10-Q 1 cck-9302012xq3.htm 10-Q CCK-9.30.2012-Q3

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________________________
FORM 10-Q
_____________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM  ____  TO ____            
COMMISSION FILE NUMBER 0-50189
____________________________________________________
CROWN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________
Pennsylvania
 
75-3099507
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
One Crown Way, Philadelphia, PA
 
19154-4599
(Address of principal executive offices)
 
(Zip Code)
215-698-5100
(registrant’s telephone number, including area code)
____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

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

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x
There were 144,112,740 shares of Common Stock outstanding as of October 31, 2012.


Crown Holdings, Inc.


PART I – FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except per share data)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net sales
$
2,302

 
$
2,423

 
$
6,433

 
$
6,586

Cost of products sold, excluding depreciation and amortization
1,887

 
1,980

 
5,304

 
5,395

Depreciation and amortization
46

 
47

 
133

 
132

Gross profit
369

 
396

 
996

 
1,059

Selling and administrative expense
92

 
96

 
288

 
298

Provision for restructuring
7

 
2

 
10

 
27

Asset impairments and sales
(14
)
 
(2
)
 
(24
)
 
(2
)
Loss from early extinguishments of debt
—

 
—

 
—

 
32

Interest expense
57

 
58

 
170

 
174

Interest income
(2
)
 
(2
)
 
(5
)
 
(8
)
Translation and foreign exchange
(2
)
 
(1
)
 
(4
)
 
—

Income before income taxes and equity earnings
231

 
245

 
561

 
538

Provision for / (benefit from) income taxes
(111
)
 
87

 
(28
)
 
182

Equity earnings in affiliates
2

 
1

 
2

 
1

Net income
344

 
159

 
591

 
357

Net income attributable to noncontrolling interests
(19
)
 
(30
)
 
(63
)
 
(83
)
Net income attributable to Crown Holdings
$
325

 
$
129

 
$
528

 
$
274

 
 
 
 
 
 
 
 
Earnings per common share attributable to Crown Holdings:
 
 
 
 
 
 
 
Basic
$
2.23

 
$
0.86

 
$
3.59

 
$
1.80

Diluted
$
2.20

 
$
0.84

 
$
3.53

 
$
1.77


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


2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net income
$
344

 
$
159

 
$
591

 
$
357

 
 
 
 
 
 
 
 
Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
18

 
(91
)
 
18

 
(24
)
Pension and other postretirement benefits
17

 
17

 
50

 
49

Derivatives qualifying as hedges
43

 
(50
)
 
42

 
(69
)
Total other comprehensive income / (loss)
78

 
(124
)
 
110

 
(44
)
 
 
 
 
 
 
 
 
Total comprehensive income
422

 
35

 
701

 
313

Net income attributable to noncontrolling interests
(19
)
 
(30
)
 
(63
)
 
(83
)
Translation adjustments attributable to noncontrolling interests
(1
)
 
4

 
—

 
(2
)
Derivatives qualifying as hedges attributable to noncontrolling interests
(6
)
 
3

 
(5
)
 
4

Comprehensive income attributable to Crown Holdings
$
396

 
$
12

 
$
633

 
$
232


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


3
Crown Holdings, Inc.


CONSOLIDATED BALANCE SHEETS (Condensed)
(In millions)
(Unaudited)

 
September 30, 2012
 
December 31,
2011
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
240

 
$
342

Receivables, net
1,397

 
948

Inventories
1,207

 
1,148

Prepaid expenses and other current assets
209

 
165

Total current assets
3,053

 
2,603

 
 
 
 
Goodwill
1,976

 
1,952

Property, plant and equipment, net
1,845

 
1,751

Other non-current assets
736

 
562

Total
$
7,610

 
$
6,868

 
 
 
 
Liabilities and equity
 
 
 
Current liabilities
 
 
 
Short-term debt
$
297

 
$
128

Current maturities of long-term debt
104

 
67

Accounts payable and accrued liabilities
1,975

 
2,090

Total current liabilities
2,376

 
2,285

 
 
 
 
Long-term debt, excluding current maturities
3,596

 
3,337

Postretirement and pension liabilities
917

 
996

Other non-current liabilities
494

 
489

Commitments and contingent liabilities (Note J)

 

Noncontrolling interests
252

 
234

Crown Holdings shareholders’ deficit
(25
)
 
(473
)
Total equity/(deficit)
227

 
(239
)
Total
$
7,610

 
$
6,868


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


4
Crown Holdings, Inc.


CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
(In millions)
(Unaudited)

Nine months ended September 30
2012
 
2011
Cash flows from operating activities
 
 
 
Net income
$
591

 
$
357

Adjustments to reconcile net income to net cash used for operating activities:
 
 
 
Depreciation and amortization
133

 
132

Provision for restructuring
10

 
27

Asset impairments and sales
(24
)
 
(2
)
Pension expense
73

 
74

Pension contributions
(84
)
 
(56
)
Stock-based compensation
15

 
15

Changes in assets and liabilities:
 
 
 
Receivables
(489
)
 
(419
)
Inventories
(56
)
 
(299
)
Accounts payable and accrued liabilities
(119
)
 
(51
)
Other, net
(167
)
 
88

Net cash used for operating activities
(117
)
 
(134
)
Cash flows from investing activities
 
 
 
Capital expenditures
(214
)
 
(273
)
Insurance proceeds
33

 
—

Proceeds from sale of property, plant and equipment
3

 
25

Other
(27
)
 
—

Net cash used for investing activities
(205
)
 
(248
)
Cash flows from financing activities
 
 
 
Proceeds from long-term debt
49

 
1,421

Payments of long-term debt
(45
)
 
(1,047
)
Net change in revolving credit facility and short-term debt
470

 
342

Debt issue costs
—

 
(17
)
Common stock issued
7

 
9

Common stock repurchased
(207
)
 
(212
)
Purchase of noncontrolling interests
—

 
(48
)
Dividends paid to noncontrolling interests
(50
)
 
(60
)
Other
(6
)
 
11

Net cash provided by financing activities
218

 
399

Effect of exchange rate changes on cash and cash equivalents
2

 
(1
)
Net change in cash and cash equivalents
(102
)
 
16

Cash and cash equivalents at January 1
342

 
463

Cash and cash equivalents at September 30
$
240

 
$
479


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


5
Crown Holdings, Inc.


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In millions)
(Unaudited)

 
Crown Holdings, Inc. Shareholders’ Equity
 
 
 
 
 
Common
Stock
 
Paid-in
Capital
 
Accumulated
Earnings/
(Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
Crown
Equity
 
Noncontrolling
Interests
 
Total
Balance at January 1, 2011
$
929

 
$
1,231

 
$
230

 
$
(2,333
)
 
$
(153
)
 
$
(96
)
 
$
325

 
$
229

Net income
 
 
 
 
274

 
 
 
 
 
274

 
83

 
357

Other comprehensive income / (loss)
 
 
 
 
 
 
(42
)
 
 
 
(42
)
 
(2
)
 
(44
)
Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(60
)
 
(60
)
Contribution from noncontrolling interests
 
 
 
 
 
 
 
 
 
 

 
2

 
2

Restricted stock awarded
 
 
(2
)
 
 
 
 
 
2

 
 
 
 
 
 
Stock-based compensation
 
 
15

 
 
 
 
 
 
 
15

 
 
 
15

Common stock issued
 
 
6

 
 
 
 
 
3

 
9

 
 
 
9

Common stock repurchased
 
 
(186
)
 
 
 
 
 
(26
)
 
(212
)
 
 
 
(212
)
Purchase of noncontrolling interests
 
 
(48
)
 
 
 


 
 
 
(48
)
 
(68
)
 
(116
)
Balance at September 30, 2011
$
929

 
$
1,016

 
$
504

 
$
(2,375
)
 
$
(174
)
 
$
(100
)
 
$
280

 
$
180

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2012
$
929

 
$
863

 
$
512

 
$
(2,590
)
 
$
(187
)
 
$
(473
)
 
$
234

 
$
(239
)
Net income
 
 
 
 
528

 
 
 
 
 
528

 
63

 
591

Other comprehensive income / (loss)
 
 
 
 
 
 
105

 
 
 
105

 
5

 
110

Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(50
)
 
(50
)
Restricted stock awarded
 
 
(2
)
 
 
 
 
 
2

 
 
 
 
 
 
Stock-based compensation
 
 
15

 
 
 
 
 
 
 
15

 
 
 
15

Common stock issued
 
 
5

 
 
 
 
 
2

 
7

 
 
 
7

Common stock repurchased
 
 
(181
)
 
 
 
 
 
(26
)
 
(207
)
 
 
 
(207
)
Balance at September 30, 2012
$
929

 
$
700

 
$
1,040

 
$
(2,485
)
 
$
(209
)
 
$
(25
)
 
$
252

 
$
227


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

6
Crown Holdings, Inc.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share and statistical data)
(Unaudited)

A.
Statement of Information Furnished

The consolidated financial statements include the accounts of Crown Holdings, Inc. and its consolidated subsidiaries (the “Company”). The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with Form 10-Q instructions. In the opinion of management, these consolidated financial statements contain all adjustments of a normal and recurring nature necessary for a fair statement of the financial position of Crown Holdings, Inc. as of September 30, 2012 and the results of its operations for the three and nine months ended September 30, 2012 and 2011 and of its cash flows for the nine months ended September 30, 2012 and 2011. The results reported in these consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. These results have been determined on the basis of accounting principles generally accepted in the United States of America (“GAAP”).

Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

B.
Recent Accounting and Reporting Pronouncements

In January 2012, the Company adopted changes issued by the FASB to the presentation of comprehensive income. These changes give companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The changes eliminated the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. Other than presentation, these changes had no impact on the Company's consolidated financial statements.

In January 2012, the Company adopted changes issued by the FASB to conform existing guidance regarding fair value measurement and disclosure between GAAP and International Financial Reporting Standards. The FASB's changes clarify many of the existing concepts for measuring fair value and do not result in a change in the Company's application of the FASB's fair value measurement guidance. These changes include enhanced disclosures about recurring Level 3 fair value measurements which did not impact the Company's financial statements. These changes also require additional disclosures for items that are not measured at fair value in the balance sheet but for which the fair value is required to be disclosed.

C.
Stock-Based Compensation
A summary of restricted stock transactions during the nine months ended September 30, 2012 follows:
 
Number of shares
Non-vested shares outstanding at January 1, 2012
997,497

Awarded:

Time-vesting (average grant-date fair value of $33.75)
126,582

Performance-based (average grant-date fair value of $39.52)
216,188

Performance-based – achieved 149% level (grant-date fair value of $33.98)
125,552

Released:

Time-vesting shares awarded in 2009 through 2011
(185,848
)
Performance-based shares awarded in 2009
(256,229
)
Performance-based awards – achieved 149% level
(125,552
)
Non-vested shares outstanding at September 30, 2012
898,190


7
Crown Holdings, Inc.


The Company awards shares of restricted stock to certain senior executives annually. The awards consist of time-vesting awards which vest ratably over three years and performance-based shares which cliff vest at the end of three years. The number of performance-based shares that will ultimately vest is based on the level of market performance achieved, ranging between 0% and 200% of the shares originally awarded, and will be settled in stock. The fair value of the performance-based shares awarded was calculated using a Monte Carlo valuation model. The estimated weighted average grant-date fair value of the 216,188 performance-based shares awarded during the first nine months of 2012 was $39.52 using a weighted average stock price volatility of 27.8%, an expected term of three years, and a weighed average risk-free interest rate of 0.36%.

During the first nine months of 2012, 125,552 additional performance-based shares were issued under the Company's 2009 award because the Company exceeded the target level (100%) of performance-based shares, established on the original date of the related award, by 49%. These shares were issued without restriction.

At September 30, 2012, unrecognized compensation cost related to outstanding restricted stock was approximately $8. The weighted average period over which the expense is expected to be recognized is 1.4 years. The aggregate market value of the shares released and issued on the vesting dates was $19.

D.
Receivables
 
September 30, 2012
 
December 31, 2011
Accounts and notes receivable
$
1,241

 
$
834

Less: allowance for doubtful accounts
(36
)
 
(37
)
Net trade receivables
1,205

 
797

Miscellaneous receivables
192

 
151

Receivables, net
$
1,397

 
$
948


E.
Inventories
Inventories are stated at the lower of cost or market, with cost for U.S. inventories principally determined under the first-in, first-out (“FIFO”) method. Non-U.S. inventories are principally determined under the average cost method.
 
September 30, 2012
 
December 31, 2011
Raw materials and supplies
$
567

 
$
602

Work in process
153

 
136

Finished goods
487

 
410

 
$
1,207

 
$
1,148


F.
Derivative and Other Financial Instruments

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

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

8
Crown Holdings, Inc.



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

Fair value disclosures for financial assets and liabilities that were accounted for at fair value on a recurring basis are provided later in this note. In addition, see Note H for fair value disclosures related to debt.

Derivative Financial Instruments

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

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

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

Cash Flow Hedges

The Company designates certain derivative financial instruments as cash flow hedges. No components of the hedging instruments are excluded from the assessment of hedge effectiveness. Changes in fair value of outstanding derivatives accounted for as cash flow hedges, except any ineffective portion, are recorded in other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon release from comprehensive income is the same as that of the underlying exposure. Contracts outstanding at September 30, 2012 mature between one and thirty-six months.

When the Company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally specified period, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings.

The Company uses commodity forwards to hedge anticipated purchases of various commodities, including aluminum, fuel oil and natural gas and these exposures are hedged by a central treasury unit.

The Company also designates certain foreign exchange contracts as cash flow hedges of anticipated foreign currency denominated sales or purchases. The Company manages these risks at the operating unit level. Often the hedging of foreign currency risk is performed in concert with related commodity price hedges.

9
Crown Holdings, Inc.



The following table sets forth financial information about the impact on Accumulated Other Comprehensive Income (“AOCI”) and earnings from changes in fair value related to derivative instruments.
 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
 
(effective portion)
 
into earnings
 
 
 
Quarter
 
Nine months
 
Quarter
 
Nine months
 
 
 
ended
 
ended
 
ended
 
ended
 
Derivatives in cash flow hedges
 
September 30, 2012
 
September 30, 2012
 
September 30, 2012
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$
—

 
$
(3
)
 
$
—

 
$
—

(1) 
Commodities
 
(58
)
 
(73
)
 
(21
)
 
(39
)
(2) 
Total
 
$
(58
)
 
$
(76
)
 
$
(21
)
 
$
(39
)
 

 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
 
(effective portion)
 
into earnings
 
 
 
Quarter
 
Nine months
 
Quarter
 
Nine months
 
 
 
ended
 
ended
 
ended
 
ended
 
Derivatives in cash flow hedges
 
September 30, 2011
 
September 30, 2011
 
September 30, 2011
 
September 30, 2011
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$
(1
)
 
$
(5
)
 
$
(2
)
 
$
(3
)
(3) 
Commodities
 
(41
)
 
(41
)
 
6

 
22

(4) 
Total
 
$
(42
)
 
$
(46
)
 
$
4

 
$
19

 

(1) Within the Statement of Operations for the three months ended September 30, 2012, a gain of $3 was recognized in cost of products sold and a loss of $3 was recognized in net sales. During the nine months ended September 30, 2012, a gain of $10 was recognized in cost of products sold and a loss of $10 recognized in net sales.

(2) Within the Statement of Operations for the three months ended September 30, 2012, a loss of $28 was recognized in cost of products sold and a tax benefit of $7 was recognized in income tax expense. During the nine months ended September 30, 2012, a loss of $51 was recognized in cost of products sold and a tax benefit of $12 was recognized in income tax expense.

(3) Within the Statement of Operations for the three months ended September 30, 2011, a gain of $1 was recognized in cost of products sold and a loss of $3 was recognized in net sales. During the nine months ended September 30, 2011, a loss of $2 was recognized in net sales and a loss of $1 was recognized in cost of products sold.

(4) Within the Statement of Operations for the three months ended September 30, 2011, a gain of $8 was recognized in cost of products sold and $2 was recognized as additional income tax expense. During the nine months ended September 30, 2011, a gain of $30 was recognized in cost of products sold and $8 was recognized as additional income tax expense.

For the twelve month period ending September 30, 2013, a net loss of $19 ($14, net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the nine months ended September 30, 2012 and 2011 in connection with anticipated transactions that were no longer considered probable. For the nine months ended September 30, 2012, the ineffective portion of the Company's hedges recorded in earnings was a loss of $4 ($3, net of tax).

Fair Value Hedges and Contracts Not Designated as Hedges

The Company designates certain derivative financial instruments as fair value hedges of recognized foreign-denominated assets and liabilities, generally trade accounts receivable and payable and unrecognized firm commitments. The notional values and maturity dates of the derivative instruments coincide with those of the hedged items. Changes in fair value of the derivative financial instruments, excluding time value, are offset by changes in fair value of the related hedged items.

10
Crown Holdings, Inc.



Other than for firm commitments, amounts related to time value are excluded from the assessment and measurement of hedge effectiveness and are reported in earnings. Less than $1 was reported in earnings for the nine months ended September 30, 2012.

Certain derivative financial instruments, including foreign exchange contracts related to intercompany debt, were not designated or did not qualify for hedge accounting; however, they are effective economic hedges as the changes in their fair value, except for time value, are offset by changes in re-measurement of the related hedged items. The Company’s primary use of these derivative instruments is to offset the earnings impact that fluctuations in foreign exchange rates have on certain monetary assets and liabilities denominated in nonfunctional currencies. Changes in fair value of these derivative instruments are immediately recognized in earnings as foreign exchange adjustments.

The impact on earnings from foreign exchange contracts designated as fair value hedges were gains of $3 and $4 for the three and nine months ended September 30, 2012 and a loss of $4 for the three months ended September 30, 2011. The impact on earnings from foreign exchange contracts not designated as hedges were losses of $3 and $6 for the three and nine months ended September 30, 2012 and losses of $25 and $6 for the same periods in 2011. These adjustments were reported within translation and foreign exchange in the Consolidated Statements of Operations and were offset by changes in the fair values of the related hedged item.

Net Investment Hedges

During the nine months ended September 30, 2012, the Company designated certain derivative and non-derivative financial instruments (debt) as hedges of its net investment in a euro-based subsidiary to offset €417 ($532 as of September 30, 2012) of foreign currency exposure related to the investment. The change in value of the hedging instruments is reported in accumulated other comprehensive income within shareholders' equity. The net assets of the Company's euro-based subsidiary are re-measured using the foreign currency exchange rate in effect at the balance sheet date with any adjustment reported in cumulative translation adjustments within accumulated other comprehensive income. As of September 30, 2012, the unrealized foreign currency transaction gain from the re-measurement of the non-derivative financial instruments was a loss of approximately $4 ($3, net of tax) and the aggregate fair value of the derivative financial instruments was less than $1 with both amounts reported in accumulated other comprehensive income.

The following table sets forth the fair value hierarchy for the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, respectively.
Derivative Assets
 
Balance Sheet Classification
 
Fair Value Hierarchy
 
September 30, 2012
 
December 31, 2011
Derivatives designated as hedges:
 
 
 
 
 
 
Foreign exchange
 
Other current assets
 
2
 
$
12

 
$
9

Commodities
 
Other current assets
 
1
 
9

 
4

Commodities
 
Other non-current assets
 
1
 
3

 
—

Derivatives not designated as hedges:
 
 
 
 
 

Foreign exchange
 
Other current assets
 
2
 
6

 
6

 
 
Total
 
 
 
$
30

 
$
19

 
 
 
 
 
 
 
 
 
Derivative Liabilities
 
Balance Sheet Classification
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
Foreign exchange
 
Accounts payable and accrued liabilities
 
2
 
$
11

 
$
10

Commodities
 
Accounts payable and accrued liabilities
 
1
 
19

 
56

Commodities
 
Other non-current liabilities
 
1
 
3

 
6

Derivatives not designated as hedges:
 
 
 
 
 

Foreign exchange
 
Accounts payable and accrued liabilities
 
2
 
5

 
10

 
 
Total
 
 
 
$
38

 
$
82


11
Crown Holdings, Inc.



The aggregate U.S. dollar-equivalent notional values of outstanding derivative instruments in the Consolidated Balance Sheets at September 30, 2012 and December 31, 2011 were:
 
September 30, 2012
 
December 31, 2011
Derivatives in cash flow hedges:
 
 
 
Foreign exchange
$
357

 
$
480

Commodities
428

 
528

Derivatives in fair value hedges:

 

Foreign exchange
127

 
123

Derivatives in net investment hedges:
 
 
 
Foreign exchange
38

 
—

Derivatives not designated as hedges:

 

Foreign exchange
359

 
965



G.
Restructuring

The Company recorded restructuring charges as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
European Division Headquarters
$
2

 
$
1

 
$
2

 
$
20

North America Food
1

 
1

 
2

 
3

European Food
1

 
—

 
2

 
—

Other European operations
—

 
—

 
1

 
4

Asia
3

 
—

 
3

 
—

 
7

 
2

 
10

 
27


Restructuring charges by type are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Termination benefits
$
3

 
$
—

 
$
4

 
$
6

Other exit costs
3

 
2

 
5

 
21

Asset write-downs
1

 
 
 
1

 
 
 
$
7

 
$
2

 
$
10

 
$
27


European Division Headquarters

As of September 30, 2012, the Company incurred costs of $36 which are expected to be the total costs related to the relocation of its European Division headquarters and management to Switzerland in order to benefit from a more centralized management location.

The following table summarizes the restructuring accrual balances and utilization by cost type for the relocation:
 
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2012
$
—

 
$
19

 
$
19

Provisions
—

 
2

 
2

Balance at September 30, 2012
$
—

 
$
21

 
$
21


12
Crown Holdings, Inc.



Other exit costs represent the estimated employee compensation costs resulting from an intercompany payment related to the relocation. The Company expects to pay these costs over the next 3 years.

European Food

In the fourth quarter of 2011, the Company reviewed its existing supply and demand profile and long-term plans in Europe.  The Company identified additional restructuring actions to improve profitability, including in its European Food business, by consolidating operations through reducing capacity and headcount.  In December 2011, the Company approved these actions and recorded a charge of $9. The action is expected to reduce headcount by approximately 121. The Company expects to incur future additional charges of $1 related to the action which it expects to complete in 2012 at an estimated aggregate cost of $12. The table below summarizes the restructuring accrual balances and utilization by cost type for this action.
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2012
$
10

 
$
—

 
$
10

Provisions
1

 
1

 
2

Payments
(6
)
 
(1
)
 
(7
)
Balance at September 30, 2012
$
5

 
$
—

 
$
5


Other European operations

In the first quarter of 2011, the Company recorded a charge of $4 to reduce headcount in its European Specialty Packaging segment.  In the fourth quarter of 2011, the Company reviewed its existing supply and demand profile and long-term plans in Europe.  The Company identified additional restructuring actions to improve profitability, primarily in its European Aerosols and Specialty Packaging businesses, by consolidating operations through reducing capacity and headcount.  In December 2011, the Company approved these actions and recorded an additional charge of $41.  These actions are expected to reduce headcount by approximately 360 and to eliminate approximately 14% of the businesses' capacity. The Company currently expects to incur future additional charges of $7 related to the actions and to complete the actions in 2013 at an estimated aggregate cost of $53.

The table below summarizes the restructuring accrual balances and utilization by cost type for this action.
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2012
$
45

 
$
—

 
$
45

Provision
1

 
—

 
1

Payments
(15
)
 
—

 
(15
)
Foreign currency translation
—

 
—

 
—

Balance at September 30, 2012
$
31

 
$
—

 
$
31


Other

As of September 30, 2012, the accrual balances related to the restructuring actions in North America Food and Asia were $1 and $2, respectively.

13
Crown Holdings, Inc.


H.
Debt
The Company’s outstanding debt at September 30, 2012 and December 31, 2011 was as follows.
 
September 30,
2012
 
December 31,
2011
Short-term debt
$
297

 
$
128

Long-term debt

 

Senior secured borrowings:

 

Revolving credit facilities
$
421

 
$
119

Term loan facilities

 

U.S. dollar at LIBOR plus 1.75% due 2016
550

 
550

Euro (€274 at June 30, 2012) at EURIBOR plus 1.75% due 2016
352

 
355

Senior notes and debentures:

 

U.S. dollar 7.625% due 2017
400

 
400

Euro (€500 at June 30, 2012) 7.125% due 2018
642

 
647

U.S. dollar 6.25% due 2021
700

 
700

U.S. dollar 7.375% due 2026
350

 
350

U.S. dollar 7.50% due 2096
64

 
64

Other indebtedness in various currencies
230

 
230

Unamortized discounts
(9
)
 
(11
)
Total long-term debt
3,700

 
3,404

Less: current maturities
(104
)
 
(67
)
Total long-term debt, less current maturities
$
3,596

 
$
3,337


The estimated fair value of the Company’s long-term borrowings, using a market approach incorporating level 2 inputs such as quoted market prices for the same or similar issues, was $4,192 at September 30, 2012.

I.
Asbestos-Related Liabilities

Crown Cork & Seal Company, Inc. (“Crown Cork”) is one of many defendants in a substantial number of lawsuits filed throughout the United States by persons alleging bodily injury as a result of exposure to asbestos. These claims arose from the insulation operations of a U.S. company, the majority of whose stock Crown Cork purchased in 1963. Approximately ninety days after the stock purchase, this U.S. company sold its insulation assets and was later merged into Crown Cork.
Prior to 1998, amounts paid to asbestos claimants were covered by a fund made available to Crown Cork under a 1985 settlement with carriers insuring Crown Cork through 1976, when Crown Cork became self-insured. The fund was depleted in 1998 and the Company has no remaining coverage for asbestos-related costs.
In recent years, the states of Alabama, Arizona, Florida, Georgia, Idaho, Indiana, Michigan, Mississippi, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Utah, Wisconsin and Wyoming enacted legislation that limits asbestos-related liabilities under state law of companies such as Crown Cork that allegedly incurred these liabilities because they are successors by corporate merger to companies that had been involved with asbestos. The legislation, which applies to future and, with the exception of Georgia, South Carolina, South Dakota and Wyoming, pending claims, caps asbestos-related liabilities at the fair market value of the predecessor's total gross assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total value of its predecessor's assets adjusted for inflation. Crown Cork has integrated the legislation into its claims defense strategy. The Company cautions, however, that the legislation may be challenged and there can be no assurance regarding the ultimate effect of the legislation on Crown Cork.
In June 2003, the State of Texas enacted legislation that limits the asbestos-related liabilities in Texas courts of companies such as Crown Cork that allegedly incurred these liabilities because they are successors by corporate merger to companies that had been involved with asbestos. The Texas legislation, which applies to future claims and pending claims, caps asbestos-related liabilities at the total gross value of the predecessor’s assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total adjusted value of its predecessor’s assets.

14
Crown Holdings, Inc.


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

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

During the nine months ended September 30, 2012, the Company paid $14 to settle outstanding claims and had claims activity as follows:
Beginning claims
50,000

New claims
2,500

Settlements or dismissals
(1,500
)
Ending claims
51,000


In the fourth quarter of each year, the Company performs an analysis of outstanding claims and categorizes by year of exposure and state filed. As of December 31, 2011, the Company's outstanding claims were:
 
2011
Claimants alleging first exposure after 1964
15,000

Claimants alleging first exposure before or during 1964 filed in:

Texas
12,000

Pennsylvania
2,000

Other states that have enacted asbestos legislation
6,000

Other states
15,000

Total claims outstanding
50,000


The outstanding claims in each period exclude 3,100 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes will not have a material effect on the Company’s consolidated results of operations, financial position or cash flow. The outstanding claims also exclude approximately 19,000 inactive claims. Due to the passage of time, the Company considers it unlikely that the plaintiffs in these cases will pursue further action against the Company. The exclusion of these inactive claims had no effect on the calculation of the Company’s accrual as the claims were filed in states, as described above, where the Company’s liability is limited by statute.

Historically (1977-2011), Crown Cork estimates that approximately one-quarter of all asbestos-related claims made against it have been asserted by claimants who claim first exposure to asbestos after 1964.

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

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

15
Crown Holdings, Inc.



As of December 31, the percentage of outstanding claims related to claimants alleging serious diseases (primarily mesothelioma and other malignancies) were as follows:

 
2011
 
2010
 
2009
Total claims
18
%
 
18
%
 
16
%
Pre-1964 claims in states without asbestos legislation
33
%
 
31
%
 
29
%

Crown Cork has entered into arrangements with plaintiffs’ counsel in certain jurisdictions with respect to claims which are not yet filed, or asserted, against it. However, Crown Cork expects claims under these arrangements to be filed or asserted against Crown Cork in the future. The projected value of these claims is included in the Company’s estimated liability as of September 30, 2012.

As of September 30, 2012, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $235, including $179 for unasserted claims. The Company’s accrual includes estimated probable costs for claims through the year 2021. The Company’s accrual excludes potential costs for claims beyond 2021 because the Company believes that the key assumptions underlying its accrual are subject to greater uncertainty as the projection period lengthens.

It is reasonably possible that the actual loss could be in excess of the Company’s accrual. However, the Company is unable to estimate the reasonably possible loss in excess of its accrual due to uncertainty in the following assumptions that underlie the Company’s accrual and the possibility of losses in excess of such accrual: the amount of damages sought by the claimant (which was not specified for approximately 88% of the claims outstanding at the end of 2011), the Company and claimant’s willingness to negotiate a settlement, the terms of settlements of other defendants with asbestos-related liabilities, the bankruptcy filings of other defendants (which may result in additional claims and higher settlements for non-bankrupt defendants), the nature of pending and future claims (including the seriousness of alleged disease, whether claimants allege first exposure to asbestos before or during 1964 and the claimant’s ability to demonstrate the alleged link to Crown Cork), the volatility of the litigation environment, the defense strategies available to the Company, the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, and the effect of state asbestos legislation (including the validity and applicability of the Pennsylvania legislation to non-Pennsylvania jurisdictions, where the substantial majority of the Company’s asbestos cases are filed).

J.
Commitments and Contingent Liabilities

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

The Company has also recorded aggregate accruals of $7 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.

The Company's Italian subsidiaries have received and expect to receive additional assessments for value added taxes and related income taxes from the Italian tax authorities resulting from certain third party suppliers' failures to remit required value added tax payments due by those suppliers under Italian law with respect to purchases for resale to the Company. The assessments cover tax periods 2004, 2005 and 2006 and additional assessments are expected to cover periods 2007 through 2009. The expected total assessments resulting from these third party suppliers failing to remit the tax payments are approximately €40 ($51 at September 30, 2012) plus any applicable interest and penalties which the Company estimates may be up to approximately €55 ($71 at September 30, 2012) . In early 2012, the Company received one favorable ruling

16
Crown Holdings, Inc.


and two unfavorable rulings from lower level Italian courts related to these assessments. The Company expects these rulings to be appealed. The Company continues to believe that, if necessary, it should be able to successfully dispute the assessments and demonstrate in the appropriate Italian courts that it has no additional liability for the asserted taxes and related interest and penalties. While the Company intends to dispute the assessments, there can be no assurance that it will be successful in such disputes or regarding the final amount of any additional taxes and related interest and penalties payable to the Italian tax authorities.

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

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

At September 30, 2012, the Company was party to certain indemnification agreements covering environmental remediation, lease payments and other potential costs associated with properties sold or businesses divested. For agreements with defined liability limits the maximum potential amount of future liability was $11. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated. At September 30, 2012, the Company also had guarantees of $41 related to the residual values of leased assets.

K.
Earnings Per Share

The following table summarizes the computations of basic and diluted earnings per share attributable to Crown Holdings for the periods ended September 30, 2012 and 2011, respectively:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net income attributable to Crown Holdings
$
325

 
$
129

 
$
528

 
$
274

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
145.5

 
150.1

 
147.1

 
152.3

Add: dilutive stock options and restricted stock
2.3

 
2.6

 
2.3

 
2.8

Diluted
147.8

 
152.7

 
149.4

 
155.1

Basic earnings per share
$
2.23

 
$
0.86

 
$
3.59

 
$
1.80

Diluted earnings per share
$
2.20

 
$
0.84

 
$
3.53

 
$
1.77


For the three months ended September 30, 2012 and 2011, 0.1 million  and 0.0 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive. 

For the nine months ended September 30, 2012 and 2011, 0.1 million and 0.0 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive.


17
Crown Holdings, Inc.


L.
Pension and Other Postretirement Benefits

The components of net periodic pension and other postretirement benefits costs for the three and nine months ended September 30 were as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
Pension Benefits – U.S. Plans
2012
 
2011
 
2012
 
2011
Service cost
$
3

 
$
3

 
$
9

 
$
9

Interest cost
18

 
18

 
52

 
54

Expected return on plan assets
(24
)
 
(20
)
 
(70
)
 
(60
)
Recognized prior service cost
—

 
1

 
—

 
2

Recognized net loss
14

 
12

 
42

 
36

Net periodic cost
$
11

 
$
14

 
$
33

 
$
41

 
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
Pension Benefits – Non-U.S. Plans
2012
 
2011
 
2012
 
2011
Service cost
$
7

 
$
7

 
$
21

 
$
19

Interest cost
37

 
42

 
113

 
121

Expected return on plan assets
(45
)
 
(50
)
 
(137
)
 
(147
)
Recognized prior service cost
(1
)
 
—

 
—

 
1

Recognized net loss
15

 
12

 
43

 
39

Net periodic cost
$
13

 
$
11

 
$
40

 
$
33


 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
Other Postretirement Benefits
2012
 
2011
 
2012
 
2011
Service cost
$
2

 
$
1

 
$
4

 
$
6

Interest cost
4

 
5

 
12

 
16

Recognized prior service credit
(11
)
 
(8
)
 
(33
)
 
(25
)
Recognized net loss
3

 
3

 
11

 
10

Net periodic cost
$
(2
)
 
$
1

 
$
(6
)
 
$
7



M.
Accelerated Share Repurchase

In December 2011, the Company entered into an agreement to repurchase shares of its common stock under an accelerated share repurchase program. Pursuant to the agreement, the Company initially purchased 2,771,004 shares for $100. In April 2012, the Company received an additional 4,653 shares based on its volume-weighted average stock price during the term of the transaction.
In July 2012, the Company entered into an agreement to repurchase shares of its common stock under an accelerated repurchase program. Pursuant to the agreement, the Company initially purchased 5,016,190 shares for $200. The actual number of shares repurchased will be based on the volume-weighted average share price of the Company's stock during the term of the transaction subject to provisions that establish a minimum number of shares to be repurchased.



18
Crown Holdings, Inc.


N.
Income Taxes
The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to pre-tax income as a result of the following items: 
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
U.S. statutory rate at 35%
$
81

 
$
86

 
$
196

 
$
188

Tax on foreign income
(23
)
 
(9
)
 
(55
)
 
(44
)
Valuation allowance
45

 
(13
)
 
48

 
(1
)
Tax law changes
2

 
28

 
2

 
25

Other items, net
(216
)
 
(5
)
 
(219
)
 
14

Income tax provision
$
(111
)
 
$
87

 
$
(28
)
 
$
182


In the third quarter of 2012, the Company recorded an income tax benefit of $169, net of valuation allowance as described below, primarily related to the recognition of previously unrecognized U.S. foreign tax credits.
In the third quarter, the Company committed to a formal repatriation plan, including certain steps that were completed in September with the filing of its 2011 U.S. income tax return, which will allow it to claim these credits on its 2012 income tax return. The Company's plan involved finalization of earnings and profits in certain foreign subsidiaries, evaluation of expiring US tax law provisions and anticipated utilization of existing net operating loss and foreign tax credit carryforwards. The Company has been utilizing existing net operating losses which will be fully utilized this year and will begin to utilize existing foreign tax credits in 2013. Once the Company claims these credits on its tax return, it has ten years to utilize the credits.
In connection with this action, the Company determined that it will amend its 2003 U.S. income tax return to claim foreign taxes paid as a credit rather than as a tax deduction. The Company recorded a valuation allowance of $47 against certain of these credits that expire in 2013 which, at this time, the Company does not believe are more likely than not to be realized prior to expiration. The Company will continue to search for and evaluate tax planning strategies which may allow it to accelerate taxable income into 2013 in order to use the credits. If the Company is able to identify a feasible tax planning strategy, it is possible that it will release a portion of the valuation allowance in the future.
Realization of the foreign tax credits recognized in the quarter is dependent upon the amount and timing of future taxable income. If actual results are different than the Company's projections, it is possible that the Company may record additional valuation allowance in the future.
The other items caption for the nine months ended September 30, 2011 includes $20 of increase due to tax charges in connection with the relocation of the Company’s European headquarters and management to Switzerland.

O.
Asset Impairments and Sales

For the three and nine months ended September 30, 2012, the Company recognized gains of $14 and $24 primarily related to insurance proceeds received for property damage incurred in the 2011 flooding of the Company's beverage can plant in Thailand.

P.
Segment Information

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


19
Crown Holdings, Inc.



The tables below present information about operating segments for the three and nine months ended September 30, 2012 and 2011:
 
External Sales
 
External Sales
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Americas Beverage
$
574

 
$
594

 
$
1,701

 
$
1,697

North America Food
259

 
271

 
672

 
676

European Beverage
451

 
451

 
1,285

 
1,291

European Food
547

 
623

 
1,383

 
1,554

European Specialty Packaging
102

 
122

 
289

 
341

Total reportable segments
1,933

 
2,061

 
5,330

 
5,559

Non-reportable segments
369

 
362

 
1,103

 
1,027

Total
$
2,302

 
$
2,423

 
$
6,433

 
$
6,586


The primary sources of revenue included in non-reportable segments are the Company's aerosol can businesses in North America, Europe and Thailand, the Company's beverage can businesses in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam, the Company's food can and closures business in Thailand and the Company's tooling and equipment operations in the U.S. and United Kingdom.
 
Intersegment Sales
 
Intersegment Sales
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Americas Beverage
$
18

 
$
19

 
$
65

 
$
61

North America Food
1

 
6

 
6

 
12

European Beverage
—

 
—

 
12

 
1

European Food
24

 
27

 
79

 
89

European Specialty Packaging
10

 
16

 
32

 
53

Total reportable segments
53

 
68

 
194

 
216

Non-reportable segments
9

 
24

 
36

 
62

Total
$
62

 
$
92

 
$
230

 
$
278


Intersegment sales primarily include sales of ends and components used to manufacture cans, such as printed and coated metal, as well as parts and equipment used in the manufacturing process.

 
Segment Income
 
Segment Income
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Americas Beverage
$
82

 
$
77

 
$
229

 
$
217

North America Food
44

 
49

 
117

 
115

European Beverage
68

 
61

 
174

 
176

European Food
64

 
87

 
151

 
202

European Specialty Packaging
9

 
11

 
20

 
30

Total reportable segments
$
267

 
$
285

 
$
691

 
$
740



20
Crown Holdings, Inc.



A reconciliation of segment income of reportable segments to income before income taxes and equity earnings for the three and nine months ended September 30, 2012 and 2011 follows:

 
Segment Income
 
Segment Income
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012

2011
 
2012

2011
Segment income of reportable segments
$
267

 
$
285

 
$
691

 
$
740

Segment income of non-reportable segments
59

 
62

 
166

 
174

Corporate and unallocated items
(49
)
 
(47
)
 
(149
)
 
(153
)
Provision for restructuring
(7
)
 
(2
)
 
(10
)
 
(27
)
Asset impairments and sales
14

 
2

 
24

 
2

Loss from early extinguishments of debt
—

 
—

 
—

 
(32
)
Interest expense
(57
)
 
(58
)
 
(170
)
 
(174
)
Interest income
2

 
2

 
5

 
8

Translation and foreign exchange
2

 
1

 
4

 
—

Income before income taxes and equity earnings
$
231


$
245

 
$
561

 
$
538


For the nine months ended September 30, 2012, intercompany profit of $1 was eliminated within segment income of non-reportable segments. For the three and nine months ended September 30, 2011, intercompany profit of $2 and $4 was eliminated.

“Corporate and unallocated items” includes corporate and division administrative costs, technology costs, and unallocated items such as the U.S. and U.K. pension plan costs.

Q.
Subsequent Events

In the fourth quarter, the Company established a joint venture to acquire shares of Superior Multi-Packaging, Ltd., a listed company on the Singapore exchange with operations in China, Singapore and Vietnam through a tender offer.  The Company's partner in the joint venture contributed its existing shares in Superior Multi-Packaging to the joint venture and the joint venture paid $19 to acquire additional shares.  The Company has management control over both the joint venture and the operations of Superior Multi-Packaging and will consolidate both in its financial statements.  The tender offer has not yet closed therefore it is possible that the joint venture may acquire additional shares.

Also in the fourth quarter, the Company paid $38 to acquire a beverage can and end production business in Vietnam. 



21
Crown Holdings, Inc.


R.
Condensed Combining Financial Information
Crown European Holdings SA (Issuer), a wholly owned subsidiary of the Company, has €500 ($642 at September 30, 2012) principal amount of 7.125% senior notes due 2018 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and certain subsidiaries. The guarantors are wholly owned by the Company and the guarantees are made on a joint and several basis. The guarantor column includes financial information for all subsidiaries in the United States (except for an insurance subsidiary and a receivable securitization subsidiary), substantially all subsidiaries in Belgium, Canada, France, Germany, Mexico, Switzerland and the United Kingdom, and a subsidiary in the Netherlands. The following condensed combining financial statements:
•statements of comprehensive income for the three and nine months ended September 30, 2012 and 2011,
•balance sheets as of September 30, 2012 and December 31, 2011, and
•statements of cash flows for the nine months ended September 30, 2012 and 2011
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.
During the second quarter of 2012, the Company revised its presentation of the condensed combining balance sheet at December 31, 2011 to reclassify a consolidation entry to net certain value added tax receivables and payables from non-guarantor subsidiaries to guarantor subsidiaries. The impact was a $226 decrease to both receivables and accounts payable and accrued liabilities of guarantor subsidiaries with a corresponding increase to non-guarantor subsidiaries. The Company deemed the revision to be immaterial for the previously issued financial statements and therefore, revised the condensed combining balance sheet included in this filing.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 30, 2012
(in millions)
 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
1,223

 
$
1,079

 

 
$
2,302

Cost of products sold, excluding depreciation and amortization

 

 
987

 
900

 

 
1,887

Depreciation and amortization

 

 
20

 
26

 

 
46

Gross profit
 
 
 
 
216

 
153

 
 
 
369

Selling and administrative expense

 
—

 
73

 
19

 

 
92

Provision for restructuring

 
—

 
5

 
2

 

 
7

Asset impairments and sales
—

 
—

 
—

 
(14
)
 

 
(14
)
Net interest expense

 
$
10

 
34

 
11

 

 
55

Technology royalty

 
—

 
(11
)
 
11

 

 
—

Translation and foreign exchange

 
—

 
(1
)
 
(1
)
 

 
(2
)
Income/(loss) before income taxes
 
 
(10
)
 
116

 
125

 
 
 
231

Provision for / (benefit from) income taxes

 
15

 
(140
)
 
14

 

 
(111
)
Equity earnings / (loss) in affiliates
$
325

 
85

 
69

 
—

 
$
(477
)
 
2

Net income
325

 
60

 
325

 
111

 
(477
)
 
344

Net income attributable to noncontrolling interests

 

 

 
(19
)
 

 
(19
)
Net income attributable to Crown Holdings
$
325

 
$
60

 
$
325

 
$
92

 
$
(477
)
 
$
325

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
396

 
$
108

 
$
396

 
$
156

 
$
(634
)
 
$
422

Comprehensive income attributable to noncontrolling interests


 


 


 
(26
)
 


 
(26
)
Comprehensive income attributable to Crown Holdings
$
396

 
$
108

 
$
396

 
$
130

 
$
(634
)
 
$
396



22
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 30, 2011
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
1,326

 
$
1,097

 

 
$
2,423

Cost of products sold, excluding depreciation and amortization

 


 
1,077

 
903

 

 
1,980

Depreciation and amortization

 

 
21

 
26

 

 
47

Gross profit
 
 
—

 
228

 
168

 
 
 
396

Selling and administrative expense

 
$
(1
)
 
73

 
24

 

 
96

Provision for restructuring

 

 
2

 

 

 
2

Asset impairments and sales

 


 
(2
)
 


 
$
—

 
(2
)
Net interest expense

 
20

 
24

 
12

 

 
56

Technology royalty

 

 
(10
)
 
10

 

 
—

Translation and foreign exchange
—

 
—

 
(1
)
 
—

 
—

 
(1
)
Income/(loss) before income taxes
 
 
(19
)
 
142

 
122

 
—

 
245

Provision for / (benefit from) income taxes
—

 
—

 
60

 
27

 
—

 
87

Equity earnings / (loss) in affiliates
$
129

 
100

 
47

 
—

 
$
(275
)
 
1

Net income
129

 
81

 
129

 
95

 
(275
)
 
159

Net income attributable to noncontrolling interests
—

 
—

 
—

 
(30
)
 
—

 
(30
)
Net income attributable to Crown Holdings
$
129

 
$
81

 
$
129

 
$
65

 
$
(275
)
 
$
129

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
12

 
$
(57
)
 
$
12

 
$
(62
)
 
$
130

 
$
35

Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
(23
)
 
—

 
(23
)
Comprehensive income attributable to Crown Holdings
$
12

 
$
(57
)
 
$
12

 
$
(85
)
 
$
130

 
$
12



23
Crown Holdings, Inc.



CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the nine months ended September 30, 2012
(in millions)
 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
3,500

 
$
2,933

 

 
$
6,433

Cost of products sold, excluding depreciation and amortization

 
 
 
2,870

 
2,434

 

 
5,304

Depreciation and amortization

 

 
58

 
75

 

 
133

Gross profit
 
 
 
 
572

 
424

 
 
 
996

Selling and administrative expense

 
$
(1
)
 
223

 
66

 

 
288

Provision for restructuring

 

 
7

 
3

 

 
10

Asset impairments and sales

 

 
(1
)
 
(23
)
 

 
(24
)
Net interest expense

 
38

 
97

 
30

 

 
165

Technology royalty

 

 
(30
)
 
30

 

 
—

Translation and foreign exchange

 

 
(1
)
 
(3
)
 

 
(4
)
Income/(loss) before income taxes
 
 
(37
)
 
277

 
321

 
 
 
561

Provision for / (benefit from) income taxes

 
15

 
(86
)
 
43

 

 
(28
)
Equity earnings / (loss) in affiliates
$
528

 
199

 
165

 

 
$
(890
)
 
2

Net income
528

 
147

 
528

 
278

 
(890
)
 
591

Net income attributable to noncontrolling interests

 

 

 
(63
)
 

 
(63
)
Net income attributable to Crown Holdings
$
528

 
$
147

 
$
528

 
$
215

 
$
(890
)
 
$
528

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
633

 
$
212

 
$
633

 
$
315

 
$
(1,092
)
 
$
701

Comprehensive income attributable to noncontrolling interests


 


 


 
(68
)
 


 
(68
)
Comprehensive income attributable to Crown Holdings
$
633

 
$
212

 
$
633

 
$
247

 
$
(1,092
)
 
$
633



24
Crown Holdings, Inc.





CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
                                                                 For the nine months ended September 30, 2011                                                                                    
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
3,675

 
$
2,911

 

 
$
6,586

Cost of products sold, excluding depreciation and amortization

 
$
(1
)
 
3,018

 
2,378

 

 
5,395

Depreciation and amortization

 

 
61

 
71

 

 
132

Gross profit
 
 
1

 
596

 
462

 
 
 
1,059

Selling and administrative expense

 
(2
)
 
230

 
70

 

 
298

Provision for restructuring

 

 
27

 

 
—

 
27

Asset impairments and sales

 
—

 
(184
)
 


 
$
182

 
(2
)
Loss from early extinguishment of debt

 
2

 
30

 
—

 

 
32

Net interest expense

 
59

 
79

 
28

 

 
166

Technology royalty

 

 
(25
)
 
25

 

 
—

Translation and foreign exchange

 
—

 
(1
)
 
1

 
—

 
—

Income/(loss) before income taxes
 
 
(58
)
 
440

 
338

 
(182
)
 
538

Provision for / (benefit from) income taxes
—

 
1

 
99

 
82

 
—

 
182

Equity earnings / (loss) in affiliates
$
274

 
239

 
(67
)
 
—

 
(445
)
 
1

Net income
274

 
180

 
274

 
256

 
(627
)
 
357

Net income attributable to noncontrolling interests
—

 
—

 
—

 
(83
)
 
—

 
(83
)
Net income attributable to Crown Holdings
$
274

 
$
180

 
$
274

 
$
173

 
$
(627
)
 
$
274

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
232

 
$
100

 
$
232

 
$
200

 
$
(451
)
 
$
313

Comprehensive income attributable to noncontrolling interests


 


 


 
(81
)
 


 
(81
)
Comprehensive income attributable to Crown Holdings
$
232

 
$
100

 
$
232

 
$
119

 
$
(451
)
 
$
232



25
Crown Holdings, Inc.



CONDENSED COMBINING BALANCE SHEET

As of September 30, 2012
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
$
54

 
$
186

 

 
$
240

Receivables, net

 


 
409

 
988

 

 
1,397

Intercompany receivables

 
$
2

 
68

 
32

 
$
(102
)
 
 
Inventories

 

 
641

 
566

 

 
1,207

Prepaid expenses and other current assets
$
1

 
6

 
133

 
69

 

 
209

Total current assets
1

 
8

 
1,305

 
1,841

 
(102
)
 
3,053

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
1,818

 
3,983

 
482

 
(6,283
)
 
 
Investments
848

 
3,221

 
(406
)
 

 
(3,663
)
 
 
Goodwill

 

 
1,420

 
556

 

 
1,976

Property, plant and equipment, net

 

 
592

 
1,253

 

 
1,845

Other non-current assets

 
25

 
627

 
84

 

 
736

Total
$
849

 
$
5,072

 
$
7,521

 
$
4,216

 
$
(10,048
)
 
$
7,610

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 
$
13

 
$
8

 
$
276

 

 
$
297

Current maturities of long-term debt

 
18

 
28

 
58

 

 
104

Accounts payable and accrued liabilities
$
17

 
9

 
1,087

 
862

 

 
1,975

Intercompany payables

 
—

 
32

 
70

 
$
(102
)
 
 
Total current liabilities
17

 
40

 
1,155

 
1,266

 
(102
)
 
2,376

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
977

 
2,449

 
170

 

 
3,596

Long-term intercompany debt
857

 
2,721

 
1,863

 
842

 
(6,283
)
 
 
Postretirement and pension liabilities

 

 
899

 
18

 

 
917

Other non-current liabilities

 
14

 
307

 
173

 

 
494

Commitments and contingent liabilities

 

 

 

 

 
 
Noncontrolling interests

 

 
—

 
252

 

 
252

Crown Holdings shareholders’ equity/(deficit)
(25
)
 
1,320

 
848

 
1,495

 
(3,663
)
 
(25
)
Total equity/(deficit)
(25
)
 
1,320

 
848

 
1,747

 
(3,663
)
 
227

Total
$
849

 
$
5,072

 
$
7,521

 
$
4,216

 
$
(10,048
)
 
$
7,610



26
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2011
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
$
54

 
$
288

 

 
$
342

Receivables, net

 


 
230

 
718

 

 
948

Intercompany receivables

 
$
2

 
60

 
23

 
$
(85
)
 
—

Inventories

 

 
615

 
533

 

 
1,148

Prepaid expenses and other current assets


 
7

 
129

 
29

 

 
165

Total current assets
—

 
9

 
1,088

 
1,591

 
(85
)
 
2,603

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
1,590

 
3,514

 
327

 
(5,431
)
 
—

Investments
$
215

 
3,007

 
(577
)
 

 
(2,645
)
 
—

Goodwill

 

 
1,396

 
556

 

 
1,952

Property, plant and equipment, net

 

 
604

 
1,147

 

 
1,751

Other non-current assets

 
13

 
491

 
58

 

 
562

Total
$
215

 
$
4,619

 
$
6,516

 
$
3,679

 
$
(8,161
)
 
$
6,868

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 
$
6

 
$
14

 
$
108

 

 
$
128

Current maturities of long-term debt

 


 
1

 
66

 

 
67

Accounts payable and accrued liabilities
$
20

 
20

 
1,124

 
926

 

 
2,090

Intercompany payables

 
1

 
22

 
62

 
$
(85
)
 
—

Total current liabilities
20

 
27

 
1,161

 
1,162

 
(85
)
 
2,285

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
1,002

 
2,173

 
162

 

 
3,337

Long-term intercompany debt
668

 
2,481

 
1,664

 
618

 
(5,431
)
 
—

Postretirement and pension liabilities

 

 
986

 
10

 

 
996

Other non-current liabilities

 

 
321

 
168

 

 
489

Commitments and contingent liabilities

 

 

 

 

 
 
Noncontrolling interests

 

 
(4
)
 
238

 

 
234

Crown Holdings shareholders’ equity/(deficit)
(473
)
 
1,109

 
215

 
1,321

 
(2,645
)
 
(473
)
Total equity/(deficit)
(473
)
 
1,109

 
211

 
1,559

 
(2,645
)
 
(239
)
Total
$
215

 
$
4,619

 
$
6,516

 
$
3,679

 
$
(8,161
)
 
$
6,868



27
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2012
(in millions)
 
 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
11

 
$
(47
)
 
$
(21
)
 
$
(60
)
 

 
$
(117
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(43
)
 
(171
)
 

 
(214
)
Intercompany investing activities

 
35

 
71

 


 
$
(106
)
 
—

Insurance proceeds

 

 


 
33

 

 
33

Proceeds from sale of property, plant and equipment

 

 
3

 

 

 
3

Other, net

 

 


 
(27
)
 

 
(27
)
Net cash provided by/(used for) investing activities
—

 
35

 
31

 
(165
)
 
(106
)
 
(205
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 


 


 
49

 

 
49

Payments of long-term debt

 


 
—

 
(45
)
 

 
(45
)
Net change in revolving credit facility and short-term debt

 
7

 
294

 
169

 

 
470

Net change in long-term intercompany balances
189

 
(3
)
 
(256
)
 
70

 

 
—

Common stock issued
7

 

 

 

 

 
7

Common stock repurchased
(207
)
 

 

 

 

 
(207
)
Dividends paid

 

 
(34
)
 
(72
)
 
106

 
 
Dividends paid to noncontrolling interests

 

 

 
(50
)
 

 
(50
)
Other

 
8

 
(14
)
 
—

 

 
(6
)
Net cash provided by/(used for) financing activities
(11
)
 
12

 
(10
)
 
121

 
106

 
218

Effect of exchange rate changes on cash and cash equivalents

 

 
 
 
2

 
 
 
2

Net change in cash and cash equivalents
—

 
—

 
—

 
(102
)
 
—

 
(102
)
Cash and cash equivalents at January 1

 

 
54

 
288

 

 
342

Cash and cash equivalents at September 30
$
—

 
$
—

 
$
54

 
$
186

 
$
—

 
$
240



28
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2011
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
5

 
$
(38
)
 
$
(72
)
 
$
(29
)
 

 
$
(134
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(62
)
 
(211
)
 

 
(273
)
Proceeds from sale of property, plant and equipment

 

 
25

 


 

 
25

Intercompany investing activities

 
6

 
247

 
(180
)
 
$
(73
)
 
—

Other

 

 
—

 


 

 
—

Net cash provided by/(used for) investing activities
 
 
6

 
210

 
(391
)
 
(73
)
 
(248
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 
385

 
900

 
136

 

 
1,421

Payments of long-term debt

 
(277
)
 
(747
)
 
(23
)
 

 
(1,047
)
Net change in revolving credit facility and short-term debt

 
53

 
246

 
43

 

 
342

Net change in long-term intercompany balances
198

 
(129
)
 
(503
)
 
434

 

 
—

Debt issue costs


 
(3
)
 
(14
)
 

 

 
(17
)
Common stock issued
9

 

 

 

 

 
9

Common stock repurchased
(212
)
 

 

 

 

 
(212
)
Dividends paid

 


 

 
(73
)
 
73

 
—

Purchase of noncontrolling interests

 

 
(37
)
 
(11
)
 

 
(48
)
Dividends paid to noncontrolling interests

 

 

 
(60
)
 

 
(60
)
Other

 
3

 
8

 
—

 

 
11

Net cash provided by/(used for) financing activities
(5
)
 
32

 
(147
)
 
446

 
73

 
399

Effect of exchange rate changes on cash and cash equivalents

 

 

 
(1
)
 

 
(1
)
Net change in cash and cash equivalents
—

 
—

 
(9
)
 
25

 
—

 
16

Cash and cash equivalents at January 1

 
—

 
65

 
398

 

 
463

Cash and cash equivalents at September 30
$
—

 
$
—

 
$
56

 
$
423

 
$
—

 
$
479



29
Crown Holdings, Inc.


Crown Cork & Seal Company, Inc. (Issuer), a wholly owned subsidiary, has $350 principal amount of 7.375% senior notes due 2026 and $64 principal amount of 7.5% senior notes due 2096 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt. The following condensed combining financial statements:
•statements of comprehensive income for the three and nine months ended September 30, 2012 and 2011,
•balance sheets as of September 30, 2012 and December 31, 2011, and
•statements of cash flows for the nine months ended September 30, 2012 and 2011
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 30, 2012
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
2,302

 

 
$
2,302

Cost of products sold, excluding depreciation and amortization

 

 
1,887

 

 
1,887

Depreciation and amortization

 

 
46

 

 
46

Gross profit
 
 
 
 
369

 
 
 
369

Selling and administrative expense
—

 
$
2

 
90

 

 
92

 Provision for restructuring
—

 
 
 
7

 
 
 
7

 Asset impairments and sales
—

 
 
 
(14
)
 
 
 
(14
)
Net interest expense

 
23

 
32

 

 
55

Translation and foreign exchange

 

 
(2
)
 

 
(2
)
Income/(loss) before income taxes
 
 
(25
)
 
256

 
—

 
231

Provision for / (benefit from) income taxes

 
(96
)
 
(15
)
 

 
(111
)
Equity earnings / (loss) in affiliates
$
325

 
254

 
2

 
$
(579
)
 
2

Net income
325

 
325

 
273

 
(579
)
 
344

Net income attributable to noncontrolling interests

 

 
(19
)
 

 
(19
)
Net income attributable to Crown Holdings
$
325

 
$
325

 
$
254

 
$
(579
)
 
$
325

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
396

 
$
396

 
$
351

 
$
(721
)
 
$
422

Comprehensive income attributable to noncontrolling interests


 


 
(26
)
 


 
(26
)
Comprehensive income attributable to Crown Holdings
$
396

 
$
396

 
$
325

 
$
(721
)
 
$
396



30
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 30, 2011
(in millions)


 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
2,423

 

 
$
2,423

Cost of products sold, excluding depreciation and amortization

 

 
1,980

 

 
1,980

Depreciation and amortization

 

 
47

 

 
47

Gross profit
 
 
 
 
396

 
 
 
396

Selling and administrative expense

 
$
3

 
93

 

 
96

Provision for restructuring

 

 
2

 

 
2

Asset impairments and sales

 

 
(2
)
 

 
(2
)
Net interest expense

 
21

 
35

 

 
56

Translation and foreign exchange

 

 
(1
)
 

 
(1
)
Income/(loss) before income taxes
 
 
(24
)
 
269

 
 
 
245

Provision for / (benefit from) income taxes

 
11

 
76

 

 
87

Equity earnings / (loss) in affiliates
$
129

 
164

 
1

 
$
(293
)
 
1

Net income
129

 
129

 
194

 
(293
)
 
159

Net income attributable to noncontrolling interests

 

 
(30
)
 

 
(30
)
Net income attributable to Crown Holdings
$
129

 
$
129

 
$
164

 
$
(293
)
 
$
129

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
12

 
$
12

 
$
70

 
$
(59
)
 
$
35

Comprehensive income attributable to noncontrolling interests


 


 
(23
)
 


 
(23
)
Comprehensive income attributable to Crown Holdings
$
12

 
$
12

 
$
47

 
$
(59
)
 
$
12



31
Crown Holdings, Inc.



CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
                                                                  For the nine months ended September 30, 2012                                    
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
6,433

 

 
$
6,433

Cost of products sold, excluding depreciation and amortization

 

 
5,304

 

 
5,304

Depreciation and amortization

 

 
133

 

 
133

Gross profit
—

 
—

 
996

 
—

 
996

Selling and administrative expense

 
$
7

 
281

 

 
288

Provision for restructuring

 

 
10

 

 
10

Asset impairments and sales

 

 
(24
)
 

 
(24
)
Net interest expense

 
68

 
97

 

 
165

Translation and foreign exchange

 

 
(4
)
 

 
(4
)
Income/(loss) before income taxes
 
 
(75
)
 
636

 
 
 
561

Provision for / (benefit from) income taxes

 
(103
)
 
75

 

 
(28
)
Equity earnings / (loss) in affiliates
$
528

 
500

 
2

 
$
(1,028
)
 
2

Net income
528

 
528

 
563

 
(1,028
)
 
591

Net income attributable to noncontrolling interests

 

 
(63
)
 

 
(63
)
Net income attributable to Crown Holdings
$
528

 
$
528

 
$
500

 
$
(1,028
)
 
$
528

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
633

 
$
633

 
$
673

 
$
(1,238
)
 
$
701

Comprehensive income attributable to noncontrolling interests


 


 
(68
)
 


 
(68
)
Comprehensive income attributable to Crown Holdings
$
633

 
$
633

 
$
605

 
$
(1,238
)
 
$
633


32
Crown Holdings, Inc.



CONDENSED CO\MBINING STATEMENT OF COMPREHENSIVE INCOME
For the nine months ended September 30, 2011
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net Sales

 

 
$
6,586

 

 
$
6,586

Cost of products sold, excluding depreciation and amortization

 

 
5,395

 

 
5,395

Depreciation and amortization

 

 
132

 

 
132

Gross profit
 
 
 
 
1,059

 
 
 
1,059

Selling and administrative expense

 
$
8

 
290

 

 
298

Provision for restructuring

 

 
27

 

 
27

Asset impairments and sales

 

 
(2
)
 

 
(2
)
Loss from early extinguishment of debt

 
—

 
32

 

 
32

Net interest expense

 
63

 
103

 

 
166

Translation and foreign exchange

 
—

 
—

 

 
—

Income/(loss) before income taxes
 
 
(71
)
 
609

 
 
 
538

Provision for / (benefit from) income taxes
—

 
6

 
176

 
—

 
182

Equity earnings / (loss) in affiliates
$
274

 
351

 
1

 
$
(625
)
 
1

Net income
274

 
274

 
434

 
(625
)
 
357

Net income attributable to noncontrolling interests
—

 
—

 
(83
)
 
—

 
(83
)
Net income attributable to Crown Holdings
$
274

 
$
274

 
$
351

 
$
(625
)
 
$
274

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
232

 
$
232

 
$
390

 
$
(541
)
 
$
313

Comprehensive income attributable to noncontrolling interests


 


 
(81
)
 


 
(81
)
Comprehensive income attributable to Crown Holdings
$
232

 
$
232

 
$
309

 
$
(541
)
 
$
232




33
Crown Holdings, Inc.



CONDENSED COMBINING BALANCE SHEET
As of September 30, 2012
(in millions)
 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
$
240

 

 
$
240

Receivables, net

 

 
1,397

 

 
1,397

Inventories

 

 
1,207

 

 
1,207

Prepaid expenses and other current assets
$
1

 
$
76

 
132

 

 
209

Total current assets
1

 
76

 
2,976

 
 
 
3,053

 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 

 
1,680

 
$
(1,680
)
 
 
Investments
848

 
1,753

 

 
(2,601
)
 
 
Goodwill

 

 
1,976

 

 
1,976

Property, plant and equipment, net

 

 
1,845

 

 
1,845

Other non-current assets

 
551

 
185

 

 
736

Total
$
849

 
$
2,380

 
$
8,662

 
$
(4,281
)
 
$
7,610

 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt

 

 
$
297

 

 
$
297

Current maturities of long-term debt

 

 
104

 

 
104

Accounts payable and accrued liabilities
$
17

 
$
36

 
1,922

 

 
1,975

Total current liabilities
17

 
36

 
2,323

 
 
 
2,376

 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
411

 
3,185

 

 
3,596

Long-term intercompany debt
857

 
823

 

 
$
(1,680
)
 

Postretirement and pension liabilities
—

 

 
917

 

 
917

Other non-current liabilities
—

 
262

 
232

 

 
494

Commitments and contingent liabilities

 

 

 

 

Noncontrolling interests

 

 
252

 

 
252

Crown Holdings shareholders’ equity/(deficit)
(25
)
 
848

 
1,753

 
(2,601
)
 
(25
)
Total equity/(deficit)
(25
)
 
848

 
2,005

 
(2,601
)
 
227

Total
$
849

 
$
2,380

 
$
8,662

 
$
(4,281
)
 
$
7,610



34
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2011
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
$
342

 

 
$
342

Receivables, net

 

 
948

 

 
948

Inventories

 

 
1,148

 

 
1,148

Prepaid expenses and other current assets


 
$
76

 
89

 

 
165

Total current assets
—

 
76

 
2,527

 
 
 
2,603

 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 

 
1,391

 
$
(1,391
)
 
 
Investments
$
215

 
1,208

 

 
(1,423
)
 
 
Goodwill

 

 
1,952

 

 
1,952

Property, plant and equipment, net

 

 
1,751

 

 
1,751

Other non-current assets

 
376

 
186

 

 
562

Total
$
215

 
$
1,660

 
$
7,807

 
$
(2,814
)
 
$
6,868

 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt

 

 
$
128

 

 
$
128

Current maturities of long-term debt

 

 
67

 

 
67

Accounts payable and accrued liabilities
$
20

 
$
40

 
2,030

 

 
2,090

Total current liabilities
20

 
40

 
2,225

 
 
 
2,285

 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
411

 
2,926

 

 
3,337

Long-term intercompany debt
668

 
723

 

 
$
(1,391
)
 
 
Postretirement and pension liabilities

 

 
996

 

 
996

Other non-current liabilities

 
271

 
218

 

 
489

Commitments and contingent liabilities

 

 

 

 
 
Noncontrolling interests

 

 
234

 

 
234

Crown Holdings shareholders’ equity/(deficit)
(473
)
 
215

 
1,208

 
(1,423
)
 
(473
)
Total equity/(deficit)
(473
)
 
215

 
1,442

 
(1,423
)
 
(239
)
Total
$
215

 
$
1,660

 
$
7,807

 
$
(2,814
)
 
$
6,868



35
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2012
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provide by/(used for) operating activities
$
11

 
$
(157
)
 
$
29

 

 
$
(117
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(214
)
 

 
(214
)
Intercompany investing activities

 
57

 
—

 
$
(57
)
 
—

Insurance proceeds

 

 
33

 

 
33

Proceeds from sale of property, plant and equipment
 
 
 
 
3

 
 
 
3

Other

 

 
(27
)
 

 
(27
)
Net cash provided by/(used for) investing activities
—

 
57

 
(205
)
 
(57
)
 
(205
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 

 
49

 

 
49

Payments of long-term debt

 

 
(45
)
 

 
(45
)
Net change in revolving credit facility and short-term debt

 

 
470

 

 
470

Net change in long-term intercompany balances
189

 
100

 
(289
)
 

 
—

Common stock issued
7

 

 
—

 

 
7

Common stock repurchased
(207
)
 

 
—

 

 
(207
)
Dividends paid

 

 
(57
)
 
57

 
 
Dividend paid to noncontrolling interests

 

 
(50
)
 

 
(50
)
Other

 

 
(6
)
 

 
(6
)
Net cash provided by/(used for) financing activities
(11
)
 
100

 
72

 
57

 
218

Effect of exchange rate changes on cash and cash equivalents

 

 
2

 

 
2

Net change in cash and cash equivalents
—

 
—

 
(102
)
 
—

 
(102
)
Cash and cash equivalents at January 1
—

 
—

 
342

 
—

 
342

Cash and cash equivalents at September 30
$
—

 
$
—


$
240


$
—


$
240



36
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2011
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
5

 
$
(54
)
 
$
(85
)
 

 
$
(134
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(273
)
 

 
(273
)
Intercompany investing activities

 
36

 


 
$
(36
)
 
—

Proceeds from sale of property, plant and equipment
 
 
 
 
25

 
 
 
25

Net cash provided by/(used for) investing activities
 
 
36

 
(248
)
 
(36
)
 
(248
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 

 
1,421

 

 
1,421

Payments of long-term debt

 

 
(1,047
)
 

 
(1,047
)
Net change in revolving credit facility and short-term debt

 

 
342

 

 
342

Net change in long-term intercompany balances
198

 
55

 
(253
)
 

 
—

Debt issue costs

 

 
(17
)
 

 
(17
)
Common stock issued
9

 
—

 
—

 

 
9

Common stock repurchased
(212
)
 

 

 

 
(212
)
Dividends paid

 

 
(36
)
 
36

 
—

Purchase of noncontrolling interests
—

 
(37
)
 
(11
)
 

 
(48
)
Dividend paid to noncontrolling interests

 

 
(60
)
 

 
(60
)
Other

 

 
11

 

 
11

Net cash provided by/(used for) financing activities
(5
)
 
18

 
350

 
36

 
399

Effect of exchange rate changes on cash and cash equivalents

 

 
(1
)
 

 
(1
)
Net change in cash and cash equivalents
—

 
—

 
16

 
—

 
16

Cash and cash equivalents at January 1

 

 
463

 

 
463

Cash and cash equivalents at September 30
$
—

 
$
—

 
$
479

 
$
—

 
$
479



37
Crown Holdings, Inc.


Crown Americas, LLC, Crown Americas Capital Corp. II and Crown Americas Capital Corp. III (collectively, the Issuers), wholly owned subsidiaries of the Company, have outstanding $400 principal amount of 7.625% senior notes due 2017 and $700 principal amount of 6.25% senior notes due 2021, all of which are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and substantially all subsidiaries in the United States. The guarantors are wholly owned by the Company and the guarantees are made on a joint and several basis. The following condensed combining financial statements:
•
statements of comprehensive income for the three and nine months ended September 30, 2012 and 2011,
•
balance sheets as of September 30, 2012 and December 31, 2011, and
•
statements of cash flows for the nine months ended September 30, 2012 and 2011
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 30, 2012
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
606

 
$
1,696

 

 
$
2,302

Cost of products sold, excluding depreciation and amortization

 
$
1

 
479

 
1,407

 

 
1,887

Depreciation and amortization

 

 
10

 
36

 

 
46

Gross profit
 
 
 
 
117

 
253

 
 
 
369

Selling and administrative expense

 
2

 
31

 
59

 

 
92

Provision for restructuring

 

 
1

 
6

 

 
7

Asset impairments and sales

 

 
—

 
(14
)
 

 
(14
)
Net interest expense

 
13

 
22

 
20

 

 
55

Technology royalty

 

 
(13
)
 
13

 

 
 
Translation and foreign exchange

 

 

 
(2
)
 

 
(2
)
Income/(loss) before income taxes
 
 
(15
)
 
76

 
171

 
 
 
231

Provision for / (benefit from) income taxes

 
(6
)
 
(139
)
 
34

 

 
(111
)
Equity earnings / (loss) in affiliates
$
325

 
196

 
110

 

 
$
(629
)
 
2

Net income
325

 
187

 
325

 
137

 
(629
)
 
344

Net income attributable to noncontrolling interests

 

 

 
(19
)
 

 
(19
)
Net income attributable to Crown Holdings
$
325

 
$
187

 
$
325

 
$
118

 
$
(629
)
 
$
325

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
396

 
$
187

 
$
396

 
$
203

 
$
(760
)
 
$
422

Comprehensive income attributable to noncontrolling interests


 


 


 
(26
)
 


 
(26
)
Comprehensive income attributable to Crown Holdings
$
396

 
$
187

 
$
396

 
$
177

 
$
(760
)
 
$
396



38
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 30, 2011
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
634

 
$
1,789

 

 
$
2,423

Cost of products sold, excluding depreciation and amortization

 

 
505

 
1,475

 

 
1,980

Depreciation and amortization

 

 
10

 
37

 

 
47

Gross profit
 
 
 
 
119

 
277

 
 
 
396

Selling and administrative expense

 
$
2

 
33

 
61

 

 
96

Provision for asbestos

 

 
—

 
—

 

 
—

Provision for restructuring

 

 

 
2

 

 
2

Asset impairments and sales

 
—

 
—

 
(2
)
 

 
(2
)
Loss from early extinguishment of debt

 


 
—

 
—

 

 
—

Net interest expense

 
10

 
22

 
24

 

 
56

Technology royalty

 
—

 
(16
)
 
16

 

 
 
Translation and foreign exchange

 
—

 
—

 
(1
)
 

 
(1
)
Income/(loss) before income taxes
 
 
(12
)
 
80

 
177

 
 
 
245

Provision for / (benefit from) income taxes
—

 
(5
)
 
60

 
32

 
—

 
87

Equity earnings / (loss) in affiliates
$
129

 
69

 
109

 
—

 
$
(306
)
 
1

Net income
129

 
62

 
129

 
145

 
(306
)
 
159

Net income attributable to noncontrolling interests

 

 
—

 
(30
)
 

 
(30
)
Net income attributable to Crown Holdings
$
129

 
$
62

 
$
129

 
$
115

 
$
(306
)
 
$
129

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
12

 
$
64

 
$
12

 
$
78

 
$
(131
)
 
$
35

Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
(23
)
 
—

 
(23
)
Comprehensive income attributable to Crown Holdings
$
12

 
$
64

 
$
12

 
$
55

 
$
(131
)
 
$
12



39
Crown Holdings, Inc.



CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
                                                                   For the nine months ended September 30, 2012                                            
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
1,746

 
$
4,687

 

 
$
6,433

Cost of products sold, excluding depreciation and amortization

 
$
1

 
1,392

 
3,911

 

 
5,304

Depreciation and amortization

 

 
30

 
103

 

 
133

Gross profit
 
 
 
 
324

 
673

 
 
 
996

Selling and administrative expense
 
 
5

 
102

 
181

 
 
 
288

Provision for restructuring
 
 
 
 
2

 
8

 
 
 
10

Asset impairments and sales
 
 
 
 
(1
)
 
(23
)
 
 
 
(24
)
Net interest expense
 
 
39

 
67

 
59

 
 
 
165

Technology royalty
 
 
 
 
(33
)
 
33

 
 
 
 
Translation and foreign exchange
 
 
 
 
 
 
(4
)
 
 
 
(4
)
Income/(loss) before income taxes
 
 
(44
)
 
187

 
419

 
 
 
561

Provision for / (benefit from) income taxes
 
 
(17
)
 
(84
)
 
73

 
 
 
(28
)
Equity earnings / (loss) in affiliates
$
528

 
312

 
257

 
 
 
$
(1,095
)
 
2

Net income
528

 
285

 
528

 
346

 
(1,095
)
 
591

Net income attributable to noncontrolling interests

 

 

 
(63
)
 

 
(63
)
Net income attributable to Crown Holdings
$
528

 
$
285

 
$
528

 
$
283

 
$
(1,095
)
 
$
528

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
633

 
$
292

 
$
633

 
$
437

 
$
(1,294
)
 
$
701

Comprehensive income attributable to noncontrolling interests


 


 


 
(68
)
 


 
(68
)
Comprehensive income attributable to Crown Holdings
$
633

 
$
292

 
$
633

 
$
369

 
$
(1,294
)
 
$
633




40
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
                                                            For the nine months ended September 30, 2011                                                                             
(in millions)


 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
1,770

 
$
4,816

 

 
$
6,586

Cost of products sold, excluding depreciation and amortization

 

 
1,431

 
3,964

 

 
5,395

Depreciation and amortization

 

 
29

 
103

 

 
132

Gross profit
 
 
 
 
310

 
749

 
 
 
1,059

Selling and administrative expense

 
$
5

 
103

 
190

 

 
298

Provision for restructuring

 

 


 
27

 

 
27

Asset impairments and sales

 
—

 
—

 
(2
)
 

 
(2
)
Loss from early extinguishment of debt

 
30

 
2

 
—

 

 
32

Net interest expense

 
36

 
62

 
68

 

 
166

Technology royalty

 

 
(39
)
 
39

 

 
 
Translation and foreign exchange

 
—

 
—

 
—

 

 
—

Income/(loss) before income taxes
 
 
(71
)
 
182

 
427

 
 
 
538

Provision for / (benefit from) income taxes
—

 
(27
)
 
104

 
105

 
—

 
182

Equity earnings / (loss) in affiliates
$
274

 
185

 
196

 
—

 
$
(654
)
 
1

Net income
274

 
141

 
274

 
322

 
(654
)
 
357

Net income attributable to noncontrolling interests
—

 
—

 
—

 
(83
)
 
 
 
(83
)
Net income attributable to Crown Holdings
$
274

 
$
141

 
$
274

 
$
239

 
$
(654
)
 
$
274

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
232

 
$
153

 
$
232

 
$
274

 
$
(578
)
 
$
313

Comprehensive income attributable to noncontrolling interests


 


 


 
(81
)
 


 
(81
)
Comprehensive income attributable to Crown Holdings
$
232

 
$
153

 
$
232

 
$
193

 
$
(578
)
 
$
232























41
Crown Holdings, Inc.



CONDENSED COMBINING BALANCE SHEET
As of September 30, 2012
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 
$
18

 
$
1

 
$
221

 

 
$
240

Receivables, net

 
1

 
11

 
1,385

 

 
1,397

Intercompany receivables

 

 
23

 
15

 
$
(38
)
 
 
Inventories

 

 
279

 
928

 

 
1,207

Prepaid expenses and other current assets
$
1

 
2

 
86

 
120

 

 
209

Total current assets
1

 
21

 
400

 
2,669

 
(38
)
 
3,053

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
1,925

 
1,734

 
316

 
(3,975
)
 
 
Investments
848

 
1,697

 
911

 

 
(3,456
)
 
 
Goodwill

 

 
453

 
1,523

 

 
1,976

Property, plant and equipment, net

 
1

 
297

 
1,547

 

 
1,845

Other non-current assets

 
27

 
483

 
226

 

 
736

Total
$
849

 
$
3,671

 
$
4,278

 
$
6,281

 
$
(7,469
)
 
$
7,610

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 

 

 
$
297

 

 
$
297

Current maturities of long-term debt

 
$
28

 
—

 
76

 

 
104

Accounts payable and accrued liabilities
$
17

 
30

 
$
323

 
1,605

 

 
1,975

Intercompany payables

 

 
15

 
23

 
$
(38
)
 
 
Total current liabilities
17

 
58

 
338

 
2,001

 
(38
)
 
2,376

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
1,991

 
412

 
1,193

 

 
3,596

Long-term intercompany debt
857

 
778

 
1,905

 
435

 
(3,975
)
 
 
Postretirement and pension liabilities

 

 
481

 
436

 

 
917

Other non-current liabilities

 

 
294

 
200

 

 
494

Commitments and contingent liabilities

 

 

 

 

 
 
Noncontrolling interests

 

 

 
252

 

 
252

Crown Holdings shareholders’ equity/(deficit)
(25
)
 
844

 
848

 
1,764

 
(3,456
)
 
(25
)
Total equity/(deficit)
(25
)
 
844

 
848

 
2,016

 
(3,456
)
 
227

Total
$
849

 
$
3,671

 
$
4,278

 
$
6,281

 
$
(7,469
)
 
$
7,610



42
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2011
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 
$
21

 
$
1

 
$
320

 

 
$
342

Receivables, net

 
1

 
37

 
910

 

 
948

Intercompany receivables

 

 
40

 
17

 
$
(57
)
 

Inventories

 

 
285

 
863

 

 
1,148

Prepaid expenses and other current assets


 
2

 
58

 
105

 

 
165

Total current assets
—

 
24

 
421

 
2,215

 
(57
)
 
2,603

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
1,833

 
1,354

 
525

 
(3,712
)
 

Investments
$
215

 
1,386

 
632

 

 
(2,233
)
 

Goodwill

 

 
453

 
1,499

 

 
1,952

Property, plant and equipment, net

 
1

 
298

 
1,452

 

 
1,751

Other non-current assets

 
30

 
382

 
150

 

 
562

Total
$
215

 
$
3,274

 
$
3,540

 
$
5,841

 
$
(6,002
)
 
$
6,868

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 

 

 
$
128

 

 
$
128

Current maturities of long-term debt

 


 
$
1

 
66

 

 
67

Accounts payable and accrued liabilities
$
20

 
$
34

 
323

 
1,713

 

 
2,090

Intercompany payables

 

 
17

 
40

 
$
(57
)
 

Total current liabilities
20

 
34

 
341

 
1,947

 
(57
)
 
2,285

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
1,732

 
412

 
1,193

 

 
3,337

Long-term intercompany debt
668

 
956

 
1,726

 
362

 
(3,712
)
 

Postretirement and pension liabilities

 

 
550

 
446

 

 
996

Other non-current liabilities

 

 
296

 
193

 

 
489

Commitments and contingent liabilities

 

 

 

 

 

Noncontrolling interests

 

 

 
234

 

 
234

Crown Holdings shareholders’ equity/(deficit)
(473
)
 
552

 
215

 
1,466

 
(2,233
)
 
(473
)
Total equity/(deficit)
(473
)
 
552

 
215

 
1,700

 
(2,233
)
 
(239
)
Total
$
215

 
$
3,274

 
$
3,540

 
$
5,841

 
$
(6,002
)
 
$
6,868



43
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2012
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net provided by/(used for) operating activities
$
11

 
$
(28
)
 
$
164

 
$
(264
)
 

 
$
(117
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(21
)
 
(193
)
 

 
(214
)
Intercompany investing activities

 
10

 
57

 


 
$
(67
)
 
 
Insurance proceeds

 

 

 
33

 

 
33

Proceeds from sale of property, plant and equipment

 

 
1

 
2

 

 
3

Other

 

 


 
(27
)
 

 
(27
)
Net cash provided by/(used for) investing activities
 
 
10

 
37

 
(185
)
 
(67
)
 
(205
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 


 

 
49

 

 
49

Payments of long-term debt

 


 


 
(45
)
 

 
(45
)
Net change in revolving credit facility and short-term debt

 
287

 

 
183

 

 
470

Net change in long-term intercompany balances
189

 
(272
)
 
(201
)
 
284

 

 
 
Common stock issued
7

 

 

 

 

 
7

Common stock repurchased
(207
)
 

 

 

 

 
(207
)
Dividends paid

 

 

 
(67
)
 
67

 
 
Dividends paid to noncontrolling interests

 

 

 
(50
)
 

 
(50
)
Other

 

 

 
(6
)
 

 
(6
)
Net cash provided by/(used for) financing activities
(11
)
 
15

 
(201
)
 
348

 
67

 
218

Effect of exchange rate changes on cash and cash equivalents

 

 

 
2

 

 
2

Net change in cash and cash equivalents
—

 
(3
)
 
—

 
(99
)
 
—

 
(102
)
Cash and cash equivalents at January 1

 
21

 
1

 
320

 

 
342

Cash and cash equivalents at September 30
$
—

 
$
18

 
$
1

 
$
221

 
$
—

 
$
240



44
Crown Holdings, Inc.



 
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2011
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net provided by/(used for) operating activities
$
5

 
$
(25
)
 
$
139

 
$
(253
)
 

 
$
(134
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(27
)
 
(246
)
 

 
(273
)
Proceeds from sale of property, plant and equipment

 

 


 
25

 

 
25

Intercompany investing activities

 
11

 
38

 
24

 
$
(73
)
 
—

Other

 

 
—

 
—

 

 
—

Net cash provided by/(used for) investing activities
—

 
11

 
11

 
(197
)
 
(73
)
 
(248
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 
900

 

 
521

 

 
1,421

Payments of long-term debt

 
(746
)
 
(1
)
 
(300
)
 

 
(1,047
)
Net change in revolving credit facility and short-term debt

 
140

 

 
202

 

 
342

Net change in long-term intercompany balances
198

 
(273
)
 
(112
)
 
187

 

 

Debt issue costs


 
(14
)
 

 
(3
)
 

 
(17
)
Common stock issued
9

 

 

 

 

 
9

Common stock repurchased
(212
)
 

 

 
—

 
—

 
(212
)
Dividends paid

 

 
—

 
(73
)
 
73

 
 
Purchase of noncontrolling interests

 

 
(37
)
 
(11
)
 

 
(48
)
Dividends paid to noncontrolling interests

 

 

 
(60
)
 

 
(60
)
Other
—

 
—

 
—

 
11

 
—

 
11

Net cash provided by/(used for) financing activities
(5
)
 
7

 
(150
)
 
474

 
73

 
399

Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Net change in cash and cash equivalents
—

 
(7
)
 
—

 
23

 
—

 
16

Cash and cash equivalents at January 1
—

 
38

 
1

 
424

 
—

 
463

Cash and cash equivalents at September 30
$
—

 
$
31

 
$
1

 
$
447

 
$
—

 
$
479



45
Crown Holdings, Inc.


PART I – FINANCIAL INFORMATION


Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
(dollars in millions)

Introduction

The following discussion presents management's analysis of the results of operations for the three and nine months ended September 30, 2012 compared to the corresponding periods in 2011 and the changes in financial condition and liquidity from December 31, 2011. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, along with the consolidated financial statements and related notes included in and referred to within this report.

Business Strategy and Trends

The Company's strategy is to grow its businesses in targeted international growth markets, while improving operations and results in more mature markets through disciplined pricing, cost control and careful capital allocation.

In recent years, the Company has expanded its beverage can businesses in Asia, Brazil and Eastern Europe in response to increased unit volume demand driven by increased per capita incomes and consumption, combined with a shift in packaging mix to two-piece aluminum beverage cans from other packages.

From the beginning of 2011, the Company has commercialized ten new production lines including six new plant startups in Asia, Brazil and Europe. This includes a new plant in Heshan, China which commenced commercial beverage can production in the third quarter of 2012. When fully operational, these facilities are expected to have combined annual production capacity of 8.6 billion beverage cans to meet expected demand. Over the next twelve months, the Company expects to commercialize another 3.6 billion in annual beverage can production capabilities to meet existing demand in still growing markets in Cambodia, China, Malaysia, Thailand and Vietnam. There can be no assurance, however, that the Company will be able to implement its expansion plans according to schedule or at all. The Company continuously monitors these markets and, where necessary, may adjust capital deployment based on economic developments and market-by-market conditions.

Beverage can sales unit volumes in the Company's mature markets have been stable to slightly declining in North America and slightly increasing in Europe. Global food and aerosol can sales unit volumes have been stable to declining in recent years primarily due to lower consumer spending. While the opportunity for organic volume growth in the Company's mature markets is not comparable to that in targeted international growth markets, the Company continues to generate strong returns on invested capital and significant cash flow from these businesses. The Company monitors capacity across all of its businesses and, where necessary, may take action such as closing a plant or reducing headcount to better manage its costs which may result in additional restructuring charges in the future which may be material. The Company is currently evaluating certain plans in its European Food and European Specialty Packaging segments which, if approved, may result in additional restructuring charges of up to $50 in the aggregate.
 
In addition, as part of the Company's efforts to manage cost, it attempts to pass-through the cost of aluminum and steel to its customers. There can be no assurance that the Company will be able to recover from its customers the impact of any such increased costs. Aluminum and steel prices can be subject to significant volatility and there does not appear to be a consistent and predictable trend in pricing.

The Company seeks to increase shareholder value by maximizing operating cash flows which can be reinvested in the business, used for acquisitions, used to repay debt or returned to shareholders through share repurchases. In assessing the Company's performance, the key performance measure used is segment income, a non-GAAP measure defined by the Company as gross profit less selling and administrative expenses.

Results of Operations

The foreign currency translation impacts referred to below were primarily due to changes in the euro and pound sterling in the Company's European segments, the Canadian dollar in the Company's Americas segments and the Chinese renminbi and Thai baht in the Company's Asian businesses included in non-reportable segments.

46
Crown Holdings, Inc.



Item 2. Management's Discussion and Analysis (Continued)

Net Sales and Segment Income    
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net sales
$
2,302

 
$
2,423

 
$
6,433

 
$
6,586

Beverage cans and ends as a percentage of net sales
52
%
 
49
%
 
55
%
 
52
%
Food cans, ends and metal vacuum closures as a percentage of net sales
32
%
 
34
%
 
29
%
 
31
%

Three months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $106 from the impact of foreign currency translation. The increase due to higher global beverage can sales unit volumes was offset by the pass-through of lower aluminum costs.

Nine months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $243 from the impact of foreign currency translation partially offset by $126 from increased global sales unit volumes. Overall, sales unit volumes in the Company's beverage can businesses were higher than in the prior year offsetting declines in the Company's food can and closures, aerosol can and specialty packaging businesses.

Discussion and analysis of net sales and segment income by segment follows.

Americas Beverage

The Americas Beverage segment manufactures aluminum beverage cans and ends and steel crowns, commonly referred to as “bottle caps”, and supplies a variety of customers from its operations in the U.S., Brazil, Canada, Colombia and Mexico. The North American beverage can market is a mature market which has experienced slightly declining volumes in recent years. In Brazil, the Company's sales unit volumes have increased in recent years primarily due to market growth. In 2011, the Company completed construction of a new plant in Ponta Grossa, Brazil and commenced commercial operations of a second line in its plant in Estancia, Brazil.

Net sales and segment income in the Americas Beverage segment are as follows:
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net sales
$
574

 
$
594

 
$
1,701

 
$
1,697

Segment income
82

 
77

 
229

 
217


Three months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $20 from the pass-through of lower aluminum costs and $4 from the impact of foreign currency translation partially offset by $4 from increased sales unit volumes. Sales unit volume increases in Brazil offset volume declines in North America. The increase in Brazil is primarily attributable to recent capacity additions in Ponta Grossa and Estancia. Sales unit volumes in Brazil are higher due to various factors, including its growing middle class and increasing disposable income and shift in packaging mix to two-piece aluminum beverage cans from other packages.

Segment income increased primarily due to higher sales unit volumes in Brazil as described above and $3 from lower operating costs including reduced post-employment benefits in the U.S. partly due to post-retirement plan amendments in 2011.


47
Crown Holdings, Inc.



Item 2. Management's Discussion and Analysis (Continued)

Nine months ended September 30, 2012 compared to 2011

Net sales increased primarily due to $58 from increased sales unit volumes partially offset by $41 from the pass-through of lower aluminum costs and $13 from the impact of foreign currency translation. Sales unit volume increases in Brazil offset volume declines in North America. The increase in Brazil is primarily the result of recent capacity additions in Ponta Grossa and Estancia. Sales unit volumes in Brazil are higher due to various factors, including its growing middle class and increasing disposable income and shift in packaging mix to two-piece aluminum beverage cans from other packages.

Segment income increased primarily due to $20 from higher sales unit volumes in Brazil as described above. In addition, segment income increased due to lower operating costs including reduced post-employment benefits in the U.S. partly due to post-retirement plan amendments which were offset by lower selling prices primarily due to competitive pricing pressure.

North America Food

The North America Food segment manufactures steel and aluminum food cans and ends and metal vacuum closures and supplies a variety of customers from its operations in the U.S. and Canada. The North American food can and closures market is a mature market which has experienced stable to slightly declining volumes in recent years.

Net sales and segment income in the North America Food segment are as follows:
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net sales
$
259

 
$
271

 
$
672

 
$
676

Segment income
44

 
49

 
117

 
115


Three months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $14 from lower sales unit volumes which were partly impacted by poor weather conditions in the U.S.

Segment income decreased primarily due to $8 from lower sales unit volumes and unfavorable product mix partially offset by $3 from lower operating costs including improved manufacturing performance and reduced post-employment benefits in the U.S. partly due to post-retirement plan amendments in 2011.

Nine months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $4 from the impact of foreign currency translation. The impact from lower sales unit volumes was offset by the pass-through of higher costs.

Segment income increased primarily due to $14 from lower operating costs including improved manufacturing performance and reduced post-employment benefits in the U.S. partly due to post-retirement plan amendments in 2011 partially offset by $7 from lower sales unit volumes and unfavorable product mix and $5 from inventory holding gains in 2011 that did not recur in 2012.

European Beverage

The Company's European Beverage segment manufactures steel and aluminum beverage cans and ends and supplies a variety of customers from its operations throughout Eastern and Western Europe, the Middle East and North Africa. In recent years, the European beverage can market has been growing. In the second quarter of 2012, the Company commenced commercial operations of a new plant in Osmaniye, Turkey which is expected to add full annualized capacity of approximately 700 million cans.

48
Crown Holdings, Inc.



Item 2. Management's Discussion and Analysis (Continued)
    
Net sales and segment income in the European Beverage segment are as follows:
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net sales
$
451

 
$
451

 
$
1,285

 
$
1,291

Segment income
68

 
61

 
174

 
176


Three months ended September 30, 2012 compared to 2011

Net sales remained at $451 as the impact of increased sales unit volumes primarily in Greece, Saudi Arabia, Slovakia and Turkey offset $27 from the impact of foreign currency translation. The increase in sales unit volumes in Slovakia and Turkey is primarily from recent capacity additions.

Segment income increased primarily due to increased sales unit volumes as described above partially offset by $3 from the impact of foreign currency translation.

Nine months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $68 from the impact of foreign currency translation partially offset by $50 from increased sales unit volumes primarily in Saudi Arabia, Slovakia, Turkey and the UK and $12 from the pass-through of higher costs.

Segment income decreased primarily due to $6 from the impact of foreign currency translation partially offset by higher sales unit volumes as described above.

European Food

The European Food segment manufactures steel and aluminum food cans and ends, and metal vacuum closures and supplies a variety of customers from its operations throughout Europe and Africa. The European food can market is a mature market which has experienced stable to slightly declining volumes in recent years. The Company is currently evaluating certain plans which, if approved, may result in additional restructuring charges in its European Food segment which could be material.

Net sales and segment income in the European Food segment are as follows:
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net sales
$
547

 
$
623

 
$
1,383

 
$
1,554

Segment income
64

 
87

 
151

 
202


Three months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $58 from the impact of foreign currency translation and $18 from lower sales unit volumes in France and the UK due to unseasonably cold and wet weather and drought conditions in Italy.

Segment income decreased primarily due to lower sales unit volumes in France, Italy and the UK and $7 from the impact of foreign currency translation. In addition, segment income was impacted by lower selling prices as a result of weakened demand.

49
Crown Holdings, Inc.



Item 2. Management's Discussion and Analysis (Continued)

Nine months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to lower sales unit volumes due to ongoing economic uncertainty in Europe and adverse weather conditions and $123 from the impact of foreign currency translation.

Segment income decreased primarily due to lower sales unit volumes in France, Italy and the UK, $5 from inventory holding gains in 2011 that did not recur in 2012 and $13 from the impact of foreign currency translation.

European Specialty Packaging

The European Specialty Packaging segment manufactures a wide variety of specialty containers, with numerous lid and closure variations and supplies a variety of customers throughout Europe. The Company is currently evaluating certain plans which, if approved, may result in additional restructuring charges in its European Specialty Packaging segment which could be material.

Net sales and segment income in the European Specialty Packaging segment are as follows:
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net sales
$
102

 
$
122

 
$
289

 
$
341

Segment income
9

 
11

 
20

 
30


Three months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $10 from lower sales activity reflecting ongoing economic uncertainty in Europe and $10 from the impact of foreign currency translation.

Segment income decreased primarily due to lower sales unit volumes and $1 from the impact of foreign currency translation.

Nine months ended September 30, 2012 compared to 2011

Net sales decreased primarily due to $30 from lower sales unit volumes reflecting ongoing economic uncertainty in Europe and $23 from the impact of foreign currency translation.

Segment income decreased primarily due to lower sales unit volumes, $2 from inventory holding gains in 2011 that did not recur in 2012 and $2 from the impact of foreign currency translation.

Non-reportable Segments

The Company's non-reportable segments include its aerosol can businesses in North America, Europe and Thailand, its beverage can businesses in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam, its food can and closures business in Thailand and its tooling and equipment operations in the U.S. and United Kingdom. In recent years, the Company's businesses in Asia have experienced significant growth whereas its aerosol can businesses have experienced slightly declining volumes.

In the first quarter of 2012, the Company commenced commercial operations at its new beverage can plant in Putian, China. In the second quarter of 2012, the Company commenced commercial operations at its new beverage can plant in Ziyang, China, completed capacity expansion at its plant in Ho Chi Minh City, Vietnam and began commercial production of beverage can ends at its new plant in Heshan, China. In the third quarter of 2012, the Company began commercial production of beverage cans in Heshan, China.

50
Crown Holdings, Inc.



Item 2. Management's Discussion and Analysis (Continued)

In 2013, the Company has announced plans to complete new beverage can plants in Sihanoukville, Cambodia, Bangkok, Thailand and Danang, Vietnam and to expand capacity in Malaysia and Putian. The additional capacity in Thailand and Malaysia is replacing capacity lost as a result of the 2011 flooding in Thailand. Once the projects are complete, the Company expects to have added 3.6 billion units of annualized capacity. In response to changing market conditions, the Company has indefinitely postponed plans for new beverage can plants in Changchun, Nanning, and XinXiang, China.

Net sales and segment income in non-reportable segments are as follows:
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Net sales
$
369

 
$
362

 
$
1,103

 
$
1,027

Segment income
59

 
62

 
166

 
174


Three months ended September 30, 2012 compared to 2011

Net sales increased primarily due to $26 from increased beverage can sales in Cambodia, China, Malaysia and Vietnam as a result of increased regional demand driven by macroeconomic factors such as GDP growth and increased consumer spending. The increase was partially offset by $10 from lower sales in the Company's North American and European aerosol businesses primarily due to lower consumer spending partly due to ongoing economic uncertainty in Europe and $6 from the impact of foreign currency translation.

Segment income decreased primarily due to $8 from the Company's North American and European aerosol businesses. Segment income increased $8 due to increased beverage can sales in Cambodia, China, Malaysia, Thailand and Vietnam partially offset by $3 of start-up costs from recent capacity additions.

The Company recognized income of $5 from insurance proceeds covering incremental costs and lost profits associated with the 2011 flooding in Thailand.

Nine months ended September 30, 2012 compared to 2011

Net sales increased primarily due to $96 from increased beverage can sales in Cambodia, China, Malaysia and Vietnam as a result of increased regional demand driven by macroeconomic factors such as GDP growth and increased consumer spending. In addition, net sales increased due to $19 from increased beverage equipment sales to can manufacturers partially offset by $26 from lower sales in the Company's North American and European aerosol businesses primarily due to lower consumer spending partly due to ongoing economic uncertainty in Europe and $12 from the impact of foreign currency translation.

Segment income decreased primarily due to $23 from the Company's North American and European aerosol businesses including $5 of inventory holding gains in 2011 that did not recur in 2012. The decrease was partially offset by $5 from increased beverage equipment sales to can manufacturers. In addition, segment income increased $21 due to increased beverage can sales in Cambodia, China, Malaysia, Thailand and Vietnam partially offset by $8 of start-up costs from recent capacity additions.

The Company recognized income of $12 from insurance proceeds covering incremental costs and lost profits associated with the 2011 flooding in Thailand.

Corporate and Unallocated Expense
 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Corporate and unallocated expense
$
(49
)
 
$
(47
)
 
$
(149
)
 
$
(153
)

51
Crown Holdings, Inc.


Item 2. Management's Discussion and Analysis (Continued)

For the three months ended September 30, 2012 compared to 2011, corporate and unallocated expense did not change significantly. For the nine months ended September 30, 2012 compared to 2011, corporate and unallocated expense decreased primarily due to insurance costs related to a fire at a Company warehouse in 2011.

Cost of Products Sold (Excluding Depreciation and Amortization)

For the three months ended September 30, 2012 compared to 2011, cost of products sold (excluding depreciation and amortization) decreased from $1,980 to $1,887 primarily due to $89 from the impact of foreign currency translation.

For the nine months ended September 30, 2012 compared to 2011, cost of products sold (excluding depreciation and amortization) decreased from $5,395 to $5,304 primarily due to $205 from the impact of foreign currency translation partially offset by the impact of increased global beverage can sales unit volumes.

Depreciation and Amortization

For the three months ended September 30, 2012 compared to 2011, depreciation and amortization decreased from $47 to $46 primarily due to the impact of foreign currency translation.

For the nine months ended September 30, 2012 compared to 2011, depreciation and amortization increased from $132 to $133 primarily due to the impact of recent capacity expansion which offset the impact of foreign currency translation.     

Selling and Administrative Expense

For the three months ended September 30, 2012 compared to 2011, selling and administrative expense decreased from $96 to $92 primarily due to $4 from the impact of foreign currency translation.

For the nine months ended September 30, 2012 compared to 2011, selling and administrative expense decreased from $298 to $288 primarily due to $10 from the impact of foreign currency translation.

Interest Expense

For the three months ended September 30, 2012 compared to 2011, interest expense decreased from $58 to $57 primarily due to $2 from the impact of foreign currency translation.

For the nine months ended September 30, 2012 compared to 2011, interest expense decreased from $174 to $170 primarily due to $4 from the impact of foreign currency translation.

Taxes on Income
    
The Company's effective income tax rate was as follows:

 
Three Months Ended
 
    Nine Months Ended
 
September 30
 
September 30
 
2012
 
2011
 
2012
 
2011
Income before income taxes
$
231

 
$
245

 
$
561

 
$
538

Provision for / (benefit from) income taxes
(111
)
 
87

 
(28
)
 
182

Effective income tax rate
(48.1
)%
 
35.5
%
 
(5.0
)%
 
33.8
%

The effective income tax rate for the three and nine months ended September 30, 2012 includes an income tax benefit of $169, net of valuation allowance as described below, primarily related to the recognition of previously unrecognized U.S. foreign tax credits.




52
Crown Holdings, Inc.




53
Crown Holdings, Inc.


Item 2. Management's Discussion and Analysis (Continued)

In the third quarter, the Company committed to a formal repatriation plan, including certain steps that were completed in September with the filing of its 2011 U.S. income tax return, which will allow it to claim these credits on its 2012 income tax return. The Company's plan involved finalization of earnings and profits in certain foreign subsidiaries, evaluation of expiring US tax law provisions and anticipated utilization of existing net operating loss and foreign tax credit carryforwards. The Company has been utilizing existing net operating losses which will be fully utilized this year and will begin to utilize existing foreign tax credits in 2013. Once the Company claims these credits on its tax return, it has ten years to utilize the credits.

In connection with its plan, the Company determined that it will amend its 2003 U.S. income tax return to claim foreign taxes paid as a credit rather than as a tax deduction. The Company recorded a valuation allowance of $47 against certain of these credits that expire in 2013 which, at this time, the Company does not believe are more likely than not to be realized prior to expiration. The Company will continue to search for and evaluate tax planning strategies which may allow it to accelerate taxable income into 2013 in order to use the credits. If the Company is able to identify a feasible tax planning strategy, it is possible that it will release a portion of the valuation allowance in the future.

Realization of the foreign tax credits recognized in the quarter is dependent upon the amount and timing of future taxable income. If actual results are different than the Company's projections, it is possible that the Company may record additional valuation allowance in the future.

Net Income Attributable to Noncontrolling Interests

For the three and nine months ended September 30, 2012 compared to 2011 net income attributable to noncontrolling interests decreased from $30 to $19 and from $83 to $63, respectively, primarily due to the acquisition of additional ownership interests in certain operations in China, Dubai, Greece, Jordan, Tunisia and Vietnam in the second half of 2011.


Liquidity and Capital Resources

Cash from Operations

Cash used for operating activities decreased from $134 for the nine months ended September 30, 2011 to $117 in 2012 primarily due to lower net working capital which offset lower segment income and higher pension contributions. Days sales outstanding for working capital decreased from 47 for the three months ended September 30, 2011 to 44 in 2012.

Receivables increased from $948 at December 31, 2011 to $1,397 at September 30, 2012 and used cash of $419 for the nine months ended September 30, 2011 compared to $489 in 2012. Sales in September 2012 were higher than in December 2011 as sales generally increase each month of the year until peaking in the third quarter. In addition, payment terms for certain of the company's food can operations result in receivables increasing throughout the year and being paid down in the fourth quarter. As a result, receivables generally increase through the third quarter of each year. Days sales outstanding for trade receivables increased from 44 for three months ended September 30, 2011 to 47 in 2012. The increase is primarily due to seasonality and mix of receivables and is not due to a significant increase in overdue receivables.

Inventories increased from $1,148 at December 31, 2011 to $1,207 at September 30, 2012 and used cash of $299 for the nine months ended September 30, 2011 compared to $56 in 2012. Inventory levels typically increase each month of the year until peaking in the third quarter due to seasonal build primarily in the Company's food can businesses. Inventory levels did not increase as significantly in 2012 as in 2011 due to the Company's efforts to manage lower levels of inventory and lower raw material costs partially offset by the impact of recent capacity expansion.


54
Crown Holdings, Inc.


Item 2. Management's Discussion and Analysis (Continued)

Investing Activities

Cash used for investing activities decreased from $248 for the nine months ended September 30, 2011 to $205 in 2012 primarily due to $59 from lower capital expenditures and $33 from the receipt of insurance proceeds related to flooding at the Company's beverage can plant in Thailand partially offset by $24 from an increase in restricted cash included in other and $22 from lower proceeds from asset sales. Currently, the Company expects capital expenditures of approximately $300 in 2012 excluding the cost to rebuild beverage can capacity lost to flooding which the Company expects will be reimbursed by insurance. Upon reaching an agreement with its insurance provider, the Company may record additional gains for insurance proceeds in excess of losses recorded in its financial statements.

Financing Activities

Cash provided by financing activities decreased from $399 for the nine months ended September 30, 2011 to $218 in 2012 primarily due to higher borrowings in 2011 that were used to fund higher capital expenditures and working capital, and to purchase additional ownership interests from noncontrolling interests.

Other financing activities, in each year, represent cash settlements of foreign currency derivatives used to hedge intercompany debt obligations.

Liquidity

As of September 30, 2012, $215 of the Company's $240 cash and cash equivalents was located outside the U.S. The Company is not currently aware of any legal restrictions under foreign law that materially impact its access to cash held outside the U.S.

The Company funds its cash needs in the U.S. through a combination of cash flows from operations in the U.S., dividends from certain foreign subsidiaries, borrowings under its revolving credit facility and the acceleration of cash receipts under its receivable securitization facilities. The Company records current and/or deferred U.S. taxes for the earnings of these foreign subsidiaries. For certain other foreign subsidiaries, the Company considers earnings indefinitely reinvested and has not recorded any U.S. taxes. Of the cash and cash equivalents located outside the U.S., $125 was held by subsidiaries for which earnings are considered indefinitely reinvested. While based on current operating plans the Company does not foresee a need to repatriate these funds, if such earnings were repatriated the Company would be required to record any incremental U.S. taxes on the repatriated funds.

As of September 30, 2012, the Company had $720 of borrowing capacity available under its revolving credit facility, equal to the total facility of $1,200 less $421 of borrowings and $59 of outstanding standby letters of credit.

The Company's debt agreements contain covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional debt, pay dividends or repurchase capital stock, make certain other restricted payments, create liens and engage in sale and leaseback transactions. These restrictions are subject to a number of exceptions, however, which allow the Company to incur additional debt, create liens or make otherwise restricted payments. The amount of restricted payments permitted to be made, including dividends and repurchases of the Company's common stock, is generally limited to the cumulative excess of $200 plus 50% of adjusted net income plus proceeds from the exercise of employee stock options over the aggregate of restricted payments made since July 2004. Adjustments to net income may include, but are not limited to, items such as asset impairments, gains and losses from asset sales and early extinguishments of debt.

Capital Resources

As of September 30, 2012, the Company has approximately $83 of capital commitments including commitments related to the Company's expansion in Cambodia, China and Vietnam and the rebuilding of its beverage can plant in Thailand which was damaged by severe flooding in 2011. The Company expects to fund these commitments primarily through cash flows generated from operations and to fund any excess needs over available cash through external borrowings.


55
Crown Holdings, Inc.


Item 2. Management's Discussion and Analysis (Continued)

Contractual Obligations

During the first nine months of 2012 there were no material changes to the Company's contractual obligations reported in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Commitments and Contingent Liabilities

Information regarding the Company's commitments and contingent liabilities appears in Part I within Item 1 of this report under Note J, entitled “Commitments and Contingent Liabilities,” to the consolidated financial statements, which information is incorporated herein by reference.

Critical Accounting Policies

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require that management make numerous estimates and assumptions.

Actual results could differ from these estimates and assumptions, impacting the reported results of operations and financial condition of the Company. Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Note A to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 describe the significant accounting estimates and policies used in the preparation of the consolidated financial statements. There have been no significant changes in the Company's critical accounting policies during the first nine months of 2012. The discussion below supplements the discussion from the Company's Annual Report on Form 10-K for the year ended December 31, 2011 with respect to goodwill.

Goodwill Impairment

As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, the estimated fair value of the Company's European Aerosols reporting unit was 35% higher than its carrying value. In the fourth quarter of 2011, the Company initiated a restructuring action to improve profitability in its European Aerosols reporting unit by consolidating operations through reducing headcount and capacity. During the first nine months of 2012, results of operations in the European Aerosols reporting unit were impacted by the economic downturn in Europe. Based on current projections, the Company continues to believe that the estimated fair value of its European Aerosols reporting unit exceeds its carrying value. If the Company determines that goodwill is impaired, it is possible that an impairment charge of up to $149 could be recorded.

Forward Looking Statements

Statements included herein in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” including, but not limited to, in the discussions of asbestos in Note I and commitments and contingencies in Note J to the consolidated financial statements included in this Quarterly Report on Form 10-Q and also in Part I, Item 1: “Business” and Item 3: “Legal Proceedings” and in Part II, Item 7: “Management's Discussion and Analysis of Financial Condition and Results of Operations,” within the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto), are “forward-looking statements” within the meaning of the federal securities laws. In addition, the Company and its representatives may, from time to time, make oral or written statements which are also “forward-looking statements.”

These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company and, therefore, involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.    


56
Crown Holdings, Inc.


Item 2. Management's Discussion and Analysis (Continued)

While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with the preparation of “Management's Discussion and Analysis of Financial Condition and Results of Operations” and certain other sections contained in the Company's quarterly, annual or other reports filed with the Securities and Exchange Commission (“SEC”), the Company does not intend to review or revise any particular forward-looking statement in light of future events.    

A discussion of important factors that could cause the actual results of operations or financial condition of the Company to differ from expectations has been set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 within Part II, Item 7: “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward Looking Statements” and is incorporated herein by reference. Some of the factors are also discussed elsewhere in this Form 10-Q and in prior Company filings with the SEC. In addition, other factors have been or may be discussed from time to time in the Company's SEC filings.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange and interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by the counterparties. These instruments are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success in using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales arrangements that permit the pass-through of commodity prices and foreign exchange rate risks to customers. The Company's objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. For further discussion of the Company's use of derivative instruments and their fair values at September 30, 2012, see Note F to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

As of September 30, 2012, the Company had $1.7 billion principal floating interest rate debt. A change of 0.25% in these floating interest rates would change annual interest expense by approximately $4 million before tax.

Item 4.
Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation and as of the end of the quarter for which this report is made, the Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective. Disclosure controls and procedures ensure that information to be disclosed in reports that the Company files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and terms of the Securities and Exchange Commission, and ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There has been no change in internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.






57
Crown Holdings, Inc.


PART II – OTHER INFORMATION


Item 1.
Legal Proceedings

For information regarding the Company's potential asbestos-related liabilities and other litigation, see Note I entitled “Asbestos-Related Liabilities” and Note J entitled “Commitments and Contingent Liabilities,” respectively, to the consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.


Item 1A. Risk Factors

In addition to the other information set forth in this report, carefully consider the factors discussed in Item 1A to Part I in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect the Company's business, financial condition or future results. The risks described in the Company's Quarterly Report on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company's business, financial condition and/or operating results.


Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds

The Company made no purchases of its equity securities during the first six months of 2012.

The following table provides information about the Company's purchase of equity securities during the quarter ended September 30, 2012.    
 
Total Number
of Shares
Purchased
 Average Price Per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs
Approximate Dollar Value of Shares
 that May Yet Be Purchased
 under the Programs
As of the end of the period
(millions of dollars)
 
 
 
 
 
   July
5,016,190
$39.87
5,016,190
$94
   Total
5,016,190
$39.87
5,016,190
$94
 
 
 
 
 


In December 2011, the Company entered into an agreement to repurchase shares of its common stock under an accelerated share repurchase program. Pursuant to the agreement, the Company initially purchased 2,771,004 shares for $100. In April 2012, the Company received an additional 4,653 shares based on its volume-weighted average stock price during the term of the transaction.

In July 2012, the Company entered into an agreement to purchase shares of its common stock under an accelerated repurchase program. Pursuant to the agreement, the Company purchased 5,016,190 shares for $200 million. The actual number of shares repurchased will be determined at the completion of the term of the agreement subject to provisions that establish a minimum number of shares to be repurchased based on the volume-weighted average share price of the Company's common stock over an initial hedge period and a maximum share purchase price.

On December 9, 2010, the Company's Board of Directors authorized the repurchase of up to $600 million of the Company's common stock through the end of 2012. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. This repurchase authorization replaces all previous authorizations. As of September 30, 2012, $94 million of the Company's outstanding common stock may still be purchased under this program.


58
Crown Holdings, Inc.



Item 4.
Mine Safety Disclosures

Not applicable.


Item 5.
Other Information

None.


Item 6.     Exhibits
 
10
Employment contract between Crown Holdings, Inc. and Jozef Salaerts, dated November 5, 2012.
 
 
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by John W. Conway, Chairman of the Board, President and Chief Executive Officer of Crown Holdings, Inc. and Timothy J. Donahue, Executive Vice President and Chief Financial Officer of Crown Holdings, Inc.
 
 
 
 
101
The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011, (iii) Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011, (v) Consolidated Statements of Changes in Equity for the nine months ended September 30, 2012 and 2011 and (vi) Notes to Consolidated Financial Statements.





59
Crown Holdings, Inc.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
Crown Holdings, Inc.
Registrant
 
 
By:
 
/s/    Kevin C. Clothier
 
 
Kevin C. Clothier
 
 
Vice President and Corporate Controller

Date: November 6, 2012


60