chignolo Po, Italy
Newcastle, UK
   
               
Plastic
Packaging
Manaus, Brazil
Venancio Aires, Brazil          
 
           
Canmaking
Norwalk, CT
   
Shipley, UK
     
  and Spares
             
 

 
The Company’s manufacturing and support facilities are designed according to the requirements of the products to be manufactured. Therefore, the type of construction varies from plant to plant. Warehouse and delivery facilities are generally provided at each of the manufacturing locations, although the Company does lease outside warehouses.

Ongoing productivity improvements and cost reduction efforts in recent years have focused on upgrading and modernizing facilities to reduce costs, improve efficiency and productivity and phase out uncompetitive facilities.  The Company has also opened new facilties to meet increases in market demand for its products.  These actions reflect the Company's continued commitment to realign manufacturing facilties to maintain its competitive position in its markets. The Company continually reviews its operations and evaluates strategic opportunities. Further discussion of the Company’s recent restructuring actions and divestitures is contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the captions “Provision for Restructuring,” and “Asset Impairments and Sales,” and under Note M and Note N to the consolidated financial statements.
 

 
 
22

 
Crown Holdings, Inc.

 
Utilization of any particular facility varies based upon demand for the product. While it is not possible to measure with any degree of certainty or uniformity the productive capacity of these facilities, management believes that, if necessary, production can be increased at several existing facilities through the addition of personnel, capital equipment and, in some facilities, square footage available for production. In addition, the Company may from time to time acquire additional facilities and/or dispose of existing facilities.
 
The Company’s Americas and Corporate headquarters are in Philadelphia, Pennsylvania, its European headquarters is in Paris, France and its Asia-Pacific headquarters is in Singapore. The Company maintains research facilities in Alsip, Illinois and in Wantage, England.  The Company’s North American and European facilities, with certain exceptions, are subject to liens in favor of the lenders under its senior secured credit facility and under the Company’s first priority senior secured notes.
 

ITEM 3.  LEGAL PROCEEDINGS
 
Crown Cork & Seal Company, Inc., a wholly-owned subsidiary of the Company (“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.  At December 31, 2009, the accrual for pending and future asbestos claims that are probable and estimable was $230 million.
 
The Company has been identified by the Environmental Protection Agency as a potentially responsible party (along with others, in most cases) at a number of sites.
 
Further information on these matters and other legal proceedings is presented within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the captions “Provision for Asbestos” and “Environmental Matters” and under Note K and Note L to the consolidated financial statements.
 
ITEM 4.
 
Reserved.
 
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
Information concerning the principal executive officers of the Company, including their ages and positions, is set forth in “Directors, Executive Officers and Corporate Governance” of this Annual Report.
 
 
 
 
23

 
Crown Holdings, Inc.
 
 
PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Registrant’s common stock is listed on the New York Stock Exchange. On February 22, 2010, there were 5,240 registered shareholders of the Registrant’s common stock, including 1,522 participants in the Company’s Employee Stock Purchase Plan. The market price of the Registrant’s common stock at December 31, 2009 is set forth in Part II of this Annual Report under Quarterly Data (unaudited). The foregoing information regarding the number of registered shareholders of common stock does not include persons holding stock through clearinghouse systems.  Details regarding the Company’s policy as to payment of cash dividends and repurchase of shares are set forth within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Common Stock and Other Equity” and under Note O to the consolidated financial statements.  Information with respect to shares of common stock that may be issued under the Company’s equity compensation plans is set forth in “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report.
 
Issuer Purchases of Equity Securities
 
The Company made no purchases of its equity securities as part of publicly announced programs during the year ended December 31, 2009.

On February 28, 2008, the Company’s Board of Directors authorized the repurchase of up to $500 million of the Company’s outstanding common stock from time to time through December 31, 2010, in the open market or through privately negotiated transactions, subject to the terms of the Company’s debt agreements, market conditions, the Company’s ability to generate operating cash flow, alternative uses of operating cash flow (including the reduction of indebtedness), and other factors.  This authorization replaces and supersedes all previous outstanding authorizations to repurchase shares.  The Company is not obligated to acquire any shares of common stock and the share repurchase plan may be suspended or terminated at any time at the Company’s discretion.  The repurchased shares are expected to be used for the Company’s stock-based benefit plans, as required, and for other general corporate purposes.  As of December 31, 2009, $467 million of the Company's outstanding common stock may yet be repurchased under this program.



 
24

Crown Holdings, Inc.
 
 
 
 
COMPARATIVE STOCK PERFORMANCE
Comparison of Five-Year Cumulative Total Return (a)
Crown Holdings, Inc., S&P 500 Index, Dow Jones “U.S. Containers & Packaging” Index (b)
 
 
 
 
 
(a)
Assumes that the value of the investment in Crown Holdings, Inc. common stock and each index was $100 on December 31, 2004 and that all dividends were reinvested.
   
(b)
Industry index is weighted by market capitalization and is comprised of Crown Holdings, Inc., AptarGroup, Ball, Bemis, Greif, MeadWestvaco, Owens-Illinois, Packaging Corp. of America, Pactiv, RockTenn, Sealed Air, Silgan, Sonoco and Temple-Inland.
 


 
25

Crown Holdings, Inc.
 
 
 
SELECTED FINANCIAL DATA
 
 
(in millions, except per share, ratios and other statistics)
2009
   
2008
   
2007
   
2006
   
2005
 
Summary of Operations (1)
                           
Net sales 
$ 7,938      $ 8,305      $ 7,727      $ 6,982      $ 6,675   
Cost of products sold, excluding depreciation and amortization
  6,551        6,885        6,468        5,867        5,527   
Depreciation and amortization 
  194        216        229        227        237   
Selling and administrative expense
  381        396        385        316        339   
Provision for asbestos
  55        25        29        10        10   
Provision for restructuring 
  43        21        20        15        13   
Asset impairments and sales
 
(6)
            100        (64)       (18)  
Loss from early extinguishments of debt
  26                              383   
Interest expense, net of interest income
  241        291        304        274        352   
Translation and exchange adjustments
  (6)       21        (9)             94   
   Income/(loss) from continuing operations before income taxes
     and equity earnings
  459          442          201        335          (262)  
Provision for/(benefit from) income taxes
        112        (400)       (62)       11   
Equity earnings/(loss)    (2)                               12   
Net income/(loss) from continuing operations
  450        330        601        397        (261)  
Net income attributable to noncontrolling interests    (116)       (104)       (73)       (55)       (51)  
Net income/(loss) from continuing operations attributable
    to Crown Holdings 
$ 334      $ 226      $ 528      $ 342      $ (312)  
                                       
Financial Position at December 31  
                                     
Working capital/(deficit)
$ 317      $ 385      $ 151      $ 157      $ (47)  
Total assets   6,532        6,774        6,979        6,409        6,596   
Total cash and cash equivalents
  459        596        457        407        294   
Total debt
  2,798        3,337        3,437        3,541        3,403   
                                       
Total debt, less cash and cash equivalents, to total capitalization (2)
85.9 
%
    98.7  %     89.8  %     107.4  %     98.1  %
Total equity/(deficit)
  383        36        338        (215)       61   
                                       
Common Share Data (dollars per share)
                                     
Earnings/(loss) from continuing operations:
                                     
Basic
$ 2.10      $ 1.42      $ 3.27      $ 2.07      $ (1.88)  
Diluted
  2.06        1.39        3.19        2.01        (1.88)  
                                       
Market price on December 31
  25.58        19.20        25.65        20.92        19.53   
Book value based on year-end outstanding shares
  (0.04)       (1.99)       0.09        (3.04)       (1.11)  
                                       
Number of shares outstanding at year-end
  161.5        159.2        159.8        162.7         166.7   
Average shares outstanding
                                     
Basic 
  159.1        159.6           161.3        165.5        165.9   
Diluted 
  161.9        162.9        165.5        169.8        165.9   
                                       
Other
                                     
Capital expenditures 
$ 180      $ 174      $ 156      $ 191      $ 192   
Number of  employees 
  20,510        21,268        21,819        21,749        24,055   
                                       
 
 

 
26

Crown Holdings, Inc.

 
SELECTED FINANCIAL DATA (Continued)
 
Notes:
 
(1)    The summary of operations data excludes businesses that were divested in 2005 and 2006, and reflects a change in method of accounting for U.S. inventories in 2007.
 
The Company began consolidating its Middle East beverage can operations as of September 1, 2005.  The summary of operations data, therefore, includes a full year of consolidated results for these operations in 2009, 2008, 2007, 2006 and a partial year for 2005.
 
(2)    Total capitalization consists of total debt and total equity/(deficit), less cash and cash equivalents.
 
 

 
27

Crown Holdings, Inc.


 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
(in millions, except per share, employee, shareholder and statistical data; per share earnings are quoted as diluted)
 
 
INTRODUCTION
 
This discussion summarizes the significant factors affecting the results of operations and financial condition of Crown Holdings, Inc. (the “Company”) as of and during the three-year period ended December 31, 2009.  This discussion should be read in conjunction with the consolidated financial statements included in this Annual Report.



The Company’s principal areas of focus include improving segment income and cash flow from operations, and reducing debt.  Segment income is defined by the Company as gross profit less selling and administrative expenses. See Note X to the consolidated financial statements for a reconciliation of segment income from reportable segments to income before income taxes and equity earnings.

Improving segment income is primarily dependent on the Company’s ability to increase revenues and manage costs. Key strategies for expanding sales include targeting geographic markets with strong growth potential, such as Asia, Eastern Europe, the Middle East and South America, improving selling prices in certain product lines and developing innovative packaging products using proprietary technology.  The Company’s cost control efforts focus on improving operating efficiencies and managing material and labor costs, including pension and other benefit costs.
 
The reduction of debt remains a principal strategic goal of the Company and is primarily dependent upon the Company’s ability to generate cash flow from operations. In addition, the Company may consider divestitures from time to time, the proceeds of which may be used to reduce debt. The Company’s total debt decreased by $539 to $2,798 at December 31, 2009 from $3,337 at December 31, 2008, net of $42 of increase due to the currency translation effect of debt denominated in foreign currencies.  Cash balances decreased by $137 to $459 at December 31, 2009 from $596 at December 31, 2008.  The decrease of $137 was net of $8 of increase due to currency translation.
 
The Company considers possible transactions such as acquisitions (which, if effected, may increase the Company’s indebtedness and/or involve the issuance of Company securities), dispositions, refinancings or the repurchase of Company common stock pursuant to Board approved repurchase authorizations (under which $467 was available at December 31, 2009).  Such transactions would be subject to compliance with the Company’s debt agreements.
 
The cost of aluminum and steel, the primary raw materials used to manufacture the Company’s products, has fluctuated significantly in recent years.  The Company attempts to pass-through these changing costs to its customers through provisions that adjust the selling prices to certain customers based on changes in the market price of the applicable raw material, or through surcharges where no such provision exists.  However, there can be no assurance that the Company will be able to fully recover from its customers the impact of any increased aluminum and steel costs.

 

The foreign currency translation impacts referred to below are primarily due to changes in the euro and pound sterling in the European Division operating segments and the Canadian dollar in the Americas Division operating segments.

NET SALES
 
Net sales during 2009 were $7,938, a decrease of $367 or 4.4% versus 2008 net sales of $8,305. The decrease in net sales during 2009 included $407 due to the unfavorable impact of foreign currency translation.  Global beverage can sales unit volumes were similar to 2008 levels, but food can, aerosol can and closure volumes decreased due to lower customer demand.
 


 
28

Crown Holdings, Inc.

 

Net sales from U.S. operations accounted for 28.0% of consolidated net sales in 2009, 26.3% in 2008 and 27.2% in 2007. Sales of beverage cans and ends accounted for 47.6% of net sales in 2009 compared to 47.4% in 2008 and 46.5% of net sales in 2007.  Sales of food cans and ends accounted for 34.0% of net sales in 2009, 33.8% in 2008 and 33.5% in 2007.

Net sales in the Americas Beverage segment decreased $119 or 6.1% from $1,938 in 2008 to $1,819 in 2009, primarily due to the pass-through of lower aluminum costs to customers in the form of lower selling prices, and $44 of foreign currency translation.  Net sales during 2008 increased $131 or 7.2% from $1,807 in 2007, primarily due to the pass-through of higher aluminum costs to customers.  
 
Net sales in the North America Food segment increased $101 or 11.2% from $905 in 2008 to $1,006 in 2009, and net sales during 2008 increased $32 or 3.7% from $873 in 2007.  The increase in 2009 was primarily due to the pass-through of increased steel costs to customers in the form of higher selling prices, partially offset by a decrease in sales unit volumes and foreign currency translation of $13.  The increase in 2008 was primarily due to the pass-through of higher material costs to customers.
 
Net sales in the European Beverage segment decreased $40 or 2.5% from $1,607 in 2008 to $1,567 in 2009, primarily due to $103 of foreign currency translation, partially offset by the pass-through of net higher material costs to customers.  Net sales in 2008 increased $171 or 11.9% from $1,436 in 2007, primarily due to an increase of 8% in sales unit volumes, the pass-through of higher material costs to customers, and $19 of foreign currency translation.  
 
Net sales in the European Food segment decreased $220 or 10.1% from $2,188 in 2008 to $1,968 in 2009, primarily due to $158 of foreign currency translation and a decrease in sales unit volumes, partially offset by the pass-through of increased steel costs to customers.  Net sales in 2008 increased $197 or 9.9% from $1,991 in 2007, primarily due to $115 from the favorable impact of foreign currency translation, and increased sales unit volumes primarily due to improved weather conditions and the resulting improved harvest compared to the prior year.
 
Net sales in the European Specialty Packaging segment decreased $41 or 9.2% from $445 in 2008 to $404 in 2009, primarily due to a decrease in sales unit volumes and $31 of foreign currency translation, partially offset by an increase of $44 from the pass-through of higher steel costs to customers.  Net sales in 2008 decreased $15 or 3.3% from $460 in 2007, primarily due to lower sales unit volumes.
 
 
COST OF PRODUCTS SOLD (EXCLUDING DEPRECIATION AND AMORTIZATION)

Cost of products sold, excluding depreciation and amortization, was $6,551 in 2009, a decrease of 4.9% from $6,885 in 2008.  The decrease in 2009 was primarily due to the impact of currency translation of $340, partially offset by higher steel costs and increased pension expense.  Cost of products sold, excluding depreciation and amortization, of $6,885 in 2008 increased 6.4% from $6,468 in 2007. The increase in 2008 was primarily due to the impact of foreign currency translation of $151 and higher material costs.  As a percentage of net sales, cost of products sold, excluding depreciation and amortization, was 82.5% in 2009, compared to 82.9% in 2008 and 83.7% in 2007.  

As a result of steel and aluminum price increases, the Company has implemented price increases to many of its customers.  However, there can be no assurance that the Company will be able to fully recover from its customers the impact of price increases.  In addition, if the Company is unable to purchase steel or aluminum for a significant period of time, its operations would be disrupted.
 
 
DEPRECIATION AND AMORTIZATION

Depreciation and amortization during 2009 was $194, a decrease of $22 from $216 in 2008, after a decrease of $13 from expense of $229 in 2007.  The decrease in 2009 was primarily due to lower capital spending in recent years and $10 of foreign currency translation. The decrease in 2008 was primarily due to lower capital spending, partially offset by $4 of increase due to foreign currency translation.
 
 

 
29

Crown Holdings, Inc.

 
 
SELLING AND ADMINISTRATIVE EXPENSE
 
Selling and administrative expense for 2009 was $381, a decrease of $15 from 2008 expense of $396, following an increase of $11 from $385 in 2007.  The decrease in 2009 was primarily due to foreign currency translation of $21, partially offset by increased incentive compensation costs.  The increase in 2008 was primarily due to increased compensation costs and $6 of foreign currency translation.  
 
 
 
As discussed under Note X to the consolidated financial statements, the Company defines segment income as gross profit less selling and administrative expenses.  Pension expense included in segment income increased from $13 in 2008 to $130 in 2009, with the majority of the increase in the Company’s Corporate division for its U.S. and U.K. plans.

Segment income in the Americas Beverage segment increased $5 or 2.5% from $202 in 2008 to $207 in 2009, primarily due to cost reductions offset by $4 of unfavorable foreign currency translation. Segment income in 2008 increased $10 or 5.2% from $192 in 2007,  primarily due to cost reductions, including plant operating efficiencies.
 
Segment income in the North America Food segment increased $52 or 59.1% from $88 in 2008 to $140 in 2009, primarily due to inventory holding gains from the sale of lower cost inventory on hand at the end of 2008, and cost reductions of $26.  Segment income in 2008 increased $10 or 12.8% from $78 in 2007,  primarily due to cost reductions.
 
Segment income in the European Beverage segment increased $20 or 8.3% from $242 in 2008 to $262 in 2009, primarily due to $22 of cost reductions and $10 of other improvements, partially offset by a decrease of $12 from foreign currency translation.  Segment income in 2008 increased $57 or 30.8% from $185 in 2007 primarily due to increased sales unit volumes.    
 
Segment income in the European Food segment increased $7 or 3.0% from $231 in 2008 to $238 in 2009, primarily due to inventory holding gains, partially offset by lower sales unit volumes and foreign currency translation of $14.  Segment income in 2008 increased $59 or 34.3% from $172 in 2007, primarily due to increased sales unit volumes and $16 of foreign currency translation.
 
Segment income in the European Specialty Packaging segment was $18 in both 2009 and 2008 as inventory holding gains were offset by lower sales unit volumes.  Segment income in 2008 increased $4 or 28.6% from $14 in 2007, primarily due to plant operating efficiencies and cost reductions.
 
 
 
Crown Cork & Seal Company, Inc. 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. During 2009, 2008 and 2007 the Company recorded charges of $55, $25 and $29, respectively, to increase its accrual for asbestos-related costs. See Note K to the consolidated financial statements for additional information regarding the provision for asbestos-related costs. 
 
 
 
During 2009, the Company provided a pre-tax charge of $43 for restructuring costs, including $20 related to the closure of two food can plants and an aerosol plant in Canada, $19 for severance costs to reduce headcount in the Company’s European division and $4 for costs related to a prior restructuring action in Canada.  The charges of $24 in Canada included $11 for pension and postretirement benefit plan curtailment charges and settlements, $6 for severance costs, $4 for other exit costs and $3 for asset writedowns.  Also related to the Canadian plants, the Company expects to incur future additional charges of approximately $16 for pension settlements in 2010 or 2011 when the Company receives regulatory approval to settle these obligations, and $5 for plant maintenance and strip and clean costs related to the closed plants.  The total cash cost for these restructuring actions is expected to be approximately $30, including $25 for severance costs and $5 for pension plan settlements.  These actions are expected to save $25 annually when fully implemented.
 
 

 
30

Crown Holdings, Inc.
 
 
 
During 2008, the Company provided a pre-tax charge of $21 for restructuring costs, including $13 to close a food can plant and a beverage can and crown plant in Canada.  The charge of $13 included $4 to write down the value of property and equipment, $6 for pension plan curtailment charges, and $3 for severance costs.  An additional charge of approximately $17 related to pension plan settlement costs is expected to be recorded in 2010 or 2011 when the Company receives regulatory approval to settle these obligations.  In addition to the charge of $13 for the Canadian plants, the Company also provided pre-tax charges of $6 to reduce headcount and $2 for other exit costs, primarily in the European Food segment.  

During 2007, the Company provided a pre-tax charge of $20 for restructuring costs, including $7 for severance and other exit costs in the European Food segment, $6 for the reclassification of cumulative translation adjustments to earnings from the closure of its operations in Indonesia, $3 of corporate costs for the settlement of a labor dispute related to prior restructurings, and $4 for other severance and exit costs.
 
See Note M to the consolidated financial statements for additional information on these charges.
 
 

During 2009, the Company recorded net pre-tax gains of $6 for asset impairments and sales including a gain of $8 from the sale of surplus land in a European food can business, partially offset by $2 of other net losses from asset sales and impairment charges.

During 2008, the Company recorded net pre-tax charges of $6 for asset impairments and sales including an asset impairment charge of $5 to write off its investment in an available for sale security due to a declining share price and eventual Chapter 11 reorganization petition filed by the investee.  
 
During 2007, the Company recorded net pre-tax charges of $100 for asset impairments and sales including a non-cash goodwill impairment charge of $103 in the European metal vacuum closures business, partially offset by $3 of other net gains from asset sales and impairment charges.
 
 

During 2009, the Company recorded a net loss from early extinguishments of debt of $26, for premiums paid and the write off of deferred financing fees, in connection with the following transactions:

·  
The Company purchased through a tender offer and privately negotiated transactions €300 of the €460 6.25% senior secured notes of Crown European Holdings SA due 2011.  In addition to the principal of €300, the purchase price also included €13 for fees and redemption premiums ranging from 4.25% to 4.58% of the principal amount.  The repurchased notes were cancelled.
 
·  
In September 2009, the Company made an irrevocable deposit of $212 with a trustee to satisfy and discharge all of the outstanding indebtedness with respect to the 8.0% debentures of Crown Cork & Seal Company, Inc. due 2023.  The payment of $212 included $200 for the principal amount of the debentures, $9 for accrued and unpaid interest to the redemption date of October 30, 2009, and $3 for a redemption premium of 1.525% of the principal amount redeemed.
 
·  
In December 2009, the Company redeemed $300 principal amount of its U.S. dollar 7.625% senior notes due 2013 and paid a redemption premium of $11.
 
·  
In December 2009, the Company repurchased $86 principal amount of its 7.50% debentures due 2096 at a discount of $21 to the principal amount.
 
During 2008, the Company redeemed the remaining $12 of its U.S. dollar 9.50% and 10.875% senior notes due 2011 and 2013 and the remaining €18 of its euro 10.25% senior notes due 2011, and recorded a charge of $2 for premiums paid and the write off of deferred financing fees.


 
31

Crown Holdings, Inc.
 
 
 
INTEREST EXPENSE

Interest expense of $247 in 2009 decreased $55 from interest expense of $302 in 2008 due to $43 from lower interest rates, $8 from foreign currency translation and $4 due to lower average debt outstanding.

Interest expense of $302 in 2008 decreased $16 from 2007 interest expense of $318 due to $14 from lower average short-term borrowing rates and $6 from lower average debt outstanding, partially offset by an increase of $4 due to foreign currency translation.
 
 
TRANSLATION AND EXCHANGE ADJUSTMENTS

During 2009, 2008 and 2007, the Company recorded pre-tax foreign exchange gains/(losses) of $6, $(21) and $9, respectively, primarily for certain subsidiaries that had unhedged currency exposure arising from intercompany debt obligations and for other subsidiaries whose functional currency is not their local currency.  The gains and losses are included in translation and exchange adjustments in the Consolidated Statements of Operations.
 
 
TAXES ON INCOME

Taxes on income for 2009, 2008 and 2007 were provisions of $7 and $112 and benefits of $400, respectively, against pre-tax income of $459 in 2009, $442 in 2008 and $201 in 2007.  

The primary items causing the 2009 effective rate to differ from the 35.0% U.S. statutory rate were benefits of $122 for valuation allowance adjustments and $56 due to foreign income taxed at lower rates.
 
The primary item causing the 2008 effective rate to differ from the 35.0% U.S. statutory rate was a benefit of $59 due to foreign income taxed at lower rates.
 
The primary items causing the 2007 effective rate to differ from the 35.0% U.S. statutory rate were benefits of $485 for valuation allowance adjustments and $35 due to foreign income taxed at lower rates, and a cost of $36 for the effect of a non-deductible goodwill impairment charge.
 
See Note W to the consolidated financial statements for additional information regarding income taxes.  Also see the Critical Accounting Policies section of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the Company’s valuation allowances.
 
 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Net income attributable to noncontrolling interests was $116, $104 and $73 in 2009, 2008 and 2007, respectively.  The increases in 2009 and 2008 were due to higher profits in the Company’s joint venture beverage can operations in Asia, the Middle East and South America.  
 
 

 
STATEMENTS OF CASH FLOWS

Cash and cash equivalents were $459 at December 31, 2009 compared to $596 and $457 at December 31, 2008 and 2007, respectively. Cash provided by operating activities was $756 in 2009 compared to $422 in 2008 and $509 in 2007.  The increase in cash from operations in 2009 compared to 2008 included an improvement in receivables of $152, partially due to the collection in 2009 of receivables from increased sales activity at the end of 2008; a reduction of $42 in interest payments due to lower average rates and debt outstanding; and an improvement in operating results.  The results of operations included an increase in pension expense from $13 in 2008 to $130 in 2009, while cash contributions to the Company’s pension plans only increased from $71 to $74.
 
The decrease in cash from operations in 2008 compared to 2007 included $46 of increased incentive compensation payments in 2008 due to higher accruals at the end of 2007 compared to 2006, $31 of decreased receivables securitization in 2008, and $147 of increased accounts receivable, primarily due to increased fourth quarter sales in 2008.  These decreases were partially offset by improved operating results.

 
 
 
32

Crown Holdings, Inc.
 
 

Payments for asbestos were $26 in 2009, $25 in 2008 and $26 in 2007, and the Company expects to pay approximately $25 in 2010. The Company contributed $74 to its pension plans in 2009 and expects to contribute approximately $75 in 2010.
 
Cash used for investing activities in 2009 was $200 and included $180 of capital expenditures. Other investing activities included $22 to purchase a business in Vietnam as discussed in Note T to the consolidated financial statements.
 
Cash used for investing activities in 2008 was $186 and included $174 of capital expenditures. Other investing activities included $13 to purchase a portion of the outstanding shares from noncontrolling shareholders in the Company’s operations in Greece, increasing the Company’s ownership to 80.5%.
 
Cash used for investing activities in 2007 was $94 and included $156 of capital expenditures offset by $66 of proceeds from sales of property, plant and equipment.  The proceeds of $66 in 2007 included $16 from the sale of a property in Spain, and $39 from the collection of a note from the 2006 sale of a separate property in Spain.
 
Cash used for financing activities in 2009 increased from $77 in 2008 to $701 in 2009.  Repayments of debt, net of borrowings, increased from $52 in 2008 to $562 in 2009 due to increased cash from operating activities and the Company’s decision to pay certain debt obligations prior to their maturity.  Other financing activities of $(71) in 2009 include payments of $63 to settle foreign currency derivatives used to hedge intercompany debt obligations, and $8 for bond issue costs.
 
Cash used for financing activities in 2008 decreased from $396 in 2007 to $77 in 2008.  Repayments of debt, net of borrowings, decreased from $224 in 2007 to $52 in 2008 and common share repurchases decreased from $118 to $35.  These decreases were primarily due to lower net cash provided by operating and investing activities and the Company’s decision to maintain a higher cash balance and limit prepayment of its debt obligations and repurchases of additional common shares in 2008.  Other financing activities of $65 in 2008 and $(30) in 2007 represent payments received or made related to the settlement of foreign currency derivative contracts used to hedge intercompany debt obligations.  
 
Cash from financing activities included dividends paid to noncontrolling interests of $87, $65 and $38 in 2009, 2008 and 2007, respectively.  These dividends were paid to the Company’s joint venture partners or other shareholders primarily in the Company’s consolidated non-wholly owned subsidiaries in Asia, the Middle East and South America.

 

The Company is highly leveraged. The ratio of total debt, less cash and cash equivalents, to total capitalization was 85.9%, 98.7% and 89.8% at December 31, 2009, 2008 and 2007, respectively. Total capitalization is defined by the Company as total debt plus total equity, less cash and cash equivalents.

The Company funds its operations, debt service and other obligations primarily with cash flow from operations (including the accelerated receipt of cash under its receivables securitization and factoring facilities) and borrowings under its revolving credit facility. The Company may also consider divestitures from time to time, the proceeds of which may be used to reduce debt. The Company had $113 of outstanding borrowings under its $758 revolving credit facility at December 31, 2009 and had $232 of securitized receivables.  The Company also had $71 of outstanding letters of credit under its revolving credit facility as of December 31, 2009, which reduced the amount of borrowings otherwise available under the facility to $574.
 
The Company’s debt agreements contain covenants that provide limits on the ability of the Company and its subsidiaries to, among other things, incur additional debt, pay dividends or repurchase capital stock, make certain other restricted payments, create liens, and engage in sale and leaseback transactions.  These restrictions are subject to a number of exceptions, however, allowing the Company to incur additional debt or make otherwise restricted payments.
 

 
33

Crown Holdings, Inc.
 
 

The Company’s revolving credit facility and first priority term loans also contain various financial covenants. The interest coverage ratio is calculated as earnings before interest, taxes, depreciation and amortization (EBITDA) divided by interest expense.  EBITDA is defined in the credit agreement as the sum of net income attributable to Crown Holdings, net income attributable to noncontrolling interests, income taxes, interest expense, depreciation and amortization, and certain non-cash charges.  The Company’s interest coverage ratio of 4.0 to 1.0 at December 31, 2009 was in compliance with the covenant requiring a ratio of at least 2.85 to 1.0.  The total net leverage ratio is calculated as total net debt divided by EBITDA, as defined above.  Total net debt is defined in the credit agreement as total debt less cash and cash equivalents. The Company’s total net leverage ratio of 2.36 to 1.0 at December 31, 2009 was in compliance with the covenant requiring a ratio no greater than 3.90 to 1.0.  The requirement changes to no greater than 3.50 to 1.0 beginning December 31, 2010. The senior secured net leverage ratio is calculated as total senior secured indebtedness divided by EBITDA, as defined above.  Total senior secured indebtedness is defined in the credit agreement as the sum of the outstanding balances on the Company’s senior secured notes, first priority term loans, revolving credit facility including letters of credit, securitization facilities, and other secured debt such as capital leases.  The Company’s senior secured net leverage ratio of 0.99 to 1.0 at December 31, 2009 was in compliance with the covenant requiring a ratio no greater than 2.25 to 1.0.  The ratios are calculated at the end of each quarter using debt and cash balances as of the end of the quarter and EBITDA and interest expense for the most recent twelve months. Failure to meet the financial covenants could result in the acceleration of any outstanding amounts due under the Company’s revolving credit facility, term loan agreements, senior secured notes due 2011, and senior notes due 2013 and 2015.  In addition to the financial covenants above, the interest rate on the revolving credit facility can vary from EURIBOR or LIBOR plus a margin of 0.875% up to 2.00% based on the total net leverage ratio.  The margin is 0.875% at a ratio of less than 2.50 to 1.0 and 2.00% at a ratio of 4.75 to 1.0 or higher, and varies between 1.00% and 1.75% at intervals in between.
 
The Company’s current sources of liquidity and borrowings expire or mature as follows – its $225 North American securitization facility in March 2010; its €120 European securitization facility in June 2010; its $758 revolving credit facility in May 2011; its €160 first priority senior secured notes in September 2011; its $744 first priority term loans in November 2012; its $200 7.625% senior notes in November 2013; and its $600 7.75% senior notes in November 2015.
 
The Company had $574 of availability under its credit facility and cash balances of $459 at December 31, 2009, has $29 of current debt maturities in 2010, and is not required to refinance or renegotiate any of its current sources of liquidity in 2010 other than its securitization facilities.  
 
Recent distress in the financial markets has reduced liquidity, credit availability, and the ability of many companies to refinance at terms consistent with those in current agreements and outstanding debt obligations.  In addition, volatility in the global equity markets has reduced the value of assets in the pension plans of many companies.  Reduced liquidity in the market did not have a significant impact on the Company in 2009 and the Company does not expect a significant impact in 2010 because it believes it has sufficient sources of liquidity under its current agreements to fund its operating needs in 2010.  The decline in discount rates, however, had a significant impact on the funded status of the Company’s defined benefit pension plans.  As disclosed in Note V to the consolidated financial statements, the aggregate funded status of the Company’s pension plans increased from an underfunding of $272 at December 31, 2008 to an underfunding of $548 at December 31, 2009.  The Company recorded pension expense, excluding costs related to restructuring activities, of $130 in 2009 and currently projects its 2010 pension expense, excluding restructuring activities, to decrease to approximately $115  using foreign currency exchange rates in effect at December 31, 2009.    The Company contributed $74 to fund its pension plans in 2009 and, based on its current projections, expects to fund $75, $82, $182, $131 and $123 in 2010 through 2014, respectively.  
 
The Company has thus far not been significantly affected by any impact the financial crisis may or may not have had on its suppliers, customers and other counterparties, but is monitoring them for their continued ability to meet the terms of their agreements with the Company.

 
34

Crown Holdings, Inc.
 
 
 

In May 2009, the Company sold $400 principal amount of 7.625% senior unsecured notes due 2017 in a private placement.  The notes were priced at 97.092% to yield 8.125% and the Company received proceeds of $388.  The notes were issued by Crown Americas, LLC and Crown Americas Capital Corp. II.  The notes are senior obligations of the issuers, ranking senior in right of payment to all subordinated indebtedness of Crown Americas, LLC and Crown Americas Capital Corp. II, and are unconditionally guaranteed on a senior basis by the Company and substantially all of its U.S. subsidiaries.
 
Also during 2009, the Company repaid certain of its debt obligations prior to maturity as discussed under “Loss from Early Extinguishments of Debt” in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
See Note Q to the consolidated financial statements for further information relating to the Company’s refinancings and liquidity and capital resources.
 
 
 
Contractual obligations as of December 31, 2009 are summarized in the table below.
 
 
Payments Due by Period
                               
2015 &
     
 
2010
 
2011
 
2012
 
2013
 
2014
 
after
 
Total
                                         
Long-term debt
$
29 
 
$
373 
 
$
743 
 
$
203 
 
$
 
$
1,430 
 
$
2,782 
Interest on long-term debt
 
161 
   
159 
   
141 
   
125 
   
109 
   
109 
   
804 
Operating leases
 
63 
   
48 
   
39 
   
  23 
   
12 
   
42 
   
227 
Projected pension contributions
 
  75 
   
  82 
   
  182 
   
  131 
   
123 
         
593 
Postretirement obligations
 
31 
   
32 
   
32 
   
  32 
   
33 
   
165 
   
325 
Purchase obligations
 
2,741 
   
977 
   
509 
   
  290 
   
   
   
  
   
4,517 
Total contractual cash obligations
$
3,100 
 
$
1,671 
 
$
1,646 
 
$
804 
 
$
281 
 
$
1,746 
 
$
9,248 
 

All amounts due in foreign currencies are translated at exchange rates as of December 31, 2009.

Interest on long-term debt is presented through 2015 only, represents the interest that will accrue by year, and is calculated based on interest rates in effect as of December 31, 2009.  Interest on the Company's revolving credit facility is calculated based on $113 of outstanding balances as of December 31, 2009.  
 
The projected pension contributions caption includes the contributions the Company expects to make in 2010 to 2014 to fund its plans.  The postretirement obligations caption includes the expected payments through 2019 to retirees for medical and life insurance coverage. The pension and postretirement projections require the use of numerous estimates and assumptions such as discount rates, rates of return on plan assets, compensation increases, health care cost increases, mortality and employee turnover.  Therefore, these amounts have been provided for five years only in the case of pensions and through 2019 in the case of postretirement costs.
 
Purchase obligations include commitments for raw materials and utilities at December 31, 2009. These commitments specify significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of transactions.
 
The obligations above exclude $38 of unrecognized tax benefits for which the Company has recorded liabilities.  These amounts have been excluded because the Company is unable to estimate when these amounts may be paid, if at all.  See Note W to the consolidated financial statements for additional information on the Company’s unrecognized tax benefits.
 
 
 
 
35

Crown Holdings, Inc.
 
 
 
In order to further reduce leverage and future cash interest payments, the Company may from time to time repurchase outstanding notes and debentures with cash, exchange shares of its common stock for the Company’s outstanding notes and debentures, or seek to refinance its existing credit facilities and other indebtedness. The Company will evaluate any such transactions in light of then existing market conditions and may determine not to pursue such transactions.
 
 

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.  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 them in the financial markets and its use of other methods, such as netting exposures for foreign exchange risk and establishing sales arrangements that permit the pass-through to customers of changes in commodity prices and foreign exchange rates, to effectively achieve its goal of risk reduction.  The Company’s objective in managing its exposure to market risk is to limit the impact on earnings and cash flow.  

The Company manages foreign currency exposures at the operating unit level.  Exposures that cannot be naturally offset within an operating unit are hedged with derivative financial instruments where possible and cost effective in the Company’s judgment.  Foreign exchange contracts which hedge defined exposures generally mature within twelve months.  The Company, from time to time, enters into cross-currency swaps to hedge foreign currency exchange and interest rate risk for subsidiary debt which is denominated in currencies other than the functional currency of the subsidiary.
 
The table below provides information in U.S. dollars as of December 31, 2009 about the Company’s forward currency exchange contracts.  The majority of the contracts expire in 2010 and primarily hedge anticipated transactions, unrecognized firm commitments and intercompany debt and are recorded at fair value.  The contracts with no amounts in the fair value column have a fair value of less than $1.

       
Contract
 
Average
   
Contract
 
fair value
 
contractual
Buy/Sell
 
amount
 
gain/(loss)
 
exchange rate
U.S. dollars/Euro
    $   298      $4         $1.45     
Sterling/Euro
    163      (1)        0.90     
Euro/Sterling
    305      (1)        0.90     
Euro/U.S. dollars
    38      (1)        1.47     
U.S. dollars/Canadian dollars
    35      (3)        1.13     
U.S. dollars/Thai Baht
    24          33.62     
U.S. dollars/Sterling
    31          1.64     
Sterling/U.S. dollars     30         1.64     
Turkish Lira New/U.S. dollars
    4      1         1.68     
Hungarian Florint/Euro
    11          273.18     
Singapore dollars/U.S. dollars
    57      (1)        1.39     
U.S. dollars/Singapore dollars
    7          1.39     
Euro/Swiss Francs
    11          1.49     
      $1,014      ($2)       

 
At December 31, 2009, the Company had additional contracts with notional values of $37 to purchase or sell other currencies, primarily the Polish zloty and the Malaysian ringgit.  The aggregate fair value of these contracts was not material.
 
As of December 31, 2009, Crown European Holdings (“CEH”), a euro functional currency subsidiary, had U.S. dollar exposure on intercompany debt of $390 owed to a U.S. subsidiary of the Company.  As discussed under Note S to the consolidated financial statements, CEH has entered into a cross-currency swap as a hedge against $235 of that exposure. The remaining exposure of $155 is hedged by forward currency exchange contracts that are included in the table above.
 
 
 
 
36

Crown Holdings, Inc.
 
 
 
The Company, from time to time, may manage its interest rate risk, primarily from fluctuations in variable interest rates, through interest rate swaps in order to balance its exposure between fixed and variable rates while attempting to minimize its interest costs. Interest rate swaps and other methods of mitigating interest rate risk may increase overall interest expense.

The table below presents principal cash flows and related interest rates by year of maturity for the Company’s debt obligations. Variable interest rates disclosed represent the weighted average rates at December 31, 2009.
   
Year of Maturity
 
       
Debt
 
2010
   
2011
   
2012
   
2013
   
2014
   
Thereafter
 
Fixed rate  
  $ 10      $ 241      $     $ 203      $     $ 1,430   
Average interest rate
    6.6  %     6.3  %     7.3  %     7.6  %  
8.1 
%  
7.6 
%
                                                 
Variable rate               
  $ 49      $ 132      $ 738                           
Average interest rate
    3.7  %     2.2  %     2.2  %                  
 
 
 
Total future payments of $2,812 at December 31, 2009 include $2,099 of U.S. dollar-denominated debt, $638 of euro-denominated debt and $75 of debt denominated in other currencies.

The Company uses various raw materials, such as steel and aluminum in its manufacturing operations, which expose it to risk from adverse fluctuations in commodity prices.  In 2009, consumption of steel and aluminum represented approximately 30% and 33%, respectively, of the Company’s consolidated cost of products sold, excluding depreciation and amortization. The weighted average market price for steel used in packaging increased approximately 26% and the average price of aluminum ingot on the London Metal Exchange decreased approximately 30% during 2009. The Company primarily manages its risk to adverse commodity price fluctuations and surcharges through contracts that pass through raw material costs to customers. The Company may, however, be unable to increase its prices to offset unexpected increases in raw material costs without suffering reductions in unit volume, revenue and operating income, and any price increases may take effect after related cost increases, reducing operating income in the near term.  
 
In addition, the manufacturing facilities of the Company are dependent, in varying degrees, upon the availability of water and processed energy, such as natural gas and electricity.
 
Aluminum, a basic raw material of the Company, is subject to significant price fluctuations the risk of which may be hedged by the Company through forward commodity contracts. Current contracts involve aluminum forwards with a notional value of $163 and a fair value gain of $31.  The maturities of the commodity contracts closely correlate to the anticipated purchases of those commodities. These contracts are used in combination with commercial supply contracts with customers to manage exposure to price volatility.

 

Consolidated capital expenditures were $180 in 2009 compared to $174 in 2008.

Expenditures in the Americas Division were $47 in 2009 and included spending of $30 in Americas Beverage and $7 in North America Food.  The spending in Americas Beverage included $12 to expand capacity in Brazil.
 
Expenditures in the European Division were $111 and included spending of $71 in European Beverage, $26 in European Food and $8 in European Specialty Packaging.  The spending in European Beverage included $47 for the Company’s new beverage can plant in Slovakia.
 
At December 31, 2009, the Company had approximately $21 of capital commitments.
 
 

 
37

Crown Holdings, Inc.
 
 
 
OFF-BALANCE SHEET ARRANGEMENTS

The Company has certain guarantees and indemnification agreements that could require the payment of cash upon the occurrence of certain events. The guarantees and agreements are further discussed under Note L to the consolidated financial statements.

The Company also utilizes receivables securitization facilities and derivative financial instruments as further discussed under Note C and Note S, respectively, to the consolidated financial statements.
 
 

Compliance with the Company’s Environmental Protection Policy is mandatory and the responsibility of each employee of the Company. The Company is committed to the protection of human health and the environment and is operating within the increasingly complex laws and  regulations of national, state, and local environmental agencies or is taking action to achieve compliance with such laws and regulations. Environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases.

The Company is dedicated to a long-term environmental protection program and has initiated and implemented many pollution prevention programs with an emphasis on source reduction. The Company continues to reduce the amount of metal used in the manufacture of steel and aluminum containers through “lightweighting” programs. The Company recycles nearly 100% of scrap aluminum, steel and copper used in its manufacturing processes. Many of the Company’s programs for pollution prevention reduce operating costs and improve operating efficiencies.
 
The Company, along with others in most cases, has been identified by the EPA or a comparable state environmental agency as a Potentially Responsible Party (“PRP”) at a number of sites and has recorded aggregate accruals of $6 for its share of estimated future remediation costs at these sites. The Company has been identified as having either directly or indirectly disposed of commercial or industrial waste at the sites subject to the accrual, and where appropriate and supported by available information, generally has agreed to be responsible for a percentage of future remediation costs based on an estimated volume of materials disposed in proportion to the total materials disposed at each site.  The Company has not had monetary sanctions imposed nor has the Company been notified of any potential monetary sanctions at any of the sites.  The Company has also recorded aggregate accruals of $12 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group.  Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow.  Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.   Actual expenditures for remediation were $2, $5 and $1 in 2009, 2008 and 2007, respectively.  The Company records an undiscounted environmental reserve when it is probable that a liability has been incurred and  the  amount  of  the  liability  is reasonably estimable. Reserves at December 31, 2009 are primarily for asserted claims and are based on internal and   external environmental studies. The Company expects that the liabilities will be paid out over the period of remediation for the applicable sites, which in some cases may exceed ten years.
 
Although the Company believes its reserves are adequate, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s reserves and will not have a material effect on the Company’s consolidated 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 reserves cannot be estimated.
 
The potential impact on the Company’s operations of climate change and potential future climate change regulation in the jurisdictions in which the Company operates is highly uncertain. See the risk factor entitled “The Company is subject to costs and liabilities related to stringent environmental and health and safety standards” in Part I, Item 1A of this Annual Report.

 
 
 
 
 
38

Crown Holdings, Inc.   
 
 
 

Total equity was $383 at December 31, 2009 compared to $36 and $338 at December 31, 2008 and 2007, respectively.  The increase of $347 in 2009 was primarily due to $450 of net income, $144 of currency translation adjustments, and $86 related to accounting for derivatives, partially offset by decreases of $285 related to the Company’s pension and postretirement benefit plans and $87 of dividends paid to noncontrolling interests. The decrease of $302 in 2008 was primarily due to $395 of currency translation adjustments, $101 of adjustments relating to the Company’s pension and postretirement benefit plans, $65 of dividends paid to noncontrolling interests, and $51 related to accounting for derivatives, partially offset by net income for the year of $330.  Additional information related to the pension and postretirement benefit plan adjustments is available under the Critical Accounting Policies section of this Management’s Discussion and Analysis and under Note V to the consolidated financial statements.  
 
The Company’s first priority revolving credit and term loan facilities, first priority senior secured notes and senior unsecured notes contain provisions that limit the repurchase of common stock and the payment of dividends subject to certain permitted payments or repurchases and exceptions.  The Company acquired 182,574 shares, 2,119,697 shares and 4,974,892 shares of its common stock in 2009, 2008 and 2007, respectively.

Total common shares outstanding were 161,483,074 at December 31, 2009 and 159,191,238 at December 31, 2008.
 
On February 28, 2008, the Company’s Board of Directors authorized the repurchase of up to $500 of the Company’s outstanding common stock from time to time through December 31, 2010, in the open market or through privately negotiated transactions, subject to the terms of the Company’s debt agreements, market conditions, the Company’s ability to generate operating cash flow, alternative uses of operating cash flow (including the reduction of indebtedness) and other factors.  This authorization replaces and supersedes all previous outstanding authorizations to repurchase shares.  The Company is not obligated to acquire any shares of common stock and the share repurchase plan may be suspended or terminated at any time at the Company’s discretion.  The remaining authorized purchases were $467 as of December 31, 2009.
 
The repurchased shares, if any, are expected to be used for the Company’s stock-based benefit plans and to offset dilution resulting from the issuance of shares thereunder, and for other general corporate purposes.
 
The Board of Directors adopted a Shareholders’ Rights Plan in 1995 and declared a dividend of one right for each outstanding share of common stock. In connection with the formation of Crown Holdings, Inc., the existing Shareholders’ Rights Plan was terminated and a new Rights Agreement was entered into with terms substantially identical to the terminated plan, as amended in 2004. See Note O to the consolidated financial statements for a description of the Shareholders’ Rights Plan.

 
INFLATION

Inflation has not had a significant impact on the Company over the past three years and the Company does not expect it to have a significant impact on the results of operations or financial condition in the foreseeable future.
 
 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which require that management make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, impacting the reported results of operations and financial position of the Company.  The Company’s significant accounting policies are more fully described under Note A to the consolidated financial statements. Certain accounting  policies, however, are considered to be critical in that  (i) they are most important to the depiction of the Company’s financial condition and results of operations and (ii) their application requires management’s most subjective judgment in making estimates about the effect of matters that are inherently uncertain.
 
 
 
 
39

Crown Holdings, Inc.   
 
 
 

The Company’s potential liability for asbestos cases is highly uncertain due to the difficulty of forecasting many factors, including the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, 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 settlement demands for non-bankrupt defendants) and the effect of the 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).

At the end of each quarter, the Company considers whether there have been any material developments that would cause it to update its asbestos liability accrual calculations. Absent any significant developments in the asbestos litigation environment in general or with respect to the Company specifically, the Company updates its accrual calculations in the fourth quarter of each year.  The Company’s asbestos liability accrual is calculated in the fourth quarter of each year as the sum of its outstanding and expected future claims, multiplied by the expected average settlement cost of those claims, plus estimated legal fees.  Claims in those states where the Company’s liability is limited by statute are included in the number of outstanding claims but are assumed to have no value. The expected number of claims and the expected average settlement cost per claim are calculated using projections based on the actual data for the most recent five years.  Because claims are not submitted or settled evenly throughout the year, it is difficult to predict at any time during the year whether the number of claims or average settlement cost over the five year period ending December 31 of such year will increase compared to the prior five year period.  At the end of 2009, the five year average settlement cost per claim was higher than at the end of the preceding two years. The effect of these increases in the expected average settlement cost per claim was partially mitigated by a decrease in each year in the expected number of future claims.  The combination of the projected increase in cost per claim, the projected decrease in the number of future claims, and including an additional year in the ten-year projection each year, resulted in a charge of $55 in 2009 compared to $25 in 2008 and $28 in 2007.  The charge of $55 in 2009 was higher than the charges in 2008 and 2007 because the increase in the projected average cost per claim in 2009 was higher than in 2008 and 2007.   A  10%  change in  either  the  number of  projected  claims or  the  average  cost  per  claim  would increase or decrease the estimated liability at December 31, 2009 by $23.  A 10% increase or decrease in these two factors at the same time would increase or decrease the estimated liability at December 31, 2009 by $48 and $44, respectively.    
 
 
The Company performs a goodwill impairment review in the fourth quarter of each year or when facts and circumstances indicate goodwill may be impaired. The impairment review involves a number of assumptions and judgments, including the calculation of fair value for the Company’s identified reporting units. The Company determines the estimated fair value for each reporting unit based on the average of the estimated fair values calculated using market values for comparable businesses and discounted cash flow projections.  The Company uses an average of the two methods in estimating fair value because it believes they provide an equal probability of yielding an appropriate fair value for the reporting unit.  The Company’s estimates of future cash flows include assumptions concerning future operating performance, economic conditions, and technological changes and may differ from actual future cash flows.  Under the first method of calculating estimated fair value,  the Company  obtains  publicly  available  trading multiples based on the enterprise value of companies in the packaging industry whose shares are publicly traded.  The Company also reviews available information regarding the multiples used in recent transactions, if any, involving transfers of controlling interests in the packaging industry. The appropriate multiple is  applied to the forecasted  EBITDA   (a  non-GAAP item defined  by  the  Company as net  customer sales, less cost of products sold excluding depreciation and amortization, less selling and administrative expenses) of the reporting unit to obtain an estimated fair value.  Under the second method, fair value is calculated as the sum of the projected discounted cash flows of the reporting unit over the next five years and the terminal value at the end of those five years. The projected cash flows generally include no growth assumption unless there has recently been a material change in the business or a material change is forecasted.  The discount rate used is based on the average weighted-average cost of capital of companies in the packaging industry, which information is available through various sources.  The terminal value at the end of the five years is the product of the projected EBITDA at the end of the five year period and the trading multiple. The Company used an EBITDA multiple of 7.0 times and a discount rate of 7.4% in its 2009 review.  The assumed EBITDA multiple was increased from the 6.5 times used in 2008 due to an increase in trading multiples of companies in the packaging industry.  The discount rate in 2009 was decreased from the 9.2% used in 2008 due to a decrease in the weighted average cost of capital of companies in the packaging industry.  The Company did not have any reporting unit at the end of 2009 whose fair value did not materially exceed its carrying value.  The discussion below provides information on the Company’s assumptions and conclusions regarding its review of the European Closures reporting unit in 2007.  This reporting unit manufactures and sells metal vacuum food closures and is part of the European Food segment. Additional discussion of this reporting unit is provided because the Company recorded an impairment charge of $103 in the European Closures reporting unit in 2007.
 
 
 
 
40

Crown Holdings, Inc.   
 
 
 
During the fourth quarter of 2007, the Company recorded a goodwill impairment charge of $103 in its European Closures reporting unit due to a decrease in projected operating results.   The segment income of the business was $6, $14 and $17 for the years ended December 31, 2007, 2006 and 2005, respectively, and as of the end of 2006, the Company was projecting 2007 segment income of $16.  The decrease in 2007 segment income, compared to 2006 results and the Company’s 2007 projections, was primarily due to lower sales unit volumes and an inability to recover cost increases through increased selling prices.

In its projections for the European metal vacuum food closures business for 2007, the Company expected to see some pressure on selling prices based on preliminary discussions with its customers, but believed it could compensate for these losses through increased sales unit volumes that could be obtained from existing or new customers throughout the year.  However, due to aggressive pricing by certain of the Company’s competitors (an effort to maintain or increase their sales unit volumes), the Company was unable to increase volumes for 2007 as allocations were finalized during the first two quarters. In addition to its effect on the Company’s sales unit volumes, the competitive situation also depressed selling prices throughout the year beyond the Company’s expectations.  The aggressive pricing policies evident in 2007 were unexpected in a business that previously had consistent segment income and relatively stable selling prices.  As of October 31, 2007, it was management’s judgment that the adverse competitive situation was temporary based on its understanding of the competitive market at that time.  However, at the conclusion of the 2008 budget process, which occurred at the end  of  2007 only  after  initial  discussions  with  existing  and  potential  customers  related to 2008 pricing and volumes, management concluded that the depressed selling prices and  competition for sales volume would likely continue, and that 2008 segment income was unlikely to improve.  Due to this second consecutive year of reduced segment income, and absent any evidence to the contrary, the Company determined that it was appropriate to  assume  similar  results for its  projections  used to  calculate the  estimated  fair  value  of  the reporting unit at the end of 2007.  
 
Long-lived Assets Impairment

The Company performs an impairment review of its long-lived assets, primarily property, plant and equipment, when facts and circumstances indicate the carrying value may not be recoverable from its undiscounted cash flows. Any impairment loss is measured by comparing the carrying amount of the asset to its fair value. The Company’s estimates of future cash flows involve assumptions concerning future operating performance, economic conditions and technological changes that may affect the future useful lives of the assets. These estimates may differ from actual cash flows or useful lives.  
 

The Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that a portion of the tax assets will not be realized.  The estimate of the amount that will not be realized requires the use of assumptions concerning the Company’s future taxable income.  These estimates are projected through the life of the related deferred tax assets based on assumptions that management believes are reasonable.  The Company considers all sources of taxable income in estimating its valuation allowances, including taxable income in any available carry back period; the reversal of taxable temporary differences; tax-planning strategies; and taxable income expected to be generated in the future other than reversing temporary differences.  Should the Company change its estimate of the amount of its deferred tax assets that it would be able to realize, an adjustment to the valuation allowance would result in an increase or decrease in tax expense in the period such a change in estimate was made.  


 
 
41

Crown Holdings, Inc.   
 
 
 
The Company’s valuation allowances of $391 at December 31, 2009 include $180 in the U.S., $109 in France, $59 in Canada, $23 in Belgium, $13 in the Netherlands, $5 in Asia and $2 in Poland.
 
During the fourth quarter of 2009, the Company released $58 of its U.S. deferred tax valuation allowances based on management’s judgment that it is more likely than not that the related deferred tax benefits will be realized.  The valuation allowance release included $54 for foreign tax credits that expire in 2016 through 2019 and $4 for research credits that expire in 2019.  Prior to the fourth quarter of 2009, the Company was unable to conclude that it was more likely than not that these tax credits, which can only be used after all of the Company’s tax losses are used, would be realized before their expiration.  Contributing to uncertainty regarding the Company’s U.S. taxable income in 2009 and beyond were a significant increase in 2009 in the cost of steel used in the production of certain cans and closures and the Company’s ability to recover those costs from customers; the effect of the credit crisis on demand for the Company’s products; and the possibility that the Company’s pension plan assets would suffer additional market losses and require the Company to contribute additional funds to the plan beyond those already considered in its projections.  The Company’s determination in the fourth quarter of 2009 that it was more likely than not that it would have sufficient future taxable income to realize these deferred tax assets was not as a result of any single event or development in the fourth quarter, but rather a review in the fourth quarter of the Company’s results for the year, its pension plan assets and liabilities at the end of the year, and its budget for 2010.  Based on the 2009 results and sales unit volumes, an increase in pension plan assets due to market returns, and a 2010 budget that projects the 2009 results can be maintained, the Company concluded there was sufficient positive evidence to reverse its valuation allowance related to these tax credits.  As of December 31, 2009, the Company had $180 of remaining valuation allowance against its U.S. deferred tax assets including $152 for state tax loss carryforwards, $27 for capital loss carryforwards, and $1 for research credits.  The state tax loss carryforwards expire as follows:  $4 in 2010 through 2015, $57 in 2016 through 2020, and $91 thereafter.  The capital loss carryforwards expire in 2012 and 2013 and the research credits expire in 2018.  Future realization of the Company’s $533 of net U.S. deferred tax assets will require approximately $1.3 billion of aggregated U.S. taxable income.  The table in Note W to the consolidated financial statements reports U.S. book income/(loss) of ($36), $31 and $4 for 2009, 2008 and 2007, respectively.  In 2009, the Company had approximately $150 of U.S. taxable income compared to the book loss of $36 due to differences arising from $59 of foreign source income that is not included in the book loss, $87 of U.S. GAAP pension expense in excess of pension plan contributions, and $40 of other permanent and temporary differences.  It is possible that the Company may be required to increase its U.S. valuation allowance at some future time if its projections of book and taxable income are incorrect in the aggregate or in the timing of certain deductions, such as pension plan contributions.
 
As of December 31, 2008, the Company was in a three year cumulative loss position in France and had a full valuation allowance against its net deferred tax assets.  Due primarily to reduced floating interest rates and a resulting significant reduction in interest expense, the French operations were profitable in 2009.  During the third quarter of 2009, the Company released $40 of its French deferred tax valuation allowances based on management's judgment that it is more likely than not that the related deferred tax assets will be realized in 2010 through 2012.  In the fourth quarter of 2009, the Company released an additional $2 of valuation allowance based on a refined estimate including a review of its 2010 budget.  Prior to the third quarter of 2009, the Company was unable to conclude that it was more likely than not that it would realize any future benefit from its deferred tax assets.  Contributing to uncertainty regarding taxable income in 2009 and beyond were a significant increase in 2009 in the cost of steel and the effect of the credit crisis on demand for the Company’s products.  The Company has a large food can business in France and the third quarter is a critical period as cans are purchased by its customers to pack the harvest.  After reviewing the third quarter operating results in France, the Company was able to conclude that it was more likely than not that the improvements in interest expense would not be offset by reductions in operating results, and that it would realize some portion of its deferred tax assets.  The Company is unable to conclude at this time that it is more likely than not that it will realize any additional deferred tax benefits in France beyond 2012, primarily due to uncertainty concerning the amount of future interest expense in its French operations.  The Company’s European revolving credit facility expires in May 2011 and its European term loan expires in November 2012.  Both of these facilities are in France and the Company’s French operations are currently benefitting from low base interest rates and floating interest rates on this debt.  For purposes of reviewing its valuation allowance the Company has assumed, based on current market conditions, that its revolving credit facility will be refinanced at higher base rates at the end of 2010, and, because a similar term loan facility may not be available, that its term loan will be replaced by a fixed rate note.  The Company has also assumed that the operating profit in its French operations will remain consistent.  The Company’s net deferred tax assets in France before valuation allowances consist of $191 of deferred tax assets, including $158 of tax loss carryforwards that do not expire, and $40 of deferred tax liabilities.  It is possible that the Company may be required to increase this valuation allowance at some future time if its income projections for 2010 to 2012 are later revised downwards. It is also possible that the Company will release additional portions of its French valuation allowance in future periods if its income projections are revised upwards due to improved operating profits, or if it refinances its debt at interest rates lower than those assumed in its projections.  In addition, future changes in tax laws or tax planning could cause the Company to restructure the amount of debt in its French operations as part of its tax planning strategies, which could impact the amount of interest expense and profits in these operations.

 
 
42

Crown Holdings, Inc.   
 
 

As of December 31, 2009, the Company has a full valuation allowance of $59 against its net deferred tax assets in Canada.  The net deferred tax assets of $59 include $37 of tax loss carryforwards that expire in 2014 to 2028.  The Canadian operations remain in a three year cumulative loss position and had a significant loss in 2009 due to low operating margins and plant closing costs.  The Company does not believe it has sufficient positive evidence at this time to release any of the valuation allowance in Canada, but it is possible that some or all of its Canadian valuation allowance will be reversed in the future if the results of operations improve.

As of December 31, 2009, the Company has a valuation allowance of $23 for tax loss carryforwards in Belgium that do not expire, including $14 in a dormant entity that the Company does not believe at this time it will be able to utilize.  The remaining $9 of valuation allowance is in an operating entity that was slightly profitable in 2009, but remains in a three year cumulative loss position at the end of 2009.  The Company does not believe it has sufficient positive evidence at this time to release any of the valuation allowance for the operating entity, but it is possible some or all of the valuation allowance will be released in the future if the entity’s results of operations improve.
 
As of December 31, 2009, the Company has a valuation allowance of $13 against its deferred tax assets in a Dutch subsidiary, including $11 for tax loss carryforwards that do not expire.  The entity has a profit of $2 in 2009, but remains in a three year cumulative loss position at the end of 2009 and is projected to be break-even in 2010.  The Company does not believe it has sufficient positive evidence at this time to release any of the valuation allowance for this entity, but it is possible some or all of the valuation allowance will be released in the future if the entity’s results of operations  improve.
 
The remaining valuation allowances of $5 in Asia and $2 in Poland are also in entities where the Company does not believe it has sufficient positive evidence at this time to release any of the valuation allowances, but it is possible some or all of the valuation allowances will be released in the future.
 
The Company has not recorded a valuation allowance against its net deferred tax assets of $6 in a Spanish entity.  The entity had a profit of $1 in 2009 and is projecting a similar profit in 2010, but it is possible that the Company will need to provide a valuation allowance in the future if the profits are not maintained.
 
Unrecognized Tax Positions

The Company recognizes the impact of a tax position if, in the Company’s opinion, it is more likely than not that the position will be sustained on audit, based on the technical merits of that position.  The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.  The determination of whether the impact should be recognized, and the measurement of the impact, can require significant judgment and the Company’s estimate may differ from actual settlement amounts. See Note W to the consolidated financial statements for additional information on the Company’s tax positions.


 
 
43

Crown Holdings, Inc.  
 
 
 
Pension and Postretirement Benefits

Accounting for pensions and postretirement benefit plans requires the use of estimates and assumptions regarding numerous factors, including discount rates, rates of return on plan assets, compensation increases, health care cost increases, mortality and employee turnover. Actual results may differ from the Company’s actuarial assumptions, which may have an impact on the amount of reported expense or liability for pensions or postretirement benefits.
 
The rate of return assumptions are reviewed at each measurement date based on the pension plans’ investment policies, current asset allocations and an analysis of the historical returns of the capital markets.
 
The U.S. plan’s 2010 assumed asset rate of return of 8.75% was based on a calculation using underlying assumed rates of return of 10.5% for equity securities and alternative investments, and 5.7% for debt securities and real estate.   An assumed rate of 10.5% was used for equity securities and alternative investments based on the total return of the S&P 500 for the 25 year period ended December 31, 2009.  The Company believes that the equity securities included in the S&P 500 are representative of the equity securities and alternative investments held by its U.S. plan, and that 25 years provides a sufficient time horizon as a basis for estimating future returns.  The Company used a 5.7% assumed return for debt securities, consistent with the U.S. plan discount rate and the return on AA corporate bonds with duration equal to the plan’s liabilities.  The underlying debt securities in the plan are primarily invested in various corporate and government agency securities and are benchmarked against returns on AA corporate bonds.

The U.K. plan’s 2010 assumed asset rate of return of 7.0% was based on a calculation using underlying assumed rates of return of 10.4% for equity securities and alternative investments, and 5.5% for debt securities and real estate. Equity securities in the U.K. plan as of December 31, 2009 were allocated approximately 45% to U.S. securities, 8% to U.K. securities, 11% to securities in European countries  other than the U.K., and 36% to securities in other countries. The assumed rate of 10.4% for equity securities and alternative investments represents the weighted average 25 year return of equity securities in these markets. The Company believes that the equity securities included in the related market indexes are representative of the equity securities and alternative investments held by its U.K. plan, and that 25 years provides a sufficient time horizon as a basis for estimating future returns.  
 
A 0.25% change in the expected rates of return would change 2010 pension expense by approximately $9.
 
Discount rates were selected using a method that matches projected payouts from the plans with zero-coupon AA bond yield curves in the respective currencies.  The yield curves were constructed from the underlying bond price and yield data collected as of the plans'  measurement  date  and  are  represented  by  a  series  of annualized,  individual  discount  rates  with  durations  ranging from six months  to  thirty years.  Each discount rate in the curve was derived from an equal weighting of the AA bond universe, apportioned into distinct maturity groups.  These individual discount rates were then converted into a single equivalent discount rate.  To assure that the resulting rates can be  achieved  by the plan, only bonds with sufficient capacity that satisfy certain criteria and are expected  to  remain  available  through the period of maturity of the plan benefits were used to develop the discount rate.  A 0.25% change in the discount rates from those used at December 31, 2009 would change 2010 pension expense by approximately $5 and postretirement expense by approximately $1.  See Note V to the consolidated financial statements for additional information on pension and postretirement benefit obligations and assumptions.
 

 
 
44

Crown Holdings, Inc.   
 
 
 
As of December 31, 2009, the Company had pre-tax unrecognized net losses in other comprehensive income of $1,991 related to its pension plans and $147 related to its other postretirement benefit plans. Unrecognized gains and losses arise each year primarily due to changes in discount rates, differences in actual plan asset returns compared to expected returns, and changes in actuarial assumptions such as mortality. For example, as disclosed in Note V to the consolidated financial statements, the unrecognized net loss in the Company’s  pension  plans  included  a  current  year  loss  of  $329 consisting of a gain of $237 due to actual asset returns of $470 compared to expected returns of $233, offset by losses of $566 primarily due to lower discount rates at the end of 2009 compared to 2008.  Unrecognized gains and losses are accumulated in other comprehensive income and the portion in each plan that exceeds 10% of the greater of that plan’s assets or projected benefit obligation is amortized to income over future periods. The Company’s pension expense for the year ended December 31, 2009 included charges of $105 for the amortization of unrecognized net losses, and the Company estimates charges of $114 in 2010. Unrecognized net losses of $1,991 in the pension plans as of December 31, 2009 include $976 in the U.K. defined benefit plan, $852 in the U.S defined benefit plan, $180 in the Canadian defined benefit plans, and ($17) in other plans.  Amortizable losses in the U.K. plan are being recognized  over  21  years, representing the average expected life of inactive employees as over 90% of the plan participants are inactive and the fund is closed to new participants.  Amortizable losses in the U.S. plan are being recognized over the average remaining service life of active participants of 11 years.  Amortizable losses in the Canadian plans are being recognized over the average remaining service life of active participants of 11 years.  An increase of 10% in the number of years used to amortize unrecognized losses in each plan would decrease estimated charges for 2010 by 9.1% or $10. A decrease of 10% in the number of years would increase the estimated charge for 2010 by 11.1% or $13.
 
Unrecognized net losses of $147 in the Company’s other postretirement benefit plans as of December 31, 2009, primarily included $130 in the U.S. plans, with the amortizable portion being recognized over the average remaining service life of active participants of 9 years.  The Company’s other postretirement benefits expense for the year ended December 31, 2009 included charges of $7 for the amortization of unrecognized net losses, and the Company estimates charges of $10 in 2010. An increase of 10% in the number of years used to amortize the unrecognized losses in each plan would decrease the estimated charge for 2010 by 9.1% or $1.  A decrease of 10% in the number of years would increase the estimated charge for 2010 by 11.1% or $1.
 
Stock-Based Compensation

Calculation of the estimated fair value of stock option awards requires the use of assumptions regarding a number of complex and subjective variables, including the expected term of the options, the annual risk-free interest rate over the options’ expected term, the expected annual dividend yield on the underlying stock over the options’ expected term, and the expected stock price volatility over the options’ expected term.  The Company generally bases its assumptions of option term and expected price volatility on historical data,  but also considers other factors, such as vesting or expiration provisions in new awards that are inconsistent with past awards, that would make the historical data unreliable as a basis for future assumptions.  Estimates of the fair value of stock options are not intended to predict actual future events or the value ultimately realized by employees who receive stock option awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. See Note A and Note P to the consolidated financial statements for additional disclosure of the Company’s assumptions related to stock-based compensation.

 

In June 2009, the FASB issued guidance that eliminates the Qualified Special Purpose Entities (QSPEs) concept, established to facilitate off-balance sheet treatment of certain securitizations. More stringent criteria must be met to qualify for sale accounting when only a portion of a financial asset is transferred. The guidance impacts new transfers of many types of financial assets (for example, receivables securitization and factoring arrangements) occurring after the effective date. The guidance is effective for the Company on January 1, 2010. The Company is currently evaluating the requirements of this guidance, but believes it will require the Company to report its receivables securitization facilities as securitized borrowings instead of as sales of receivables, thus increasing the Company’s reported debt.  The amount of securitized receivables was $232 as of December 31, 2009 and $322 at its highest level during 2009.  If the amounts are reported as borrowings, the Company’s reported cash flow from operations in 2010 will be negatively impacted by this change.  For example, if the new guidance had been effective as of January 1, 2009 instead of 2010, the Company’s 2009 cash flow from operations would have been $232 less than the amount reported and its cash flow from financing activities would have been $232 higher.  This anticipated negative impact on cash flow from operations is limited to 2010 and will not recur in future periods.
 
 
 
 
45

Crown Holdings, Inc.   
 
 
 
In June 2009, the FASB issued guidance that requires an analysis to determine whether a variable interest gives a company a controlling financial interest in a variable interest entity. It also requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether the company is the primary beneficiary.  The guidance is effective for the Company on January 1, 2010 and the Company does not expect its adoption will have a material impact on the Company's financial statements.
 

Statements in this Annual Report, including those in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the discussions of the provision for asbestos under Note K and other contingencies under Note L to the consolidated financial statements included in this Annual Report and in discussions incorporated by reference into this Annual Report (including, but not limited to, those in “Compensation Discussion and Analysis” in the Company’s Proxy Statement), 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 other oral or written statements which are also “forward-looking  statements.”   Forward-looking  statements  can  be  identified  by  words,  such  as  “believes,” “estimates,” “anticipates,” “expects” and other words of similar meaning in connection with a discussion of future operating or financial performance. These may include, among others, statements relating to (i) the Company’s  plans  or  objectives  for  future operations, products or financial performance, (ii) the Company’s indebtedness and other contractual  obligations,  (iii) the  impact of an  economic  downturn or  growth in particular regions, (iv) anticipated uses of cash, (v) cost reduction efforts and expected savings, (vi) the Company’s policies with respect to executive compensation and (vii) the expected outcome of contingencies, including with respect to asbestos-related litigation and pension and postretirement liabilities.
 
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.

Important factors that could cause the actual results of operations or financial condition of the Company to differ include, but are not necessarily limited to, the ability of the Company to repay, refinance or restructure its short and long-term indebtedness on adequate terms and to comply with the terms of its agreements relating to debt; the Company’s ability to generate significant cash to meet its obligations and invest in its business and to maintain appropriate debt levels; restrictions on the Company’s use of available cash under its debt agreements; changes or differences in U.S. or international economic or political conditions, such as inflation or fluctuations in interest or foreign exchange rates (and the effectiveness of any currency or interest rate hedges), tax rates and tax laws (including with respect to taxation of unrepatriated non-U.S. earnings or as a result of the depletion of net loss carryforwards); the impact of potential health care reform in the United States; the collectibility of receivables; war or acts of terrorism that may disrupt the Company’s production or the supply or pricing of raw materials, including in the Company’s Middle East operations, impact the financial condition of customers or adversely affect the Company’s ability to refinance or restructure its remaining indebtedness; changes in the availability and pricing of raw materials (including aluminum can sheet, steel tinplate, energy, water, inks and coatings) and the Company’s ability to pass raw material, energy and freight price increases and surcharges through to its customers or to otherwise manage these commodity pricing risks; the Company’s ability to obtain and maintain adequate pricing for its products, including the impact on the Company’s revenue, margins and market share and the ongoing impact of price increases; energy and natural resource costs; the cost and other effects of legal and administrative cases and proceedings, settlements and investigations; the outcome of asbestos-related litigation (including the number and size of future claims and the terms of settlements, and the impact of bankruptcy filings by other companies with asbestos-related liabilities, any of which could increase Crown Cork’s asbestos-related costs over time, the adequacy of reserves established for asbestos-related liabilities, Crown Cork’s ability to obtain resolution without payment of asbestos-related claims by persons alleging first exposure to asbestos after 1964, and the impact of state legislation dealing with asbestos liabilities and any litigation challenging that legislation and any future state or federal legislation dealing with asbestos liabilities); the Company’s ability to realize deferred tax benefits; changes in the Company’s critical  or other  accounting  policies or the  assumptions  underlying those  policies;  labor  relations  and workforce and social costs, including the Company’s pension and postretirement obligations and other employee or retiree costs; investment performance of the Company’s pension plans; costs and difficulties related to the acquisition of a business and integration of acquired businesses; the impact of any potential dispositions, acquisitions or other strategic realignments, which may impact the Company’s operations, financial profile, investments or levels of indebtedness; the Company’s ability to realize efficient capacity utilization and inventory levels and to innovate new designs and technologies for its products in a cost-effective manner; competitive pressures, including new product developments, industry overcapacity, or changes in competitors’ pricing for products; the Company’s ability to achieve high capacity utilization rates for its equipment; the Company’s ability to maintain and develop competitive technologies for the design and manufacture of products and to withstand competitive and legal challenges to the proprietary nature of such technology; the Company’s ability to generate sufficient production capacity; loss of customers, including the loss of any significant customers; changes in consumer preferences for different packaging products; the financial condition of the Company’s vendors and customers; weather conditions, including their effect on demand for beverages and on crop yields for fruits and vegetables stored in food containers; changes in governmental regulations or enforcement practices, including with respect to environmental, health and safety matters and restrictions as to foreign investment or operation; the impact of the Company’s initiative to generate additional cash, including the reduction of working capital levels and capital spending; the ability of the Company to realize cost savings from its restructuring programs; the Company’s ability to maintain adequate sources of capital and liquidity; costs and payments to certain of the Company’s executive officers in connection with any termination of such executive officers or a change in control of the Company; the impact of existing and future legislation regarding refundable mandatory deposit laws in Europe for non-refillable beverage containers and the implementation of an effective return system; and changes in the Company’s strategic areas of focus, which may impact the Company’s operations, financial profile or levels of indebtedness.

 
46

Crown Holdings, Inc.   

 
 
 
Some of the factors noted above are discussed elsewhere in this Annual Report and prior Company filings with the Securities and Exchange Commission (“SEC”), including within Part I, Item 1A, “Risk Factors” in this Annual Report.  In addition, other factors have been or may be discussed from time to time in the Company’s SEC filings.
 
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 SEC, the Company does not intend to review or revise any particular forward-looking statement in light of future events.
 

 
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth within Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Market Risk” in this Annual Report is incorporated herein by reference.
 
 
 
 
 
 
 
47

Crown Holdings, Inc.   


 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 

 
INDEX TO FINANCIAL STATEMENTS
 

 
Financial Statements
 
       
   
49
       
   
50
       
   
51
       
   
52
       
   
53
       
   
54
       
   
55
       
   
  112
       
 
Financial Statement Schedule
 
       
 
Schedule II – Valuation and Qualifying Accounts and Reserves
113
 

 
 
 
48

Crown Holdings, Inc.   


 
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Because of the inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on its assessment, management has concluded that, as of December 31, 2009, the Company’s internal control over financial reporting was effective based on those criteria.
 
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

 

 
 
49

Crown Holdings, Inc.   

 

 
 
To the Board of Directors and Shareholders of Crown Holdings, Inc:
 
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Crown Holdings, Inc. and its subsidiaries at December 31, 2009 and December 31, 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting.  Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.
 
As discussed in Note A and W to the consolidated financial statements, the Company changed the manner in which it accounts for noncontrolling (minority) interests as of January 1, 2009, and the manner in which it accounts for uncertain tax positions as of January 1, 2007, respectively.
 
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation  of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 
 
 
PricewaterhouseCoopers LLP
Philadelphia, PA
March 1, 2010

 
 
 
 
50

Crown Holdings, Inc.   
 
 
 
(in millions, except per share amounts)

For the years ended December 31
   2009
 
   2008
 
   2007
           
Net sales                                                                                           
$7,938 
 
$8,305 
 
$7,727 
           
Cost of products sold, excluding depreciation and amortization
6,551 
 
6,885 
 
6,468 
Depreciation and amortization
194 
 
216 
 
229 
           
Gross profit 
1,193 
 
1,204 
 
1,030 
           
Selling and administrative expense  
381 
 
396 
 
385 
Provision for asbestos…Note K 
55 
 
25 
 
29 
Provision for restructuring…Note M
43 
 
21 
 
20 
Asset impairments and salesNote N
(6)
 
 
100 
Loss from early extinguishments of debt…Note Q
26 
    2     
Interest expense
247 
 
302 
 
318 
Interest income
(6)
 
(11)
 
(14)
Translation and exchange adjustments
(6)
 
21 
 
(9)
           
Income before income taxes and equity earnings
459 
 
442 
 
201 
Provision for/(benefit from) income taxes…Note W   
 7 
 
112 
 
(400)
Equity loss in affiliates
(2)
 
 
 
 
Net income 
450 
 
330 
 
601 
      Net income attributable to noncontrolling interests    (116)     (104)     (73)
Net income attributable to Crown Holdings
$   334 
 
$   226 
 
$   528 
           
           
Earnings per common share attributable to Crown Holdings:  
         
           
Basic...Note U  
$2.10 
 
$1.42 
 
$3.27