Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

x

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

 

¨

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

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 0-50189

 

 

CROWN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Pennsylvania   75-3099507

(State or other jurisdiction of

incorporation or organization)

 

(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  ¨    No  ¨

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

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

There were 159,973,590 shares of Common Stock outstanding as of April 30, 2009.

 

 

 


Crown Holdings, Inc.

PART I – FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions except share and per share data)

(Unaudited)

 

Three months ended March 31

   2009     2008  

Net sales

   $ 1,684     $ 1,863  
                

Cost of products sold, excluding depreciation and amortization

     1,392       1,558  

Depreciation and amortization

     47       53  
                

Gross profit

     245       252  
                

Selling and administrative expense

     89       102  

Provision for restructuring

     1    

Loss from early extinguishments of debt

       2  

Interest expense

     61       77  

Interest income

     (2 )     (3 )

Translation and foreign exchange

     4    
                

Income before income taxes and equity earnings

     92       74  

Provision for income taxes

     24       26  

Equity (loss)/earnings in affiliates

     (5 )  
                

Net income

     63       48  

Net income attributable to noncontrolling interests

     (23 )     (21 )
                

Net income attributable to Crown Holdings

   $ 40     $ 27  
                

Earnings per share attributable to Crown Holdings common shareholders:

    

Basic

   $ 0.25     $ 0.17  
                

Diluted

   $ 0.25     $ 0.17  
                

Weighted average common shares outstanding:

    

Basic

     158,491,731       159,187,316  

Diluted

     161,286,880       162,776,273  

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

 

2


Crown Holdings, Inc.

CONSOLIDATED BALANCE SHEETS (Condensed)

(In millions)

(Unaudited)

 

     March 31,
2009
    December 31,
2008
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 296     $ 596  

Receivables, net

     814       734  

Inventories

     1,154       979  

Prepaid expenses and other current assets

     146       148  
                

Total current assets

     2,410       2,457  
                

Goodwill

     1,904       1,956  

Property, plant and equipment, net

     1,421       1,473  

Other non-current assets

     845       888  
                

Total

   $ 6,580     $ 6,774  
                

Liabilities and equity

    

Current liabilities

    

Short-term debt

   $ 52     $ 59  

Current maturities of long-term debt

     28       31  

Accounts payable and accrued liabilities

     1,704       1,982  
                

Total current liabilities

     1,784       2,072  
                

Long-term debt, excluding current maturities

     3,318       3,247  

Postretirement and pension liabilities

     890       893  

Other non-current liabilities

     508       526  

Commitments and contingent liabilities (Note J)

    

Noncontrolling interests

     354       353  

Crown Holdings shareholders’ deficit

     (274 )     (317 )
                

Total equity

     80       36  
                

Total

   $ 6,580     $ 6,774  
                

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

 

3


Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)

(In millions)

(Unaudited)

 

Three months ended March 31

   2009     2008  

Net cash used for operating activities

   $ (345 )   $ (443 )
                

Cash flows from investing activities

    

Capital expenditures

     (50 )     (33 )

Other

       (7 )
                

Net cash used for investing activities

     (50 )     (40 )
                

Cash flows from financing activities

    

Proceeds from long-term debt

     1    

Payments of long-term debt

     (3 )     (55 )

Net change in revolving credit facility and short-term debt

     114       338  

Common stock issued

     3       2  

Common stock repurchased

     (3 )     (3 )

Dividends paid to noncontrolling interests

     (17 )     (8 )

Other

     19       18  
                

Net cash provided by financing activities

     114       292  
                

Effect of exchange rate changes on cash and cash equivalents

     (19 )     16  
                

Net change in cash and cash equivalents

     (300 )     (175 )

Cash and cash equivalents at January 1

     596       457  
                

Cash and cash equivalents at March 31

   $ 296     $ 282  
                

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

 

4


Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME

(In millions) (Unaudited)

 

     2009     2008  

Comprehensive income

    

Net income

   $ 63     $ 48  

Net other adjustments:

    

Attributable to Crown Holdings

     (1 )     23  

Attributable to noncontrolling interests

     (5 )     13  
                

Comprehensive income

     57       84  

Comprehensive income attributable to noncontrolling interests

     (18 )     (34 )
                

Comprehensive income attributable to Crown Holdings

   $ 39     $ 50  
                

Common stock

   $ 929     $ 929  
                

Paid-in capital

    

Balance – January 1

   $ 1,510     $ 1,516  

Restricted stock awarded

     (3 )     (2 )

Stock-based compensation

     4       4  

Stock issued – benefit plans

     1       1  

Stock repurchased

     (2 )     (2 )
                

Balance – March 31

   $ 1,510     $ 1,517  
                

Accumulated deficit

    

Balance – January 1

   $ (428 )   $ (654 )

Net income attributable to Crown Holdings

     40       27  
                

Balance – March 31

   $ (388 )   $ (627 )
                

Accumulated other comprehensive loss

    

Balance – January 1

   $ (2,195 )   $ (1,646 )

Translation adjustments

     (16 )     (25 )

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

     16       11  

Derivatives qualifying as hedges

     (1 )     39  

Available for sale securities

       (2 )
                

Net other comprehensive income/(loss) adjustments

     (1 )     23  
                

Balance – March 31

   $ (2,196 )   $ (1,623 )
                

Treasury stock

    

Balance – January 1

   $ (133 )   $ (130 )

Restricted stock awarded

     3       2  

Stock issued – benefit plans

     2       1  

Stock repurchased

     (1 )     (1 )
                

Balance – March 31

   $ (129 )   $ (128 )
                

Noncontrolling interests

    

Balance – January 1

   $ 353     $ 323  

Net income attributable to noncontrolling interests

     23       21  

Translation adjustments (other comprehensive income)

     (5 )     13  

Dividends paid to noncontrolling interests

     (17 )     (7 )

Purchase of noncontrolling interests

       (1 )
                

Balance – March 31

   $ 354     $ 349  
                

Total equity – March 31

   $ 80     $ 417  
                

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

 

5


Crown Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share and statistical data)

(Unaudited)

 

A.

Statement of Information Furnished

The consolidated financial statements include the accounts of Crown Holdings, Inc. and its consolidated subsidiaries (the “Company”). The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with Form 10-Q instructions. In the opinion of management, these consolidated financial statements contain all adjustments of a normal and recurring nature necessary for a fair statement of the financial position of Crown Holdings, Inc. as of March 31, 2009 and the results of its operations and its cash flows for the three month periods ended March 31, 2009 and 2008. These results have been determined on the basis of U.S. generally accepted accounting principles and practices consistently applied.

Certain information and footnote disclosures, normally included in financial statements presented in accordance with U.S. generally accepted accounting principles, have been condensed or omitted. The December 31, 2008 balance sheet data was derived from the audited consolidated financial statements as of December 31, 2008. 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, 2008.

 

B.

Recent Accounting and Reporting Pronouncements

Effective January 1, 2009, the Company adopted SFAS No. 141 (revised 2007) (“FAS 141(R)”), “Business Combinations,” which replaces FAS 141. FAS 141(R) retains the requirement of FAS 141 that business combinations be accounted for at fair value using the acquisition method, but changes the accounting for acquisitions in certain areas. Under FAS 141(R) acquisition costs are expensed as incurred; noncontrolling (minority) interests are valued at fair value at the acquisition date; in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination are generally expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. FAS 141(R) is effective for the Company for all business combinations for which the acquisition date is on or after January 1, 2009, and its adoption had no impact on the Company’s financial statements at the date of adoption.

Effective January 1, 2009, the Company adopted FASB Staff Position FAS 142-3 (“FSP FAS 142-3”), “Determination of the Useful Life of Intangible Assets.” FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142 (“FAS 142”), “Goodwill and Other Intangible Assets.” The FSP attempts to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141(R) and other generally accepted accounting principles. The FSP requires disclosure of information that enables users of financial statements to assess the extent to which expected future cash flows associated with an asset are affected by the company’s intent and/or ability to renew or extend the arrangement. The guidance for determining the useful life of a recognized intangible asset in the FSP is to be applied prospectively to intangible assets acquired after the effective date. The adoption of the FSP had no impact on the Company’s consolidated financial statements at the date of adoption.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 establishes a common definition for fair value to be applied to U.S. GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. In February 2008, FSP 157-2, “Partial Deferral of the Effective Date of Statement 157,” deferred the effective date of FAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The adoption of the FSP on January 1, 2009 had no impact on the Company’s consolidated financial statements at the date of adoption.

 

6


Crown Holdings, Inc.

 

Effective January 1, 2009, the Company adopted SFAS No. 160 (“FAS 160”), “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” FAS 160 requires the recognition of noncontrolling (minority) interests as equity in the consolidated financial statements, but separate from the parent’s equity. The statement also requires that the amount of net income attributable to minority interests be included in consolidated net income on the face of the income statement. The financial statements included in this report are presented in accordance with FAS 160 and all prior period information has been retrospectively adjusted.

Effective January 1, 2009, the Company adopted SFAS No. 161 (“FAS 161”), “Disclosures about Derivative Instruments and Hedging Activities, an amendment to FASB Statement 133.” FAS 161 amends and expands the disclosure requirements of FAS 133 with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for under FAS 133 and its related interpretations; and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. The Company has applied the requirements of FAS 161 on a prospective basis and disclosures related to interim periods prior to the date of adoption have not been presented. See Note G for the required disclosures.

Effective January 1, 2009, the Company adopted FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”) under the two-class method described in FAS 128, “Earnings per Share.” The guidance in the FSP requires that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) be treated as participating securities and included in the computation of EPS pursuant to the two-class method. The adoption of the FSP had no impact on the Company’s basic or diluted earnings per share in the first quarter of 2009.

 

C.

Stock-Based Compensation

During the first quarter of 2009, the Company awarded 564,344 shares of restricted stock to certain senior executives, including 308,115 shares with time-vesting requirements and 256,229 shares containing a market performance feature. The time-vested awards vest ratably over three years on the anniversary date of the grant and had a grant-date fair value of $18.87 per share. The performance shares vest at the end of three years based on the results of a market performance criterion. The number of performance shares that will ultimately vest in 2012 is based on the level of performance achieved, ranging between 0% and 200% of the shares awarded, and will be settled in stock. The estimated fair value of each performance share was calculated as $23.10 using a Monte Carlo valuation model. During the first quarter, 254,528 shares of previously issued service-based awards were released from restriction and 145,144 shares of previously issued performance-based shares vested. The weighted average fair value of these shares on the date of release was $19.45 per share. Also during the first quarter, 51,495 performance-based shares were issued because the Company exceeded the level of performance established on the original date of the related awards in 2006 by approximately 35%. These shares were issued without restriction.

Unrecognized compensation cost related to unvested stock options and restricted stock was $20 and $16, respectively, at March 31, 2009. The weighted average period over which the expense is expected to be recognized is 3.9 years for stock options and 2.1 years for restricted stock.

As of March 31, 2009, outstanding stock options included 7,448,578 shares that were fully vested or expected to vest of which 4,937,285 were exercisable. The weighted average exercise price of the options that were fully vested or expected to vest was $16.18, the aggregate intrinsic value was $52, and the weighted average remaining contractual life was 5.3 years. The weighted average exercise price of options that were currently exercisable was $12.48, the aggregate intrinsic value was $52, and the weighted average remaining contractual life was 3.9 years.

The Company received cash proceeds of $2 from the exercise of stock options in the first quarters of both 2009 and 2008.

 

7


Crown Holdings, Inc.

 

D.

Goodwill

Changes in the carrying amount of goodwill by reportable segment for the three month period ended March 31, 2009 were as follows:

 

     Americas
Beverage
    North America
Food
    European
Beverage
    European
Food
    Non-reportable
segments
    Total  

Balance at January 1, 2009

   $ 418     $ 148     $ 660     $ 587     $ 143     $ 1,956  

Foreign currency translation

     (2 )     (2 )     (19 )     (26 )     (3 )     (52 )
                                                

Balance at March 31, 2009

   $ 416     $ 146     $ 641     $ 561     $ 140     $ 1,904  
                                                

 

E.

Inventories

 

     March 31,
2009
   December 31,
2008

Finished goods

   $ 460    $ 324

Work in process

     147      117

Raw materials and supplies

     547      538
             
   $ 1,154    $ 979
             

 

F.

Fair Value Measurements

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

The following table sets forth the fair value hierarchy of the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2009:

 

     March 31, 2009
     Assets/liabilities
at fair value
   Fair value
measurements using
        Level 1    Level 2

Assets

        

Derivative instruments

   $ 45    $ 12    $ 33

Available for sale securities

     3      3   
                    

Total assets

   $ 48    $ 15    $ 33
                    

Liabilities

        

Derivative instruments

   $ 158    $ 82    $ 76
                    

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 fair value assets and liabilities and their placement within the fair value hierarchy.

The Company uses an income approach to value its outstanding cross-currency swaps and 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 prevailing interest rates and foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy. The Company applies a market approach to value its exchange-traded available for sale securities and 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.

See Note G for further discussion of the Company’s use of derivative instruments and their fair values at March 31, 2009.

 

8


Crown Holdings, Inc.

 

G.

Derivative Financial Instruments

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 does not use derivatives instruments 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 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.

Cross-Currency and Interest Rate Swaps

The Company uses cross-currency and interest rate swaps to manage its portfolio of fixed and variable rate debt, including intercompany debt, and to manage the impact of debt on local cash flows. Currently, the Company has two cross-currency swaps outstanding with an aggregate notional value of $460. These swaps effectively convert fixed rate U.S. dollar intercompany debt due in November 2009 and 2010 at interest rates of 7.95% into fixed rate euro intercompany debt at interest rates of 6.39% and 6.45%, respectively. These swaps are effective in mitigating the risk of changes in foreign exchange and interest rates because the critical terms of the swaps, including the notional amounts, interest rate reset dates, maturity dates and underlying market indices match those of the foreign-currency denominated debt. Accordingly, the Company is accounting for these swaps as cash flow hedges.

Commodity Forwards

Information about commodity price exposure is provided by the local business units from supply forecasts submitted by customers. Currently, the Company hedges market risk covering certain aluminum and energy purchases to reduce or eliminate the impact of price changes on local cash flows. The U.S. dollar equivalent notional value of contracts in outstanding hedge relationships at March 31, 2009 was $161.

Foreign Exchange Hedges

The Company manages its foreign exchange risk at the operating unit level. Exposures that cannot be naturally offset within the operating unit are hedged with derivative financial instruments where possible and when cost effective. As discussed under Cross-Currency and Interest Rate Swaps, foreign exchange risk may be hedged in concert with interest rate risk using cross-currency swaps. In general foreign exchange hedges reduce or eliminate the impact of changes in foreign exchange rates on foreign-denominated monetary items. The notional values and maturity dates of the contracts coincide with those of the hedged items. Contracts are primarily denominated in U.S. dollars, euro, and sterling. The U.S. dollar-equivalent notional value of contracts in outstanding hedge relationships at March 31, 2009 was $998. In assessing the effectiveness of foreign exchange hedges, time value is excluded from fair value hedges of recognized assets and liabilities but included for cash flow hedges and fair value hedges of unrecognized firm commitments.

Derivative Financial Instruments Not Designated as Hedges

Certain contracts related to foreign-denominated intercompany debt have not been designated in hedge relationships because the terms of the debt are not fixed and cannot be effectively matched to the contracts. Contracts were executed with the belief that changes in fair value, regardless of hedge designation, would substantially offset changes in the value of the hedged items. The U.S. dollar-equivalent notional value of these contracts at March 31, 2009 was $267.

 

9


Crown Holdings, Inc.

 

The effect of derivative instruments on the Statement of Operations is shown below, including amounts recognized in accumulated other comprehensive income (“AOCI”).

 

2009

 

Derivatives in fair value

hedging relationships

   Location of gain/(loss)
recognized in earnings
    Amount of gain/(loss)
recognized in earnings
      

Foreign exchange contracts

    
 
Translation and
foreign exchange
 
 
  $ 8   
           

Derivatives in cash flow

hedging relationships

   Amount of gain/(loss)
recognized in AOCI
(effective portion)
    Location of gain/(loss)
reclassified from AOCI

against earnings
(effective portion)
   Amount of gain/(loss)
recognized from AOCI
against earnings
(effective portion)
 

Cross-currency swaps

   $ 29       Interest expense    $ 1  
       Foreign exchange      28  

Foreign exchange contracts

     (6 )     Net sales      (4 )
      
 
Cost of products
sold
     2  

Commodity contracts

     (10 )    
 
Cost of products
sold
     (20 )
                   

Total

   $ 13        $ 7  
                   

The impact of ineffectiveness and amounts excluded from the assessment of effectiveness was less than $1 in the first quarter of 2009.

There was no net impact on results of operations in the first quarter of 2009 from derivatives not designated as hedging instruments.

The effect of derivative instruments on the Consolidated Balance Sheet as of March 31, 2009 is shown below.

 

    

Fair Value of Derivative Instruments

 

Derivatives designated as
hedging instruments

  

Assets

   Fair value   

Liabilities

   Fair value  
  

Balance sheet location

     

Balance sheet location

  

Cross-currency swaps

         Accrued liabilities    $ (27 )
         Other non-current liabilities      (26 )

Foreign exchange contracts

   Other current assets    $ 21    Accrued liabilities      (23 )

Commodity contracts

   Other current assets      12    Accrued liabilities      (82 )
                     
        33         (158 )
                     

Derivatives not designated as

hedging instruments

                     

Foreign exchange contracts

        12      
                     

Total derivatives

      $ 45       $ (158 )
                     

 

10


Crown Holdings, Inc.

 

H.

Restructuring

The components of the outstanding restructuring reserve and movements within these components during the three months ended March 31, 2009 and 2008, respectively, were as follows:

 

     Termination
Benefits
    Other Exit
Costs
    Total  

Balance at January 1, 2008

   $ 8     $ 7     $ 15  

Payments

     (2 )     (6 )     (8 )
                        

Balance at March 31, 2008

   $ 6     $ 1     $ 7  
                        

Balance at January 1, 2009

   $ 11     $ 1     $ 12  

Provision

       1       1  

Payments

     (4 )     (1 )     (5 )
                        

Balance at March 31, 2009

   $ 7     $ 1     $ 8  
                        

The provision of $1 in 2009 related to maintenance and closing costs for a Canadian food can plant that ceased operations in 2008.

 

I.

Asbestos-Related Liabilities

Crown Cork & Seal Company, Inc. (“Crown Cork”) is one of many defendants in a substantial number of lawsuits filed throughout the United States by persons alleging bodily injury as a result of exposure to asbestos. These claims arose from the insulation operations of a U.S. company, the majority of whose stock Crown Cork purchased in 1963. Approximately ninety days after the stock purchase, this U.S. company sold its insulation assets and was later merged into Crown Cork.

Prior to 1998, amounts paid to asbestos claimants were covered by a fund made available to Crown Cork under a 1985 settlement with carriers insuring Crown Cork through 1976, when Crown Cork became self-insured. The fund was depleted in 1998 and the Company has no remaining coverage for asbestos-related costs.

In April 2007, May 2006, May 2005, January 2005 and April 2004, the States of Georgia, South Carolina, Florida, Ohio and Mississippi, respectively, enacted legislation that limits the 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 new legislation, which applies to future and, with the exception of Georgia and South Carolina, 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. In May 2006 the Texas Fourteenth Court of Appeals upheld a grant of summary judgment to Crown Cork and upheld the state constitutionality of the statute (Barbara Robinson v. Crown Cork & Seal Company, Inc., No. 14-04-00658-CV, Fourteenth Court of Appeals, Texas). The Appeals Court decision has been appealed by the plaintiff to the Texas Supreme Court. A favorable ruling for summary judgment in an asbestos case pending against Crown Cork in the district court of Travis County, Texas (in Re Rosemarie Satterfield as Representative of the Estate of Jerrold Braley Deceased v. Crown Cork & Seal Company, Inc., No. 03-04-00518-CV, Texas Court of Appeals, Third District, at Austin) has been reversed on appeal on state constitutional grounds due to retroactive application of the statute. Although the Company believes that the Texas legislation is constitutional, there can be no assurance that the legislation will be upheld by the Texas Supreme Court on appeal. An adverse ruling by the Texas Supreme Court could have a material impact on the Company.

 

11


Crown Holdings, Inc.

 

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. On February 6, 2009, the Superior Court of Pennsylvania affirmed, due to the plaintiff’s lack of standing, the Philadelphia Court of Common Pleas’ dismissal of three cases against Crown Cork raising federal and state constitutional challenges to the amended statute (Stea v. A.W. Chesterton, Inc., et. al, No. 2956 EDA 2006). The plaintiff has requested that the Pennsylvania Supreme Court accept the appeal of this decision. The Company cautions that the limitations of the statute, as amended, are subject to litigation and may not be upheld. Adverse rulings in cases challenging the constitutionality of the Pennsylvania statute could have a material impact on the Company.

During the three months ended March 31, 2009, Crown Cork received approximately 1,000 new claims, settled or dismissed approximately 1,000 claims for a total of $1, and had approximately 50,000 claims outstanding at the end of the period. Settlement amounts include amounts committed to be paid in future periods. The outstanding claims at March 31, 2009 exclude 33,000 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes will not have a material effect on the Company’s consolidated results of operations, financial position or cash flow. The outstanding claims also exclude approximately 19,000 inactive claims. Due to the passage of time, the Company considers it unlikely that the plaintiffs in these cases will pursue further action. The exclusion of these inactive claims had no effect on the calculation of the Company’s accrual as the claims were filed in states, as described above, where the Company’s liability is limited by statute.

As of March 31, 2009, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $198, including $135 for unasserted claims and $1 for committed settlements that will be paid over time.

Historically (1977-2008), Crown Cork estimates that approximately one-quarter of all asbestos-related claims made against it have been asserted by claimants who claim first exposure to asbestos after 1964. However, because of Crown Cork’s settlement experience to date and the increased difficulty of establishing identification of the subsidiary’s insulation products as the cause of injury by persons alleging first exposure to asbestos after 1964, the Company has not included in its accrual any amounts for settlements by persons alleging first exposure to asbestos after 1964.

Underlying the accrual are assumptions that claims for exposure to asbestos that occurred after the sale of the U.S. company’s insulation business in 1964 would not be entitled to settlement payouts and that the Georgia, South Carolina, Florida, Ohio, Mississippi, Texas and Pennsylvania asbestos legislation described above are expected to have a highly favorable impact on Crown Cork’s ability to settle or defend against asbestos-related claims in those states, and other states where Pennsylvania law may apply. The Company’s accrual of $198 includes estimates for probable costs for claims through the year 2018. Potential estimated additional claims costs of $38 beyond 2018 have not been included in the Company’s accrual, as the Company believes cost projections beyond ten years are inherently unreliable due to potential changes in the litigation environment and other factors whose impact cannot be known or reasonably estimated.

While it is not possible to predict the ultimate outcome of asbestos-related claims and settlements, the Company believes that resolution of these matters is not expected to have a material adverse effect on the Company’s financial position. The Company cautions, however, that estimates for asbestos cases and settlements are difficult to predict and may be influenced by many factors. In addition, there can be no assurance regarding the validity or correctness of the Company’s assumptions or beliefs underlying its accrual. Unfavorable court decisions or other adverse developments may require the Company to substantially increase its accrual or change its estimate. Accordingly, these matters, if resolved in a manner different from the estimate, could have a material effect on the Company’s results of operations, financial position or cash flow.

 

12


Crown Holdings, Inc.

 

J.

Commitments and Contingent Liabilities

The Company and its subsidiaries are subject to various lawsuits and claims with respect to labor, environmental, securities, vendor, tax and other matters arising in the 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 results of operations, financial position or cash flow of the Company.

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 million for its share of estimated future remediation costs at these sites. The Company has been identified as having either directly or indirectly disposed of commercial or industrial waste at the sites subject to the accrual, and where appropriate and supported by available information, generally has agreed to be responsible for a percentage of future remediation costs based on an estimated volume of materials disposed in proportion to the total materials disposed at each site. The Company has not had monetary sanctions imposed nor has the Company been notified of any potential monetary sanctions at any of the sites. The Company has also recorded aggregate accruals of $12 million for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.

The Company has various commitments to purchase materials, supplies and utilities as part of the ordinary conduct of business. The Company’s basic raw materials for its products include tinplate 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 certain customers to reflect these movements. There can be no assurances, 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 March 31, 2009, the Company had certain indemnification agreements covering environmental remediation and other potential costs associated with properties sold or businesses divested. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated. At March 31, 2009, the Company also had guarantees of $29 related to the residual values of leased assets.

 

K.

Earnings Per Share

The following table summarizes the computations of basic and diluted earnings per share attributable to Crown Holdings for the periods ended March 31, 2009 and 2008, respectively:

 

     Three Months Ended
March 31
     2009    2008

Earnings

     

Net income attributable to Crown Holdings

   $ 40    $ 27
             

Weighted average shares outstanding:

     

Basic

     158.5      159.2

Add: dilutive stock options and restricted stock

     2.8      3.6
             

Diluted

     161.3      162.8
             

Basic and diluted earnings per share

   $ 0.25    $ 0.17
             

Excluded from the computation of diluted earnings per share were common shares contingently issuable upon the exercise of outstanding stock options, amounting to 4.0 million shares for the three months ended March 31, 2009 and 4.3 million shares for the same period in 2008. These shares were excluded because the exercise prices of the then outstanding options were above the average market prices for the related periods.

 

13


Crown Holdings, Inc.

 

L.

Pension and Other Postretirement Benefits

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

 

Pension Benefits

   U.S. Plans     Non-U.S. Plans  
     2009     2008     2009     2008  

Service cost

   $ 2     $ 2     $ 5     $ 10  

Interest cost

     20       19       34       46  

Expected return on plan assets

     (18 )     (29 )     (37 )     (61 )

Recognized prior service cost/(credit)

     1       1       (1 )     (2 )

Recognized net loss

     20       8       6       9  
                                

Net periodic cost

   $ 25     $ 1     $ 7     $ 2  
                                

Other Postretirement Benefits

                        
     2009     2008              

Service cost

   $ 2     $ 2      

Interest cost

     7       8      

Recognized prior service credit

     (6 )     (6 )    

Recognized net loss

     3       2      
                    

Net periodic cost

   $ 6     $ 6      
                    

 

M.

Segment Information

The Company’s business is organized geographically within three divisions, Americas, Europe and Asia-Pacific. Within the Americas and Europe, the Company has determined that it has the following reportable segments organized along a combination of product lines and geographic areas: Americas Beverage and North America Food in the Americas, and European Beverage, European Food and European Specialty Packaging in Europe.

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

The tables below present information about operating segments for the three months ended March 31, 2009 and 2008:

 

2009

   External
sales
   Segment
income
 

Americas Beverage

   $ 409    $ 41  

North America Food

     197      18  

European Beverage

     339      57  

European Food

     389      52  

European Specialty Packaging

     81      1  
               

Total reportable segments

     1,415      169  

Non-reportable segments

     269      42  

Corporate and unallocated items

        (55 )
               

Total

   $ 1,684    $ 156  
               

 

14


Crown Holdings, Inc.

 

2008

   External
sales
   Segment
income
 

Americas Beverage

   $ 433    $ 43  

North America Food

     185      11  

European Beverage

     348      49  

European Food

     488      40  

European Specialty Packaging

     105      1  
               

Total reportable segments

     1,559      144  

Non-reportable segments

     304      40  

Corporate and unallocated items

        (34 )
               

Total

   $ 1,863    $ 150  
               

A reconciliation of segment income of reportable segments to income before income taxes and equity earnings for the three months ended March 31, 2009 and 2008 follows:

 

     2009     2008  

Segment income of reportable segments

   $ 169     $ 144  

Segment income of non-reportable segments

     42       40  

Corporate and unallocated items

     (55 )     (34 )

Provision for restructuring

     (1 )  

Loss from early extinguishments of debt

       (2 )

Interest expense

     (61 )     (77 )

Interest income

     2       3  

Translation and foreign exchange

     (4 )  
                

Income before income taxes and equity earnings

   $ 92     $ 74  
                

“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. The increase in 2009 was primarily due to increased pension costs in the Company’s U.S. and U.K. plans.

 

15


Crown Holdings, Inc.

 

N.

Condensed Combining Financial Information

Crown European Holdings (Issuer), a 100% owned subsidiary of the Company, has outstanding senior notes that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and certain subsidiaries. The guarantors are 100% owned by the Company and the guarantees are made on a joint and several basis. The guarantor column includes financial information for all subsidiaries in the United States (except for an insurance subsidiary and a receivable securitization subsidiary), and substantially all subsidiaries in Belgium, Canada, France, Germany, Mexico, Switzerland and the United Kingdom, and a subsidiary in the Netherlands. The following condensed combining financial statements:

 

   

statements of operations and cash flows for the three months ended March 31, 2009 and 2008, and

 

   

balance sheets as of March 31, 2009 and December 31, 2008

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

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2009

(in millions)

 

     Parent    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 990     $ 694       $ 1,684  

Cost of products sold, excluding depreciation and amortization

      $ (3 )     836       559         1,392  

Depreciation and amortization

          23       24         47  
                                               

Gross profit

        3       131       111         245  
                                               

Selling and administrative expense

        (1 )     66       24         89  

Provision for restructuring

          1           1  

Net interest expense

        8       46       5         59  

Technology royalty

          (7 )     7      

Translation and foreign exchange

          1       3         4  
                                               

Income/(loss) before income taxes

        (4 )     24       72         92  

Provision for income taxes

          5       19         24  

Equity (loss)/earnings in affiliates

   $ 40      49       21       (1 )   $ (114 )     (5 )
                                               

Net income

     40      45       40       52       (114 )     63  

Net income attributable to noncontrolling interests

            (23 )       (23 )
                                               

Net income attributable to Crown Holdings

   $ 40    $ 45     $ 40     $ 29     $ (114 )   $ 40  
                                               

 

16


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2008

(in millions)

 

     Parent    Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 1,098     $ 765       $ 1,863  

Cost of products sold, excluding depreciation and amortization

      $ (5 )     925       638         1,558  

Depreciation and amortization

          31       22         53  
                                               

Gross profit

        5       142       105         252  
                                               

Selling and administrative expense

          77       25         102  

Loss from early extinguishment of debt

        2             2  

Net interest expense

        25       45       4         74  

Technology royalty

          (8 )     8      

Translation and foreign exchange

          2       (2 )    
                                               

Income/(loss) before income taxes

        (22 )     26       70         74  

Provision for income taxes

          6       20         26  

Equity earnings in affiliates

   $ 27      33       7       $ (67 )  
                                               

Net income

     27      11       27       50       (67 )     48  

Net income attributable to noncontrolling interests

            (21 )       (21 )
                                               

Net income attributable to Crown Holdings

   $ 27    $ 11     $ 27     $ 29     $ (67 )   $ 27  
                                               

 

17


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of March 31, 2009

(in millions)

 

     Parent     Issuer    Guarantors     Non-
Guarantors
   Eliminations     Total
Company
 

Assets

              

Current assets

              

Cash and cash equivalents

        $ 38     $ 258      $ 296  

Receivables, net

     $ 66      168       580        814  

Intercompany receivables

       2      72       25    $ (99 )  

Inventories

          621       533        1,154  

Prepaid expenses and other current assets

   $ 2       13      107       24        146  
                                              

Total current assets

     2       81      1,006       1,420      (99 )     2,410  
                                              

Intercompany debt receivables

       1,991      2,083       199      (4,273 )  

Investments

     (60 )     2,216      (156 )        (2,000 )  

Goodwill

          1,336       568        1,904  

Property, plant and equipment, net

          667       754        1,421  

Other non-current assets

     1       5      832       7        845  
                                              

Total

   $ (57 )   $ 4,293    $ 5,768     $ 2,948    $ (6,372 )   $ 6,580  
                                              

Liabilities and equity

              

Current liabilities

              

Short-term debt

     $ 10    $ 3     $ 39      $ 52  

Current maturities of long-term debt

       4      5       19        28  

Accounts payable and accrued liabilities

   $ 6       32      1,013       653        1,704  

Intercompany payables

       1      24       74    $ (99 )  
                                              

Total current liabilities

     6       47      1,045       785      (99 )     1,784  
                                              

Long-term debt, excluding current maturities

       1,080      2,168       70        3,318  

Long-term intercompany debt

     211       2,411      1,389       262      (4,273 )  

Postretirement and pension liabilities

          873       17        890  

Other non-current liabilities

       28      353       127        508  

Commitments and contingent liabilities

              

Noncontrolling interests

            354        354  

Crown Holdings shareholders’ equity/(deficit)

     (274 )     727      (60 )     1,333      (2,000 )     (274 )
                                              

Total equity/(deficit)

     (274 )     727      (60 )     1,687      (2,000 )     80  
                                              

Total

   $ (57 )   $ 4,293    $ 5,768     $ 2,948    $ (6,372 )   $ 6,580  
                                              

 

18


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of December 31, 2008

(in millions)

 

     Parent     Issuer    Guarantors     Non-
Guarantors
   Eliminations     Total
Company
 

Assets

              

Current assets

              

Cash and cash equivalents

     $ 77    $ 138     $ 381      $ 596  

Receivables, net

       67      116       551        734  

Intercompany receivables

       2      66       31    $ (99 )  

Inventories

          514       465        979  

Prepaid expenses and other current assets

   $ 2       2      137       7        148  
                                              

Total current assets

     2       148      971       1,435      (99 )     2,457  
                                              

Intercompany debt receivables

       1,935      2,168       245      (4,348 )  

Investments

     (99 )     2,260      (209 )        (1,952 )  

Goodwill

          1,362       594        1,956  

Property, plant and equipment, net

          697       776        1,473  

Other non-current assets

       6      861       21        888  
                                              

Total

   $ (97 )   $ 4,349    $ 5,850     $ 3,071    $ (6,399 )   $ 6,774  
                                              

Liabilities and equity

              

Current liabilities

              

Short-term debt

     $ 1    $ 2     $ 56      $ 59  

Current maturities of long-term debt

       4      5       22        31  

Accounts payable and accrued liabilities

   $ 22       53      1,067       840        1,982  

Intercompany payables

       1      30       68    $ (99 )  
                                              

Total current liabilities

     22       59      1,104       986      (99 )     2,072  
                                              

Long-term debt, excluding current maturities

       1,026      2,152       69        3,247  

Long-term intercompany debt

     198       2,523      1,458       169      (4,348 )  

Postretirement and pension liabilities

          875       18        893  

Other non-current liabilities

       40      360       126        526  

Commitments and contingent liabilities

              

Noncontrolling interests

            353        353  

Crown Holdings shareholders’ equity/(deficit)

     (317 )     701      (99 )     1,350      (1,952 )     (317 )
                                              

Total equity/(deficit)

     (317 )     701      (99 )     1,703      (1,952 )     36  
                                              

Total

   $ (97 )   $ 4,349    $ 5,850     $ 3,071    $ (6,399 )   $ 6,774  
                                              

 

19


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2009

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash used for operating activities

   $ (13 )   $ (14 )   $ (165 )   $ (153 )     $ (345 )
                                                

Cash flows from investing activities

            

Capital expenditures

         (15 )     (35 )       (50 )

Intercompany investing activities

         17       $ (17 )  
                                                

Net cash provided by/(used for) investing activities

         2       (35 )     (17 )     (50 )
                                                

Cash flows from financing activities

            

Proceeds from long-term debt

           1         1  

Payments of long-term debt

           (3 )       (3 )

Net change in revolving credit facility and short-term debt

       121         (7 )       114  

Net change in long-term intercompany balances

     13       (162 )     41       108      

Common stock issued

     3               3  

Common stock repurchased

     (3 )             (3 )

Dividends paid

           (17 )     17    

Dividend paid to noncontrolling interests

           (17 )       (17 )

Other

       (22 )     41           19  
                                                

Net cash provided by/(used for) financing activities

     13       (63 )     82       65       17       114  
                                                

Effect of exchange rate changes on cash and cash equivalents

         (19 )         (19 )
                                                

Net change in cash and cash equivalents

       (77 )     (100 )     (123 )       (300 )

Cash and cash equivalents at January 1

       77       138       381         596  
                                                

Cash and cash equivalents at March 31

   $ 0     $ 0     $ 38     $ 258     $ 0     $ 296  
                                                

 

20


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2008

(in millions)

 

     Parent     Issuer     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash used for operating activities

   $ (13 )   $ (29 )   $ (249 )   $ (152 )     $ (443 )
                                                

Cash flows from investing activities

            

Capital expenditures

         (11 )     (22 )       (33 )

Intercompany investing activities

       10       7       $ (17 )  

Other

         (6 )     (1 )       (7 )
                                                

Net cash provided by/(used for) investing activities

       10       (10 )     (23 )     (17 )     (40 )
                                                

Cash flows from financing activities

            

Payments of long-term debt

       (41 )       (14 )       (55 )

Net change in revolving credit facility and short-term debt

       206       120       12         338  

Net change in long-term intercompany balances

     14       (175 )     98       63      

Common stock issued

     2               2  

Common stock repurchased

     (3 )             (3 )

Dividends paid

         (10 )     (7 )     17    

Dividend paid to noncontrolling interests

           (8 )       (8 )

Other

       16       2           18  
                                                

Net cash provided by financing activities

     13       6       210       46       17       292  
                                                

Effect of exchange rate changes on cash and cash equivalents

         1       15         16  
                                                

Net change in cash and cash equivalents

       (13 )     (48 )     (114 )       (175 )

Cash and cash equivalents at January 1

       13       81       363         457  
                                                

Cash and cash equivalents at March 31

   $ 0     $ 0     $ 33     $ 249     $ 0     $ 282  
                                                

 

21


Crown Holdings, Inc.

 

Crown Cork & Seal Company, Inc. (Issuer), a 100% owned subsidiary, has outstanding registered debt that is fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt. The following condensed combining financial statements:

 

 

statements of operations and cash flows for the three months ended March 31, 2009 and 2008, and

 

 

balance sheets as of March 31, 2009 and December 31, 2008

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

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2009

(in millions)

 

     Parent    Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 1,684       $ 1,684  

Cost of products sold, excluding depreciation and amortization

          1,392         1,392  

Depreciation and amortization

          47         47  
                                       

Gross profit

          245         245  
                                       

Selling and administrative expense

      $ 3       86         89  

Provision for restructuring

          1         1  

Net interest expense

        21       38         59  

Translation and foreign exchange

          4         4  
                                       

Income/(loss) before income taxes

        (24 )     116         92  

Provision/(benefit) for income taxes

        (9 )     33         24  

Equity (loss)/earnings in affiliates

   $ 40      55       (5 )   $ (95 )     (5 )
                                       

Net income

     40      40       78       (95 )     63  

Net income attributable to noncontrolling interests

          (23 )       (23 )
                                       

Net income attributable to Crown Holdings

   $ 40    $ 40     $ 55     $ (95 )   $ 40  
                                       

 

22


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2008

(in millions)

 

     Parent    Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 1,863       $ 1,863  

Cost of products sold, excluding depreciation and amortization

          1,558         1,558  

Depreciation and amortization

          53         53  
                                       

Gross profit

          252         252  
                                       

Selling and administrative expense

      $ 3       99         102  

Loss from early extinguishment of debt

          2         2  

Net interest expense

        17       57         74  
                                       

Income/(loss) before income taxes

        (20 )     94         74  

Provision/(benefit) for income taxes

        (8 )     34         26  

Equity earnings in affiliates

   $ 27      39       $ (66 )  
                                       

Net income

     27      27       60       (66 )     48  

Net income attributable to noncontrolling interests

          (21 )       (21 )
                                       

Net income attributable to Crown Holdings

   $ 27    $ 27     $ 39     $ (66 )   $ 27  
                                       

 

23


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of March 31, 2009

(in millions)

 

     Parent     Issuer     Non-
Guarantors
   Eliminations     Total
Company
 

Assets

           

Current assets

           

Cash and cash equivalents

       $ 296      $ 296  

Receivables, net

         814        814  

Inventories

         1,154        1,154  

Prepaid expenses and other current assets

   $ 2         144        146  
                                       

Total current assets

     2         2,408        2,410  
                                       

Intercompany debt receivables

         561    $ (561 )  

Investments

     (60 )   $ 735          (675 )  

Goodwill

         1,904        1,904  

Property, plant and equipment, net

         1,421        1,421  

Other non-current assets

     1       511       333        845  
                                       

Total

   $ (57 )   $ 1,246     $ 6,627    $ (1,236 )   $ 6,580  
                                       

Liabilities and equity

           

Current liabilities

           

Short-term debt

       $ 52      $ 52  

Current maturities of long-term debt

         28        28  

Accounts payable and accrued liabilities

   $ 6     $ 52       1,646        1,704  
                                       

Total current liabilities

     6       52       1,726        1,784  
                                       

Long-term debt, excluding current maturities

       697       2,621        3,318  

Long-term intercompany debt

     211       350        $ (561 )  

Postretirement and pension liabilities

         890        890  

Other non-current liabilities

       207       301        508  

Commitments and contingent liabilities

           

Noncontrolling interests

         354        354  

Crown Holdings shareholders’ equity/(deficit)

     (274 )     (60 )     735      (675 )     (274 )
                                       

Total equity/(deficit)

     (274 )     (60 )     1,089      (675 )     80  
                                       

Total

   $ (57 )   $ 1,246     $ 6,627    $ (1,236 )   $ 6,580  
                                       

 

24


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of December 31, 2008

(in millions)

 

     Parent     Issuer     Non-
Guarantors
   Eliminations     Total
Company
 

Assets

           

Current assets

           

Cash and cash equivalents

       $ 596      $ 596  

Receivables, net

         734        734  

Inventories

         979        979  

Prepaid expenses and other current assets

   $ 2         146        148  
                                       

Total current assets

     2         2,455        2,457  
                                       

Intercompany debt receivables

         570    $ (570 )  

Investments

     (99 )   $ 696          (597 )  

Goodwill

         1,956        1,956  

Property, plant and equipment, net

         1,473        1,473  

Other non-current assets

       523       365        888  
                                       

Total

   $ (97 )   $ 1,219     $ 6,819    $ (1,167 )   $ 6,774  
                                       

Liabilities and equity

           

Current liabilities

           

Short-term debt

       $ 59      $ 59  

Current maturities of long-term debt

         31        31  

Accounts payable and accrued liabilities

   $ 22     $ 41       1,919        1,982  
                                       

Total current liabilities

     22       41       2,009        2,072  
                                       

Long-term debt, excluding current maturities

       697       2,550        3,247  

Long-term intercompany debt

     198       372        $ (570 )  

Postretirement and pension liabilities

         893        893  

Other non-current liabilities

       208       318        526  

Commitments and contingent liabilities

           

Noncontrolling interests

         353        353  

Crown Holdings shareholders’ equity/(deficit)

     (317 )     (99 )     696      (597 )     (317 )
                                       

Total equity/(deficit)

     (317 )     (99 )     1,049      (597 )     36  
                                       

Total

   $ (97 )   $ 1,219     $ 6,819    $ (1,167 )   $ 6,774  
                                       

 

25


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2009

(in millions)

 

     Parent     Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash used for operating activities

   $ (13 )   $ (1 )   $ (331 )     $ (345 )
                                        

Cash flows from investing activities

          

Capital expenditures

         (50 )       (50 )

Other

       16       $ (16 )  
                                        

Net cash provided by/(used for) investing activities

       16       (50 )     (16 )     (50 )
                                        

Cash flows from financing activities

          

Proceeds from long-term debt

         1         1  

Payments of long-term debt

         (3 )       (3 )

Net change in revolving credit facility and short-term debt

         114         114  

Net change in long-term intercompany balances

     13       (15 )     2      

Common stock issued

     3             3  

Common stock repurchased

     (3 )           (3 )

Dividends paid

         (16 )     16    

Dividend paid to noncontrolling interests

         (17 )       (17 )

Other

         19         19  
                                        

Net cash provided by/(used for) financing activities

     13       (15 )     100       16       114  
                                        

Effect of exchange rate changes on cash and cash equivalents

         (19 )       (19 )
                                        

Net change in cash and cash equivalents

         (300 )       (300 )

Cash and cash equivalents at January 1

         596         596  
                                        

Cash and cash equivalents at March 31

   $ 0     $ 0     $ 296     $ 0     $ 296  
                                        

 

26


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2008

(in millions)

 

     Parent     Issuer     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash provided by/(used for) operating activities

   $  (13 )   $ 1     $  (431 )     $  (443 )
                                        

Cash flows from investing activities

          

Capital expenditures

         (33 )       (33 )

Intercompany investing activities

       3       $ (3 )  

Other

         (7 )       (7 )
                                        

Net cash provided by/(used for) investing activities

       3       (40 )     (3 )     (40 )
                                        

Cash flows from financing activities

          

Payments of long-term debt

         (55 )       (55 )

Net change in revolving credit facility and short-term debt

         338         338  

Net change in long-term intercompany balances

     14       (4 )     (10 )    

Common stock issued

     2             2  

Common stock repurchased

     (3 )           (3 )

Dividends paid

         (3 )     3    

Dividend paid to noncontrolling interests

         (8 )       (8 )

Other

         18         18  
                                        

Net cash provided by/(used for) financing activities

     13       (4 )     280       3       292  
                                        

Effect of exchange rate changes on cash and cash equivalents

         16         16  
                                        

Net change in cash and cash equivalents

         (175 )       (175 )

Cash and cash equivalents at January 1

         457         457  
                                        

Cash and cash equivalents at March 31

   $ 0     $ 0     $ 282     $ 0     $ 282  
                                        

 

27


Crown Holdings, Inc.

 

Crown Americas, LLC and Crown Americas Capital Corp. (collectively, the Issuers), 100% owned subsidiaries of the Company, have outstanding senior unsecured notes that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and substantially all subsidiaries in the United States. The guarantors are 100% owned by the Company and the guarantees are made on a joint and several basis. The following condensed combining financial statements:

 

   

statements of operations and cash flows for the three months ended March 31, 2009 and 2008 and

 

   

balance sheets as of March 31, 2009 and December 31, 2008

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

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2009

(in millions)

 

     Parent    Issuers     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 496     $ 1,188       $ 1,684  

Cost of products sold, excluding depreciation and amortization

          437       955         1,392  

Depreciation and amortization

          11       36         47  
                                               

Gross profit

          48       197         245  
                                               

Selling and administrative expense

      $ 1       34       54         89  

Provision for restructuring

            1         1  

Net interest expense

        9       28       22         59  

Technology royalty

          (10 )     10      

Translation and foreign exchange

            4         4  
                                               

Income/(loss) before income taxes

        (10 )     (4 )     106         92  

Provision/(benefit) for income taxes

        (4 )     11       17         24  

Equity (loss)/earnings in affiliates

   $ 40      (6 )     55       $ (94 )     (5 )
                                               

Net income/(loss)

     40      (12 )     40       89       (94 )     63  

Net income attributable to noncontrolling interests

            (23 )       (23 )
                                               

Net income/(loss) attributable to Crown Holdings

   $ 40    $ (12 )   $ 40     $ 66     $ (94 )   $ 40  
                                               

 

28


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF OPERATIONS

For the three months ended March 31, 2008

(in millions)

 

     Parent    Issuers     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net sales

        $ 484     $ 1,379       $ 1,863  

Cost of products sold, excluding depreciation and amortization

          403       1,155         1,558  

Depreciation and amortization

          14       39         53  
                                               

Gross profit

          67       185         252  
                                               

Selling and administrative expense

      $ 2       34       66         102  

Loss from early extinguishment of debt

            2         2  

Net interest expense

        12       21       41         74  

Technology royalty

          (11 )     11      
                                               

Income/(loss) before income taxes

        (14 )     23       65         74  

Provision/(benefit) for income taxes

        (5 )     12       19         26  

Equity earnings in affiliates

   $ 27      28         $ (55 )  
                                               

Net income

     27      19       11       46       (55 )     48  

Net income attributable to noncontrolling interests

            (21 )       (21 )
                                               

Net income attributable to Crown Holdings

   $ 27    $ 19     $ 11     $ 25     $ (55 )   $ 27  
                                               

 

29


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of March 31, 2009

(in millions)

 

     Parent     Issuers    Guarantors     Non-
Guarantors
   Eliminations     Total
Company
 

Assets

              

Current assets

              

Cash and cash equivalents

     $ 21    $ 2     $ 273      $ 296  

Receivables, net

            814        814  

Intercompany receivables

          36       6    $ (42 )  

Inventories

          290       864        1,154  

Prepaid expenses and other current assets

   $ 2       2      7       135        146  
                                              

Total current assets

     2       23      335       2,092      (42 )     2,410  
                                              

Intercompany debt receivables

       1,377      972       448      (2,797 )  

Investments

     (60 )     895      456          (1,291 )  

Goodwill

          453       1,451        1,904  

Property, plant and equipment, net

       2      306       1,113        1,421  

Other non-current assets

     1       27      550       267        845  
                                              

Total

   $ (57 )   $ 2,324    $ 3,072     $ 5,371    $ (4,130 )   $ 6,580  
                                              

Liabilities and equity

              

Current liabilities

              

Short-term debt

          $ 52      $ 52  

Current maturities of long-term debt

     $ 4    $ 1       23        28  

Accounts payable and accrued liabilities

       39      368       1,297        1,704  

Intercompany payables

   $ 6            36    $ (42 )  
                                              

Total current liabilities

     6       43      369       1,408      (42 )     1,784  
                                              

Long-term debt, excluding current maturities

       1,450      700       1,168        3,318  

Long-term intercompany debt

     211       715      1,062       809      (2,797 )  

Postretirement and pension liabilities

          732       158        890  

Other non-current liabilities

          269       239        508  

Commitments and contingent liabilities

              

Noncontrolling interests

            354        354  

Crown Holdings shareholders’ equity/(deficit)

     (274 )     116      (60 )     1,235      (1,291 )     (274 )
                                              

Total equity/(deficit)

     (274 )     116      (60 )     1,589      (1,291 )     80  
                                              

Total

   $ (57 )   $ 2,324    $ 3,072     $ 5,371    $ (4,130 )   $ 6,580  
                                              

 

30


Crown Holdings, Inc.

 

CONDENSED COMBINING BALANCE SHEET

As of December 31, 2008

(in millions)

 

     Parent     Issuers    Guarantors     Non-
Guarantors
   Eliminations     Total
Company
 

Assets

              

Current assets

              

Cash and cash equivalents

     $ 92    $ 3     $ 501      $ 596  

Receivables, net

          6       728        734  

Intercompany receivables

          56       6    $ (62 )  

Inventories

          224       755        979  

Prepaid expenses and other current assets

   $ 2       1      3       142        148  
                                              

Total current assets

     2       93      292       2,132      (62 )     2,457  
                                              

Intercompany debt receivables

       1,302      961       454      (2,717 )  

Investments

     (99 )     896      449          (1,246 )  

Goodwill

          453       1,503        1,956  

Property, plant and equipment, net

       2      312       1,159        1,473  

Other non-current assets

       29      558       301        888  
                                              

Total

   $ (97 )   $ 2,322    $ 3,025     $ 5,549    $ (4,025 )   $ 6,774  
                                              

Liabilities and equity

              

Current liabilities

              

Short-term debt

          $ 59      $ 59  

Current maturities of long-term debt

     $ 4    $ 1       26        31  

Accounts payable and accrued liabilities

   $ 22       18      328       1,614        1,982  

Intercompany payables

          6       56    $ (62 )  
                                              

Total current liabilities

     22       22      335       1,755      (62 )     2,072  
                                              

Long-term debt, excluding current maturities

       1,450      700       1,097        3,247  

Long-term intercompany debt

     198       722      1,079       718      (2,717 )  

Postretirement and pension liabilities

          747       146        893  

Other non-current liabilities

          263       263        526  

Commitments and contingent liabilities

              

Noncontrolling interests

            353        353  

Crown Holdings shareholders’ equity/(deficit)

     (317 )     128      (99 )     1,217      (1,246 )     (317 )
                                              

Total equity/(deficit)

     (317 )     128      (99 )     1,570      (1,246 )     36  
                                              

Total

   $ (97 )   $ 2,322    $ 3,025     $ 5,549    $ (4,025 )   $ 6,774  
                                              

 

31


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2009

(in millions)

 

     Parent     Issuers     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash provided by/(used for) operating activities

   $ (13 )   $ 11     $ (26 )   $ (317 )     $ (345 )
                                                

Cash flows from investing activities

            

Capital expenditures

         (6 )     (44 )       (50 )

Intercompany investing activities

         15       $ (15 )  
                                                

Net cash provided by/(used for) investing activities

         9       (44 )     (15 )     (50 )
                                                

Cash flows from financing activities

            

Proceeds from long-term debt

           1         1  

Payments of long-term debt

           (3 )       (3 )

Net change in revolving credit facility and short-term debt

           114         114  

Net change in long-term intercompany balances

     13       (82 )     16       53      

Common stock issued

     3               3  

Common stock repurchased

     (3 )             (3 )

Dividends paid

           (15 )     15    

Dividend paid to noncontrolling interests

           (17 )       (17 )

Other

           19         19  
                                                

Net cash provided by/(used for) financing activities

     13       (82 )     16       152       15       114  
                                                

Effect of exchange rate changes on cash and cash equivalents

           (19 )       (19 )
                                                

Net change in cash and cash equivalents

       (71 )     (1 )     (228 )       (300 )

Cash and cash equivalents at January 1

       92       3       501         596  
                                                

Cash and cash equivalents at March 31

   $ 0     $ 21     $ 2     $ 273     $ 0     $ 296  
                                                

 

32


Crown Holdings, Inc.

 

CONDENSED COMBINING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2008

(in millions)

 

     Parent     Issuers     Guarantors     Non-
Guarantors
    Eliminations     Total
Company
 

Net cash provided by/(used for) operating activities

   $ (13 )   $ 14     $ 15     $ (459 )     $ (443 )
                                                

Cash flows from investing activities

            

Capital expenditures

         (4 )     (29 )       (33 )

Intercompany investing activities

       4       3       $ (7 )  

Other

       (6 )       (1 )       (7 )
                                                

Net cash used for investing activities

       (2 )     (1 )     (30 )     (7 )     (40 )
                                                

Cash flows from financing activities

            

Payments of long-term debt

           (55 )       (55 )

Net change in revolving credit facility and short-term debt

       75         263         338  

Net change in long-term intercompany balances

     14       (120 )     (16 )     122      

Common stock issued

           (7 )     7    

Common stock repurchased

     2               2  

Dividends paid

     (3 )             (3 )

Dividend paid to noncontrolling interests

           (8 )       (8 )

Other

           18         18  
                                                

Net cash provided by/(used for) financing activities

     13       (45 )     (16 )     333       7       292  
                                                

Effect of exchange rate changes on cash and cash equivalents

           16         16  
                                                

Net change in cash and cash equivalents

       (33 )     (2 )     (140 )       (175 )

Cash and cash equivalents at January 1

       42       5       410         457  
                                                

Cash and cash equivalents at March 31

   $ 0     $ 9     $ 3     $ 270     $ 0     $ 282  
                                                

 

33


Crown Holdings, Inc.

 

PART I – FINANCIAL INFORMATION

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(in millions)

Introduction

The following discussion presents management’s analysis of the results of operations for the three months ended March 31, 2009 compared to the corresponding period in 2008 and the changes in financial condition and