XNYS:CCK Crown Holdings Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x
There were 148,970,645 shares of Common Stock outstanding as of August 3, 2012.



Crown Holdings, Inc.


PART I – FINANCIAL INFORMATION

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

Three Months Ended June 30
2012
 
2011
Net sales
$
2,184

 
$
2,281

Cost of products sold, excluding depreciation and amortization
1,799

 
1,865

Depreciation and amortization
45

 
45

Gross profit
340

 
371

Selling and administrative expense
90

 
100

Provision for restructuring
3

 

Asset impairments and sales
(10
)
 

Loss from early extinguishments of debt

 
2

Interest expense
55

 
60

Interest income
(1
)
 
(2
)
Translation and foreign exchange
(5
)
 
1

Income before income taxes and equity earnings
208

 
210

Provision for income taxes
51

 
54

Net income
157

 
156

Net income attributable to noncontrolling interests
(23
)
 
(27
)
Net income attributable to Crown Holdings
$
134

 
$
129

 
 
 
 
       Earnings per common share attributable to Crown Holdings:
 
 
 
          Basic
$
0.91

 
$
0.85

          Diluted
$
0.89

 
$
0.83


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


2

Crown Holdings, Inc.


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

Six Months Ended June 30
2012
 
2011
Net sales
$
4,131

 
$
4,163

Cost of products sold, excluding depreciation and amortization
3,417

 
3,415

Depreciation and amortization
87

 
85

Gross profit
627

 
663

Selling and administrative expense
196

 
202

Provision for restructuring
3

 
25

Asset impairments and sales
(10
)
 

Loss from early extinguishments of debt

 
32

Interest expense
113

 
116

Interest income
(3
)
 
(6
)
Translation and foreign exchange
(2
)
 
1

Income before income taxes and equity earnings
330

 
293

Provision for income taxes
83

 
95

Net income
247

 
198

Net income attributable to noncontrolling interests
(44
)
 
(53
)
Net income attributable to Crown Holdings
$
203

 
$
145

 
 
 
 
       Earnings per common share attributable to Crown Holdings:
 
 
 
          Basic
$
1.37

 
$
0.94

          Diluted
$
1.35

 
$
0.93


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


3


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months Ended June 30
2012
 
2011
Net income
$
157

 
$
156

 
 
 
 
Other comprehensive income, net of tax
 
 
 
Foreign currency translation adjustments
(39
)
 
18

Pension and other postretirement benefits
17

 
16

Derivatives qualifying as hedges
(24
)
 
(25
)
Total other comprehensive income
(46
)
 
9

 
 
 
 
Total comprehensive income
111

 
165

Net income attributable to noncontrolling interests
(23
)
 
(27
)
Translation adjustments attributable to noncontrolling interests
1

 
(2
)
Derivatives qualifying as hedges attributable to noncontrolling interests
4

 
2

Comprehensive income attributable to Crown Holdings
$
93

 
138


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


4


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Six Months Ended June 30
2012
 
2011
Net income
$
247

 
$
198

 
 
 
 
Other comprehensive income, net of tax
 
 
 
Foreign currency translation adjustments

 
67

Pension and other postretirement benefits
33

 
32

Derivatives qualifying as hedges
(1
)
 
(19
)
Total other comprehensive income
32

 
80

 
 
 
 
Total comprehensive income
279

 
278

Net income attributable to noncontrolling interests
(44
)
 
(53
)
Translation adjustments attributable to noncontrolling interests
1

 
(6
)
Derivatives qualifying as hedges attributable to noncontrolling interests
1

 
1

Comprehensive income attributable to Crown Holdings
$
237

 
$
220


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





















5

Crown Holdings, Inc.




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

 
June 30,
2012
 
December 31,
2011
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
230

 
$
342

Receivables, net
1,194

 
948

Inventories
1,272

 
1,148

Prepaid expenses and other current assets
213

 
165

Total current assets
2,909

 
2,603

 
 
 
 
Goodwill
1,944

 
1,952

Property, plant and equipment, net
1,800

 
1,751

Other non-current assets
571

 
562

Total
$
7,224

 
$
6,868

 
 
 
 
Liabilities and equity
 
 
 
Current liabilities
 
 
 
Short-term debt
$
185

 
$
128

Current maturities of long-term debt
113

 
67

Accounts payable and accrued liabilities
1,979

 
2,090

Total current liabilities
2,277

 
2,285

 
 
 
 
Long-term debt, excluding current maturities
3,493

 
3,337

Postretirement and pension liabilities
946

 
996

Other non-current liabilities
497

 
489

Commitments and contingent liabilities (Note J)

 

Noncontrolling interests
238

 
234

Crown Holdings shareholders’ deficit
(227
)
 
(473
)
Total equity/(deficit)
11

 
(239
)
Total
$
7,224

 
$
6,868


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


6

Crown Holdings, Inc.


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

Six Months Ended June 30
2012
 
2011
Cash flows from operating activities
 
 
 
Net income
$
247

 
$
198

Adjustments to reconcile net income to net cash used for operating activities:
 
 
 
Depreciation and amortization
87

 
85

Provision for restructuring
3

 
25

Asset impairments and sales
(10
)
 

Pension expense
49

 
49

Pension contributions
(51
)
 
(37
)
Stock-based compensation
12

 
12

Changes in assets and liabilities:
 
 
 
Receivables
(296
)
 
(347
)
Inventories
(135
)
 
(431
)
Accounts payable and accrued liabilities
(121
)
 
172

Other, net
(1
)
 
27

Net cash used for operating activities
(216
)
 
(247
)
Cash flows from investing activities
 
 
 
Capital expenditures
(139
)
 
(184
)
Insurance proceeds
23

 

Change in restricted cash

 
(125
)
Proceeds from sale of property, plant and equipment
2

 
2

Other
(14
)
 

Net cash used for investing activities
(128
)
 
(307
)
Cash flows from financing activities
 
 
 
Proceeds from long-term debt
42

 
1,416

Payments of long-term debt
(32
)
 
(922
)
Net change in revolving credit facility and short-term debt
274

 
248

Debt issue costs

 
(16
)
Common stock issued
4

 
9

Common stock repurchased
(7
)
 
(212
)
Purchase of noncontrolling interests

 
(9
)
Dividends paid to noncontrolling interests
(38
)
 
(38
)
Other
(5
)
 
18

Net cash provided by financing activities
238

 
494

Effect of exchange rate changes on cash and cash equivalents
(6
)
 
18

Net change in cash and cash equivalents
(112
)
 
(42
)
Cash and cash equivalents at January 1
342

 
463

Cash and cash equivalents at June 30
$
230

 
$
421


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


7

Crown Holdings, Inc.


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

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

 
$
1,231

 
$
230

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

 
$
229

Net income
 
 
 
 
145

 
 
 
 
 
145

 
53

 
198

Other comprehensive income
 
 
 
 
 
 
75

 
 
 
75

 
5

 
80

Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(38
)
 
(38
)
Contribution from noncontrolling interests
 
 
 
 
 
 
 
 
 
 

 
2

 
2

Restricted stock awarded
 
 
(2
)
 
 
 
 
 
2

 
 
 
 
 
 
Stock-based compensation
 
 
12

 
 
 
 
 
 
 
12

 
 
 
12

Common stock issued
 
 
6

 
 
 
 
 
3

 
9

 
 
 
9

Common stock repurchased
 
 
(186
)
 
 
 
 
 
(26
)
 
(212
)
 
 
 
(212
)
Purchase of noncontrolling interests
 
 
(3
)
 
 
 


 
 
 
(3
)
 
(6
)
 
(9
)
Balance at June 30, 2011
$
929

 
$
1,058

 
$
375

 
$
(2,258
)
 
$
(174
)
 
$
(70
)
 
$
341

 
$
271

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2012
$
929

 
$
863

 
$
512

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

 
$
(239
)
Net income
 
 
 
 
203

 
 
 
 
 
203

 
44

 
247

Other comprehensive income
 
 
 
 
 
 
34

 
 
 
34

 
(2
)
 
32

Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(38
)
 
(38
)
Restricted stock awarded
 
 
(2
)
 
 
 
 
 
2

 
 
 
 
 
 
Stock-based compensation
 
 
12

 
 
 
 
 
 
 
12

 
 
 
12

Common stock issued
 
 
3

 
 
 
 
 
1

 
4

 
 
 
4

Common stock repurchased
 
 
(6
)
 
 
 
 
 
(1
)
 
(7
)
 
 
 
(7
)
Balance at June 30, 2012
$
929

 
$
870

 
$
715

 
$
(2,556
)
 
$
(185
)
 
$
(227
)
 
$
238

 
$
11


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

8

Crown Holdings, Inc.


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

A.
Statement of Information Furnished

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

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

B.
Recent Accounting and Reporting Pronouncements

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

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

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

Awarded:

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

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

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

Released:

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


9

Crown Holdings, Inc.


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

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

At June 30, 2012, unrecognized compensation cost related to outstanding restricted stock was $9. The weighted average period over which the expense is expected to be recognized is 1.7 years. The aggregate market value of the shares released and issued on the vesting dates was $19.

D.
Receivables
 
June 30, 2012
 
December 31, 2011
Accounts and notes receivable
$
1,064

 
$
834

Less: allowance for doubtful accounts
(37
)
 
(37
)
Net trade receivables
1,027

 
797

Miscellaneous receivables
167

 
151

Receivables, net
$
1,194

 
$
948


E.
Inventories
Inventories are stated at the lower of cost or market, with cost for U.S. inventories principally determined under the first-in, first-out (“FIFO”) method. Non-U.S. inventories are principally determined under the average cost method.
 
June 30, 2012
 
December 31, 2011
Raw materials and supplies
$
582

 
$
602

Work in process
158

 
136

Finished goods
532

 
410

 
$
1,272

 
$
1,148


F.
Derivative and Other Financial Instruments

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

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

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

10

Crown Holdings, Inc.


as of the reporting date, such as foreign exchange spot and forward rates, and are reported under Level 2 of the fair value hierarchy.

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

Derivative Financial Instruments

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

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

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

Cash Flow Hedges

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

When the Company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally specified period, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings.
The Company uses commodity forwards to hedge anticipated purchases of various commodities, including aluminum, fuel oil and natural gas and these exposures are hedged by a central treasury unit.
The Company also designates certain foreign exchange contracts as cash flow hedges of anticipated foreign currency denominated sales or purchases. The Company manages these risks at the operating unit level. Often the hedging of foreign currency risk is performed in concert with related commodity price hedges.
The following table sets forth financial information about the impact on Accumulated Other Comprehensive Income (“AOCI”) and earnings from changes in fair value related to derivative instruments.
 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
 
(effective portion)
 
into earnings
 
 
 
Quarter
 
Six months
 
Quarter
 
Six months
 
 
 
ended
 
ended
 
ended
 
ended
 
Derivatives in cash flow hedges
 
June 30, 2012
 
June 30, 2012
 
June 30, 2012
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$

 
$
2

 
$

 
$
(1
)
(1) 
Commodities
 
(31
)
 
(21
)
 
(11
)
 
(18
)
(2) 
Total
 
$
(31
)
 
$
(19
)
 
$
(11
)
 
$
(19
)
 

11

Crown Holdings, Inc.



 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
 
(effective portion)
 
into earnings
 
 
 
Quarter
 
Six months
 
Quarter
 
Six months
 
 
 
ended
 
ended
 
ended
 
ended
 
Derivatives in cash flow hedges
 
June 30, 2011
 
June 30, 2011
 
June 30, 2011
 
June 30, 2011
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$
(1
)
 
$
(4
)
 
$
(1
)
 
$
(2
)
(3) 
Commodities
 
(13
)
 

 
10

 
16

(4) 
Total
 
$
(14
)
 
$
(4
)
 
$
9

 
$
14

 

(1) Within the Statement of Operations for the three months ended June, 30, 2012, a gain of $3 was recognized in cost of products sold and a loss of $3 was recognized in net sales. During the six months ended June 30, 2012, a gain of $6 was recognized in cost of products sold and a loss of $7 recognized in net sales.

(2) Within the Statement of Operations for the three months ended June, 30, 2012, a loss of $14 was recognized in cost of products sold and a tax benefit of $3 was recognized in income tax expense. During the six months ended June 30, 2012, a loss of $23 was recognized in cost of products sold and a tax benefit of $5 was recognized in income tax expense.

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

(4) Within the Statement of Operations for the three months ended June 30, 2011, a gain of $14 was recognized in cost of products sold and $4 was recognized as additional income tax expense. During the six months ended June 30, 2011, a gain of $22 was recognized in cost of products sold and $6 was recognized as additional income tax expense.

For the twelve month period ending June 30, 2013, a net loss of $56 ($43, net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the six months ended June 30, 2012 and 2011 in connection with anticipated transactions that were no longer considered probable and the ineffective portion recorded in earnings was less than $1.

Fair Value Hedges and Contracts Not Designated as Hedges

The Company designates certain derivative financial instruments as fair value hedges of recognized foreign-denominated assets and liabilities, generally trade accounts receivable and payable and unrecognized firm commitments. The notional values and maturity dates of the derivative instruments coincide with those of the hedged items. Changes in fair value of the derivative financial instruments, excluding time value, are offset by changes in fair value of the related hedged items. Other than for firm commitments, amounts related to time value are excluded from the assessment and measurement of hedge effectiveness and are reported in earnings. Less than $1 was reported in earnings for the six months ended June 30, 2012.

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

The impact on earnings from foreign exchange contracts designated as fair value hedges was a loss of less than $1 and a gain of $1 for the three and six months ended June 30, 2012 and gains of $3 and $4 for the three and six months ended June 30, 2011. The impact on earnings from foreign exchange contracts not designated as hedges were losses of $4 and $3 for the three and six months ended June 30, 2012 and gains of $7 and $19 for the same periods in 2011. These adjustments were reported within translation and foreign exchange in the Consolidated Statements of Operations and were offset by changes in the fair values of the related hedged item.

12

Crown Holdings, Inc.


Net Investment Hedges

During the first half of 2012, the Company designated certain derivative and non-derivative financial instruments (debt) as hedges of its net investment in a euro-based subsidiary to offset €277 ($350 as of June 30, 2012) of foreign currency exposure related to the investment. The change in value of the hedging instruments is reported in accumulated other comprehensive income within shareholders' equity. The net assets of the Company's euro-based subsidiary are re-measured using the foreign currency exchange rate in effect at the balance sheet date with any adjustment reported in cumulative translation adjustments within accumulated other comprehensive income. As of June 30, 2012, the unrealized foreign currency transaction gain from the re-measurement of the non-derivative financial instruments was a gain of $14 ($9, net of tax) and the aggregate fair value of the derivative financial instruments was a loss of $1 with both amounts reported in accumulated other comprehensive income.

The following table sets forth the fair value hierarchy for the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2012 and December 31, 2011, respectively.
Derivative Assets
Balance Sheet Classification
Fair Value Hierarchy
June 30, 2012
 
December 31, 2011
Derivatives designated as hedges:
 
 
 
 
 
Foreign exchange
Other current assets
2
$
19

 
$9
Commodities
Other current assets
1
6

 
4

Commodities
Other non-current assets
1

 

Derivatives not designated as hedges:
 
 
 
 

Foreign exchange
Other current assets
2
2

 
6

 
Total
 
$
27

 
$
19

 
 
 
 
 
 
Derivative Liabilities
Balance Sheet Classification
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
Foreign exchange
Accounts payable and accrued liabilities
2
$
18

 
$10
Commodities
Accounts payable and accrued liabilities
1
57

 
56

Commodities
Other non-current liabilities
1
12

 
6

Derivatives not designated as hedges:
 
 
 
 

Foreign exchange
Accounts payable and accrued liabilities
2
1

 
10

 
Total
 
$
88

 
$82

The aggregate U.S. dollar-equivalent notional values of outstanding derivative instruments in the Consolidated Balance Sheets at June 30, 2012 and December 31, 2011 were:
 
June 30, 2012
 
December 31, 2011
Derivatives in cash flow hedges:
 
 
 
Foreign exchange
$
650

 
$
480

Commodities
528

 
528

Derivatives in fair value hedges:

 

Foreign exchange
117

 
123

Derivatives in net investment hedges:
 
 
 
Foreign exchange
38

 
 
Derivatives not designated as hedges:

 

Foreign exchange
371

 
965



13

Crown Holdings, Inc.


G.
Restructuring

The Company recorded restructuring charges as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2012
 
2011
 
2012
 
2011
European Division Headquarters
$

 
$

 
$

 
$
19

North America Food
1

 

 
1

 
2

European Food
1

 

 
1

 

Other European operations
1

 

 
1

 
4

 
3

 

 
3

 
25


Restructuring charges by type are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2012
 
2011
 
2012
 
2011
Termination benefits
$
1

 
$

 
$
1

 
$
4

Other exit costs
2

 

 
2

 
21

 
$
3

 
$

 
$
3

 
$
25


European Division Headquarters

As of June 30, 2012, the Company incurred costs of $34 which are expected to be the total costs related to the relocation of its European Division headquarters and management to Switzerland in order to benefit from a more centralized management location.

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

 
$
19

 
$
19

Foreign currency translation

 
(1
)
 
(1
)
Balance at June 30, 2012
$

 
$
18

 
$
18


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

North America Food

As of June 30, 2012, the Company incurred total costs of $56 related to the closure of certain Canadian plants as part of restructuring actions to reduce costs through consolidation of certain U.S. and Canadian operations. These actions are expected to be completed in 2012.

The following table summarizes the restructuring accrual balances and utilization by cost type for these actions:
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2012
$
2

 
$

 
$
2

Provisions

 
1

 
1

Payments
(1
)
 
(1
)
 
(2
)
Balance at June 30, 2012
$
1

 
$

 
$
1





14

Crown Holdings, Inc.


European Food

In the fourth quarter of 2011, the Company reviewed its existing supply and demand profile and long-term plans in Europe.  The Company identified additional restructuring actions to improve profitability, including in its European Food business, by consolidating operations through reducing capacity and headcount.  In December 2011, the Company approved these actions and recorded a charge of $9. The action is expected to reduce headcount by approximately 121. The Company expects to incur future additional charges of $2 related to the action which it expects to complete in 2012 at an estimated aggregate cost of $11. The table below summarizes the restructuring accrual balances and utilization by cost type for this action.
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2012
$
10

 
$

 
$
10

Provisions

 
1

 
1

Payments
(4
)
 
(1
)
 
(5
)
Balance at June 30, 2012
$
6

 
$

 
$
6


Other European operations

In the first quarter of 2011, the Company recorded a charge of $4 to reduce headcount in its European Specialty Packaging segment.  In the fourth quarter of 2011, the Company reviewed its existing supply and demand profile and long-term plans in Europe.  The Company identified additional restructuring actions to improve profitability, primarily in its European Aerosols and Specialty Packaging businesses, by consolidating operations through reducing capacity and headcount.  In December 2011, the Company approved these actions and recorded an additional charge of $41.  These actions are expected to reduce headcount by approximately 360 and to eliminate approximately 14% of the businesses' capacity. The Company currently expects to incur future additional charges of $8 related to the actions and to complete the actions in 2013 at an estimated aggregate cost of $53.

The table below summarizes the restructuring accrual balances and utilization by cost type for this action.
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2012
$
46

 
$

 
$
46

Provision
1

 

 
1

Payments
(5
)
 

 
(5
)
Foreign currency translation
(1
)
 

 
(1
)
Balance at June 30, 2012
$
41

 
$

 
$
41


15

Crown Holdings, Inc.


H.
Debt
The Company’s outstanding debt at June 30, 2012 and December 31, 2011 was as follows.
 
June 30,
2012
 
December 31,
2011
Short-term debt
$
185

 
$
128

Long-term debt

 

Senior secured borrowings:

 

Revolving credit facilities
$
335

 
$
119

Term loan facilities

 

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

 
550

Euro (€274 at June 30, 2012) at EURIBOR plus 1.75% due 2016
347

 
355

Senior notes and debentures:

 

U.S. dollar 7.625% due 2017
400

 
400

Euro (€500 at June 30, 2012) 7.125% due 2018
633

 
647

U.S. dollar 6.25% due 2021
700

 
700

U.S. dollar 7.375% due 2026
350

 
350

U.S. dollar 7.50% due 2096
64

 
64

Other indebtedness in various currencies
237

 
230

Unamortized discounts
(10
)
 
(11
)
Total long-term debt
3,606

 
3,404

Less: current maturities
(113
)
 
(67
)
Total long-term debt, less current maturities
$
3,493

 
$
3,337


The estimated fair value of the Company’s long-term borrowings, using a market approach incorporating level 2 inputs such as quoted market prices for the same or similar issues, was $3,969 at June 30, 2012.

I.
Asbestos-Related Liabilities

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

16

Crown Holdings, Inc.



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

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

During the six months ended June 30, 2012, the Company paid $10 to settle outstanding claims and had claims activity as follows:
Beginning claims
50,000

New claims
1,500

Settlements or dismissals
(1,000
)
Ending claims
50,500


As of December 31, the Company’s outstanding claims by year of exposure and state filed were:
 
2011
 
2010
Claimants alleging first exposure after 1964
15,000

 
15,000

Claimants alleging first exposure before or during 1964 filed in:

 

Texas
12,000

 
12,000

Pennsylvania
2,000

 
2,000

Other states that have enacted asbestos legislation
6,000

 
6,000

Other states
15,000

 
15,000

Total claims outstanding
50,000

 
50,000


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

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

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

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

17

Crown Holdings, Inc.



As of December 31, the percentage of outstanding claims related to claimants alleging serious diseases (primarily
mesothelioma and other malignancies) were as follows:
 
2011
 
2010
 
2009
Total claims
18
%
 
18
%
 
16
%
Pre-1964 claims in states without asbestos legislation
33
%
 
31
%
 
29
%

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

As of June 30, 2012, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $239, including $186 for unasserted claims. The Company’s accrual includes estimated probable costs for claims through the year 2021. The Company’s accrual excludes potential costs for claims beyond 2021 because the Company believes that the key assumptions underlying its accrual are subject to greater uncertainty as the projection period lengthens.

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

J.
Commitments and Contingent Liabilities

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

The Company has also recorded aggregate accruals of $8 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.

The Company's Italian subsidiaries have received and expect to receive additional assessments for value added taxes and related income taxes from the Italian tax authorities resulting from certain third party suppliers' failures to remit required value added tax payments due by those suppliers under Italian law with respect to purchases for resale to the Company. The assessments cover tax periods 2004, 2005 and 2006 and additional assessments are expected to cover periods 2007 through 2009. The expected total assessments resulting from these third party suppliers failing to remit the tax payments are approximately €40 ($51 at June 30, 2012) plus any applicable interest and penalties which the Company estimates may be up to approximately €55 ($70 at June 30, 2012) . In early 2012, the Company received one favorable ruling and two unfavorable rulings from lower level Italian courts related to these assessments. The Company expects these rulings

18

Crown Holdings, Inc.


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

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

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

At June 30, 2012, the Company was party to certain indemnification agreements covering environmental remediation, lease payments and other potential costs associated with properties sold or businesses divested. For agreements with defined liability limits the maximum potential amount of future liability was $11. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated. At June 30, 2012, the Company also had guarantees of $29 related to the residual values of leased assets.

K.
Earnings Per Share

The following table summarizes the computations of basic and diluted earnings per share attributable to Crown Holdings for the periods ended June 30, 2012 and 2011, respectively:
 
Three Months Ended
 
Six Months Ended
 
  June 30
 
  June 30
 
2012
 
2011
 
2012
 
2011
Net income attributable to Crown Holdings
$
134

 
$
129

 
$
203

 
$
145

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
148.0

 
152.3

 
147.9

 
153.5

Add: dilutive stock options and restricted stock
2.5

 
3.2

 
2.4

 
3.1

Diluted
150.5

 
155.5

 
150.3

 
156.6

Basic earnings per share
$
0.91

 
$
0.85

 
$
1.37

 
$
0.94

Diluted earnings per share
$
0.89

 
$
0.83

 
$
1.35

 
$
0.93


For the three months ended June 30, 2012 and 2011, 0.1 million  and 0.0 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive. For the six months ended June 30, 2012 and 2011, 0.2 million and 0.0 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would have been anti-dilutive.


L.
Pension and Other Postretirement Benefits

The components of net periodic pension and other postretirement benefits costs for the three and six months ended June 30 were as follows:

19

Crown Holdings, Inc.


 
Three Months Ended
 
Six Months Ended
 
  June 30
 
  June 30
Pension Benefits – U.S. Plans
2012
 
2011
 
2012
 
2011
Service cost
$
3

 
$
3

 
$
6

 
$
6

Interest cost
17

 
18

 
34

 
36

Expected return on plan assets
(23
)
 
(20
)
 
(46
)
 
(40
)
Recognized prior service cost

 

 

 
1

Recognized net loss
14

 
13

 
28

 
24

Net periodic cost
$
11

 
$
14

 
$
22

 
$
27

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

 
$
6

 
$
14

 
$
12

Interest cost
38

 
40

 
76

 
79

Expected return on plan assets
(46
)
 
(49
)
 
(92
)
 
(97
)
Recognized prior service cost
1

 

 
1

 
1

Recognized net loss
14

 
14

 
28

 
27

Net periodic cost
$
14

 
$
11

 
$
27

 
$
22


 
Three Months Ended
 
Six Months Ended
 
  June 30
 
  June 30
Other Postretirement Benefits
2012
 
2011
 
2012
 
2011
Service cost
$
1

 
$
3

 
$
2

 
$
5

Interest cost
4

 
5

 
8

 
11

Recognized prior service credit
(11
)
 
(9
)
 
(22
)
 
(17
)
Recognized net loss
4

 
4

 
8

 
7

Net periodic cost
$
(2
)
 
$
3

 
$
(4
)
 
$
6



M.
Accelerated Share Repurchase

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



20

Crown Holdings, Inc.


N.
Income Taxes

The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to pre-tax income as a result of the following items: 
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2012
 
2011
 
2012
 
2011
U.S. statutory rate at 35%
$
73

 
$
74

 
$
116

 
$
103

Tax on foreign income
(22
)
 
(23
)
 
(33
)
 
(36
)
Valuation allowance
1

 
2

 
3

 
12

Tax law changes

 

 

 
(3
)
Other items, net
(1
)
 
1

 
(3
)
 
19

Income tax provision
$
51

 
$
54

 
$
83

 
$
95


The other items caption for the six months ended June 30, 2011 includes $20 of increase due to tax charges in connection with the relocation of the Company’s European headquarters and management to Switzerland.

O.
Asset Impairments and Sales

For the three and six months ended June 30, 2012, the Company recognized a gain of $10 related to insurance proceeds received for property damage incurred in the 2011 flooding of the Company's beverage can plant in Thailand.

P.
Segment Information

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

The tables below present information about operating segments for the three and six months ended June 30, 2012 and 2011:
 
External Sales
 
External Sales
 
Three Months Ended
 
    Six Months Ended
 
  June 30
 
  June 30
 
2012
 
2011
 
2012
 
2011
Americas Beverage
$
593

 
$
591

 
$
1,127

 
$
1,103

North America Food
213

 
217

 
413

 
405

European Beverage
472

 
500

 
834

 
840

European Food
434

 
509

 
836

 
931

European Specialty Packaging
97

 
119

 
187

 
219

Total reportable segments
1,809

 
1,936

 
3,397

 
3,498

Non-reportable segments
375

 
345

 
734

 
665

Total
$
2,184

 
$
2,281

 
$
4,131

 
$
4,163


The primary sources of revenue included in non-reportable segments are the Company's aerosol can businesses in North America, Europe and Thailand, the Company's beverage can businesses in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam, the Company's food can and closures business in Thailand and the Company's tooling and equipment operations in the U.S. and United Kingdom.

21

Crown Holdings, Inc.


 
Intersegment Sales
 
Intersegment Sales
 
Three Months Ended
 
    Six Months Ended
 
  June 30
 
  June 30
 
2012
 
2011
 
2012
 
2011
Americas Beverage
$
25

 
$
26

 
$
47

 
$
43

North America Food
2

 
3

 
5

 
6

European Beverage
6

 

 
12

 

European Food
29

 
34

 
55

 
62

European Specialty Packaging
11

 
19

 
22

 
37

Total reportable segments
73

 
82

 
141

 
148

Non-reportable segments
12

 
17

 
27

 
38

Total
$
85

 
$
99

 
$
168

 
$
186


Intersegment sales primarily include sales of ends and components used to manufacture cans, such as printed and coated
metal, as well as parts and equipment used in the manufacturing process.
 
Segment Income
 
Segment Income
 
Three Months Ended
 
    Six Months Ended
 
  June 30
 
  June 30
 
2012
 
2011
 
2012
 
2011
Americas Beverage
$
78

 
$
77

 
$
147

 
$
140

North America Food
41

 
38

 
73

 
66

European Beverage
64

 
70

 
106

 
115

European Food
47

 
63

 
87

 
115

European Specialty Packaging
10

 
12

 
11

 
19

Total reportable segments
$
240

 
$
260

 
$
424

 
$
455


A reconciliation of segment income of reportable segments to income before income taxes and equity earnings for the three and six months ended June 30, 2012 and 2011 follows:
 
Segment Income
 
Segment Income
 
Three Months Ended
 
    Six Months Ended
 
  June 30
 
  June 30
 
2012

2011
 
2012

2011
Segment income of reportable segments
$
240

 
$
260

 
$
424

 
$
455

Segment income of non-reportable segments
54

 
55

 
107

 
112

Corporate and unallocated items
(44
)
 
(44
)
 
(100
)
 
(106
)
Provision for restructuring
(3
)
 

 
(3
)
 
(25
)
Asset impairments and sales
10

 

 
10

 

Loss from early extinguishments of debt

 
(2
)
 

 
(32
)
Interest expense
(55
)
 
(60
)
 
(113
)
 
(116
)
Interest income
1

 
2

 
3

 
6

Translation and foreign exchange
5

 
(1
)
 
2

 
(1
)
Income before income taxes and equity earnings
$
208


$
210

 
$
330

 
$
293


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

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

22

Crown Holdings, Inc.




Q.
Condensed Combining Financial Information
Crown European Holdings SA (Issuer), a wholly owned subsidiary of the Company, has €500 ($633 at June 30, 2012) principal amount of 7.125% senior notes due 2018 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and certain subsidiaries. The guarantors are wholly owned by the Company and the guarantees are made on a joint and several basis. The guarantor column includes financial information for all subsidiaries in the United States (except for an insurance subsidiary and a receivable securitization subsidiary), substantially all subsidiaries in Belgium, Canada, France, Germany, Mexico, Switzerland and the United Kingdom, and a subsidiary in the Netherlands. The following condensed combining financial statements:
statements of comprehensive income for the three and six months ended June 30, 2012 and 2011,
balance sheets as of June 30, 2012 and December 31, 2011, and
statements of cash flows for the six months ended June 30, 2012 and 2011
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.
During the second quarter of 2012, the Company revised its presentation of the condensed combining balance sheet at December 31, 2011 to reclassify a consolidation entry to net certain value added tax receivables and payables from non-guarantor subsidiaries to guarantor subsidiaries. The impact was a $226 decrease to both receivables and accounts payable and accrued liabilities of guarantor subsidiaries with a corresponding increase to non-guarantor subsidiaries. The Company deemed the revision to be immaterial for the previously issued financial statements and therefore, revised the condensed combining balance sheet included in this filing.







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

23

Crown Holdings, Inc.


 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
1,188

 
$
996

 

 
$
2,184

Cost of products sold, excluding depreciation and amortization

 

 
972

 
827

 

 
1,799

Depreciation and amortization

 

 
20

 
25

 

 
45

Gross profit
 
 
 
 
196

 
144

 
 
 
340

Selling and administrative expense

 
$
(1
)
 
67

 
24

 

 
90

Provision for restructuring

 

 
2

 
1

 

 
3

Asset impairments and sales

 

 
(1
)
 
(9
)
 

 
(10
)
Net interest expense

 
13

 
32

 
9

 

 
54

Technology royalty

 

 
(12
)
 
12

 

 

Translation and foreign exchange

 

 
(2
)
 
(3
)
 

 
(5
)
Income/(loss) before income taxes
 
 
(12
)
 
110

 
110

 
 
 
208

Provision for income taxes

 

 
36

 
15

 

 
51

Equity earnings in affiliates
$
134

 
65

 
60

 

 
$
(259
)
 

Net income
134

 
53

 
134

 
95

 
(259
)
 
157

Net income attributable to noncontrolling interests

 

 

 
(23
)
 

 
(23
)
Net income attributable to Crown Holdings
$
134

 
$
53

 
$
134

 
$
72

 
$
(259
)
 
$
134

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
93

 
$
6

 
$
93

 
$
16

 
$
(97
)
 
$
111

Comprehensive income attributable to noncontrolling interests


 


 


 
(18
)
 


 
(18
)
Comprehensive income attributable to Crown Holdings
$
93

 
$
6

 
$
93

 
$
(2
)
 
$
(97
)
 
$
93



24

Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended