10-Q 1 cck-6302014xq2.htm 10-Q CCK-6.30.2014-Q2

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________________________
FORM 10-Q
____________________________________

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014
 
¨
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 138,892,317 shares of Common Stock outstanding as of July 28, 2014.

Crown Holdings, Inc.


PART I – FINANCIAL INFORMATION

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

 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
2,383

 
$
2,223

 
$
4,376

 
$
4,196

Cost of products sold, excluding depreciation and amortization
1,960

 
1,818

 
3,621

 
3,458

Depreciation and amortization
47

 
30

 
82

 
64

Gross profit
376

 
375

 
673

 
674

Selling and administrative expense
103

 
102

 
207

 
206

Restructuring and other
31

 
4

 
83

 
8

Loss from early extinguishments of debt
—

 
—

 
—

 
38

Interest expense
66

 
61

 
124

 
121

Interest income
(1
)
 
(1
)
 
(3
)
 
(3
)
Foreign exchange
—

 
—

 
6

 
2

Income before income taxes and equity earnings
177

 
209

 
256

 
302

Provision for income taxes
50

 
55

 
83

 
79

Equity earnings (loss) in affiliates
—

 
1

 
—

 
(1
)
Net income
127

 
155

 
173

 
222

Net income attributable to noncontrolling interests
(21
)
 
(22
)
 
(43
)
 
(48
)
Net income attributable to Crown Holdings
$
106

 
$
133

 
$
130

 
$
174

 
 
 
 
 
 
 
 
Earnings per common share attributable to Crown Holdings:
 
 
 
 
 
 
 
Basic
$
0.77

 
$
0.94

 
$
0.95

 
$
1.23

Diluted
$
0.76

 
$
0.93

 
$
0.94

 
$
1.21



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


2
Crown Holdings, Inc.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net income
$
127

 
$
155

 
$
173

 
$
222

 
 
 
 
 
 
 
 
Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(4
)
 
(4
)
 
(8
)
 
(24
)
Pension and other postretirement benefits
17

 
30

 
32

 
48

Derivatives qualifying as hedges
14

 
(12
)
 
21

 
(30
)
Total other comprehensive income (loss)
27

 
14

 
45

 
(6
)
 
 
 
 
 
 
 
 
Total comprehensive income
154

 
169

 
218

 
216

Net income attributable to noncontrolling interests
(21
)
 
(22
)
 
(43
)
 
(48
)
Translation adjustments attributable to noncontrolling interests
(1
)
 
1

 
(1
)
 
1

Derivatives qualifying as hedges attributable to noncontrolling interests
(2
)
 
—

 
(2
)
 
3

Comprehensive income attributable to Crown Holdings
$
130

 
$
148

 
$
172

 
$
172



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


3
Crown Holdings, Inc.


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

 
June 30, 2014
 
December 31,
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
244

 
$
689

Receivables, net
1,264

 
1,064

Inventories
1,615

 
1,213

Prepaid expenses and other current assets
364

 
214

Total current assets
3,487

 
3,180

 
 
 
 
Goodwill and intangible assets
3,272

 
2,016

Property, plant and equipment, net
2,496

 
2,152

Other non-current assets
640

 
682

Total
$
9,895

 
$
8,030

 
 
 
 
Liabilities and equity
 
 
 
Current liabilities
 
 
 
Short-term debt
$
172

 
$
279

Current maturities of long-term debt
90

 
94

Accounts payable and accrued liabilities
2,587

 
2,547

Total current liabilities
2,849

 
2,920

 
 
 
 
Long-term debt, excluding current maturities
5,230

 
3,469

Postretirement and pension liabilities
836

 
891

Other non-current liabilities
568

 
461

Commitments and contingent liabilities (Note L)

 

Noncontrolling interests
268

 
285

Crown Holdings shareholders’ equity
144

 
4

Total equity
412

 
289

Total
$
9,895

 
$
8,030



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


4
Crown Holdings, Inc.


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

 
Six Months Ended
 
June 30
 
2014
 
2013
Cash flows from operating activities
 
 
 
Net income
$
173

 
$
222

Adjustments to reconcile net income to net cash used for operating activities:
 
 
 
Depreciation and amortization
82

 
64

Restructuring and other
83

 
8

Asset impairments and sales
—

 
—

Pension expense
31

 
39

Pension contributions
(42
)
 
(43
)
Stock-based compensation
14

 
12

Changes in assets and liabilities:
 
 
 
Receivables
(130
)
 
(281
)
Inventories
(252
)
 
(286
)
Accounts payable and accrued liabilities
(88
)
 
(10
)
Other, net
12

 
24

Net cash used for operating activities
(117
)
 
(251
)
Cash flows from investing activities
 
 
 
Capital expenditures
(149
)
 
(124
)
Purchase of business
(733
)
 
—

Insurance proceeds
—

 
8

Proceeds from sale of property, plant and equipment
5

 
5

Proceeds from sale of business
22

 
—

Other
1

 
(5
)
Net cash used for investing activities
(854
)
 
(116
)
Cash flows from financing activities
 
 
 
Proceeds from long-term debt
1,827

 
1,040

Payments of long-term debt
(1,015
)
 
(984
)
Net change in revolving credit facility and short-term debt
(130
)
 
423

Debt issue costs
(33
)
 
(15
)
Common stock issued
10

 
13

Common stock repurchased
(2
)
 
(194
)
Purchase of noncontrolling interests
(93
)
 
(10
)
Dividends paid to noncontrolling interests
(34
)
 
(35
)
Other
(2
)
 
11

Net cash provided by financing activities
528

 
249

Effect of exchange rate changes on cash and cash equivalents
(2
)
 
(5
)
Net change in cash and cash equivalents
(445
)
 
(123
)
Cash and cash equivalents at January 1
689

 
350

Cash and cash equivalents at June 30
$
244

 
$
227



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
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total Crown Equity
 
Noncontrolling Interests
 
Total
Balance at January 1, 2013
$
929

 
$
668

 
$
1,071

 
$
(2,614
)
 
$
(214
)
 
$
(160
)
 
$
289

 
$
129

Net income
 
 
 
 
174

 
 
 
 
 
174

 
48

 
222

Other comprehensive income / (loss)
 
 
 
 
 
 
(2
)
 
 
 
(2
)
 
(4
)
 
(6
)
Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(35
)
 
(35
)
Restricted stock awarded
 
 
(8
)
 
 
 
 
 
8

 
 
 
 
 
 
Stock-based compensation
 
 
12

 
 
 
 
 
 
 
12

 
 
 
12

Common stock issued
 
 
10

 
 
 
 
 
3

 
13

 
 
 
13

Common stock repurchased
 
 
(171
)
 
 
 
 
 
(23
)
 
(194
)
 
 
 
(194
)
Purchase of noncontrolling interests
 
 
(2
)
 
 
 


 
 
 
(2
)
 
(8
)
 
(10
)
Balance at June 30, 2013
$
929

 
$
509

 
$
1,245

 
$
(2,616
)
 
$
(226
)
 
$
(159
)
 
$
290

 
$
131

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
$
929

 
$
431

 
$
1,395

 
$
(2,513
)
 
$
(238
)
 
$
4

 
$
285

 
$
289

Net income
 
 
 
 
130

 
 
 
 
 
130

 
43

 
173

Other comprehensive income / (loss)
 
 
 
 
 
 
42

 
 
 
42

 
3

 
45

Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(19
)
 
(19
)
Restricted stock awarded
 
 
(1
)
 
 
 
 
 
1

 
 
 
 
 
 
Stock-based compensation
 
 
14

 
 
 
 
 
 
 
14

 
 
 
14

Common stock issued
 
 
7

 
 
 
 
 
3

 
10

 
 
 
10

Common stock repurchased
 
 
(2
)
 
 
 
 
 
—

 
(2
)
 
 
 
(2
)
Purchase of noncontrolling interests
 
 
(54
)
 
 
 
 
 
 
 
(54
)
 
(44
)
 
(98
)
Balance at June 30, 2014
$
929

 
$
395

 
$
1,525

 
$
(2,471
)
 
$
(234
)
 
$
144

 
$
268

 
$
412



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 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 the Company as of June 30, 2014 and the results of its operations for the three and six months ended June 30, 2014 and 2013 and of its cash flows for the six months ended June 30, 2014 and 2013. 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, 2013.

B.
Accounting and Reporting Developments

Recently Adopted Accounting Standards

In the first quarter of 2014, the Company adopted changes to the guidance on a parent’s accounting for cumulative translation adjustments upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The changes primarily clarified existing guidance regarding when cumulative translation adjustments should be released into earnings upon the occurrence of various events. The change did not impact the Company's financial statements in the first quarter.

Recently Issued Accounting Standards

In April 2014, the FASB issued changes to the definition of a discontinued operation to include only disposals that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The guidance, which will be effective for the Company on January 1, 2015, applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. Early adoption is permitted.

In May 2014, the FASB issued new guidance related to how an entity should recognize revenue. The guidance specifies that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In addition, the guidance expands the required disclosures related to revenue and cash flows from contracts with customers. The guidance is effective for the Company beginning in the first quarter of 2017. Early adoption is not permitted and retrospective application is permitted, but not required. The Company is currently evaluating the impact of adopting this guidance on its financial position and results of operations.


C.
Acquisition of Mivisa

On April 23, 2014 , the Company completed its previously announced acquisition of the sole shareholder of Mivisa Envases, S.A.U. (“Mivisa”) for $733, net of $28 in cash acquired, plus debt assumed. Mivisa, based in Murcia, Spain, primarily serves the vegetable, fruit, fish and meat markets and is the largest food can producer in both the Iberian Peninsula and Morocco. The acquisition is expected to significantly build upon the Company's existing position in the strategically important European food can segment by substantially increasing the Company's presence in Spain, one of Europe's leading agricultural economies.

From the acquisition date to June 30, 2014, Mivisa generated net sales of $121 and a net loss of $2 including a charge of $15 related to fair value adjustments for the sale of inventory acquired in the acquisition.


7
Crown Holdings, Inc.


The following table summarizes the consideration transferred to acquire Mivisa and the identifiable assets acquired and liabilities assumed at the acquisition date.
Fair value of consideration transferred
Cash
$
733

Total consideration
$
733

 
 
Recognized amounts of identifiable assets acquired and liabilities assumed:
Receivables, net
205

Inventories
201

Prepaid expenses and other current assets
13

Intangible assets
336

Property, plant and equipment, net
314

Net assets of acquired business to be divested
9

Accounts payable and accrued liabilities
(149
)
Debt
(977
)
Other non-current liabilities
(136
)
Total identifiable net assets
$
(184
)
 
 
Goodwill
$
917


Goodwill is primarily attributable to expected synergies arising from the acquisition as well as the assembled workforce of Mivisa. All of the goodwill was assigned to the Company's European Food segment and is not expected to be deductible for tax purposes.
The fair value of the assets acquired includes receivables of $205. The gross contractual amount due is $227 of which $22 is expected to be uncollectible.
The acquired property, plant and equipment will be depreciated on a straight-line basis over the estimated remaining useful lives of the equipment in accordance with the Company's existing policies and procedures.
Intangible assets include $15 of acquired trademarks that will be amortized over one year and $321 of customer relationships that will be amortized over fifteen years.
The Company has not finalized its valuation of the assets acquired and as a result has not yet finalized its purchase price allocation. The Company expects to finalize the purchase price allocation within one year of the acquisition date.


8
Crown Holdings, Inc.


D.
Accumulated Other Comprehensive Income

The following table provides information about the changes in each component of accumulated other comprehensive income.
 
 
Defined Benefit Plans
 
Foreign Currency Translation
 
Gains and Losses on Cash Flow Hedges
 
Total
Balance at December 31, 2012
 
$
(1,954
)
 
$
(648
)
 
$
(12
)
 
$
(2,614
)
Other comprehensive income (loss) before reclassifications
14

 
(23
)
 
(39
)
 
(48
)
Amounts reclassified from accumulated other comprehensive income
34

 
—

 
12

 
46

Other comprehensive income (loss)
 
48

 
(23
)
 
(27
)
 
(2
)
Balance at June 30, 2013
 
$
(1,906
)
 
$
(671
)
 
$
(39
)
 
$
(2,616
)
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
$
(1,828
)
 
$
(658
)
 
$
(27
)
 
$
(2,513
)
Other comprehensive income (loss) before reclassifications
—

 
(9
)
 
(2
)
 
(11
)
Amounts reclassified from accumulated other comprehensive income
32

 
—

 
21

 
53

Other comprehensive income (loss)
 
32

 
(9
)
 
19

 
42

Balance at June 30, 2014
 
$
(1,796
)
 
$
(667
)
 
$
(8
)
 
$
(2,471
)
The following table provides information about amounts reclassified out of accumulated other comprehensive income.
 
 
Amount Reclassified from Accumulated Other Comprehensive Income
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
Details about Accumulated Other
 
June 30,
 
June 30,
 
Affected Line Item in the
Comprehensive Income Components
 
2014
 
2013
 
2014
 
2013
 
Statement of Operations
Gains and losses on cash flow hedges
 
 
 
 
 
 
 
 
 
 
    Commodities
 
$
7

 
$
15

 
$
26

 
$
18

 
Cost of products sold
 
 
7

 
15

 
26

 
18

 
Total before tax
 
 
(1
)
 
(4
)
 
(7
)
 
(5
)
 
Provision for income taxes
 
 
$
6

 
$
11

 
$
19

 
$
13

 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
    Foreign exchange
 
$
(1
)
 
$
1

 
$
—

 
$
1

 
Net sales
 
 
1

 
(2
)
 
2

 
(2
)
 
Cost of products sold
 
 
—

 
(1
)
 
2

 
(1
)
 
Total before tax
 
 
—

 
—

 
—

 
—

 
Provision for income taxes
 
 
$
—

 
$
(1
)
 
$
2

 
$
(1
)
 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
Total gains and losses on cash flow hedges
$
6

 
$
10

 
$
21

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of defined benefit plan items
 
 
 
 
 
 
 
 
 
    Actuarial losses
 
$
34

 
$
33

 
$
64

 
$
69

 
(a)
    Prior service credit
 
(12
)
 
(12
)
 
(24
)
 
(26
)
 
(a)
 
 
22

 
21

 
40

 
43

 
Total before tax
 
 
(5
)
 
(5
)
 
(8
)
 
(9
)
 
Provision for income taxes
 
 
$
17

 
$
16

 
$
32

 
$
34

 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
$
23

 
$
26

 
$
53

 
$
46

 
Net of tax

(a) These accumulated other comprehensive income components are included in the computation of net period pension and postretirement cost. See Note N for further details.


9
Crown Holdings, Inc.


E.
Stock-Based Compensation

A summary of restricted and deferred stock transactions during the six months ended June 30, 2014 follows:
 
Number of shares
Non-vested stock awards outstanding at January 1, 2014
2,042,272

Awarded:

Time-vesting
156,294

Performance-based
174,481

Released:

Time-vesting shares awarded in 2011 through 2013
(109,784
)
Forfeitures:
 
        Time-vesting
(31,600
)
        Performance-based-shares awarded in 2011
(196,667
)
Non-vested stock awards outstanding at June 30, 2014
2,034,996


In January 2014, the Company awarded shares of restricted stock to certain senior executives consisting 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 market performance criteria is the Company's Total Shareholder Return ("TSR"), which includes share price appreciation and dividends paid, during the three-year term of the award measured against the TSR of a peer group of companies.
 
In January 2014, the performance-based shares awarded in 2011 were forfeited as the required market performance condition was not met.

In May 2014, the Company granted a general award of 61,200 shares of time-vesting restricted stock and deferred stock. The shares vest ratably over three years commencing in 2016.

The weighted average grant-date fair values of the 2014 and 2013 time-vesting stock awards were $46.18 and $43.43 and the performance-based stock awards were $48.31 and $36.75, respectively.

The fair value of the performance-based shares awarded in 2014 was calculated using a Monte Carlo valuation model. The estimated weighted average grant-date fair value of the 174,481 performance-based shares awarded in 2014 was $48.31 using a weighted average stock price volatility of 21.5%, an expected term of three years, and a weighted average risk-free interest rate of 0.80%. The variables used to value the 2013 performance-based award included a weighted average stock price volatility of 22.40%, an expected term of three years, and a weighted average risk-free rate of 0.34%.

At June 30, 2014, unrecognized compensation cost related to outstanding nonvested stock awards was $52. The weighted average period over which the expense is expected to be recognized is 3.3 years. The aggregate market value of the shares released and issued on the vesting dates was $5. The Company has assumed an annual forfeiture rate of 3% on the general awards.

F.
Receivables
 
June 30, 2014
 
December 31, 2013
Accounts receivable
$
1,137

 
$
962

Less: allowance for doubtful accounts
(91
)
 
(78
)
Net trade receivables
1,046

 
884

Miscellaneous receivables
218

 
180

Receivables, net
$
1,264

 
$
1,064


In 2014, the Company amended its North American securitization facility to provide for the sale of certain customer receivables without recourse on a revolving basis. As of June 30, 2014, the Company derecognized receivables sold of $254 and recognized a deferred purchase price of $134 which was included in prepaid expenses and other current assets in the Company’s Consolidated Balance Sheet. The deferred purchase price receivable is reduced as collections of the

10
Crown Holdings, Inc.


underlying receivables occur; however, as this is a revolving program, the sale of new receivables will result in an increase in the deferred purchase price receivable. The net change in the deferred purchase price receivable was reflected in the receivables line item on the Company’s Consolidated Statement of Cash Flows. This activity is reflected as an operating cash flow because the related customer receivables are the result of an operating activity with an insignificant, short-term interest rate risk.

G.
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 FIFO or average cost method.
 
June 30, 2014
 
December 31, 2013
Raw materials and supplies
$
739

 
$
645

Work in process
189

 
128

Finished goods
687

 
440

 
$
1,615

 
$
1,213



11
Crown Holdings, Inc.


H.    Derivative and Other Financial Instruments

Fair Value Measurements

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

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

The Company applies a market approach to value its commodity price hedge contracts. Prices from observable markets are used to develop the fair value of these financial instruments and they are reported under Level 1. The Company uses an income approach to value its foreign exchange forward contracts. These contracts are valued using a discounted cash flow model that calculates the present value of future cash flows under the terms of the contracts using market information 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 J 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. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes.

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

For derivative financial instruments accounted for 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 reclassification from comprehensive income is the same as that of the underlying exposure. Contracts outstanding at June 30, 2014 mature between one and twenty-eight 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.

12
Crown Holdings, Inc.


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

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

The following table sets forth financial information about the impact on Accumulated Other Comprehensive Income (“AOCI”) and earnings from changes in the fair value of derivative instruments.
 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
(effective portion)
 
into earnings
 
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
Derivatives in cash flow hedges
 
June 30, 2014
 
June 30, 2014
 
June 30, 2014
 
June 30, 2014
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$
—

 
$
1

 
$
—

 
$
(2
)
Commodities
 
6

 
(3
)
 
(6
)
 
(19
)
Total
 
$
6

 
$
(2
)
 
$
(6
)
 
$
(21
)
    
 
 
Amount of gain/(loss)
recognized in AOCI
(effective portion)
 
Amount of gain/(loss)
reclassified from AOCI
into earnings
 
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
Derivatives in cash flow hedges
 
June 30, 2013
 
June 30, 2013
 
June 30, 2013
 
June 30, 2013
Foreign exchange contracts
 
$
—

 
$
1

 
$
—

 
$
1

Commodity contracts
 
(23
)
 
(40
)
 
(11
)
 
(13
)
Total
 
$
(23
)
 
$
(39
)
 
$
(11
)
 
$
(12
)

For the three and six months ended June 30, 2014, the Company recognized a gain of $3 and a loss of $4, respectively, related to hedge ineffectiveness caused primarily by volatility in the metal premium component of aluminum prices. In the event that recent volatility in metal premiums continues, it is possible that the Company could record losses in the future that could be material.

During the twelve month period ending June 30, 2015, a net loss of $5 ($5, net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the six months ended June 30, 2014 and 2013 in connection with anticipated transactions that were no longer considered probable.

Fair Value Hedges and Contracts Not Designated as Hedges

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

Other than for firm commitments, amounts related to time value are excluded from the assessment and measurement of hedge effectiveness and are reported in earnings. Less than $1 was reported in earnings for the six months ended June 30, 2014.

Certain derivative financial instruments, including foreign exchange contracts related to intercompany debt, were not designated in hedge relationships; 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

13
Crown Holdings, Inc.


assets and liabilities denominated in nonfunctional currencies. Changes in fair value of these derivative instruments are immediately recognized in earnings as foreign exchange adjustments.

The impact on earnings from foreign exchange contracts designated as fair value hedges was a gain of $1 and a gain of less than $1 for the three and six months ended June 30, 2014 and a gain of $1 and loss of $5 for the three and six months ended June 30, 2013. The impact on earnings from foreign exchange contracts not designated as hedges was a loss of $12 and a loss of $13 for the three and six months ended June 30, 2014 and a gain of $10 and a loss of $3 for the same periods in 2013. These adjustments were reported within foreign exchange in the Consolidated Statements of Operations and were offset by changes in the fair values of the related hedged item.

Fair Values of Derivative Financial Instruments and Valuation Hierarchy

The following table sets forth the fair value hierarchy for the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2014 and December 31, 2013, respectively.
 
 
Balance Sheet Classification
 
Fair Value Hierarchy
 
June 30, 2014
 
December 31, 2013
Derivative Assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
Foreign exchange
 
Other current assets
 
2
 
$
23

 
$
29

Commodities
 
Other current assets
 
1
 
3

 
—

Commodities
 
Other non-current assets
 
1
 
—

 
—

Derivatives not designated as hedges:
 
 
 
 
 

Foreign exchange
 
Other current assets
 
2
 
1

 
8

 
 
Total
 
 
 
$
27

 
$
37

 
 
 
 
 
 
 
 
 
Derivative Liabilities
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
Foreign exchange
 
Accounts payable and accrued liabilities
 
2
 
$
24

 
$
30

Commodities
 
Accounts payable and accrued liabilities
 
1
 
10

 
27

Commodities
 
Other non-current liabilities
 
1
 
1

 
2

Derivatives not designated as hedges:
 
 
 
 
 

Foreign exchange
 
Accounts payable and accrued liabilities
 
2
 
5

 
1

 
 
Total
 
 
 
$
40

 
$
60


Offsetting of Derivative Assets and Liabilities

Certain derivative financial instruments are subject to agreements with counterparties similar to master netting arrangements and are eligible for offset. The Company has made an accounting policy election not to offset the fair values of these instruments within the statement of financial position. In the table below, the aggregate fair values of the Company's derivative assets and liabilities are presented on both a gross and net basis, where appropriate.

 
Gross Amounts Recognized in the Balance Sheet
Gross Amounts Not Offset in the Balance Sheet
Net Amount
Balance at June 30, 2014
 
 
 
Derivative Assets
27
4
23
Derivative Liabilities
40
4
36
 
 
 
 
Balance at December 31, 2013
 
 
 
Derivative Assets
37
2
35
Derivative Liabilities
60
2
58


14
Crown Holdings, Inc.


Notional Values of Outstanding Derivative Instruments

The aggregate U.S. dollar-equivalent notional values of outstanding derivative instruments in the Consolidated Balance Sheets at June 30, 2014 and December 31, 2013 were:
 
June 30, 2014
 
December 31, 2013
Derivatives in cash flow hedges:
 
 
 
Foreign exchange
$
839

 
$
724

Commodities
250

 
379

Derivatives in fair value hedges:

 

Foreign exchange
112

 
128

Derivatives not designated as hedges:
 
 
 
Foreign exchange
742

 
675


I.
Restructuring and Other

For the three months ended June 30, 2014, the Company recorded restructuring and other charges of $31 including $12 of transaction costs incurred in connection with the acquisition of Mivisa, $9 of other charges including strip and clean costs associated with prior restructuring actions and incremental costs associated with the temporary relocation of production due to an ongoing labor dispute in the Company's Americas Beverage segment, $8 of severance costs in the Company's European Food segment and $2 of pension settlement charges related to a prior restructuring action in the Company's North American Food segment.

For the six months ended June 30, 2014, the Company recorded restructuring and other charges of $83 including $42 of impairment charges related to the divestment of certain operations in connection with the acquisition of Mivisa, $17 of other charges including strip and clean costs associated with prior restructuring actions and incremental costs associated with the temporary relocation of production due to an ongoing labor dispute in the Company's Americas Beverage segment,$14 of transaction costs incurred in connection with the acquisition of Mivisa, $8 of severance costs in the Company's European Food segment and $2 of pension settlement charges related to a prior restructuring action in the Company's North American Food segment.

For three and six months ended June 30, 2013 the Company recorded restructuring and other charges of $4 and $8 related to other exit costs associated with prior restructuring actions.

The tables below summarize the outstanding accrual balances associated with prior restructuring actions.

2011 European Division Headquarters Relocation

Through June 30, 2014, the Company incurred costs of $40 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, 2014
$
—

 
$
18

 
$
18

Payments
—

 
(8
)
 
(8
)
Balance at June 30, 2014
$
—

 
$
10

 
$
10


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 in 2014 and 2015.

15
Crown Holdings, Inc.


2011 and 2012 European Division Actions

Through June 30, 2014, the Company incurred costs of $68 in connection with actions taken in 2011 and 2012 to reduce manufacturing capacity and headcount in its European Aerosol and Specialty Packaging businesses. Due to the similar nature of these actions, they have been combined in the rollforward presented below. The Company currently expects to incur future additional costs of $2 related to the actions which are expected to be completed in 2014 at an estimated aggregate cost of $70. The Company expects to pay the liability through 2024 as certain employees have elected to receive payout as a fixed monthly sum over a period of time. The Company continues to review its supply and demand profile and long-term plans in Europe and it is possible that the Company may record additional restructuring charges in the future.

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, 2014
$
16

 
$
—

 
$
16

Provision
—

 
1

 
1

Payments
(3
)
 
(1
)
 
(4
)
Balance at June 30, 2014
$
13

 
$
—

 
$
13

    
2013 European Division Actions

Through June 30, 2014, the Company incurred costs of $31 related to a cost-reduction initiative to better align costs with ongoing market conditions in its European operations, primarily in its food, aerosol and specialty packaging businesses. The action is expected to result in the reduction of approximately 235 employees when completed in 2014. The Company does not expect to incur any additional charges related to this action.

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, 2014
$
27

 
$
—

 
$
27

Payments
(7
)
 
—

 
(7
)
Balance at June 30, 2014
$
20

 
$
—

 
$
20


2014 European Division Actions

For the three and six months ended June 30, 2014, the Company recorded a charge of $8 related to severance costs in its European Food segment. The Company does not expect to incur any additional charges related to this action.

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, 2014
$
—

 
$
—

 
$
—

Provision
8

 
—

 
8

Payments
—

 
—

 
—

Balance at June 30, 2014
$
8

 
$
—

 
$
8




16
Crown Holdings, Inc.


J.
Debt

The Company’s outstanding debt was as follows.
 
June 30,
2014
 
December 31,
2013
Short-term debt
$
172

 
$
279

Long-term debt

 

Senior secured borrowings:

 

Revolving credit facilities
$
96

 
$
103

Term loan facilities

 

U.S. dollar at LIBOR plus 1.75% due 2018
800

 
220

Euro (€700 at June 30, 2014) at EURIBOR plus 1.75% due 2018
959

 
151

Farm credit facility at LIBOR plus 2.00% due 2019
362

 
—

Senior notes and debentures:

 

Euro (€500 at June 30, 2014) 7.125% due 2018
685

 
688

U.S. dollar 6.25% due 2021
700

 
700

U.S. dollar 4.50% due 2023
1,000

 
1,000

U.S. dollar 7.375% due 2026
350

 
350

U.S. dollar 7.50% due 2096
64

 
64

Other indebtedness in various currencies
306

 
289

Unamortized discounts
(2
)
 
(2
)
Total long-term debt
5,320

 
3,563

Less: current maturities
(90
)
 
(94
)
Total long-term debt, less current maturities
$
5,230

 
$
3,469


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 $5,568 at June 30, 2014 and $3,645 at December 31, 2013.

In April 2014, to fund the acquisition of Mivisa as described in Note C, payoff certain of Mivisa's existing debt and pay transaction costs, the Company borrowed $580 under its US dollar term loan facility, €590 ($808 at June 30, 2014) under its euro term loan facility and $362 under a farm credit facility.

In July 2014, the Company issued €650 ($890 at June 30, 2014) principal amount of 4% senior unsecured notes due 2022. The notes were issued at par by Crown European Holdings S.A., a subsidiary of the Company, and are unconditionally guaranteed by the Company and certain of its subsidiaries. The Company used a portion of the proceeds to purchase through a tender offer and to redeem all of its outstanding senior notes due 2018. In connection with the repurchase and redemption of the 2018 notes, the Company expects to record a loss from early extinguishment of debt of approximately $35 in the third quarter of 2014.

K.
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.

17
Crown Holdings, Inc.


In recent years, the states of Alabama, Arizona, Florida, Georgia, Idaho, Indiana, Kansas, Michigan, Mississippi, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, 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.

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 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.

The Company further cautions that an adverse ruling in any litigation relating to the constitutionality or applicability to Crown Cork of one or more statutes that limits the asbestos-related liability of alleged defendants like Crown Cork could have a material impact on the Company.

During the six months ended June 30, 2014, the Company paid $11 to settle outstanding claims and had claims activity as follows:
Beginning claims
53,000

New claims
1,500

Settlements or dismissals
(1,000
)
Ending claims
53,500


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, 2013, the Company's outstanding claims were:
Claimants alleging first exposure after 1964
16,000

Claimants alleging first exposure before or during 1964 filed in:
 
Texas
13,000

Pennsylvania
2,000

Other states that have enacted asbestos legislation
6,000

Other states
16,000

Total claims outstanding
53,000


18
Crown Holdings, Inc.


The outstanding claims in each period 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.

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.

As of December 31, the percentage of outstanding claims related to claimants alleging serious diseases (primarily mesothelioma and other malignancies) were as follows:
 
2013

 
2012

 
2011

Total claims
21
%
 
19
%
 
18
%
Pre-1964 claims in states without asbestos legislation
39
%
 
36
%
 
33
%

Crown Cork has entered into arrangements with plaintiffs’ counsel in certain jurisdictions with respect to claims which are not yet filed, or asserted, against it. However, Crown Cork expects claims under these arrangements to be filed or asserted against Crown Cork in the future. The projected value of these claims is included in the Company’s estimated liability as of June 30, 2014.

As of June 30, 2014, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $244, including $203 for unasserted claims. The Company’s accrual includes estimated probable costs for claims through the year 2023. The Company’s accrual excludes potential costs for claims beyond 2023 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. 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 87% of the claims outstanding at the end of 2013), 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).

L.
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. The Company has a receivable of $3 for the recovery of certain of these costs from a third party. Although the Company believes its accruals are adequate

19
Crown Holdings, Inc.


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

At June 30, 2014, 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 $6. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated. At June 30, 2014, the Company also had guarantees of $37 related to the residual values of leased assets.

M.
Earnings Per Share

The following table summarizes the computations of basic and diluted earnings per share attributable to the Company:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net income attributable to Crown Holdings
$
106

 
$
133

 
$
130

 
$
174

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
137.2

 
141.2

 
137.0

 
141.8

Add: dilutive stock options and restricted stock
1.4

 
1.3

 
1.4

 
1.5

Diluted
138.6

 
142.5

 
138.4

 
143.3

Basic earnings per share
$
0.77

 
$
0.94

 
$
0.95

 
$
1.23

Diluted earnings per share
$
0.76

 
$
0.93

 
$
0.94

 
$
1.21


For the three months ended June 30 , 2014 and 2013, 0.1 million  and 0.8 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive. 

For the six months ended June 30, 2014 and 2013, 0.1 million and 0.5 million contingently issuable commons shares were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive.



20
Crown Holdings, Inc.


N.
Pension and Other Postretirement Benefits

The components of net periodic pension and other postretirement benefits costs for the three and six months ended June 30 were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
Pension Benefits – U.S. Plans
2014
 
2013
 
2014
 
2013
Service cost
$
4

 
$
3

 
$
8

 
$
7

Interest cost
17

 
16

 
33

 
31

Expected return on plan assets
(26
)
 
(24
)
 
(52
)
 
(49
)
Recognized net loss
10

 
14

 
21

 
28

Net periodic cost
$
5

 
$
9

 
$
10

 
$
17


 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
Pension Benefits – Non-U.S. Plans
2014
 
2013
 
2014
 
2013
Service cost
$
6

 
$
6

 
$
13

 
$
13

Interest cost
42

 
31

 
81

 
67

Expected return on plan assets
(53
)
 
(40
)
 
(102
)
 
(86
)
Recognized prior service credit
(4
)
 
(2
)
 
(8
)
 
(6
)
Recognized net loss
19

 
16

 
37

 
34

Net periodic cost
$
10

 
$
11

 
$
21

 
$
22


 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
Other Postretirement Benefits
2014
 
2013
 
2014
 
2013
Service cost
$
—

 
$
1

 
$
1

 
$
2

Interest cost
3

 
4

 
6

 
7

Recognized prior service credit
(8
)
 
(10
)
 
(17
)
 
(20
)
Recognized net loss
2

 
4

 
4

 
8

Net periodic cost
$
(3
)
 
$
(1
)
 
$
(6
)
 
$
(3
)

O.
Income Taxes
The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to pre-tax income as a result of the following items: 
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
U.S. statutory rate at 35%
$
62

 
$
73

 
$
90

 
$
106

Tax on foreign income
(27
)
 
(21
)
 
(44
)
 
(31
)
Valuation allowance
5

 
(1
)
 
10

 
1

Non-deductible impairment charge
—

 
—

 
15

 
—

Other items, net
10

 
4

 
12

 
3

Income tax provision
$
50

 
$
55

 
$
83

 
$
79



21
Crown Holdings, Inc.


For the three and six months ended June 30, 2014 compared to 2013, the Company's effective income tax rate was higher primarily due to non-deductible transaction costs incurred in connection with the Company's acquisition of Mivisa and higher losses in jurisdictions that are not currently expected to realize the related tax benefit. For the six months ended June 30, 2014 compared to 2013, the Company's effective income tax rate was also higher due to non-deductible impairment charges related to the divestment of certain operations in connection with the Company's acquisition of Mivisa.

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 excluding the impact of fair value adjustments related to the sale of inventory acquired in an acquisition and the timing impact of hedge ineffectiveness, 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.

The tables below present information about the Company's operating segments:
 
External Sales
 
External Sales
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Americas Beverage
$
594

 
$
582

 
$
1,143

 
$
1,134

North America Food
213

 
206

 
392

 
403

European Beverage
496

 
492

 
884

 
863

European Food
555

 
430

 
928

 
806

Asia Pacific
316

 
301

 
614

 
577

Total reportable segments
2,174

 
2,011

 
3,961

 
3,783

Non-reportable segments
209

 
212

 
415

 
413

Total
$
2,383

 
$
2,223

 
$
4,376

 
$
4,196


The primary sources of revenue included in non-reportable segments are the Company's aerosol can businesses in North America and Europe, the Company's specialty packaging business in Europe and the Company's tooling and equipment operations in the U.S. and United Kingdom.

 
Intersegment Sales
 
Intersegment Sales
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
 
2014
 
2013
 
2014
 
2013
 
Americas Beverage
$
32

 
$
24

 
$
51

 
$
38

 
North America Food
1

 
3

 
4

 
6

 
European Beverage
1

 
—

 
1

 
1

 
European Food
25

 
20

 
47

 
41

 
Asia Pacific
—

 
—

 
—

 
—

 
Total reportable segments
59

 
47

 
103

 
86

 
Non-reportable segments
29

 
25

 
58

 
57

 
Total
$
88

 
$
72

 
$
161

 
$
143

 

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.

22
Crown Holdings, Inc.



 
Segment Income
 
Segment Income
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
 
2014
 
2013
 
2014
 
2013
 
Americas Beverage
$
85

 
$
85

 
$
164

 
$
161

 
North America Food
38

 
41

 
67

 
72

 
European Beverage
83

 
78

 
142

 
129

 
European Food
63

 
39

 
89

 
71

 
Asia Pacific
36

 
35

 
70

 
68

 
Total reportable segments
$
305

 
$
278

 
$
532

 
$
501

 

A reconciliation of segment income of reportable segments to income before income taxes and equity earnings is as follows:
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
 
2014

2013
 
2014

2013
 
Segment income of reportable segments
$
305

 
$
278

 
$
532

 
$
501

 
Segment income of non-reportable segments
22

 
31

 
46

 
53

 
Corporate and unallocated items
(54
)
 
(36
)
 
(112
)
 
(86
)
 
Restructuring and other
(31
)
 
(4
)
 
(83
)
 
(8
)
 
Loss from early extinguishments of debt
—

 
—

 
—

 
(38
)
 
Interest expense
(66
)
 
(61
)
 
(124
)
 
(121
)
 
Interest income
1

 
1

 
3

 
3

 
Foreign exchange
—

 
—

 
(6
)
 
(2
)
 
Income before income taxes and equity earnings
$
177


$
209

 
$
256

 
$
302

 

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. For the three months ended June 30, 2014, corporate and unallocated items also included a charge of $15 related to fair value adjustments for the sale of inventory acquired in the Mivisa acquisition and a credit of $3 related to hedge ineffectiveness. For the six months ended June 30, 2014, corporate and unallocated items also included a charge of $15 related to fair value adjustments for the sale of inventory acquired in the Mivisa acquisition and a charge of $4 related to hedge ineffectiveness.

For the six months ended June 30, 2014 and 2013, intercompany profit of $1 and $3 was eliminated within segment income of non-reportable segments. For the three months ended June 30, 2013, intercompany profit of $1 was eliminated within segment income of non-reportable segments.

23
Crown Holdings, Inc.


Q.
Condensed Combining Financial Information
Crown European Holdings SA (Issuer), a wholly owned subsidiary of the Company, has €500 ($685 at June 30, 2014) principal amount of 7.125% senior notes due 2018 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and certain subsidiaries. The guarantors are wholly owned by the Company and the guarantees are made on a joint and several basis. The guarantor column includes financial information for all subsidiaries in the United States (except for an insurance subsidiary and a receivable securitization subsidiary), substantially all subsidiaries in Belgium, Canada, France, Germany, Mexico, Switzerland and the United Kingdom, and a subsidiary in the Netherlands.
The following condensed combining financial statements:
•statements of comprehensive income for the three and six months ended June 30, 2014 and 2013,
•balance sheets as of June 30, 2014 and December 31, 2013, and
•statements of cash flows for the six months ended June 30, 2014 and 2013
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2014
(in millions)
 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
1,108

 
$
1,275

 

 
$
2,383

Cost of products sold, excluding depreciation and amortization

 

 
915

 
1,045

 

 
1,960

Depreciation and amortization

 

 
14

 
33

 

 
47

Gross profit
 
 
 
 
179

 
197

 
 
 
376

Selling and administrative expense

 


 
77

 
26

 

 
103

Restructuring and other

 
$
1

 
28

 
2

 

 
31

Net interest expense

 
8

 
38

 
19

 

 
65

Technology royalty

 

 
(9
)
 
9

 

 
—

Income/(loss) before income taxes
 
 
(9
)
 
45

 
141

 
 
 
177

Provision for / (benefit from) income taxes

 

 
27

 
23

 

 
50

Equity earnings / (loss) in affiliates
$
106

 
73

 
88

 

 
$
(267
)
 
—

Net income
106

 
64

 
106

 
118

 
(267
)
 
127

Net income attributable to noncontrolling interests

 

 

 
(21
)
 

 
(21
)
Net income attributable to Crown Holdings
$
106

 
$
64

 
$
106

 
$
97

 
$
(267
)
 
$
106

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
130

 
$
72

 
$
130

 
$
127

 
$
(305
)
 
$
154

Comprehensive income attributable to noncontrolling interests


 


 


 
(24
)
 


 
(24
)
Comprehensive income attributable to Crown Holdings
$
130

 
$
72

 
$
130

 
$
103

 
$
(305
)
 
$
130


24
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
1,120

 
$
1,103

 

 
$
2,223

Cost of products sold, excluding depreciation and amortization

 


 
877

 
941

 

 
1,818

Depreciation and amortization

 

 
10

 
20

 

 
30

Gross profit
 
 
—

 
233

 
142

 
 
 
375

Selling and administrative expense

 
$
(2
)
 
80

 
24

 

 
102

Restructuring and other

 

 
4

 

 

 
4

Net interest expense

 
14

 
32

 
14

 

 
60

Technology royalty

 

 
(10
)
 
10

 

 
—

Foreign exchange

 

 
1

 
(1
)
 

 
—

Income/(loss) before income taxes
 
 
(12
)
 
126

 
95

 
—

 
209

Provision for / (benefit from) income taxes

 

 
24

 
31

 

 
55

Equity earnings / (loss) in affiliates
$
133

 
39

 
31

 

 
$
(202
)
 
1

Net income
133

 
27

 
133

 
64

 
(202
)
 
155

Net income attributable to noncontrolling interests

 

 

 
(22
)
 

 
(22
)
Net income attributable to Crown Holdings
$
133

 
$
27

 
$
133

 
$
42

 
$
(202
)
 
$
133

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
148

 
$
28

 
$
148

 
$
58

 
$
(213
)
 
$
169

Comprehensive income attributable to noncontrolling interests


 


 


 
(21
)
 


 
(21
)
Comprehensive income attributable to Crown Holdings
$
148

 
$
28

 
$
148

 
$
37

 
$
(213
)
 
$
148



25
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2014
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
2,088

 
$
2,288

 
 
 
$
4,376

Cost of products sold, excluding depreciation and amortization
 
 
 
 
1,724

 
1,897

 
 
 
3,621

Depreciation and amortization
 
 
 
 
27

 
55

 
 
 
82

Gross profit
 
 
 
 
337

 
336

 
 
 
673

Selling and administrative expense
 
 
$
(1
)
 
162

 
46

 
 
 
207

Restructuring and other
 
 
1

 
56

 
26

 
 
 
83

Net interest expense
 
 
23

 
67

 
31

 
 
 
121

Technology royalty
 
 
 
 
(17
)
 
17

 
 
 
—

Foreign exchange
 
 
 
 
3

 
3

 
 
 
6

Income/(loss) before income taxes
 
 
(23
)
 
66

 
213

 
 
 
256

Provision for / (benefit from) income taxes
 
 
 
 
44

 
39

 
 
 
83

Equity earnings / (loss) in affiliates
$
130

 
81

 
108

 
 
 
$
(319
)
 
—

Net income
130

 
58

 
130

 
174

 
(319
)
 
173

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(43
)
 
 
 
(43
)
Net income attributable to Crown Holdings
$
130

 
$
58

 
$
130

 
$
131

 
$
(319
)
 
$
130

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
172

 
$
62

 
$
172

 
$
181

 
$
(369
)
 
$
218

       Comprehensive income attributable to
noncontrolling interests
 
 
 
 
 
 
(46
)
 
 
 
(46
)
Comprehensive income attributable to Crown Holdings
$
172

 
$
62

 
$
172

 
$
135

 
$
(369
)
 
$
172



26
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
2,128

 
$
2,068

 
 
 
$
4,196

Cost of products sold, excluding depreciation and amortization
 
 
 
 
1,705

 
1,753

 
 
 
3,458

Depreciation and amortization
 
 
 
 
24

 
40

 
 
 
64

Gross profit
 
 
 
 
399

 
275

 
 
 
674

Selling and administrative expense
 
 
$
(2
)
 
161

 
47

 
 
 
206

Restructuring and other
 
 

 
6

 
2

 
 
 
8

Loss from early extinguishment of debt
 
 
1

 
37

 
 
 
 
 
38

Net interest expense
 
 
27

 
64

 
27

 
 
 
118

Technology royalty
 
 
 
 
(18
)
 
18

 
 
 
—

Foreign Exchange
 
 
 
 
3

 
(1
)
 
 
 
2

Income/(loss) before income taxes
 
 
(26
)
 
146

 
182

 
 
 
302

Provision for / (benefit from) income taxes
 
 
 
 
40

 
39

 
 
 
79

Equity earnings / (loss) in affiliates
$
174

 
61

 
68

 
 
 
$
(304
)
 
(1
)
Net income
174

 
35

 
174

 
143

 
(304
)
 
222

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(48
)
 
 
 
(48
)
Net income attributable to Crown Holdings
$
174

 
$
35

 
$
174

 
$
95

 
$
(304
)
 
$
174

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
172

 
$
17

 
$
172

 
$
107

 
$
(252
)
 
$
216

Comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
(44
)
 
 
 
(44
)
Comprehensive income attributable to Crown Holdings
$
172

 
$
17

 
$
172

 
$
63

 
$
(252
)
 
$
172



27
Crown Holdings, Inc.



CONDENSED COMBINING BALANCE SHEET

As of June 30, 2014
(in millions)

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

 

 
$
83

 
$
161

 

 
$
244

Receivables, net

 


 
321

 
943

 

 
1,264

Intercompany receivables

 
$
3

 
122

 
76

 
$
(201
)
 
—

Inventories

 

 
662

 
953

 

 
1,615

Prepaid expenses and other current assets
$
2

 
7

 
147

 
208

 

 
364

Total current assets
2

 
10

 
1,335

 
2,341

 
(201
)
 
3,487

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
2,338

 
5,021

 
520

 
(7,879
)
 
—

Investments
2,235

 
4,224

 
544

 

 
(7,003
)
 
—

Goodwill and intangible assets

 

 
1,463

 
1,809

 

 
3,272

Property, plant and equipment, net

 

 
667

 
1,829

 

 
2,496

Other non-current assets

 
37

 
530

 
73

 

 
640

Total
$
2,237

 
$
6,609

 
$
9,560

 
$
6,572

 
$
(15,083
)
 
$
9,895

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 


 
$
18

 
$
154

 

 
$
172

Current maturities of long-term debt

 

 


 
90

 

 
90

Accounts payable and accrued liabilities
$
10

 
$
25

 
1,294

 
1,258

 

 
2,587

Intercompany payables

 

 
76

 
125

 
$
(201
)
 
—

Total current liabilities
10

 
25

 
1,388

 
1,627

 
(201
)
 
2,849

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
1,693

 
3,320

 
217

 

 
5,230

Long-term intercompany debt
2,083

 
2,541

 
1,534

 
1,721

 
(7,879
)
 
—

Postretirement and pension liabilities

 

 
819

 
17

 

 
836

Other non-current liabilities

 
8

 
264

 
296

 

 
568

Commitments and contingent liabilities

 

 

 

 

 
 
Noncontrolling interests

 

 


 
268

 

 
268

Crown Holdings shareholders’ equity/(deficit)
144

 
2,342

 
2,235

 
2,426

 
(7,003
)
 
144

Total equity/(deficit)
144

 
2,342

 
2,235

 
2,694

 
(7,003
)
 
412

Total
$
2,237

 
$
6,609

 
$
9,560

 
$
6,572

 
$
(15,083
)
 
$
9,895



28
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2013
(in millions)

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

 
$
48

 
$
392

 
$
249

 

 
$
689

Receivables, net

 
1

 
246

 
817

 

 
1,064

Intercompany receivables

 
2

 
89

 
63

 
$
(154
)
 
—

Inventories

 

 
565

 
648

 

 
1,213

Prepaid expenses and other current assets
$
1

 
10

 
146

 
57

 

 
214

Total current assets
1

 
61

 
1,438

 
1,834

 
(154
)
 
3,180

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
1,531

 
3,746

 
589

 
(5,866
)
 
—

Investments
1,176

 
4,155

 
(325
)
 

 
(5,006
)
 
—

Goodwill and intangible assets

 

 
1,444

 
572

 

 
2,016

Property, plant and equipment, net

 

 
643

 
1,509

 

 
2,152

Other non-current assets

 
29

 
562

 
91

 

 
682

Total
$
1,177

 
$
5,776

 
$
7,508

 
$
4,595

 
$
(11,026
)
 
$
8,030

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 


 
$
2

 
$
277

 

 
$
279

Current maturities of long-term debt

 


 


 
94

 

 
94

Accounts payable and accrued liabilities
$
16

 
$
22

 
1,277

 
1,232

 

 
2,547

Intercompany payables

 
8

 
55

 
91

 
$
(154
)
 
—

Total current liabilities
16

 
30

 
1,334

 
1,694

 
(154
)
 
2,920

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
942

 
2,332

 
195

 

 
3,469

Long-term intercompany debt
1,157

 
2,510

 
1,515

 
684

 
(5,866
)
 
—

Postretirement and pension liabilities

 

 
870

 
21

 

 
891

Other non-current liabilities

 
8

 
281

 
172

 

 
461

Commitments and contingent liabilities

 

 

 

 

 
 
Noncontrolling interests

 

 


 
285

 

 
285

Crown Holdings shareholders’ equity/(deficit)
4

 
2,286

 
1,176

 
1,544

 
(5,006
)
 
4

Total equity/(deficit)
4

 
2,286

 
1,176

 
1,829

 
(5,006
)
 
289

Total
$
1,177

 
$
5,776

 
$
7,508

 
$
4,595

 
$
(11,026
)
 
$
8,030



29
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2014
(in millions)
 
 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
7

 
$
(30
)
 
$
(160
)
 
$
66

 

 
$
(117
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(43
)
 
(106
)
 

 
(149
)
Purchase of business

 


 
(733
)
 


 


 
(733
)
Proceeds from sale of property, plant and equipment

 

 
4

 
1

 

 
5

Proceeds from sale of business

 
22

 


 


 


 
22

Intercompany investing activities
(941
)
 


 
1,007

 
 
 
$
(66
)
 
—

Other

 

 


 
1

 

 
1

Net cash provided by/(used for) investing activities
(941
)
 
22

 
235

 
(104
)
 
(66
)
 
(854
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 
815

 
942

 
70

 

 
1,827

Payments of long-term debt

 


 


 
(1,015
)
 

 
(1,015
)
Net change in revolving credit facility and short-term debt

 
(54
)
 
47

 
(123
)
 

 
(130
)
Net change in long-term intercompany balances
926

 
(787
)
 
(1,259
)
 
1,120

 

 
—

Debt issue costs

 
(12
)
 
(21
)
 

 

 
(33
)
Common stock issued
10

 

 

 

 

 
10

Common stock repurchased
(2
)
 

 

 

 

 
(2
)
Dividends paid

 

 

 
(66
)
 
66

 
—

Purchase of noncontrolling interests

 

 
(93
)
 


 

 
(93
)
Dividends paid to noncontrolling interests

 

 

 
(34
)
 

 
(34
)
Other

 
(2
)
 


 

 

 
(2
)
Net cash provided by/(used for) financing activities
934

 
(40
)
 
(384
)
 
(48
)
 
66

 
528

Effect of exchange rate changes on cash and cash equivalents

 

 
 
 
(2
)
 
 
 
(2
)
Net change in cash and cash equivalents
—

 
(48
)
 
(309
)
 
(88
)
 
—

 
(445
)
Cash and cash equivalents at January 1

 
48

 
392

 
249

 

 
689

Cash and cash equivalents at June 30
$
—

 
$
—

 
$
83

 
$
161

 
$
—

 
$
244



30
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
2

 
$
(21
)
 
$
(199
)
 
$
(33
)
 

 
$
(251
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(29
)
 
(95
)
 

 
(124
)
Insurance proceeds
 
 
 
 
 
 
8

 
 
 
8

Proceeds from sale of property, plant and equipment

 

 
3

 
2

 

 
5

Intercompany investing activities

 
(39
)
 
50

 


 
$
(11
)
 
—

Other

 

 
—

 
(5
)
 

 
(5
)
Net cash provided by/(used for) investing activities
 
 
(39
)
 
24

 
(90
)
 
(11
)
 
(116
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 


 
1,000

 
40

 

 
1,040

Payments of long-term debt

 
(217
)
 
(729
)
 
(38
)
 

 
(984
)
Net change in revolving credit facility and short-term debt

 
267

 
140

 
16

 

 
423

Net change in long-term intercompany balances
179

 
11

 
(253
)
 
63

 

 
—

Debt issue costs


 

 
(15
)
 

 

 
(15
)
Capital contribution
 
 
 
 
 
 
39

 
(39
)
 
—

Common stock issued
13

 

 

 

 

 
13

Common stock repurchased
(194
)
 

 

 

 

 
(194
)
Dividends paid

 


 

 
(50
)
 
50

 
—

Purchase of noncontrolling interests

 

 

 
(10
)
 

 
(10
)
Dividends paid to noncontrolling interests

 

 

 
(35
)
 

 
(35
)
Other

 
(1
)
 
12

 

 

 
11

Net cash provided by/(used for) financing activities
(2
)
 
60

 
155

 
25

 
11

 
249

Effect of exchange rate changes on cash and cash equivalents

 

 

 
(5
)
 

 
(5
)
Net change in cash and cash equivalents
—

 
—

 
(20
)
 
(103
)
 
—

 
(123
)
Cash and cash equivalents at January 1

 


 
134

 
216

 

 
350

Cash and cash equivalents at June 30
$
—

 
$
—

 
$
114

 
$
113

 
$
—

 
$
227



31
Crown Holdings, Inc.


Crown Cork & Seal Company, Inc. (Issuer), a wholly owned subsidiary, has $350 principal amount of 7.375% senior notes due 2026 and $64 principal amount of 7.5% senior notes due 2096 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt.

The following condensed combining financial statements:
•statements of comprehensive income for the three and six months ended June 30, 2014 and 2013,
•balance sheets as of June 30, 2014 and December 31, 2013, and
•statements of cash flows for the six months ended June 30, 2014 and 2013
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.

CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2014
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
2,383

 

 
$
2,383

Cost of products sold, excluding depreciation and amortization

 

 
1,960

 

 
1,960

Depreciation and amortization

 

 
47

 

 
47

Gross profit
 
 
—

 
376

 
 
 
376

Selling and administrative expense

 
$
2

 
101

 

 
103

Restructuring and other

 


 
31

 
 
 
31

Net interest expense

 
24

 
41

 

 
65

Income/(loss) before income taxes
 
 
(26
)
 
203

 
—

 
177

Provision for / (benefit from) income taxes

 
(4
)
 
54

 

 
50

Equity earnings / (loss) in affiliates
$
106

 
132

 


 
$
(238
)
 
—

Net income
106

 
110

 
149

 
(238
)
 
127

Net income attributable to noncontrolling interests

 

 
(21
)
 

 
(21
)
Net income attributable to Crown Holdings
$
106

 
$
110

 
$
128

 
$
(238
)
 
$
106

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
130

 
$
134

 
$
176

 
$
(286
)
 
$
154

Comprehensive income attributable to noncontrolling interests


 


 
(24
)
 


 
(24
)
Comprehensive income attributable to Crown Holdings
$
130

 
$
134

 
$
152

 
$
(286
)
 
$
130



32
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
2,223

 

 
$
2,223

Cost of products sold, excluding depreciation and amortization

 
$
(16
)
 
1,834

 

 
1,818

Depreciation and amortization

 

 
30

 

 
30

Gross profit
 
 
16

 
359

 
 
 
375

Selling and administrative expense

 
(2
)
 
104

 

 
102

Restructuring and other

 

 
4

 

 
4

Net interest expense

 
25

 
35

 

 
60

Income/(loss) before income taxes
 
 
(7
)
 
216

 
 
 
209

Provision for / (benefit from) income taxes

 
(3
)
 
58

 

 
55

Equity earnings / (loss) in affiliates
$
133

 
137

 

 
$
(269
)
 
1

Net income
133

 
133

 
158

 
(269
)
 
155

Net income attributable to noncontrolling interests

 

 
(22
)
 

 
(22
)
Net income attributable to Crown Holdings
$
133

 
$
133

 
$
136

 
$
(269
)
 
$
133

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
148

 
$
148

 
$
172

 
$
(299
)
 
$
169

Comprehensive income attributable to noncontrolling interests


 


 
(21
)
 


 
(21
)
Comprehensive income attributable to Crown Holdings
$
148

 
$
148

 
$
151

 
$
(299
)
 
$
148



33
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2014
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
4,376

 
 
 
$
4,376

Cost of products sold, excluding depreciation and amortization
 
 
 
 
3,621

 
 
 
3,621

Depreciation and amortization
 
 
 
 
82

 
 
 
82

Gross profit
 
 
—

 
673

 
 
 
673

Selling and administrative expense
 
 
$
5

 
202

 
 
 
207

Restructuring and other
 
 
14

 
69

 
 
 
83

Net interest expense
 
 
47

 
74

 
 
 
121

Foreign exchange
 
 
 
 
6

 
 
 
6

Income/(loss) before income taxes
 
 
(66
)
 
322

 
 
 
256

Provision for / (benefit from) income taxes
 
 
(9
)
 
92

 
 
 
83

Equity earnings / (loss) in affiliates
$
130

 
191

 
 
 
$
(321
)
 
—

Net income
130

 
134

 
230

 
(321
)
 
173

Net income attributable to noncontrolling interests
 
 
 
 
(43
)
 
 
 
(43
)
Net income attributable to Crown Holdings
$
130

 
$
134

 
$
187

 
$
(321
)
 
$
130

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
172

 
$
176

 
$
275

 
$
(405
)
 
$
218

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(46
)
 
 
 
(46
)
Comprehensive income attributable to Crown Holdings
$
172

 
$
176

 
$
229

 
$
(405
)
 
$
172



34
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
4,196

 
 
 
$
4,196

Cost of products sold, excluding depreciation and amortization
 
 
$
(16
)
 
3,474

 
 
 
3,458

Depreciation and amortization
 
 
 
 
64

 
 
 
64

Gross profit
 
 
16

 
658

 
 
 
674

Selling and administrative expense
 
 
1

 
205

 
 
 
206

Restructuring and other
 
 
 
 
8

 
 
 
8

Loss from early extinguishment of debt
 
 
 
 
38

 
 
 
38

Net interest expense
 
 
51

 
67

 
 
 
118

Foreign exchange
 
 
 
 
2

 
 
 
2

Income/(loss) before income taxes
 
 
(36
)
 
338

 
 
 
302

Provision for / (benefit from) income taxes
 
 
(1
)
 
80

 
 
 
79

Equity earnings / (loss) in affiliates
$
174

 
209

 
 
 
$
(384
)
 
(1
)
Net income
174

 
174

 
258

 
(384
)
 
222

Net income attributable to noncontrolling interests
 
 
 
 
(48
)
 
 
 
(48
)
Net income attributable to Crown Holdings
$
174

 
$
174

 
$
210

 
$
(384
)
 
$
174

 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
172

 
$
172

 
$
252

 
$
(380
)
 
$
216

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(44
)
 
 
 
(44
)
Comprehensive income attributable to Crown Holdings
$
172

 
$
172

 
$
208

 
$
(380
)
 
$
172


























35
Crown Holdings, Inc.




CONDENSED COMBINING BALANCE SHEET
As of June 30, 2014
(in millions)
 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
$
244

 

 
$
244

Receivables, net

 

 
1,264

 

 
1,264

Inventories

 

 
1,615

 

 
1,615

Prepaid expenses and other current assets
$
2

 
$
103

 
259

 

 
364

Total current assets
2

 
103

 
3,382

 
 
 
3,487

 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 

 
2,847

 
$
(2,847
)
 
—

Investments
2,235

 
2,344

 

 
(4,579
)
 
—

Goodwill and intangible assets

 

 
3,272

 

 
3,272

Property, plant and equipment, net

 

 
2,496

 

 
2,496

Other non-current assets

 
335

 
305

 

 
640

Total
$
2,237

 
$
2,782

 
$
12,302

 
$
(7,426
)
 
$
9,895

 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt

 

 
$
172

 

 
$
172

Current maturities of long-term debt

 

 
90

 

 
90

Accounts payable and accrued liabilities
$
10

 
$
31

 
2,546

 

 
2,587

Total current liabilities
10

 
31

 
2,808

 
 
 
2,849

 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
412

 
4,818

 

 
5,230

Long-term intercompany debt
2,083

 
764

 

 
$
(2,847
)
 
—

Postretirement and pension liabilities

 

 
836

 

 
836

Other non-current liabilities

 
277

 
291

 

 
568

Commitments and contingent liabilities

 

 

 

 

Noncontrolling interests

 

 
268

 

 
268

Crown Holdings shareholders’ equity/(deficit)
144

 
1,298

 
3,281

 
(4,579
)
 
144

Total equity/(deficit)
144

 
1,298

 
3,549

 
(4,579
)
 
412

Total
$
2,237

 
$
2,782

 
$
12,302

 
$
(7,426
)
 
$
9,895



36
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2013
(in millions)

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

 

 
$
689

 

 
$
689

Receivables, net

 

 
1,064

 

 
1,064

Inventories

 

 
1,213

 

 
1,213

Prepaid expenses and other current assets
$
1

 
$
103

 
110

 

 
214

Total current assets
1

 
103

 
3,076

 
 
 
3,180

 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 

 
1,908

 
$
(1,908
)
 
—

Investments
1,176

 
2,212

 

 
(3,388
)
 
—

Goodwill and intangible assets

 

 
2,016

 

 
2,016

Property, plant and equipment, net

 

 
2,152

 

 
2,152

Other non-current assets

 
349

 
333

 

 
682

Total
$
1,177

 
$
2,664

 
$
9,485

 
$
(5,296
)
 
$
8,030

 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt

 

 
$
279

 

 
$
279

Current maturities of long-term debt

 

 
94

 

 
94

Accounts payable and accrued liabilities
$
16

 
$
36

 
2,495

 

 
2,547

Total current liabilities
16

 
36

 
2,868

 
 
 
2,920

 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
412

 
3,057

 

 
3,469

Long-term intercompany debt
1,157

 
751

 

 
$
(1,908
)
 
—

Postretirement and pension liabilities

 

 
891

 

 
891

Other non-current liabilities

 
289

 
172

 

 
461

Commitments and contingent liabilities

 

 

 

 
 
Noncontrolling interests

 

 
285

 

 
285

Crown Holdings shareholders’ equity/(deficit)
4

 
1,176

 
2,212

 
(3,388
)
 
4

Total equity/(deficit)
4

 
1,176

 
2,497

 
(3,388
)
 
289

Total
$
1,177

 
$
2,664

 
$
9,485

 
$
(5,296
)
 
$
8,030



37
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2014
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
7

 
$
(60
)
 
$
(64
)
 

 
$
(117
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(149
)
 

 
(149
)
Purchase of business

 

 
(733
)
 

 
(733
)
Proceeds from sale of property, plant and equipment

 

 
5

 

 
5

Proceeds from sale of business

 

 
22

 

 
22

Intercompany investing activities
(941
)
 
47

 
941

 
$
(47
)
 
—

Other

 

 
1

 

 
1

Net cash provided by/(used for) investing activities
(941
)
 
47

 
87

 
(47
)
 
(854
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 

 
1,827

 

 
1,827

Payments of long-term debt

 

 
(1,015
)
 

 
(1,015
)
Net change in revolving credit facility and short-term debt

 

 
(130
)
 

 
(130
)
Net change in long-term intercompany balances
926

 
13

 
(939
)
 

 
—

Debt issue costs

 

 
(33
)
 

 
(33
)
Common stock issued
10

 

 

 

 
10

Common stock repurchased
(2
)
 

 

 

 
(2
)
Dividends paid

 

 
(47
)
 
47

 
—

Purchase of noncontrollling interests

 


 
(93
)
 

 
(93
)
Dividend paid to noncontrolling interests

 

 
(34
)
 

 
(34
)
Other

 

 
(2
)
 

 
(2
)
Net cash provided by/(used for) financing activities
934

 
13

 
(466
)
 
47

 
528

Effect of exchange rate changes on cash and cash equivalents

 

 
(2
)
 

 
(2
)
Net change in cash and cash equivalents
—

 
—

 
(445
)
 
—

 
(445
)
Cash and cash equivalents at January 1

 

 
689

 

 
689

Cash and cash equivalents at June 30
$
—

 
$
—


$
244


$
—


$
244



38
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
2

 
$
(63
)
 
$
(190
)
 

 
$
(251
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(124
)
 

 
(124
)
Insurance proceeds
 
 
 
 
8

 
 
 
8

Proceeds from sale of property, plant and equipment
 
 
 
 
5

 
 
 
5

Intercompany investing activities

 
47

 


 
$
(47
)
 
—

Other

 

 
(5
)
 

 
(5
)
Net cash provided by/(used for) investing activities
 
 
47

 
(116
)
 
(47
)
 
(116
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 

 
1,040

 

 
1,040

Payments of long-term debt

 

 
(984
)
 

 
(984
)
Net change in revolving credit facility and short-term debt

 

 
423

 

 
423

Net change in long-term intercompany balances
179

 
16

 
(195
)
 

 
—

Debt issue costs

 

 
(15
)
 

 
(15
)
Common stock issued
13

 

 

 

 
13

Common stock repurchased
(194
)
 

 

 

 
(194
)
Dividends paid

 

 
(47
)
 
47

 
—

Purchase of noncontrolling interests

 

 
(10
)
 

 
(10
)
Dividend paid to noncontrolling interests

 

 
(35
)
 

 
(35
)
Other

 

 
11

 

 
11

Net cash provided by/(used for) financing activities
(2
)
 
16

 
188

 
47

 
249

Effect of exchange rate changes on cash and cash equivalents

 

 
(5
)
 

 
(5
)
Net change in cash and cash equivalents
—

 
—

 
(123
)
 
—

 
(123
)
Cash and cash equivalents at January 1

 

 
350

 

 
350

Cash and cash equivalents at June 30
$
—

 
$
—

 
$
227

 
$
—

 
$
227



39
Crown Holdings, Inc.


Crown Americas, LLC, Crown Americas Capital Corp. II and Crown Americas Capital Corp. III (collectively, the Issuers), wholly owned subsidiaries of the Company, have outstanding $700 principal amount of 6.25% senior notes due 2021 and $1,000 principal amount of 4.5% senior notes due 2023, which are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and substantially all subsidiaries in the United States. The guarantors are wholly owned by the Company and the guarantees are made on a joint and several basis.

The following condensed combining financial statements:
•
statements of comprehensive income for the three and six months ended June 30, 2014 and 2013,
•
balance sheets as of June 30, 2014 and December 31, 2013, and
•
statements of cash flows for the six months ended June 30, 2014 and 2013
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2014
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
572

 
$
1,811

 

 
$
2,383

Cost of products sold, excluding depreciation and amortization

 

 
462

 
1,498

 

 
1,960

Depreciation and amortization

 

 
8

 
39

 

 
47

Gross profit
 
 
—

 
102

 
274

 
 
 
376

Selling and administrative expense

 
$
2

 
34

 
67

 

 
103

Restructuring and other

 
(1
)
 
7

 
25

 

 
31

Net interest expense

 
18

 
21

 
26

 

 
65

Technology royalty

 

 
(13
)
 
13

 

 
—

Income/(loss) before income taxes
 
 
(19
)
 
53

 
143

 
 
 
177

Provision for / (benefit from) income taxes

 
(7
)
 
27

 
30

 

 
50

Equity earnings / (loss) in affiliates
$
106

 
59

 
84

 

 
$
(249
)
 
—

Net income
106

 
47

 
110

 
113

 
(249
)
 
127

Net income attributable to noncontrolling interests

 

 

 
(21
)
 

 
(21
)
Net income attributable to Crown Holdings
$
106

 
$
47

 
$
110

 
$
92

 
$
(249
)
 
$
106

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
130

 
$
51

 
$
134

 
$
136

 
$
(297
)
 
$
154

Comprehensive income attributable to noncontrolling interests


 


 


 
(24
)
 


 
(24
)
Comprehensive income attributable to Crown Holdings
$
130

 
$
51

 
$
134

 
$
112

 
$
(297
)
 
$
130



40
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
580

 
$
1,643

 

 
$
2,223

Cost of products sold, excluding depreciation and amortization

 

 
434

 
1,384

 

 
1,818

Depreciation and amortization

 

 
6

 
24

 

 
30

Gross profit
 
 
—

 
140

 
235

 
 
 
375

Selling and administrative expense

 
$
1

 
34

 
67

 

 
102

Restructuring and other

 

 

 
4

 

 
4

Net interest expense

 
11

 
23

 
26

 

 
60

Technology royalty

 

 
(13
)
 
13

 

 
—

Income/(loss) before income taxes
 
 
(12
)
 
96

 
125

 
 
 
209

Provision for / (benefit from) income taxes

 
(5
)
 
39

 
21

 

 
55

Equity earnings / (loss) in affiliates
$
133

 
72

 
76

 

 
$
(280
)
 
1

Net income
133

 
65

 
133

 
104

 
(280
)
 
155

Net income attributable to noncontrolling interests

 

 

 
(22
)
 

 
(22
)
Net income attributable to Crown Holdings
$
133

 
$
65

 
$
133

 
$
82

 
$
(280
)
 
$
133

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
148

 
$
67

 
$
148

 
$
116

 
$
(310
)
 
$
169

Comprehensive income attributable to noncontrolling interests


 


 


 
(21
)
 


 
(21
)
Comprehensive income attributable to Crown Holdings
$
148

 
$
67

 
$
148

 
$
95

 
$
(310
)
 
$
148



41
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2014
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
1,071

 
$
3,305

 
 
 
$
4,376

Cost of products sold, excluding depreciation and amortization
 
 
 
 
860

 
2,761

 
 
 
3,621

Depreciation and amortization
 
 
 
 
15

 
67

 
 
 
82

Gross profit
 
 
 
 
196

 
477

 
 
 
673

Selling and administrative expense
 
 
$
4

 
73

 
130

 
 
 
207

Restructuring and other
 
 
1

 
43

 
39

 
 
 
83

Net interest expense
 
 
27

 
43

 
51

 
 
 
121

Technology royalty
 
 
 
 
(24
)
 
24

 
 
 
—

Foreign exchange
 
 
 
 
 
 
6

 
 
 
6

Income/(loss) before income taxes
 
 
(32
)
 
61

 
227

 
 
 
256

Provision for / (benefit from) income taxes
 
 
(12
)
 
41

 
54

 
 
 
83

Equity earnings / (loss) in affiliates
$
130

 
99

 
114

 
 
 
$
(343
)
 
—

Net income
130

 
79

 
134

 
173

 
(343
)
 
173

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(43
)
 
 
 
(43
)
Net income attributable to Crown Holdings
$
130

 
$
79

 
$
134

 
$
130

 
$
(343
)
 
$
130

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
172

 
$
89

 
$
176

 
$
208

 
$
(427
)
 
$
218

Comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
(46
)
 
 
 
(46
)
Comprehensive income attributable to Crown Holdings
$
172

 
$
89

 
$
176

 
$
162

 
$
(427
)
 
$
172



42
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
1,114

 
$
3,082

 
 
 
$
4,196

Cost of products sold, excluding depreciation and amortization
 
 
 
 
863

 
2,595

 
 
 
3,458

Depreciation and amortization
 
 
 
 
13

 
51

 
 
 
64

Gross profit
 
 
 
 
238

 
436

 
 
 
674

Selling and administrative expense
 
 
$
4

 
71

 
131

 
 
 
206

Restructuring and other
 
 

 
4

 
4

 
 
 
8

Loss from early extinguishment of debt
 
 
37

 
 
 
1

 
 
 
38

Net interest expense
 
 
24

 
46

 
48

 
 
 
118

Technology royalty
 
 
 
 
(22
)
 
22

 
 
 
—

Foreign exchange
 
 
 
 
 
 
2

 
 
 
2

Income/(loss) before income taxes
 
 
(65
)
 
139

 
228

 
 
 
302

Provision for / (benefit from) income taxes
 
 
(25
)
 
67

 
37

 
 
 
79

Equity earnings / (loss) in affiliates
$
174

 
124

 
102

 
 
 
$
(401
)
 
(1
)
Net income
174

 
84

 
174

 
191

 
(401
)
 
222

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(48
)
 
 
 
(48
)
Net income attributable to Crown Holdings
$
174

 
$
84

 
$
174

 
$
143

 
$
(401
)
 
$
174

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
172

 
$
91

 
$
172

 
$
178

 
$
(397
)
 
$
216

Comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
(44
)
 
 
 
(44
)
Comprehensive income attirbutable to Crown Holdings
$
172

 
$
91

 
$
172

 
$
134

 
$
(397
)
 
$
172



43
Crown Holdings, Inc.




CONDENSED COMBINING BALANCE SHEET
As of June 30, 2014
(in millions)

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

 
$
30

 


 
$
214

 

 
$
244

Receivables, net

 

 
$
17

 
1,247

 

 
1,264

Intercompany receivables

 

 
31

 
17

 
$
(48
)
 
—

Inventories

 

 
291

 
1,324

 

 
1,615

Prepaid expenses and other current assets
$
2

 
1

 
87

 
274

 

 
364

Total current assets
2

 
31

 
426

 
3,076

 
(48
)
 
3,487

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
2,469

 
2,801

 


 
(5,270
)
 
—

Investments
2,235

 
2,024

 
808

 

 
(5,067
)
 
—

Goodwill and intangible assets

 

 
453

 
2,819

 

 
3,272

Property, plant and equipment, net

 
1

 
315

 
2,180

 

 
2,496

Other non-current assets

 
53

 
342

 
245

 

 
640

Total
$
2,237

 
$
4,578

 
$
5,145

 
$
8,320

 
$
(10,385
)
 
$
9,895

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 

 

 
$
172

 

 
$
172

Current maturities of long-term debt

 

 


 
90

 

 
90

Accounts payable and accrued liabilities
$
10

 
$
47

 
$
473

 
2,057

 

 
2,587

Intercompany payables

 

 
17

 
31

 
$
(48
)
 
—

Total current liabilities
10

 
47

 
490

 
2,350

 
(48
)
 
2,849

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
2,862

 
412

 
1,956

 

 
5,230

Long-term intercompany debt
2,083

 
534

 
2,388

 
265

 
(5,270
)
 
—

Postretirement and pension liabilities

 

 
279

 
557

 

 
836

Other non-current liabilities

 

 
278

 
290

 

 
568

Commitments and contingent liabilities

 

 

 

 

 
 
Noncontrolling interests

 

 

 
268

 

 
268

Crown Holdings shareholders’ equity/(deficit)
144

 
1,135

 
1,298

 
2,634

 
(5,067
)
 
144

Total equity/(deficit)
144

 
1,135

 
1,298

 
2,902

 
(5,067
)
 
412

Total
$
2,237

 
$
4,578

 
$
5,145

 
$
8,320

 
$
(10,385
)
 
$
9,895



44
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2013
(in millions)

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

 
$
177

 
$
2

 
$
510

 

 
$
689

Receivables, net

 

 
26

 
1,038

 

 
1,064

Intercompany receivables

 

 
30

 
81

 
$
(111
)
 
—

Inventories

 

 
266

 
947

 

 
1,213

Prepaid expenses and other current assets
$
1

 
2

 
109

 
102

 

 
214

Total current assets
1

 
179

 
433

 
2,678

 
(111
)
 
3,180

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
1,476

 
1,808

 
19

 
(3,303
)
 
—

Investments
1,176

 
1,917

 
685

 

 
(3,778
)
 
—

Goodwill and intangible assets

 

 
453

 
1,563

 

 
2,016

Property, plant and equipment, net

 
1

 
314

 
1,837

 

 
2,152

Other non-current assets

 
36

 
388

 
258

 

 
682

Total
$
1,177

 
$
3,609

 
$
4,081

 
$
6,355

 
$
(7,192
)
 
$
8,030

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 

 

 
$
279

 

 
$
279

Current maturities of long-term debt

 


 


 
94

 

 
94

Accounts payable and accrued liabilities
$
16

 
$
49

 
$
466

 
2,016

 

 
2,547

Intercompany payables

 

 
81

 
30

 
$
(111
)
 
—

Total current liabilities
16

 
49

 
547

 
2,419

 
(111
)
 
2,920

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
1,920

 
412

 
1,137

 

 
3,469

Long-term intercompany debt
1,157

 
594

 
1,353

 
199

 
(3,303
)
 
—

Postretirement and pension liabilities

 

 
299

 
592

 

 
891

Other non-current liabilities

 

 
294

 
167

 

 
461

Commitments and contingent liabilities

 

 

 

 

 

Noncontrolling interests

 

 

 
285

 

 
285

Crown Holdings shareholders’ equity/(deficit)
4

 
1,046

 
1,176

 
1,556

 
(3,778
)
 
4

Total equity/(deficit)
4

 
1,046

 
1,176

 
1,841

 
(3,778
)
 
289

Total
$
1,177

 
$
3,609

 
$
4,081

 
$
6,355

 
$
(7,192
)
 
$
8,030



45
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2014
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net provided by/(used for) operating activities
$
7

 
$
(18
)
 
$
(2
)
 
$
(104
)
 

 
$
(117
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(17
)
 
(132
)
 

 
(149
)
Purchase of business

 

 


 
(733
)
 

 
(733
)
Proceeds from sale of property, plant and equipment

 

 
4

 
1

 

 
5

Proceeds from sale of business

 

 


 
22

 

 
22

Intercompany investing activities
(941
)
 
3

 
47

 
941

 
$
(50
)
 
—

Other

 

 


 
1

 

 
1

Net cash provided by/(used for) investing activities
(941
)
 
3

 
34

 
100

 
(50
)
 
(854
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 
942

 

 
885

 

 
1,827

Payments of long-term debt

 


 


 
(1,015
)
 

 
(1,015
)
Net change in revolving credit facility and short-term debt

 


 

 
(130
)
 

 
(130
)
Net change in long-term intercompany balances
926

 
(1,053
)
 
42

 
85

 

 
—

Debt issue costs

 
(21
)
 

 
(12
)
 

 
(33
)
Common stock issued
10

 

 

 

 

 
10

Common stock repurchased
(2
)
 

 

 

 

 
(2
)
Dividends paid

 

 

 
(50
)
 
50

 
—

Purchase of noncontrolling interests

 

 
(76
)
 
(17
)
 

 
(93
)
Dividends paid to noncontrolling interests

 

 

 
(34
)
 

 
(34
)
Other

 

 

 
(2
)
 

 
(2
)
Net cash provided by/(used for) financing activities
934

 
(132
)
 
(34
)
 
(290
)
 
50

 
528

Effect of exchange rate changes on cash and cash equivalents

 

 

 
(2
)
 

 
(2
)
Net change in cash and cash equivalents
—

 
(147
)
 
(2
)
 
(296
)
 
—

 
(445
)
Cash and cash equivalents at January 1

 
177

 
2

 
510

 

 
689

Cash and cash equivalents at June 30
$
—

 
$
30

 
$
—

 
$
214

 
$
—

 
$
244



46
Crown Holdings, Inc.



 
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2013
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net provided by/(used for) operating activities
$
2

 
$
(5
)
 
$
65

 
$
(313
)
 

 
$
(251
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(13
)
 
(111
)
 

 
(124
)
Insurance Proceeds
 
 
 
 
 
 
8

 
 
 
8

Proceeds from sale of property, plant and equipment

 

 
3

 
2

 

 
5

Intercompany investing activities

 
2

 
46

 


 
$
(48
)
 
—

Other

 

 


 
(5
)
 

 
(5
)
Net cash provided by/(used for) investing activities
—

 
2

 
36

 
(106
)
 
(48
)
 
(116
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 
1,000

 

 
40

 

 
1,040

Payments of long-term debt

 
(729
)
 


 
(255
)
 

 
(984
)
Net change in revolving credit facility and short-term debt

 
130

 

 
293

 

 
423

Net change in long-term intercompany balances
179

 
(389
)
 
(102
)
 
312

 

 
—

Debt issue costs


 
(15
)
 

 

 

 
(15
)
Common stock issued
13

 

 

 

 

 
13

Common stock repurchased
(194
)
 

 

 

 

 
(194
)
Dividends paid

 

 

 
(48
)
 
48

 
—

Purchase of noncontrolling interests

 

 

 
(10
)
 

 
(10
)
Dividends paid to noncontrolling interests

 

 

 
(35
)
 

 
(35
)
Other

 


 

 
11

 

 
11

Net cash provided by/(used for) financing activities
(2
)
 
(3
)
 
(102
)
 
308

 
48

 
249

Effect of exchange rate changes on cash and cash equivalents

 

 

 
(5
)
 

 
(5
)
Net change in cash and cash equivalents
—

 
(6
)
 
(1
)
 
(116
)
 
—

 
(123
)
Cash and cash equivalents at January 1

 
27

 
1

 
322

 

 
350

Cash and cash equivalents at June 30
$
—

 
$
21

 
$
—

 
$
206

 
$
—

 
$
227



47
Crown Holdings, Inc.




PART I - FINANCIAL INFORMATION

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

Introduction

The following discussion presents management's analysis of the results of operations for the three and six months ended June 30, 2014 compared to 2013 and changes in financial condition and liquidity from December 31, 2013. 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, 2013, 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.

The Company identifies and evaluates growth opportunities through line additions in existing plants, new plants in developing markets that it already knows and understands, and potential strategic acquisitions in geographic areas and product lines in which it already operates. The Company rigorously evaluates each opportunity against a variety of metrics including economic profit, return on invested capital and cash flow generation. Every approved project is undertaken with an eye toward creating long-term shareholder value. Cash flows generated from the Company's operations may be reinvested in the business, used for acquisitions, used to repay debt or returned to shareholders through share repurchases or possible future dividends. The Company is considering, and in the future may pursue, acquisitions to grow its existing business. The Company does not presently anticipate any share repurchases in 2014.

In April 2014, the Company closed its acquisition of Mivisa, a leading Spanish manufacturer of two- and three-piece food cans and ends. Mivisa is the largest food can producer in both the Iberian Peninsula and Morocco; primarily serving vegetable, fruit, fish and meat markets. In connection with the acquisition, the Company divested certain Crown and Mivisa operations as a required condition for regulatory approval. The acquisition is expected to significantly build upon the Company's existing position in the strategically important European food can segment and is expected to be earnings accretive.

Over the past five years, the Company has continued to develop its beverage can platform in emerging markets with particular focus on Asia, Brazil and Eastern Europe. In 2013, the Company added capacity in Cambodia, China, Malaysia and Vietnam and in April 2014, commenced production at its new facility in Teresina, Brazil. Beverage can volume growth in these markets has been driven by increased per capita incomes and consumption, combined with an increased preference for cans in the package mix.

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. Any or all of these actions may result in additional restructuring charges in the future which may be material.

As part of the Company's efforts to manage cost, it attempts to pass-through increases in 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 has not been a consistent and predictable trend in pricing.

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 excluding the impact of fair value adjustments related to the sale of inventory acquired in an acquisition and the timing impact of hedge ineffectiveness, less selling and administrative expenses.

48
Crown Holdings, Inc.


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


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 businesses, the Canadian dollar in the Company's Americas segments and the Chinese renminbi and Thai baht in the Company's Asia Pacific segment.

Net Sales and Segment Income    
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
2,383

 
$
2,223

 
$
4,376

 
$
4,196

Beverage cans and ends as a percentage of net sales
55
%
 
57
%
 
56
%
 
57
%
Food cans and ends as a percentage of net sales
29
%
 
26
%
 
27
%
 
26
%

Three months ended June 30, 2014 compared to 2013

Net sales increased primarily due to the impact of the Mivisa acquisition and a 3% increase in global beverage can volumes, partially offset by the pass-through of lower raw material costs.

Six months ended June 30, 2014 compared to 2013

Net sales increased primarily due to the impact of the Mivisa acquisition and a 4% increase in global beverage can volumes, partially offset by the pass-through of lower raw material costs.

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 and supplies a variety of customers from its operations in the U.S., Brazil, Canada, Colombia and Mexico. The U.S. and Canadian beverage can markets are mature markets which have 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 April, 2014, the Company commenced production at its new facility in Teresina, Brazil.

Net sales and segment income in the Americas Beverage segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
594

 
$
582

 
$
1,143

 
$
1,134

Segment income
85

 
85

 
164

 
161


Three months ended June 30, 2014 compared to 2013

Net sales increased primarily due to strong unit volumes in Brazil which offset lower volumes in North America, $8 of lower sales from the closure of a manufacturing facility in Puerto Rico and $7 from the impact of foreign currency translation. Increased sales in Brazil were attributable to continued strong demand including World Cup promotional activity and the commencement of production at the Company's facility in Teresina, Brazil.

Segment income was unchanged as $5 from increased sales unit volumes in Brazil was offset by lower production levels in North America.


49
Crown Holdings, Inc.


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

Six months ended June 30, 2014 compared to 2013

Net sales increased primarily due to strong unit volumes in Brazil which offset lower volumes in North America, $16 of lower sales from the closure of a manufacturing facility in Puerto Rico and $16 from the impact of foreign currency translation.

Segment income increased primarily due to the impact of higher sales unit volumes in Brazil.

North America Food

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

Net sales and segment income in the North America Food segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
213

 
$
206

 
$
392

 
$
403

Segment income
38

 
41

 
67

 
72


Three months ended June 30, 2014 compared to 2013

Net sales increased primarily due to $15 from increased sales unit volumes, partially offset by the impact of competitive price compression and $2 from the impact of foreign currency translation.

Segment income decreased primarily due to the impact of lower pricing.

Six months ended June 30, 2014 compared to 2013

Net sales decreased primarily due to the impact of competitive price compression and $5 from the impact of foreign currency translation.

Segment income decreased primarily due to the impact of lower pricing.

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 first quarter of 2014, the Company increased its ownership interests in subsidiaries in Jordan and Tunisia to 100% by purchasing the remaining noncontrolling interests.

Net sales and segment income in the European Beverage segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
496

 
$
492

 
$
884

 
$
863

Segment income
83

 
78

 
142

 
129


Three months ended June 30, 2014 compared to 2013

Net sales increased primarily due to $9 from the impact of foreign currency translation, partially offset by unfavorable sales mix as increased unit volumes in the U.K. and Turkey were offset by volume declines in the Company's Middle

50
Crown Holdings, Inc.


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

Eastern businesses from the ongoing conflicts in the region. If the conflicts in the Middle East continue, net sales and segment income in the European Beverage segment may be negatively impacted.

Segment income increased primarily due to improved cost performance partially offset by higher metal premiums.

Six months ended June 30, 2014 compared to 2013

Net sales increased primarily due $12 from increased sales unit volumes and $10 from the impact of foreign currency translation.

Segment income increased primarily due to higher sales unit volumes and improved cost performance.


European Food

The European Food segment manufactures steel and aluminum food cans, 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. In April 2014, the Company closed its acquisition of Mivisa and in June divested certain Crown and Mivisa operations as required for regulatory approval. Mivisa is being integrated with the Company's existing European Food business.

Net sales and segment income in the European Food segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
555

 
$
430

 
$
928

 
$
806

Segment income
63

 
39

 
89

 
71


Three months ended June 30, 2014 compared to 2013

Net sales increased primarily due to the impact of the acquisition of Mivisa in April 2014.

Segment income increased primarily due to the impact of the acquisition of Mivisa in April 2014 and a charge of $11 in the second quarter of 2013 to record a reserve against a portion of an outstanding customer receivable balance that did not recur in 2014.

Six months ended June 30, 2014 compared to 2013

Net sales increased primarily due to the impact of the acquisition of Mivisa in April 2014.

Segment income increased primarily due to the impact of the acquisition of Mivisa in April 2014 and a charge of $11 in the second quarter of 2013 to record a reserve against a portion of an outstanding customer receivable balance that did not recur in 2014.

Asia Pacific

The Company's Asia Pacific segment primarily consists of beverage can operations in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam and also includes the Company's non-beverage can operations, primarily food cans and specialty packaging in China, Singapore, Thailand and Vietnam. In recent years, the Company's beverage can businesses in Asia have experienced significant growth.

In the first quarter of 2013, the Company commercialized second beverage can lines at its facilities in Putian, China and Bangi, Malaysia. In the second quarter of 2013, the Company commercialized new beverage can plants in Danang, Vietnam and Bangkok, Thailand; and in the third quarter of 2013, the Company began production at its new plant in Sihanoukville, Cambodia.

51
Crown Holdings, Inc.


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

Net sales and segment income in the Asia Pacific segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
316

 
$
301

 
$
614

 
$
577

Segment income
36

 
35

 
70

 
68


Three months ended June 30, 2014 compared to 2013

Net sales increased primarily due to $39 from increased sales unit volumes due to recent capacity expansion partially offset by $17 from lower selling prices primarily due to the pass-through of lower raw material costs and the impact of competitive price compression and $7 from the impact of foreign currency translation.

Segment income increased primarily due to the impact of increased sales unit volumes partially offset by lower manufacturing efficiencies associated with recent capacity expansion and the impact of competitive price compression.

Six months ended June 30, 2014 compared to 2013

Net sales increased primarily due to $79 from increased sales unit volumes due to recent capacity expansion partially offset by $30 from lower selling prices primarily due to the pass-through of lower raw material costs and the impact of competitive price compression and $12 from the impact of foreign currency translation.

Segment income increased primarily due to $11 from increased sales unit volumes partially offset by lower manufacturing efficiencies associated with recent capacity expansion and the impact of competitive price compression.

Non-reportable Segments

The Company's non-reportable segments include its aerosol can businesses in North America and Europe, its specialty packaging business in Europe and its tooling and equipment operations in the U.S. and U.K. In recent years, the Company's specialty packaging and aerosol can businesses have experienced slightly declining volumes.

Net sales and segment income in non-reportable segments are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
209

 
$
212

 
$
415

 
$
413

Segment income
22

 
31

 
46

 
53


Three months ended June 30, 2014 compared to 2013

Net sales decreased primarily due to lower sales in the Company's aerosol and specialty packaging businesses and lower equipment sales partially offset by $8 from the impact of foreign currency translation.

Segment income decreased primarily due to lower sales in the Company's aerosol and specialty packaging businesses, lower equipment sales and a benefit of $3 from reduced post-employment benefits in 2013 that did not recur in 2014.

Six months ended June 30, 2014 compared to 2013

Net sales increased primarily due to $14 from the impact of foreign currency translation, partially offset by lower sales in the Company's aerosol and specialty packaging businesses and lower equipment sales.

Segment income decreased primarily due to lower sales in the Company's aerosol and specialty packaging businesses, lower equipment sales and a benefit of $3 from reduced post-employment benefits in 2013 that did not recur in 2014.

52
Crown Holdings, Inc.


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

Corporate and Unallocated Expense
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Corporate and unallocated expense
$
(54
)
 
$
(36
)
 
$
(112
)
 
$
(86
)

For the three months ended June 30, 2014 compared to 2013, corporate and unallocated expense increased primarily due to a charge of $15 related to the impact of fair value adjustments for the sale of inventory acquired in the acquisition of Mivisa and a benefit of $5 in 2013 from legal matters that did not recur in 2014, partially offset by a credit of $3 related to hedge ineffectiveness caused primarily by volatility in the metal premium component of aluminum prices.

For the six months ended June 30, 2014 compared to 2013, corporate and unallocated expense increased primarily due to a charge of $15 related to the impact of fair value adjustments for the sale of inventory acquired in the acquisition of Mivisa, $4 related to hedge ineffectiveness caused primarily by volatility in the metal premium component of aluminum prices and higher general corporate costs.

Cost of Products Sold (Excluding Depreciation and Amortization)

For the three and six months ended June 30, 2014 compared to 2013, cost of products sold (excluding depreciation and amortization) increased from $1,818 to $1,960 and from $3,458 to $3,621 primarily due to increased global beverage can volumes and the acquisition of Mivisa.

Depreciation and Amortization

For the three and six months ended June 30, 2014 compared to 2013, depreciation and amortization expense increased primarily due to the acquisition of Mivisa including the impact of amortizing fair value adjustments recorded in connection with the Company's preliminary purchase price allocation.

Selling and Administrative Expense

For the three months ended June 30, 2014 compared to 2013, selling and administrative expense increased from $102 to $103 primarily due to the impact of the acquisition of Mivisa, higher corporate costs and $3 from the impact of foreign currency translation, partially offset by a charge of $11 in 2013 to record a reserve against a portion of an outstanding customer receivable balance that did not recur in 2014.

For the six months ended June 30, 2014 compared to 2013, selling and administrative expense increased from $206 to $207 primarily due to the impact of the acquisition of Mivisa, higher corporate costs and $5 from the impact of foreign currency translation, partially offset by a charge of $11 in 2013 to record a reserve against a portion of an outstanding customer receivable balance that did not recur in 2014.

Restructuring and Other

For the three and six months ended June 30, 2014, the Company recorded restructuring and other charges of $31 and $83 as described in Note I to the Company's consolidated financial statements. In connection with prior restructuring actions in the Company's North American Food segment, the Company may incur future pension settlement charges of up to $11 as employees elect to receive lump sum distributions. The timing and amount of the charge may be impacted by the number of employees who elect to receive lump sum distributions.

For three and six months ended June 30, 2013 the Company recorded restructuring and other charges of $4 and $8 related to other exit costs associated with prior restructuring actions.


53
Crown Holdings, Inc.


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

Loss from Early Extinguishment of Debt

For the six months ended June 30, 2013, the Company recorded a loss from early extinguishment of debt of $38 in connection with the redemption of its $400 senior notes due 2017 and the repayment of $500 of indebtedness under its senior secured term loan facilities.

Interest Expense

For the three months ended June 30, 2014 compared to 2013, interest expense increased from $61 to $66 primarily due to higher average debt outstanding primarily due to the acquisition of Mivisa, partially offset by $3 of expense in 2013 related to Italian value added tax assessments that did not recur in 2014.

For the six months ended June 30, 2014 compared to 2013, interest expense increased from $121 to $124 primarily due to higher average debt outstanding primarily due to the acquisition of Mivisa, partially offset by $5 of expense in 2013 related to Italian value added tax assessments that did not recur in 2014.

Taxes on Income
    
The Company's effective income tax rate was as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2014
 
2013
 
2014
 
2013
Income before income taxes
$
177

 
$
209

 
$
256

 
$
302

Provision for income taxes
50

 
55

 
83

 
79

Effective income tax rate
28
%
 
26
%
 
32
%
 
26
%

For the three and six months ended June 30, 2014 compared to 2013, the Company's effective income tax rate was higher primarily due to non-deductible transaction costs incurred in connection with the Company's acquisition of Mivisa and higher losses in jurisdictions that are not currently expected to realize the related tax benefit. For the six months ended June 30, 2014 compared to 2013, the Company's effective income tax rate was also higher due to non-deductible impairment charges related to the divestment of certain operations in connection with the Company's acquisition of Mivisa.

Net Income Attributable to Noncontrolling Interests

For the three and six months ended June 30, 2014 compared to 2013, net income attributable to noncontrolling interests decreased from $22 to $21 and from $48 to $43 primarily due to the acquisition of additional ownership interests in subsidiaries in Jordan and Tunisia and lower earnings in certain beverage can operations in the Middle East.


Liquidity and Capital Resources

Cash from Operations

Cash used for operating activities decreased from $251 for the six months ended June 30, 2013 to $117 in 2014 primarily due to $120 from a change in the Company's North American receivables securitization facility which resulted in receivables transactions being accounted for as sales in 2014 compared to secured borrowings in 2013.

Investing Activities

Cash used for investing activities increased from $116 for the six months ended June 30, 2013 to $854 in 2014 primarily due to $754 paid to acquire Mivisa and higher capital expenditures, partially offset by $22 of proceeds from divesting certain Crown and Mivisa operations as required for regulatory approval of the acquisition. The Company currently expects capital expenditures for 2014 to be approximately $320.


54
Crown Holdings, Inc.


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

Financing Activities

Cash provided by financing activities increased from $249 for the six months ended June 30, 2013 to $528 in 2014 primarily due to higher net borrowings in 2014 to fund the acquisition of Mivisa and payoff certain of Mivisa's existing debt. For the six months ended June 30, 2014, financing activities also included $93 paid to increase the Company's ownership interest in subsidiaries in Jordan and Tunisa to 100%. For the six months ended June 30, 2013, financing activities included $194 to repurchase the Company's common stock compared to $2 in 2014.

In July 2014, the Company issued €650 ($890 at June 30, 2014) principal amount of 4% senior unsecured notes due 2022. The Company used a portion of the proceeds to purchase through a tender offer and to redeem all of its €500 ($685 at June 30, 2014) 7.125% senior unsecured notes due 2018.

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

Liquidity

As of June 30, 2014, $203 of the Company's $244 of 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., distributions 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., $126 was held by subsidiaries
for which earnings are considered indefinitely reinvested. While based on current operating plans the Company does not foresee a need to repatriate these funds, if such earnings were repatriated the Company would be required to record any incremental U.S. taxes on the repatriated funds.

As of June 30, 2014, the Company had $1,064 of borrowing capacity available under its revolving credit facility, equal to the total facility of $1,200 less $96 of borrowings and $40 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 June 30, 2014, the Company has approximately $66 of capital commitments primarily related to capacity expansion in Europe and Brazil. The Company expects to fund these commitments primarily through cash flows generated from operations and to fund any excess needs over available cash through external borrowings.

Contractual Obligations

During the first six months of 2014 there were no material changes to the Company's contractual obligations provided within 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, 2013, which information is incorporated herein by reference.


55
Crown Holdings, Inc.


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

Commitments and Contingent Liabilities

Information regarding the Company's commitments and contingent liabilities appears in Part I within Item 1 of this report under Note L, 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, 2013 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 three months of 2014. The discussion below supplements the discussion from the Company's Annual Report on Form 10-K for the year ended December 31, 2013 with respect to goodwill.

Goodwill Impairment

As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, the estimated fair value of the Company's European Aerosols and Specialty Packaging reporting unit was 50% higher than its carrying value. The Company continues to believe that the estimated fair value of the reporting unit exceeds its carrying value. If future operating results were to decline causing the estimated fair value to fall below its carrying value, it is possible that an impairment charge of up to $158 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 K and commitments and contingencies in Note L 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, 2013, which are not historical facts (including any statements concerning plans and objectives of management for capacity additions, share repurchases, dividends, future operations or economic performance, or assumptions related thereto), are “forward-looking statements” within the meaning of the federal securities laws. In addition, the Company and its representatives may, from time to time, make oral or written statements which are also “forward-looking statements.”

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

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

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, 2013 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.

56
Crown Holdings, Inc.



Item 3.
Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange and interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by the counterparties. These instruments are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success in using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales arrangements that permit the pass-through of commodity prices and foreign exchange rate risks to customers. The Company's objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. For further discussion of the Company's use of derivative instruments and their fair values at June 30, 2014, see Note H to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

As of June 30, 2014, the Company had $2.5 billion principal floating interest rate debt. A change of 0.25% in these floating interest rates would change annual interest expense by approximately $6.2 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 K entitled “Asbestos-Related Liabilities” and Note L 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, 2013, 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 as part of publicly announced programs during the first six months of 2014.

In December 2012, the Company's Board of Directors authorized the repurchase of an aggregate amount of $800 million of the Company's common stock through the end of 2014. This authorization supersedes the previous authorization. Share repurchases under the Company's programs 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. As of June 30, 2014 $507 million of the Company’s outstanding common stock may be repurchased under the program.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5.
Other Information

None.



58
Crown Holdings, Inc.


Item 6.
Exhibits

4
Credit Agreement, dated as of December 19, 2013, among Crown Americas LLC, as U.S. Borrower, Crown European Holdings SA, as European Borrower, CROWN Metal Packaging Canada LP, as Canadian Borrower, The Subsidiary Borrowers named therein, The Company, Crown International Holdings, Inc. and Crown Cork & Seal Company, Inc., as parent Guarantors, Deutsche Bank AG New York Branch, as Administrative Agent, Deutsche Bank AG London Branch, a U.K. Administrative Agent, Deutsche bank AG Canada Branch as Canadian Administrative Agent, and various Lending Institutions.
 
 
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 Thomas A. Kelly, Senior Vice President and Chief Financial Officer of Crown Holdings, Inc.
 
 
101
The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013, (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013, (iii) Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, (v) Consolidated Statements of Changes in Equity for the six months ended June 30, 2014 and 2013 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: July 30, 2014


60